Last Updated 2/1/2023
Issue: Short-term, limited-duration insurance (STLDI) is a type of health insurance that provides coverage to policyholders for a period of as little as a month to as long as three years. The plans offer limited coverage and benefits. Short-term plans may offer coverage for some of the same types of health care services as traditional comprehensive health insurance, but they have very different plan designs and are not regulated with the same consumer protections as comprehensive health coverage.
Federal regulations adopted in 2018 extended the permissible length of coverage for short-term plans and gave consumers the option of renewing plans. Due to the federal rule and the repeal of the individual mandate penalty of the Affordable Care Act (ACA), some states have acted to limit the sale of short-term plans. Many state insurance regulators are exploring how short-term plans may affect premiums and enrollment in other types of health coverage.
Background: Prior to the Affordable Care Act of 2010, short-term insurance plans were often marketed as a solution for consumers experiencing a gap in coverage. Federal regulations (81 FR 75316) issued in October 2016 limited STLD policy durations to three-month terms without renewal. This limitation was imposed due to concerns that STLD policies were being used as a replacement for traditional health coverage.
In October 2018, revised federal regulations (83 FR 38212) changed the definition of STLDI to exclude it from the definition of individual health insurance coverage and lengthened the permissible maximum duration of these plans from three months to 364 days with an option to renew for a total coverage period of up to three years. This change gave insurers the ability to sell short-term plans as full-year substitute coverage for traditional health insurance. Taking effect in January 2019, the Tax Cuts and Jobs Act eliminated the individual mandate penalty, a requirement under the ACA that most individuals have minimum essential coverage (MEC) or pay a penalty. This increased the likelihood that consumers would forgo health insurance or seek out alternate coverage options, such as STLD policies.
According to a study by the Kaiser Family Foundation, STLDI policies are often medically underwritten, exclude coverage for pre-existing conditions, do not always cover essential health benefits such as maternity care, prescription drugs, or mental health care, can impose annual and lifetime limits, and are not subject to other ACA market requirements. Because STLDI plans offer less protection, they can offer lower monthly premiums than ACA-compliant plans and may therefore be attractive to some consumers.
As of January 2020, 12 states have passed legislation to disallow health status underwriting for STLD policies, effectively banning their sale. Thirteen states and the District of Columbia enacted the same 3 month limit that was previously part of federal regulation. The other 25 states have not placed new restrictions on the sale or terms of STLD policies. In states that have not limited STLDI sales, a Milliman Research Report estimated that those states will see a 4% increase in ACA premiums and a decrease in enrollment in ACA-compliant plans by 6% from 2018 to 2021.
Status: State insurance regulators know little about the size of the market for STDLI because the plans are generally not required to report data on enrollment.
The NAIC adopted The Individual Accident and Sickness Insurance Minimum Standards Act (# 170) in 1974. In 2019, the Model was revised and renamed to the Supplementary and Short-Term Health Insurance Minimum Standards Model Act by the Accident and Sickness Insurance Minimum Standards (B) Subgroup under the Health Insurance and Managed Care (B) Committee. The revisions to the Model removed provisions related to types of health benefit plans subject to the ACA’s requirements and left in types of plans not subject to the ACA’s requirements. The revisions also incorporated provisions concerning STLD plans, including requirements for consumer disclosures.
Committees Related to This Topic
Addressing Low-Value Insurance Products with Improved Customer Information: The Case of Ancillary Health Products
Journal of Insurance Regulation, 2022
Health Care and Pharmaceutical Cost Drivers and Regional Cost Variation: Regulatory Strategies, Options, and Solutions
CIPR Research Brief, August 2019
States Actions on Short Term Health Plans
Commonwealth Fund, May 2019
Renewable Term Health Insurance: Better Coverage Than Obamacare
Manhattan Institute, May 2019
The Marketing of Short-Term Health Plans: An Assessment of Industry Practices and State Regulatory Responses
The Urban Institute, January 2019
Impact of Duration on Enrollment and Premiums of Short-Term Health Plans
Commonwealth Fund, June 2018
Comment Letter on Proposed STLD Regulations
NAIC, August 2016