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THE BATTLE OVER SHORT TERM LIMITED DURATION HEALTH INSURANCE PRODUCTS NEWS FROM THE FRONT

Over the last few years, the fortunes of the Short Term Limited Duration health insurance product (“STLD”) have reversed themselves repeatedly.  STLDs, which are not Affordable Care Act qualified health insurance policies, traditionally provided short term health insurance coverage to individuals to bridge them between coverages under other, usually employer-purchased, health plans.  While STLDs are a form of major medical insurance policy, insurers may choose not to sell them to individuals with pre-existing medical conditions, and even when they are sold, they often have some significant coverage limitations, including restrictions on the types of services covered and dollar maximums for payouts under the coverages that are provided.  Not surprisingly, these payment and eligibility limits also allow premiums for STLDs to cost much less than the premiums for many major medical insurance policies.

Sales of STLDs – which are not limited to the federal enrollment periods under the Affordable Care Act -- have recently increased dramatically as a result of new policies implemented by the Trump administration.  Their sales have also been aided by the fact that a number of states have embraced STLDs as a means of addressing the volatile post-ACA health insurance market.  Relatively high commissions on the sales of STLDs are a further key driver for sales.[1]  However, STLDs are not universally loved:  A number of states have mounted a series of attacks against the sale of STLDs within their borders.  This article gives a brief background on the recent events surrounding STLDs, and then focuses on the activities of states that are attempting to limit or eliminate sales of STLDs.

STLDs are not new – they have been around for many years.  Typically sold directly to individuals or through associations, these products lost ground under President’s Obama’s Health Care Reform legislation because they failed to meet the requirements for a qualifying individual health insurance policy, and therefore did not protect policyholders from the tax penalty imposed for failure to meet the individual mandate.  Because they fell outside the definition of a qualifying health insurance policy, however, STLDs were also generally exempt from the federal market requirements for individual health insurance.  This is not to say that STLDs were not entirely ignored by the federal government:  In June 2016, the federal government limited the term of STLDs to not more than 3 months after the original effective date of \ the STLD (taking into account any extensions that might be elected by the policyholder).  29 CFR 2590.701-2 (text effective until Oct. 2, 2018)

Then, following a 2017 Executive Order from President Trump[2], the federal government propounded new rules on STLDs that were effective late last year.  These rules were intended to “amend the definition of short-term, limited-duration insurance for purposes of its exclusion from the definition of individual health insurance coverage.” 83 FR 38212.  As explained in the amended rule, “This action is being taken to lengthen the maximum duration of short-term, limited-duration insurance, which will provide more affordable consumer choices for health coverage.”  Id.  Among other things, the new rules lengthened the permitted term of a STLD to a maximum coverage period of less than 12 months after the original effective date of the contract (taking into account any extensions that might be elected by the policyholder) and has a duration of no longer than 36 months in total. 29 CFR 2590.701-2 (text effective after Oct. 2, 2018).

While the federal rules made it easier to sell STLDs, state laws still applied further parameters to sales of the product.  Following the Trump administration’s changes in the federal regulation of STLDs, many states were not slow to impose their own individual state restrictions on STLDs.  California, Massachusetts, New York and New Jersey took action to ban or eliminate the sale of STLDs in their state.[3]  Other states restricted the length of the permitted term of the product to something less than permitted under federal law.  These states include Arizona, Colorado, Connecticut, Delaware, District of Columbia, Illinois, Indiana, Louisiana, Maryland, Michigan, Minnesota, Nevada, New Hampshire, North Dakota, Oklahoma, Oregon, South Dakota, Vermont and Virginia.  A few other states allowed existing legislative limits on plan terms and renewals to stand or restricted the ability to renew federally compliant plans (Idaho, Kansas, Missouri, Maine, Ohio, South Carolina, Utah and Wisconsin).  On the other end of the spectrum, some states saw the loosening of the federal requirements as a helpful opportunity to advance consumers’ ability to purchase STLDs, and sales of federally compliant STLDs in these states are continuing.  For those states where sales of STLDs are continuing, states may also require disclosures regarding the scope of coverage in addition to and in more detail than the federally-required disclosures on the policy form.

As noted above, the preponderance of states has resisted or at least imposed some governors over the sale of STLDs within their jurisdiction.  However, states’ efforts to discourage the sale probably will not stop with just this legislation and rule making.  As mentioned above, many STLD products are usually sold through associations, and are sometimes known as association health plans.  An association can purchase a STLD in a state where STLDs are permitted, and there are reports that the associations then solicit new members in other states, including states whose laws may restrict STLDs.[4]  We expect that states may either legislate against these sales and/or state Departments of insurance may challenge the sales as violations of other laws that require the filing of products and their rates issued in their state. 

However, because rule making and legislative efforts take time, many state Departments of Insurance are moving in the interim to educate consumers in their state about the differences between ACA compliant products and STLDs.  The Georgetown University Health Policy Institute’s Center for Health Insurance Reforms conducted a study of Department of Insurance websites to see what information was available for consumers regarding short-term plans, and reported the following on a December 17, 2018 blog:

We found that at least 17 state insurance departments had published press releases, consumer alerts, and other consumer-facing resources to inform consumers about short-term plans since the final rule went into effect. Almost all states that issued information about short-term plans cautioned consumers that short-term plans were allowed to exclude coverage of pre-existing conditions, and that they generally cover less than ACA-compliant plans. Further, over half of the consumer alerts we read noted that short-term plans are meant to fill a temporary gap in coverage. Many also indicated that short-term plans do not have to comply with the ACA.[5]

Finally, states also have the ability to investigate, examine and monitor insurance brokers and insurers who are selling STLDs to be certain that the scope of coverage and other information is accurately represented.  And because every state has adopted some version of the unfair trade practices, states may even prosecute insurance brokers and insurers selling STLDs on grounds of misrepresentation if they believe that the marketing, sales and disclosure have been misleading.  Specifically, the regulators can charge these entities with misrepresenting the STLDs as being comparable to ACA –compliant health plans. 

The examples above – restrictions on sale or just restrictions on the product duration, required written disclosures, consumer education and strict enforcement of the state’s unfair trade practices are not the only means at the state’s disposal to regulate sales, although they are perhaps the most obvious and are already in use in a number of states.  If the market continues to grow, and if regulators see an upswing in complaints about these products, the industry should expect to see regulators step up their efforts at regulation with all the tools at their disposal.

*Elizabeth Tosaris is based in Locke Lord LLP’s San Francisco office and has practiced in insurance law for nearly thirty years.

 

[1] Commissions on STLDs often pay 20% or more.  Health News, NPR, Julie Appleby “Short-Term Health Plans Boost Profits For Brokers and Insurers” December 21, 2018.

[2] Executive Order 13813, Issued October 12, 2017

[3] Because the federal government has given states primary authority over the regulation of insurance, further restrictions on sales of a product allowed under federal law is a permissible exercise of state authority.

[4] Commonwealth Fund, “Short Term Health Plans Sold Through Out-of-State Associations Threaten Consumer Protections” by Emily Curran, Dania Palanker and Sabrina Corlette.  January 31, 2019.

[5] http://chirblog.org/state-insurance-department-consumer-alerts-short-term-plans-come-short/

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