The Biden administration has rolled back regulations that allow Americans to stay on short-term health insurance plans for up to three years while still satisfying the Affordable Care Act’s individual mandate.
The new rules will limit these controversial plans to no more than four months and they require more disclosure on behalf of the insurers and agents that sell these plans to help consumers understand what they are buying.
These plans are not full-fledged health plans; they offer limited scope of coverage that caps insurance for many services, and they are not subject to ACA consumer protection rules that bar discrimination and guarantee coverage regardless of pre-existing conditions.
The ACA originally limited short-term plans to just three months to fill temporary gaps in coverage when someone is transitioning from one source of coverage to another. The Trump administration enacted new regulations that allowed people to stay on a plan for 12 months, with the option to renew for three years.
These plans have gotten a lot of bad press citing horror stories of people finding out their policies were virtually useless, leaving one man more than $43,000 in debt after his plan wouldn’t pay for his treatment after it deemed his cancer a pre-existing condition.
Critics say the plans are deceptively marketed and consumers are duped into buying health insurance that has stripped-down coverage. Proponents say that these plans serve a valuable purpose in helping people transition from one type of coverage to another.
Many people who have purchased these plans thought they were receiving comprehensive coverage but were surprised later when the insurance wouldn’t cover certain procedures or capped coverage.
Some common features of short-term plans are:
- They often use health histories to determine who can get coverage.
- They often exclude key service categories from covered benefits, such as maternity.
- They can decline coverage due to pre-existing conditions.
- They may limit or cap coverage both on a per-service or daily rate basis or in the aggregate (like capping total payments during the year at $100,000).
- They are not required to cover the 10 essential health benefits that the ACA requires compliant plans to cover at no cost to the enrollee.
What the final rule does
The new regulations only apply to new plans that are launched on or after June 17, the day the final rule takes effect.
New plans that claim to be “short-term” health insurance will be limited to just three months, with renewal for a maximum of four months total, if extended.
Also, the final rule restricts how these plans may be marketed and requires new levels of disclosure. Plans will now be required to provide consumers with a clear disclaimer that explains the limits of what services they cover and how much they cover.
It should be noted that the new rule does not affect fixed indemnity plans like critical illness, which pays a lump sum if someone is diagnosed with a covered illness. Other plans pay a pre-determined amount on a per-period or per-incident basis, regardless of the total charges incurred.
Plans might pay $200 upon hospital admission, for example, or $100 per day while a person is hospitalized to help with out-of-pocket costs.