[Federal Register Volume 83, Number 35 (Wednesday, February 21, 2018)]
[Proposed Rules]
[Pages 7437-7447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03208]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-133491-17]
RIN 1545-BO41

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB86

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, and 148

[CMS-9924-P]
RIN 0938-AT48


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: Proposed rule.

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SUMMARY: This rule contains proposals amending the definition of short-
term, limited-duration insurance for purposes of its exclusion from the 
definition of individual health insurance coverage. This action is 
being taken to lengthen the maximum period of short-term, limited-
duration insurance, which will provide more affordable consumer choice 
for health coverage.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. EST on April 23, 
2018.

ADDRESSES: In commenting, please refer to file code CMS-9924-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9924-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.

Please allow sufficient time for mailed comments to be received before 
the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9924-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW, Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Amber Rivers 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, 
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 website (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) website (www.cms.gov/cciio) and information on health reform can be found at 
www.HealthCare.gov.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following 
website as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that website to 
view public comments.

I. Background

    This proposed rule contains amendments to the definition of 
``short-term, limited-duration insurance'' for purposes of its 
exclusion from the definition of ``individual health insurance 
coverage'' in 26 CFR part 54, 29 CFR part 2590, and 45 CFR part 144.

A. General Statutory Background and Enactment of PPACA

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA),\1\ added title XXVII to the Public Health Service Act (PHS 
Act), part 7 to the Employee Retirement Income Security Act of 1974 
(ERISA), and Chapter 100 to 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 laws, including the Mental Health Parity 
Act of 1996,\2\ the Paul Wellstone and Pete Domenici Mental Health 
Parity and

[[Page 7438]]

Addiction Equity Act of 2008,\3\ the Newborns' and Mothers' Health 
Protection Act,\4\ the Women's Health and Cancer Rights Act,\5\ the 
Genetic Information Nondiscrimination Act of 2008,\6\ the Children's 
Health Insurance Program Reauthorization Act of 2009,\7\ Michelle's 
Law,\8\ and the Patient Protection and Affordable Care Act, as amended 
by the Health Care and Education Reconciliation Act of 2010 (PPACA).\9\
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    \1\ Public Law 104-191, 110 Stat. 1936 (August 21, 1996).
    \2\ Public Law 104-204, 110 Stat. 2944 (September 26, 1996).
    \3\ Public Law 110-343, 122 Stat. 3881 (October 3, 2008).
    \4\ Public Law 104-204, 110 Stat. 2935 (September 26, 1996).
    \5\ Public Law 105-277, 112 Stat. 2681-436 (October 21, 1998).
    \6\ Public Law 110-233, 122 Stat. 881 (May 21, 2008).
    \7\ Public Law 111-3, 123 Stat. 64 (February 4, 2009).
    \8\ Public Law 110-381, 122 Stat. 4081 (October 9, 2008).
    \9\ 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.
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    PPACA 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. PPACA added 
section 715 of ERISA and section 9815 of the Code to incorporate 
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.

B. President's Executive Order

    On October 12, 2017, President Trump issued Executive Order 13813 
entitled ``Promoting Healthcare Choice and Competition Across the 
United States''.\10\ This Executive Order states in relevant part: 
``Within 60 days of the date of this order, the Secretaries of the 
Treasury, Labor, and Health and Human Services shall consider proposing 
regulations or revising guidance, consistent with law, to expand the 
availability of [short-term, limited-duration insurance]. To the extent 
permitted by law and supported by sound policy, the Secretaries should 
consider allowing such insurance to cover longer periods and be renewed 
by the consumer.''
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    \10\ 82 FR 48385.
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C. 2017 Tax Legislation

    Section 5000A of the Code, added by PPACA, provides that all non-
exempt applicable individuals must maintain minimum essential coverage 
or pay the individual shared responsibility payment.\11\ On December 
22, 2017, the President signed tax reform legislation into law.\12\ 
This legislation includes a provision under which the individual shared 
responsibility payment included in section 5000A of the Code is reduced 
to $0, effective for months beginning after December 31, 2018.
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    \11\ The eligibility standards for exemptions can be found at 45 
CFR 155.605. Section 5000A of the Code and Treasury regulations at 
26 CFR 1.5000A-3 provide exemptions from the requirement to maintain 
minimum essential coverage for the following individuals: (1) 
Members of recognized religious sects; (2) members of health care 
sharing ministries; (3) exempt noncitizens; (4) incarcerated 
individuals; (5) individuals with no affordable coverage; (6) 
individuals with household income below the income tax filing 
threshold; (7) members of federally recognized Indian tribes; (8) 
individuals who qualify for a hardship exemption certification; and 
(9) individuals with a short coverage gap of a continuous period of 
less than 3 months in which the individual is not covered under 
minimum essential coverage.
    \12\ Public Law 115-97, 131 Stat. 2054.
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D. Short-Term, Limited-Duration Insurance

    Short-term, limited-duration insurance is a type of health 
insurance coverage that was designed to fill temporary gaps in coverage 
that may occur 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,\13\ it is exempt from 
the PHS Act's individual-market requirements because it is not 
individual health insurance coverage.\14\ Section 2791(b)(5) of the PHS 
Act provides ``[t]he 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.'' 
\15\
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    \13\ 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 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. See also 26 CFR 54.9831-
1(c), 29 CFR 2590.732(c), 45 CFR 146.145(b), and 45 CFR 148.220.
    \14\ The definition of short-term, limited-duration insurance 
has some limited relevance with respect to group health plans and 
group health insurance issuers. For example, an individual who loses 
coverage due to moving out of an HMO service area in the individual 
market triggers a special enrollment right into a group health plan. 
See 26 CFR 54.9801-6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)(i)(B) and 
45 CFR 146.117(a)(3)(i)(B). Also, a group health plan that wraps 
around individual health insurance coverage is an excepted benefit 
if certain conditions are satisfied. See 26 CFR 54.9831-
1(c)(3)(vii), 29 CFR 2590.732(c)(3)(vii), and 45 CFR 
146.145(b)(3)(vii).
    \15\ Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act 
provide that group health insurance coverage means ``in connection 
with a group health plan, health insurance coverage offered in 
connection with such plan.'' Sections 733(a)(1) of ERISA and 
2791(a)(1) of the PHS Act provide that a group health plan is 
generally any plan, fund, or program established or maintained by an 
employer (or employee organization or both) for the purpose of 
providing medical care to employees or their dependents (as defined 
under the terms of the plan) directly, or through insurance, 
reimbursement, or otherwise. There is no corresponding provision 
excluding short-term, limited-duration insurance from the definition 
of group health insurance coverage. Thus, any insurance that is sold 
in the group market and purports to be short-term, limited-duration 
insurance must comply with Part A of title XXVII of the PHS Act, 
part 7 of ERISA, and Chapter 100 of the Code.
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    The PHS Act does not define short-term, limited-duration insurance. 
Under regulations implementing HIPAA, and that continued to apply 
through 2016, short-term, limited-duration insurance was defined as 
``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.'' \16\
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    \16\ 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997), 69 FR 
78720 (December 30, 2004).
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    To address the issue of short-term, limited-duration insurance 
being sold as a type of primary coverage, as well as concerns regarding 
possible adverse selection impacts on the risk pool for PPACA-compliant 
plans, the Department of the Treasury, the Department of Labor, and the 
Department of Health and Human Services (together, the Departments) 
\17\ published a proposed rule on June 10, 2016 in the Federal Register 
entitled ``Expatriate Health Plans, Expatriate Health Plan Issuers, and 
Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; 
and Short-Term, Limited-Duration Insurance.''\18\ The June 2016 
proposed rule changed the definition of short-term, limited-duration 
insurance that had been in place for nearly 20 years by revising the 
definition to specify that short-term, limited-duration insurance could 
not provide coverage for 3 months or longer (including any renewal 
period(s)).\19\
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    \17\ Note, however, that in section headings listing only 2 of 
the 3 Departments, the term ``Departments'' generally refers only to 
the 2 Departments listed in the heading.
    \18\ 81 FR 38019.
    \19\ 81 FR 38019, 38032-33.
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    The June 2016 proposed rule also included a requirement that the 
following notice be prominently displayed in the contract and in any 
application materials provided in connection with enrollment in short-
term, limited-duration insurance, in 14 point type:

THIS IS NOT QUALIFYING HEALTH COVERAGE (``MINIMUM ESSENTIAL 
COVERAGE'') THAT SATISFIES THE

[[Page 7439]]

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.\20\

    \20\ 82 FR 38032.
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    Some stakeholders who submitted comments on the June 2016 proposed 
rule supported the rule and the Departments' stated goals. Several 
commenters agreed that the proposed rule would limit the number of 
consumers relying on short-term, limited-duration insurance as their 
primary form of coverage and improve the PPACA's individual market 
single risk pools. However, other commenters expressed concerns about 
restricting the use of short-term, limited-duration insurance (as 
originally defined under the HIPAA regulations) because it provides an 
additional, often much more affordable coverage option than an 
insurance policy that complies with all of the requirements of the 
PPACA. Some commenters explained that individuals who do not qualify 
for premium tax credits and need temporary coverage, or who cannot 
afford Consolidated Omnibus Budget Reconciliation Act \21\ (COBRA) 
continuation coverage, or who missed an opportunity to sign up for 
coverage during open enrollment or special enrollment periods, might 
need to rely on short-term, limited-duration insurance coverage for 3 
months or longer. Commenters highlighted how a person with just a less-
than-3-month policy who develops a health condition might have no 
coverage options for the condition after their coverage expires until 
the beginning of the plan year that corresponds to the next individual 
market open enrollment period. Other commenters also expressed 
opposition to the proposed rule citing their belief that States are in 
the best position to regulate short-term, limited-duration insurance 
and that the proposed rule would limit State flexibility. Finally, 
several commenters observed that PPACA-compliant policies are often 
network-based but short-term, limited-duration insurance policies 
typically are not, thus offering consumers a greater choice of health 
care providers. This is particularly true in rural areas, one commenter 
stated.
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    \21\ Public Law 99-272, 100 Stat. 82 (April 7, 1986).
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    After reviewing public comments and feedback received from 
stakeholders, on October 31, 2016, the Departments finalized the June 
2016 proposed rule without change in a final rule published in the 
Federal Register entitled ``Excepted Benefits; Lifetime and Annual 
Limits; and Short-Term, Limited-Duration Insurance''.\22\
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    \22\ 81 FR 75316.
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    On June 12, 2017, HHS published a request for information in the 
Federal Register entitled ``Reducing Regulatory Burdens Imposed by the 
Patient Protection and Affordable Care Act & Improving Healthcare 
Choices to Empower Patients'',\23\ which solicited public comments 
about potential changes to existing regulations and guidance that could 
promote consumer choice, enhance affordability of coverage for 
individual consumers, and affirm the traditional regulatory authority 
of the States in regulating the business of health insurance, among 
other goals. Several commenters stated that changes to the October 2016 
final rule may provide an opportunity to achieve these goals. 
Consistent with many comments submitted on the June 2016 proposed rule, 
commenters stated that shortening the permitted length of short-term, 
limited-duration insurance policies had deprived individuals of 
affordable coverage options. One commenter explained that due to the 
increased costs of PPACA-compliant major medical coverage, many 
financially-stressed individuals may be faced with a choice between 
short-term, limited-duration insurance coverage and going without any 
coverage at all. One commenter highlighted the need for short-term, 
limited-duration insurance coverage among individuals who are in-
between jobs. Another commenter explained that States have the primary 
responsibility to regulate short-term, limited-duration insurance and 
opined that the October 2016 final rule was overreaching on the part of 
the Federal government.
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    \23\ 82 FR 26885.
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    The Departments are also aware that, while individuals who qualify 
for premium tax credits are largely insulated from significant premium 
increases (that is, the government, and thus federal taxpayers, largely 
bear the cost of the higher premiums), individuals who are not eligible 
for subsidies are particularly harmed by increased premiums in the 
individual market due to a lack of other, more affordable alternative 
coverage options. Based on CMS data on Exchange plan selections and 
data compiled from issuer regulatory filings at the State level, for 
the first quarters of 2016 and 2017, the number of off-Exchange and 
unsubsidized enrollees with individual market coverage fell by nearly 2 
million, representing an almost 25 percent decrease.\24\ Further, in 
2018, about 26 percent of enrollees (living in 52 percent of counties) 
have access to just one insurer in the Exchange.\25\ Short-term, 
limited-duration insurance has become increasingly attractive to some 
individuals as premiums have escalated for PPACA-compliant plans and 
affordable choices in the individual market have dwindled.
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    \24\ See Mark Farrah and Associates, ``A Brief Look at the 
Turbulent Individual Health Insurance Market,'' July 19, 2017. 
Available at: http://www.markfarrah.com/healthcare-business-strategy-print/A-Brief-Look-at-the-Turbulent-Individual-Health-Insurance-Market.aspx. Also, see the Centers for Medicare and 
Medicaid Services, ``2017 Effectuated Enrollment Snapshot,'' June 
12, 2017. Available at: https://downloads.cms.gov/files/effectuated-enrollment-snapshot-report-06-12-17.pdf.
    \25\ See Kaiser Family Foundation. ``Insurer Participation on 
ACA Marketplaces, 2014-2018,'' November 10, 2017. http://www.kff.org/health-reform/issue-brief/insurer-participation-on-aca-marketplaces/.
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II. Overview of the Proposed Regulations

    In light of Executive Order 13813 directing the Departments to 
consider proposing regulations or revising guidance to expand the 
availability of short-term, limited-duration insurance, as well as 
continued feedback from stakeholders expressing concerns about the 
October 2016 final rule, the Departments are proposing to amend the 
definition of short-term, limited-duration insurance so that it may 
offer a maximum coverage period of less than 12 months after the 
original effective date of the contract, consistent with the original 
definition in the 1997 HIPAA rule (that is, the proposed rule would 
expand the potential maximum coverage period by 9 months). This 
proposed definition states that the expiration date specified in the 
contract takes into account any extensions that may be elected by the 
policyholder without the issuer's consent.
    In addition, this proposed rule would revise the required notice 
that must appear in the contract and any application materials for 
short-term, limited-duration insurance. The Departments are concerned 
that short-term, limited-duration insurance policies that provide 
coverage lasting almost 12 months may be more difficult for some 
individuals to distinguish from PPACA-compliant coverage which is 
typically offered on a 12-month basis. Accordingly, under this proposed 
rule, one of two versions (as explained below) of the following notice 
would be required to be prominently displayed (in at least 14 point 
type) in the contract and in any application materials

[[Page 7440]]

provided in connection with enrollment:

    THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL 
REQUIREMENTS FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN 
THE AFFORDABLE CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO 
MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF 
THIS COVERAGE EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU 
MIGHT HAVE TO WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER 
HEALTH INSURANCE COVERAGE. ALSO, THIS COVERAGE IS NOT ``MINIMUM 
ESSENTIAL COVERAGE''. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE 
FOR ANY MONTH IN 2018, YOU MAY HAVE TO MAKE A PAYMENT WHEN YOU FILE 
YOUR TAX RETURN UNLESS YOU QUALIFY FOR AN EXEMPTION FROM THE 
REQUIREMENT THAT YOU HAVE HEALTH COVERAGE FOR THAT MONTH.

    As stated below, the Departments are proposing that the 
applicability date for this proposed rule, if finalized, would be 60 
days after the publication of the final rule, and that policies sold on 
or after that date would have to meet the requirements of the final 
rule in order to constitute short-term, limited-duration insurance. As 
previously discussed, the individual shared responsibility payment is 
reduced to $0 for months beginning after December 2018. Consequently, 
the Departments propose that the final two sentences of the notice must 
appear only with respect to policies sold on or after the applicability 
date of the rule, if finalized, that have a coverage start date before 
January 1, 2019. The Departments solicit comments on this revised 
notice, and whether its language or some other language would best 
ensure that it is understandable and sufficiently apprises individuals 
of the nature of the coverage.
    The current definition of short-term, limited-duration insurance 
applies for policy years beginning on or after January 1, 2017. In the 
October 2016 final rule, the Departments recognized 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.\26\ Accordingly, HHS noted it would not take 
enforcement action against an issuer with respect to its sale of a 
short-term, limited-duration insurance product before April 1, 2017, on 
the ground that the coverage period is 3 months or more, provided that 
the coverage ended on or before December 31, 2017, and otherwise 
complies with the definition of short-term, limited-duration insurance 
in effect under the final rule.\27\ As stated in the October 2016 final 
rule, States may also elect not to take enforcement actions against 
issuers with respect to such coverage sold before April 1, 2017. The 
current definition in the October 2016 final rule, and the non-
enforcement policy as applied to policies sold before April 1, 2017, 
and that end on or before December 31, 2017, would continue to apply 
unless and until this rule is finalized.
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    \26\ 81 FR 75318 through 75319.
    \27\ This non-enforcement policy is limited to the requirement 
that short-term, limited-duration insurance must be less than 3 
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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Effective Date and Applicability Date

    The Departments propose that this rule, if finalized, would be 
effective 60 days after publication of the final rule. With respect to 
the applicability date, the Departments propose that insurance policies 
sold on or after the 60th day following publication of the final rule, 
if finalized, would have to meet the definition of short-term, limited-
duration insurance in the final rule in order to be considered such 
insurance. The Departments propose that group health plans and group 
health insurance issuers, to the extent they must distinguish between 
short-term, limited-duration insurance and individual market health 
insurance (such as for purposes of determining whether an individual 
has moved out of a health maintenance organization (HMO) service area 
in the individual market, which would trigger a special enrollment 
right into a group health plan or for purposes of offering limited 
wraparound coverage (which wraps around individual health insurance or 
the Basic Health Plan as an excepted benefit \28\), must apply the 
definition of short-term, limited-duration insurance in the final rule 
as of the 60th day following publication of the final rule. The current 
regulations specify the applicability date for the definition of short-
term, limited-duration insurance at 26 CFR 54.9833-1; 29 CFR 2590.736, 
45 CFR 146.125; and 45 CFR 148.102. Therefore, the Departments propose 
conforming amendments to those rules as part of this rulemaking. The 
Departments also propose a technical update in 26 CFR 54.9833-1; 29 CFR 
2590.736; and 45 CFR 146.125 to delete the reference to the 
applicability date for amendments to 26 CFR 54.9831-1(c)(5)(i)(C); 29 
CFR 2590.732(c)(5)(i)(C); and 45 CFR 146.145(c)(5)(i)(C) (regarding 
supplemental coverage excepted benefits).\29\ Given that the 
applicability date for the amendments to those sections has passed, it 
is no longer necessary to mention the ``future'' applicability 
date.\30\ HHS similarly proposes to amend Sec.  148.102 to remove the 
reference to the applicability date for amendments to Sec.  
148.220(b)(7) (regarding supplemental coverage excepted benefits).\31\
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    \28\ See footnote 14.
    \29\ The reference in current regulations at 45 CFR 146.125 to 
the applicability date of 45 CFR 146.145(c)(5)(i)(C) was a drafting 
error. It was intended to be a reference to 45 CFR 
146.145(b)(5)(i)(C).
    \30\ The applicability date for these amendments (policy years 
and plan years beginning on or after January 1, 2017) remains 
unchanged.
    \31\ The applicability date for these amendments (policy years 
beginning on or after January 1, 2017) remains unchanged.
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Request for Comments

    The Departments seek comments on all aspects of this proposed rule, 
including whether the length of short-term, limited-duration insurance 
should be some other duration. The Departments seek comments on any 
regulations or other guidance or policy that limits issuers' 
flexibility in designing short-term, limited-duration insurance or 
poses barriers to entry into the short-term, limited-duration insurance 
market.
    In addition, the Departments seek comments on the conditions under 
which issuers should be able to allow short-term, limited-duration 
insurance to continue for 12 months or longer with the issuer's 
consent. Among other things, the Departments solicit comments on 
whether any processes for expedited or streamlined reapplication for 
short-term, limited-duration insurance that would simplify the 
reapplication process and minimize the burden on consumers may be 
appropriate; whether federal standards are appropriate for such 
processes; and whether any clarifications are needed regarding the 
application of the definition of short-term, limited-duration insurance 
in the proposed rule to such practices. For example, an expedited 
process could involve setting minimum federal standards for what must 
be considered as part of the streamlined reapplication process while 
allowing insurers to consider additional factors in accordance with 
contract terms. The Departments are also interested in information on 
any State approaches (including any approaches that States are 
considering adopting) to minimize the burden of the reapplication 
process for issuers and consumers.

[[Page 7441]]

    Because short-term, limited-duration insurance can be priced in an 
actuarially fair manner (by which the Departments mean that it is 
priced so that the premium paid by an individual reflects the risks 
associated with insuring the particular individual or individuals 
covered by that policy), subject to State law, individuals who are 
likely to purchase short-term, limited-duration insurance are likely to 
be relatively young or healthy. Allowing such individuals to purchase 
policies that are not in compliance with PPACA may impact the 
individual market single risk pools. As explained in section III., 
``Economic Impact and Paperwork Burden'' of this proposed rule, the 
Departments estimate that in 2019, after the elimination of the 
individual shared responsibility payment, between 100,000 and 200,000 
individuals previously enrolled in Exchange coverage would purchase 
short-term, limited-duration insurance policies instead. This would 
cause the average monthly individual market premiums and average 
monthly premium tax credits to increase, leading to an increase in 
total annual advance payments of the premium tax credit (APTC) \32\ in 
the range of $96 million to $168 million. The Departments seek comments 
on these estimates, and welcome other estimates of the increase in 
enrollment in short-term, limited-duration insurance under this 
proposal, and the health status and age of individuals who would 
purchase these policies.
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    \32\ The Departments are using data on APTC as an approximation 
of premium tax credits since this is the data that is available for 
2017.
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    The Departments also seek comments on the proposed effective and 
applicability dates of this rule, if finalized. The Departments seek 
comments on whether the proposed fixed applicability date, which would 
first impose the new definition of short-term, limited-duration 
insurance on group health plans and group health insurance issuers on a 
date that may occur in the middle of a plan year, would cause any 
special challenges for group health plans and group health insurance 
issuers.

III. Economic Impact and Paperwork Burden

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

    This rule proposes to amend the definition of short-term, limited-
duration insurance coverage so that the coverage (taking into account 
extensions elected by the policyholder without the issuer's consent) 
has a maximum period of less than 12 months after the original 
effective date of the contract. This rule also seeks comments on all 
aspects of this proposed rule, including whether the maximum length of 
short-term, limited-duration insurance should be some other duration; 
under what conditions issuers should be able to allow short-term, 
limited-duration insurance to continue for 12 months or longer with the 
issuer's consent; and on the proposed revisions to the notice that must 
appear in the contract and any application materials.
    The Departments have examined the effects of this rule as required 
by Executive Order 13563 (76 FR 3821, January 18, 2011, Improving 
Regulation and Regulatory Review), Executive Order 12866 (58 FR 51735, 
September 30, 1993, Regulatory Planning and Review), the Regulatory 
Flexibility Act (September 19, 1980, Pub. L. 96-354), section 1102(b) 
of the Social Security Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2)) and Executive Order 13771 (January 30, 2017, Reducing 
Regulation and Controlling Regulatory Costs).

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 1 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 full regulatory impact analysis must be prepared for major 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 (OMB). The Departments 
anticipate that this regulatory action is likely to have economic 
impacts of $100 million or more in at least 1 year, and therefore meets 
the definition of ``significant rule'' under Executive Order 12866. 
Therefore, the Departments have provided an assessment of the potential 
costs, benefits, and transfers associated with this proposed rule. In 
accordance with the provisions of Executive Order 12866, this proposed 
rule was reviewed by OMB.
1. Need for Regulatory Action
    This rule contains proposed amendments to the definition of short-
term, limited-duration insurance for purposes of the exclusion from the 
definition of individual health insurance coverage. This regulatory 
action is taken in light of Executive Order 13813 directing the 
Departments to consider proposing regulations or revising guidance to 
expand the availability of short-term, limited-duration insurance, as 
well as continued feedback from stakeholders expressing concerns about 
the October 2016 final rule. While individuals who qualify for premium 
tax credits are largely insulated from significant premium increases, 
individuals who are not eligible for subsidies are harmed by increased 
premiums in the individual market due to a lack of other, more 
affordable alternative coverage options. The proposed rule would 
increase insurance options for individuals unable or unwilling to 
purchase PPACA-compliant plans.
2. Summary of Impacts
    In accordance with OMB Circular A-4, Table 1 depicts an accounting 
statement summarizing the

[[Page 7442]]

Departments' assessment of the benefits, costs, and transfers 
associated with this regulatory action.

                        Table 1--Accounting Table
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Benefits:
------------------------------------------------------------------------
Qualitative:
     Increased access to affordable health insurance for
     consumers unable or unwilling to purchase PPACA-compliant plans,
     potentially resulting in improved health outcomes for them.
     Increased choice at lower cost and increased protection
     (for consumers who are currently uninsured) from catastrophic
     health care expenses for consumers purchasing short-term, limited-
     duration insurance.
     Potentially broader access to health care providers
     compared to PPACA-compliant plans for some consumers.
------------------------------------------------------------------------
Costs:
------------------------------------------------------------------------
Qualitative:
     Reduced access to some services and providers for some
     consumers who switch from PPACA-compliant plans.
     Increased out-of-pocket costs for some consumers, possibly
     leading to financial hardship.
     Worsening of States' individual market single risk pools
     and potential reduced choice for some other individuals remaining
     in those risk pools.
------------------------------------------------------------------------


 
                                   Low estimate    High estimate                   Discount rate
            Transfers                (million)       (million)      Year dollar      (percent)    Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...             $96            $168            2017               7            2019
                                              96             168            2017               3            2019
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Transfer from the Federal government to enrollees in individual market plans in the form of
     increased APTC payments....................................................................................
Qualitative:
     Transfer from enrollees in individual market plans who experience increase in premiums to
     individuals who switch to lower premium short-term, limited-duration insurance.............................
     Tax liability for consumers who replace PPACA-compliant plans and will thus no longer maintain
     minimum essential coverage in 2018.........................................................................
----------------------------------------------------------------------------------------------------------------

    Short-term, limited-duration insurance represents a small fraction 
of the health insurance market. Based on data from the National 
Association of Insurance Commissioners (NAIC), in 2016, before the 
October 2016 final rule became effective, total premiums earned for 
policies designated short-term, limited-duration by carriers were 
approximately $146 million for approximately 1,279,500 member months 
and with approximately 160,600 covered lives at the end of the year. 
During the same period, total premiums for individual market 
(comprehensive major medical) coverage were approximately $63.25 
billion for approximately 175,689,900 member months with approximately 
13.6 million covered lives at the end of the year.\33\
---------------------------------------------------------------------------

    \33\ National Association of Insurance Commissioners, 2016 
Accident and Health Policy Experience Report, July 2017, available 
at http://www.naic.org/prod_serv/AHP-LR-17.pdf.
---------------------------------------------------------------------------

    Some public comments received in response to the June 2016 proposed 
rule stated that the majority of the short-term, limited-duration 
insurance policies were sold as transitional coverage, particularly for 
individuals seeking to cover periods of unemployment or other gaps 
between employer-sponsored coverage, and that the policies typically 
provided coverage for less than 3 months. Accordingly, this proposed 
rule would have no effect on the consumers who purchase such coverage 
for less than 3 months and perhaps some issuers of those policies. 
While it is not clear how the October 2016 final rule affected the 
sales of short-term, limited-duration insurance, the sales of such 
coverage were increasing prior to the issuance of that rule. Given the 
prior trend and the recent increases in premiums in the individual 
market, the Departments anticipate that the rule, if finalized, would 
encourage more consumers to purchase short-term, limited-duration 
insurance for longer durations, including individuals who were 
previously uninsured and some who are currently enrolled in individual 
market plans, especially in 2019 and beyond, when the individual shared 
responsibility payment included in section 5000A of the Code is reduced 
to $0, as provided under Public Law 115-97.
Benefits
    Consumers who would be likely to purchase short-term, limited-
duration insurance for longer periods would benefit from increased 
insurance options at lower premiums, as the average monthly premium in 
the fourth quarter of 2016 for a short-term, limited-duration policy 
was approximately $124 compared to $393 for an unsubsidized PPACA-
compliant plan.\34\ This proposed rule would also benefit individuals 
who need coverage for longer periods for reasons previously discussed 
in the preamble, such as needing more than 3 months to find new 
employment, or finding PPACA-compliant plans to be unaffordable. 
Individuals who purchase short-term, limited-duration insurance as 
opposed to being uninsured would potentially experience improved health 
outcomes and have greater protection from catastrophic health care 
expenses. Individuals purchasing short-term, limited-duration policies 
could obtain broader access to health care providers compared to those 
PPACA-compliant plans that have narrow provider networks.\35\ The 
Departments seek comments on how many consumers may purchase short-
term, limited-duration insurance, rather than being uninsured or 
purchasing PPACA-compliant plans, and the benefits to

[[Page 7443]]

them from having short-term, limited-duration insurance, as well as any 
impacts on the PPACA individual market single risk pools.
---------------------------------------------------------------------------

    \34\ http://www.npr.org/sections/health-shots/2017/01/31/512518502/sales-of-short-term-insurance-plans-could-surge-if-health-law-is-relaxed.
    \35\ The ability of short-term limited-duration plans to provide 
broad provider networks has been touted by some in the insurance 
community. https://www.wsj.com/articles/sales-of-short-term-health-policies-surge-1460328539.
---------------------------------------------------------------------------

    Issuers of short-term, limited-duration insurance would benefit 
from higher enrollment. They are likely to experience an increase in 
premium revenues and profits because such policies can be priced in an 
actuarially fair manner (by which the Departments mean that it is 
priced so that the premium paid by an individual reflects the risks 
associated with insuring the particular individual or individuals 
covered by that policy) and are not required to comply with PPACA 
medical loss ratio requirements for group and individual health 
insurance coverage.
Costs and Transfers
    Short-term, limited-duration insurance policies would be unlikely 
to include all the elements of PPACA-compliant plans, such as the 
preexisting condition exclusion prohibition, coverage of essential 
health benefits without annual or lifetime dollar limits, preventive 
care, maternity and prescription drug coverage, rating restrictions, 
and guaranteed renewability. Therefore, consumers who switch to such 
policies from PPACA-compliant plans would experience loss of access to 
some services and providers and an increase in out-of-pocket 
expenditures related to such excluded services, benefits that in many 
cases consumers do not believe are worth their cost (which could be one 
reason why many consumers, even those receiving subsidies for PPACA-
compliant plans, may switch to short-term, limited-duration policies 
rather than remain in PPACA-compliant plans). The Departments seek 
comments on the value of such excluded services to individuals who 
switch coverage. Depending on plan design, consumers who purchase 
short-term, limited-duration insurance policies and then develop 
chronic conditions could face financial hardship as a result, until 
they are able to enroll in PPACA-compliant plans that would provide 
coverage for such conditions. Additionally, since short-term, limited-
duration insurance does not qualify as minimum essential coverage, any 
individual enrolled in a short-term, limited-duration plan that lasts 3 
months or longer in 2018 would potentially incur a tax liability for 
not having minimum essential coverage during that year. Starting in 
2019, the individual shared responsibility payment included in section 
5000A of the Code is reduced to $0, as provided under Public Law 115-
97.
    Because short-term, limited-duration insurance policies can be 
priced in an actuarially fair manner, subject to State law, individuals 
who are likely to purchase such coverage are likely to be relatively 
young or healthy. Allowing such individuals to purchase policies that 
do not comply with PPACA, but with term lengths that may be similar to 
those of PPACA-compliant plans with 12-month terms, could potentially 
weaken States' individual market single risk pools. As a result, 
individual market issuers could experience higher than expected costs 
of care and suffer financial losses, which might prompt them to leave 
the individual market. Although choices of plans available in the 
individual market have already been reduced to plans from a single 
insurer in roughly half of all counties, this proposed rule may further 
reduce choices for individuals remaining in those individual market 
single risk pools. The Departments seek comments on these and any other 
potential costs.
    The Departments anticipate that most of the individuals who switch 
from individual market plans to short-term, limited-duration insurance 
would be relatively young or healthy and would also not be eligible to 
receive APTC. If individual market single risk pools change as a 
result, it would result in an increase in premiums for the individuals 
remaining in those risk pools. An increase in premiums for individual 
market single risk pool coverage would result in an increase in Federal 
outlays for APTC.
    Beginning in 2019, the individual shared responsibility payment 
included in section 5000A of the Code is reduced to $0, as provided 
under Public Law 115-97. This would compound the effects of the 
provisions of this proposed rule (one potential exception being the 
impact on APTC payments). In order to estimate the impact on the 
individual market and APTC payments, the Departments used enrollment, 
premium and APTC data for 2017, observed rate increases for 2018, and 
assumed that 2019 rates will increase in line with medical expenditures 
and assumed the relative morbidities of the individuals leaving the 
individual market single risk pool to those remaining in the risk pool 
to be 75 percent. The Congressional Budget Office estimates that 3 
million people will drop coverage in 2019 from the individual market 
and premiums will increase 10 percent on average, as a result of the 
change to the individual shared responsibility payment.\36\ The 
Departments seek comments on how many of these individuals may purchase 
short-term, limited-duration insurance instead. Based on enrollment 
trends prior to the October 2016 final rule, the Departments project 
that approximately 100,000 to 200,000 additional individuals would 
shift from the individual market to short-term, limited-duration 
insurance in 2019. Most of these individuals would be young or healthy 
and only about 10 percent of them would have been subsidized by 
eligibility for APTC if they maintained their Exchange coverage. While 
the reduction in the number of subsidized enrollees would tend to 
reduce total APTC payments, increases in premiums would tend to 
increase them. The proposed rule's net effect on total APTC payments is 
uncertain, but federal outlays for APTC are estimated to increase by 
between $96 million ($54,948 million-$54,852 million) and $168 million 
($55,020 million-$54,852 million) annually. Table 2 depicts the effects 
on average premiums \37\ and APTC payments.
---------------------------------------------------------------------------

    \36\ See Congressional Budget Office, Repealing the Individual 
Health Insurance Mandate: An Updated Estimate, November 2017, 
available at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.
    \37\ Percent Premium Increase = (Total Enrollment-
(Morbidity(75%) * Number Switching)) / (Total Enrollment-Number 
Switching).

                                            Table 2--Estimated Effect on Individual Market Exchanges in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Estimated       Estimated
                                                         number of       number of       Estimated       Estimated
                                                        subsidized     unsubsidized       average         average     Estimated  total  Estimated  total
                                                       enrollees in    enrollees in       monthly      monthly APTC     monthly APTC       annual APTC
                                                         exchanges       exchanges        premium
--------------------------------------------------------------------------------------------------------------------------------------------------------
No change in policy.................................       8,459,000       4,671,000            $649            $512    $4,331,000,000   $51,972,000,000

[[Page 7444]]

 
$0 individual shared responsibility payment.........       8,122,000       1,608,000             714             563     4,573,000,000    54,852,000,000
100,000 People switching to short-term, limited-           8,112,000       1,518,000             716             564     4,579,000,000    54,948,000,000
 duration insurance.................................
200,000 People switching to short-term, limited-           8,102,000       1,428,000             718             566     4,585,000,000    55,020,000,000
 duration insurance.................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    There is significant uncertainly regarding these estimates, because 
changes in enrollment and premiums would depend on a variety of 
economic factors and it is difficult to predict how consumers and 
issuers would react to the proposed policy changes.

C. Regulatory Alternatives

    One regulatory alternative would be to set the maximum duration for 
short-term, limited-duration insurance to a 6 month or 9 month period. 
However, this alternative would not adequately increase choices for 
individuals unable or unwilling to purchase PPACA-compliant plans.

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

    This proposed rule would revise the required notice that must be 
prominently displayed in the contract and in any application materials 
for short-term, limited-duration insurance. The Departments have 
proposed the exact text for this notice requirement and the language 
would not need to be customized. The burden associated with these 
notices is not subject to the Paperwork Reduction Act 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). 
Consequently, this document need not be reviewed by the Office of 
Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

E. 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.
    This proposed rule would impact health insurance issuers, 
especially those in the individual market. The Departments believe that 
health insurance issuers would be classified under the North American 
Industry Classification System code 524114 (Direct Health and Medical 
Insurance Carriers). According to SBA size standards, entities with 
average annual receipts of $38.5 million or less are considered small 
entities for these North American Industry Classification System codes. 
Issuers could possibly be classified in 621491 (Health Maintenance 
Organization Medical Centers) and, if this is the case, the SBA size 
standard is $32.5 million or less.\38\ The Departments believe that 
few, if any, insurance companies selling comprehensive health insurance 
policies (in contrast, for example, to travel insurance policies or 
dental discount policies) fall below these size thresholds. Based on 
data from Medical Loss Ratio (MLR) annual report submissions for the 
2015 MLR reporting year,\39\ approximately 92 out of over 530 issuers 
of health insurance coverage nationwide had total premium revenue of 
$38.5 million or less, of which 64 issuers offer plans in the 
individual market. This estimate may overstate the actual number of 
small health insurance companies that may be affected, since almost 50 
percent of these small companies belong to larger holding groups, and 
many if not all of these small companies are likely to have non-health 
lines of business that would result in their revenues exceeding $38.5 
million. Therefore, the Departments certify that this proposed rule 
would not have a significant impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \38\ ``Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes'', effective October 
1, 2017, U.S. Small Business Administration, available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table_2017.pdf.
    \39\ Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    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 603 of the RFA. This proposed rule will not affect small 
rural hospitals. Therefore, the Departments have determined that this 
proposed rule would not have a significant impact on the operations of 
a substantial number of small rural hospitals.

F. 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. Pursuant to Executive Order 13789, the Treasury 
Department and OMB are currently reviewing the scope and implementation 
of the existing

[[Page 7445]]

exemption. Pursuant to section 7805(f) of the Code, this proposed rule 
has been submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on its impact on small business.

G. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
State, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. Currently, that threshold is approximately $148 million. 
This proposed rule does not include any Federal mandate that may result 
in expenditures by State, local, or tribal governments, or the private 
sector, that may impose an annual burden that exceeds that threshold.

H. 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.
    Federal officials have discussed the issue of the term length of 
short-term, limited-duration insurance with State regulatory officials. 
This proposed rule has no federalism implications to the extent that 
current State law requirements for short-term, limited-duration 
insurance are the same as or more restrictive than the Federal standard 
proposed in this proposed rule. States may continue to apply such State 
law requirements.

I. Congressional Review Act

    This proposed rule is 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.

J. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. This proposed rule, 
if finalized as proposed, is expected to be an Executive Order 13771 
deregulatory action.

IV. Statutory Authority

    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed to be 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 
proposed to be adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, 2792 and 2794 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, 300gg-92 and 300gg-94), as amended.

List of Subjects

26 CFR Part 54

    Pension 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 and 146

    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.

Kirsten B. Wielobob,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed this 8th day of February 2018.

Preston Rutledge,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: February 1, 2018.

Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: February 9, 2018.

Alex M. Azar II,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

    For the reasons stated in the preamble, 26 CFR part 54 is proposed 
to be amended as follows:

PART 54--PENSION AND EXCISE TAX

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'' to 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 without 
the issuer's consent) that is less than 12 months after the original 
effective date of the contract;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH

[[Page 7446]]

INSURANCE COVERAGE. ALSO, THIS COVERAGE IS NOT ``MINIMUM ESSENTIAL 
COVERAGE''. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE FOR ANY 
MONTH IN 2018, YOU MAY HAVE TO MAKE A PAYMENT WHEN YOU FILE YOUR TAX 
RETURN UNLESS YOU QUALIFY FOR AN EXEMPTION FROM THE REQUIREMENT THAT 
YOU HAVE HEALTH COVERAGE FOR THAT MONTH.;


and

    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE 
COVERAGE.
* * * * *
0
Par. 3. Section 54.9833-1 is amended by revising the section heading 
and the last sentence to read as follows:


Sec.  54.9833-1  Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  54.9801-2 applies 
[DATE 60 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE IN THE 
FEDERAL REGISTER].

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

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

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
4. The authority citation for part 2590 continues 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
5. Section 2590.701-2 is amended by revising the definition of ``Short-
term, limited-duration insurance'' to 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 without 
the issuer's consent) that is less than 12 months after the original 
effective date of the contract;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE 
COVERAGE. ALSO, THIS COVERAGE IS NOT ``MINIMUM ESSENTIAL COVERAGE''. 
IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE FOR ANY MONTH IN 2018, 
YOU MAY HAVE TO MAKE A PAYMENT WHEN YOU FILE YOUR TAX RETURN UNLESS 
YOU QUALIFY FOR AN EXEMPTION FROM THE REQUIREMENT THAT YOU HAVE 
HEALTH COVERAGE FOR THAT MONTH.;

and

    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE 
COVERAGE.
* * * * *
0
6. Section 2590.736 is amended by revising the last sentence 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 applies 
[DATE 60 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE IN THE 
FEDERAL REGISTER].

DEPARTMENT OF HEALTH AND HUMAN SERVICES

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

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
7. 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
8. Section 144.103 is amended by revising the definition of ``Short-
term, limited-duration insurance'' to 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 without 
the issuer's consent) that is less than 12 months after the original 
effective date of the contract;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE 
COVERAGE. ALSO, THIS COVERAGE IS NOT ``MINIMUM

[[Page 7447]]

ESSENTIAL COVERAGE''. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE 
FOR ANY MONTH IN 2018, YOU MAY HAVE TO MAKE A PAYMENT WHEN YOU FILE 
YOUR TAX RETURN UNLESS YOU QUALIFY FOR AN EXEMPTION FROM THE 
REQUIREMENT THAT YOU HAVE HEALTH COVERAGE FOR THAT MONTH.;

and

    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, 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 COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. IF THIS COVERAGE 
EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO 
WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE 
COVERAGE.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
9. The authority citation for part 146 is revised 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
10. Section 146.125 is amended by revising the last sentence 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 applies [DATE 60 DAYS AFTER DATE OF PUBLICATION OF THE FINAL 
RULE IN THE FEDERAL REGISTER].

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
11. 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
12. Section 148.102 is amended by revising the section heading and the 
last sentence of paragraph (b) to read as follows:


Sec.  148.102  Scope and applicability date.

* * * * *
    (b) * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  144.103 of this 
subchapter is applicable [DATE 60 DAYS AFTER DATE OF PUBLICATION OF THE 
FINAL RULE IN THE FEDERAL REGISTER].

[FR Doc. 2018-03208 Filed 2-20-18; 8:45 am]
 BILLING CODE 4150-28-P; 4510-29-P; 6325-64-P