Rule Aims To Curb Short-Term, Limited-Duration Insurance

(Original post published July 12, 2023) 

In what it called an effort to realign short-term, limited-duration insurance (STLDI) with its traditional purpose to fill temporary gaps in coverage, the Biden administration issued a final rule on Thursday, March 28, to limit the initial coverage period of an STLDI plan to no more than three months and the maximum coverage period, including any extensions, to four months. 

Designed to provide temporary and limited coverage for individuals who need insurance for a short period of time, STLDI plans are typically purchased by individuals who are in temporary situations, such as those transitioning between jobs, waiting for employer-sponsored coverage to begin, or seeking coverage outside of an annual open enrollment period. Key features of these plans include coverage for a short period of time, limited coverage, and lower premiums compared to comprehensive health insurance plans. Because they offer limited coverage, STLDI plans have the potential to leave individuals vulnerable to high healthcare costs.   

STLDI plans are not subject to Affordable Care Act (ACA) requirements to cover essential health benefits or offer coverage without regard to pre-existing health conditions. This means that STLDI plans may not include coverage for services such as maternity care, mental health treatment, and prescriptions drugs and may deny coverage or charge higher premiums based on pre-existing conditions.  

To address concerns about STLDI being sold as primary health insurance coverage rather than temporary coverage, federal regulations changed the definition in 2016. The new definition specified that STLDI coverage must be less than three months in duration and that insurers could not renew coverage beyond that limit. 

Subsequent regulatory changes by the Trump administration in 2018 expanded the availability and duration of STLDI plans. These changes extended the maximum duration of STLDI plans from less than three months to less than 12 months and permitted renewals for a total coverage period of up to three years. As a result, the demand for STLDI plans increased, as they provided an alternative for individuals seeking coverage at a lower cost compared to comprehensive health insurance plans. 

In response, some states have since regulated STLDI, citing concerns for consumers (e.g., lack of coverage for necessary healthcare services and “sticker shock” when faced with high out-of-pocket costs) and the stability of health insurance markets (healthier individuals may be targeted for this type of coverage, thus adversely impacting the risk pool for ACA-compliant coverage).  

Regulations vary by state, but they may include limits on the duration of coverage or prohibitions on renewals or extensions. Some states have applied consumer protections that parallel those in the ACA (e.g., banning the consideration of pre-existing conditions and requiring a minimum set of benefits), while a few states have banned the sale of STLDI plans.  

Other states, including Arkansas, have chosen not to impose additional requirements beyond federal regulations, seeking to promote market flexibility by providing a range of coverage options and allowing consumers to choose the coverage that aligns with their preferences and budget.  

Starting Sept. 1, 2024, new STLDI policies must adhere to the updated terms and durations, while existing plans will be given grandfather status and allowed to operate under previous rules, including rules that allowed longer coverage periods, subject to any limits under applicable state law.