Short-Term, Limited-Duration Insurance

Post Date: 8/22/18
Last Updated: 8/22/18


Cross References
- TD 9837, August 1, 2018

The Secretaries of the Treasury, Labor, and Health and Human Services have issued final regulations that amend the definition of short-term, limited-duration insurance for purposes of its exclusion from the definition of individual health insurance coverage.

Under the Affordable Care Act (ACA), non-exempt individuals must maintain minimum essential health insurance coverage or pay a penalty tax (the individual shared responsibility payment). Short-term, limited-duration insurance is a type of health insurance coverage that was designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) reduced the penalty tax under IRC section 5000A to $0, effective for months beginning after December 31, 2018.

Prior guidance defined short-term, limited-duration insurance as health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract. After ACA was enacted in 2010, guidance was proposed that shortened the length to less than three months.

On October 12, 2017, the President issued Executive Order 13813 entitled "Promoting Healthcare Choice and Competition Across the United States." The executive order directed the Secretaries of the Treasury, Labor, and Health and Human Services to issue regulations to expand the availability of short-term, limited duration insurance. As a result, proposed regulations were issued in February of 2018 that extended the definition of short-term limited-duration insurance so that it may offer a maximum coverage period of less than 12 months after the original effective date of the contract.

Final regulations have recently been issued that retain this less than 12-month rule. However, the language of the notice that must appear in the contract has been revised to read as follows:

This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services).Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not "minimum essential coverage." If you don’t have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month.

The last two sentences of the notice are only required for policies that have a coverage start date before January 1, 2019. The final regulations also contain additional specificity, including a list of health benefits that might not be covered.
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