On February 20, 2018, the U.S. Department of Health and Human Services (HHS) in conjunction with the Department of Labor and the Treasury Department, released the proposed rule “Short-Term, Limited-Duration Insurance” in response to an executive order signed by President Trump that aimed to promote choice and competition in health insurance markets.

This rule proposes to change the maximum period of time that short-term, limited-duration plans can be offered for to 12 months. Currently, the maximum is 3 months, as set by regulation during the Obama administration, but prior to that time frame, the maximum was 12 months. Therefore, the proposed rule released today is a reversal of a prior finalized rule. HHS touts more affordable consumer choice and more flexibility as some of the advantages of moving back to a 12 month maximum.

In addition, the rule revises the required notice that plans must include in the contract. This notice states that the coverage is not required to comply with federal requires in the Affordable Care Act (ACA) and that the coverage is not minimum essential coverage required under the individual mandate for 2018. Beginning in 2019, there will no longer be a penalty for a lack of insurance coverage, due to a repeal of the provision in the recent tax bill.

HHS is estimating that between 100,000 and 200,000 individuals previously enrolled in the individual marketplace exchanges will purchase short-term, limited-duration policies and that this would cause the average monthly individual market premiums and average monthly premium tax credits to increase. HHS is seeking comments on these estimates as well as the other contents of the proposed rule. Specifically, the agency mentions seeking comment on the length of short-term, limited-duration insurance and any regulations or other guidance that prevents entrance into this market or limits issuers’ flexibility in designing these plans.

In the regulatory impact analysis of the rule, HHS does note that short-term, limited-duration insurance policies likely will not include various elements of plans compliant with ACA rules, such as coverage of essential health benefits without dollar limits, preventive care, prescription drug coverage, and the preexisting condition exclusion prohibition. This is a common complaint from critics of this type of plan.

This provisions in this proposed rule could potentially impact the strength of the individual market in the states. HHS believes that individuals who purchase this type of coverage will likely be young or healthy. As these individuals leave the states’ individual market places, it could impact risk pools and cause higher than anticipated costs of care for plan issuers, who could then choose to leave the market. The impact analysis contained in this proposed rule notes that and mentions that the proposed rule may further reduce choices for those individuals who remain in the individual market.

However, conversely, HHS notes in their analysis that the individuals who previously were purchasing plans on the individual market could see lower costs. In addition, the rule states that individuals who need longer transitional coverage, such as those who need more than 3 months to find new employment, would benefit as they may not have to go uninsured.

Comments on this proposed rule must be submitted by 5 P.M. EST on April 23, 2018.