STLDI plans in for some big changes

Consumers who have short-term limited duration insurance are in for some big changes to their health coverage in the wake of a new federal rule. In addition, Illinois residents who have STLDI will have to find new coverage after state regulators announced Aug. 7 that it will ban short-term coverage as of Jan. 1, 2025.

The Illinois Department of Insurance announced that effective Jan. 1, it will be unlawful for any carrier to issue or renew short-term health coverage to any individual or group. Short-term policies issued before Sept. 1, 2024, must limit their terms to less than 181 days and will not be renewed or extended at the end of their terms.

Federal regulations do not consider short-term plans to be minimum essential coverage under the Affordable Care Act and policyholders are not eligible for a special enrollment period after their coverage ends. Policyholders enrolled in STLDI are encouraged to enroll in ACA marketplace coverage when the new open enrollment period begins Nov. 1 to make sure there are no gaps in their health coverage.

The Illinois announcement came on the heels of a finalized rule by the U.S. Department of Health and Human Services that reduces the total duration of STLDI plans to four months. The rule applies to plans sold or issued on or after Sept. 1, unless a state has stricter rules in place.

The changes are designed to ensure that short-term coverage is used to fill a temporary gap between two comprehensive policies, rather than serving as a long-term coverage solution. Since STLDI is “excluded from the definition of individual health insurance” and is thus not regulated by federal rules such as the Affordable Care Act, the No Surprises Act and the Mental Health Parity and Addiction Equity Act.

The limits affect initial plan terms and renewals. The new federal rule, which will apply to plans sold or issued on or after Sept. 1, will limit initial terms to three months, and total duration – including renewals – to no more than four months. After a four-month policy has expired, a consumer will not be able to buy another short-term policy from the same insurer within 12 months of the effective date of the first policy. Since 2018, federal rules have allowed short-term health plans to have initial terms of up to 364 days and a total duration of up to 36 months with renewals, except where states adopted tighter restrictions.

The rule’s impact will vary by state. The new federal rule is more restrictive than what is currently allowed in most states. However, there are 17 states, and the District of Columbia, where short-term health plans are either not allowed or not offered by insurers, or where duration limits are stricter than the new limits, so the rule doesn’t change anything for those states. In Washington, D.C. and 14 of those states, there are no short-term plans currently available for purchase. Three states – Delaware, Maryland, and Oregon —  already limit short-term plans to three months in duration.

The timeline for the new short-term health plan rule allows consumers to buy a short-term plan on or after Sept. 1 and potentially keep it through the end of the year. They will then have an opportunity to enroll in an ACA health plan through the Marketplace for 2025.

'Taking away an option'

Ronnell Nolan, president and CEO of Health Agents for America, criticized the Illinois move.

“You're taking away an option for consumers, and consumers need options,” she told InsuranceNewsNet. “People who are above 400% of federal poverty level and need a plan, but can't afford to pay that much money, they deserve an option.”

A 2023 report from the National Association of Insurance Commissioners indicated that 235,775 people were covered by short-term health plans at the end of 2022. However, the Congressional Budget Office and the Joint Committee on Taxation had previously estimated that as many as 1.5 million people might be enrolled in STLDI.

Here is a list of states in which short-term plans are currently not available, according to healthinsurance.org.

• California – State law prohibits the sale of short-term plans.
• Colorado – As noted, plans are technically allowed with six-month initial durations, but insurers have stopped offering short-term plans.
• Connecticut
• District of Columbia – Plans are allowed for up to three months with no renewals, but no insurers offered them as of May 2024.
• Hawaii – As noted, no insurers offered plans under the rules the state implemented as of May 2024.
• Maine – New rules took effect in 2020, and no insurers offer plans.
• Massachusetts – Health plans are required to be guaranteed-issue, so short-term policies are not available in the state.
• Minnesota – No insurers offer plans as of May 2024.
• New Hampshire – No insurers offer plans as of May 2024.
• New Jersey – does not allow short-term limited duration plans to be sold to New Jersey residents.
• New Mexico – State regulations limit the plans to three months and prohibit renewals, but no insurers were offering plans as of May 2024.
• New York – State law prohibits the sale of short-term plans in the state.
• Rhode Island – STLDI is not banned, but state rules are strict enough that no insurers offer these policies.
• Vermont – There are no short-term plans available in Vermont, but legislation was also enacted in 2018 to limit short-term plans to three months and prohibit renewals, in case any plans are approved in the future.
• Washington – Plans are allowed for up to three months, but no insurers offer them.

In another three states — Delaware, Maryland, and Oregon — short-term health insurance is available but already limited to three months in duration, so the new federal rules won’t change anything about STLDI durations in those states. Virginia also limits initial terms to three months but allows the total duration to extend to six months. So plans in Virginia will be further limited by the new federal rules.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].