Rule2024-06551
Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage
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
April 3, 2024
Effective
June 17, 2024
Issuing agencies
Treasury DepartmentInternal Revenue ServiceLabor DepartmentEmployee Benefits Security AdministrationHealth and Human Services Department
Abstract
This document sets forth final rules that 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 final rules that amend the regulations regarding the requirements for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group and individual health insurance markets.
Full Text
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<title>Federal Register, Volume 89 Issue 65 (Wednesday, April 3, 2024)</title>
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[Federal Register Volume 89, Number 65 (Wednesday, April 3, 2024)]
[Rules and Regulations]
[Pages 23338-23421]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06551]
[[Page 23337]]
Vol. 89
Wednesday,
No. 65
April 3, 2024
Part VI
Department of the Treasury
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Internal Revenue Service
26 CFR Part 54
Department of Labor
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Employee Benefits Security Administration
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 and Independent, Noncoordinated
Excepted Benefits Coverage; Final Rule
Federal Register / Vol. 89 , No. 65 / Wednesday, April 3, 2024 /
Rules and Regulations
[[Page 23338]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[TD 9990]
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-F]
RIN 0938-AU67
Short-Term, Limited-Duration Insurance and Independent,
Noncoordinated Excepted Benefits Coverage
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: Final rules.
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SUMMARY: This document sets forth final rules that 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 final rules that
amend the regulations regarding the requirements for hospital indemnity
or other fixed indemnity insurance to be considered an excepted benefit
in the group and individual health insurance markets.
DATES: These regulations are effective on June 17, 2024.
FOR FURTHER INFORMATION CONTACT: Shannon Hysjulien 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; Lisa Cuozzo, Centers for Medicare & Medicaid Services,
Department of Health and Human Services at (667) 290-8537.
SUPPLEMENTARY INFORMATION:
I. Background
These final rules set forth 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
with individual health insurance or STLDI 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 final rules also set forth amendments to the regulations
regarding 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\ As explained in greater detail later in this
section of the preamble, the Department of the Treasury (Treasury
Department), the Department of Labor, and HHS (collectively, the
Departments) are not finalizing certain aspects of the proposed rules
regarding fixed indemnity excepted benefits coverage and the Treasury
Department and the Internal Revenue Service (IRS) are not finalizing
the proposed amendments to Treasury Reg. Sec. 1.105-2 at this time.
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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'' to
distinguish it from hospital indemnity or other fixed indemnity
insurance that does not meet all such requirements.
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In proposed rules published on July 12, 2023, in the Federal
Register titled ``Short-Term, Limited-Duration Insurance; Independent,
Noncoordinated Excepted Benefits Coverage; Level-Funded Plan
Arrangements; and Tax Treatment of Certain Accident and Health
Insurance'' (2023 proposed rules),\2\ the Departments proposed
revisions to define and more clearly distinguish STLDI and fixed
indemnity excepted benefits coverage from comprehensive coverage.
Comprehensive coverage is coverage that 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
(hereinafter referred to as the Federal consumer protections and
requirements for comprehensive coverage),\3\ such as the prohibition on
exclusions for preexisting conditions, the prohibition on health status
discrimination, and the requirement to cover certain preventive
services without cost sharing. The Departments proposed 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. The
Treasury Department and the IRS also proposed amendments to Treasury
Reg. Sec. 1.105-2 to clarify the tax treatment of benefit payments in
fixed amounts under hospital indemnity or other fixed indemnity
coverage purchased on a pre-tax basis.
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\2\ 88 FR 44596 (July 12, 2023).
\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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The Departments also solicited comments regarding coverage only for
a specified disease or illness that qualifies as excepted benefits
(specified disease excepted benefits coverage),\4\ and regarding level-
funded plan arrangements \5\ to better understand the key features and
characteristics of these arrangements and whether additional guidance
or rulemaking is needed to clarify plan sponsors' and issuers'
obligations with respect to coverage provided through these
arrangements. While specified disease excepted benefits coverage and
level-funded plan arrangements are not addressed in these final rules,
the Departments appreciate the comments received on these topics and
will take them into consideration as they determine whether additional
guidance or rulemaking is warranted in the future.
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\4\ 88 FR 44596 at 44632 (July 12, 2023).
\5\ Id. at 44632-34.
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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
[[Page 23339]]
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 market-wide 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 a member of
their tax household 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. Section
1402 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.\6\ 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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\6\ 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, issuers, providers, and 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 individual health
insurance coverage or STLDI to the enrollees in such coverage as well
as to report such compensation annually to HHS.
The Secretaries of the Treasury, Labor, and HHS have authority to
issue such regulations as may be necessary or appropriate to carry out
the parallel provisions under the Code, ERISA, and the PHS Act,
including the definitions in section 9832 of the Code, section 733 of
ERISA, and section 2791 of the PHS Act.<SUP>7 8</SUP>
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\7\ Section 9833 of the Code, section 734 of ERISA, and section
2792 of the PHS Act.
\8\ 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.\9\ 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
[[Page 23340]]
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.\10\ 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.\11\
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\9\ Executive Order 14009 of January 28, 2021, 86 FR 7793
(February 2, 2021).
\10\ Executive Order 13813 of October 12, 2017, 82 FR 48385
(October 17, 2017).
\11\ Executive Order 14070 of April 5, 2022, 87 FR 20689 (April
5, 2022).
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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.\12\
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\12\ Executive Order 13995 of January 21, 2021, 86 FR 7193
(January 26, 2021).
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Consistent with these executive orders, the Departments reviewed
the regulatory provisions related to STLDI and fixed indemnity excepted
benefits coverage and, after carefully considering public comments
received, are finalizing amendments to those provisions in these final
rules.
C. Short-Term, Limited-Duration Insurance (STLDI)
STLDI is a type of health insurance coverage sold by health
insurance issuers that typically fills temporary gaps in coverage that
may occur when an individual is transitioning from one plan or coverage
to another, such as transitioning between health coverage offered by
one employer to health coverage offered by another employer. Section
2791(b)(5) of the PHS Act provides that ``[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.'' \13\ 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 nonetheless 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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\13\ 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. For example, an individual who loses coverage due
to moving out of a health maintenance organization (HMO) service
area in the individual market is eligible for a special enrollment
period to enroll in 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 Federal individual market consumer
protections and requirements for comprehensive coverage. STLDI is not
subject to 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 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.\14\ The lack of these key Federal
consumer protections is especially problematic when the differences
between STLDI and comprehensive individual health insurance coverage
are not readily apparent to consumers.
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\14\ 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).\15\ 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.'' \16\
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\15\ 62 FR 16894 (April 8, 1997).
\16\ 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,\17\ 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.\18\ On October
31, 2016, the Departments published final rules in the Federal Register
titled ``Excepted Benefits; Lifetime and Annual Limits; and Short-Term,
Limited-Duration Insurance'' (2016 final rules).\19\ The 2016 final
rules amended the definition
[[Page 23341]]
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.\20\ 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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\17\ See Public Law 111-148, March 23, 2010, section 1312(c)(1)
and 45 CFR 156.80.
\18\ 81 FR 38019 (June 10, 2016).
\19\ 81 FR 75316 (October 31, 2016).
\20\ Id. at 75317-75318.
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.\21\
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\21\ Id.
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,'' \22\ 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.\23\ 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 expanding 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 Federal consumer protections 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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\22\ 82 FR 26885 (June 12, 2017).
\23\ See also Executive Order 13813 of October 12, 2017, 82 FR
48385 (October 17, 2017) (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 or 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) \24\
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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\24\ Public Law 99-272, April 7, 1986. COBRA added parallel
provisions at Code section 4980B, ERISA sections 601-608, and PHS
Act sections 2201-2208.
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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 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.\25\ 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.\26\
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 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, the latter of which excluded language referencing the
individual shared responsibility payment (which was reduced to $0 for
months beginning after December 2018).<SUP>27 28</SUP>
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\25\ 83 FR 7437 (February 21, 2018).
\26\ Id. at 7441.
\27\ Id. at 7440-7441.
\28\ 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 stated that
STLDI 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
[[Page 23342]]
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) \29\ 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.\30\ 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): \31\
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\29\ 83 FR 38212 (August 3, 2018).
\30\ Id.
\31\ See id. at 38222-38225.
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
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.\32\ The same
definitions are applied to describe benefits that are not required to
comply with the ACA requirements.\33\ There are four statutory
categories of excepted benefits: independent, noncoordinated excepted
benefits, which are the subject of these final rules; benefits that are
excepted in all circumstances; \34\ limited excepted benefits; \35\ and
supplemental excepted benefits.\36\
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\32\ 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.
\33\ Section 1551 of the ACA. See also section 1563(a) and
(c)(12) of the ACA. Excepted benefits are also not subject to the
consumer protections and requirements added by other Federal laws
that apply to comprehensive coverage, including MHPAEA, the
Newborns' and Mothers' Health Protection Act, the Women's Health and
Cancer Rights Act, the Children's Health Insurance Program
Reauthorization Act of 2009, Michelle's Law, and Division BB of the
CAA, 2021.
\34\ 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.''.
\35\ 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.
\36\ 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.'' To be considered
``similar supplemental coverage'' and thus an excepted benefit, the
coverage, whether offered in the group or individual market, must
supplement coverage provided under a group health plan. This
category does not include coverage that supplements individual
health insurance coverage. 26 CFR 54.9831-1(c)(5), 29 CFR
2590.732(c)(5), 45 CFR 146.145(b)(5) and 148.220(b)(7).
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The category ``independent, noncoordinated excepted benefits''
includes coverage for only a 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.\37\ In addition, under 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 amount of expenses incurred, to be
considered an excepted benefit.\38\ By contrast, in the individual
market, under existing regulations, hospital indemnity and other fixed
indemnity insurance must also pay benefits in a fixed dollar amount,
regardless of the amount of expenses incurred, to be considered an
excepted benefit, but is permitted to pay on either a per period of
hospitalization or illness, or a per-service basis (for example, $100/
day or $50/visit).<SUP>39 40</SUP>
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\37\ 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.'').
\38\ 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR
146.145(b)(4).
\39\ 45 CFR 148.220(b)(4)(iii).
\40\ As discussed further in section I.D.2 of this preamble, the
existing individual market regulation also provides that hospital
indemnity and other fixed indemnity insurance cannot coordinate
between the provision of benefits and an exclusion of benefits under
any health coverage to be considered an excepted benefit. See 45 CFR
148.220(b)(4)(ii).
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The amendments to the regulations regarding independent,
noncoordinated excepted benefits coverage that were
[[Page 23343]]
proposed in the 2023 proposed rules and those finalized in these final
rules address 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.
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.\41\ 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 provided at a pre-determined level regardless of
any health care costs incurred by a covered individual with respect to
the health-related 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 health care costs incurred.\42\
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\41\ The original version of HIPAA that the House Ways & Means
Committee referred to the House floor referred to hospital indemnity
or other fixed indemnity insurance as a ``hospital or fixed
indemnity income-protection policy'' (emphasis added). See H.R. Rep.
No. 104-496 part I, at 32 (1996), available at: <a href="https://www.govinfo.gov/content/pkg/CRPT-104hrpt496/pdf/CRPT-104hrpt496-pt1.pdf">https://www.govinfo.gov/content/pkg/CRPT-104hrpt496/pdf/CRPT-104hrpt496-pt1.pdf</a>. See also 79 FR 15818 (March 21, 2014) (``The primary reason
fixed indemnity insurance is considered to be an excepted benefit .
. . is that its primary purpose is not to provide major medical
coverage but to provide a cash-replacement benefit for those
individuals with other health coverage.'').
\42\ 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. The policyholder has discretion over how to
use such benefits--including using the payment to cover non-medical
expenses, such as childcare or transportation--that may or may not be
related to the event that precipitated the payment.\43\
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\43\ America's Health Insurance Plans (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>.
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1. 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
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.\44\
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\44\ 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.\45\
An example was also added as part of these amendments illustrating 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.\46\ 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.\47\
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\45\ 69 FR 78720 at 78735, 78762, 78780, and 78798-78799
(December 30, 2004).
\46\ 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).
\47\ 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 insurance that meet the criteria for
fixed indemnity excepted benefits coverage.\48\ 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.\49\ The FAQ 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.\50\
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\48\ 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>.
\49\ Id.
\50\ 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.\51\ 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.\52\ To address
this confusion, the Departments proposed to adopt a notice provision to
inform enrollees and potential enrollees that the coverage is a
supplement to, rather than a substitute for, comprehensive coverage,
and also proposed to add two illustrative examples to further clarify
the condition that benefits must be provided on a per-period basis.\53\
The Departments also requested comments on whether to more
substantively align the rules for hospital indemnity or other fixed
indemnity insurance in the group and individual markets.\54\ After
consideration of comments, the Departments did not finalize the
proposed changes to the group market
[[Page 23344]]
regulation but noted their intention to address hospital indemnity and
other fixed indemnity insurance in future rulemaking.\55\
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\51\ 81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-
38046 (June 10, 2016).
\52\ Id. at 38031-38032.
\53\ Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.
\54\ As described in section I.D.2 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).
\55\ 81 FR 75316 at 75317 (October 31, 2016).
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2. 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.\56\ 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.\57\
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\56\ 62 FR 16985 at 16992 and 17004 (April 8, 1997).
\57\ Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
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Following issuance of the Departments' January 24, 2013 FAQ,\58\
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 to qualify as an excepted benefit could limit consumer
access to an important supplemental coverage option.\59\ 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.\60\ 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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\58\ 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>.
\59\ 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.
\60\ 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.\61\ 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.\62\
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\61\ 79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
\62\ 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 qualify as fixed indemnity
excepted benefits coverage if payments are made on a per-period and/or
per-service basis subject to several additional requirements that do
not apply to fixed indemnity excepted benefits coverage in the group
market.\63\ 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.\64\ Further, to
qualify as an excepted benefit, 45 CFR 148.220(b)(4)(iv) outlines
specific notice language that must 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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\63\ 79 FR 30239 (May 27, 2014).
\64\ As discussed later in this section and in section III.B.2
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 hospital
indemnity or other fixed indemnity policy in order for the policy to
qualify as an excepted benefit. Central United Life Insurance
Company 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.\65\
[[Page 23345]]
Second, beginning in 2014, most consumers were required to have MEC 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.\66\ 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.\67\ 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 provide benefits on a per-service
basis.
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\65\ 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.'').
\66\ 79 FR 30239 at 30255 (May 27, 2014).
\67\ 827 F.3d 70 (D.C. Cir. July 1, 2016).
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E. Tax Treatment and Substantiation Requirements for Amounts Received
From Fixed Indemnity Insurance and Certain Other Arrangements
As part of the 2023 proposed rules, the Treasury Department and the
IRS proposed amendments to 26 CFR 1.105-2. For the reasons that follow,
the Treasury Department and the IRS are not finalizing the proposed
amendments at this time.
Hospital indemnity or other fixed indemnity insurance, as well as
coverage only for a specified disease or illness, generally are
considered ``accident or health insurance'' under sections 104, 105,
and 106 of the Code, regardless of whether they are ``excepted
benefits'' as defined in section 9832(c) of the Code. 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(a) of the Code. The Treasury
Department and the IRS also have recognized the ability of employers
and employees to agree to include them in employees' gross income
notwithstanding section 106(a) of the Code.\68\
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\68\ See, for example, IRS Rev. Rul. 2004-55, which concludes
that long-term disability benefits received by an employee who has
irrevocably elected, prior to the beginning of the plan year, to
have the coverage paid by the employer on an after-tax basis for the
plan year in which the employee becomes disabled are attributable
solely to after-tax employee contributions and are excludable from
the employee's gross income under section 104(a)(3) of the Code.
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Amounts received through accident or health insurance are excluded
from an employee's gross income under section 104(a)(3) of the Code if
the premiums were paid on an after-tax basis. However, amounts received
are included in an employee's gross income if the amounts are
attributable to contributions by an employer that were excluded from
the employee's gross income under section 106(a) of the Code. Whether
amounts received by an employee through accident or health insurance
are excluded from an employee's gross income where the premiums or
contributions were paid on a pre-tax basis is determined under section
105. Section 105(a) of the Code provides that such amounts are included
in gross income except as otherwise provided in section 105 of the
Code. Section 105(b) of the Code excludes such amounts from gross
income amounts if they are paid to reimburse the employee's expenses
for medical care (as defined in section 213(d) of the Code). Under 26
CFR 1.105-2, this means the exclusion ``applies only to amounts which
are paid specifically to reimburse the taxpayer for expenses incurred
by him for the prescribed medical care.'' \69\
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\69\ Additionally, an employer-provided accident or health
insurance policy or plan that reimburses an employee for any
expenses incurred for medical care is a group health plan subject to
section 4980B of the Code, regardless of whether the reimbursements
are included in an employee's income under section 105(a) of the
Code or excluded under section 104(a)(3) or 105(b) of the Code. In
contrast, a policy or plan that does not reimburse an employee for
any expenses incurred for medical care is not a group health plan
subject to section 4980B of the Code (and section 105(b) of the Code
cannot apply to it).
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The 2023 proposed amendments to 26 CFR 1.105-2 would provide that
the exclusion from gross income under section 105(b) of the Code does
not apply to amounts that are paid without regard to the amount of
incurred medical expenses as defined in section 213(d) of the Code. The
proposed amendments also would clarify that, consistent with guidance
issued by the Treasury Department and the IRS relating to certain
specific types of health plans, the substantiation requirements for
qualified medical expenses apply to reimbursements under all types of
accident and health plans.\70\ Finally, the proposed amendments would
update several cross-references in 26 CFR 1.105-2 to reflect statutory
changes since the rules were issued in 1956.\71\
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\70\ See, for example, 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(b)(4)
(2007); IRS Notice 2002-45, 2002-2 CB 93.
\71\ The current rules reference section 105(d) of the Code,
which has been repealed. The rules also reference the definition of
a dependent in section 152(f) of the Code which may, in some
circumstances, not include children up to the age of 26 that must be
eligible to enroll in a group health plan or group or individual
health insurance coverage under section 2714 of the PHS Act (which
is incorporated by reference in section 9815 of the Code) if the
plan or coverage makes available dependent coverage of children.
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The Treasury Department and the IRS issued the proposed amendments
because uncertainty regarding the exclusion under section 105(b) of the
Code has resulted in inconsistent treatment by taxpayers of benefits
under different types of accident and health plans and has encouraged
some taxpayers to apply the exclusion to situations where the amount or
even the existence of medical expenses is doubtful. The Treasury
Department and the IRS also are concerned that uncertainty regarding
the related Federal Insurance Contributions Act (FICA) \72\ and Federal
Unemployment Tax Act (FUTA) \73\ exclusions, and the Federal income tax
withholding rules,\74\ has resulted in instances where no FICA, FUTA,
or Federal income taxes are withheld from or paid with respect to
taxable benefits from accident and health plans and policies by either
employers or payors. Although these issues are not limited to fixed
indemnity plans and policies, the Treasury Department's and the IRS's
concerns have recently escalated after identifying an increasing number
of arrangements, some involving fixed indemnity plans and policies,
that distribute cash benefit payments, purportedly for medical
expenses, even if any expenses incurred may already have been
reimbursed through other coverage, or participants do not incur any
medical expenses within the meaning of section 213(d) of the Code. In
some cases, no medical expenses are incurred and participants simply
complete certain health-related activities. Benefit payments from such
accident and health plans that are not made on account of medical
expenses
[[Page 23346]]
incurred generally would not qualify for exclusion from gross income,
FICA, FUTA, or Federal income tax withholding.
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\72\ Subtitle C, chapter 21 of the Code.
\73\ Subtitle C, chapter 23 of the Code.
\74\ Subtitle C, chapter 24 of the Code.
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The Treasury Department and the IRS received comments in support of
and in opposition to the proposed amendments to 26 CFR 1.105-2.
Commenters who opposed the proposed amendments primarily argued that
the exclusion under section 105(b) of the Code should apply with
respect to the amount of any medical expenses associated with the
health-related event that precipitates payments under accident or
health insurance, even if the amount paid is determined without regard
to the amount of actual medical expenses incurred (as is required for
hospital indemnity or other fixed indemnity insurance to be considered
an excepted benefit). These commenters generally argued that only the
amount in excess of the medical expenses associated with the health-
related event should be included in gross income.
The preamble to the 2023 proposed rules noted that, if the proposed
amendments to 26 CFR 1.105-2 were finalized, taxpayers would need to
consider the impact the proposal would have on determinations of
whether amounts received under accident and health plans constitute
wages for employment tax and income tax withholding purposes. Many
commenters responded that the proposed amendments would, if finalized,
prompt the need for additional guidance regarding collecting and paying
employment taxes on some or all of the amounts paid through accident or
health insurance that are not excluded from gross income, and proper
reporting of such amounts on the employee's Form W-2. Commenters also
requested further clarification on how incurred medical expenses must
be substantiated.
The Treasury Department and the IRS intend to address these issues
in more detail in future guidance. Accordingly, to provide more time to
study the issues and concerns raised by commenters, the Treasury
Department and the IRS are not finalizing the proposed amendments to 26
CFR 1.105-2 at this time. No inference should be drawn regarding
whether or the extent to which the Treasury Department or the IRS agree
with any comments on the scope of section 105(b) of the Code based on
this decision.
IRS compliance efforts regarding the exclusion from gross income
under section 105(b) of the Code will continue to assist taxpayers to
satisfy their existing tax responsibilities. Employers are reminded
that amounts received through accident or health insurance are not
taxable if premiums for the coverage are paid on an after-tax basis,
thereby avoiding many of the practical concerns relating to benefits
that do not meet the criteria to be excluded from gross income. The
Treasury Department and IRS understand that is how most premiums for
hospital indemnity or other fixed indemnity insurance are paid.
II. Promoting Access to High-Quality, Affordable, and Comprehensive
Coverage
The Departments recognize that STLDI can provide temporary health
coverage for individuals who are experiencing brief periods without
comprehensive coverage (for example, due to application of a waiting
period for employer coverage). They also recognize 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) upon the occurrence of a health-related
event. Both STLDI and fixed indemnity excepted benefits coverage
generally provide limited benefits at lower premiums than comprehensive
coverage,\75\ and enrollment is typically available at any time
(sometimes subject to medical underwriting) rather than being
restricted to open and special enrollment periods. However, the
Departments are concerned about the financial and health risks that
consumers face if they use either form of coverage as a substitute for
comprehensive coverage, particularly as a long-term substitute.
Consumers who do not understand key differences between STLDI, fixed
indemnity excepted benefits coverage, and comprehensive coverage may
unknowingly take on significant financial and health risks if they
purchase STLDI or fixed indemnity excepted benefits coverage under the
misapprehension that such products provide comprehensive coverage.
Consumer confusion can be exacerbated when the products are designed in
ways that resemble comprehensive coverage. As discussed further in this
section II of this preamble, 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
some consumers when used as a substitute for comprehensive coverage,
the Departments have determined that it is necessary and appropriate 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 and requirements.
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\75\ 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 II of this preamble regarding
the availability of financial subsidies for eligible individuals to
reduce the premium and out-of-pocket costs for comprehensive
coverage purchased on an Exchange.
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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 the initial
term and total duration of such policies by citing STLDI as an
important means to provide more affordable coverage options and more
choices for consumers.\76\ The Departments cited a 21 percent increase
in individual health 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.\77\ 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.\78\
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\76\ 83 FR 38212 at 38217 (October 2, 2018).
\77\ 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>.)
\78\ 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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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, 58 percent of enrollees in 2019, and 46 percent
of enrollees in 2018. Only 3
[[Page 23347]]
percent of enrollees (residing in 10 percent of counties) resided in
single-issuer counties in 2021--down from 26 percent of enrollees
(residing in 52 percent of counties) in 2018.\79\ Issuer participation
in the Exchanges has continued to trend positively in recent years,
with the average number of issuers offering individual health insurance
coverage on the Exchanges per State increasing from 5 in 2021 to 6 in
2024.\80\ The Centers for Medicare & Medicaid Services (CMS) reported
that a record 21.3 million people enrolled in Exchange coverage during
the 2024 Open Enrollment Period, including 5 million consumers
(approximately 24 percent of total enrollments) who were new to
Exchanges in 2024, and 16.3 million returning customers.\81\ Nearly 5
million more consumers signed up for coverage during the 2024 Open
Enrollment Period compared to the same period in 2023 (an increase of
more than 30 percent). This follows an increase of approximately 13
percent in 2023 and an increase of approximately 21 percent in
2022.\82\ The enrollment gains in recent years were influenced by the
expansion of PTC subsidies, as first provided under the ARP and then
extended through 2025 under the IRA, as discussed in section I.A of
this preamble.\83\ 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 through
2032.\84\
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\79\ 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>.
\80\ See KFF (2024). ``Number of Issuers Participating in the
Individual Health Insurance Marketplaces, 2014-2024,'' available at:
<a href="https://www.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-marketplace">https://www.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-marketplace</a>.
\81\ See CMS (2024). ``Marketplace 2024 Open Enrollment Period
Report: Final National Snapshot,'' available at: <a href="https://www.cms.gov/newsroom/fact-sheets/marketplace-2024-open-enrollment-period-report-final-national-snapshot">https://www.cms.gov/newsroom/fact-sheets/marketplace-2024-open-enrollment-period-report-final-national-snapshot</a>.
\82\ See 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>.
\83\ Although unsubsidized premiums for 2023 increased on
average between 2.2 percent and 4.7 percent compared to the previous
year, after 4 years of declines, the expanded PTC subsidies under
the IRA largely shielded many consumers from these premium
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>.
\84\ 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 Treasury Department and the
IRS 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).\85\ It was
estimated that this rule change, aimed at addressing the issue often
called the ``family glitch,'' would increase the number of individuals
with PTC-subsidized Exchange coverage by approximately 1 million per
year for the next 10 years.\86\
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\85\ 87 FR 61979 (October 13, 2022).
\86\ Id. at 61999.
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These recent and projected enrollment trends and the availability
of the enhanced subsidies lessen 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 provisions in
these final rules, which are aimed at helping consumers differentiate
between comprehensive coverage and other forms of more limited health
coverage to decide which option is best for them.
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-
sponsored coverage and 44 percent of those with coverage purchased in
the individual market (including coverage purchased through an
Exchange) were underinsured, meaning that their coverage did not
provide them with affordable access to health care.\87\ As benchmarks
for affordability, the study considered whether out-of-pocket costs
over the prior 12 months, excluding premiums, were equal to 10 percent
or more of household income; 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
the deductible constituted 5 percent or more of household income. The
performance of STLDI products along these affordability dimensions has
been proven worse, often to striking degree, as discussed in section
II.B of this preamble.
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\87\ 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>.
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The Departments also recognize that these affordability concerns
could be exacerbated when the expanded PTC subsidies under the IRA end
in 2025 or if health expenditures (and therefore premiums) continue to
grow at a relatively high rate.\88\ The Departments are of the view
that it is important to ensure consumers have access to a wide range of
products that can support access to affordable health care. However,
neither STLDI nor fixed indemnity excepted benefits coverage represent
a complete solution to larger issues of affordable access to health
care and health coverage, and current marketing practices and benefit
designs that mimic comprehensive coverage exacerbates affordability and
accessibility concerns. Consumers who enroll in these plans as a
substitute for comprehensive coverage or under the misapprehension that
STLDI and fixed indemnity excepted benefits coverage 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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\88\ Regarding trends in national health expenditure, see CMS
(2023). ``NHE Fact Sheet,'' available at: <a href="https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet">https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet</a>.
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B. Risks to Consumers
As noted in the introduction to this 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
[[Page 23348]]
in comprehensive coverage would incur, exposing consumers with STLDI or
fixed indemnity excepted benefits coverage to greater financial
risk.\89\ Healthy consumers who 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,\90\ such as
COVID-19, as discussed in this section and in section V.B.2.a.
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\89\ 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).
\90\ See Williams, Jackson (2022). ``Addressing Low-Value
Insurance Products With Improved Consumer Information: The Case of
Ancillary Health Products,'' National Association of Insurance
Commissioners, Journal of Insurance Regulation, available at:
<a href="https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf">https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf</a>.
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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.\91\ 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
issuer of his STLDI 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.\92\
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\91\ 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>.
\92\ 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/NAMIMedia/Public%20Policy/Undercovered_Report_03252021.pdf">https://www.nami.org/NAMI/media/NAMIMedia/Public%20Policy/Undercovered_Report_03252021.pdf</a>.
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The financial risk for consumers enrolled in STLDI increases with
the length of their policy, as the longer consumers are enrolled in
STLDI, the more likely they are to incur costs that are not covered.
This is especially the case for consumers who encounter newly diagnosed
conditions or have a significant medical event while enrolled in STLDI.
Researchers found that the maximum out-of-pocket health care spending
limit for STLDI was on average nearly three times that of comprehensive
coverage in 2020.\93\ 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 for comprehensive coverage.\94\ 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.\95\ Refer to section V.B.2.c of this preamble
for additional discussion of the financial risks to consumers.
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\93\ 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>.
\94\ 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.'').
\95\ Id.
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As noted in section I.D 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 at all for their illness or injury. Comments received in
response to the 2023 proposed rules affirmed the Departments' concerns
by offering several examples of consumer risk and exposure resulting
from enrollment in fixed indemnity insurance. For example, one
commenter described a fixed indemnity plan that advertised that it
would pay $25 for a doctor visit, $100 for a diagnostic exam, and $300
for neonatal intensive care, and contrasted those benefits to one
hospital's pricing schedule for NICU service, Level 4. The commenter
observed that a consumer with such fixed indemnity insurance alone
could still face $8,500 daily for NICU services. Another commenter
stated that indemnity plans that are structured to pay various dollar
amounts for different services appear very similar to comprehensive
insurance, even though they offer much less coverage.
Consumers who enroll in STLDI and fixed indemnity excepted benefits
coverage and do not also have comprehensive coverage may experience
financial hardship when their medical bills are unaffordable.\96\
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 result in medical debt,\97\ do not apply to STLDI or
fixed indemnity excepted benefits coverage.\98\ Because STLDI is
typically subject to medical underwriting and is not guaranteed
renewable, consumers enrolled in STLDI in lieu of comprehensive
coverage may be unable to renew their STLDI policy at the end of the
coverage period. These consumers therefore face the risk of being
uninsured until they are eligible to purchase comprehensive coverage in
the individual market during an open
[[Page 23349]]
enrollment or when a special enrollment period occurs. It is therefore
critical for consumers to understand, prior to purchase, that STLDI
serves better as a bridge between different sources of comprehensive
coverage than as an alternative to comprehensive coverage, and that
choosing to substitute STLDI for comprehensive coverage may reduce
access to coverage. Similarly, as noted in section I.D of this
preamble, consumers need to understand, prior to purchase, that fixed
indemnity excepted benefit coverage serves best as an income
replacement policy \99\ that supplements comprehensive coverage by
providing financial assistance, rather than serving as an alternative
to comprehensive coverage.
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\96\ 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, available at:
<a href="https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358">https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358</a>.
\97\ 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>.
\98\ See 26 CFR 54.9816-2T, 29 CFR 2590.716-2(b), and 45 CFR
149.20(b).
\99\ As an income replacement policy, the policyholder of a
fixed indemnity excepted benefits coverage plan typically has broad
discretion in how to use the fixed cash benefits provided, including
but not limited to payment 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 would potentially experience
improved health outcomes and have greater protection from catastrophic
health care expenses than if those individuals were uninsured.\100\
However, experience with the COVID-19 public health emergency (PHE)
\101\ has prompted the Departments to reassess the degree of protection
generally afforded by 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 with COVID-19 typically face significant limitations
on coverage for COVID-19 related treatments, and high out-of-pocket
expenses.\102\ In addition, 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; or the requirement under section 3203 of the CARES Act to cover
qualifying coronavirus preventive services, including COVID-19
vaccines, without cost sharing.\103\ Instead, both of these important
coverage expansions enacted by Congress as part of the nation's
response to the COVID-19 PHE applied only to comprehensive coverage.
Any coverage by STLDI of (or, with respect to fixed indemnity excepted
benefits coverage, benefits provided related to) COVID-19 diagnostic
testing or vaccines was subject to the discretion of individual 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, included enrollees in
STLDI and excepted benefits coverage within the definition of
underinsured.\104\ 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
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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\100\ 83 FR 38212, 38229 (October 2, 2018).
\101\ On January 31, 2020, HHS Secretary Alex M. Azar II
declared that as of January 27, 2020, a nationwide public health
emergency exists as a result of the 2019 novel coronavirus (COVID-
19). See HHS Administration for Strategic Preparedness and Response
(January 31, 2020). ``Determination That A Public Health Emergency
Exists,'' available at: <a href="https://aspr.hhs.gov/legal/PHE/Pages/2019-nCoV.aspx">https://aspr.hhs.gov/legal/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, October 18, 2021, January 14, 2022, April 12,
2022, and July 15, 2022. See ``HHS Administration for Strategic
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 (January
30, 2023). ``Statement of Administration Policy: H.R. 382 and H.J.
Res. 7,'' 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>; HHS Secretary Xavier
Becerra (February 9, 2023). ``Letter to U.S. Governors from HHS
Secretary Xavier Becerra on renewing COVID-19 Public Health
Emergency (PHE),'' 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 ended at the
end of the day on May 11, 2023.
\102\ See, for example, 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 pre-existing conditions.
\103\ Additional Policy and Regulatory Revisions in Response to
the COVID-19 Public Health Emergency, 85 FR 71142, 71173 (Nov. 6,
2020); See also Departments of the Treasury, Labor, and Health and
Human Services. ``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> (FAQs Part 42);
``FAQs about Families First Coronavirus Response Act and Coronavirus
Aid, Relief, and Economic Security Act Implementation Part 50,''
(October 4, 2021), available at: <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf</a> and <a href="https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-50.pdf">https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-50.pdf</a> (FAQs Part 50); ``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); FAQs about Families First Coronavirus Response Act and
Coronavirus Aid, Relief, and Economic Security Act Implementation
Part 52'' (February 4, 2022), available at: <a href="https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-52.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-52.pdf</a> and <a href="https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-52.pdf">https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-52.pdf</a> (FAQs Part 52); and
``FAQs about Families First Coronavirus Response Act, Coronavirus
Aid, Relief, and Economic Security Act and Health Insurance
Portability and Accountability Act Implementation Part 58'' (March
29, 2023), 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> (FAQs Part 58). Note that the COVID-19 PHE ended on May
11, 2023.
\104\ 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>.
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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 coverage 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
[[Page 23350]]
through an Exchange.\105\ A recent study that engaged in covert testing
of health insurance sales representatives found evidence of deceptive
marketing practices by agents and brokers who omitted or misrepresented
information about the products they were selling.\106\ For example,
during a phone transaction, a sales representative told the consumer
that they were purchasing a comprehensive health insurance plan, but
instead sold the consumer two limited benefit insurance plans. During
the exchange, the consumer repeatedly informed the sales representative
that they had diabetes and had recently been seeking treatment for the
condition. However, the application filled out by the sales
representative on the consumer's behalf stated that consumer had not
been treated for or diagnosed with diabetes for the past 5 years. In
another phone transaction, the sales representative enrolled the
consumer in a benefit association offering a limited benefit indemnity
insurance plan. The representative would not provide the consumer with
documentation describing the plan prior to enrollment and stated that
the consumer had to purchase the plan on the day of the call if they
wanted to be guaranteed the quoted price. 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 concerns with respect to consumers
who obtain this health coverage through their employers.\107\
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\105\ 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>.
\106\ 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>.
\107\ 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>.
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Consumers who are unaware of the coverage limitations of these
arrangements, or who are employed by employers who are similarly
unaware, can face overwhelming medical costs if they require items and
services that are not covered by the very limited group health plan.
This is because the fixed indemnity excepted benefits coverage
generally provides only fixed cash benefits that may be far lower than
the costs of medical services, rather than coverage intended to cover
most of 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 he had 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.\108\ 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.\109\
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\108\ 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>.
\109\ 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.
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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,\110\ and as further discussed in
sections III.A.1 and V.B.2.g of this preamble, 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.\111\ These
concerns continue during the time frame when States are unwinding from
the Medicaid continuous enrollment condition under the Families First
Coronavirus Response Act (FFCRA), which expired on March 31, 2023,
under amendments made by the Consolidated Appropriations Act, 2023.
Across the country, State agencies are currently in the process of
resuming regular eligibility and enrollment operations, which includes
conducting full Medicaid and CHIP renewals and terminating coverage for
individuals who are no longer eligible.\112\ As a result, individuals
may have to transition between coverage programs, leaving them
vulnerable.\113\ The Departments are concerned that those transitioning
out of Medicaid coverage may be susceptible to aggressive or deceptive
marketing and sales tactics,
[[Page 23351]]
and might therefore mistakenly enroll in STLDI or fixed indemnity
excepted benefits coverage in lieu of comprehensive coverage.
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\110\ 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>.
\111\ 86 FR 7193 (January 26, 2021).
\112\ See CMS, Center for Medicaid & CHIP Services (January 5,
2023). Key Dates Related to the Medicaid Continuous Enrollment
Condition Provisions in the Consolidated Appropriations Act, 2023,
available at: <a href="https://www.medicaid.gov/sites/default/files/2023-01/cib010523_1.pdf">https://www.medicaid.gov/sites/default/files/2023-01/cib010523_1.pdf</a>. As a condition of receiving a temporary Federal
Medical Assistance Percentage (FMAP) increase under section 6008 of
the FFCRA, States were required to maintain enrollment of nearly all
Medicaid enrollees. This ``continuous enrollment condition'' expired
on March 31, 2023, under amendments made by the Consolidated
Appropriations Act, 2023. States adopted other flexibilities in CHIP
and BHP that impacted renewals in those programs during this time.
\113\ See CMS, Center for Medicaid & CHIP Services (January 27,
2023). ``Letter to State Health Officials from Deputy Administrator
and Director Daniel Tsai RE: Medicaid Continuous Enrollment
Condition Changes, Conditions for Receiving the FFCRA Temporary FMAP
Increase, Reporting Requirements, and Enforcement Provisions in the
Consolidated Appropriations Act, 2023,'' available at: <a href="https://www.medicaid.gov/sites/default/files/2023-08/sho23002.pdf">https://www.medicaid.gov/sites/default/files/2023-08/sho23002.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.\114\
However, the Departments were of the view that the affordability and
access challenges facing consumers at that time outweighed those
potential negative effects and necessitated action to increase access
to STLDI to provide an alternative option for individuals who were
unable or disinclined to purchase comprehensive coverage.
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\114\ 83 FR 38212 at 38218 (August 3, 2018).
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As discussed earlier in section II.A of this preamble, 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
risk pools for individual health insurance coverage.\115\ 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 risk pools for
individual health insurance coverage for extended periods of time. This
has resulted in increased premiums for individuals seeking to purchase
individual health insurance coverage.\116\ For unsubsidized
individuals, the costs are borne directly by the consumer, and for
subsidized individuals, the costs are borne largely by the Federal
Government in the form of increased per capita PTC spending associated
with increased individual health insurance coverage premiums. Likewise,
reports of fixed indemnity excepted benefits coverage being marketed
and sold as an alternative to comprehensive coverage, as discussed in
section V.B.2.a of this preamble, raise concerns about the potential
for such practices having a similar impact on the risk pools for
individual health insurance coverage.
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\115\ 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>.
\116\ 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 [S]tates that have not restricted the
sale or duration of STLD policies . . . Among the [S]tates 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
[S]tates.'') As noted in section V.B.2.e of this preamble, this
study also found that the few issuers that explicitly included a
premium adjustment because of the adoption of the revised 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 risk pool, and saw a
greater decline in average medical costs for enrollees in individual
health insurance coverage.\117\ 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.\118\
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\117\ 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>.
\118\ 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 of this preamble, the
Departments are of the view that it is necessary and appropriate 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 for individual health insurance coverage,
and promote access to affordable comprehensive coverage.
With respect to individual market fixed indemnity excepted benefits
coverage, the decision in Central United Life Ins. Co. v. Burwell,
which invalidated the requirement that an individual must attest to
having MEC prior to purchasing fixed indemnity excepted benefits
coverage in the individual market, and the passage of the Tax Cuts and
Jobs Act, which reduced the individual shared responsibility payment to
$0 for months beginning after December 31, 2018, increase the
likelihood that individuals would purchase fixed indemnity excepted
benefits coverage as a substitute for comprehensive coverage. HHS is of
the view that these changes necessitate rulemaking with respect to
individual market 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.\119\ 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.
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\119\ 81 FR 75316 at 75317 (October 31, 2016).
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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, and in consideration of the comments on the 2023
proposed rules received by the Departments, the Departments are
finalizing changes to the Federal regulations governing STLDI and
addressing notice requirements in the individual and group market
regulations related to fixed indemnity excepted benefits coverage. HHS
is also finalizing the technical amendments to the individual market
fixed indemnity excepted benefits coverage regulation to remove the MEC
attestation requirement currently codified at 45 CFR 148.220(b)(4)(i).
As further explained in section III.B of this preamble, the Departments
are not finalizing the proposed payment standards and noncoordination
provisions regarding
[[Page 23352]]
fixed indemnity excepted benefits coverage at this time. The
Departments remain concerned about the issues addressed by these
proposals, and intend to address these issues in future rulemaking,
after additional study and consideration of the concerns raised in
comments.
III. Overview of the Final Regulations--The Departments of the
Treasury, Labor, and Health and Human Services
A. Short-Term, Limited-Duration Insurance
After considering the public comments, the Departments are
finalizing the proposed amendments to the Federal definition of STLDI
with some modifications. Under the definition in these final rules,
STLDI means health insurance coverage provided pursuant to a policy,
certificate, or contract of insurance 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, and taking into account any
renewals or extensions, has a duration no longer than 4 months in
total. For purposes of this 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. As explained in section III.A.2
of this preamble, in response to comments, the Departments are
specifying that for purposes of this definition, if the issuer is a
member of a controlled group, a renewal or extension also includes the
term of a new STLDI policy, certificate, or contract of insurance
issued by any other issuer that is a member of such controlled group.
As used in this context, the term ``controlled group'' means any group
treated as a single employer under section 52(a), 52(b), 414(m), or
414(o) of the Code, as amended.
These final rules also retain the requirement that STLDI issuers
display a notice on the first page (in either paper or electronic form,
including on a website) of the policy, certificate, or contract of
insurance, and in any marketing, application, and enrollment materials
(including reenrollment materials) provided to individuals at or before
the time an individual has the opportunity to enroll (or reenroll) in
the coverage, in at least 14-point font. As finalized in these final
rules, STLDI issuers must use the following updated language for the
STLDI consumer disclosure notice:
BILLING CODE 4830-01-P
[[Page 23353]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.051
BILLING CODE 4830-01-C
As explained in section III.A.4 of this preamble, in response to
comments, the notice adopted in these final rules contains additional
specificity, including that STLDI does not have to meet Federal
standards for comprehensive coverage and information about finding
contact information for State departments of insurance on the NAIC
website (<a href="http://naic.org">naic.org</a>).
In response to comments, the Departments are finalizing modified
applicability dates. These final rules apply to new STLDI policies sold
or issued on or after September 1, 2024. The provisions of the 2018
final rules
[[Page 23354]]
continue to apply to STLDI policies sold or issued before September 1,
2024, except that the updated notice provision adopted in these final
rules applies to such policies for coverage periods beginning on or
after September 1, 2024. As was proposed in the 2023 proposed rules,
these final rules are effective 75 days after publication in the
Federal Register.
1. In General
The Departments received comments generally in support of and
generally opposed to the adoption of the STLDI proposals in the 2023
proposed rules. The Departments summarize and respond to comments about
the STLDI proposals in the 2023 proposed rules later in this section of
the preamble.
Some commenters stated that the 2023 proposed rules were an
overreach of the Departments' authority because Congress did not
provide an explicit delegation of authority to define the terms
``short-term'' and ``limited-duration.'' Some commenters expressed
concern that the 2023 proposed rules are contrary to congressional
intent because Congress specifically determined that certain types of
insurance would not be subject to the requirements of the ACA,
including STLDI, which is excepted from the definition of individual
health insurance coverage. Commenters suggested that the Departments'
interpretation is unreasonable because it conflicts with and undermines
Congress's express goals for consumers to have access to STLDI plans
that are exempt from Federal regulation, to reduce gaps in health
insurance and the number of uninsured. One commenter also expressed
concern that the Departments' interpretation will increase medical
underwriting frequency to every 3 to 4 months leading to more consumers
losing coverage. One commenter stated that the Departments'
interpretation is unreasonable because it pressures consumers into
enrolling in comprehensive coverage to avoid greater financial
exposure. Several commenters stated that there is no statutory basis
for the Departments to regulate consumer behavior and the Departments
have no legal authority to impose burdens or limitations on STLDI, such
as a consumer notice. One commenter argued that the Departments lack
the authority to implement a shorter maximum allowed length because the
proposals are overly broad and will unduly harm consumers. Several
commenters stated that the proposed rules are arbitrary, capricious,
and not in accordance with law because the Departments rely on factors
to justify the new definition that were not relevant to Congress's
considerations.
The Departments are not persuaded by these comments. As explained
in greater detail in this section III.A.1 of this preamble, these final
rules revise the definition for the term ``short-term, limited-duration
insurance,'' and set standards to more clearly distinguish STLDI from
individual health insurance coverage. These final rules do not regulate
consumer behavior. Consumers will continue to have access to STLDI
plans that are generally exempt from the Federal consumer protections
and requirements for comprehensive coverage that apply to individual
health insurance coverage.\120\ As detailed later in this section of
this preamble, the Departments have clear authority to promulgate
regulations to define STLDI and to pursue the current amendments. The
Departments also disagree that the definition in the proposed rules,
and as finalized in these rules, is unreasonable, inconsistent with the
law, or arbitrary and capricious.
---------------------------------------------------------------------------
\120\ Neither the proposed rules nor these final rules seek to
extend the Federal consumer protections and requirements for
comprehensive individual health insurance coverage to STLDI.
---------------------------------------------------------------------------
Other commenters stated that the Departments have clear statutory
authority under the PHS Act to interpret undefined terms in the PHS
Act, ERISA, and the Code,\121\ and to promulgate regulations that
interpret (or reinterpret) the meaning of ``short-term, limited-
duration,'' so long as their interpretation is reasonable. These
commenters observed that Congress did not define the term ``short-term,
limited-duration insurance,'' and primarily only included a reference
to STLDI as an exclusion from individual health insurance
coverage.<SUP>122 123</SUP> These commenters explained that the
Departments must give meaning to the term short-term, limited-duration
insurance to distinguish it from individual health insurance coverage.
---------------------------------------------------------------------------
\121\ See section 715 of ERISA and section 9815 of the Code,
which incorporate provisions of part A of title XXVII of the PHS Act
(generally, sections 2701 through 2728 of the PHS Act) into ERISA
and the Code. See also section 104 of HIPAA. See also sections 505
and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section
1321(a)(1) and (c) of ACA and section 7805 of the Code.
\122\ See section 2791(b)(5) of the PHS Act (defining
``individual health insurance coverage'').
\123\ 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.
---------------------------------------------------------------------------
The Departments disagree with the commenters who questioned the
Departments' legal authority to promulgate Federal regulations to
define STLDI and distinguish it from individual health insurance
coverage. As explained in the preamble to the 2018 final rules,\124\
the Departments have clear statutory authority under the Code, ERISA,
and the PHS Act to implement those statutes.\125\ To determine what is
and is not individual health insurance coverage, which is essential to
ensure that the Code, ERISA, and the PHS Act function as Congress
intended, and to allow enforcement of the rules that apply to
individual health insurance coverage, the Departments must give meaning
to the term STLDI.\126\
---------------------------------------------------------------------------
\124\ 83 FR 38212 at 38215 (August 3, 2018).
\125\ See section 9815 of the Code and section 715 of ERISA,
which incorporate provisions of Part A of title XVIII of the PHS Act
(generally, sections 2701 through 2728 of the PHS Act) into the Code
and ERISA. See also section 104 of HIPAA. See also section 7805 of
the Code, sections 505 and 734 of ERISA, sections 2761 and 2792 of
the PHS Act, and section 1321(a)(1) and (c) of the ACA. See also
Ass'n for Community Affiliated Plans v. U.S. Department of the
Treasury, 966 F.3d 782 (D.C. Cir. 2020).
\126\ As discussed in footnote 13, the definition of STLDI also
has some 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 have jurisdiction.
---------------------------------------------------------------------------
The 2023 proposed rules are faithful to Congress's intent because
Congress wanted STLDI to be an option but did not intend STLDI to be a
substitute for comprehensive coverage or to pass as comprehensive
coverage while avoiding ACA requirements and other Federal consumer
protections applicable to comprehensive coverage. Finally, the 2023
proposed rules and these final rules are not designed to limit access
to STLDI or pressure consumers into enrolling in comprehensive
coverage. Rather, they are designed to, among other things, ensure that
consumers can distinguish between STLDI and comprehensive coverage.
Congress provided the Secretaries of the Treasury, Labor, and HHS with
explicit authority to promulgate regulations as may be necessary or
appropriate to carry out the provisions of the Code, ERISA, and the PHS
Act.\127\ This includes the authority to issue regulations on STLDI to
define it and set standards to distinguish it from individual health
insurance coverage.
---------------------------------------------------------------------------
\127\ See section 9833 of the Code, section 734 of ERISA, and
section 2792 of the PHS Act.
---------------------------------------------------------------------------
The Departments' authority to issue regulations that define STLDI
and set standards to distinguish it from individual health insurance
coverage was also recently affirmed in the D.C.
[[Page 23355]]
Circuit.\128\ In 2020, the D.C. Circuit explicitly considered the
Departments' authority to define STLDI as finalized in the 2018 final
rules and affirmed the Departments' authority to promulgate such
regulations.\129\ The D.C. Circuit stated:
---------------------------------------------------------------------------
\128\ Ass'n for Community Affiliated Plans v. U.S. Department of
the Treasury, 966 F.3d 782 (D.C. Cir. 2020), aff'd 966 F.3d 782
(D.C. Cir. 2020).
\129\ Ass'n for Community Affiliated Plans v. U.S. Department of
the Treasury, 966 F.3d 782 (D.C. Cir. 2020).
Without further guidance from Congress, we will not place
amorphous restrictions on the Departments' authority to define such
an open-ended term. It suffices to say that the Departments have the
discretion to define STLDI to include policies shorter than the
standard policy term.\130\
---------------------------------------------------------------------------
\130\ Id. at 789.
Furthermore, the decision made clear that Congress gave the
Departments ``wide latitude'' to define STLDI, which includes the
flexibility to narrow the definition of STLDI in the future, provided
the Departments provide a reasoned explanation for the change.\131\
Both the 2023 proposed rules and these final rules provide the
Departments' reasoned explanations for the changes to the Federal
definition of STLDI. These final rules adopt a revised Federal
definition of the term STLDI and set standards to more clearly
distinguish STLDI from individual health insurance coverage without
placing unreasonable burdens on issuers of STLDI.
---------------------------------------------------------------------------
\131\ Id. at 789 and 792 (citing to Encino Motorcars, LLC v.
Navarro, 136 S. Ct. 2117, 2125 (2016)).
---------------------------------------------------------------------------
The Departments acknowledge that the final rules may be associated
with some consumers being subject to medical underwriting more
frequently. For example, a consumer who prefers STLDI coverage and
chooses to reenroll in STLDI coverage with a different issuer every 4
months may be subject to medical underwriting each time they enroll or
renew coverage, whereas under the current rules they could stay in one
STLDI policy for a longer duration. However, in the Departments' view,
this possibility does not outweigh other potential benefits to
consumers of the revised definition of STLDI, in part because consumers
face a similar risk under the current rules. Even when enrolled in
STLDI coverage that complies with the 2018 final rules, a consumer can
be subject to post-claims underwriting and their STLDI coverage may not
cover certain health conditions that develop unexpectedly or over time.
Yet because the STLDI coverage has a longer maximum duration under
current rules, a consumer who remains in STLDI coverage might go
without necessary benefits for a longer period of time, forcing the
consumer to choose between necessary medical care and high out-of-
pocket expenses. Consumers may avoid the potential consequences of more
frequent medical underwriting by enrolling in comprehensive coverage
subject to Federal consumer protections and requirements.
The definition and standards, as proposed and finalized, apply to
health insurance issuers that elect to offer STLDI, and they do not
regulate consumer behavior. Issuers will not be prohibited from selling
STLDI and consumers may continue to choose to purchase it. The changes
to the Federal definition and standards for STLDI will help consumers
make more informed purchasing decisions and mitigate the risk that
consumers will mistakenly enroll in STLDI as a substitute for
comprehensive coverage.
The Departments disagree that the revised Federal definition of
STLDI is unreasonable or arbitrary and capricious. As explained in the
preamble to the 2023 proposed rules \132\ and in the introduction to
this section III.A of this preamble, the Federal definition established
in these final rules clearly distinguishes STLDI from individual health
insurance coverage that is subject to the Federal consumer protections
and requirements for comprehensive coverage. Further, the statute does
not explicitly denote a required length for STLDI or to what extent the
definition of STLDI must vary from the definition of individual health
insurance coverage, so the Departments are interpreting and
implementing the statute in a manner that distinguishes between STLDI
and individual health insurance coverage. Over the last two decades,
the Departments have used this discretion to both shorten and lengthen
the duration of STLDI as the Departments have deemed appropriate and
necessary given the market conditions and legal landscape they were
then facing. Beginning in 1997, the Departments defined STLDI as
coverage of less than 12 months to accommodate 12-month preexisting
condition exclusion periods imposed by group health plans and group
health insurance issuers when a new hire did not have 12 months of
creditable coverage that ended no more than 63 days prior to the
enrollment date in the plan or coverage.\133\ Once preexisting
condition exclusions were prohibited and the Departments implemented a
limit on employee waiting periods of up to 90 days plus a 1-month
reasonable and bona fide employment-based orientation 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),\134\ and comprehensive coverage in the
individual market was guaranteed available to individuals through or
outside of the Exchanges, the Departments determined that a shorter
duration for STLDI was more appropriate and revised the definition in
the 2016 final rules.\135\ Subsequently, when the Departments were
concerned about the availability of affordable health insurance
options, the Departments lengthened the initial contract term to less
than 12 months with a maximum allowed duration of 36 months (including
renewals and extensions) in the 2018 final rules.\136\ \137\
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\132\ See, for example, 88 FR 44596 at 44610, 44612, 44614-44618
(July 12, 2023) (discussing how the proposed changes to definitions
of ``short-term'' and ``limited-duration'' and the proposed
modifications to the required consumer notice would allow consumers
to better distinguish between STLDI and comprehensive coverage).
\133\ 62 FR 16894 (April 8, 1997). See also 69 FR 78,720
(December 30, 2004) (finalizing the definition of STLDI in the 1997
HIPAA interim final rules).
\134\ 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR
147.116.
\135\ 81 FR 75316 at 75317, 75318 (October 31, 2016).
\136\ As noted previously, the Departments' authority to issue
the 2018 final rules was challenged and upheld in Ass'n for
Community Affiliated Plans v. U.S. Department of the Treasury, 966
F.3d 782 (D.C. Cir. 2020). See also Ass'n for Community Affiliated
Plans v. U.S. Department of the Treasury, 392 F.Supp.3d 22 (D.D.C.
2019).
\137\ 83 FR 38212 at 38218 (August 3, 2018).
---------------------------------------------------------------------------
The definition of STLDI in the 2023 proposed rules, and that the
Departments are finalizing in these final rules, is consistent with
applicable Federal law (for example, the Code, ERISA, and the PHS Act).
The 2023 proposed rules proposed a revised Federal definition that set
standards for STLDI that clearly distinguish it from individual health
insurance coverage that is subject to the Federal consumer protections
and requirements. This proposal and the definition finalized in these
rules is consistent with Congress maintaining the exclusion of STLDI
from the PHS Act definition of individual health insurance coverage.
Further, as noted by commenters and discussed in section III.A.2 of
this preamble, the new definition gives reasonable meaning to the terms
``short-term'' and ``limited-duration'' since they reflect periods of
time that are brief in comparison to the length of comprehensive
coverage sold with an initial term of 12 months, on a guaranteed
renewable basis.\138\ The
[[Page 23356]]
definition of STLDI in the 2023 proposed rules and these final rules is
consistent with the original intent of HIPAA, as reinforced by the ACA,
to provide temporary, stopgap coverage for individuals transitioning
between comprehensive coverage.
---------------------------------------------------------------------------
\138\ As the court noted in Ass'n for Community Affiliated Plans
v. U.S. Department of the Treasury regarding the STLDI definition
adopted in the 2018 final rules, ``(u)nder the Departments'
definition, `short-term' refers to the initial contract term, while
`limited-duration' refers to the policy's total length, including
renewals. This reasonable reading gives independent meaning to each
term.'' 966 F.3d at 789. The Departments are applying the same
general framework to establish the new definition adopted in these
final rules, with ``short-term'' referring to the initial contract
term and the term ``limited-duration'' referring to the policy's
total length, including extensions and renewals.
---------------------------------------------------------------------------
Some commenters suggested that the Departments failed to provide
sufficient justification, or lacked sufficient data or analysis, to
support the proposed changes to the Federal definition of STLDI,
particularly with respect to the changes to limit the initial duration
of STLDI policies to 3 months, and the maximum duration to 4 months
including renewals and extensions. In addition, one commenter expressed
concern that an abrupt change to the maximum duration of STLDI may have
unintended consequences on overall health care coverage and consumer
choices, as occurred when the Departments increased the maximum
duration of STLDI from less than 3 months to less than 12 months in the
2018 final rules. Some commenters suggested that the 2023 proposed
rules would impose a market-disrupting change in the duration of STLDI
without providing evidence to support this change.
As the Supreme Court stated in Encino Motorcars v. Navarro,\139\
and the D.C. Circuit Court repeated in Association for Community
Affiliated Plans v. U.S. Department of the Treasury,\140\ ``[a]gencies
are free to change their existing policies as long as they provide a
reasoned explanation for the change.'' The Departments satisfy this
requirement; the proposed rules and these final rules provide a
reasoned explanation of the changes to the Federal definition of STLDI.
As explained in section III.A.2 of this preamble, the Departments
determined that it is necessary and appropriate to amend the Federal
definition of STLDI to ensure that consumers can clearly distinguish
STLDI from individual health insurance coverage, protect the risk pools
and stabilize premiums for individual health insurance coverage, and
promote access to affordable comprehensive coverage. While the
Departments acknowledge that they have limited data on enrollment in
STLDI, the Departments have sufficient information and evidence to
conclude that the changes to the definition finalized in these rules
are appropriate and justified. The Departments are of the view that
these final rules are necessary and appropriate to combat deceptive
marketing practices, distinguish STLDI from individual health insurance
coverage, and address the changes in the legal landscape and market
conditions from 2018 to 2024. Further, as discussed in section II.A of
this preamble, since the publication of the 2018 final rules,
comprehensive coverage for individuals has generally become more
accessible and affordable, and while affordability concerns persist
among consumers, STLDI is an inadequate substitute for comprehensive
coverage.
---------------------------------------------------------------------------
\139\ 136 S. Ct. 2117, 2125 (2016).
\140\ 966 F. 3d at 792.
---------------------------------------------------------------------------
Aggressive, deceptive marketing practices are an ongoing challenge
for consumers shopping for coverage. As discussed in section II.B and
section III.A.3 of this preamble, recent secret shopper studies have
detailed ongoing practices by sellers of STLDI that do not inform
consumers of eligibility for less expensive Exchange plans or that
provide misleading information about STLDI with limited benefits.\141\
Deceptive marketing practices can have devastating financial
implications for consumers that purchased STLDI without fully
understanding its limitations and later encounter unexpected and
expensive medical events that are not covered by their insurance.\142\
In addition, as explained in section III.A.2 of this preamble and the
preamble to the 2023 proposed rules, the Federal definition for STLDI
in these final rules is consistent with the group market rules
regarding the 90-day waiting period provision under the ACA and with
STLDI's traditional role of serving as temporary coverage for
individuals transitioning between other types of comprehensive
coverage. The definition is also similar to the less-than-3-month
maximum term for STLDI under the 2016 final rules and under a number of
State laws and aligns with the goal of Executive Order 14009 to support
protections for people with preexisting conditions. The Departments
have weighed the potential benefits and costs to consumers when
developing the proposed rules and these final rules and concluded the
changes will not unduly harm consumers.\143\
---------------------------------------------------------------------------
\141\ Schwab, R., & Volk, J. (August 28, 2023). ``The Perfect
Storm: Misleading Marketing of Limited Benefit Products Continues as
Millions Losing Medicaid Search for New Coverage,'' Center on Health
Insurance Reforms, available at: <a href="https://chirblog.org/the-perfect-storm-misleading-marketing-of-limited-benefit-products-continues-as-millions-losing-medicaid-search-for-new-coverage">https://chirblog.org/the-perfect-storm-misleading-marketing-of-limited-benefit-products-continues-as-millions-losing-medicaid-search-for-new-coverage</a>.
\142\ Deam, Jenny (2021). ``He Bought Health Insurance for
Emergencies. Then He Fell Into a $33,601 Trap,'' ProPublica,
available at: <a href="https://www.propublica.org/article/junk-insurance">https://www.propublica.org/article/junk-insurance</a>.
\143\ See the Regulatory Impact Analysis in section V of this
preamble.
---------------------------------------------------------------------------
While the Departments are of the view that the changes to the
Federal definition of STLDI finalized in these rules are critical,
these final rules take steps to limit the potential of the rules having
an abrupt, disruptive effect, particularly with respect to consumers
currently enrolled in STLDI coverage, and to address the potential
reliance interests of both issuers offering STLDI and consumers
enrolled in STLDI under the 2018 final rules. As discussed in section
III.A.6 of this preamble, with the exception of the notice provision,
these final rules will not be applicable to STLDI policies sold or
issued before September 1, 2024. This will result in a phased-in
approach that limits the potential for market disrupting impact by
allowing individuals currently enrolled in STLDI to maintain coverage
that meets the standards in the 2018 final rules through the duration
of their current policy. In addition, this phased-in approach does not
require issuers who have relied on the current rules to modify
contracts for STLDI policies that are currently in place. Further, the
proposed changes that are finalized in these rules will not result in
an abrupt change in the maximum permitted duration of STLDI in many
States. Of the States that currently permit STLDI, seven States and the
District of Columbia already have a maximum permitted length of less
than 3 months for STLDI while four additional States prohibit the sale
of STLDI entirely, notwithstanding the longer duration permitted under
the 2018 final rules.\144\ Finally, as these final rules intend to
protect against misleading marketing practices that harm consumers, the
benefits of further differentiating STLDI from comprehensive coverage
outweigh any potential unintended consequences of changing the maximum
allowable duration of STLDI. As outlined in this section and elsewhere
in these rules, the definition is well reasoned, is clearly
[[Page 23357]]
within the Departments' authority, and is consistent with other
applicable Federal law, and is therefore not arbitrary and capricious.
---------------------------------------------------------------------------
\144\ See <a href="http://Healthinsurance.org">Healthinsurance.org</a> (2023). ``Duration and Renewals of
2023 Short-Term Medical Plans by State,'' available at: <a href="https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf">https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf</a>; see also 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>.
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Some commenters expressed concern that the proposed definition of
STLDI would interfere with the authority of States to regulate
insurance pursuant to the McCarran-Ferguson Act and PHS Act. These
commenters stated that the McCarran-Ferguson Act reserves the
regulation of insurance to States so that States can tailor their
health insurance policies to the needs of their residents. They stated
that State regulators are better positioned to understand the unique
characteristics and requirements of each State's respective insurance
markets and are more responsive to the needs of their insurance
markets. Another commenter stated that under the PHS Act, Federal
authority to regulate insurance is secondary to the primary authority
of the States, and any Federal intrusion on State authority must be
based on information that a State may not be substantially enforcing
PHS Act requirements. A commenter noted that States have demonstrated
their willingness and capacity to regulate STLDI coverage because half
of States have regulations in place. For example, the commenter noted
that the sale of STLDI is prohibited in some States \145\ and other
States have restricted the maximum allowed term of STLDI to 3, 6, or 12
months or coverage that terminates at the end of the calendar
year.\146\ Other commenters stated that some States only allow limited
renewals of STLDI. Another State regulates STLDI by requiring that
STLDI policies sold in the State provide certain consumer protections,
implementing a separate risk pool, and creating a special enrollment
period for consumers that exhaust the 36-month period of STLDI
coverage, while setting minimum benefit and coverage requirements to
meet the needs of seasonal employees that desire flexibility and low-
cost health care coverage.\147\ A commenter noted that 12 States
currently prohibit health status underwriting for STLDI, which
effectively bans STLDI in those States. The commenter stated that the
proposed rules fail to balance States' interest in regulating health
insurance issuers and their health insurance markets with Congress's
intent to provide protections to consumers. On the other hand, a few
commenters noted that variation in State oversight of STLDI has
resulted in a patchwork of consumer protections across States, and one
commenter stated that consumers would benefit from national-level STLDI
regulation.
---------------------------------------------------------------------------
\145\ The commenter noted that STLDI is not for sale in a number
of States including California, Colorado, Connecticut, Hawaii,
Maine, Massachusetts, New Jersey, New Mexico, New York, Rhode
Island, Vermont, and Washington. See also <a href="http://Healthinsurance.org">Healthinsurance.org</a>
(2023). ``Duration and Renewals of 2023 Short-Term Medical Plans by
State,'' available at: <a href="https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf">https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf</a> (As
of September 6, 2023, STLDI is not for sale in 14 States--
California, Colorado, Connecticut, Hawaii, Maine, Massachusetts,
Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode
Island, Vermont, and Washington--and the District of Columbia.)
\146\ The commenter stated that Illinois allows the sale of
STLDI that lasts for up to 180 days, and in New Hampshire, STLDI
contracts can last for up to 6 months with a renewal or extension of
up to a total of 18 months.
\147\ The commenter stated that Iowa imposed minimum benefit and
coverage requirements on short-term plans above Federal standards.
---------------------------------------------------------------------------
These final rules establish the Federal definition of STLDI with
respect to the maximum length of the initial contract term, the maximum
allowable duration (including renewals and extensions), and a consumer
notice. The Departments acknowledge and respect States' authority to
regulate the business of insurance. The Departments generally agree
that States retain the authority to regulate STLDI and further note
that these final rules do not change or otherwise modify the existing
ERISA or PHS Act preemption standard.\148\ As such, States may impose
requirements tailored to the needs of their populations, and may adopt
limitations on stacking, as well as limitations on sales and marketing
practices. Relatedly, in section III. B of this preamble, in these
final rules, the Departments added language to the notice to alert
consumers as to how the coverage they are purchasing might vary from
individual health insurance coverage. States may impose additional
language requirements for a consumer notice and remain free to regulate
STLDI.
---------------------------------------------------------------------------
\148\ Section 731 of ERISA and sections 2724 and 2762 of the PHS
Act (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a) and
148.210(b)).
---------------------------------------------------------------------------
The Departments agree that the States play an important role in
regulating STLDI and recognize the federalism implications of the
proposed rules and these final rules.\149\ As noted by commenters, the
McCarran-Ferguson Act generally affirms the preeminence of State
regulation, and also explicitly allows for Federal regulation when an
act of Congress specifically relates to the business of insurance.\150\
However, the commenters' argument that Federal authority to regulate
insurance is secondary to the primary authority of the States conflates
Federal authority to regulate insurance under section 1012 of the
McCarran-Ferguson Act with HHS's authority under section 2723 of the
PHS Act to enforce requirements in part A and D of title XXVII of the
PHS Act against issuers.\151\ Under section 2723 of the PHS Act, States
have authority to enforce the requirements of part A and D of title
XXVII of the PHS Act, and where the State fails to substantially
enforce a provision (or provisions) of part A or D with respect to
health insurance issuers in the State, HHS shall enforce such provision
(or provisions) in the State. In contrast, the McCarran-Ferguson Act
balances State and Federal interests in regulating the business of
insurance. Section 1012(a) of the McCarran-Ferguson Act maintained
State regulatory authority by enabling State preemption of some Federal
law, and section 1012(b) of the McCarran-Ferguson Act limited Federal
regulatory authority by generally exempting the ``business of
insurance'' from Federal law.\152\ Although Congress allowed an
exception for State preemption of Federal law in this way, Congress
also preserved Federal authority to regulate insurance provided that,
to overcome the State preemption, congressional action must
specifically relate to the
[[Page 23358]]
business of insurance.\153\ It is without question that HIPAA, the ACA,
and the other Acts of Congress that added Federal consumer protections
and requirements applicable to health insurance issuers offering group
and individual health insurance coverage specifically relate to the
business of insurance. In addition, as discussed earlier, the
Departments have clear legal authority to define STLDI and set
standards to distinguish it from individual health insurance coverage.
This includes authority to adjust the interpretations for and
implementation of the terms ``short-term'' and ``limited-duration''
that set the length of the initial contract term and the maximum
duration (including renewals and extensions) for STLDI, as well as to
update the consumer notice. As outlined previously, Congress provided
the Departments with explicit authority to promulgate regulations as
may be necessary or appropriate to carry out the provisions of the
Code, ERISA, and the PHS Act. The Departments are of the view that the
Federal regulatory definition of STLDI in these final rules is
necessary and appropriate to carry out the provisions of the Code,
ERISA, and the PHS Act. Further, the Departments must give meaning to
the undefined statutory term STLDI, and the meaning must distinguish it
from individual health insurance coverage. This is because the PHS Act
imposes certain requirements on individual health insurance coverage
and does not impose those same requirements on STLDI. The Departments
are also of the view that it is necessary and appropriate for consumers
considering the purchase of STLDI, and those purchasing such insurance,
to be aware that such coverage is not subject to the Federal consumer
protections and requirements for comprehensive coverage. Defining STLDI
in a way that requires a short, standard description of how the
coverage might vary from individual health insurance coverage allows
for a clear determination by regulators that the policy is STLDI, and
promotes ease of understanding by consumers. As explained previously
and detailed in the 2023 proposed rules, the changes to the Federal
definition of STLDI, including the updates to the consumer disclosure
notice, are reflective and responsive to changes observed by the
Departments in market conditions and the legal landscape.
---------------------------------------------------------------------------
\149\ See 88 FR at 44648-44649. See also the federalism
discussion in section V.H of this preamble.
\150\ Compare ``The business of insurance, and every person
engaged therein, shall be subject to the laws of the several States
which relate to the regulation or taxation of such business . . .''
15 U.S.C. 1012(a), with ``No Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by any State for
the purpose of regulating the business of insurance, or which
imposes a fee or tax upon such business, unless such Act
specifically relates to the business of insurance: Provided, that
after June 30, 1948, the Act of July 2, 1890, as amended, known as
the Sherman Act, and the Act of October 15, 1914, as amended, known
as the Clayton Act, and the Act of September 26, 1914, known as the
Federal Trade Commission Act, as amended [15 U.S.C. 41 et seq.],
shall be applicable to the business of insurance to the extent that
such business is not regulated by State Law. . . .'' 15 U.S.C.
1012(b).
\151\ HHS also has authority under section 2761 of the PHS Act
to enforce the requirements in part B of title XXVII of the PHS Act
against issuers in situations where a State fails to substantially
enforce one or more provisions of part B with respect to health
insurance issuers in the State.
\152\ See Steffen, Peter B. (2000) ``After Fabe: Applying the
Pireno Definition of Business of Insurance in First-Clause McCarran-
Ferguson Act Cases,'' University of Chicago Legal Forum: Vol. 2000,
available at: <a href="https://chicagounbound.uchicago.edu/uclf/vol2000/iss1/15">https://chicagounbound.uchicago.edu/uclf/vol2000/iss1/15</a> (``The first clause enabled [S]tate law to supersede [F]ederal
law; the second clause provided a [F]ederal antitrust exemption for
the `business of insurance'. . . The Act gave [S]tates some powers
they did not have before, by stating in the first clause that only a
[F]ederal law that `specifically relates to the business of
insurance' can preempt a [S]tate law dealing with insurance.
Congressional legislation merely affecting insurance would not meet
the first-clause test and thus would not, be exempt from the general
prohibition on preemption. Rather, in order to apply, [F]ederal law
must specifically relate to the `business of insurance' . . .'').
\153\ Id., citing Lee R. Russ, 3 Couch on Insurance sec. 2:4 at
2-12 (Clark 1994) (``McCarran-Ferguson turns the traditional rule of
[F]ederal preemption of [S]tate law on its head.'').
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These final rules define STLDI for purposes of the Code, ERISA, and
the PHS Act. Insurance coverage that meets the definition of STLDI in
these final rules will qualify for the exception to the Federal
definition of individual health insurance coverage and be exempt from
the Federal consumer protections and requirements applicable to
comprehensive coverage. Nothing in these final rules prevents
regulation of STLDI for purposes of State law. For example, States may
determine whether to permit the sale of STLDI in their insurance
markets. If a State law permits or requires an action that is
inconsistent with the Federal definition of STLDI, any coverage offered
pursuant to that State law that does not meet the standards set forth
in these final rules would not qualify as STLDI under these final rules
and would be subject to the Federal consumer protections and
requirements applicable to comprehensive coverage. For example, if a
State were to prohibit policies issued in that State from including the
Federal consumer notice, then coverage in that State that did not
include the Federal consumer notice language would not qualify for the
exclusion from the PHS Act definition of individual health insurance
coverage and thus would be subject to the Federal consumer protections
and requirements applicable to individual health insurance coverage.
Amending the Federal regulation defining STLDI protects the
distinctively Federal role and interest in ensuring that the Federal
definition for STLDI clearly distinguishes STLDI from individual health
insurance coverage for consumers in every State. As discussed in the
preamble to the 2023 proposed rules, many STLDI policies that are sold
through associations are sold across numerous States. Often consumers
are purchasing STLDI policies in a different State from the State in
which the policy is regulated. This can create challenges for both
consumers and State regulators. The Departments are of the view that
establishing a shorter Federal maximum duration for STLDI may reduce
the incentives for issuers to offer STLDI through associations to the
extent that they are using associations as a way to avoid State limits
on duration. This, in turn, will help minimize consumer confusion
related to coverage offered through associations. In addition, STLDI
with a shorter maximum allowable duration would decrease the impact of
STLDI on Federal Government spending. As discussed in section III.A.6
of this preamble, STLDI that has a maximum allowable duration of up to
36 months, including renewals and extensions, has an annual impact on
Federal PTC spending due to selection-induced effects.
The Departments are of the view that these final rules
appropriately balance States' interests in regulating health insurance
issuers and their health insurance markets with Congress' intent to
establish a general Federal framework for health insurance coverage,
including the provision of certain key protections to consumers
enrolled in comprehensive coverage.
Some commenters expressed general support for the proposed
definition of STLDI. Commenters in favor of the proposed definition
noted that it would return STLDI to its traditional and intended
purpose of providing temporary, stopgap coverage between periods of
comprehensive coverage, and not serve as a long-term substitute for
comprehensive coverage. Some of these commenters highlighted that low
health literacy rates, a long maximum allowed term of STLDI that mimics
the duration of comprehensive coverage, and deceptive marketing
practices cause many consumers to confuse STLDI with comprehensive
coverage. These commenters also stated that STLDI lacks Federal
consumer protections and is inadequate to serve patients grappling with
complex medical needs such as those that require maternity care or
habilitative care; behavioral health problems; or chronic diseases such
as cancer and cardiovascular disease. These commenters further stated
that unwary consumers unexpectedly are underinsured when they enroll in
STLDI and may end up forgoing needed, routine medical treatment and
exacerbating chronic medical conditions because of limited benefits or
high cost-sharing responsibilities. Consequently, consumers may then be
sicker when they finally seek care in the emergency room for untreated
medical conditions, which can increase costs absorbed by providers and
facilities, costing the health care system more in the long run.
Commenters who supported the STLDI definition in the proposed rules
warned that some consumers who enroll in STLDI as an alternative to
comprehensive coverage can become subject to unexpected medical debt
leading to unforeseen long-term financial consequences. Other
commenters that supported the revised Federal definition for STLDI
stated that while STLDI is highly profitable for health insurance
issuers, agents, and brokers, the impact of STLDI on the risk pools for
individual health insurance coverage indicates that it is necessary to
clarify the distinctions between STLDI
[[Page 23359]]
and comprehensive coverage. Other commenters expressed general
opposition to the STLDI definition proposed in the 2023 proposed rules.
These commenters stated that while STLDI is not adequate coverage for
everyone, STLDI provides a useful, short-term, affordable option,
particularly for consumers who do not have access to PTC subsidies, and
provides access to specialists that are not in-network with many
comprehensive coverage options.
The Departments acknowledge that the changes to the Federal
definition of STLDI that are finalized in these rules may result in
individuals who prefer STLDI losing access to such coverage as a long-
term coverage option. However, as explained previously and in the 2023
proposed rules, the Departments have concluded that these concerns are
now outweighed by the negative financial and health consequences that
some individuals who enroll in STLDI in lieu of comprehensive coverage
experience; consumer challenges in differentiating STLDI from
individual health insurance coverage, particularly in light of low
health literacy rates and aggressive marketing; and the negative impact
on the risk pools for individual health insurance coverage when
healthier individuals enroll in STLDI in lieu of individual health
insurance coverage.\154\
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\154\ See section V of this preamble for the regulatory impact
analysis; see also 88 FR 44596 at 44608 (2023).
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As the availability of affordable comprehensive coverage options
has increased since the 2018 final rules were finalized, the
Departments are of the view that STLDI is no longer needed to provide a
year-round coverage option for individuals and should be limited to a
temporary coverage option for shorter periods when an individual
experiences gaps between comprehensive coverage. The Departments agree
with commenters that the definition of STLDI under the 2018 final rules
heightened the risk that uninformed consumers will mistakenly purchase
STLDI as a substitute for comprehensive coverage, and under current
market conditions, unnecessarily expose themselves to severe financial
risks if they have complex medical needs or conditions. The Departments
agree with commenters that the lack of key Federal consumer protections
and requirements that apply to benefits offered by STLDI \155\ results
in STLDI being an inadequate substitute for comprehensive coverage,
especially for those with complex medical needs. Some consumers with
complex health conditions may enroll in STLDI because a preferred
provider may be in-network with an STLDI policy but out-of-network with
comprehensive coverage plans.\156\ However, STLDI plans are typically
associated with higher overall financial risk due to high premium
increases that may be imposed upon an individual whose health condition
worsens. For example, a study that examined the potential impacts of
STLDI and associated State policies on cancer diagnoses found that
individuals in States that prohibited STLDI were associated with an
increase in early-stage cancer diagnoses when compared to States that
did not regulate STLDI.\157\ In addition, because issuers of STLDI can
engage in medical underwriting, individuals can be charged higher
premiums based on health status, gender, age and other factors.\158\
Enrolling in comprehensive coverage instead of STLDI prior to when a
consumer is diagnosed with a complex medical condition or incurs major
medical expenses will promote access to care and improve overall health
outcomes.
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\155\ See, for example, 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>.
\156\ In some circumstances, even accounting for the expense of
using an out-of-network provider, comprehensive coverage still may
be the less expensive choice overall because of lower out-of-pocket
spending a consumer would enjoy when enrolled in comprehensive
coverage. In many cases, expenses for premiums and cost sharing for
comprehensive coverage enrollees are still lower than the uncovered
costs associated with STLDI, particularly when an individual
undergoes costly medical treatment.
\157\ Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and Fumiko
Chino (2023). ``State Policies Regulating Short-Term Limited
Duration Insurance Plans and Cancer Stage at Diagnosis,'' JNCI
Cancer Spectrum, Volume 7, Issue 5, available at: <a href="https://doi.org/10.1093/jncics/pkad060">https://doi.org/10.1093/jncics/pkad060</a>.
\158\ See 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/affordable-care-act/issue-brief/understanding-short-term-limited-duration-health-insurance">https://www.kff.org/affordable-care-act/issue-brief/understanding-short-term-limited-duration-health-insurance</a>. See also 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>.
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In addition, the Departments share commenters' concerns that low
health literacy rates can have a detrimental impact on health insurance
decision-making, putting some consumers at increased risk for
purchasing STLDI when they are looking to purchase comprehensive
coverage. Low health literacy rates combined with potentially erroneous
assumptions about minimum standards for coverage makes the average
consumer vulnerable to deceptive marketing practices and creates
barriers to accessing health care and comprehensive coverage. As
discussed in the preamble to the 2023 proposed rules, consumers may not
understand that while some STLDI policies may have lower premiums than
comprehensive coverage, consumers may incur steep and potentially debt-
inducing health care bills once enrolled in STLDI due to limited
benefits provided by such coverage, limited Federal consumer
protections, and high-cost sharing requirements.\159\ A qualitative
study cited by commenters examined consumer comprehension of marketing
materials for STLDI and found that not only did participants have low
health insurance literacy rates, but they struggled to understand the
plan's limitations because the ACA has shaped their expectations about
what ``typical'' health plans cover.\160\ As a result, consumers often
expect that all health insurance provides the same benefits and
protections even absent deceptive marketing practices, increasing the
importance of guardrails to distinguish comprehensive coverage from
STLDI. These concerns are exacerbated in underserved communities, given
their low rates of health literacy.\161\ As discussed in the 2023
proposed rule, in addition to systemic and social structures that
impact access to health care,\162\ health literacy can make it more
difficult for historically underserved and marginalized groups to
navigate high deductibles, expanded cost sharing, coverage exclusions
and narrow formularies found in STLDI.\163\ These barriers can lead to
consumers rationing their medicine or not taking it at all or delaying
necessary health care services, causing devastating consequences to
[[Page 23360]]
their health.\164\ Shortening the maximum allowable term and duration
of STLDI will serve as a clear indicator to consumers about the nature
of each coverage option and instill more confidence in their coverage
decisions. The Departments are also concerned about the prevalence of
deceptive marketing practices, as noted by commenters who referenced
secret shopper studies and anecdotes about negative consumer
experiences, including when deceptive marketing practices were used to
encourage consumers to enroll in STLDI instead of receiving education
about their eligibility for low-cost comprehensive coverage or to
inhibit consumers from choosing the coverage they need to access health
care and protect themselves from financial burdens.
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\159\ See, for example, 88 FR 44596 at 44608, 44612, 44613,
44615-44617, 44646 (July 12, 2023).
\160\ Georgians for a Healthy Future (2019). ``Report on Testing
Consumer Understanding of a Short-Term Health Insurance Plan,''
available at: <a href="https://healthyfuturega.org/wp-content/uploads/2019/04/Consumer-Testing-Report_NAIC-Consumer-Reps.pdf">https://healthyfuturega.org/wp-content/uploads/2019/04/Consumer-Testing-Report_NAIC-Consumer-Reps.pdf</a>.
\161\ Kutner M, Greenberg E, Jin Y, Paulsen C. The Health
Literacy of America's Adults: Results from the 2003 National
Assessment of Adult Literacy (NCES 2006-483). Washington, DC: U.S.
Department of Education, National Center for Education Statistics;
2006.
\162\ Muvuka, B., et al (2020). ``Health Literacy in African-
American Communities: Barriers and Strategies,'' Health Literacy
Research and Practice, available at: <a href="https://journals.healio.com/doi/full/10.3928/24748307-20200617-01">https://journals.healio.com/doi/full/10.3928/24748307-20200617-01</a>.
\163\ 88 FR 44596 at 44608, 44613, 44615 (July 12, 2023).
\164\ Schumacher, Jessica R. et al. (2013). ``Potentially
Preventable Use of Emergency Services: The Role of Low Health
Literacy,'' Medical Care 51(8), August 2013, available at: <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3756810">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3756810</a>.
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Finally, the Departments agree that it is necessary and appropriate
to revisit the Federal STLDI definition to further distinguish between
these types of coverage given concerns about the impact on risk pools.
As discussed in section II.C of this preamble, STLDI siphons off
healthier individuals from the risk pools for individual health
insurance coverage, thereby raising premiums for such coverage.
Some commenters expressed particular concern about the impact of
deceptive and aggressive marketing practices for STLDI given the
increase in consumers currently looking for health coverage options as
States resume Medicaid eligibility redeterminations due to the
expiration of the FFCRA Medicaid continuous enrollment condition, as
discussed in section II.B of this preamble. These commenters explained
that many consumers who lose Medicaid coverage and are seeking new
coverage at a low cost will be vulnerable to misleading or aggressive
sales and marketing tactics that obscure the differences between
comprehensive coverage and STLDI, and might therefore mistakenly enroll
in STLDI in lieu of comprehensive coverage. These commenters noted that
underserved populations with low health literacy and incomes below the
FPL may be particularly vulnerable.
The Departments recognize that more individuals may be considering
new coverage options as a result of an increased volume of Medicaid
eligibility redeterminations, and therefore may be particularly
susceptible to this type of misleading or aggressive sales and
marketing tactics even though affordable options for comprehensive
coverage may be available to them. CMS has made it a priority to ensure
that as many people as possible maintain continuous comprehensive
coverage during this ``unwinding period.'' \165\ CMS has a robust plan
in place to reach people with Medicaid or CHIP coverage, so that they
are aware of the steps they need to take to maintain their Medicaid or
CHIP coverage, or, if no longer eligible, to smoothly transition to
other forms of coverage, such as individual health insurance coverage
purchased through an Exchange.\166\ This plan includes new policy and
operational flexibilities, such as a temporary exceptional
circumstances special enrollment period available through
<a href="http://HealthCare.gov">HealthCare.gov</a> for qualified individuals and their families who lose
Medicaid or CHIP coverage following the end of the continuous
enrollment condition; multi-pronged, large-scale national and local
outreach and stakeholder engagement efforts; and investments and
innovations in enrollment assistance.\167\ State-based Exchanges have
taken similar steps to update or implement new special enrollment
period policies, as well as conduct outreach and stakeholder
engagement, to support qualified individuals and their families who
lose Medicaid or CHIP coverage following the end of the continuous
enrollment condition. Despite these efforts, current data shows that a
substantial number of people have lost coverage and may want to enroll
in coverage.\168\
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\165\ See 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) (January 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>.
\166\ See CMS (2023). ``Unwinding and Returning to Regular
Operations after COVID, Medicaid and CHIP Renewals Outreach and
Educational Resources,'' available at: <a href="https://www.medicaid.gov/resources-for-states/coronavirus-disease-2019-covid-19/unwinding-and-returning-regular-operations-after-covid-19/medicaid-and-chip-renewals-outreach-and-educational-resources/index.html">https://www.medicaid.gov/resources-for-states/coronavirus-disease-2019-covid-19/unwinding-and-returning-regular-operations-after-covid-19/medicaid-and-chip-renewals-outreach-and-educational-resources/index.html</a>.
\167\ See CMS (August 26, 2022). ``Biden-Harris Administration
Makes Largest Investment Ever in Navigators Ahead of <a href="http://HealthCare.gov">HealthCare.gov</a>
Open Enrollment Period,'' available at: <a href="https://www.cms.gov/newsroom/press-releases/biden-harris-administration-makes-largest-investment-ever-navigators-ahead-healthcaregov-open">https://www.cms.gov/newsroom/press-releases/biden-harris-administration-makes-largest-investment-ever-navigators-ahead-healthcaregov-open</a>.
\168\ See Corallo, Bradley, Jennifer Tolbert, Patrick Drake,
Sophia Moreno, and Robin Rudowitz, (2024). ``Halfway Through the
Medicaid Unwinding: What Do the Data Show?'' KFF, available at:
<a href="https://www.kff.org/policy-watch/halfway-through-the-medicaid-unwinding-what-do-the-data-show">https://www.kff.org/policy-watch/halfway-through-the-medicaid-unwinding-what-do-the-data-show</a>.
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Commenters requested that the Departments clarify whether any of
the existing special enrollment periods would allow a consumer to
access comprehensive coverage if their STLDI coverage ends outside of
an open enrollment period. Some commenters recommended that the
Departments create a new special enrollment period for individuals to
enroll in comprehensive coverage after their STLDI coverage ends, or
that allows an individual to enroll in coverage through an Exchange
upon the termination of STLDI coverage specifically for situations
where a consumer elected STLDI following a loss of employment-based
coverage due to a job transition or to provide temporary coverage
during an employer's waiting period. Some commenters expressed concern
about the potential for consumers to experience gaps in coverage in the
absence of access to a special enrollment period, explaining that those
consumers purchasing a 3-month STLDI plan mid-calendar year would
become financially vulnerable with no continued coverage options until
the next open enrollment period.
The Departments affirm that individuals who lose eligibility for
STLDI coverage, such as when their STLDI policy ends, are already
eligible for a special enrollment period and have 60 days to enroll in
group health plan coverage, either insured or self-funded.\169\ HHS did
not propose to create a new individual market special enrollment period
for individuals to enroll in individual health insurance coverage (on-
or off-Exchange) at the expiration of their STLDI coverage and declines
to do so in these final rules. Providing consumers with an individual
market special enrollment period to purchase off-Exchange or on-
Exchange coverage when they lose eligibility for STLDI or their STLDI
policy ends could confuse or mislead consumers who are considering
their health coverage options. Consumers may delay enrolling in
comprehensive coverage when first available, on the expectation that
such coverage would be available at any time, even if STLDI coverage
does not renew or is otherwise terminated. Also, as explained
previously, inflating the fraction of low-risk individuals who enroll
in STLDI rather than individual health insurance coverage will have
negative consequences for the risk pools for individual health
insurance coverage.
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\169\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117.
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Furthermore, there are other options for individuals who anticipate
experiencing longer gaps between comprehensive coverage. For example,
an individual who loses comprehensive
[[Page 23361]]
coverage may be eligible for a special enrollment period that allows
them to enroll in group coverage sponsored by their employer, the
employer of their parent, spouse or partner, or individual health
insurance coverage, either directly with the issuer, or through the
Exchanges, where they may be eligible for APTC.<SUP>170 171</SUP> In
some circumstances, they may be eligible for other coverage such as
government-based assistance for qualified individuals under Medicaid,
CHIP, or BHP.\172\ In addition, if a consumer experiences a reduction
in benefits or termination of employment and is uncertain as to when
they will be eligible for other comprehensive coverage, the consumer in
many cases has the option of electing coverage under the Consolidated
Omnibus Budget Reconciliation Act (COBRA) \173\ (18, 29, or 36 months
depending on the nature of the COBRA qualifying event) or State mini-
COBRA continuation coverage laws. Also, as discussed in section III.A.2
of this preamble, an individual who enrolls in STLDI coverage from one
issuer and wishes to purchase another STLDI policy maintains the option
of enrolling in STLDI coverage with another issuer that is not a member
of the same controlled group.
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\170\ 45 CFR 155.420.
\171\ 45 CFR 147.104(b)(2).
\172\ Medicaid eligibility requirements vary by State.
\173\ Public Law 99-272, April 7, 1986.
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One commenter suggested that the Departments require that certain
consumer protection provisions apply to STLDI. Other commenters urged
the Departments to extend the prohibition on rescissions to STLDI. One
of these commenters explained that STLDI issuers can rescind the
patient's coverage following post-claims underwriting,\174\ leaving
patients without any financial or medical protection and at high risk
of incurring medical debt.
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\174\ Post-claims underwriting refers to the practice of
engaging in an underwriting review after a claim is made rather than
going through the time and expense of doing such a review to assess
the consumer's actuarial risk and medical conditions at the time the
policy is purchased.
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The Departments appreciate commenters' suggestions regarding ways
in which to ensure STLDI provides key Federal consumer protections. The
Departments agree that STLDI can place a consumer's health and
financial well-being at risk if they experience a significant medical
event or have a complex medical condition. As discussed in this
preamble at section II.B, consumers may be susceptible to deceptive
marketing and sales practices that often mask post-claims underwriting
practices by STLDI issuers and the exclusion of key essential health
benefits and Federal consumer protections under STLDI plans. Consumers
may be unaware of the limitations of their STLDI coverage until they
need care or have incurred significant medical expenses, particularly
those with low health literacy. However, the Departments did not
propose to apply Federal consumer protections to STLDI and are not
finalizing in these final rules the extension of any of the individual
health insurance coverage Federal consumer protections and requirements
to STLDI.\175\ The Departments further note it would be inconsistent
with the statute to extend the Federal prohibition on rescissions to
STLDI, as Congress limited its applicability to group health plans and
health insurance issuers offering group or individual health insurance
coverage.\176\ In addition, as discussed in section III.A.2 of this
preamble, the Departments have determined that limiting extensions and
renewals of STLDI instead of applying guaranteed renewability to STLDI
appropriately distinguishes STLDI from individual health insurance
coverage.
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[…truncated; see source link]Indexed from Federal Register on April 3, 2024.
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.