Short-Term Limited Duration Insurance Rule Upheld

The U.S. Court of Appeals for the District of Columbia Circuit upheld the final regulations issued by the Trump administration that increased the availability of short term, limited duration insurance (STLDI). The regulations extended the period for which STLDI may be offered to 12 months, allowing it to be renewed twice for a total duration of up to three years. It is unclear at this time whether the decision will receive further review by the Supreme Court, but the controversy regarding STLDI is not likely to vanish.

The concept of STLDI was introduced by HIPAA in 1996 as coverage that is excluded from the definition of “individual health insurance coverage” and, therefore, exempt from various requirements that apply to such coverage (including reforms later made by the Affordable Care Act, such as the requirement to provide essential health benefits and prohibitions against pre-existing conditions and annual and lifetime dollar limits). From the outset, it was seen as a bridge between periods when an individual had other coverage.  The statute did not define the length of time that STLDI could last, but initial regulations under HIPAA set limits similar to those set forth in the Trump administration’s regulations.

Following the enactment of the ACA and seeking to stabilize costs in the individual health insurance market, the Obama administration reduced the baseline period for STLDI to three months. That restriction aimed to avoid a fragmentation in coverage, where healthier individuals would opt for the more limited and less costly STLDI coverage, causing the costs of coverage in the individual health insurance market to increase. Taking a different view, the U.S. Departments of the Treasury, Labor, and Health and Human Services under the Trump Administration issued a final regulation in 2018 that restored the period to 12 months in an effort to provide a range of less costly alternatives for those seeking individual health insurance coverage.

In upholding the new regulations, the court found that Congress intended to give the Departments “wide latitude” to define STLDI and that the restoration of substantially the same time periods that applied when the ACA was enacted is consistent with the ACA. The court reasoned that the 36-month outer limit on the duration of STLDI coverage, including any renewals, is not unreasonable in view of other limitations, such as the three-year limitation on temporary insurance under COBRA. The court also found that the expansion of STLDI on the cost of coverage in the individual market had not caused much of an increase in the cost of coverage in the individual market and that the Departments could reasonably view the need to provide alternative, affordable health insurance options to outweigh any increased premiums in the individual market.

Despite the court’s decision, STLDI remains under scrutiny. The U.S. House of Representatives’ Energy and Commerce Committee released a report in late June that was highly critical of the coverage offered by STLDI and of some of the efforts to market it, and House Democrats have unveiled a bill with a provision that would reverse the regulation that extended the length of STLDI.

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