On March 28, 2024, the Departments of Health and Human Services, Labor and the Treasury released a final rule that modifies the definition of short-term, limited-duration insurance (STLDI) and requires consumer notices for STLDI and fixed indemnity excepted benefit coverage. In addition, the Centers for Medicare & Medicaid Services released a related fact sheet.
Under the final regulation, plans that claim to be “short-term” limited duration health insurance would be limited to an initial contract term of three months, with a maximum period of coverage of four months, if extended (under the prior rule, the maximum period was 36 months). An individual would only be able to enroll in consecutive short-term contracts that exceed four months (known as stacking) if the contracts — effective within a 12-month period — were sold by different issuers (using controlled group rules to determine “different” in this context).
As background, the Obama administration in 2016 limited STLDI plans to three months to try to get more people on Affordable Care Act (ACA)-compliant full-year plans, but regulations adopted by the Trump administration in 2018 allowed people to stay on STLDI plans for 12 months and renew them for up to three years. STLDI plans do not generally cover a group of essential health benefits, do not have to cover people with preexisting conditions, can deny and rescind coverage, can charge sicker people higher rates and are not subject to the ACA’s out-of-pocket maximum limits.
The final rule also requires a consumer notice to help consumers better distinguish between comprehensive coverage and STLDI and get information on their health insurance coverage options; language for the notice is included that is concise and easy to understand. The notice must be prominently displayed (at least 14-point font) on the first page of the policy, certificate or contract of insurance, including for renewals and extensions, and included in any marketing, application and enrollment (or reenrollment) materials.
The final rule revises the consumer notice that is currently required for fixed indemnity excepted benefits coverage in the individual market and establishes a new requirement to provide a consumer notice in the group market. The notice is designed to highlight the differences between fixed indemnity excepted benefits coverage and comprehensive health insurance coverage. Plans and issuers must prominently display (at least 14-point font) the notice in marketing, application and enrollment (and reenrollment) materials in the individual and group markets. Providing a notice to consumers prior to their opportunity to enroll (or reenroll) in fixed indemnity excepted benefits coverage is intended to make consumers aware of the limitations of the coverage and help ensure they do not mistakenly purchase it instead of comprehensive health insurance coverage.
Note: In July 2023, the Departments proposed additional amendments regarding the payment standards and non-coordination requirement for fixed indemnity excepted benefits coverage. Those proposals are not included in the final rule and will instead be addressed in future rulemaking. The preamble to the final rule, however, does emphasize that to be considered fixed indemnity excepted benefits coverage under the current federal group market regulations, the benefits must be paid only on a per-period basis. Under this standard, the Departments expect that fixed indemnity excepted benefit coverage would not be designed with fee schedules that provide benefits for specific items and services, such as wellness screening exams or prescription drugs, rather than wage or income replacement.
Not included in the final rule are provisions from the proposed regulation that would have clarified that payments from employer-provided fixed indemnity health insurance plans (and other similar plans) are not excluded from a taxpayer’s gross income if the amounts are paid without regard to the actual amount of any incurred medical expenses. Also not included are proposals that would have clarified that the taxpayer must meet substantiation requirements for reimbursements for qualified medical expenses from any employer-provided accident and health plan to be excluded from the taxpayer’s gross income.
