Proposed Rule2023-14238
Short-Term, Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health Insurance
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 12, 2023
Issuing agencies
Treasury DepartmentInternal Revenue ServiceLabor DepartmentEmployee Benefits Security AdministrationHealth and Human Services Department
Abstract
This document sets forth proposed rules that would amend the definition of short-term, limited-duration insurance, which is excluded from the definition of individual health insurance coverage under the Public Health Service Act. This document also sets forth proposed amendments to the requirements for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group and individual health insurance markets. This document further sets forth proposed amendments to clarify the tax treatment of certain benefit payments in fixed amounts received under employer-provided accident and health plans. Finally, this document solicits comments regarding coverage only for a specified disease or illness that qualifies as excepted benefits, and comments regarding level-funded plan arrangements.
Full Text
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<title>Federal Register, Volume 88 Issue 132 (Wednesday, July 12, 2023)</title>
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[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Proposed Rules]
[Pages 44596-44658]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14238]
[[Page 44595]]
Vol. 88
Wednesday,
No. 132
July 12, 2023
Part III
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 54
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2590
Department of Health and Human Services
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45 CFR Parts 144, 146, and 148
Short-Term, Limited-Duration Insurance; Independent, Noncoordinated
Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax
Treatment of Certain Accident and Health Insurance; Proposed Rule
Federal Register / Vol. 88, No. 132 / Wednesday, July 12, 2023 /
Proposed Rules
[[Page 44596]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
[REG-120730-21]
RIN 1545-BQ28
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AC12
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Parts 144, 146, and 148
[CMS-9904-P]
RIN 0938-AU67
Short-Term, Limited-Duration Insurance; Independent,
Noncoordinated Excepted Benefits Coverage; Level-Funded Plan
Arrangements; and Tax Treatment of Certain Accident and Health
Insurance
AGENCY: Internal Revenue Service, Department of the Treasury; Employee
Benefits Security Administration, Department of Labor; Centers for
Medicare & Medicaid Services, Department of Health and Human Services.
ACTION: Proposed rules.
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SUMMARY: This document sets forth proposed rules that would amend the
definition of short-term, limited-duration insurance, which is excluded
from the definition of individual health insurance coverage under the
Public Health Service Act. This document also sets forth proposed
amendments to the requirements for hospital indemnity or other fixed
indemnity insurance to be considered an excepted benefit in the group
and individual health insurance markets. This document further sets
forth proposed amendments to clarify the tax treatment of certain
benefit payments in fixed amounts received under employer-provided
accident and health plans. Finally, this document solicits comments
regarding coverage only for a specified disease or illness that
qualifies as excepted benefits, and comments regarding level-funded
plan arrangements.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below by September 11, 2023.
ADDRESSES: In commenting, please refer to file code CMS-9904-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-9904-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-9904-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Elizabeth Schumacher or Rebecca
Miller, Employee Benefits Security Administration, Department of Labor
at (202) 693-8335; Jason Sandoval, Internal Revenue Service, Department
of the Treasury at (202) 317-5500; Cam Clemmons, Centers for Medicare &
Medicaid Services, Department of Health and Human Services at (206)
615-2338; Geraldine Doetzer, Centers for Medicare & Medicaid Services,
Department of Health and Human Services at (667) 290-8855.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: Comments received before the close
of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post comments received
before the close of the comment period on the following website as soon
as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the search instructions on that website to view comments. We
will not post on <a href="http://Regulations.gov">Regulations.gov</a> comments that make threats to
individuals or institutions or suggest that the individual will take
actions to harm the individual. We continue to encourage individuals
not to submit duplicative comments. We will post acceptable comments
from multiple unique commenters even if the content is identical or
nearly identical to other comments.
I. Background
These proposed rules set forth proposed revisions to the definition
of ``short-term, limited-duration insurance'' (STLDI) for purposes of
its exclusion from the definition of ``individual health insurance
coverage'' in 26 CFR part 54, 29 CFR part 2590, and 45 CFR part 144.
The definition of STLDI is also relevant for purposes of the disclosure
and reporting requirements in section 2746 of the Public Health Service
Act (the PHS Act), which require health insurance issuers offering
individual health insurance coverage or STLDI to disclose to enrollees
in such coverage, and to report annually to the Department of Health
and Human Services (HHS), any direct or indirect compensation provided
by the issuer to an agent or broker associated with enrolling
individuals in such coverage.
These proposed rules also set forth proposed amendments to the
requirements for hospital indemnity and other fixed indemnity insurance
to be treated as an excepted benefit in the group and individual health
insurance markets (fixed indemnity excepted benefits coverage).\1\
Further, the Department of the Treasury (Treasury Department) and the
Internal Revenue Service (IRS) propose to clarify the tax treatment
under 26 CFR part 1 of fixed amounts received by a taxpayer through
certain employment-based accident or health insurance that are paid
without regard to the amount of medical expenses incurred.
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\1\ For simplicity and readability, this preamble refers to
hospital indemnity or other fixed indemnity insurance that meets all
requirements to be considered an excepted benefit under the Federal
framework as ``fixed indemnity excepted benefits coverage'' in order
to distinguish it from hospital indemnity or other fixed indemnity
insurance that does not meet all such requirements.
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Lastly, comments are solicited regarding coverage only for a
specified disease or illness that qualifies as excepted benefits
(specified disease excepted benefits coverage),\2\ and regarding level-
funded plan arrangements to better understand the key features and
characteristics of these arrangements and whether additional guidance
or rulemaking is needed to clarify plan sponsors' obligations with
respect to coverage provided through these arrangements.
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\2\ For simplicity and readability, this preamble refers to
specified disease or illness insurance coverage that meets all
requirements to be considered an excepted benefit under the Federal
framework as ``specified disease excepted benefits coverage'' in
order to distinguish it from specified disease or illness insurance
that does not meet all such requirements.
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[[Page 44597]]
The Treasury Department, the Department of Labor, and HHS
(collectively, the Departments) propose these revisions to define and
more clearly distinguish STLDI and fixed indemnity excepted benefits
coverage from comprehensive coverage. Comprehensive coverage is subject
to the Federal consumer protections and requirements established under
chapter 100 of the Internal Revenue Code (Code), part 7 of the Employee
Retirement Income Security Act of 1974 (ERISA), and title XXVII of the
PHS Act,\3\ such as the prohibition on exclusions for preexisting
conditions, the prohibition on health status discrimination, the
requirement to cover certain preventive services without cost sharing,
and many others. The Departments propose these revisions to promote
equitable access to high-quality, affordable, comprehensive coverage by
increasing consumers' understanding of their health coverage options
and reducing misinformation about STLDI and fixed indemnity excepted
benefits coverage, consistent with Executive Orders 14009 and 14070 as
described in section I.B of this preamble. Similarly, clarifying the
tax treatment of benefit payments in fixed amounts under hospital
indemnity or other fixed indemnity coverage purchased on a pre-tax
basis when those benefits are paid without regard to the medical
expenses incurred is also an important means by which to distinguish
that coverage from comprehensive coverage and should serve to promote
the purchase of comprehensive coverage in the group market.
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\3\ While STLDI is generally not subject to the Federal consumer
protections and requirements for comprehensive coverage that apply
to individual health insurance coverage, the agent and broker
compensation disclosure and reporting requirements in section 2746
of the PHS Act apply to health insurance issuers offering individual
health insurance coverage or STLDI.
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A. General Statutory Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA) (Pub. L. 104-191, August 21, 1996) added chapter 100 to the
Code, part 7 to ERISA, and title XXVII to the PHS Act, which set forth
portability and nondiscrimination rules with respect to health
coverage. These provisions of the Code, ERISA, and the PHS Act were
later augmented by other laws, including the Mental Health Parity Act
of 1996 (Pub. L. 104-204, September 26, 1996), the Paul Wellstone and
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008
(MHPAEA) (Pub. L. 110-343, October 3, 2008), the Newborns' and Mothers'
Health Protection Act (Pub. L. 104-204, September 26, 1996), the
Women's Health and Cancer Rights Act (Pub. L. 105-277, October 21,
1998), the Genetic Information Nondiscrimination Act of 2008 (Pub. L.
110-233, May 21, 2008), the Children's Health Insurance Program
Reauthorization Act of 2009 (Pub. L. 111-3, February 4, 2009),
Michelle's Law (Pub. L. 110-381, October 9, 2008), the Patient
Protection and Affordable Care Act (Pub. L. 111-148, March 23, 2010)
(as amended by the Health Care and Education Reconciliation Act of 2010
(Pub. L. 111-152, March 30, 2010) (collectively known as the Affordable
Care Act (ACA)), and Division BB of the Consolidated Appropriations
Act, 2021 (CAA, 2021) (Pub. L. 116-260, December 27, 2020), which
includes the No Surprises Act.
The ACA reorganized, amended, and added to the provisions of Part A
of title XXVII of the PHS Act relating to group health plans and health
insurance issuers in the group and individual markets. The ACA added
section 9815 of the Code and section 715 of ERISA to incorporate the
provisions of Part A of title XXVII of the PHS Act, as amended or added
by the ACA, into the Code and ERISA, making them applicable to group
health plans and health insurance issuers providing health insurance
coverage in connection with group health plans. The provisions of the
PHS Act incorporated into the Code and ERISA, as amended or added by
the ACA, are sections 2701 through 2728. In addition to marketwide
provisions applicable to group health plans and health insurance
issuers in the group and individual markets, the ACA established Health
Benefit Exchanges (Exchanges) aimed at promoting access to high-
quality, affordable, comprehensive coverage. Section 1401(a) of the ACA
added section 36B to the Code, providing a premium tax credit (PTC) for
certain individuals with annual household income that is at least 100
percent but not more than 400 percent of the Federal poverty level
(FPL) who enroll in, or who have one or more family members enrolled
in, an individual market qualified health plan (QHP) through an
Exchange, who are not otherwise eligible for minimum essential coverage
(MEC). Section 1402 of the ACA provides for, among other things,
reductions in cost sharing for essential health benefits for qualified
low- and moderate-income enrollees in silver-level QHPs purchased
through the individual market Exchanges. This section also provides for
reductions in cost sharing for American Indians enrolled in QHPs
purchased through the individual market Exchanges at any metal level.
Section 5000A of the Code, added by section 1501(b) of the ACA,
provides that individuals must maintain MEC, or make a payment known as
the individual shared responsibility payment with their Federal tax
return for the year in which they did not maintain MEC, if they are not
otherwise exempt.\4\ On December 22, 2017, the Tax Cuts and Jobs Act
(Pub. L. 115-97) was enacted, which included a provision under which
the individual shared responsibility payment under section 5000A of the
Code was reduced to $0, effective for months beginning after December
31, 2018.
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\4\ Section 5000A of the Code and Treasury regulations at 26 CFR
1.5000A-3 provide exemptions from the requirement to maintain MEC
for the following individuals: (1) members of recognized religious
sects; (2) members of health care sharing ministries; (3) exempt
noncitizens; (4) incarcerated individuals; (5) individuals with no
affordable coverage; (6) individuals with household income below the
income tax filing threshold; (7) members of federally recognized
Indian tribes; (8) individuals who qualify for a hardship exemption
certification; and (9) individuals with a short coverage gap of a
continuous period of less than 3 months in which the individual is
not covered under MEC. The eligibility standards for exemptions can
be found at 45 CFR 155.605.
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The American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) was
enacted on March 11, 2021. Among other policies intended to address the
health care and economic needs of the country during the coronavirus
disease-2019 (COVID-19) pandemic, the ARP increased the PTC amount for
individuals with annual household income at or below 400 percent of the
FPL and extended PTC eligibility for the first time to individuals with
annual household incomes above 400 percent of the FPL. Although the
expanded PTC subsidies under the ARP were applicable only for 2021 and
2022, the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169,
August 16, 2022) extended the subsidies for an additional 3 years,
through December 31, 2025.
The No Surprises Act was enacted on December 27, 2020, as title I
of Division BB of the CAA, 2021. The No Surprises Act added new
provisions in Subchapter B of chapter 100 of the Code, Part 7 of ERISA,
and Part D of title XXVII of the PHS Act, applicable to group health
plans and health insurance issuers offering group or individual health
insurance coverage. These provisions provide protections against
surprise medical bills for certain out-of-network services and
generally require plans and issuers and providers and
[[Page 44598]]
facilities to make certain disclosures regarding balance billing
protections to the public and to individual participants,
beneficiaries, and enrollees. In addition to the new provisions
applicable to group health plans and issuers of group or individual
health insurance coverage, the No Surprises Act added a new Part E to
title XXVII of the PHS Act, establishing corresponding requirements
applicable to health care providers, facilities, and providers of air
ambulance services. The CAA, 2021 also amended title XXVII of the PHS
Act to, among other things, add section 2746, which requires health
insurance issuers offering individual health insurance coverage or
STLDI to disclose the direct or indirect compensation provided by the
issuer to an agent or broker associated with enrolling individuals in
such coverage to the enrollees in such coverage as well as to report it
annually to HHS.
The Secretaries of HHS, Labor, and the Treasury have authority to
promulgate regulations as may be necessary or appropriate to carry out
the parallel Federal consumer protections and requirements for
comprehensive coverage established under the Code, ERISA, and the PHS
Act (hereinafter referred to as the ``Federal consumer protections and
requirements for comprehensive coverage'').\5\ \6\
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\5\ Sections 2701 through 2728 of the PHS Act, incorporated into
section 715 of ERISA and section 9815 of the Code; section 104 of
HIPAA; sections 408(b)(2), 505, 734, and 716-717 of ERISA; sections
2746, 2761, 2792, 2799A-1-2, and 2799B1-B2 of the PHS Act; section
1321(a)(1) and (c) of ACA; sections 7805, 9816-9817, and 9822 of the
Code; and sections 2746, 2799A-1-2, and 2799B1-B2 of the PHS Act.
\6\ See also 64 FR 70164 (December 15, 1999).
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B. Recent Executive Orders
On January 28, 2021, President Biden issued Executive Order 14009,
``Strengthening Medicaid and the Affordable Care Act,'' which directed
the Departments to review policies to ensure their consistency with the
Administration's goal of protecting and strengthening the ACA and
making high-quality health care accessible and affordable for every
American.\7\ Executive Order 14009 also directed Federal agencies to
examine policies or practices that may undermine protections for people
with preexisting conditions and that may reduce the affordability of
coverage or financial assistance for coverage. Executive Order 14009
also revoked the previous Administration's Executive Order 13813,
``Promoting Healthcare Choice and Competition Across the United
States,'' which directed agencies to expand the availability of
STLDI.\8\ On April 5, 2022, President Biden issued Executive Order
14070, ``Continuing to Strengthen Americans' Access to Affordable,
Quality Health Coverage,'' which directed the heads of Federal agencies
with responsibilities related to Americans' access to health coverage
to examine polices or practices that make it easier for all consumers
to enroll in and retain coverage, understand their coverage options,
and select appropriate coverage; that strengthen benefits and improve
access to health care providers; that improve the comprehensiveness of
coverage and protect consumers from low-quality coverage; and that help
reduce the burden of medical debt on households.\9\
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\7\ Executive Order 14009 of January 28, 2021, 86 FR 7793.
\8\ Executive Order 13813 of October 12, 2017, 82 FR 48385.
\9\ Executive Order 14070 of April 5, 2022, 87 FR 20689.
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In addition, on January 21, 2021, President Biden issued Executive
Order 13995, ``Ensuring an Equitable Pandemic Response and Recovery,''
which directed the Secretaries of Labor and HHS, and the heads of all
other agencies with authorities or responsibilities relating to the
COVID-19 pandemic response and recovery, to consider any barriers that
have restricted access to preventive measures, treatment, and other
health services for populations at high risk for COVID-19 infection,
and modify policies to advance equity.\10\
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\10\ Executive Order 13995 of January 21, 2021, 86 FR 7193.
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Consistent with these executive orders, the Departments have
reviewed the regulatory provisions related to STLDI and fixed indemnity
excepted benefits coverage, and propose amendments to those provisions
in these proposed rules. The Departments also solicit comments on
specified disease excepted benefit coverage (for example, cancer-only
policies) in section III.B.2 of this preamble and on level-funded plan
arrangements in section III.C of this preamble.
C. Short-Term, Limited-Duration Insurance (STLDI)
STLDI is a type of health insurance coverage sold by health
insurance issuers that is primarily designed to fill temporary gaps in
coverage that may occur when an individual is transitioning from one
plan or coverage to another, such as transitioning between employment-
based coverages. Section 2791(b)(5) of the PHS Act provides ``[t]he
term `individual health insurance coverage' means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited-duration insurance.'' \11\ The PHS Act does
not, however, define the phrase ``short-term, limited-duration
insurance.'' Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act
provide that group health insurance coverage means ``in connection with
a group health plan, health insurance coverage offered in connection
with such plan.'' Sections 733(a)(1) of ERISA and 2791(a)(1) of the PHS
Act provide that a group health plan is generally any plan, fund, or
program established or maintained by an employer (or employee
organization or both) for the purpose of providing medical care to
employees or their dependents (as defined under the terms of the plan)
directly, or through insurance, reimbursement, or otherwise. There is
no corresponding provision excluding STLDI from the definition of group
health insurance coverage. Thus, any health insurance that is sold in
the group market and purports to be STLDI must comply with applicable
Federal group market consumer protections and requirements for
comprehensive coverage, unless the coverage satisfies the requirements
of one or more types of group market excepted benefits.
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\11\ The definition of individual health insurance coverage (and
its exclusion of STLDI) has some limited relevance with respect to
certain provisions that apply to group health plans and group health
insurance issuers over which the Departments of Labor and the
Treasury also have jurisdiction. For example, an individual who
loses coverage due to moving out of a health maintenance
organization (HMO) service area in the individual market
precipitates a special enrollment right into a group health plan.
See 26 CFR 54.9801-6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)(i)(B), and
45 CFR 146.117(a)(3)(i)(B).
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Because STLDI is not individual health insurance coverage, it is
generally exempt from the applicable Federal individual market consumer
protections and requirements for comprehensive coverage. STLDI is not
subject to many PHS Act provisions that apply to individual health
insurance coverage under the ACA including, for example, the
prohibition of preexisting condition exclusions or other discrimination
based on health status (section 2704 of the PHS Act), the prohibition
on discrimination against individual participants and beneficiaries
based on health status (section 2705 of the PHS Act), nondiscrimination
in health care (section 2706 of the PHS Act), and the prohibition on
lifetime and annual dollar limits on essential health benefits (section
2711 of the PHS Act). In addition, STLDI is not subject to the Federal
consumer protections and
[[Page 44599]]
requirements added to the PHS Act by other laws that apply to
individual health insurance coverage, including MHPAEA (Pub. L. 110-
343, October 3, 2008) (section 2726 of the PHS Act), and the No
Surprises Act, as added by the CAA, 2021. Thus, individuals who enroll
in STLDI are not guaranteed these key consumer protections under
Federal law.\12\ This feature of STLDI is especially problematic when
it is not readily apparent to consumers deciding whether to purchase
STLDI or comprehensive individual health insurance coverage.
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\12\ Some state laws apply some consumer protections and
requirements that parallel those in the ACA to STLDI.
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In 1997, the Departments issued interim final rules implementing
the portability and renewability requirements of HIPAA (1997 HIPAA
interim final rules).\13\ Those interim final rules included
definitions of individual health insurance coverage, as well as STLDI.
That definition of STLDI, which was finalized in rules issued in 2004
and applied through 2016, 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 (taking into account any extensions that may be elected by the
policyholder without the issuer's consent) that is less than 12 months
after the original effective date of the contract.'' \14\
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\13\ 62 FR 16894 (April 8, 1997).
\14\ 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see
also 69 FR 78720 (December 30, 2004).
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To address the issue of STLDI being sold as a type of primary
coverage, as well as concerns regarding possible adverse selection
impacts on the individual market risk pools that were created under the
ACA,\15\ the Departments published proposed rules on June 10, 2016 in
the Federal Register titled ``Expatriate Health Plans, Expatriate
Health Plan Issuers, and Qualified Expatriates; Excepted Benefits;
Lifetime and Annual Limits; and Short-Term, Limited-Duration
Insurance'' (2016 proposed rules). Those rules proposed to revise the
Federal definition of STLDI by shortening the permitted duration of
such coverage, and adopting a consumer notice provision.\16\ On October
31, 2016, the Departments finalized the 2016 proposed rules related to
STLDI without change in final rules published in the Federal Register
titled ``Excepted Benefits; Lifetime and Annual Limits; and Short-Term,
Limited-Duration Insurance'' (2016 final rules).\17\ The 2016 final
rules amended the definition of STLDI to specify that the maximum
coverage period must be less than 3 months, taking into account any
extensions that may be elected by the policyholder with or without the
issuer's consent.\18\ In addition, the 2016 final rules stated that the
following notice must be prominently displayed in the contract and in
any application materials provided in connection with enrollment in
STLDI, in at least 14 point type:
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\15\ See Public Law 111-148, section 1312(c)(1) and 45 CFR
156.80.
\16\ 81 FR 38019 (June 10, 2016).
\17\ 81 FR 75316 (October 31, 2016).
\18\ Id. at 75317-75318.
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THIS IS NOT QUALIFYING HEALTH COVERAGE (``MINIMUM ESSENTIAL
COVERAGE'') THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE
AFFORDABLE CARE ACT. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE, YOU
MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.\19\
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\19\ Id.
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On June 12, 2017, HHS published a request for information (RFI) in
the Federal Register titled ``Reducing Regulatory Burdens Imposed by
the Patient Protection and Affordable Care Act & Improving Healthcare
Choices to Empower Patients,'' \20\ which solicited comments about
potential changes to existing regulations and guidance that could
promote consumer choice, enhance affordability of coverage for
individual consumers, and affirm the traditional regulatory authority
of the States in regulating the business of health insurance, among
other goals.\21\ In response to this RFI, HHS received comments that
recommended maintaining the definition of STLDI adopted in the 2016
final rules, and comments that recommended expanding the definition to
allow for a longer period of coverage. Commenters in support of
maintaining the definition adopted in the 2016 final rules expressed
concern that changing the definition could leave enrollees in STLDI at
risk for significant out-of-pocket costs, and cautioned that expanding
the definition of STLDI could facilitate its sale to individuals as
their primary form of health coverage, even though such insurance lacks
key consumer protections under Federal law that apply to individual
health insurance coverage. Commenters in favor of maintaining the
definition in the 2016 final rules also suggested that amending the
2016 final rules to include coverage lasting 3 months or more could
have the effect of pulling healthier people out of the individual
market risk pools, thereby increasing overall premium costs for
enrollees in individual health insurance coverage and destabilizing the
individual market.
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\20\ 82 FR 26885 (June 12, 2017).
\21\ See also Executive Order 13813 of October 12, 2017 82 FR
48385. (Directing the Secretaries of the Treasury, Labor and HHS ``.
. . to consider proposing regulations or revising guidance,
consistent with law, to expand the availability of [STLDI]. To the
extent permitted by law and supported by sound policy, the
Secretaries should consider allowing such insurance to cover longer
periods and be renewed by the consumer.'')
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In contrast, several other commenters stated that changes to the
2016 final rules may provide an opportunity to achieve the goals
outlined in the RFI (for example, to promote consumer choice, enhance
affordability, and affirm the traditional authority of the States in
regulating the business of insurance). These commenters stated that
shortening the permitted length of STLDI policies in the 2016 final
rules had deprived individuals of affordable coverage options. One
commenter explained that due to the increased costs of comprehensive
coverage, many financially stressed individuals could be faced with a
choice between purchasing STLDI and going without any coverage at all.
One commenter highlighted the need for STLDI for individuals who are
between jobs for a relatively long period and for whom enrolling in
Consolidated Omnibus Budget Reconciliation Act (COBRA) \22\
continuation coverage is financially infeasible. Another commenter
noted that States have the primary responsibility to regulate STLDI and
encouraged the Departments to defer to the States' authority with
respect to such coverage.
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\22\ Public Law 99-272, April 7, 1986.
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On February 21, 2018, the Departments published proposed rules in
the Federal Register titled ``Short-Term, Limited-Duration Insurance''
(2018 proposed rules) in which the Departments proposed changing the
definition of STLDI to provide that such insurance may have a maximum
coverage period of less than 12 months after the original effective
date of the contract, taking into account any extensions that may be
elected by the policyholder without the issuer's consent.\23\ Among
other things, the Departments solicited comments on whether the maximum
length of STLDI should be less than 12 months or some other duration
and under what conditions issuers should be able to allow such coverage
to continue for 12 months or longer. In addition, the Departments
proposed to revise the content of the consumer notice that must appear
in the contract and any application materials provided in
[[Page 44600]]
connection with enrollment in STLDI. The 2018 proposed rules included
two variations of the consumer notice--one for policies that had a
coverage start date before January 1, 2019, and the other for policies
that had a coverage start date on or after January 1, 2019, which
excluded language referencing the individual shared responsibility
payment (which was reduced to $0 for months beginning after December
2018).\24\
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\23\ 83 FR 7437 (February 21, 2018).
\24\ Public Law 115-97, December 22, 2017.
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Some commenters on the 2018 proposed rules acknowledged that STLDI
fills an important role by providing temporary coverage, but that such
insurance should not take the place of comprehensive coverage. These
commenters expressed concern that allowing STLDI to be marketed as a
viable alternative to comprehensive coverage would subject uninformed
consumers to potentially severe financial risks. Commenters who opposed
the proposed changes to the definition also expressed concern that such
plans would siphon off healthier individuals from the market for
individual health insurance coverage, thereby raising premiums for
individual health insurance coverage.
Many of these commenters also expressed concerns about the lack of
protections for consumers who purchase STLDI, stating that such
policies are not a viable option for people with serious or chronic
medical conditions due to potential coverage exclusions and benefit
limitations in STLDI policies. These commenters further observed that
STLDI policies can discriminate against individuals with serious
illnesses or preexisting conditions, including individuals with mental
health and substance use disorders, older consumers, women, transgender
patients, persons with gender identity-related health concerns, and
victims of rape and domestic violence. Many of these commenters also
expressed concern about aggressive and deceptive marketing practices
utilized by marketers of STLDI.
Other commenters highlighted the important role that STLDI could
play in providing temporary coverage to individuals who would otherwise
be uninsured. These commenters, who supported the proposed changes to
the definition, also noted that such changes would allow purchasers of
STLDI to obtain the coverage they want at a more affordable price for a
longer period.
With respect to the maximum length of the initial contract term for
STLDI, most commenters opposed extending the maximum duration beyond 3
months. Others suggested periods such as less than 6 or 8 months.
However, most commenters who supported extending the maximum initial
contract term beyond 3 months suggested it should be 364 days. A few
commenters suggested more than 1 year. Other commenters stated the
maximum length of coverage should be left to the States. Commenters who
supported the 2018 proposed rules generally favored permitting renewals
of STLDI policies, while those who opposed the 2018 proposed rules
generally opposed permitting such renewals.
After reviewing comments and feedback received from interested
parties, on August 3, 2018, the Departments published final rules in
the Federal Register titled ``Short-Term, Limited-Duration Insurance''
(2018 final rules) \25\ with some modifications from the 2018 proposed
rules. Specifically, in the 2018 final rules, the Departments amended
the definition of STLDI to provide that STLDI is coverage with an
initial term specified in the contract that is less than 12 months
after the original effective date of the contract, and taking into
account renewals or extensions, has a duration of no longer than 36
months in total.\26\ The 2018 final rules also finalized the provision
that issuers of STLDI must display one of two versions of a notice
prominently in the contract and in any application materials provided
in connection with enrollment in such coverage, in at least 14-point
type. Under the 2018 final rules, the notice must read as follows (with
the final two sentences omitted for policies sold on or after January
1, 2019):
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\25\ 83 FR 38212 (August 3, 2018).
\26\ Id.
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.
D. Independent, Noncoordinated Excepted Benefits: Hospital Indemnity or
Other Fixed Indemnity Insurance and Specified Disease or Illness
Coverage
Section 9831 of the Code, section 732 of ERISA, and sections
2722(b)-(c) and 2763 of the PHS Act provide that the respective Federal
consumer protections and requirements for comprehensive coverage do not
apply to any individual coverage or any group health plan (or group
health insurance coverage offered in connection with a group health
plan) in relation to its provision of certain types of benefits, known
as ``excepted benefits.'' These excepted benefits are described in
section 9832(c) of the Code, section 733(c) of ERISA, and section
2791(c) of the PHS Act.
HIPAA defined certain types of coverage as ``excepted benefits''
that were exempt from its portability requirements.\27\ The same
definitions are applied to describe benefits that are not required to
comply with some of the ACA requirements.\28\ There are four statutory
categories of excepted benefits: independent, noncoordinated excepted
benefits, which are the subject of these proposed rules; benefits that
are excepted in all circumstances; \29\ limited excepted benefits; \30\
and supplemental excepted benefits.\31\ The category ``independent,
noncoordinated excepted benefits'' includes coverage for only a
[[Page 44601]]
specified disease or illness (such as cancer-only policies) and
hospital indemnity or other fixed indemnity insurance. These benefits
are excepted under section 9831(c)(2) of the Code, section 732(c)(2) of
ERISA, and section 2722(c)(2) of the PHS Act only if all of the
following conditions are met: (1) the benefits are provided under a
separate policy, certificate, or contract of insurance; (2) there is no
coordination between the provision of such benefits and any exclusion
of benefits under any group health plan maintained by the same plan
sponsor; and (3) the benefits are paid with respect to an event without
regard to whether benefits are provided with respect to such event
under any group health plan maintained by the same plan sponsor or,
with respect to individual coverage, under any health insurance
coverage maintained by the same health insurance issuer.\32\ In
addition, under the existing regulations, hospital indemnity and other
fixed indemnity insurance in the group market must pay a fixed dollar
amount per day (or other period) of hospitalization or illness,
regardless of the amounts of expenses incurred, to be considered an
excepted benefit.\33\ In the individual market, under the existing
regulations, hospital indemnity and other fixed indemnity insurance
must pay benefits in a fixed dollar amount per period of
hospitalization or illness and/or per-service (for example, $100/day or
$50/visit), regardless of the amount of expense incurred, to be
considered an excepted benefit.\34\
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\27\ See sections 9831(b)-(c) and 9832(c) of the Code, sections
732(b)-(c) and 733(c) of ERISA, and sections 2722(b)-(c), 2763 and
2791(c) of the PHS Act.
\28\ Section 1551 of the ACA. See also section 1563(a) and
(b)(12) of the ACA. Excepted benefits are also not subject to the
consumer protections and other Federal requirements that apply to
comprehensive coverage, including MHPAEA, the Newborns' and Mothers'
Health Protection Act, the Women's Health and Cancer Rights Act, the
Genetic Information Nondiscrimination Act of 2008, the Children's
Health Insurance Program Reauthorization Act of 2009, Michelle's
Law, and Division BB of the CAA, 2021.
\29\ Under section 9832(c)(1) of the Code, section 733(c)(1) of
ERISA, and section 2791(c)(1) of the PHS Act, this category
includes, for example, accident and disability income insurance,
automobile medical payment insurance, liability insurance and
workers compensation, as well as ``[o]ther similar insurance
coverage, specified in regulations, under which benefits for medical
care are secondary or incidental to other insurance benefits.''
\30\ Under section 9832(c)(2) of the Code, section 733(c)(2) of
ERISA, and section 2791(c)(2) of the PHS Act, this category includes
limited scope vision or dental benefits, benefits for long-term
care, nursing home care, home health care, or community-based care,
or other, similar limited benefits specified by the Departments
through regulation.
\31\ Under section 9832(c)(4) of the Code, section 733(c)(4) of
ERISA, and section 2791(c)(4) of the PHS Act, this category includes
Medicare supplemental health insurance (also known as Medigap),
TRICARE supplemental programs, or ``similar supplemental coverage
provided to coverage under a group health plan.''
\32\ See also section 2763(b) of the PHS Act (providing that
``[the] requirements of this part [related to the HIPAA individual
market reforms] shall not apply to any health insurance coverage in
relation to its provision of excepted benefits described in
paragraph (2), (3), or (4) of section 2791(c) if the benefits are
provided under a separate policy, certificate or contract of
insurance.'').
\33\ 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR
146.145(b)(4).
\34\ 45 CFR 148.220(b)(4).
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The proposals in these rules related to independent, noncoordinated
excepted benefits coverage are focused on the conditions that must be
met for hospital indemnity and other fixed indemnity insurance in the
group or individual markets to be considered excepted benefits under
the Federal regulations. Additionally, in section III.B.2 of this
preamble, the Departments solicit comments regarding specified disease
excepted benefits coverage in the group and individual markets to
inform potential future guidance or rulemaking related to such
coverage, but are not proposing changes to the Federal regulations
governing such coverage in this rulemaking.
1. Fixed Indemnity Excepted Benefits Coverage
Like other forms of excepted benefits, fixed indemnity excepted
benefits coverage does not provide comprehensive coverage. Rather, its
primary purpose is to provide income replacement benefits.\35\ Benefits
under this type of coverage are paid in a flat (``fixed'') cash amount
following the occurrence of a health-related event, such as a period of
hospitalization or illness, subject to the terms of the contract. In
addition, benefits are typically provided at a pre-determined level
regardless of any actual health care costs incurred by a covered
individual with respect to the qualifying event. Although a benefit
payment may equal all or a portion of the cost of care related to an
event, it is not necessarily designed to do so, and the benefit payment
is made without regard to the amount of medical expense incurred.\36\
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\35\ See, e.g., 62 FR 16903 (April 8, 1997) and 79 FR 15818
(July 8, 2014).
\36\ Jost, Timothy (2017). ``ACA Round-Up: Market Stabilization,
Fixed Indemnity Plans, Cost Sharing Reductions, and Penalty
Updates,'' Health Affairs, available at: <a href="https://www.healthaffairs.org/do/10.1377/forefront.20170208.058674/full">https://www.healthaffairs.org/do/10.1377/forefront.20170208.058674/full</a>.
(``Fixed indemnity coverage is excepted benefit coverage that pays a
fixed amount per-service or per-time period of service without
regard to the cost of the service or the type of items or services
provided.'').
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Traditionally, benefits under fixed indemnity excepted benefits
coverage are paid directly to a policyholder, rather than to a health
care provider or facility, and the policyholder has discretion over how
to use such benefits--including using the benefits to cover non-medical
expenses that may or may not be related to the event that precipitated
the payment of benefits.\37\ Because fixed indemnity excepted benefits
coverage is capped at a maximum benefit payment, design features aimed
at reducing risk to the plan or issuer that are common in comprehensive
coverage (such as medical management techniques, use of a preferred
network of providers, or cost-sharing requirements) are unnecessary and
are generally absent in this coverage.\38\
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\37\ AHIP (2019). ``Supplemental Health Insurance: Hospital or
Other Fixed Indemnity, Accident-Only, Critical Illness,'' available
at: <a href="https://www.ahip.org/documents/Supplemental-Health-Insurance-Fast-Facts.pdf">https://www.ahip.org/documents/Supplemental-Health-Insurance-Fast-Facts.pdf</a>.
\38\ Young, Christen Linke and Kathleen Hannick (2020). ``Fixed
Indemnity Coverage is a Problematic Form of ``Junk'' Insurance,''
U.S.C.-Brookings Schaeffer Initiative for Health Policy, available
at: <a href="https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance">https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance</a>. (``Consumers are often seeking a
product that transfers catastrophic financial risk to the health
plan, but fixed indemnity products--almost by definition--do not do
this. They set a payment amount associated with a specific service
or kind of service [that] is received, and consumers are responsible
for any difference between this set payment amount and the actual
cost of care.'').
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a. Group Market Regulations and Guidance
The Departments' 1997 interim final rules implementing the
portability and renewability requirements of HIPAA codified at 26 CFR
54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4)
established requirements for hospital indemnity and other fixed
indemnity insurance to qualify as an excepted benefit in the group
market. These requirements, which were effective until February 27,
2005, provided that coverage for hospital indemnity or other fixed
dollar indemnity insurance is excepted only if it meets each of the
following conditions: (1) the benefits are provided under a separate
policy, certificate or contract of insurance; (2) there is no
coordination between the provision of the benefits and an exclusion of
benefits under any group health plan maintained by the same plan
sponsor; and (3) the benefits are paid with respect to an event without
regard to whether benefits are provided with respect to the event under
any group health plan maintained by the same plan sponsor.\39\
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\39\ 62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971
(April 8, 1997).
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The Departments' group market regulations for fixed indemnity
excepted benefits coverage were first amended in the 2004 HIPAA group
market final rules. Those amendments added language to further clarify
that to be hospital indemnity or other fixed indemnity insurance that
is an excepted benefit, the insurance must pay a fixed dollar amount
per day (or per other time period) of hospitalization or illness (for
example, $100/day) regardless of the amount of expenses incurred.\40\
An illustrative example was also codified as part of these amendments
clarifying that a policy providing benefits only for hospital stays at
a fixed percentage of hospital expenses up to a maximum amount per day
does not qualify as an excepted benefit.\41\ As explained in the 2004
HIPAA group market final rules, the result is the same even if, in
practice, the policy pays the maximum for every day of
hospitalization.\42\
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\40\ 69 FR 78720 at 78735, 78762, 78780, and 78798-78799
(December 30, 2004).
\41\ Id. See also 26 CFR 54.9831-1(c)(4)(iii), 29 CFR
2590.732(c)(4)(iii), and 45 CFR 146.145(b)(4)(iii).
\42\ Id.
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The Departments later released Frequently Asked Questions (FAQ) on
January 24, 2013, to offer additional guidance on the types of hospital
indemnity or other fixed indemnity
[[Page 44602]]
insurance that meet the criteria for fixed indemnity excepted benefits
coverage.\43\ The Departments issued the FAQ in response to reports
that policies were being advertised as fixed indemnity coverage but
were paying a fixed amount on a per-service basis (for example, per
doctor visit or surgical procedure) rather than a fixed amount per
period (for example, per day or per week). The FAQ affirmed that, under
the 2004 HIPAA group market final rules, to qualify as fixed indemnity
excepted benefits coverage, the policy must pay benefits on a per-
period basis as opposed to on a per-service basis.\44\ It also affirmed
that group health insurance coverage that provides benefits in varying
amounts based on the type of procedure or item, such as the type of
surgery actually performed or prescription drug provided, does not
qualify as fixed indemnity excepted benefits coverage because it does
not meet the condition that benefits be provided on a per-period basis,
regardless of the amount of expenses incurred.\45\
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\43\ Frequently Asked Questions about Affordable Care Act
Implementation (Part XI) (Jan. 24, 2013), Q7, available at: <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf</a> and <a href="https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11">https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11</a>.
\44\ Id.
\45\ Id.
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The Departments proposed amendments to the group market regulations
for fixed indemnity excepted benefits coverage in the 2016 proposed
rules.\46\ As explained in those proposed rules, the Departments were
concerned that some individuals may mistake these policies for
comprehensive coverage that would be considered MEC.\47\ To avoid this
confusion, the Departments proposed to adopt a notice requirement to
inform enrollees and potential enrollees that the coverage is a
supplement to, rather than a substitute for, comprehensive coverage,
and also proposed to codify two illustrative examples to further
clarify the condition that benefits be provided on a per-period
basis.\48\ The Departments also requested comments on whether the
conditions for hospital indemnity or other fixed indemnity insurance to
be considered excepted benefits should be more substantively aligned
between the group and individual markets.\49\ After consideration of
comments, the Departments did not finalize the proposed changes to the
group market regulation but noted their intention to address hospital
indemnity and other fixed indemnity insurance in future rulemaking.\50\
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\46\ 81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-
38046 (June 10, 2016).
\47\ Id. at 38031-38032.
\48\ Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.
\49\ As described in section I.D.1.b of this preamble, HHS
amended the individual market fixed indemnity excepted benefits
coverage regulation to provide additional flexibility, subject to
several additional requirements that do not apply in the group
market. 79 FR 30239 (May 27, 2014).
\50\ 81 FR 75316 at 75317 (October 31, 2016).
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b. Individual Market Regulations and Guidance
HHS also issued an interim final rule in 1997 establishing the
regulatory framework for the HIPAA individual market Federal
requirements and addressing the requirements for hospital indemnity and
other fixed indemnity insurance to qualify as an excepted benefit in
the individual market.\51\ The initial HIPAA individual market fixed
indemnity excepted benefits coverage regulation, which was effective
until July 27, 2014, provided an exemption from the Federal individual
market consumer protections and requirements for comprehensive coverage
if the hospital indemnity or other fixed indemnity insurance provided
benefits under a separate policy, certificate, or contract of insurance
and met the noncoordination-of-benefits requirements outlined in the
HHS group market excepted benefits regulations.\52\
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\51\ 62 FR 16985 at 16992 and 17004 (April 8, 1997).
\52\ Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
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Following issuance of the Departments' January 24, 2013 FAQ,\53\
State insurance regulators and industry groups representing health
insurance issuers expressed concerns that prohibiting hospital
indemnity and other fixed indemnity insurance from payment on a per-
service basis in order to qualify as an excepted benefit could limit
consumer access to an important supplemental coverage option.\54\ Based
on this feedback, HHS announced in an FAQ released in January 2014 that
it intended to propose amendments to the individual market fixed
indemnity excepted benefits coverage regulation to allow hospital
indemnity or other fixed indemnity insurance sold in the individual
market to be considered an excepted benefit if four conditions were
met.\55\ First, such coverage would be sold only to individuals who
have other health coverage that is MEC, within the meaning of section
5000A(f) of the Code. Second, no coordination between the provision of
benefits and an exclusion of benefits under any other health coverage
would be permitted. Third, benefits would be paid in a fixed dollar
amount regardless of the amount of expenses incurred and without regard
to whether benefits are provided with respect to an event or service
under any other health insurance coverage. Finally, a notice would have
to be prominently displayed to inform policyholders that the coverage
is not MEC and would not satisfy the individual shared responsibility
requirements of section 5000A of the Code. HHS explained that if these
proposed revisions were implemented, hospital indemnity or other fixed
indemnity insurance in the individual market would no longer have to
pay benefits solely on a per-period basis to qualify as an excepted
benefit.
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\53\ Frequently Asked Questions about Affordable Care Act
Implementation (Part XI) (Jan. 24, 2013), available at: <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf</a> and <a href="https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11">https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11</a>.
\54\ While the FAQ only addressed fixed indemnity insurance sold
in the group market, the same statutory framework and legal analysis
also applies to hospital indemnity and fixed indemnity insurance
sold in the individual market.
\55\ Frequently Asked Questions about Affordable Care Act
Implementation (Part XXVIII) and Mental Health Parity Implementation
(Jan. 9, 2014), Q11, available at: <a href="https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-xviii.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-xviii.pdf</a> and <a href="https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18">https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18</a>.
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In the proposed rule titled ``Patient Protection and Affordable
Care Act; Exchange and Insurance Market Standards for 2015 and Beyond''
(2014 proposed rule), HHS proposed to amend the criteria in 45 CFR
148.220 for fixed indemnity insurance to be treated as an excepted
benefit in the individual market.\56\ Consistent with the framework
outlined in the January 2014 FAQ, the amendments proposed to eliminate
the requirement that individual market fixed indemnity excepted
benefits coverage must pay benefits only on a per-period basis (as
opposed to a per-service basis) and instead proposed to require, among
other things, that it be sold only as secondary to other health
coverage that is MEC to qualify as an excepted benefit.\57\
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\56\ 79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
\57\ Id.
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On July 28, 2014, in the rule titled ``Patient Protection and
Affordable Care Act; Exchange and Insurance Market Standards for 2015
and Beyond'' (2014 final rule), HHS finalized the proposed amendments
to 45 CFR 148.220(b)(4) with some modifications. Pursuant to the
finalized amendments, hospital indemnity or other fixed indemnity
insurance in the individual market may
[[Page 44603]]
qualify as fixed indemnity excepted benefits coverage if it is paid on
either a per-period or per-service basis subject to several additional
requirements that do not apply to fixed indemnity excepted benefits
coverage in the group market.\58\ Under 45 CFR 148.220(b)(4)(i), to
qualify as excepted benefits coverage, benefits under an individual
market hospital indemnity or other fixed indemnity insurance policy may
only be provided to individuals who attest in their application that
they have other health coverage that is MEC within the meaning of
section 5000A(f) of the Code, or that they are treated as having MEC
due to their status as a bona fide resident of any possession of the
United States pursuant to section 5000A(f)(4)(B) of the Code.\59\
Further, to qualify as an excepted benefit, 45 CFR 148.220(b)(4)(iv)
requires specific notice language be prominently displayed in the
application materials for individual market hospital indemnity or other
fixed indemnity insurance. Finally, consistent with the group market
fixed indemnity excepted benefits coverage regulations, 45 CFR
148.220(b)(4)(ii) implements the statutory noncoordination standard and
requires that there is no coordination between the provision of
benefits under the individual market fixed indemnity excepted benefits
insurance policy and an exclusion of benefits under any other health
coverage.
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\58\ 79 FR 30239 (May 27, 2014).
\59\ As discussed later in this section and in section III.B.1.a
of this preamble, the U.S. Court of Appeals for the District of
Columbia vacated the requirement at 45 CFR 148.220(b)(4)(i) that an
individual attest to having MEC prior to purchasing a fixed
indemnity policy in order for the policy to qualify as an excepted
benefit. Central United Life Insurance v. Burwell, 827 F.3d 70 (D.C.
Cir. 2016).
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HHS made these changes in the 2014 final rule for two reasons.
First, as stated previously, interested parties, including State
insurance regulators and industry groups representing health insurance
issuers, communicated to HHS that fixed indemnity plans that paid
benefits on a per-service basis were widely available as a complement
to comprehensive coverage in the group and individual markets. The
National Association of Insurance Commissioners (NAIC) also expressed
that State insurance regulators believed fixed indemnity plans that
paid benefits on a per-service basis provided consumers an important
supplemental coverage option by helping consumers that purchase MEC pay
for out-of-pocket costs.\60\ Second, beginning in 2014, most consumers
were required to have MEC in order to avoid being subject to an
individual shared responsibility payment under section 5000A of the
Code. HHS adopted the MEC attestation requirement to prevent fixed
indemnity excepted benefits coverage in the individual market from
being offered as a substitute for comprehensive coverage while also
accommodating the concerns of interested parties who supported allowing
fixed indemnity excepted benefits coverage in the individual market to
pay benefits on a per-service basis, rather than only on a per-period
basis.\61\ However, in its 2016 decision in Central United Life
Insurance Company v. Burwell, the U.S. Court of Appeals for the
District of Columbia invalidated the requirement at 45 CFR
148.220(b)(4)(i) that an individual must attest to having MEC prior to
purchasing fixed indemnity excepted benefits coverage in the individual
market.\62\ The Court did not engage in a severability analysis to
determine whether HHS would have intended to leave the remaining
provisions of the regulation in place, and left intact the language
permitting fixed indemnity excepted benefits coverage in the individual
market to be provided on a per-service basis.
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\60\ National Association of Insurance Commissioners (2013).
``Letter to Secretaries of Labor, Treasury, and Health and Human
Services,'' available at: <a href="https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541">https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541</a>. (``State regulators believe
hospital and other fixed indemnity coverage with variable fixed
amounts based on service type could provide important options for
consumers as supplemental coverage. Consumers who purchase
comprehensive coverage that meets the definition of `minimum
essential coverage' may still wish to buy fixed indemnity coverage
to help meet out-of-pocket medical and other costs.'').
\61\ 79 FR 30239 at 30255 (May 27, 2014).
\62\ 827 F.3d 70 (D.C. Cir. July 1, 2016).
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2. Specified Disease Excepted Benefits Coverage
Like hospital indemnity or other fixed indemnity insurance,
coverage only for a specified disease or illness that meets the
requirements under section 9831(c)(2) of the Code, section 732(c)(2) of
ERISA, and section 2722(c)(2) of the PHS Act qualifies as a form of
independent, noncoordinated excepted benefits coverage.\63\ Specified
disease excepted benefits coverage is also not an alternative to
comprehensive coverage, but rather provides a cash benefit related to
the diagnosis or the receipt of items or services related to the
treatment of one or more medical conditions specified in the insurance
policy, certificate, or contract of insurance. The Departments are
aware of various forms of coverage being marketed to consumers as
specified disease or illness coverage under a number of labels,
including ``specified disease,'' ``critical illness,'' and ``dread
disease'' coverage (or insurance).\64\ Some forms of specified disease
excepted benefits coverage pay benefits based on diagnosis or treatment
for a single condition (such as diabetes), while others pay benefits
related to diagnosis or treatment for a disease category (such as
cancer).
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\63\ See also section 2763(b) of the PHS Act.
\64\ See <a href="http://Healthinsurance.org">Healthinsurance.org</a> (2023). ``Glossary: What is a
Critical Illness Plan?,'' available at: <a href="https://www.healthinsurance.org/glossary/critical-illness-plan">https://www.healthinsurance.org/glossary/critical-illness-plan</a>. See also
American Council of Life Insurers (2021). ``Model 171 Benefits
Overview: Presented to the NAIC Accident and Sickness Minimum
Standards (B) Subgroup,'' available at: <a href="https://content.naic.org/sites/default/files/call_materials/Supplemental%20Benefits%20Overview.pdf">https://content.naic.org/sites/default/files/call_materials/Supplemental%20Benefits%20Overview.pdf</a>.
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The Departments codified requirements for coverage only for a
specified disease or illness to qualify as an excepted benefit in the
group market in the 1997 HIPAA interim final rules.\65\ To qualify as
excepted benefits in the group market, specified disease or illness
coverage (for example, cancer-only policies) must provide benefits
under a separate policy, certificate, or contract of insurance; there
must be no coordination between the provision of the benefits and an
exclusion of benefits under any group health plan maintained by the
same plan sponsor; and benefits must be paid with respect to an event
without regard to whether benefits are provided with respect to the
event under any group health plan maintained by the same plan
sponsor.<SUP>66 67</SUP> HHS codified similar requirements for
specified disease or illness coverage to qualify as an excepted benefit
in the individual market in the 1997 interim final rule that
established the regulatory framework for the HIPAA individual
market.\68\ Unlike fixed indemnity excepted benefits coverage, the
Departments have not issued subsequent rulemaking or guidance regarding
specified disease excepted benefits coverage.
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\65\ 62 FR 16894 at 16903 (April 8, 1997).
\66\ See 26 CFR 54.9831-1(c)(4)(i) and (ii), 29 CFR
2590.732(c)(4)(i) and (ii), and 45 CFR 146.145(b)(4)(i) and (ii).
\67\ The Departments' group market regulations for specified
disease excepted benefits coverage were later affirmed, without
change, in the 2004 HIPAA group market final rules. See 69 FR 78720
at 78762, 78780, and 78798-78799 (December 30, 2004). See also 45
CFR 148.220(b)(3).
\68\ 62 FR 16985 at 16992, 17004 (April 8, 1997). See also
section 2763(b) of the PHS Act.
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In the preamble to the 2016 proposed rules, the Departments
solicited comments on whether a policy covering multiple specified
diseases or illnesses may be considered to be excepted benefits, but
did not propose changes to the rules governing specified disease
excepted benefits coverage. The Departments sought comments on
[[Page 44604]]
whether such policies should be considered excepted benefits and, if
so, whether protections were needed to ensure they were not mistaken
for comprehensive coverage, expressing concern that individuals who
purchase a specified disease policy covering multiple diseases or
illnesses may incorrectly believe they are purchasing comprehensive
coverage when, in fact, these polices are not subject to Federal
consumer protections and requirements for comprehensive coverage.\69\
The Departments declined to address specified disease excepted benefits
coverage in the 2016 final rules, but noted that they might address
such coverage in future regulations or guidance.\70\
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\69\ 81 FR 38019, 38032 (June 10, 2016).
\70\ 81 FR 75316, 75317, footnote 12 (October 31, 2016).
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E. Tax Treatment and Substantiation Requirements for Amounts Received
From Fixed Indemnity Insurance and Certain Other Arrangements
Hospital indemnity or other fixed indemnity insurance and coverage
only for a specified disease or illness are treated as ``accident or
health insurance'' under sections 104, 105, and 106 of the Code whether
or not they are excepted benefits. Premiums paid by an employer
(including by salary reduction pursuant to section 125 of the Code) for
accident or health insurance are excluded from an employee's gross
income under section 106 of the Code.
Amounts received from accident or health insurance are excluded
from a taxpayer's gross income under section 104(a)(3) of the Code if
the premiums are paid for on an after-tax basis. The exclusion from
gross income for these amounts under section 104(a)(3) of the Code does
not apply to amounts attributable to contributions by an employer that
were not includible in the gross income of the employee or amounts paid
directly by the employer. This means that the exclusion under section
104(a)(3) of the Code does not apply where the premiums or
contributions paid for the accident or health insurance are paid on a
pre-tax basis. The taxation of amounts received by an employee from
accident or health insurance where the premiums or contributions are
paid on a pre-tax basis is determined under section 105 of the Code.
Section 105(a) of the Code provides that amounts received by an
employee through accident or health insurance for personal injuries or
sickness are included in gross income, except as otherwise provided in
section 105. Section 105(b) of the Code excludes from gross income
amounts paid by the employer to reimburse an employee's expenses for
medical care (as defined in section 213(d) of the Code). Under 26 CFR
1.105-2, the exclusion from gross income in section 105(b) of the Code
``applies only to amounts which are paid specifically to reimburse the
taxpayer for expenses incurred by him for the prescribed medical care.
Thus, section 105(b) does not apply to amounts which the taxpayer would
be entitled to receive irrespective of whether or not he incurs
expenses for medical care'' and ``section 105(b) is not applicable to
the extent that such amounts exceed the amount of the actual expenses
for such medical care.'' Further, under longstanding regulations and
guidance issued by the Treasury Department and the IRS, amounts for
medical expenses within the meaning of section 213(d) of the Code must
be substantiated if reimbursed by employment-based accident or health
insurance that would not be excluded from a taxpayer's gross income but
for the application of section 105(b) of the Code.\71\
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\71\ See, e.g., 84 FR 28888, 28917 (June 20, 2019) (describing
substantiation requirements for employer-sponsored health
reimbursement arrangements); see also Q44-55 of IRS Notice 2017-67,
2017-47 IRB 517; Prop. Treas. Reg. Sec. 1.125-6 (72 FR 43938,
43960-43965 (August 6, 2007)); IRS Notice 2002-45, 2002-2 CB 93.
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F. Level-Funded Plan Arrangements
The Departments understand that an increasing number of group
health plan sponsors are utilizing a type of self-funded arrangement in
which the plan sponsor makes set monthly payments to a service provider
to cover estimated claims costs, administrative costs, and premiums for
stop-loss insurance for claims that surpass a maximum dollar amount
beyond which the plan sponsor is no longer responsible for paying
claims (attachment point). This funding mechanism or plan type, known
as level-funding, is increasingly utilized by small employers in
particular. Stop-loss insurance is used by employers or group health
plans as part of these plan arrangements to limit their financial
responsibility, and the arrangements typically involve both employer
and employee contributions. When the total dollar amount of the claims
paid during the year is lower than the total amount of contributions
attributed to claims costs, the plan or plan sponsor generally will
receive a refund or carry the surplus over to the next plan year. When
annual claims exceed projected claims, the subsequent year's monthly
payments may, and oftentimes do, increase to adjust to the plan's
claims experience.
II. Promoting Access to High-Quality, Affordable, and Comprehensive
Coverage
The Departments recognize that STLDI can provide temporary health
insurance coverage for individuals who are experiencing brief periods
without health coverage (for example, due to application of an employer
waiting period), and that fixed indemnity excepted benefits coverage
can provide consumers with income replacement that can be used to cover
out-of-pocket expenses not covered by comprehensive coverage or to
defray non-medical expenses (for example, mortgage or rent) in the
event of an unexpected or serious health event. Both STLDI and fixed
indemnity excepted benefits coverage generally provide limited benefits
at lower premiums than comprehensive coverage,\72\ and enrollment is
typically available at any time (sometimes subject to medical
underwriting) rather than being restricted to open and special
enrollment periods. However, given significant changes in the legal
landscape and market conditions since the Departments last addressed
STLDI and fixed indemnity excepted benefits coverage, and the low value
that STLDI and fixed indemnity excepted benefits coverage provide to
consumers when used as a substitute for comprehensive coverage, the
Departments have determined that it is now necessary and appropriate to
propose to amend the existing Federal regulations governing both types
of coverage to more clearly distinguish them from comprehensive
coverage and increase consumer awareness of coverage options that
include the full range of Federal consumer protections.
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\72\ Although it is typically true that the unsubsidized premium
price for comprehensive coverage is greater than STLDI or fixed
indemnity excepted benefits coverage, consistent with the greater
level of benefits provided under comprehensive coverage, see the
additional discussion in this section of this preamble regarding the
availability of financial subsidies to reduce the premium and out-
of-pocket costs for comprehensive coverage purchased on an Exchange
for eligible individuals.
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A. Access to Affordable Coverage
In the preamble to the 2018 final rules, the Departments explained
the decision to amend the definition of STLDI to expand access to such
policies by citing STLDI as an important means to provide more
affordable coverage options and more choices for consumers.\73\ The
Departments cited a 21 percent increase in individual health
[[Page 44605]]
insurance coverage premiums between 2016 and 2017, and a 20 percent
decrease in average monthly enrollment for individuals who did not
receive PTC, along with a 10 percent overall decrease in monthly
enrollment during the same period.\74\ Additionally, the Departments
noted that in 2018 about 26 percent of enrollees (living in 52 percent
of counties) had access to just one issuer on the Exchange.\75\
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\73\ 83 FR 38212 at 38217 (October 2, 2018).
\74\ Id. at 38214, citing CMS (2018). ``Trends in Subsidized and
Unsubsidized Individual Health Insurance Market Enrollment,''
available at: <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf">https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf</a>.
\75\ Id., citing KFF (2017). ``Insurer Participation on ACA
Marketplaces, 2014-2018,'' now available at: <a href="https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021/">https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021/</a>.
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However, since the publication of the 2018 final rules,
comprehensive coverage for individuals has generally become more
accessible and affordable. For example, a study examining issuer
participation trends from 2014 to 2021 in every county in the United
States found that the number of consumers with multiple issuer options
for individual health insurance coverage on the Exchanges has grown
consistently since 2018. In 2021, 78 percent of enrollees (living in 46
percent of counties) had a choice of three or more health insurance
issuers, up from 67 percent of enrollees in 2020 and 58 percent of
enrollees in 2019. Only 3 percent of enrollees (residing in 10 percent
of counties) resided in single-issuer counties--down from 26 percent of
enrollees (residing in 52 percent of counties).\76\ The Centers for
Medicare & Medicaid Services (CMS) reported that a record 16.4 million
people enrolled in Exchange coverage during the 2023 Open Enrollment
Period, including 3.7 million consumers (23 percent of total
enrollments) who were new to Exchanges in 2023, and 12.7 million
returning customers. Over 1.8 million more consumers signed up for
coverage during the 2023 Open Enrollment Period compared to the same
period in 2022 (a 13 percent increase), and nearly 4.4 million more
consumers signed up compared to the 2021 Open Enrollment Period (a 36
percent increase).\77\ As noted in section I.A of this preamble,
enrollment gains during 2023 were influenced by the expansion of PTC
subsidies, as first expanded under the ARP and then extended through
2025 under the IRA.\78\ In an analysis prior to the passage of the IRA,
the Congressional Budget Office stated that if the ARP subsidies were
made permanent, they would attract 4.8 million new people to the
Exchanges each year, and that 2.2 million fewer individuals would be
without health insurance, on average, over the period from 2023-
2032.\79\
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\76\ McDermott, Daniel and Cynthia Cox (2020). ``Insurer
Participation on the ACA Marketplaces, 2014-2021,'' KFF, available
at: <a href="https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021">https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021</a>.
\77\ CMS (2023). ``Health Insurance Marketplaces, 2023 Open
Enrollment Report,'' available at: <a href="https://www.cms.gov/files/document/health-insurance-exchanges-2023-open-enrollment-report-final.pdf">https://www.cms.gov/files/document/health-insurance-exchanges-2023-open-enrollment-report-final.pdf</a>.
\78\ Although unsubsidized premiums for 2023 increased on
average between 2.2 percent and 4.7 percent compared to the previous
year, after four years of declines, PTC under the IRA largely
shielded consumers from these slight increases. See Ortaliza, Jared,
Justin Lo, Krutika Amin, and Cynthia Cox (2022). ``How ACA
Marketplace Premiums Are Changing By County in 2023,'' KFF,
available at: <a href="https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023">https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023</a>.
\79\ Congressional Budget Office (2022). ``Letter from Phillip
L. Swagel to Rep. Mike Crapo, ``Re: Health Insurance Policies,''
available at: <a href="https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf">https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf</a>.
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Additionally, on October 13, 2022, the IRS and the Treasury
Department issued final regulations under section 36B of the Code to
provide that affordability of employer-sponsored MEC for family members
of an employee is determined based on the employee's share of the cost
of covering the employee and those family members, not the cost of
covering only the employee (2022 affordability rule).\80\ It was
estimated that this rule change, aimed at addressing the issue often
called the ``family glitch,'' will increase the number of individuals
with PTC-subsidized Exchange coverage by approximately 1 million per
year for the next 10 years.\81\ These anticipated enrollment trends and
the availability of the enhanced subsidies allay the accessibility and
affordability concerns expressed by the Departments in the preamble to
the 2018 final rules regarding the availability of affordable options
for comprehensive coverage, and offer further support for the proposals
in these proposed rules aimed at helping consumers differentiate
between comprehensive coverage and other forms of more limited health
coverage.
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\80\ 87 FR 61979 (October 13, 2022).
\81\ Id. at 61999.
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Although access to affordable comprehensive coverage has improved
in recent years, the Departments recognize that affordability concerns
continue to persist among consumers, including among consumers who are
enrolled in comprehensive coverage. A 2022 national survey conducted by
the Commonwealth Fund found that 29 percent of people with employer
coverage and 44 percent of those with coverage purchased in the
individual market were underinsured, meaning that their coverage did
not provide them with affordable access to health care.\82\ The
Departments believe that it is important to ensure consumers have
access to a wide range of tools that can support access to affordable
health care. However, neither STLDI nor fixed indemnity excepted
benefits coverage represents a complete solution to larger issues of
affordable access to health care and health coverage. Consumers who
enroll in these plans as a substitute for comprehensive coverage or
under the misapprehension that STLDI and fixed indemnity excepted
benefits are a lower-cost equivalent to comprehensive coverage are at
risk of being exposed to significant financial liability in the event
of a costly or unexpected health event, often without knowledge of the
risk associated with such coverage.
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\82\ Collins, Sara, Lauren Haynes, and Relebohile Masitha
(2022). ``The State of U.S. Health Insurance in 2022: Findings from
the Commonwealth Fund Biennial Health Insurance Survey,''
Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-survey">https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-survey</a>. Specifically, this study defined a person as
``underinsured'' if they were insured all year but one of the
following applied: (1) Out-of-pocket costs over the prior 12 months,
excluding premiums, were equal to 10 percent or more of household
income; (2) Out-of-pocket costs over the prior 12 months, excluding
premiums, were equal to 5 percent or more of household income for
individuals living under 200 percent of the FPL ($27,180 for an
individual or $55,500 for a family of four in 2022); or (3) The
deductible constituted 5 percent or more of household income.
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B. Risks to Consumers
As noted in the introduction to section II of this preamble, the
limitations on benefits and coverage under STLDI or fixed indemnity
excepted benefits coverage may allow some issuers to offer such
coverage at lower monthly premiums than comprehensive coverage. The
Departments are concerned about additional costs to consumers who
enroll in STLDI or fixed indemnity excepted benefits coverage and incur
medical expenses that are not covered by such coverage. The typical
limits on coverage provided by STLDI and fixed indemnity excepted
benefits coverage can lead to more and higher uncovered medical bills
than consumers enrolled in comprehensive coverage would incur, exposing
consumers to greater financial risk.\83\ Healthy consumers who
[[Page 44606]]
enroll in STLDI or fixed indemnity excepted benefits coverage as an
alternative to comprehensive coverage may not realize their STLDI or
fixed indemnity excepted benefits coverage excludes or limits coverage
for preexisting conditions (including conditions the consumer did not
know about when they enrolled), or conditions contracted after
enrollment, such as COVID-19.
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\83\ Palanker, Dania, JoAnn Volk, and Kevin Lucia (2018).
``Short-Term Health Plan Gaps and Limits Leave People at Risk,''
Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/blog/2018/short-term-health-plan-gaps-and-limits-leave-people-risk">https://www.commonwealthfund.org/blog/2018/short-term-health-plan-gaps-and-limits-leave-people-risk</a>.
(Describing STLDI marketing materials that list coverage limits that
would fall far short of typical costs to a consumer, including
$1,000 a day for hospital room and board coverage, $1,250 a day for
the intensive care unit, $50 a day for doctor visits while in the
hospital, $100 a day for inpatient substance abuse treatment, and
$250 for ambulance transport).
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Additionally, a consumer enrolled in STLDI may discover that a
newly-diagnosed medical condition is categorized as a preexisting
condition, and related medical expenses will not be covered by, or will
be only partially covered by, their STLDI policy.\84\ For example, a
consumer in Illinois who was diagnosed with Stage IV cancer a month
after enrolling in STLDI was denied coverage for treatment by the STLDI
issuer, both for treatments that led to his successful remission and
for a potentially life-saving bone marrow transplant. In his case, the
STLDI issuer of his policy determined that his cancer was a preexisting
condition because he had disclosed experiencing back pain of
undiagnosed cause to the broker who sold him his STLDI policy--leaving
him with $800,000 of medical debt and without meaningful health
coverage as he continued to fight his illness.\85\
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\84\ See Lueck, Sarah (2018). ``Key Flaws of Short-Term Health
Plans Pose Risks to Consumers,'' Center on Budget and Policy
Priorities, available at: <a href="https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers">https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers</a>. See also
Hall, Mark and Michael McCue (2022). ``Short-Term Health Insurance
and the ACA Market,'' Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market">https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market</a>. See also Partnership to Protect Coverage (2021).
``Under-Covered: How `Insurance-Like' Products are Leaving Patients
Exposed,'' available at: <a href="https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf">https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf</a>.
\85\ Partnership to Protect Coverage (2021). ``Under-Covered:
How `Insurance-Like' Products are Leaving Patients Exposed,''
available at: <a href="https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf">https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf</a>.
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The financial risk for consumers that encounter newly diagnosed
conditions or a significant medical event while enrolled in STLDI
increases with the length of their policy. In fact, researchers found
that because the maximum annual limitation on an individual's cost
sharing for essential health benefits under section 1302(c)(1) of the
ACA does not apply to STLDI, the maximum out-of-pocket health care
spending limit for STLDI was on average nearly three times that of
comprehensive coverage in 2020.\86\ A 2020 report found that over 60
percent of the STLDI policies surveyed had a maximum out-of-pocket
limit greater than the $7,900 limit that was permitted for self-only
comprehensive coverage in 2019, and 15 percent had limits in excess of
$15,000; as is typical for STLDI, these limits apply only to the
coverage period, which in some cases was only 6 months, compared to the
annual limits required under the ACA.\87\ Consumers enrolled in STLDI
who ultimately require medical care are more likely to incur higher
out-of-pocket costs than if they had enrolled in comprehensive
coverage.\88\
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\86\ Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of
Short-term Limited-duration Policy Expansion on Patients and the ACA
Individual Market,'' Milliman, available at: <a href="https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market">https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market</a>.
\87\ Id. See also, Palanker, Dania, Kevin Lucia, and Emily
Curran (2017). ``New Executive Order: Expanding Access to Short-Term
Health Plans Is Bad for Consumers and the Individual Market,''
Commonwealth Fund, available at <a href="https://www.commonwealthfund.org/blog/2017/new-executive-order-expanding-access-short-term-health-plans-bad-consumers-and-individual">https://www.commonwealthfund.org/blog/2017/new-executive-order-expanding-access-short-term-health-plans-bad-consumers-and-individual</a>. (``When considering the
deductible, the best-selling plans have out-of-pocket maximums
ranging from $7,000 to $20,000 for just three months of coverage. In
comparison, the ACA limits out-of-pocket maximums to $7,150 for the
entire [2017 calendar] year.'').
\88\ Id.
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As noted in section I.D.1 of this preamble, consumers who enroll in
fixed indemnity excepted benefits coverage as an alternative to
comprehensive coverage bear similar risk and exposure to significant
out-of-pocket expenses due to their health care costs exceeding the
fixed cash benefit to which they may be entitled, if benefits are even
provided for their illness or injury. While issuers of fixed indemnity
excepted benefits coverage may emphasize the potential for cash
benefits that sound generous outside of the context of the true costs
of a significant medical event--such as a product suggesting that a
consumer could receive a flat payment in excess of $10,000 following a
five-day hospitalization--fixed indemnity excepted benefits coverage is
not designed to, and typically does not, provide benefits relative to
the full cost of such events. As noted by one expert, hospitalization
costs can exceed $10,000 per day, even without accounting for provider
services.\89\ A consumer who relied on fixed indemnity excepted
benefits coverage and who required hospitalization would be left with
tens of thousands of dollars in unpaid medical bills, and without
comprehensive coverage designed to cover any long-term follow-up care
costs.
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\89\ Appleby, Julie (2017). ``Brokers Tout Mix-And-Match
Coverage To Avoid High-Cost ACA Plans,'' KFF, available at: <a href="https://kffhealthnews.org/news/brokers-tout-mix-and-match-coverage-to-avoid-high-cost-aca-plans">https://kffhealthnews.org/news/brokers-tout-mix-and-match-coverage-to-avoid-high-cost-aca-plans</a>.
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Consumers enrolled in STLDI and fixed indemnity excepted benefits
coverage may experience financial hardship when their medical bills are
unaffordable.\90\ Notably, the protections against balance billing and
out-of-network cost sharing for certain out-of-network services
established under the No Surprises Act, which are intended to shield
consumers from surprise bills that can drive medical debt,\91\ do not
apply to STLDI or fixed indemnity excepted benefits coverage.\92\
Because STLDI is typically subject to medical underwriting and not
guaranteed renewable, consumers enrolled in STLDI as an alternative to
comprehensive coverage may also be unable to renew STLDI at the end of
the coverage period, increasing the risk of periods during which they
are uninsured. Such consumers may not be able to purchase comprehensive
coverage in the individual market until an open enrollment or special
enrollment period occurs. Therefore, STLDI serves better as a bridge
between different sources of comprehensive coverage than as an
alternative to comprehensive coverage. Similarly, as noted in section
I.D.1 of this preamble, fixed indemnity excepted benefit coverage
serves best as an income replacement policy \93\ that supplements
[[Page 44607]]
comprehensive coverage rather than as an alternative to comprehensive
coverage.
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\90\ Unaffordable medical debt increasingly impacts members of
disadvantaged and marginalized communities. See Lopes, Lunna, Audrey
Kearney, Alex Montero, Liz Hamel, and Mollyann Brodie (2022).
``Health Care Debt In The U.S.: The Broad Consequences Of Medical
And Dental Bills,'' KFF, available at: <a href="https://www.kff.org/health-costs/report/kff-health-care-debt-survey">https://www.kff.org/health-costs/report/kff-health-care-debt-survey</a>. See also Himmelstein,
David, Samuel Dickman, Danny McCormick, David Bor, Adam Gaffney, and
Steffie Woolhandler (2022). ``Prevalence and Risk Factors for
Medical Debt and Subsequent Changes in Social Determinants of Health
in the US,'' JAMA Network Open, Volume 5 Issue 9:e2231898, available
at: <a href="https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358">https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358</a>.
\91\ Families USA (2019). ``Surprise Medical Bills, Results from
a National Survey,'' available at <a href="https://familiesusa.org/wp-content/uploads/2019/11/Surprise-Billing-National-Poll-Report-FINAL.pdf">https://familiesusa.org/wp-content/uploads/2019/11/Surprise-Billing-National-Poll-Report-FINAL.pdf</a>.
\92\ See 26 CFR 54.9816-2T, 29 CFR 2590.716(b), and 45 CFR
149.20(b).
\93\ As an income replacement policy, the policyholder typically
has broad discretion in how to use the fixed cash benefits provided,
including but not limited to reimbursement for medical expenses not
covered by comprehensive coverage (for example, deductibles,
coinsurance, copays) or to defray non-medical costs (for example,
mortgage or, rent).
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In the preamble to the 2018 final rules, the Departments stated
that individuals who purchased STLDI rather than being uninsured would
potentially experience improved health outcomes and have greater
protection from catastrophic health care expenses.\94\ However, recent
experience with the COVID-19 public health emergency (PHE) \95\ has
prompted the Departments to reassess the degree of protection generally
afforded by coverage that is not subject to the Federal consumer
protections and requirements for comprehensive coverage, such as STLDI
and fixed indemnity excepted benefits coverage, and to reassess the
value of a framework that instead encourages uninsured individuals to
purchase comprehensive coverage. Enrollees in STLDI and fixed indemnity
excepted benefits coverage with COVID-19 typically face significant
limitations on coverage for COVID-19 related treatments, and high out-
of-pocket expenses.\96\ For example, neither STLDI nor fixed indemnity
excepted benefits coverage was subject to requirements under section
6001 of the Families First Coronavirus Response Act (Pub. L. 116-127,
March 18, 2020), as amended by the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) (Pub. L. 116-136, March 27, 2020), to
cover COVID-19 diagnostic testing, without cost sharing, furnished
during the COVID-19 PHE; \97\ or the requirement under section 3203 of
the CARES Act to cover qualifying coronavirus preventive services,
including COVID-19 vaccines, without cost sharing. Instead, both of
these important coverage expansions enacted by Congress as part of the
nation's response to the COVID-19 PHE only applied to comprehensive
coverage. Any coverage of COVID-19 vaccines, diagnostic testing, or
treatment by STLDI or fixed indemnity excepted benefits coverage was
subject to the discretion of individual plans and issuers of these
policies and applicable State law. Notably, the Health Resources and
Services Administration's COVID-19 Coverage Assistance Fund, which
reimbursed eligible health care providers for providing COVID-19
vaccines to underinsured individuals,\98\ included enrollees in STLDI
and excepted benefits coverage within the definition of
underinsured.\99\ The CARES Act also amended the definition of
``uninsured individual'' in Social Security Act section 1902(ss) to
include individuals enrolled only in STLDI. Even individuals enrolled
in STLDI or fixed indemnity excepted benefits coverage who are
generally healthy are at risk of needing health care, and thus at risk
of incurring unaffordable medical bills at any time. The COVID-19 PHE
has underscored the unpredictability of when the need for medical care
will arise, and the importance of encouraging individuals to enroll in
comprehensive coverage.
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\94\ 83 FR 38212, 38229 (October 2, 2018).
\95\ On January 31, 2020, HHS Secretary Alex M. Azar II declared
that as of January 27, 2020, a nationwide public health emergency
(PHE) exists as a result of the 2019 novel coronavirus (COVID-19).
See HHS Office of the Assistant Secretary for Preparedness and
Response, Determination of the HHS Secretary that a Public Health
Emergency Exists, available at: <a href="https://www.phe.gov/emergency/news/healthactions/phe/Pages/2019-nCoV.aspx">https://www.phe.gov/emergency/news/healthactions/phe/Pages/2019-nCoV.aspx</a>. This declaration was last
renewed by HHS Secretary Xavier Becerra on October 13, 2022,
following previous renewals on April 21, 2020, July 23, 2020,
October 2, 2020, January 7, 2021, April 15, 2021, July 20, 2021, and
October 18, 2021, January 14, 2022, April 12, 2022, and July 15,
2022. See HHS Office of the Assistant Secretary for Preparedness and
Response, Renewal of Determination That A Public Health Emergency
Exists, available at: <a href="https://aspr.hhs.gov/legal/PHE/Pages/covid19-13Oct2022.aspx">https://aspr.hhs.gov/legal/PHE/Pages/covid19-13Oct2022.aspx</a>. On January 30, 2023 and February 9, 2023, the Biden-
Harris Administration announced that it intended to end the PHE at
the end of the day on May 11, 2023. See Executive Office of the
President, Office of Management and Budget, Statement of
Administration Policy: H.R. 382 and H.J. Res. 7 (Jan. 30, 2023),
available at: <a href="https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf</a>; Letter to U.S. Governors from HHS
Secretary Xavier Becerra on renewing COVID-19 Public Health
Emergency (PHE) (Feb. 9, 2023), available at: <a href="https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-public-health-emergency.html">https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-public-health-emergency.html</a>. The PHE did
in fact end at the end of the day on May 11, 2023.
\96\ See, e.g., Curran, Emily, Kevin Lucia, JoAnn Volk, and
Dania Palanker (2020). ``In the Age of COVID-19, Short-Term Plans
Fall Short for Consumers,'' Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers">https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers</a>. This study found that STLDI policies provide
less financial protection than comprehensive coverage if an enrollee
needs treatment for COVID-19. The study found that, among the 12
brochures reviewed for STLDI policies being sold in Georgia,
Louisiana, and Ohio, 11 excluded nearly all coverage for
prescription drugs, with some providing limited coverage of
inpatient drugs. The study further found that STLDI imposed high
cost sharing, with deductibles ranging from $10,000 to $12,500
(which did not count toward the enrollees' maximum out-of-pocket
costs) and that enrollees may be required to meet separate
deductibles for emergency room treatment, forcing some enrollees to
face out-of-pocket costs of more than $30,000 over a 6-month period.
Additionally, the study found that STLDI did not cover services
related to preexisting conditions.
\97\ FAQs about Families First Coronavirus Response Act and
Coronavirus Aid, Relief, and Economic Security Act Implementation
Part 42, Q1 (April 11, 2020), available at: <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf</a> and <a href="https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf">https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf</a>; Additional Policy and Regulatory Revisions in
Response to the COVID-19 Public Health Emergency, 85 FR 71142, 71173
(Nov. 6, 2020); FAQs about Affordable Care Act Implementation Part
51, Families First Coronavirus Response Act and Coronavirus Aid,
Relief, and Economic Security Act Implementation (Jan. 10, 2022),
available at: <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf</a> and <a href="https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf">https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf</a> (FAQs Part 51); and FAQs about Families First
Coronavirus Response Act, Coronavirus Aid, Relief, and Economic
Security Act and Health Insurance Portability and Accountability Act
Implementation (FAQs Part 58), available at: <a href="https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-58">https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-58</a> and <a href="https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-58.pdf">https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-58.pdf</a>. Note that the COVID-19 PHE ended on
May 11, 2023.
\98\ Underinsured individuals are defined for this purpose as
having a health plan that either does not include COVID-19 vaccine
administration as a covered benefit or covers COVID-19 vaccine
administration but with cost sharing. See Health Resources and
Services Administration, ``FAQs for The HRSA COVID-19 Coverage
Assistance Fund,'' available at: <a href="https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq">https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq</a>.
\99\ Health Resources and Services Administration, ``FAQs for
The HRSA COVID-19 Coverage Assistance Fund,'' available at: <a href="https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq">https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq</a>.
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The Departments have also become aware of potentially deceptive or
aggressive marketing of STLDI and fixed indemnity excepted benefits
coverage to consumers who may be unaware of the limits of these plans
or the availability of Federal subsidies that could reduce the costs of
premiums and out-of-pocket health care expenditures for comprehensive
coverage purchased through an Exchange.\100\ The Departments note that
these concerns are not limited to individual market consumers
considering STLDI or fixed indemnity excepted benefits coverage.
Reports that employers are increasingly offering fixed indemnity
coverage alongside a plan that offers only a very limited set of
primary or preventive care benefits (or in some cases, as the only form
of health coverage) have also raised similar concerns about
[[Page 44608]]
consumers who obtain this health coverage through their employers.\101\
Consumers who are unaware of the coverage limitations of these
arrangements, or who are employed by employers who are similarly
unaware, can be faced with overwhelming medical costs if they require
items and services that are not covered by their group health plan,
because the fixed indemnity excepted benefits coverage provides only
fixed cash benefits that may be far lower than the costs of medical
services, rather than coverage intended to cover the costs of the
medical services themselves. For example, a Texas consumer who was
enrolled in two forms of health insurance through his employer received
a $67,000 hospital bill after he experienced a heart attack. Although
he believed his two policies would provide comprehensive coverage, he
learned that his coverage was provided through a group health plan that
covered only preventive services and prescription drugs and a fixed
indemnity excepted benefits coverage policy that provided a cash
benefit of less than $200 per day of hospitalization.\102\
Additionally, employers may incur penalties if they erroneously treat
fixed indemnity policies as excepted benefits when the policies do not
meet the requirements for excepted benefits (for example, when they are
not offered as independent, noncoordinated benefits) and fail to comply
with applicable group market Federal consumer protections and
requirements for comprehensive coverage, such as the requirement to
provide participants, beneficiaries, and enrollees with a summary of
benefits and coverage that meets applicable content requirements or the
prohibition on lifetime and annual dollar limits on essential health
benefits.\103\ In light of research revealing significant disparities
in health insurance literacy among certain underserved racial and
ethnic groups and people with incomes below the FPL,\104\ the
Departments are also concerned that underserved populations may be
particularly vulnerable to misleading or aggressive sales and marketing
tactics that obscure the differences between comprehensive coverage and
STLDI or fixed indemnity excepted benefits coverage, exposing these
populations to higher levels of health and financial risks. As noted in
Executive Order 13995, the COVID-19 pandemic has ``exposed and
exacerbated severe and pervasive health and social inequities in
America,'' highlighting the urgency with which such inequities must be
addressed. These concerns continue amid the Medicaid unwinding period
that began on April 1, 2023 during which State Medicaid programs have
12 months to initiate, and 14 months to complete, a renewal for all
individuals enrolled in Medicaid, the Children's Health Insurance
Program (CHIP), and, if applicable, the Basic Health Program
(BHP).\105\ HHS has estimated that 15 million beneficiaries will lose
Medicaid, CHIP, or BHP coverage as a result of Medicaid unwinding.\106\
The Departments are concerned that the large population of individuals
at risk of losing Medicaid and those other forms of coverage, due to a
loss of eligibility or as a result of administrative churn, may be
susceptible to these marketing and sales tactics, and might therefore
mistakenly enroll in STLDI or fixed indemnity excepted benefits
coverage in lieu of comprehensive coverage.
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\100\ Palanker, Dania and Kevin Lucia (2021). ``Limited Plans
with Minimal Coverage Are Being Sold as Primary Coverage, Leaving
Consumers at Risk,'' Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk">https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk</a>. (Noting that
fixed indemnity insurance may be ``bundled'' with other non-
comprehensive insurance products in such a way that ``the plans look
like comprehensive coverage'' while still offering limited
benefits). See also Palanker, Dania, JoAnn Volk, and Maanasa Kona
(2019). ``Seeing Fraud and Misleading Marketing, States Warn
Consumers About Alternative Health Insurance Products,''
Commonwealth Fund, available at: <a href="https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health">https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health</a>.
\101\ Young, Christen Linke and Kathleen Hannick (2020). ``Fixed
Indemnity Coverage is a Problematic Form of ``Junk'' Insurance,''
U.S.C.-Brookings Schaeffer Initiative for Health Policy, available
at: <a href="https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance">https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance</a>.
\102\ Avila, Jaie (2019). ``Show Me Your Bill Helps Wipe Out
$70K in Charges After Heart Attack,'' News 4 San Antonio, available
at <a href="https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack">https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack</a>.
\103\ See 26 CFR 54.9815-2715(e); 29 CFR 2590.715-2715(e); 45
CFR 147.200(e). See also section 2711 of the PHS Act and section
4980D of the Code.
\104\ Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary Kay
Rayens (2019). ``Significant Disparities Exist in Consumer Health
Insurance Literacy: Implications for Health Care Reform,'' Health
Literacy Research and Practice, available at: <a href="https://pubmed.ncbi.nlm.nih.gov/31768496/">https://pubmed.ncbi.nlm.nih.gov/31768496/</a>. See also Villagra, Victor and
Bhumika Bhuva (2019). ``Health Insurance Literacy: Disparities by
Race, Ethnicity, and Language Preference,'' The American Journal of
Managed Care, available at: <a href="https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference">https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference</a>.
\105\ As a condition of receiving a temporary Federal Medical
Assistance Percentage (FMAP) increase under section 6008 of the
Families First Coronavirus Response Act, states were required to
maintain enrollment of nearly all Medicaid enrollees during the
COVID-19 PHE. This ``continuous enrollment condition'' was decoupled
from the COVID-19 PHE and ended on March 31, 2023 under the
Consolidated Appropriations Act, 2023. See CMS, Center for Consumer
Information and Insurance Oversight, Temporary Special Enrollment
Period (SEP) for Consumers Losing Medicaid or the Children's Health
Insurance Program (CHIP) Coverage Due to Unwinding of the Medicaid
Continuous Enrollment Condition-- Frequently Asked Questions (FAQ)
(Jan. 27, 2023), available at: <a href="https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf">https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf</a>.
\106\ HHS, Assistant Secretary for Planning and Evaluation,
Office of Health Policy, ``Unwinding the Medicaid Continuous
Enrollment Provision: Projected Enrollment Effects and Policy
Approaches,'' August 19, 2022, available at: <a href="https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf">https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf</a>.
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C. Impact on Risk Pools
At the time the 2018 final rules were issued, the Departments
acknowledged that expanding access to STLDI could have potential
negative effects on the risk pools for individual health insurance
coverage and on individuals who find themselves insufficiently
protected by the typically limited benefits of an STLDI policy. The
Departments were of the view that the affordability and access
challenges facing consumers at that time necessitated action to
increase access to STLDI to provide an alternative option for
individuals who were unable or disinclined to purchase comprehensive
coverage.
As discussed earlier in this section II, access to affordable
comprehensive coverage has significantly improved since the 2018 final
rules were published. However, research based on individual market data
for plan year 2020 has substantiated concerns about the negative impact
that the shift of healthier individuals from comprehensive coverage to
STLDI has on individuals remaining in the individual market risk
pools.\107\ Because healthier individuals are more likely to enroll in
STLDI than individuals with known medical needs, the extended contract
terms and renewal periods of STLDI under the current Federal
regulations result in healthier consumers leaving (or opting out of)
the individual market risk pools for extended periods of time. This has
resulted in increased premiums for individuals seeking to purchase
individual health insurance coverage.\108\
[[Page 44609]]
For unsubsidized individuals, the costs are borne directly by the
consumer, and for subsidized individuals, the costs are borne to a
large extent by the Federal Government in the form of increased per
capita PTC spending associated with increased individual health
insurance coverage premiums. Likewise, the increased reports and
anecdotes about fixed indemnity excepted benefits coverage being
marketed and sold as an alternative to comprehensive coverage raise
concerns about the potential for such practices having a similar impact
on the small group and individual market risk pools.
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\107\ See Dieguez, Gabriela and Dane Hansen (2020). ``The Impact
of Short-term Limited-duration Policy Expansion on Patients and the
ACA Individual Market,'' Milliman, available at: <a href="https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market">https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market</a>.
\108\ Id. (``Carrier expectations for the impact of [regulatory
actions including the expansion of short-term, limited-duration
insurance policies and other loosely regulated insurance and the
repeal of the federal individual shared responsibility payment being
reduced to $0] on premiums in the ACA individual market for 2020 are
approximately 4 percent in states that have not restricted the sale
or duration of STLD policies . . . Among the states that have
limited the impact of loosely regulated insurance through
reinstating an individual mandate or by restricting STLD expansion,
carriers have assumed an average premium impact in 2020 due to
regulatory actions that is about 5 percent lower than other
states.'') As noted in section VII.B.2.e of this preamble, this
study also found that the few carriers that explicitly included a
premium adjustment because of the adoption of the new Federal
definition of STLDI in the 2018 final rules increased premiums by
between 0.5 percent and 2 percent in 2020.
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Another study looking at States that have adopted policies that
restrict STLDI to shorter durations than allowed under the current
Federal regulations found that, from 2018 to 2020, States that
restricted or prohibited the sale of STLDI saw fewer consumers enroll
in such insurance, were able to keep more healthy people in the
individual health insurance coverage market, and saw a greater decline
in average medical costs for enrollees in individual health insurance
coverage.\109\ The study reported that, as a result, the risk score--a
measurement of the relative medical costs expected for the populations
covered by comprehensive coverage in each State, both on- and off-
Exchange--decreased by 40 percent more in States with more regulation
of STLDI than States with less regulation.\110\ As of January 20, 2020,
12 States had enacted legislation prohibiting health status
underwriting for STLDI, effectively banning the sale of STLDI in those
States.\111\ Thirteen States and the District of Columbia prohibited
the sale of STLDI policies with initial contract terms longer than 3
months.\112\
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\109\ See Hall, Mark and Michael McCue (2022). ``Short-Term
Health Insurance and the ACA Market,'' Commonwealth Fund, available
at: <a href="https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market">https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market</a>.
\110\ Id.
\111\ National Association of Insurance Commissioners (2023).
``Short-Term Limited-Duration Health Plans,'' available at: <a href="https://content.naic.org/cipr-topics/short-term-limited-duration-health-plans">https://content.naic.org/cipr-topics/short-term-limited-duration-health-plans</a>.
\112\ Id.
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In addition to ensuring that consumers can clearly distinguish
STLDI from comprehensive coverage, this new evidence provides an
additional basis for the Departments' conclusion that it is important
to amend the Federal definition of STLDI.
D. Need for Rulemaking
For the reasons described in this section II, the Departments are
of the view that it is necessary to amend the Federal definition of
STLDI to ensure that consumers can clearly distinguish STLDI from
comprehensive coverage, protect the risk pools and stabilize premiums
in the individual market, and promote access to affordable
comprehensive coverage.
With respect to individual market fixed indemnity excepted benefits
coverage, the combination of the decision in the Central United case
and the reduction of the individual shared responsibility payment to $0
for months beginning after December 31, 2018, under the Tax Cuts and
Jobs Act increased the risk that individuals would purchase fixed
indemnity excepted benefits coverage as a substitute for comprehensive
coverage. The Departments are of the view that these changes
necessitate rulemaking with respect to fixed indemnity excepted
benefits coverage. Further, while the Departments did not finalize the
proposed amendments to the group market fixed indemnity excepted
benefits coverage regulations outlined in the 2016 proposed rules, the
Departments noted their intention to address fixed indemnity excepted
benefits coverage in future rulemaking.\113\ The Departments have
continued to monitor the impact of these coverage options and remain
concerned about the negative impacts of fixed indemnity excepted
benefits coverage on consumers when such products are sold as an
alternative to comprehensive coverage. In light of the Departments'
ongoing concerns about the numerous negative impacts of STLDI and fixed
indemnity excepted benefits coverage being offered as an alternative to
comprehensive coverage, as well as the significant changes in market
conditions and in the legal landscape since the Departments' last
regulatory actions addressing these products, the Departments are
proposing changes to the Federal individual and group market
regulations governing STLDI and fixed indemnity excepted benefits
coverage. For similar reasons, as discussed in more detail in section
IV.A of this preamble, the Treasury Department and the IRS propose to
clarify the tax treatment of fixed amounts received by a taxpayer
through certain employment-based accident or health insurance that are
paid without regard to the amount of medical expenses incurred. In
addition, the Departments solicit comments on specified disease
excepted benefits coverage, as discussed in section III.B.2 of this
preamble, and on level-funded plan arrangements, as discussed in
section III.C of this preamble.
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\113\ Excepted Benefits; Lifetime and Annual Limits; and Short-
Term, Limited-Duration Insurance; Final Rule, 81 FR 75316 at 75317
(October 31, 2016).
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III. Overview of the Proposed Rules on Short-Term, Limited-Duration
Insurance and Fixed Indemnity Excepted Benefits Coverage; Comment
Solicitations Regarding Specified Disease Excepted Benefits Coverage
and Level-Funded Plan Arrangements--The Departments of the Treasury,
Labor, and Health and Human Services
A. Short-Term, Limited-Duration Insurance
The Departments are proposing the following amendments to the
Federal regulations at 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR
144.103 defining ``short-term, limited-duration insurance'' to better
distinguish STLDI from individual health insurance coverage. These
amendments would apply to new STLDI policies, certificates, or
contracts of insurance sold or issued on or after the effective date of
the final rules; that is, the date that is 75 days after publication of
the final rules.\114\ STLDI policies, certificates, or contracts of
insurance sold or issued before the effective date of the final rules
(including any subsequent renewals or extensions consistent with
applicable law) could still have an initial contract term of less than
12 months and maximum duration of up to 36 months (taking into account
any renewals or extensions), subject to any limits under applicable
State law, but would be required to comply with the revised notice
requirement for renewals and extensions.
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\114\ For purposes of this document, the term ``effective date
of the final rules'' refers to the date that is 75 days after the
date of publication of the final rules.
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1. ``Short-Term''
Under the current Federal regulations, contracts for STLDI must
specify an expiration date that is less than 12 months after the
original effective date of the contract, and, taking into account
renewals or extensions, must have a duration of no longer than 36
months in total.\115\ The Departments, however, are no longer of the
view that permitting the longer duration for STLDI is in the best
interests of consumers.
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\115\ See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR
144.103. See also 83 FR 38212 (August 3, 2018).
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Taking into account the potential risk to individuals who enroll in
STLDI, the
[[Page 44610]]
increased availability of affordable comprehensive coverage options,
the potential impact on the individual market risk pools, and consumer
challenges in differentiating STLDI from individual health insurance
coverage, the Departments propose to reinterpret the phrase ``short-
term'' to refer to a contract term of no more than 3 months. More
specifically, the Departments propose to amend the Federal definition
for STLDI under 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103
such that the coverage would have an expiration date specified in the
policy, certificate, or contract of insurance that is no more than 3
months after the original effective date. As discussed further in
section III.A.2 of this preamble, the Departments also propose to amend
the Federal definition of STLDI to reinterpret the phrase ``limited-
duration'' to mean that the maximum permitted duration for STLDI is no
longer than 4 months in total, taking into account any renewals or
extensions. Further, the new proposed Federal definition would provide
that a renewal or extension includes the term of a new STLDI policy,
certificate, or contract of insurance issued by the same issuer to the
same policyholder within a 12-month period beginning on the original
effective date of the initial policy, certificate, or contract of
insurance.
As described further in section III.A.6 of this preamble, these
proposed rules would adopt a bifurcated approach to the applicability
date that distinguishes between new STLDI that is sold or issued on or
after the effective date of the final rules,\116\ and existing STLDI
sold or issued before the effective date of the final rules. The
proposed new Federal definition and maximum duration framework in these
proposed rules would apply for new STLDI policies, certificates, or
contracts of insurance sold or issued on or after the effective date of
the final rules. Under the framework in these proposed rules, existing
policies, certificates, or contracts of insurance sold or issued before
the effective date (including any subsequent renewals or extensions
consistent with applicable law) could still have an initial contract
term of less 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. In the preamble to the 2018 final rules,
the Departments discussed the importance of ensuring that consumers
clearly understand the differences between these types of coverage in
order to select the type of coverage that suits their needs. However,
particularly in light of recent reports regarding deceptive marketing
practices (as discussed in section III.A.3 of this preamble) and the
risk of consumer confusion, the Departments are now of the view that
interpreting ``short-term'' in a manner that prevents STLDI from having
terms that are similar in length to a 12-month policy year for
comprehensive individual health insurance coverage is the most
important tool for consumers to distinguish between STLDI and
comprehensive coverage.
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\116\ The Departments are of the view that an effective date
that is 75 days after the date of publication of the final rule
provides sufficient time for interested parties to review,
understand, and meet their obligations under the final rule, without
unnecessarily delaying the implementation of policies that are
proposed to be finalized on the effective date. See sections III.A.6
(STLDI) and III.B.1.g (fixed indemnity excepted benefits coverage)
for additional discussion of applicability proposals.
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In addition, the Departments expressed in the preamble to the 2018
final rules an expectation that the amended definition of STLDI would
result in STLDI being distinguishable from comprehensive coverage
because of the differences in their initial contract terms; the maximum
duration of a policy itself; the types of notice requirements
applicable to each type of coverage; and the classification of
comprehensive coverage, but not STLDI, as MEC.\117\ However, since the
2018 final rules became effective, and in light of the changes in the
legal landscape and market conditions discussed in section II of this
preamble, the Departments are now of the view that the current Federal
definition of STLDI contributes to confusion between STLDI and
comprehensive coverage and that confusion results in consumer harm. The
Departments' proposal to reinterpret ``short-term'' to refer to
coverage with a term of no more than 3 months is one change that would
help ensure consumers are better able to distinguish between the two
types of coverage and therefore make better informed coverage
purchasing decisions.
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\117\ 83 FR 38215 (August 3, 2018).
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The Departments are concerned that the current interpretation and
definition is too expansive and contributes to confusion regarding
whether a policy is STLDI or comprehensive coverage. The combination of
deceptive marketing practices (as discussed in section III.A.3 of this
preamble) and the near-identical length of coverage for the initial
contract term has proven to be confusing for consumers. As such, STLDI
policies that include an initial term just shy of 12 months have not
been easily distinguishable by consumers from comprehensive coverage
available in the individual market, which generally has a 12-month
policy year.\118\ In addition, the ability to renew or extend STLDI
policies for up to 36 months is also somewhat similar to the structure
of comprehensive coverage sold in the individual and group markets and
makes STLDI harder to distinguish from comprehensive coverage options.
As a result, STLDI is being sold in situations, including as a long-
term replacement for comprehensive coverage, that the exception from
the definition of individual health insurance coverage was not intended
to address.\119\ In some instances, individuals may mistakenly purchase
STLDI as long-term health insurance coverage.\120\
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\118\ 45 CFR 144.103 (defining policy year for non-grandfathered
health plans offered in the individual health insurance market as a
calendar year).
\119\ See, e.g., Palanker, Dania, and Volk JoAnn (2021).
``Misleading Marketing of Non-ACA Plans Continued During COVID-19
Special Enrollment Period,'' Center on Health Insurance Reforms,
available at: <a href="https://georgetown.app.box.com/s/mn7kgnhibn4kapb46tqmv6i7putry9gt">https://georgetown.app.box.com/s/mn7kgnhibn4kapb46tqmv6i7putry9gt</a>. See also Fernandez, Bernadette,
Vanessa Forsberg, and Annie Mach (2018). ``Background Information on
Health Coverage Options Addressed in Executive Order 13813,''
Congressional Research Service, available at: <a href="https://crsreports.congress.gov/product/pdf/R/R45216">https://crsreports.congress.gov/product/pdf/R/R45216</a>. See also Corlette,
Sabrina, Kevin Lucia, Dania Palanker, and Olivia Hoppe (2019). ``The
Marketing of Short-Term Health Plans: An Assessment of Industry
Practices and State Regulatory Responses,'' Urban Institute,
available at: <a href="https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses">https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses</a>.
\120\ Government Accountability Office (2022). ``Private Health
Insurance: Limited Data Hinders Understanding Short-Term Plans Role
and Value During the COVID-19 Pandemic,'' available at: <a href="https://www.gao.gov/assets/730/720774.pdf">https://www.gao.gov/assets/730/720774.pdf</a>.
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In determining the appropriate length of STLDI for the proposed
amended Federal definition, and giving meaning to ``short-term,'' the
Departments reflected on instances when individuals may experience a
temporary gap in coverage. For example, a college student enrolled in
student health insurance coverage that does not provide coverage during
the summer when they are not enrolled in classes, or a teacher who
changes jobs and has to wait until the fall to enroll in new coverage,
would experience a temporary gap in coverage of roughly 3 months and
would benefit from access to STLDI during that period. Individuals
transitioning between other types of jobs may also experience a
temporary break in coverage, even if their break in employment is
negligible. In particular, section 2708 of the PHS Act and its
implementing regulations permit a group health plan or health insurance
issuer offering group health insurance coverage to apply a waiting
[[Page 44611]]
period (as defined in section 9801(b)(4) of the Code, section 701(b)(4)
of ERISA, and 2704(b)(4) of the PHS Act) of up to 90 days.\121\ In
addition, the implementing regulations allow for a reasonable and bona
fide employment-based orientation period not to exceed 1 month. These
provisions can result in a delay of approximately 3 to 4 months before
coverage of an individual, who is otherwise eligible to enroll under
the terms of a group health plan, can become effective.
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\121\ 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR
147.116.
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Therefore, the Departments propose to amend the Federal definition
of ``short-term, limited-duration insurance'' in 26 CFR 54.9801-2, 29
CFR 2590.701-2, and 45 CFR 144.103 to reflect a new interpretation of
the phrase ``short-term'' to mean a policy, certificate, or contract of
insurance with an issuer that has an expiration date specified in the
policy, certificate, or contract of insurance that is no more than 3
months after the original effective date of the policy, certificate, or
contract of insurance. This approach is consistent with the group
market rules regarding the 90-day waiting period limitation provision
under the ACA and with STLDI's role of serving as temporary coverage
for individuals transitioning between other types of comprehensive
coverage. It also is similar to the less-than-3-month maximum term in
the Federal definition of STLDI adopted in the 2016 final rules and
already enacted in a number of States,\122\ and aligns with the goal of
Executive Order 14009 to support protections for people with
preexisting conditions, as there are no Federal prohibitions or
restrictions on preexisting condition limitations with respect to
STLDI.
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\122\ Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah
Kamal (2018). ``Understanding Short-Term Limited Duration Health
Insurance,'' KFF, available at: <a href="https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/">https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/</a>.
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It is reasonable to look to the group market waiting period rules
to guide the proposed amendments to the Federal definition of STLDI in
giving meaning to ``short-term,'' because a waiting period is the type
of coverage gap that STLDI was initially intended to cover.\123\ For
longer gaps in coverage, the guaranteed availability protections
established under the ACA, COBRA continuation coverage for individuals
who were enrolled in employer-based coverage, and the special
enrollment period requirements for group health plan and individual
health insurance coverage provide individuals various opportunities to
enroll in comprehensive coverage through or outside of an Exchange.
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\123\ 81 FR 38020 at 38032 (June 10, 2016) (the intent of the
initial regulation defining STLDI was to refer to coverage that
filled temporary coverage gaps when an individual was transitioning
from one plan or coverage to another).
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The Departments request comments on the proposed interpretation of
the phrase ``short-term.'' The Departments also request comments on
whether the interpretation of ``short-term'' in the proposed definition
of STLDI should instead be no more than 4 months or some other length,
and why.
2. ``Limited-Duration''
Under the definition adopted in the 2018 final rules, the
Departments interpreted the phrase ``limited-duration'' to preclude
renewals or extensions of STLDI that extended a policy beyond a total
of up to 36 months, with the total number of consecutive days of
coverage under a single (that is, the same) insurance contract being
the relevant metric to calculate the permissible duration of coverage.
The Departments now propose an update to the Federal definition of
``short-term, limited-duration insurance'' under 26 CFR 54.9801-2, 29
CFR 2590.701-2, and 45 CFR 144.103 that would adopt a different
interpretation of the phrase ``limited-duration.'' The Departments
propose to reinterpret ``limited-duration'' to refer to a maximum
coverage period that is no longer than 4 months in total, taking into
account any renewals or extensions. This approach would allow STLDI to
be extended, when consistent with applicable State law, to avoid a
temporary gap in coverage if, for example, an employer implemented a
bona fide employment-based orientation period of up to 1 month under
the 90-day waiting period limitation provision under the ACA. An STLDI
policy would meet the Federal definition of ``limited-duration'' so
long as the coverage was not renewed or extended beyond a total of 4
months from the original effective date of the policy, certificate, or
contract of insurance, regardless of whether the coverage has an
initial term of 1, 2, or 3 months. For example, an STLDI policy could
have an initial term of 3 months and a renewal term of 1 month, or an
initial term of 2 months and a renewal term of 2 months, consistent
with the proposed amended Federal definition of STLDI.
For this purpose, the Departments propose that a renewal or
extension would include the term of a new STLDI policy, certificate, or
contract of insurance issued by the same issuer to the same
policyholder within the 12-month period beginning on the original
effective date of the initial policy, certificate, or contract of
insurance. In this context, the phrase ``same issuer'' would refer to
the entity licensed to sell the policy, consistent with the definition
of health insurance issuer in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and
45 CFR 144.103. Under this proposal, the relevant metric to calculate
whether the duration of coverage satisfies the new Federal ``limited-
duration'' standard is the total number of days of coverage (either
consecutive or non-consecutive) that a policyholder is enrolled in an
STLDI policy with the same issuer. That calculation would apply
regardless of whether the coverage is a renewal or extension under the
same policy, certificate, or contract of insurance, or if it involves
the issuance of a new STLDI policy, certificate, or contract of
insurance to the same policyholder within the 12-month period beginning
on the original effective date of the initial policy, certificate, or
contract of insurance.
In the 2018 final rules, the Departments took the position that the
maximum length of COBRA continuation coverage serves as an appropriate
benchmark for interpreting the term ``limited-duration'' with respect
to STLDI. The 2018 final rules likened the limited-duration maximum to
the maximum duration that employers are required to provide COBRA
continuation coverage to qualified beneficiaries (18, 29, or 36 months
depending on the nature of the qualifying event that precipitates the
temporary coverage period).\124\
[[Page 44612]]
However, unlike STLDI, COBRA requires, and employees expect, that the
elected COBRA continuation coverage provides the same benefits as the
employee's employment-based coverage, and that the qualified
beneficiaries may elect either the same coverage they had the day
before the qualifying event occurred or coverage options provided to
similarly situated current employees/participants.\125\ Additionally,
Federal consumer protections and requirements for comprehensive
coverage generally apply to COBRA continuation coverage. In contrast,
STLDI is primarily designed to fill shorter gaps in coverage, such as
when an individual is between enrollment in employment-based coverage,
and it is generally not required to comply with Federal consumer
protections and requirements for comprehensive coverage,\126\ or
provide robust, comprehensive benefits.
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\124\ For example, when a qualified employee loses coverage due
to the termination of an employee's employment for any reason other
than gross misconduct, or a reduction in the number of hours of
employment, the group health plan must provide the qualified
employee and their covered dependents an opportunity to elect COBRA
continuation coverage for up to 18 months. A spouse or dependent
child of a covered employee would have the opportunity to elect
COBRA continuation coverage for up to 18 months if they lost
coverage due to the termination of the covered employee's employment
for any reason other than gross misconduct, a reduction in the hours
worked by the covered employee, divorce or legal separation of the
spouse from the covered employee, or death of the covered employee.
In addition, if a child loses coverage because of a loss of
dependent child status, the child would have the opportunity to
elect up to 36 months of COBRA continuation coverage. The group
health plan is required to provide up to 29 months of COBRA
continuation coverage only if one of the qualified beneficiaries is
disabled and meets certain requirements. A maximum COBRA period of
36 months is only available to a spouse and dependents in limited
circumstances such as the occurrence of a second qualifying event
(for instance, the death of the covered employee, the divorce or
legal separation of a covered employee and spouse, or a loss of
dependent child status under the plan).
\125\ 26 CFR 54.4980B-5.
\126\ As noted above, health insurance issuers offering STLDI
are subject to the new agent and broker compensation disclosure and
reporting requirements in section 2746 of the PHS Act.
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In response to the 2016 and 2018 proposed rules, the Departments
received comments requesting that the Departments not only limit
renewals of the same policy, certificate, or contract of insurance, but
also prohibit issuers from offering STLDI to consumers who have
previously purchased STLDI from the same or different issuer, to
prevent consumers from stringing together multiple consecutive
policies, a practice commonly referred to as stacking.\127\ The
Departments share the commenters' concern that stacking STLDI in effect
lengthens the duration of coverage without offering the benefits and
consumer protections of comprehensive coverage. As those commenters
pointed out, this practice effectively circumvents the rules related to
maximum duration and makes it more challenging for consumers to
distinguish STLDI from comprehensive coverage, concerns that interested
parties have reiterated in 2021 and 2022.\128\ If an issuer strings
together multiple STLDI policies (whether of a 12-month or 4-month
maximum) the coverage could be stacked to look very similar to the
annual renewals that are common for comprehensive coverage but without
the benefits the consumer would receive from comprehensive coverage.
For example, when stacking new policies, an issuer could increase
premiums and cost sharing and reset the deductible every 4 months. In
contrast, if enrolled in comprehensive health insurance coverage, a
consumer is guaranteed a stable level of coverage and cost sharing
throughout the 12-month plan year, and the coverage is subject to
Federal consumer protections and requirements that prohibit practices
common to STLDI, including medical underwriting and coverage
rescissions. Consumers that have already purchased STLDI policies from
the same issuer may not be aware of, and may be less likely, to explore
other coverage options that provide more comprehensive coverage at a
better price. As a result, some consumers may enroll in STLDI mistaking
it for comprehensive coverage or not understanding the limitations of
the coverage.
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\127\ The Departments declined to prohibit stacking in the 2016
final rules because the requirement that individuals obtain MEC in
order to avoid making an individual shared responsibility payment
was an adequate deterrent to discourage consumers from purchasing
multiple successive STLDI policies. See 81 FR 75318. In the
Department's view, reconsideration of such a prohibition is now
warranted because the individual shared responsibility payment was
reduced to $0 by the Tax Cuts and Jobs Act.
\128\ Partnership to Protect Coverage (2021). ``Under-Covered:
How `Insurance-Like' Products are Leaving Patients Exposed,''
available at: <a href="https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf">https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf</a>. (``STLDI plans
should not be renewable or allowed to continue for more than three
months because of the significant financial risk posed to consumers
by their combination of extraordinary deductibles and limited
catastrophic financial protection.''). See also Letter from 29
organizations to Sec. Xavier Becerra (January 31, 2022), available
at: <a href="https://www.lung.org/getmedia/8a510945-cd82-41fe-968e-d83faf2292eb/013122-Letter-to-HHS-Re-Regulation-of-STLDI-policy-preferences-FINAL.pdf">https://www.lung.org/getmedia/8a510945-cd82-41fe-968e-d83faf2292eb/013122-Letter-to-HHS-Re-Regulation-of-STLDI-policy-preferences-FINAL.pdf</a>. (``Allowing short-term plans to be renewed or
to be sold such that nominally separate policies run consecutively .
. . known as ``stacking''--contributes to consumer confusion,
increased premiums, and financial risk for consumers.'').
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In response to these concerns and continued reports about the
impact of the existing Federal definition of STLDI discussed in section
III.A.I of this preamble, under the Departments' authority to interpret
the phrase ``limited-duration,'' the Departments propose to add new
language that provides that, for purposes of applying the new Federal
definition, a renewal or extension includes the term of a new STLDI
policy, certificate, or contract of insurance issued by the same issuer
to the same policyholder within the 12-month period beginning on the
original effective date of the initial policy, certificate, or contract
of insurance.\129\ As explained elsewhere in this preamble section,
under this proposal, the relevant metric to calculate and evaluate if
the duration of coverage (taking into account any renewals or
extensions) satisfies the proposed permitted maximum duration of no
more than 4 months is the total number of days (either consecutive or
non-consecutive) of coverage that a policyholder is enrolled in an
STLDI policy with the same issuer within the 12-month period beginning
on the original effective date of the initial policy, certificate, or
contract of insurance, regardless of whether the coverage issued to the
policyholder is under the same or a new policy, certificate, or
contract of insurance. This calculation, however, would not include an
STLDI policy, contract, or certificate of insurance sold to the same
policyholder by a different issuer. This distinction would effectively
limit stacking of policies sold by the same issuer, would be easier for
issuers to track and comply with, and would allow consumers the
flexibility to purchase subsequent STLDI policies from other issuers
within a 12-month period. The Departments are of the view that
subsequent sales to the same policyholder by the same issuer should be
treated comparably to renewals for purposes of calculating and applying
the maximum-duration standard. To do otherwise would undermine the
maximum-duration requirements by allowing issuers to stack policies,
and would contravene the initial purpose of STLDI policies to fill
temporary gaps in comprehensive coverage.
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\129\ In response to the 2018 proposed rules, the Departments
received comments regarding renewal guarantees. As explained in the
preamble to the 2018 final rules, renewal guarantees generally
permit a policyholder, when purchasing his or her initial insurance
contract, to pay an additional amount in exchange for a guarantee
that the policyholder can elect to purchase, for periods of time
following expiration of the initial contract, another policy or
policies at some future date, at a specific premium that would not
require any additional underwriting. See 83 FR 38219-38220 (Aug. 3,
2018). These proposed rules would not directly regulate renewal
guarantees. However, the Departments acknowledge that the proposed
revisions to the Federal definition--including the proposal to count
the term of a new STLDI contract issued by the same issuer to the
policyholder within the same 12-month period beginning on the
original effective date of the initial policy, contract, or
certificate of insurance toward the total maximum duration of
STLDI--would limit the guarantees that such instruments may be able
to provide.
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The Departments solicit comments on the proposed revisions to the
Federal definition of ``short-term, limited-duration insurance,''
including the new proposed interpretation of the phrase ``limited-
duration,'' and whether there are circumstances under which issuers
should be allowed to renew or extend STLDI for periods of time beyond
what would be permitted in these proposed rules. The Departments also
solicit comments on whether there are
[[Page 44613]]
additional ways to differentiate STLDI from comprehensive coverage
options, including information on State approaches or limits on the
sale of STLDI by a different issuer, and how the subsequent issuer
would determine whether or not an applicant had previous STLDI with
another issuer. The Departments also solicit comments on whether to
broaden the limits on stacking to include issuers that are members of
the same controlled group.
3. Sales and Marketing Practices
The Departments are concerned by reports of aggressive and
deceptive sales and marketing practices related to STLDI. According to
these reports, STLDI is often marketed as a substitute for
comprehensive coverage,\130\ despite being exempt from most of the
Federal individual market consumer protections and requirements for
comprehensive coverage. For example, some websites selling STLDI
utilized logos of well-known issuers even when not affiliated with such
issuers, and claimed to provide comprehensive health insurance or be
providers of government-sponsored health insurance policies. Misleading
marketing includes tactics such as designing websites to suggest the
product for sale is comprehensive coverage and using the websites to
gather personal information for call centers or brokers that later push
consumers to make quick decisions about purchasing STLDI without
disclosing that the insurance is not comprehensive coverage.\131\
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\130\ Federal Trade Commission (2018). ``FTC Halts Purveyors of
Sham Health Insurance Plans,'' available at: <a href="https://www.ftc.gov/news-events/news/press-releases/2018/11/ftc-halts-purveyors-sham-health-insurance-plans">https://www.ftc.gov/news-events/news/press-releases/2018/11/ftc-halts-purveyors-sham-health-insurance-plans</a>.
\131\ Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019).
``Seeing Fraud and Misleading Marketing, States Warn Consumers About
Alternative Health Insurance Products,'' Commonwealth Fund,
available at: <a href="https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health">https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health</a>. See also, Federal Trade Commission (2022). ``FTC
Action Against Benefytt Results in $100 Million in Refunds for
Consumers Tricked into Sham Health Plans and Charged Exorbitant Junk
Fees,'' available at: <a href="https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans-charged">https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans-charged</a>.
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As another example, consumers shopping for health insurance online
are often directed to websites selling STLDI or other plans that are
not comprehensive coverage, using terms like ``Obamacare plans'' and
``ACA enroll.'' websites use those terms in an effort to associate
STLDI with the Federal consumer protections and requirements for
comprehensive coverage.\132\ A report from the Government
Accountability Office (GAO) uncovered brokers engaging in deceptive
marketing practices that misrepresented or omitted information about
products or claimed that preexisting conditions were covered when plan
documents reflected that they were not.\133\ The GAO study also found
that brokers have a financial incentive to enroll their clients in
STLDI because brokers receive higher commissions for selling that
coverage than for selling comprehensive coverage.\134\ For example, the
financial incentive could be up to 10 times higher commissions when
compared to individual market QHPs purchased through an Exchange.\135\
State regulators have also received complaints alleging that brokers
engaged in deceptive practices to enroll consumers in STLDI over the
phone. These practices prevent consumers from making an informed choice
about their coverage.\136\
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\132\ Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia
Hoppe (2019). ``The Marketing of Short-Term Health Plans: An
Assessment of Industry Practices and State Regulatory Responses,''
Urban Institute, available at: <a href="https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses">https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses</a>.
\133\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: <a href="https://www.gao.gov/products/gao-20-634r">https://www.gao.gov/products/gao-20-634r</a>.
\134\ Ibid.
\135\ Keith, Katie (2020). ``New Congressional Investigation of
Short-Term Plans,'' Health Affairs, available at: <a href="https://www.healthaffairs.org/do/10.1377/forefront.20200626.227261/full/">https://www.healthaffairs.org/do/10.1377/forefront.20200626.227261/full/</a>.
\136\ Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019).
``Seeing Fraud and Misleading Marketing, States Warn Consumers About
Alternative Health Insurance Products,'' Commonwealth Fund,
available at: <a href="https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health">https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health</a>.
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In addition, the Departments have received feedback that the low
levels of health insurance literacy, particularly among younger adults
and underserved populations, exacerbate the harm caused by deceptive
marketing practices of STLDI by issuers and agents and brokers.\137\
Consumers have complained they were unaware that the issuer could
decide not to renew or issue a new policy, certificate, or contract of
insurance to the same consumer at the end of the contract term.\138\
Some consumers unwittingly purchase STLDI with fewer protections and
less robust benefits than comprehensive coverage because they do not
understand the difference between these two types of coverage.\139\
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\137\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: <a href="https://www.gao.gov/products/gao-20-634r">https://www.gao.gov/products/gao-20-634r</a>.
\138\ Id.
\139\ Id.
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In the Departments' view, this risk of misleading consumers could
be further minimized if STLDI was not marketed or sold to consumers
during certain periods when a consumer is eligible to enroll in
comprehensive coverage, such as the individual market open enrollment
period. Allowing STLDI to be marketed or sold during open enrollment
can confuse consumers by causing them to perceive STLDI as a substitute
for comprehensive coverage, rather than an option to fill temporary
gaps in coverage. Inadvertent enrollment in STLDI may subject
uninformed consumers to potentially severe financial risks, and cause
them not to enroll in comprehensive coverage when eligible to do so. In
addition, some healthier individuals may also inadvertently enroll in
STLDI instead of comprehensive coverage, and in so doing, either leave
or not enter an individual market risk pool. As discussed in section
II.C of this preamble, this affects the risk pools for individual
health insurance coverage, leading to increased premiums.
The Departments solicit comments on additional ways to help
consumers distinguish between STLDI and comprehensive coverage. In
particular, the Departments are interested in feedback on ways to
prevent or otherwise mitigate the potential for direct competition
between STLDI and comprehensive coverage during the open enrollment
period for individual market coverage. For example, some States have
prohibited the sale of STLDI during open enrollment.\140\ The
Departments are particularly interested in comments related to
experience in States that have prohibited enrollment in STLDI during
specific periods of time, including whether prohibiting enrollment has
increased enrollment in comprehensive coverage, reduced deceptive
marketing practices, or resulted in any premium changes for
comprehensive coverage. In addition, the Departments request comments
on what additional steps the Departments can take to help consumers
better
[[Page 44614]]
understand and distinguish between comprehensive coverage and other
forms of health insurance coverage, as well as what steps can be taken
to further support State efforts to protect consumers from misleading
and deceptive marketing and sales practices.
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\140\ Washington and Maine prohibit the sale of STLDI during
open enrollment. In addition, Hawaii prohibits the sale of STLDI to
individuals who were eligible to purchase an Exchange plan during
open enrollment in the previous calendar year. See U.S. House of
Representatives Committee on Energy and Commerce (2020).
``Shortchanged: How the Trump Administration's Expansion of Junk
Short-Term Health Insurance Plans Is Putting Americans at Risk,''
available at: <a href="https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health">https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health</a>.
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4. Notice
Under the 2018 final rules, to satisfy the definition of STLDI,
issuers must display prominently in the contract and in any application
materials provided in connection with enrollment in STLDI a specific
notice in at least 14-point type.\141\ The 2018 final rules finalized
two notices. The first notice (Notice 1) was for policies with a
coverage start date before January 1, 2019, and includes language
related to the individual shared responsibility payment under section
5000A of the Code. The second notice (Notice 2), which is for policies
with a coverage start date on or after January 1, 2019, omits the
language related to the individual shared responsibility payment
because, effective for months beginning after December 31, 2018, the
individual shared responsibility payment was reduced to $0.\142\ The
Departments propose a non-substantive technical amendment to remove
Notice 1, because the period during which Notice 1 was applicable has
ended; thus, that provision no longer has any effect.
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\141\ 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
See section I.C of this preamble for further discussion of this
requirement.
\142\ See Public Law 115-97, December 22, 2017.
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The Departments continue to be of the view that the notice is
important to help consumers distinguish between comprehensive coverage
and STLDI. Therefore, the Departments propose to amend the notice to
further clarify the differences between STLDI and comprehensive
coverage, and identify options for consumers to obtain comprehensive
coverage in concise, understandable language that would be meaningful
to them. The proposed amendments to the notice would apply to all STLDI
policies sold or issued on or after the effective date of the final
rules. The proposed amendments to the notice would only apply to
existing policies in connection with notices required to be provided
upon renewal or extension of existing STLDI coverage on or after the
effective date of the final rules.
After consulting with plain-language experts regarding improvements
to the current required notice, the Departments propose the following
revisions to both the content and formatting of the notice to inform
consumers considering purchasing STLDI about the differences between
STLDI and comprehensive coverage, support informed coverage purchasing
decisions, and promote readability. The Departments propose that
issuers must prominently display the notice (in either paper or
electronic form) in at least 14-point font, on the first page of the
policy, certificate, or contract of insurance, including for renewals
or extensions. The Departments further propose that issuers must
prominently display the notice in any marketing and application
materials provided in connection with enrollment in such coverage,
including on websites that advertise or enroll individuals in STLDI,
and in any enrollment materials that are provided at or before the time
an individual has the opportunity to enroll. In addition, if an
individual is required to reenroll for purposes of renewal or extension
of STLDI, the notice must be prominently displayed in the reenrollment
materials (in either paper or electronic form) that are provided to the
individual at or before the time the individual is given the
opportunity to reenroll in coverage, as well as on any websites used to
facilitate reenrollment in STLDI.
The notice would not affect any separate notice requirements under
applicable State law, except to the extent that a State notice
requirement would prevent application of any Federal notice
requirement. The text of the proposed STLDI notice is as follows:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P
[[Page 44615]]
[GRAPHIC] [TIFF OMITTED] TP12JY23.013
BILLING CODE 4120-01-, 4150-29-, 4830-01-C
These proposals to revise and enhance the required notice aim to
increase consumer understanding of STLDI and combat potential
misinformation related to such coverage for all consumers, including
historically underserved communities. As noted in section II.B of this
preamble, individuals belonging to historically underserved communities
often experience more health care challenges, and greater obstacles
accessing and using health care services compared to the general
population. Underserved communities experience worse health outcomes,
higher rates of chronic conditions, lower access to health care, and
have more frequent experiences of discrimination in health care
settings.\143\ The COVID-19 PHE amplified these longstanding
inequities, resulting in disparate rates of COVID-19 infection,
hospitalization, and death.\144\ In addition, research has uncovered
significant disparities in health insurance literacy rates nationwide,
particularly among those who identify as female, members of underserved
racial and ethnic groups, individuals with income below the FPL, and
Spanish-speaking enrollees.\145\ Because low health insurance literacy
increases the likelihood of consumers not fully understanding the
differences between comprehensive coverage and STLDI, as well as the
potential health and financial risks of STLDI coverage,\146\ and in
light of Executive Order 13985 which requires the Administration to
promote access to equity for underserved communities,\147\ the
Departments are concerned that members of underserved communities may
be particularly vulnerable to misinformation or misleading or
aggressive sales tactics. In light of these concerns, it is important
for the notice to provide clear and easily readable information
alerting consumers to the differences between STLDI coverage and
comprehensive coverage. The Departments are of the view that the notice
must also provide resources where consumers can access additional
information about STLDI coverage and other health coverage options so
consumers can make informed choices after considering a range of
available health coverage options.
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\143\ See CMS Office of Minority Health (2022). ``The Path
Forward: Improving Data to Advance Health Equity Solutions,''
available at: <a href="https://www.cms.gov/files/document/path-forwardhe-data-paper.pdf">https://www.cms.gov/files/document/path-forwardhe-data-paper.pdf</a>.
\144\ Moore, Jazmyn, Carolina Luna-Pinto, Heidi Cox, Sima Razi,
Michael St. Louis, Jessica Ricaldi, and Leandris Liburd (2021).
``Promoting Health Equity During the COVID-19 Pandemic, United
States,'' Bulletin of the World Health Organization, available at:
<a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8795842">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8795842</a>.
\145\ See, Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary
Kay Rayens (2019). ``Significant Disparities Exist in Consumer
Health Insurance Literacy: Implications for Health Care Reform,''
Health Literacy Research and Practice, available at: <a href="https://pubmed.ncbi.nlm.nih.gov/31768496/">https://pubmed.ncbi.nlm.nih.gov/31768496/</a>. See also Villagra, Victor and
Bhumika Bhuva (2019). ``Health Insurance Literacy: Disparities by
Race, Ethnicity, and Language Preference,'' The American Journal of
Managed Care, available at: <a href="https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference">https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference</a>.
\146\ Edward, Jean, Robin Thompson, and Amanda Wiggins (2022).
``Health Insurance Literacy Levels of Information Intermediaries:
How Prepared are They to Address the Growing Health Insurance Access
Needs of Consumers?,'' Health Literacy Research and Practice, 6(1),
available at: <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8919673/">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8919673/</a>.
\147\ See, Executive Order 13985 of January 20, 2021, 86 FR
7009.
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The Departments propose to add language to the notice to help
consumers identify where and how they might be able to enroll in
comprehensive coverage. The Departments propose to add a website link
and telephone number for <a href="http://HealthCare.gov">HealthCare.gov</a> to the notice as reliable
resources for consumers to get information on the different types of
available health coverage options. The Departments are also considering
that the notice be tailored to specify a telephone number and a link to
the State Exchange's website if the STLDI is filed in a State that does
not use
[[Page 44616]]
<a href="http://HealthCare.gov">HealthCare.gov</a>.\148\ The Departments seek comments on this approach,
including the proposed requirement to provide the notice in the
marketing, application, and enrollment (or reenrollment) materials,
including the extension of the notice requirement to websites that
advertise or offer the opportunity to enroll (or reenroll) in STLDI and
on the associated administrative burden for issuers, agents, brokers,
or others who will be involved in providing the notice to consumers.
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\148\ Currently, 33 states use <a href="http://HealthCare.gov">HealthCare.gov</a>. See, <a href="https://www.healthcare.gov/marketplace-in-your-state/">https://www.healthcare.gov/marketplace-in-your-state/</a>.
_____________________________________-
If, under any future final rules, the notice must be customized to
specify the website and telephone number for <a href="http://HealthCare.gov">HealthCare.gov</a> or the
State Exchange's website and telephone number, as applicable, the
Departments would state that STLDI sold through associations \149\
include a link to the website of the Exchange that operates in the
State in which the individual to whom the STLDI is sold or marketed
resides, regardless of the State in which the association has filed the
insurance product. The Departments are considering this approach for
coverage sold through associations because association coverage is sold
across numerous States, and consumers interested in other coverage
options would enroll through the Exchange of the State in which the
consumer resides.
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\149\ See discussion in section III.A.5 of this preamble
regarding coverage sold through associations.
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The proposed revised notice would also remind consumers that if
they are eligible to enroll in employment-based coverage they should
contact their employer or family member's employer about the health
coverage offered by the employer. In addition, the Departments propose
to add language to the notice that directs consumers to contact the
State department of insurance for questions and complaints about the
STLDI. The Departments seek comments on whether this part of the notice
should also be tailored to include the name and phone number of the
State department of insurance of the State in which the product is
filed. If the State-specific information must be included, for products
that are filed in multiple States, the Departments propose that the
notice include the name and the phone number of the State department of
insurance of the State of residence of the individual to whom the STLDI
is sold or marketed, unless the product is not filed in that State. If
the product is not filed in the State of residence of the individual to
whom the STLDI is sold or marketed, the notice would include the name
and the phone number of the State department of insurance of the State
in which the product is filed.
The current regulations already state that the applicable notice
must be displayed prominently in the contract and in any application
materials provided in connection with enrollment in such coverage in at
least 14-point type. However, based on information that consumers are
not receiving adequate information prior to enrollment in an STLDI
policy,\150\ the Departments are concerned that the current standard is
too subjective and may be contributing to consumers not understanding
the limits of STLDI and being unable to distinguish it from
comprehensive coverage.\151\ Ensuring that issuers, agents, brokers or
others who will be involved in providing the notice to consumers also
prominently display the notice on the first page of marketing materials
would increase consumer awareness, limit the impact of any deceptive
marketing practices, and support informed decision making and
purchasing decisions by consumers. The Departments therefore propose
that the notice be prominently displayed, in at least 14-point font, on
the first page of any marketing materials used in connection with
enrollment (or reenrollment) in STLDI. The Departments propose to
consider the notice to be prominently displayed if it would be
reasonably noticeable to a typical consumer within the context of the
page on which it is displayed. For example, the notice would be
prominently displayed if it uses a font color that contrasts with the
background of the document, is not obscured by any other written or
graphic content on the page, and when displayed on a website, is
viewable without clicking on an additional link. For this purpose, the
Departments would consider marketing materials to include any documents
or website pages that advertise the benefits or opportunity to enroll
(or reenroll) in STLDI coverage. The Departments seek comments on the
benefits and burdens of applying the notice requirements to marketing
materials, including websites used in connection with advertising or
enrollment (or reenrollment) in STLDI coverage, and on the proposed
definition of what would be considered marketing materials.
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\150\ See, Corlette, Sabrina, Kevin Lucia, Dania Palanker, and
Olivia Hoppe (2019). ``The Marketing of Short-Term Health Plans: An
Assessment of Industry Practices and State Regulatory Responses,''
Urban Institute, available at: <a href="https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses">https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses</a>.
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The Departments are considering adding a statement to the STLDI
notice describing the maximum permitted length of STLDI under Federal
rules, explaining that STLDI cannot be renewed or extended beyond the
maximum allowable duration, and explaining that the length of STLDI may
be shorter subject to State law. Adding this proposed additional
language may reduce the impact of deceptive marketing practices on
consumers that may otherwise be unaware or misinformed about the length
of STLDI before renewing or extending an existing STLDI policy or
enrolling in a new STLDI policy. However, including such language would
also add to the length of the notice. The Departments seek comment on
whether information about the maximum permitted length of new or
existing STLDI and options regarding renewal and extensions would be
included in enrollment materials (or reenrollment materials) provided
to enrollees as part of the normal course of business. The Departments
seek comment on this approach, including how best to clearly and
concisely communicate such this information to consumers, including on
how to address the bifurcated applicability dates with respect to the
proposals around maximum initial contract length and maximum duration,
whether such information is already included elsewhere in the plan
documents; and on the associated administrative burden for issuers,
agents, brokers, or others who would be involved in providing the
notice to consumers.
The Departments also solicit comments on whether it would be
beneficial to consumers to require issuers to include language on the
notice that clearly informs consumers that the notice is an officially
required document, such as ``This notice is required by Federal law.''
The Departments seek comments on all aspects of the proposed
amendments to the notice and the proposed new Federal definition of
STLDI, including whether the proposed language and proposed placement
of the notice would achieve the stated aims of helping to inform
consumers of the nature of the coverage and combat potential deceptive
marketing practices as described in section III.A.3 of this preamble,
and whether alternative or additional language, formatting, or
mechanisms for delivery of the notice could better accomplish these
goals. For example, the Departments request feedback on whether a
different presentation, such as a chart comparing
[[Page 44617]]
the protections that apply to comprehensive coverage and STLDI, would
result in a more useful, consumer-friendly notice than the format
proposed in these rules.
As an illustrative example of this different presentation, the
Departments offer for consideration an alternative format for this
notice that would aim to succinctly show important differences between
STLDI and comprehensive coverage using a table. This alternative STLDI
notice would include all of the information discussed earlier in this
section of the preamble, but it would simplify word choice and reduce
sentence length in order to further improve readability. The
Departments request feedback on which version of the notice more
effectively communicates information to individuals and how the notice
format would impact accessibility, particularly for individuals who are
vision-impaired or rely on screen readers or other technology to review
written documents. The text of the alternative proposed STLDI notice is
as follows:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P
[GRAPHIC] [TIFF OMITTED] TP12JY23.014
BILLING CODE 4120-01-, 4150-29-, 4830-01-C
The Departments seek comments on whether additional changes to the
notice language would improve readability or further help individuals
distinguish STLDI from comprehensive coverage, and whether there are
practical or logistical barriers that would present any challenges to
compliance with the new proposed notice standards. The Departments are
also interested in comments on whether the proposed placement
requirements would substantially improve the likelihood that consumers
have a meaningful opportunity to review the notice and their health
coverage options before applying, enrolling, or reenrolling in STLDI,
as well as any practical or logistical barriers to providing this
notice as proposed. The Departments particularly seek comments from
members of underserved communities, and organizations that serve such
communities, on whether the language accessibility, formatting, and
content of the notice sufficiently mitigate barriers that exist to
ensuring all individuals can read, understand, and consider the full
range of their health coverage options.
The Departments also solicit comments on the prevalence of
instances where agents and brokers complete sales transactions with
consumers for STLDI before distributing the applicable notice, and
solicit comments on additional standards that would encourage
salespeople, agents and brokers to notify individuals of the
limitations of STLDI in accordance with these proposed rules.
[[Page 44618]]
5. Short-Term, Limited-Duration Insurance Sold Through Associations
The Departments understand that most sales of STLDI occur through
group trusts or associations that are not related to employment
(sometimes referred to as individual membership associations).\152\
Under these arrangements, out-of-State issuers file insurance products
for approval in one State and then sell the same policies in other
States through an association, many times with few requirements for
participation in the association by consumers, other than payment of
association dues. Many State regulators have reported they lack the
authority to track sales of policies made through out-of-State
associations, and are unable to approve or regulate such policies when
offered for sale by issuers that are not licensed by their State.
Further, The Departments have received feedback that many issuers are
taking advantage of the ambiguity about which State's jurisdiction
applies, to avoid local State regulation. For example, one study found
that in a review of 34 policy brochures for STLDI, 28 of the brochures
included references to associations.\153\ Consumers may not understand
that some STLDI marketed in their States is not regulated by their
State and does not include State-based consumer protections.
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\152\ See U.S. House of Representatives Committee on Energy and
Commerce (2020). ``Shortchanged: How the Trump Administration's
Expansion of Junk Short-Term Health Insurance Plans Is Putting
Americans at Risk,'' available at: <a href="https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health">https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health</a>.
\153\ Curran, Emily, Dania Palanker, and Sabrina Corlette
(2019). ``Short-term Plans Sold Through Out-of-State Associations
Threaten Consumer Protections,'' Commonwealth Fund, available at:
<a href="https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections">https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections</a>.
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Coverage that is provided to or through associations, but not
related to employment, and is sold to individuals, either as
certificate holders or policyholders, is not group coverage under
section 9832 of the Code, section 733(b)(4) of ERISA, and section
2791(b)(4) of the PHS Act.\154\ If the coverage is offered to an
association member other than in connection with a group health plan,
the coverage is considered coverage in the individual market under
Federal law, regardless of whether it is considered group coverage
under State law. Thus, any health insurance sold to individuals through
a group trust or association, other than in connection with a group
health plan, or sold to a group trust or association to the extent the
insurance is intended to cover association members who are individuals,
must meet the definition of STLDI at 26 CFR 54.9801-2, 29 CFR 2590.701-
2, and 45 CFR 144.103, or else be considered individual health
insurance coverage that is subject to all the Federal individual market
consumer protections and requirements for comprehensive coverage.
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\154\ 45 CFR 144.102(c).
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The Departments are aware that some group trusts and associations
have also marketed STLDI policies to employers as a form of employer-
sponsored coverage. As explained in section I.C of this preamble, there
is no provision excluding STLDI from the Federal definition of group
health insurance coverage.\155\ Thus, any health insurance that is sold
to or through a group trust or association in connection with a group
health plan and which purports to be STLDI would in fact be group
health insurance coverage that must comply with the Federal consumer
protections and requirements for comprehensive coverage applicable to
the group market.
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\155\ See section 2791(b)(5) of the PHS Act, which excludes
STLDI from the definition of ``individual health insurance
coverage.''
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The Departments are not proposing any policies or policy changes
specific to STLDI sold through associations, but request comments on
what steps, if any, can be taken to support State oversight of STLDI
sold to or through associations.
6. Applicability Dates
In 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR 146.125 and
148.102, the Departments propose applicability dates for the proposed
amendments to the Federal definition of STLDI that distinguishes
between new and existing STLDI. The Departments also propose a
technical amendment to 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR
146.125 to remove outdated language that references revisions to 45 CFR
parts 144 and 146 that became effective on October 1, 2004, but were
superseded by subsequent revisions that became effective on July 1,
2005. The Departments propose the technical amendment would apply to
all coverage (that is, both new and existing STLDI) as of the effective
date of the final rules.
For new STLDI sold or issued on or after the effective date of the
final rules, the amendments to the definition of STLDI would apply for
coverage periods beginning on or after such date. The Departments are
of the view that timely implementation of the new Federal definition of
STLDI, including both the maximum duration and revised notice
provisions, for new coverage sold or issued on or after the effective
date of the final rules, is critical to maximize the number of
individuals benefiting from the consumer protections described
throughout this preamble. This proposal would prevent delays in
implementation of the new Federal definition of STLDI, while providing
a sufficient transition period for interested parties to implement the
new definition for new coverage sold on or after the effective date of
the final rules.
However, for STLDI sold or issued before the effective date of the
final rules (including any subsequent renewal or extension consistent
with applicable law), the current Federal definition of such coverage
would continue to apply with respect to the maximum allowable duration.
Therefore, existing STLDI could continue to have an initial contract
term of less 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 Departments propose this applicability
date with respect to the maximum allowable duration for existing STLDI
(including renewals and extensions) to minimize disruption for
individuals who purchased or were enrolled in STLDI prior to the
effective date of the final rules. The Departments recognize that
consumers already enrolled in STLDI may have anticipated having the
option of continuing such coverage for a given period of time,
consistent with the current rules. The proposal to permit such
individuals to remain covered under STLDI for the maximum initial
contract term, as well as for renewals and extensions to the extent
permitted under the current regulations, subject to any limits under
applicable State law, would promote continuous enrollment in coverage
and ensure that these consumers have adequate time to transition to
comprehensive coverage.
The Departments propose that the amendments to the notice provision
at paragraph (2) of the definition of ``short-term, limited-duration
insurance'' in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103
would apply for coverage periods beginning on or after the effective
date of the final rules, regardless of whether the coverage was sold or
issued before, on, or after the effective date of the final rules.\156\
The Departments are of the view that the benefit to consumers,
including those currently enrolled in STLDI, of a timely
[[Page 44619]]
notice update outweighs the burden to issuers of implementing these
changes by the effective date of the final rules. Given that the
updates to the notice are aimed at alerting consumers to the
differences between comprehensive coverage and STLDI and providing
consumers with the information necessary to make an informed decision
about their coverage options, a delayed applicability date of the
proposed changes to the notice could result in unnecessary harm to
consumers.
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\156\ As noted above, the proposed revised notice would also
apply to new STLDI coverage for coverage periods beginning on or
after the effective date of the final rules.
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The Departments seek comments on whether the proposed revised
notice should apply to only new STLDI or should apply to both new STLDI
and existing coverage upon renewal or extension, and whether the
application of the proposed revised notice to existing STLDI should
instead be delayed until January 1, 2025, or some other date. The
Departments seek comments on whether all STLDI policies and any
renewals or extensions of such coverage, including existing coverage
sold or issued prior to the effective date of the final rules, should
instead end upon the effective date of the final rules or some other
date. The Departments also seek comments on whether an applicability
date that would provide a longer transition period for consumers with
policies, certificates, or contracts of STLDI sold or issued before the
effective date of the final rules could help alleviate any potential
market disruption; for example, allowing consumers to renew existing
coverage for an additional 12-month period after any renewals under
their original coverage are exhausted. The Departments also seek
comments on whether it would be more reasonable for all STLDI policies
and any renewals or extensions of such coverage in effect before the
date the final rules are published to end before January 1, 2025, or
some other date.
7. Severability
In the event that any portion of the final rules implementing one
or more proposals in these proposed rules is declared invalid or
unenforceable, by its terms or as applied to any entity or
circumstance, or stayed pending further agency action, the Departments
intend that the proposed amendments to the definition of ``short-term,
limited-duration insurance'' be severable, and that the proposed
amendments to the definition of ``short-term, limited-duration
insurance'' in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103
would continue even if one or more aspects of the proposed changes is
found invalid. To capture this intent, the Departments propose to add a
severability provision to the proposed amended definition of ``short-
term, limited-duration insurance'' at 26 CFR 54.9801-2, 29 CFR
2590.701-2, and 45 CFR 144.103. The severability of these provisions is
discussed in more detail in section VI of this preamble.
B. Independent, Noncoordinated Excepted Benefits Coverage
1. Fixed Indemnity Excepted Benefits Coverage
As described in section I.D of this preamble, Congress identified
various types of excepted benefits, each of which is not subject to the
Federal consumer protections and requirements for comprehensive
coverage.\157\ In so doing, Congress established an exemption for those
types of coverage that offer more limited and narrow benefits than
comprehensive coverage.\158\ Insurance that pays a fixed amount under
specified conditions without regard to other insurance (that is,
``hospital indemnity or other fixed indemnity insurance'') is
considered an excepted benefit if offered on an independent,
noncoordinated basis, and such insurance coverage is exempt from
Federal consumer protections and requirements for comprehensive
coverage.\159\
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\157\ See sections 9831(b)-(c) and 9832(c) of the Code, sections
732(b)-(c) and 733(c) of ERISA, and sections 2722(b)-(c), 2763 and
2791(c) of the PHS Act.
\158\ See Interim Rules for Health Insurance Portability for
Group Health Plans, 62 FR 16894, 16903 (April 8, 1997).
\159\ See sections 9831(b)-(c) and 9832(c) of the Code, sections
732(b)-(c) and 733(c) of ERISA, and sections 2722(c)(2), 2763(b) and
2791(c)(3)(B) of the PHS Act. See also 26 CFR 54.9831-1(c)(4), 29
CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4) and 148.220(b)(4).
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In order to address reports of troubling marketing and sales
tactics and the creation of new benefit designs that mislead consumers
to believe that hospital indemnity or other fixed indemnity insurance
constitutes comprehensive coverage,\160\ as well as the changes in
market conditions and in the legal landscape that have taken place
since the last regulatory activity on this coverage (discus
[…truncated; see source link]Indexed from Federal Register on July 12, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.