Historically, Short Term Major Medical plan use enabled individuals to purchase insurance for relatively short durations of up to 12 months of continuous coverage. Many individuals would purchase these plans when they found themselves in between jobs, or for early retirees waiting to be eligible for Medicare. Once the Affordable Care Act was fully implemented, former President Obama signed an executive order to curtail their use by mandating a maximum coverage period of 3 months. This made these short term medical policies much less desirable because the individual would need to reapply for benefits every 90 days as opposed to the 12 month plans available before this order became effective.
The Administration of Donald Trump just effectively unveiled the eagerly anticipated lifting of this 3 month cap imposed by the former administration. Now the Administration along with U.S Department of Labor, Health and Humana Services Commission, and The Internal Revenue Service have said a single health insurance carrier can write short term medical policies to renew up to 36 months at a time. The former Administration was concerned short term plans would draw young healthy individuals out of the Obama Care exchanges because the policy premiums were typically much lower for short term plans than for ACA complaint policies. Additionally, the former Administration was concerned the consumer might be deceived into thinking the short term plans were compliant with all the mandates of the ACA.
Short Term Medical Insurance Plans were defined differently under ACA rules, and as such, have a much different standard of underwriting and coverage requirements than their ACA counterparts. These STM plans were all regulated at the state level with each individual state determining what would and would not be covered under the short term plans. Basically the plan design for these health policies would look very much like a permanent ACA policy in plan design with the exception of a few distinct differences. Namely the short term health plans would have some sort of annual cap on benefits, insurers would set another standard for acceptance of coverage, and these policies would typically not cover preexisting medical conditions. To the contrary, the ACA would impose NO lifetime caps or annual benefit limitations, there would be NO underwriting policies meaning anyone regardless of health conditions would qualify, and there would be no waiting period for preexisting medical conditions. For the first time in several years, short term plans will become an alternative form of health insurance for millions of Americans who are basically healthy and in need of a policy that will cover them for major illnesses at an affordable premium.
The Administration will require these new insurance carriers offering short term plans to make it very clear this is not Affordable Care Act Coverage and that they could need to wait until the next open enrollment period in order to obtain a major medical insurance policy if they lose coverage under the plan. This final rule is set to appear in the Federal Registrar on Friday and to take effect 60 days after the official publication, which would bring it to the first week of October. Under the new rules, individuals wishing to get onto Major Medical coverage would need to wait until the next open enrollment period and would not be granted a “special enrollment period” for Obama Care insurance just because they lose their short term plan or it expires. Regulators want to discourage a market where people can simply wait until they get sick to purchase health insurance, which is exactly what would happen if short term plan expirations were to generate an SEP for enrollment under ACA coverage. So, if going without coverage is a big concern for the individual consumer looking for affordable insurance, then one would make sure to design the new short term plans to end on the very date that an effective date could be rendered under a major medical policy.
Normally ACA coverage has an open enrollment period followed by SEP (Special Enrollment Periods). Open enrollment usually begins the first day of November and ends in mid to late January. SEP periods would allow an individual to enroll in a qualified health plan based on some sort of “qualifying event”, such as a birth of a child, marriage, divorce, loss of credible coverage, such as COBRA expiration, or job termination. These SEP were designed to create a managed enrollment environment where individuals would not be allowed to enroll in qualified health coverage at any time, only when a qualifying event were to occur. This would disallow people from waiting until they get sick to purchase health insurance.
The short term market, on the other hand, will not abide by these enrollment rules laid out by the ACA law. In place of enrollment time frames, insurance carriers will simply impose underwriting requirements. This means individuals wishing to obtain this type of health coverage will be required to answer NO to a series of health questions, and any preexisting conditions might not be coverage at all. These restrictions would basically limit the types of individuals enrolling in these plans to the younger, healthier crowd as an affordable alternative to higher priced Obama Care plans.
One might ask why the Administration would impose a 36 month extension of short term plans. The reason seems to be rooted in the old Omnibus Reconciliation Act of 1985 which required group health insurance providers to offer an extension of insurance to their departing employees for as many as 36 months. Short term plans would solve a similar problem as it would extend coverage to individuals for 36 months who are currently ineligible for coverage provided as an employee under an employment contract.
The impact this ruling will have on the individual health insurance market in Texas and around other states in the country will likely be significant as health insurance carriers and the brokers who offer this alternative coverage could find this niche market more profitable and attractive as compared to the ACA marketplace. Additionally, many consumer who make too much money for any type of premium tax credits under ACA to lower the cost of health insurance, but find it hard to justify spending thousands of dollars per month on family coverage they may never use, might find the short term market to be much more attractive from a premium and benefit stand point.
Another benefit to this short term market is in the carriers’ ability to offer more favorable PPO networks because policies can be medically underwritten. One of the unfortunate by products of the Affordable Care Act has been a significant reduction or elimination altogether of PPO networks. Here in Texas for example, under ACA there are currently NO PPO networks, only restrictive HMO networks. There is a large segment of the provider population that will not accept these HMO networks, causing disillusionment among many people who own ACA policies. This could all change for the better if carriers like United Health Care, Cigna, BCBS of Texas, Humana, and other carrier decide to offer open access PPO networks with their new short term medial plans. These PPO networks typically do not require referrals to see specialists and they also have out of network benefits. This means even if your provider happens to be out of network, the insurance carrier will still cover benefits, just at a reduced co insurance percentage.
Only time will tell what the Texas State Insurance Commissioner along with other states will adopt in terms of Short Term plan regulations. Stay tuned for more information on this hot topic in the weeks and months ahead and carriers begin to draft policy documents for approval with Texas Department of Insurance along with other states in the nation.