HHS, the Department of Labor’s Employee Benefits Security Administration, and the Internal Revenue Service (IRS) (collectively, the Departments) issued a proposed rule on July 7, 2023, aimed at shoring up consumer protections in the Affordable Care Act (ACA) by removing loopholes used by short-term limited-duration insurance companies to provide consumers with cheaper, but lower quality insurance (the Proposed Rule).
Short-term limited-duration insurance (STLDI) is meant to provide short-term gap coverage for individuals who are transitioning to another insurance. Currently, the Public Health Service Act’s definition of individual health insurance coverage does not include STLDIs. Therefore, STLDIs are not subject to the same ACA consumer protections as other coverage. These protections include the prohibition on excluding individuals with pre-existing conditions and not discriminating based on an individual’s health status.
To help consumers differentiate between STLDIs without these protections and comprehensive coverage, the Proposed Rule attempts to realign STLDIs with their intended purpose of providing gap coverage. The Proposed Rule proposes to limit the duration of the STDLI contract period to no more than three months with coverage lasting up to four months. The Departments also propose to prohibit stacking where the same policyholder issues multiple STDLIs to the same individual. Both proposals are meant to shorten the duration of time that consumers rely on STDLIs before transitioning to more comprehensive coverage.
Fixed indemnity excepted benefits coverage is also exempt from certain consumer protections because it is designed to be an income replacement instead of providing consumers with comprehensive coverage. The Departments are proposing changes to ensure that consumers do not mistakenly think that fixed indemnity benefits coverage is a replacement for comprehensive coverage.
The new proposal would require fixed indemnity excepted benefits coverage to provide benefits that are paid on a per-period basis instead of a per-service basis. The Departments are also proposing that a consumer notice be given before a consumer purchases group market fixed indemnity excepted benefits coverage so that the consumer is aware that the coverage is not meant to be comprehensive coverage. The Proposed Rule also seeks to clarify that employers who offer benefits under fixed indemnity insurance that are tied to a group health plan’s exclusion of benefits that is maintained by the same plan sponsor would violate the “noncoordination” requirements because the coverage is not to be offered on an independent basis. This is meant to protect employees and discourage employers from offering coverage that mimics comprehensive coverage but does not offer the same consumer protections.
The Departments are also soliciting comment on how specified disease excepted benefits coverage is being sold to consumers and how these benefits are designed to inform any future agency action. In addition, the Departments are seeking additional information about level-funded plans to determine whether more guidance is needed regarding a plan sponsor’s obligations to provide coverage through these level-funded group health plans. Finally, the IRS proposes amendments to clarify that amounts paid on a pre-tax basis when benefits are not tied to the medical expenses incurred are not exempt from a taxpayer’s gross income. The amounts to be excluded from the taxpayer’s gross income for employment-based accident health insurance payments to reimburse medical expenses must also be substantiated.
The Proposed Rule is available here and will be published in the Federal Register on July 12, 2023.
