State regulators say healthy consumers could evade a proposed three-month benefit period cap.

The rule would have no direct effect on a consumer, or, apparently, on an insurance agent or broker. A consumer could, apparently, get more than three months of health coverage by buying a new short-term health insurance policy when the old policy expires.

Short-term health insurance is exempt from the ACA major medical rules, including the ban on medical underwriting, the ban on annual and lifetime benefits limits, and the requirement that an issuer cover at least 60 percent of the actuarial value of the essential health benefits package, or what regulators classify as core health benefits. A short-term health issuer can keep premiums low, especially for younger, healthier insureds, by taking steps such as excluding coverage for maternity leave and mental health care, capping benefits at $25,000 per year, and refusing to sell coverage to people with serious health problems.

Officials at the Kansas City, Missouri-based National Association of Insurance Commissioners, a group for state insurance regulators, told the federal regulators, in a comment on the draft regulations, that limiting the insurers to selling three months of short-term health coverage without limiting consumers' ability to buy more than three months of short-term coverage could produce absurd results.

In an introduction to the new regulations, officials say they want limit short-term health coverage to durations of three months to make sure consumers get the consumer protections provided by ACA-compliant coverage, and for consumers to understand that short-term health insurance does not help them avoid paying the ACA penalty for going without minimum essential coverage.

The ACA individual penalty system “provides sufficient incentive to discourage consumers from purchasing multiple successive short-term, limited-duration insurance policies,” officials say.

In the new final rule, the so-called “tri agencies” also strengthen earlier laws and regulations meant to discourage insurers from selling products that could be used as a substitute for major medical coverage.

Before the ACA came along, those were known as “limited-benefit health plans,” “mini medical plans” or “mini med plans.”

For many decades, insurers have sold health insurance policies, known as indemnity policies, that paid fixed benefits when insureds needed specified types of care, such as hospital care.

The ACA includes a provision that lets insurers continue to sell the kinds of supplemental health insurance policies traditionally “excepted from” federal major medical rules, such as the Health Insurance Portability and Accountability Act of 1996 major medical provisions.

The tri agencies have worked to narrow the scope of that ACA provision by declaring that an indemnity policy is an indemnity policy only if it pays a fixed amount of benefits per duration of time, rather than a fixed benefit when a covered condition occurs.

In the new final rule, the tri agencies ban the sale of any purported excepted benefit policy if that policy directly covers the cost an ACA essential health benefit, such as inpatient hospital care or ordinary physician care for an illness.

An insurer can sell a supplemental health policy only if the supplemental health policy pays only for care outside the essential health benefits package, or if the policy helps cover gaps in the primary coverage, such as deductible amounts, and also pays for extra categories of benefits that are outside the essential health benefits package.

Apparently, for example, an issuer could sell a policy that covered plastic surgery, or a policy that filled in gaps in the primary plan's essential health benefits coverage and also covered cosmetic plastic surgery, but not a maternity care policy aimed at a consumer who wanted an alternative to the primary care coverage offered by the consumer's major medical plan.

In still another section of the new final rule, officials have limited the maximum duration of the health insurance in travel insurance policies to six months or less. Any health insurance in a travel insurance policy must be incidental to the rest of the coverage in the policy.

In a regulatory analysis, officials classify the new final rule as a set of regulations with only a minimal effect on the economy, and they are especially dismissive of the short-term health insurance market.

Insurers generated only about $160 million from short-term health coverage in 2015 and had only 148,000 short-term health enrollees at the end of 2015, officials say, citing NAIC data.

Most consumers use short-term health to fill in short coverage gaps, officials say.

“The small fraction of consumers who purchase such policies for longer periods and who may have to transition to individual market coverage will benefit from protections afforded by the Affordable Care Act,” officials say. “While some of these consumers may experience an increase in costs due to higher premiums compared with short-term, limited-duration coverage, they will also avoid potential tax liability by having minimum essential coverage.”  

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