Court Rejects Challenge to Short-Term, Limited-Duration Health Insurance Regulations

A federal trial court has rejected a challenge to regulations extending the permitted length of short-term, limited-duration health insurance. In August 2018, the agencies finalized rules redefining “short-term” and “limited duration” to cap the maximum initial coverage period at less than 12 months and the maximum total duration (including renewals and extensions) at 36 months (see our Checkpoint article). A collection of associations, organizations, and insurers that offer individual policies through the Exchanges argued that the 2018 rule violated the Administrative Procedures Act (APA) and that the new definition of short-term, limited- duration insurance is contrary to HIPAA and the Affordable Care Act (ACA).

The court ruled in favor of the agencies without a trial. Concluding that the agencies did not exceed the scope of their regulatory authority, the court emphasized that, by failing to define short-term, limited-duration insurance when it enacted HIPAA in 1996, Congress delegated authority to the agencies to adopt a definition. The agencies’ initial definition, which established a maximum term of 12 months with unlimited renewals, remained in place and unchallenged from 1997 to 2016. The court noted that, in enacting the ACA, Congress chose not to define short-term, limited-duration insurance—leaving the agencies’ interpretation intact—and “retained untouched” HIPAA’s exception of short-term, limited-duration insurance from individual insurance market regulations. Those provisions remained in place until a 2016 rule reduced the maximum term of short-term, limited-duration insurance to less than three months and effectively prohibited renewals (see our Checkpoint article). The court held that it was not arbitrary or capricious or manifestly contrary to the statute to revert to the 12-month term, observing that the limit on renewals is still more restrictive than the agencies’ original rule. The court cited, among other considerations, HIPAA’s structure and purpose, Congress’s maintenance of the existing short-term, limited-duration insurance exception, and the exemption of other forms of individual insurance (such as grandfathered plans and student health insurance) from the ACA’s reforms. The court also pointed out that a number of states have adopted the same 12-month standard to define short-term insurance.

EBIA Comment: Short-term, limited-duration insurance occupies a middle ground in the regulatory structure established by HIPAA and the ACA. It avoids most ACA mandates, but the agencies are authorized to establish standards applicable to its sale, including setting the maximum term and requiring notices to consumers. Although this is primarily an individual market issue, it has implications for employers because, for instance, the availability of affordable short-term, limited-duration insurance may affect whether employees elect COBRA coverage and loss of eligibility for short-term, limited-duration insurance may trigger HIPAA special enrollment rights. For more information, see EBIA’s Health Care Reform manual at Section V.C (“What Is a Group Health Plan?”) and EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.F (“Excepted Benefits: Certain Health FSAs, Dental, Vision, and Others”).

Contributing Editors: EBIA Staff.