States will be allowed to apply their own definitions to short-term, limited-duration insurance (STLDI) without facing federal penalties while Washington reconsiders policies pertaining to the plans.
Originally designed to provide coverage for individuals who need health insurance on a temporary basis, such as people who are transitioning between jobs, STLDI plans provide limited coverage for a short period of time and typically have lower premiums than comprehensive health insurance plans, though they may leave individuals vulnerable to high healthcare costs.
STLDI plans are not subject to Affordable Care Act (ACA) requirements to cover essential health benefits or offer coverage without regard to pre-existing health conditions. This means that STLDI plans may not include coverage for services such as maternity care, mental health treatment, and prescription drugs, and they may deny coverage or charge higher premiums based on pre-existing conditions. This type of coverage may be marketed to healthier individuals, thus adversely impacting the risk pool for ACA-compliant coverage. In some cases, the marketing of these plans has been criticized for leading consumers to think they are buying coverage comparable to comprehensive health insurance.
In 2016, the Obama administration limited STLDI plans to three months in an attempt to increase the number of people on ACA-compliant, full-year plans. In 2018, the Trump administration expanded the availability of STLDI plans, extended their maximum duration to 12 months, and permitted renewals for a total coverage period of up to 36 months. As a result, the demand for STLDI plans increased, as they provided an alternative for individuals seeking coverage with a relatively low up-front cost.
In 2024, the Biden administration finalized a rule redefining STLDI to limit initial coverage to no more than three months, with a maximum duration of four months if renewed.
In an August 7 statement announcing plans to revisit STLDI policy once again, the U.S. Departments of Labor, Health and Human Services, and the Treasury cited a February 19 executive order by President Donald Trump directing federal agencies to review regulations that impose significant costs on private entities and are not justified by corresponding public benefits. The agencies said that consistent with this order, they will begin a new rulemaking process, with a period allowed for public comment, to “consider the need for amendments to the regulatory definition of ‘short-term, limited-duration insurance.’”
Until new rules are in place, the agencies said they do not intend to prioritize enforcement actions against insurers that fail to meet the current definition of STLDI. The agencies also said that during this period they will not punish states for failing to enforce current STLDI regulations or for applying their own definitions of STLDI.
On October 14, the Arkansas Insurance Department released a bulletin clarifying that Arkansas will allow insurers to sell STLDI consistent with state law while federal rulemaking is underway.
The Trump administration’s announcement could signal a policy shift that would open the door for states to allow longer STLDI plans if they choose. This could lead to reduced enrollment in comprehensive coverage and — due to adverse impacts on the risk pool — increase coverage costs for consumers with comprehensive plans. In previous years, some states have adopted tighter limits on the length of short-term plans because of the risk to consumers of high out-of-pocket healthcare costs.
Some states, including Arkansas, have chosen not to implement rules for STLDI beyond federal regulations, seeking to preserve flexibility within the insurance market. This approach allows insurers to offer a variety of plan options and enables consumers to select coverage that best fits their needs and financial circumstances. Consumer protections these states may want to consider include requiring that marketing of STLDI plans disclose the plans’ limitations and prohibiting STLDI plans from being sold during open enrollment alongside comprehensive coverage.
