[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Proposed Rules]
[Pages 44596-44658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14238]



[[Page 44595]]

Vol. 88

Wednesday,

No. 132

July 12, 2023

Part III





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1 and 54





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2590





Department of Health and Human Services





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45 CFR Parts 144, 146, and 148





Short-Term, Limited-Duration Insurance; Independent, Noncoordinated 
Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax 
Treatment of Certain Accident and Health Insurance; Proposed Rule

  Federal Register / Vol. 88, No. 132 / Wednesday, July 12, 2023 / 
Proposed Rules  

[[Page 44596]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

[REG-120730-21]
RIN 1545-BQ28

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AC12

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, and 148

[CMS-9904-P]
RIN 0938-AU67


Short-Term, Limited-Duration Insurance; Independent, 
Noncoordinated Excepted Benefits Coverage; Level-Funded Plan 
Arrangements; and Tax Treatment of Certain Accident and Health 
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 rules.

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SUMMARY: This document sets forth proposed rules that would amend the 
definition of short-term, limited-duration insurance, which is excluded 
from the definition of individual health insurance coverage under the 
Public Health Service Act. This document also sets forth proposed 
amendments to the requirements for hospital indemnity or other fixed 
indemnity insurance to be considered an excepted benefit in the group 
and individual health insurance markets. This document further sets 
forth proposed amendments to clarify the tax treatment of certain 
benefit payments in fixed amounts received under employer-provided 
accident and health plans. Finally, this document solicits comments 
regarding coverage only for a specified disease or illness that 
qualifies as excepted benefits, and comments regarding level-funded 
plan arrangements.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below by September 11, 2023.

ADDRESSES: In commenting, please refer to file code CMS-9904-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three 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-9904-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-9904-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Elizabeth Schumacher or Rebecca 
Miller, Employee Benefits Security Administration, Department of Labor 
at (202) 693-8335; Jason Sandoval, Internal Revenue Service, Department 
of the Treasury at (202) 317-5500; Cam Clemmons, Centers for Medicare & 
Medicaid Services, Department of Health and Human Services at (206) 
615-2338; Geraldine Doetzer, Centers for Medicare & Medicaid Services, 
Department of Health and Human Services at (667) 290-8855.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: 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 comments received 
before the close of the comment period on the following website as soon 
as possible after they have been received: https://www.regulations.gov. 
Follow the search instructions on that website to view comments. We 
will not post on Regulations.gov comments that make threats to 
individuals or institutions or suggest that the individual will take 
actions to harm the individual. We continue to encourage individuals 
not to submit duplicative comments. We will post acceptable comments 
from multiple unique commenters even if the content is identical or 
nearly identical to other comments.

I. Background

    These proposed rules set forth proposed revisions to the definition 
of ``short-term, limited-duration insurance'' (STLDI) 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. 
The definition of STLDI is also relevant for purposes of the disclosure 
and reporting requirements in section 2746 of the Public Health Service 
Act (the PHS Act), which require health insurance issuers offering 
individual health insurance coverage or STLDI to disclose to enrollees 
in such coverage, and to report annually to the Department of Health 
and Human Services (HHS), any direct or indirect compensation provided 
by the issuer to an agent or broker associated with enrolling 
individuals in such coverage.
    These proposed rules also set forth proposed amendments to the 
requirements for hospital indemnity and other fixed indemnity insurance 
to be treated as an excepted benefit in the group and individual health 
insurance markets (fixed indemnity excepted benefits coverage).\1\ 
Further, the Department of the Treasury (Treasury Department) and the 
Internal Revenue Service (IRS) propose to clarify the tax treatment 
under 26 CFR part 1 of fixed amounts received by a taxpayer through 
certain employment-based accident or health insurance that are paid 
without regard to the amount of medical expenses incurred.
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    \1\ For simplicity and readability, this preamble refers to 
hospital indemnity or other fixed indemnity insurance that meets all 
requirements to be considered an excepted benefit under the Federal 
framework as ``fixed indemnity excepted benefits coverage'' in order 
to distinguish it from hospital indemnity or other fixed indemnity 
insurance that does not meet all such requirements.
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    Lastly, comments are solicited regarding coverage only for a 
specified disease or illness that qualifies as excepted benefits 
(specified disease excepted benefits coverage),\2\ and regarding level-
funded plan arrangements to better understand the key features and 
characteristics of these arrangements and whether additional guidance 
or rulemaking is needed to clarify plan sponsors' obligations with 
respect to coverage provided through these arrangements.
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    \2\ For simplicity and readability, this preamble refers to 
specified disease or illness insurance coverage that meets all 
requirements to be considered an excepted benefit under the Federal 
framework as ``specified disease excepted benefits coverage'' in 
order to distinguish it from specified disease or illness insurance 
that does not meet all such requirements.

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[[Page 44597]]

    The Treasury Department, the Department of Labor, and HHS 
(collectively, the Departments) propose these revisions to define and 
more clearly distinguish STLDI and fixed indemnity excepted benefits 
coverage from comprehensive coverage. Comprehensive coverage is subject 
to the Federal consumer protections and requirements established under 
chapter 100 of the Internal Revenue Code (Code), part 7 of the Employee 
Retirement Income Security Act of 1974 (ERISA), and title XXVII of the 
PHS Act,\3\ such as the prohibition on exclusions for preexisting 
conditions, the prohibition on health status discrimination, the 
requirement to cover certain preventive services without cost sharing, 
and many others. The Departments propose these revisions to promote 
equitable access to high-quality, affordable, comprehensive coverage by 
increasing consumers' understanding of their health coverage options 
and reducing misinformation about STLDI and fixed indemnity excepted 
benefits coverage, consistent with Executive Orders 14009 and 14070 as 
described in section I.B of this preamble. Similarly, clarifying the 
tax treatment of benefit payments in fixed amounts under hospital 
indemnity or other fixed indemnity coverage purchased on a pre-tax 
basis when those benefits are paid without regard to the medical 
expenses incurred is also an important means by which to distinguish 
that coverage from comprehensive coverage and should serve to promote 
the purchase of comprehensive coverage in the group market.
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    \3\ While STLDI is generally not subject to the Federal consumer 
protections and requirements for comprehensive coverage that apply 
to individual health insurance coverage, the agent and broker 
compensation disclosure and reporting requirements in section 2746 
of the PHS Act apply to health insurance issuers offering individual 
health insurance coverage or STLDI.
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A. General Statutory Background

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA) (Pub. L. 104-191, August 21, 1996) added chapter 100 to the 
Code, part 7 to ERISA, and title XXVII to the PHS Act, which set forth 
portability and nondiscrimination rules with respect to health 
coverage. These provisions of the Code, ERISA, and the PHS Act were 
later augmented by other laws, including the Mental Health Parity Act 
of 1996 (Pub. L. 104-204, September 26, 1996), the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 
(MHPAEA) (Pub. L. 110-343, October 3, 2008), the Newborns' and Mothers' 
Health Protection Act (Pub. L. 104-204, September 26, 1996), the 
Women's Health and Cancer Rights Act (Pub. L. 105-277, October 21, 
1998), the Genetic Information Nondiscrimination Act of 2008 (Pub. L. 
110-233, May 21, 2008), the Children's Health Insurance Program 
Reauthorization Act of 2009 (Pub. L. 111-3, February 4, 2009), 
Michelle's Law (Pub. L. 110-381, October 9, 2008), the Patient 
Protection and Affordable Care Act (Pub. L. 111-148, March 23, 2010) 
(as amended by the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152, March 30, 2010) (collectively known as the Affordable 
Care Act (ACA)), and Division BB of the Consolidated Appropriations 
Act, 2021 (CAA, 2021) (Pub. L. 116-260, December 27, 2020), which 
includes the No Surprises Act.
    The ACA reorganized, amended, and added 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. The ACA added 
section 9815 of the Code and section 715 of ERISA to incorporate the 
provisions of Part A of title XXVII of the PHS Act, as amended or added 
by the ACA, into the Code and ERISA, making them applicable to group 
health plans and health insurance issuers providing health insurance 
coverage in connection with group health plans. The provisions of the 
PHS Act incorporated into the Code and ERISA, as amended or added by 
the ACA, are sections 2701 through 2728. In addition to marketwide 
provisions applicable to group health plans and health insurance 
issuers in the group and individual markets, the ACA established Health 
Benefit Exchanges (Exchanges) aimed at promoting access to high-
quality, affordable, comprehensive coverage. Section 1401(a) of the ACA 
added section 36B to the Code, providing a premium tax credit (PTC) for 
certain individuals with annual household income that is at least 100 
percent but not more than 400 percent of the Federal poverty level 
(FPL) who enroll in, or who have one or more family members enrolled 
in, an individual market qualified health plan (QHP) through an 
Exchange, who are not otherwise eligible for minimum essential coverage 
(MEC). Section 1402 of the ACA provides for, among other things, 
reductions in cost sharing for essential health benefits for qualified 
low- and moderate-income enrollees in silver-level QHPs purchased 
through the individual market Exchanges. This section also provides for 
reductions in cost sharing for American Indians enrolled in QHPs 
purchased through the individual market Exchanges at any metal level.
    Section 5000A of the Code, added by section 1501(b) of the ACA, 
provides that individuals must maintain MEC, or make a payment known as 
the individual shared responsibility payment with their Federal tax 
return for the year in which they did not maintain MEC, if they are not 
otherwise exempt.\4\ On December 22, 2017, the Tax Cuts and Jobs Act 
(Pub. L. 115-97) was enacted, which included a provision under which 
the individual shared responsibility payment under section 5000A of the 
Code was reduced to $0, effective for months beginning after December 
31, 2018.
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    \4\ Section 5000A of the Code and Treasury regulations at 26 CFR 
1.5000A-3 provide exemptions from the requirement to maintain MEC 
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 MEC. The eligibility standards for exemptions can 
be found at 45 CFR 155.605.
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    The American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) was 
enacted on March 11, 2021. Among other policies intended to address the 
health care and economic needs of the country during the coronavirus 
disease-2019 (COVID-19) pandemic, the ARP increased the PTC amount for 
individuals with annual household income at or below 400 percent of the 
FPL and extended PTC eligibility for the first time to individuals with 
annual household incomes above 400 percent of the FPL. Although the 
expanded PTC subsidies under the ARP were applicable only for 2021 and 
2022, the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169, 
August 16, 2022) extended the subsidies for an additional 3 years, 
through December 31, 2025.
    The No Surprises Act was enacted on December 27, 2020, as title I 
of Division BB of the CAA, 2021. The No Surprises Act added new 
provisions in Subchapter B of chapter 100 of the Code, Part 7 of ERISA, 
and Part D of title XXVII of the PHS Act, applicable to group health 
plans and health insurance issuers offering group or individual health 
insurance coverage. These provisions provide protections against 
surprise medical bills for certain out-of-network services and 
generally require plans and issuers and providers and

[[Page 44598]]

facilities to make certain disclosures regarding balance billing 
protections to the public and to individual participants, 
beneficiaries, and enrollees. In addition to the new provisions 
applicable to group health plans and issuers of group or individual 
health insurance coverage, the No Surprises Act added a new Part E to 
title XXVII of the PHS Act, establishing corresponding requirements 
applicable to health care providers, facilities, and providers of air 
ambulance services. The CAA, 2021 also amended title XXVII of the PHS 
Act to, among other things, add section 2746, which requires health 
insurance issuers offering individual health insurance coverage or 
STLDI to disclose the direct or indirect compensation provided by the 
issuer to an agent or broker associated with enrolling individuals in 
such coverage to the enrollees in such coverage as well as to report it 
annually to HHS.
    The Secretaries of HHS, Labor, and the Treasury have authority to 
promulgate regulations as may be necessary or appropriate to carry out 
the parallel Federal consumer protections and requirements for 
comprehensive coverage established under the Code, ERISA, and the PHS 
Act (hereinafter referred to as the ``Federal consumer protections and 
requirements for comprehensive coverage'').\5\ \6\
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    \5\ Sections 2701 through 2728 of the PHS Act, incorporated into 
section 715 of ERISA and section 9815 of the Code; section 104 of 
HIPAA; sections 408(b)(2), 505, 734, and 716-717 of ERISA; sections 
2746, 2761, 2792, 2799A-1-2, and 2799B1-B2 of the PHS Act; section 
1321(a)(1) and (c) of ACA; sections 7805, 9816-9817, and 9822 of the 
Code; and sections 2746, 2799A-1-2, and 2799B1-B2 of the PHS Act.
    \6\ See also 64 FR 70164 (December 15, 1999).
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B. Recent Executive Orders

    On January 28, 2021, President Biden issued Executive Order 14009, 
``Strengthening Medicaid and the Affordable Care Act,'' which directed 
the Departments to review policies to ensure their consistency with the 
Administration's goal of protecting and strengthening the ACA and 
making high-quality health care accessible and affordable for every 
American.\7\ Executive Order 14009 also directed Federal agencies to 
examine policies or practices that may undermine protections for people 
with preexisting conditions and that may reduce the affordability of 
coverage or financial assistance for coverage. Executive Order 14009 
also revoked the previous Administration's Executive Order 13813, 
``Promoting Healthcare Choice and Competition Across the United 
States,'' which directed agencies to expand the availability of 
STLDI.\8\ On April 5, 2022, President Biden issued Executive Order 
14070, ``Continuing to Strengthen Americans' Access to Affordable, 
Quality Health Coverage,'' which directed the heads of Federal agencies 
with responsibilities related to Americans' access to health coverage 
to examine polices or practices that make it easier for all consumers 
to enroll in and retain coverage, understand their coverage options, 
and select appropriate coverage; that strengthen benefits and improve 
access to health care providers; that improve the comprehensiveness of 
coverage and protect consumers from low-quality coverage; and that help 
reduce the burden of medical debt on households.\9\
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    \7\ Executive Order 14009 of January 28, 2021, 86 FR 7793.
    \8\ Executive Order 13813 of October 12, 2017, 82 FR 48385.
    \9\ Executive Order 14070 of April 5, 2022, 87 FR 20689.
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    In addition, on January 21, 2021, President Biden issued Executive 
Order 13995, ``Ensuring an Equitable Pandemic Response and Recovery,'' 
which directed the Secretaries of Labor and HHS, and the heads of all 
other agencies with authorities or responsibilities relating to the 
COVID-19 pandemic response and recovery, to consider any barriers that 
have restricted access to preventive measures, treatment, and other 
health services for populations at high risk for COVID-19 infection, 
and modify policies to advance equity.\10\
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    \10\ Executive Order 13995 of January 21, 2021, 86 FR 7193.
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    Consistent with these executive orders, the Departments have 
reviewed the regulatory provisions related to STLDI and fixed indemnity 
excepted benefits coverage, and propose amendments to those provisions 
in these proposed rules. The Departments also solicit comments on 
specified disease excepted benefit coverage (for example, cancer-only 
policies) in section III.B.2 of this preamble and on level-funded plan 
arrangements in section III.C of this preamble.

C. Short-Term, Limited-Duration Insurance (STLDI)

    STLDI is a type of health insurance coverage sold by health 
insurance issuers that is primarily designed to fill temporary gaps in 
coverage that may occur when an individual is transitioning from one 
plan or coverage to another, such as transitioning between employment-
based coverages. 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.'' \11\ The PHS Act does 
not, however, define the phrase ``short-term, limited-duration 
insurance.'' 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 STLDI from the definition of group 
health insurance coverage. Thus, any health insurance that is sold in 
the group market and purports to be STLDI must comply with applicable 
Federal group market consumer protections and requirements for 
comprehensive coverage, unless the coverage satisfies the requirements 
of one or more types of group market excepted benefits.
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    \11\ The definition of individual health insurance coverage (and 
its exclusion of STLDI) has some limited relevance with respect to 
certain provisions that apply to group health plans and group health 
insurance issuers over which the Departments of Labor and the 
Treasury also have jurisdiction. For example, an individual who 
loses coverage due to moving out of a health maintenance 
organization (HMO) service area in the individual market 
precipitates 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).
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    Because STLDI is not individual health insurance coverage, it is 
generally exempt from the applicable Federal individual market consumer 
protections and requirements for comprehensive coverage. STLDI is not 
subject to many PHS Act provisions that apply to individual health 
insurance coverage under the ACA including, for example, the 
prohibition of preexisting condition exclusions or other discrimination 
based on health status (section 2704 of the PHS Act), the prohibition 
on discrimination against individual participants and beneficiaries 
based on health status (section 2705 of the PHS Act), nondiscrimination 
in health care (section 2706 of the PHS Act), and the prohibition on 
lifetime and annual dollar limits on essential health benefits (section 
2711 of the PHS Act). In addition, STLDI is not subject to the Federal 
consumer protections and

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requirements added to the PHS Act by other laws that apply to 
individual health insurance coverage, including MHPAEA (Pub. L. 110-
343, October 3, 2008) (section 2726 of the PHS Act), and the No 
Surprises Act, as added by the CAA, 2021. Thus, individuals who enroll 
in STLDI are not guaranteed these key consumer protections under 
Federal law.\12\ This feature of STLDI is especially problematic when 
it is not readily apparent to consumers deciding whether to purchase 
STLDI or comprehensive individual health insurance coverage.
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    \12\ Some state laws apply some consumer protections and 
requirements that parallel those in the ACA to STLDI.
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    In 1997, the Departments issued interim final rules implementing 
the portability and renewability requirements of HIPAA (1997 HIPAA 
interim final rules).\13\ Those interim final rules included 
definitions of individual health insurance coverage, as well as STLDI. 
That definition of STLDI, which was finalized in rules issued in 2004 
and applied through 2016, defined ``short-term, limited-duration 
insurance'' 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.'' \14\
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    \13\ 62 FR 16894 (April 8, 1997).
    \14\ 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see 
also 69 FR 78720 (December 30, 2004).
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    To address the issue of STLDI being sold as a type of primary 
coverage, as well as concerns regarding possible adverse selection 
impacts on the individual market risk pools that were created under the 
ACA,\15\ the Departments published proposed rules on June 10, 2016 in 
the Federal Register titled ``Expatriate Health Plans, Expatriate 
Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; 
Lifetime and Annual Limits; and Short-Term, Limited-Duration 
Insurance'' (2016 proposed rules). Those rules proposed to revise the 
Federal definition of STLDI by shortening the permitted duration of 
such coverage, and adopting a consumer notice provision.\16\ On October 
31, 2016, the Departments finalized the 2016 proposed rules related to 
STLDI without change in final rules published in the Federal Register 
titled ``Excepted Benefits; Lifetime and Annual Limits; and Short-Term, 
Limited-Duration Insurance'' (2016 final rules).\17\ The 2016 final 
rules amended the definition of STLDI to specify that the maximum 
coverage period must be less than 3 months, taking into account any 
extensions that may be elected by the policyholder with or without the 
issuer's consent.\18\ In addition, the 2016 final rules stated that the 
following notice must be prominently displayed in the contract and in 
any application materials provided in connection with enrollment in 
STLDI, in at least 14 point type:
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    \15\ See Public Law 111-148, section 1312(c)(1) and 45 CFR 
156.80.
    \16\ 81 FR 38019 (June 10, 2016).
    \17\ 81 FR 75316 (October 31, 2016).
    \18\ Id. at 75317-75318.
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    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.\19\
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    \19\ Id.
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    On June 12, 2017, HHS published a request for information (RFI) in 
the Federal Register titled ``Reducing Regulatory Burdens Imposed by 
the Patient Protection and Affordable Care Act & Improving Healthcare 
Choices to Empower Patients,'' \20\ which solicited 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.\21\ In response to this RFI, HHS received comments that 
recommended maintaining the definition of STLDI adopted in the 2016 
final rules, and comments that recommended expanding the definition to 
allow for a longer period of coverage. Commenters in support of 
maintaining the definition adopted in the 2016 final rules expressed 
concern that changing the definition could leave enrollees in STLDI at 
risk for significant out-of-pocket costs, and cautioned that expanding 
the definition of STLDI could facilitate its sale to individuals as 
their primary form of health coverage, even though such insurance lacks 
key consumer protections under Federal law that apply to individual 
health insurance coverage. Commenters in favor of maintaining the 
definition in the 2016 final rules also suggested that amending the 
2016 final rules to include coverage lasting 3 months or more could 
have the effect of pulling healthier people out of the individual 
market risk pools, thereby increasing overall premium costs for 
enrollees in individual health insurance coverage and destabilizing the 
individual market.
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    \20\ 82 FR 26885 (June 12, 2017).
    \21\ See also Executive Order 13813 of October 12, 2017 82 FR 
48385. (Directing the Secretaries of the Treasury, Labor and HHS ``. 
. . to consider proposing regulations or revising guidance, 
consistent with law, to expand the availability of [STLDI]. 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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    In contrast, several other commenters stated that changes to the 
2016 final rules may provide an opportunity to achieve the goals 
outlined in the RFI (for example, to promote consumer choice, enhance 
affordability, and affirm the traditional authority of the States in 
regulating the business of insurance). These commenters stated that 
shortening the permitted length of STLDI policies in the 2016 final 
rules had deprived individuals of affordable coverage options. One 
commenter explained that due to the increased costs of comprehensive 
coverage, many financially stressed individuals could be faced with a 
choice between purchasing STLDI and going without any coverage at all. 
One commenter highlighted the need for STLDI for individuals who are 
between jobs for a relatively long period and for whom enrolling in 
Consolidated Omnibus Budget Reconciliation Act (COBRA) \22\ 
continuation coverage is financially infeasible. Another commenter 
noted that States have the primary responsibility to regulate STLDI and 
encouraged the Departments to defer to the States' authority with 
respect to such coverage.
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    \22\ Public Law 99-272, April 7, 1986.
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    On February 21, 2018, the Departments published proposed rules in 
the Federal Register titled ``Short-Term, Limited-Duration Insurance'' 
(2018 proposed rules) in which the Departments proposed changing the 
definition of STLDI to provide that such insurance may have a maximum 
coverage period of less than 12 months after the original effective 
date of the contract, taking into account any extensions that may be 
elected by the policyholder without the issuer's consent.\23\ Among 
other things, the Departments solicited comments on whether the maximum 
length of STLDI should be less than 12 months or some other duration 
and under what conditions issuers should be able to allow such coverage 
to continue for 12 months or longer. In addition, the Departments 
proposed to revise the content of the consumer notice that must appear 
in the contract and any application materials provided in

[[Page 44600]]

connection with enrollment in STLDI. The 2018 proposed rules included 
two variations of the consumer notice--one for policies that had a 
coverage start date before January 1, 2019, and the other for policies 
that had a coverage start date on or after January 1, 2019, which 
excluded language referencing the individual shared responsibility 
payment (which was reduced to $0 for months beginning after December 
2018).\24\
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    \23\ 83 FR 7437 (February 21, 2018).
    \24\ Public Law 115-97, December 22, 2017.
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    Some commenters on the 2018 proposed rules acknowledged that STLDI 
fills an important role by providing temporary coverage, but that such 
insurance should not take the place of comprehensive coverage. These 
commenters expressed concern that allowing STLDI to be marketed as a 
viable alternative to comprehensive coverage would subject uninformed 
consumers to potentially severe financial risks. Commenters who opposed 
the proposed changes to the definition also expressed concern that such 
plans would siphon off healthier individuals from the market for 
individual health insurance coverage, thereby raising premiums for 
individual health insurance coverage.
    Many of these commenters also expressed concerns about the lack of 
protections for consumers who purchase STLDI, stating that such 
policies are not a viable option for people with serious or chronic 
medical conditions due to potential coverage exclusions and benefit 
limitations in STLDI policies. These commenters further observed that 
STLDI policies can discriminate against individuals with serious 
illnesses or preexisting conditions, including individuals with mental 
health and substance use disorders, older consumers, women, transgender 
patients, persons with gender identity-related health concerns, and 
victims of rape and domestic violence. Many of these commenters also 
expressed concern about aggressive and deceptive marketing practices 
utilized by marketers of STLDI.
    Other commenters highlighted the important role that STLDI could 
play in providing temporary coverage to individuals who would otherwise 
be uninsured. These commenters, who supported the proposed changes to 
the definition, also noted that such changes would allow purchasers of 
STLDI to obtain the coverage they want at a more affordable price for a 
longer period.
    With respect to the maximum length of the initial contract term for 
STLDI, most commenters opposed extending the maximum duration beyond 3 
months. Others suggested periods such as less than 6 or 8 months. 
However, most commenters who supported extending the maximum initial 
contract term beyond 3 months suggested it should be 364 days. A few 
commenters suggested more than 1 year. Other commenters stated the 
maximum length of coverage should be left to the States. Commenters who 
supported the 2018 proposed rules generally favored permitting renewals 
of STLDI policies, while those who opposed the 2018 proposed rules 
generally opposed permitting such renewals.
    After reviewing comments and feedback received from interested 
parties, on August 3, 2018, the Departments published final rules in 
the Federal Register titled ``Short-Term, Limited-Duration Insurance'' 
(2018 final rules) \25\ with some modifications from the 2018 proposed 
rules. Specifically, in the 2018 final rules, the Departments amended 
the definition of STLDI to provide that STLDI is coverage with an 
initial term specified in the contract that is less than 12 months 
after the original effective date of the contract, and taking into 
account renewals or extensions, has a duration of no longer than 36 
months in total.\26\ The 2018 final rules also finalized the provision 
that issuers of STLDI must display one of two versions of a notice 
prominently in the contract and in any application materials provided 
in connection with enrollment in such coverage, in at least 14-point 
type. Under the 2018 final rules, the notice must read as follows (with 
the final two sentences omitted for policies sold on or after January 
1, 2019):
---------------------------------------------------------------------------

    \25\ 83 FR 38212 (August 3, 2018).
    \26\ Id.

    This coverage is not required to comply with certain Federal 
market requirements for health insurance, principally those 
contained in the Affordable Care Act. Be sure to check your policy 
carefully to make sure you are aware of any exclusions or 
limitations regarding coverage of preexisting conditions or health 
benefits (such as hospitalization, emergency services, maternity 
care, preventive care, prescription drugs, and mental health and 
substance use disorder services). Your policy might also have 
lifetime and/or annual dollar limits on health benefits. 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.

D. Independent, Noncoordinated Excepted Benefits: Hospital Indemnity or 
Other Fixed Indemnity Insurance and Specified Disease or Illness 
Coverage

    Section 9831 of the Code, section 732 of ERISA, and sections 
2722(b)-(c) and 2763 of the PHS Act provide that the respective Federal 
consumer protections and requirements for comprehensive coverage do not 
apply to any individual coverage or any group health plan (or group 
health insurance coverage offered in connection with a group health 
plan) in relation to its provision of certain types of benefits, known 
as ``excepted benefits.'' These excepted benefits are described in 
section 9832(c) of the Code, section 733(c) of ERISA, and section 
2791(c) of the PHS Act.
    HIPAA defined certain types of coverage as ``excepted benefits'' 
that were exempt from its portability requirements.\27\ The same 
definitions are applied to describe benefits that are not required to 
comply with some of the ACA requirements.\28\ There are four statutory 
categories of excepted benefits: independent, noncoordinated excepted 
benefits, which are the subject of these proposed rules; benefits that 
are excepted in all circumstances; \29\ limited excepted benefits; \30\ 
and supplemental excepted benefits.\31\ The category ``independent, 
noncoordinated excepted benefits'' includes coverage for only a

[[Page 44601]]

specified disease or illness (such as cancer-only policies) and 
hospital indemnity or other fixed indemnity insurance. These benefits 
are excepted under section 9831(c)(2) of the Code, section 732(c)(2) of 
ERISA, and section 2722(c)(2) of the PHS Act 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 an event without 
regard to whether benefits are provided with respect to such event 
under any group health plan maintained by the same plan sponsor or, 
with respect to individual coverage, under any health insurance 
coverage maintained by the same health insurance issuer.\32\ In 
addition, under the existing regulations, hospital indemnity and other 
fixed indemnity insurance in the group market must pay a fixed dollar 
amount per day (or other period) of hospitalization or illness, 
regardless of the amounts of expenses incurred, to be considered an 
excepted benefit.\33\ In the individual market, under the existing 
regulations, hospital indemnity and other fixed indemnity insurance 
must pay benefits in a fixed dollar amount per period of 
hospitalization or illness and/or per-service (for example, $100/day or 
$50/visit), regardless of the amount of expense incurred, to be 
considered an excepted benefit.\34\
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    \27\ See sections 9831(b)-(c) and 9832(c) of the Code, sections 
732(b)-(c) and 733(c) of ERISA, and sections 2722(b)-(c), 2763 and 
2791(c) of the PHS Act.
    \28\ Section 1551 of the ACA. See also section 1563(a) and 
(b)(12) of the ACA. Excepted benefits are also not subject to the 
consumer protections and other Federal requirements that apply to 
comprehensive coverage, including MHPAEA, the Newborns' and Mothers' 
Health Protection Act, the Women's Health and Cancer Rights Act, the 
Genetic Information Nondiscrimination Act of 2008, the Children's 
Health Insurance Program Reauthorization Act of 2009, Michelle's 
Law, and Division BB of the CAA, 2021.
    \29\ Under section 9832(c)(1) of the Code, section 733(c)(1) of 
ERISA, and section 2791(c)(1) of the PHS Act, this category 
includes, for example, accident and disability income insurance, 
automobile medical payment insurance, liability insurance and 
workers compensation, as well as ``[o]ther similar insurance 
coverage, specified in regulations, under which benefits for medical 
care are secondary or incidental to other insurance benefits.''
    \30\ Under section 9832(c)(2) of the Code, section 733(c)(2) of 
ERISA, and section 2791(c)(2) of the PHS Act, this category includes 
limited scope vision or dental benefits, benefits for long-term 
care, nursing home care, home health care, or community-based care, 
or other, similar limited benefits specified by the Departments 
through regulation.
    \31\ Under section 9832(c)(4) of the Code, section 733(c)(4) of 
ERISA, and section 2791(c)(4) of the PHS Act, this category includes 
Medicare supplemental health insurance (also known as Medigap), 
TRICARE supplemental programs, or ``similar supplemental coverage 
provided to coverage under a group health plan.''
    \32\ See also section 2763(b) of the PHS Act (providing that 
``[the] requirements of this part [related to the HIPAA individual 
market reforms] shall not apply to any health insurance coverage in 
relation to its provision of excepted benefits described in 
paragraph (2), (3), or (4) of section 2791(c) if the benefits are 
provided under a separate policy, certificate or contract of 
insurance.'').
    \33\ 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 
146.145(b)(4).
    \34\ 45 CFR 148.220(b)(4).
---------------------------------------------------------------------------

    The proposals in these rules related to independent, noncoordinated 
excepted benefits coverage are focused on the conditions that must be 
met for hospital indemnity and other fixed indemnity insurance in the 
group or individual markets to be considered excepted benefits under 
the Federal regulations. Additionally, in section III.B.2 of this 
preamble, the Departments solicit comments regarding specified disease 
excepted benefits coverage in the group and individual markets to 
inform potential future guidance or rulemaking related to such 
coverage, but are not proposing changes to the Federal regulations 
governing such coverage in this rulemaking.
1. Fixed Indemnity Excepted Benefits Coverage
    Like other forms of excepted benefits, fixed indemnity excepted 
benefits coverage does not provide comprehensive coverage. Rather, its 
primary purpose is to provide income replacement benefits.\35\ Benefits 
under this type of coverage are paid in a flat (``fixed'') cash amount 
following the occurrence of a health-related event, such as a period of 
hospitalization or illness, subject to the terms of the contract. In 
addition, benefits are typically provided at a pre-determined level 
regardless of any actual health care costs incurred by a covered 
individual with respect to the qualifying event. Although a benefit 
payment may equal all or a portion of the cost of care related to an 
event, it is not necessarily designed to do so, and the benefit payment 
is made without regard to the amount of medical expense incurred.\36\
---------------------------------------------------------------------------

    \35\ See, e.g., 62 FR 16903 (April 8, 1997) and 79 FR 15818 
(July 8, 2014).
    \36\ Jost, Timothy (2017). ``ACA Round-Up: Market Stabilization, 
Fixed Indemnity Plans, Cost Sharing Reductions, and Penalty 
Updates,'' Health Affairs, available at: https://www.healthaffairs.org/do/10.1377/forefront.20170208.058674/full. 
(``Fixed indemnity coverage is excepted benefit coverage that pays a 
fixed amount per-service or per-time period of service without 
regard to the cost of the service or the type of items or services 
provided.'').
---------------------------------------------------------------------------

    Traditionally, benefits under fixed indemnity excepted benefits 
coverage are paid directly to a policyholder, rather than to a health 
care provider or facility, and the policyholder has discretion over how 
to use such benefits--including using the benefits to cover non-medical 
expenses that may or may not be related to the event that precipitated 
the payment of benefits.\37\ Because fixed indemnity excepted benefits 
coverage is capped at a maximum benefit payment, design features aimed 
at reducing risk to the plan or issuer that are common in comprehensive 
coverage (such as medical management techniques, use of a preferred 
network of providers, or cost-sharing requirements) are unnecessary and 
are generally absent in this coverage.\38\
---------------------------------------------------------------------------

    \37\ AHIP (2019). ``Supplemental Health Insurance: Hospital or 
Other Fixed Indemnity, Accident-Only, Critical Illness,'' available 
at: https://www.ahip.org/documents/Supplemental-Health-Insurance-Fast-Facts.pdf.
    \38\ Young, Christen Linke and Kathleen Hannick (2020). ``Fixed 
Indemnity Coverage is a Problematic Form of ``Junk'' Insurance,'' 
U.S.C.-Brookings Schaeffer Initiative for Health Policy, available 
at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. (``Consumers are often seeking a 
product that transfers catastrophic financial risk to the health 
plan, but fixed indemnity products--almost by definition--do not do 
this. They set a payment amount associated with a specific service 
or kind of service [that] is received, and consumers are responsible 
for any difference between this set payment amount and the actual 
cost of care.'').
---------------------------------------------------------------------------

a. Group Market Regulations and Guidance
    The Departments' 1997 interim final rules implementing the 
portability and renewability requirements of HIPAA codified at 26 CFR 
54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4) 
established requirements for hospital indemnity and other fixed 
indemnity insurance to qualify as an excepted benefit in the group 
market. These requirements, which were effective until February 27, 
2005, provided that coverage for hospital indemnity or other fixed 
dollar indemnity insurance is excepted only if it meets each of the 
following conditions: (1) the benefits are provided under a separate 
policy, certificate or contract of insurance; (2) there is no 
coordination between the provision of the benefits and an exclusion of 
benefits under any group health plan maintained by the same plan 
sponsor; and (3) the benefits are paid with respect to an event without 
regard to whether benefits are provided with respect to the event under 
any group health plan maintained by the same plan sponsor.\39\
---------------------------------------------------------------------------

    \39\ 62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971 
(April 8, 1997).
---------------------------------------------------------------------------

    The Departments' group market regulations for fixed indemnity 
excepted benefits coverage were first amended in the 2004 HIPAA group 
market final rules. Those amendments added language to further clarify 
that to be hospital indemnity or other fixed indemnity insurance that 
is an excepted benefit, the insurance must pay a fixed dollar amount 
per day (or per other time period) of hospitalization or illness (for 
example, $100/day) regardless of the amount of expenses incurred.\40\ 
An illustrative example was also codified as part of these amendments 
clarifying that a policy providing benefits only for hospital stays at 
a fixed percentage of hospital expenses up to a maximum amount per day 
does not qualify as an excepted benefit.\41\ As explained in the 2004 
HIPAA group market final rules, the result is the same even if, in 
practice, the policy pays the maximum for every day of 
hospitalization.\42\
---------------------------------------------------------------------------

    \40\ 69 FR 78720 at 78735, 78762, 78780, and 78798-78799 
(December 30, 2004).
    \41\ Id. See also 26 CFR 54.9831-1(c)(4)(iii), 29 CFR 
2590.732(c)(4)(iii), and 45 CFR 146.145(b)(4)(iii).
    \42\ Id.
---------------------------------------------------------------------------

    The Departments later released Frequently Asked Questions (FAQ) on 
January 24, 2013, to offer additional guidance on the types of hospital 
indemnity or other fixed indemnity

[[Page 44602]]

insurance that meet the criteria for fixed indemnity excepted benefits 
coverage.\43\ The Departments issued the FAQ in response to reports 
that policies were being advertised as fixed indemnity coverage but 
were paying a fixed amount on a per-service basis (for example, per 
doctor visit or surgical procedure) rather than a fixed amount per 
period (for example, per day or per week). The FAQ affirmed that, under 
the 2004 HIPAA group market final rules, to qualify as fixed indemnity 
excepted benefits coverage, the policy must pay benefits on a per-
period basis as opposed to on a per-service basis.\44\ It also affirmed 
that group health insurance coverage that provides benefits in varying 
amounts based on the type of procedure or item, such as the type of 
surgery actually performed or prescription drug provided, does not 
qualify as fixed indemnity excepted benefits coverage because it does 
not meet the condition that benefits be provided on a per-period basis, 
regardless of the amount of expenses incurred.\45\
---------------------------------------------------------------------------

    \43\ Frequently Asked Questions about Affordable Care Act 
Implementation (Part XI) (Jan. 24, 2013), Q7, available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.
    \44\ Id.
    \45\ Id.
---------------------------------------------------------------------------

    The Departments proposed amendments to the group market regulations 
for fixed indemnity excepted benefits coverage in the 2016 proposed 
rules.\46\ As explained in those proposed rules, the Departments were 
concerned that some individuals may mistake these policies for 
comprehensive coverage that would be considered MEC.\47\ To avoid this 
confusion, the Departments proposed to adopt a notice requirement to 
inform enrollees and potential enrollees that the coverage is a 
supplement to, rather than a substitute for, comprehensive coverage, 
and also proposed to codify two illustrative examples to further 
clarify the condition that benefits be provided on a per-period 
basis.\48\ The Departments also requested comments on whether the 
conditions for hospital indemnity or other fixed indemnity insurance to 
be considered excepted benefits should be more substantively aligned 
between the group and individual markets.\49\ After consideration of 
comments, the Departments did not finalize the proposed changes to the 
group market regulation but noted their intention to address hospital 
indemnity and other fixed indemnity insurance in future rulemaking.\50\
---------------------------------------------------------------------------

    \46\ 81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-
38046 (June 10, 2016).
    \47\ Id. at 38031-38032.
    \48\ Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.
    \49\ As described in section I.D.1.b of this preamble, HHS 
amended the individual market fixed indemnity excepted benefits 
coverage regulation to provide additional flexibility, subject to 
several additional requirements that do not apply in the group 
market. 79 FR 30239 (May 27, 2014).
    \50\ 81 FR 75316 at 75317 (October 31, 2016).
---------------------------------------------------------------------------

b. Individual Market Regulations and Guidance
    HHS also issued an interim final rule in 1997 establishing the 
regulatory framework for the HIPAA individual market Federal 
requirements and addressing the requirements for hospital indemnity and 
other fixed indemnity insurance to qualify as an excepted benefit in 
the individual market.\51\ The initial HIPAA individual market fixed 
indemnity excepted benefits coverage regulation, which was effective 
until July 27, 2014, provided an exemption from the Federal individual 
market consumer protections and requirements for comprehensive coverage 
if the hospital indemnity or other fixed indemnity insurance provided 
benefits under a separate policy, certificate, or contract of insurance 
and met the noncoordination-of-benefits requirements outlined in the 
HHS group market excepted benefits regulations.\52\
---------------------------------------------------------------------------

    \51\ 62 FR 16985 at 16992 and 17004 (April 8, 1997).
    \52\ Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
---------------------------------------------------------------------------

    Following issuance of the Departments' January 24, 2013 FAQ,\53\ 
State insurance regulators and industry groups representing health 
insurance issuers expressed concerns that prohibiting hospital 
indemnity and other fixed indemnity insurance from payment on a per-
service basis in order to qualify as an excepted benefit could limit 
consumer access to an important supplemental coverage option.\54\ Based 
on this feedback, HHS announced in an FAQ released in January 2014 that 
it intended to propose amendments to the individual market fixed 
indemnity excepted benefits coverage regulation to allow hospital 
indemnity or other fixed indemnity insurance sold in the individual 
market to be considered an excepted benefit if four conditions were 
met.\55\ First, such coverage would be sold only to individuals who 
have other health coverage that is MEC, within the meaning of section 
5000A(f) of the Code. Second, no coordination between the provision of 
benefits and an exclusion of benefits under any other health coverage 
would be permitted. Third, benefits would be paid in a fixed dollar 
amount regardless of the amount of expenses incurred and without regard 
to whether benefits are provided with respect to an event or service 
under any other health insurance coverage. Finally, a notice would have 
to be prominently displayed to inform policyholders that the coverage 
is not MEC and would not satisfy the individual shared responsibility 
requirements of section 5000A of the Code. HHS explained that if these 
proposed revisions were implemented, hospital indemnity or other fixed 
indemnity insurance in the individual market would no longer have to 
pay benefits solely on a per-period basis to qualify as an excepted 
benefit.
---------------------------------------------------------------------------

    \53\ Frequently Asked Questions about Affordable Care Act 
Implementation (Part XI) (Jan. 24, 2013), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.
    \54\ While the FAQ only addressed fixed indemnity insurance sold 
in the group market, the same statutory framework and legal analysis 
also applies to hospital indemnity and fixed indemnity insurance 
sold in the individual market.
    \55\ Frequently Asked Questions about Affordable Care Act 
Implementation (Part XXVIII) and Mental Health Parity Implementation 
(Jan. 9, 2014), Q11, available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-xviii.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18.
---------------------------------------------------------------------------

    In the proposed rule titled ``Patient Protection and Affordable 
Care Act; Exchange and Insurance Market Standards for 2015 and Beyond'' 
(2014 proposed rule), HHS proposed to amend the criteria in 45 CFR 
148.220 for fixed indemnity insurance to be treated as an excepted 
benefit in the individual market.\56\ Consistent with the framework 
outlined in the January 2014 FAQ, the amendments proposed to eliminate 
the requirement that individual market fixed indemnity excepted 
benefits coverage must pay benefits only on a per-period basis (as 
opposed to a per-service basis) and instead proposed to require, among 
other things, that it be sold only as secondary to other health 
coverage that is MEC to qualify as an excepted benefit.\57\
---------------------------------------------------------------------------

    \56\ 79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
    \57\ Id.
---------------------------------------------------------------------------

    On July 28, 2014, in the rule titled ``Patient Protection and 
Affordable Care Act; Exchange and Insurance Market Standards for 2015 
and Beyond'' (2014 final rule), HHS finalized the proposed amendments 
to 45 CFR 148.220(b)(4) with some modifications. Pursuant to the 
finalized amendments, hospital indemnity or other fixed indemnity 
insurance in the individual market may

[[Page 44603]]

qualify as fixed indemnity excepted benefits coverage if it is paid on 
either a per-period or per-service basis subject to several additional 
requirements that do not apply to fixed indemnity excepted benefits 
coverage in the group market.\58\ Under 45 CFR 148.220(b)(4)(i), to 
qualify as excepted benefits coverage, benefits under an individual 
market hospital indemnity or other fixed indemnity insurance policy may 
only be provided to individuals who attest in their application that 
they have other health coverage that is MEC within the meaning of 
section 5000A(f) of the Code, or that they are treated as having MEC 
due to their status as a bona fide resident of any possession of the 
United States pursuant to section 5000A(f)(4)(B) of the Code.\59\ 
Further, to qualify as an excepted benefit, 45 CFR 148.220(b)(4)(iv) 
requires specific notice language be prominently displayed in the 
application materials for individual market hospital indemnity or other 
fixed indemnity insurance. Finally, consistent with the group market 
fixed indemnity excepted benefits coverage regulations, 45 CFR 
148.220(b)(4)(ii) implements the statutory noncoordination standard and 
requires that there is no coordination between the provision of 
benefits under the individual market fixed indemnity excepted benefits 
insurance policy and an exclusion of benefits under any other health 
coverage.
---------------------------------------------------------------------------

    \58\ 79 FR 30239 (May 27, 2014).
    \59\ As discussed later in this section and in section III.B.1.a 
of this preamble, the U.S. Court of Appeals for the District of 
Columbia vacated the requirement at 45 CFR 148.220(b)(4)(i) that an 
individual attest to having MEC prior to purchasing a fixed 
indemnity policy in order for the policy to qualify as an excepted 
benefit. Central United Life Insurance v. Burwell, 827 F.3d 70 (D.C. 
Cir. 2016).
---------------------------------------------------------------------------

    HHS made these changes in the 2014 final rule for two reasons. 
First, as stated previously, interested parties, including State 
insurance regulators and industry groups representing health insurance 
issuers, communicated to HHS that fixed indemnity plans that paid 
benefits on a per-service basis were widely available as a complement 
to comprehensive coverage in the group and individual markets. The 
National Association of Insurance Commissioners (NAIC) also expressed 
that State insurance regulators believed fixed indemnity plans that 
paid benefits on a per-service basis provided consumers an important 
supplemental coverage option by helping consumers that purchase MEC pay 
for out-of-pocket costs.\60\ Second, beginning in 2014, most consumers 
were required to have MEC in order to avoid being subject to an 
individual shared responsibility payment under section 5000A of the 
Code. HHS adopted the MEC attestation requirement to prevent fixed 
indemnity excepted benefits coverage in the individual market from 
being offered as a substitute for comprehensive coverage while also 
accommodating the concerns of interested parties who supported allowing 
fixed indemnity excepted benefits coverage in the individual market to 
pay benefits on a per-service basis, rather than only on a per-period 
basis.\61\ However, in its 2016 decision in Central United Life 
Insurance Company v. Burwell, the U.S. Court of Appeals for the 
District of Columbia invalidated the requirement at 45 CFR 
148.220(b)(4)(i) that an individual must attest to having MEC prior to 
purchasing fixed indemnity excepted benefits coverage in the individual 
market.\62\ The Court did not engage in a severability analysis to 
determine whether HHS would have intended to leave the remaining 
provisions of the regulation in place, and left intact the language 
permitting fixed indemnity excepted benefits coverage in the individual 
market to be provided on a per-service basis.
---------------------------------------------------------------------------

    \60\ National Association of Insurance Commissioners (2013). 
``Letter to Secretaries of Labor, Treasury, and Health and Human 
Services,'' available at: https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541. (``State regulators believe 
hospital and other fixed indemnity coverage with variable fixed 
amounts based on service type could provide important options for 
consumers as supplemental coverage. Consumers who purchase 
comprehensive coverage that meets the definition of `minimum 
essential coverage' may still wish to buy fixed indemnity coverage 
to help meet out-of-pocket medical and other costs.'').
    \61\ 79 FR 30239 at 30255 (May 27, 2014).
    \62\ 827 F.3d 70 (D.C. Cir. July 1, 2016).
---------------------------------------------------------------------------

2. Specified Disease Excepted Benefits Coverage
    Like hospital indemnity or other fixed indemnity insurance, 
coverage only for a specified disease or illness that meets the 
requirements under section 9831(c)(2) of the Code, section 732(c)(2) of 
ERISA, and section 2722(c)(2) of the PHS Act qualifies as a form of 
independent, noncoordinated excepted benefits coverage.\63\ Specified 
disease excepted benefits coverage is also not an alternative to 
comprehensive coverage, but rather provides a cash benefit related to 
the diagnosis or the receipt of items or services related to the 
treatment of one or more medical conditions specified in the insurance 
policy, certificate, or contract of insurance. The Departments are 
aware of various forms of coverage being marketed to consumers as 
specified disease or illness coverage under a number of labels, 
including ``specified disease,'' ``critical illness,'' and ``dread 
disease'' coverage (or insurance).\64\ Some forms of specified disease 
excepted benefits coverage pay benefits based on diagnosis or treatment 
for a single condition (such as diabetes), while others pay benefits 
related to diagnosis or treatment for a disease category (such as 
cancer).
---------------------------------------------------------------------------

    \63\ See also section 2763(b) of the PHS Act.
    \64\ See Healthinsurance.org (2023). ``Glossary: What is a 
Critical Illness Plan?,'' available at: https://www.healthinsurance.org/glossary/critical-illness-plan. See also 
American Council of Life Insurers (2021). ``Model 171 Benefits 
Overview: Presented to the NAIC Accident and Sickness Minimum 
Standards (B) Subgroup,'' available at: https://content.naic.org/sites/default/files/call_materials/Supplemental%20Benefits%20Overview.pdf.
---------------------------------------------------------------------------

    The Departments codified requirements for coverage only for a 
specified disease or illness to qualify as an excepted benefit in the 
group market in the 1997 HIPAA interim final rules.\65\ To qualify as 
excepted benefits in the group market, specified disease or illness 
coverage (for example, cancer-only policies) must provide benefits 
under a separate policy, certificate, or contract of insurance; there 
must be no coordination between the provision of the benefits and an 
exclusion of benefits under any group health plan maintained by the 
same plan sponsor; and benefits must be paid with respect to an event 
without regard to whether benefits are provided with respect to the 
event under any group health plan maintained by the same plan 
sponsor.66 67 HHS codified similar requirements for 
specified disease or illness coverage to qualify as an excepted benefit 
in the individual market in the 1997 interim final rule that 
established the regulatory framework for the HIPAA individual 
market.\68\ Unlike fixed indemnity excepted benefits coverage, the 
Departments have not issued subsequent rulemaking or guidance regarding 
specified disease excepted benefits coverage.
---------------------------------------------------------------------------

    \65\ 62 FR 16894 at 16903 (April 8, 1997).
    \66\ See 26 CFR 54.9831-1(c)(4)(i) and (ii), 29 CFR 
2590.732(c)(4)(i) and (ii), and 45 CFR 146.145(b)(4)(i) and (ii).
    \67\ The Departments' group market regulations for specified 
disease excepted benefits coverage were later affirmed, without 
change, in the 2004 HIPAA group market final rules. See 69 FR 78720 
at 78762, 78780, and 78798-78799 (December 30, 2004). See also 45 
CFR 148.220(b)(3).
    \68\ 62 FR 16985 at 16992, 17004 (April 8, 1997). See also 
section 2763(b) of the PHS Act.
---------------------------------------------------------------------------

    In the preamble to the 2016 proposed rules, the Departments 
solicited comments on whether a policy covering multiple specified 
diseases or illnesses may be considered to be excepted benefits, but 
did not propose changes to the rules governing specified disease 
excepted benefits coverage. The Departments sought comments on

[[Page 44604]]

whether such policies should be considered excepted benefits and, if 
so, whether protections were needed to ensure they were not mistaken 
for comprehensive coverage, expressing concern that individuals who 
purchase a specified disease policy covering multiple diseases or 
illnesses may incorrectly believe they are purchasing comprehensive 
coverage when, in fact, these polices are not subject to Federal 
consumer protections and requirements for comprehensive coverage.\69\ 
The Departments declined to address specified disease excepted benefits 
coverage in the 2016 final rules, but noted that they might address 
such coverage in future regulations or guidance.\70\
---------------------------------------------------------------------------

    \69\ 81 FR 38019, 38032 (June 10, 2016).
    \70\ 81 FR 75316, 75317, footnote 12 (October 31, 2016).
---------------------------------------------------------------------------

E. Tax Treatment and Substantiation Requirements for Amounts Received 
From Fixed Indemnity Insurance and Certain Other Arrangements

    Hospital indemnity or other fixed indemnity insurance and coverage 
only for a specified disease or illness are treated as ``accident or 
health insurance'' under sections 104, 105, and 106 of the Code whether 
or not they are excepted benefits. Premiums paid by an employer 
(including by salary reduction pursuant to section 125 of the Code) for 
accident or health insurance are excluded from an employee's gross 
income under section 106 of the Code.
    Amounts received from accident or health insurance are excluded 
from a taxpayer's gross income under section 104(a)(3) of the Code if 
the premiums are paid for on an after-tax basis. The exclusion from 
gross income for these amounts under section 104(a)(3) of the Code does 
not apply to amounts attributable to contributions by an employer that 
were not includible in the gross income of the employee or amounts paid 
directly by the employer. This means that the exclusion under section 
104(a)(3) of the Code does not apply where the premiums or 
contributions paid for the accident or health insurance are paid on a 
pre-tax basis. The taxation of amounts received by an employee from 
accident or health insurance where the premiums or contributions are 
paid on a pre-tax basis is determined under section 105 of the Code.
    Section 105(a) of the Code provides that amounts received by an 
employee through accident or health insurance for personal injuries or 
sickness are included in gross income, except as otherwise provided in 
section 105. Section 105(b) of the Code excludes from gross income 
amounts paid by the employer to reimburse an employee's expenses for 
medical care (as defined in section 213(d) of the Code). Under 26 CFR 
1.105-2, the exclusion from gross income in section 105(b) of the Code 
``applies only to amounts which are paid specifically to reimburse the 
taxpayer for expenses incurred by him for the prescribed medical care. 
Thus, section 105(b) does not apply to amounts which the taxpayer would 
be entitled to receive irrespective of whether or not he incurs 
expenses for medical care'' and ``section 105(b) is not applicable to 
the extent that such amounts exceed the amount of the actual expenses 
for such medical care.'' Further, under longstanding regulations and 
guidance issued by the Treasury Department and the IRS, amounts for 
medical expenses within the meaning of section 213(d) of the Code must 
be substantiated if reimbursed by employment-based accident or health 
insurance that would not be excluded from a taxpayer's gross income but 
for the application of section 105(b) of the Code.\71\
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    \71\ See, e.g., 84 FR 28888, 28917 (June 20, 2019) (describing 
substantiation requirements for employer-sponsored health 
reimbursement arrangements); see also Q44-55 of IRS Notice 2017-67, 
2017-47 IRB 517; Prop. Treas. Reg. Sec.  1.125-6 (72 FR 43938, 
43960-43965 (August 6, 2007)); IRS Notice 2002-45, 2002-2 CB 93.
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F. Level-Funded Plan Arrangements

    The Departments understand that an increasing number of group 
health plan sponsors are utilizing a type of self-funded arrangement in 
which the plan sponsor makes set monthly payments to a service provider 
to cover estimated claims costs, administrative costs, and premiums for 
stop-loss insurance for claims that surpass a maximum dollar amount 
beyond which the plan sponsor is no longer responsible for paying 
claims (attachment point). This funding mechanism or plan type, known 
as level-funding, is increasingly utilized by small employers in 
particular. Stop-loss insurance is used by employers or group health 
plans as part of these plan arrangements to limit their financial 
responsibility, and the arrangements typically involve both employer 
and employee contributions. When the total dollar amount of the claims 
paid during the year is lower than the total amount of contributions 
attributed to claims costs, the plan or plan sponsor generally will 
receive a refund or carry the surplus over to the next plan year. When 
annual claims exceed projected claims, the subsequent year's monthly 
payments may, and oftentimes do, increase to adjust to the plan's 
claims experience.

II. Promoting Access to High-Quality, Affordable, and Comprehensive 
Coverage

    The Departments recognize that STLDI can provide temporary health 
insurance coverage for individuals who are experiencing brief periods 
without health coverage (for example, due to application of an employer 
waiting period), and that fixed indemnity excepted benefits coverage 
can provide consumers with income replacement that can be used to cover 
out-of-pocket expenses not covered by comprehensive coverage or to 
defray non-medical expenses (for example, mortgage or rent) in the 
event of an unexpected or serious health event. Both STLDI and fixed 
indemnity excepted benefits coverage generally provide limited benefits 
at lower premiums than comprehensive coverage,\72\ and enrollment is 
typically available at any time (sometimes subject to medical 
underwriting) rather than being restricted to open and special 
enrollment periods. However, given significant changes in the legal 
landscape and market conditions since the Departments last addressed 
STLDI and fixed indemnity excepted benefits coverage, and the low value 
that STLDI and fixed indemnity excepted benefits coverage provide to 
consumers when used as a substitute for comprehensive coverage, the 
Departments have determined that it is now necessary and appropriate to 
propose to amend the existing Federal regulations governing both types 
of coverage to more clearly distinguish them from comprehensive 
coverage and increase consumer awareness of coverage options that 
include the full range of Federal consumer protections.
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    \72\ Although it is typically true that the unsubsidized premium 
price for comprehensive coverage is greater than STLDI or fixed 
indemnity excepted benefits coverage, consistent with the greater 
level of benefits provided under comprehensive coverage, see the 
additional discussion in this section of this preamble regarding the 
availability of financial subsidies to reduce the premium and out-
of-pocket costs for comprehensive coverage purchased on an Exchange 
for eligible individuals.
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A. Access to Affordable Coverage

    In the preamble to the 2018 final rules, the Departments explained 
the decision to amend the definition of STLDI to expand access to such 
policies by citing STLDI as an important means to provide more 
affordable coverage options and more choices for consumers.\73\ The 
Departments cited a 21 percent increase in individual health

[[Page 44605]]

insurance coverage premiums between 2016 and 2017, and a 20 percent 
decrease in average monthly enrollment for individuals who did not 
receive PTC, along with a 10 percent overall decrease in monthly 
enrollment during the same period.\74\ Additionally, the Departments 
noted that in 2018 about 26 percent of enrollees (living in 52 percent 
of counties) had access to just one issuer on the Exchange.\75\
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    \73\ 83 FR 38212 at 38217 (October 2, 2018).
    \74\ Id. at 38214, citing CMS (2018). ``Trends in Subsidized and 
Unsubsidized Individual Health Insurance Market Enrollment,'' 
available at: https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.
    \75\ Id., citing KFF (2017). ``Insurer Participation on ACA 
Marketplaces, 2014-2018,'' now available at: https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021/.
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    However, since the publication of the 2018 final rules, 
comprehensive coverage for individuals has generally become more 
accessible and affordable. For example, a study examining issuer 
participation trends from 2014 to 2021 in every county in the United 
States found that the number of consumers with multiple issuer options 
for individual health insurance coverage on the Exchanges has grown 
consistently since 2018. In 2021, 78 percent of enrollees (living in 46 
percent of counties) had a choice of three or more health insurance 
issuers, up from 67 percent of enrollees in 2020 and 58 percent of 
enrollees in 2019. Only 3 percent of enrollees (residing in 10 percent 
of counties) resided in single-issuer counties--down from 26 percent of 
enrollees (residing in 52 percent of counties).\76\ The Centers for 
Medicare & Medicaid Services (CMS) reported that a record 16.4 million 
people enrolled in Exchange coverage during the 2023 Open Enrollment 
Period, including 3.7 million consumers (23 percent of total 
enrollments) who were new to Exchanges in 2023, and 12.7 million 
returning customers. Over 1.8 million more consumers signed up for 
coverage during the 2023 Open Enrollment Period compared to the same 
period in 2022 (a 13 percent increase), and nearly 4.4 million more 
consumers signed up compared to the 2021 Open Enrollment Period (a 36 
percent increase).\77\ As noted in section I.A of this preamble, 
enrollment gains during 2023 were influenced by the expansion of PTC 
subsidies, as first expanded under the ARP and then extended through 
2025 under the IRA.\78\ In an analysis prior to the passage of the IRA, 
the Congressional Budget Office stated that if the ARP subsidies were 
made permanent, they would attract 4.8 million new people to the 
Exchanges each year, and that 2.2 million fewer individuals would be 
without health insurance, on average, over the period from 2023-
2032.\79\
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    \76\ McDermott, Daniel and Cynthia Cox (2020). ``Insurer 
Participation on the ACA Marketplaces, 2014-2021,'' KFF, available 
at: https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021.
    \77\ CMS (2023). ``Health Insurance Marketplaces, 2023 Open 
Enrollment Report,'' available at: https://www.cms.gov/files/document/health-insurance-exchanges-2023-open-enrollment-report-final.pdf.
    \78\ Although unsubsidized premiums for 2023 increased on 
average between 2.2 percent and 4.7 percent compared to the previous 
year, after four years of declines, PTC under the IRA largely 
shielded consumers from these slight increases. See Ortaliza, Jared, 
Justin Lo, Krutika Amin, and Cynthia Cox (2022). ``How ACA 
Marketplace Premiums Are Changing By County in 2023,'' KFF, 
available at: https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023.
    \79\ Congressional Budget Office (2022). ``Letter from Phillip 
L. Swagel to Rep. Mike Crapo, ``Re: Health Insurance Policies,'' 
available at: https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf.
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    Additionally, on October 13, 2022, the IRS and the Treasury 
Department issued final regulations under section 36B of the Code to 
provide that affordability of employer-sponsored MEC for family members 
of an employee is determined based on the employee's share of the cost 
of covering the employee and those family members, not the cost of 
covering only the employee (2022 affordability rule).\80\ It was 
estimated that this rule change, aimed at addressing the issue often 
called the ``family glitch,'' will increase the number of individuals 
with PTC-subsidized Exchange coverage by approximately 1 million per 
year for the next 10 years.\81\ These anticipated enrollment trends and 
the availability of the enhanced subsidies allay the accessibility and 
affordability concerns expressed by the Departments in the preamble to 
the 2018 final rules regarding the availability of affordable options 
for comprehensive coverage, and offer further support for the proposals 
in these proposed rules aimed at helping consumers differentiate 
between comprehensive coverage and other forms of more limited health 
coverage.
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    \80\ 87 FR 61979 (October 13, 2022).
    \81\ Id. at 61999.
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    Although access to affordable comprehensive coverage has improved 
in recent years, the Departments recognize that affordability concerns 
continue to persist among consumers, including among consumers who are 
enrolled in comprehensive coverage. A 2022 national survey conducted by 
the Commonwealth Fund found that 29 percent of people with employer 
coverage and 44 percent of those with coverage purchased in the 
individual market were underinsured, meaning that their coverage did 
not provide them with affordable access to health care.\82\ The 
Departments believe that it is important to ensure consumers have 
access to a wide range of tools that can support access to affordable 
health care. However, neither STLDI nor fixed indemnity excepted 
benefits coverage represents a complete solution to larger issues of 
affordable access to health care and health coverage. Consumers who 
enroll in these plans as a substitute for comprehensive coverage or 
under the misapprehension that STLDI and fixed indemnity excepted 
benefits are a lower-cost equivalent to comprehensive coverage are at 
risk of being exposed to significant financial liability in the event 
of a costly or unexpected health event, often without knowledge of the 
risk associated with such coverage.
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    \82\ Collins, Sara, Lauren Haynes, and Relebohile Masitha 
(2022). ``The State of U.S. Health Insurance in 2022: Findings from 
the Commonwealth Fund Biennial Health Insurance Survey,'' 
Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-survey. Specifically, this study defined a person as 
``underinsured'' if they were insured all year but one of the 
following applied: (1) Out-of-pocket costs over the prior 12 months, 
excluding premiums, were equal to 10 percent or more of household 
income; (2) Out-of-pocket costs over the prior 12 months, excluding 
premiums, were equal to 5 percent or more of household income for 
individuals living under 200 percent of the FPL ($27,180 for an 
individual or $55,500 for a family of four in 2022); or (3) The 
deductible constituted 5 percent or more of household income.
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B. Risks to Consumers

    As noted in the introduction to section II of this preamble, the 
limitations on benefits and coverage under STLDI or fixed indemnity 
excepted benefits coverage may allow some issuers to offer such 
coverage at lower monthly premiums than comprehensive coverage. The 
Departments are concerned about additional costs to consumers who 
enroll in STLDI or fixed indemnity excepted benefits coverage and incur 
medical expenses that are not covered by such coverage. The typical 
limits on coverage provided by STLDI and fixed indemnity excepted 
benefits coverage can lead to more and higher uncovered medical bills 
than consumers enrolled in comprehensive coverage would incur, exposing 
consumers to greater financial risk.\83\ Healthy consumers who

[[Page 44606]]

enroll in STLDI or fixed indemnity excepted benefits coverage as an 
alternative to comprehensive coverage may not realize their STLDI or 
fixed indemnity excepted benefits coverage excludes or limits coverage 
for preexisting conditions (including conditions the consumer did not 
know about when they enrolled), or conditions contracted after 
enrollment, such as COVID-19.
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    \83\ Palanker, Dania, JoAnn Volk, and Kevin Lucia (2018). 
``Short-Term Health Plan Gaps and Limits Leave People at Risk,'' 
Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2018/short-term-health-plan-gaps-and-limits-leave-people-risk. 
(Describing STLDI marketing materials that list coverage limits that 
would fall far short of typical costs to a consumer, including 
$1,000 a day for hospital room and board coverage, $1,250 a day for 
the intensive care unit, $50 a day for doctor visits while in the 
hospital, $100 a day for inpatient substance abuse treatment, and 
$250 for ambulance transport).
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    Additionally, a consumer enrolled in STLDI may discover that a 
newly-diagnosed medical condition is categorized as a preexisting 
condition, and related medical expenses will not be covered by, or will 
be only partially covered by, their STLDI policy.\84\ For example, a 
consumer in Illinois who was diagnosed with Stage IV cancer a month 
after enrolling in STLDI was denied coverage for treatment by the STLDI 
issuer, both for treatments that led to his successful remission and 
for a potentially life-saving bone marrow transplant. In his case, the 
STLDI issuer of his policy determined that his cancer was a preexisting 
condition because he had disclosed experiencing back pain of 
undiagnosed cause to the broker who sold him his STLDI policy--leaving 
him with $800,000 of medical debt and without meaningful health 
coverage as he continued to fight his illness.\85\
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    \84\ See Lueck, Sarah (2018). ``Key Flaws of Short-Term Health 
Plans Pose Risks to Consumers,'' Center on Budget and Policy 
Priorities, available at: https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers. See also 
Hall, Mark and Michael McCue (2022). ``Short-Term Health Insurance 
and the ACA Market,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market. See also Partnership to Protect Coverage (2021). 
``Under-Covered: How `Insurance-Like' Products are Leaving Patients 
Exposed,'' available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf.
    \85\ Partnership to Protect Coverage (2021). ``Under-Covered: 
How `Insurance-Like' Products are Leaving Patients Exposed,'' 
available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf.
---------------------------------------------------------------------------

    The financial risk for consumers that encounter newly diagnosed 
conditions or a significant medical event while enrolled in STLDI 
increases with the length of their policy. In fact, researchers found 
that because the maximum annual limitation on an individual's cost 
sharing for essential health benefits under section 1302(c)(1) of the 
ACA does not apply to STLDI, the maximum out-of-pocket health care 
spending limit for STLDI was on average nearly three times that of 
comprehensive coverage in 2020.\86\ A 2020 report found that over 60 
percent of the STLDI policies surveyed had a maximum out-of-pocket 
limit greater than the $7,900 limit that was permitted for self-only 
comprehensive coverage in 2019, and 15 percent had limits in excess of 
$15,000; as is typical for STLDI, these limits apply only to the 
coverage period, which in some cases was only 6 months, compared to the 
annual limits required under the ACA.\87\ Consumers enrolled in STLDI 
who ultimately require medical care are more likely to incur higher 
out-of-pocket costs than if they had enrolled in comprehensive 
coverage.\88\
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    \86\ Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of 
Short-term Limited-duration Policy Expansion on Patients and the ACA 
Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \87\ Id. See also, Palanker, Dania, Kevin Lucia, and Emily 
Curran (2017). ``New Executive Order: Expanding Access to Short-Term 
Health Plans Is Bad for Consumers and the Individual Market,'' 
Commonwealth Fund, available at https://www.commonwealthfund.org/blog/2017/new-executive-order-expanding-access-short-term-health-plans-bad-consumers-and-individual. (``When considering the 
deductible, the best-selling plans have out-of-pocket maximums 
ranging from $7,000 to $20,000 for just three months of coverage. In 
comparison, the ACA limits out-of-pocket maximums to $7,150 for the 
entire [2017 calendar] year.'').
    \88\ Id.
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    As noted in section I.D.1 of this preamble, consumers who enroll in 
fixed indemnity excepted benefits coverage as an alternative to 
comprehensive coverage bear similar risk and exposure to significant 
out-of-pocket expenses due to their health care costs exceeding the 
fixed cash benefit to which they may be entitled, if benefits are even 
provided for their illness or injury. While issuers of fixed indemnity 
excepted benefits coverage may emphasize the potential for cash 
benefits that sound generous outside of the context of the true costs 
of a significant medical event--such as a product suggesting that a 
consumer could receive a flat payment in excess of $10,000 following a 
five-day hospitalization--fixed indemnity excepted benefits coverage is 
not designed to, and typically does not, provide benefits relative to 
the full cost of such events. As noted by one expert, hospitalization 
costs can exceed $10,000 per day, even without accounting for provider 
services.\89\ A consumer who relied on fixed indemnity excepted 
benefits coverage and who required hospitalization would be left with 
tens of thousands of dollars in unpaid medical bills, and without 
comprehensive coverage designed to cover any long-term follow-up care 
costs.
---------------------------------------------------------------------------

    \89\ Appleby, Julie (2017). ``Brokers Tout Mix-And-Match 
Coverage To Avoid High-Cost ACA Plans,'' KFF, available at: https://kffhealthnews.org/news/brokers-tout-mix-and-match-coverage-to-avoid-high-cost-aca-plans.
---------------------------------------------------------------------------

    Consumers enrolled in STLDI and fixed indemnity excepted benefits 
coverage may experience financial hardship when their medical bills are 
unaffordable.\90\ Notably, the protections against balance billing and 
out-of-network cost sharing for certain out-of-network services 
established under the No Surprises Act, which are intended to shield 
consumers from surprise bills that can drive medical debt,\91\ do not 
apply to STLDI or fixed indemnity excepted benefits coverage.\92\ 
Because STLDI is typically subject to medical underwriting and not 
guaranteed renewable, consumers enrolled in STLDI as an alternative to 
comprehensive coverage may also be unable to renew STLDI at the end of 
the coverage period, increasing the risk of periods during which they 
are uninsured. Such consumers may not be able to purchase comprehensive 
coverage in the individual market until an open enrollment or special 
enrollment period occurs. Therefore, STLDI serves better as a bridge 
between different sources of comprehensive coverage than as an 
alternative to comprehensive coverage. Similarly, as noted in section 
I.D.1 of this preamble, fixed indemnity excepted benefit coverage 
serves best as an income replacement policy \93\ that supplements

[[Page 44607]]

comprehensive coverage rather than as an alternative to comprehensive 
coverage.
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    \90\ Unaffordable medical debt increasingly impacts members of 
disadvantaged and marginalized communities. See Lopes, Lunna, Audrey 
Kearney, Alex Montero, Liz Hamel, and Mollyann Brodie (2022). 
``Health Care Debt In The U.S.: The Broad Consequences Of Medical 
And Dental Bills,'' KFF, available at: https://www.kff.org/health-costs/report/kff-health-care-debt-survey. See also Himmelstein, 
David, Samuel Dickman, Danny McCormick, David Bor, Adam Gaffney, and 
Steffie Woolhandler (2022). ``Prevalence and Risk Factors for 
Medical Debt and Subsequent Changes in Social Determinants of Health 
in the US,'' JAMA Network Open, Volume 5 Issue 9:e2231898, available 
at: https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358.
    \91\ Families USA (2019). ``Surprise Medical Bills, Results from 
a National Survey,'' available at https://familiesusa.org/wp-content/uploads/2019/11/Surprise-Billing-National-Poll-Report-FINAL.pdf.
    \92\ See 26 CFR 54.9816-2T, 29 CFR 2590.716(b), and 45 CFR 
149.20(b).
    \93\ As an income replacement policy, the policyholder typically 
has broad discretion in how to use the fixed cash benefits provided, 
including but not limited to reimbursement for medical expenses not 
covered by comprehensive coverage (for example, deductibles, 
coinsurance, copays) or to defray non-medical costs (for example, 
mortgage or, rent).
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    In the preamble to the 2018 final rules, the Departments stated 
that individuals who purchased STLDI rather than being uninsured would 
potentially experience improved health outcomes and have greater 
protection from catastrophic health care expenses.\94\ However, recent 
experience with the COVID-19 public health emergency (PHE) \95\ has 
prompted the Departments to reassess the degree of protection generally 
afforded by coverage that is not subject to the Federal consumer 
protections and requirements for comprehensive coverage, such as STLDI 
and fixed indemnity excepted benefits coverage, and to reassess the 
value of a framework that instead encourages uninsured individuals to 
purchase comprehensive coverage. Enrollees in STLDI and fixed indemnity 
excepted benefits coverage with COVID-19 typically face significant 
limitations on coverage for COVID-19 related treatments, and high out-
of-pocket expenses.\96\ For example, neither STLDI nor fixed indemnity 
excepted benefits coverage was subject to requirements under section 
6001 of the Families First Coronavirus Response Act (Pub. L. 116-127, 
March 18, 2020), as amended by the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act) (Pub. L. 116-136, March 27, 2020), to 
cover COVID-19 diagnostic testing, without cost sharing, furnished 
during the COVID-19 PHE; \97\ or the requirement under section 3203 of 
the CARES Act to cover qualifying coronavirus preventive services, 
including COVID-19 vaccines, without cost sharing. Instead, both of 
these important coverage expansions enacted by Congress as part of the 
nation's response to the COVID-19 PHE only applied to comprehensive 
coverage. Any coverage of COVID-19 vaccines, diagnostic testing, or 
treatment by STLDI or fixed indemnity excepted benefits coverage was 
subject to the discretion of individual plans and issuers of these 
policies and applicable State law. Notably, the Health Resources and 
Services Administration's COVID-19 Coverage Assistance Fund, which 
reimbursed eligible health care providers for providing COVID-19 
vaccines to underinsured individuals,\98\ included enrollees in STLDI 
and excepted benefits coverage within the definition of 
underinsured.\99\ The CARES Act also amended the definition of 
``uninsured individual'' in Social Security Act section 1902(ss) to 
include individuals enrolled only in STLDI. Even individuals enrolled 
in STLDI or fixed indemnity excepted benefits coverage who are 
generally healthy are at risk of needing health care, and thus at risk 
of incurring unaffordable medical bills at any time. The COVID-19 PHE 
has underscored the unpredictability of when the need for medical care 
will arise, and the importance of encouraging individuals to enroll in 
comprehensive coverage.
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    \94\ 83 FR 38212, 38229 (October 2, 2018).
    \95\ On January 31, 2020, HHS Secretary Alex M. Azar II declared 
that as of January 27, 2020, a nationwide public health emergency 
(PHE) exists as a result of the 2019 novel coronavirus (COVID-19). 
See HHS Office of the Assistant Secretary for Preparedness and 
Response, Determination of the HHS Secretary that a Public Health 
Emergency Exists, available at: https://www.phe.gov/emergency/news/healthactions/phe/Pages/2019-nCoV.aspx. This declaration was last 
renewed by HHS Secretary Xavier Becerra on October 13, 2022, 
following previous renewals on April 21, 2020, July 23, 2020, 
October 2, 2020, January 7, 2021, April 15, 2021, July 20, 2021, and 
October 18, 2021, January 14, 2022, April 12, 2022, and July 15, 
2022. See HHS Office of the Assistant Secretary for Preparedness and 
Response, Renewal of Determination That A Public Health Emergency 
Exists, available at: https://aspr.hhs.gov/legal/PHE/Pages/covid19-13Oct2022.aspx. On January 30, 2023 and February 9, 2023, the Biden-
Harris Administration announced that it intended to end the PHE at 
the end of the day on May 11, 2023. See Executive Office of the 
President, Office of Management and Budget, Statement of 
Administration Policy: H.R. 382 and H.J. Res. 7 (Jan. 30, 2023), 
available at: https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf; Letter to U.S. Governors from HHS 
Secretary Xavier Becerra on renewing COVID-19 Public Health 
Emergency (PHE) (Feb. 9, 2023), available at: https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-public-health-emergency.html. The PHE did 
in fact end at the end of the day on May 11, 2023.
    \96\ See, e.g., Curran, Emily, Kevin Lucia, JoAnn Volk, and 
Dania Palanker (2020). ``In the Age of COVID-19, Short-Term Plans 
Fall Short for Consumers,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers. This study found that STLDI policies provide 
less financial protection than comprehensive coverage if an enrollee 
needs treatment for COVID-19. The study found that, among the 12 
brochures reviewed for STLDI policies being sold in Georgia, 
Louisiana, and Ohio, 11 excluded nearly all coverage for 
prescription drugs, with some providing limited coverage of 
inpatient drugs. The study further found that STLDI imposed high 
cost sharing, with deductibles ranging from $10,000 to $12,500 
(which did not count toward the enrollees' maximum out-of-pocket 
costs) and that enrollees may be required to meet separate 
deductibles for emergency room treatment, forcing some enrollees to 
face out-of-pocket costs of more than $30,000 over a 6-month period. 
Additionally, the study found that STLDI did not cover services 
related to preexisting conditions.
    \97\ FAQs about Families First Coronavirus Response Act and 
Coronavirus Aid, Relief, and Economic Security Act Implementation 
Part 42, Q1 (April 11, 2020), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf; Additional Policy and Regulatory Revisions in 
Response to the COVID-19 Public Health Emergency, 85 FR 71142, 71173 
(Nov. 6, 2020); FAQs about Affordable Care Act Implementation Part 
51, Families First Coronavirus Response Act and Coronavirus Aid, 
Relief, and Economic Security Act Implementation (Jan. 10, 2022), 
available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf (FAQs Part 51); and FAQs about Families First 
Coronavirus Response Act, Coronavirus Aid, Relief, and Economic 
Security Act and Health Insurance Portability and Accountability Act 
Implementation (FAQs Part 58), available at: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-58 and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-58.pdf. Note that the COVID-19 PHE ended on 
May 11, 2023.
    \98\ Underinsured individuals are defined for this purpose as 
having a health plan that either does not include COVID-19 vaccine 
administration as a covered benefit or covers COVID-19 vaccine 
administration but with cost sharing. See Health Resources and 
Services Administration, ``FAQs for The HRSA COVID-19 Coverage 
Assistance Fund,'' available at: https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq.
    \99\ Health Resources and Services Administration, ``FAQs for 
The HRSA COVID-19 Coverage Assistance Fund,'' available at: https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq.
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    The Departments have also become aware of potentially deceptive or 
aggressive marketing of STLDI and fixed indemnity excepted benefits 
coverage to consumers who may be unaware of the limits of these plans 
or the availability of Federal subsidies that could reduce the costs of 
premiums and out-of-pocket health care expenditures for comprehensive 
coverage purchased through an Exchange.\100\ The Departments note that 
these concerns are not limited to individual market consumers 
considering STLDI or fixed indemnity excepted benefits coverage. 
Reports that employers are increasingly offering fixed indemnity 
coverage alongside a plan that offers only a very limited set of 
primary or preventive care benefits (or in some cases, as the only form 
of health coverage) have also raised similar concerns about

[[Page 44608]]

consumers who obtain this health coverage through their employers.\101\ 
Consumers who are unaware of the coverage limitations of these 
arrangements, or who are employed by employers who are similarly 
unaware, can be faced with overwhelming medical costs if they require 
items and services that are not covered by their group health plan, 
because the fixed indemnity excepted benefits coverage provides only 
fixed cash benefits that may be far lower than the costs of medical 
services, rather than coverage intended to cover the costs of the 
medical services themselves. For example, a Texas consumer who was 
enrolled in two forms of health insurance through his employer received 
a $67,000 hospital bill after he experienced a heart attack. Although 
he believed his two policies would provide comprehensive coverage, he 
learned that his coverage was provided through a group health plan that 
covered only preventive services and prescription drugs and a fixed 
indemnity excepted benefits coverage policy that provided a cash 
benefit of less than $200 per day of hospitalization.\102\ 
Additionally, employers may incur penalties if they erroneously treat 
fixed indemnity policies as excepted benefits when the policies do not 
meet the requirements for excepted benefits (for example, when they are 
not offered as independent, noncoordinated benefits) and fail to comply 
with applicable group market Federal consumer protections and 
requirements for comprehensive coverage, such as the requirement to 
provide participants, beneficiaries, and enrollees with a summary of 
benefits and coverage that meets applicable content requirements or the 
prohibition on lifetime and annual dollar limits on essential health 
benefits.\103\ In light of research revealing significant disparities 
in health insurance literacy among certain underserved racial and 
ethnic groups and people with incomes below the FPL,\104\ the 
Departments are also concerned that underserved populations may be 
particularly vulnerable to misleading or aggressive sales and marketing 
tactics that obscure the differences between comprehensive coverage and 
STLDI or fixed indemnity excepted benefits coverage, exposing these 
populations to higher levels of health and financial risks. As noted in 
Executive Order 13995, the COVID-19 pandemic has ``exposed and 
exacerbated severe and pervasive health and social inequities in 
America,'' highlighting the urgency with which such inequities must be 
addressed. These concerns continue amid the Medicaid unwinding period 
that began on April 1, 2023 during which State Medicaid programs have 
12 months to initiate, and 14 months to complete, a renewal for all 
individuals enrolled in Medicaid, the Children's Health Insurance 
Program (CHIP), and, if applicable, the Basic Health Program 
(BHP).\105\ HHS has estimated that 15 million beneficiaries will lose 
Medicaid, CHIP, or BHP coverage as a result of Medicaid unwinding.\106\ 
The Departments are concerned that the large population of individuals 
at risk of losing Medicaid and those other forms of coverage, due to a 
loss of eligibility or as a result of administrative churn, may be 
susceptible to these marketing and sales tactics, and might therefore 
mistakenly enroll in STLDI or fixed indemnity excepted benefits 
coverage in lieu of comprehensive coverage.
---------------------------------------------------------------------------

    \100\ Palanker, Dania and Kevin Lucia (2021). ``Limited Plans 
with Minimal Coverage Are Being Sold as Primary Coverage, Leaving 
Consumers at Risk,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk. (Noting that 
fixed indemnity insurance may be ``bundled'' with other non-
comprehensive insurance products in such a way that ``the plans look 
like comprehensive coverage'' while still offering limited 
benefits). See also Palanker, Dania, JoAnn Volk, and Maanasa Kona 
(2019). ``Seeing Fraud and Misleading Marketing, States Warn 
Consumers About Alternative Health Insurance Products,'' 
Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health.
    \101\ Young, Christen Linke and Kathleen Hannick (2020). ``Fixed 
Indemnity Coverage is a Problematic Form of ``Junk'' Insurance,'' 
U.S.C.-Brookings Schaeffer Initiative for Health Policy, available 
at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance.
    \102\ Avila, Jaie (2019). ``Show Me Your Bill Helps Wipe Out 
$70K in Charges After Heart Attack,'' News 4 San Antonio, available 
at https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack.
    \103\ See 26 CFR 54.9815-2715(e); 29 CFR 2590.715-2715(e); 45 
CFR 147.200(e). See also section 2711 of the PHS Act and section 
4980D of the Code.
    \104\ Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary Kay 
Rayens (2019). ``Significant Disparities Exist in Consumer Health 
Insurance Literacy: Implications for Health Care Reform,'' Health 
Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496/. See also Villagra, Victor and 
Bhumika Bhuva (2019). ``Health Insurance Literacy: Disparities by 
Race, Ethnicity, and Language Preference,'' The American Journal of 
Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference.
    \105\ As a condition of receiving a temporary Federal Medical 
Assistance Percentage (FMAP) increase under section 6008 of the 
Families First Coronavirus Response Act, states were required to 
maintain enrollment of nearly all Medicaid enrollees during the 
COVID-19 PHE. This ``continuous enrollment condition'' was decoupled 
from the COVID-19 PHE and ended on March 31, 2023 under the 
Consolidated Appropriations Act, 2023. See CMS, Center for Consumer 
Information and Insurance Oversight, Temporary Special Enrollment 
Period (SEP) for Consumers Losing Medicaid or the Children's Health 
Insurance Program (CHIP) Coverage Due to Unwinding of the Medicaid 
Continuous Enrollment Condition-- Frequently Asked Questions (FAQ) 
(Jan. 27, 2023), available at: https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf.
    \106\ HHS, Assistant Secretary for Planning and Evaluation, 
Office of Health Policy, ``Unwinding the Medicaid Continuous 
Enrollment Provision: Projected Enrollment Effects and Policy 
Approaches,'' August 19, 2022, available at: https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf.
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C. Impact on Risk Pools

    At the time the 2018 final rules were issued, the Departments 
acknowledged that expanding access to STLDI could have potential 
negative effects on the risk pools for individual health insurance 
coverage and on individuals who find themselves insufficiently 
protected by the typically limited benefits of an STLDI policy. The 
Departments were of the view that the affordability and access 
challenges facing consumers at that time necessitated action to 
increase access to STLDI to provide an alternative option for 
individuals who were unable or disinclined to purchase comprehensive 
coverage.
    As discussed earlier in this section II, access to affordable 
comprehensive coverage has significantly improved since the 2018 final 
rules were published. However, research based on individual market data 
for plan year 2020 has substantiated concerns about the negative impact 
that the shift of healthier individuals from comprehensive coverage to 
STLDI has on individuals remaining in the individual market risk 
pools.\107\ Because healthier individuals are more likely to enroll in 
STLDI than individuals with known medical needs, the extended contract 
terms and renewal periods of STLDI under the current Federal 
regulations result in healthier consumers leaving (or opting out of) 
the individual market risk pools for extended periods of time. This has 
resulted in increased premiums for individuals seeking to purchase 
individual health insurance coverage.\108\

[[Page 44609]]

For unsubsidized individuals, the costs are borne directly by the 
consumer, and for subsidized individuals, the costs are borne to a 
large extent by the Federal Government in the form of increased per 
capita PTC spending associated with increased individual health 
insurance coverage premiums. Likewise, the increased reports and 
anecdotes about fixed indemnity excepted benefits coverage being 
marketed and sold as an alternative to comprehensive coverage raise 
concerns about the potential for such practices having a similar impact 
on the small group and individual market risk pools.
---------------------------------------------------------------------------

    \107\ See Dieguez, Gabriela and Dane Hansen (2020). ``The Impact 
of Short-term Limited-duration Policy Expansion on Patients and the 
ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \108\ Id. (``Carrier expectations for the impact of [regulatory 
actions including the expansion of short-term, limited-duration 
insurance policies and other loosely regulated insurance and the 
repeal of the federal individual shared responsibility payment being 
reduced to $0] on premiums in the ACA individual market for 2020 are 
approximately 4 percent in states that have not restricted the sale 
or duration of STLD policies . . . Among the states that have 
limited the impact of loosely regulated insurance through 
reinstating an individual mandate or by restricting STLD expansion, 
carriers have assumed an average premium impact in 2020 due to 
regulatory actions that is about 5 percent lower than other 
states.'') As noted in section VII.B.2.e of this preamble, this 
study also found that the few carriers that explicitly included a 
premium adjustment because of the adoption of the new Federal 
definition of STLDI in the 2018 final rules increased premiums by 
between 0.5 percent and 2 percent in 2020.
---------------------------------------------------------------------------

    Another study looking at States that have adopted policies that 
restrict STLDI to shorter durations than allowed under the current 
Federal regulations found that, from 2018 to 2020, States that 
restricted or prohibited the sale of STLDI saw fewer consumers enroll 
in such insurance, were able to keep more healthy people in the 
individual health insurance coverage market, and saw a greater decline 
in average medical costs for enrollees in individual health insurance 
coverage.\109\ The study reported that, as a result, the risk score--a 
measurement of the relative medical costs expected for the populations 
covered by comprehensive coverage in each State, both on- and off-
Exchange--decreased by 40 percent more in States with more regulation 
of STLDI than States with less regulation.\110\ As of January 20, 2020, 
12 States had enacted legislation prohibiting health status 
underwriting for STLDI, effectively banning the sale of STLDI in those 
States.\111\ Thirteen States and the District of Columbia prohibited 
the sale of STLDI policies with initial contract terms longer than 3 
months.\112\
---------------------------------------------------------------------------

    \109\ See Hall, Mark and Michael McCue (2022). ``Short-Term 
Health Insurance and the ACA Market,'' Commonwealth Fund, available 
at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market.
    \110\ Id.
    \111\ National Association of Insurance Commissioners (2023). 
``Short-Term Limited-Duration Health Plans,'' available at: https://content.naic.org/cipr-topics/short-term-limited-duration-health-plans.
    \112\ Id.
---------------------------------------------------------------------------

    In addition to ensuring that consumers can clearly distinguish 
STLDI from comprehensive coverage, this new evidence provides an 
additional basis for the Departments' conclusion that it is important 
to amend the Federal definition of STLDI.

D. Need for Rulemaking

    For the reasons described in this section II, the Departments are 
of the view that it is necessary to amend the Federal definition of 
STLDI to ensure that consumers can clearly distinguish STLDI from 
comprehensive coverage, protect the risk pools and stabilize premiums 
in the individual market, and promote access to affordable 
comprehensive coverage.
    With respect to individual market fixed indemnity excepted benefits 
coverage, the combination of the decision in the Central United case 
and the reduction of the individual shared responsibility payment to $0 
for months beginning after December 31, 2018, under the Tax Cuts and 
Jobs Act increased the risk that individuals would purchase fixed 
indemnity excepted benefits coverage as a substitute for comprehensive 
coverage. The Departments are of the view that these changes 
necessitate rulemaking with respect to fixed indemnity excepted 
benefits coverage. Further, while the Departments did not finalize the 
proposed amendments to the group market fixed indemnity excepted 
benefits coverage regulations outlined in the 2016 proposed rules, the 
Departments noted their intention to address fixed indemnity excepted 
benefits coverage in future rulemaking.\113\ The Departments have 
continued to monitor the impact of these coverage options and remain 
concerned about the negative impacts of fixed indemnity excepted 
benefits coverage on consumers when such products are sold as an 
alternative to comprehensive coverage. In light of the Departments' 
ongoing concerns about the numerous negative impacts of STLDI and fixed 
indemnity excepted benefits coverage being offered as an alternative to 
comprehensive coverage, as well as the significant changes in market 
conditions and in the legal landscape since the Departments' last 
regulatory actions addressing these products, the Departments are 
proposing changes to the Federal individual and group market 
regulations governing STLDI and fixed indemnity excepted benefits 
coverage. For similar reasons, as discussed in more detail in section 
IV.A of this preamble, the Treasury Department and the IRS propose to 
clarify the tax treatment of fixed amounts received by a taxpayer 
through certain employment-based accident or health insurance that are 
paid without regard to the amount of medical expenses incurred. In 
addition, the Departments solicit comments on specified disease 
excepted benefits coverage, as discussed in section III.B.2 of this 
preamble, and on level-funded plan arrangements, as discussed in 
section III.C of this preamble.
---------------------------------------------------------------------------

    \113\ Excepted Benefits; Lifetime and Annual Limits; and Short-
Term, Limited-Duration Insurance; Final Rule, 81 FR 75316 at 75317 
(October 31, 2016).
---------------------------------------------------------------------------

III. Overview of the Proposed Rules on Short-Term, Limited-Duration 
Insurance and Fixed Indemnity Excepted Benefits Coverage; Comment 
Solicitations Regarding Specified Disease Excepted Benefits Coverage 
and Level-Funded Plan Arrangements--The Departments of the Treasury, 
Labor, and Health and Human Services

A. Short-Term, Limited-Duration Insurance

    The Departments are proposing the following amendments to the 
Federal regulations at 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 
144.103 defining ``short-term, limited-duration insurance'' to better 
distinguish STLDI from individual health insurance coverage. These 
amendments would apply to new STLDI policies, certificates, or 
contracts of insurance sold or issued on or after the effective date of 
the final rules; that is, the date that is 75 days after publication of 
the final rules.\114\ STLDI policies, certificates, or contracts of 
insurance sold or issued before the effective date of the final rules 
(including any subsequent renewals or extensions consistent with 
applicable law) could still have an initial contract term of less than 
12 months and maximum duration of up to 36 months (taking into account 
any renewals or extensions), subject to any limits under applicable 
State law, but would be required to comply with the revised notice 
requirement for renewals and extensions.
---------------------------------------------------------------------------

    \114\ For purposes of this document, the term ``effective date 
of the final rules'' refers to the date that is 75 days after the 
date of publication of the final rules.
---------------------------------------------------------------------------

1. ``Short-Term''
    Under the current Federal regulations, contracts for STLDI must 
specify an expiration date that is less than 12 months after the 
original effective date of the contract, and, taking into account 
renewals or extensions, must have a duration of no longer than 36 
months in total.\115\ The Departments, however, are no longer of the 
view that permitting the longer duration for STLDI is in the best 
interests of consumers.
---------------------------------------------------------------------------

    \115\ See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 
144.103. See also 83 FR 38212 (August 3, 2018).
---------------------------------------------------------------------------

    Taking into account the potential risk to individuals who enroll in 
STLDI, the

[[Page 44610]]

increased availability of affordable comprehensive coverage options, 
the potential impact on the individual market risk pools, and consumer 
challenges in differentiating STLDI from individual health insurance 
coverage, the Departments propose to reinterpret the phrase ``short-
term'' to refer to a contract term of no more than 3 months. More 
specifically, the Departments propose to amend the Federal definition 
for STLDI under 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 
such that the coverage would have an expiration date specified in the 
policy, certificate, or contract of insurance that is no more than 3 
months after the original effective date. As discussed further in 
section III.A.2 of this preamble, the Departments also propose to amend 
the Federal definition of STLDI to reinterpret the phrase ``limited-
duration'' to mean that the maximum permitted duration for STLDI is no 
longer than 4 months in total, taking into account any renewals or 
extensions. Further, the new proposed Federal definition would provide 
that a renewal or extension includes the term of a new STLDI policy, 
certificate, or contract of insurance issued by the same issuer to the 
same policyholder within a 12-month period beginning on the original 
effective date of the initial policy, certificate, or contract of 
insurance.
    As described further in section III.A.6 of this preamble, these 
proposed rules would adopt a bifurcated approach to the applicability 
date that distinguishes between new STLDI that is sold or issued on or 
after the effective date of the final rules,\116\ and existing STLDI 
sold or issued before the effective date of the final rules. The 
proposed new Federal definition and maximum duration framework in these 
proposed rules would apply for new STLDI policies, certificates, or 
contracts of insurance sold or issued on or after the effective date of 
the final rules. Under the framework in these proposed rules, existing 
policies, certificates, or contracts of insurance sold or issued before 
the effective date (including any subsequent renewals or extensions 
consistent with applicable law) could still have an initial contract 
term of less than 12 months, and a maximum duration of up to 36 months 
(taking into account any renewals or extensions), subject to any limits 
under applicable State law. In the preamble to the 2018 final rules, 
the Departments discussed the importance of ensuring that consumers 
clearly understand the differences between these types of coverage in 
order to select the type of coverage that suits their needs. However, 
particularly in light of recent reports regarding deceptive marketing 
practices (as discussed in section III.A.3 of this preamble) and the 
risk of consumer confusion, the Departments are now of the view that 
interpreting ``short-term'' in a manner that prevents STLDI from having 
terms that are similar in length to a 12-month policy year for 
comprehensive individual health insurance coverage is the most 
important tool for consumers to distinguish between STLDI and 
comprehensive coverage.
---------------------------------------------------------------------------

    \116\ The Departments are of the view that an effective date 
that is 75 days after the date of publication of the final rule 
provides sufficient time for interested parties to review, 
understand, and meet their obligations under the final rule, without 
unnecessarily delaying the implementation of policies that are 
proposed to be finalized on the effective date. See sections III.A.6 
(STLDI) and III.B.1.g (fixed indemnity excepted benefits coverage) 
for additional discussion of applicability proposals.
---------------------------------------------------------------------------

    In addition, the Departments expressed in the preamble to the 2018 
final rules an expectation that the amended definition of STLDI would 
result in STLDI being distinguishable from comprehensive coverage 
because of the differences in their initial contract terms; the maximum 
duration of a policy itself; the types of notice requirements 
applicable to each type of coverage; and the classification of 
comprehensive coverage, but not STLDI, as MEC.\117\ However, since the 
2018 final rules became effective, and in light of the changes in the 
legal landscape and market conditions discussed in section II of this 
preamble, the Departments are now of the view that the current Federal 
definition of STLDI contributes to confusion between STLDI and 
comprehensive coverage and that confusion results in consumer harm. The 
Departments' proposal to reinterpret ``short-term'' to refer to 
coverage with a term of no more than 3 months is one change that would 
help ensure consumers are better able to distinguish between the two 
types of coverage and therefore make better informed coverage 
purchasing decisions.
---------------------------------------------------------------------------

    \117\ 83 FR 38215 (August 3, 2018).
---------------------------------------------------------------------------

    The Departments are concerned that the current interpretation and 
definition is too expansive and contributes to confusion regarding 
whether a policy is STLDI or comprehensive coverage. The combination of 
deceptive marketing practices (as discussed in section III.A.3 of this 
preamble) and the near-identical length of coverage for the initial 
contract term has proven to be confusing for consumers. As such, STLDI 
policies that include an initial term just shy of 12 months have not 
been easily distinguishable by consumers from comprehensive coverage 
available in the individual market, which generally has a 12-month 
policy year.\118\ In addition, the ability to renew or extend STLDI 
policies for up to 36 months is also somewhat similar to the structure 
of comprehensive coverage sold in the individual and group markets and 
makes STLDI harder to distinguish from comprehensive coverage options. 
As a result, STLDI is being sold in situations, including as a long-
term replacement for comprehensive coverage, that the exception from 
the definition of individual health insurance coverage was not intended 
to address.\119\ In some instances, individuals may mistakenly purchase 
STLDI as long-term health insurance coverage.\120\
---------------------------------------------------------------------------

    \118\ 45 CFR 144.103 (defining policy year for non-grandfathered 
health plans offered in the individual health insurance market as a 
calendar year).
    \119\ See, e.g., Palanker, Dania, and Volk JoAnn (2021). 
``Misleading Marketing of Non-ACA Plans Continued During COVID-19 
Special Enrollment Period,'' Center on Health Insurance Reforms, 
available at: https://georgetown.app.box.com/s/mn7kgnhibn4kapb46tqmv6i7putry9gt. See also Fernandez, Bernadette, 
Vanessa Forsberg, and Annie Mach (2018). ``Background Information on 
Health Coverage Options Addressed in Executive Order 13813,'' 
Congressional Research Service, available at: https://crsreports.congress.gov/product/pdf/R/R45216. See also Corlette, 
Sabrina, Kevin Lucia, Dania Palanker, and Olivia Hoppe (2019). ``The 
Marketing of Short-Term Health Plans: An Assessment of Industry 
Practices and State Regulatory Responses,'' Urban Institute, 
available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses.
    \120\ Government Accountability Office (2022). ``Private Health 
Insurance: Limited Data Hinders Understanding Short-Term Plans Role 
and Value During the COVID-19 Pandemic,'' available at: https://www.gao.gov/assets/730/720774.pdf.
---------------------------------------------------------------------------

    In determining the appropriate length of STLDI for the proposed 
amended Federal definition, and giving meaning to ``short-term,'' the 
Departments reflected on instances when individuals may experience a 
temporary gap in coverage. For example, a college student enrolled in 
student health insurance coverage that does not provide coverage during 
the summer when they are not enrolled in classes, or a teacher who 
changes jobs and has to wait until the fall to enroll in new coverage, 
would experience a temporary gap in coverage of roughly 3 months and 
would benefit from access to STLDI during that period. Individuals 
transitioning between other types of jobs may also experience a 
temporary break in coverage, even if their break in employment is 
negligible. In particular, section 2708 of the PHS Act and its 
implementing regulations permit a group health plan or health insurance 
issuer offering group health insurance coverage to apply a waiting

[[Page 44611]]

period (as defined in section 9801(b)(4) of the Code, section 701(b)(4) 
of ERISA, and 2704(b)(4) of the PHS Act) of up to 90 days.\121\ In 
addition, the implementing regulations allow for a reasonable and bona 
fide employment-based orientation period not to exceed 1 month. These 
provisions can result in a delay of approximately 3 to 4 months before 
coverage of an individual, who is otherwise eligible to enroll under 
the terms of a group health plan, can become effective.
---------------------------------------------------------------------------

    \121\ 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR 
147.116.
---------------------------------------------------------------------------

    Therefore, the Departments propose to amend the Federal definition 
of ``short-term, limited-duration insurance'' in 26 CFR 54.9801-2, 29 
CFR 2590.701-2, and 45 CFR 144.103 to reflect a new interpretation of 
the phrase ``short-term'' to mean a policy, certificate, or contract of 
insurance with an issuer that has an expiration date specified in the 
policy, certificate, or contract of insurance that is no more than 3 
months after the original effective date of the policy, certificate, or 
contract of insurance. This approach is consistent with the group 
market rules regarding the 90-day waiting period limitation provision 
under the ACA and with STLDI's role of serving as temporary coverage 
for individuals transitioning between other types of comprehensive 
coverage. It also is similar to the less-than-3-month maximum term in 
the Federal definition of STLDI adopted in the 2016 final rules and 
already enacted in a number of States,\122\ and aligns with the goal of 
Executive Order 14009 to support protections for people with 
preexisting conditions, as there are no Federal prohibitions or 
restrictions on preexisting condition limitations with respect to 
STLDI.
---------------------------------------------------------------------------

    \122\ Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah 
Kamal (2018). ``Understanding Short-Term Limited Duration Health 
Insurance,'' KFF, available at: https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/.
---------------------------------------------------------------------------

    It is reasonable to look to the group market waiting period rules 
to guide the proposed amendments to the Federal definition of STLDI in 
giving meaning to ``short-term,'' because a waiting period is the type 
of coverage gap that STLDI was initially intended to cover.\123\ For 
longer gaps in coverage, the guaranteed availability protections 
established under the ACA, COBRA continuation coverage for individuals 
who were enrolled in employer-based coverage, and the special 
enrollment period requirements for group health plan and individual 
health insurance coverage provide individuals various opportunities to 
enroll in comprehensive coverage through or outside of an Exchange.
---------------------------------------------------------------------------

    \123\ 81 FR 38020 at 38032 (June 10, 2016) (the intent of the 
initial regulation defining STLDI was to refer to coverage that 
filled temporary coverage gaps when an individual was transitioning 
from one plan or coverage to another).
---------------------------------------------------------------------------

    The Departments request comments on the proposed interpretation of 
the phrase ``short-term.'' The Departments also request comments on 
whether the interpretation of ``short-term'' in the proposed definition 
of STLDI should instead be no more than 4 months or some other length, 
and why.
2. ``Limited-Duration''
    Under the definition adopted in the 2018 final rules, the 
Departments interpreted the phrase ``limited-duration'' to preclude 
renewals or extensions of STLDI that extended a policy beyond a total 
of up to 36 months, with the total number of consecutive days of 
coverage under a single (that is, the same) insurance contract being 
the relevant metric to calculate the permissible duration of coverage. 
The Departments now propose an update to the Federal definition of 
``short-term, limited-duration insurance'' under 26 CFR 54.9801-2, 29 
CFR 2590.701-2, and 45 CFR 144.103 that would adopt a different 
interpretation of the phrase ``limited-duration.'' The Departments 
propose to reinterpret ``limited-duration'' to refer to a maximum 
coverage period that is no longer than 4 months in total, taking into 
account any renewals or extensions. This approach would allow STLDI to 
be extended, when consistent with applicable State law, to avoid a 
temporary gap in coverage if, for example, an employer implemented a 
bona fide employment-based orientation period of up to 1 month under 
the 90-day waiting period limitation provision under the ACA. An STLDI 
policy would meet the Federal definition of ``limited-duration'' so 
long as the coverage was not renewed or extended beyond a total of 4 
months from the original effective date of the policy, certificate, or 
contract of insurance, regardless of whether the coverage has an 
initial term of 1, 2, or 3 months. For example, an STLDI policy could 
have an initial term of 3 months and a renewal term of 1 month, or an 
initial term of 2 months and a renewal term of 2 months, consistent 
with the proposed amended Federal definition of STLDI.
    For this purpose, the Departments propose that a renewal or 
extension would include the term of a new STLDI policy, certificate, or 
contract of insurance issued by the same issuer to the same 
policyholder within the 12-month period beginning on the original 
effective date of the initial policy, certificate, or contract of 
insurance. In this context, the phrase ``same issuer'' would refer to 
the entity licensed to sell the policy, consistent with the definition 
of health insurance issuer in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 
45 CFR 144.103. Under this proposal, the relevant metric to calculate 
whether the duration of coverage satisfies the new Federal ``limited-
duration'' standard is the total number of days of coverage (either 
consecutive or non-consecutive) that a policyholder is enrolled in an 
STLDI policy with the same issuer. That calculation would apply 
regardless of whether the coverage is a renewal or extension under the 
same policy, certificate, or contract of insurance, or if it involves 
the issuance of a new STLDI policy, certificate, or contract of 
insurance to the same policyholder within the 12-month period beginning 
on the original effective date of the initial policy, certificate, or 
contract of insurance.
    In the 2018 final rules, the Departments took the position that the 
maximum length of COBRA continuation coverage serves as an appropriate 
benchmark for interpreting the term ``limited-duration'' with respect 
to STLDI. The 2018 final rules likened the limited-duration maximum to 
the maximum duration that employers are required to provide COBRA 
continuation coverage to qualified beneficiaries (18, 29, or 36 months 
depending on the nature of the qualifying event that precipitates the 
temporary coverage period).\124\

[[Page 44612]]

However, unlike STLDI, COBRA requires, and employees expect, that the 
elected COBRA continuation coverage provides the same benefits as the 
employee's employment-based coverage, and that the qualified 
beneficiaries may elect either the same coverage they had the day 
before the qualifying event occurred or coverage options provided to 
similarly situated current employees/participants.\125\ Additionally, 
Federal consumer protections and requirements for comprehensive 
coverage generally apply to COBRA continuation coverage. In contrast, 
STLDI is primarily designed to fill shorter gaps in coverage, such as 
when an individual is between enrollment in employment-based coverage, 
and it is generally not required to comply with Federal consumer 
protections and requirements for comprehensive coverage,\126\ or 
provide robust, comprehensive benefits.
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    \124\ For example, when a qualified employee loses coverage due 
to the termination of an employee's employment for any reason other 
than gross misconduct, or a reduction in the number of hours of 
employment, the group health plan must provide the qualified 
employee and their covered dependents an opportunity to elect COBRA 
continuation coverage for up to 18 months. A spouse or dependent 
child of a covered employee would have the opportunity to elect 
COBRA continuation coverage for up to 18 months if they lost 
coverage due to the termination of the covered employee's employment 
for any reason other than gross misconduct, a reduction in the hours 
worked by the covered employee, divorce or legal separation of the 
spouse from the covered employee, or death of the covered employee. 
In addition, if a child loses coverage because of a loss of 
dependent child status, the child would have the opportunity to 
elect up to 36 months of COBRA continuation coverage. The group 
health plan is required to provide up to 29 months of COBRA 
continuation coverage only if one of the qualified beneficiaries is 
disabled and meets certain requirements. A maximum COBRA period of 
36 months is only available to a spouse and dependents in limited 
circumstances such as the occurrence of a second qualifying event 
(for instance, the death of the covered employee, the divorce or 
legal separation of a covered employee and spouse, or a loss of 
dependent child status under the plan).
    \125\ 26 CFR 54.4980B-5.
    \126\ As noted above, health insurance issuers offering STLDI 
are subject to the new agent and broker compensation disclosure and 
reporting requirements in section 2746 of the PHS Act.
---------------------------------------------------------------------------

    In response to the 2016 and 2018 proposed rules, the Departments 
received comments requesting that the Departments not only limit 
renewals of the same policy, certificate, or contract of insurance, but 
also prohibit issuers from offering STLDI to consumers who have 
previously purchased STLDI from the same or different issuer, to 
prevent consumers from stringing together multiple consecutive 
policies, a practice commonly referred to as stacking.\127\ The 
Departments share the commenters' concern that stacking STLDI in effect 
lengthens the duration of coverage without offering the benefits and 
consumer protections of comprehensive coverage. As those commenters 
pointed out, this practice effectively circumvents the rules related to 
maximum duration and makes it more challenging for consumers to 
distinguish STLDI from comprehensive coverage, concerns that interested 
parties have reiterated in 2021 and 2022.\128\ If an issuer strings 
together multiple STLDI policies (whether of a 12-month or 4-month 
maximum) the coverage could be stacked to look very similar to the 
annual renewals that are common for comprehensive coverage but without 
the benefits the consumer would receive from comprehensive coverage. 
For example, when stacking new policies, an issuer could increase 
premiums and cost sharing and reset the deductible every 4 months. In 
contrast, if enrolled in comprehensive health insurance coverage, a 
consumer is guaranteed a stable level of coverage and cost sharing 
throughout the 12-month plan year, and the coverage is subject to 
Federal consumer protections and requirements that prohibit practices 
common to STLDI, including medical underwriting and coverage 
rescissions. Consumers that have already purchased STLDI policies from 
the same issuer may not be aware of, and may be less likely, to explore 
other coverage options that provide more comprehensive coverage at a 
better price. As a result, some consumers may enroll in STLDI mistaking 
it for comprehensive coverage or not understanding the limitations of 
the coverage.
---------------------------------------------------------------------------

    \127\ The Departments declined to prohibit stacking in the 2016 
final rules because the requirement that individuals obtain MEC in 
order to avoid making an individual shared responsibility payment 
was an adequate deterrent to discourage consumers from purchasing 
multiple successive STLDI policies. See 81 FR 75318. In the 
Department's view, reconsideration of such a prohibition is now 
warranted because the individual shared responsibility payment was 
reduced to $0 by the Tax Cuts and Jobs Act.
    \128\ Partnership to Protect Coverage (2021). ``Under-Covered: 
How `Insurance-Like' Products are Leaving Patients Exposed,'' 
available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf. (``STLDI plans 
should not be renewable or allowed to continue for more than three 
months because of the significant financial risk posed to consumers 
by their combination of extraordinary deductibles and limited 
catastrophic financial protection.''). See also Letter from 29 
organizations to Sec. Xavier Becerra (January 31, 2022), available 
at: https://www.lung.org/getmedia/8a510945-cd82-41fe-968e-d83faf2292eb/013122-Letter-to-HHS-Re-Regulation-of-STLDI-policy-preferences-FINAL.pdf. (``Allowing short-term plans to be renewed or 
to be sold such that nominally separate policies run consecutively . 
. . known as ``stacking''--contributes to consumer confusion, 
increased premiums, and financial risk for consumers.'').
---------------------------------------------------------------------------

    In response to these concerns and continued reports about the 
impact of the existing Federal definition of STLDI discussed in section 
III.A.I of this preamble, under the Departments' authority to interpret 
the phrase ``limited-duration,'' the Departments propose to add new 
language that provides that, for purposes of applying the new Federal 
definition, a renewal or extension includes the term of a new STLDI 
policy, certificate, or contract of insurance issued by the same issuer 
to the same policyholder within the 12-month period beginning on the 
original effective date of the initial policy, certificate, or contract 
of insurance.\129\ As explained elsewhere in this preamble section, 
under this proposal, the relevant metric to calculate and evaluate if 
the duration of coverage (taking into account any renewals or 
extensions) satisfies the proposed permitted maximum duration of no 
more than 4 months is the total number of days (either consecutive or 
non-consecutive) of coverage that a policyholder is enrolled in an 
STLDI policy with the same issuer within the 12-month period beginning 
on the original effective date of the initial policy, certificate, or 
contract of insurance, regardless of whether the coverage issued to the 
policyholder is under the same or a new policy, certificate, or 
contract of insurance. This calculation, however, would not include an 
STLDI policy, contract, or certificate of insurance sold to the same 
policyholder by a different issuer. This distinction would effectively 
limit stacking of policies sold by the same issuer, would be easier for 
issuers to track and comply with, and would allow consumers the 
flexibility to purchase subsequent STLDI policies from other issuers 
within a 12-month period. The Departments are of the view that 
subsequent sales to the same policyholder by the same issuer should be 
treated comparably to renewals for purposes of calculating and applying 
the maximum-duration standard. To do otherwise would undermine the 
maximum-duration requirements by allowing issuers to stack policies, 
and would contravene the initial purpose of STLDI policies to fill 
temporary gaps in comprehensive coverage.
---------------------------------------------------------------------------

    \129\ In response to the 2018 proposed rules, the Departments 
received comments regarding renewal guarantees. As explained in the 
preamble to the 2018 final rules, renewal guarantees generally 
permit a policyholder, when purchasing his or her initial insurance 
contract, to pay an additional amount in exchange for a guarantee 
that the policyholder can elect to purchase, for periods of time 
following expiration of the initial contract, another policy or 
policies at some future date, at a specific premium that would not 
require any additional underwriting. See 83 FR 38219-38220 (Aug. 3, 
2018). These proposed rules would not directly regulate renewal 
guarantees. However, the Departments acknowledge that the proposed 
revisions to the Federal definition--including the proposal to count 
the term of a new STLDI contract issued by the same issuer to the 
policyholder within the same 12-month period beginning on the 
original effective date of the initial policy, contract, or 
certificate of insurance toward the total maximum duration of 
STLDI--would limit the guarantees that such instruments may be able 
to provide.
---------------------------------------------------------------------------

    The Departments solicit comments on the proposed revisions to the 
Federal definition of ``short-term, limited-duration insurance,'' 
including the new proposed interpretation of the phrase ``limited-
duration,'' and whether there are circumstances under which issuers 
should be allowed to renew or extend STLDI for periods of time beyond 
what would be permitted in these proposed rules. The Departments also 
solicit comments on whether there are

[[Page 44613]]

additional ways to differentiate STLDI from comprehensive coverage 
options, including information on State approaches or limits on the 
sale of STLDI by a different issuer, and how the subsequent issuer 
would determine whether or not an applicant had previous STLDI with 
another issuer. The Departments also solicit comments on whether to 
broaden the limits on stacking to include issuers that are members of 
the same controlled group.
3. Sales and Marketing Practices
    The Departments are concerned by reports of aggressive and 
deceptive sales and marketing practices related to STLDI. According to 
these reports, STLDI is often marketed as a substitute for 
comprehensive coverage,\130\ despite being exempt from most of the 
Federal individual market consumer protections and requirements for 
comprehensive coverage. For example, some websites selling STLDI 
utilized logos of well-known issuers even when not affiliated with such 
issuers, and claimed to provide comprehensive health insurance or be 
providers of government-sponsored health insurance policies. Misleading 
marketing includes tactics such as designing websites to suggest the 
product for sale is comprehensive coverage and using the websites to 
gather personal information for call centers or brokers that later push 
consumers to make quick decisions about purchasing STLDI without 
disclosing that the insurance is not comprehensive coverage.\131\
---------------------------------------------------------------------------

    \130\ Federal Trade Commission (2018). ``FTC Halts Purveyors of 
Sham Health Insurance Plans,'' available at: https://www.ftc.gov/news-events/news/press-releases/2018/11/ftc-halts-purveyors-sham-health-insurance-plans.
    \131\ Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019). 
``Seeing Fraud and Misleading Marketing, States Warn Consumers About 
Alternative Health Insurance Products,'' Commonwealth Fund, 
available at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health. See also, Federal Trade Commission (2022). ``FTC 
Action Against Benefytt Results in $100 Million in Refunds for 
Consumers Tricked into Sham Health Plans and Charged Exorbitant Junk 
Fees,'' available at: https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans-charged.
---------------------------------------------------------------------------

    As another example, consumers shopping for health insurance online 
are often directed to websites selling STLDI or other plans that are 
not comprehensive coverage, using terms like ``Obamacare plans'' and 
``ACA enroll.'' websites use those terms in an effort to associate 
STLDI with the Federal consumer protections and requirements for 
comprehensive coverage.\132\ A report from the Government 
Accountability Office (GAO) uncovered brokers engaging in deceptive 
marketing practices that misrepresented or omitted information about 
products or claimed that preexisting conditions were covered when plan 
documents reflected that they were not.\133\ The GAO study also found 
that brokers have a financial incentive to enroll their clients in 
STLDI because brokers receive higher commissions for selling that 
coverage than for selling comprehensive coverage.\134\ For example, the 
financial incentive could be up to 10 times higher commissions when 
compared to individual market QHPs purchased through an Exchange.\135\ 
State regulators have also received complaints alleging that brokers 
engaged in deceptive practices to enroll consumers in STLDI over the 
phone. These practices prevent consumers from making an informed choice 
about their coverage.\136\
---------------------------------------------------------------------------

    \132\ Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia 
Hoppe (2019). ``The Marketing of Short-Term Health Plans: An 
Assessment of Industry Practices and State Regulatory Responses,'' 
Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses.
    \133\ Government Accountability Office (2020). ``Private Health 
Coverage: Results of Covert Testing for Selected Offerings,'' 
available at: https://www.gao.gov/products/gao-20-634r.
    \134\ Ibid.
    \135\ Keith, Katie (2020). ``New Congressional Investigation of 
Short-Term Plans,'' Health Affairs, available at: https://www.healthaffairs.org/do/10.1377/forefront.20200626.227261/full/.
    \136\ Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019). 
``Seeing Fraud and Misleading Marketing, States Warn Consumers About 
Alternative Health Insurance Products,'' Commonwealth Fund, 
available at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health.
---------------------------------------------------------------------------

    In addition, the Departments have received feedback that the low 
levels of health insurance literacy, particularly among younger adults 
and underserved populations, exacerbate the harm caused by deceptive 
marketing practices of STLDI by issuers and agents and brokers.\137\ 
Consumers have complained they were unaware that the issuer could 
decide not to renew or issue a new policy, certificate, or contract of 
insurance to the same consumer at the end of the contract term.\138\ 
Some consumers unwittingly purchase STLDI with fewer protections and 
less robust benefits than comprehensive coverage because they do not 
understand the difference between these two types of coverage.\139\
---------------------------------------------------------------------------

    \137\ Government Accountability Office (2020). ``Private Health 
Coverage: Results of Covert Testing for Selected Offerings,'' 
available at: https://www.gao.gov/products/gao-20-634r.
    \138\ Id.
    \139\ Id.
---------------------------------------------------------------------------

    In the Departments' view, this risk of misleading consumers could 
be further minimized if STLDI was not marketed or sold to consumers 
during certain periods when a consumer is eligible to enroll in 
comprehensive coverage, such as the individual market open enrollment 
period. Allowing STLDI to be marketed or sold during open enrollment 
can confuse consumers by causing them to perceive STLDI as a substitute 
for comprehensive coverage, rather than an option to fill temporary 
gaps in coverage. Inadvertent enrollment in STLDI may subject 
uninformed consumers to potentially severe financial risks, and cause 
them not to enroll in comprehensive coverage when eligible to do so. In 
addition, some healthier individuals may also inadvertently enroll in 
STLDI instead of comprehensive coverage, and in so doing, either leave 
or not enter an individual market risk pool. As discussed in section 
II.C of this preamble, this affects the risk pools for individual 
health insurance coverage, leading to increased premiums.
    The Departments solicit comments on additional ways to help 
consumers distinguish between STLDI and comprehensive coverage. In 
particular, the Departments are interested in feedback on ways to 
prevent or otherwise mitigate the potential for direct competition 
between STLDI and comprehensive coverage during the open enrollment 
period for individual market coverage. For example, some States have 
prohibited the sale of STLDI during open enrollment.\140\ The 
Departments are particularly interested in comments related to 
experience in States that have prohibited enrollment in STLDI during 
specific periods of time, including whether prohibiting enrollment has 
increased enrollment in comprehensive coverage, reduced deceptive 
marketing practices, or resulted in any premium changes for 
comprehensive coverage. In addition, the Departments request comments 
on what additional steps the Departments can take to help consumers 
better

[[Page 44614]]

understand and distinguish between comprehensive coverage and other 
forms of health insurance coverage, as well as what steps can be taken 
to further support State efforts to protect consumers from misleading 
and deceptive marketing and sales practices.
---------------------------------------------------------------------------

    \140\ Washington and Maine prohibit the sale of STLDI during 
open enrollment. In addition, Hawaii prohibits the sale of STLDI to 
individuals who were eligible to purchase an Exchange plan during 
open enrollment in the previous calendar year. See U.S. House of 
Representatives Committee on Energy and Commerce (2020). 
``Shortchanged: How the Trump Administration's Expansion of Junk 
Short-Term Health Insurance Plans Is Putting Americans at Risk,'' 
available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health.
---------------------------------------------------------------------------

4. Notice
    Under the 2018 final rules, to satisfy the definition of STLDI, 
issuers must display prominently in the contract and in any application 
materials provided in connection with enrollment in STLDI a specific 
notice in at least 14-point type.\141\ The 2018 final rules finalized 
two notices. The first notice (Notice 1) was for policies with a 
coverage start date before January 1, 2019, and includes language 
related to the individual shared responsibility payment under section 
5000A of the Code. The second notice (Notice 2), which is for policies 
with a coverage start date on or after January 1, 2019, omits the 
language related to the individual shared responsibility payment 
because, effective for months beginning after December 31, 2018, the 
individual shared responsibility payment was reduced to $0.\142\ The 
Departments propose a non-substantive technical amendment to remove 
Notice 1, because the period during which Notice 1 was applicable has 
ended; thus, that provision no longer has any effect.
---------------------------------------------------------------------------

    \141\ 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. 
See section I.C of this preamble for further discussion of this 
requirement.
    \142\ See Public Law 115-97, December 22, 2017.
---------------------------------------------------------------------------

    The Departments continue to be of the view that the notice is 
important to help consumers distinguish between comprehensive coverage 
and STLDI. Therefore, the Departments propose to amend the notice to 
further clarify the differences between STLDI and comprehensive 
coverage, and identify options for consumers to obtain comprehensive 
coverage in concise, understandable language that would be meaningful 
to them. The proposed amendments to the notice would apply to all STLDI 
policies sold or issued on or after the effective date of the final 
rules. The proposed amendments to the notice would only apply to 
existing policies in connection with notices required to be provided 
upon renewal or extension of existing STLDI coverage on or after the 
effective date of the final rules.
    After consulting with plain-language experts regarding improvements 
to the current required notice, the Departments propose the following 
revisions to both the content and formatting of the notice to inform 
consumers considering purchasing STLDI about the differences between 
STLDI and comprehensive coverage, support informed coverage purchasing 
decisions, and promote readability. The Departments propose that 
issuers must prominently display the notice (in either paper or 
electronic form) in at least 14-point font, on the first page of the 
policy, certificate, or contract of insurance, including for renewals 
or extensions. The Departments further propose that issuers must 
prominently display the notice in any marketing and application 
materials provided in connection with enrollment in such coverage, 
including on websites that advertise or enroll individuals in STLDI, 
and in any enrollment materials that are provided at or before the time 
an individual has the opportunity to enroll. In addition, if an 
individual is required to reenroll for purposes of renewal or extension 
of STLDI, the notice must be prominently displayed in the reenrollment 
materials (in either paper or electronic form) that are provided to the 
individual at or before the time the individual is given the 
opportunity to reenroll in coverage, as well as on any websites used to 
facilitate reenrollment in STLDI.
    The notice would not affect any separate notice requirements under 
applicable State law, except to the extent that a State notice 
requirement would prevent application of any Federal notice 
requirement. The text of the proposed STLDI notice is as follows:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P

[[Page 44615]]

[GRAPHIC] [TIFF OMITTED] TP12JY23.013

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
    These proposals to revise and enhance the required notice aim to 
increase consumer understanding of STLDI and combat potential 
misinformation related to such coverage for all consumers, including 
historically underserved communities. As noted in section II.B of this 
preamble, individuals belonging to historically underserved communities 
often experience more health care challenges, and greater obstacles 
accessing and using health care services compared to the general 
population. Underserved communities experience worse health outcomes, 
higher rates of chronic conditions, lower access to health care, and 
have more frequent experiences of discrimination in health care 
settings.\143\ The COVID-19 PHE amplified these longstanding 
inequities, resulting in disparate rates of COVID-19 infection, 
hospitalization, and death.\144\ In addition, research has uncovered 
significant disparities in health insurance literacy rates nationwide, 
particularly among those who identify as female, members of underserved 
racial and ethnic groups, individuals with income below the FPL, and 
Spanish-speaking enrollees.\145\ Because low health insurance literacy 
increases the likelihood of consumers not fully understanding the 
differences between comprehensive coverage and STLDI, as well as the 
potential health and financial risks of STLDI coverage,\146\ and in 
light of Executive Order 13985 which requires the Administration to 
promote access to equity for underserved communities,\147\ the 
Departments are concerned that members of underserved communities may 
be particularly vulnerable to misinformation or misleading or 
aggressive sales tactics. In light of these concerns, it is important 
for the notice to provide clear and easily readable information 
alerting consumers to the differences between STLDI coverage and 
comprehensive coverage. The Departments are of the view that the notice 
must also provide resources where consumers can access additional 
information about STLDI coverage and other health coverage options so 
consumers can make informed choices after considering a range of 
available health coverage options.
---------------------------------------------------------------------------

    \143\ See CMS Office of Minority Health (2022). ``The Path 
Forward: Improving Data to Advance Health Equity Solutions,'' 
available at: https://www.cms.gov/files/document/path-forwardhe-data-paper.pdf.
    \144\ Moore, Jazmyn, Carolina Luna-Pinto, Heidi Cox, Sima Razi, 
Michael St. Louis, Jessica Ricaldi, and Leandris Liburd (2021). 
``Promoting Health Equity During the COVID-19 Pandemic, United 
States,'' Bulletin of the World Health Organization, available at: 
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8795842.
    \145\ See, Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary 
Kay Rayens (2019). ``Significant Disparities Exist in Consumer 
Health Insurance Literacy: Implications for Health Care Reform,'' 
Health Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496/. See also Villagra, Victor and 
Bhumika Bhuva (2019). ``Health Insurance Literacy: Disparities by 
Race, Ethnicity, and Language Preference,'' The American Journal of 
Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference.
    \146\ Edward, Jean, Robin Thompson, and Amanda Wiggins (2022). 
``Health Insurance Literacy Levels of Information Intermediaries: 
How Prepared are They to Address the Growing Health Insurance Access 
Needs of Consumers?,'' Health Literacy Research and Practice, 6(1), 
available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8919673/.
    \147\ See, Executive Order 13985 of January 20, 2021, 86 FR 
7009.
---------------------------------------------------------------------------

    The Departments propose to add language to the notice to help 
consumers identify where and how they might be able to enroll in 
comprehensive coverage. The Departments propose to add a website link 
and telephone number for HealthCare.gov to the notice as reliable 
resources for consumers to get information on the different types of 
available health coverage options. The Departments are also considering 
that the notice be tailored to specify a telephone number and a link to 
the State Exchange's website if the STLDI is filed in a State that does 
not use

[[Page 44616]]

HealthCare.gov.\148\ The Departments seek comments on this approach, 
including the proposed requirement to provide the notice in the 
marketing, application, and enrollment (or reenrollment) materials, 
including the extension of the notice requirement to websites that 
advertise or offer the opportunity to enroll (or reenroll) in STLDI and 
on the associated administrative burden for issuers, agents, brokers, 
or others who will be involved in providing the notice to consumers.
---------------------------------------------------------------------------

    \148\ Currently, 33 states use HealthCare.gov. See, https://www.healthcare.gov/marketplace-in-your-state/.
_____________________________________-

    If, under any future final rules, the notice must be customized to 
specify the website and telephone number for HealthCare.gov or the 
State Exchange's website and telephone number, as applicable, the 
Departments would state that STLDI sold through associations \149\ 
include a link to the website of the Exchange that operates in the 
State in which the individual to whom the STLDI is sold or marketed 
resides, regardless of the State in which the association has filed the 
insurance product. The Departments are considering this approach for 
coverage sold through associations because association coverage is sold 
across numerous States, and consumers interested in other coverage 
options would enroll through the Exchange of the State in which the 
consumer resides.
---------------------------------------------------------------------------

    \149\ See discussion in section III.A.5 of this preamble 
regarding coverage sold through associations.
---------------------------------------------------------------------------

    The proposed revised notice would also remind consumers that if 
they are eligible to enroll in employment-based coverage they should 
contact their employer or family member's employer about the health 
coverage offered by the employer. In addition, the Departments propose 
to add language to the notice that directs consumers to contact the 
State department of insurance for questions and complaints about the 
STLDI. The Departments seek comments on whether this part of the notice 
should also be tailored to include the name and phone number of the 
State department of insurance of the State in which the product is 
filed. If the State-specific information must be included, for products 
that are filed in multiple States, the Departments propose that the 
notice include the name and the phone number of the State department of 
insurance of the State of residence of the individual to whom the STLDI 
is sold or marketed, unless the product is not filed in that State. If 
the product is not filed in the State of residence of the individual to 
whom the STLDI is sold or marketed, the notice would include the name 
and the phone number of the State department of insurance of the State 
in which the product is filed.
    The current regulations already state that the applicable notice 
must be displayed prominently in the contract and in any application 
materials provided in connection with enrollment in such coverage in at 
least 14-point type. However, based on information that consumers are 
not receiving adequate information prior to enrollment in an STLDI 
policy,\150\ the Departments are concerned that the current standard is 
too subjective and may be contributing to consumers not understanding 
the limits of STLDI and being unable to distinguish it from 
comprehensive coverage.\151\ Ensuring that issuers, agents, brokers or 
others who will be involved in providing the notice to consumers also 
prominently display the notice on the first page of marketing materials 
would increase consumer awareness, limit the impact of any deceptive 
marketing practices, and support informed decision making and 
purchasing decisions by consumers. The Departments therefore propose 
that the notice be prominently displayed, in at least 14-point font, on 
the first page of any marketing materials used in connection with 
enrollment (or reenrollment) in STLDI. The Departments propose to 
consider the notice to be prominently displayed if it would be 
reasonably noticeable to a typical consumer within the context of the 
page on which it is displayed. For example, the notice would be 
prominently displayed if it uses a font color that contrasts with the 
background of the document, is not obscured by any other written or 
graphic content on the page, and when displayed on a website, is 
viewable without clicking on an additional link. For this purpose, the 
Departments would consider marketing materials to include any documents 
or website pages that advertise the benefits or opportunity to enroll 
(or reenroll) in STLDI coverage. The Departments seek comments on the 
benefits and burdens of applying the notice requirements to marketing 
materials, including websites used in connection with advertising or 
enrollment (or reenrollment) in STLDI coverage, and on the proposed 
definition of what would be considered marketing materials.
---------------------------------------------------------------------------

    \150\ See, Corlette, Sabrina, Kevin Lucia, Dania Palanker, and 
Olivia Hoppe (2019). ``The Marketing of Short-Term Health Plans: An 
Assessment of Industry Practices and State Regulatory Responses,'' 
Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses.
---------------------------------------------------------------------------

    The Departments are considering adding a statement to the STLDI 
notice describing the maximum permitted length of STLDI under Federal 
rules, explaining that STLDI cannot be renewed or extended beyond the 
maximum allowable duration, and explaining that the length of STLDI may 
be shorter subject to State law. Adding this proposed additional 
language may reduce the impact of deceptive marketing practices on 
consumers that may otherwise be unaware or misinformed about the length 
of STLDI before renewing or extending an existing STLDI policy or 
enrolling in a new STLDI policy. However, including such language would 
also add to the length of the notice. The Departments seek comment on 
whether information about the maximum permitted length of new or 
existing STLDI and options regarding renewal and extensions would be 
included in enrollment materials (or reenrollment materials) provided 
to enrollees as part of the normal course of business. The Departments 
seek comment on this approach, including how best to clearly and 
concisely communicate such this information to consumers, including on 
how to address the bifurcated applicability dates with respect to the 
proposals around maximum initial contract length and maximum duration, 
whether such information is already included elsewhere in the plan 
documents; and on the associated administrative burden for issuers, 
agents, brokers, or others who would be involved in providing the 
notice to consumers.
    The Departments also solicit comments on whether it would be 
beneficial to consumers to require issuers to include language on the 
notice that clearly informs consumers that the notice is an officially 
required document, such as ``This notice is required by Federal law.''
    The Departments seek comments on all aspects of the proposed 
amendments to the notice and the proposed new Federal definition of 
STLDI, including whether the proposed language and proposed placement 
of the notice would achieve the stated aims of helping to inform 
consumers of the nature of the coverage and combat potential deceptive 
marketing practices as described in section III.A.3 of this preamble, 
and whether alternative or additional language, formatting, or 
mechanisms for delivery of the notice could better accomplish these 
goals. For example, the Departments request feedback on whether a 
different presentation, such as a chart comparing

[[Page 44617]]

the protections that apply to comprehensive coverage and STLDI, would 
result in a more useful, consumer-friendly notice than the format 
proposed in these rules.
    As an illustrative example of this different presentation, the 
Departments offer for consideration an alternative format for this 
notice that would aim to succinctly show important differences between 
STLDI and comprehensive coverage using a table. This alternative STLDI 
notice would include all of the information discussed earlier in this 
section of the preamble, but it would simplify word choice and reduce 
sentence length in order to further improve readability. The 
Departments request feedback on which version of the notice more 
effectively communicates information to individuals and how the notice 
format would impact accessibility, particularly for individuals who are 
vision-impaired or rely on screen readers or other technology to review 
written documents. The text of the alternative proposed STLDI notice is 
as follows:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P
[GRAPHIC] [TIFF OMITTED] TP12JY23.014

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
    The Departments seek comments on whether additional changes to the 
notice language would improve readability or further help individuals 
distinguish STLDI from comprehensive coverage, and whether there are 
practical or logistical barriers that would present any challenges to 
compliance with the new proposed notice standards. The Departments are 
also interested in comments on whether the proposed placement 
requirements would substantially improve the likelihood that consumers 
have a meaningful opportunity to review the notice and their health 
coverage options before applying, enrolling, or reenrolling in STLDI, 
as well as any practical or logistical barriers to providing this 
notice as proposed. The Departments particularly seek comments from 
members of underserved communities, and organizations that serve such 
communities, on whether the language accessibility, formatting, and 
content of the notice sufficiently mitigate barriers that exist to 
ensuring all individuals can read, understand, and consider the full 
range of their health coverage options.
    The Departments also solicit comments on the prevalence of 
instances where agents and brokers complete sales transactions with 
consumers for STLDI before distributing the applicable notice, and 
solicit comments on additional standards that would encourage 
salespeople, agents and brokers to notify individuals of the 
limitations of STLDI in accordance with these proposed rules.

[[Page 44618]]

5. Short-Term, Limited-Duration Insurance Sold Through Associations
    The Departments understand that most sales of STLDI occur through 
group trusts or associations that are not related to employment 
(sometimes referred to as individual membership associations).\152\ 
Under these arrangements, out-of-State issuers file insurance products 
for approval in one State and then sell the same policies in other 
States through an association, many times with few requirements for 
participation in the association by consumers, other than payment of 
association dues. Many State regulators have reported they lack the 
authority to track sales of policies made through out-of-State 
associations, and are unable to approve or regulate such policies when 
offered for sale by issuers that are not licensed by their State. 
Further, The Departments have received feedback that many issuers are 
taking advantage of the ambiguity about which State's jurisdiction 
applies, to avoid local State regulation. For example, one study found 
that in a review of 34 policy brochures for STLDI, 28 of the brochures 
included references to associations.\153\ Consumers may not understand 
that some STLDI marketed in their States is not regulated by their 
State and does not include State-based consumer protections.
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    \152\ See U.S. House of Representatives Committee on Energy and 
Commerce (2020). ``Shortchanged: How the Trump Administration's 
Expansion of Junk Short-Term Health Insurance Plans Is Putting 
Americans at Risk,'' available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health.
    \153\ Curran, Emily, Dania Palanker, and Sabrina Corlette 
(2019). ``Short-term Plans Sold Through Out-of-State Associations 
Threaten Consumer Protections,'' Commonwealth Fund, available at: 
https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections.
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    Coverage that is provided to or through associations, but not 
related to employment, and is sold to individuals, either as 
certificate holders or policyholders, is not group coverage under 
section 9832 of the Code, section 733(b)(4) of ERISA, and section 
2791(b)(4) of the PHS Act.\154\ If the coverage is offered to an 
association member other than in connection with a group health plan, 
the coverage is considered coverage in the individual market under 
Federal law, regardless of whether it is considered group coverage 
under State law. Thus, any health insurance sold to individuals through 
a group trust or association, other than in connection with a group 
health plan, or sold to a group trust or association to the extent the 
insurance is intended to cover association members who are individuals, 
must meet the definition of STLDI at 26 CFR 54.9801-2, 29 CFR 2590.701-
2, and 45 CFR 144.103, or else be considered individual health 
insurance coverage that is subject to all the Federal individual market 
consumer protections and requirements for comprehensive coverage.
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    \154\ 45 CFR 144.102(c).
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    The Departments are aware that some group trusts and associations 
have also marketed STLDI policies to employers as a form of employer-
sponsored coverage. As explained in section I.C of this preamble, there 
is no provision excluding STLDI from the Federal definition of group 
health insurance coverage.\155\ Thus, any health insurance that is sold 
to or through a group trust or association in connection with a group 
health plan and which purports to be STLDI would in fact be group 
health insurance coverage that must comply with the Federal consumer 
protections and requirements for comprehensive coverage applicable to 
the group market.
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    \155\ See section 2791(b)(5) of the PHS Act, which excludes 
STLDI from the definition of ``individual health insurance 
coverage.''
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    The Departments are not proposing any policies or policy changes 
specific to STLDI sold through associations, but request comments on 
what steps, if any, can be taken to support State oversight of STLDI 
sold to or through associations.
6. Applicability Dates
    In 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR 146.125 and 
148.102, the Departments propose applicability dates for the proposed 
amendments to the Federal definition of STLDI that distinguishes 
between new and existing STLDI. The Departments also propose a 
technical amendment to 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR 
146.125 to remove outdated language that references revisions to 45 CFR 
parts 144 and 146 that became effective on October 1, 2004, but were 
superseded by subsequent revisions that became effective on July 1, 
2005. The Departments propose the technical amendment would apply to 
all coverage (that is, both new and existing STLDI) as of the effective 
date of the final rules.
    For new STLDI sold or issued on or after the effective date of the 
final rules, the amendments to the definition of STLDI would apply for 
coverage periods beginning on or after such date. The Departments are 
of the view that timely implementation of the new Federal definition of 
STLDI, including both the maximum duration and revised notice 
provisions, for new coverage sold or issued on or after the effective 
date of the final rules, is critical to maximize the number of 
individuals benefiting from the consumer protections described 
throughout this preamble. This proposal would prevent delays in 
implementation of the new Federal definition of STLDI, while providing 
a sufficient transition period for interested parties to implement the 
new definition for new coverage sold on or after the effective date of 
the final rules.
    However, for STLDI sold or issued before the effective date of the 
final rules (including any subsequent renewal or extension consistent 
with applicable law), the current Federal definition of such coverage 
would continue to apply with respect to the maximum allowable duration. 
Therefore, existing STLDI could continue to have an initial contract 
term of less than 12 months and a maximum duration of up to 36 months 
(taking into account any renewals or extensions), subject to any limits 
under applicable State law. The Departments propose this applicability 
date with respect to the maximum allowable duration for existing STLDI 
(including renewals and extensions) to minimize disruption for 
individuals who purchased or were enrolled in STLDI prior to the 
effective date of the final rules. The Departments recognize that 
consumers already enrolled in STLDI may have anticipated having the 
option of continuing such coverage for a given period of time, 
consistent with the current rules. The proposal to permit such 
individuals to remain covered under STLDI for the maximum initial 
contract term, as well as for renewals and extensions to the extent 
permitted under the current regulations, subject to any limits under 
applicable State law, would promote continuous enrollment in coverage 
and ensure that these consumers have adequate time to transition to 
comprehensive coverage.
    The Departments propose that the amendments to the notice provision 
at paragraph (2) of the definition of ``short-term, limited-duration 
insurance'' in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 
would apply for coverage periods beginning on or after the effective 
date of the final rules, regardless of whether the coverage was sold or 
issued before, on, or after the effective date of the final rules.\156\ 
The Departments are of the view that the benefit to consumers, 
including those currently enrolled in STLDI, of a timely

[[Page 44619]]

notice update outweighs the burden to issuers of implementing these 
changes by the effective date of the final rules. Given that the 
updates to the notice are aimed at alerting consumers to the 
differences between comprehensive coverage and STLDI and providing 
consumers with the information necessary to make an informed decision 
about their coverage options, a delayed applicability date of the 
proposed changes to the notice could result in unnecessary harm to 
consumers.
---------------------------------------------------------------------------

    \156\ As noted above, the proposed revised notice would also 
apply to new STLDI coverage for coverage periods beginning on or 
after the effective date of the final rules.
---------------------------------------------------------------------------

    The Departments seek comments on whether the proposed revised 
notice should apply to only new STLDI or should apply to both new STLDI 
and existing coverage upon renewal or extension, and whether the 
application of the proposed revised notice to existing STLDI should 
instead be delayed until January 1, 2025, or some other date. The 
Departments seek comments on whether all STLDI policies and any 
renewals or extensions of such coverage, including existing coverage 
sold or issued prior to the effective date of the final rules, should 
instead end upon the effective date of the final rules or some other 
date. The Departments also seek comments on whether an applicability 
date that would provide a longer transition period for consumers with 
policies, certificates, or contracts of STLDI sold or issued before the 
effective date of the final rules could help alleviate any potential 
market disruption; for example, allowing consumers to renew existing 
coverage for an additional 12-month period after any renewals under 
their original coverage are exhausted. The Departments also seek 
comments on whether it would be more reasonable for all STLDI policies 
and any renewals or extensions of such coverage in effect before the 
date the final rules are published to end before January 1, 2025, or 
some other date.
7. Severability
    In the event that any portion of the final rules implementing one 
or more proposals in these proposed rules is declared invalid or 
unenforceable, by its terms or as applied to any entity or 
circumstance, or stayed pending further agency action, the Departments 
intend that the proposed amendments to the definition of ``short-term, 
limited-duration insurance'' be severable, and that the proposed 
amendments to the definition of ``short-term, limited-duration 
insurance'' in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 
would continue even if one or more aspects of the proposed changes is 
found invalid. To capture this intent, the Departments propose to add a 
severability provision to the proposed amended definition of ``short-
term, limited-duration insurance'' at 26 CFR 54.9801-2, 29 CFR 
2590.701-2, and 45 CFR 144.103. The severability of these provisions is 
discussed in more detail in section VI of this preamble.

B. Independent, Noncoordinated Excepted Benefits Coverage

1. Fixed Indemnity Excepted Benefits Coverage
    As described in section I.D of this preamble, Congress identified 
various types of excepted benefits, each of which is not subject to the 
Federal consumer protections and requirements for comprehensive 
coverage.\157\ In so doing, Congress established an exemption for those 
types of coverage that offer more limited and narrow benefits than 
comprehensive coverage.\158\ Insurance that pays a fixed amount under 
specified conditions without regard to other insurance (that is, 
``hospital indemnity or other fixed indemnity insurance'') is 
considered an excepted benefit if offered on an independent, 
noncoordinated basis, and such insurance coverage is exempt from 
Federal consumer protections and requirements for comprehensive 
coverage.\159\
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    \157\ See sections 9831(b)-(c) and 9832(c) of the Code, sections 
732(b)-(c) and 733(c) of ERISA, and sections 2722(b)-(c), 2763 and 
2791(c) of the PHS Act.
    \158\ See Interim Rules for Health Insurance Portability for 
Group Health Plans, 62 FR 16894, 16903 (April 8, 1997).
    \159\ See sections 9831(b)-(c) and 9832(c) of the Code, sections 
732(b)-(c) and 733(c) of ERISA, and sections 2722(c)(2), 2763(b) and 
2791(c)(3)(B) of the PHS Act. See also 26 CFR 54.9831-1(c)(4), 29 
CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4) and 148.220(b)(4).
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    In order to address reports of troubling marketing and sales 
tactics and the creation of new benefit designs that mislead consumers 
to believe that hospital indemnity or other fixed indemnity insurance 
constitutes comprehensive coverage,\160\ as well as the changes in 
market conditions and in the legal landscape that have taken place 
since the last regulatory activity on this coverage (discussed in 
sections I and II of this preamble), the Departments are proposing 
amendments to the Federal regulations at 26 CFR 54.9831-1(c)(4), 29 CFR 
2590.732(c)(4), and 45 CFR 146.145(b)(4) that outline the conditions 
for hospital indemnity and other fixed indemnity insurance to qualify 
as an excepted benefit in the group market. HHS is also proposing 
several amendments to the regulation at 45 CFR 148.220(b)(4) that 
outline the conditions for such insurance to qualify as excepted 
benefits coverage in the individual market. These proposals would 
provide greater clarity regarding what it means for fixed indemnity 
excepted benefits coverage to be offered on an ``independent, 
noncoordinated'' basis and to provide benefits in a ``fixed'' amount, 
consistent with the statutory purpose of exempting this type of 
coverage from the Federal consumer protections and requirements for 
comprehensive coverage.
---------------------------------------------------------------------------

    \160\ See, e.g., Young, Christen Linke and Kathleen Hannick 
(2020). ``Fixed Indemnity Coverage is a Problematic Form of ``Junk'' 
Insurance,'' U.S.C.-Brookings Schaeffer Initiative for Health 
Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. See also 
Partnership to Protect Coverage (2021). ``Under-Covered: How 
`Insurance-Like' Products are Leaving Patients Exposed,'' available 
at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf.
---------------------------------------------------------------------------

    Specifically, HHS proposes to require that fixed indemnity excepted 
benefits coverage in the individual market must provide benefits that 
are paid only on a per-period basis. This change to the HHS individual 
market regulations for excepted benefits would align the standard for 
individual market fixed indemnity excepted benefits coverage with the 
Departments' current group market regulations for such coverage.\161\
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    \161\ See 26 CFR 54.9831-1(c)(4)(i), 29 CFR 2590.732(c)(4)(i), 
and 45 CFR 146.145(b)(4)(i).
---------------------------------------------------------------------------

    Additionally, the Departments propose to amend the group market 
regulations for hospital indemnity and other fixed indemnity insurance 
to qualify as an excepted benefit, including proposing new standards 
governing the payment of fixed benefits and examples to clarify these 
new proposed standards. HHS similarly proposes to amend the standards 
governing the payment of fixed benefits under such coverage in the 
individual market. The Departments further propose to add a new example 
to the group market regulations to address the prohibition on 
coordination between fixed indemnity excepted benefits coverage and any 
group health plan maintained by the same plan sponsor. This example 
illustrates the Departments' proposed interpretation of the 
``noncoordination'' requirements for hospital indemnity or other fixed 
indemnity coverage to qualify as excepted benefits and the extension of 
this interpretation to situations that do not involve a formal 
coordination-of-benefits arrangement. HHS similarly proposes to apply 
this interpretation of the ``noncoordination'' requirement to 
individual market fixed indemnity excepted benefits coverage. As 
detailed in section III.B.1.e of this preamble, HHS further proposes to 
modify the

[[Page 44620]]

requirement at current 45 CFR 148.220(b)(4)(ii) to align with the 
statutory requirement that ``noncoordinated, excepted benefits'' in the 
individual market be provided without regard to whether benefits are 
provided under any health insurance coverage maintained by the same 
health insurance issuer.\162\ \163\
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    \162\ See section 2722(c)(2)(C) of the PHS Act.
    \163\ As discussed in section III.B.1.f of this preamble, HHS is 
also proposing a technical amendment to redesignate 45 CFR 
148.220(b)(4)(ii) as 45 CFR 148.220(b)(4)(i).
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    The Departments also propose to require a consumer notice be 
provided when offering fixed indemnity excepted benefits coverage in 
the group market, in alignment with the existing requirement to provide 
such a notice in connection with fixed indemnity excepted benefits 
coverage offered in the individual market. HHS also proposes changes to 
the consumer notice that must be provided when offering fixed indemnity 
excepted benefits coverage in the individual market.\164\
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    \164\ The consumer notice for individual market fixed indemnity 
excepted benefits coverage is currently codified at 45 CFR 
148.220(b)(4)(iv). If HHS finalizes the proposed amendments to the 
individual market fixed indemnity excepted benefit regulation as 
proposed, the individual market consumer notice would be revised and 
moved to 45 CFR 148.220(b)(4)(iii). See section III.B.1.d of this 
preamble for more details.
---------------------------------------------------------------------------

    These proposed changes are generally intended to more clearly 
distinguish fixed indemnity excepted benefits coverage from 
comprehensive coverage in order to reduce confusion and misinformation 
related to fixed indemnity excepted benefits coverage, increase 
consumers' understanding of their health coverage options, and provide 
more information to support consumers in making informed coverage 
purchasing decisions. In addition, as noted in section II.B of this 
preamble, the recent experience with the COVID-19 PHE has highlighted 
the value of a framework that encourages individuals to enroll in 
comprehensive coverage and also prompted the Departments to examine the 
Federal regulations governing fixed indemnity excepted benefits 
coverage. The proposed amendments are also designed to align the fixed 
indemnity excepted benefits coverage regulations across the individual 
and group markets when practical and appropriate and clarify the 
conditions applicable to fixed indemnity excepted benefits coverage for 
all interested parties, including consumers, issuers, employers, 
agents, brokers, and State regulators.
a. Per-Period Basis Fixed Payment Standard
    HHS proposes to amend 45 CFR 148.220(b)(4) to reinstate the 
condition that to qualify as an excepted benefit in the individual 
market, hospital indemnity or other fixed indemnity insurance must pay 
fixed benefits only on a per-period basis and to remove the current 
option for such coverage to pay fixed benefits on a per-service 
basis.\165\ As proposed, HHS would move the fixed payment standard 
currently captured in 45 CFR 148.220(b)(4)(iii) to a new proposed 
paragraph (b)(4)(ii) at 45 CFR 148.220 and revise it to require that 
benefits are paid in a fixed dollar amount per day (or per other time 
period) of hospitalization or illness (for example, $100/day).\166\
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    \165\ As discussed further in section III.B.1.b of this 
preamble, HHS proposes other amendments to the new proposed 
paragraph (b)(4)(ii) at 45 CFR 148.220 to capture the proposed new 
additional payment standards for hospital indemnity or other fixed 
indemnity insurance to qualify as excepted benefits. As part of 
other amendments to 45 CFR 148.220(b), HHS also proposes to revise 
and move the consumer notice requirement applicable to individual 
market fixed indemnity excepted benefits coverage. See section 
III.B.1.d of this preamble for further details. As part of other 
technical and conforming amendments to the individual market 
regulation, HHS also proposes to move and modify the existing 
individual market ``noncoordination'' standard from its current 
location at 45 CFR 148.220(b)(4)(ii) to 45 CFR 148.220(b)(4)(i). See 
section III.B.1.e and III.B.1.f of this preamble for further 
details.
    \166\ As discussed further in section III.B.1.b of this 
preamble, HHS proposes other amendments to the new proposed 
paragraph (b)(4)(ii) at 45 CFR 148.220 to capture the proposed new 
additional payment standards for hospital indemnity or other fixed 
indemnity insurance to qualify as excepted benefits.
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    Fixed indemnity excepted benefits coverage is intended to serve as 
a source of income replacement or financial support, paying benefits at 
a fixed amount per qualifying medical event. This type of coverage is 
not comprehensive coverage, and benefit payments under fixed indemnity 
excepted benefits coverage are paid without regard to the actual amount 
of expenses incurred by a covered individual.\167\ HHS is of the view 
that hospital indemnity or other fixed indemnity insurance products 
made available in the individual market that closely resemble 
comprehensive coverage, by incorporating features typically included in 
comprehensive coverage, obscure the difference between fixed indemnity 
excepted benefits coverage and comprehensive coverage. HHS is no longer 
of the view that the value of providing issuers with the flexibility to 
offer fixed indemnity excepted benefits coverage in the individual 
market that pays benefits on a per-service basis outweighs the 
potential harm to consumers who may purchase fixed indemnity excepted 
benefits coverage as a substitute for, or under the misapprehension 
that they are purchasing, comprehensive coverage. Because fixed 
indemnity excepted benefits coverage typically provides benefits that 
are far below actual medical expenses, individuals who rely on this 
type of coverage as their primary form of health insurance are at risk 
of financial harm.\168\
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    \167\ 26 CFR 54.9831-1(c)(4)(i), 29 CFR 2590.732(c)(4)(i), and 
45 CFR 146.145(b)(4)(i) and 148.220(b)(4)(iii).
    \168\ See Young, Christen Linke and Kathleen Hannick (2020). 
``Fixed Indemnity Coverage is a Problematic Form of ``Junk'' 
Insurance,'' U.S.C.-Brookings Schaeffer Initiative for Health 
Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance.
---------------------------------------------------------------------------

    Significant legal and market developments since the 2014 final rule 
was published have altered the landscape in which fixed indemnity 
excepted benefits coverage is marketed and sold to consumers.\169\ The 
Departments are of the view that these changes have increased the 
likelihood that individual market consumers may purchase fixed 
indemnity excepted benefits coverage as a substitute for comprehensive 
coverage, rather than as a form of income replacement or financial 
support that supplements comprehensive coverage. Therefore, these 
changes have also altered the balance that HHS intended to achieve with 
the amendments to the individual market fixed indemnity excepted 
benefits coverage regulation in its 2014 final rule.
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    \169\ See discussion elsewhere in this preamble (for example, in 
sections I.A, I.D.1 and II of this preamble) related to such 
developments, including the enactment of the Tax Cuts and Jobs Act 
and the decision in Central United Life v. Burwell.
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    In addition to these changes, HHS has observed concerning trends in 
how fixed indemnity excepted benefits coverage in the individual market 
is designed and marketed. As noted in the preamble to the 2014 proposed 
rule, hospital indemnity or other fixed indemnity insurance policies 
that pay benefits on a ``per-service'' basis have been widely available 
in the individual market for many years, including prior to the 2014 
final rule, in part because many State regulators determined that 
consumers valued the ability to purchase per-service hospital indemnity 
or other fixed indemnity insurance to complement MEC, emphasizing its 
value as a supplement to (rather than a replacement for) comprehensive

[[Page 44621]]

coverage.\170\ Since the 2014 final rule was finalized, however, HHS 
has seen products marketed and sold in the individual market as fixed 
indemnity excepted benefits coverage with features that make the 
products more closely resemble comprehensive coverage than traditional 
forms of fixed indemnity excepted benefits coverage, but without many 
of the required consumer protections of comprehensive coverage.
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    \170\ National Association of Insurance Commissioners (2013). 
``Letter to Secretaries of Labor, Treasury, and Health and Human 
Services,'' available at: https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541.
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    For example, some issuers now offer individual market fixed 
indemnity policies that pay benefits on the basis of extensive, 
variable schedules with tens or hundreds of thousands of different 
benefit amounts that vary by item or service.\171\ Some benefits 
associated with particular items and services appear to be based on 
Medicare fee-for-service or Diagnosis Related Group (DRG) service 
descriptions.\172\ Some marketing materials claim that benefits are 
based on ``relative value units,'' an apparent reference to an element 
of Medicare's physician fee schedule formula, and that exact benefits 
will vary by the Current Procedural Terminology[supreg] (CPT) code 
submitted by the health care provider furnishing the relevant service, 
suggesting that benefit levels are based on either actual or estimated 
costs of care. Benefits under this coverage might be provided related 
to the receipt of items and services outside the scope of a traditional 
understanding of ``hospitalization or illness,'' such as preventive 
cancer screenings, pediatric vaccines, or wellness visits, which 
further increases the likelihood that a consumer could confuse the 
coverage with comprehensive coverage.
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    \171\ See Appleby, Julie (2021). ``New Health Plans Offer Twists 
on Existing Options, With a Dose of `Buyer Beware','' KFF Health 
News, available at: https://khn.org/news/article/new-health-plans-offer-twists-on-existing-options-with-a-dose-of-buyer-beware.
    \172\ Young, Christen Linke and Kathleen Hannick (2020). ``Fixed 
Indemnity Coverage is a Problematic Form of ``Junk'' Insurance,'' 
U.S.C.-Brookings Schaeffer Initiative for Health Policy, available 
at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance.
---------------------------------------------------------------------------

    Common benefit designs for individual market fixed indemnity 
coverage include fixed benefit schedules (for example, $50 per office 
visit, $100 per surgical procedure, or $20 per generic prescription), 
payments made on a percentage basis up to a cap that might itself vary 
based on benefit category (for example, 25 percent of a fixed amount 
for a hospitalization, capped at $5,000), or on the basis of ``tiers'' 
of complexity (for example, $500 for a lower-complexity ``Tier 7'' 
surgery such as a tonsillectomy or up to $50,000 for a major organ 
transplant categorized as a ``Tier 1'' procedure). Some issuers of 
hospital indemnity or other fixed indemnity insurance in the individual 
market advertise the availability of a network of providers that accept 
a lower rate of reimbursement. Additionally, some hospital indemnity or 
other fixed indemnity insurance pay benefits directly to the health 
care provider or facility that furnished services to the covered 
individual, rather than directly to the policyholder (as would be 
expected if the benefits were actually functioning as income 
replacement or a supplement to comprehensive coverage).\173\ In this 
manner, these policies operate in a way that is similar to the way in 
which plans and issuers frequently reimburse providers under 
comprehensive coverage.
---------------------------------------------------------------------------

    \173\ See section III.B.1.c of this preamble for a discussion of 
the Departments' concerns with respect to benefit designs for 
hospital indemnity or other fixed indemnity insurance that provides 
direct reimbursement to health care providers and facilities.
---------------------------------------------------------------------------

    Therefore, to limit the practice of designing complex, fee-for-
service style fixed indemnity plans that are marketed and sold as an 
alternative to comprehensive coverage, HHS proposes to reinterpret what 
it means for hospital indemnity or other fixed indemnity insurance to 
provide ``fixed'' benefits in the individual market and remove the 
language that permits individual market fixed indemnity excepted 
benefits coverage to provide fixed benefits on a per-service basis. HHS 
also proposes to update the parenthetical reference that captures the 
allowance for issuers to provide fixed benefits per other period, to 
refer to per other ``time'' period, to further emphasize the 
prohibition on providing benefits on a per-service or per-item basis. 
To implement these changes, HHS proposes to move the current fixed 
payment standard from 45 CFR 148.220(b)(4)(iii) to a new proposed 
paragraph (b)(4)(ii) at 45 CFR 148.220 and revise it to require that 
benefits are paid in a fixed dollar amount per day (or per other time 
period) of hospitalization or illness (for example, $100/day).\174\
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    \174\ As discussed in section III.B.1.b of this preamble, HHS 
proposes other amendments to the new proposed paragraph (b)(4)(ii) 
at 45 CFR 148.220 to capture the proposed new additional payment 
standards for hospital indemnity or other fixed indemnity insurance 
to qualify as excepted benefits in the individual market.
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    Under this proposal, issuers may offer coverage similar to hospital 
indemnity or other fixed indemnity insurance that pays benefits on a 
per-service basis, subject to applicable State law requirements, but 
under Federal law these plans would not be considered excepted benefits 
and would be required to comply with the Federal consumer protections 
and requirements for comprehensive coverage.
    HHS seeks comments on these proposed changes. In particular, HHS 
seeks comments on how the proposed amendment to require individual 
market fixed indemnity excepted benefits coverage to pay fixed benefits 
only on a per-period basis may affect consumers' ability to make an 
informed choice regarding health insurance options and how it may 
impact affordability or access to health coverage or care.
b. Additional Fixed Payment Standards
    The Departments propose to amend the group market fixed indemnity 
excepted benefits coverage provisions at 26 CFR 54.9831-1(c)(4), 29 CFR 
2590.732(c)(4), and 45 CFR 146.145(b)(4) to recodify existing payment 
standards and to establish additional standards related to the payment 
of benefits under fixed indemnity excepted benefits coverage in the 
group market. These proposals are intended to provide greater clarity 
and reduce the potential for consumers to mistakenly enroll in excepted 
benefits coverage as a replacement for or alternative to comprehensive 
coverage by further interpreting what it means for hospital indemnity 
or other fixed indemnity insurance to provide ``fixed'' benefits.
    Specifically, these proposed rules provide that to be hospital 
indemnity or other fixed indemnity insurance that qualifies as an 
excepted benefit in the group market, the benefits must also meet each 
of the additional fixed payment standards specified in new proposed 26 
CFR 54.9831-1(c)(4)(ii)(D)(1), 29 CFR 2590.731-1(c)(4)(ii)(D)(1), and 
45 CFR 146.145(b)(4)(ii)(D)(1).\175\ These new proposed rules would 
retain and

[[Page 44622]]

amend \176\ the existing per-period fixed payment standard to require 
that benefits under hospital indemnity or other fixed indemnity 
insurance be paid as a fixed dollar amount per day (or per other time 
period) of hospitalization or illness (for example, $100 day) 
regardless of the amount of expenses incurred.\177\ In doing so, these 
proposed rules would require that benefits be offered as ``fixed'' 
amounts, align with the statutory condition that the coverage be 
offered on a noncoordinated basis,\178\ and distinguish fixed indemnity 
excepted benefits coverage from coverage for actual health care costs 
incurred or services received. These proposed rules thus reflect that 
fixed indemnity excepted benefits coverage is intended to offer income 
replacement or financial support for medical expenses not covered by 
comprehensive coverage or for non-medical related expenses in the event 
of an unexpected or serious health event.
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    \175\ To qualify as excepted benefits coverage in the group 
market, hospital indemnity or other fixed indemnity insurance would 
continue to be required to satisfy each of the conditions currently 
captured in 26 CFR 54.9831-1(c)(4)(ii)(A) through (C), 29 CFR 
2590.731-1(c)(4)(ii)(A) through (C), and 45 CFR 146.145(b)(4)(ii)(A) 
through (C). If these proposed rules are finalized as proposed, the 
issuer would also be required to comply with the consumer notice 
requirements in new proposed 26 CFR 54.9831-1(c)(4)(ii)(D)(2) 
through (4), 29 CFR 2590.731-1(c)(4)(ii)(D)(2) through (4), and 45 
CFR 146.145(b)(4)(ii)(D)(2) through (4).
    \176\ Similar to the individual market fixed indemnity excepted 
benefits coverage regulation, the Departments propose to update the 
parenthetical reference that captures the allowance for plans and 
issuers to provide fixed benefits per other period to refer to per 
other ``time'' period, to further emphasize the prohibition on 
providing benefits on a per-service or per-item basis.
    \177\ 26 CFR 54.9831-1(c)(4)(i), 29 CFR 2590.731-1(c)(4)(i), and 
45 CFR 146.145(b)(4)(i).
    \178\ Section 9832(c)(3) of the Code, section 733(c)(3) of 
ERISA, and section 2791(c)(3) of the PHS Act. See also section 
9831(c)(2) of the Code, section 732(c)(2) of ERISA, and sections 
2722(c)(2) and 2763(b) of the PHS Act.
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    Rather than transferring risk for health care costs from a 
participant, beneficiary, or enrollee to the issuer or plan sponsor or 
otherwise providing comprehensive coverage, fixed indemnity excepted 
benefits coverage is intended to provide a fixed, pre-determined level 
of cash benefits. These benefits payments are made upon the occurrence 
of a health-related event, such as a period of hospitalization or 
illness, but are otherwise unrelated to expenses incurred or health 
care services received. Coverage that varies benefits based on health 
care costs, services received, or benefits paid under other forms of 
coverage does not provide the kind of ``fixed'' benefits that are fixed 
indemnity excepted benefits exempt from the Federal consumer 
protections and requirements for comprehensive coverage.
    The Departments therefore propose to expand the existing payment 
standards for group market fixed indemnity excepted benefits coverage 
to further interpret what it means to provide ``fixed'' benefits. The 
Departments also propose to require that benefits under fixed indemnity 
excepted benefits coverage in the group market be paid regardless of 
the actual or estimated amount of expenses incurred, services or items 
received, severity of illness or injury experienced by a covered 
participant or beneficiary, or any other characteristics particular to 
a course of treatment received by a covered participant or beneficiary. 
The Departments further propose to amend the group market fixed 
indemnity excepted benefit regulations to affirm that benefits cannot 
be paid on any other basis (such as on a per-item or per-service 
basis). The Departments propose to set forth these new payment 
standards for group market fixed indemnity excepted benefits coverage 
at 26 CFR 54.9831-1(c)(4)(ii)(D)(1), 29 CFR 2590.732(c)(4)(ii)(D)(1), 
and 45 CFR 146.145(b)(4)(ii)(D)(1). HHS proposes parallel amendments to 
similarly expand the payment standards for individual market fixed 
indemnity excepted benefits coverage in 45 CFR 148.220(b)(4)(ii). These 
new proposed payment standards are designed to further distinguish 
fixed indemnity excepted benefits coverage from comprehensive coverage, 
in order to reduce the potential for consumer confusion that can result 
in consumers mistakenly enrolling in hospital indemnity or other fixed 
indemnity insurance as a replacement for or alternative to 
comprehensive coverage. Additionally, these proposals would ensure that 
hospital indemnity or other fixed indemnity insurance that qualifies as 
excepted benefits is providing benefits in a ``fixed'' amount per-day 
or per other time period.
    These proposals also would help to prevent attempts to circumvent 
otherwise applicable Federal consumer protections and requirements for 
comprehensive coverage by labeling a policy that provides extensive 
benefits that vary based on expenses incurred, services or items 
received, or other clinical or diagnostic criteria as fixed indemnity 
excepted benefits coverage.\179\ The Departments are aware of some 
policies sold as hospital indemnity or other fixed indemnity insurance 
in the group market that appear to label benefits as though they are 
being paid on a ``per-period'' basis, when benefits are effectively 
based on the types of services or items received. For example, a policy 
may provide a fixed payment of $25 ``per day'' that a participant or 
beneficiary fills a prescription, receives a medical exam, or undergoes 
a wellness screening. In these cases, the benefit is effectively 
provided on a per-service basis because typically an individual does 
not fill a prescription or receive a medical exam or wellness screening 
more than once per day; therefore, merely affixing ``per day'' (or per 
other period) to the benefit description does not serve to limit 
payment to a per-period benefit in any meaningful sense.
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    \179\ When analyzing whether a policy, certificate, or contract 
of insurance is subject to the Federal consumer protections and 
requirements for comprehensive coverage, the Departments look past 
the label used, to examine whether the policy, certificate, or 
contract of insurance meets applicable requirements or conditions to 
qualify as an excepted benefit, or whether it is comprehensive 
coverage that is subject to the Federal consumer protections and 
requirements applicable to such coverage.
---------------------------------------------------------------------------

    In addition, some issuers offering these policies pay benefits 
according to a ``tiered'' payment schedule under which the benefit 
amount increases (or decreases) based on the severity of the 
participant's, beneficiary's, or enrollee's condition or the complexity 
of a service or item received, with exact benefit amounts based on the 
relative value unit for the exact service code for the service or item 
provided. Similarly, a structure that provides higher benefit amounts 
as a result of a covered individual taking air versus ground 
transportation services represents another example of a benefit and 
payment structure for hospital indemnity or other fixed indemnity 
insurance that varies based on actual costs or estimated cost of 
services or severity of the illness, injury or condition of a covered 
participant or beneficiary.
    The Departments are of the view that these benefit designs and 
practices circumvent the requirement that fixed indemnity excepted 
benefits coverage provide benefits on a fixed, per-period basis. The 
proposed regulatory amendments and changes to the interpretation of 
what it means to provide benefits in a ``fixed'' amount, particularly 
the proposal that benefits be paid without regard to items or services 
received, would further safeguard against practices designed to evade 
the existing per-period requirement in the group market and would 
strengthen the proposed parallel requirement in the individual market. 
The proposed update to the parenthetical reference in new proposed 26 
CFR 54.9831-1(c)(4)(ii)(D)(1), 29 CFR 2590.732(c)(4)(ii)(D)(1), and 45 
CFR 146.145(b)(4)(ii)(D)(1) that captures the allowance for plans and 
issuers to provide fixed benefits per other period, to refer to per 
other ``time'' period, further emphasizes the prohibition on providing 
benefits on a per-service or per-item basis. Additionally, the proposed 
new example at 26 CFR 54.9831-1(c)(4)(iv)(B), 29 CFR 
2590.732(c)(4)(iv)(B), and 45 CFR

[[Page 44623]]

146.145(b)(4)(iii)(B), and discussed elsewhere in this preamble 
section, specifically provides that merely appending a ``per day'' (or 
per other time period) label to a benefit that is being paid on the 
basis of the provision of an item or service does not meet the 
requirement that fixed indemnity excepted benefits coverage provide 
benefits on the basis of a period of hospitalization or illness.
    The Departments will closely examine as part of potential 
enforcement actions whether any product offered as fixed indemnity 
excepted benefits coverage in the group market that claims to provide 
benefits per day (or other period) of hospitalization or illness is in 
effect making payment on any other basis, such as a per-service or per-
item basis, for example, by simply affixing a ``per day'' term to 
benefits offered that are related to the receipt of specific items and 
services. HHS will take a similar approach with respect to products 
offered as fixed indemnity excepted benefits in the individual market 
if the proposal to require that individual market fixed indemnity 
excepted benefits be paid only on a per-period basis is finalized.
    In addition, some interested parties have suggested that a fixed 
indemnity plan that pays benefits on a per-service schedule is paying 
benefits regardless of the amount of expenses incurred if the plan does 
not vary benefits based on the actual amounts charged for services 
received. However, varying benefits based on items or services 
increases the risk that consumers will confuse fixed indemnity excepted 
benefits coverage with comprehensive coverage, undermining a central 
reason for exempting this type of coverage from the Federal consumer 
protections and requirements for comprehensive coverage. The provisions 
of these proposed rules to require that fixed indemnity excepted 
benefits coverage pay benefits in a fixed amount regardless of the 
actual or estimated amount of expenses incurred, services or items 
received, or severity of illness or injury experienced would help 
further distinguish fixed indemnity excepted benefits coverage from 
comprehensive coverage, mitigate the potential for consumers to confuse 
the two types of coverage, and thereby reduce the risk that a consumer 
would enroll in fixed indemnity excepted benefits coverage as a 
replacement for or alternative to comprehensive coverage.
    The Departments are also considering whether the requirement that 
hospital or other fixed indemnity insurance pay a fixed dollar amount 
``per day (or per other period) of hospitalization or illness'' in the 
group market regulations \180\ should be interpreted as a requirement 
that benefits be paid on the basis of an actual period of time during 
which a covered individual experiences a qualifying period of 
hospitalization or illness (subject to the terms of the contract) in 
order to qualify as an excepted benefit. Under this interpretation, 
hospital or fixed indemnity insurance that pays a fixed dollar benefit 
on a per-period basis but not specifically related to a period of 
``hospitalization or illness''--such as $50 per day that an individual 
receives one or more specified screening tests--would not qualify as 
fixed indemnity excepted benefits. For example, benefit payments that 
are provided solely on the basis of the receipt of a surgical service 
or medical exam rather than a period of time during which a covered 
individual is hospitalized or experiences an illness would not qualify 
as fixed indemnity excepted benefits under the approach the Departments 
are considering.
---------------------------------------------------------------------------

    \180\ 26 CFR 54.9831-1(c)(4)(i), 29 CFR 2590.731-1(c)(4)(i), and 
45 CFR 146.145(b)(4)(i).
---------------------------------------------------------------------------

    The Departments seek comment on this interpretation, including how 
adopting this approach would affect existing products that are sold and 
marketed as fixed indemnity excepted benefits coverage and how such an 
interpretation would enhance or detract from consumer access to high-
quality, affordable health care. HHS similarly requests comment on the 
effects of applying this interpretation of the phrase ``per day (or per 
other period) of hospitalization or illness'' in the individual market 
regulation at 45 CFR 148.220(b)(4)(ii),\181\ if the proposal to require 
that individual market fixed indemnity excepted benefits be paid only 
on a per-period basis is finalized and the Departments finalize this 
additional interpretation of what it means to provide benefit payments 
in a ``fixed'' amount.
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    \181\ As discussed in section III.B.1.f of this preamble, HHS is 
also proposing a technical amendment to redesignate 45 CFR 
148.220(b)(4)(ii) as 45 CFR 148.220(b)(4)(i).
---------------------------------------------------------------------------

    Finally, the Departments propose to amend the payment standards for 
fixed indemnity excepted benefits coverage to require that benefits be 
paid in a fixed amount regardless of any other characteristics 
particular to a course of treatment received by the covered participant 
or beneficiary. This standard is proposed as part of the proposed new 
payment standards in the group market regulations at 26 CFR 54.9831-
1(c)(4)(ii)(D)(1), 29 CFR 2590.732(c)(4)(ii)(D)(1), and 45 CFR 
146.145(b)(4)(ii)(D)(1). For purposes of this proposal, a ``course of 
treatment'' refers to a coordinated series of items or services 
intended to treat a particular health condition over a fixed period of 
time or indefinitely, pursuant to a plan of care established and 
managed by a health care professional or team of health care 
professionals. For example, an oncologist may establish a course of 
treatment for an individual with a cancer diagnosis that includes a 
sequence of surgery, chemotherapy, and radiation, scheduled to begin 
and end over a set period of months; or a psychiatrist and therapist 
may work together to establish a course of treatment for an individual 
with a chronic mental health condition that includes prescription 
medication and group and individual talk therapy on an ongoing basis 
without a specified end date.
    Because a course of treatment is a set of coordinated services, 
interpreting ``fixed'' benefits to exclude payments based on a course 
of treatment is aligned with and strengthens the proposal to require 
that benefits be paid regardless of items or services received. Such 
interpretation also prevents plans and issuers of hospital indemnity or 
other fixed indemnity insurance from basing payment on a set of 
multiple items or services, thereby circumventing the requirement that 
payment not be based on items or services received. It is similarly 
aligned with the proposals to require that benefits be paid regardless 
of actual or estimated cost of services and regardless of the severity 
of illness or injury. Additionally, consumers are more likely to have 
difficulty distinguishing between comprehensive coverage and fixed 
indemnity excepted benefits coverage that adopts such benefit designs 
and are therefore more likely to enroll in fixed indemnity excepted 
benefits coverage under the mistaken belief that it is a suitable 
replacement for or alternative to comprehensive coverage.
    The Departments are concerned about the practice among some 
issuers, employers, agents, brokers, and associations of offering fixed 
indemnity excepted benefits coverage as a package in combination with 
other products (including other excepted benefits) in order to appear 
to provide comprehensive coverage.\182\ In addition, as discussed in 
section III.B.1.e of this preamble, the Departments are

[[Page 44624]]

concerned about the practice among some employers and issuers of 
presenting a group health plan that includes only limited benefits 
coupled with an extensive fixed indemnity policy. In light of the 
potential harm to consumers who may enroll in fixed indemnity excepted 
benefits coverage under the mistaken impression that they have access 
to comprehensive coverage because it was paired with a limited 
employer-sponsored group health plan, the Departments are of the view 
that prohibiting fixed indemnity excepted benefits coverage from paying 
benefits on the basis of a course of treatment would further reduce the 
risk that this coverage would be packaged with other forms of coverage 
to circumvent Federal consumer protections and requirements for 
comprehensive coverage. Therefore, the Departments propose to adopt a 
new interpretation of what it means for fixed indemnity excepted 
benefits coverage to provide ``fixed'' benefits and require such 
coverage to also pay benefits in a ``fixed'' amount that does not vary 
based on the characteristics particular to a course of treatment 
received by a covered participant or beneficiary. The Departments seek 
comments on whether this proposal is a necessary complement to the 
other additional fixed payment standards in these proposed rules.
---------------------------------------------------------------------------

    \182\ Palanker, Dania and Kevin Lucia (2021). ``Limited Plans 
with Minimal Coverage Are Being Sold as Primary Coverage, Leaving 
Consumers at Risk,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk.
---------------------------------------------------------------------------

    The Departments also propose including a new example (Example 2) in 
the group market regulations, at new proposed 26 CFR 54.9831-
1(c)(4)(iv)(B), 29 CFR 2590.732(c)(4)(iv)(B), 45 CFR 
146.145(b)(4)(iii)(B), to illustrate the requirement that fixed 
indemnity excepted benefits coverage in the group market must pay a 
fixed dollar amount per day (or per other period) of hospitalization or 
illness. This proposed example would also illustrate the new payment 
standards proposed in these rules that fixed indemnity excepted 
benefits coverage in the group market pay benefits without regard to 
services received. This new example describes a group health plan or 
health insurance issuer offering coverage through an insurance policy 
that provides benefits related to the receipt of specific items and 
services in a fixed amount, such as $50 per blood test or $100 per 
visit. The example concludes that the policy would not qualify as fixed 
indemnity excepted benefits coverage, because the benefits are not paid 
in a fixed dollar amount per day (or per other time period) of 
hospitalization or illness. The proposed example also explains that the 
conclusion would be the same even if the policy added a per day (or per 
other time period) term to the benefit description, such as ``$50 per 
blood test per day,'' because the benefits are not paid regardless of 
the services or items received. The Departments also propose to retain, 
while making technical and conforming amendments to, the existing 
example (which the Departments propose to designate as Example 1) in 
the group market rules.\183\
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    \183\ The Departments propose to retain the existing example 
describing a group health plan that provides benefits only for 
hospital stays at a fixed percentage of expenses up to a maximum of 
$100 a day in new proposed 26 CFR 54.9831-1(c)(4)(iv)(A), 29 CFR 
2590.732(c)(4)(iv)(A), and 45 CFR 146.145(b)(4)(iii)(A). Consistent 
with the conclusion reflected in the Departments' current group 
market regulations, even if the benefits under such a policy satisfy 
the other applicable conditions, because the policy pays benefits 
based on a percentage of expenses incurred, the policy does not 
qualify as excepted benefits coverage. This is the result even if, 
in practice, the policy pays the maximum of $100 for every day of 
hospitalization.
---------------------------------------------------------------------------

    HHS also proposes parallel amendments to the individual market 
fixed indemnity excepted benefits coverage regulation at new proposed 
45 CFR 148.220(b)(4)(ii) to require that fixed indemnity excepted 
benefits coverage in the individual market provide benefits in a 
``fixed'' amount regardless of the actual or estimated amount of 
expenses incurred, services or items received, severity of illness or 
injury experienced by a covered individual, or any other 
characteristics particular to a course of treatment received by a 
covered individual.
    In addition, and as discussed in greater detail in section 
III.B.1.e of this preamble, HHS proposes to include language in new 
proposed 45 CFR 148.220(b)(4)(ii) to align with section 2722(c)(2)(C) 
of the PHS Act, which provides that benefits under fixed indemnity 
excepted benefits coverage in the individual market must also be paid 
without regard to whether benefits are provided with respect to the 
event under any other health insurance coverage maintained by the same 
health insurance issuer. HHS further proposes in new proposed 45 CFR 
148.220(b)(4)(ii) to affirm that benefits cannot be paid on any other 
basis (such as on a per-item or per-service basis). For the same 
reasons as described in this section with respect to the Departments' 
parallel changes to the group market regulations, HHS is of the view 
that these changes to the interpretation of what it means to provide 
benefits in a ``fixed'' amount are necessary to ensure that issuers of 
fixed indemnity excepted benefits coverage in the individual market are 
not able to circumvent the fixed payment standards at new proposed 45 
CFR 148.220(b)(4)(ii) that the coverage be provided on a per-period 
basis. These proposed changes would also align the payment standards 
for what it means to provide ``fixed'' benefits across the group and 
individual markets and serve to further distinguish fixed indemnity 
excepted benefits coverage from comprehensive coverage in both markets.
    The Departments request comments on all aspects of these proposed 
additional standards for fixed payment as they would apply to fixed 
indemnity excepted benefits coverage offered in the group and 
individual markets, as well as the proposed new example to illustrate 
the proposed new ``fixed'' payment standards. Specifically, the 
Departments seek comments on the effectiveness of the proposed 
additional fixed payment standards in furthering the Departments' goal 
of differentiating fixed indemnity excepted benefits coverage from 
comprehensive coverage to reduce the likelihood that consumers would 
enroll in fixed indemnity excepted benefits coverage as an alternative 
to or replacement for comprehensive coverage, including feedback on 
each proposed payment standard. Additionally, the Departments seek 
comments on how the proposed payment standards, if finalized, would 
interact with the existing requirement that group market fixed 
indemnity excepted benefits coverage provide benefits on a per-period 
basis only, either individually or collectively, and whether the 
proposed payment standards would support the effectiveness of the per-
period basis requirement and prevent issuers from attempting to 
circumvent Federal requirements. Similarly, HHS seeks comments on how 
the proposed additional fixed payment standards would interact with the 
proposed requirement that individual market fixed indemnity excepted 
benefits coverage offer benefits on a per-period basis only, if the 
per-period-only requirement were finalized, including whether the 
proposed additional payment standards would support the effectiveness 
of the proposed per-period payment standard, either individually or 
collectively.
c. Payments Made Directly to Providers
    The Departments are aware that some hospital indemnity and other 
fixed indemnity insurance in the group and individual markets labeled 
as excepted benefits pay benefits directly to the providers or 
facilities providing the services or items, rather than to the 
participant, beneficiary, or enrollee. These arrangements may remove 
participants, beneficiaries, and enrollees from the payment transaction 
entirely, if the benefit amount under the hospital

[[Page 44625]]

indemnity or other fixed indemnity insurance is less than or equal to 
the provider's or facility's billed charges for care. In other cases, 
the hospital indemnity or other fixed indemnity insurance may pay 
benefits directly to the provider or facility as a form of 
reimbursement for items and services, and issue any balance of benefits 
to the participant, beneficiary, or enrollee after paying the provider 
or facility.
    For example, one fixed indemnity insurance issuer provides 
policyholders with a debit card that allows for payment of benefits at 
the point of service in the form of a temporary advance of the benefits 
the policyholder may ultimately be eligible to receive. In these cases, 
the policyholder cannot access any benefit payment under the fixed 
indemnity insurance until the advance payment to the provider or 
facility is reconciled with the actual costs and a final determination 
of benefits is made. Other products labeled as fixed indemnity 
insurance advertise plan ID cards that participants, beneficiaries, or 
enrollees are encouraged to use to allow providers to file claims 
directly with the plan or third-party administrator.\184\ Another fixed 
indemnity plan advertises that members who go to an ``in-network'' 
retail clinic or urgent care clinic for covered services for the cost 
of a flat ``co-pay'' will avoid a ``balance bill,'' suggesting that the 
fixed indemnity coverage is providing direct payment for ``in-network'' 
services.
---------------------------------------------------------------------------

    \184\ Young, Christen Linke, and Kathleen Hannick (2020). 
``Fixed Indemnity Coverage is a Problematic Form of ``Junk'' 
Insurance,'' U.S.C.-Brookings Schaeffer Initiative for Health 
Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance.
---------------------------------------------------------------------------

    By providing direct reimbursement for health care items and 
services to a provider or facility, these arrangements further obscure 
the differences between fixed indemnity excepted benefits coverage and 
comprehensive coverage. In the Departments' view, these arrangements 
generally are not structured in a way that would meet the current 
requirement in the group market for benefits to be paid on a per-period 
basis or the parallel proposed requirement for the individual market. 
Because the amount of any payment to a provider is often based on the 
amount reimbursed by another plan or coverage, these arrangements may 
also be structured in a way that does not meet the statutory 
requirement that benefits be noncoordinated and paid without regard to 
whether benefits are provided with respect to the event under any group 
health plan maintained by the same plan sponsor, or with respect to 
individual health insurance coverage, under any health insurance 
coverage offered by the same health insurance issuer.\185\ The 
Departments are also concerned that some of these arrangements may not 
meet the existing requirement for fixed indemnity excepted benefits 
coverage to pay a fixed amount regardless of the amount of the expenses 
incurred.\186\
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    \185\ See section 9831(c)(2)(C) of the Code, section 
732(c)(2)(C) of ERISA, and sections 2722(c)(2)(B)-(C) of the PHS 
Act.
    \186\ See 26 CFR 54.9831-1(c)(4)(i), 29 CFR 2590.732(c)(4)(i), 
and 45 CFR 146.145(b)(4)(i) and 148.220(b)(4)(iii).
---------------------------------------------------------------------------

    The Departments reiterate that it is important to look past the 
label used on any given product to examine whether the coverage meets 
applicable requirements to qualify as an excepted benefit or is instead 
coverage that is subject to the Federal consumer protections and 
requirements for comprehensive coverage. The Departments will closely 
examine as part of enforcement actions \187\ whether any product 
labeled as fixed indemnity excepted benefits coverage actually 
satisfies all the applicable requirements, including products that 
employ a design feature (as opposed to a case-by-case assignment of 
benefits specifically made by a covered participant, beneficiary, or 
enrollee) under which benefits are paid directly to health care 
providers and facilities rather than to the policyholder or 
participant. HHS intends to follow a similar approach for examining 
whether any given individual market product meets applicable 
requirements to qualify as an excepted benefit or is instead 
comprehensive coverage subject to the Federal consumer protections and 
requirements for comprehensive coverage.
---------------------------------------------------------------------------

    \187\ For an overview of applicable enforcement mechanisms, see 
Staman, Jennifer (2020). ``Federal Private Health Insurance Market 
Reforms: Legal Framework and Enforcement,'' Congressional Research 
Service, available at https://crsreports.congress.gov/product/pdf/R/R46637.
---------------------------------------------------------------------------

    Although these proposed rules do not include policy or regulatory 
changes specific to the payment of benefits to providers under fixed 
indemnity excepted benefits coverage, the Departments seek comments on 
changes that interested parties think may be useful in this context. 
The Departments also seek comments on whether additional guidance or 
rulemaking is needed with respect to such payment arrangements.
d. Notice
    To further ensure that consumers purchasing fixed indemnity 
excepted benefits coverage are aware of the limitations of the coverage 
and that it is not mistakenly purchased as an alternative or 
replacement for comprehensive coverage, the Departments propose to 
require that a consumer notice be provided in relation to group market 
fixed indemnity excepted benefits coverage.
    By requiring a notice be provided to consumers considering 
enrolling or re-enrolling in group market fixed indemnity excepted 
benefits coverage, the Departments aim to reduce the potential for 
consumers to mistakenly enroll in hospital indemnity or other fixed 
indemnity insurance as their primary source of coverage and increase 
consumer understanding of the differences between fixed indemnity 
excepted benefits coverage and comprehensive coverage. As noted in 
section II.B of this preamble, individuals belonging to historically 
marginalized populations often experience greater health challenges, as 
well as greater challenges accessing and using health care services, 
compared to the general population, including worse health outcomes, 
higher rates of chronic conditions, lower access to health care, and 
more frequent experiences of discrimination in health care 
settings.\188\ The Departments are concerned that members of these 
populations may be particularly vulnerable to misinformation or 
misleading or aggressive sales tactics. The COVID-19 PHE amplified 
these longstanding inequities, resulting in disparate rates of COVID-19 
infection, hospitalization, and death.\189\ In light of these concerns, 
as well as research identifying disparities in health insurance 
literacy among certain racial and ethnic minorities and people with 
incomes below the FPL,\190\ these proposals aim

[[Page 44626]]

to ensure that all consumers, including those in underserved 
communities, have the necessary information to make an informed choice 
after considering and comparing the full range of health coverage 
options available to them.
---------------------------------------------------------------------------

    \188\ See CMS Office of Minority Health (2022). ``The Path 
Forward: Improving Data to Advance Health Equity Solutions,'' 
available at: https://www.cms.gov/files/document/path-forwardhe-data-paper.pdf.
    \189\ Moore, Jazmyn, Carolina Luna-Pinto, Heidi Cox, Sima Razi, 
Michael St. Louis, Jessica Ricaldi, and Leandris Liburd (2021). 
``Promoting Health Equity During the COVID-19 Pandemic, United 
States,'' Bulletin of the World Health Organization, available at: 
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8795842.
    \190\ Edward, Jean, Amanda Wiggins, Malea Hoepf Young, and Mary 
Kay Rayens (2019). ``Significant Disparities Exist in Consumer 
Health Insurance Literacy: Implications for Health Care Reform,'' 
Health Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496/. See also Villagra, Victor and 
Bhumika Bhuva (2019). ``Health Insurance Literacy: Disparities by 
Race, Ethnicity, and Language Preference,'' The American Journal of 
Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference.
---------------------------------------------------------------------------

    The current notice requirement, which applies only in the 
individual market, requires that the following language be provided in 
application materials in at least 14-point type:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P
[GRAPHIC] [TIFF OMITTED] TP12JY23.015

    In order to align the notice with the changes made by the Tax Cuts 
and Jobs Act to section 5000A of the Code, and to clarify the message 
to consumers, the Departments propose to require the following consumer 
notice for group market fixed indemnity excepted benefits coverage:
---------------------------------------------------------------------------

    \191\ 45 CFR 148.220(b)(4)(iv). In these proposed rules, HHS 
proposes to revise and move the individual market consumer notice to 
45 CFR 148.220(b)(4)(iii).
[GRAPHIC] [TIFF OMITTED] TP12JY23.016

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
    This proposed notice would not affect any separate notice 
requirements under applicable State law, except to the extent that a 
State notice requirement would prevent application of any Federal 
notice requirement.
    In developing the proposed notice language, the Departments sought 
to balance the goals of distinguishing fixed indemnity excepted 
benefits coverage from comprehensive coverage and combatting potential 
sources of misinformation by directing consumers to appropriate 
resources to learn more about comprehensive coverage, with the need to 
provide a concise, understandable notice that would be meaningful to 
and actionable by consumers. After consulting with plain- language 
experts, the Departments propose to require the notice as proposed in 
this section of the preamble, including both the content and formatting 
of the notice, in order to promote readability, including requiring the 
notice be provided in sentence case rather than all-caps case (except 
for the lead-in word ``IMPORTANT'') and requiring the limited use of 
bold formatting.\192\
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    \192\ Arbel, Yonathan and Andrew Toler (2020). ``ALL-CAPS,'' 
Journal of Empirical Legal Studies, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3519630. (Finding that 
all-caps clauses in consumer contracts fail to appreciably improve 
consumer understanding or information recall, and may have a 
disproportionately harmful effect on older consumers).
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    The Departments propose to require that plans and issuers 
prominently display the notice (in either paper or electronic form, 
including on a website) in at least 14-point font, on the first page of 
any marketing, application, and enrollment materials that are provided 
to participants at or before the time participants are given the 
opportunity to enroll in the coverage. For this purpose, the 
Departments would consider marketing materials to include any documents 
or website pages that advertise the benefits or opportunity to enroll 
(or reenroll) in fixed indemnity excepted benefits coverage. The 
Departments are of the view that requiring plans and issuers offering 
fixed indemnity excepted benefits coverage in the group market to 
provide the proposed notice to participants (rather than to both 
participants and any beneficiaries) would appropriately balance the 
need to ensure that consumers who are considering whether to enroll 
themselves and their beneficiaries in such coverage are sufficiently 
informed of their health coverage options with the administrative 
burden on plans and issuers to provide the notice. The Departments 
propose to consider the notice to be prominently displayed if it would 
be easily noticeable to a typical consumer within the context of the 
page (either print or electronic) on which it is displayed (for 
example, using a font color that contrasts with the background of the 
document; ensuring the notice is not obscured by any other written or 
graphic content on the page; and, when displayed on a website, ensuring 
the notice is visible without requiring the viewer to click on a link 
to view the notice). Additionally, if participants are

[[Page 44627]]

required to reenroll (in either paper or electronic form) for purposes 
of renewal or reissuance of the group market fixed indemnity excepted 
benefits coverage, the notice would be required to be displayed in the 
reenrollment materials that are provided to the participants at or 
before the time they are given the opportunity to reenroll in coverage. 
If a plan or issuer provides the required group market notice in 
accordance with the timeframes in these proposed rules, the obligation 
to provide the notice would be satisfied for both the plan and issuer.
    HHS also proposes to revise the existing individual market consumer 
notice requirement to use the same content and formatting proposed to 
be required for the group market fixed indemnity excepted benefits 
coverage notice and to move the individual market notice requirement to 
new proposed 45 CFR 148.220(b)(4)(iii). With respect to the individual 
market fixed indemnity excepted benefits coverage notice, HHS proposes 
to require that issuers prominently display the notice (in either print 
or electronic form) in at least 14-point font on the first page of any 
marketing, application, and enrollment materials that are provided at 
or before the time an individual has the opportunity to enroll or re-
enroll in coverage, in alignment with the proposed group market notice 
requirements set out in this section of the preamble. For this purpose, 
HHS would also consider marketing materials to include any documents or 
website pages that advertise the benefits or opportunity to enroll (or 
reenroll) in fixed indemnity excepted benefits coverage. HHS further 
proposes that the individual market notice must also be provided on the 
first page of the policy, certificate, or contract of insurance, 
including any documents related to renewals or extensions of fixed 
indemnity excepted benefit coverage. Similar to the proposed group 
market notice requirement, the proposed individual market notice would 
not affect any separate notice requirements under applicable State law, 
except to the extent that a State notice requirement would prevent the 
application of any Federal notice requirement.
    The Departments are proposing slightly different placement 
requirements with respect to the group market consumer notice compared 
to those proposed by HHS with respect to the individual market consumer 
notice. These different proposed placement requirements are intended to 
reflect the differences between the types of documents that consumers 
in the individual market typically receive when considering enrolling 
or reenrolling in fixed indemnity excepted benefits coverage compared 
to participants in the group market.
    Because the group policy, certificate, or contract of insurance in 
the group market is often provided to the plan sponsor or the group 
health plan administrator, the Departments do not propose to require 
that plans and issuers include the consumer notice in these documents 
for group market fixed indemnity excepted benefits coverage. Rather, 
the Departments propose to require that plans and issuers provide this 
notice on the first page of any marketing, application and enrollment 
materials (including on a website advertising or offering an 
opportunity to enroll in fixed indemnity excepted benefits coverage) 
provided to participants at or before the time they are given the 
opportunity to enroll. In addition, if participants are required to 
reenroll (in either paper or electronic form) for purposes of renewal 
or reissuance of group market fixed indemnity excepted benefits 
coverage, the notice must be displayed in all reenrollment materials 
that are provided to the participants at or before the time 
participants are given the opportunity to reenroll in coverage.
    With respect to individual market fixed indemnity excepted benefits 
coverage, HHS proposes that issuers in the individual market also 
provide the notice on the first page of the policy, certificate, or 
contract of insurance, including renewals or extensions, because 
individual market consumers are likely to receive these documents upon 
enrollment. This is in addition to providing the notice in all 
marketing, application and enrollment (or reenrollment) materials for 
individual market excepted benefit coverage, and also includes 
prominently displaying the notice on websites that advertise or offer 
an opportunity to enroll (or reenroll) in fixed indemnity excepted 
benefits coverage. These proposed requirements related to notice 
placement are intended to ensure that the notice is provided on 
documents that consumers are most likely to have the opportunity to 
review before application, enrollment or reenrollment, based on the 
Departments' and HHS' understanding of how consumers receive 
information related to group market versus individual market fixed 
indemnity excepted benefits coverage.
    The Departments also solicit comments on whether it would be 
beneficial to consumers to require plans and issuers to include some 
language on the notice that clearly informs consumers that the notice 
is an officially required document, such as ``This notice is required 
by Federal law.''
    The Departments seek comments on all aspects of the proposed 
consumer notice for both individual and group market fixed indemnity 
excepted benefits coverage, including whether its language, formatting, 
and placement would achieve the stated aims of informing consumers of 
the nature of the coverage and reducing misinformation, and whether 
alternative or additional language or mechanisms or timing for delivery 
could better accomplish these goals. For example, the Departments seek 
comments on whether providing more detailed information about the 
Federal consumer protections and requirements for comprehensive 
coverage versus fixed indemnity excepted benefits coverage, similar to 
the proposed amendments to the consumer notice for STLDI discussed in 
section III.A.4 of this preamble, would be valuable to consumers; and 
if so, what details would be most helpful to highlight for consumers 
and what format (such as a chart, list, or other presentation) would be 
most effective to convey this more detailed information.
    In addition, the Departments seek comment on alternative language 
to convey the information in the proposed notice. The Departments offer 
for consideration an illustrative example. This alternative notice 
would include the information in the proposed notice, with simplified 
word choice and reduced sentence length in order to further improve 
readability. The Departments request feedback on which version of the 
notice more effectively communicates information to individuals. The 
text of the alternative proposed fixed indemnity excepted benefits 
coverage notice is as follows:

[[Page 44628]]

[GRAPHIC] [TIFF OMITTED] TP12JY23.017

    Similar to the proposed consumer notice for STLDI, the Departments 
are also considering whether the fixed indemnity excepted benefits 
consumer notice should include State-specific contact language. The 
Departments therefore also seek comments on any benefits or burdens 
associated with requiring plans and issuers of fixed indemnity excepted 
benefits coverage to direct consumers to State-specific resources, 
including requiring that the notice identify the applicable State 
Exchange, if the fixed indemnity excepted benefits coverage is filed in 
a State that does not use HealthCare.gov. The Departments also seek 
comments on any burdens that would be created by a requirement to 
provide State-specific contact information for the State agency 
responsible for regulating fixed indemnity excepted benefits coverage 
in the State where the coverage is filed, rather than a generic 
reference to the consumer's State department of insurance, as is 
proposed. If the notice were finalized to require State-specific 
information, for products that are filed in multiple States, the 
Departments are considering and solicit comments on whether the notice 
should include the name of and the phone number for the State 
department of insurance of the State in which the individual to whom 
the fixed indemnity excepted benefits coverage is sold or marketed 
resides, unless the product is not filed in that State. If the product 
is not filed in the State in which the individual to whom the fixed 
indemnity excepted benefits coverage is sold or marketed resides, under 
this approach, if adopted, the Departments would require that the 
notice include the name and phone number for the department of 
insurance of the State in which the fixed indemnity excepted benefits 
coverage policy is filed.
    The Departments particularly seek comments from members of 
underserved communities, and organizations that serve such communities, 
on whether the language accessibility, formatting, and content of the 
notice sufficiently mitigate barriers that exist to help all 
individuals read, understand, and consider the full range of their 
health coverage options. The Departments also seek comments on the 
proposed requirement to provide the notice in the marketing, 
application, and enrollment (or reenrollment) materials for group 
market coverage, and in the policy, certificate, or contract of 
insurance, as well as in the marketing, application and enrollment (or 
reenrollment) materials, for individual market coverage, including the 
extension of the notice requirement to websites that advertise or offer 
the opportunity to enroll (or reenroll) in fixed indemnity excepted 
benefits coverage in the individual and group markets.
    The Departments are also interested in comments on whether the 
proposed placement requirements would substantially improve the 
likelihood that consumers have a meaningful opportunity to review the 
notice and their health coverage options before applying, enrolling, or 
reenrolling in the fixed indemnity excepted benefits coverage, as well 
as any practical or logistical barriers to providing this notice 
requirement as proposed.
e. ``Noncoordination'' Requirements
    To be considered excepted benefits coverage, hospital indemnity or 
other fixed indemnity insurance must provide benefits on an 
independent, noncoordinated basis.\193\ Thus, benefits under the 
coverage must be provided under a separate policy, certificate, or 
contract of insurance.\194\ In addition, consistent with section 
9831(c)(2)(B) of the Code, section 732(c)(2)(B) of ERISA, and section 
2722(c)(2)(B) of the PHS Act, the group market regulations at 26 CFR 
54.9831-1(c)(4)(ii)(B), 29 CFR 2590.732(c)(4)(ii)(B), and 45 CFR 
146.145(b)(4)(ii)(B) prohibit coordination between the provision of 
benefits under fixed indemnity excepted benefits coverage and an 
exclusion of benefits under any group health plan maintained by the 
same plan sponsor. Consistent with section 9831(c)(2)(C) of the Code, 
section 732(c)(2)(C) of ERISA, and section 2722(c)(2)(C) of the PHS 
Act, the group market regulations at 26 CFR 54.9831-1(c)(4)(ii)(C), 29 
CFR 2590.732(c)(4)(ii)(C), and 45 CFR 146.145(b)(4)(ii)(C) further 
provide that benefits under fixed indemnity excepted benefits coverage 
must be paid with respect to an event without regard to whether 
benefits are provided with respect to such an event under any group 
health plan maintained by the same plan sponsor.
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    \193\ See section 9832(c) of the Code, section 733(c)(3) of 
ERISA, and sections 2722(c), 2763(b), and 2791(c)(3) of the PHS Act.
    \194\ Id.
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    Despite these statutory and regulatory requirements regarding 
noncoordination, the Departments are aware that some employers offer 
employees a ``package'' of coverage options that include a non-excepted 
benefit group health plan that provides minimal coverage (for example, 
coverage of preventive services only) with fixed indemnity insurance 
that provides benefits associated with receiving a broad category of 
other services, but is labeled as an excepted benefit. An employee's 
coverage associated with any non-preventive service provided under the 
fixed indemnity insurance is typically treated by the plan or issuer as 
exempt from the

[[Page 44629]]

Federal consumer protections and requirements for comprehensive 
coverage because the insurance has been labeled an excepted 
benefit.\195\ The Departments are concerned that some employers are 
attempting to circumvent the Federal consumer protections and 
requirements for comprehensive coverage that otherwise apply to group 
health plans by offering most benefits associated with receiving health 
care services as fixed indemnity insurance with an excepted benefit 
label, potentially leaving employees without crucial Federal consumer 
protections. This is particularly concerning if the employees are under 
the impression or are misled to believe that their employee health 
benefits package or plan provides comprehensive coverage and therefore 
forgo pursuing other available options that would provide comprehensive 
coverage.
---------------------------------------------------------------------------

    \195\ The Departments note that such an arrangement would not be 
treated as providing minimum value if it failed to provide 
substantial coverage of inpatient hospital services and physician 
services. 26 CFR 1.36B-6; 45 CFR 156.145.
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    To further address this concern and capture the Departments' 
interpretation of the requirement that hospital indemnity and other 
fixed indemnity insurance must offer ``noncoordinated'' benefits to be 
considered an excepted benefit, the Departments propose to include a 
new example (Example 3) in the group market regulations at 26 CFR 
54.9831-1(c)(4)(iii)(C), 29 CFR 2590.731-1(c)(4)(iii)(C), and 45 CFR 
146.145(b)(4)(iii)(C).\196\ This new example illustrates the 
Departments' proposed interpretation of the ``noncoordination'' 
requirements for hospital indemnity or other fixed indemnity coverage 
to qualify as excepted benefits and reflects that the prohibition on 
coordination of benefits is not limited to only those situations 
involving a formal coordination of benefits arrangement, but rather 
also encompasses other situations that involve ``coordination.''
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    \196\ As detailed in section III.B.1.b of this preamble, the 
Departments also propose including another new example (Example 2) 
in the group market regulations, at new proposed 26 CFR 54.9831-
1(c)(4)(iv)(B), 29 CFR 2590.732(c)(4)(iv)(B), and 45 CFR 
146.145(b)(4)(iii)(B), to illustrate the new proposed payment 
standards for fixed indemnity excepted benefits coverage.
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    In this proposed new example, an employer sponsors a group health 
plan that provides two benefit packages. The first benefit package 
excludes benefits associated with all services other than preventive 
services.\197\ The second benefit package provides coverage through an 
insurance policy that pays a fixed dollar amount per day of 
hospitalization or illness, for a wide variety of illnesses that are 
not preventive services covered under the first benefit package. The 
two benefit packages are offered to employees at the same time and can 
be elected together. The benefit packages are not subject to a 
coordination-of-benefits arrangement. However, as explained in the new 
example, because the benefits under the fixed indemnity insurance are 
designed to fill coverage gaps in, and are effectively tied to an 
exclusion of benefits under, the group health plan maintained by the 
same plan sponsor (in this case, the preventive services benefit 
package), the benefits offered under the fixed indemnity insurance 
would not satisfy the ``noncoordination'' requirements. Instead, under 
this arrangement, there is coordination between the provision of 
benefits under the fixed indemnity insurance with an exclusion(s) of 
benefits under a group health plan maintained by the same plan sponsor. 
This arrangement violates the ``noncoordination'' requirements because 
benefits under the fixed indemnity insurance are provided, and 
therefore paid, with respect to an event with regard to (rather than 
without regard to) whether benefits are provided with respect to the 
event under a group health plan maintained by the same plan sponsor. 
Therefore, the insurance policy under the second benefit package is not 
hospital indemnity or other fixed indemnity insurance that is an 
excepted benefit under the Federal framework. The proposed new example 
also notes that the conclusion would be the same even if the benefit 
packages were not offered to employees at the same time or if the 
second benefit option's insurance policy did not pay benefits 
associated with a wide variety of illnesses.
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    \197\ The Departments are aware that some large employers offer 
group health plans that cover only preventive services, as reflected 
in this hypothetical example, and are not directly addressing such 
plans in these proposed rules, which are instead focused on the 
accompanying coverage, labeled ``fixed indemnity'' insurance in the 
example. However, the Departments discourage the provision of such 
limited coverage because it exposes employees to significant health 
and financial risk in the event that they require any health care 
services other than preventive services. See, e.g., Hancock, Jay 
(2015). ``How Not to Find Out Your Health Plan Lacks Hospital 
Benefits,'' KFF, available at: https://khn.org/news/how-not-to-find-out-your-health-plan-lacks-hospital-benefits. Additionally, such 
coverage would not provide minimum value, such that the employer may 
be subject to an assessable payment under 4980H(b) of the Code if 
one or more full-time employees is certified as having enrolled in a 
qualified health plan for which a premium tax credit or cost-sharing 
reduction is allowed.
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    The term ``noncoordination'' (or ``coordination'') for purposes of 
hospital indemnity or other fixed indemnity insurance to be considered 
excepted benefits is not defined in the relevant statutory provisions 
or enacting legislation. While the current examples make clear that the 
existing framework prohibits coordination of benefits when there is a 
formal coordination of benefits arrangement, the current group market 
regulations do not directly address other situations that involve 
coordination and therefore violate the ``noncoordination'' 
requirements. The new proposed example, which would be added to the 
group market fixed indemnity excepted benefits coverage regulations, 
reflects the Departments' proposed interpretation of the undefined term 
``noncoordination,'' when applied to fixed indemnity excepted benefits 
coverage, as also including a scenario in which a sponsor of a group 
health plan offers both hospital indemnity or other fixed indemnity 
insurance along with a second benefit package that excludes benefits 
with respect to events that are covered by the hospital indemnity or 
other fixed indemnity insurance.
    In these cases, the hospital indemnity or other fixed indemnity 
insurance and the other benefit package offered by the same group 
health plan sponsor to the same employees (and their dependents, if 
applicable) are reasonably considered to be ``coordinated'' in terms of 
providing complementary benefits. It is the Departments' view that 
these arrangements violate the ``noncoordination'' requirements for 
hospital indemnity or other fixed indemnity insurance to be considered 
an excepted benefit, even though they do not involve formal 
coordination of benefits. As explained elsewhere in this preamble 
section, these arrangements violate these requirements because they 
involve coordination between the provision of benefits under the 
hospital indemnity or other fixed indemnity insurance and an exclusion 
of benefits under a group health plan maintained by the same plan 
sponsor. Under these arrangements, benefits are provided, and therefore 
paid, under the fixed indemnity insurance with respect to an event with 
regard (rather than without regard) to whether benefits are provided 
with respect to the event under a group health plan maintained by the 
same plan sponsor. Thus, as reflected in the proposed new example, the 
Departments would not consider the hospital indemnity or other fixed 
indemnity insurance offered as part of this arrangement to be an 
excepted benefit that is exempt from the Federal consumer protections 
and requirements for comprehensive coverage.
    The Departments seek comments on the proposed addition of this 
example to

[[Page 44630]]

the group market regulations and the proposal to interpret the term 
``noncoordination'' (or ``coordination'') to also prohibit situations 
involving benefit coordination beyond those that involve formal 
coordination-of-benefits arrangements.
    Although the proposed example would be added to the group market 
regulations, parallel statutory and regulatory requirements related to 
``noncoordination'' apply in the individual market. Under 2722(c)(2)(C) 
of the PHS Act, ``noncoordinated, excepted benefits'' with respect to 
individual market hospital indemnity or other fixed indemnity excepted 
benefits coverage must be paid with respect to an event without regard 
to whether benefits are provided under any health insurance coverage 
maintained by the same health insurance issuer. Consistent with the 
interpretation and application of the statutory requirement that fixed 
indemnity excepted benefits coverage in the individual market must be 
offered on a noncoordinated basis, HHS is proposing to modify the 
requirement at current 45 CFR 148.220(b)(4)(ii) \198\ to specify that 
benefits under fixed indemnity excepted benefits coverage must be paid 
with respect to an event without regard to whether benefits are 
provided with respect to such an event under any other health coverage 
``maintained by the same issuer''. For this purpose, HHS proposes that 
the phrase ``same issuer'' would refer to the entity licensed to sell 
the policy, consistent with the definition of health insurance issuer 
in 45 CFR 144.103. HHS solicits comments on whether to broaden the 
limits on coordination to include issuers that are members of the same 
controlled group.
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    \198\ As discussed in section III.B.1.f of this preamble, HHS is 
also proposing a technical amendment to redesignate 45 CFR 
148.220(b)(4)(ii) as 45 CFR 148.220(b)(4)(i).
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    In parallel with this proposed amendment, HHS proposes to apply the 
same interpretation of the term ``noncoordination'' to individual 
market fixed indemnity excepted benefits coverage as proposed in this 
preamble section for group market fixed indemnity excepted benefits. If 
this proposal is finalized, benefits that are paid under fixed 
indemnity insurance with respect to an event with regard to whether 
benefits are provided with respect to the event under any other health 
coverage maintained by the same issuer would not meet the requirement 
that individual market fixed indemnity excepted benefits coverage be 
provided on a noncoordinated basis, regardless of whether there is a 
formal coordination-of-benefits arrangement between the fixed indemnity 
insurance and any other coverage. HHS seeks comment on these proposals.
f. Technical Amendments
    The Departments propose to strike the last sentence in 26 CFR 
54.9831-1(c)(4)(i), 29 CFR 2590.732(c)(4)(i), and 45 CFR 
146.145(b)(4)(i), in order to consolidate the requirements that are 
specific to hospital indemnity or other fixed indemnity insurance to 
qualify as an excepted benefit in a new proposed 26 CFR 54.9831-
1(c)(4)(ii)(D), 29 CFR 2590.732(c)(4)(ii)(D), and 45 CFR 
146.145(b)(4)(ii)(D). This current fixed payment standard would be 
retained as part of the fixed payment standards proposed to be captured 
in new proposed 26 CFR 54.9831-1(c)(4)(ii)(D)(1), 29 CFR 
2590.732(c)(4)(ii)(D)(1), and 45 CFR 146.145(b)(4)(ii)(D)(1).
    The Departments also propose technical amendments to clarify 
certain language in the existing example (now proposed Example 1) at 
new proposed 26 CFR 54.9831-1(c)(4)(iii)(A), 29 CFR 
2590.732(c)(4)(iii)(A), and 45 CFR 146.146(b)(4)(iii)(A). The proposed 
technical amendments would clarify that the insurance policy in the 
example provides benefits only ``related to'' hospital stays (as 
opposed to ``for'' hospital stays), and emphasize the requirement that 
such benefits must be provided on a per-period basis. The general facts 
and ultimate conclusion in this example, however, remain the same.
    HHS further proposes a technical amendment to the individual market 
excepted benefits rules to remove the existing requirement at 45 CFR 
148.220(b)(4)(i) that fixed indemnity excepted benefits coverage must 
be provided only to individuals who attest, in their fixed indemnity 
insurance application, that they have other health coverage that is 
MEC, or that they are treated as having MEC due to their status as a 
bona fide resident of any possession of the United States pursuant to 
section 5000A(f)(4)(B) of the Code. This proposal would remove the 
regulatory provision that was invalidated in Central United v. 
Burwell.\199\ As an accompanying conforming technical amendment, HHS 
also proposes to move the proposed revised noncoordination requirement 
described in section III.B.1.e of this preamble, that there is no 
coordination between the provision of benefits under the individual 
market hospital indemnity or other fixed indemnity insurance and an 
exclusion of benefits under any other health coverage maintained by the 
same issuer, from 45 CFR 148.220(b)(4)(ii) to 45 CFR 148.220(b)(4)(i).
---------------------------------------------------------------------------

    \199\ 827 F.3d 70 (D.C. Cir. July 1, 2016).
---------------------------------------------------------------------------

g. Applicability Dates
    In 26 CFR 54.9831-1(c)(4)(iv), 29 CFR 2590.732(c)(4)(iv), and 45 
CFR 146.145(b)(4)(iv), the Departments are proposing applicability 
dates that distinguish between new and existing fixed indemnity 
excepted benefits coverage in the group market. HHS proposes a similar 
approach to applicability with respect to new and existing fixed 
indemnity excepted benefits coverage in the individual market at 45 CFR 
148.220(b)(4)(iv). The applicability date proposals described in this 
section of the preamble are similar to the bifurcated approach for 
STLDI applicability dates proposed at 26 CFR 54.9833-1, 29 CFR 
2590.736, and 45 CFR 146.125 and 148.102 and described in section 
III.A.6 of this preamble.
    The Departments propose that the proposed amendments related to 
group market fixed indemnity excepted benefits coverage would apply to 
new coverage that is sold or issued on or after the effective date of 
the final rules with respect to plan years that begin on or after such 
date. HHS proposes the same applicability date for the proposed 
amendments related to individual market fixed indemnity excepted 
benefits coverage for new coverage that is sold or issued on or after 
the effective date of the final rules. The Departments are of the view 
that timely implementation of the proposed amendments to the fixed 
indemnity excepted benefits coverage regulations is essential for 
maximizing the number of individuals benefiting from the consumer 
protections described throughout this preamble.
    The Departments propose that the proposed amendments related to 
group market fixed indemnity excepted benefit coverage would apply to 
existing coverage that is sold or issued before the effective date of 
the final rules with respect to plan years that begin on or after 
January 1, 2027, except with respect to the new group market notice 
requirements proposed at 26 CFR 54.9831-1(c)(4)(ii)(D)(2) through (4), 
29 CFR 2590.732-1(c)(4)(ii)(D)(2) through (4), and 45 CFR 
146.145(b)(4)(ii)(D)(2) through (4), the technical amendments described 
in section III.B.1.f of this preamble, and the proposed severability 
provision at 26 CFR 54.9831-1(c)(4)(v), 29 CFR 2590.732-1(c)(4)(v), and 
45 CFR 146.145(b)(4)(v). The Departments propose that the provisions 
related to

[[Page 44631]]

the notice would apply for plan years beginning on or after the 
effective date of the final rules and the technical amendments and 
severability provision would apply to new and existing group market 
fixed indemnity excepted benefits coverage beginning on the effective 
date of the final rules. As discussed further in this preamble section, 
HHS proposes to adopt a similar bifurcated approach to the 
applicability date for the proposed amendments related to individual 
market fixed indemnity excepted benefits coverage.
    The Departments are aware that the proposed amendments to the group 
and individual market regulations for fixed indemnity excepted benefits 
coverage could, if finalized, affect hospital or other fixed indemnity 
insurance coverage that was sold or issued before the effective date of 
the final rules. In these cases, consumers may have chosen to purchase 
or enroll in fixed indemnity excepted benefits coverage in reliance on 
a framework that could be altered by the final rules. The Departments 
recognize that these proposed rules, if finalized, could also affect 
existing policies, including coverage or costs. Therefore, the 
Departments are of the view that the proposed bifurcated approach to 
the applicability date that provides for a more extended transition 
period for existing coverage to come into compliance with the 
applicable new payment standards and noncoordination requirements is 
appropriate with respect to fixed indemnity excepted benefits coverage 
sold or issued before the effective date of the final rules. This 
period is intended to provide plans, issuers, and those currently 
enrolled in group and individual market fixed indemnity excepted 
benefits with sufficient time to consider the effects and prepare for 
implementation of these proposed rules with respect to existing fixed 
indemnity excepted benefits coverage, without unnecessarily delaying 
their applicability to new coverage.
    However, the Departments propose that the proposed notice 
requirement at 26 CFR 54.9831-1(c)(4)(ii)(D)(2) through (4), 29 CFR 
2590.732-1(c)(4)(ii)(D)(2) through (4), and 45 CFR 
146.145(b)(4)(ii)(D)(2) through (4) would apply with respect to all 
group market fixed indemnity excepted benefits coverage that was sold 
or issued before the effective date of the final rules (including 
renewals) for plan years that begin on or after the effective date of 
the final rules. HHS proposes a similar applicability date for the 
revised individual market fixed indemnity excepted benefits coverage 
notice at 45 CFR 148.220(b)(4)(iii). As such, the proposed notice 
requirements would apply to both new and existing fixed indemnity 
excepted benefit coverage in the group or individual market for notices 
required to be provided for coverage periods (including renewals) 
beginning on or after the effective date of the final rules. In the 
Departments' view, the benefit to consumers, including those currently 
enrolled in group market fixed indemnity excepted benefits coverage, of 
this information outweighs the burden to plans and issuers of 
implementing these changes for existing fixed indemnity excepted 
benefits coverage by the effective date of the final rules.
    The Departments also propose that the technical amendments to the 
group market regulations described in section III.B.1.f of this 
preamble would apply to group market fixed indemnity excepted benefits 
on the effective date of the final rules. These changes are primarily 
aimed at consolidating and clarifying existing requirements and 
aligning regulatory language with current legal standards, and would 
impose limited if any additional burden on interested parties, if 
finalized. Therefore, the Departments are of the view that a longer 
transition period is unnecessary, and a bifurcated approach could 
contribute to confusion without benefitting interested parties.
    For similar reasons, the Departments propose that the severability 
provision proposed at 26 CFR 54.9831-1(c)(4)(v), 29 CFR 2590.731-
2(c)(4)(v), and 45 CFR 146.145(b)(4)(v) would apply on the effective 
date of the final rules. This provision is intended to ensure that, in 
the event of any successful legal challenge to one or more discrete 
provisions of the final rules, remaining provisions of the final rules 
can continue to be successfully implemented. The Departments are of the 
view that delaying the applicability date of this provision for fixed 
indemnity excepted benefits coverage sold or issued prior to the 
effective date of the final rules would be confusing and difficult to 
implement in the event of a legal challenge and would not provide any 
clear benefit to consumers, issuers, States, or other interested 
parties.
    HHS similarly proposes that the proposed amendments related to 
individual market fixed indemnity excepted benefits coverage would 
generally apply to coverage that is sold or issued before the effective 
date of the final rule beginning on the first renewal on or after 
January 1, 2027. However, the changes related to the notice proposed at 
45 CFR 148.220(b)(4)(iii) would apply to notices required to be 
provided in connection with the first renewal on or after the effective 
date of the final rules. The technical amendments to the individual 
market regulation described in section III.B.1.f of this preamble and 
the severability provision proposed at 45 CFR 148.220(b)(4)(v) would 
also become effective on the effective date of the final rules for 
existing individual market excepted benefits coverage. Under the 
proposed bifurcated applicability date, all of the proposed amendments 
related to individual market fixed indemnity excepted benefits coverage 
would apply to new coverage that is sold or issued on or after the 
effective date of the final rules beginning with coverage periods 
(including renewals) on or after the effective date of the final rules.
    The Departments seek comments on their approach to applicability 
for fixed indemnity excepted benefits coverage, including whether 
applying the updated fixed indemnity excepted benefits regulations to 
fixed indemnity excepted benefits coverage sold or issued on or after 
the effective date of the final rules would provide a sufficient 
transition period in the group and individual markets for new coverage, 
or whether delaying the applicability date, such as for plan years or 
coverage periods beginning on or after January 1, 2025, would ensure a 
smoother transition to the new Federal standards for the sale of new 
fixed indemnity excepted benefits coverage. Additionally, the 
Departments seek comments on whether delaying applicability of most of 
the proposed changes to the fixed indemnity excepted benefits 
regulations for existing fixed indemnity excepted benefits coverage 
until plan years beginning on or after January 1, 2027, provides a 
sufficient transition period or if it should be modified to provide a 
shorter transition. In particular, the Departments are interested in 
feedback on whether the proposed January 1, 2027, effective date would 
leave consumers with this coverage at risk of harm generally, or with 
respect to any specific proposal, and if so, whether a more immediate 
applicability date (such as the effective date of the final rules or an 
interim date such as January 1, 2025), would strike a better balance by 
applying new consumer protections sooner while still providing a smooth 
transition to the new requirements.
    The Departments also seek comment on the proposal to apply the 
proposed notice requirements to existing fixed indemnity excepted 
benefits coverage beginning with plan years or coverage periods 
(including renewals) on or after

[[Page 44632]]

the effective date of the final rules, and whether a different 
applicability date (such as January 1, 2027, or an interim date such as 
January 1, 2025) for the notice requirements would be appropriate for 
this cohort since they already opted to enroll in such coverage and 
would be permitted to continue their existing coverage or could seek to 
enroll in new coverage on or after the effective date of the final 
rules.
h. Severability
    In the event that any portion of the final rules implementing one 
or more proposals in these proposed rules is declared invalid, the 
Departments intend that the proposals related to group market fixed 
indemnity excepted benefits coverage in these proposed rules be 
severable, and that the amendments the Departments propose with respect 
to the Federal regulations at 26 CFR 54.9831-1(c)(4), 29 CFR 
2590.732(c)(4), and 45 CFR 146.145(b)(4) that outline the conditions 
for hospital indemnity and other fixed indemnity insurance to qualify 
as an excepted benefit in the group market would continue even if one 
or more aspects of the proposed changes is found invalid. To capture 
this intent, the Departments propose to add a severability provision at 
26 CFR 54.9831-1(c)(4)(v), 29 CFR 2590.731-2(c)(4)(v), and 45 CFR 
146.145(b)(4)(v). Similarly, HHS intends that its proposed amendments 
to the regulation at 45 CFR 148.220(b)(4) that outlines the conditions 
for such insurance to qualify as excepted benefits coverage in the 
individual market continue even if one or more of the proposed changes 
is found invalid. To capture this intent, HHS proposes to add a 
severability provision at 45 CFR 148.220(b)(4)(v). The severability of 
these provisions is discussed in more detail in section VI of these 
proposed rules.
2. Specified Disease Excepted Benefits Coverage
    These proposed rules do not propose amendments to the Federal 
regulations regarding specified disease excepted benefits coverage. 
However, the Departments solicit comments on whether the proposed 
changes to fixed indemnity excepted benefits coverage in these proposed 
rules could have unintended consequences that would affect the market 
for specified disease excepted benefits coverage, if finalized. For 
example, would such changes have the effect of shifting consumers from 
hospital indemnity or other fixed indemnity insurance to specified 
disease excepted benefits coverage as an alternative to or replacement 
for comprehensive coverage? Would the proposed changes incentivize 
issuers, agents, and brokers that offer specified disease excepted 
benefits coverage to shift the misleading or aggressive sales, 
advertising, and marketing tactics to encourage enrollment in specified 
disease excepted benefits coverage as an alternative to or replacement 
for comprehensive coverage? The Departments also seek comments on 
whether and what additional protections or clarifications are necessary 
or would be helpful to more clearly distinguish specified disease 
excepted benefits coverage from comprehensive coverage and to increase 
consumer understanding of the differences between these two types of 
health coverage.
    Additionally, the Departments seek comments on typical benefit 
design features of specified disease excepted benefits coverage. For 
example, under what circumstances would that coverage pay benefits 
based on a diagnosis versus on the basis of receipt of services for one 
or more specified medical conditions, and which design is more common? 
Under what circumstances and how common is it for specified disease 
excepted benefits coverage to pay benefits in a hybrid fashion, meaning 
some benefits are paid based on a diagnosis, and other benefits are 
paid based on receipt of services for one or more specified medical 
conditions? To the extent benefits under specified disease excepted 
benefits coverage policies are paid based on receipt of services for 
one or more specified medical conditions, are benefits typically paid 
to the policyholder or to the provider of the services? If the latter, 
do the issuers typically require use of a provider network for the 
enrollee to receive benefits (or more favorable benefits) under the 
specified disease excepted benefits coverage policy?
    The Departments also seek comments on potential sources of 
information and data related to specified disease excepted benefits 
coverage policies offered for sale in the group and individual markets, 
including the number of policies sold, the types of individuals who 
typically purchase this coverage, the reasons for which they purchase 
it, and the types of common benefit exclusions or limitations.

C. Level-Funded Plan Arrangements

    As stated in section I.F of this preamble, the Departments 
understand that an increasing number of group health plan sponsors, 
particularly small employers, are utilizing a funding mechanism or plan 
arrangement known as level-funding. According to the KFF Employer 
Health Benefits Survey, 42 percent of small employers (defined as 
having 3-199 workers) reported offering a level-funded plan in 2021, 
compared to just 13 percent in 2020.\200\ This figure remained at 
approximately the same level in 2022, with 38 percent of small 
employers reporting that they offered a level-funded plan.\201\ These 
arrangements are often marketed to small employers on the premise that 
level-funding provides predictable, and generally lower, costs and risk 
associated with potential high-dollar claims for plan sponsors, 
relative to traditional methods of self-funding.
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    \200\ KFF (2021). ``2021 Employer Health Benefits,'' available 
at: https://www.kff.org/report-section/ehbs-2021-section-10-plan-funding/.
    \201\ KFF (2022). ``2022 Employer Health Benefits,'' available 
at: https://www.kff.org/report-section/ehbs-2022-section-10-plan-funding/.
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    As the uptake of level-funded plan arrangements increases, the 
Departments have heard concerns and received questions from interested 
parties related to level-funded arrangements' status as self-funded 
plans. Because level-funded arrangements purport to be, and are often 
regulated as, self-funded plans, they are typically not regulated by 
States.\202\
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    \202\ The Departments further recognize that increased uptake of 
level-funded plans among small employers with fewer than 20 
employees has caused continuation- of- coverage issues. This is 
because (i) the Federal COBRA rules do not apply to such plan 
sponsors, and (ii) a plan that is a level-funded plan is treated as 
self-insured, such that state continuation-of- coverage rules would 
not apply.
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    In general, ERISA applies to private, employment-based group health 
plans.203 204 Therefore, in a level-funded plan arrangement 
sponsored by a private employer, the self-funded plan is the entity 
that is legally responsible for compliance with ERISA group health plan 
requirements. The parallel group market PHS Act requirements apply to 
health insurance issuers offering group health insurance coverage and 
also generally apply to non-Federal Governmental 
plans.205 206 In a self-

[[Page 44633]]

insured, level-funded arrangement sponsored by a public employer, the 
plan sponsor or employer is the entity legally responsible for 
compliance with applicable group health plan requirements under the PHS 
Act.\207\
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    \203\ Section 3(1) of Title I of ERISA defines the term 
``employee welfare benefit plan'' to include: ``[A]ny plan, fund, or 
program which was heretofore or is hereafter established or 
maintained by an employer or by an employee organization, or by 
both, to the extent that such plan, fund, or program was established 
or is maintained for the purpose of providing for its participants 
or their beneficiaries, through the purchase of insurance or 
otherwise. . .''
    \204\ The PHS Act cross-references ERISA in its definitions. 
See, e.g., the definitions for ``group health plan'', ``group health 
insurance coverage'', ``employer'', ``employee'', ``church plan'', 
``governmental plan'', ``participant'', and ``plan sponsor'' in 
section 2791(a)(1), (b)(4), (d)(5)--(d)(8), (d)(11), and (d)(13) of 
the PHS Act, respectively.
    \205\ The definition of ``non-federal governmental plan'' at 
section 2791(d)(8)(C) of the PHS Act incorporates the definition of 
``governmental plan'' under ERISA section 3(32).
    \206\ Sponsors of self-funded non-Federal governmental group 
health plans are permitted to elect to exempt those plans from 
(``opt out of'') certain provisions of title XXVII of the PHS Act. 
See, e.g., section 2722(a)(2) of the PHS Act, as amended by the 
Consolidated Appropriations Act, 2023 (Pub. L. 117-328), and 45 CFR 
146.180. Also see the Patient Protection and Affordable Care Act; 
Exchange and Insurance Market Standards for 2015 and Beyond; 
Proposed Rule, 79 FR 15807 at 15814-15815 (March 21, 2014) and 
https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/nonfedgovplans.
    \207\ See, e.g., 45 CFR 150.305.
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    Interested parties have raised concerns that stop-loss coverage, a 
product traditionally purchased by large employers sponsoring self-
funded plans, is not required to comply with the Federal consumer 
protections and requirements applicable to group health plans or health 
insurance issuers offering group health insurance coverage, or meet 
requirements under State regulations that apply to health insurance 
coverage. Interested parties have expressed that these concerns are 
exacerbated when small employers utilize level-funded plan arrangements 
with stop-loss coverage that has low attachment points. This is because 
the majority of the benefits covered under such an arrangement would be 
provided via the stop-loss coverage, which may deny or limit the 
individual's claim in a way that would be prohibited under the group 
market Federal consumer protections and requirements. This means that 
if the stop-loss insurer defines the scope of coverage more narrowly 
than otherwise permitted by the Federal consumer protections and 
requirements applicable to group health plans or health insurance 
issuers offering group health insurance coverage (for example, by 
including a preexisting condition exclusion), the small employer 
remains liable for the claim for coverage, yet may be unprepared to 
absorb such costs. This is in large part due to the complexity of 
level-funding arrangements; because small employers typically pay a 
monthly amount that resembles a premium, they may not understand 
whether their health plan is self-funded or insured and, furthermore, 
that coverage of certain benefits may vary depending on where the 
attachment point is set. In addition, covered individuals generally do 
not know whether their claim is being paid by the group health plan 
itself or by the stop-loss coverage. This raises additional concerns 
when an extensive portion of the individuals' claims are covered by the 
stop loss coverage that is not subject to the group market Federal 
consumer protections and requirements and has a low attachment point. 
For example, the stop loss coverage might deny a claim due to 
application of a lifetime or annual dollar limit in a way that would be 
prohibited under the group market Federal consumer protections and 
requirements.
    Level-funded plans are most commonly adopted by small employers who 
are leaving the small group health insurance market, where policies 
must cover State- and Federally-mandated benefits and include various 
essential health benefits and consumer protections such as those 
included in MHPAEA.\208\ Interested parties have expressed that small 
employers that switch from fully-insured coverage to level-funded 
arrangements may be unaware that the self-funded plans they are 
offering to their employees may not include certain benefits that would 
have to be covered if the plan were fully-insured.
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    \208\ MHPAEA does not apply directly to plans offered by small 
employers. Code section 9812(c)(1), ERISA section 712(c)(1), and PHS 
Act section 2716(c)(1). However, most plans offered by small 
employers are insured and therefore subject to MHPAEA through 
regulations implementing the essential health benefit coverage 
requirements. 45 CFR 156.115(a)(3). In the case of a level-funded 
plan, if the entire arrangement is treated as self-insured, the 
essential health benefit requirements would not apply.
---------------------------------------------------------------------------

    The Departments are also aware of interested parties' concerns that 
if level-funded plan arrangements are marketed only to small employer 
plan sponsors with relatively low expected claims costs, this may lead 
to adverse selection in the State's small group health insurance market 
and may destabilize the States' small group market risk pools. The 
potential for adverse selection caused by the increasing use of these 
level-funded plan arrangements is further compounded by the fact that 
these arrangements are not generally treated as being subject to the 
guaranteed renewability and single risk pool requirements that apply to 
fully-insured small group market coverage.
    The Departments also acknowledge interested parties' concerns that 
if level-funded plan sponsors' contributions are not properly 
segregated from other funds held by the plans' service providers, those 
service providers might inadvertently be establishing multiple employer 
welfare arrangements, which would result in the plans being subject to 
a wide range of State regulation and additional requirements under 
ERISA.\209\ If they are unaware that their plan is a multiple employer 
welfare arrangement, they may not be complying with all of the 
applicable requirements.
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    \209\ See ERISA section 3(40); see also ERISA section 514(b)(6); 
see also U.S. Department of Labor, Employee Benefits Security 
Administration (2022). ``MEWAs: Multiple Employer Welfare 
Arrangements under the Employee Retirement Income Security Act 
(ERISA): A Guide to Federal and State Regulation,'' available at: 
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
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    Given the growing number of level-funded plans, the Departments are 
soliciting comments to better understand the prevalence of level-funded 
plans, such plans' designs and whether additional guidance or 
rulemaking is needed to clarify a plan sponsor's obligation with 
respect to coverage provided through a level-funded plan arrangement. 
The Departments solicit comments on the following issues:
    How prevalent are level-funded group health plans among private and 
public employers? How many individuals are covered under level-funded 
plans? The Departments are also interested in information or data on 
whether the percentage of plan sponsors offering level-funded plans 
varies by State, geographic area, or other factors.
    Are there data other than KFF's Employer Health Benefits Survey 
that the Departments should consider?
    What factors are leading an increasing number of plan sponsors, 
particularly small employers, to utilize level-funded plans?
    What are the administrative costs associated with offering level-
funded plans, and how do these costs compare to the administrative 
costs associated with offering fully-insured plans?
    What types of benefits are commonly offered or not offered by 
level-funded plans?
    What kinds of level-funded benefit options are generally made 
available to plan sponsors? How do the benefit packages differ from 
fully-insured plans? Do level-funded plan arrangements offer robust 
benefits similar to the comprehensive coverage offerings of fully-
insured plans?
    Are benefits provided by level-funded plans generally as 
comprehensive as fully-insured plans available to small employers? What 
benefits and consumer protections are generally no longer included when 
a small employer converts its plan from fully-insured coverage to a 
level-funded arrangement? Are changes in benefits and consumer 
protections communicated to plan

[[Page 44634]]

participants and beneficiaries, and if so, how?
    Are additional safeguards needed with respect to level-funded 
arrangements to ensure that individuals and/or small employers are not 
subjected to unexpected costs resulting from the stop-loss coverage 
failing to comply with Federal group health plan requirements? How do 
level-funded plans determine anticipated administrative costs and 
expected claims costs?
    With respect to stop-loss coverage, how, and by whom, is the 
attachment point determined and what factors are considered in setting 
the attachment point?
    What impact, if any, does the use of level-funding for plans 
offered by small employers have on the insured small group market?
    How do plans' service providers manage plan sponsors' contributions 
for level-funded plans, including amounts that exceed actual plan costs 
(that is, costs for claims, administrative fees, and stop-loss 
premiums)? Are such arrangements consistent with section 403 of ERISA?
    How are the amounts of any refunds paid to plan sponsors by stop-
loss providers determined? Are refunds remitted to participants and 
beneficiaries who have made contributions under the plan? If so, how 
are they determined and remitted?
    How do plan sponsors of level-funded arrangements account for 
compliance with the consumer protections and mandated benefits that 
would apply to health benefits provided by a plan sponsor through a 
level-funded arrangement that is reimbursed through stop-loss 
insurance?
    Do employers offering level-funded plans generally understand and 
comply with any applicable reporting requirements under sections 6055 
and 6056 of the Code?

IV. Overview of the Proposed Rules on Tax Treatment and Substantiation 
Requirements for Fixed Indemnity Insurance and Certain Other Accident 
or Health Insurance--Department of the Treasury and the IRS

    The Treasury Department and the IRS are proposing amendments to the 
rules under section 105(b) of the Code. These amendments would clarify 
the tax treatment of amounts received by a taxpayer through employment-
based accident or health insurance that are paid without regard to the 
amount of incurred medical expenses under section 213(d) of the Code 
and where the premiums or contributions for the coverage are paid on a 
pre-tax basis. These amendments would also clarify that, under 
longstanding regulations and guidance issued by the Treasury Department 
and the IRS, the substantiation requirements for reimbursement of 
qualified medical expenses apply to reimbursements under section 105(b) 
of the Code in order for those reimbursements to be excluded from an 
individual's gross income. Additionally, the amendments would update 
several cross-references in the rules implementing section 105(b) of 
the Code to reflect statutory changes since the rules were first 
issued.\210\
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    \210\ The current rules reference section 105(d) of the Code, 
which has been repealed. The rules also reference the definition of 
a dependent in section 152(f) which may, in some circumstances, not 
include children up to the age of 26 that must be eligible to enroll 
in a group health plan or group or individual health insurance 
coverage under section 2714 of the PHS Act (which is incorporated in 
section 9815 of the Code) if the plan or coverage makes available 
dependent coverage of children.
---------------------------------------------------------------------------

    The Treasury Department and the IRS are aware of certain 
arrangments that purport to avoid income and employment taxes by 
characterizing income replacement benefits or other cash benefits as 
amounts paid for reimbursement of medical care, even though those 
amounts are paid without regard to the actual amount of any incurred, 
and otherwise unreimbursed, medical expenses. Frequently, these 
arrangements are marketed as supplemental coverage that saves employers 
and employees money by avoiding employment taxes when replacing income 
lost by an employee due to a health-related event experienced by the 
employee. In some arrangements, employees are paid an amount every 
month, purportedly for medical expenses, even if they do not incur any 
medical expenses, or if they simply complete certain health-related 
activities.
    Fixed indemnity excepted benefits \211\ coverage pays pre-
determined benefits upon the occurrence of certain health-related 
events. Benefits under this type of coverage in the group market must 
be paid in a fixed amount on a per period basis.\212\ Although a 
benefit payment at the pre-determined level under that coverage may 
incidentally cover all or a portion of the cost of medical care 
stemming from the precipitating health-related event, it is typically 
not designed to do so and is paid without regard to the amount of the 
medical care expense incurred. Some specified disease excepted benefits 
coverage operates in a similar manner. For example, coverage only for a 
specified disease or illness might offer lump sum payments upon a 
specific diagnosis or on the basis of treatment received, or it might 
offer fixed payments per day or other time period of hospitalization or 
illness.\213\
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    \211\ Excepted benefits are described in section 9832 of the 
Code. Excepted benefits are generally not subject to the consumer 
protections under Chapter 100 of the Code, part 7 of ERISA, and 
title XXVII of the PHS Act.
    \212\ 26 CFR 54.9831-1(c)(4).
    \213\ Id.
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    The principle that these types of accident or health insurance are 
not generally intended to provide reimbursement for incurred medical 
expenses is further illustrated by the fact that taxpayers covered by 
these arrangments will, in many cases, receive benefits upon the 
occurrence of a health-related event under these arrangements even if 
any incurred expenses associated with that event are already reimbursed 
through other coverage. This is because these types of group market 
excepted benefits must be ``noncoordinated'' such that benefits are 
paid with respect to an event without regard to whether benefits are 
provided for that same event under any group health plan maintained by 
the same plan sponsor.\214\ Thus, for example, if a particular medical 
expense incurred during hospitalization is reimbursed by a taxpayer's 
primary, comprehensive coverage and the taxpayer also receives a 
benefit in a fixed amount for the hospitalization from fixed indemnity 
or specified disease excepted benefits coverage, the taxpayer would 
receive the fixed benefit without having any need to use the fixed 
amount received to pay for that medical expense.
---------------------------------------------------------------------------

    \214\ Id.
---------------------------------------------------------------------------

    These amendments are being proposed in response to ongoing 
questions about the proper tax treatment of payments pursuant to these 
arrangements. While these arrangments are sold under a variety of 
names, they are commonly sold as fixed indemnity excepted benefits 
coverage or specified disease excepted benefits coverage. However, the 
changes in these proposed amendments would not be limited to these 
types of coverage. The Treasury Department and the IRS note that it is 
important to look past the label on any given accident or health 
insurance product to determine whether amounts received by an employee 
are, in fact, for reimbursement of medical expenses or whether the 
amounts could be used for any purpose. For example, even if a benefit 
payment under the arrangement is used to reimburse an employee's 
medical expenses, if the amount of the payment is not tied to the 
amount of the expense incurred and the employee is entitled to keep any 
amounts by which the benefit payment exceeds the

[[Page 44635]]

incurred expenses, that would indicate that the benefit is not actually 
a reimbursement for medical expenses. The Treasury Department and the 
IRS request comments on whether additional clarification is needed 
regarding how these rules would apply to types of benefits provided 
through employment-based accident or health insurance other than fixed 
indemnity excepted benefits coverage or specified disease excepted 
benefits coverage, including incentives offered through wellness 
programs, where the insurance, those programs, or both provide benefits 
without regard to the amount of medical expenses incurred and where the 
premiums are paid on a pre-tax basis.

A. Tax Treatment of Benefits

    As described in section I.E of this preamble, hospital indemnity 
and other fixed indemnity insurance and coverage only for a specified 
disease or illness are treated as accident or health insurance under 
sections 104, 105, and 106 of the Code whether or not they are excepted 
benefits. Amounts received from accident or health insurance are 
excluded from a taxpayer's gross income under section 104(a)(3) of the 
Code if the premiums are paid for on an after-tax basis. The taxation 
of amounts received by an employee from accident or health insurance 
where the premiums or contributions are paid on a pre-tax basis by the 
employer or through salary reduction under a cafeteria plan is 
determined under section 105 of the Code.
    Under section 105(a) of the Code, amounts received by an employee 
through accident or health insurance for personal injuries or sickness 
are included in gross income; however, section 105(b) of the Code 
excludes from gross income amounts received by an employee to reimburse 
the employee's medical expenses under section 213(d) of the Code. As is 
noted in section I.E of this preamble, 26 CFR 1.105-2 provides that the 
exclusion from gross income in section 105(b) of the Code ``applies 
only to amounts that are paid specifically to reimburse the taxpayer 
for expenses incurred by him for the prescribed medical care. Thus, 
section 105(b) does not apply to amounts that the taxpayer would be 
entitled to receive irrespective of whether or not he incurs expenses 
for medical care.'' Further, 26 CFR 1.105-2 also provides that 
``section 105(b) is not applicable to the extent that such amounts 
exceed the actual expenses for such medical care.''
    The Treasury Department and the IRS are cognizant that the language 
in the current rule has led to confusion among taxpayers about the 
circumstances under which benefits from accident or health insurance 
may be excluded from an individual's gross income when the premiums for 
the coverage were paid on a pre-tax basis and the benefits are not 
directly related to a medical expense incurred by an employee. In 
particular, some have interpreted the current rule to mean that 
benefits provided to a taxpayer through an accident or health insurance 
policy that provides benefits without regard to the amount of medical 
expenses incurred, such as fixed indemnity excepted benefits coverage 
or specified disease excepted benefits coverage, are nonetheless 
excluded from the taxpayer's gross income because they are paid upon 
the occurrence of a health-related event. Others have interpreted the 
current rule to mean that benefits can be excluded from gross income so 
long as the amount received does not exceed the amount of the medical 
expense arising from the occurrence of a health-related event.\215\
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    \215\ Revenue Ruling 69-154, 1969-1 CB 46, provides that section 
105(b) of the Code is not applicable to the extent that amounts 
received from accident or health insurance exceed the amount of the 
actual expenses for the medical care. The facts of the revenue 
ruling concerned a medical expense reimbursed by multiple coverages, 
with neither coverage paying the entire expense but the combination 
of coverages paying more than the amount of the medical expense. 
Nevertheless, the Treasury Department and the IRS are aware that 
some individuals have relied on the ruling to support their claims 
that section 105(b) allows for an exclusion from gross income for 
all benefits provided by accident or health insurance up to the 
amount of medical expenses with only the excess ``indemnification'' 
being included in gross income, even when the taxpayer is enrolled 
in only one coverage.
---------------------------------------------------------------------------

    The Treasury Department and the IRS interpret section 105(b) of the 
Code to not apply to benefits paid without regard to the actual amount 
of incurred and otherwise unreimbursed section 213(d) medical expenses. 
Because payment of these amounts is not a reimbursement of section 
213(d) medical expenses, the amount of reimbursement is immaterial, 
with the result that the payment is not excluded from gross income 
under section 105(b) of the Code. The benefits would, therefore, be 
included in the taxpayer's gross income.
    Thus, the Treasury Department and the IRS propose to amend 26 CFR 
1.105-2 to clarify that the exclusion from gross income under section 
105(b) of the Code does not apply to amounts received from accident or 
health insurance that pays an amount or distributes a benefit if the 
benefit is paid without regard to the actual amount of section 213(d) 
medical expenses incurred by the employee. This interpretation would 
apply, for example, to benefit payments under fixed indemnity excepted 
benefits coverage and to benefit payments under specified disease 
excepted benefits coverage that pays benefits without regard to the 
amount of medical expenses incurred.
    Payments that are excludible from gross income under section 104 or 
105(b) of the Code and under section 3121(a) of the Code are excluded 
from wages subject to Federal Insurance Contributions Act (FICA) taxes 
under sections 3101 and 3111. Similarly, under section 3306(b) of the 
Code, these payments are not wages subject to Federal Unemployment Tax 
Act (FUTA) taxes under section 3301 of the Code. Also, under section 
3401(a) of the Code, they are not wages subject to income tax 
withholding under section 3402 of the Code. Temporary 26 CFR 32.1 
provides rules governing the application of FICA taxes to payments on 
account of sickness or accident disability. Section 32.1(a) provides, 
in effect, that payments to or on behalf of an employee on account of 
sickness or accident disability are not excluded from wages unless the 
payments are received under a workers' compensation law or qualify for 
an exception under section 3121(a)(4) of the Code (payments on account 
of sickness or accident disability made after the expiration of 6 
calendar months). Section 32.1(d) provides that for purposes of 26 CFR 
32.1(a) ``payments on account of sickness or accident disability'' 
subject to FICA tax include payments includible in gross income under 
section 105(a) of the Code and, thus, does not include any amount that 
is not expended for medical care as described in section 105(b) of the 
Code and 26 CFR 1.105-2. Under the proposed amendment to 26 CFR 1.105-
2, accident and health insurance payments that would not be excluded 
from employees' gross income under section 105(b) because the amounts 
were paid without regard to the actual amount of incurred or otherwise 
unreimbursed section 213(d) medical care expenses would be wages 
subject to FICA, FUTA, and income tax withholding. Thus, if these rules 
are finalized as proposed, taxpayers would need to consider the impact 
this proposal would have on determinations of whether amounts received 
under accident and health plans constitute wages for employment tax and 
income tax withholding purposes.

[[Page 44636]]

B. Substantiation Requirement

    The regulation at 26 CFR 1.105-2 currently states, in part, that 
``[i]f the amounts are paid to the taxpayer solely to reimburse him for 
expenses which he incurred for the prescribed medical care, section 
105(b) is applicable even though such amounts are paid without proof of 
the amount of the actual expenses incurred by the taxpayer. . .'' This 
language has been interpreted by certain interested parties to suggest 
that substantiation of a taxpayer's incurred medical expenses is not 
required for the exclusion under section 105(b) of the Code to apply.
    In this rulemaking, the Treasury Department and the IRS propose to 
amend 26 CFR 1.105-2 to clarify that, for amounts to be excluded from 
income under section 105(b) of the Code, the payment or reimbursement 
must be substantiated. Longstanding regulations and guidance issued by 
the Treasury Department and the IRS have confirmed that amounts paid to 
reimburse medical expenses under section 213(d) of the Code by 
employment-based accident or health insurance must be substantiated to 
be excluded under section 105(b) of the Code.\216\ Further, if there 
were not a substantiation requirement under section 105(b) of the Code, 
the other proposed clarification that would be made to 26 CFR 1.105-2--
that amounts received from accident or health insurance must be for 
reimbursement of incurred medical expenses for section 105(b) of the 
Code to apply--could be manipulated. The Treasury Department and the 
IRS understand that, in most circumstances, substantiation of medical 
expenses typically occurs prior to reimbursement but are of the view 
that substantiation must occur at least within a reasonable period 
thereafter. The Treasury Department and the IRS request comments on 
whether any final rules should specifically address timing requirements 
for substantiation.
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    \216\ See, e.g., 84 FR 28888, 28917 (June 20, 2019) (describing 
substantiation requirements for employer-sponsored health 
reimbursement arrangements); see also Q44-55 of IRS Notice 2017-67, 
2017-47 IRB 517; Prop. Treas. Reg. Sec.  1.125-6 (72 FR 43938, 
43960-43965 (August 6, 2007)); IRS Notice 2002-45, 2002-2 CB 93.
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C. Applicability Date

    Generally, the proposed modifications to the tax treatment of 
employer reimbursements of employee medical expenses under certain 
accident and health plans are a clarification of long-standing Treasury 
Department and IRS rules and guidance limiting the exclusion from gross 
income to amounts that are fully substantiated and paid only with 
respect to the actual amount of section 213(d) medical care expenses 
incurred by the employee. However, in recognition that some plan 
sponsors and issuers may not have understood the requirements and may 
require time to come into compliance with the proposed amendments to 26 
CFR 1.105-2, assuming that they are finalized as proposed, it is 
proposed that these amendments would apply as of the later of the date 
of publication of the final regulations or January 1, 2024.

V. Response to Comments

    Because of the large number of comments the Departments normally 
receive on Federal Register documents, the Departments are not able to 
acknowledge or respond to them individually. The Departments will 
consider all comments received by the date and time specified in the 
DATES section of the preamble, and, when the Departments proceed with a 
subsequent document, the Departments will respond to the comments in 
the preamble to that document.

VI. Severability

    As previously described, the Departments are proposing to amend the 
Federal definition of ``short-term, limited-duration insurance'' and 
the conditions for hospital indemnity and other fixed indemnity 
insurance to qualify as an excepted benefit in the group market, for 
the purpose of distinguishing STLDI and fixed indemnity excepted 
benefits coverage from comprehensive coverage. Similarly, HHS is 
proposing to amend the conditions for hospital indemnity and other 
fixed indemnity insurance to qualify as an excepted benefit in the 
individual market for the same purpose. The Departments and HHS are 
also proposing certain technical amendments to the regulations 
governing fixed indemnity excepted benefits in the group and individual 
markets, respectively, in order to consolidate and clarify existing 
requirements and align the individual market regulations with the 
decision of the U.S. Court of Appeals for the District of Columbia in 
Central United Life Insurance Company v. Burwell. The Departments' and 
HHS' authority to propose these amendments is well-established in law 
and practice, and should be upheld in any legal challenge. However, in 
the event that any portion of the final rules related to any of the 
proposals in this notice of proposed rulemaking is declared invalid, 
the Departments intend that the other provisions would be severable.
    For example, if any proposed provision in this rulemaking related 
to STLDI is held to be invalid or unenforceable by its terms, or as 
applied to any person or circumstance, or stayed pending further agency 
action, it shall be considered severable from its section and other 
sections of these rules; and it shall not affect the remainder thereof 
or the application of the provision to other entities not similarly 
situated or to dissimilar conditions. Thus, if the Departments were to 
finalize the portion of the STLDI definition that limits the sale of 
multiple consecutive policies exceeding a total duration of 4 months by 
the same issuer to the same policyholder within a 12-month period, and 
a court were to find that portion or any other aspect of the new 
Federal STLDI definition to be unlawful, the Departments intend the 
remaining aspects of these proposed rules related to STLDI would stand, 
if finalized.
    Similarly, the Departments propose that if any proposed provision 
in this rulemaking related to group market fixed indemnity excepted 
benefits coverage is held to be invalid or unenforceable by its terms, 
or as applied to any person or circumstance, or stayed pending further 
agency action, it shall be considered severable from its section and it 
shall not affect the remainder thereof or the application of the 
provision to other entities not similarly situated or to dissimilar 
conditions. For example, if the Departments were to finalize all 
proposals related to additional fixed payment standards for group 
market fixed indemnity excepted benefits coverage and a court were to 
find one or more of those payment standards to be unlawful, the 
Departments intend that the other payment standards, along with the 
other proposals related to fixed indemnity excepted benefits coverage 
in the group market set forth in these proposed rules would stand, if 
finalized.
    Similarly, HHS proposes that if any proposed provision in this 
rulemaking related to individual market fixed indemnity excepted 
benefits is held to be invalid or unenforceable by its terms, or as 
applied to any person or circumstance, or stayed pending further agency 
action, it shall be considered severable from its section and it shall 
not affect the remainder thereof or the application of the provision to 
other entities not similarly situated or to dissimilar conditions. For 
example, if HHS were to finalize all proposals related to the 
additional fixed payment standards for individual market fixed 
indemnity excepted benefits coverage and a court were to find one or 
more of the payment standards to be unlawful, HHS intends that the 
other payment standards for individual market fixed

[[Page 44637]]

indemnity excepted benefits coverage, along with the other proposals 
related to fixed indemnity excepted benefits coverage in the individual 
market set forth in these proposed rules would stand, if finalized.
    The Departments also intend for the STLDI proposals in this 
rulemaking to be severable from the fixed indemnity excepted benefits 
coverage proposals, and vice versa.

VII. Regulatory Impact Analysis

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

    These proposed rules would revise the Federal definition of STLDI 
for new policies, certificates, or contracts of insurance to require 
the coverage to have an expiration date specified in the policy, 
certificate, or contract of insurance that is no more than 3 months 
after the original effective date. These proposed rules would also 
revise the Federal definition of STLDI so that the maximum total 
coverage duration, taking into account any renewals or extensions, is 
no longer than 4 months. For purposes of this definition, a renewal or 
extension would include the term of a new STLDI policy, certificate, or 
contract of insurance issued by the same issuer to the same 
policyholder within the 12-month period beginning on the original 
effective date of the initial policy, certificate, or contract of 
insurance.
    For new STLDI, meaning policies, certificates, or contracts of 
STLDI sold or issued on or after the effective date of the final rules, 
the maximum duration amendments to the definition of STLDI in these 
proposed rules would apply for coverage periods beginning on or after 
the effective date of the final rules. Under these proposed rules, 
existing STLDI, meaning policies, certificates, or contracts of STLDI 
sold or issued before the effective date of the final rules (including 
any subsequent renewals or extensions consistent with applicable law) 
could still have an initial contract term of less than 12 months and a 
maximum duration of up to 36 months (taking into account any renewals 
or extensions), subject to any limits under applicable State law.
    These proposed rules would also revise the notice that must be 
prominently displayed (in either paper or electronic form) in at least 
14-point font on the first page of the policy, certificate, or contract 
of insurance and in any marketing, application, and enrollment 
materials including for renewals or extensions (including on websites 
that advertise or enroll individuals in STLDI) for both new and 
existing STLDI for coverage periods beginning on or after the effective 
date of the final rules.
    These proposed rules also would require that to be fixed indemnity 
excepted benefits coverage, the insurance must pay only a fixed dollar 
amount per day (or per other time period) of hospitalization or illness 
(for example, $100/day), and not on a per-service or per-item basis, as 
is possible under the current HHS excepted benefit regulation 
applicable to the individual market. Further, for hospital indemnity or 
other fixed indemnity insurance to be considered an excepted benefit in 
the group or individual market under these proposed rules, payment must 
be made regardless of the actual or estimated amount of expenses 
incurred, services or items received, severity of illness or injury 
experienced by a covered participant, beneficiary, or enrollee, or 
other characteristics particular to a course of treatment, or on any 
other basis (such as per-item or per-service). All of these proposed 
provisions and amendments, if finalized, would apply to new group and 
individual market fixed indemnity excepted benefits coverage sold or 
issued on or after the effective date of the final rules. For existing 
group market fixed indemnity excepted benefits coverage sold or issued 
before the effective date of the final rules, the proposed provisions 
generally would apply with respect to plan years beginning on or after 
January 1, 2027. The technical amendments to the group market 
regulations described in section III.B.1.f of this preamble and the 
severability provision at 26 CFR 54.9831-1(c)(4)(v), 29 CFR 2590.732-
1(c)(4)(v), and 45 CFR 146.145(b)(4)(v) would apply beginning on the 
effective date of the final rules. HHS similarly proposes that these 
requirements generally would apply to individual market fixed indemnity 
excepted benefits coverage sold before the effective date of the final 
rule upon the first renewal on or after January 1, 2027, except the 
technical amendments to the individual market regulation described in 
section III.B.1.f of this preamble and the severability provision at 45 
CFR 148.220(b)(4)(v) would apply beginning on the effective date of the 
final rule.
    Additionally, these proposed rules would revise the notices that 
must be prominently displayed (in either paper or electronic form) on 
the first page of the policy, certificate, or contract of insurance, 
and any marketing and application materials provided in connection with 
enrollment (or re-enrollment) in fixed indemnity excepted benefits 
coverage in the individual market and would require a similar notice be 
provided for fixed indemnity excepted benefits coverage in the group 
market. The Departments propose that the new notice requirements for 
group market fixed indemnity coverage be applicable to both new and 
existing coverage for notices required to be provided with respect to 
plan years (including renewals) beginning on or after the effective 
date of the final rules. Similarly, HHS proposes that the changes to 
the notice requirements for individual market fixed indemnity coverage 
be applicable to existing individual market fixed indemnity coverage 
for notices required to be provided beginning upon the first renewal on 
or after the effective date of the final rule. For new individual 
market fixed indemnity coverage sold or issued on or after the 
effective date of the final rules, HHS proposes to apply the updated 
notice requirements with respect to coverage periods (including 
renewals) beginning on or after the effective date of the final rules.
    The Departments have examined the effects of these proposed rules 
as required by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993),\217\ Executive Order 13563 on Improving 
Regulation and Regulatory Review (January 18, 2011),\218\ Executive 
Order 14094 (April 6, 2023),\219\ the Regulatory Flexibility Act (RFA) 
(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).\220\
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    \217\ Executive Order 12866 of September 30, 1993, 58 FR 51735.
    \218\ Executive Order 13563 of January 18, 2011, 76 FR 3821.
    \219\ Executive Order 14094 of April 6, 2023, 88 FR 21879.
    \220\ Executive Order 13132 of August 4, 1999, 64 FR 43255.
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B. Executive Orders 12866, 13563, and 14094--Departments of Health and 
Human Services and Labor

    Executive Orders 12866 and 13563 direct 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 14094 on Modernizing Regulatory Review amends section 3(f) of 
Executive Order 12866 (Regulatory Planning and Review). The amended 
section 3(f) of Executive Order 12866 defines a ``significant 
regulatory

[[Page 44638]]

action'' as an action that is likely to result in a rule: (1) having an 
annual effect on the economy of $200 million or more in any 1 year 
(adjusted every 3 years by the Administrator of the Office of 
Information and Regulatory Affairs (OIRA) of the Office of Management 
and Budget (OMB) for changes in gross domestic product), or adversely 
affecting in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, Territorial, or Tribal governments or 
communities; (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 legal or policy issues for which centralized 
review would meaningfully further the President's priorities or the 
principles set forth in this Executive order, as specifically 
authorized in a timely manner by the Administrator of OIRA in each 
case.
    A regulatory impact analysis (RIA) must be prepared for rules with 
significant regulatory action or with significant effects as per 
section 3(f)(1) ($200 million or more in any 1 year). Based on the 
Departments' estimates, OMB's OIRA has determined this rulemaking is 
significant under section 3(f)(1) as measured by the $200 million 
threshold in any 1 year. With respect to Subtitle E of the Small 
Business Regulatory Enforcement Fairness Act of 1996, also known as the 
Congressional Review Act, OMB's OIRA has also determined that these 
rules fall within the definition provided by 5 U.S.C. 804(2). 
Therefore, OMB has reviewed these proposed rules, and the Departments 
have provided the following assessment of their impact.
1. Need for Regulatory Action
    The 2018 final rules permit enrollment in an STLDI policy with a 
total duration that could extend up to 36 months (including renewals or 
extensions). This insurance might therefore be viewed as a substitute 
for (and, in some cases, has been deceptively marketed as) 
comprehensive coverage, rather than as a way to bridge a temporary gap 
in comprehensive coverage.\221\ Evidence shows the number of consumers 
buying STLDI increased following the effective date of the 2018 final 
rules. Data from the NAIC indicate that the number of individuals 
covered by STLDI sold to individuals more than doubled between 2018 and 
2019, from approximately 87,000 to 188,000, and further increased to 
approximately 238,000 in 2020 before declining to approximately 173,000 
in 2021 following the expansion of PTC subsidies provided through the 
ARP.\222\ While these figures do not capture the total number of 
individuals covered by STLDI throughout each year (rather, only at the 
end of the calendar year), and do not include individuals covered by 
STLDI sold to or through associations, they do show the trend of 
increased enrollment in STLDI following the implementation of the 2018 
final rules. Projections by the Congressional Budget Office (CBO) and 
the Joint Committee on Taxation (JCT) suggest that 1.5 million people 
could currently be enrolled in STLDI,\223\ and CMS previously estimated 
that 1.9 million individuals would enroll in STLDI by 2023.\224\ 
However, as noted in section VII.B.2.b, these projections were 
developed prior to the expansion of PTC subsidies provided through the 
ARP and the IRA.
---------------------------------------------------------------------------

    \221\ For one example of deceptive marketing practices, see 
Federal Trade Commission (2022). ``FTC Action Against Benefytt 
Results in $100 Million in Refunds for Consumers Tricked into Sham 
Health Plans and Charged Exorbitant Junk Fees,'' available at: 
https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans-charged.
    \222\ National Association of Insurance Commissioners (2021). 
``Accident and Health Policy Experience Reports for 2018-2021,'' 
available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/SimpleSearch.
    \223\ Congressional Budget Office (2020). ``CBO's Estimates of 
Enrollment in Short-Term, Limited-Duration Insurance,'' available 
at: https://www.cbo.gov/publication/56622. CBO and JCT projected 
that enrollment in STLDI would reach 1.6 million by 2028. See 
Congressional Budget Office (2019). ``How CBO and JCT Analyzed 
Coverage Effects of New Rules for Association Health Plans and 
Short-Term Plans,'' available at: https://www.cbo.gov/publication/54915.
    \224\ CMS Office of the Actuary (2018). ``Estimated Financial 
Effects of the Short-Term, Limited-Duration Policy Proposed Rule,'' 
available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf.
---------------------------------------------------------------------------

    Given that STLDI generally is not subject to the Federal consumer 
protections and requirements for comprehensive coverage sold in the 
individual market, STLDI policies tend to offer limited benefit 
coverage and have relatively low actuarial values.\225\ These plans 
therefore expose enrollees to the risk of high out-of-pocket health 
expenses and medical debt.\226\
---------------------------------------------------------------------------

    \225\ See, e.g., Dieguez, Gabriela and Dane Hansen (2020). ``The 
Impact of Short-Term Limited-Duration Policy Expansion on Patients 
and the ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \226\ See, e.g., Deam, Jenny (2021). ``He Bought Health 
Insurance for Emergencies. Then He Fell Into a $33,601 Trap,'' 
ProPublica, available at: https://www.propublica.org/article/junk-insurance.
---------------------------------------------------------------------------

    In recent years, fixed indemnity excepted benefits coverage is 
increasingly being designed to resemble comprehensive coverage and 
might therefore also be mistakenly viewed as a substitute for 
comprehensive coverage, rather than as independent, noncoordinated 
benefits that are supplemental to comprehensive coverage.\227\
---------------------------------------------------------------------------

    \227\ See, e.g., Young, Christen Linke and Kathleen Hannick 
(2020). ``Fixed Indemnity Health Coverage Is a Problematic Form of 
``Junk Insurance'' U.S.C.-Brookings Schaeffer Initiative for Health 
Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance/.
---------------------------------------------------------------------------

    Because both types of coverage are sold outside of the Exchanges 
and are not generally subject to the Federal consumer protections and 
requirements for comprehensive coverage, consumers may have limited 
information about the limitations, value, and quality of the coverage 
being sold.\228\ The recent reports of consumer confusion regarding 
STLDI and fixed indemnity excepted benefits coverage \229\ support the 
need to

[[Page 44639]]

improve consumer understanding of these types of coverage (and their 
coverage limitations) compared to comprehensive coverage. These 
proposed rules would revise the notice that must be prominently 
displayed (in either paper or electronic form) in at least 14-point 
font, on the first page of the policy, certificate, or contract of 
insurance and in any marketing, application, and enrollment materials 
provided at or before the time an individual has the opportunity to 
enroll (or reenroll) in STLDI, including on any websites used to 
advertise or enroll (or reenroll) individuals in STLDI. These proposed 
rules would also revise the notice that must be prominently displayed 
(in either paper or electronic form) in at least 14-point font on the 
first page of any marketing, application, and enrollment materials 
provided in connection with fixed indemnity excepted benefits coverage 
in the individual market, and on the first page of the policy, 
certificate, or contract of insurance of such coverage.
---------------------------------------------------------------------------

    \228\ See Williams, Jackson (2022). ``Addressing Low-Value 
Insurance Products With Improved Consumer Information: The Case of 
Ancillary Health Products,'' National Association of Insurance 
Commissioners, Journal of Insurance Regulation, available at: 
https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf.
    \229\ Regarding consumer confusion related to short-term, 
limited-duration insurance, see, e.g., Deam, Jenny (2021). ``He 
Bought Health Insurance for Emergencies. Then He Fell Into a $33,601 
Trap,'' ProPublica, available at: https://www.propublica.org/article/junk-insurance. See also Palanker, Dania and Kevin Lucia 
(2021). ``Limited Plans with Minimal Coverage Are Being Sold as 
Primary Coverage, Leaving Consumers at Risk,'' Commonwealth Fund, 
available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk. See also Schwab, Rachel and Maanasa Kona (2018). 
``State Insurance Department Consumer Alerts on Short-Term Plans 
Come Up Short,'' Center on Health Insurance Reforms, available at: 
https://chirblog.org/state-insurance-department-consumer-alerts-short-term-plans-come-short/. See also Corlette, Sabrina, Kevin 
Lucia, Dania Palanker, and Olivia Hoppe (2019). ``The Marketing of 
Short-Term Health Plans: An Assessment of Industry Practices and 
State Regulatory Responses,'' Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses.
    For a discussion of consumer confusion related to fixed 
indemnity excepted benefits coverage, see, e.g., Young, Christen 
Linke and Kathleen Hannick (2020). ``Fixed Indemnity Health Coverage 
Is a Problematic Form of ``Junk Insurance,'' U.S.C.-Brookings 
Schaeffer Initiative for Health Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance/.
---------------------------------------------------------------------------

    These proposed rules would also require the same notice be provided 
in the same manner in connection with fixed indemnity excepted benefits 
coverage in the group market in any marketing, application, or 
enrollment materials provided to participants at or before the time 
participants are given an opportunity to enroll in the coverage. The 
fixed indemnity excepted benefits coverage required notices would also 
be required to be prominently displayed on websites used in connection 
with advertising or enrolling (or re-enrolling) individuals in such 
coverage. This would help ensure that consumers can better understand 
and properly distinguish fixed indemnity excepted benefits coverage 
from comprehensive coverage.
    These proposed rules would encourage enrollment in comprehensive 
coverage and lower the risk that STLDI and fixed indemnity excepted 
benefits coverage are viewed or marketed as a substitute for 
comprehensive coverage.\230\
---------------------------------------------------------------------------

    \230\ As discussed in section I.B of this preamble, these 
proposed rules would build on Executive Order 14009, ``Strengthening 
Medicaid and the Affordable Care Act,'' and Executive Order 14070, 
``Continuing to Strengthen Americans' Access to Affordable, Quality 
Health Coverage,'' by encouraging enrollment in high-quality, 
comprehensive coverage. The Departments also note that the 
affordability of comprehensive coverage offered in the individual 
market has increased for many consumers in recent years, due in part 
to the expanded PTC subsidies provided through the ARP and the IRA, 
as discussed in section II of this preamble. Further, as discussed 
in section II of this preamble, the COVID-19 PHE has highlighted the 
importance of encouraging enrollment in comprehensive coverage.
---------------------------------------------------------------------------

2. Summary of Impacts
    The expected benefits, costs, and transfers associated with these 
proposed rules are summarized in Table 1 and discussed in detail later 
in this section of this preamble.
BILLING CODE 4120-01-, 4150-29-, 4830-01-P

[[Page 44640]]

[GRAPHIC] [TIFF OMITTED] TP12JY23.018

    Table 2 presents the estimated effects of the provisions regarding 
STLDI on enrollment in and gross premiums for individual health 
insurance coverage purchased on an Exchange and on Federal spending on 
the PTC (by

[[Page 44641]]

calendar year), as discussed further in sections VII.B.2.c and 
VII.B.2.e of this preamble.
[GRAPHIC] [TIFF OMITTED] TP12JY23.019

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
a. Background
    STLDI and fixed indemnity excepted benefits coverage generally are 
not subject to the Federal consumer protections and requirements for 
comprehensive coverage as discussed in more detail in section I.A of 
this preamble. STLDI and fixed indemnity excepted benefits coverage 
therefore expose enrollees to financial and health risks, as discussed 
in this section and section II.B of this preamble.
    STLDI and fixed indemnity excepted benefits coverage typically do 
not cover all essential health benefits (including, for example, 
prescription drugs, maternity services, and mental health and substance 
use disorder services), and typically do not cover preexisting 
conditions.\231\ STLDI can offer fewer benefits overall.\232\ While 
fixed indemnity excepted benefits coverage is designed to provide a 
source of income replacement or financial support following a covered 
illness or injury, fixed indemnity benefits are often far below a 
covered individual's incurred costs.\233\ Both STLDI and fixed 
indemnity excepted benefits coverage typically have lower medical loss 
ratios (MLRs) or lower actuarial values than coverage subject to the 
Federal consumer protections and requirements for comprehensive 
coverage. In one study of the medical claims of approximately 47 
million enrollees in commercial plans in 2016, for example, the implied 
actuarial value of the STLDI coverage in the study was 49 percent, 
compared to an implied actuarial value of approximately 74 percent for 
off-Exchange comprehensive coverage plans and an implied actuarial 
value of 87 percent for on-Exchange plans.\234\ Additionally, according 
to an NAIC report, across 28 issuers of STLDI for individuals in 2021, 
the nationwide loss ratio was approximately 70 percent.\235\ Across 95 
issuers of other non-comprehensive coverage for individuals, which 
includes fixed indemnity excepted benefits coverage, the nationwide 
loss ratio was approximately 40 percent in 2021.\236\ By contrast, 
according to data from MLR annual reports for the 2021 MLR reporting 
year, the average MLR in the individual market for comprehensive 
coverage was approximately 87 percent in 2021.\237\
---------------------------------------------------------------------------

    \231\ See, e.g., Dieguez, Gabriela and Dane Hansen (2020). ``The 
Impact of Short-Term Limited-Duration Policy Expansion on Patients 
and the ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 
See also Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah 
Kamal (2018). ``Understanding Short-Term Limited Duration Health 
Insurance,'' KFF, available at: https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/. See also Sanger-Katz, Margot (2018). ``What to Know 
Before You Buy Short-Term Health Insurance,'' The New York Times, 
available at: https://www.nytimes.com/2018/08/01/upshot/buying-short-term-health-insurance-what-to-know.html. See also Young, 
Christen Linke and Kathleen Hannick (2020). ``Fixed Indemnity Health 
Coverage Is a Problematic Form of ``Junk Insurance,'' U.S.C.-
Brookings Schaeffer Initiative for Health Policy, available at: 
https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. See also Partnership to Protect Coverage 
(2021). ``Under-Covered: How `Insurance-Like' Products are Leaving 
Patients Exposed,'' available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf.
    \232\ See, e.g., Dieguez, Gabriela and Dane Hansen (2020). ``The 
Impact of Short-Term Limited-Duration Policy Expansion on Patients 
and the ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \233\ See Williams, Jackson (2022). ``Addressing Low-Value 
Insurance Products With Improved Consumer Information: The Case of 
Ancillary Health Products,'' National Association of Insurance 
Commissioners, Journal of Insurance Regulation, available at: 
https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf.
    \234\ Pelech, Daria and Karen Stockley (2022). ``How Price and 
Quantity Factors Drive Spending in Nongroup and Employer Health 
Plans,'' Health Services Research, available at: https://onlinelibrary.wiley.com/doi/10.1111/1475-6773.13962.
    \235\ National Association of Insurance Commissioners (2022). 
``2021 Accident and Health Policy Experience Report,'' available at: 
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. Data regarding issuers of STLDI and non-
comprehensive coverage are only available for the individual market.
    \236\ Id.
    \237\ Based on internal calculations. Source: CMS, Medical Loss 
Ratio Data and System Resources, available at: https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.
---------------------------------------------------------------------------

    These statistics suggest that relative to issuers of comprehensive 
coverage, issuers of STLDI and fixed indemnity excepted benefits 
coverage tend to spend a lower percentage of premium dollars on health 
care items and services or, in the case of fixed indemnity excepted 
benefits coverage, payment of benefits. Such insurance might therefore 
be highly profitable for issuers,\238\ depending on the extent to which 
issuers incur costs related to marketing

[[Page 44642]]

(including agent/broker compensation \239\), policy underwriting, and 
overhead. At the same time, the limited coverage provided through most 
STLDI and fixed indemnity excepted benefits coverage exposes 
individuals enrolled in such plans to health and financial risks, 
including the risk of high medical bills and high out-of-pocket 
expenses. These high out-of-pocket expenses, in turn, could contribute 
to an increased risk of medical debt and bankruptcy, which is 
particularly problematic given the extent of medical debt already 
present in the United States.\240\
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    \238\ See Appleby, Julie (2018). ``Short-Term Health Plans Boost 
Profits For Brokers And Insurers,'' NPR, available at: https://www.npr.org/sections/health-shots/2018/12/21/678605152/short-term-health-plans-boost-profits-for-brokers-and-insurers. See also Pear, 
Robert (2018). `` `Short Term' Health Insurance? Up to 3 Years Under 
New Trump Policy,'' The New York Times, available at: https://www.nytimes.com/2018/08/01/us/politics/trump-short-term-health-insurance.html.
    \239\ Compensation includes commissions, fees, or other 
incentives (for example, rewards or bonuses) as established in the 
relevant contract between an issuer and the agent or broker.
    \240\ See, e.g., Consumer Financial Protection Bureau (2022). 
``Medical Debt Burden in the United States,'' available at: https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf.
---------------------------------------------------------------------------

    Compensation for agents and brokers from sales of STLDI can also be 
significant, incentivizing aggressive and/or deceptive marketing 
tactics that may mislead customers into enrolling in STLDI instead of 
comprehensive coverage.241 242 243 One study suggests that 
commissions for STLDI are up to 10 times higher than those obtained for 
enrollment in individual health insurance coverage (averaging 
approximately 23 percent for STLDI, compared to 2 percent for 
individual health insurance coverage).\244\ Data that specify 
compensation levels for agents and brokers selling fixed indemnity 
excepted benefits coverage are not available. However, one survey 
suggests that lead-generating websites direct consumers to insurance 
brokers selling both STLDI and other types of non-comprehensive 
coverage, including fixed indemnity excepted benefits coverage, and 
that both types of coverage are often marketed to resemble 
comprehensive coverage.\245\
---------------------------------------------------------------------------

    \241\ See, e.g., Appleby, Julie (2018). ``Short-Term Health 
Plans Boost Profits For Brokers And Insurers,'' NPR, available at: 
https://www.npr.org/sections/health-shots/2018/12/21/678605152/short-term-health-plans-boost-profits-for-brokers-and-insurers.
    \242\ Government Accountability Office (2020). ``Private Health 
Coverage: Results of Covert Testing for Selected Offerings,'' 
available at: https://www.gao.gov/products/gao-20-634r.
    \243\ However, even as some issuers offer higher compensation 
for STLDI, many brokers continue to refuse to sell products they 
view as overly risky for consumers, like STLDI. See, e.g., Corlette, 
Sabrina, Erik Wengle, Ian Hill, and Olivia Hoppe (2020). 
``Perspective from Brokers: The Individual Market Stabilizes While 
Short-Term and Other Alternative Products Pose Risks,'' Urban 
Institute, available at: https://www.urban.org/research/publication/perspective-brokers-individual-market-stabilizes-while-short-term-and-other-alternative-products-pose-risks.
    \244\ U.S. House of Representatives Committee on Energy and 
Commerce (2020). ``Shortchanged: How the Trump Administration's 
Expansion of Junk Short-Term Health Insurance Plans is Putting 
Americans at Risk,'' available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health.
    \245\ Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia 
Hoppe (2019). ``The Marketing of Short-Term Health Plans: An 
Assessment of Industry Practices and State Regulatory Responses,'' 
Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses.
---------------------------------------------------------------------------

    Misleading marketing of STLDI and fixed indemnity excepted benefits 
coverage is reported to have taken place during individual health 
insurance coverage open enrollment periods or special enrollment 
periods (including during the COVID-19 special enrollment period, under 
which the Exchanges that used the Federal eligibility and enrollment 
platform operationalized functionality during a 6-month period in 2021 
to make a special enrollment period available on HealthCare.gov to 
allow qualified individuals to enroll in 2021 individual health 
insurance coverage through those Exchanges amid the COVID-19 PHE).\246\ 
For example, one study showed that enrollment in STLDI policies by 
brokers increased by approximately 60 percent in December 2018 and by 
more than 120 percent in January 2019, suggesting that overall 
enrollment in STLDI spiked during the ACA open enrollment season.\247\
---------------------------------------------------------------------------

    \246\ See Palanker, Dania and JoAnn Volk. (2021). ``Misleading 
Marketing of Non-ACA Health Plans Continued During COVID-19 Special 
Enrollment Period,'' Center on Health Insurance Reforms, available 
at: https://georgetown.app.box.com/s/mn7kgnhibn4kapb46tqmv6i7putry9gt. See also Corlette, Sabrina, Kevin 
Lucia, Dania Palanker, and Olivia Hoppe (2019). ``The Marketing of 
Short-Term Health Plans: An Assessment of Industry Practices and 
State Regulatory Responses,'' Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses. 
Regarding the COVID-19 special enrollment period, see E.O. 14009; 
see also CMS (2021). ``2021 Special Enrollment Period in Response to 
the COVID-19 Emergency,'' available at: https://www.cms.gov/newsroom/fact-sheets/2021-special-enrollment-period-response-covid-19-emergency. Regarding the extension of the COVID-19 special 
enrollment period (to the 6-month period between February 15, 2021 
and August 15, 2021), see CMS (2021). ``Extended Access Opportunity 
to Enroll in More Affordable Coverage Through HealthCare.gov,'' 
available at: https://www.cms.gov/newsroom/fact-sheets/extended-access-opportunity-enroll-more-affordable-coverage-through-healthcaregov.
    \247\ U.S. House of Representatives Committee on Energy and 
Commerce (2020). ``Shortchanged: How the Trump Administration's 
Expansion of Junk Short-Term Health Insurance Plans Is Putting 
Americans at Risk,'' available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health.
---------------------------------------------------------------------------

    In order to protect consumers, a number of States and the District 
of Columbia enacted legislation or issued regulations regarding STLDI 
after the 2018 final rules were published.\248\ State regulatory 
actions regarding such coverage have been wide-ranging. For example, 
according to one report, as of January 2020, 5 States prohibited 
underwritten STLDI, 9 States limited the total duration of enrollment 
in underwritten STLDI (including renewals or extensions) to less than 
364 days, and 11 States limited the initial contract term for 
enrollment in STLDI to less than 364 days.\249\ Other State regulatory 
actions on STLDI have included banning coverage rescissions (except in 
cases such as fraud on the part of the enrollee), adding preexisting 
condition protections, and requiring a certain MLR, among other 
restrictions.\250\ Lastly, some States have largely aligned their 
regulations regarding STLDI with the 2018 final rules.\251\ In some 
States that allow sales of STLDI, but otherwise regulate STLDI, issuers 
do not offer STLDI.\252\
---------------------------------------------------------------------------

    \248\ Norris, Louise (2020). `` `So Long' to Limits on Short-
Term Plans,'' Healthinsurance.org, available at: https://www.healthinsurance.org/so-long-to-limits-on-short-term-plans/. See 
also Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of 
Short-Term Limited-Duration Policy Expansion on Patients and the ACA 
Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \249\ As of January 2020. Giovannelli, Justin, JoAnn Volk, and 
Kevin Lucia (2020). ``States Work to Make Individual Market Health 
Coverage More Affordable, But Long-Term Solutions Call for Federal 
Leadership,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2020/jan/states-make-indivldual-coverage-more-affordable-federal-needed.
    \250\ Palanker, Dania, Maanasa Kona, and Emily Curran (2019). 
``States Step Up to Protect Insurance Markets and Consumers from 
Short-Term Health Plans,'' Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2019/may/states-step-up-protect-markets-consumers-short-term-plans.
    \251\ Norris, Louise (2020). `` `So Long' to Limits on Short-
Term Plans,'' Healthinsurance.org, available at: https://www.healthinsurance.org/so-long-to-limits-on-short-term-plans/.
    \252\ See Dieguez, Gabriela and Dane Hansen (2020). ``The Impact 
of Short-Term Limited-Duration Policy Expansion on Patients and the 
ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
---------------------------------------------------------------------------

    Recent analysis has found that States that allow the initial 
contract term of STLDI to last up to 364 days have seen a 27 percent 
reduction in enrollment, on average, in non-Exchange plans that are 
subject to the ACA Federal consumer protections and requirements for 
comprehensive coverage from 2018 to 2020, compared with a 4 percent

[[Page 44643]]

reduction in enrollment, on average, in those plans in States that 
banned STLDI or limited its duration to 6 months or less.\253\ This 
analysis also found that market-wide risk scores (a measure of relative 
expected health care costs for a population) declined more in States 
that banned or limited STLDI coverage (-11.8 percent) than in States 
with less restrictions on STLDI (-8.3 percent), suggesting that the 
less restrictive States saw more healthier individuals enroll in STLDI 
policies in lieu of comprehensive coverage, which put upward pressure 
on the average expected health care costs among those with 
comprehensive coverage.
---------------------------------------------------------------------------

    \253\ Hall, Mark and Michael McCue (2022). ``Short-Term Health 
Insurance and the ACA Market,'' Commonwealth Fund, available at: 
https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market.
---------------------------------------------------------------------------

b. Number of Affected Entities
    These proposed rules would directly impact individuals who are 
currently enrolled in STLDI or fixed indemnity excepted benefits 
coverage or who may choose to purchase or consider purchasing such 
coverage in the future. The Departments have limited information about 
the number of individuals currently enrolled in STLDI. Data from the 
NAIC indicate that approximately 173,000 individuals were covered by 
STLDI sold to individuals at the end of 2021.\254\ However, as noted in 
section VII.B.1, this figure does not capture the total number of 
individuals covered by STLDI throughout the year, and does not include 
individuals covered by STLDI sold to or through associations. As noted 
in section VII.B.1, projections by CBO and JCT suggest that 1.5 million 
people could currently be enrolled in STLDI,\255\ and CMS previously 
estimated that 1.9 million individuals would enroll in STLDI by 
2023.\256\ However, the CBO and JCT and CMS estimates were developed 
prior to the expansion of PTC subsidies provided through the ARP and 
the IRA, which likely supported increased enrollment in individual 
health insurance coverage purchased on an Exchange in lieu of STLDI and 
other forms of health insurance not subject to the Federal consumer 
protections and requirements for comprehensive coverage.\257\ The 
number of enrollees in STLDI might have also been affected by any 
changes in State law or regulation that occurred since the 2018 final 
rules were issued. The Departments are unaware of any estimates or 
sources of information for the number of individuals enrolled in fixed 
indemnity excepted benefits coverage.
---------------------------------------------------------------------------

    \254\ National Association of Insurance Commissioners (2022). 
``2021 Accident and Health Policy Experience Report,'' available at: 
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
    \255\ Congressional Budget Office (2020). ``CBO's Estimates of 
Enrollment in Short-Term, Limited-Duration Insurance,'' available 
at: https://www.cbo.gov/publication/56622. CBO and JCT projected 
that enrollment in STLDI would reach 1.6 million by 2028. See 
Congressional Budget Office (2019). ``How CBO and JCT Analyzed 
Coverage Effects of New Rules for Association Health Plans and 
Short-Term Plans,'' available at: https://www.cbo.gov/publication/54915.
    \256\ CMS Office of the Actuary (2018). ``Estimated Financial 
Effects of the Short-Term, Limited-Duration Policy Proposed Rule,'' 
available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf.
    \257\ See, e.g., Ortaliza, Jared, Krutika Amin, and Cynthia Cox 
(2022). ``As ACA Marketplace Enrollment Reaches Record High, Fewer 
Are Buying Individual Market Coverage Elsewhere,'' KFF, available 
at: https://www.kff.org/policy-watch/as-aca-marketplace-enrollment-reaches-record-high-fewer-are-buying-individual-market-coverage-elsewhere/.
---------------------------------------------------------------------------

    These proposed rules would also directly impact issuers of STLDI 
and fixed indemnity excepted benefits coverage, and agents and brokers 
who enroll consumers in that coverage. The NAIC reported that there 
were at least 28 issuers of STLDI for individuals across the U.S. in 
2021.\258\ Due to a lack of data, the Departments are unable to 
estimate the number of issuers of individual market fixed indemnity 
excepted benefits coverage that would be affected by these proposed 
rules, though as noted earlier in this section of this preamble, the 
NAIC reported that there were at least 95 issuers of ``other non-
comprehensive coverage'' (including fixed indemnity excepted benefits 
coverage) for individuals across the U.S. in 2021.\259\ The Departments 
also lack data about the number of agents and brokers that currently 
enroll individuals in STLDI or fixed indemnity excepted benefits 
coverage.
---------------------------------------------------------------------------

    \258\ National Association of Insurance Commissioners (2022). 
``2021 Accident and Health Policy Experience Report,'' available at: 
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
    \259\ Id.
---------------------------------------------------------------------------

    Lastly, these proposed rules could also indirectly impact consumers 
enrolled in comprehensive coverage due to the effects of increased 
enrollment in comprehensive coverage on risk pools, premiums, plan 
offerings, or issuer participation in the markets for that coverage. 
While the Departments are unable to estimate whether or how these 
proposed rules would impact plan offerings or issuer participation in 
the markets for comprehensive coverage, in sections VII.B.2.c and 
VII.B.2.e of this preamble, the Departments discuss the estimated 
effects of the provisions regarding STLDI included in these proposed 
rules on enrollment in and premiums for individual health insurance 
coverage purchased on an Exchange.
    The Departments seek comments on the number of entities that would 
be affected by these proposed rules. In particular, the Departments 
seek comments on the number of issuers and the number of associations 
offering STLDI, the number of issuers offering individual market fixed 
indemnity excepted benefits coverage, the number of issuers offering 
group market fixed indemnity excepted benefits coverage, the number of 
enrollees in each type of coverage, and the number of agents and 
brokers that enroll individuals in these types of non-comprehensive 
coverage options.
c. Benefits
    These proposed rules are expected to reduce the harm caused to 
consumers who are misled into enrolling in STLDI or fixed indemnity 
excepted benefits coverage as an alternative to or replacement for 
comprehensive coverage. The proposed notices would improve consumer 
understanding of STLDI and fixed indemnity excepted benefits coverage 
in relation to comprehensive coverage. The Departments are of the view 
that the proposed notices would help ensure individuals are made aware 
that these plans are not comprehensive coverage. This is also expected 
to reduce the level of deceptive marketing of STLDI and fixed indemnity 
excepted benefits coverage. Consumers who switch from STLDI or fixed 
indemnity excepted benefits coverage to comprehensive coverage would 
have better access to health care, better consumer protections, more 
robust benefits, and therefore would be expected to experience better 
health outcomes.
    The Departments anticipate these proposed rules would lead to an 
increase in enrollment in high-quality, affordable, comprehensive 
coverage that is subject to the Federal consumer protections and 
requirements for comprehensive coverage. Individuals would be less 
likely to wait until after they incur major medical expenses or develop 
a medical condition to switch from STLDI or fixed indemnity excepted 
benefits coverage to comprehensive coverage. This could lead to more 
stable markets for comprehensive coverage and improved market risk 
pools for such coverage. However, as noted earlier in this section of 
this preamble, the expanded PTC subsidies provided through the ARP and 
the IRA have likely already resulted in increased enrollment in 
individual health

[[Page 44644]]

insurance coverage purchased on an Exchange in lieu of STLDI or fixed 
indemnity excepted benefits coverage, so the immediate overall effects 
of these proposed rules on enrollment, market stability, and risk pools 
are expected to be limited in 2024 and 2025.\260\ The CMS Office of the 
Actuary (OACT) estimates that, relative to current law, the proposed 
provisions regarding STLDI would not affect enrollment in individual 
health insurance coverage purchased on an Exchange in 2024 and 2025, 
but would increase enrollment by approximately 60,000 people in 2026, 
2027, and 2028.\261\
---------------------------------------------------------------------------

    \260\ See, e.g., Ortaliza, Jared, Krutika Amin, and Cynthia Cox 
(2022). ``As ACA Marketplace Enrollment Reaches Record High, Fewer 
Are Buying Individual Market Coverage Elsewhere,'' KFF, available 
at: https://www.kff.org/policy-watch/as-aca-marketplace-enrollment-reaches-record-high-fewer-are-buying-individual-market-coverage-elsewhere/.
    \261\ In developing these estimates, OACT assumed that STLDI 
coverage would be significantly less expensive than individual 
health insurance coverage purchased on an Exchange (where available) 
and would be an attractive option for individuals and families with 
relatively low health care costs and little to no subsidies. Using 
their health reform model, OACT estimated that, under current law, 
about 60,000 people would move from individual health insurance 
coverage purchased on an Exchange to STLDI in 2026, when the 
additional PTC subsidies available through 2025 through the IRA 
expire. In addition, since those switching to STLDI are assumed to 
be healthier than average, the average premium for individual health 
insurance coverage purchased on an Exchange would increase by 
roughly 0.5 percent. Changing the maximum duration of an STLDI 
policy, certificate, or contract of insurance to no more than 3 
months, as proposed in these proposed rules, would negate these 
effects.
---------------------------------------------------------------------------

    To the extent that these proposed rules would lead to an increase 
in enrollment in comprehensive coverage that is subject to the Federal 
consumer protections and requirements for comprehensive coverage, these 
rules would likely result in a reduction in out-of-pocket expenses, 
medical debt, and risk of medical bankruptcy for consumers switching to 
comprehensive coverage. These proposed rules could also lead to a 
reduction in surprise bills from out-of-network providers in certain 
circumstances, to the extent the proposed rules lead to an increase in 
enrollment in coverage that is subject to the surprise billing 
protections for consumers under the No Surprises Act.
    By encouraging enrollment in comprehensive coverage, these proposed 
rules could also reduce the number of coverage rescissions, claims 
denials, premium increases, or coverage exclusions that are common for 
STLDI.
d. Costs
    Individuals with STLDI or fixed indemnity excepted benefits 
coverage who switch to individual health insurance coverage--
particularly those individuals who are not eligible for the PTC--might 
incur higher premium costs depending on their choice of available 
Exchange and off-Exchange comprehensive coverage plans, their PTC 
eligibility (if applicable), and the amount of advance payment of the 
PTC they receive (if any).\262\
---------------------------------------------------------------------------

    \262\ This might occur if premiums for STLDI are lower than 
premiums for individual health insurance coverage. One study, for 
example, showed that by screening out individuals with preexisting 
conditions and providing fewer comprehensive benefits, issuers may 
be able to offer STLDI at rates 54 percent below those for 
(unsubsidized) comprehensive coverage. See Levitt, Larry, Rachel 
Fehr, Gary Claxton, Cynthia Cox, and Karen Pollitz (2018). ``Why do 
Short-Term Health Insurance Plans Have Lower Premiums than Plans 
that Comply with the ACA?,'' KFF, available at: https://files.kff.org/attachment/Issue-Brief-Why-Do-Short-Term-Health-Insurance-Plans-Have-Lower-Premiums-Than-Plans-That-Comply-with-the-ACA.
---------------------------------------------------------------------------

    These proposed rules could also lead to an increase in the number 
of individuals without some form of health insurance coverage, if some 
individuals with STLDI or fixed indemnity excepted benefits coverage 
lose coverage and have to wait until the next open enrollment period to 
purchase comprehensive coverage (for example, if an individual with 
existing coverage exhausts their renewal options outside of an open 
enrollment period), or choose to become uninsured. Those individuals 
who become uninsured could face an increased risk of higher out-of-
pocket expenses and medical debt, reduced access to health care, and 
potentially worse health outcomes.
    To the extent that these proposed rules would lead to an increase 
in enrollment in comprehensive coverage, they could result in an 
increase in overall health care utilization and spending, given that 
this coverage tends to have higher MLRs and actuarial values and might 
offer lower cost-sharing requirements and more generous benefits.\263\
---------------------------------------------------------------------------

    \263\ As noted earlier in this RIA, many STLDI policies offer 
limited benefits coverage and have relatively low actuarial values. 
Many STLDI issuers spend a relatively high percentage of premium 
dollars on administration and overhead See National Association of 
Insurance Commissioners (2022). ``Accident and Health Policy 
Experience Report for 2021,'' available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. Regarding the differences in cost-sharing 
requirements and out-of-pocket expenses between STLDI and individual 
health insurance coverage, see, e.g., Dieguez, Gabriela and Dane 
Hansen (2020). ``The Impact of Short-Term Limited-Duration Policy 
Expansion on Patients and the ACA Individual Market,'' Milliman, 
available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
---------------------------------------------------------------------------

    Additionally, these proposed rules could impose costs on States 
that change their laws regarding STLDI or fixed indemnity excepted 
benefits coverage in response to the proposed provisions included in 
these proposed rules. The Departments seek comments on the magnitude of 
the costs that States might incur associated with enacting new 
legislation, implementing new laws, and updating existing regulations 
regarding STLDI and fixed indemnity excepted benefits coverage.
    The Departments expect that plans and issuers would incur minimal 
costs to replace the existing notices with the revised ones (which 
would be provided by the Departments, as discussed in section VII.D of 
this preamble). The Departments also expect that since plans and 
issuers change their policy documents routinely, the costs to plans and 
issuers to change their policy documents in response to these proposed 
rules would be part of plans' and issuers' usual business costs.
e. Transfers
    Individuals currently enrolled in STLDI may be healthier on average 
than individuals enrolled in comprehensive coverage, as STLDI policies 
are not subject to Federal requirements that would prohibit them from 
excluding individuals or charging individuals higher premiums on the 
basis of health status, gender, and other factors. These proposed rules 
might cause some of these individuals to switch to comprehensive 
coverage. If such a switch occurs, it would improve the individual 
market (or merged market) risk pools and lead to lower overall premiums 
for individual health insurance coverage. CMS previously estimated that 
gross premiums for individual health insurance coverage purchased on an 
Exchange in 2022 would be 6 percent higher under the 2018 proposed 
rules than they would have been in the absence of those rules.\264\ CBO 
and JCT previously estimated that the 2018 final rules for STLDI, in 
conjunction with changes made through the 2018 Department of Labor rule 
entitled ``Definition of `Employer' Under Section 3(5) of ERISA--
Association Health Plans'',\265\ would increase premiums in the 
individual and small group health insurance coverage markets by around 
3

[[Page 44645]]

percent.\266\ An analysis of individual health insurance coverage rate 
filing materials for 2020 also found that the few carriers that 
explicitly included a premium adjustment because of the 2018 final 
rules increased premiums by between 0.5 percent and 2 percent in 
2020.\267\ These analyses suggest that these proposed rules could have 
an effect in the opposite direction, potentially reducing gross 
premiums for individual health insurance coverage. However, since the 
expanded PTC subsidies provided through the ARP and the IRA have likely 
already led to a reduction in enrollment in STLDI and fixed indemnity 
excepted benefits coverage and an increase in enrollment in individual 
health insurance coverage purchased on an Exchange, the Departments 
anticipate that the premium impact of these proposed rules would be 
relatively small. OACT estimates that the proposed provisions regarding 
STLDI would not affect gross premiums for individuals with individual 
health insurance coverage purchased on an Exchange in 2024 and 2025, 
but would reduce gross premiums by approximately 0.5 percent in 2026, 
2027, and 2028.\268\
---------------------------------------------------------------------------

    \264\ CMS Office of the Actuary (2018). ''Estimated Financial 
Effects of the Short-Term, Limited-Duration Policy Proposed Rule,'' 
available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf.
    \265\ 83 FR 28912 (June 21, 2018). The District Court of D.C. 
vacated this rule. See State of New York, et al. v. United States 
Department of Labor, et al., 363 F.Supp.3d 109 (D.D.C. 2019).
    \266\ Congressional Budget Office (2019). ``How CBO and JCT 
Analyzed Coverage Effects of New Rules for Association Health Plans 
and Short-Term Plans,'' available at: https://www.cbo.gov/publication/54915.
    \267\ Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of 
Short-Term Limited-Duration Policy Expansion on Patients and the ACA 
Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \268\ This estimate accounts for the end of the expanded PTC 
subsidies provided through the IRA.
---------------------------------------------------------------------------

    The proposed provisions regarding STLDI are expected to reduce 
Federal spending on PTC after the end of the expanded PTC subsidies 
provided through the IRA. These proposed provisions are expected to 
reduce gross premiums for individual health insurance coverage 
purchased on an Exchange and therefore lower per capita PTC spending. 
This effect would be partly offset by an increase in the number of 
individuals enrolling in Exchange coverage that would be eligible to 
receive the PTC (by approximately 20,000 in 2026, 2027, and 2028). On 
net, OACT estimates that these proposed provisions would have no impact 
on Federal spending on PTC in 2024 and 2025 given the expanded PTC 
subsidies provided through the IRA, but would reduce Federal spending 
on the PTC by approximately $120 million in 2026, 2027, and 2028.\269\ 
This reduction in Federal spending on the PTC would be viewed as a 
reduction in the amount of the transfer from the Federal Government to 
individuals.
---------------------------------------------------------------------------

    \269\ In fiscal year terms, this would be a reduction in Federal 
spending of $90 million in 2026, $120 million in 2027, and $120 
million in 2028.
---------------------------------------------------------------------------

    These proposed rules could also lead to a transfer in the form of 
reduced out-of-pocket expenses from issuers to consumers who switch 
from STLDI or fixed indemnity excepted benefits coverage to 
comprehensive coverage, since more health care services would be 
covered under comprehensive coverage and the cost-sharing requirements 
for comprehensive coverage might be lower than those for STLDI or fixed 
indemnity excepted benefits coverage.\270\
---------------------------------------------------------------------------

    \270\ As noted in the Costs subsection of this RIA, regarding 
the differences in cost-sharing requirements and out-of-pocket 
expenses between STLDI and individual health insurance coverage, 
see, e.g., Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of 
Short-Term Limited-Duration Policy Expansion on Patients and the ACA 
Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
---------------------------------------------------------------------------

f. Uncertainty
    As noted throughout this preamble, due to a lack of data and 
information, there are several areas of uncertainty regarding the 
potential impacts of these proposed rules. The Departments are unable 
to forecast how all of the provisions of these proposed rules would 
affect enrollment in STLDI and fixed indemnity excepted benefits 
coverage, as the Departments are uncertain how many individuals are 
currently enrolled in these types of coverage and would switch to 
comprehensive coverage, how many individuals would try to find another 
issuer of STLDI once their current policy ends, how many individuals 
would choose to remain enrolled in fixed indemnity excepted benefits 
coverage (particularly if their employers restructure their plan 
offerings in response to these proposed rules), or how many individuals 
would choose not to purchase any form of coverage as a result of these 
proposed rules.\271\ As a result, there is also some uncertainty about 
the potential impact on risk pools, premiums, Federal expenditures on 
PTC, and compensation for agents and brokers selling STLDI, fixed 
indemnity excepted benefits coverage, and individual health insurance 
coverage. The Departments seek comments on all of these areas of 
uncertainty regarding the impacts of these proposed rules.
---------------------------------------------------------------------------

    \271\ Previous studies have estimated the impact of the STLDI 
definition adopted in the 2018 final rules on enrollment in 
individual health insurance coverage, but in conjunction with the 
impact of elimination of the individual shared responsibility 
payment. See Dieguez, Gabriela and Dane Hansen (2020). ``The Impact 
of Short-Term Limited-Duration Policy Expansion on Patients and the 
ACA Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
---------------------------------------------------------------------------

g. Health Equity Impact
    Due to the typical underwriting practices and plan eligibility 
requirements in the market for STLDI, individuals might face higher 
premiums or might not be able to purchase STLDI because of preexisting 
health conditions, gender, or other factors.\272\ STLDI and fixed 
indemnity excepted benefits coverage typically do not cover certain 
essential health benefits including prescription drugs, mental health 
and substance use disorder services, or maternity services,\273\ which 
could contribute to disparities in access to health care and health 
outcomes (regarding mental health, maternal health, or infant health, 
for instance).\274\
---------------------------------------------------------------------------

    \272\ See, e.g., Barnes, Justin and Fumiko Chino (2022). 
``Short-term Health Insurance Plans Come Up Short for Patients with 
Cancer,'' JAMA Oncology, Vol 8 Issue 8: 1101-1103, available at: 
https://jamanetwork.com/journals/jamaoncology/article-abstract/2793127.
    \273\ Dieguez, Gabriela and Dane Hansen (2020). ``The Impact of 
Short-Term Limited-Duration Policy Expansion on Patients and the ACA 
Individual Market,'' Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.
    \274\ See, e.g., Hill, Latoya, Samantha Artiga, and Usha Ranji 
(2022). ``Racial Disparities in Maternal and Infant Health: Current 
Status and Efforts to Address Them,'' KFF, available at: https://www.kff.org/racial-equity-and-health-policy/issue-brief/racial-disparities-in-maternal-and-infant-health-current-status-and-efforts-to-address-them/.
---------------------------------------------------------------------------

    Consumers with low health literacy, which disproportionately 
includes consumers with low incomes, may also be misled into purchasing 
STLDI or fixed indemnity excepted benefits coverage under the mistaken 
impression that it would lower their out-of-pocket costs while 
providing comprehensive coverage with lower premiums. Consumers with 
low income or who are members of underserved racial and ethnic groups 
are more likely to be uninsured and face barriers in accessing 
care.\275\ Individuals in these populations

[[Page 44646]]

arguably face the greatest health and financial consequences in the 
event that STLDI or fixed indemnity excepted benefits coverage proves 
inadequate. These individuals are also potentially most vulnerable to 
practices like post-claims underwriting and rescission that are common 
in the STLDI market, which could leave them without any coverage in a 
health crisis.
---------------------------------------------------------------------------

    \275\ See Tolbert, Jennifer, Kendal Orgera, and Anthony Damico 
(2020). ``Key Facts about the Uninsured Population,'' KFF, available 
at: https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/. See also Artiga, Samantha, Latoya Hill, 
Kendal Orgera, and Anthony Damico (2021). ``Health Coverage by Race 
and Ethnicity, 2010-2019,'' KFF, available at: https://www.kff.org/racial-equity-and-health-policy/issue-brief/health-coverage-by-race-and-ethnicity/. See also KFF (2021). ``Adults Who Report Not Having 
a Personal Doctor/Health Care Provider by Race/Ethnicity,'' 
available at: https://www.kff.org/other/state-indicator/percent-of-adults-reporting-not-having-a-personal-doctor-by-raceethnicity/. See 
also KFF (2021). ``Adults Who Report Not Seeing a Doctor in the Past 
12 Months Because of Cost by Race/Ethnicity,'' available at: https://www.kff.org/other/state-indicator/percent-of-adults-reporting-not-seeing-a-doctor-in-the-past-12-months-because-of-cost-by-raceethnicity/.
---------------------------------------------------------------------------

    These proposed rules would partly address these health inequities 
by increasing regulation of issuers offering STLDI and fixed indemnity 
excepted benefits coverage and encouraging enrollment in comprehensive 
coverage.
    The Departments seek comments on the potential health equity 
implications of these proposed rules.
h. Regulatory Review Cost Estimation
    If regulations impose administrative costs on entities, such as the 
time needed to read and interpret rules, regulatory agencies should 
estimate the total cost associated with regulatory review. The 
Departments assume that approximately 250 entities will review these 
proposed rules, including 28 issuers of STLDI,\276\ 95 issuers of other 
non-comprehensive coverage,\277\ and other interested parties (for 
example, State insurance departments, State legislatures, industry 
associations, and advocacy organizations). The Departments acknowledge 
that this assumption may understate or overstate the number of entities 
that will review these proposed rules.
---------------------------------------------------------------------------

    \276\ National Association of Insurance Commissioners (2022). 
``2021 Accident and Health Policy Experience Report,'' available at: 
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
    \277\ Id. The Departments assume that all issuers of other non-
comprehensive coverage will review these proposed rules.
---------------------------------------------------------------------------

    Using wage information from the Bureau of Labor Statistics, for 
Business Operations Specialists, All Other (Code 13-1199), to account 
for average labor costs (including a 100 percent increase for the cost 
of fringe benefits and other indirect costs), the Departments estimate 
that the cost of reviewing these proposed rules will be $76.20 per 
hour.\278\ The Departments estimate that it will take each reviewing 
individual approximately 4 hours to review these proposed rules, with 
an associated cost of approximately $305 (4 hours x $76.20). Therefore, 
the Departments estimate that the (one-time) total cost of reviewing 
these proposed rules will be approximately $76,200 (250 x $305).
---------------------------------------------------------------------------

    \278\ See Bureau of Labor Statistics (2022). ``National 
Occupational Employment and Wage Estimates,'' available at: https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    The Departments welcome comments on this approach to estimating the 
total burden and cost for interested parties to read and interpret 
these proposed rules.

C. Regulatory Alternatives--Departments of Health and Human Services 
and Labor

    In developing the proposed rules, the Departments considered 
various alternative approaches.
    With respect to the proposed amendments to the definition of STLDI, 
the Departments considered leaving in place the duration standards 
established in the 2018 final rules, but concluded that the 2018 final 
rules' duration standards were too lengthy for the reasons described in 
section III.A.2 of this preamble. The Departments also considered 
proposing to limit the maximum duration of STLDI policies to a less-
than-6-month period to minimize disruption for consumers in some (but 
not all) States that have implemented a less-than-6-month period, a 
less-than-3-month period as implemented in the 2016 final rules, or 
otherwise shortening the maximum duration to a time period shorter than 
allowed under current regulations. However, the Departments ultimately 
decided to propose a maximum duration of no more than 4 months to align 
with the rules regarding the 90-day waiting period limitation and the 
optional reasonable and bona fide employment-based orientation period 
that is permitted under the ACA.\279\
---------------------------------------------------------------------------

    \279\ 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR 
147.116.
---------------------------------------------------------------------------

    The Departments considered proposing to limit stacking of STLDI 
coverage, whether sold by the same or different issuer. However, after 
considering the potential challenges issuers and State regulators would 
face in attempting to determine whether an individual had previously 
enrolled in an STLDI policy with a different issuer, the Departments 
decided to propose to limit stacking only where STLDI is sold to an 
individual by the same issuer, while seeking comments on whether the 
Departments should extend the limit on stacking to STLDI sold to an 
individual by issuers that are members of the same controlled group.
    The Departments considered proposing a limit on the marketing and/
or sale of STLDI during the individual health insurance coverage open 
enrollment period. The Departments are concerned that aggressive and 
deceptive marketing practices by some issuers have lured consumers, 
looking for comprehensive coverage, into enrolling in STLDI, exposing 
them to financial risk. The Departments solicit comments on how the 
Departments can support State efforts to limit the marketing and/or 
sale of STLDI during the open enrollment period.
    With respect to the proposed amendments to the notices provided to 
consumers considering enrolling in STLDI, the Departments considered 
including a complete list of Federal protections that apply to 
consumers enrolled in comprehensive coverage versus STLDI. This 
approach would more fully distinguish STLDI from comprehensive coverage 
and highlight in greater detail the risks to consumers of enrolling in 
STLDI instead of comprehensive coverage. However, after consulting with 
plain language experts, the Departments are of the view that providing 
a complete comparison of protections that a consumer would forego by 
enrolling in STLDI rather than comprehensive coverage would result in a 
lengthy, complex notice that could be difficult for the typical 
consumer to understand. Increasing the length and complexity of the 
notice would also increase burden for issuers to provide the notice on 
policy documents and marketing and application materials as proposed in 
these rules. However, the Departments are soliciting comments on all 
aspects of the revised notice, including whether a different format or 
presentation would result in a more useful, consumer-friendly notice.
    The Departments considered proposing a more detailed notice be 
provided to consumers who are considering enrolling in fixed indemnity 
excepted benefits coverage, including language that would highlight in 
greater detail the differences between fixed indemnity excepted 
benefits coverage and comprehensive coverage and include a reference to 
potential financial support available for Exchange coverage, similar to 
the proposed consumer notice for STLDI. However, the Departments 
ultimately determined that the value of providing a more concise, 
readable notice for fixed indemnity excepted benefits coverage 
outweighed the benefits of providing that more detailed information. 
Because fixed indemnity excepted benefits coverage differs so 
significantly in purpose and scope from comprehensive coverage, the 
Departments were also concerned that providing the additional details 
could suggest to consumers that fixed indemnity excepted benefits 
coverage is something more than a form of income replacement or 
financial support.

[[Page 44647]]

    The Departments also considered proposing alternative applicability 
dates for the proposed changes to the fixed indemnity excepted benefits 
regulations, including a uniform applicability date for new and 
existing coverage, either aligned with the effective date of the final 
rules or with a longer transition. The Departments acknowledge that 
consumers may have purchased fixed indemnity excepted benefits coverage 
in reliance on requirements in place prior to the publication of the 
final rules, and that changes to the regulations may affect the 
availability of such coverage, benefit design, and costs. Plans and 
issuers, similarly, have designed and sold fixed indemnity excepted 
benefits coverage on the basis of the current regulatory framework, on 
which State regulators have also developed enforcement policies. In 
light of these reliance interests, the Departments are of the view that 
it is appropriate to adopt the special rule for existing coverage to 
delay applicability for certain changes to January 1, 2027, in order to 
provide a transition period with respect to fixed indemnity excepted 
benefits coverage sold or issued before the effective date of the final 
rules. However, such reliance interests would not be present with 
respect to new fixed indemnity excepted benefits coverage sold or 
issued on or after the effective date of the final rules. Further, 
delaying application of the final rules prolongs the risk of harm to 
new consumers and would frustrate the purpose of these proposed rules 
to distinguish between comprehensive coverage and fixed indemnity 
excepted benefits coverage and promote consumer access to high-quality, 
affordable, comprehensive coverage. In addition, as discussed in 
section III.B.1.g of this preamble, there are certain proposed changes 
(such as the applicable notice requirements, technical amendments, and 
the severability provisions) that do not raise concerns about reliance 
interests and therefore the Departments propose an earlier 
applicability date for those proposals for fixed indemnity excepted 
benefits coverage sold or issued before the effective date of the final 
rules.
    The Departments considered proposing to apply the fixed indemnity 
excepted benefits coverage proposals in these proposed rules to 
specified disease excepted benefits coverage, to apply uniform 
standards to both statutorily-defined forms of independent, 
noncoordinated excepted benefits. However, the Departments determined 
that additional information about specified disease excepted benefits 
coverage would be useful prior to engaging in rulemaking. Therefore, 
the Departments have included a comment solicitation aimed at gathering 
information about specified disease excepted benefits coverage, 
including whether additional guidance or rulemaking on this type of 
coverage may be necessary.

D. Paperwork Reduction Act

    These proposed rules provide that to be considered STLDI for 
coverage periods beginning on or after the effective date of the final 
rules, a revised consumer notice must be prominently displayed (in 
either paper or electronic form) on the first page of the policy, 
certificate, or contract of insurance and in any marketing, 
application, and enrollment materials (including reenrollment 
materials) provided to individuals at or before the time an individual 
has the opportunity to enroll (or reenroll) in the coverage.
    These proposed rules also provide that to be considered fixed 
indemnity excepted benefits coverage in the group market for plan years 
beginning on or after the effective date of the final rules, a notice 
must be included in any marketing, application, or enrollment materials 
provided to participants at or before the time participants are given 
an opportunity to enroll in the coverage. The notice would indicate 
that the hospital indemnity or other fixed indemnity insurance is not 
comprehensive coverage and does not have to include most Federal 
consumer protections for health insurance, outline the availability of 
other health coverage options, and explain that individuals may contact 
the State department of insurance for questions or complaints. These 
proposed rules would propose revisions, comparable to the group market 
standards, for the notice that must be provided for hospital indemnity 
and other fixed indemnity insurance to be considered an excepted 
benefit in the individual market for notices required with respect to 
coverage periods beginning on or after the effective date of the final 
rules. The proposed rules provide that the individual market fixed 
indemnity excepted benefits notice must be included on the first page 
of any marketing, application, and enrollment or reenrollment materials 
that are provided at or before the time an individual has the 
opportunity to enroll or reenroll in the coverage, and on the first 
page of the policy, certificate, or contract of insurance.
    The Departments propose to provide the exact text for these 
notices, and the language would not need to be customized. The burden 
associated with these notices would therefore not be 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 OMB under the authority of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501 et seq.).
    These proposed rules also amend 26 CFR 1.105-2 to clarify that, for 
amounts to be excluded from income under section 105(b) of the Code, 
the payment or reimbursement must be substantiated by the health plan. 
Any information required to substantiate the expenses under this 
regulation is considered a usual and customary business practice and a 
record provided during the normal course of business in administering 
health plans. These customary business records impose no additional 
burden on respondents and are not required to be reviewed by OMB in 
accordance with 5 CFR 1320.3(b)(2).
    The Departments seek comments on potential burden on issuers if the 
final rules were to include required notices with language that would 
need to be customized.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), (5 U.S.C. 601, et seq.), 
requires agencies to analyze options for regulatory relief of small 
entities to prepare an initial regulatory flexibility analysis to 
describe the impact of a proposed rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit 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.'' HHS uses a change in revenues of more than 3 to 5 
percent as its measure of significant economic impact on a substantial 
number of small entities.
    The provisions in these proposed rules would affect issuers of 
STLDI and issuers of fixed indemnity excepted benefits coverage. Health 
insurance issuers are generally classified under the North American 
Industry Classification System (NAICS) code 524114 (Direct Health and 
Medical Insurance Carriers).

[[Page 44648]]

According to SBA size standards,\280\ entities with average annual 
receipts of $47 million or less are considered small entities for this 
NAICS code. The Departments expect that few, if any, insurance 
companies underwriting health insurance policies fall below these size 
thresholds. Based on data from MLR annual report submissions for the 
2021 MLR reporting year, approximately 87 out of 483 issuers of health 
insurance coverage nationwide had total premium revenue of $47 million 
or less.\281\ However, it should be noted that over 77 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 will result in their revenues exceeding $47 million. The 
Departments expect this to be the case for issuers of STLDI and issuers 
of fixed indemnity excepted benefits coverage. However, as noted 
earlier in this RIA, due to a lack of data, the Departments are unable 
to estimate how many small issuers of STLDI and small issuers of fixed 
indemnity excepted benefits coverage would be affected by these 
proposed rules. The Departments seek comments on this analysis, and 
seek information on the number of small issuers of STLDI and the number 
of small issuers of fixed indemnity excepted benefits coverage.
---------------------------------------------------------------------------

    \280\ Small Business Administration (2023). ``Table of Size 
Standards (last updated March 2023),'' available at: https://www.sba.gov/document/support--table-size-standards.
    \281\ Based on internal calculations. Source: CMS, Medical Loss 
Ratio Data and System Resources, available at: https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    Agents and brokers would be classified under NAICS code 524210 
(Insurance Agencies and Brokerages), with a size standard of $15 
million or less. There is the potential for the compensation \282\ of 
small agents and brokers associated with the sale of STLDI and fixed 
indemnity excepted benefits coverage to be negatively affected by these 
proposed rules, if there is a reduction in sales of that coverage. 
There is also the potential for the compensation of small agents and 
brokers associated with the sale of individual health insurance 
coverage to be positively affected by these proposed rules, if there is 
an increase in sales of that coverage. However, due to a lack of data, 
the Departments are unable to precisely estimate how many agents and 
brokers might be affected by these proposed rules and the magnitudes of 
the potential changes in compensation.\283\ The Departments seek 
information on the number of agents and brokers who sell STLDI, fixed 
indemnity excepted benefits coverage, and individual health insurance 
coverage, respectively, and how their compensation might be affected by 
these proposed rules, if finalized.
---------------------------------------------------------------------------

    \282\ Compensation includes commissions, fees, or other 
incentives (for example, rewards or bonuses) as established in the 
relevant contract between an issuer and the agent or broker.
    \283\ Previously, in 86 FR 51730, 51756, the Departments noted 
that a total of 55,541 agents and brokers work with issuers. Many of 
these agents and brokers are likely to be employed by 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 603 of the RFA. While these rules are not subject to section 
1102 of the Social Security Act, the Departments are of the view that 
these proposed rules would not have a significant impact on the 
operations of a substantial number of small rural hospitals. The 
Departments seek comments on this

F. Special Analyses--Department of the Treasury

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required. 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.

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 State, 
local, or Tribal governments, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. That threshold is approximately $177 million in 2023. The 
Departments anticipate the combined impact on State, local, or Tribal 
governments and the private sector would not be above the threshold.

H. Federalism

    Executive Order 13132 establishes certain requirements that Federal 
agencies must meet when they issue proposed rules that impose 
substantial direct costs on State and local governments, preempt State 
law, or otherwise have federalism implications.
    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 participating in 
conference calls with and attending conferences of the NAIC.
    In the Departments' view, these proposed rules 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 proposed rules, health insurance issuers 
offering STLDI or fixed indemnity excepted benefits coverage would be 
required to follow the minimum Federal standards for such coverage to 
not be subject to the Federal consumer protections and requirements for 
comprehensive coverage.
    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 sections 2724 and 2762 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 Federal consumer protections and 
requirements for comprehensive coverage 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.\284\ The 
conference report accompanying HIPAA, when this Federal preemption 
standard was first established for the requirements in title XXVII of 
the PHS Act, indicates that this is intended to be

[[Page 44649]]

the ``narrowest'' preemption of State laws.\285\
---------------------------------------------------------------------------

    \284\ A similar preemption provision was established for the 
Exchange and other Federal health insurance requirements that are 
codified outside of title XXVII of the PHS Act. See sections 1311(k) 
and 1321(d) of the ACA.
    \285\ See House Conf. Rep. No. 104-736, at 205, reprinted in 
1996 U.S. Code Cong. & Admin. News 2018 and available at https://www.congress.gov/congressional-report/104th-congress/house-report/736/1.
---------------------------------------------------------------------------

    States may continue to apply State law requirements except to the 
extent that such requirements prevent the application of the Federal 
requirements that are the subject of this rulemaking. In general, State 
insurance requirements that are more stringent or more consumer 
protective than the Federal requirements are unlikely to ``prevent the 
application of'' the Federal provisions, and therefore are unlikely to 
be preempted.\286\ Accordingly, States have significant latitude to 
impose requirements on health insurance issuers that are more 
restrictive or more consumer protective than the Federal 
requirements.\287\ States that have current requirements for STLDI or 
fixed indemnity excepted benefits coverage that are the same as or more 
restrictive or consumer protective than the Federal standards in these 
proposed rules could thus continue to apply such State law 
requirements. States would also have the flexibility to require 
additional consumer disclosures and to establish additional 
restrictions under State law in response to market-specific needs or 
concerns, as long as those requirements would not prevent the 
application of the Federal requirements. For example, a State law or 
regulation cannot require issuers to remove language from the Federal 
consumer notice, as that would prevent the application of the Federal 
notice requirements.
---------------------------------------------------------------------------

    \286\ See, e.g., 62 FR 16904 (April 8, 1997), 69 FR 78739 (Dec. 
30, 2004), 79 FR 10303 (Feb. 24, 2014), and 86 FR 36872, 36887 (July 
13, 2021).
    \287\ Ibid.
---------------------------------------------------------------------------

    These proposed rules, if finalized, would not impose requirements 
on STLDI. Rather, they would define STLDI. Therefore, to the extent a 
State were to permit or require an issuer of STLDI to issue a policy, 
certificate, or contract of insurance that has a longer initial 
contract term or a longer total coverage period than these proposed 
rules, if finalized, would specify, that would not constitute a State 
law that is more generous or consumer-protective than Federal 
requirements. Rather, any such policy would not fall within the Federal 
definition of STLDI, and the policy would therefore be subject to all 
the Federal consumer protections and requirements that apply to 
individual health insurance coverage.
    The Departments are of the view that there is a need for regulatory 
action at the Federal level given, among other factors, the prevalence 
of marketing of and enrollment in STLDI through out-of-State 
associations, and the potential inability of States to regulate and 
collect information about these associations.\288\ There is also 
limited State-level information about STLDI enrollment and 
premiums.\289\
---------------------------------------------------------------------------

    \288\ Keith, Katie (2020). ``New Congressional Investigation of 
Short-Term Plans,'' Health Affairs, available at: https://www.healthaffairs.org/do/10.1377/forefront.20200626.227261/full/. 
See also Curran, Emily, Dania Palanker, and Sabrina Corlette (2019). 
``Short-Term Health Plans Sold Through Out-of-State Associations 
Threaten Consumer Protections,'' Commonwealth Fund, available at: 
https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections.
    \289\ Government Accountability Office (2022). ``Private Health 
Insurance: Limited Data Hinders Understanding of Short-Term Plans' 
Role and Value During the COVID-19 Pandemic,'' available at: https://www.gao.gov/products/gao-22-104683. See also Palanker, Dania and 
Christina Goe (2020). ``States Don't Know What's Happening in Their 
Short-Term Health Plan Markets and That's a Problem,'' Commonwealth 
Fund, available at: https://www.commonwealthfund.org/blog/2020/states-dont-know-whats-happening-their-short-term-health-plan-markets-and-thats-problem. See also Congressional Budget Office 
(2020). ``CBO's Estimates of Enrollment in Short-Term, Limited-
Duration Insurance,'' available at: https://www.cbo.gov/publication/56622.
---------------------------------------------------------------------------

    While developing these proposed rules, to the extent feasible 
within the applicable preemption provisions, the Departments have 
attempted to balance States' interests in regulating health insurance 
issuers and their health insurance markets, with 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.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2590

    Child support, Employee benefit plans, Health care, Health 
insurance, Maternal and child health, Penalties, Pensions, Privacy, 
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, Insurance companies, Penalties, Reporting and recordkeeping 
requirements.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
Xavier Becerra,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Proposed Amendments to the Regulations
    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR parts 1 and 54 as follows:

PART 1--INCOME TAXES

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

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

0
2. Section 1.105-2 is revised to read as follows:


Sec.  1.105-2  Amounts expended for medical care.

    (a) In general. Section 105(b) provides an exclusion from gross 
income with respect to the amounts referred to in section 105(a) (see 
Sec.  1.105-1) which are paid, directly or indirectly, to the taxpayer 
to reimburse the taxpayer for expenses incurred for the medical care 
(as defined in section 213(d)) of the taxpayer, the taxpayer's spouse, 
the taxpayer's dependents (as defined in section 152, determined 
without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) 
(dependents), and any child of the taxpayer who, as of the end of the 
taxable year, has not attained age 27. Any child to whom section 152(e) 
applies shall be treated as a dependent of both parents for purposes of 
section 105(b). (All references to the taxpayer's medical expenses in 
this section include the medical expenses of the taxpayer, the 
taxpayer's spouse, the taxpayer's dependents, and any child of the 
taxpayer who, as of the end of the taxable year, has not attained age 
27.) However, the exclusion does not apply to amounts which are 
attributable to (and not in excess of) deductions allowed under section 
213 (relating to medical, etc., expenses) for any prior taxable year. 
See section 213 and the regulations in this chapter under section 213. 
Section 105(b) applies only to amounts which are paid specifically to 
reimburse the taxpayer for section

[[Page 44650]]

213(d) medical care expenses that have been incurred by the taxpayer 
and that are substantiated by the plan. Thus, section 105(b) does not 
apply to amounts that the taxpayer would be entitled to receive 
irrespective of the amount of medical care expenses the taxpayer incurs 
or that are paid to reimburse the taxpayer for incurred section 213(d) 
medical care expenses if the medical care expenses have not been 
substantiated by the plan. For example, if under a wage continuation 
plan the taxpayer is entitled to regular wages during a period of 
absence from work due to sickness or injury, amounts received under 
such plan are not excludable from the taxpayer's gross income under 
section 105(b) even though the taxpayer may have incurred medical 
expenses during the period of illness. Any amounts received under a 
fixed indemnity plan treated as an excepted benefit under section 
9832(c)(3), or any plan that pays amounts regardless of the amount of 
section 213(d) medical care expenses actually incurred, are not 
payments for medical care under section 105(b) and are included in the 
employee's gross income under section 105(a). If the taxpayer incurs an 
obligation for medical care, payment to the obligee in discharge of 
such obligation shall constitute indirect payment to the taxpayer as 
reimbursement for medical care. Similarly, payment to or on behalf of 
the taxpayer's spouse or dependents or any child of the taxpayer who, 
as of the end of the taxable year, has not attained age 27 shall 
constitute indirect payment to the taxpayer.
    (b) Applicability date. The regulations in this section apply as of 
the later of [DATE OF PUBLICATION OF THE FINAL RULE], or January 1, 
2024.

PART 54--PENSION AND EXCISE TAX

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

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

0
4. 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 policy, certificate, or contract of 
insurance with an issuer that:
    (1) Has an expiration date specified in the policy, certificate, or 
contract of insurance that is no more than 3 months after the original 
effective date of the policy, certificate, or contract of insurance, 
and taking into account any renewals or extensions, has a duration no 
longer than 4 months in total. For purposes of this paragraph (1), a 
renewal or extension includes the term of a new short-term, limited-
duration insurance policy, certificate, or contract of insurance issued 
by the same issuer to the same policyholder within the 12-month period 
beginning on the original effective date of the initial policy, 
certificate, or contract of insurance; and
    (2) Displays prominently on the first page (in either paper or 
electronic form, including on a website) of the policy, certificate, or 
contract of insurance, and in any marketing, application, and 
enrollment materials (including reenrollment materials) provided to 
individuals at or before the time an individual has the opportunity to 
enroll (or reenroll) in the coverage, in at least 14-point font, the 
language in the following notice:
BILLING CODE 4120-01-, 4150-29-, 4830-01-P
[GRAPHIC] [TIFF OMITTED] TP12JY23.020


[[Page 44651]]


    (3) If any provision of this definition of short-term, limited-
duration insurance is held to be invalid or unenforceable by its terms, 
or as applied to any entity or circumstance, or stayed pending further 
agency action, the provision shall be construed so as to continue to 
give the maximum effect to the provision permitted by law, along with 
other provisions not found invalid or unenforceable, including as 
applied to entities not similarly situated or to dissimilar 
circumstances, unless such holding is that the provision is invalid and 
unenforceable in all circumstances, in which event the provision shall 
be severable from the remainder of the definition and shall not affect 
the remainder thereof.
* * * * *
0
5. Section 54.9831-1 is amended by:
0
a. Revising paragraph (c)(4)(i);
0
b. Adding paragraph (c)(4)(ii)(D);
0
c. Revising paragraph (c)(4)(iii); and
0
d. Adding paragraphs (c)(4)(iv) and (v).
    The revisions and additions read as follows:


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

* * * * *
    (c) * * *
    (4) * * *
    (i) Excepted benefits that are not coordinated. Coverage for only a 
specified disease or illness (for example, cancer-only policies) or 
hospital indemnity or other fixed indemnity insurance is excepted only 
if it meets each of the applicable conditions specified in paragraph 
(c)(4)(ii) of this section.
    (ii) * * *
    (D) With respect to hospital indemnity or other fixed indemnity 
insurance--
    (1) The benefits are paid in a fixed dollar amount per day (or per 
other time period) of hospitalization or illness (for example, $100/
day) regardless of the actual or estimated amount of expenses incurred, 
services or items received, severity of illness or injury experienced 
by a covered participant or beneficiary, or other characteristics 
particular to a course of treatment received by a covered participant 
or beneficiary, and not on any other basis (such as on a per-item or 
per-service basis).
    (2) The plan or issuer displays prominently on the first page (in 
either paper or electronic form, including on a website) of any 
marketing, application, and enrollment materials that are provided to 
participants at or before the time participants are given the 
opportunity to enroll in the coverage, in at least 14-point font, the 
language in the following notice:
[GRAPHIC] [TIFF OMITTED] TP12JY23.021

    (3) If participants are required to reenroll (in either paper or 
electronic form) for purposes of renewal or reissuance of the 
insurance, the notice described in paragraph (c)(4)(ii)(D)(2) of this 
section is displayed in any marketing and reenrollment materials 
provided at or before the time participants are given the opportunity 
to reenroll in coverage.
    (4) If a plan or issuer provides a notice satisfying the 
requirements in paragraphs (c)(4)(ii)(D)(2) and (3) of this section to 
a participant, the obligation to provide the notice is considered to be 
satisfied for both the plan and issuer.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples:
    (A) Example 1--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits only related to hospital stays at a fixed percentage of 
hospital expenses up to a maximum of $100 a day.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, because benefits are paid 
based on a percentage of expenses incurred rather than a fixed dollar 
amount per day (or per other time period, such as per week), the policy 
does not qualify as an excepted benefit under this paragraph (c)(4). 
This is the result even if, in practice, the policy pays the maximum of 
$100 for every day of hospitalization.
    (B) Example 2--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits when a person receives certain specific items and services in 
a fixed amount, such as $50 per blood test or $100 per visit. The fixed 
amounts apply to each specific item or service and are not paid per day 
or per other time period of hospitalization or illness.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, the policy does not qualify 
as an excepted benefit under this paragraph (c)(4) because the benefits 
are not paid in a fixed dollar amount per day (or per other time 
period) of hospitalization or illness, and are not paid without regard 
to the services or items received. The conclusion would be the same 
even if the policy added a per day (or per other time period) term to 
the benefit description (for example, ``$50 per blood test per day''), 
because the benefits are not paid regardless of the services or items 
received.
    (C) Example 3--(1) Facts. An employer sponsors a group health plan 
that provides two benefit packages. The first benefit package includes 
benefits only for preventive services and excludes benefits for all 
other services. The second benefit package provides coverage through an 
insurance policy that pays a fixed dollar amount per day of 
hospitalization for a wide variety of illnesses that are not preventive 
services covered under the first benefit package. The two benefit 
packages are offered to

[[Page 44652]]

employees at the same time and can be elected together. The benefit 
packages are not subject to a formal coordination of benefits 
arrangement.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, the second benefit package's 
insurance policy does not qualify as an excepted benefit under this 
paragraph (c)(4) because the benefits under the second benefit package 
are coordinated with an exclusion of benefits under another group 
health plan maintained by the same plan sponsor (that is, the 
preventive-services-only benefit package). The conclusion would be the 
same even if the benefit packages were not offered to employees at the 
same time or if the second benefit package's insurance policy did not 
pay benefits associated with a wide variety of illnesses.
    (iv) Applicability date. (A) For hospital indemnity or other fixed 
indemnity insurance sold or issued on or after [DATE 75 DAYS AFTER DATE 
OF PUBLICATION OF THE FINAL RULE], the requirements of this paragraph 
(c)(4) apply for plan years beginning on or after [DATE 75 DAYS AFTER 
DATE OF PUBLICATION OF THE FINAL RULE].
    (B) For hospital indemnity or other fixed indemnity insurance sold 
or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL 
RULE], the requirements of this paragraph (c)(4) apply for plan years 
beginning on or after January 1, 2027, except that the requirements of 
paragraphs (c)(4)(ii)(D)(2) through (4) and (c)(4)(v) of this section, 
apply for plan years beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE].
    (C) Until the relevant applicability dates set out in paragraphs 
(c)(4)(iv)(A) and (B) of this section for the requirements of this 
paragraph (c)(4), plans and issuers are required to continue to comply 
with Sec.  54.9831-1(c)(4) contained in 26 CFR part 54, revised as of 
April 1, 2023.
    (v) Severability. If any provision of this paragraph (c)(4) is held 
to be invalid or unenforceable by its terms, or as applied to any 
entity or circumstance, or stayed pending further agency action, the 
provision shall be construed so as to continue to give the maximum 
effect to the provision permitted by law, along with other provisions 
not found invalid or unenforceable, including as applied to entities 
not similarly situated or to dissimilar circumstances, unless such 
holding is that the provision is invalid and unenforceable in all 
circumstances, in which event the provision shall be severable from the 
remainder of this paragraph (c)(4) and shall not affect the remainder 
thereof.
* * * * *

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
6. 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-n, 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; Pub. L. 116-260 134 
Stat. 1182; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 
2012).
    7. 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 policy, certificate, or contract of 
insurance with an issuer that:
    (1) Has an expiration date specified in the policy, certificate, or 
contract of insurance that is no more than 3 months after the original 
effective date of the policy, certificate, or contract of insurance, 
and taking into account any renewals or extensions, has a duration no 
longer than 4 months in total. For purposes of this paragraph (1), a 
renewal or extension includes the term of a new short-term, limited-
duration insurance policy, certificate, or contract of insurance issued 
by the same issuer to the same policyholder within the 12-month period 
beginning on the original effective date of the initial policy, 
certificate, or contract of insurance; and
    (2) Displays prominently on the first page (in either paper or 
electronic form, including on a website) of the policy, certificate, or 
contract of insurance, and in any marketing, application, and 
enrollment materials (including reenrollment materials) provided to 
individuals at or before the time an individual has the opportunity to 
enroll (or reenroll) in the coverage, in at least 14-point font, the 
language in the following notice:
BILLING CODE 4120-01-, 4150-01-, 4830-01-P

[[Page 44653]]

[GRAPHIC] [TIFF OMITTED] TP12JY23.022

    (3) If any provision of this definition of short-term, limited-
duration insurance is held to be invalid or unenforceable by its terms, 
or as applied to any entity or circumstance, or stayed pending further 
agency action, the provision shall be construed so as to continue to 
give the maximum effect to the provision permitted by law, along with 
other provisions not found invalid or unenforceable, including as 
applied to entities not similarly situated or to dissimilar 
circumstances, unless such holding is that the provision is invalid and 
unenforceable in all circumstances, in which event the provision shall 
be severable from the remainder of the definition and shall not affect 
the remainder thereof.
* * * * *
0
8. Section 2590.732 is amended by:
0
a. Revising paragraph (c)(4)(i);
0
b. Adding paragraph (c)(4)(ii)(D);
0
c. Revising paragraph (c)(4)(iii); and
0
d. Adding paragraphs (c)(4)(iv) and (v).
    The revisions and additions read as follows:


Sec.  2590.732  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (4) * * *
    (i) Excepted benefits that are not coordinated. Coverage for only a 
specified disease or illness (for example, cancer-only policies) or 
hospital indemnity or other fixed indemnity insurance is excepted only 
if it meets each of the applicable conditions specified in paragraph 
(c)(4)(ii) of this section.
    (ii) * * *
    (D) With respect to hospital indemnity or other fixed indemnity 
insurance--
    (1) The benefits are paid in a fixed dollar amount per day (or per 
other time period) of hospitalization or illness (for example, $100/
day) regardless of the actual or estimated amount of expenses incurred, 
services or items received, severity of illness or injury experienced 
by a covered participant or beneficiary, or other characteristics 
particular to a course of treatment received by a covered participant 
or beneficiary, and not on any other basis (such as on a per-item or 
per-service basis).
    (2) The plan or issuer displays prominently on the first page (in 
either paper or electronic form, including on a website) of any 
marketing, application, and enrollment materials that are provided to 
participants at or before the time participants are given the 
opportunity to enroll in the coverage, in at least 14-point font, the 
language in the following notice:

[[Page 44654]]

[GRAPHIC] [TIFF OMITTED] TP12JY23.023

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
    (3) If participants are required to reenroll (in either paper or 
electronic form) for purposes of renewal or reissuance of the 
insurance, the notice described in paragraph (c)(4)(ii)(D)(2) of this 
section is displayed in any marketing and reenrollment materials 
provided at or before the time participants are given the opportunity 
to reenroll in coverage.
    (4) If a plan or issuer provides a notice satisfying the 
requirements in paragraph (c)(4)(ii)(D)(2) and (3) of this section to a 
participant, the obligation to provide the notice is considered to be 
satisfied for both the plan and issuer.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples:
    (A) Example 1--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits only related to hospital stays at a fixed percentage of 
hospital expenses up to a maximum of $100 a day.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, because benefits are paid 
based on a percentage of expenses incurred rather than a fixed dollar 
amount per day (or per other time period, such as per week), the policy 
does not qualify as an excepted benefit under this paragraph (c)(4). 
This is the result even if, in practice, the policy pays the maximum of 
$100 for every day of hospitalization.
    (B) Example 2--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits when a person receives certain specific items and services in 
a fixed amount, such as $50 per blood test or $100 per visit. The fixed 
amounts apply to each specific item or service and are not paid per day 
or per other time period of hospitalization or illness.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, the policy does not qualify 
as an excepted benefit under this paragraph (c)(4) because the benefits 
are not paid in a fixed dollar amount per day (or per other time 
period) of hospitalization or illness, and are not paid without regard 
to the services or items received. The conclusion would be the same 
even if the policy added a per day (or per other time period) term to 
the benefit description (for example, ``$50 per blood test per day''), 
because the benefits are not paid regardless of the services or items 
received.
    (C) Example 3--(1) Facts. An employer sponsors a group health plan 
that provides two benefit packages. The first benefit package includes 
benefits only for preventive services and excludes benefits for all 
other services. The second benefit package provides coverage through an 
insurance policy that pays a fixed dollar amount per day of 
hospitalization for a wide variety of illnesses that are not preventive 
services covered under the first benefit package. The two benefit 
packages are offered to employees at the same time and can be elected 
together. The benefit packages are not subject to a formal coordination 
of benefits arrangement.
    (2) Conclusion. Even if the other conditions in paragraph 
(c)(4)(ii) of this section are satisfied, the second benefit package's 
insurance policy does not qualify as an excepted benefit under this 
paragraph (c)(4) because the benefits under the second benefit package 
are coordinated with an exclusion of benefits under another group 
health plan maintained by the same plan sponsor (that is, the 
preventive-services-only benefit package). The conclusion would be the 
same even if the benefit packages were not offered to employees at the 
same time or if the second benefit package's insurance policy did not 
pay benefits associated with a wide variety of illnesses.
    (iv) Applicability dates. (A) For hospital indemnity or other fixed 
indemnity insurance sold or issued on or after [DATE 75 DAYS AFTER DATE 
OF PUBLICATION OF THE FINAL RULE], the requirements of this paragraph 
(c)(4) apply for plans beginning on or after [DATE 75 DAYS AFTER DATE 
OF PUBLICATION OF THE FINAL RULE].
    (B) For hospital indemnity or other fixed indemnity insurance sold 
or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL 
RULE], the requirements of this paragraph (c)(4) apply for plan years 
beginning on or after January 1, 2027, except that the requirements of 
paragraphs (c)(4)(ii)(D)(2) through (4) and (c)(4)(iii)(A) of this 
section, apply for plan years beginning on or after [DATE 75 DAYS AFTER 
DATE OF PUBLICATION OF THE FINAL RULE].
    (C) Until the relevant applicability dates set out in paragraphs 
(c)(4)(iv)(A) and (B) of this section for the requirements of this 
paragraph (c)(4), plans and issuers are required to continue to comply 
with Sec.  2590.732(c)(4) contained in 29 CFR part 2590, revised as of 
July 1, 2022.
    (v) Severability. If any provision of this paragraph (c)(4) is held 
to be invalid or unenforceable by its terms, or as applied to any 
entity or circumstance, or stayed pending further agency action, the 
provision shall be construed so as to continue to give the maximum 
effect to the provision permitted by law, along with other provisions 
not found invalid or unenforceable, including as applied to entities 
not similarly situated or to dissimilar circumstances, unless such 
holding is that the provision is invalid and unenforceable in all 
circumstances, in which event the provision shall be severable from the 
remainder of this paragraph (c)(4) and shall not affect the remainder 
thereof.
* * * * *
0
9. Section 2590.736 is revised to read as follows:

[[Page 44655]]

Sec.  2590.736  Applicability dates.

    Sections 2590.701-1 through 2590.701-8 and 2590.731 through 
2590.736 are applicable for plan years beginning on or after July 1, 
2005. Until the applicability dates set out in Sec.  
2590.732(c)(4)(iv), plans and issuers are required to continue to 
comply with the corresponding sections of 29 CFR part 2590, revised as 
of July 1, 2022. Notwithstanding the previous sentence, for short-term, 
limited-duration insurance sold or issued on or after [DATE 75 DAYS 
AFTER DATE OF PUBLICATION OF THE FINAL RULE], the definition of short-
term, limited-duration insurance in Sec.  2590.701-2 applies for 
coverage periods beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE]. For short-term, limited-duration 
insurance sold or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION 
OF THE FINAL RULE] (including any subsequent renewal or extension 
consistent with applicable law), the definition of short-term, limited-
duration insurance in Sec.  2590.701-2 contained in 29 CFR part 2590, 
revised as of July 1, 2022, continues to apply, except that paragraph 
(2) of the definition of short-term, limited-duration insurance in 
Sec.  2590.701-2 applies for coverage periods beginning on or after 
[DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE].

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

    Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, 300gg-92, 
and 300gg-111 through 300gg-139, as amended.

0
11. 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 policy, certificate, or contract of 
insurance with an issuer that:
    (1) Has an expiration date specified in the policy, certificate, or 
contract of insurance that is no more than 3 months after the original 
effective date of the policy, certificate, or contract of insurance, 
and taking into account any renewals or extensions, has a duration no 
longer than 4 months in total. For purposes of this paragraph (1), a 
renewal or extension includes the term of a new short-term, limited-
duration insurance policy, certificate, or contract of insurance issued 
by the same issuer to the same policyholder within the 12-month period 
beginning on the original effective date of the initial policy, 
certificate, or contract of insurance; and
    (2) Displays prominently on the first page (in either paper or 
electronic form, including on a website) of the policy, certificate, or 
contract of insurance, and in any marketing, application, and 
enrollment materials (including reenrollment materials) provided to 
individuals at or before the time an individual has the opportunity to 
enroll (or reenroll) in the coverage, in at least 14-point font, the 
language in the following notice:
[GRAPHIC] [TIFF OMITTED] TP12JY23.024


[[Page 44656]]


    (3) If any provision of this definition of short-term, limited-
duration insurance is held to be invalid or unenforceable by its terms, 
or as applied to any entity or circumstance, or stayed pending further 
agency action, the provision shall be construed so as to continue to 
give the maximum effect to the provision permitted by law, along with 
other provisions not found invalid or unenforceable, including as 
applied to entities not similarly situated or to dissimilar 
circumstances, unless such holding is that the provision is invalid and 
unenforceable in all circumstances, in which event the provision shall 
be severable from the remainder of the definition and shall not affect 
the remainder thereof.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

    Authority:  42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 
300gg-23, 300gg-91, and 300gg-92.

0
13. Section 146.125 is revised to read as follows:


Sec.  146.125  Applicability dates.

    Section 144.103 of this subchapter and Sec. Sec.  146.111 through 
146.119, 146.143, and 146.145 are applicable for plan years beginning 
on or after July 1, 2005 (but see Sec.  146.145(b)(4)(iv) for the 
applicability dates for hospital indemnity or other fixed indemnity 
insurance offered in the group market). Notwithstanding the previous 
sentence, for short-term, limited-duration insurance sold or issued on 
or after [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE], 
the definition of short-term, limited-duration insurance in Sec.  
144.103 of this subchapter applies for coverage periods beginning on or 
after [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE]. For 
short-term, limited-duration insurance sold or issued before [DATE 75 
DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE] (including any 
subsequent renewal or extension consistent with applicable law), the 
definition of short-term, limited-duration insurance in 45 CFR 144.103, 
revised as of October 1, 2021, continues to apply, except that 
paragraph (2) of the definition of short-term, limited-duration 
insurance in 45 CFR 144.103 applies for coverage periods beginning on 
or after [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE].
0
14. Section 146.145 is amended by--
0
a. Revising paragraph (b)(4)(i);
0
b. Adding paragraph (b)(4)(ii)(D);
0
c. Revising paragraph (b)(4)(iii); and
0
d. Adding paragraphs (b)(4)(iv) and (v).
    The revisions and additions read as follows:


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (b) * * *
    (4) * * *
    (i) Excepted benefits that are not coordinated. Coverage for only a 
specified disease or illness (for example, cancer-only policies) or 
hospital indemnity or other fixed indemnity insurance is excepted only 
if it meets each of the applicable conditions specified in paragraph 
(b)(4)(ii) of this section.
    (ii) * * *
    (D) With respect to hospital indemnity or other fixed indemnity 
insurance--
    (1) The benefits are paid in a fixed dollar amount per day (or per 
other time period) of hospitalization or illness (for example, $100/
day) regardless of the actual or estimated amount of expenses incurred, 
services or items received, severity of illness or injury experienced 
by a covered participant or beneficiary, or other characteristics 
particular to a course of treatment received by a covered participant 
or beneficiary, and not on any other basis (such as on a per-item or 
per-service basis).
    (2) The plan or issuer displays prominently on the first page (in 
either paper or electronic form, including on a website) of any 
marketing, application, and enrollment materials that are provided to 
participants at or before the time participants are given the 
opportunity to enroll in the coverage, in at least 14-point font, the 
language in the following notice:
[GRAPHIC] [TIFF OMITTED] TP12JY23.025

BILLING CODE 4120-01-, 4150-29-, 4830-01-C
    (3) If participants are required to reenroll (in either paper or 
electronic form) for purposes of renewal or reissuance of the 
insurance, the notice described in paragraph (b)(4)(ii)(D)(2) of this 
section is displayed in any marketing and reenrollment materials 
provided at or before the time participants are given the opportunity 
to reenroll in coverage.
    (4) If a plan or issuer provides a notice satisfying the 
requirements in paragraph (b)(4)(ii)(D)(2) and (3) of this section to a 
participant, the obligation to provide the notice is considered to be 
satisfied for both the plan and issuer.
    (iii) Examples. The rules of this paragraph (b)(4) are illustrated 
by the following examples:
    (A) Example 1--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits only related to hospital stays at

[[Page 44657]]

a fixed percentage of hospital expenses up to a maximum of $100 a day.
    (2) Conclusion. Even if the other conditions in paragraph 
(b)(4)(ii) of this section are satisfied, because benefits are paid 
based on a percentage of expenses incurred rather than a fixed dollar 
amount per day (or per other time period, such as per week), the policy 
does not qualify as an excepted benefit under this paragraph (b)(4). 
This is the result even if, in practice, the policy pays the maximum of 
$100 for every day of hospitalization.
    (B) Example 2--(1) Facts. An employer sponsors a group health plan 
that provides coverage through an insurance policy. The policy provides 
benefits when a person receives certain specific items and services in 
a fixed amount, such as $50 per blood test or $100 per visit. The fixed 
amounts apply to each specific item or service and are not paid per day 
or per other time period of hospitalization or illness.
    (2) Conclusion. Even if the other conditions in paragraph 
(b)(4)(ii) of this section are satisfied, the policy does not qualify 
as an excepted benefit under this paragraph (b)(4) because the benefits 
are not paid in a fixed dollar amount per day (or per other time 
period) of hospitalization or illness, and are not paid without regard 
to the services or items received. The conclusion would be the same 
even if the policy added a per day (or per other time period) term to 
the benefit description (for example, ``$50 per blood test per day''), 
because the benefits are not paid regardless of the services or items 
received.
    (C) Example 3--(1) Facts. An employer sponsors a group health plan 
that provides two benefit packages. The first benefit package includes 
benefits only for preventive services and excludes benefits for all 
other services. The second benefit package provides coverage through an 
insurance policy that pays a fixed dollar amount per day of 
hospitalization for a wide variety of illnesses that are not preventive 
services covered under the first benefit package. The two benefit 
packages are offered to employees at the same time and can be elected 
together. The benefit packages are not subject to a formal coordination 
of benefits arrangement.
    (2) Conclusion. Even if the other conditions in paragraph 
(b)(4)(ii) of this section are satisfied, the second benefit package's 
insurance policy does not qualify as an excepted benefit under this 
paragraph (b)(4) because the benefits under the second benefit package 
are coordinated with an exclusion of benefits under another group 
health plan maintained by the same plan sponsor (that is, the 
preventive-services-only benefit package). The conclusion would be the 
same even if the benefit packages were not offered to employees at the 
same time or if the second benefit package's insurance policy did not 
pay benefits associated with a wide variety of illnesses.
    (iv) Applicability dates. (A) For hospital indemnity or other fixed 
indemnity insurance sold or issued on or after [DATE 75 DAYS AFTER DATE 
OF PUBLICATION OF THE FINAL RULE], the requirements of this paragraph 
(b)(4) apply for plan years beginning on or after [DATE 75 DAYS AFTER 
DATE OF PUBLICATION OF THE FINAL RULE].
    (B) For hospital indemnity or other fixed indemnity insurance sold 
or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL 
RULE], the requirements of this paragraph (b)(4) apply for plan years 
beginning on or after January 1, 2027, except that the requirements of 
paragraphs (b)(4)(ii)(D)(2) through (4) of this section apply for plan 
years beginning on or after [DATE 75 DAYS AFTER DATE OF PUBLICATION OF 
THE FINAL RULE].
    (C) Until the relevant applicability dates set out in paragraphs 
(b)(4)(iv)(A) and (B) of this section for the requirements of this 
paragraph (b)(4), plans and issuers are required to continue to comply 
with Sec.  146.145(b)(4) contained in 45 CFR part 146, revised as of 
October 1, 2021.
    (v) Severability. If any provision of this paragraph (b)(4) is held 
to be invalid or unenforceable by its terms, or as applied to any 
entity or circumstance, or stayed pending further agency action, the 
provision shall be construed so as to continue to give the maximum 
effect to the provision permitted by law, along with other provisions 
not found invalid or unenforceable, including as applied to entities 
not similarly situated or to dissimilar circumstances, unless such 
holding is that the provision is invalid and unenforceable in all 
circumstances, in which event the provision shall be severable from the 
remainder of this paragraph (b)(4) and shall not affect the remainder 
thereof.
* * * * *

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

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

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-11 300gg-91, 
and 300-gg92, as amended.

0
16. Section 148.102 is amended by revising paragraph (b) to read as 
follows:


Sec.  148.102  Scope and applicability dates.

* * * * *
    (b) Applicability dates. Except as provided in Sec. Sec.  148.124 
(certificate of creditable coverage), 148.170 (standards relating to 
benefits for mothers and newborns), and 148.180 (prohibition of health 
discrimination based on genetic information), the requirements of this 
part apply to health insurance coverage offered, sold, issued, renewed, 
in effect, or operated in the individual market after June 30, 1997. 
Notwithstanding the previous sentence, for short-term, limited-duration 
insurance sold or issued on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE], the definition of short-term, limited-
duration insurance in Sec.  144.103 of this subchapter applies for 
coverage periods beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE]. For short-term, limited-duration 
insurance sold or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION 
OF THE FINAL RULE] (including any subsequent renewal or extension 
consistent with applicable law), the definition of short-term, limited-
duration insurance in 45 CFR 144.103, revised as of October 1, 2021, 
continues to apply, except that paragraph (2) of the definition of 
short-term, limited-duration insurance in 45 CFR 144.103 applies for 
coverage periods beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE].
0
17. Section 148.220 is amended by revising paragraph (b)(4) to read as 
follows:


Sec.  148.220  Excepted benefits.

* * * * *
    (b) * * *
    (4) Hospital indemnity or other fixed indemnity insurance only if--
    (i) There is no coordination between the provision of benefits and 
an exclusion of benefits under any other health coverage maintained by 
the same issuer with respect to the same policyholder.
    (ii) The benefits are paid in a fixed dollar amount per day (or per 
other time period) of hospitalization or illness (for example, $100/
day) regardless of the actual or estimated amount of expenses incurred, 
services or items received, severity of illness or injury experienced 
by a covered individual, or any other characteristics particular to a 
course of treatment received by the covered individual and not on any 
other basis (such as on a per-item or per-service basis), and without 
regard to whether benefits are provided with respect to the event under 
any other health insurance

[[Page 44658]]

coverage maintained by the same health insurance issuer with respect to 
the same policyholder.
    (iii) The issuer displays prominently on the first page of any 
marketing, application, and enrollment or reenrollment materials that 
are provided at or before the time an individual has the opportunity to 
apply, enroll or reenroll in coverage, and on the first page of the 
policy, certificate, or contract of insurance, in at least 14-point 
font, the language in the following notice:
[GRAPHIC] [TIFF OMITTED] TP12JY23.026

    (iv)(A) For hospital indemnity or other fixed indemnity insurance 
sold or issued on or after [DATE 75 DAYS AFTER DATE OF PUBLICATION OF 
THE FINAL RULE], the requirements of this paragraph (b)(4) apply for 
coverage periods beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE].
    (B) For hospital indemnity or other fixed indemnity insurance sold 
or issued before [DATE 75 DAYS AFTER DATE OF PUBLICATION OF THE FINAL 
RULE], the requirements of this paragraph (b)(4) apply for coverage 
periods beginning on or after January 1, 2027, except that the 
requirements of paragraph (b)(4)(iii) of this section apply for 
coverage periods beginning on or after [DATE 75 DAYS AFTER DATE OF 
PUBLICATION OF THE FINAL RULE].
    (C) Until the relevant applicability dates set out in paragraphs 
(b)(4)(iv)(A) and (B) of this section for the requirements of this 
paragraph (b)(4), issuers are required to continue to comply with Sec.  
148.220(b)(4) contained in 45 CFR part 148, revised as of October 1, 
2021.
    (v) If any provision of this paragraph (b)(4) is held to be invalid 
or unenforceable by its terms, or as applied to any entity or 
circumstance, or stayed pending further agency action, the provision 
shall be construed so as to continue to give the maximum effect to the 
provision permitted by law, along with other provisions not found 
invalid or unenforceable, including as applied to entities not 
similarly situated or to dissimilar circumstances, unless such holding 
is that the provision is invalid and unenforceable in all 
circumstances, in which event the provision shall be severable from the 
remainder of this paragraph (b)(4) and shall not affect the remainder 
thereof.
* * * * *
[FR Doc. 2023-14238 Filed 7-7-23; 8:45 am]
BILLING CODE 4120-01- 4150-29- 4830-01-P