Judge Upholds Final Rule on Short-Term Health Plans

Use of plans with limited coverage as a COBRA alternative could grow

Stephen Miller, CEBS By Stephen Miller, CEBS July 22, 2019
Judge Upholds Final Rule on Short-Term Health Plans

A federal judge in Washington, D.C., dismissed a lawsuit challenging a 2018 Trump administration rule that expanded the scope of short-term health plans sold on the individual health insurance market, disagreeing with charges that the rule violates the Affordable Care Act (ACA).

The July 19 ruling by U.S. District Court Judge Richard Leon may mean short-term plans will be more widely used as an alternative to ACA-compliant plans.

Known officially as short-term, limited-duration insurance (STLDI), these plans do not meet all ACA coverage requirements. The Obama administration had limited STLDI plans to just three months, but in August 2018 the departments of Health and Human Services, Labor and the Treasury issued a final rule extending the length of these plans to one year, with renewal options to extend coverage to three years.

The rule that the judge upheld does not affect employer-provided group health plans, which must comply with the ACA. However, it expands the options for people without employer-provided insurance and provides a low-cost alternative to COBRA coverage when employees are between jobs or retire before they are eligible for Medicare.

Another final rule, which federal agencies issued in June, allows employers starting next year to fund a new excepted-benefit health reimbursement arrangement (HRA) that employees can use to pay premiums for vision, dental and STLDI plans.

The lawsuit was brought by the Association for Community Affiliated Plans, which represents not-for-profit plans sold on the ACA's exchanges. The group said it would appeal.

We've rounded up articles from SHRM Online and other trusted media outlets on this topic.

An Option for Cheaper Individual-Market Plans

"Not only is any potential negative impact from the 2018 rule minimal, but its benefits are undeniable," Judge Leon wrote. He said Congress' elimination of the ACA's penalty for being uninsured made it desirable to have options for cheaper plans, since people would likely forego insurance rather than pay expensive premiums in the ACA's exchanges.

The judge pointed out that the ACA exempted many types of health insurance from its reforms and grandfathered in certain state-specific risk pools. "In other words, lawmakers were not rigidly pursuing the ACA-compliant market at all costs, e.g. at the risk of individuals going without insurance," he wrote.

(Modern Healthcare)

Chipping Away at the ACA

ACA advocates have long claimed that the administration was trying to undermine the ACA's exchanges by supporting the plans, which are cheaper than exchange plans because they do not have to cover as many benefits or pre-existing conditions. Administration officials such as Health and Human Services Secretary Alex Azar, meanwhile, argued that the plans were an escape hatch for people who did not want to buy pricier ACA exchange plans.

Judge Leon, appointed by former President George W. Bush, found that the new definition that expanded STLDI plans' length wasn't inconsistent with federal law. For one thing, Congress did not explicitly define "short-term" or "limited duration" in the law, he noted.

(Fierce Healthcare)

Appeal Is Planned

"We remain firm in our contention that the Trump administration's decision to expand dramatically the sale of junk insurance violates the Affordable Care Act and is arbitrary and capricious," said Margaret A. Murray, CEO of the Association for Community Affiliated Plans, in a statement.

"Indeed, the district court itself recognized that [the] administration's decision allows junk insurance to compete directly with comprehensive, Affordable Care Act-compliant insurance plans," Murray added. "That result subverts the health care protections of the ACA. Junk insurance, no matter what it's called, is an inferior and hazardous substitute for comprehensive coverage."


[SHRM members-only toolkit: Managing Health Care Costs]

An Alternative to COBRA

"Short-term plans can be an affordable solution to fill gaps in coverage," said Jeff Smedsrud, CEO of Pivot Health, which provides low-cost health insurance alternatives. "New employees typically have a 90-day waiting period before insurance coverage begins or have an extremely expensive COBRA option when they leave a job. That's when short-term health plans, which are structured like major medical health plans, can provide coverage and save consumers about 50 percent or more when compared to ACA plans."

(SHRM Online)

Excepted-Benefit HRAs Can Pay STLDI Premiums

In June, the departments of Health and Human Services, Labor and the Treasury issued a final rule allowing employers to fund two new kinds of health reimbursement arrangements (HRAs). The first is an individual coverage HRA (ICHRA). Starting next year, employers that do not provide group coverage can fund ICHRAs that employees can use to purchase individual-market coverage. ICHRAs, however, cannot be used to buy STLDI plans.

The rule also creates a new excepted-benefit HRA, which lets employers that offer traditional group health plans also provide a pretax benefit, that can be used to reimburse employees for certain medical expenses outside the group plan, including premiums for vision and dental insurance, COBRA continuation coverage and STLDI plans.

(SHRM Online)




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