On August 1, 2018, the Centers for Medicare & Medicaid Services issued a final rule that allows individuals to purchase short-term limited-duration health plans. Under the rule, short-term health plans can span an initial period of less than 12 months, with renewals and extensions capped at 36 months. Under the Affordable Care Act (“ACA”), lower-grade coverage options were restricted to three months without an option to renew and were typically used to bridge a coverage gap of a few months or less.
These short-duration health plans are not required to comply with ACA requirements around preexisting conditions or essential health benefits, and individuals can be denied coverage based on medical history. Insurers of short-term health plans can also choose not to cover categories of benefits, such as prescription drugs and substance use disorder treatment. Because these plans are not considered “qualifying health plans” under the ACA, individuals who purchase these plans in 2018 will owe a penalty for being uninsured (unless they qualify for an exemption). Beginning in 2019, purchasers of short-term health plans will face no penalty.
It is estimated that 200,000 individuals, mostly young beneficiaries, will exit the ACA exchange market under the rule, which could destabilize the ACA’s health insurance pools and raise premiums. The rule does not preempt states from imposing shorter limits on these plans, or banning the plans altogether, as Massachusetts, New Jersey, and New York have done.