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HHS Proposes Changes to Short-Term, Limited-Duration Insurance

The Department of Health and Human Services (HHS) proposes in a new rule 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.

The new rule, issued with the Department of Labor and the Department of the Treasury, also clarifies the tax treatment of certain benefit payments in fixed amounts received under employer-provided accident and health plans.

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 proposes to amend the definition of STLDI to limit the initial contract period from 12 months to three months and limit the maximum coverage period from 36 months to four months. The rule also proposes to prohibit the same issuer from issuing multiple STLDI policies to the same policyholder within a 12-month period.

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 amount of 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 proposes to prohibit fixed indemnity excepted benefits coverage in the individual market from paying benefits on a per-service basis, in order to limit the practice among certain issuers of designing complex, fee-for-service-style fixed indemnity plans that resemble comprehensive coverage.

These proposed changes would apply to STLDI and fixed indemnity excepted benefits coverage sold or issued on or after the effective date of the final rule. Coverage sold or issued prior to the effective date of the final rules will apply under the current regulations, allowing consumers to keep their STLDI for up to 36 months.

Comments are due Sept. 11.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Julie Kozminski is a policy manager at America's Essential Hospitals.

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