[Federal Register Volume 81, Number 210 (Monday, October 31, 2016)]
[Rules and Regulations]
[Pages 75316-75327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26162]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9791]
RIN 1545-BN44

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB75

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, 147, and 148

[CMS-9932-F]
RIN 0938-AS93


Excepted Benefits; Lifetime and Annual Limits; and Short-Term, 
Limited-Duration Insurance

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 contains final regulations regarding the 
definition of short-term, limited-duration insurance for purposes of 
the exclusion from the definition of individual health insurance 
coverage, and standards for travel insurance and supplemental health 
insurance coverage to be considered excepted benefits. This document 
also amends a reference in the final regulations relating to the 
prohibition on lifetime and annual dollar limits.

DATES: 
    Effective date. These final regulations are effective on December 
30, 2016.
    Applicability date. These final regulations apply to group health 
plans and health insurance issuers beginning on the first day of the 
first plan year (or, in the individual market, the first day of the 
first policy year) beginning on or after January 1, 2017.

FOR FURTHER INFORMATION CONTACT: Elizabeth Schumacher or Matthew Litton 
of the Department of Labor, at 202-693-8335, Karen Levin, Internal 
Revenue Service, Department of the Treasury, at (202) 317-5500, David 
Mlawsky or Cam Clemmons, Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, at 410-786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws may call the Employee Benefits Security 
Administration (EBSA) Toll-Free Hotline, at 1-866-444-EBSA (3272) or 
visit the Department of Labor's Web site (http://www.dol.gov/ebsa). In 
addition, information from the Department of Health and Human Services 
(HHS) on private health insurance for consumers can be found on the 
Centers for Medicare & Medicaid Services (CMS) Web site (www.cms.gov/cciio) and information on health reform can be found at 
www.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA), Public Law 104-191 (110 Stat. 1936), added title XXVII of the 
Public Health Service Act (PHS Act), part 7 of the Employee Retirement 
Income Security Act of 1974 (ERISA), and Chapter 100 of the Internal 
Revenue Code (the Code), providing portability and nondiscrimination 
rules with respect to health coverage. These provisions of the PHS Act, 
ERISA, and the Code were later augmented by other consumer protection 
laws, including the Mental Health Parity Act of 1996,\1\ the Paul 
Wellstone and Pete Domenici Mental Health Parity and Addiction Equity 
Act

[[Page 75317]]

of 2008,\2\ the Newborns' and Mothers' Health Protection Act,\3\ the 
Women's Health and Cancer Rights Act,\4\ the Genetic Information 
Nondiscrimination Act of 2008,\5\ the Children's Health Insurance 
Program Reauthorization Act of 2009,\6\ Michelle's Law,\7\ and the 
Patient Protection and Affordable Care Act, as amended by the Health 
Care and Education Reconciliation Act of 2010 (Affordable Care Act).\8\
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    \1\ Public Law 104-204, 110 Stat. 2944 (September 26, 1996).
    \2\ Public Law 110-343, 122 Stat. 3881 (October 3, 2008).
    \3\ Public Law 104-204, 110 Stat. 2935 (September 26, 1996).
    \4\ Public Law 105-277, 112 Stat. 2681-436 (October 21, 1998).
    \5\ Public Law 110-233, 122 Stat. 881 (May 21, 2008).
    \6\ Public Law 111-3, 123 Stat. 65 (February 4, 2009).
    \7\ Public Law 110-381, 122 Stat. 4081 (October 9, 2008).
    \8\ The Patient Protection and Affordable Care Act, Public Law 
111-148, was enacted on March 23, 2010, and the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152, was 
enacted on March 30, 2010. (These statutes are collectively known as 
the ``Affordable Care Act''.)
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    The Affordable Care Act reorganizes, amends, and adds 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. For this purpose, the term ``group health plan'' includes both 
insured and self-insured group health plans.\9\ The Affordable Care Act 
added section 715(a)(1) of ERISA and section 9815(a)(1) of the Code to 
incorporate the 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 to make them applicable to group health plans and health 
insurance issuers providing health insurance coverage in connection 
with group health plans.
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    \9\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and Chapter 100 of the Code, and is 
distinct from the term ``health plan,'' as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' as 
used in other provisions of title I of the Affordable Care Act does 
not include self-insured group health plans.
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II. Overview of the Final Regulations

    On June 10, 2016, the Departments of Labor, Health and Human 
Services and the Treasury (the Departments \10\) issued proposed 
regulations with respect to expatriate health plans, expatriate health 
plan issuers, and qualified expatriates; requirements for travel 
insurance, similar supplemental coverage, and hospital indemnity or 
other fixed indemnity insurance to be excepted benefits; the 
prohibition on lifetime and annual limits; and short-term, limited-
duration insurance.\11\ After consideration of comments on the proposed 
regulations, the Departments are publishing final regulations regarding 
short-term, limited duration insurance, travel insurance, similar 
supplemental coverage, and lifetime and annual limits. The Departments 
intend to address hospital indemnity or other fixed indemnity insurance 
and expatriate health plans in future rulemaking, taking into account 
comments received on these issues.\12\
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    \10\ Note, however, that in sections under headings listing only 
two of the three Departments, the term ``Departments'' generally 
refers only to the two Departments listed in the heading.
    \11\ 81 FR 38019 (June 10, 2016).
    \12\ The preamble to the proposed regulations also invited 
public comment on insurance coverage of specified diseases or 
illnesses as excepted benefits. While not addressed in this 
rulemaking, the Departments may address this issue in future 
regulations or guidance.
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    On July 20, 2015, the Internal Revenue Service published Notice 
2015-43, 2015-29 IRB 73, to provide interim guidance with respect to 
the treatment of expatriate health plans, expatriate health plan 
issuers, and employers in their capacity as plan sponsors of expatriate 
health plans, as defined in the Expatriate Health Coverage 
Clarification Act of 2014 (EHCCA).\13\ The interim guidance in Notice 
2015-43 generally allows a taxpayer to apply the requirements of the 
EHCCA using a reasonable good faith interpretation of the EHCCA until 
further guidance is issued, except as otherwise specifically provided 
with respect to the health insurance providers fee under section 9010 
of the Affordable Care Act. Notice 2015-29 provided interim guidance 
pertaining to the fee under section 9010 for calendar years 2014 and 
2015, and Notice 2016-14 provided guidance pertaining to the fee for 
calendar year 2016. Additionally, the preamble to the Departments' 
proposed regulations provides that issuers, employers, administrators, 
and individuals are permitted to rely on the proposed regulations 
pending the applicability date of final regulations in the Federal 
Register.\14\ Until final regulations are issued and effective, this 
reliance rule as well as the interim guidance in Notice 2015-43 remain 
in effect.
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    \13\ Division M of the Consolidated and Further Continuing 
Appropriations Act, 2015, Public Law 113-235.
    \14\ 81 FR 38019, 38033 (June 10, 2016).
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A. Short-Term, Limited-Duration Insurance

    Short-term, limited-duration insurance is a type of health 
insurance coverage that is designed to fill temporary gaps in coverage 
when an individual is transitioning from one plan or coverage to 
another plan or coverage. Although short-term, limited-duration 
insurance is not an excepted benefit, it is similarly exempt from PHS 
Act requirements because it is not individual health insurance 
coverage. Section 2791(b)(5) of the PHS Act provides that the 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. The PHS Act does not 
define short-term, limited-duration insurance. Under current 
regulations, short-term, limited-duration insurance means ``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.'' \15\
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    \15\ 26 CFR 54.9801-2, 29 CFR 2590.701-2, 45 CFR 144.103.
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    Before enactment of the Affordable Care Act, short-term, limited-
duration insurance was an important means for individuals to obtain 
health coverage when transitioning from one job to another (and from 
one group health plan to another) or when faced with other similar 
situations. However, with guaranteed availability of coverage and 
special enrollment period requirements in the individual health 
insurance market under the Affordable Care Act, individuals can 
purchase coverage with the protections of the Affordable Care Act to 
fill in the gaps in coverage.
    The Departments have become aware that short-term, limited-duration 
insurance is being sold in situations other than those that the 
exception from the definition of individual health insurance coverage 
was initially intended to address.\16\ In some instances, individuals 
are purchasing this coverage as their primary form of health coverage 
and, contrary to the intent of the 12-month coverage limitation in the 
current definition of short-term, limited-duration insurance, some 
issuers are providing renewals of the coverage that extend the duration 
beyond 12 months. Because short-term, limited-duration insurance is 
exempt from certain consumer protections, the Departments are concerned 
that these policies may have significant limitations, such as lifetime 
and annual dollar limits on essential health benefits

[[Page 75318]]

(EHB) and pre-existing condition exclusions, and therefore may not 
provide meaningful health coverage. Further, because these policies can 
be medically underwritten based on health status, healthier individuals 
may be targeted for this type of coverage, thus adversely impacting the 
risk pool for Affordable Care Act-compliant coverage.
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    \16\ See e.g., Mathews, Anna W. ``Sales of Short-Term Health 
Policies Surge,'' The Wall Street Journal April 10, 2016, available 
at http://www.wsj.com/articles/sales-of-short-term-health-policies-surge-1460328539.
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    To address the issue of short-term, limited-duration insurance 
being sold as a type of primary coverage, the Departments proposed 
regulations to revise the definition of short-term, limited-duration 
insurance so that the coverage must be less than three months in 
duration, including any period for which the policy may be renewed. The 
proposed regulations also included a requirement that a notice must be 
prominently displayed in the contract and in any application materials 
provided in connection with enrollment in such coverage with the 
following language: 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.
    In addition to proposing to reduce the length of short-term, 
limited-duration insurance to less than three months, the proposed 
regulations modified the permitted coverage period to take into account 
extensions made by the policyholder ``with or without the issuer's 
consent.'' This modification was intended to address the Departments' 
concern that some issuers are taking liberty with the current 
definition of short-term, limited-duration insurance--either by 
automatically renewing such policies or having a simplified 
reapplication process with the result being that such coverage, which 
does not contain the important protections of the Affordable Care Act, 
lasts longer than 12 months and serves as an individual's primary 
health coverage.
    The Departments received a number of comments relating to the 
treatment of short-term, limited-duration insurance. Several commenters 
supported the proposed rules and the reasoning behind them, noting that 
short-term, limited-duration insurance is not subject to the same 
consumer protections as major medical coverage and can discriminate 
based on health status by recruiting healthier consumers to the 
exclusion of sicker consumers. These commenters suggested the proposed 
rules would limit the number of consumers relying on short-term, 
limited-duration insurance as their primary form of coverage and 
improve the Affordable Care Act's single risk pool.
    Some commenters requested that the Departments go further and 
prohibit issuers from offering short-term, limited-duration insurance 
to consumers who have previously purchased this type of coverage to 
prevent consumers from stringing together coverage under policies 
offered by the same or different issuers. However, in the Departments' 
view, such a restriction is not warranted. The individual shared 
responsibility provision of the Code,\17\ which generally requires 
individuals to obtain minimum essential coverage in order to avoid an 
additional payment with their taxes, provides sufficient incentive to 
discourage consumers from purchasing multiple successive short-term, 
limited-duration insurance policies. The added notice requirement 
ensures that individuals purchasing such policies are aware of the 
individual shared responsibility requirement and its potential 
implications. Furthermore, such a prohibition would be difficult for 
State regulators to enforce, since prior coverage of a consumer would 
have to be tracked.
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    \17\ See Code section 5000A.
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    Other commenters expressed general opposition to the proposed rules 
or requested that short-term, limited-duration insurance be allowed to 
provide coverage for a longer period. Several commenters stated that 
some individuals who lose their employer-sponsored coverage may not be 
able to obtain COBRA continuation coverage \18\ and that a job search 
can often take longer than three months. One commenter suggested 
alignment of short-term, limited-duration insurance with the employer 
waiting period rules by permitting a coverage period of up to four 
months.\19\ Another commenter asked that issuers be allowed to renew 
coverage beyond the three-month period in certain situations, such as 
when an individual experiences a triggering event for a special 
enrollment period.\20\ The Departments decline to adopt these 
suggestions. Short-term, limited-duration insurance allows for coverage 
to fill temporary coverage gaps when an individual transitions between 
sources of primary coverage. As explained above, for longer gaps in 
coverage, guaranteed availability of coverage and special enrollment 
period requirements in the individual health insurance market under the 
Affordable Care Act ensure that individuals can purchase individual 
market coverage through or outside of the Exchange that is minimum 
essential coverage and includes the consumer protections of the 
Affordable Care Act. Further, limiting the coverage of short-term, 
limited-duration insurance to less than three months is consistent with 
the exemption from the individual shared responsibility provision for 
gaps in coverage of less than three months (the short coverage gap 
exemption).\21\ Under current law, an individual who is not enrolled in 
minimum essential coverage (whether enrolled in short-term, limited-
duration coverage or otherwise) for a period of three months or more 
generally cannot claim the short coverage gap exemption for any of 
those months. The final regulations help ensure that individuals who 
purchase a short-term, limited-duration insurance policy will be 
eligible for the short coverage gap exemption (assuming other 
requirements are met) during the temporary coverage period.
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    \18\ COBRA continuation coverage means coverage that satisfies 
an applicable COBRA continuation provision. These provisions are 
sections 601-608 of ERISA, section 4980B of the Code (other than 
paragraph (f)(1) of such section 4980B insofar as it relates to 
pediatric vaccines), or Title XXII of the PHS Act.
    \19\ See 26 CFR 54.9815-2708; 29 CFR 2590.715-2708; 45 CFR 
147.116.
    \20\ See 26 CFR 54.9801-6; 29 CFR 2590.701-6; 45 CFR 146.117 and 
147.104.
    \21\ 26 CFR 1.5000A-3(j).
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    After consideration of the comments and feedback received from 
stakeholders, the Departments are finalizing the proposed regulations 
without change.
    The revised definition of short-term, limited-duration insurance 
applies for policy years beginning on or after January 1, 2017. The 
Departments recognize, however, that State regulators may have approved 
short-term, limited-duration insurance products for sale in 2017 that 
met the definition in effect prior to January 1, 2017. Accordingly, the 
Department of Health and Human Services (HHS) will not take enforcement 
action against an issuer with respect to the issuer's sale of a short-
term, limited-duration insurance product before April 1, 2017 on the 
ground that the coverage period is three months or more, provided that 
the coverage ends on or before December 31, 2017 and otherwise complies 
with the definition of short-term, limited-duration insurance in effect 
under the regulations.\22\ States may also elect not

[[Page 75319]]

to take enforcement actions against issuers with respect to such 
coverage sold before April 1, 2017.
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    \22\ This non-enforcement policy is limited to the requirement 
that short-term, limited-duration insurance must be less than three 
months. It does not relieve issuers of short-term, limited-duration 
insurance of the notice requirement, which applies for policy years 
beginning on or after January 1, 2017.
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B. Excepted Benefits

    Sections 2722 and 2763 of the PHS Act, section 732 of ERISA, and 
section 9831 of the Code provide that the respective requirements of 
title XXVII of the PHS Act, part 7 of ERISA, and Chapter 100 of the 
Code generally do not apply to the provision of certain types of 
benefits, known as ``excepted benefits.'' Excepted benefits are 
described in section 2791(c) of the PHS Act, section 733(c) of ERISA, 
and section 9832(c) of the Code.
    The parallel statutory provisions establish four categories of 
excepted benefits. The first category, under section 2791(c)(1) of the 
PHS Act, section 733(c)(1) of ERISA and section 9832(c)(1) of the Code, 
includes benefits that are generally not health coverage (such as 
automobile insurance, liability insurance, workers compensation, and 
accidental death and dismemberment coverage). The benefits in this 
category are excepted in all circumstances. In contrast, the benefits 
in the second, third, and fourth categories are types of health 
coverage that are excepted only if certain conditions are met.
    The second category of excepted benefits is limited excepted 
benefits, which may include limited scope vision or dental benefits, 
and benefits for long-term care, nursing home care, home health care, 
or community-based care. Section 2791(c)(2)(C) of the PHS Act, section 
733(c)(2)(C) of ERISA, and section 9832(c)(2)(C) of the Code authorize 
the Secretaries of HHS, Labor, and the Treasury (collectively, the 
Secretaries) to issue regulations establishing other, similar limited 
benefits as excepted benefits. The Secretaries exercised this authority 
previously with respect to certain health flexible spending 
arrangements.\23\ To be excepted under this second category, the 
benefits must either: (1) Be provided under a separate policy, 
certificate, or contract of insurance; or (2) otherwise not be an 
integral part of a group health plan, whether insured or self-
insured.\24\
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    \23\ 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), 45 CFR 
146.145(b)(3)(v).
    \24\ PHS Act section 2722(c)(1), ERISA section 732(c)(1), Code 
section 9831(c)(1).
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    The third category of excepted benefits, referred to as 
``noncoordinated excepted benefits,'' includes both 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 2722(c)(2) of the PHS Act, section 732(c)(2) 
of ERISA, and section 9831(c)(2) of the Code 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 any event 
without regard to whether benefits are provided under any group health 
plan maintained by the same plan sponsor.
    The fourth category, under section 2791(c)(4) of the PHS Act, 
section 733(c)(4) of ERISA, and section 9832(c)(4) of the Code, is 
supplemental excepted benefits. These benefits are excepted only if 
they are provided under a separate policy, certificate, or contract of 
insurance and are Medicare supplemental health insurance (also known as 
Medigap), TRICARE supplemental programs, or ``similar supplemental 
coverage provided to coverage under a group health plan.'' The phrase 
``similar supplemental coverage provided to coverage under a group 
health plan'' is not defined in the statute or regulations. However, 
the Departments issued regulations clarifying that one requirement to 
be similar supplemental coverage is that the coverage ``must be 
specifically designed to fill gaps in primary coverage, such as 
coinsurance or deductibles.'' \25\
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    \25\ 26 CFR 54.9831-1(c)(5)(i)(C), 29 CFR 2590.732(c)(5)(i)(C), 
and 45 CFR 146.145(b)(5)(i)(C).
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    In 2007 and 2008, the Departments issued guidance on the 
circumstances under which supplemental health insurance would be 
considered excepted benefits under section 2791(c)(4) of the PHS Act 
(and the parallel provisions of ERISA and the Code).\26\ The guidance 
identifies several factors the Departments will apply when evaluating 
whether supplemental health insurance will be considered to be 
``similar supplemental coverage provided to coverage under a group 
health plan.'' The guidance provides a safe harbor that supplemental 
health insurance will be considered an excepted benefit if it is 
provided through a policy, certificate, or contract of insurance 
separate from the primary coverage under the plan and meets all of the 
following requirements: (1) The supplemental policy, certificate, or 
contract of insurance is issued by an entity that does not provide the 
primary coverage under the plan; (2) the supplemental policy, 
certificate, or contract of insurance is specifically designed to fill 
gaps in primary coverage, such as coinsurance or deductibles, but does 
not become secondary or supplemental only under a coordination of 
benefits provision; (3) the cost of the supplemental coverage is 15 
percent or less of the cost of primary coverage (determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision); and (4) the supplemental coverage sold in the 
group health insurance market does not differentiate among individuals 
in eligibility, benefits, or premiums based upon any health factor of 
the individual (or any dependents of the individual).
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    \26\ See EBSA Field Assistance Bulletin No. 2007-04 (available 
at http://www.dol.gov/ebsa/regs/fab2007-4.html); CMS Insurance 
Standards Bulletin 08-01 (available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008-
23 (available at http://www.irs.gov/irb/2008-07_IRB/ar09.html).
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    On February 13, 2015, the Departments issued Affordable Care Act 
Implementation FAQs Part XXIII, providing additional guidance on the 
circumstances under which health insurance coverage that supplements 
group health plan coverage may be considered supplemental excepted 
benefits.\27\ The FAQ states that the Departments intend to propose 
regulations clarifying the circumstances under which supplemental 
insurance products that do not fill in cost-sharing gaps under the 
primary plan are considered to be specifically designed to fill gaps in 
primary coverage. Specifically, the FAQ provides that health insurance 
coverage that supplements group health coverage by providing coverage 
of additional categories of benefits (as opposed to filling in cost-
sharing gaps under the primary plan) would be considered to be designed 
to ``fill in the gaps'' of the primary coverage only if the benefits 
covered by the supplemental insurance product are not EHB, as defined 
under section 1302(b) of the Affordable Care Act, in the State in which 
the product is being marketed. The FAQ further states that, until 
regulations are issued and effective, the Departments will not take 
enforcement action against an issuer of group or individual market 
coverage that otherwise meets the conditions to be supplemental 
excepted benefits that does not fill cost-sharing gaps in the group 
health plan and only provides coverage of additional categories of 
benefits that are not

[[Page 75320]]

covered by the group health plan and are not EHB in the applicable 
State. States were encouraged to exercise similar enforcement 
discretion.
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    \27\ Frequently Asked Questions about Affordable Care Act 
Implementation (Part XXIII), available at http://www.dol.gov/ebsa/pdf/faq-AffordableCareAct23.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Supplmental-FAQ_2-13-15-final.pdf.
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1. Similar Supplemental Coverage
    The proposed regulations incorporated guidance from the Affordable 
Care Act Implementation FAQs Part XXIII addressing supplemental health 
insurance products that provide categories of benefits in addition to 
those in the primary coverage. Under the proposed regulations, if group 
or individual supplemental health insurance covers items and services 
not included in the primary coverage (referred to as providing 
``additional categories of benefits''), the coverage will be considered 
to be designed ``to fill gaps in primary coverage,'' for purposes of 
being supplemental excepted benefits if none of the benefits provided 
by the supplemental policy are an EHB, as defined under section 1302(b) 
of the Affordable Care Act, in the State in which the coverage is 
issued.\28\ Thus, if any benefit provided by the supplemental policy is 
either included in the primary coverage or is an EHB in the State where 
the coverage is issued, the insurance coverage would not be 
supplemental excepted benefits under the proposed regulations. 
Furthermore, supplemental health insurance products that both fill in 
cost sharing in the primary coverage, such as coinsurance or 
deductibles, and cover additional categories of benefits that are not 
EHB, would be considered supplemental excepted benefits under the 
proposed regulations provided all other criteria are met.
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    \28\ For this purpose, a supplemental plan would determine what 
benefits are EHB based on the EHB-benchmark plan applicable in the 
State, along with any additional benefits that are considered EHB 
consistent with 45 CFR 155.170(a)(2).
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    The Departments received several comments in support of the 
proposed regulations. One commenter expressed support but requested 
that the Departments provide additional examples in the regulations. 
Another commenter requested clarification regarding the application of 
the standards for similar supplemental coverage that provides benefits 
outside of the United States, noting that no State's EHB rules require 
coverage for services outside of the United States. If any benefit 
provided by the supplemental policy is a type of service that is an EHB 
in the State where the coverage is issued, the coverage would not be 
supplemental excepted benefits under the final regulations, even if the 
supplemental coverage was limited to covering the benefit in a location 
or setting where it would not be covered as an EHB.
    After consideration of the comments, the Departments are finalizing 
the proposed regulations on similar supplemental coverage without 
substantive change. For purposes of consistency and clarity, HHS is 
also including a cross reference in the individual market excepted 
benefits regulations at 45 CFR 148.220 to reflect the standard for 
similar supplemental coverage under the group market regulations at 45 
CFR 146.145(b)(5)(i)(C). The Departments may provide additional 
guidance on similar supplemental coverage that meets the criteria to be 
excepted benefits in the future.
2. Travel Insurance
    The Departments are aware that certain travel insurance products 
may include limited health benefits. However, these products typically 
are not designed as major medical coverage. Instead, the risks being 
insured relate primarily to: (1) The interruption or cancellation of a 
trip; (2) the loss of baggage or personal effects; (3) damages to 
accommodations or rental vehicles; or (4) sickness, accident, 
disability, or death occurring during travel, with any health benefits 
usually incidental to other coverage.
    Section 2791(c)(1)(H) of the PHS Act, section 733(c)(1)(H) of 
ERISA, and section 9832(c)(1)(H) of the Code provide that the 
Departments may, in regulations, designate as excepted benefits 
``benefits for medical care [that] are secondary or incidental to other 
insurance benefits.'' Pursuant to this authority, and to clarify which 
types of travel-related insurance products are excepted benefits under 
the PHS Act, ERISA, and the Code, the Departments' proposed regulations 
identified travel insurance as an excepted benefit under the first 
category of excepted benefits and proposed a definition of travel 
insurance consistent with the definition of travel insurance under 
final regulations issued by the Treasury Department and the IRS for the 
health insurance providers fee imposed by section 9010 of the 
Affordable Care Act,\29\ which uses a modified version of the National 
Association of Insurance Commissioners definition of travel insurance.
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    \29\ 26 CFR 57.2(h)(4).
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    The proposed regulations defined the term ``travel insurance'' as 
insurance coverage for personal risks incident to planned travel, which 
may include, but are not limited to, interruption or cancellation of a 
trip or event, loss of baggage or personal effects, damages to 
accommodations or rental vehicles, and sickness, accident, disability, 
or death occurring during travel, provided that the health benefits are 
not offered on a stand-alone basis and are incidental to other 
coverage. For this purpose, travel insurance does not include major 
medical plans that provide comprehensive medical protection for 
travelers with trips lasting six months or longer, including, for 
example, those working overseas as an expatriate or military personnel 
being deployed.
    The Departments received a number of comments in favor of the 
treatment of travel insurance as an excepted benefit, as well as the 
proposed definition of travel insurance. Several comments expressed 
support for the proposed definition's consistency with regulations 
governing the health insurance providers fee. One commenter requested 
clarification that the requirement that health benefits are incidental 
to other coverage be determined based solely on coverage under the 
travel insurance policy, without regard to other coverage provided by 
an employer or plan sponsor; the Departments agree that this is 
correct. The Departments are finalizing without change the proposed 
regulations defining travel insurance and treating such coverage as an 
excepted benefit.

C. Definition of EHB for Purposes of the Prohibition on Lifetime and 
Annual Limits

    Section 2711 of the PHS Act, as added by the Affordable Care Act, 
generally prohibits group health plans and health insurance issuers 
offering group or individual health insurance coverage from imposing 
lifetime and annual dollar limits on EHB, as defined under section 
1302(b) of the Affordable Care Act. These prohibitions apply to both 
grandfathered and non-grandfathered health plans, except the annual 
limits prohibition does not apply to grandfathered individual health 
insurance coverage.
    Under the Affordable Care Act, self-insured group health plans, 
large group market health plans, and grandfathered health plans are not 
required to offer EHB, but they generally cannot place lifetime or 
annual dollar limits on services they cover that are considered EHB. On 
November 18, 2015, the Departments issued final regulations 
implementing section 2711 of the PHS Act.\30\ The final regulations 
provide that, for plan years (in the individual

[[Page 75321]]

market, policy years) beginning on or after January 1, 2017, a plan or 
issuer that is not required to provide EHB must define EHB, for 
purposes of the prohibition on lifetime and annual dollar limits, in a 
manner consistent with any of the 51 EHB base-benchmark plans 
applicable in a State or the District of Columbia, or one of the three 
Federal Employees Health Benefits Program (FEHBP) EHB base-benchmark 
plans, as specified under 45 CFR 156.100.\31\
---------------------------------------------------------------------------

    \30\ 80 FR 72192.
    \31\ 26 CFR 54.9815-2711(c), 29 CFR 2590.715-2711(c), 45 CFR 
147.126(c).
---------------------------------------------------------------------------

    The final regulations under section 2711 of the PHS Act include a 
reference to selecting a ``base-benchmark'' plan, as specified under 45 
CFR 156.100, for purposes of determining which benefits cannot be 
subject to lifetime or annual dollar limits. The base-benchmark plan 
selected by a State or applied by default under 45 CFR 156.100, 
however, may not reflect the complete definition of EHB in the 
applicable State. For that reason, the Departments are amending the 
regulations at 26 CFR 54.9815-2711(c), 29 CFR 2590.715-2711(c), and 45 
CFR 147.126(c) to refer to the provisions that capture the complete 
definition of EHB in a State.
    Specifically, in these final regulations, the Departments replace 
the phrase ``in a manner consistent with one of the three Federal 
Employees Health Benefit Program (FEHBP) options as defined by 45 CFR 
156.100(a)(3) or one of the base-benchmark plans selected by a State or 
applied by default pursuant to 45 CFR 156.100'' in each of the 
regulations with the following: ``in a manner that is consistent with 
(1) one of the EHB-benchmark plans applicable in a State under 45 CFR 
156.110, and includes coverage of any additional required benefits that 
are considered EHB consistent with 45 CFR 155.170(a)(2); or (2) one of 
the three Federal Employees Health Benefit Program (FEHBP) plan options 
as defined by 45 CFR 156.100(a)(3), supplemented, as necessary, to meet 
the standards in 45 CFR 156.110.'' This change reflects the possibility 
that base-benchmark plans, including the FEHBP plan options, could 
require supplementation under 45 CFR 156.110, and ensures the inclusion 
of State-required benefit mandates enacted on or before December 31, 
2011 in accordance with 45 CFR 155.170, which when coupled with a 
State's EHB-benchmark plan, establish the definition of EHB in that 
State under regulations implementing section 1302(b) of the Affordable 
Care Act.\32\
---------------------------------------------------------------------------

    \32\ In the HHS Notice of Benefit and Payment Parameters for 
2016 published February 27, 2015 (80 FR 10750), HHS instructed 
States to select a new base-benchmark plan to take effect beginning 
with plan or policy years beginning in 2017. The new final EHB base-
benchmark plans selected as a result of this process are publicly 
available at downloads.cms.gov/cciio/Final%20List%20of%20BMPs_15_10_21.pdf. Additional information about 
the new base-benchmark plans, including plan documents and summaries 
of benefits, is available at www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html. The definition of EHB in each of the 50 states 
and the District of Columbia is based on the base-benchmark plan, 
and takes into account any additions to the base-benchmark plan, 
such as supplementation under 45 CFR 156.110, and State-required 
benefit mandates in accordance with 45 CFR 155.170.
---------------------------------------------------------------------------

    Some commenters requested clarification that self-insured group 
health plans, large group market health plans and grandfathered plans 
are not required to include as covered benefits any specific items and 
services covered by the State-EHB benchmark plan, including any 
additional State-required benefits considered EHB under 45 CFR 
155.170(a)(2). The requirement in section 2707(a) of the PHS Act to 
provide the EHB package required under section 1302(a) of the 
Affordable Care Act applies only to non-grandfathered health insurance 
coverage in the individual and small group markets. Self-insured group 
health plans, large group market health plans and grandfathered health 
plans are not required to include coverage of EHB, but cannot place 
lifetime or annual dollar limits on any EHB covered by these plans.\33\ 
These plans are permitted to impose limits other than dollar limits on 
EHB, as long as they comply with other applicable statutory provisions. 
In addition, these plans can continue to impose annual and lifetime 
dollar limits on benefits that do not fall within the definition of 
EHB.
---------------------------------------------------------------------------

    \33\ The annual limits prohibition does not apply to 
grandfathered individual market coverage.
---------------------------------------------------------------------------

    One commenter urged the Departments to eliminate the option for 
large group market health plans to define EHB based on one of the three 
largest nationally available FEHBP benchmark plan options to ensure 
consistency with the definition of EHB in the individual and small 
group markets. However, these FEHBP plan options \34\ are unique among 
benchmark plans in that they are available nationally, and thus can 
more appropriately be utilized to determine what benefits would be 
categorized as EHB for those employers that provide health coverage to 
employees throughout the United States and are not situated only in a 
single State. The Departments are finalizing the proposed clarification 
to the lifetime and annual limit regulations without change.
---------------------------------------------------------------------------

    \34\ The three largest nationally available FEHBP plan options 
are available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Top3ListFinal-5-19-2015.pdf.
---------------------------------------------------------------------------

D. Applicability Date

    These final regulations are applicable for plan years (or, in the 
individual market, policy years) beginning on or after January 1, 2017. 
The HHS final regulations specify the applicability dates in the group 
market regulations at 45 CFR 146.125 and in the individual market 
regulations at 45 CFR 148.102.

III. Economic Impact and Paperwork Burden

A. Summary--Department of Labor and Department of Health and Human 
Services

    These final regulations specify the conditions for similar 
supplemental coverage products that are designed to fill gaps in 
primary coverage by providing coverage of additional categories of 
benefits (as opposed to filling in gaps in cost sharing) to constitute 
supplemental excepted benefits, and clarify that certain travel-related 
insurance products that provide only incidental health benefits 
constitute excepted benefits.
    These final regulations also revise the definition of short-term, 
limited-duration insurance so that the coverage (including renewals) 
has to be less than three months in total duration (as opposed to the 
current definition of less than 12 months in duration), and provide 
that a notice must be prominently displayed in the contract and in any 
application materials provided in connection with enrollment in the 
coverage indicating that such coverage is not minimum essential 
coverage.
    Finally, the regulations amend the definition of ``essential health 
benefits'' for purposes of the prohibition on lifetime and annual 
dollar limits with respect to group health plans and health insurance 
issuers that are not required to provide essential health benefits, 
including self-insured group health plans, large group market health 
plans, and grandfathered health plans.
    The Departments are publishing these final regulations to implement 
the protections intended by the Congress in the most economically 
efficient manner possible. The Departments have examined the effects of 
this rule as required by Executive Order 13563 (76 FR 3821, January 21, 
2011), Executive Order 12866 (58 FR 51735, September 1993, Regulatory 
Planning and Review), the Regulatory Flexibility Act (September 19, 
1980, Pub. L. 96-354), the Unfunded Mandates Reform Act of

[[Page 75322]]

1995 (Pub. L. 104-4), Executive Order 13132 on Federalism, and the 
Congressional Review Act (5 U.S.C. 804(2)).

B. Executive Orders 12866 and 13563--Department of Labor and Department 
of Health and Human Services

    Executive Order 12866 (58 FR 51735) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 (76 FR 3821, January 21, 2011) is supplemental to and 
reaffirms the principles, structures, and definitions governing 
regulatory review as established in Executive Order 12866.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a final 
rule--(1) having an annual effect on the economy of $100 million or 
more in any one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis must be prepared for rules with 
economically significant effects (for example, $100 million or more in 
any 1 year), and a ``significant'' regulatory action is subject to 
review by the Office of Management and Budget. The Departments have 
determined that this regulatory action is not likely to have economic 
impacts of $100 million or more in any one year, and is not significant 
within the meaning of Executive Order 12866. However, the Departments 
are nonetheless providing a discussion of the benefits and costs that 
might stem from these final regulations in the Summary of Impacts 
section below.
1. Need for Regulatory Action
    These final regulations clarify the conditions for similar 
supplemental coverage and travel insurance to be recognized as excepted 
benefits. These clarifications are necessary to provide health 
insurance issuers offering supplemental coverage and travel insurance 
products with a clearer understanding of the Federal standards that 
apply to these types of coverage. These final regulations also amend 
the definition of short-term, limited-duration insurance for purposes 
of the exclusion from the definition of individual health insurance 
coverage and impose a new notice requirement in response to reports 
that short-term, limited-duration insurance coverage is being sold to 
individuals as primary coverage.
2. Summary of Impacts
    The final regulations outline the conditions for travel insurance 
and similar supplemental health insurance coverage to be considered 
excepted benefits, and revise the definition of short-term, limited-
duration insurance.
    The Departments received comments suggesting that the majority of 
travel insurance policies are issued for trips of short duration, with 
the average policy length being approximately three months, and these 
policies generally provide limited medical coverage and property and 
casualty coverage to protect against risks related to travel. The 
Departments believe that the designation of certain travel insurance 
products (as defined by the regulations) as excepted benefits is 
consistent with prevailing industry practices, and therefore, will not 
result in significant cost to issuers of these products or consumers 
who purchase them.
    Short-term, limited-duration policies represent a very small 
fraction of the health insurance market, though their use is 
increasing. In 2015, total premiums earned for short-term, limited-
duration insurance was approximately $160 million for approximately 
1,517,000 member months and with approximately 148,000 covered lives at 
the end of the year,\35\ while in 2013, total premiums were 
approximately $98 million for 1,031,000 member months with 
approximately 80,400 covered lives at the end of the year.\36\
---------------------------------------------------------------------------

    \35\ National Association of Insurance Commissioners, 2015 
Accident and Health Policy Experience Report, 2016, available at 
http://naic.org/prod_serv/AHP-LR-16.pdf.
    \36\ National Association of Insurance Commissioners, 2013 
Accident and Health Policy Experience Report, 2014, available at 
http://naic.org/prod_serv/AHP-LR-14.pdf.
---------------------------------------------------------------------------

    The Departments received comments indicating that a large majority 
of the short-term, limited-duration insurance plans are sold as 
transitional coverage, particularly for individuals seeking to cover 
periods of unemployment or gaps between employer-sponsored coverage, 
and typically provide coverage for less than three months. Therefore, 
the Departments believe that the final regulations will have no effect 
on the majority of consumers who purchase such coverage and issuers of 
those policies. The small fraction of consumers who purchase such 
policies for longer periods and who may have to transition to 
individual market coverage will benefit from the protections afforded 
by the Affordable Care Act, such as no preexisting condition 
exclusions, essential health benefits without annual or lifetime dollar 
limits, and guaranteed renewability. While some of these consumers may 
experience an increase in costs due to higher premiums compared with 
short-term, limited-duration coverage, they will also avoid potential 
tax liability by having minimum essential coverage. Some consumers may 
also be eligible for premium tax credits and cost-sharing reductions 
for coverage offered through the Exchanges. Finally, inclusion of these 
individuals, often relatively healthier individuals, in the individual 
market will help strengthen the individual market's single risk pool. 
The notice requirement will help ensure that consumers do not 
inadvertently purchase these products expecting them to be minimum 
essential coverage. Further, the Departments believe that any costs 
incurred by issuers of short-term, limited-duration insurance to 
include the required notice in application or enrollment materials will 
be negligible since the Departments have provided the exact text for 
the notice.
    As a result, the Departments have concluded that the impacts of 
these final regulations are not economically significant.

C. Paperwork Reduction Act--Department of Health and Human Services

    The final regulations provide that to be considered short-term, 
limited-duration insurance for policy years beginning on or after 
January 1, 2017, a notice must be prominently displayed in the contract 
and in any application materials, stating that the coverage is not 
minimum essential coverage and that failure to have minimum essential 
coverage may result in an additional tax payment. The Departments have 
provided the exact text for these notice requirements and the language 
will not need to be customized. The burden associated with these 
notices is not subject to the Paperwork Reduction Act

[[Page 75323]]

of 1995 in accordance with 5 CFR 1320.3(c)(2) because they do not 
contain a ``collection of information'' as defined in 44 U.S.C. 
3502(3).

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule is not likely 
to have a significant economic impact on a substantial number of small 
entities, section 603 of RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities and seeking public comment on such impact. Small 
entities include small businesses, organizations and governmental 
jurisdictions.
    The RFA generally defines a ``small entity'' as (1) a proprietary 
firm meeting the size standards of the Small Business Administration 
(13 CFR 121.201); (2) a nonprofit organization that is not dominant in 
its field; or (3) a small government jurisdiction with a population of 
less than 50,000. (States and individuals are not included in the 
definition of ``small entity.'') The Departments use as their measure 
of significant economic impact on a substantial number of small 
entities a change in revenues of more than 3 to 5 percent.
    The Departments expect the impact of these final regulations to be 
limited because the provisions are generally consistent with current 
industry practices and impact only a small fraction of the health 
insurance market. Therefore, the Departments certify that the final 
regulations will not have a significant impact on a substantial number 
of small entities. In addition, section 1102(b) of the Social Security 
Act requires agencies to prepare a regulatory impact analysis if a rule 
may have a significant economic impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 604 of the RFA. These final regulations 
will not affect small rural hospitals. Therefore, the Departments have 
determined that these final regulations will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.

E. Special Analysis--Department of the Treasury

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. For applicability of RFA, see paragraph D of this section 
III.
    Pursuant to section 7805(f) of the Code, these regulations have 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

F. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501 et seq.), as well as Executive Order 12875, these final 
regulations do not include any Federal mandate that may result in 
expenditures by State, local, or tribal governments, or the private 
sector, which may impose an annual burden of $146 million adjusted for 
inflation since 1995.

G. Federalism--Department of Labor and Department of Health and Human 
Services

    Executive Order 13132 outlines fundamental principles of 
federalism. It requires adherence to specific criteria by Federal 
agencies in formulating and implementing policies that have 
``substantial direct effects'' on the States, the relationship between 
the national government and States, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final regulation.
    In the Departments' view, these final regulations have federalism 
implications because they would have direct effects on the States, the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among various levels of 
government. Under these final regulations, health insurance issuers 
offering short-term, limited-duration insurance, travel insurance and 
similar supplemental coverage will be required to follow the minimum 
Federal standards to not be subject to the market reform provisions 
under the PHS Act, ERISA and the Code. However, in the Departments' 
view, the federalism implications of these final regulations are 
substantially mitigated because, with respect to health insurance 
issuers, the Departments expect that the majority of States will enact 
laws or take other appropriate action resulting in their meeting or 
exceeding the Federal standards.
    In general, through section 514, ERISA supersedes State laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves State laws that regulate insurance, banking, or securities. 
While ERISA prohibits States from regulating an employee benefit plan 
as an insurance or investment company or bank, the preemption 
provisions of section 731 of ERISA and section 2724 of the PHS Act 
(implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a) and 
148.210(b)) apply so that the requirements in title XXVII of the PHS 
Act (including those added by the Affordable Care Act) are not to be 
construed to supersede any provision of State law which establishes, 
implements, or continues in effect any standard or requirement solely 
relating to health insurance issuers in connection with individual or 
group health insurance coverage except to the extent that such standard 
or requirement prevents the application of a Federal requirement. The 
conference report accompanying HIPAA indicates that this is intended to 
be the ``narrowest'' preemption of State laws (See House Conf. Rep. No. 
104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018).
    States may continue to apply State law requirements except to the 
extent that such requirements prevent the application of the market 
reform requirements that are the subject of this rulemaking. 
Accordingly, States have significant latitude to impose requirements on 
health insurance issuers that are more restrictive than the Federal 
law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, the 
Departments have engaged in efforts to consult with and work 
cooperatively with affected States, including consulting with, and 
attending conferences of, the National Association of Insurance 
Commissioners and consulting with State insurance officials on an 
individual basis. It is expected that the Departments will act in a 
similar fashion in enforcing the market reform provisions of the 
Affordable Care Act.
    Throughout the process of developing these final regulations, to 
the extent

[[Page 75324]]

feasible within the applicable preemption provisions, the Departments 
have attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform minimum 
protections to consumers in every State. By doing so, it is the 
Departments' view that they have complied with the requirements of 
Executive Order 13132.
    Pursuant to the requirements set forth in section 8(a) of Executive 
Order 13132, and by the signatures affixed to this final rule, the 
Departments certify that the Employee Benefits Security Administration 
and the Centers for Medicare & Medicaid Services have complied with the 
requirements of Executive Order 13132 for the attached final rules in a 
meaningful and timely manner.

H. Congressional Review Act

    These final regulations are subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to the Congress and 
to the Comptroller General for review in accordance with such 
provisions.

I. Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings notices, and other guidance 
cited in this document are published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and are available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402, or by 
visiting the IRS Web site at http://www.irs.gov.

IV. Statutory Authority

    The Department of the Treasury regulations are adopted pursuant to 
the authority contained in sections 7805 and 9833 of the Code.
    The Department of Labor regulations are adopted pursuant to the 
authority contained in 29 U.S.C. 1135 and 1191c; and Secretary of 
Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
    The Department of Health and Human Services regulations are adopted 
pursuant to the authority contained in sections 2701 through 2763, 
2791, and 2792 of the PHS Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Pension and excise taxes.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 144, 146 and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 148

    Administrative practice and procedure, Health care, Health 
insurance, Penalties, Reporting and recordkeeping requirements.

John Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: October 25, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 25th day of October 2016.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: October 24, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 25, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Chapter I

    Accordingly, 26 CFR part 54 is amended as follows:

PART 54--PENSION AND EXCISE TAXES

0
Par. 1. The authority citation for part 54 continues to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 2. Section 54.9801-2 is amended by revising the definition of 
``short-term, limited-duration insurance'', and adding a definition of 
``travel insurance'' in alphabetical order. The revision and addition 
read as follows:


Sec.  54.9801-2  Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract (taking into 
account any extensions that may be elected by the policyholder with or 
without the issuer's consent) that is less than 3 months after the 
original effective date of the contract; and
    (2) Displays prominently in the contract and in any application 
materials provided in connection with enrollment in such coverage in at 
least 14 point type the following: ``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.''
* * * * *
    Travel insurance means insurance coverage for personal risks 
incident to planned travel, which may include, but is not limited to, 
interruption or cancellation of trip or event, loss of baggage or 
personal effects, damages to accommodations or rental vehicles, and 
sickness, accident, disability, or death occurring during travel, 
provided that the health benefits are not offered on a stand-alone 
basis and are incidental to other coverage. For this purpose, the term 
travel insurance does not include major medical plans that provide 
comprehensive medical protection for travelers with trips lasting 6 
months or longer, including, for example, those working overseas as an 
expatriate or military personnel being deployed.
* * * * *

0
Par. 3. Section 54.9815-2711 is amended by revising paragraph (c) to 
read as follows:


Sec.  54.9815-2711  No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations. For this purpose, a group health plan or a health 
insurance issuer that is not required to provide essential health 
benefits under section 1302(b) must define ``essential health 
benefits'' in a manner that is consistent with--
    (1) One of the EHB-benchmark plans applicable in a State under 45 
CFR 156.110, and includes coverage of any additional required benefits 
that are considered essential health benefits consistent with 45 CFR 
155.170(a)(2); or
    (2) One of the three Federal Employees Health Benefits Program 
(FEHBP) plan options as defined by 45 CFR 156.100(a)(3), supplemented, 
as necessary, to meet the standards in 45 CFR 156.110.
* * * * *

0
Par. 4. Section 54.9831-1 is amended:

[[Page 75325]]

0
a. In paragraph (b)(1) by removing the reference ``54.9812-1T'' and 
adding in its place the reference ``54.9812-1, 54.9815-1251 through 
54.9815-2719A,'' and in paragraph (c)(1) by removing the reference 
``54.9811-1T, 54.9812-1T'' and adding in its place the phrase 
``54.9811-1, 54.9812-1, 54.9815-1251 through 54.9815-2719A'';
0
b. In paragraph (c)(2)(vii) by removing ``and'' at the end;
0
c. In paragraph (c)(2)(viii) by removing the period and adding ``; 
and'' at the end;
0
d. Adding paragraph (c)(2)(ix); and
0
e. Revising paragraph (c)(5)(i)(C).
    The revisions and additions are as follows:


Sec.  54.9831-1  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (2) * * *
    (ix) Travel insurance, within the meaning of Sec.  54.9801-2.
* * * * *
    (5) * * *
    (i) * * *
    (C) Similar supplemental coverage provided to coverage under a 
group health plan. To be similar supplemental coverage, the coverage 
must be specifically designed to fill gaps in the primary coverage. The 
preceding sentence is satisfied if the coverage is designed to fill 
gaps in cost sharing in the primary coverage, such as coinsurance or 
deductibles, or the coverage is designed to provide benefits for items 
and services not covered by the primary coverage and that are not 
essential health benefits (as defined under section 1302(b) of the 
Patient Protection and Affordable Care Act) in the State where the 
coverage is issued, or the coverage is designed to both fill such gaps 
in cost sharing under, and cover such benefits not covered by, the 
primary coverage. Similar supplemental coverage does not include 
coverage that becomes secondary or supplemental only under a 
coordination-of-benefits provision.
* * * * *

0
Par. 5. Section 54.9833-1 is amended by adding a sentence at the end to 
read as follows:


Sec.  54.9833-1  Effective dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  54.9801-2 and 
paragraph (c)(5)(i)(C) of Sec.  54.9831-1 apply for plan years 
beginning on or after January 1, 2017.

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR part 2590 as set forth below:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
6. The authority citation for part 2590 is revised to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's 
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).


0
7. Section 2590.701-2 is amended by revising the definition of ``short-
term, limited-duration insurance'', and adding a definition of ``travel 
insurance'' in alphabetical order. The addition and revision read as 
follows:


Sec.  2590.701-2  Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract (taking into 
account any extensions that may be elected by the policyholder with or 
without the issuer's consent) that is less than 3 months after the 
original effective date of the contract; and
    (2) Displays prominently in the contract and in any application 
materials provided in connection with enrollment in such coverage in at 
least 14 point type the following: ``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.''
* * * * *
    Travel insurance means insurance coverage for personal risks 
incident to planned travel, which may include, but is not limited to, 
interruption or cancellation of trip or event, loss of baggage or 
personal effects, damages to accommodations or rental vehicles, and 
sickness, accident, disability, or death occurring during travel, 
provided that the health benefits are not offered on a stand-alone 
basis and are incidental to other coverage. For this purpose, the term 
travel insurance does not include major medical plans that provide 
comprehensive medical protection for travelers with trips lasting 6 
months or longer, including, for example, those working overseas as an 
expatriate or military personnel being deployed.
* * * * *

0
8. Section 2590.715-2711 is amended by revising paragraph (c) to read 
as follows:


Sec.  2590.715-2711  No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations. For this purpose, a group health plan or a health 
insurance issuer that is not required to provide essential health 
benefits under section 1302(b) must define ``essential health 
benefits'' in a manner that is consistent with--
    (1) One of the EHB-benchmark plans applicable in a State under 45 
CFR 156.110, and includes coverage of any additional required benefits 
that are considered essential health benefits consistent with 45 CFR 
155.170(a)(2); or
    (2) One of the three Federal Employees Health Benefits Program 
(FEHBP) plan options as defined by 45 CFR 156.100(a)(3), supplemented, 
as necessary, to meet the standards in 45 CFR 156.110.
* * * * *

0
9. Section 2590.732 is amended by adding paragraph (c)(2)(ix) and 
revising paragraph (c)(5)(i)(C) to read as follows:


Sec.  2590.732  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (2) * * *
    (ix) Travel insurance, within the meaning of Sec.  2590.701-2.
* * * * *
    (5) * * *
    (i) * * *
    (C) Similar supplemental coverage provided to coverage under a 
group health plan. To be similar supplemental coverage, the coverage 
must be specifically designed to fill gaps in the primary coverage. The 
preceding sentence is satisfied if the coverage is designed to fill 
gaps in cost sharing in

[[Page 75326]]

the primary coverage, such as coinsurance or deductibles, or the 
coverage is designed to provide benefits for items and services not 
covered by the primary coverage and that are not essential health 
benefits (as defined under section 1302(b) of the Patient Protection 
and Affordable Care Act) in the State where the coverage is issued, or 
the coverage is designed to both fill such gaps in cost sharing under, 
and cover such benefits not covered by, the primary coverage. Similar 
supplemental coverage does not include coverage that becomes secondary 
or supplemental only under a coordination-of-benefits provision.
* * * * *

0
10. Section 2590.736 is amended by adding a sentence at the end to read 
as follows:


Sec.  2590.736  Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  2590.701-2 and 
paragraph (c)(5)(i)(C) of Sec.  2590.732 apply for plan years beginning 
on or after January 1, 2017.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Chapter 1

    For the reasons stated in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 144, 146, 147, and 148 as set 
forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
11. The authority citation for part 144 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.


0
12. Section 144.103 is amended by revising the definition of ``short-
term, limited-duration insurance'' and adding a definition of ``travel 
insurance'' in alphabetical order. The revision and addition read as 
follows:


Sec.  144.103  Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract (taking into 
account any extensions that may be elected by the policyholder with or 
without the issuer's consent) that is less than 3 months after the 
original effective date of the contract; and
    (2) Displays prominently in the contract and in any application 
materials provided in connection with enrollment in such coverage in at 
least 14 point type the following: ``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.''
* * * * *
    Travel insurance means insurance coverage for personal risks 
incident to planned travel, which may include, but is not limited to, 
interruption or cancellation of trip or event, loss of baggage or 
personal effects, damages to accommodations or rental vehicles, and 
sickness, accident, disability, or death occurring during travel, 
provided that the health benefits are not offered on a stand-alone 
basis and are incidental to other coverage. For this purpose, the term 
travel insurance does not include major medical plans that provide 
comprehensive medical protection for travelers with trips lasting 6 
months or longer, including, for example, those working overseas as an 
expatriate or military personnel being deployed.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
13. The authority citation for part 146 continues to read as follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the Public Health Service Act (42 U.S.C. 300gg-1 through 
300gg-5, 300gg-11 through 300gg-23, 300gg-91, and 300gg-92.


0
14. Section 146.125 is amended by adding a sentence at the end to read 
as follows:


Sec.  146.125  Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  144.103 of this 
subchapter and paragraph (c)(5)(i)(C) of Sec.  146.145 apply for policy 
years and plan years beginning on or after January 1, 2017.

0
15. Section 146.145 is amended by adding paragraph (b)(2)(ix) and 
revising paragraph (b)(5)(i)(C) to read as follows:


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (b) * * *
    (2) * * *
    (ix) Travel insurance, within the meaning of Sec.  144.103 of this 
subchapter.
* * * * *
    (5) * * *
    (i) * * *
    (C) Similar supplemental coverage provided to coverage under a 
group health plan. To be similar supplemental coverage, the coverage 
must be specifically designed to fill gaps in the primary coverage. The 
preceding sentence is satisfied if the coverage is designed to fill 
gaps in cost sharing in the primary coverage, such as coinsurance or 
deductibles, or the coverage is designed to provide benefits for items 
and services not covered by the primary coverage and that are not 
essential health benefits (as defined under section 1302(b) of the 
Patient Protection and Affordable Care Act) in the State where the 
coverage is issued, or the coverage is designed to both fill such gaps 
in cost sharing under, and cover such benefits not covered by, the 
primary coverage. Similar supplemental coverage does not include 
coverage that becomes secondary or supplemental only under a 
coordination-of-benefits provision.
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
16. The authority citation for part 147 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.



0
17. Section 147.126 is amended by revising paragraph (c) to read as 
follows:


Sec.  147.126  No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations. For this purpose, a group health plan or a health 
insurance issuer that is not required to provide essential health 
benefits under section 1302(b) must define ``essential health 
benefits'' in a manner that is consistent with--
    (1) One of the EHB-benchmark plans applicable in a State under 45 
CFR 156.110, and includes coverage of any additional required benefits 
that are considered essential health benefits consistent with 45 CFR 
155.170(a)(2); or
    (2) One of the three Federal Employees Health Benefits Program

[[Page 75327]]

(FEHBP) plan options as defined by 45 CFR 156.100(a)(3), supplemented, 
as necessary, to meet the standards in 45 CFR 156.110.
* * * * *

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
18. The authority citation for part 148 continues to read as follows:

    Authority:  Secs. 2701 through 2763, 2791, and 2792 of the 
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.

0
19. Section 148.102 is amended by adding a sentence at the end of 
paragraph (b) to read as follows:


Sec.  148.102  Scope, applicability, and effective dates.

    (b) * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  144.103 of this 
subchapter and paragraph (b)(7) of Sec.  148.220 apply for policy years 
beginning on or after January 1, 2017.

0
20. Section 148.220 is amended by adding paragraph (a)(9) and revising 
paragraph (b)(7) to read as follows:


Sec.  148.220  Excepted benefits.

* * * * *
    (a) * * *
    (9) Travel insurance, within the meaning of Sec.  144.103 of this 
subchapter.
    (b) * * *
    (7) Similar supplemental coverage provided to coverage under a 
group health plan (as described in Sec.  146.145(b)(5)(i)(C) of this 
subchapter).

[FR Doc. 2016-26162 Filed 10-28-16; 8:45 am]
 BILLING CODE 4830-01-P; 4120-01-P; 4510-29-P