New Final Rule Reduces Length of Short-Term, Limited-Duration Insurance Plans

Businesses with employees or former employees who might use short-term, limited-duration insurance (STLDI) to fill temporary gaps in healthcare coverage should be aware of the new final rule issued on March 28, 2024, by the Departments of Treasury, Labor, and Health and Human Services. 

Among the changes from the previous administration’s rule, the new final rule in 2024 reduces the allowable length of STLDI plans and revises notice requirements. STLD plans, which predate the Affordable Care Act, are not individual health insurance coverage under federal law and is not required to meet the standard of minimal coverage under the ACA.

One of the main goals of the changes to the rule is to help consumers understand the difference between STLDI and comprehensive coverage that includes required consumer protections (e.g., prohibition on exclusions for preexisting conditions).

Overview of New Final Rule on STLDI

The final rule on STLDI plans takes effect on policies sold and issued on or after Sept. 1, 2024. The rule:

• Reduces the maximum allowable duration to no longer than three (3) months on such plans, with the maximum duration including a renewal of extension to four (4) months.
• Only considers a policy renewed or extended if the renewal or extension is given to the same policy holder within the 12-month period by the same issuer or any issuer that is a member of the same controlled group.
  • Maintains states' authority to regulate STLD plans. Some states either prohibit STLD plans or limit them beyond the final rule's maximum periods.
• Does not impact STLDI policies sold and issued prior to Sept. 1, 2024.
• Adopts a consumer notice provision that requires plan/issuer to publish a disclosure for plans beginning on or after Jan. 1, 2025, that indicates that the policy is not a substitute for comprehensive coverage.

Other considerations

• Because the ACA's individual mandate penalty dropped to $0 in 2019, there is no tax penalty for having an STLD plan.
  • California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia have state-level individual mandate laws.
• STLD plans, generally, are not subject to medical loss ratio requirements. Consequently, insurers can use more money for administrative expenses, including broker fees and commissions. Brokers may have had fees for sales in the individual insurance market limited by medical loss ratio requirements, and thus they may benefit from promoting STLD coverage instead of traditional individual insurance products.
• Because STLD plans are not subject to the ACA's consumer protections and market reforms, they tend to offer less coverage and cost less than ACA-compliant products. Industry watchers worry that healthier or less-informed consumers will gravitate toward STLD plans based on price. If enough younger, healthier people leave the individual insurance market to purchase STLD plans, premiums for standard coverage in that market may rise.

State Considerations for STLD Plans

• HHS, DOL, and Treasury in the final rule acknowledge states' authority to regulate the business of insurance. The rule does not preempt any state laws prohibiting the sale of short-term, limited-duration insurance.
• Several states are more restrictive on STLD plans. For example:
  • California, New York, New Jersey, and Massachusetts prohibit the sale of STLD plans.
  • The maximum length, including renewal, is up to three (3) months in Delaware, Maryland, New Mexico, Oregon, Vermont, Washington, and the District of Columbia. It is up to 91 days in Hawai’i.

Paychex Can Help

Employers should stay informed about STLD plan requirements and any change that might impact the healthcare needs of their workforce or impact compliance requirements. As the labor market tightens, the benefits you offer employees become increasingly important. If your business is considering offering healthcare coverage to its employees, an HR Services provider such as Paychex could help you evaluate your needs.