The Department of Health and Human Services (HHS) finalized a proposal to modify the definition of short-term, limited-duration insurance (STLDI) and modify the conditions under which hospital indemnity or other fixed indemnity insurance is considered an excepted benefit.
HHS, along with the departments of Labor and the Treasury, also proposed in July 2023 to clarify the tax treatment of certain benefit payments in fixed amounts received under employer-provided accident and health plans. However, the departments need more time to study these issues and did not finalize these regulations.
STLDI
STLDI fills temporary gaps in coverage when an individual is transitioning from one source of coverage to another. It is not subject to federal individual market consumer protections and requirements for comprehensive coverage under the Affordable Care Act. HHS amended the definition of STLDI to limit the initial contract period from 12 to three months and limit the maximum coverage period from 36 to four months. The rule also prohibits the same issuer from issuing multiple STLDI policies to the same policyholder within a 12-month period.
HHS also finalized the notice to be displayed on the first page of all STLDI materials to make clear to consumers that STLDI is not comprehensive health coverage.
The final rule applies to new STLDI policies sold or issued on or after Sept. 1, 2024. The previous regulations continue to apply to STLDI policies sold or issued before Sept. 1. These final rules are effective 75 days after publication in the federal register.
Hospital or Other Fixed Indemnity Insurance
Hospital indemnity or other fixed indemnity insurance provides fixed cash payments upon the occurrence of a health-related event. Currently, benefits are paid regardless of the expenses a consumer incurs and can be designed and presented as comprehensive coverage. This insurance traditionally is treated as income replacement; however, when coverage meets certain criteria, it is an excepted benefit not subject to most federal requirements or consumer protections.
HHS proposed to prohibit fixed indemnity excepted benefits coverage from paying benefits on a per-service basis to limit the practice among certain issuers of designing complex, fee-for-service-style fixed indemnity plans that resemble comprehensive coverage.
However, HHS is only finalizing a notice to be included with fixed indemnity excepted benefits coverage offered on the group and individual markets, warning consumers it is not comprehensive health coverage. HHS will continue to study the remaining issues in the proposed rule on hospital or other fixed indemnity insurance and engage in rulemaking at a later date.
Notice requirements for fixed indemnity insurance finalized in this rule will apply to coverage for plan years beginning on or after Jan. 1, 2025.
This rule is scheduled for publication in the Federal Register on April 3.
Contact Director of Policy Rob Nelb at rnelb@essentialhospitals.org or 202-585-0127 with questions.
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