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New Federal Rule Curbs Short-Term Insurance Plans

AARP cautions against these health plans due to limited coverage


spinner image short term health insurance policy on a table.
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A new federal regulation will curtail the availability of short-term health insurance plans, also referred to as “skinny” or “junk” plans, that do not cover people with preexisting conditions and do not pay for even the most basic medical services. The rule was first proposed in July 2023 and finalized on March 28.  

These short-term insurance policies were originally meant to be a bridge for people who lose their health insurance because of a job loss or other circumstance. The idea was that these plans would provide catastrophic coverage until someone either was able to get insurance through a job or apply for coverage through an Affordable Care Act (ACA) marketplace. For years, the duration of these policies was limited to three months. But since mid-2018, insurers have been able to offer these plans for as long as three years.

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These “misleading insurance products” can “trick consumers into buying products that provide little or no coverage when they need it most,” says a July statement from the departments of Health and Human Services, Labor and Treasury, which jointly proposed the new rule. The final regulation will limit the duration of these policies to three months, with the possibility of extending it by one additional month. It will also require that insurers more clearly explain what these policies cover and what they do not.

 “The final rules increase transparency while helping to ensure that consumers do not mistakenly enroll in these types of insurance plans as substitutes for comprehensive coverage,” a March 28 news release from the U.S. Department of Health and Human Services says.

‘Junk’ plans a poor choice for most older adults

These short-term plans are particularly problematic for older adults, says Brendan Rose, an AARP director of government affairs, especially because they don’t cover people who have existing health problems. Insurers are also able to charge older Americans much higher premiums for this type of health insurance than younger people.

“These policies don’t have consumer protections, don’t provide the 10 essential health benefits required by the ACA and they can discriminate against people with preexisting conditions,” Rose says. “They are called ‘junk’ plans for a reason.”

Given the complexity of buying insurance, Rose says, it’s easy for people to select these plans because they cost less than conventional insurance plans, even though they don’t cover the services most people need, especially those age 50 to 64.

Another problem with these plans, Rose explains, is that younger, healthier people tend to enroll in them, leaving older and sicker patients in conventional insurance plans. This means older and sicker people and those with greater health needs face higher premiums in the individual market because there are fewer healthier people in those health plans whose premiums would help defray the medical costs of those with greater health care needs.

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Rose says pulling back the duration of these plans “is long anticipated and a great step. There is certainly room for short-term, limited-duration plans in very select circumstances. But they should be short term. This [rule] makes them truly short term again.”

The regulation applies only to new short-term policies. That means anyone who already has one of these health insurance plans can still keep it for up to three years, if they choose.  

Editor’s note: This story, first published July 10, 2023, has been updated to reflect that the rule has been finalized.

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