Back to the future: The Departments issued final rules restricting short-term, limited-duration health insurance (STLDI) and independent, noncoordinated excepted benefits coverage to three months maximum duration.  This reverses a Trump Administration policy which allowed these forms of health insurance to roll over repeatedly.  The Biden Administration is crushing simpler alternatives to the labyrinthine ACA policies:

https://www.cms.gov/newsroom/fact-sheets/short-term-limited-duration-insurance-and-independent-noncoordinated-excepted-benefits-coverage-cms

Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage (CMS-9904-F) Fact Sheet

March 28, 2024

 

On March 28, 2024, the Departments of Health and Human Services (HHS), Labor, and the Treasury (collectively, the Departments) released final rules regarding short-term, limited-duration insurance (STLDI) and independent, noncoordinated excepted benefits coverage. These final rules finalize some of the amendments set forth in the July 12, 2023, proposed rules.^[1] These regulatory amendments further the goals of the Affordable Care Act (ACA) by improving access to affordable and comprehensive coverage, strengthening health insurance markets, and promoting consumer understanding of their coverage options. 

Background — STLDI and Hospital Indemnity and Other Fixed Indemnity Excepted Benefits Coverage

STLDI is a type of health insurance coverage that is primarily designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another, such as transitioning between health coverage offered by one employer to health coverage offered by another employer. STLDI is excluded from the definition of “individual health insurance coverage” under the Public Health Service Act; therefore, it is generally not subject to federal individual market consumer protections and requirements for comprehensive coverage. For example, STLDI is not subject to the prohibitions on discrimination based on health status, pre-existing condition exclusions, and lifetime and annual dollar limits on essential health benefits. Thus, individuals who enroll in STLDI are not guaranteed these key consumer protections under federal law.

Hospital indemnity and other fixed indemnity insurance has traditionally been used as a form of income replacement upon the occurrence of a health-related event. It is not a substitute for comprehensive coverage. Consumers can use the fixed cash benefit as they wish — such as to cover out-of-pocket expenses not covered by comprehensive coverage, or to defray non-medical expenses (for example, mortgage or rent). In the group market, those payments must be made as a fixed dollar amount per day (or per other time period) of hospitalization or illness (for example, $100 per day). In the individual market, payments may be made either per period of hospitalization or illness or per service (for example, $50 per medical examination). Benefits must be paid regardless of the amount of expenses a consumer incurs. When hospital indemnity or other fixed indemnity insurance meets those payment standards and other statutory and regulatory criteria, it is an excepted benefit (referred to as fixed indemnity excepted benefits coverage) that is not subject to the federal requirements or consumer protections that apply to comprehensive coverage. 

Summary of Final Rules

Short-Term, Limited-Duration Insurance

The Departments are amending the federal definition of STLDI to limit the length of the initial contract term to no more than three months and the maximum coverage period to no more than four months, taking into account any renewals or extensions. Previously, the rules defined STLDI as coverage that has an initial contract term of fewer than 12 months and a maximum total coverage period of up to 36 months, including renewals and extensions. The revised definition of STLDI in these final rules will realign the federal definition of STLDI with its traditional role of serving as temporary coverage, help ensure that consumers can clearly distinguish STLDI from comprehensive coverage, and ultimately reduce the financial and health risks to consumers who would otherwise enroll in this limited coverage as a long-term alternative to comprehensive coverage.

These final rules also amend the federal definition of STLDI to provide that a renewal or extension includes STLDI sold by the same issuer, or any issuer that is a member of the same controlled group, to the same policyholder within a 12-month period. This addresses the practice, known as “stacking,” that permits issuers to provide separate, sequential STLDI policies that collectively evade duration limits, obscuring the distinction between STLDI and comprehensive coverage, and increases the risks to consumers who mistakenly enroll in STLDI as an alternative to comprehensive coverage. 

These final rules amend the federal notice standard to help consumers better distinguish between comprehensive coverage and STLDI and get information on their health coverage options. The revised notice standard uses concise and easy-to-understand language that will be meaningful to consumers. The notice must be prominently displayed on the first page of the policy, certificate, or contract of insurance, including for renewals and extensions, and included in any marketing, application, and enrollment (or reenrollment) materials. 

The Departments understand that most sales of STLDI occur through group trusts or associations. This arrangement is used by some issuers in states with less regulation of STLDI to sell STLDI to consumers in other states, avoiding state regulation in the state where the consumer resides. The preamble to the final rules explains that coverage sold to individuals through a group trust or association, other than in connection with a group health plan, is not group coverage for purposes of federal law and must meet the federal definition of STLDI or it is subject to the federal consumer protections and requirements for comprehensive individual health insurance coverage. The Departments will continue to work closely with states, both individually and through the National Association of Insurance Commissioners (NAIC), to support state oversight and enforcement efforts of STLDI offered through associations.

Fixed Indemnity Excepted Benefits Coverage 

These final rules revise the consumer notice that is currently required for fixed indemnity excepted benefits coverage in the individual market and establish a new requirement to provide a consumer notice in the group market. The notice is designed to highlight the differences between fixed indemnity excepted benefits coverage and comprehensive coverage. Plans and issuers must prominently display the notice in marketing, application, and enrollment (and reenrollment) materials in the individual and group markets. In addition, the notice must be prominently displayed in the policy, certificate, or contract of insurance in the individual market. Providing a notice to consumers prior to their opportunity to enroll (or reenroll) in fixed indemnity excepted benefits coverage will help ensure that consumers are aware of the limitations of the coverage and help ensure they do not mistakenly purchase it as an alternative to, or replacement for, comprehensive coverage. HHS is also finalizing technical and conforming amendments to the individual market fixed indemnity excepted benefits coverage regulations.

In the July 2023 proposed rules, the Departments proposed additional amendments regarding the payment standards and non-coordination requirement for fixed indemnity excepted benefits coverage. The Departments are not finalizing those proposed amendments at this time. The Departments remain concerned about the issues those proposals sought to address, and intend to address the issues in future rulemaking, after additional study and consideration of concerns raised in comments.

Tax Treatment of Certain Benefit Payments in Fixed Amounts Received Under Employer-Provided Accident and Health Plans 

The Treasury Department and the IRS proposed amendments in the July 2023 proposed rules to clarify that payments from employer-provided fixed indemnity health insurance plans (and other similar plans) are not excluded from a taxpayer’s income if the amounts are paid without regard to the actual amount of any incurred medical expenses. Additionally, the Treasury Department and the IRS proposed to clarify that the taxpayer must meet substantiation requirements for reimbursements for qualified medical expenses from any employer-provided accident and health plan to be excluded from the taxpayer’s gross income. To provide more time to study the issues and concerns raised by commenters, the Treasury Department and the IRS are not finalizing the proposed amendments at this time. 

Applicability Dates

For policies, certificates, or contracts of STLDI sold or issued on or after September 1, 2024, the maximum term and duration amendments to the definition of STLDI in the final rules apply for coverage periods beginning on or after September 1, 2024. 

For policies, certificates, or contracts of STLDI sold or issued before September 1, 2024 (including any subsequent renewals or extensions consistent with applicable law), coverage may continue to have an initial contract term of fewer than 12 months and a maximum duration of up to 36 months (taking into account any renewals or extensions), subject to any limits under applicable state law. 

The notice provisions for STLDI apply with respect to coverage periods (including renewals and extensions) beginning on or after September 1, 2024. 

The notice provisions for group and individual market fixed indemnity excepted benefits coverage apply to both new and existing coverage with respect to plan years (in the individual market, coverage periods) beginning on or after January 1, 2025.

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[1] “Short-Term, Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health Insurance” (88 FR 44596).