[Federal Register Volume 89, Number 65 (Wednesday, April 3, 2024)]
[Rules and Regulations]
[Pages 23338-23421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06551]
[[Page 23337]]
Vol. 89
Wednesday,
No. 65
April 3, 2024
Part VI
Department of the Treasury
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Internal Revenue Service
26 CFR Part 54
Department of Labor
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Employee Benefits Security Administration
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 and Independent, Noncoordinated
Excepted Benefits Coverage; Final Rule
Federal Register / Vol. 89 , No. 65 / Wednesday, April 3, 2024 /
Rules and Regulations
[[Page 23338]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[TD 9990]
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-F]
RIN 0938-AU67
Short-Term, Limited-Duration Insurance and Independent,
Noncoordinated Excepted Benefits Coverage
AGENCY: Internal Revenue Service, Department of the Treasury; Employee
Benefits Security Administration, Department of Labor; Centers for
Medicare & Medicaid Services, Department of Health and Human Services.
ACTION: Final rules.
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SUMMARY: This document sets forth final rules that 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 final rules that
amend the regulations regarding the requirements for hospital indemnity
or other fixed indemnity insurance to be considered an excepted benefit
in the group and individual health insurance markets.
DATES: These regulations are effective on June 17, 2024.
FOR FURTHER INFORMATION CONTACT: Shannon Hysjulien 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; Lisa Cuozzo, Centers for Medicare & Medicaid Services,
Department of Health and Human Services at (667) 290-8537.
SUPPLEMENTARY INFORMATION:
I. Background
These final rules set forth 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
with individual health insurance or STLDI 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 final rules also set forth amendments to the regulations
regarding 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\ As explained in greater detail later in this
section of the preamble, the Department of the Treasury (Treasury
Department), the Department of Labor, and HHS (collectively, the
Departments) are not finalizing certain aspects of the proposed rules
regarding fixed indemnity excepted benefits coverage and the Treasury
Department and the Internal Revenue Service (IRS) are not finalizing
the proposed amendments to Treasury Reg. Sec. 1.105-2 at this time.
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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'' to
distinguish it from hospital indemnity or other fixed indemnity
insurance that does not meet all such requirements.
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In proposed rules published on July 12, 2023, in the Federal
Register titled ``Short-Term, Limited-Duration Insurance; Independent,
Noncoordinated Excepted Benefits Coverage; Level-Funded Plan
Arrangements; and Tax Treatment of Certain Accident and Health
Insurance'' (2023 proposed rules),\2\ the Departments proposed
revisions to define and more clearly distinguish STLDI and fixed
indemnity excepted benefits coverage from comprehensive coverage.
Comprehensive coverage is coverage that 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
(hereinafter referred to as the Federal consumer protections and
requirements for comprehensive coverage),\3\ such as the prohibition on
exclusions for preexisting conditions, the prohibition on health status
discrimination, and the requirement to cover certain preventive
services without cost sharing. The Departments proposed 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. The
Treasury Department and the IRS also proposed amendments to Treasury
Reg. Sec. 1.105-2 to clarify the tax treatment of benefit payments in
fixed amounts under hospital indemnity or other fixed indemnity
coverage purchased on a pre-tax basis.
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\2\ 88 FR 44596 (July 12, 2023).
\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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The Departments also solicited comments regarding coverage only for
a specified disease or illness that qualifies as excepted benefits
(specified disease excepted benefits coverage),\4\ and regarding level-
funded plan arrangements \5\ to better understand the key features and
characteristics of these arrangements and whether additional guidance
or rulemaking is needed to clarify plan sponsors' and issuers'
obligations with respect to coverage provided through these
arrangements. While specified disease excepted benefits coverage and
level-funded plan arrangements are not addressed in these final rules,
the Departments appreciate the comments received on these topics and
will take them into consideration as they determine whether additional
guidance or rulemaking is warranted in the future.
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\4\ 88 FR 44596 at 44632 (July 12, 2023).
\5\ Id. at 44632-34.
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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
[[Page 23339]]
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 market-wide 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 a member of
their tax household 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. Section
1402 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.\6\ 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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\6\ 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, issuers, providers, and 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 individual health
insurance coverage or STLDI to the enrollees in such coverage as well
as to report such compensation annually to HHS.
The Secretaries of the Treasury, Labor, and HHS have authority to
issue such regulations as may be necessary or appropriate to carry out
the parallel provisions under the Code, ERISA, and the PHS Act,
including the definitions in section 9832 of the Code, section 733 of
ERISA, and section 2791 of the PHS Act.7 8
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\7\ Section 9833 of the Code, section 734 of ERISA, and section
2792 of the PHS Act.
\8\ 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.\9\ 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
[[Page 23340]]
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.\10\ 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.\11\
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\9\ Executive Order 14009 of January 28, 2021, 86 FR 7793
(February 2, 2021).
\10\ Executive Order 13813 of October 12, 2017, 82 FR 48385
(October 17, 2017).
\11\ Executive Order 14070 of April 5, 2022, 87 FR 20689 (April
5, 2022).
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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.\12\
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\12\ Executive Order 13995 of January 21, 2021, 86 FR 7193
(January 26, 2021).
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Consistent with these executive orders, the Departments reviewed
the regulatory provisions related to STLDI and fixed indemnity excepted
benefits coverage and, after carefully considering public comments
received, are finalizing amendments to those provisions in these final
rules.
C. Short-Term, Limited-Duration Insurance (STLDI)
STLDI is a type of health insurance coverage sold by health
insurance issuers that typically fills temporary gaps in coverage that
may occur when an individual is transitioning from one plan or coverage
to another, such as transitioning between health coverage offered by
one employer to health coverage offered by another employer. Section
2791(b)(5) of the PHS Act provides that ``[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.'' \13\ 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 nonetheless 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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\13\ 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. For example, an individual who loses coverage due
to moving out of a health maintenance organization (HMO) service
area in the individual market is eligible for a special enrollment
period to enroll in 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 Federal individual market consumer
protections and requirements for comprehensive coverage. STLDI is not
subject to 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 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.\14\ The lack of these key Federal
consumer protections is especially problematic when the differences
between STLDI and comprehensive individual health insurance coverage
are not readily apparent to consumers.
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\14\ 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).\15\ 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.'' \16\
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\15\ 62 FR 16894 (April 8, 1997).
\16\ 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,\17\ 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.\18\ On October
31, 2016, the Departments published final rules in the Federal Register
titled ``Excepted Benefits; Lifetime and Annual Limits; and Short-Term,
Limited-Duration Insurance'' (2016 final rules).\19\ The 2016 final
rules amended the definition
[[Page 23341]]
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.\20\ 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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\17\ See Public Law 111-148, March 23, 2010, section 1312(c)(1)
and 45 CFR 156.80.
\18\ 81 FR 38019 (June 10, 2016).
\19\ 81 FR 75316 (October 31, 2016).
\20\ Id. at 75317-75318.
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.\21\
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\21\ Id.
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,'' \22\ 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.\23\ 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 expanding 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 Federal consumer protections 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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\22\ 82 FR 26885 (June 12, 2017).
\23\ See also Executive Order 13813 of October 12, 2017, 82 FR
48385 (October 17, 2017) (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 or 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) \24\
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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\24\ Public Law 99-272, April 7, 1986. COBRA added parallel
provisions at Code section 4980B, ERISA sections 601-608, and PHS
Act sections 2201-2208.
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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 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.\25\ 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.\26\
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 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, the latter of which excluded language referencing the
individual shared responsibility payment (which was reduced to $0 for
months beginning after December 2018).27 28
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\25\ 83 FR 7437 (February 21, 2018).
\26\ Id. at 7441.
\27\ Id. at 7440-7441.
\28\ 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 stated that
STLDI 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
[[Page 23342]]
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) \29\ 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.\30\ 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): \31\
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\29\ 83 FR 38212 (August 3, 2018).
\30\ Id.
\31\ See id. at 38222-38225.
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
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.\32\ The same
definitions are applied to describe benefits that are not required to
comply with the ACA requirements.\33\ There are four statutory
categories of excepted benefits: independent, noncoordinated excepted
benefits, which are the subject of these final rules; benefits that are
excepted in all circumstances; \34\ limited excepted benefits; \35\ and
supplemental excepted benefits.\36\
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\32\ 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.
\33\ Section 1551 of the ACA. See also section 1563(a) and
(c)(12) of the ACA. Excepted benefits are also not subject to the
consumer protections and requirements added by other Federal laws
that apply to comprehensive coverage, including MHPAEA, the
Newborns' and Mothers' Health Protection Act, the Women's Health and
Cancer Rights Act, the Children's Health Insurance Program
Reauthorization Act of 2009, Michelle's Law, and Division BB of the
CAA, 2021.
\34\ 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.''.
\35\ 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.
\36\ 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.'' To be considered
``similar supplemental coverage'' and thus an excepted benefit, the
coverage, whether offered in the group or individual market, must
supplement coverage provided under a group health plan. This
category does not include coverage that supplements individual
health insurance coverage. 26 CFR 54.9831-1(c)(5), 29 CFR
2590.732(c)(5), 45 CFR 146.145(b)(5) and 148.220(b)(7).
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The category ``independent, noncoordinated excepted benefits''
includes coverage for only a specified disease or illness (such as
cancer-only policies) and hospital indemnity or other fixed indemnity
insurance. These benefits are excepted under section 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.\37\ In addition, under 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 amount of expenses incurred, to be
considered an excepted benefit.\38\ By contrast, in the individual
market, under existing regulations, hospital indemnity and other fixed
indemnity insurance must also pay benefits in a fixed dollar amount,
regardless of the amount of expenses incurred, to be considered an
excepted benefit, but is permitted to pay on either a per period of
hospitalization or illness, or a per-service basis (for example, $100/
day or $50/visit).39 40
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\37\ 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.'').
\38\ 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR
146.145(b)(4).
\39\ 45 CFR 148.220(b)(4)(iii).
\40\ As discussed further in section I.D.2 of this preamble, the
existing individual market regulation also provides that hospital
indemnity and other fixed indemnity insurance cannot coordinate
between the provision of benefits and an exclusion of benefits under
any health coverage to be considered an excepted benefit. See 45 CFR
148.220(b)(4)(ii).
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The amendments to the regulations regarding independent,
noncoordinated excepted benefits coverage that were
[[Page 23343]]
proposed in the 2023 proposed rules and those finalized in these final
rules address 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.
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.\41\ 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 provided at a pre-determined level regardless of
any health care costs incurred by a covered individual with respect to
the health-related 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 health care costs incurred.\42\
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\41\ The original version of HIPAA that the House Ways & Means
Committee referred to the House floor referred to hospital indemnity
or other fixed indemnity insurance as a ``hospital or fixed
indemnity income-protection policy'' (emphasis added). See H.R. Rep.
No. 104-496 part I, at 32 (1996), available at: https://www.govinfo.gov/content/pkg/CRPT-104hrpt496/pdf/CRPT-104hrpt496-pt1.pdf. See also 79 FR 15818 (March 21, 2014) (``The primary reason
fixed indemnity insurance is considered to be an excepted benefit .
. . is that its primary purpose is not to provide major medical
coverage but to provide a cash-replacement benefit for those
individuals with other health coverage.'').
\42\ 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.'').
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Traditionally, benefits under fixed indemnity excepted benefits
coverage are paid directly to a policyholder, rather than to a health
care provider or facility. The policyholder has discretion over how to
use such benefits--including using the payment to cover non-medical
expenses, such as childcare or transportation--that may or may not be
related to the event that precipitated the payment.\43\
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\43\ America's Health Insurance Plans (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.
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1. 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
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.\44\
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\44\ 62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971
(April 8, 1997).
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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.\45\
An example was also added as part of these amendments illustrating 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.\46\ 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.\47\
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\45\ 69 FR 78720 at 78735, 78762, 78780, and 78798-78799
(December 30, 2004).
\46\ 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).
\47\ Id.
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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 insurance that meet the criteria for
fixed indemnity excepted benefits coverage.\48\ 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.\49\ The FAQ 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.\50\
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\48\ 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.
\49\ Id.
\50\ Id.
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The Departments proposed amendments to the group market regulations
for fixed indemnity excepted benefits coverage in the 2016 proposed
rules.\51\ 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.\52\ To address
this confusion, the Departments proposed to adopt a notice provision to
inform enrollees and potential enrollees that the coverage is a
supplement to, rather than a substitute for, comprehensive coverage,
and also proposed to add two illustrative examples to further clarify
the condition that benefits must be provided on a per-period basis.\53\
The Departments also requested comments on whether to more
substantively align the rules for hospital indemnity or other fixed
indemnity insurance in the group and individual markets.\54\ After
consideration of comments, the Departments did not finalize the
proposed changes to the group market
[[Page 23344]]
regulation but noted their intention to address hospital indemnity and
other fixed indemnity insurance in future rulemaking.\55\
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\51\ 81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-
38046 (June 10, 2016).
\52\ Id. at 38031-38032.
\53\ Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.
\54\ As described in section I.D.2 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).
\55\ 81 FR 75316 at 75317 (October 31, 2016).
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2. 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.\56\ 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.\57\
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\56\ 62 FR 16985 at 16992 and 17004 (April 8, 1997).
\57\ Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
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Following issuance of the Departments' January 24, 2013 FAQ,\58\
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 to qualify as an excepted benefit could limit consumer
access to an important supplemental coverage option.\59\ 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.\60\ 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.
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\58\ 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.
\59\ 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.
\60\ 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.
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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.\61\ 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.\62\
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\61\ 79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
\62\ Id.
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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 qualify as fixed indemnity
excepted benefits coverage if payments are made on a per-period and/or
per-service basis subject to several additional requirements that do
not apply to fixed indemnity excepted benefits coverage in the group
market.\63\ 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.\64\ Further, to
qualify as an excepted benefit, 45 CFR 148.220(b)(4)(iv) outlines
specific notice language that must 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.
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\63\ 79 FR 30239 (May 27, 2014).
\64\ As discussed later in this section and in section III.B.2
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 hospital
indemnity or other fixed indemnity policy in order for the policy to
qualify as an excepted benefit. Central United Life Insurance
Company v. Burwell, 827 F.3d 70 (D.C. Cir. 2016).
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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.\65\
[[Page 23345]]
Second, beginning in 2014, most consumers were required to have MEC 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.\66\ 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.\67\ 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 provide benefits on a per-service
basis.
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\65\ 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.'').
\66\ 79 FR 30239 at 30255 (May 27, 2014).
\67\ 827 F.3d 70 (D.C. Cir. July 1, 2016).
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E. Tax Treatment and Substantiation Requirements for Amounts Received
From Fixed Indemnity Insurance and Certain Other Arrangements
As part of the 2023 proposed rules, the Treasury Department and the
IRS proposed amendments to 26 CFR 1.105-2. For the reasons that follow,
the Treasury Department and the IRS are not finalizing the proposed
amendments at this time.
Hospital indemnity or other fixed indemnity insurance, as well as
coverage only for a specified disease or illness, generally are
considered ``accident or health insurance'' under sections 104, 105,
and 106 of the Code, regardless of whether they are ``excepted
benefits'' as defined in section 9832(c) of the Code. 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(a) of the Code. The Treasury
Department and the IRS also have recognized the ability of employers
and employees to agree to include them in employees' gross income
notwithstanding section 106(a) of the Code.\68\
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\68\ See, for example, IRS Rev. Rul. 2004-55, which concludes
that long-term disability benefits received by an employee who has
irrevocably elected, prior to the beginning of the plan year, to
have the coverage paid by the employer on an after-tax basis for the
plan year in which the employee becomes disabled are attributable
solely to after-tax employee contributions and are excludable from
the employee's gross income under section 104(a)(3) of the Code.
---------------------------------------------------------------------------
Amounts received through accident or health insurance are excluded
from an employee's gross income under section 104(a)(3) of the Code if
the premiums were paid on an after-tax basis. However, amounts received
are included in an employee's gross income if the amounts are
attributable to contributions by an employer that were excluded from
the employee's gross income under section 106(a) of the Code. Whether
amounts received by an employee through accident or health insurance
are excluded from an employee's gross income where the premiums or
contributions were paid on a pre-tax basis is determined under section
105. Section 105(a) of the Code provides that such amounts are included
in gross income except as otherwise provided in section 105 of the
Code. Section 105(b) of the Code excludes such amounts from gross
income amounts if they are paid to reimburse the employee's expenses
for medical care (as defined in section 213(d) of the Code). Under 26
CFR 1.105-2, this means the exclusion ``applies only to amounts which
are paid specifically to reimburse the taxpayer for expenses incurred
by him for the prescribed medical care.'' \69\
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\69\ Additionally, an employer-provided accident or health
insurance policy or plan that reimburses an employee for any
expenses incurred for medical care is a group health plan subject to
section 4980B of the Code, regardless of whether the reimbursements
are included in an employee's income under section 105(a) of the
Code or excluded under section 104(a)(3) or 105(b) of the Code. In
contrast, a policy or plan that does not reimburse an employee for
any expenses incurred for medical care is not a group health plan
subject to section 4980B of the Code (and section 105(b) of the Code
cannot apply to it).
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The 2023 proposed amendments to 26 CFR 1.105-2 would provide that
the exclusion from gross income under section 105(b) of the Code does
not apply to amounts that are paid without regard to the amount of
incurred medical expenses as defined in section 213(d) of the Code. The
proposed amendments also would clarify that, consistent with guidance
issued by the Treasury Department and the IRS relating to certain
specific types of health plans, the substantiation requirements for
qualified medical expenses apply to reimbursements under all types of
accident and health plans.\70\ Finally, the proposed amendments would
update several cross-references in 26 CFR 1.105-2 to reflect statutory
changes since the rules were issued in 1956.\71\
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\70\ See, for example, 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(b)(4)
(2007); IRS Notice 2002-45, 2002-2 CB 93.
\71\ 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) of the Code 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 by reference in section 9815 of the Code) if the
plan or coverage makes available dependent coverage of children.
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The Treasury Department and the IRS issued the proposed amendments
because uncertainty regarding the exclusion under section 105(b) of the
Code has resulted in inconsistent treatment by taxpayers of benefits
under different types of accident and health plans and has encouraged
some taxpayers to apply the exclusion to situations where the amount or
even the existence of medical expenses is doubtful. The Treasury
Department and the IRS also are concerned that uncertainty regarding
the related Federal Insurance Contributions Act (FICA) \72\ and Federal
Unemployment Tax Act (FUTA) \73\ exclusions, and the Federal income tax
withholding rules,\74\ has resulted in instances where no FICA, FUTA,
or Federal income taxes are withheld from or paid with respect to
taxable benefits from accident and health plans and policies by either
employers or payors. Although these issues are not limited to fixed
indemnity plans and policies, the Treasury Department's and the IRS's
concerns have recently escalated after identifying an increasing number
of arrangements, some involving fixed indemnity plans and policies,
that distribute cash benefit payments, purportedly for medical
expenses, even if any expenses incurred may already have been
reimbursed through other coverage, or participants do not incur any
medical expenses within the meaning of section 213(d) of the Code. In
some cases, no medical expenses are incurred and participants simply
complete certain health-related activities. Benefit payments from such
accident and health plans that are not made on account of medical
expenses
[[Page 23346]]
incurred generally would not qualify for exclusion from gross income,
FICA, FUTA, or Federal income tax withholding.
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\72\ Subtitle C, chapter 21 of the Code.
\73\ Subtitle C, chapter 23 of the Code.
\74\ Subtitle C, chapter 24 of the Code.
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The Treasury Department and the IRS received comments in support of
and in opposition to the proposed amendments to 26 CFR 1.105-2.
Commenters who opposed the proposed amendments primarily argued that
the exclusion under section 105(b) of the Code should apply with
respect to the amount of any medical expenses associated with the
health-related event that precipitates payments under accident or
health insurance, even if the amount paid is determined without regard
to the amount of actual medical expenses incurred (as is required for
hospital indemnity or other fixed indemnity insurance to be considered
an excepted benefit). These commenters generally argued that only the
amount in excess of the medical expenses associated with the health-
related event should be included in gross income.
The preamble to the 2023 proposed rules noted that, if the proposed
amendments to 26 CFR 1.105-2 were finalized, taxpayers would need to
consider the impact the proposal would have on determinations of
whether amounts received under accident and health plans constitute
wages for employment tax and income tax withholding purposes. Many
commenters responded that the proposed amendments would, if finalized,
prompt the need for additional guidance regarding collecting and paying
employment taxes on some or all of the amounts paid through accident or
health insurance that are not excluded from gross income, and proper
reporting of such amounts on the employee's Form W-2. Commenters also
requested further clarification on how incurred medical expenses must
be substantiated.
The Treasury Department and the IRS intend to address these issues
in more detail in future guidance. Accordingly, to provide more time to
study the issues and concerns raised by commenters, the Treasury
Department and the IRS are not finalizing the proposed amendments to 26
CFR 1.105-2 at this time. No inference should be drawn regarding
whether or the extent to which the Treasury Department or the IRS agree
with any comments on the scope of section 105(b) of the Code based on
this decision.
IRS compliance efforts regarding the exclusion from gross income
under section 105(b) of the Code will continue to assist taxpayers to
satisfy their existing tax responsibilities. Employers are reminded
that amounts received through accident or health insurance are not
taxable if premiums for the coverage are paid on an after-tax basis,
thereby avoiding many of the practical concerns relating to benefits
that do not meet the criteria to be excluded from gross income. The
Treasury Department and IRS understand that is how most premiums for
hospital indemnity or other fixed indemnity insurance are paid.
II. Promoting Access to High-Quality, Affordable, and Comprehensive
Coverage
The Departments recognize that STLDI can provide temporary health
coverage for individuals who are experiencing brief periods without
comprehensive coverage (for example, due to application of a waiting
period for employer coverage). They also recognize 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) upon the occurrence of a health-related
event. Both STLDI and fixed indemnity excepted benefits coverage
generally provide limited benefits at lower premiums than comprehensive
coverage,\75\ and enrollment is typically available at any time
(sometimes subject to medical underwriting) rather than being
restricted to open and special enrollment periods. However, the
Departments are concerned about the financial and health risks that
consumers face if they use either form of coverage as a substitute for
comprehensive coverage, particularly as a long-term substitute.
Consumers who do not understand key differences between STLDI, fixed
indemnity excepted benefits coverage, and comprehensive coverage may
unknowingly take on significant financial and health risks if they
purchase STLDI or fixed indemnity excepted benefits coverage under the
misapprehension that such products provide comprehensive coverage.
Consumer confusion can be exacerbated when the products are designed in
ways that resemble comprehensive coverage. As discussed further in this
section II of this preamble, 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
some consumers when used as a substitute for comprehensive coverage,
the Departments have determined that it is necessary and appropriate 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 and requirements.
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\75\ 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 II of this preamble regarding
the availability of financial subsidies for eligible individuals to
reduce the premium and out-of-pocket costs for comprehensive
coverage purchased on an Exchange.
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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 the initial
term and total duration of such policies by citing STLDI as an
important means to provide more affordable coverage options and more
choices for consumers.\76\ The Departments cited a 21 percent increase
in individual health 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.\77\ 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.\78\
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\76\ 83 FR 38212 at 38217 (October 2, 2018).
\77\ 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.)
\78\ 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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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, 58 percent of enrollees in 2019, and 46 percent
of enrollees in 2018. Only 3
[[Page 23347]]
percent of enrollees (residing in 10 percent of counties) resided in
single-issuer counties in 2021--down from 26 percent of enrollees
(residing in 52 percent of counties) in 2018.\79\ Issuer participation
in the Exchanges has continued to trend positively in recent years,
with the average number of issuers offering individual health insurance
coverage on the Exchanges per State increasing from 5 in 2021 to 6 in
2024.\80\ The Centers for Medicare & Medicaid Services (CMS) reported
that a record 21.3 million people enrolled in Exchange coverage during
the 2024 Open Enrollment Period, including 5 million consumers
(approximately 24 percent of total enrollments) who were new to
Exchanges in 2024, and 16.3 million returning customers.\81\ Nearly 5
million more consumers signed up for coverage during the 2024 Open
Enrollment Period compared to the same period in 2023 (an increase of
more than 30 percent). This follows an increase of approximately 13
percent in 2023 and an increase of approximately 21 percent in
2022.\82\ The enrollment gains in recent years were influenced by the
expansion of PTC subsidies, as first provided under the ARP and then
extended through 2025 under the IRA, as discussed in section I.A of
this preamble.\83\ 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 through
2032.\84\
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\79\ 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.
\80\ See KFF (2024). ``Number of Issuers Participating in the
Individual Health Insurance Marketplaces, 2014-2024,'' available at:
https://www.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-marketplace.
\81\ See CMS (2024). ``Marketplace 2024 Open Enrollment Period
Report: Final National Snapshot,'' available at: https://www.cms.gov/newsroom/fact-sheets/marketplace-2024-open-enrollment-period-report-final-national-snapshot.
\82\ See 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.
\83\ Although unsubsidized premiums for 2023 increased on
average between 2.2 percent and 4.7 percent compared to the previous
year, after 4 years of declines, the expanded PTC subsidies under
the IRA largely shielded many consumers from these premium
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.
\84\ 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 Treasury Department and the
IRS 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).\85\ It was
estimated that this rule change, aimed at addressing the issue often
called the ``family glitch,'' would increase the number of individuals
with PTC-subsidized Exchange coverage by approximately 1 million per
year for the next 10 years.\86\
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\85\ 87 FR 61979 (October 13, 2022).
\86\ Id. at 61999.
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These recent and projected enrollment trends and the availability
of the enhanced subsidies lessen 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 provisions in
these final rules, which are aimed at helping consumers differentiate
between comprehensive coverage and other forms of more limited health
coverage to decide which option is best for them.
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-
sponsored coverage and 44 percent of those with coverage purchased in
the individual market (including coverage purchased through an
Exchange) were underinsured, meaning that their coverage did not
provide them with affordable access to health care.\87\ As benchmarks
for affordability, the study considered whether out-of-pocket costs
over the prior 12 months, excluding premiums, were equal to 10 percent
or more of household income; 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
the deductible constituted 5 percent or more of household income. The
performance of STLDI products along these affordability dimensions has
been proven worse, often to striking degree, as discussed in section
II.B of this preamble.
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\87\ 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.
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The Departments also recognize that these affordability concerns
could be exacerbated when the expanded PTC subsidies under the IRA end
in 2025 or if health expenditures (and therefore premiums) continue to
grow at a relatively high rate.\88\ The Departments are of the view
that it is important to ensure consumers have access to a wide range of
products that can support access to affordable health care. However,
neither STLDI nor fixed indemnity excepted benefits coverage represent
a complete solution to larger issues of affordable access to health
care and health coverage, and current marketing practices and benefit
designs that mimic comprehensive coverage exacerbates affordability and
accessibility concerns. Consumers who enroll in these plans as a
substitute for comprehensive coverage or under the misapprehension that
STLDI and fixed indemnity excepted benefits coverage 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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\88\ Regarding trends in national health expenditure, see CMS
(2023). ``NHE Fact Sheet,'' available at: https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet.
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B. Risks to Consumers
As noted in the introduction to this 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
[[Page 23348]]
in comprehensive coverage would incur, exposing consumers with STLDI or
fixed indemnity excepted benefits coverage to greater financial
risk.\89\ Healthy consumers who 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,\90\ such as
COVID-19, as discussed in this section and in section V.B.2.a.
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\89\ 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).
\90\ 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.
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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.\91\ 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
issuer of his STLDI 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.\92\
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\91\ 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.
\92\ Partnership to Protect Coverage (2021). ``Under-Covered:
How `Insurance-Like' Products are Leaving Patients Exposed,''
available at: https://www.nami.org/NAMI/media/NAMIMedia/Public%20Policy/Undercovered_Report_03252021.pdf.
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The financial risk for consumers enrolled in STLDI increases with
the length of their policy, as the longer consumers are enrolled in
STLDI, the more likely they are to incur costs that are not covered.
This is especially the case for consumers who encounter newly diagnosed
conditions or have a significant medical event while enrolled in STLDI.
Researchers found that the maximum out-of-pocket health care spending
limit for STLDI was on average nearly three times that of comprehensive
coverage in 2020.\93\ 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 for comprehensive coverage.\94\ 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.\95\ Refer to section V.B.2.c of this preamble
for additional discussion of the financial risks to consumers.
---------------------------------------------------------------------------
\93\ 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.
\94\ 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.'').
\95\ Id.
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As noted in section I.D 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 at all for their illness or injury. Comments received in
response to the 2023 proposed rules affirmed the Departments' concerns
by offering several examples of consumer risk and exposure resulting
from enrollment in fixed indemnity insurance. For example, one
commenter described a fixed indemnity plan that advertised that it
would pay $25 for a doctor visit, $100 for a diagnostic exam, and $300
for neonatal intensive care, and contrasted those benefits to one
hospital's pricing schedule for NICU service, Level 4. The commenter
observed that a consumer with such fixed indemnity insurance alone
could still face $8,500 daily for NICU services. Another commenter
stated that indemnity plans that are structured to pay various dollar
amounts for different services appear very similar to comprehensive
insurance, even though they offer much less coverage.
Consumers who enroll in STLDI and fixed indemnity excepted benefits
coverage and do not also have comprehensive coverage may experience
financial hardship when their medical bills are unaffordable.\96\
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 result in medical debt,\97\ do not apply to STLDI or
fixed indemnity excepted benefits coverage.\98\ Because STLDI is
typically subject to medical underwriting and is not guaranteed
renewable, consumers enrolled in STLDI in lieu of comprehensive
coverage may be unable to renew their STLDI policy at the end of the
coverage period. These consumers therefore face the risk of being
uninsured until they are eligible to purchase comprehensive coverage in
the individual market during an open
[[Page 23349]]
enrollment or when a special enrollment period occurs. It is therefore
critical for consumers to understand, prior to purchase, that STLDI
serves better as a bridge between different sources of comprehensive
coverage than as an alternative to comprehensive coverage, and that
choosing to substitute STLDI for comprehensive coverage may reduce
access to coverage. Similarly, as noted in section I.D of this
preamble, consumers need to understand, prior to purchase, that fixed
indemnity excepted benefit coverage serves best as an income
replacement policy \99\ that supplements comprehensive coverage by
providing financial assistance, rather than serving as an alternative
to comprehensive coverage.
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\96\ 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, available at:
https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358.
\97\ 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.
\98\ See 26 CFR 54.9816-2T, 29 CFR 2590.716-2(b), and 45 CFR
149.20(b).
\99\ As an income replacement policy, the policyholder of a
fixed indemnity excepted benefits coverage plan typically has broad
discretion in how to use the fixed cash benefits provided, including
but not limited to payment 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 would potentially experience
improved health outcomes and have greater protection from catastrophic
health care expenses than if those individuals were uninsured.\100\
However, experience with the COVID-19 public health emergency (PHE)
\101\ has prompted the Departments to reassess the degree of protection
generally afforded by 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 with COVID-19 typically face significant limitations
on coverage for COVID-19 related treatments, and high out-of-pocket
expenses.\102\ In addition, 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; or the requirement under section 3203 of the CARES Act to cover
qualifying coronavirus preventive services, including COVID-19
vaccines, without cost sharing.\103\ Instead, both of these important
coverage expansions enacted by Congress as part of the nation's
response to the COVID-19 PHE applied only to comprehensive coverage.
Any coverage by STLDI of (or, with respect to fixed indemnity excepted
benefits coverage, benefits provided related to) COVID-19 diagnostic
testing or vaccines was subject to the discretion of individual 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, included enrollees in
STLDI and excepted benefits coverage within the definition of
underinsured.\104\ 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
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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\100\ 83 FR 38212, 38229 (October 2, 2018).
\101\ On January 31, 2020, HHS Secretary Alex M. Azar II
declared that as of January 27, 2020, a nationwide public health
emergency exists as a result of the 2019 novel coronavirus (COVID-
19). See HHS Administration for Strategic Preparedness and Response
(January 31, 2020). ``Determination That A Public Health Emergency
Exists,'' available at: https://aspr.hhs.gov/legal/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, October 18, 2021, January 14, 2022, April 12,
2022, and July 15, 2022. See ``HHS Administration for Strategic
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 (January
30, 2023). ``Statement of Administration Policy: H.R. 382 and H.J.
Res. 7,'' available at: https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf; HHS Secretary Xavier
Becerra (February 9, 2023). ``Letter to U.S. Governors from HHS
Secretary Xavier Becerra on renewing COVID-19 Public Health
Emergency (PHE),'' 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 ended at the
end of the day on May 11, 2023.
\102\ See, for example, 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 pre-existing conditions.
\103\ Additional Policy and Regulatory Revisions in Response to
the COVID-19 Public Health Emergency, 85 FR 71142, 71173 (Nov. 6,
2020); See also Departments of the Treasury, Labor, and Health and
Human Services. ``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 (FAQs Part 42);
``FAQs about Families First Coronavirus Response Act and Coronavirus
Aid, Relief, and Economic Security Act Implementation Part 50,''
(October 4, 2021), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-50.pdf (FAQs Part 50); ``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); FAQs about Families First Coronavirus Response Act and
Coronavirus Aid, Relief, and Economic Security Act Implementation
Part 52'' (February 4, 2022), available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-52.pdf and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-52.pdf (FAQs Part 52); and
``FAQs about Families First Coronavirus Response Act, Coronavirus
Aid, Relief, and Economic Security Act and Health Insurance
Portability and Accountability Act Implementation Part 58'' (March
29, 2023), 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 (FAQs Part 58). Note that the COVID-19 PHE ended on May
11, 2023.
\104\ 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.
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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 coverage 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
[[Page 23350]]
through an Exchange.\105\ A recent study that engaged in covert testing
of health insurance sales representatives found evidence of deceptive
marketing practices by agents and brokers who omitted or misrepresented
information about the products they were selling.\106\ For example,
during a phone transaction, a sales representative told the consumer
that they were purchasing a comprehensive health insurance plan, but
instead sold the consumer two limited benefit insurance plans. During
the exchange, the consumer repeatedly informed the sales representative
that they had diabetes and had recently been seeking treatment for the
condition. However, the application filled out by the sales
representative on the consumer's behalf stated that consumer had not
been treated for or diagnosed with diabetes for the past 5 years. In
another phone transaction, the sales representative enrolled the
consumer in a benefit association offering a limited benefit indemnity
insurance plan. The representative would not provide the consumer with
documentation describing the plan prior to enrollment and stated that
the consumer had to purchase the plan on the day of the call if they
wanted to be guaranteed the quoted price. 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 concerns with respect to consumers
who obtain this health coverage through their employers.\107\
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\105\ 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.
\106\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: https://www.gao.gov/products/gao-20-634r.
\107\ 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.
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Consumers who are unaware of the coverage limitations of these
arrangements, or who are employed by employers who are similarly
unaware, can face overwhelming medical costs if they require items and
services that are not covered by the very limited group health plan.
This is because the fixed indemnity excepted benefits coverage
generally provides only fixed cash benefits that may be far lower than
the costs of medical services, rather than coverage intended to cover
most of 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 he had 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.\108\ 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.\109\
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\108\ 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.
\109\ 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.
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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,\110\ and as further discussed in
sections III.A.1 and V.B.2.g of this preamble, 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.\111\ These
concerns continue during the time frame when States are unwinding from
the Medicaid continuous enrollment condition under the Families First
Coronavirus Response Act (FFCRA), which expired on March 31, 2023,
under amendments made by the Consolidated Appropriations Act, 2023.
Across the country, State agencies are currently in the process of
resuming regular eligibility and enrollment operations, which includes
conducting full Medicaid and CHIP renewals and terminating coverage for
individuals who are no longer eligible.\112\ As a result, individuals
may have to transition between coverage programs, leaving them
vulnerable.\113\ The Departments are concerned that those transitioning
out of Medicaid coverage may be susceptible to aggressive or deceptive
marketing and sales tactics,
[[Page 23351]]
and might therefore mistakenly enroll in STLDI or fixed indemnity
excepted benefits coverage in lieu of comprehensive coverage.
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\110\ 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.
\111\ 86 FR 7193 (January 26, 2021).
\112\ See CMS, Center for Medicaid & CHIP Services (January 5,
2023). Key Dates Related to the Medicaid Continuous Enrollment
Condition Provisions in the Consolidated Appropriations Act, 2023,
available at: https://www.medicaid.gov/sites/default/files/2023-01/cib010523_1.pdf. As a condition of receiving a temporary Federal
Medical Assistance Percentage (FMAP) increase under section 6008 of
the FFCRA, States were required to maintain enrollment of nearly all
Medicaid enrollees. This ``continuous enrollment condition'' expired
on March 31, 2023, under amendments made by the Consolidated
Appropriations Act, 2023. States adopted other flexibilities in CHIP
and BHP that impacted renewals in those programs during this time.
\113\ See CMS, Center for Medicaid & CHIP Services (January 27,
2023). ``Letter to State Health Officials from Deputy Administrator
and Director Daniel Tsai RE: Medicaid Continuous Enrollment
Condition Changes, Conditions for Receiving the FFCRA Temporary FMAP
Increase, Reporting Requirements, and Enforcement Provisions in the
Consolidated Appropriations Act, 2023,'' available at: https://www.medicaid.gov/sites/default/files/2023-08/sho23002.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.\114\
However, the Departments were of the view that the affordability and
access challenges facing consumers at that time outweighed those
potential negative effects and necessitated action to increase access
to STLDI to provide an alternative option for individuals who were
unable or disinclined to purchase comprehensive coverage.
---------------------------------------------------------------------------
\114\ 83 FR 38212 at 38218 (August 3, 2018).
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As discussed earlier in section II.A of this preamble, 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
risk pools for individual health insurance coverage.\115\ 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 risk pools for
individual health insurance coverage for extended periods of time. This
has resulted in increased premiums for individuals seeking to purchase
individual health insurance coverage.\116\ For unsubsidized
individuals, the costs are borne directly by the consumer, and for
subsidized individuals, the costs are borne largely by the Federal
Government in the form of increased per capita PTC spending associated
with increased individual health insurance coverage premiums. Likewise,
reports of fixed indemnity excepted benefits coverage being marketed
and sold as an alternative to comprehensive coverage, as discussed in
section V.B.2.a of this preamble, raise concerns about the potential
for such practices having a similar impact on the risk pools for
individual health insurance coverage.
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\115\ 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.
\116\ 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 [S]tates that have not restricted the
sale or duration of STLD policies . . . Among the [S]tates 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
[S]tates.'') As noted in section V.B.2.e of this preamble, this
study also found that the few issuers that explicitly included a
premium adjustment because of the adoption of the revised 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 risk pool, and saw a
greater decline in average medical costs for enrollees in individual
health insurance coverage.\117\ 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.\118\
---------------------------------------------------------------------------
\117\ 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.
\118\ Id.
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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 of this preamble, the
Departments are of the view that it is necessary and appropriate 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 for individual health insurance coverage,
and promote access to affordable comprehensive coverage.
With respect to individual market fixed indemnity excepted benefits
coverage, the decision in Central United Life Ins. Co. v. Burwell,
which invalidated the requirement that an individual must attest to
having MEC prior to purchasing fixed indemnity excepted benefits
coverage in the individual market, and the passage of the Tax Cuts and
Jobs Act, which reduced the individual shared responsibility payment to
$0 for months beginning after December 31, 2018, increase the
likelihood that individuals would purchase fixed indemnity excepted
benefits coverage as a substitute for comprehensive coverage. HHS is of
the view that these changes necessitate rulemaking with respect to
individual market 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.\119\ 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.
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\119\ 81 FR 75316 at 75317 (October 31, 2016).
---------------------------------------------------------------------------
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, and in consideration of the comments on the 2023
proposed rules received by the Departments, the Departments are
finalizing changes to the Federal regulations governing STLDI and
addressing notice requirements in the individual and group market
regulations related to fixed indemnity excepted benefits coverage. HHS
is also finalizing the technical amendments to the individual market
fixed indemnity excepted benefits coverage regulation to remove the MEC
attestation requirement currently codified at 45 CFR 148.220(b)(4)(i).
As further explained in section III.B of this preamble, the Departments
are not finalizing the proposed payment standards and noncoordination
provisions regarding
[[Page 23352]]
fixed indemnity excepted benefits coverage at this time. The
Departments remain concerned about the issues addressed by these
proposals, and intend to address these issues in future rulemaking,
after additional study and consideration of the concerns raised in
comments.
III. Overview of the Final Regulations--The Departments of the
Treasury, Labor, and Health and Human Services
A. Short-Term, Limited-Duration Insurance
After considering the public comments, the Departments are
finalizing the proposed amendments to the Federal definition of STLDI
with some modifications. Under the definition in these final rules,
STLDI means health insurance coverage provided pursuant to a policy,
certificate, or contract of insurance 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, and taking into account any
renewals or extensions, has a duration no longer than 4 months in
total. For purposes of this 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. As explained in section III.A.2
of this preamble, in response to comments, the Departments are
specifying that for purposes of this definition, if the issuer is a
member of a controlled group, a renewal or extension also includes the
term of a new STLDI policy, certificate, or contract of insurance
issued by any other issuer that is a member of such controlled group.
As used in this context, the term ``controlled group'' means any group
treated as a single employer under section 52(a), 52(b), 414(m), or
414(o) of the Code, as amended.
These final rules also retain the requirement that STLDI issuers
display a notice 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. As finalized in these final
rules, STLDI issuers must use the following updated language for the
STLDI consumer disclosure notice:
BILLING CODE 4830-01-P
[[Page 23353]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.051
BILLING CODE 4830-01-C
As explained in section III.A.4 of this preamble, in response to
comments, the notice adopted in these final rules contains additional
specificity, including that STLDI does not have to meet Federal
standards for comprehensive coverage and information about finding
contact information for State departments of insurance on the NAIC
website (naic.org).
In response to comments, the Departments are finalizing modified
applicability dates. These final rules apply to new STLDI policies sold
or issued on or after September 1, 2024. The provisions of the 2018
final rules
[[Page 23354]]
continue to apply to STLDI policies sold or issued before September 1,
2024, except that the updated notice provision adopted in these final
rules applies to such policies for coverage periods beginning on or
after September 1, 2024. As was proposed in the 2023 proposed rules,
these final rules are effective 75 days after publication in the
Federal Register.
1. In General
The Departments received comments generally in support of and
generally opposed to the adoption of the STLDI proposals in the 2023
proposed rules. The Departments summarize and respond to comments about
the STLDI proposals in the 2023 proposed rules later in this section of
the preamble.
Some commenters stated that the 2023 proposed rules were an
overreach of the Departments' authority because Congress did not
provide an explicit delegation of authority to define the terms
``short-term'' and ``limited-duration.'' Some commenters expressed
concern that the 2023 proposed rules are contrary to congressional
intent because Congress specifically determined that certain types of
insurance would not be subject to the requirements of the ACA,
including STLDI, which is excepted from the definition of individual
health insurance coverage. Commenters suggested that the Departments'
interpretation is unreasonable because it conflicts with and undermines
Congress's express goals for consumers to have access to STLDI plans
that are exempt from Federal regulation, to reduce gaps in health
insurance and the number of uninsured. One commenter also expressed
concern that the Departments' interpretation will increase medical
underwriting frequency to every 3 to 4 months leading to more consumers
losing coverage. One commenter stated that the Departments'
interpretation is unreasonable because it pressures consumers into
enrolling in comprehensive coverage to avoid greater financial
exposure. Several commenters stated that there is no statutory basis
for the Departments to regulate consumer behavior and the Departments
have no legal authority to impose burdens or limitations on STLDI, such
as a consumer notice. One commenter argued that the Departments lack
the authority to implement a shorter maximum allowed length because the
proposals are overly broad and will unduly harm consumers. Several
commenters stated that the proposed rules are arbitrary, capricious,
and not in accordance with law because the Departments rely on factors
to justify the new definition that were not relevant to Congress's
considerations.
The Departments are not persuaded by these comments. As explained
in greater detail in this section III.A.1 of this preamble, these final
rules revise the definition for the term ``short-term, limited-duration
insurance,'' and set standards to more clearly distinguish STLDI from
individual health insurance coverage. These final rules do not regulate
consumer behavior. Consumers will continue to have access to STLDI
plans that are generally exempt from the Federal consumer protections
and requirements for comprehensive coverage that apply to individual
health insurance coverage.\120\ As detailed later in this section of
this preamble, the Departments have clear authority to promulgate
regulations to define STLDI and to pursue the current amendments. The
Departments also disagree that the definition in the proposed rules,
and as finalized in these rules, is unreasonable, inconsistent with the
law, or arbitrary and capricious.
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\120\ Neither the proposed rules nor these final rules seek to
extend the Federal consumer protections and requirements for
comprehensive individual health insurance coverage to STLDI.
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Other commenters stated that the Departments have clear statutory
authority under the PHS Act to interpret undefined terms in the PHS
Act, ERISA, and the Code,\121\ and to promulgate regulations that
interpret (or reinterpret) the meaning of ``short-term, limited-
duration,'' so long as their interpretation is reasonable. These
commenters observed that Congress did not define the term ``short-term,
limited-duration insurance,'' and primarily only included a reference
to STLDI as an exclusion from individual health insurance
coverage.122 123 These commenters explained that the
Departments must give meaning to the term short-term, limited-duration
insurance to distinguish it from individual health insurance coverage.
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\121\ See section 715 of ERISA and section 9815 of the Code,
which incorporate provisions of part A of title XXVII of the PHS Act
(generally, sections 2701 through 2728 of the PHS Act) into ERISA
and the Code. See also section 104 of HIPAA. See also sections 505
and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section
1321(a)(1) and (c) of ACA and section 7805 of the Code.
\122\ See section 2791(b)(5) of the PHS Act (defining
``individual health insurance coverage'').
\123\ 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.
---------------------------------------------------------------------------
The Departments disagree with the commenters who questioned the
Departments' legal authority to promulgate Federal regulations to
define STLDI and distinguish it from individual health insurance
coverage. As explained in the preamble to the 2018 final rules,\124\
the Departments have clear statutory authority under the Code, ERISA,
and the PHS Act to implement those statutes.\125\ To determine what is
and is not individual health insurance coverage, which is essential to
ensure that the Code, ERISA, and the PHS Act function as Congress
intended, and to allow enforcement of the rules that apply to
individual health insurance coverage, the Departments must give meaning
to the term STLDI.\126\
---------------------------------------------------------------------------
\124\ 83 FR 38212 at 38215 (August 3, 2018).
\125\ See section 9815 of the Code and section 715 of ERISA,
which incorporate provisions of Part A of title XVIII of the PHS Act
(generally, sections 2701 through 2728 of the PHS Act) into the Code
and ERISA. See also section 104 of HIPAA. See also section 7805 of
the Code, sections 505 and 734 of ERISA, sections 2761 and 2792 of
the PHS Act, and section 1321(a)(1) and (c) of the ACA. See also
Ass'n for Community Affiliated Plans v. U.S. Department of the
Treasury, 966 F.3d 782 (D.C. Cir. 2020).
\126\ As discussed in footnote 13, the definition of STLDI also
has some 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 have jurisdiction.
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The 2023 proposed rules are faithful to Congress's intent because
Congress wanted STLDI to be an option but did not intend STLDI to be a
substitute for comprehensive coverage or to pass as comprehensive
coverage while avoiding ACA requirements and other Federal consumer
protections applicable to comprehensive coverage. Finally, the 2023
proposed rules and these final rules are not designed to limit access
to STLDI or pressure consumers into enrolling in comprehensive
coverage. Rather, they are designed to, among other things, ensure that
consumers can distinguish between STLDI and comprehensive coverage.
Congress provided the Secretaries of the Treasury, Labor, and HHS with
explicit authority to promulgate regulations as may be necessary or
appropriate to carry out the provisions of the Code, ERISA, and the PHS
Act.\127\ This includes the authority to issue regulations on STLDI to
define it and set standards to distinguish it from individual health
insurance coverage.
---------------------------------------------------------------------------
\127\ See section 9833 of the Code, section 734 of ERISA, and
section 2792 of the PHS Act.
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The Departments' authority to issue regulations that define STLDI
and set standards to distinguish it from individual health insurance
coverage was also recently affirmed in the D.C.
[[Page 23355]]
Circuit.\128\ In 2020, the D.C. Circuit explicitly considered the
Departments' authority to define STLDI as finalized in the 2018 final
rules and affirmed the Departments' authority to promulgate such
regulations.\129\ The D.C. Circuit stated:
---------------------------------------------------------------------------
\128\ Ass'n for Community Affiliated Plans v. U.S. Department of
the Treasury, 966 F.3d 782 (D.C. Cir. 2020), aff'd 966 F.3d 782
(D.C. Cir. 2020).
\129\ Ass'n for Community Affiliated Plans v. U.S. Department of
the Treasury, 966 F.3d 782 (D.C. Cir. 2020).
Without further guidance from Congress, we will not place
amorphous restrictions on the Departments' authority to define such
an open-ended term. It suffices to say that the Departments have the
discretion to define STLDI to include policies shorter than the
standard policy term.\130\
---------------------------------------------------------------------------
\130\ Id. at 789.
Furthermore, the decision made clear that Congress gave the
Departments ``wide latitude'' to define STLDI, which includes the
flexibility to narrow the definition of STLDI in the future, provided
the Departments provide a reasoned explanation for the change.\131\
Both the 2023 proposed rules and these final rules provide the
Departments' reasoned explanations for the changes to the Federal
definition of STLDI. These final rules adopt a revised Federal
definition of the term STLDI and set standards to more clearly
distinguish STLDI from individual health insurance coverage without
placing unreasonable burdens on issuers of STLDI.
---------------------------------------------------------------------------
\131\ Id. at 789 and 792 (citing to Encino Motorcars, LLC v.
Navarro, 136 S. Ct. 2117, 2125 (2016)).
---------------------------------------------------------------------------
The Departments acknowledge that the final rules may be associated
with some consumers being subject to medical underwriting more
frequently. For example, a consumer who prefers STLDI coverage and
chooses to reenroll in STLDI coverage with a different issuer every 4
months may be subject to medical underwriting each time they enroll or
renew coverage, whereas under the current rules they could stay in one
STLDI policy for a longer duration. However, in the Departments' view,
this possibility does not outweigh other potential benefits to
consumers of the revised definition of STLDI, in part because consumers
face a similar risk under the current rules. Even when enrolled in
STLDI coverage that complies with the 2018 final rules, a consumer can
be subject to post-claims underwriting and their STLDI coverage may not
cover certain health conditions that develop unexpectedly or over time.
Yet because the STLDI coverage has a longer maximum duration under
current rules, a consumer who remains in STLDI coverage might go
without necessary benefits for a longer period of time, forcing the
consumer to choose between necessary medical care and high out-of-
pocket expenses. Consumers may avoid the potential consequences of more
frequent medical underwriting by enrolling in comprehensive coverage
subject to Federal consumer protections and requirements.
The definition and standards, as proposed and finalized, apply to
health insurance issuers that elect to offer STLDI, and they do not
regulate consumer behavior. Issuers will not be prohibited from selling
STLDI and consumers may continue to choose to purchase it. The changes
to the Federal definition and standards for STLDI will help consumers
make more informed purchasing decisions and mitigate the risk that
consumers will mistakenly enroll in STLDI as a substitute for
comprehensive coverage.
The Departments disagree that the revised Federal definition of
STLDI is unreasonable or arbitrary and capricious. As explained in the
preamble to the 2023 proposed rules \132\ and in the introduction to
this section III.A of this preamble, the Federal definition established
in these final rules clearly distinguishes STLDI from individual health
insurance coverage that is subject to the Federal consumer protections
and requirements for comprehensive coverage. Further, the statute does
not explicitly denote a required length for STLDI or to what extent the
definition of STLDI must vary from the definition of individual health
insurance coverage, so the Departments are interpreting and
implementing the statute in a manner that distinguishes between STLDI
and individual health insurance coverage. Over the last two decades,
the Departments have used this discretion to both shorten and lengthen
the duration of STLDI as the Departments have deemed appropriate and
necessary given the market conditions and legal landscape they were
then facing. Beginning in 1997, the Departments defined STLDI as
coverage of less than 12 months to accommodate 12-month preexisting
condition exclusion periods imposed by group health plans and group
health insurance issuers when a new hire did not have 12 months of
creditable coverage that ended no more than 63 days prior to the
enrollment date in the plan or coverage.\133\ Once preexisting
condition exclusions were prohibited and the Departments implemented a
limit on employee waiting periods of up to 90 days plus a 1-month
reasonable and bona fide employment-based orientation 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),\134\ and comprehensive coverage in the
individual market was guaranteed available to individuals through or
outside of the Exchanges, the Departments determined that a shorter
duration for STLDI was more appropriate and revised the definition in
the 2016 final rules.\135\ Subsequently, when the Departments were
concerned about the availability of affordable health insurance
options, the Departments lengthened the initial contract term to less
than 12 months with a maximum allowed duration of 36 months (including
renewals and extensions) in the 2018 final rules.\136\ \137\
---------------------------------------------------------------------------
\132\ See, for example, 88 FR 44596 at 44610, 44612, 44614-44618
(July 12, 2023) (discussing how the proposed changes to definitions
of ``short-term'' and ``limited-duration'' and the proposed
modifications to the required consumer notice would allow consumers
to better distinguish between STLDI and comprehensive coverage).
\133\ 62 FR 16894 (April 8, 1997). See also 69 FR 78,720
(December 30, 2004) (finalizing the definition of STLDI in the 1997
HIPAA interim final rules).
\134\ 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR
147.116.
\135\ 81 FR 75316 at 75317, 75318 (October 31, 2016).
\136\ As noted previously, the Departments' authority to issue
the 2018 final rules was challenged and upheld in Ass'n for
Community Affiliated Plans v. U.S. Department of the Treasury, 966
F.3d 782 (D.C. Cir. 2020). See also Ass'n for Community Affiliated
Plans v. U.S. Department of the Treasury, 392 F.Supp.3d 22 (D.D.C.
2019).
\137\ 83 FR 38212 at 38218 (August 3, 2018).
---------------------------------------------------------------------------
The definition of STLDI in the 2023 proposed rules, and that the
Departments are finalizing in these final rules, is consistent with
applicable Federal law (for example, the Code, ERISA, and the PHS Act).
The 2023 proposed rules proposed a revised Federal definition that set
standards for STLDI that clearly distinguish it from individual health
insurance coverage that is subject to the Federal consumer protections
and requirements. This proposal and the definition finalized in these
rules is consistent with Congress maintaining the exclusion of STLDI
from the PHS Act definition of individual health insurance coverage.
Further, as noted by commenters and discussed in section III.A.2 of
this preamble, the new definition gives reasonable meaning to the terms
``short-term'' and ``limited-duration'' since they reflect periods of
time that are brief in comparison to the length of comprehensive
coverage sold with an initial term of 12 months, on a guaranteed
renewable basis.\138\ The
[[Page 23356]]
definition of STLDI in the 2023 proposed rules and these final rules is
consistent with the original intent of HIPAA, as reinforced by the ACA,
to provide temporary, stopgap coverage for individuals transitioning
between comprehensive coverage.
---------------------------------------------------------------------------
\138\ As the court noted in Ass'n for Community Affiliated Plans
v. U.S. Department of the Treasury regarding the STLDI definition
adopted in the 2018 final rules, ``(u)nder the Departments'
definition, `short-term' refers to the initial contract term, while
`limited-duration' refers to the policy's total length, including
renewals. This reasonable reading gives independent meaning to each
term.'' 966 F.3d at 789. The Departments are applying the same
general framework to establish the new definition adopted in these
final rules, with ``short-term'' referring to the initial contract
term and the term ``limited-duration'' referring to the policy's
total length, including extensions and renewals.
---------------------------------------------------------------------------
Some commenters suggested that the Departments failed to provide
sufficient justification, or lacked sufficient data or analysis, to
support the proposed changes to the Federal definition of STLDI,
particularly with respect to the changes to limit the initial duration
of STLDI policies to 3 months, and the maximum duration to 4 months
including renewals and extensions. In addition, one commenter expressed
concern that an abrupt change to the maximum duration of STLDI may have
unintended consequences on overall health care coverage and consumer
choices, as occurred when the Departments increased the maximum
duration of STLDI from less than 3 months to less than 12 months in the
2018 final rules. Some commenters suggested that the 2023 proposed
rules would impose a market-disrupting change in the duration of STLDI
without providing evidence to support this change.
As the Supreme Court stated in Encino Motorcars v. Navarro,\139\
and the D.C. Circuit Court repeated in Association for Community
Affiliated Plans v. U.S. Department of the Treasury,\140\ ``[a]gencies
are free to change their existing policies as long as they provide a
reasoned explanation for the change.'' The Departments satisfy this
requirement; the proposed rules and these final rules provide a
reasoned explanation of the changes to the Federal definition of STLDI.
As explained in section III.A.2 of this preamble, the Departments
determined that it is necessary and appropriate to amend the Federal
definition of STLDI to ensure that consumers can clearly distinguish
STLDI from individual health insurance coverage, protect the risk pools
and stabilize premiums for individual health insurance coverage, and
promote access to affordable comprehensive coverage. While the
Departments acknowledge that they have limited data on enrollment in
STLDI, the Departments have sufficient information and evidence to
conclude that the changes to the definition finalized in these rules
are appropriate and justified. The Departments are of the view that
these final rules are necessary and appropriate to combat deceptive
marketing practices, distinguish STLDI from individual health insurance
coverage, and address the changes in the legal landscape and market
conditions from 2018 to 2024. Further, as discussed in section II.A of
this preamble, since the publication of the 2018 final rules,
comprehensive coverage for individuals has generally become more
accessible and affordable, and while affordability concerns persist
among consumers, STLDI is an inadequate substitute for comprehensive
coverage.
---------------------------------------------------------------------------
\139\ 136 S. Ct. 2117, 2125 (2016).
\140\ 966 F. 3d at 792.
---------------------------------------------------------------------------
Aggressive, deceptive marketing practices are an ongoing challenge
for consumers shopping for coverage. As discussed in section II.B and
section III.A.3 of this preamble, recent secret shopper studies have
detailed ongoing practices by sellers of STLDI that do not inform
consumers of eligibility for less expensive Exchange plans or that
provide misleading information about STLDI with limited benefits.\141\
Deceptive marketing practices can have devastating financial
implications for consumers that purchased STLDI without fully
understanding its limitations and later encounter unexpected and
expensive medical events that are not covered by their insurance.\142\
In addition, as explained in section III.A.2 of this preamble and the
preamble to the 2023 proposed rules, the Federal definition for STLDI
in these final rules is consistent with the group market rules
regarding the 90-day waiting period provision under the ACA and with
STLDI's traditional role of serving as temporary coverage for
individuals transitioning between other types of comprehensive
coverage. The definition is also similar to the less-than-3-month
maximum term for STLDI under the 2016 final rules and under a number of
State laws and aligns with the goal of Executive Order 14009 to support
protections for people with preexisting conditions. The Departments
have weighed the potential benefits and costs to consumers when
developing the proposed rules and these final rules and concluded the
changes will not unduly harm consumers.\143\
---------------------------------------------------------------------------
\141\ Schwab, R., & Volk, J. (August 28, 2023). ``The Perfect
Storm: Misleading Marketing of Limited Benefit Products Continues as
Millions Losing Medicaid Search for New Coverage,'' Center on Health
Insurance Reforms, available at: https://chirblog.org/the-perfect-storm-misleading-marketing-of-limited-benefit-products-continues-as-millions-losing-medicaid-search-for-new-coverage.
\142\ 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.
\143\ See the Regulatory Impact Analysis in section V of this
preamble.
---------------------------------------------------------------------------
While the Departments are of the view that the changes to the
Federal definition of STLDI finalized in these rules are critical,
these final rules take steps to limit the potential of the rules having
an abrupt, disruptive effect, particularly with respect to consumers
currently enrolled in STLDI coverage, and to address the potential
reliance interests of both issuers offering STLDI and consumers
enrolled in STLDI under the 2018 final rules. As discussed in section
III.A.6 of this preamble, with the exception of the notice provision,
these final rules will not be applicable to STLDI policies sold or
issued before September 1, 2024. This will result in a phased-in
approach that limits the potential for market disrupting impact by
allowing individuals currently enrolled in STLDI to maintain coverage
that meets the standards in the 2018 final rules through the duration
of their current policy. In addition, this phased-in approach does not
require issuers who have relied on the current rules to modify
contracts for STLDI policies that are currently in place. Further, the
proposed changes that are finalized in these rules will not result in
an abrupt change in the maximum permitted duration of STLDI in many
States. Of the States that currently permit STLDI, seven States and the
District of Columbia already have a maximum permitted length of less
than 3 months for STLDI while four additional States prohibit the sale
of STLDI entirely, notwithstanding the longer duration permitted under
the 2018 final rules.\144\ Finally, as these final rules intend to
protect against misleading marketing practices that harm consumers, the
benefits of further differentiating STLDI from comprehensive coverage
outweigh any potential unintended consequences of changing the maximum
allowable duration of STLDI. As outlined in this section and elsewhere
in these rules, the definition is well reasoned, is clearly
[[Page 23357]]
within the Departments' authority, and is consistent with other
applicable Federal law, and is therefore not arbitrary and capricious.
---------------------------------------------------------------------------
\144\ See Healthinsurance.org (2023). ``Duration and Renewals of
2023 Short-Term Medical Plans by State,'' available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf; 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.
---------------------------------------------------------------------------
Some commenters expressed concern that the proposed definition of
STLDI would interfere with the authority of States to regulate
insurance pursuant to the McCarran-Ferguson Act and PHS Act. These
commenters stated that the McCarran-Ferguson Act reserves the
regulation of insurance to States so that States can tailor their
health insurance policies to the needs of their residents. They stated
that State regulators are better positioned to understand the unique
characteristics and requirements of each State's respective insurance
markets and are more responsive to the needs of their insurance
markets. Another commenter stated that under the PHS Act, Federal
authority to regulate insurance is secondary to the primary authority
of the States, and any Federal intrusion on State authority must be
based on information that a State may not be substantially enforcing
PHS Act requirements. A commenter noted that States have demonstrated
their willingness and capacity to regulate STLDI coverage because half
of States have regulations in place. For example, the commenter noted
that the sale of STLDI is prohibited in some States \145\ and other
States have restricted the maximum allowed term of STLDI to 3, 6, or 12
months or coverage that terminates at the end of the calendar
year.\146\ Other commenters stated that some States only allow limited
renewals of STLDI. Another State regulates STLDI by requiring that
STLDI policies sold in the State provide certain consumer protections,
implementing a separate risk pool, and creating a special enrollment
period for consumers that exhaust the 36-month period of STLDI
coverage, while setting minimum benefit and coverage requirements to
meet the needs of seasonal employees that desire flexibility and low-
cost health care coverage.\147\ A commenter noted that 12 States
currently prohibit health status underwriting for STLDI, which
effectively bans STLDI in those States. The commenter stated that the
proposed rules fail to balance States' interest in regulating health
insurance issuers and their health insurance markets with Congress's
intent to provide protections to consumers. On the other hand, a few
commenters noted that variation in State oversight of STLDI has
resulted in a patchwork of consumer protections across States, and one
commenter stated that consumers would benefit from national-level STLDI
regulation.
---------------------------------------------------------------------------
\145\ The commenter noted that STLDI is not for sale in a number
of States including California, Colorado, Connecticut, Hawaii,
Maine, Massachusetts, New Jersey, New Mexico, New York, Rhode
Island, Vermont, and Washington. See also Healthinsurance.org
(2023). ``Duration and Renewals of 2023 Short-Term Medical Plans by
State,'' available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf (As
of September 6, 2023, STLDI is not for sale in 14 States--
California, Colorado, Connecticut, Hawaii, Maine, Massachusetts,
Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode
Island, Vermont, and Washington--and the District of Columbia.)
\146\ The commenter stated that Illinois allows the sale of
STLDI that lasts for up to 180 days, and in New Hampshire, STLDI
contracts can last for up to 6 months with a renewal or extension of
up to a total of 18 months.
\147\ The commenter stated that Iowa imposed minimum benefit and
coverage requirements on short-term plans above Federal standards.
---------------------------------------------------------------------------
These final rules establish the Federal definition of STLDI with
respect to the maximum length of the initial contract term, the maximum
allowable duration (including renewals and extensions), and a consumer
notice. The Departments acknowledge and respect States' authority to
regulate the business of insurance. The Departments generally agree
that States retain the authority to regulate STLDI and further note
that these final rules do not change or otherwise modify the existing
ERISA or PHS Act preemption standard.\148\ As such, States may impose
requirements tailored to the needs of their populations, and may adopt
limitations on stacking, as well as limitations on sales and marketing
practices. Relatedly, in section III. B of this preamble, in these
final rules, the Departments added language to the notice to alert
consumers as to how the coverage they are purchasing might vary from
individual health insurance coverage. States may impose additional
language requirements for a consumer notice and remain free to regulate
STLDI.
---------------------------------------------------------------------------
\148\ 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)).
---------------------------------------------------------------------------
The Departments agree that the States play an important role in
regulating STLDI and recognize the federalism implications of the
proposed rules and these final rules.\149\ As noted by commenters, the
McCarran-Ferguson Act generally affirms the preeminence of State
regulation, and also explicitly allows for Federal regulation when an
act of Congress specifically relates to the business of insurance.\150\
However, the commenters' argument that Federal authority to regulate
insurance is secondary to the primary authority of the States conflates
Federal authority to regulate insurance under section 1012 of the
McCarran-Ferguson Act with HHS's authority under section 2723 of the
PHS Act to enforce requirements in part A and D of title XXVII of the
PHS Act against issuers.\151\ Under section 2723 of the PHS Act, States
have authority to enforce the requirements of part A and D of title
XXVII of the PHS Act, and where the State fails to substantially
enforce a provision (or provisions) of part A or D with respect to
health insurance issuers in the State, HHS shall enforce such provision
(or provisions) in the State. In contrast, the McCarran-Ferguson Act
balances State and Federal interests in regulating the business of
insurance. Section 1012(a) of the McCarran-Ferguson Act maintained
State regulatory authority by enabling State preemption of some Federal
law, and section 1012(b) of the McCarran-Ferguson Act limited Federal
regulatory authority by generally exempting the ``business of
insurance'' from Federal law.\152\ Although Congress allowed an
exception for State preemption of Federal law in this way, Congress
also preserved Federal authority to regulate insurance provided that,
to overcome the State preemption, congressional action must
specifically relate to the
[[Page 23358]]
business of insurance.\153\ It is without question that HIPAA, the ACA,
and the other Acts of Congress that added Federal consumer protections
and requirements applicable to health insurance issuers offering group
and individual health insurance coverage specifically relate to the
business of insurance. In addition, as discussed earlier, the
Departments have clear legal authority to define STLDI and set
standards to distinguish it from individual health insurance coverage.
This includes authority to adjust the interpretations for and
implementation of the terms ``short-term'' and ``limited-duration''
that set the length of the initial contract term and the maximum
duration (including renewals and extensions) for STLDI, as well as to
update the consumer notice. As outlined previously, Congress provided
the Departments with explicit authority to promulgate regulations as
may be necessary or appropriate to carry out the provisions of the
Code, ERISA, and the PHS Act. The Departments are of the view that the
Federal regulatory definition of STLDI in these final rules is
necessary and appropriate to carry out the provisions of the Code,
ERISA, and the PHS Act. Further, the Departments must give meaning to
the undefined statutory term STLDI, and the meaning must distinguish it
from individual health insurance coverage. This is because the PHS Act
imposes certain requirements on individual health insurance coverage
and does not impose those same requirements on STLDI. The Departments
are also of the view that it is necessary and appropriate for consumers
considering the purchase of STLDI, and those purchasing such insurance,
to be aware that such coverage is not subject to the Federal consumer
protections and requirements for comprehensive coverage. Defining STLDI
in a way that requires a short, standard description of how the
coverage might vary from individual health insurance coverage allows
for a clear determination by regulators that the policy is STLDI, and
promotes ease of understanding by consumers. As explained previously
and detailed in the 2023 proposed rules, the changes to the Federal
definition of STLDI, including the updates to the consumer disclosure
notice, are reflective and responsive to changes observed by the
Departments in market conditions and the legal landscape.
---------------------------------------------------------------------------
\149\ See 88 FR at 44648-44649. See also the federalism
discussion in section V.H of this preamble.
\150\ Compare ``The business of insurance, and every person
engaged therein, shall be subject to the laws of the several States
which relate to the regulation or taxation of such business . . .''
15 U.S.C. 1012(a), with ``No Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by any State for
the purpose of regulating the business of insurance, or which
imposes a fee or tax upon such business, unless such Act
specifically relates to the business of insurance: Provided, that
after June 30, 1948, the Act of July 2, 1890, as amended, known as
the Sherman Act, and the Act of October 15, 1914, as amended, known
as the Clayton Act, and the Act of September 26, 1914, known as the
Federal Trade Commission Act, as amended [15 U.S.C. 41 et seq.],
shall be applicable to the business of insurance to the extent that
such business is not regulated by State Law. . . .'' 15 U.S.C.
1012(b).
\151\ HHS also has authority under section 2761 of the PHS Act
to enforce the requirements in part B of title XXVII of the PHS Act
against issuers in situations where a State fails to substantially
enforce one or more provisions of part B with respect to health
insurance issuers in the State.
\152\ See Steffen, Peter B. (2000) ``After Fabe: Applying the
Pireno Definition of Business of Insurance in First-Clause McCarran-
Ferguson Act Cases,'' University of Chicago Legal Forum: Vol. 2000,
available at: https://chicagounbound.uchicago.edu/uclf/vol2000/iss1/15 (``The first clause enabled [S]tate law to supersede [F]ederal
law; the second clause provided a [F]ederal antitrust exemption for
the `business of insurance'. . . The Act gave [S]tates some powers
they did not have before, by stating in the first clause that only a
[F]ederal law that `specifically relates to the business of
insurance' can preempt a [S]tate law dealing with insurance.
Congressional legislation merely affecting insurance would not meet
the first-clause test and thus would not, be exempt from the general
prohibition on preemption. Rather, in order to apply, [F]ederal law
must specifically relate to the `business of insurance' . . .'').
\153\ Id., citing Lee R. Russ, 3 Couch on Insurance sec. 2:4 at
2-12 (Clark 1994) (``McCarran-Ferguson turns the traditional rule of
[F]ederal preemption of [S]tate law on its head.'').
---------------------------------------------------------------------------
These final rules define STLDI for purposes of the Code, ERISA, and
the PHS Act. Insurance coverage that meets the definition of STLDI in
these final rules will qualify for the exception to the Federal
definition of individual health insurance coverage and be exempt from
the Federal consumer protections and requirements applicable to
comprehensive coverage. Nothing in these final rules prevents
regulation of STLDI for purposes of State law. For example, States may
determine whether to permit the sale of STLDI in their insurance
markets. If a State law permits or requires an action that is
inconsistent with the Federal definition of STLDI, any coverage offered
pursuant to that State law that does not meet the standards set forth
in these final rules would not qualify as STLDI under these final rules
and would be subject to the Federal consumer protections and
requirements applicable to comprehensive coverage. For example, if a
State were to prohibit policies issued in that State from including the
Federal consumer notice, then coverage in that State that did not
include the Federal consumer notice language would not qualify for the
exclusion from the PHS Act definition of individual health insurance
coverage and thus would be subject to the Federal consumer protections
and requirements applicable to individual health insurance coverage.
Amending the Federal regulation defining STLDI protects the
distinctively Federal role and interest in ensuring that the Federal
definition for STLDI clearly distinguishes STLDI from individual health
insurance coverage for consumers in every State. As discussed in the
preamble to the 2023 proposed rules, many STLDI policies that are sold
through associations are sold across numerous States. Often consumers
are purchasing STLDI policies in a different State from the State in
which the policy is regulated. This can create challenges for both
consumers and State regulators. The Departments are of the view that
establishing a shorter Federal maximum duration for STLDI may reduce
the incentives for issuers to offer STLDI through associations to the
extent that they are using associations as a way to avoid State limits
on duration. This, in turn, will help minimize consumer confusion
related to coverage offered through associations. In addition, STLDI
with a shorter maximum allowable duration would decrease the impact of
STLDI on Federal Government spending. As discussed in section III.A.6
of this preamble, STLDI that has a maximum allowable duration of up to
36 months, including renewals and extensions, has an annual impact on
Federal PTC spending due to selection-induced effects.
The Departments are of the view that these final rules
appropriately balance States' interests in regulating health insurance
issuers and their health insurance markets with Congress' intent to
establish a general Federal framework for health insurance coverage,
including the provision of certain key protections to consumers
enrolled in comprehensive coverage.
Some commenters expressed general support for the proposed
definition of STLDI. Commenters in favor of the proposed definition
noted that it would return STLDI to its traditional and intended
purpose of providing temporary, stopgap coverage between periods of
comprehensive coverage, and not serve as a long-term substitute for
comprehensive coverage. Some of these commenters highlighted that low
health literacy rates, a long maximum allowed term of STLDI that mimics
the duration of comprehensive coverage, and deceptive marketing
practices cause many consumers to confuse STLDI with comprehensive
coverage. These commenters also stated that STLDI lacks Federal
consumer protections and is inadequate to serve patients grappling with
complex medical needs such as those that require maternity care or
habilitative care; behavioral health problems; or chronic diseases such
as cancer and cardiovascular disease. These commenters further stated
that unwary consumers unexpectedly are underinsured when they enroll in
STLDI and may end up forgoing needed, routine medical treatment and
exacerbating chronic medical conditions because of limited benefits or
high cost-sharing responsibilities. Consequently, consumers may then be
sicker when they finally seek care in the emergency room for untreated
medical conditions, which can increase costs absorbed by providers and
facilities, costing the health care system more in the long run.
Commenters who supported the STLDI definition in the proposed rules
warned that some consumers who enroll in STLDI as an alternative to
comprehensive coverage can become subject to unexpected medical debt
leading to unforeseen long-term financial consequences. Other
commenters that supported the revised Federal definition for STLDI
stated that while STLDI is highly profitable for health insurance
issuers, agents, and brokers, the impact of STLDI on the risk pools for
individual health insurance coverage indicates that it is necessary to
clarify the distinctions between STLDI
[[Page 23359]]
and comprehensive coverage. Other commenters expressed general
opposition to the STLDI definition proposed in the 2023 proposed rules.
These commenters stated that while STLDI is not adequate coverage for
everyone, STLDI provides a useful, short-term, affordable option,
particularly for consumers who do not have access to PTC subsidies, and
provides access to specialists that are not in-network with many
comprehensive coverage options.
The Departments acknowledge that the changes to the Federal
definition of STLDI that are finalized in these rules may result in
individuals who prefer STLDI losing access to such coverage as a long-
term coverage option. However, as explained previously and in the 2023
proposed rules, the Departments have concluded that these concerns are
now outweighed by the negative financial and health consequences that
some individuals who enroll in STLDI in lieu of comprehensive coverage
experience; consumer challenges in differentiating STLDI from
individual health insurance coverage, particularly in light of low
health literacy rates and aggressive marketing; and the negative impact
on the risk pools for individual health insurance coverage when
healthier individuals enroll in STLDI in lieu of individual health
insurance coverage.\154\
---------------------------------------------------------------------------
\154\ See section V of this preamble for the regulatory impact
analysis; see also 88 FR 44596 at 44608 (2023).
---------------------------------------------------------------------------
As the availability of affordable comprehensive coverage options
has increased since the 2018 final rules were finalized, the
Departments are of the view that STLDI is no longer needed to provide a
year-round coverage option for individuals and should be limited to a
temporary coverage option for shorter periods when an individual
experiences gaps between comprehensive coverage. The Departments agree
with commenters that the definition of STLDI under the 2018 final rules
heightened the risk that uninformed consumers will mistakenly purchase
STLDI as a substitute for comprehensive coverage, and under current
market conditions, unnecessarily expose themselves to severe financial
risks if they have complex medical needs or conditions. The Departments
agree with commenters that the lack of key Federal consumer protections
and requirements that apply to benefits offered by STLDI \155\ results
in STLDI being an inadequate substitute for comprehensive coverage,
especially for those with complex medical needs. Some consumers with
complex health conditions may enroll in STLDI because a preferred
provider may be in-network with an STLDI policy but out-of-network with
comprehensive coverage plans.\156\ However, STLDI plans are typically
associated with higher overall financial risk due to high premium
increases that may be imposed upon an individual whose health condition
worsens. For example, a study that examined the potential impacts of
STLDI and associated State policies on cancer diagnoses found that
individuals in States that prohibited STLDI were associated with an
increase in early-stage cancer diagnoses when compared to States that
did not regulate STLDI.\157\ In addition, because issuers of STLDI can
engage in medical underwriting, individuals can be charged higher
premiums based on health status, gender, age and other factors.\158\
Enrolling in comprehensive coverage instead of STLDI prior to when a
consumer is diagnosed with a complex medical condition or incurs major
medical expenses will promote access to care and improve overall health
outcomes.
---------------------------------------------------------------------------
\155\ See, for example, 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.
\156\ In some circumstances, even accounting for the expense of
using an out-of-network provider, comprehensive coverage still may
be the less expensive choice overall because of lower out-of-pocket
spending a consumer would enjoy when enrolled in comprehensive
coverage. In many cases, expenses for premiums and cost sharing for
comprehensive coverage enrollees are still lower than the uncovered
costs associated with STLDI, particularly when an individual
undergoes costly medical treatment.
\157\ Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and Fumiko
Chino (2023). ``State Policies Regulating Short-Term Limited
Duration Insurance Plans and Cancer Stage at Diagnosis,'' JNCI
Cancer Spectrum, Volume 7, Issue 5, available at: https://doi.org/10.1093/jncics/pkad060.
\158\ See Pollitz, Karen, Michelle Long, Ashley Semanskee, and
Rabah Kamal (2018). ``Understanding Short-Term Limited Duration
Health Insurance,'' KFF, available at: https://www.kff.org/affordable-care-act/issue-brief/understanding-short-term-limited-duration-health-insurance. See also 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.
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In addition, the Departments share commenters' concerns that low
health literacy rates can have a detrimental impact on health insurance
decision-making, putting some consumers at increased risk for
purchasing STLDI when they are looking to purchase comprehensive
coverage. Low health literacy rates combined with potentially erroneous
assumptions about minimum standards for coverage makes the average
consumer vulnerable to deceptive marketing practices and creates
barriers to accessing health care and comprehensive coverage. As
discussed in the preamble to the 2023 proposed rules, consumers may not
understand that while some STLDI policies may have lower premiums than
comprehensive coverage, consumers may incur steep and potentially debt-
inducing health care bills once enrolled in STLDI due to limited
benefits provided by such coverage, limited Federal consumer
protections, and high-cost sharing requirements.\159\ A qualitative
study cited by commenters examined consumer comprehension of marketing
materials for STLDI and found that not only did participants have low
health insurance literacy rates, but they struggled to understand the
plan's limitations because the ACA has shaped their expectations about
what ``typical'' health plans cover.\160\ As a result, consumers often
expect that all health insurance provides the same benefits and
protections even absent deceptive marketing practices, increasing the
importance of guardrails to distinguish comprehensive coverage from
STLDI. These concerns are exacerbated in underserved communities, given
their low rates of health literacy.\161\ As discussed in the 2023
proposed rule, in addition to systemic and social structures that
impact access to health care,\162\ health literacy can make it more
difficult for historically underserved and marginalized groups to
navigate high deductibles, expanded cost sharing, coverage exclusions
and narrow formularies found in STLDI.\163\ These barriers can lead to
consumers rationing their medicine or not taking it at all or delaying
necessary health care services, causing devastating consequences to
[[Page 23360]]
their health.\164\ Shortening the maximum allowable term and duration
of STLDI will serve as a clear indicator to consumers about the nature
of each coverage option and instill more confidence in their coverage
decisions. The Departments are also concerned about the prevalence of
deceptive marketing practices, as noted by commenters who referenced
secret shopper studies and anecdotes about negative consumer
experiences, including when deceptive marketing practices were used to
encourage consumers to enroll in STLDI instead of receiving education
about their eligibility for low-cost comprehensive coverage or to
inhibit consumers from choosing the coverage they need to access health
care and protect themselves from financial burdens.
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\159\ See, for example, 88 FR 44596 at 44608, 44612, 44613,
44615-44617, 44646 (July 12, 2023).
\160\ Georgians for a Healthy Future (2019). ``Report on Testing
Consumer Understanding of a Short-Term Health Insurance Plan,''
available at: https://healthyfuturega.org/wp-content/uploads/2019/04/Consumer-Testing-Report_NAIC-Consumer-Reps.pdf.
\161\ Kutner M, Greenberg E, Jin Y, Paulsen C. The Health
Literacy of America's Adults: Results from the 2003 National
Assessment of Adult Literacy (NCES 2006-483). Washington, DC: U.S.
Department of Education, National Center for Education Statistics;
2006.
\162\ Muvuka, B., et al (2020). ``Health Literacy in African-
American Communities: Barriers and Strategies,'' Health Literacy
Research and Practice, available at: https://journals.healio.com/doi/full/10.3928/24748307-20200617-01.
\163\ 88 FR 44596 at 44608, 44613, 44615 (July 12, 2023).
\164\ Schumacher, Jessica R. et al. (2013). ``Potentially
Preventable Use of Emergency Services: The Role of Low Health
Literacy,'' Medical Care 51(8), August 2013, available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3756810.
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Finally, the Departments agree that it is necessary and appropriate
to revisit the Federal STLDI definition to further distinguish between
these types of coverage given concerns about the impact on risk pools.
As discussed in section II.C of this preamble, STLDI siphons off
healthier individuals from the risk pools for individual health
insurance coverage, thereby raising premiums for such coverage.
Some commenters expressed particular concern about the impact of
deceptive and aggressive marketing practices for STLDI given the
increase in consumers currently looking for health coverage options as
States resume Medicaid eligibility redeterminations due to the
expiration of the FFCRA Medicaid continuous enrollment condition, as
discussed in section II.B of this preamble. These commenters explained
that many consumers who lose Medicaid coverage and are seeking new
coverage at a low cost will be vulnerable to misleading or aggressive
sales and marketing tactics that obscure the differences between
comprehensive coverage and STLDI, and might therefore mistakenly enroll
in STLDI in lieu of comprehensive coverage. These commenters noted that
underserved populations with low health literacy and incomes below the
FPL may be particularly vulnerable.
The Departments recognize that more individuals may be considering
new coverage options as a result of an increased volume of Medicaid
eligibility redeterminations, and therefore may be particularly
susceptible to this type of misleading or aggressive sales and
marketing tactics even though affordable options for comprehensive
coverage may be available to them. CMS has made it a priority to ensure
that as many people as possible maintain continuous comprehensive
coverage during this ``unwinding period.'' \165\ CMS has a robust plan
in place to reach people with Medicaid or CHIP coverage, so that they
are aware of the steps they need to take to maintain their Medicaid or
CHIP coverage, or, if no longer eligible, to smoothly transition to
other forms of coverage, such as individual health insurance coverage
purchased through an Exchange.\166\ This plan includes new policy and
operational flexibilities, such as a temporary exceptional
circumstances special enrollment period available through
HealthCare.gov for qualified individuals and their families who lose
Medicaid or CHIP coverage following the end of the continuous
enrollment condition; multi-pronged, large-scale national and local
outreach and stakeholder engagement efforts; and investments and
innovations in enrollment assistance.\167\ State-based Exchanges have
taken similar steps to update or implement new special enrollment
period policies, as well as conduct outreach and stakeholder
engagement, to support qualified individuals and their families who
lose Medicaid or CHIP coverage following the end of the continuous
enrollment condition. Despite these efforts, current data shows that a
substantial number of people have lost coverage and may want to enroll
in coverage.\168\
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\165\ See 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) (January 27,
2023), available at: https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf.
\166\ See CMS (2023). ``Unwinding and Returning to Regular
Operations after COVID, Medicaid and CHIP Renewals Outreach and
Educational Resources,'' available at: https://www.medicaid.gov/resources-for-states/coronavirus-disease-2019-covid-19/unwinding-and-returning-regular-operations-after-covid-19/medicaid-and-chip-renewals-outreach-and-educational-resources/index.html.
\167\ See CMS (August 26, 2022). ``Biden-Harris Administration
Makes Largest Investment Ever in Navigators Ahead of HealthCare.gov
Open Enrollment Period,'' available at: https://www.cms.gov/newsroom/press-releases/biden-harris-administration-makes-largest-investment-ever-navigators-ahead-healthcaregov-open.
\168\ See Corallo, Bradley, Jennifer Tolbert, Patrick Drake,
Sophia Moreno, and Robin Rudowitz, (2024). ``Halfway Through the
Medicaid Unwinding: What Do the Data Show?'' KFF, available at:
https://www.kff.org/policy-watch/halfway-through-the-medicaid-unwinding-what-do-the-data-show.
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Commenters requested that the Departments clarify whether any of
the existing special enrollment periods would allow a consumer to
access comprehensive coverage if their STLDI coverage ends outside of
an open enrollment period. Some commenters recommended that the
Departments create a new special enrollment period for individuals to
enroll in comprehensive coverage after their STLDI coverage ends, or
that allows an individual to enroll in coverage through an Exchange
upon the termination of STLDI coverage specifically for situations
where a consumer elected STLDI following a loss of employment-based
coverage due to a job transition or to provide temporary coverage
during an employer's waiting period. Some commenters expressed concern
about the potential for consumers to experience gaps in coverage in the
absence of access to a special enrollment period, explaining that those
consumers purchasing a 3-month STLDI plan mid-calendar year would
become financially vulnerable with no continued coverage options until
the next open enrollment period.
The Departments affirm that individuals who lose eligibility for
STLDI coverage, such as when their STLDI policy ends, are already
eligible for a special enrollment period and have 60 days to enroll in
group health plan coverage, either insured or self-funded.\169\ HHS did
not propose to create a new individual market special enrollment period
for individuals to enroll in individual health insurance coverage (on-
or off-Exchange) at the expiration of their STLDI coverage and declines
to do so in these final rules. Providing consumers with an individual
market special enrollment period to purchase off-Exchange or on-
Exchange coverage when they lose eligibility for STLDI or their STLDI
policy ends could confuse or mislead consumers who are considering
their health coverage options. Consumers may delay enrolling in
comprehensive coverage when first available, on the expectation that
such coverage would be available at any time, even if STLDI coverage
does not renew or is otherwise terminated. Also, as explained
previously, inflating the fraction of low-risk individuals who enroll
in STLDI rather than individual health insurance coverage will have
negative consequences for the risk pools for individual health
insurance coverage.
---------------------------------------------------------------------------
\169\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117.
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Furthermore, there are other options for individuals who anticipate
experiencing longer gaps between comprehensive coverage. For example,
an individual who loses comprehensive
[[Page 23361]]
coverage may be eligible for a special enrollment period that allows
them to enroll in group coverage sponsored by their employer, the
employer of their parent, spouse or partner, or individual health
insurance coverage, either directly with the issuer, or through the
Exchanges, where they may be eligible for APTC.170 171 In
some circumstances, they may be eligible for other coverage such as
government-based assistance for qualified individuals under Medicaid,
CHIP, or BHP.\172\ In addition, if a consumer experiences a reduction
in benefits or termination of employment and is uncertain as to when
they will be eligible for other comprehensive coverage, the consumer in
many cases has the option of electing coverage under the Consolidated
Omnibus Budget Reconciliation Act (COBRA) \173\ (18, 29, or 36 months
depending on the nature of the COBRA qualifying event) or State mini-
COBRA continuation coverage laws. Also, as discussed in section III.A.2
of this preamble, an individual who enrolls in STLDI coverage from one
issuer and wishes to purchase another STLDI policy maintains the option
of enrolling in STLDI coverage with another issuer that is not a member
of the same controlled group.
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\170\ 45 CFR 155.420.
\171\ 45 CFR 147.104(b)(2).
\172\ Medicaid eligibility requirements vary by State.
\173\ Public Law 99-272, April 7, 1986.
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One commenter suggested that the Departments require that certain
consumer protection provisions apply to STLDI. Other commenters urged
the Departments to extend the prohibition on rescissions to STLDI. One
of these commenters explained that STLDI issuers can rescind the
patient's coverage following post-claims underwriting,\174\ leaving
patients without any financial or medical protection and at high risk
of incurring medical debt.
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\174\ Post-claims underwriting refers to the practice of
engaging in an underwriting review after a claim is made rather than
going through the time and expense of doing such a review to assess
the consumer's actuarial risk and medical conditions at the time the
policy is purchased.
---------------------------------------------------------------------------
The Departments appreciate commenters' suggestions regarding ways
in which to ensure STLDI provides key Federal consumer protections. The
Departments agree that STLDI can place a consumer's health and
financial well-being at risk if they experience a significant medical
event or have a complex medical condition. As discussed in this
preamble at section II.B, consumers may be susceptible to deceptive
marketing and sales practices that often mask post-claims underwriting
practices by STLDI issuers and the exclusion of key essential health
benefits and Federal consumer protections under STLDI plans. Consumers
may be unaware of the limitations of their STLDI coverage until they
need care or have incurred significant medical expenses, particularly
those with low health literacy. However, the Departments did not
propose to apply Federal consumer protections to STLDI and are not
finalizing in these final rules the extension of any of the individual
health insurance coverage Federal consumer protections and requirements
to STLDI.\175\ The Departments further note it would be inconsistent
with the statute to extend the Federal prohibition on rescissions to
STLDI, as Congress limited its applicability to group health plans and
health insurance issuers offering group or individual health insurance
coverage.\176\ In addition, as discussed in section III.A.2 of this
preamble, the Departments have determined that limiting extensions and
renewals of STLDI instead of applying guaranteed renewability to STLDI
appropriately distinguishes STLDI from individual health insurance
coverage.
---------------------------------------------------------------------------
\175\ 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. Those requirements
will be addressed by HHS in a separate rulemaking. See Requirements
Related to Air Ambulance Services, Agent and Broker Disclosures, and
Provider Enforcement; Proposed Rules, 86 FR 51730 at 51740-51744 and
51770-51771 (Sept. 16, 2021).
\176\ See PHS Act section 2712.
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Other commenters suggested that the Departments collect data on key
elements, including, for example, compensation paid by issuers to
brokers or agents; plan-level enrollment/disenrollment and claims data
that is disaggregated by age, income, race/ethnicity, and geographic
locations; coverage limits; and other data to enable regulators and
stakeholders to assess whether and how children and families are being
served by STLDI.
The Departments agree with commenters that it would be useful to
have access to more data on STLDI. HHS is committed to collecting
information from issuers offering STLDI regarding any direct or
indirect compensation provided by the issuer to an agent or broker
associated with enrolling individuals in STLDI, as authorized under
section 2746 of the PHS Act.\177\ However, beyond this requirement, the
Departments do not currently have authority to collect data from
issuers of STLDI. States, in contrast, can survey and collect data on
STLDI under State authority and the NAIC Market Analysis and Procedures
Working Group annually collects data from issuers of STLDI.\178\ The
Departments encourage States that do not already collect such data to
consider the collection of data from STLDI issuers, as suggested by
commenters, to assist with Federal and State oversight of STLDI.
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\177\ See Requirements Related to Air Ambulance Services, Agent
and Broker Disclosures, and Provider Enforcement; Proposed Rules, 86
FR 51730 at 51740-51744 and 51770-51771 (Sept. 16, 2021).
\178\ The NAIC is currently collecting additional data on STLDI
as part of its Market Conduct Annual Statement data call for STLDI
offered in 2023. See https://content.naic.org/mcas-2023.htm.
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2. Definitions of ``Short-term'' and ``Limited-duration''
The 2023 proposed rules proposed 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.\179\ The 2023 proposed rules also proposed to
interpret ``limited-duration'' to mean a maximum coverage period that
is no longer than 4 months in total, including renewals and
extensions.\180\ For this purpose, the Departments proposed 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. As proposed, 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 duration of
coverage would be calculated based on 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 within the prior 12-
month period, regardless of whether the
[[Page 23362]]
coverage issued to the policyholder is under the same or a new policy,
certificate, or contract of insurance.
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\179\ 88 FR 44596 at 44610-44611 (July 12, 2023).
\180\ Id. at 44611-44614 (July 12, 2023).
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The calculation for the duration of coverage, however, would not
include days of coverage under an STLDI policy, certificate, or
contract of insurance sold to the same policyholder by a different
issuer. As the Departments explained in the preamble to the 2023
proposed rules, this proposed distinction would effectively limit
stacking of policies sold by the same issuer, would be easier for
issuers to track and comply with than if applied across different
issuers, and would allow consumers to purchase subsequent STLDI
policies from other issuers within a 12-month period.\181\
---------------------------------------------------------------------------
\181\ Id. at 44612 (July 12, 2023).
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As explained in the preamble to the 2023 proposed rules, the new
proposed definition for STLDI is consistent with the group market rules
regarding the 90-day waiting period provision under the ACA and with
STLDI's traditional role of serving as a temporary coverage for
individuals transitioning between other types of comprehensive
coverage. The proposed definition is also similar to the less-than-3-
month maximum term for STLDI under the 2016 final rules and under a
number of State laws,\182\ and aligns with the goal of Executive Order
14009 to support protections for people with preexisting conditions.
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\182\ See, for example, D.C. Code Sec. 31-3303.13d; 18 Del.
Admin. Code 1320-4.0; Haw. Rev. Stat. Sec. 431:10A-605; Md. Code
Ann., Insurance Sec. 15-1301(s); N.M. Stat. Sec. 13.10.3.8; Or.
Rev. Stat. Sec. 743B.005; and Ver. Stat. Ann. tit. 8 Sec.
4084a(c). See also Healthinsurance.org (2023). ``Duration and
Renewals of 2023 Short-Term Medical Plans by State,'' available at:
https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf.
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The Departments requested comments on the proposed new
interpretations of the phrases ``short-term'' and ``limited-duration.''
The Departments also requested comments on whether the interpretation
of ``short-term'' in the proposed definition of STLDI should be some
other length, such as no longer than 4 months, and why, 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
the proposed rules. The Departments also requested comments on whether
there are 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 solicited comments on whether
to broaden the limits on stacking to include issuers that are members
of the same controlled group.
Given that the majority of comments addressed the definitions of
``short-term'' and ``limited-duration'' together, the Departments are
addressing comments related to the maximum allowed length and the
definitions for these two terms together, along with the comments
related to the practice of stringing together multiple or consecutive
policies, a practice known as ``stacking.''
Commenters suggested various options for the allowable maximum
duration. Some commenters supported finalizing the maximum duration as
proposed. These commenters agreed that STLDI serves as an adequate gap
filler for consumers that need a bridge between comprehensive forms of
coverage, and a 3-month initial term makes it easier for a consumer to
distinguish between STLDI and comprehensive coverage. In addition, some
of these commenters supported a short initial term to protect consumers
from the inherent risks of enrolling in coverage that does not provide
Federal consumer protections or comprehensive health benefits, and to
curb negative impacts on the risk pools for individual health insurance
coverage. Some commenters were of the view that the proposed
definitions of the terms ``short-term'' and ``limited-duration'' better
align with the plain language of the statute than the current
definitions. Others supported shortening the initial maximum allowable
period to a period less than allowed under the current rules, but
longer than the proposed 3-month period, for example a period of less
than 6 months, to strike a balance between the drawbacks of STLDI with
consumers' need for gap-coverage when coverage is needed for a short
period of time, they have no other insurance options, or comprehensive
coverage is otherwise unaffordable. Other commenters stated that STLDI
policies should be permitted to have longer durations as long as they
end by December 31 of the calendar year in which the policy period
commences, at which point individuals can enroll in comprehensive
coverage during the annual individual market open enrollment period.
One commenter, who supported the proposed maximum duration, suggested
that the Departments require that all initial contract terms end by
December 31 of the policy year in which the policy commences (even when
the STLDI policy is purchased late in the year), to minimize situations
where consumers miss the annual individual market open enrollment
period. The commenter suggested that requiring STLDI policies to end by
December 31 would cause consumers to look for new coverage during the
individual market open enrollment period and increase the likelihood
that they would enroll in comprehensive coverage. The commenter further
suggested that, for alignment with the proposed maximum duration, the
Departments could allow renewal for up to 4 months (past December 31),
but only if the full 4-month period of coverage is not sold at the same
time and that an additional notice is sent to consumers about the
annual individual market open enrollment period.
Other commenters opposed modifying the initial maximum allowed
length of ``short-term'' and instead recommended keeping the 2018 final
rule's maximum allowed length for an initial contract term of less than
12 months. With respect to the definition of ``limited-duration,'' some
commenters suggested the Departments redefine the standard to allow a
longer maximum length than proposed. One commenter requested that the
Departments define ``limited-duration'' as up to 12 to 18 months.
Another commenter suggested that the Departments define ``limited-
duration'' as up to 9 months in a 12-month period to allow consumers
who do not have a qualifying event for a special enrollment period to
purchase comprehensive coverage to use STLDI to bridge the gap between
annual open enrollment periods in the individual market.
Commenters who supported a longer allowable maximum duration than
the proposed period stated that limiting the maximum allowed length to
no more than 3 months and a 1-month extension fails to account for all
circumstances for which a consumer may need access to STLDI. Commenters
gave examples of consumers who may benefit from being able to purchase
longer-duration STLDI coverage, such as workers experiencing a change
in employment, or unemployment; contract workers who do not have
coverage through their employer; self-employed individuals or owners of
a small business; college students who are not on their parent's
insurance; workers in industries that require frequent travel, such as
nurses and truckers; consumers with varying and unpredictable incomes;
or consumers eligible for little or no APTC who would encounter a
substantial premium expense if they enrolled in comprehensive coverage.
In advocating for a longer maximum allowed duration, one commenter also
noted that the average length of unemployment is 20.6 weeks, while
according to a group of
[[Page 23363]]
issuers and marketers of STLDI the average length of enrollment in
STLDI is only 7 months. Other commenters stated that the maximum
allowable length of STLDI should be left to the States. Some commenters
suggested the Departments require issuers offering STLDI with renewals
and extensions of up to 4 months to guarantee that the renewal or
extension be available to the consumer without additional underwriting
if the consumer chooses to renew or extend their coverage.
Although the Departments acknowledge that there will be times when
consumers may experience gaps in comprehensive coverage that exceed the
maximum allowable duration for STLDI finalized in these rules, the
Departments are not persuaded that a longer maximum initial contract
term or longer maximum duration, taking into account renewals or
extensions, is appropriate. Maintaining the definition that permits a
longer initial length of up to 1 year would not alleviate the
challenges consumers currently face in distinguishing STLDI from
individual health insurance coverage, would continue to place consumers
who enroll in STLDI at financial risk, and would not mitigate the
impact on the risk pools for individual health insurance coverage or
those consumers purchasing individual health insurance coverage.
Because of low health literacy, consumers face the risk of
inadvertently enrolling in STLDI coverage that does not sufficiently
provide coverage for unexpected or significant medical events that
arise during the coverage period.
The Departments are not persuaded by comments that urged the
Departments to align the maximum duration with a time frame that
reflects average periods of unemployment, such as 6 to 9 months, rather
than the proposed limit. The limit of no-more-than 3 months with a 1-
month extension aligns with the 90-day waiting period limitation and 1-
month additional reasonable and bona fide employment-based orientation
period that is permitted under the ACA. The Departments are of the view
that aligning the maximum duration of an STLDI policy with the period
Federal law expressly permits as an ``orientation'' period in
employment-based coverage most appropriately reflects STLDI's
traditional role to fill temporary gaps in coverage. Consumers who
purchase STLDI during a 90-day waiting period have a predictable end to
their gap in coverage. Their gap is defined, and generally temporary,
and thus is exactly the type of gap that STLDI traditionally serves to
fill. In contrast, a loss in coverage due to a loss of employment is
not the type of gap that STLDI traditionally is intended to fill
because consumers that experience a loss of employment do not have
certainty regarding how long their gap in comprehensive coverage will
be, and for some that gap will not be temporary and may extend beyond
the average length of unemployment. By enrolling in STLDI in lieu of
COBRA continuation coverage or individual health insurance coverage
during the 60-day period for which they are eligible for a special
enrollment period for loss of qualifying coverage, these consumers may
lose access to comprehensive coverage until the next individual market
open enrollment period. While STLDI may be an appropriate choice for
some individuals during a period of unemployment, the Departments
concluded that aligning the maximum duration with the 90-day waiting
period limitation and 1-month additional reasonable and bona fide
employment-based orientation period better captures the traditional
role of STLDI. In addition, consumers are more likely to face an
unexpected health issue during a longer coverage period--such as 6, 9,
or 12 months--and may find themselves insufficiently protected by the
typically limited benefits of an STLDI policy and potential resulting
financial burdens.
By allowing an initial term of no more than 3 months, the
interpretation of ``short-term'' for purposes of the revised Federal
definition of STLDI finalized in these rules provides a clear
demarcation from the 1-year length of a policy year for individual
health insurance coverage. In addition, as discussed earlier, STLDI's
traditional role is to provide coverage for temporary gaps for
consumers transitioning between comprehensive coverage. A maximum
period of no more than 3 months and 1-month extension (for a total
maximum duration of 4 months, including renewals or extensions) is more
appropriate for coverage intended to fill a temporary gap in
comprehensive coverage. As explained in the preamble to the 2016 final
rules, for longer gaps in coverage, guaranteed availability of coverage
and special enrollment period requirements in the individual market
under the ACA ensure that individuals can purchase individual health
insurance coverage through or outside of the Exchange that is minimum
essential coverage and includes the Federal consumer protections and
requirements for comprehensive coverage.\183\ Many consumers will also
have the opportunity to enroll in comprehensive coverage offered by an
employer and some may be eligible for other coverage, such Medicaid,
CHIP or BHP.
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\183\ 81 FR 75318 (Oct. 31, 2016).
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The Departments are similarly not persuaded by the recommendation
that STLDI be permitted to have a longer maximum duration, provided
that coverage ends by December 31. Although the Departments appreciate
that this approach would minimize gaps in coverage between when an
individual's STLDI ends and when they can enroll in comprehensive
individual health insurance coverage during the annual individual
market open enrollment period, the Departments are concerned that such
an approach would not sufficiently distinguish STLDI from individual
health insurance coverage, which also ends on December 31. Finally, as
mentioned in the 2023 proposed rules, the maximum allowable length of
no more than 3 months and a 1-month extension represents a balance
between providing a flexible standard that captures many of the
circumstances for which an individual would want to enroll in STLDI,
responds to the significant changes in the legal landscape and market
conditions since the Departments last addressed STLDI, and addresses
the low value that STLDI provides to consumers when used as a
substitute for comprehensive coverage.
Some commenters requested that the Departments impose a guaranteed
renewability requirement on STLDI to prevent additional underwriting if
a consumer chooses to renew or extend their coverage. The Departments
have determined that limiting extensions and renewals of STLDI instead
of applying guaranteed renewability to STLDI appropriately
distinguishes STLDI from individual health insurance coverage. As such,
these final rules do not impose a guaranteed renewability requirement
on STLDI. Underwriting practices, including post-claims underwriting
are outside the scope of these final rules.
Many commenters supported the new proposed interpretation of
``limited-duration'' and accompanying proposed definition of renewal or
extension to address stacking of STLDI policies by the same issuer to
the same policyholder within a 12-month period. These commenters stated
that issuers have exploited this loophole to sell consumers consecutive
STLDI policies that collectively sidestep the maximum duration limits,
deliberately misleading consumers about differences between STLDI and
comprehensive coverage. According to some of these commenters,
addressing the stacking loophole would reduce the risk of consumers
unknowingly enrolling in coverage with
[[Page 23364]]
inadequate benefits for an extended period of time. Commenters further
stated stacking practices provide consumers with a false sense of
security that they purchased a viable long-term substitute for
comprehensive coverage and make it more challenging for consumers to
distinguish STLDI from individual health insurance coverage. Commenters
expressed concern about the exposure to financial risk that consumers
face when purchasing stacked STLDI policies, explaining that a consumer
typically faces new deductibles, new annual out-of-pocket limitations,
and new preexisting condition limitations with each new STLDI policy
term. A commenter noted that consumers may not understand that a health
event experienced when covered under one STLDI policy could serve as
the basis to impose a preexisting exclusion under a subsequent STLDI
policy to deny benefits for the same condition.
Other commenters questioned the basis for the Departments to adopt
this part of the definition of ``limited-duration'' to address stacking
of policies sold by the same issuer, members of the same controlled
group, and/or by unrelated issuers, stating that the Departments do not
have authority to constrain consumer choice. A commenter argued that
preventing consumers from purchasing subsequent STLDI policies from an
issuer of their choice is contrary to the statute, which looks at the
issuer's conduct rather than the consumer's conduct, and would run
afoul of the decision in Central United Life Ins. Co. v. Burwell.\184\
The commenter further stated that Congress unambiguously specified in
the ACA and HIPAA the types of insurance and actors Congress intended
to regulate, and Congress consistently chose to exempt STLDI from the
definition of individual health insurance coverage and to regulate
issuer behavior instead of consumer behavior. Another commenter
encouraged the Departments to defer to States on whether and to what
extent an issuer could sell consecutive or multiple STLDI policies to
consumers within a 12-month period. Other commenters stated that
addressing the stacking loophole would leave consumers financially
vulnerable, as some will not understand that their STLDI coverage
cannot be renewed or extended with the same issuer and will have
limited coverage options outside the annual individual market open
enrollment period.\185\
---------------------------------------------------------------------------
\184\ 827 F.3d 70, 74 (D.C. Cir. 2016).
\185\ See section III.A.4 of this preamble.
---------------------------------------------------------------------------
Some commenters who supported addressing the stacking loophole
encouraged the Departments to extend the new interpretation of
``limited-duration'' and the accompanying definition of renewal or
extension to include all issuers that are a part of the same controlled
group. These commenters stated that issuers with shared ownership
should not be able to exploit their corporate structure to avoid
consumer protections and effectively circumvent the otherwise
applicable maximum duration limits for STLDI coverage. Some commenters
suggested that extending the limitation to include all issuers in the
same controlled group could help address concerns regarding STLDI sold
through associations,\186\ as associations might be positioned to
facilitate the issuance of stacked STLDI policies from different
subsidiaries of the same controlled group. One commenter stated that
members of the same controlled group should have the data and member-
tracking capabilities to know if a consumer has purchased an STLDI
policy within the 12 months from another issuer within the same
controlled group.
---------------------------------------------------------------------------
\186\ For further discussion on STLDI sold through associations,
see section III.A.5 of this preamble.
---------------------------------------------------------------------------
The Departments agree with commenters that supported the
Departments' authority to address the stacking loophole as part of the
definition of renewal or extension for purposes of the new
interpretation of ``limited-duration.'' As stated in the preamble to
the 2023 proposed rules, the Departments are concerned that stacking
practices lengthen the duration of STLDI coverage without offering the
benefits of comprehensive coverage that is subject to Federal consumer
protections and requirements for comprehensive coverage, including
limitations on medical underwriting, the prohibition of preexisting
condition exclusions, and the prohibition on coverage rescissions.
Using the stacking loophole, issuers could enroll consumers in multiple
consecutive STLDI policies that together provide coverage for 12 months
(or longer), in effect circumventing the rules related to maximum
duration and making it more challenging for consumers to distinguish
STLDI from comprehensive coverage.\187\
---------------------------------------------------------------------------
\187\ 88 FR 44596 at 44612-44613 (July 12, 2023).
---------------------------------------------------------------------------
As discussed in section III.A.1 of this preamble, the Departments
have clear authority to interpret and implement the Code, ERISA, and
the PHS Act as they do here. This includes the authority to issue
regulations on STLDI to define it and set standards that distinguish it
from individual health insurance coverage. Providing a definition for
what a renewal or extension means in the context of the new
interpretation of ``limited-duration'' is included within this
authority and is not a constraint on consumer behavior. Instead, the
definition and standards, as proposed and finalized, apply to health
insurance issuers that elect to offer STLDI. Further, consumers will
continue to have access to STLDI plans that are generally exempt from
the Federal consumer protections and requirements for comprehensive
coverage.\188\ Neither the proposed rules nor these final rules sought
to extend to STLDI or otherwise make changes with respect to the
applicability of those consumer protections and requirements.
---------------------------------------------------------------------------
\188\ 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.
---------------------------------------------------------------------------
After considering comments, the Departments are finalizing as
proposed that a renewal or extension, for purposes of applying the
interpretation of ``limited-duration'' under the new STLDI definition
adopted in these final rules, 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. Subsequent sales to the same policyholder by the same issuer
within the same 12-month period will be treated comparably to renewals
for purposes of calculating and applying the limited-duration standard.
The Departments also agree that extending the definition of renewal
or extension for purposes of applying the new interpretation of
``limited-duration'' to limit stacking of STLDI policies sold by
issuers that are members of the same controlled group is appropriate
and necessary. This prevents issuers from circumventing the maximum
duration standards in the revised Federal STLDI definition adopted in
these final rules by marketing policies of one member of a controlled
group to policyholders enrolled in STLDI coverage of another member of
the controlled group, keeping that policyholder enrolled in STLDI
coverage for more than the maximum allowed coverage period. The final
rules therefore provide that for purposes of applying the new
interpretation of ``limited-duration,'' a
[[Page 23365]]
renewal or extension includes the term of a new STLDI policy,
certificate, or contract of insurance offered by either the same issuer
or, if the issuer is a member of a controlled group, any other issuer
that is a member of the same controlled group. For these purposes, a
``controlled group'' means any group treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o) of the Code. HHS uses a similar
definition of ``controlled group'' for purposes of the guaranteed
renewability rules and QHP issuer standards, and the Departments
anticipate the usage is familiar to health insurance issuers.\189\
---------------------------------------------------------------------------
\189\ See 45 CFR 147.106(d)(3) and (4) (providing an exception
to market withdrawal under guaranteed renewability regulations) and
156.20 (defining an ``issuer group'' for purposes of QHP issuer
standards).
---------------------------------------------------------------------------
The relevant metric to calculate whether the duration of coverage
sold by the same issuer or any other issuer that is a member of the
same controlled group to the same policyholder satisfies the revised
Federal interpretation of ``limited-duration'' in these final rules is
the total number of days of coverage (either consecutive or non-
consecutive) that the policyholder is enrolled in an STLDI policy with
the same issuer or any other issuer that is a member of the same
controlled group. That calculation applies 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.
Several commenters requested that the Departments expand the
approach to address the stacking loophole to also include the sale of
STLDI policies by unaffiliated issuers. These commenters were concerned
that stacking will continue through policies sold by multiple issuers.
Some commenters questioned whether focusing only on stacking policies
sold by the same issuer achieves the goals described in the proposed
rules because consumers could still stack STLDI purchased from
different issuers. One commenter expressed concern that the proposed
limitation on stacking by only the same issuer would harm consumers
because seeking STLDI policies from multiple issuers would result in
the coverage offering different networks and benefits. A commenter that
supported extending the approach to address the stacking loophole to
also apply to STLDI policies sold by unaffiliated issuers shared that
some States prohibit consumers from enrolling in STLDI for more than 3
months in a 12-month period, regardless of issuer. Another commenter,
who was supportive of the general concept of limiting stacking across
issuers, cautioned that it would be exceedingly difficult for issuers
to implement a limit on the sale of multiple STLDI policies by
different issuers within the same year at this time. Some commenters
who supported the extension of the approach to unaffiliated issuers
explained that such an approach could be implemented by issuers
certifying, by consumer attestation, or by another similar mechanism,
that the policyholder has not purchased STLDI coverage from any issuer
within the previous 12-month period, while others suggested that the
Departments create a safe harbor for issuers that require consumers to
sign attestations regarding previous STLDI coverage.
While the Departments appreciate these comments and
recommendations, the Departments decline to extend the definition of
renewal or extension for purposes of applying the revised
interpretation of ``limited-duration'' to limit stacking of policies
issued by unaffiliated issuers. As explained in the proposed rules, the
Departments are cognizant of the administrative burden for issuers of
tracking and ensuring compliance with such a prohibition.\190\ However,
States may choose to further address issuer stacking practices, such as
by prohibiting stacking across issuers not within the same controlled
group.
---------------------------------------------------------------------------
\190\ 88 FR 44596 at 44646 (July 12, 2023).
---------------------------------------------------------------------------
One commenter suggested the Departments limit an issuer's ability
to issue subsequent STLDI policies to members of the same household.
The Departments did not propose to limit an issuer's ability to sell
subsequent STLDI policies to members of the same household and decline
to adopt such a limitation in these final rules. Members of the same
household may need temporary, stopgap coverage at different times over
a 12-month period. Limiting the ability of members of the same
household to purchase STLDI coverage would remove flexibility for
consumers and unnecessarily complicate their health insurance
enrollment process because issuers would have to determine whether
members of the same household have enrolled in any STLDI coverage
during the previous 12-month period each time any member of the
household enrolls in STLDI, which could create an administrative burden
on issuers. Furthermore, whereas limiting stacking across affiliated
issuers in the same controlled group will prevent issuers from using
their corporate structure to circumvent the rules related to maximum
duration, it is not apparent to the Departments that limiting stacking
across unaffiliated issuers or different members of the same household
accomplishes any similar goal. Finally, the administrative burden of
tracking members of the same household may outweigh any potential
benefit of restricting the sale of multiple STLDI policies to
individuals who reside in the same household.
Some commenters requested that the Departments affirm that
consumers are entitled to renewal guarantees that might be offered by
an STLDI issuer. As explained in the preamble to the 2018 final rules,
renewal guarantees generally permit a policyholder, when purchasing
their 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 the expiration of the initial contract,
another policy or policies at some future date, at a specific premium
that would not require any additional underwriting.\191\ The
Departments affirm that the final rules do not address renewal
guarantees. However, the Departments acknowledge that the revisions to
the Federal definition--including the provision that requires counting
the term of a new STLDI contract issued by the same issuer or, if the
issuer is a member of a controlled group, any other issuer that is a
member of the same controlled group, to the same policyholder within
the 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.\192\
---------------------------------------------------------------------------
\191\ See 83 FR 38219, 38220 (Aug. 3, 2018).
\192\ While the Departments may be limited in their ability to
take an enforcement action with respect to transactions involving
products or instruments that are not health insurance coverage, the
Departments may have the authority to regulate the coverage issued
pursuant to such a product or instrument.
---------------------------------------------------------------------------
3. Sales and Marketing Practices
In the 2023 proposed rules, the Departments expressed concerns
about reports of aggressive and deceptive sales and marketing practices
related to STLDI where STLDI is marketed as a substitute for
comprehensive coverage, despite being exempt from most of the Federal
individual market consumer protections and requirements for
comprehensive coverage.193 194 The
[[Page 23366]]
Departments solicited comments on additional ways to help consumers
distinguish between comprehensive coverage and STLDI. In particular,
the Departments requested comments on ways to prevent or otherwise
mitigate the potential for direct competition between comprehensive
coverage and STLDI during the open enrollment period for comprehensive
individual health insurance coverage.\195\
---------------------------------------------------------------------------
\193\ See 88 FR 44596 at 44613 (July 12, 2023).
\194\ 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.
\195\ See 88 FR 44596 at 44613-44614 (July 12, 2023).
---------------------------------------------------------------------------
Many commenters agreed that STLDI deceptive marketing practices
have caused many consumers to confuse STLDI with comprehensive
coverage. These commenters stated that these misleading marketing
practices often attract younger, healthier consumers who may not
realize how limited STLDI coverage is until faced with out-of-pocket
costs. Commenters observed that studies indicate that STLDI has been
aggressively and deceptively marketed to consumers especially during
the open enrollment period for comprehensive individual health
insurance coverage,\196\ which has left consumers at increased risk of
purchasing plans that do not meet their medical needs. Commenters also
noted that the population of individuals affected by States resuming
Medicaid eligibility redeterminations due to the end of the FFCRA's
Medicaid continuous enrollment condition has been vulnerable to these
practices. Commenters highlighted evidence of salespeople neglecting to
tell consumers that they may be eligible for subsidized ACA plans,
asserting that an individual's health needs would be covered by an
STLDI plan despite plan documents contradicting these assertions, or
misstating an STLDI plan's coverage of certain preexisting conditions.
Commenters also included examples of deceptive marketing practices
(some of which were identified during secret shopper studies), such as
marketing materials with images of activities for which coverage of
associated injuries are excluded, marketing materials with logos of
well-known issuers that are not affiliated with the STLDI being sold,
or websites selling STLDI that include the words ``Obamacare'' or
``ACA.''
---------------------------------------------------------------------------
\196\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: https://www.gao.gov/products/gao-20-634r.
---------------------------------------------------------------------------
One commenter suggested that the Departments should monitor and
limit marketing of STLDI that is conducted in a manner that may lead
consumers to unwittingly enroll in STLDI. The commenter stated that
multiple States have already implemented prohibitions against
aggressive and deceptive marketing of STLDI products to protect
individuals. The commenter stated that a Federal prohibition on such
marketing tactics would ensure that people are aware of the most
affordable and comprehensive health coverage options available to them,
are not exposed to deceptive marketing practices, and are able to avoid
potentially catastrophic gaps in coverage.
Other commenters expressed concern regarding the sale of STLDI over
the telephone and internet. The commenters cited studies showing an
increase in sales over the telephone and internet since the 2018 final
rules. Commenters stated that although telephone and internet sales are
convenient for consumers, the incentives to provide reliable customer
service are low. Commenters noted that such sales methods are prone to
abuse and make it hard for consumers to get concrete, verifiable
answers about the product they are being sold before they buy it. Other
commenters suggest that sellers of STLDI be reviewed for compliance
with laws enforced by the Federal Trade Commission that prohibit
deceptive marketing practices. Some commenters suggested that marketers
of STLDI sold over the telephone or internet should be required to
provide a clear warning to consumers about the true coverage terms
prior to the conclusion of a sale.
Some commenters encouraged the Departments to collaborate with
State departments of insurance to combat misleading marketing
practices. Commenters noted that the expansion of STLDI following the
2018 final rules has presented challenges for State regulators
attempting to monitor the applicable State market and protect potential
consumers against deceptive marketing practices. Commenters suggested
that the Departments, in collaboration with the Federal Trade
Commission and the Federal Bureau of Investigation, should investigate
and stop lead generators and sales agents who use deceptive marketing
techniques through websites, social media, phone calls, and other
means.
Several commenters urged the Departments to establish a Federal
prohibition on the sale of STLDI during the annual open enrollment
period for comprehensive individual health insurance coverage.
Commenters cautioned that when STLDI is marketed and sold during the
annual individual market open enrollment period, the potential for
consumer confusion is particularly acute. Commenters explained that
sellers take advantage of the annual open enrollment period when more
consumers are shopping for comprehensive individual health insurance
coverage to push them into products that are not comprehensive and
argued that halting sales of STLDI during this period would decrease
consumer confusion and facilitate access to comprehensive coverage.
Another commenter stated that legitimate needs for STLDI coverage may
arise at any time of year and recommended that if the Departments place
restrictions on the sale of STLDI during the annual individual market
open enrollment period, those restrictions should be limited to the
sale of products with a January 1 effective date.
Another commenter suggested that the Departments explicitly
prohibit Federal and State Exchanges from linking to or advertising
STLDI. The commenter stated that HHS should also impose a similar
requirement on agents and brokers to prohibit side-by-side advertising
of STLDI or other non-compliant plans on the same web page as
individual health insurance coverage that is subject to the Federal
consumer protections and requirements for comprehensive coverage.
One commenter suggested that the Departments consider prohibiting
the offering of higher broker commissions for the sale of STLDI than
commissions for the sale of comprehensive coverage, arguing that this
type of prohibition could significantly decrease the financial
incentive for agents and brokers to encourage consumers to purchase
STLDI over comprehensive coverage and help reduce direct competition
between these two types of products.
Some commenters encouraged the Departments to invest in and take
steps to increase consumer education and enrollment assistance
activities that could improve consumer understanding of the differences
between comprehensive coverage and STLDI.
Other commenters suggested placing requirements on agents and
brokers or the consumer to better ensure consumers understand the
differences between STLDI and comprehensive coverage. For example, one
commenter suggested that the Departments require agents and brokers to
sign an attestation that the information given to the consumer by the
agent or broker spells out in plain language the terms of the STLDI
coverage and acknowledges that the consumer understands the
limitations. The commenter asserted this would help ensure that
underserved communities and patients with chronic medical conditions
who struggle to find
[[Page 23367]]
affordable health insurance options are not targeted by unscrupulous
sales and marketing tactics. Another commenter urged the Departments to
adopt the same disclosure and consent requirements applicable to
agents, brokers, and web-brokers assisting consumers in a Federally-
facilitated Exchange or State Exchange using the Federal platform for
agents, brokers, and web-brokers assisting consumers purchasing
STLDI.\197\ One commenter suggested that the Departments require a
statement for consumers to sign acknowledging that the coverage does
not meet the minimum standards required under the ACA and does not
provide equivalent Federal consumer protections.
---------------------------------------------------------------------------
\197\ See 45 CFR 155.220 for standards applicable to agents and
brokers and web-brokers who assist qualified individuals, qualified
employers, or qualified employees enrolling in qualified health
plans.
---------------------------------------------------------------------------
The Departments appreciate these comments and suggestions and will
take them into consideration in any future regulations or guidance
defining STLDI. In addition, the Departments appreciate the
recommendations regarding steps that the Departments can take outside
of rulemaking to educate consumers about their health coverage options
and limit the possibility that consumers inadvertently purchase STLDI
when shopping for comprehensive coverage. HHS has already taken steps
separate from these final rules to limit the potential for individuals
to inadvertently purchase an STLDI plan when shopping for a qualified
health plan and will consider additional opportunities to do so.
HealthCare.gov, the platform for the Federally-facilitated Exchanges
and State Exchanges using the Federal platform, neither links to nor
advertises STLDI.\198\ In addition, for the Federally-facilitated
Exchanges and State Exchanges using the Federal platform, direct
enrollment entities \199\ are generally required to use three different
website pages to display and market coverage--one for qualified health
plans offered through the Exchange, one for individual health insurance
coverage offered outside the Exchange, and one for any other products,
including STLDI.\200\ Direct enrollment entities participating in the
Federally-facilitated Exchanges and State Exchanges using the Federal
platform must also limit marketing of non-QHPs, such as STLDI, during
the Exchange eligibility application and QHP selection process.\201\ In
its proposed rule entitled ``Patient Protection and Affordable Care
Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating
Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer
Operated and Oriented Plan (CO-OP) Program; and Basic Health Program,''
HHS proposed to apply these requirements to direct enrollment entities
operating in State Exchanges and to web-brokers that assist with or
facilitate enrollment in coverage in a manner that constitutes
enrollment through the State-based Exchanges.\202\
---------------------------------------------------------------------------
\198\ See section 1311(d)(2) of the ACA, which generally
prohibits an Exchange from making available any health plan that is
not a qualified health plan. See also CMS, Frequently Asked
Questions on Reuse of Exchange for Ancillary Products (March 29,
2013), available at: https://www.cms.gov/cciio/resources/files/downloads/ancillary-product-faq-03-29-2013.pdf.
\199\ ``Direct enrollment entity'' means an entity that an
Exchange permits to assist consumers with direct enrollment in
qualified health plans offered through the Exchange in a manner
considered to be through the Exchange as authorized by 45 CFR
155.220(c)(3), 45 CFR 155.221, or 45 CFR 156.1230. 45 CFR 155.20.
\200\ 45 CFR 155.221(b)(1).
\201\ 45 CFR 155.221(b)(3).
\202\ 88 FR 82510, 82568 and 82562 (Nov. 24, 2023) (``Consistent
with Sec. Sec. 156.1230(b)(1) and (2), to directly enroll consumers
in a manner that is considered to be through the Exchange, QHP
issuer DE entities are required to comply with the applicable
requirements in Sec. 155.221 . . . In this rulemaking, we propose
to extend these FFE requirements to also apply them to QHP issuer DE
entities in State Exchanges. As proposed to be applied in these
State Exchanges, QHP issuer DE entities would similarly be required
to provide consumers with correct information, without omission of
material fact, regarding the Exchanges, QHPs offered through the
Exchanges, and insurance affordability programs. In addition, QHP
issuer DE entities in State Exchanges would also be required to
refrain from marketing or conduct that is misleading (including by
having a DE website that the State Exchange determines could mislead
a consumer into believing they are visiting the Exchange's website),
coercive, or discriminates based on race, color, national origin,
disability, age, or sex . . . Finally, we propose . . . to extend
the current web-broker FFE standard of conduct established at Sec.
155.220(j)(2)(i) to also apply to web-brokers assisting consumers in
State Exchanges, and consequently to these State Exchanges. Section
155.220(j)(2)(i) requires agents, brokers, or web-brokers that
assist with or facilitate enrollment of qualified individuals,
qualified employers, or qualified employees, in coverage in a manner
that constitutes enrollment through an FFE, or assist individuals in
applying for APTCs and CSRs for QHPs sold through an FFE, must
provide consumers with correct information, without omission of
material fact, regarding the FFEs, QHPs offered through the FFEs,
and insurance affordability programs . . . and refrain from
marketing or conduct that is misleading (including by having a DE
website that HHS determines could mislead a consumer into believing
they are visiting HealthCare.gov), coercive, or discriminates based
on race, color, national origin, disability, age, or sex.'')
---------------------------------------------------------------------------
4. Notice
In the preamble to the 2023 proposed rules, the Departments
explained that the notice is important to help consumers distinguish
between comprehensive coverage and STLDI and ensure that consumers are
aware of the limitations of STLDI.\203\ The Departments proposed to
amend the existing STLDI 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.\204\ The Departments
proposed to apply the amendments to the notice to all STLDI policies
sold or issued on or after the effective date of the final rules and to
existing STLDI policies for notices provided upon renewal or extension
on or after the effective date of the final rules.\205\
---------------------------------------------------------------------------
\203\ 88 FR 44596 at 44614 (July 12, 2023).
\204\ Id. at 44614-44618.
\205\ Id. at 44618-44619.
---------------------------------------------------------------------------
In the 2023 proposed rules, the Departments proposed that the
notice must be displayed (in either paper or electronic form)
prominently in at least 14-point font, on the first page of the policy,
certificate, or contract of insurance (including for renewals or
extensions), 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 and
reenrollment materials that are provided at or before the time an
individual has the opportunity to enroll or reenroll in coverage
(including on any website used to facilitate reenrollment in
STLDI).\206\
---------------------------------------------------------------------------
\206\ Id. at 44614-44616.
---------------------------------------------------------------------------
In these final rules, the Departments are finalizing the revised
notice with modifications to implement feedback from comments and
consumer testing, improve consumer comprehension of the notice, and
further distinguish between STLDI and comprehensive coverage. As
discussed in section III.A.6 of this preamble, the revised notice must
be provided with respect to both new and existing STLDI for coverage
periods (including renewals or extensions) beginning on or after
September 1, 2024.
Some commenters were generally opposed to revisions to the notice
standard. These commenters expressed concern that the Federal revised
notice may not comport with notices that State legislatures and
regulators create, often in consultation with consumer advocates and
State insurance experts. A commenter expressed concern that the
information about ACA coverage in the proposed notice would confuse the
average person shopping for health coverage. Another commenter
suggested that the Departments defer to the NAIC
[[Page 23368]]
and State regulatory experts who are currently drafting minimum
standards for STLDI products. A commenter suggested that States should
have the option to substitute their own required disclosure language in
place of the Federal mandated language and that notice provisions
should only be applicable if a State has no comparable notice
provisions.
Another commenter shared a study asserting that the revised notice
did not substantially improve consumer understanding of STLDI and that
any notice should be of short length because most consumers have
trouble understanding lengthy explanations that tend to present
multiple concepts in the same notice. Other commenters supported the
proposed revisions to the notice standard and agreed that the revisions
would help educate consumers about the differences between
comprehensive coverage and STLDI before a decision is finalized about
health coverage in a way that would alleviate downstream concerns about
applicable benefits and costs.
The Departments agree that it is important to provide consumers
with concise, accurate information to evaluate insurance products so
that consumers may make informed decisions about health insurance
coverage. The Departments sought to address potential confusion caused
by the notice by requesting comments on the proposed notice standard
and conducting consumer testing. Based on current research highlighting
deceptive marketing practices and consumer confusion,
207 208 209 the Departments are of the view that it is
necessary and appropriate for issuers of STLDI to disclose key
differences between comprehensive coverage and STLDI before completing
the sale or renewal so consumers can make informed decisions. The
revised notice standard under these final rules will help clarify the
differences between STLDI and comprehensive coverage. As the
Departments agree that the revisions to the notice standard alone will
not protect consumers from deceptive marketing practices, revisions to
the notice standard are being finalized in tandem with revisions to the
definitions of the terms ``short-term'' and ``limited-duration.'' The
Departments disagree with and decline to adopt the suggestion that the
notice should not be part of the Federal definition of STLDI.
---------------------------------------------------------------------------
\207\ 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.
\208\ 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.
\209\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: https://www.gao.gov/products/gao-20-634r.
---------------------------------------------------------------------------
With respect to concerns about the lack of State input in the
revisions to the notice standard, the Departments consulted plain
language experts, conducted consumer testing, and considered comments
on the 2023 proposed rules from State regulators, consumer advocates,
and other interested parties. The Departments therefore disagree that
there was a lack of State input. The Departments concluded that a
uniform Federal notice best furthers the Departments' interest in
ensuring that information is communicated to consumers to enable them
to identify and distinguish STLDI from comprehensive coverage.
Therefore, the Departments decided not to specify that the revised
notice would be applicable only if a State has no comparable notice
provision. In addition, these final rules do not prevent States from
requiring additional language be included with the notice for purposes
of State law or prohibit issuers from including additional language in
their notices. Policies that do not include the language in the revised
notice under these final rules will not be considered STLDI coverage,
and therefore will not qualify for the exception for STLDI from the
definition of individual health insurance coverage for purposes of
Federal law.
One commenter alleged that the revised notice standard raised First
Amendment concerns because the notice violates the First Amendment's
prohibition on compelled speech. The commenter argued that the revised
notice standard constitutes a content-based restriction and is not
justified because it is not narrowly tailored to serve a compelling
government interest.
The Departments disagree with this commenter. The rules do not
require the provision of a notice, but instead simply provide that
coverage offered without such a notice would not qualify as STLDI and
would be subject to the Federal consumer protections and requirements
applicable to comprehensive coverage. Moreover, as discussed in section
III.B.1 of this preamble, required disclosures of factual,
uncontroversial information in commercial speech are subject to more
deferential First Amendment scrutiny and have been upheld where the
disclosure requirement reasonably relates to a government interest, and
is not unjustified or unduly burdensome.\210\ Regardless, the
Departments believe that the revised notice standard would pass muster
under any form of First Amendment scrutiny.
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\210\ The U.S. Supreme Court recognized this standard of
scrutiny in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626
(1985) (``Zauderer'') and later confirmed it in National Institute
of Family and Life Advocates v. Becerra, 138 S. Ct. 2361, 2372, 2376
(2018) (``NIFLA'').
---------------------------------------------------------------------------
The Departments have a substantial, and even compelling, government
interest in combatting deceptive marketing practices by ensuring
consumers are informed about the key differences between STLDI and
comprehensive coverage, are aware of their option to purchase
comprehensive coverage, and have access to resources for additional
information about the range of available health coverage options so
consumers can make informed choices. As discussed in section II.B of
this preamble, this is currently of particular importance due to
significant changes in market conditions and in the legal landscape and
low health literacy amid widespread deceptive marketing practices that
play on consumer confusion about the benefits and limitations of STLDI.
The revised notice communicates factual information to consumers about
the differences between STLDI and comprehensive coverage and explains
how consumers can find resources when consumers have questions about
the different coverage options. Finally, the revised notice is
reasonably related to, and narrowly tailored to, the government's
interest in informing consumers about STLDI coverage, and combating
deceptive marketing practices and potential sources of misinformation,
by directing consumers to appropriate resources to learn more about the
range of available health coverage options. The notices do not include
irrelevant or superfluous information unrelated to these interests.
Accordingly, these final rules serve substantial government interests.
[[Page 23369]]
In addition, the revised notice standard is not unjustified, unduly
burdensome, or insufficiently tailored to the interests described
previously. As stated in the preamble to the 2023 proposed rules, the
Departments are concerned about consumers who are at risk of
significant financial liability if they enroll in STLDI that exposes
consumers to high health care costs that are not covered by their STLDI
policy. The language on the Federal revised notice includes factual,
uncontroversial information. The Departments consulted plain language
experts, conducted consumer testing, and considered comments on the
proposed revised notice to ensure the language was factual, easy to
read, and understandable. Furthermore, the revised notice standard does
not unduly burden issuer speech because issuers remain free to
communicate with consumers about their coverage using any methods of
communication they choose. As discussed in section V.B.2.d of this
preamble, the Departments estimate that the cost to issuers of
displaying the revised notice will be relatively low, because the
Departments have adopted static language that issuers do not have to
tailor to the policy or State of sale. For the reasons discussed
previously, the Departments are of the view that requiring STLDI
issuers to provide a notice that provides factual information to
consumers prior to when the consumers purchase coverage is reasonably
related to the government's stated interests in ensuring consumers can
distinguish STLDI and comprehensive coverage and are informed of
options to purchase comprehensive coverage, should the consumer wish to
obtain such coverage. The information required to be disclosed is
clearly identified and has a direct nexus to that legitimate government
interest. Finally, the revised notice standard is narrowly tailored to
inform consumers about the limitations of STLDI and to combat deceptive
marketing practices and potential sources of misinformation by
directing consumers to appropriate resources to learn more about their
health coverage options. The notice does not include irrelevant or
superfluous information unrelated to informing and directing consumers
to appropriate resources.
The Departments sought comments on whether the proposed placement
for the notice substantially improves the likelihood that consumers
have a meaningful opportunity to review the notice and their health
coverage options before applying for, enrolling in, or reenrolling in
STLDI, as well as any practical or logistical barriers to providing
this notice as proposed. In particular, the Departments sought 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.\211\
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\211\ 88 FR 44596 at 44617 (July 12, 2023).
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Most commenters supported the proposed placement of the notice on
the first page of any policy, certificate, or contract of insurance
(including for renewals and extensions), website used to facilitate
enrollment (or reenrollment) in STLDI, and marketing and application
materials provided in connection with enrollment in STLDI, because the
benefits of simplifying access to the notice far outweighs any
associated burden of including the information in these locations. One
commenter suggested that issuers should have the flexibility to put the
notice for renewals on a separate document and not on the face page of
the policy, certificate, or contract of insurance because some States
require pre-approval of notice provisions. Another commenter supported
the notice being provided in the same format that sales of STLDI are
conducted, since misleading marketing often occurs when STLDI is not
sold in person and consumers are given limited time to contemplate
their insurance choices before being pressured to choose a product. For
example, if enrollment occurs over the telephone, the commenter
suggested the seller should be required to read the notice to the
consumer and record their acknowledgement, or if the enrollment occurs
via the internet, a prominent notice should be featured during the
accompanying online sign-up process. Other commenters recommended that
the Departments require audio and video advertisements to include an
audio version of the notice within the first 10 seconds of any
advertisement of STLDI coverage. Another commenter suggested that
telephone solicitors, brokers or agents making sales calls, or in-
person sales should be required to inquire as to the consumer's
preferred language through a qualified language translator or language
telephone line. Commenters also suggested that the notice be provided
in multiple common languages other than English that are spoken in the
United States in a manner that is culturally appropriate, readable, and
clear so that consumers can make appropriate coverage decisions.
Commenters highlighted the importance of the notice being accessible to
individuals with disabilities.
The Departments are finalizing the standard for the notices to be
prominently displayed on the first page of applicable materials \212\
in at least 14-point font, as proposed. Because ensuring that consumers
understand any limitations of what they are purchasing is of utmost
importance, provision of the notice should not be saved until the time
of enrollment when consumers may feel pressured to sign up and
effectuate coverage instead of restarting their search for a different
insurance product. The Departments agree with commenters that the need
for consumers to have easy access to the notice during enrollment and
reenrollment outweighs the burden associated with placement of the
notice on the first page of applicable materials. The Departments
further agree with commenters that if the STLDI policy is sold online
or electronically then the notice should be communicated in the same
format as the sale. Further, consistent with the proposal in the 2023
proposed rules, the placement standard under these final rules extends
the notice to websites that advertise or offer the opportunity to
enroll (or reenroll) in STLDI. Although these final rules provide that
the notice must be prominently displayed in any marketing materials
provided in connection with enrollment (or reenrollment) in STLDI, the
Departments decline to require audio and video advertisements include
an audio version of the notice within the first 10 seconds of any
advertisement of STLDI coverage. The Departments did not include a
proposal on audio and video advertisements in the 2023 proposed rules
and therefore decline to address such other types of communication
formats in these final rules.
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\212\ The applicable materials on which the STLDI notice must be
prominently displayed (in either paper or electronic form) are the
first page of the policy, certificate, or contract of insurance
(including for renewals or extensions), 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 and reenrollment materials provided
at or before the time an individual has the opportunity to enroll or
reenroll in coverage (including on any website used to facilitate
reenrollment in STLDI).
---------------------------------------------------------------------------
The Departments agree that it is important that the notice be
accessible and understandable to individuals with limited English
proficiency. While the Departments did not propose and are not
finalizing language access standards
[[Page 23370]]
specific to these notices as part of this rulemaking, the Departments
remind plans and issuers that they are required to comply with other
State and Federal laws establishing accessibility and language access
standards to the extent applicable. For example, recipients of Federal
financial assistance must comply with Federal civil rights laws that
prohibit discrimination. These laws may include section 1557 of the
Affordable Care Act,\213\ title VI of the Civil Rights Act of
1964,\214\ section 504 of the Rehabilitation Act of 1973,\215\ and the
Americans with Disabilities Act of 1990.\216\ Section 1557 and title VI
require covered entities to take reasonable steps to ensure meaningful
access to individuals with limited English proficiency, which may
include provision of language assistance services such as written
translation of written content in paper or electronic form into
languages other than English. Sections 1557 and 504 require covered
entities to take appropriate steps to ensure effective communication
with individuals with disabilities, including provision of appropriate
auxiliary aids and services at no cost to the individual. Auxiliary
aids and services may include interpreters, large print materials,
accessible information and communication technology, open and closed
captioning, and other aids or services for persons who are blind or
have low vision, or who are deaf or hard of hearing. Additionally,
section 508 of the Rehabilitation Act of 1973 requires that information
provided through information and communication technology also must be
accessible to individuals with disabilities, unless certain exceptions
apply.
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\213\ 42 U.S.C. 18116.
\214\ 42 U.S.C. 2000d et seq.
\215\ 29 U.S.C. 794.
\216\ 42 U.S.C. 12101 et seq.
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In the 2023 proposed rules, the Departments requested comment on
two potential formats for the revised notice standard \217\ (Notice A
and Notice B).
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\217\ 88 FR 44596 at 44616-44617 (July 12, 2023).
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The proposed STLDI notice (Notice A) was as follows:
BILLING CODE 4830-01-P
[GRAPHIC] [TIFF OMITTED] TR03AP24.052
An alternative proposed STLDI notice (Notice B) was as follows:
[[Page 23371]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.053
The Departments received comments in support of both notice
formats. Some commenters supported implementing the format of Notice A
because they found the bulleted format easier to read and more
understandable than a chart. Other commenters supported implementing
the format of Notice B because they were of the view that the format is
easier to follow and has more concise language. A commenter stated that
consumers understand information better that is presented in charts.
Another commenter suggested that the Departments design a notice format
that would allow issuers to check boxes next to relevant provisions.
Other commenters recommended that the Departments conduct consumer
testing of the content and presentation of the notices through focus
groups or surveys to ensure the notices are understandable. These
commenters stated that notices should be tested with multiple
audiences, particularly given current disparities in health insurance
literacy rates and concerns for individuals with limited English
proficiency and with disabilities.
HHS consulted plain language experts and engaged in consumer
testing as part of the consideration of comments on the revised notice.
Based on the testing of Notice A and Notice B, feedback from plain-
language experts, along with consideration of comments on the revised
notice, the Departments are finalizing the table format used in Notice
B, with content modifications that are discussed in detail this
section. Consumer testing revealed that the table format, comparing key
features of STLDI and insurance offered through HealthCare.gov, helped
consumers best distinguish between STLDI coverage and comprehensive
coverage, and understand the differences between such coverage types.
After taking into account feedback from the comments, consulting
with plain-language experts, and conducting consumer testing, the
Departments are finalizing the following language for the notice to
improve readability and effectiveness of the notice:
[[Page 23372]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.054
BILLING CODE 4830-01-C
The Departments took into consideration all comments received on
the notice. As mentioned in this section, following an initial review
of the comments, HHS performed consumer testing to evaluate the
effectiveness and readability of different messages and notice formats,
including messages or changes to the proposed revised notice
recommended by commenters. These final rules revise the content of the
proposed notice to better inform consumers considering purchasing STLDI
about the differences between STLDI and comprehensive coverage, support
informed coverage purchasing decisions, and promote readability. The
[[Page 23373]]
revised notice balances including information about STLDI with
readability and length so that consumers will be more likely to read
and understand the notice.
The Departments sought 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
challenges to compliance with the new proposed notice standard. The
Departments solicited comments on all aspects of the proposed revisions
to the notice standard, including whether to add a website link and
telephone number for HealthCare.gov, and the proposed placement of the
notice in the marketing, application, and enrollment (or reenrollment)
materials, including the extension of the notice provision 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.
Many commenters suggested specific changes to the content of the
revised notice standard. A commenter requested that the notice be
displayed in highly readable fonts such as a Sans Serif font in a 14-
point font to improve the readability of the notice. Some commenters
suggested that the notice include additional information to explain
what it means that STLDI is exempt from most Federal consumer
protection laws. Some commenters recommended that the notice include a
statement that STLDI coverage commonly conducts post-claims
underwriting and may deny claims for chronic health conditions,
surgeries, and other common services. A commenter recommended that the
Departments add language warning consumers about the possibility of
recissions because STLDI issuers often engage in post-claims chart
review to search for signs of an undisclosed preexisting condition and
thereby rescind coverage. The commenter recommended that the notice
state: ``This insurance may rescind or retroactively cancel your
coverage and not pay claims based on your medical history.'' The
Departments are finalizing the requirement that the notice be in 14-
point font size. While the final rules do not include a requirement
that the notice be displayed in a specific font, the Departments would
not consider the notice to be prominently displayed unless the font
used is clear and readable. The revised notice standard will give
issuers the flexibility to use a font that aligns with the format of
their policies. In addition, the Departments revised the content of the
chart based on comments and consumer testing. As a result, the chart
clarifies that STLDI is not required to meet the Federal standards for
comprehensive coverage and might not cover chronic health conditions
like diabetes, cancer, stroke, arthritis, heart disease, mental health
and substance use. In contrast, the notice does not specifically
caution consumers that STLDI might conduct post-claims underwriting, or
post-claims recissions. The Departments had to balance providing useful
information that clarifies the differences between STLDI and
comprehensive coverage and the readability, length, and effectiveness
of the notice. The differences highlighted in the notice were selected
primarily because consumer testing showed they were more effective at
helping consumers distinguish between STLDI and comprehensive coverage
than other options considered.
Some commenters suggested the notice address the 10 categories of
essential health benefits \218\ and state explicitly which essential
benefits are not covered. Other commenters requested that the notice
address coverage for certain types of items or services, such as
maternity services, habilitative and rehabilitative services, and
devices, so that consumers fully understand what coverage could be
missing when purchasing STLDI. While the Departments agree that it is
important to highlight for consumers that essential health benefits
might not be covered by an STLDI policy, the notice only highlights a
few categories of essential health benefits, including prescription
drugs, preventive screenings, maternity care, emergency services,
hospitalization, pediatric care, and physical therapy. The Departments
had to balance the importance of notifying consumers of the types of
benefits that might not be covered, with the importance of not
overcrowding the notice so that the notice is easy to read and
understand.
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\218\ See section 1302 of the ACA, and 45 CFR 156 subpart B
(defining essential health benefits).
---------------------------------------------------------------------------
Some commenters supported the notice including information about
where consumers can access additional information about comprehensive
coverage options, including referencing HealthCare.gov or the State
Exchange website where the consumer resides, including when the
coverage is sold by associations. Some commenters requested that the
notice explain what subsidies may be available for consumers that
enroll in coverage on the Exchanges instead of STLDI to increase
transparency of the costs to consumers. Some commenters suggested
adding information on the timing of the annual individual market open
enrollment period to underscore the differences between STLDI and
comprehensive individual health insurance coverage and help consumers
plan their transition to Exchange coverage. Commenters also suggested
that providing information on special enrollment periods for those
losing Medicaid or employer coverage would further clarify consumers'
coverage options. Additionally, given the potential for varied open
enrollment or special enrollment periods across different States, a
commenter recommended adding language saying, ``Because State Based
Exchanges may have different enrollment timelines, if you lose coverage
always check your eligibility on Healthcare.gov or your State Based
Exchange for possible enrollment options.''
The Departments agree with commenters that it is important for the
notice to include information about where consumers can access
additional information about comprehensive coverage options, and are
finalizing a notice standard that includes information about
HealthCare.gov. Through this website, consumers in States with a
Federally-facilitated Exchange or State Exchange using the Federal
platform can purchase comprehensive coverage, and consumers in States
with a State Exchange can get directed to the State Exchange. In
addition, HealthCare.gov provides additional information about
comprehensive coverage that might help consumers further distinguish
STLDI coverage from comprehensive coverage, and may help consumers
better understand the notice. The Departments considered including in
the revised notice standard additional details, as suggested by
commenters, about open enrollment, special enrollment periods, and
subsidies. However, the Departments are concerned about the length
these topics could add to the notice, and the burden associated with
customizing the notices to include enrollment time frames which can
vary slightly from State to State. After consideration of the comments,
the Departments are finalizing the revised notice standard without
information on these topics. However, the Departments note that
information on each of these topics is available on HealthCare.gov, and
the notice directs consumers to
[[Page 23374]]
HealthCare.gov for additional information on health coverage options.
Some commenters suggested additional or alternative language to
focus consumers' attention or to convey key points. A commenter
suggested using the phrase ``Important Notice--Please Read Carefully''
as the title to better catch the attention of consumers and inform them
that this is important information they should consider prior to
purchase. Another commenter supported the use of the word ``WARNING''
in capital letters as a heading in the notice for clarity. A commenter
suggested adding to the introductory notice language, ``This plan has
fewer protections, provides fewer benefits, and has higher out of
pocket costs than comprehensive insurance options you can find on
HealthCare.gov.'' A commenter suggested that the Departments replace
the last sentence of the introductory paragraph with something very
close to the following in bold text, ``You may be able to get much
better coverage for less money (with tax credits) through a health
insurance exchange even outside of open enrollment.'' A commenter
suggested that the Department should change the heading of the second
column of the comparison table from ``Insurance on HealthCare.gov'' to
``Comprehensive Insurance on Healthcare.gov.'' One commenter encouraged
the Departments to remove the statement that STLDI is not comprehensive
coverage because of a study that indicated that 95 percent of STLDI
plans provide comprehensive coverage. A commenter suggested that the
Departments revise ``You won't qualify for [F]ederal help to pay for
premiums or out-of-pocket costs,'' to ``Most people qualify for tax
credits that will lower out of pocket costs if they purchase coverage
that meets certain [F]ederal requirements. For more information, visit
[this website].'' In addition, the Departments could create a website
to link consumers to clear information, the commenter stated.
The Departments took into consideration comments that suggested
alternative language to include in the introductory paragraph. Based on
consumer testing, the Departments are finalizing the revised notice
standard with the heading, ``IMPORTANT,'' instead of ``WARNING.'' The
Departments are of the view that ``IMPORTANT'' is sufficient to draw
attention to the notice. In addition, the Departments revised the
introductory paragraph to clarify that STLDI and insurance options on
HealthCare.gov are not the only insurance options that might provide
comprehensive coverage. While employer coverage is not included in the
table, the Departments finalized the revised notice standard with a
bullet point reminding consumers that have access to employer coverage
to contact that employer about coverage options. The Departments are of
the view that suggested additions to the introductory paragraph add
content that is already accounted for in the table section of the
notice. The Departments are not revising the notice heading for the
second column. The heading, ``Insurance on HealthCare.gov,''
effectively communicates that the column applies to insurance options
available on HealthCare.gov.
Some commenters provided recommendations for ways to enhance
consumers' understanding of the notice. One commenter suggested that
the Departments define key terms used in the notice and use alternate
language to indicate that the coverage is ``comprehensive'' because
some consumers believe that it means the best or most expensive
coverage that most consumers do not need. A commenter discouraged the
use of terms ``may'' and ``might'' because they fall short of conveying
how STLDI does not meet Federal standards.
The Departments considered comments and worked with plain language
experts to ensure that the revised notice standard is written in plain
language that maximizes readability for the average consumer. While
consumer testing revealed that consumers did not always understand
terms used in the notice (including the term ``comprehensive''), the
testing showed that consumers were still able to distinguish between
STLDI and comprehensive coverage, based on the notice. Therefore, the
Departments are of the view that defining key terms is not critical to
the effectiveness of the notice and are finalizing the revised notice
standard without defining key terms. In addition, the Departments will
use the term ``might'' to preface certain rows in the table. It is
important to include the term ``might'' to ensure that the content in
the table accurately describes all STLDI coverage, as some STLDI might
voluntarily, or under State law, provide the consumer protections
listed in the notice.
Some commenters were in support of including the name and State of
domicile of the issuer, name and State of domicile of the association
(if applicable), website, and telephone number for the State department
of insurance tailored to each STLDI policy in the notices included in
marketing, application, and renewal materials to help consumers access
regulators and consumer advocacy resources that can assist consumers
regarding questions or concerns about their policies. Commenters stated
that STLDI coverage filed in another State or sold through an out-of-
State association should be required to include in the notice both the
contact information of the insurance regulator in the State in which
the consumer resides and the State in which the plan is filed, to aid
in maintaining accountability for issuers and associations selling
these insurance products. Commenters stated that access to such
information will assist consumers in receiving accurate information
about insurance products to make informed decisions about coverage and
should be made available in the preferred language of individuals and
families. Commenters argued that State regulators often have difficulty
monitoring and regulating STLDI sold through out-of-State associations,
the associations may attempt to operate outside the reach of the State
in which the STLDI is sold, and consumers may be unaware of what State
has regulatory authority over the product they are purchasing.
Other commenters were opposed to including State-specific
information in the notices because the information would be of limited
benefit to consumers and unnecessarily increase the administrative
burden and costs for issuers. Another commenter suggested that the
Departments provide a link to the directory of State insurance
departments that the NAIC maintains.
In developing the proposed revised notice language, the Departments
sought to balance the goals of distinguishing STLDI from comprehensive
coverage and combatting deceptive marketing practices, as well as
reducing misinformation by directing consumers to appropriate
resources, with the need to provide a concise, understandable notice
that would be meaningful and useful to consumers.\219\ The Departments
understand commenters' concerns regarding the burden associated with
customizing notices to include State-specific information. However, the
Departments also recognize the value of including State-specific
information, such as appropriate contact information. After
consideration of comments and the results of consumer testing, the
Departments are finalizing changes to the notice to incorporate uniform
language as part of the required content for the revised notice
standard that directs individuals to an NAIC web page
[[Page 23375]]
where they can find the contact information for the applicable State
regulatory agency. This approach avoids adding an administrative burden
on issuers to tailor the notice for each plan depending on the domicile
of each consumer. In the case of STLDI sold by out-of-State
associations, the link to the NAIC web page would provide consumers
with access to contact information for State regulators in the State
where the consumer purchased the STLDI coverage as well as the State
where the STLDI is issued. Although this is a link to a non-United
States Government website, the Departments are including this link in
the notice because it allows consumers to access State-specific contact
information, without requiring plans and issuers to customize the
notice. The Departments cannot attest to the accuracy of information
provided on the NAIC web page or any other linked third-party site. The
NAIC link is provided for reference only and the inclusion in the
notice of a link to a non-United States Government website does not
constitute an endorsement by the Departments. Also, the privacy
protections generally provided by United States Government websites do
not apply to third-party sites.
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\219\ See 88 FR 44596 at 44614-44615 (July 12, 2023).
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In addition, as described earlier in this section, the Departments
incorporated static language as part of the content for the revised
notice standard finalized in these final rules that direct individuals
to HealthCare.gov where individuals can navigate to their State's
Exchange or get information about different types of health coverage
options. This approach is intended to balance the desire to ensure
individuals can access State-specific information with not increasing
the burden on issuers associated with the development of customized
notices that provide State-specific contact information. Since the
Departments are not including State-specific or association-specific
contact information as part of the revised notice standard, the
Departments decline to specify a certain agency's contact information
that should be included for products that are filed in multiple States.
The preamble to the 2023 proposed rules explained that the
Departments were considering whether to add a statement to the notice
describing the maximum permitted length of STLDI under the Federal
definition, explaining that coverage cannot be renewed or extended
beyond the maximum allowable duration, and explaining that the length
of STLDI may be shorter subject to State law. The Departments sought
comments on this approach, including how best to clearly and concisely
communicate such information to consumers, including how to address the
bifurcated applicability dates with respect to the proposals around the
maximum allowed length; 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 sought comments
on whether information about the maximum allowed 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.
Commenters generally supported adding a statement to the notice
describing the maximum allowed length of STLDI under Federal and State
rules, where applicable. One commenter requested that the Departments
add, ``coverage is intended to last for 3 months, if you enroll in the
plan you may have to wait until the next open enrollment period to
enroll in comprehensive coverage.'' A commenter suggested adding a
sentence to the notice after the second sentence of the introductory
paragraph that says, ``Coverage cannot last beyond 4 months or even
less depending on the State in which you live.'' This minimally
increases the length of the notice while informing the consumer that
the policy cannot be renewed beyond 4 months or a shorter period
depending on the State in which the consumer resides, the commenter
stated.
While the Departments appreciate that information on maximum
duration may be useful to consumers, the Departments remain concerned
about how to clearly and concisely communicate such information to
consumers using static language, without creating confusion for
consumers if the duration of their policy differs from the maximum
duration standards in the notice--for example, because of the
bifurcated applicability dates,\220\ shorter maximum durations allowed
under State law, or the specifics of their policy. Given these concerns
and based on consumer testing and consultation with plain language
experts, the Departments are finalizing the notice without adding
information on the maximum permitted length of STLDI. Since States have
the flexibility to enact a different maximum permitted length of STLDI,
including a standardized maximum permitted length in the revised notice
standard may confuse consumers. The Departments are also mindful of
limiting the amount of information provided on the notice for
readability and comprehension and are of the view that the burden on
issuers of requiring issuers to tailor their notices to each State
outweighs the potential benefits of adding more language to the notice
to capture State-specific information on the maximum permitted length
for the STLDI policy. In addition, the Departments anticipate that
information on the maximum allowed length of the STLDI coverage is
included in the policy, certificate, or contract of insurance, and that
options for renewal and extensions are typically included in enrollment
materials (or reenrollment materials) provided to enrollees as part of
the normal course of business.
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\220\ See section III.A.6 of this preamble for discussion of the
STLDI applicability dates finalized in these final rules.
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The Departments solicited comments on whether it would be
beneficial to consumers to require issuers to include language in the
notice that clearly informs consumers that the notice is an officially
required document, such as ``This notice is required by Federal law.''
One commenter suggested that including such a statement would further
validate the importance of the notice and accentuate the caution
warranted when considering purchasing STLDI, while another commenter
argued that the statement would add length to the notice and is not
critical for consumers' understanding of their rights. Consumer testing
revealed that some testers found the inclusion of that phrase at the
bottom of the notice helpful and reported that it made the information
on the notice seem more legitimate, other consumers stated this
statement suggested that the STLDI policy was endorsed by the Federal
Government. After consideration of the comments and results from
consumer testing, the Departments are finalizing the notice without the
inclusion of a statement that the notice is required by Federal law.
The Departments are of the view that any potential benefit of including
the language is outweighed by the risk that some consumers will
interpret the statement as a Federal endorsement of the policy.
5. Short-Term, Limited-Duration Insurance Sold Through Associations
In section III.A.5 of the preamble to the 2023 proposed rules, the
Departments explained that they understand most sales of STLDI occur
through group trusts or associations that are not related to employment
[[Page 23376]]
(sometimes referred to as individual membership associations) \221\ and
solicited comments on what steps, if any, can be taken to support State
oversight of STLDI sold to or through associations.\222\ Under these
arrangements, out-of-State issuers file STLDI products for approval in
one State and then sell the same policies in other States through an
association, many times with few requirements on consumers to
participate in the association, other than payment of association dues.
State regulators have reported that they often 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, as explained in
section III.A.V of the preamble to the 2023 proposed rules, the
Departments have received feedback that many issuers take advantage of
the ambiguity about which State's jurisdiction applies to the STLDI
they sell to avoid State regulation.\223\ For example, one study found
that in a review of 34 policy brochures for STLDI, 28 of the brochures
included references to associations.\224\ Consumers may not understand
that some STLDI marketed in their States are not regulated by their
State and do not include State-specific consumer protections.
---------------------------------------------------------------------------
\221\ See 88 FR 44596 at 44618 (July 12, 2023).
\222\ Id.
\223\ Id.
\224\ Id. (citing 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.)
---------------------------------------------------------------------------
The Departments received comments agreeing that association-based
STLDI coverage is often used as a vehicle to avoid local State
regulation, with one commenter stating that such coverage is increasing
in prevalence for employers with 10 or fewer employees. Commenters
explained that because these association products are sold in States in
which they are not registered, States have limited ability to protect
their consumers from hidden fees and limited benefits. Nevertheless,
some commenters asserted that States are best positioned to oversee the
marketing of association-based STLDI coverage. Some commenters
encouraged the Departments to work with States and the NAIC to improve
oversight of products sold through out-of-State associations including
collecting and sharing data and clarifying State authority to regulate
these arrangements on behalf of their residents. Another commenter
urged the Departments to consider additional enforcement mechanisms to
ensure that STLDI issuers are not selling STLDI products in States in
which they are not approved and ensure that consumers have recourse to
file complaints when necessary.
As with the current regulatory definition of STLDI, the provisions
of these final rules apply to STLDI sold to or through associations. As
explained in the preamble to the 2023 proposed rules, 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.\225\ 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.
---------------------------------------------------------------------------
\225\ 88 FR 44596 at 44618 (July 12, 2023) (citing 45 CFR
144.102(c)).
---------------------------------------------------------------------------
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.\226\ 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 and must comply with the Federal consumer
protections and requirements for comprehensive coverage applicable to
the group market. Failure to meet those requirements could result in
penalties for employers offering such coverage.\227\
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\226\ See section 2791(b)(5) of the PHS Act, which excludes
STLDI from the definition of ``individual health insurance
coverage''.
\227\ Section 4980D of the Code.
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The Departments did not propose changes specific to association-
based STLDI coverage and are not finalizing any such changes in these
final rules. The Departments will continue to work closely with States,
both individually and through the NAIC, to support State oversight and
enforcement efforts of STLDI offered through associations.
6. Applicability Dates
In the 2023 proposed rules, the Departments proposed applicability
dates for the proposed amendments to the Federal definition of STLDI
that distinguish between new and existing STLDI under 26 CFR 54.9833-1,
29 CFR 2590.736, and 45 CFR 146.125 and 148.102. The Departments also
proposed a technical amendment to 26 CFR 54.9833-1, 29 CFR 2590.736,
and 45 CFR 146.125 (regarding applicability dates) to remove outdated
language. The Departments proposed the technical amendment would apply
to all coverage (that is, both new and existing STLDI) as of the
effective date of the final rules.
The Departments did not receive any comments on the proposed
applicability dates for the technical amendments and are finalizing
them as proposed.
For new STLDI sold or issued on or after the effective date of the
final rules, the Departments proposed that the amendments to the
definition of STLDI would apply for coverage periods beginning on or
after such date. For STLDI sold or issued before the effective date of
the final rules (including any subsequent renewal or extension
consistent with applicable law), the Departments proposed that the
current Federal definition of such coverage would continue to apply
with respect to the maximum allowable duration. Therefore, under the
proposed rules, 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 proposed that the amendments to the notice
provision at paragraph (2) of the proposed 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.
[[Page 23377]]
The Departments sought comments on whether the proposed revised
notice standard should apply only to 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 standard to existing
STLDI should instead be delayed until January 1, 2025, or some other
date. The Departments sought 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 sought 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. In addition, the Departments
sought 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.
Only a few commenters commented on the applicability date for new
STLDI policies. One commenter stated that it is critically important
for consumers that the proposed amendments to the Federal definition of
STLDI take effect as soon as possible for new STLDI policies to better
inform consumers about the differences between STLDI and comprehensive
coverage and protect consumers from deceptive marketing practices. A
few commenters suggested that the Departments delay the applicability
date for new STLDI policies, with recommended dates ranging from
between 90 days and 12 months after the effective date of the final
rules. Commenters recommended providing this additional time because
STLDI products have already been filed and approved for 2024 and
issuers need more time to evaluate plan designs, update system
processes, re-file policy forms with State regulators and complete
other administrative tasks.
The Departments agree that an applicability date of 75 days
following publication of these final rules might cause challenges for
some States and issuers as they move to revise plan designs and file
new policy forms that comply with the Federal definition of SLTDI under
these final rules. The Departments are mindful of the administrative
obstacles identified by commenters and are of the view that providing
more time to comply with the revised Federal definition of STLDI will
be beneficial both to issuers and States. However, the Departments are
also mindful of the caution from commenters that the potential for
consumer confusion is particularly acute when STLDI is marketed and
sold during the annual individual market open enrollment period.
Although these final rules do not prohibit the sale or marketing of
STLDI during the individual market open enrollment period, the
Departments are of the view that the potential for consumer confusion
about whether they are considering purchasing an STLDI plan or
comprehensive coverage will be substantially lessened if the final
rules go into effect for new STLDI policies before the beginning of the
next individual market open enrollment period.\228\ Therefore, after
consideration of comments, these final rules provide that the new
definition of STLDI will apply to new STLDI policies, certificates, or
contracts of insurance for coverage periods beginning on or after
September 1, 2024.\229\ This applicability date will provide issuers
and States with more time to come into compliance with these final
rules for new STLDI policies. It will also allow uninsured consumers
who enroll in a new STLDI policy on or after September 1, 2024, to
bridge the gap to when new comprehensive coverage purchased during the
next individual market open enrollment period would begin. The
Departments decline to extend the applicability for new STLDI policies
further to ensure an end to the marketing of STLDI with a longer
maximum allowed length prior to the beginning of open enrollment for
the 2025 individual market plan year.\230\
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\228\ The next individual market open enrollment period begins
on November 1, 2024. See 45 CFR 155.410(e)(4)(i).
\229\ For new STLDI policies, the new maximum duration standards
and the revised notice established in these final rules will apply
for coverage periods beginning on or after September 1, 2024.
\230\ The individual market open enrollment period for plan year
2025 begins on November 1, 2024. See 45 CFR 155.410(e)(4)(i).
---------------------------------------------------------------------------
The Departments received some comments on the applicability date
with respect to the maximum allowable duration for existing STLDI
(including renewals and extensions). A few commenters requested that
the revised maximum allowable duration apply to existing policies as
soon as possible. These commenters stated that agents and brokers may
attempt to steer as many consumers as possible into policies that are
subject to the 2018 final rules prior to the applicability date for new
policies, locking consumers into less protective coverage with a longer
duration, and potentially destabilizing the risk pools for individual
health insurance coverage. Commenters stated that this is particularly
concerning as more consumers are shopping for health coverage as States
resume Medicaid eligibility redeterminations due to the end of the
FFCRA's Medicaid continuous enrollment condition. Another commenter
stated that the Departments should apply the same applicability date
for the maximum duration to new and existing policies because having a
different applicability date for new and existing STLDI could create
confusion for consumers and issuers. However, a different commenter
suggested that the proposed applicability date for the revised maximum
duration to apply to existing coverage would minimize confusion for
currently enrolled consumers. One commenter supported the proposed
applicability date for the revised maximum duration to apply to
existing STLDI, as the dates allow issuers to honor their contractual
obligations while avoiding unnecessary disruptions in coverage. Another
commenter suggested aligning the applicability date for the revised
maximum duration to apply to existing STLDI with the existing term or
the start of the subsequent plan year for Exchange coverage, whichever
comes first, and providing a 60-day special enrollment period to
consumers whose coverage ends after the individual market open
enrollment period. Other commenters recommended that the Departments
postpone the applicability date for the revised maximum duration for
STLDI to apply to existing policies to accommodate the end of the
initial contract term, but prevent renewals or extensions to strike a
balance between avoiding disruption of current plans and prolonging the
harms of the maximum permitted duration under the current Federal
definition of STLDI. These commenters also suggested this alternative
approach would simplify the application of the revised maximum duration
for STLDI coverage under the final rules. Other commenters suggested
setting a different fixed applicability date for the revised maximum
duration for SLTDI to apply to existing policies that aligns with the
start of the individual market open enrollment period for plan years
2025 or 2026.\231\
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\231\ The individual market open enrollment periods for plan
years 2025 and 2026 begins on November 1, 2024, and November 1,
2025, respectively. See 45 CFR 155.410(e)(4)(i).
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[[Page 23378]]
The Departments appreciate the need to implement the changes to the
revised maximum duration for STLDI as soon as practical to mitigate the
risk of consumers mistakenly enrolling in STLDI in lieu of
comprehensive coverage. At the same time, the Departments recognize
that some consumers who are already enrolled in STLDI purchased such
coverage with the understanding it would continue for a given period of
time, consistent with the current Federal definition of STLDI and
applicable State law. Such individuals may also have purchased coverage
with the expectation that they could renew coverage, consistent with
the current Federal definition and applicable State law. While the
Departments want to balance avoiding prolonging the harms of a longer
maximum permitted duration, to minimize disruption and confusion for
individuals who purchased or were enrolled in STLDI prior to the
effective date of the final rules, the Departments are finalizing 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 2018 final rules, subject
to any limits under applicable State law. Although the Departments are
not applying the revised maximum duration for STLDI to renewals or
extensions of existing coverage, consumers can opt not to renew or
extend their coverage prior to reaching the maximum duration permitted
for such coverage. The Departments are not persuaded by the concern
that having different applicability dates for the revised maximum
duration for new and existing coverage will create confusion for
consumers and issuers. As noted by one commenter, allowing individuals
with existing coverage to continue their coverage for the maximum
duration allowed when they purchased STLDI may instead minimize
confusion and align with the consumer's expectations when they
purchased the coverage. Confusion for consumers who newly enroll in
STLDI coverage on or after September 1, 2024, is likely to be minimal
since they would not be eligible to purchase, renew, or extend an STLDI
policy for the longer maximum duration permitted under the 2018 final
rules. The Departments are of the view that the different applicability
dates will also create minimal confusion and burden for issuers, which
already need to track which STLDI policies are eligible for renewal or
extension and for how long. The Departments are finalizing the
applicability date for existing STLDI policies with respect to the
maximum allowable duration for such coverage as proposed.
As discussed in section III.A.1 of this preamble, HHS declines to
create a special enrollment period for individuals to enroll in
individual health insurance coverage at the expiration of their STLDI
coverage. However, nothing in Federal law would prevent an individual
from discontinuing their STLDI coverage prior to its expiration date to
align the end of their STLDI coverage with the start of individual
health insurance coverage or other comprehensive coverage.
Some commenters supported applying the proposed revised notice to
new STLDI sold or issued on or after the effective date of the final
rules and to existing coverage upon renewal or extension. Another
commenter recommended that the Departments apply the proposed
amendments to the notice only to new STLDI sold or issued on or after
the effective date of the final rules and to existing coverage starting
12 months after the publication of these final rules. Some commenters
expressed concern that the proposed applicability dates for the revised
STLDI notice did not provide enough time for implementation in States
that require notices be submitted to the State department of insurance
for review or approval.
The Departments agree with commenters that the revised notice
should promptly apply to both new and existing (upon renewal or
extension) STLDI coverage to alert all consumers who are considering
purchasing or renewing STLDI to the differences between comprehensive
coverage and STLDI. The notice is key to providing consumers with the
information necessary to make an informed decision about the range of
available coverage options. However, the Departments recognize that it
would be burdensome on issuers to finalize three separate applicability
dates (that is, for the notice provisions, for the maximum duration
standards applicable to new policies, and for the maximum duration
standards applicable to existing policies). In addition, the
Departments acknowledge that issuers in some States may need to engage
with their State regulator prior to implementing the new notice. After
consideration of comments, the Departments are finalizing a delayed
applicability date for the revised notice to align with the delayed
applicability date finalized in these final rules for new STLDI
coverage. Specifically, the revised notice specified in these final
rules must be provided for new STLDI policies sold or issued on or
after September 1, 2024, and with respect to existing coverage, upon
renewal or extension that occurs on or after September 1, 2024.
B. Independent, Noncoordinated Excepted Benefits Coverage
In the group market, for hospital indemnity or other fixed
indemnity insurance to qualify as an excepted benefit, among other
criteria, the insurance must pay a fixed dollar amount per day (or per
other period) of hospitalization or illness (for example, $100/day),
regardless of the amount of expenses incurred. In contrast, under the
current individual market regulations, fixed indemnity insurance can
pay on a per-period and/or per-service basis and be considered an
excepted benefit. In the 2023 proposed rules, HHS proposed to realign
the individual market regulations with the group market regulations,
which would require hospital indemnity or other fixed indemnity
insurance to pay a fixed dollar amount per day (or per other period) of
hospitalization or illness to be considered an excepted benefit in the
individual market, consistent with the group market rules.
The Departments also proposed additional payment standards for
hospital indemnity or other fixed indemnity insurance to be considered
an excepted benefit in the group market. HHS proposed parallel payment
standards for fixed indemnity excepted benefits coverage in the
individual market. Under the 2023 proposed rules, fixed indemnity
excepted benefits would be required to be paid regardless of the items
or services received, actual or estimated amount of expenses incurred,
severity of illness or injury experienced, or any other characteristics
particular to a course of treatment received by a covered participant,
beneficiary, or enrollee.
The preamble to the 2023 proposed rules also explained that 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
for which coverage is excluded from the non-excepted benefit group
health plan. The Departments explained they are concerned that some
employers are attempting to circumvent the Federal consumer protections
and requirements for comprehensive coverage that
[[Page 23379]]
otherwise apply to group health plans by offering most benefits
associated with receiving health care services under fixed indemnity
insurance labeled as an excepted benefit, potentially leaving employees
without crucial Federal consumer protections.
To address this concern and clarify 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 proposed to add a new example to the
group market regulations to reflect that the prohibition on
coordination of benefits is not limited to only those situations
involving a formal coordination-of-benefits arrangement. The proposed
example illustrated a scenario with a fixed indemnity insurance policy
and a group health plan maintained by the same plan sponsor in which a
formal coordination-of-benefits arrangement was not present but there
was nonetheless coordination between the provision of benefits under
the fixed indemnity insurance policy and an exclusion of benefits under
the group health plan. HHS proposed to apply the same interpretation of
the noncoordination requirement to individual market fixed indemnity
excepted benefits coverage.\232\
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\232\ 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 proposed to modify the requirement at
current 45 CFR 148.220(b)(4)(ii) 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.''. HHS is not finalizing this
proposed modification to the individual market noncoordination
standard at this time.
---------------------------------------------------------------------------
The Departments proposed a consumer notice for group market fixed
indemnity benefits coverage. HHS also proposed amendments to the
existing consumer notice for individual market fixed indemnity excepted
benefits coverage. These proposals would ensure that fixed indemnity
excepted benefits coverage is properly identified in marketing,
application, and enrollment (or reenrollment) materials as fixed
indemnity excepted benefits coverage, rather than comprehensive health
insurance that is subject to Federal consumer protections, which would
help a prospective enrollee distinguish between fixed indemnity
excepted benefits coverage and comprehensive coverage options. With
these proposals, the Departments aimed to support informed consumer
choice by promoting consumer awareness of the limitations of fixed
indemnity excepted benefits coverage and to help prevent consumers from
mistakenly purchasing such coverage as an alternative to or replacement
for comprehensive coverage.
The Departments received many comments in response to all of these
proposals. These final rules adopt the new notice for fixed indemnity
excepted benefits coverage offered in the group market and update the
existing notice for such coverage offered in the individual market. In
response to comments and consumer testing, the Departments have
modified the content and applicability date of the notice, as discussed
in more detail later in sections III.B.1 and III.B.3 of this preamble.
However, to provide more time to study the issues and concerns raised
in comments, these final rules do not address any other provision of
the 2023 proposed rules relating to fixed indemnity excepted benefits
coverage (with the exception of certain technical amendments to the HHS
individual market regulation proposed in the 2023 proposed rules, as
discussed in more detail later in section III.B.2 of this preamble).
The Departments remain concerned with practices that appear to
circumvent Federal consumer protections and requirements and intend to
address the other proposals for hospital indemnity or other fixed
indemnity insurance in future rulemaking, taking into account comments
received on these issues.
No inference should be drawn from the decision not to finalize the
proposed payment standards or noncoordination example as part of these
final rules, and plans and issuers should not assume that current
market practices that are inconsistent with the 2023 proposed payment
standards or noncoordination example comply with the existing Federal
regulations that apply to fixed indemnity excepted benefits coverage.
To the contrary, many comments received in response to the 2023
proposed rules underscored the Departments' concerns that hospital
indemnity or other fixed indemnity insurance is being used by some
issuers, plan sponsors, plans, agents, and brokers to circumvent the
Federal consumer protections and requirements applicable to
comprehensive coverage, while offering products that blur the lines
between the two types of coverage. The Departments remain concerned
about the deceptive marketing and sale of hospital indemnity and other
fixed indemnity insurance, including the creation of hospital indemnity
or other fixed indemnity insurance with detailed fee schedules. These
types of fixed indemnity insurance products are not consistent with the
traditional role of hospital or other fixed indemnity insurance serving
as a form of income or wage replacement that the statutory exception
was intended to cover. Instead, they mimic comprehensive coverage,
without providing the Federal consumer protections or meeting the
requirements applicable to comprehensive coverage. This leaves
individuals who mistakenly purchase such coverage in lieu of
comprehensive coverage without critical consumer protections, exposing
them to significant health and financial risk.
Similarly, the Departments remain concerned about the practice of
offering a ``package'' of coverage options that includes a non-excepted
benefit plan that provides minimal coverage (such as coverage only for
preventive services) \233\ plus a fixed indemnity insurance policy that
provides benefits associated with a broad range of items and services
for which the other coverage maintained by the employer (or, in the
individual market, maintained by the same issuer) excludes benefits.
The Departments remain concerned that these plan designs are structured
as coordinated arrangements to circumvent the Federal consumer
protections and requirements for comprehensive coverage that otherwise
would apply. This is particularly concerning if the employers,
employees, or individuals are under the impression or are misled to
believe that their two coverages, when combined, provide comprehensive
coverage, and they therefore forgo pursuing other available options
that would provide comprehensive coverage. The Departments intend to
address these issues in future rulemaking.
---------------------------------------------------------------------------
\233\ 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.
---------------------------------------------------------------------------
The Departments emphasize that, to be considered fixed indemnity
excepted benefits coverage under the current Federal group market
regulations, the benefits must be paid only on a per-period basis.
Under this standard, the Departments expect that fixed indemnity
excepted benefit coverage would not be designed with fee schedules
that, in effect, provide benefits for specific items and services, such
as wellness screening exams or prescription drugs, rather than wage or
income replacement. The Departments are aware that some issuers merely
affix a ``per day'' term to benefits for specific items and services,
such as $50 per
[[Page 23380]]
blood test per day. As stated in the preamble to the 2023 proposed
rules, when analyzing whether a policy, certificate, or contract of
insurance is subject to the Federal consumer protections and
requirements for comprehensive coverage, the Departments will look past
the label used to examine whether the policy, certificate, or contract
of insurance qualifies as an excepted benefit or whether it is
comprehensive coverage that is subject to the Federal consumer
protections and requirements applicable to such coverage. The
Departments encourage State regulators to take a similar approach and
intend to work with States to ensure that issuers comply with relevant
requirements.
1. Notices
To ensure that consumers purchasing fixed indemnity excepted
benefits coverage are aware of the type of coverage they are
purchasing, including the limitations of the coverage, and that it is
not mistakenly purchased as an alternative or replacement for
comprehensive coverage, the Departments proposed to require a consumer
notice be prominently displayed when offering fixed indemnity excepted
benefits coverage in the group market, in alignment with the existing
requirement to provide such a notice when offering fixed indemnity
excepted benefits coverage in the individual market. The Departments
proposed that if a plan or issuer provides the required group market
notice in accordance with the provisions in the 2023 proposed rules,
the obligation to provide the notice would be satisfied for both the
plan and issuer.
In developing the proposed notice for the group market and revising
the notice for the individual market, the Departments sought to balance
two goals. One goal was to combat potential sources of misinformation
by directing consumers to appropriate resources to learn more about
comprehensive coverage and understand how that coverage differs from
fixed indemnity excepted benefits coverage. The other goal was to
provide a concise, understandable notice that would be meaningful to,
and actionable by, consumers.
HHS also proposed technical amendments reorganizing the regulatory
text to move the provision regarding the placement and materials on
which the notice must appear for fixed indemnity excepted benefits
coverage in the individual market, as well as amendments to the content
and formatting for the notice itself, to align with the proposal to
adopt a notice for the group market.
Many commenters supported requiring prominent display of the
proposed consumer notice in both markets to help consumers distinguish
fixed indemnity excepted benefits coverage from comprehensive coverage,
make individuals aware of opportunities to purchase comprehensive
coverage, and inform them of possible eligibility for subsidies to
purchase comprehensive coverage. Commenters strongly supported
disclosures to explain the limited nature of fixed indemnity excepted
benefits coverage. One commenter stated that there is a need for a
model consumer notice that is succinct, clear, and prominent,
especially because prior efforts have not stopped abusive marketing
tactics. One commenter stated that clear, consistent, and consumer-
friendly disclosures are the best mechanism to ensure fixed indemnity
policies are marketed in a clear and appropriate manner, particularly
if consumers are purchasing coverage online. Another commenter stated
that the proposed notice language was consistent with current industry
standards and expressed support for even stronger disclosure language.
The Departments agree with these commenters. By requiring a
prominent disclosure notice to consumers who are considering enrolling
or reenrolling in individual or group market fixed indemnity excepted
benefits coverage, the Departments aim to ensure that consumers are
informed about the type of coverage they are purchasing, and thereby
reduce the potential for consumers to mistakenly enroll in such
coverage as their primary source of coverage and to increase consumer
understanding of the differences between fixed indemnity excepted
benefits coverage and comprehensive coverage.
The Departments also agree with commenters that the notices should
provide information to consumers in a clear and concise manner
regarding opportunities to purchase comprehensive coverage, especially
regarding their possible eligibility for subsidies. As noted in the
preamble to the 2023 proposed rules and in section III.A.1 of this
preamble, individuals belonging to underserved 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.\234\ Members of these
populations may be particularly vulnerable to misinformation or
misleading or aggressive sales tactics. A notice can help combat
misinformation and misleading or aggressive sales practices by helping
consumers distinguish between comprehensive coverage and fixed
indemnity excepted benefits coverage.
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\234\ 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.
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For these reasons, as well as research identifying disparities in
health insurance literacy among underserved populations and people with
incomes below the FPL,\235\ the Departments proposed, and are
finalizing in these rules, the adoption of a consumer notice that must
be provided when offering fixed indemnity excepted benefits coverage in
the group market. HHS is also finalizing revisions to the existing
consumer notice that must be provided when offering fixed indemnity
excepted benefits coverage in the individual market. In the
Departments' view, these notices will help 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.
---------------------------------------------------------------------------
\235\ 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.
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Some commenters stated that changes or additional notices were not
necessary because existing notice provisions are sufficient. One
commenter stated that although they agree that consumers need to
understand what they are buying, the proposed notice provisions are not
necessary since State-required consumer warnings already exist, and a
Federal notice is not the proper mechanism to promote consumer
education or awareness. Some commenters suggested that existing fixed
indemnity insurance policies should be exempt from any notice
requirement since the consumer has already enrolled and presumably
knows what they purchased.
The Departments disagree with commenters that stated that existing
notice provisions are sufficient, that the
[[Page 23381]]
proposed notice provisions are unnecessary because State-required
notices exist, and that a Federal notice is not the proper mechanism to
promote consumer education or awareness. The existing Federal notice
provision only applies to the individual market, leaving consumers in
the group market potentially uninformed about the limited nature of
their fixed indemnity excepted benefit coverage and unaware of
resources to learn more about other coverage options. In addition,
while some State-required notices may exist, they are not mandated
nationwide. In the Departments' view, a Federal notice provision is the
proper mechanism to promote consumer education or awareness by
conveying a consistent message at or before the time a consumer has an
opportunity to enroll in the fixed indemnity excepted benefit coverage
in the individual and group markets. Without such a notice consumers
may be left unaware or uninformed, because notices may not be provided
at all, or would be provided at the plan's or issuer's discretion.
Other mechanisms, such as public service announcements, would not
ensure that information has been provided to every prospective
consumer. Additionally, the Departments are of the view that requiring
issuers to provide the consumer notice contemporaneously with
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 (rather than separately from the
application process or after a product has already been purchased) will
ensure that consumers are made aware of the type of coverage they are
considering, are made aware of information resources at their State
Department of Insurance, and are provided with options for purchasing
comprehensive coverage at the time when they most need this information
to support their decision-making process.
The Departments also do not agree that existing policies should be
exempt from the applicable notice. Although a consumer may have already
purchased fixed indemnity excepted benefit coverage in the past, the
consumer may not have been aware of the limitations of such coverage or
available comprehensive coverage options and may wish to evaluate all
of their options before reenrolling. Therefore, the Departments are
finalizing the proposal to provide the group market notice at or before
the time participants are given the opportunity to enroll or reenroll
in coverage prominently on the first page (in either paper or
electronic form, including on a website) of any marketing, application,
and enrollment (or reenrollment) materials, and decline to provide an
exemption for existing group market fixed indemnity excepted benefit
coverage. HHS is similarly finalizing the individual market proposal to
prominently display the notice 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, and also declines to provide an
exemption for existing individual market fixed indemnity excepted
benefit coverage. These changes will ensure that fixed indemnity
excepted benefit coverage is clearly identified as fixed indemnity
coverage and not comprehensive coverage when marketed and sold in both
the group and individual markets.
Some commenters opposed the adoption of a notice requirement in the
group market and questioned its permissibility in the individual
market. These commenters argued the Departments have no legal authority
to require group health plans and issuers offering fixed indemnity
excepted benefits coverage in the group market to provide such a
notice. One commenter, while recognizing that the existing individual
market notice was not at issue in Central United Life Ins. Co. v.
Burwell, argued that requiring a notice was akin to the type of
additional criterion that the D.C. Circuit found impermissible in the
case.\236\
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\236\ 827 F.3d 70 (D.C. Cir. 2016).
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The Departments disagree with commenters that question the
Departments' legal authority to adopt a consumer notice for fixed
indemnity excepted benefits coverage in the group and individual
markets. Through the enactment of the Federal excepted benefits
statutes,\237\ Congress generally preserved Federal authority to
interpret and implement the statutory provisions governing these
insurance products. Congress also provided the Departments with
explicit authority to promulgate regulations as the Secretaries
determine may be necessary or appropriate to carry out the provisions
of the Code, ERISA, and the PHS Act.\238\ These statutes collectively
provide the Departments authority to interpret and implement the
requirements for hospital indemnity or other fixed indemnity insurance
to qualify as excepted benefits coverage under the Federal framework,
and to adopt a consumer disclosure notice in regulation to ensure that
the statutes themselves function as Congress intended. As explained in
the 2023 proposed rules \239\ and in section I.D. and this section
III.B of the preamble of these final rules, fixed indemnity excepted
benefits coverage is not an adequate substitute for comprehensive
coverage, in part because it is not subject to Federal consumer
protections and requirements that apply to comprehensive coverage.
Consumers who purchase fixed indemnity excepted benefits coverage under
the mistaken impression that such coverage is subject to Federal
consumer protections and requirements for comprehensive coverage are at
significant risk of financial and health hardships that may not become
clear to the consumer until the occurrence of a costly health
event.\240\
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\237\ See section 9831 of the Code, section 732 of ERISA, and
sections 2722(b)-(c), 2763, and 2791(c) of the PHS Act.
\238\ See section 9833 of the Code, section 734 of ERISA, and
section 2792 of the PHS Act.
\239\ See, for example, 88 FR 44596 at 44619, 44620, 44645-44646
(July 12, 2023).
\240\ See id. at 44605, 44606 (citing 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), 44608
(citing 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) (July 12, 2023).
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Consumers cannot adequately access Federal consumer protections to
which they are entitled when it is unclear to which products they
apply, and the effects of these protections are diluted when consumers
are unclear what type of product they are purchasing and how and when
they are protected by Federal law. Therefore, a consumer notice that
clearly identifies a product as fixed indemnity excepted benefits
coverage and distinguishes such a product from comprehensive coverage,
clarifies and strengthens these protections for consumers. In addition,
the notice prevents plans and issuers from marketing products that have
been approved as an excepted benefit as comprehensive coverage to which
Federal protections apply. Therefore, the Departments are of the view
that it is necessary and appropriate for plans and issuers to provide
consumers with a consumer notice that clearly labels fixed indemnity
excepted benefits coverage and provides consumers with information
sufficient to notify the consumer that such coverage is not subject to
the Federal consumer protections and requirements for comprehensive
coverage.
[[Page 23382]]
The Departments also disagree with the commenter who stated
requiring a notice was akin to the type of additional criterion that
the D.C. Circuit found impermissible in Central United Life Ins. Co. v.
Burwell. Adoption of the Federal consumer notice is not an
impermissible requirement being added to the statutory criteria for
fixed indemnity excepted benefits coverage. To ensure that the Code,
ERISA, and the PHS Act function as intended, the notice ensures that
fixed indemnity excepted benefits coverage is marketed and labeled as
such, rather than as comprehensive coverage. As discussed in this
section III.B.1 of this preamble, the rules do not require the
provision of a notice, but instead simply provide that insurance
offered without such a notice would not qualify as fixed indemnity
excepted benefits coverage and would be subject to the Federal consumer
protections and requirements applicable to comprehensive coverage.
Plans and issuers will not be prohibited from selling hospital
indemnity and other fixed indemnity insurance, and consumers may
continue to choose to purchase it, but unless the coverage includes the
requisite notice identifying it as coverage not subject to the Federal
consumer protections and requirements subject to comprehensive
coverage, it would be subject to such protections and requirements.
Additionally, the notice is being adopted to further the Departments'
interest in ensuring that consumers are fully aware that they are
purchasing fixed indemnity excepted benefits coverage rather than
comprehensive coverage, are aware of their options to purchase
comprehensive coverage, and have access to information resources that
support informed consumer decision-making with regard to health
coverage.
Further, the changes to the individual market consumer notice and
the adoption of a notice in the group market are reflective and
responsive to changes observed by the Departments in market conditions
and the legal landscape. As discussed in section II.A of this preamble,
market conditions have changed and increased the availability of
affordable options for comprehensive coverage. As discussed in section
II.D of this preamble, the legal landscape has also changed. The
decision in Central United Life Ins. Co. v. Burwell and the passage of
the Tax Cuts and Jobs Act increase the likelihood that individuals
would purchase fixed indemnity excepted benefits coverage as a
substitute for comprehensive coverage. As a result of those changes,
the Departments are of the view that notices will help combat deceptive
marketing practices and potential sources of misinformation by clearly
identifying fixed indemnity excepted benefits coverage and
distinguishing such coverage from comprehensive coverage, directing
consumers to appropriate resources to learn more about comprehensive
coverage, and identifying key differences between that coverage and
fixed indemnity excepted benefits coverage.
Many commenters stated that the proposals regarding notices in the
2023 proposed rules usurp States' authority. Several commenters pointed
to the McCarran-Ferguson Act, stating that only Congress may infringe
on the States' exercise of their authority to regulate insurance.
Several commenters stated that Federal regulatory changes are not
necessary because States and the NAIC have been working on the NAIC
Models 40, 170, 171 and 880 that address these coverage options,\241\
and when those are adopted by States, they will adequately address the
Departments' concerns. Several commenters stated that amendments to the
Federal regulations are not necessary because States have enforcement
authority to discipline agents, discipline issuers, limit marketing
practices, and limit product features if there are instances of fixed
indemnity excepted benefits coverage being sold as a replacement for
comprehensive coverage.
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\241\ NAIC model laws are available at: https://content.naic.org/model-laws.
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The Departments agree that the States play an important role in
regulating fixed indemnity excepted benefits coverage and acknowledge
the federalism implications of the proposed rules and these final
rules.\242\ As noted by commenters, the McCarran-Ferguson Act generally
affirms the preeminence of State regulation, and also explicitly allows
for Federal regulation when an act of Congress specifically relates to
the business of insurance. As discussed in section III.A.1 of this
preamble, the McCarran-Ferguson Act balances State and Federal
interests in regulating the business of insurance. Section 1012(a) of
the McCarran-Ferguson Act maintained State regulatory authority by
enabling State preemption of some Federal law, and section 1012(b) of
the McCarran-Ferguson Act limited Federal regulatory authority by
generally exempting the ``business of insurance'' from Federal law.
Although Congress allowed for State preemption of Federal law in this
way, Congress also preserved Federal authority to regulate insurance
provided that, to overcome the State preemption, congressional action
must specifically relate to the business of insurance. As previously
noted, HIPAA, the ACA, and the other Acts of Congress specifically
relate to the business of insurance. Given that Congress defined and
set forth criteria for fixed indemnity excepted benefits coverage to be
exempt from the Federal consumer protections and requirements for
comprehensive coverage,\243\ there is clear congressional action
specifically addressing the business of insurance, thereby preserving
Federal regulatory authority to interpret and implement the Federal
statutory provisions governing these insurance products.
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\242\ For further discussion of the Federalism implications of
these final rules, see section V.H of this preamble.
\243\ See sections 9831 and 9832 of the Code, sections 732 and
733 of ERISA, and sections 2722, 2763, and 2791 of the PHS Act.
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In addition, as previously noted, Congress also provided the
Secretaries of the Treasury, Labor, and HHS with explicit authority to
promulgate regulations as may be necessary or appropriate to carry out
the provisions of the Code, ERISA, and the PHS Act.\244\ This includes
the authority for the Departments to interpret and implement the
requirements for hospital indemnity or other fixed indemnity insurance
to qualify as excepted benefits coverage under Federal law, and also
provides the authority to adopt a consumer notice. The Code, ERISA, and
the PHS Act impose certain requirements on comprehensive coverage and
do not impose those same requirements on fixed indemnity excepted
benefits coverage. The Departments believe it is necessary and
appropriate that plans and issuers provide consumers considering the
purchase (or renewal) of fixed indemnity excepted benefits coverage,
and those actually purchasing such insurance, a notice that clearly
identifies the insurance as fixed indemnity excepted benefits coverage
and is sufficient to put consumers on notice that such coverage is not
subject to the Federal consumer protections and requirements for
comprehensive coverage. The notices also direct consumers to resources
where they can learn about the range of available coverage options, and
the notices are designed to help combat the misinformation and
deceptive tactics that can lead to consumers mistakenly enrolling in
fixed indemnity excepted benefits coverage in lieu of comprehensive
coverage. This will help ensure that consumers who purchase
[[Page 23383]]
fixed indemnity excepted benefits coverage are doing so based on an
informed decision and not in error.
---------------------------------------------------------------------------
\244\ See section 9833 of the Code, section 734 of ERISA, and
section 2792 of the PHS Act.
---------------------------------------------------------------------------
The notice provisions being finalized in these final rules do not
infringe on States' authority to regulate insurance. States retain
authority to regulate fixed indemnity excepted benefits coverage.
States may impose standards or requirements on hospital indemnity or
other fixed indemnity insurance for purposes of State law, such as a
requirement to provide a State-specific notice in relation to fixed
indemnity excepted benefits coverage offered by issuers in their State,
including any notice developed as part of an NAIC Model Act or
Regulation. However, hospital indemnity or other fixed indemnity
insurance that does not include the language in the revised notice
under these final rules would not be considered fixed indemnity
excepted benefits coverage for purposes of Federal law and thus would
be subject to the Federal consumer protections and requirements
applicable to comprehensive coverage.
The Departments are of the view that these final rules
appropriately balance States' interests in regulating health insurance
issuers and their health insurance markets with Congress' intent to
establish a general Federal framework for health insurance coverage,
including the provision of certain key protections to consumers
enrolled in comprehensive coverage and the creation of an exemption for
insurance products that meet the requirements to be considered excepted
benefits coverage. The Departments recognize that States have been
working with the NAIC to revise several model acts and regulations
related to marketing and sales practices and those models might address
some of the Departments' concerns. However, those models establish
minimum standards and States' adoption of any NAIC model is optional.
States may choose to codify some or none of the standards set forth in
the NAIC models, which have yet to be finalized. The Departments will
engage with States and the NAIC as they revise several NAIC Model Acts
and regulations to update the minimum standards for non-comprehensive
coverage products, including fixed indemnity excepted benefits
coverage. The Departments look forward to reviewing the information and
data collected on such products from the NAIC data call that is
currently underway.
A few commenters stated that the notice provisions in the
individual and group markets raised First Amendment concerns, alleging
that the Departments did not articulate a compelling governmental
interest because the 2023 proposed rules failed to provide any
substantial evidence that consumer confusion is widespread. Those
commenters further asserted that the notice provisions for the group
and individual markets are not narrowly tailored, and that requiring
display on the first page of marketing and enrollment materials (in
addition to application materials) is not justified.
The Departments disagree that the proposed notice provisions for
fixed indemnity excepted benefits coverage raise First Amendment
concerns. The rules do not require the provision of a notice, but
instead simply provide that hospital indemnity or other fixed indemnity
insurance offered without such a notice would not qualify as fixed
indemnity excepted benefits coverage and would be subject to the
Federal consumer protections and requirements applicable to
comprehensive coverage. Moreover, as the United States Supreme Court
recognized in Zauderer v. Office of Disciplinary Counsel,\245\ and
later reiterated in National Institute of Family and Life Advocates v.
Becerra,\246\ required disclosures of factual, uncontroversial
information in commercial speech are subject to more deferential First
Amendment scrutiny. Under the approach articulated in Zauderer, courts
have upheld required disclosures of factual information in the realm of
commercial speech where the disclosure reasonably relates to a
substantial government interest and is not unjustified or unduly
burdensome such that it would chill protected speech. Regardless, the
Departments believe that the revised notice standard would pass muster
under any form of First Amendment scrutiny.\247\
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\245\ 471 U.S. 626 (1985).
\246\ 585 U.S. 755 (2018).
\247\ See also Pharmaceutical Care Management Association v.
Rowe, 429 F.3d 294, 316 (1st Cir. 2005).
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The language on the Federal notices for fixed indemnity excepted
benefits coverage includes factual, uncontroversial information,
reasonably relates to a government interest, and is not unjustified or
unduly burdensome. In addition, the Departments have reviewed and
responded to public comments that raised concerns about proposed text.
For example, certain language that appeared in the proposed rules that
commenters deemed controversial, such as ``Warning,'' are not being
finalized. HHS conducted consumer testing to ensure the language in the
required notice was not misinterpreted to deliver any untrue messages.
The Departments have a substantial, and even compelling, government
interest in ensuring consumers are aware of the type of product they
are considering purchasing, are informed about key differences between
fixed indemnity excepted benefits coverage and comprehensive coverage,
are aware of their option to purchase comprehensive coverage, and have
access to resources for additional information about the range of
available health coverage options so consumers can make informed
choices. As discussed in section II.B of this preamble, this is of
particular importance at present due to the changing legal landscape
and low health literacy, as well as the increased reports of deceptive
marketing practices that play on consumer confusion about the benefits
and limitations of fixed indemnity excepted benefits coverage. The
notices clearly label products as fixed indemnity excepted benefits
coverage and communicate factual information to consumers about the
differences between fixed indemnity excepted benefits coverage and
comprehensive coverage and explain how consumers can find resources
when they have questions about the different coverage options. As
stated in the preamble to the 2023 proposed rules, the Departments are
concerned about consumers who mistakenly enroll in fixed indemnity
excepted benefits coverage in lieu of comprehensive coverage and are
therefore at risk of significant financial liability because their
health care costs may greatly exceed the fixed cash benefit to which
they may be entitled--if benefits are even provided for their health-
related event.\248\ Accordingly, the notices adopted in these final
rules serve a legitimate government interest, are justified, and are
reasonably related to these government interests.
---------------------------------------------------------------------------
\248\ 88 FR 44596 at 44606 (July 12, 2023).
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Furthermore, these notices do not unduly burden plan or issuer
speech because nothing in the final rules would ``drown out'' a plan's
or issuer's own message or ``effectively rule out'' any mode of
communication.\249\ Plans and issuers remain free to communicate with
consumers using methods and media they have always used or may choose
to use in the future. The burden associated with displaying the
applicable notice should be low since the Departments have adopted
static language, meaning that the plan or issuer does not have to
tailor or modify
[[Page 23384]]
the Federal notice. For the reasons discussed previously, the
Departments are of the view that informing consumers prior to purchase
or reenrollment of fixed indemnity excepted benefits coverage and
directing them to resources to learn more about the range of available
coverage options is highly related to the government's aforementioned
interest in ensuring that consumers make informed decisions.
---------------------------------------------------------------------------
\249\ See NIFLA, 138 S. Ct. at 2378.
---------------------------------------------------------------------------
The Departments are aware of some complex fixed indemnity policies
in the individual market that pay benefits based on extensive variable
schedules and other policies that promote a certain network of
providers. Such plan designs mimic comprehensive coverage and can skew
a consumer's understanding of the nature and extent of the fixed
indemnity excepted benefits coverage. The Departments provided examples
of consumer confusion regarding the limitations and exclusions
associated with fixed indemnity excepted benefits coverage in the
preamble to the 2023 proposed rules \250\ and received additional
examples from commenters. Some commenters provided examples of benefit
designs that are modeled after comprehensive coverage and may cause
confusion, including products requiring that enrollees meet a
deductible before benefits are paid, making payments directly to
providers, or using provider networks that purport to give the member a
reduced or discounted medical bill for using an in-network provider.
The preamble to the 2023 proposed rules also described certain
arrangements in the group market that the Departments are concerned can
mislead enrollees into believing they have comprehensive coverage when
that is not the case.
---------------------------------------------------------------------------
\250\ 88 FR 44596 at 44621-22 (July 12, 2023).
---------------------------------------------------------------------------
Both the draft notice that was proposed for the group and
individual markets in the 2023 proposed rules and the version being
finalized in these rules are reasonably related and narrowly tailored
to the government's interest in informing consumers about the
limitations of fixed indemnity excepted benefits coverage, and
combating deceptive marketing practices and potential sources of
misinformation, by directing consumers to appropriate resources to
learn more about the range of available health coverage options.\251\
The notices do not include irrelevant or superfluous information
unrelated to these interests.
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\251\ 88 FR 44625 ``[T]he 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.''
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As the Departments explained in the preamble to the 2023 proposed
rules, requiring plans and issuers to display a notice on the first
page of marketing, application, and enrollment materials in both
markets plus on the first page of the policy, certificate, or contract
of insurance in the individual market is justified 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. In the Departments' view, requiring the notice only on
the first page of the application is insufficient, as evidenced by
ongoing consumer confusion.
The Departments proposed 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 group market fixed indemnity excepted
benefit coverage. 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 Departments proposed that the notice must be displayed in all
reenrollment materials that are provided to participants at or before
the time participants are given the opportunity to reenroll in
coverage. The Departments explained that they consider marketing
materials to include any documents or website pages that advertise the
benefits or offer an opportunity to enroll (or reenroll) in group
market fixed indemnity excepted benefits coverage. The Departments are
finalizing the proposed requirements related to the placement of the
group market consumer notice as proposed.
HHS proposed slightly different placement standards for the
individual market consumer notice. The requirements reflect the
differences between the types of documents that consumers typically
receive when considering enrolling or reenrolling in fixed indemnity
excepted benefits coverage in the individual market compared to
participants in the group market. With respect to individual market
fixed indemnity excepted benefits coverage, HHS proposed that issuers
must also 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 renewals or
extensions, because individual market consumers are likely to receive
those documents upon enrollment. This is in addition to prominently
displaying the notice on the first page (in either paper or electronic
form) of any marketing, application, and enrollment (or reenrollment)
materials for individual market fixed indemnity excepted benefit
coverage, and prominently displaying the notice on websites that
advertise or offer an opportunity to enroll (or reenroll) in such
coverage. HHS proposed the additional locations for display, rather
than just application materials as required in the 2014 final rule, due
to concern of ongoing consumer confusion. These proposals related to
notice placement were 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' understanding of how consumers receive information related
to group market versus individual market fixed indemnity excepted
benefits coverage. HHS is finalizing the proposed requirements related
to placement of the individual market consumer notice as proposed.
Many commenters supported the proposed placement of the notices in
marketing, application, and enrollment and reenrollment materials,
including websites and materials shared electronically. Some commenters
also generally stated that the notices should be provided early and
often so that consumers are not confronted with notice or warning
language only after selecting a plan for purchase.
Some commenters expressed opposition to including the applicable
notice with all marketing, application, and enrollment materials,
suggesting such requirements are excessive and may reduce the impact of
the notice. These commenters recommended the notice be provided in only
the enrollment materials or using the existing individual market
standard, which requires placement in the application materials only.
The Departments are finalizing the proposed standards regarding the
placement and applicable materials on which the group market notice
must appear without modification. HHS is similarly finalizing the
proposed standards regarding the placement and applicable materials on
which the revised individual market notice must appear without
modification. The Departments disagree with the commenters who stated
that including the notice on all of these materials is
[[Page 23385]]
excessive and may reduce the impact of the notice itself. Including the
notice on the first page (in either paper or electronic form, including
on a website) of any marketing, application, and enrollment (or
reenrollment) materials (as well as, in the individual market, the
policy, certificate, or contract of insurance) is 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. To achieve this, as some commenters pointed out, it is
important that the notice be available both early in the enrollment (or
reenrollment) process and often. Therefore, it is the Departments' view
that requiring the notice in several locations--rather than just the
enrollment materials or only in the application--is not excessive due
to the goal of maximizing consumers' opportunity to review the notice
throughout their decision-making process, which is likely to increase
the impact of the notice. The repetition will also help mitigate the
potential for consumers to mistakenly enroll in fixed indemnity
excepted benefits coverage as a substitute for comprehensive coverage
and will help combat deceptive marketing practices and potential
sources of misinformation by directing consumers to appropriate
resources to learn more about the range of available health coverage
options.
The Departments recognize that providing notices imposes costs on
plans and issuers and identified other scenarios where the benefits to
consumers would be minimal and do not justify the administrative burden
on plans and issuers to provide the notice. Specifically, these final
rules do not require plans and issuers to provide the notice to
beneficiaries, as well as participants, in the group market. In the
Departments' view, requiring plans and issuers offering fixed indemnity
excepted benefits coverage in the group market to provide notice to
participants (rather than to both participants and any beneficiaries)
appropriately balances the need to ensure that participants 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.
In addition, 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, these final rules do not require
that plans and issuers include the consumer notice in those documents
for group market fixed indemnity excepted benefits coverage because
doing so would not support the goal of ensuring that the consumers
themselves receive the information so they can make an informed
decision before enrolling (or reenrolling) in coverage. Similarly, in
the individual market, HHS did not propose and is not finalizing a
requirement for the notice to be provided to dependents of the
individual enrolling in coverage. Instead, the individual market notice
must be provided only to the policyholder.
The Departments proposed and are finalizing that the group market
notice must be prominently displayed in at least 14-point font on the
first page of any applicable marketing, application or enrollment
materials.\252\ Consistent with the approach outlined in the 2023
proposed rules, under these final rules, the Departments consider a
notice to be prominently displayed if it is easily noticeable to a
typical consumer within the context of the page (either paper 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).
HHS proposed, and is finalizing, the same prominent display
requirements for the individual market notices that must appear on the
first page of any applicable materials.\253\
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\252\ As previously discussed in this section III.B.1 of this
preamble, the Departments are finalizing the proposed requirements
regarding the placement and materials on which the group market
notice must appear without modification. As such, the group market
notice must be prominently displayed on all marketing, application,
and enrollment (or reenrollment) materials. The notice must also be
prominently displayed on websites that advertise or offer an
opportunity to enroll (or reenroll) in group market fixed indemnity
excepted benefits coverage.
\253\ As previously discussed in this section III.B.1 of this
preamble, HHS is finalizing the proposed requirements regarding the
placement and materials on which the individual market notice must
appear without modification. As such, the revised individual market
notice must be prominently displayed on the first page of the
policy, certificate, or contract of insurance, as well as on all
marketing, application, and enrollment (or reenrollment) materials.
The notice must also be prominently displayed on websites that
advertise or offer an opportunity to enroll (or reenroll) in
individual market fixed indemnity excepted benefits coverage.
---------------------------------------------------------------------------
Some commenters supported the proposal that the notices be
prominently displayed on the first page of applicable materials in at
least 14-point font. Another commenter suggested that instead of the
14-point font standard, the Departments should require that the notices
are ``easily noticeable to a typical consumer within the context of the
page.'' One commenter recommended that when fixed indemnity excepted
benefits coverage is sold as part of a bundled package, the applicable
notice should be displayed on the front page of the bundled package,
not just on the first page of fixed indemnity material, to help
consumers see the notice instead of having it be embedded among many
pages of material. One commenter stated that State regulators will
often require pre-approval of any materials if the issuer adds any
language to a previously approved insurance document, and that
commenter requested that issuers have the flexibility to provide the
required consumer notice on a separate document rather than the first
page of the marketing, application, or enrollment (or reenrollment)
materials.
The Departments agree with commenters who supported the prominent
display of the notice on the first page of applicable materials in at
least 14-point font. The Departments are of the view that this will
help ensure that the notice is displayed in a location and font size
that consumers are likely to see and will do so more effectively than a
less subjective standard like an ``easily noticeable'' standard. The
individual market regulations have required the prominent display of
the notice in at least 14-point font and the Departments maintain that
standard for simplicity and consistency.
The Departments appreciate the suggestion that when fixed indemnity
excepted benefits coverage is sold as part of a bundled package, the
notice should be displayed on the front page of the bundled package,
not just on the first page of fixed indemnity material, to help
consumers see the notice instead of having it be embedded among many
pages of material. However, in some cases, placing the notice on the
front of such a bundle may lead to increased consumer confusion if, for
example, the consumer is unclear as to which insurance sold as part of
the bundle is described in the notice. Therefore, the Departments
decline to adopt a standard that requires the notice be displayed on
the front page of a bundled package.
Likewise, the Departments decline to specify the manner in which
materials must be presented to States for review and approval including
approval of new language in a previously approved document. Issuers
should work with States to determine which pages that include the
notice must be submitted to the State for review and approval, the
manner of submission, and how to verify that the submission is the
first page of the material.
[[Page 23386]]
The Departments are finalizing the proposal that the group market
notice must be prominently displayed in at least 14-point font on the
first page of the applicable materials, and HHS is finalizing the
parallel proposal for prominent display of the individual market notice
on the first page of the applicable materials.
The existing notice requirement, which currently applies only in
the individual market, requires that the following language be provided
in application materials in at least 14-point type:
[GRAPHIC] [TIFF OMITTED] TR03AP24.055
To align the notice with the changes made by the Tax Cuts and Jobs
Act to section 5000A of the Code (reducing the individual shared
responsibility payment to $0), and to clarify the message to consumers,
the 2023 proposed rule proposed revisions to the individual market
notice and solicited comments on two options for the notice. As
previously discussed, the Departments also proposed to adopt a new
notice provision for the group market and solicited comments on the
same two options for the group market notice.
The first option (Format A) was as follows:
BILLING CODE 4830-01-P
[GRAPHIC] [TIFF OMITTED] TR03AP24.056
[[Page 23387]]
BILLING CODE 4830-01-C
One commenter stated that the general promise of a cash benefit on
Format B could be read too broadly by a consumer with low health
insurance literacy. Another commenter suggested that the phrase
``Important Notice--Please Read Carefully'' should appear at the top of
the notice because that phrase would better catch the attention of
consumers and inform them that this is important information that they
should consider prior to making a decision. Another commenter suggested
the notice should include the words ``by law'' before the phrase ``does
not have to include'' most Federal consumer protections on Format A to
make it clear that this coverage, by law, is not subject to the ACA or
other Federal health coverage mandates. Several commenters indicated
that information on the notice should be provided in a bulleted format
to ensure that all factors are clearly listed. Some commenters
recommended adopting Format B for greater accessibility and stated that
version is written more concisely and in plain language. One commenter
suggested Format B provides clarity to the reader about the nature of
the insurance product by using the term ``WARNING'' instead of
``IMPORTANT.''
Other commenters opposed the use of Format B, stating that this
option was misleading, confusing, and inaccurate. Several commenters
suggested that the use of the term ``WARNING'' inappropriately implies
that the coverage is inherently dangerous, noting that in other Federal
labeling requirements, the use of the term ``WARNING'' is limited to
extreme situations where the product itself is inherently unsafe. These
commenters stated that hospital indemnity or other fixed indemnity
insurance is not inherently hazardous or harmful, and the term
``IMPORTANT'' would be more appropriate and accurate. Some commenters
stated that Format B included language regarding covering the cost of
care, which is not entirely accurate, and that the language suggests
the policy is subject to, but avoiding, Federal coverage mandates.
Those commenters stated that Format B may therefore exacerbate consumer
confusion.
In response to the comments on the proposed content for the notices
and the different formats outlined in the 2023 proposed rules, HHS
performed consumer testing to evaluate commenters' suggestions and
better understand how the different formats for the notice could be
interpreted by consumers. This consumer testing found that some
consumers were unclear on the meaning of the phrase ``cash benefit''
within the context of the notice in Format B. Consumers also reported
they were confused by the phrase ``it is not intended to cover the cost
of your care'' in Format B of the proposed notice; some consumers noted
that phrase only referred to their out-of-pocket costs that may be
associated with the policy, such as a deductible or copay. The consumer
testing also revealed that consumers prefer ``IMPORTANT'' and viewed
``WARNING'' as too strong. They stated that ``IMPORTANT'' was
sufficient to draw their attention to the notice, and that adding the
words ``by law'' before the phrase regarding Federal consumer
protections was superfluous and not necessary.
In response to comments stating that Format B was written more
concisely and in plain language, as well as the results of the consumer
testing and feedback from plain language experts, the Departments are
finalizing a modified version of Format B. The modified version
provides information using a bulleted format to ensure all information
is clearly listed, as commenters recommended.
The Departments modified Format B to address comments that claimed
that format was misleading, confusing, and inaccurate. The finalized
notice does not include the phrase ``cash benefit'' or ``by law'' or
the word ``Warning.'' HHS is similarly not including these same phrases
in the individual market notice that is finalized in these final rules.
The Departments also decline to add ``Important Notice--Please Read
Carefully'' because consumer testing revealed that including the word
``IMPORTANT'' in all uppercase was sufficient to identify the
applicable notice as a document that should be read. The Departments
have revised the group market notice language to include ``You're still
responsible for paying the cost of your care'' because consumers who
were tested understood that terminology better than the proposed phrase
``It is not intended to cover the cost of your care'' included in
Format B of the proposed notice. In addition to that phrase, the
Departments are also adding the statement ``The payment you get isn't
based on the size of your medical bill'' to highlight that the fixed
indemnity excepted benefit is a fixed payment amount and not related to
the billed amount. For the same reason, the Departments have also
revised the group market notice language to state ``Since this policy
isn't health insurance, it doesn't have to include most [F]ederal
consumer protections that apply to health insurance,'' rather than the
proposed statement in Format B of the proposed notice that the policy
``doesn't have to include most Federal consumer protections for health
insurance.'' The revised phrasing avoids suggesting that the policy is
subject to, but avoiding, the Federal consumer protections and
requirements applicable to comprehensive coverage. HHS is adopting the
same revisions to the language in the revised individual market
consumer notice.
The Departments welcomed comments on any benefits or burdens that
would be associated with including information to direct consumers to
State-specific resources as part of the notice, including identifying
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 welcomed comments on any burdens that would be created
by providing 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 proposed
in both Format A and Format B. For products that are filed in multiple
States, the Departments solicited comments on whether the notice should
include the name and 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. Under this approach, 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, the
notice would need to 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.
Several commenters supported including State-specific details in
the notice, including contact information for the State's Exchange and
department of insurance. One commenter strongly supported including
State-specific contact information in the notice, to ensure that
consumers have access to the resources they need to understand their
hospital indemnity and other fixed indemnity insurance policy.
Other commenters opposed customization of the notice to include
State-specific resources, stating customization would increase
administrative burden and cost and potentially create consumer
confusion. One commenter noted that some
[[Page 23388]]
companies that make fixed indemnity excepted benefits products
available in multiple States often use universally applicable brochures
for those products, and those issuers would be required to stop
longstanding, efficient marketing and enrollment processes with little
benefit to consumers, who can easily obtain State-specific contact
information elsewhere.
One commenter did not support the inclusion of contact information
for each State department of insurance but recommended that the
Departments consider directing consumers to the NAIC's online
directory, available at naic.org. The Departments did not receive
comments regarding which State agency's contact information should be
included for products that are filed in multiple States.
In developing the notice language, the Departments sought to
balance the goals of distinguishing fixed indemnity excepted benefits
coverage from comprehensive coverage, combatting deceptive marketing
practices, and reducing misinformation by directing consumers to
appropriate resources to learn about the range of available coverage
options, with the need to provide a concise, understandable notice that
would be meaningful and useful to consumers. The Departments understand
commenters' concerns regarding the burden associated with customizing
notices to include State-specific information. However, the Departments
also recognize the value of including State-specific information, such
as appropriate contact information if the consumer has questions or
wants more information about available coverage options.
After consideration of comments and the results of consumer
testing, the Departments are finalizing changes to the notice to
incorporate uniform language as part of the required content for the
Federal notices that directs individuals to an NAIC web page where they
can find the contact information for the applicable State regulatory
agency. As discussed in section III.A.4 of this preamble, the inclusion
of the NAIC link in the notice does not constitute an endorsement by
the Departments. Since the Departments are not requiring State-specific
contact information on the Federal notice, the Departments decline to
specify a certain agency's contact information that should be included
for products that are filed in multiple States.
The Departments are also incorporating static language as part of
the content for the group market notice in these final rules that
direct individuals to HealthCare.gov, where individuals can navigate to
their State's Exchange, whether a Federally-facilitated Exchange, State
Exchange on the Federal platform or a State Exchange. HHS is adopting
similar static language for the individual market notice. This approach
is intended to balance the desire to ensure individuals can access
State-specific information with not increasing the burden on plans and
issuers associated with the development of customized notices that
provide State-specific information.
The Departments also solicited comments on whether it would be
beneficial to consumers to require plans and 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 did not receive comments regarding
inclusion of that phrase on the required notice for fixed indemnity
excepted benefits coverage but performed consumer testing on notices
that included the phrase. Consumer testing revealed that some consumers
stated that including that phrase at the bottom of the notice was
helpful and that it made the information on the notice seem more
legitimate, while other consumers stated the phrase meant the fixed
indemnity excepted benefits policy itself was endorsed by the Federal
Government. Given the potential for consumer confusion, the Departments
are not including a statement that the notice is required by Federal
law.
In response to comments and after consideration of the results from
the consumer testing, to enhance readability, the Departments made
several changes to incorporate a combination of the language from both
Format A and Format B in the 2023 proposed rules and are finalizing the
following content for the group market notice:
BILLING CODE 4830-01-P
[[Page 23389]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.057
BILLING CODE 4830-01-C
HHS is finalizing the same content for the revised individual
market notice for fixed indemnity excepted benefits coverage.
Some commenters recommended requiring that the formatting of the
notice be accessible to people with a range of disabilities and that it
be made available in the most commonly spoken languages in each State.
The Departments agree that it is important that the notices are
accessible and understandable to individuals with disabilities, as well
as to individuals with limited English proficiency. The Departments are
mindful of the challenges faced by individuals with physical, sensory,
or cognitive disabilities, including but not limited to individuals who
use screen readers and other assistive technology.
While the Departments did not propose and are not finalizing
accessibility or language access standards specific to these notices as
part of this rulemaking, the Departments remind plans and issuers that
they are required to comply with other State and Federal laws
establishing accessibility and language access standards to the extent
applicable. For example, recipients of Federal financial assistance
must comply with Federal civil rights laws that prohibit
discrimination. These laws may include section 1557 of the Affordable
Care Act,\254\ title VI of the Civil Rights Act of 1964,\255\ section
504 of the Rehabilitation Act of 1973,\256\ and the Americans with
Disabilities Act of 1990.\257\ Section 1557 and title VI require
covered entities to take reasonable steps to ensure meaningful access
to individuals with limited English proficiency, which may include
provision of language assistance services such as written translation
of written content, in paper or electronic form into languages other
than English.
[[Page 23390]]
Sections 1557 and 504 require covered entities to take appropriate
steps to ensure effective communication with individuals with
disabilities, including provision of appropriate auxiliary aids and
services at no cost to the individual. Auxiliary aids and services may
include interpreters, large print materials, accessible information and
communication technology, open and closed captioning, and other aids or
services for persons who are blind or have low vision, or who are deaf
or hard of hearing. Additionally, section 508 of the Rehabilitation Act
of 1973 requires that information provided through information and
communication technology also must be accessible to individuals with
disabilities unless certain exceptions apply.
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\254\ 42 U.S.C. 18116.
\255\ 42 U.S.C. 2000d et seq.
\256\ 29 U.S.C. 794.
\257\ 42 U.S.C. 12101 et seq.
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2. Technical Amendment
HHS proposed 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 strike from the
regulatory text the provision that was vacated in Central United Life
Ins. Co. v. Burwell.\258\ HHS did not receive any comments regarding
this proposed technical amendment and is finalizing as proposed. HHS is
also finalizing the proposed conforming amendments to 45 CFR 148.220 to
redesignate paragraphs (b)(4)(ii) through (iv) as paragraphs (b)(4)(i)
through (iii).\259\
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\258\ 827 F.3d 70 (D.C. Cir. 2016).
\259\ These provisions are being redesignated without any
changes to the regulatory text.
---------------------------------------------------------------------------
3. Applicability Dates
The Departments proposed that the new group market notice
provisions would apply to both new and existing group market fixed
indemnity excepted benefits coverage for plan years beginning on or
after the effective date of the final rules. HHS proposed a similar
applicability date for the revised individual market fixed indemnity
excepted benefits coverage notice. After consideration of comments, the
Departments are finalizing delayed applicability dates for the notices,
such that plans and issuers will be required to comply with the notice
provisions finalized in these rules for plan years (in the individual
market, coverage periods) (including renewals) beginning on or after
January 1, 2025. To streamline the regulatory text, the Departments are
finalizing the applicability date for the notice provision for fixed
indemnity excepted benefits coverage in the group market at 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) rather than at 26 CFR 54.9831-1(c)(4)(iv), 29 CFR
2590.732(c)(4)(iv), and 146.145(b)(4)(iv), as proposed. HHS is
finalizing the applicability date for the notice provisions for fixed
indemnity excepted benefit coverage in the individual market at 45 CFR
148.220(b)(4)(iii),\260\ rather than at 148.220(b)(4)(iv).
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\260\ Under 45 CFR 148.220(b)(4)(iii)(B) of these final rules,
the notice in Sec. 148.220(b)(4)(iv) contained in 45 CFR part 148,
revised as of October 1, 2023, continues to apply to individual
market fixed indemnity excepted benefits coverage for coverage
periods beginning before January 1, 2025. However, HHS will not
consider insurance to fail to be fixed indemnity excepted benefits
coverage in the individual market under the Federal framework if an
issuer adopts the revised notice in these final rules for coverage
periods beginning before January 1, 2025. HHS encourages States to
adopt a similar approach if their issuers elect to adopt the revised
notice for coverage periods that begin before January 1, 2025.
---------------------------------------------------------------------------
Several commenters supported issuing updated notices to existing
policyholders by applying the notice provisions finalized in these
rules to coverage periods (including renewals) beginning on or after
January 1, 2025. Other commenters stated the notice provisions should
not apply before January 1, 2027, for all individual and group
coverage, regardless of when the coverage is issued or sold. Some
commenters urged the Departments to apply the notice provisions only to
new coverage sold after the effective date of the final rules, alleging
that the application to existing coverage would be impermissibly
retroactive. Those commenters stated that applying the notice to
existing policies would inappropriately interfere with a covered
individual's current contract and their choice to continue the policy.
Some commenters asserted that imposing the notice provision on existing
policies would be confusing and impractical. Another commenter
recommended the applicability date for the notice provision for new
coverage should be at least 24 months after publication of the final
rules, to allow issuers time to update and refile products and
marketing materials to reflect the necessary changes and provide State
regulators with the time necessary to review and approve products and
updated marketing materials. The commenters stated that it would be
extremely difficult or impossible for issuers of group market coverage
to make the required changes for notices to all marketing and
enrollment materials for hospital indemnity and other fixed indemnity
products before the effective date of these final rules. One commenter
stated that it would be impossible for issuers of individual market
coverage to comply with the proposed applicability dates because of the
length of time necessary to obtain State-level approval for revised
individual insurance contracts.
The Departments decline to extend the applicability date to January
1, 2027, as suggested by some commenters. In the Departments' view the
benefits of providing the notice to consumers at an earlier time
outweighs the burden on plans and issuers to incorporate the notice by
the delayed applicability date for plan years (in the individual
market, coverage periods) (including renewals) beginning on or after
January 1, 2025. To minimize the burden, the Departments are finalizing
notices that cannot be modified or customized; therefore, plans and
issuers will not have to spend time or resources to develop their own
notices to comply with the Federal notice standard. Plans and issuers
may need to modify their website or other marketing materials to comply
with the Federal notice standard and may need to submit materials for
State review, but the Departments do not agree with commenters that
those modifications require 24 months or more.
The Departments also disagree with commenters who stated that
applying the notice to existing policies would inappropriately
interfere with a covered individual's current contract. The notice does
not change the terms of the contract to which the issuer and
policyholder agreed. The notice will be provided to a currently covered
individual at the time of renewal; therefore, there is no interference
with a current contract, and the notice does not prevent an individual
from renewing or reenrolling in fixed indemnity excepted benefits
coverage. The Departments therefore disagree that the application of
the notice provisions to existing enrollees at the time of renewal or
reenrollment is impermissibly retroactive because it applies to future
coverage periods and does not take away or impair vested rights or
create new obligations or duties with respect to past transactions. The
Departments also disagree that applying the notice provisions to
existing policies would be confusing and impractical. The Departments
are of the view that consumers should have information about the range
of available
[[Page 23391]]
coverage options and have an opportunity to reconsider their coverage
options. The notice standard under these final rules allows consumer to
make an informed decision whether to maintain their existing fixed
indemnity excepted benefits coverage and whether to also pursue or
maintain comprehensive coverage.
The Departments are not persuaded by comments suggesting it would
be extremely difficult or impossible for plans and issuers to make
changes to incorporate the applicable notice in all applicable
materials for hospital indemnity and other fixed indemnity products
before the proposed applicability date, which was the effective date of
these final rules. Nevertheless, after consideration of the comments
requesting additional time to modify marketing materials and plan
documents, the Departments are finalizing an applicability date for the
notices adopted under these final rules to apply in the group and
individual markets of plan years (in the individual market, coverage
periods) (including renewals) beginning on or after January 1,
2025.\261\
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\261\ HHS reminds issuers that the existing individual market
notice for fixed indemnity excepted benefits coverage, codified in
45 CFR 148.220(b)(4)(iv), revised as of October 1, 2023, continues
to apply for coverage periods beginning before January 1, 2025.
However, HHS will not consider insurance to fail to be fixed
indemnity excepted benefits coverage in the individual market under
the Federal framework if an issuer adopts the revised notice in
these final rules for coverage periods beginning before January 1,
2025. HHS encourages States to adopt a similar approach if their
issuers elect to adopt the revised notice for coverage periods that
begin before January 1, 2025.
---------------------------------------------------------------------------
The Departments proposed that the severability provisions described
in section IV of this preamble would apply to both new and existing
group market fixed indemnity excepted benefits coverage beginning on
the effective date of these final rules. HHS proposed that the
technical amendment described in section III.B.2 of this preamble and
the severability provisions described in section IV of this preamble
would apply to both new and existing individual market fixed indemnity
excepted benefits coverage on the effective date of these final rules.
HHS is only finalizing the technical amendment to remove the language
in existing 45 CFR 148.220(b)(4)(i) and make conforming amendments to
redesignate paragraphs (b)(4)(ii) through (iv) as paragraphs (b)(4)(i)
through (iii).
HHS did not receive comments related to the applicability date for
the technical amendments it is finalizing in these final rules or
severability provision in the individual market regulations and is
finalizing them as proposed. The Departments are also finalizing as
proposed the applicability date for the group market severability
provisions.
IV. Severability
The Departments are finalizing amendments to the Federal definition
of ``short-term, limited-duration insurance'' and certain regulatory
provisions regarding the requirements for hospital indemnity and other
fixed indemnity insurance to qualify as an excepted benefit in the
group or individual market, for the purpose of distinguishing STLDI and
fixed indemnity excepted benefits coverage from comprehensive coverage.
The Departments' authority to finalize and adopt 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 these final rules
is declared invalid, the Departments intend that the other provisions,
which could still function sensibly, would be severable.
Specifically, if any provision finalized in these final rules
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 a court were
to find the portion of the STLDI definition that limits stacking, the
portion of the STLDI definition that establishes a Federal consumer
notice, or any other aspect of the revised Federal STLDI definition to
be unlawful, the Departments intend the remaining aspects of these
final rules related to STLDI to stand.
Similarly, if any finalized provision in this rulemaking related to
group or individual 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 other sections of
these rules; and such invalidation shall not affect the remainder
thereof or the application of the provision to other entities not
similarly situated or to dissimilar conditions.
The Departments also intend for the STLDI amendments in this
rulemaking to be severable from the fixed indemnity excepted benefits
coverage amendments, and vice versa.
The Departments did not receive any comments on the proposed group
market severability provisions and are finalizing the proposed
severability provisions as proposed. HHS also did not receive any
comments on the proposed individual market severability provision and
is finalizing that provision as proposed.
V. Regulatory Impact Analysis
A. Summary--Departments of Health and Human Services and Labor
These final rules revise the Federal definition of STLDI for new
policies, certificates, or contracts of insurance sold or issued on or
after September 1, 2024, to provide that the coverage must 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 final rules 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 includes the term of a new
STLDI policy, certificate, or contract of insurance issued by the same
issuer or, if the issuer is a member of a controlled group, any other
issuer that is a member of such controlled group, 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 September 1, 2024--the amendments to
the definition of STLDI addressing maximum term and duration in these
final rules apply for coverage periods beginning on or after September
1, 2024. Under these final rules, existing STLDI--meaning policies,
certificates, or contracts of STLDI sold or issued before September 1,
2024 (including any subsequent renewals or extensions consistent with
applicable law)--may 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.
These final rules further revise the Federal definition of STLDI to
provide that a revised notice 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
[[Page 23392]]
individuals in STLDI). These notice provisions apply for both new and
existing STLDI for coverage periods beginning on or after September 1,
2024.
Additionally, these final rules amend the regulations regarding
fixed indemnity excepted benefits coverage in the individual market to
provide that a revised notice 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, 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. These final rules also amend the regulations
regarding fixed indemnity excepted benefits coverage in the group
market to provide that a notice must be prominently displayed (in
either paper or electronic form) on the first page of any marketing,
application, and enrollment (or reenrollment) materials that are
provided to participants at or before the time participants are given
the opportunity to enroll (or reenroll) in the coverage. These notice
provisions for group and individual market fixed indemnity excepted
benefits coverage are applicable to both new and existing coverage with
respect to plan years (in the individual market, coverage periods)
beginning on or after January 1, 2025.
The Departments are finalizing the proposed severability provisions
and HHS is also finalizing technical and conforming amendments to the
individual market regulation regarding fixed indemnity excepted
benefits coverage, which are not expected to have a material impact.
The Departments have examined the effects of these final rules as
required by Executive Order 12866 on Regulatory Planning and Review
(September 30, 1993),\262\ Executive Order 13563 on Improving
Regulation and Regulatory Review (January 18, 2011),\263\ Executive
Order 14094 (April 6, 2023),\264\ 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),\265\ and the Congressional Review Act (5 U.S.C.
804(2)).
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\262\ Executive Order 12866 of September 30, 1993, 58 FR 51735
(October 4, 1993).
\263\ Executive Order 13563 of January 18, 2011, 76 FR 3821
(January 21, 2011).
\264\ Executive Order 14094 of April 6, 2023, 88 FR 21879 (April
11, 2023).
\265\ Executive Order 13132 of August 4, 1999, 64 FR 43255
(August 10, 1999).
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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). The
Executive Order 14094 entitled ``Modernizing Regulatory Review'' amends
section 3(f)(1) of Executive Order 12866 (Regulatory Planning and
Review). The amended section 3(f) of Executive Order 12866 defines a
``significant regulatory 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 Executive Order 12866, as specifically
authorized in a timely manner by the Administrator of OIRA in each
case.\266\
---------------------------------------------------------------------------
\266\ Executive Order 14094 of April 6, 2023, 88 FR 21879 at
21879 (April 11, 2023).
---------------------------------------------------------------------------
A regulatory impact analysis (RIA) must be prepared for significant
rules. 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. Therefore, OMB has reviewed these
rules, and the Departments have provided the following assessment of
their impact. 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).
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 (and, in some
cases, has been deceptively marketed as) a substitute for comprehensive
coverage, rather than as a way to bridge a temporary gap in
comprehensive coverage.\267\ Evidence shows that 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 in the individual market 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.\268\ The number of individuals covered by
STLDI sold to individuals (not enrolled as members of an association)
rose once again in 2022, however, to approximately 236,000.\269\ 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
---------------------------------------------------------------------------
\267\ 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.
\268\ National Association of Insurance Commissioners (2022).
Accident and Health Policy Experience Reports for 2018-2021,
available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/SimpleSearch.
\269\ National Association of Insurance Commissioners (2023).
``2022 Accident and Health Policy Experience Report,'' available at:
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
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[[Page 23393]]
currently be enrolled in STLDI,\270\ and CMS previously estimated that
1.9 million individuals would enroll in STLDI by 2023.\271\ However, as
noted in section V.B.2.b of this preamble, these projections were
developed prior to the expansion of PTC subsidies provided through the
ARP and the IRA.
---------------------------------------------------------------------------
\270\ 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.
\271\ 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 applicable to
individual health insurance coverage, STLDI policies tend to offer
limited benefit coverage and have relatively low actuarial values.\272\
These plans therefore expose enrollees to the risk of high out-of-
pocket health expenses and medical debt.\273\
---------------------------------------------------------------------------
\272\ See, for example, 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.
\273\ See, for example, 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 insurance is increasingly being
designed to resemble comprehensive coverage, and consumers might
therefore mistakenly view it as a substitute for comprehensive coverage
rather than as an insurance policy that provides independent,
noncoordinated income replacement benefits that is distinct from
comprehensive coverage.\274\
---------------------------------------------------------------------------
\274\ See, for example, Young, Christen Linke and Kathleen
Hannick (2020). ``Fixed Indemnity Health Coverage Is a Problematic
Form of `Junk Insurance,' '' USC-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.
---------------------------------------------------------------------------
In addition, because STLDI and fixed indemnity insurance are sold
outside of the Exchanges and are generally not 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.\275\ Recent evidence of
consumer confusion and improper marketing regarding STLDI \276\ and
fixed indemnity insurance \277\ support the need to improve consumer
understanding of these types of insurance (and their coverage
limitations) compared to comprehensive coverage. The provisions
finalized in these final rules will help ensure that consumers can
better understand and properly distinguish STLDI and fixed indemnity
excepted benefits coverage from comprehensive coverage, and access
resources to learn more about their health coverage options.
---------------------------------------------------------------------------
\275\ 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.
\276\ See, for example, 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.
\277\ See, for example, Young, Christen Linke and Kathleen
Hannick (2020). ``Fixed Indemnity Health Coverage Is a Problematic
Form of ``Junk Insurance,'' USC-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
Government Accountability Office (2020). ``Private Health Coverage:
Results of Covert Testing for Selected Offerings,'' available at:
https://www.gao.gov/products/gao-20-634r.
---------------------------------------------------------------------------
These final rules will 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.\278\
---------------------------------------------------------------------------
\278\ As discussed in section I.B of this preamble, these final
rules 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
final rules are summarized in Table 1 and discussed in detail later in
this section V.B.2 of this preamble.
BILLING CODE 4830-01-P
[[Page 23394]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.058
BILLING CODE 4830-01-C
Table 2 presents the estimated effects of the provisions regarding
STLDI on enrollment in and gross premiums for individual health
insurance coverage
[[Page 23395]]
purchased on an Exchange, and on Federal spending on the PTC (by
calendar year), as discussed further in sections V.B.2.c and V.B.2.e of
this preamble. The Departments estimate that, starting in 2026, total
enrollment in individual health insurance coverage purchased on an
Exchange will be higher by 60,000 individuals each year, premiums for
this coverage will be lower by 0.5 percent each year, and Federal
spending on the PTC will be lower by $120 million each year, relative
to the current status quo. The cumulative reduction in Federal spending
on the PTC will be (an undiscounted) $360 million from 2026 to 2028.
[GRAPHIC] [TIFF OMITTED] TR03AP24.059
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. When used as a long-term substitute for comprehensive
coverage, STLDI and fixed indemnity insurance expose enrollees to
financial and health risks, as discussed in this section and section
II.B of this preamble.
STLDI and fixed indemnity insurance 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.\279\
STLDI may offer fewer benefits overall.\280\ Fixed indemnity insurance
is designed to provide a source of income replacement or financial
support following a qualifying health-related event, and benefits are
often far below a covered individual's incurred costs related to a
medical event.\281\ STLDI and fixed indemnity insurance typically have
lower loss ratios or 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.\282\ Additionally, according
to an NAIC report, across 28 issuers of STLDI in the individual market
in 2021, the nationwide loss ratio was approximately 70 percent.\283\
The same report stated that across 95 issuers of ``other medical (non-
comprehensive)'' coverage in the individual market, which includes
fixed indemnity insurance, the nationwide loss ratio was approximately
40 percent in 2021.\284\ By contrast, according to data from medical
loss ratio (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.\285\
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\279\ See, for example, 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 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. See also Young, Christen Linke and
Kathleen Hannick (2020). ``Fixed Indemnity Health Coverage Is a
Problematic Form of ``Junk Insurance'' USC-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.
\280\ See, for example, 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.
\281\ 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.
\282\ 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.
\283\ The loss ratio is calculated as ((Incurred Claims Amount +
Change in Contract Reserves)/Premiums Earned). Data regarding
issuers of STLDI and ``other non-comprehensive coverage'' are only
available for the individual market. See National Association of
Insurance Commissioners (2022). ``2021 Accident and Health Policy
Experience Report,'' available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch.
\284\ National Association of Insurance Commissioners (2022).
``2021 Accident and Health Policy Experience Report,'' available at:
https://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch. Data regarding issuers of non-comprehensive coverage
are only available for the individual market.
\285\ Based on internal calculations. Source: CMS, Medical Loss
Ratio Data and System Resources, available at: https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.
---------------------------------------------------------------------------
A few commenters also noted that STLDI and fixed indemnity
insurance
[[Page 23396]]
have low average loss ratios as compared to comprehensive coverage.
These comments and the previously-mentioned statistics suggest that
relative to issuers of comprehensive coverage, issuers of STLDI tend to
spend a lower percentage of premium dollars on health care items and
services, and issuers of fixed indemnity insurance tend to spend a
lower percentage of premium dollars on payment of benefits. STLDI and
fixed indemnity insurance can therefore be highly profitable for
issuers,\286\ depending on the extent to which issuers incur costs
related to marketing (including agent/broker compensation \287\),
policy underwriting, and overhead.
---------------------------------------------------------------------------
\286\ 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.
\287\ 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.
---------------------------------------------------------------------------
Low average loss ratios for STLDI and fixed indemnity insurance,
along with relatively high commission rates for agents and brokers of
those policies, reduce the value of STLDI and fixed indemnity insurance
for consumers. Agents and brokers act as intermediaries between
consumers and issuers. Their income is primarily derived from
commissions, which tend to be a percentage of premiums paid by the
consumer to the issuer. The commissions are incorporated into the cost
of an insurance plan, and therefore indirectly affect the total price
paid by the consumer for the coverage purchased. There is limited data
available on commission rates paid by issuers to agents and brokers.
Agent and broker commission rates tend to vary significantly between
health insurance coverage options, though issuers of STLDI and fixed
indemnity insurance tend to pay higher commissions.\288\ The
Departments received several comments indicating that agents and
brokers receive a higher percentage of the plan's premium as a
commission for selling STLDI or fixed indemnity insurance as compared
to individual health insurance coverage. This was also confirmed in the
Departments' review of some broker compensation disclosures.\289\ The
Departments acknowledge that lower cost alternatives to comprehensive
coverage may not result in higher total compensation for agents and
brokers, since the premiums for comprehensive coverage might be higher
than the premiums for STLDI and fixed indemnity insurance. However,
higher commission rates for agents and brokers from sales of STLDI and
fixed indemnity insurance can incentivize aggressive and/or deceptive
marketing tactics that may mislead customers into enrolling in STLDI or
fixed indemnity insurance instead of comprehensive
coverage.290 291 292 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 of premiums for STLDI, compared to 2 percent of premiums for
individual health insurance coverage).\293\ Another source corroborates
this finding by noting that issuers of STLDI pay commissions close to
20 percent of premiums.\294\
---------------------------------------------------------------------------
\288\ See Lucia, Kevin, Sabrina Corlette, Dania Palanker, and
Olivia Hoppe (2018). ``Views From the Market: Insurance Brokers'
Perspectives on Changes to Individual Health Insurance,'' Urban
Institute, available at: https://www.urban.org/research/publication/views-market-insurance-brokers-perspectives-changes-individual-health-insurance.
\289\ The Departments reviewed information detailing broker
compensation from an agent/broker, two large issuers, and a health
insurance agency.
\290\ See, for example., 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.
\291\ Government Accountability Office (2020). ``Private Health
Coverage: Results of Covert Testing for Selected Offerings,''
available at: https://www.gao.gov/products/gao-20-634r.
\292\ 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, for example,
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.
\293\ 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.
\294\ 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.
---------------------------------------------------------------------------
In the 2023 proposed rules, the Departments stated that the limited
coverage provided through most STLDI and fixed indemnity excepted
benefits coverage exposes individuals enrolled in these policies to
health and financial risks, including the risk of high medical bills
and high out-of-pocket expenses. The Departments further noted that
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.\295\ As discussed in section II.B of this preamble,
commenters provided the Departments with examples of how enrollment in
fixed indemnity insurance, when used as a substitute for comprehensive
coverage, could expose individuals to financial risk. However, many
commenters also noted that fixed indemnity insurance can reduce
financial risk for individuals, given that it provides payments for
unexpected expenses associated with a health-related event. The
Departments acknowledge that fixed indemnity insurance can reduce
financial risk when used as a supplement to comprehensive coverage but
remain concerned about the financial risk for individuals when it is
used as a substitute for comprehensive coverage.
---------------------------------------------------------------------------
\295\ See, for example, 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.
---------------------------------------------------------------------------
Misleading marketing of STLDI and fixed indemnity insurance is
reported to have taken place during annual individual market open
enrollment and special enrollment periods (including during the 2021
COVID-19 special enrollment period, when Exchanges using the Federal
platform made available a 6-month special enrollment period on
HealthCare.gov to allow qualified individuals to enroll in individual
health insurance coverage during the COVID-19 PHE).\296\ For
[[Page 23397]]
example, one study showed that enrollment in STLDI policies through
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 annual individual market open
enrollment period.\297\ 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
insurance, and that these types of coverage are often marketed to
resemble comprehensive coverage.\298\
---------------------------------------------------------------------------
\296\ 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 establishment of 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.
\297\ 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.
\298\ 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.
---------------------------------------------------------------------------
A number of States and the District of Columbia enacted legislation
or issued regulations regarding STLDI after the 2018 final rules were
published. State regulatory actions regarding STLDI have been wide-
ranging. For example, according to one report, as of September 2023,
four States prohibited STLDI, seven States and the District of Columbia
limited the total duration of enrollment in STLDI (including renewals
or extensions) to less than 3 months, and eight States have limited the
initial contract terms for enrollment in STLDI to less than 6
months.\299\ Other State regulatory actions on STLDI have included
banning coverage rescissions (except in cases of fraud on the part of
the enrollee), adding preexisting condition protections, and requiring
a certain MLR, among other restrictions.\300\ Lastly, some States have
largely aligned their regulations regarding STLDI with the 2018 final
rules.\301\ In some States that allow sales of STLDI, but have
additional consumer protections in place (for example, prohibitions on
renewals of STLDI coverage), issuers do not offer STLDI.\302\
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\299\ See Healthinsurance.org (2023). ``Duration and Renewals of
2023 Short-Term Medical Plans by State,'' available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf.
\300\ 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.
\301\ See Healthinsurance.org (2023). ``Duration and Renewals of
2023 Short-Term Medical Plans by State,'' available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf.
\302\ 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.
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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 Federal consumer protections and requirements for
comprehensive coverage from 2018 to 2020, compared with a 4 percent
reduction in enrollment, on average, in those plans in States that
banned STLDI or limited its duration to 6 months or less.\303\ 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 (-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.
---------------------------------------------------------------------------
\303\ 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.
---------------------------------------------------------------------------
b. Number of Affected Entities
The provisions in these final rules will affect consumers enrolled
in STLDI or fixed indemnity excepted benefits coverage, issuers of
STLDI, issuers offering fixed indemnity excepted benefits coverage, and
agents and brokers selling STLDI or fixed indemnity excepted benefits
coverage. The provisions in these rules will also affect States if they
enact or implement new legislation in response to these final rules.
State departments of insurance will also be impacted to the extent they
need to review amended marketing materials and plan documents filed by
issuers.
With respect to consumers, individuals who are currently enrolled
in STLDI or who may consider purchasing or choose to purchase STLDI in
the future will be impacted by these final rules. Data from the NAIC
indicate that 235,775 individuals were covered by STLDI sold to
individuals at the end of 2022.\304\ As noted in section V.B.1 of this
preamble, 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, through which most
policies appear to be sold.\305\ As noted in section V.B.1 of this
preamble, projections by CBO and JCT suggest that 1.5 million people
could currently be enrolled in STLDI,\306\ and CMS previously estimated
that 1.9 million individuals would enroll in STLDI by 2023.\307\
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, if only
temporarily.308 309 The number of enrollees in STLDI also
might have been affected by changes in State law or regulation that
have occurred since the 2018 final rules were issued. The Departments
received a comment
[[Page 23398]]
that also noted that the NAIC figure was likely an underestimate given
that not all issuers report complete data to the NAIC. Another
commenter--a State department of insurance--provided information about
the number of individuals who had enrolled in STLDI in their State as
of mid-2023. The Departments acknowledge that the NAIC figure likely
underestimates the number of enrollees in STLDI, yet commenters did not
offer additional data or information on the total number of consumers
enrolled in STLDI across the country, and the Departments are not aware
of another available source for these data.
---------------------------------------------------------------------------
\304\ National Association of Insurance Commissioners (2023).
``2022 Accident and Health Policy Experience Report,'' available at:
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
\305\ 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/.
\306\ 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.
\307\ 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.
\308\ See, for example, 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/.
\309\ Based on data from the NAIC, the number of individuals
covered by STLDI rose from around 173,000 in 2021 to 236,000 in
2022, reversing the downward trend from 2020 to 2021. See National
Association of Insurance Commissioners (2023). ``2022 Accident and
Health Policy Experience Report,'' available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
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Additionally, individuals who are currently enrolled in fixed
indemnity excepted benefits coverage or who may choose to purchase or
consider purchasing such coverage in the future will be affected by
these final rules. Although the Departments are unaware of a definitive
source for the number of fixed indemnity policies sold nationwide, the
NAIC reports the total number of ``other non-comprehensive coverage''
policies \310\ sold in the individual market. These nearly 2.6 million
policies or certificates, covering approximately 4 million individuals,
include fixed indemnity products along with other insurance products,
and provide a potential estimate of the number of potential fixed
indemnity policies or certificates and number of covered lives in the
individual market. The Departments sought comments on the number of
consumers who would be affected by the fixed indemnity excepted
benefits coverage provisions in the proposed rules. Some commenters
referenced a survey of 39 issuers of fixed indemnity or specified
disease products. The survey indicated that approximately 3.4 million
individuals are currently covered by fixed indemnity products in the
individual market and approximately 4.7 million individuals are
currently covered by fixed indemnity products in the group market.\311\
Several issuers that commented on the proposed rules also provided
information on the number of consumers currently enrolled in their
fixed indemnity or other supplemental insurance products, with one
issuer indicating that 47,900 of its customers were enrolled in fixed
indemnity insurance without being enrolled in comprehensive coverage.
One association commenting on the rules estimated that the number of
supplemental policies in force for school employees ``is in the multi-
millions.''
---------------------------------------------------------------------------
\310\ See National Association of Insurance Commissioners
(2023). ``2022 Accident and Health Policy Experience Report,''
available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf (``Other medical (non-
comprehensive) coverage'' includes ``policies such as hospital only,
hospital confinement, surgical, outpatient indemnity, intensive
care, mental health/substance abuse, and organ and tissue transplant
(including scheduled type policies), etc.'' It is further noted that
``expense reimbursement and indemnity plans should be included'' in
this definition, but that ``this category does not include TRICARE/
CHAMPUS Supplement, Medicare Supplement, or FEHB Program coverage.''
Data from the NAIC regarding issuers of ``other non-comprehensive
coverage'' are only available for the individual market.
\311\ See AHIP-ACLI-BCBSA 2023 Survey: Fixed Indemnity and
Specified Disease Plans, September 7, 2023, available at: https://www.ahip.org/resources/ahip-acli-bcbsa-2023-survey.
---------------------------------------------------------------------------
Based on the NAIC and industry estimates, the number of individuals
with individual market fixed indemnity excepted benefits coverage who
could be affected by these final rules could be up to 4 million, and
the number of individuals with group market fixed indemnity excepted
benefits coverage who could be affected by these final rules could be
up to 4.7 million. However, because it is not clear what percentages of
the NAIC and industry estimates are specific to fixed indemnity
excepted benefits coverage rather than fixed indemnity insurance in
general, the number of individuals affected by the provisions for fixed
indemnity excepted benefits coverage in these final rules is likely to
be lower than these estimates.
These final rules may also indirectly impact consumers enrolled in
comprehensive coverage because of the potential impact of increased
enrollment in comprehensive coverage on individual and group market
risk pools, premiums, plan offerings, or issuer participation. While
the Departments are unable to estimate whether or how these final rules
will impact plan offerings or issuer participation in the individual
and group markets for comprehensive coverage, in sections V.B.2.c and
V.B.2.e of this preamble, the Departments discuss the estimated effects
of the provisions regarding STLDI included in these final rules on
enrollment in and premiums for individual health insurance coverage
purchased on an Exchange.
Issuers of STLDI and fixed indemnity excepted benefits coverage
will be directly impacted by these final rules. The NAIC reported that
there were at least 28 issuers of STLDI in the individual market across
the U.S. in 2022 and at least 93 issuers of ``other non-comprehensive
coverage'' (including fixed indemnity insurance) in the individual
market across the U.S. in 2022.\312\ Data regarding issuers of STLDI
and ``other medical (non-comprehensive)'' coverage are only available
for the individual market. The Departments anticipate that many of
these issuers also offer coverage in the group market. The Departments
sought comments on the number of entities that would be affected by the
proposed rules, including the number of issuers and associations
offering STLDI and fixed indemnity excepted benefits coverage, but did
not receive any data from commenters on the number of issuers in the
STLDI or fixed indemnity excepted benefits coverage market that would
be affected. Based on the NAIC data, and assuming some overlap between
issuers in the individual and group market, the Departments anticipate
that at least 28 issuers of STLDI and at least 93 issuers of fixed
indemnity excepted benefits coverage could be affected by the
provisions being finalized in these final rules. However, the
Departments note that this might overestimate the number of issuers of
fixed indemnity excepted benefits coverage, given that the NAIC figure
captures issuers of other forms of non-comprehensive medical coverage
in addition to fixed indemnity insurance, and that even for those
issuers of fixed indemnity insurance that are included in this figure,
it is not clear what percentage of those issuers offer fixed indemnity
excepted benefits coverage in particular.
---------------------------------------------------------------------------
\312\ National Association of Insurance Commissioners (2023).
``2022 Accident and Health Policy Experience Report,'' available at:
https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf.
---------------------------------------------------------------------------
Agents and brokers selling STLDI or fixed indemnity excepted
benefits coverage will be impacted by these final rules. The Bureau of
Labor Statistics estimates that there are 445,540 insurance agents
nationwide, which includes agents and brokers that sell health
insurance products in addition to other types of insurance (for
example, life and property).\313\ One professional association, which
is estimated to represent one-third of active health insurance agents
and brokers,\314\ has approximately 100,000 members.\315\ However, the
Departments lack data
[[Page 23399]]
about the number of agents and brokers that currently enroll
individuals in STLDI or fixed indemnity excepted benefits coverage and
did not receive any additional data from commenters.
---------------------------------------------------------------------------
\313\ Bureau of Labor Statistics (2022). ``National Occupational
Employment and Wage Estimates,'' available at: https://www.bls.gov/oes/current/oes413021.htm.
\314\ Karaca-Mandic, Pinar, Feldman, Roger, and Peter Graven
(2016). ``The Role of Agents and Brokers in the Market for Health
Insurance,'' Journal of Risk and Insurance, available at: https://onlinelibrary.wiley.com/doi/full/10.1111/jori.12139.
\315\ National Association of Benefits and Insurance
Professionals (2023). ``Who We Are,'' available at: https://nabip.org/who-we-are.
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c. Benefits
Increase in consumer awareness. These final 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 notice provisions
being finalized in these final rules will improve consumer
understanding of STLDI and fixed indemnity excepted benefits coverage
in relation to comprehensive coverage. The Departments received some
comments noting that STLDI policies are often marketed as a more
affordable alternative to comprehensive coverage, and received many
comments stating that STLDI policies exclude critically important
health care services, as discussed in section III.A.1 of this preamble.
Many commenters stated that the 2023 proposed rules would help
consumers differentiate STLDI and fixed indemnity excepted benefits
coverage from comprehensive coverage when shopping for health
insurance. Some commenters also stated that the notice provisions for
STLDI and fixed indemnity excepted benefits coverage would help combat
deceptive marketing practices and would improve consumer understanding
of the different options available when shopping for insurance. One
commenter stated that enrollees in STLDI policies are functionally
uninsured due to the narrow benefits and design limitations that are
often poorly understood by consumers. Although several commenters
expressed concern about the improper marketing of fixed indemnity
insurance, some commenters suggested that such improper marketing
practices are limited to a few ``bad actors'' in the market. One
commenter stated that concerns over widespread consumer confusion are
unsupported, and that consumer confusion could be addressed by policy
alternatives like increased enforcement of deceptive marketing laws or
enhanced consumer awareness campaigns, rather than the provisions
proposed in the 2023 proposed rules. The Departments agree that the
notice provisions will help ensure individuals are made aware that
STLDI and fixed indemnity excepted benefits policies are not
comprehensive coverage. The Departments are of the view that the
provisions finalized in these final rules will reduce the level of
deceptive marketing of STLDI and fixed indemnity excepted benefits
policies, reduce the harm from such deceptive marketing practices, and
increase the overall awareness of coverage options that include the
full range of Federal consumer protections. These provisions will also
help consumers more easily distinguish between STLDI or fixed indemnity
excepted benefits coverage and individual health insurance coverage,
thereby mitigating the risk that they mistakenly enroll in STLDI or
fixed indemnity excepted benefits coverage in lieu of comprehensive
coverage. The Departments appreciate the suggestions related to
increased enforcement of deceptive marketing laws, and enhanced
consumer awareness campaigns, but are of the view that these actions
alone would not sufficiently address consumer confusion related to the
current structure of STLDI and fixed indemnity excepted benefit
coverage.
Better health outcomes. Consumers who switch from STLDI or fixed
indemnity excepted benefits coverage (when used as a substitute for
comprehensive coverage) to comprehensive coverage are expected to have
better access to health care, better consumer protections, and more
robust benefits, and are therefore expected to experience better health
outcomes. Several commenters stated that STLDI policies can limit
access to health care and lead to negative health outcomes given the
insufficient coverage of STLDI policies. Commenters stated that the
inadequate coverage, particularly for individuals with chronic
conditions, could lead to the use of high-cost services, such as
emergency department visits or hospitalizations that could have been
prevented if adequate care were accessible through their STLDI
coverage. On the other hand, some commenters stated that enrollees in
STLDI and fixed indemnity excepted benefits policies can benefit from
receiving services provided by any provider and are not limited by
provider networks established by issuers offering comprehensive
coverage.\316\ Some commenters suggested that the STLDI provisions
could restrict patients' access to certain providers or reduce access
to care in general. Other commenters suggested that the STLDI
provisions could influence the composition of health care utilization
and spending--because of the limited benefits or high cost-sharing
requirements of most STLDI policies, enrollees in STLDI policies may
underutilize preventive care and overutilize higher-cost care.
---------------------------------------------------------------------------
\316\ Issuers of STLDI and fixed indemnity excepted benefits
coverage may also have provider networks, and one commenter (an
issuer of STLDI) noted that their provider network has 1.5 million
physicians and other health care professionals and approximately
7,000 hospitals and other facilities.
---------------------------------------------------------------------------
The Departments acknowledge that there may be individuals whose
provider may not be in-network with an issuer offering comprehensive
coverage, and that individuals may experience changes in access to
certain providers if they switch from STLDI or fixed indemnity excepted
benefits coverage (when used as a substitute for comprehensive
coverage) to comprehensive coverage. However, given the limited
benefits, limited consumer protections, and financial exposure
associated with most STLDI and fixed indemnity excepted benefits
coverage (when used as a substitute for comprehensive coverage), the
Departments are of the view that individuals' overall financial risk
would decrease and their overall access to health care would increase
if they enrolled in comprehensive coverage. Furthermore, the
Departments are of the view that overall health outcomes will improve
for individuals who enroll in comprehensive coverage in lieu of STLDI
or fixed indemnity excepted benefits coverage (when used as a
substitute for comprehensive coverage). For example, studies \317\ that
examined the potential impacts of State policies regulating STLDI found
that individuals in States that prohibited or restricted the sale of
STLDI policies had more favorable cancer diagnoses when compared to
individuals in States that did not prohibit or restrict STLDI policies.
In summary, if individuals enroll in comprehensive coverage instead of
STLDI or fixed indemnity excepted benefits coverage, the Departments
expect that they will have increased access to care, decreased exposure
to major medical expenses, and improved health outcomes.
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\317\ See Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and
Fumiko Chino (2023). ``State Policies Regulating Short-Term Limited
Duration Insurance Plans and Cancer Stage at Diagnosis,'' JNCI
Cancer Spectrum, Volume 7, Issue 5, available at: https://doi.org/10.1093/jncics/pkad060. See also Yang, Nuo Nova Nova, Jingxuan Zhao,
Justin Michael Barnes, Anne C. Kirchhoff, Fumiko Chino, Robin
Yabroff, and Xuesong Han (2023). ``Association of Federal and State
Policies Regulating Short-term Limited Duration Insurance (STLD)
Plans and Later Cancer Stage at Diagnosis.'' JCO Oncology Practice,
Volume 19, Issue 11, available at: https://ascopubs.org/doi/abs/10.1200/OP.2023.19.11_suppl.197.
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Potential increase in enrollment in comprehensive coverage. The
Departments anticipate that these final rules will lead to an increase
in enrollment in comprehensive coverage. The Departments expect that
individuals will be less likely to wait until they have incurred major
medical
[[Page 23400]]
expenses or developed a medical condition to look for opportunities to
switch from STLDI or fixed indemnity excepted benefits coverage (when
used as a substitute for comprehensive coverage) to comprehensive
coverage. Increased enrollment in comprehensive coverage in lieu of
enrollment in STLDI is also expected to reduce the number of coverage
rescissions, claims denials, and coverage exclusions associated with
STLDI. However, as noted earlier in this section V.B.b of this
preamble, the expanded PTC subsidies provided through the ARP and the
IRA have likely already resulted in increased enrollment in individual
health insurance coverage purchased on an Exchange in lieu of STLDI or
fixed indemnity excepted benefits coverage (when used as a substitute
for comprehensive coverage), so the immediate overall effects of these
final rules on enrollment in, market stability of, and risk pools for
comprehensive coverage are expected to be limited in 2024 and
2025.\318\ The CMS Office of the Actuary (OACT) estimates that,
relative to current law, the provisions regarding STLDI being finalized
in these final rules will not affect enrollment in individual health
insurance coverage purchased on an Exchange in 2024 and 2025, but will
increase enrollment by approximately 60,000 people in 2026, 2027, and
2028.\319\ Many commenters indicated that the STLDI provisions are
likely to reduce premiums for individual health insurance coverage.
Many commenters also pointed to the potential shift in enrollment from
STLDI to individual health insurance coverage as having a potential
impact on the risk pools for individual health insurance coverage.\320\
The Departments agree with these comments and are of the view that the
provisions for STLDI and fixed indemnity excepted benefits coverage
being finalized in these final rules will lead to more stable markets
and improved market risk pools for comprehensive coverage.
---------------------------------------------------------------------------
\318\ See, for example, 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/. See also Ortaliza, Jared, Krutika Amin, and
Cynthia Cox (2024). ``Another Year of Record ACA Marketplace
Signups, Driven in Part by Medicaid Unwinding and Enhanced
Subsidies,'' KFF, available at: https://www.kff.org/policy-watch/another-year-of-record-aca-marketplace-signups-driven-in-part-by-medicaid-unwinding-and-enhanced-subsidies/.
\319\ In developing these estimates, OACT assumed that STLDI
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 4
months is expected to negate these effects.
\320\ The Departments received an analysis from a commenter that
estimated the potential impact of the STLDI provisions on enrollment
and premiums in the individual market for comprehensive coverage.
The analysis found that the STLDI provisions are likely to increase
enrollment and lower premiums in the individual market for
comprehensive coverage. The analysis utilized upper bound estimates
of existing STLDI enrollment and analyzed varying scenarios of
transition from STLDI coverage to individual health insurance
coverage to estimate that such transitions could result in a 0.5 to
2 percent reduction in premiums. The commenter acknowledged that
these impacts would vary by State given the different levels of
STLDI regulations in States. Overall, the analysis notes that the
net result is positive for consumers should there be a significant
transition from STLDI coverage to individual health insurance
coverage.
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Reduction in financial risk for consumers. To the extent that these
final rules lead to an increase in enrollment in individual health
insurance coverage subject to the Federal consumer protections and
requirements for comprehensive coverage in lieu of STLDI or fixed
indemnity excepted benefits coverage (when used as a substitute for
comprehensive coverage), the Departments are of the view that these
final rules will result in a reduction in out-of-pocket expenses,
medical debt, and risk of medical bankruptcy for consumers switching to
comprehensive coverage. These final rules could also lead to a
reduction in potentially devastating surprise bills from out-of-network
providers in emergency and certain other circumstances to the extent
the rules lead to an increase in enrollment in individual health
insurance coverage, which is subject to the surprise billing
protections for consumers under the No Surprises Act. Many commenters
agreed that the proposals being finalized in these final rules will
support consumer protections. Many commenters also indicated that these
final rules are critical to ensuring consumers' financial well-being
and reducing their financial risk. Several commenters agreed that the
proposed STLDI notice would ensure that consumers understand the type
of coverage that they would be enrolling in and its limitations. Many
commenters stated that STLDI policies expose enrollees to the risk of
high out-of-pocket costs when an illness or injury occurs, and some
commenters stated that this could lead to increased medical debt. One
commenter indicated that families without comprehensive care are at
risk of delaying care or going into debt. One commenter indicated that
consumers may not realize how limited their STLDI coverage is until
they are faced with high out-of-pocket costs for services commonly
covered under comprehensive coverage. Commenters pointed to
rehabilitation services, prescription drug costs, and cancer treatments
as resulting in significantly higher out-of-pocket costs for consumers
enrolled in STLDI when compared to comprehensive coverage. For example,
the Departments reviewed a scenario study \321\ that assessed the cost
implications of a hypothetical consumer who enrolls in a typical STLDI
policy and is later diagnosed with breast cancer. The study found that
this hypothetical consumer would incur between $40,000 to $63,000 in
out-of-pocket expenses, compared to less than $8,000 in a comprehensive
coverage plan. While many commenters argued that fixed indemnity
excepted benefits coverage reduces financial risk, other commenters
argued that fixed indemnity excepted benefits coverage exposes
individuals to financial risk when it is used as a substitute for
comprehensive coverage. Lastly, some commenters specifically noted that
the provisions regarding stacking of STLDI policies would benefit
consumers by limiting circumvention of the provisions related to
maximum duration, as discussed in section III.A.2 of this preamble. The
Departments agree with these comments and are of the view that to the
extent that consumers obtain comprehensive coverage in lieu of STLDI or
fixed indemnity excepted benefits coverage, they are likely to
experience lower out-of-pocket costs for their care. As noted in
section V.B.2.a of this preamble, the Departments acknowledge that
fixed indemnity excepted benefits coverage can reduce financial risk
when used as a supplement to comprehensive coverage but remain
concerned about the financial risk for individuals when it is used as a
substitute for comprehensive coverage.
---------------------------------------------------------------------------
\321\ American Cancer Society Cancer Action Network (2019).
``Inadequate Coverage: An ACS CAN Examination of Short-Term Health
Plans,'' available at: https://www.fightcancer.org/sites/default/files/ACS%20CAN%20Short%20Term%20Paper%20FINAL.pdf.
---------------------------------------------------------------------------
d. Costs
Increase in premiums. The Departments recognize that some
[[Page 23401]]
individuals with STLDI or fixed indemnity excepted benefits coverage
who switch to individual health insurance coverage might incur higher
premium costs depending on their choice of available Exchange and off-
Exchange plans, their PTC eligibility (if applicable), and the amount
of APTC they receive (if any).\322\ Several commenters noted that the
STLDI provisions could lead to higher premium costs for individuals if
they switch to comprehensive coverage, and several commenters noted the
low monthly premiums for STLDI relative to comprehensive coverage. One
commenter acknowledged that STLDI has lower premiums because the
Federal consumer protections and requirements for comprehensive
coverage do not apply to this form of coverage. Some commenters stated
that STLDI policies cover the select benefits certain consumers want.
The Departments acknowledge that premiums for comprehensive coverage
are generally higher than premiums for STLDI, but note that this is
largely because comprehensive coverage offers more benefits with lower
out-of-pocket costs. Further, as noted in section II.A of this
preamble, comprehensive coverage for individuals has generally become
more accessible and affordable in recent years, due in part to the
expansion of PTC subsidies under the ARP and the IRA, and the
provisions for STLDI finalized in these final rules are expected to put
further downward pressure on gross premiums for individuals enrolled in
individual health insurance coverage purchased on an Exchange. The
Departments are of the view that any increase in costs is outweighed by
the meaningful increase in benefits and consumer protections afforded
to individuals enrolled in comprehensive coverage.
---------------------------------------------------------------------------
\322\ 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 pre-existing
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.
---------------------------------------------------------------------------
Loss of coverage. These final rules might also lead to an increase
in the number of individuals without some form of health insurance
coverage, if some individuals with STLDI purchased after the
applicability date are no longer able to renew or extend their current
policy, choose not to purchase a new policy from another issuer of
STLDI, and can only obtain comprehensive coverage during an annual
individual market open enrollment period, or choose not to purchase
comprehensive coverage. Many commenters agreed with the Departments'
analysis and noted that the provisions regarding STLDI coverage may
reduce consumers' coverage options or lead to a loss of coverage or a
coverage gap. Many commenters argued that restricting access to STLDI
would not be appropriate for certain populations given their coverage
needs (for seasonal employees working in another State, for example).
These commenters noted that specific groups who benefit from STLDI
policies are most likely to go without insurance as a result of the
STLDI provisions, such as gig-economy workers, contract workers,
college students, commercial truck drivers, and travel nurses. Some
commenters suggested that the STLDI provisions could lead consumers to
seek alternative forms of non-comprehensive coverage, including
coverage offered in unregulated markets (for example, through health
care sharing ministries). The Departments acknowledge that some
individuals who purchase STLDI policies after the applicability date
may lose coverage and must wait until the next annual individual market
open enrollment period to purchase comprehensive coverage (for example,
if an individual with STLDI purchased after the applicability date
exhausts their renewal or extension options or is unable to enroll in
STLDI offered by a different issuer outside of an open enrollment
period) or may choose to become uninsured. Some individuals might also
seek coverage in unregulated markets. Those individuals who become
uninsured or obtain coverage in unregulated markets could face an
increased risk of higher out-of-pocket expenses and medical debt,
reduced access to health care, and potentially worse health outcomes.
The Departments are of the view, however, that the overall risk that
some individuals may become uninsured or lose coverage because of the
above circumstances is outweighed by the fact that a substantial number
of individuals will likely benefit as a result of the final rules'
STLDI provisions. Overall, the Departments are of the view that STLDI
serves better as a bridge between different sources of comprehensive
coverage than as an alternative to comprehensive coverage.
Increase in health care spending. To the extent that these final
rules lead to an increase in enrollment in comprehensive coverage, they
might result in an increase in overall health care utilization and
spending, given that comprehensive coverage tends to have higher loss
ratios and actuarial values and generally offers lower cost-sharing
requirements and more generous benefits.\323\
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\323\ As noted earlier in this RIA, many STLDI and fixed
indemnity excepted benefits policies offer limited benefits coverage
and have relatively low actuarial values. Many STLDI and fixed
indemnity excepted benefit coverage 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://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch. Regarding the differences in cost-sharing
requirements and out-of-pocket expenses between STLDI and individual
health insurance coverage, see, for example, 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.
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Impact on States. The Departments solicited 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. However, the Departments received little information about
the potential costs to States associated with the provisions being
finalized in these final rules. One commenter generally stated that the
STLDI provisions would cause economic harm to States, but the commenter
did not quantify or otherwise specify the type or extent of the
economic impact on States. While no State is required to enact new
legislation or change its regulations under the provisions being
finalized in these final rules, the Departments anticipate that some
States could incur a one-time cost if they do enact new legislation or
update their regulations.
Many commenters also stated that the 2023 proposed rules would
generate costs for States associated with evaluating and approving
redesigned products and policy forms. The Departments acknowledge that
some State departments of insurance may incur costs to the extent they
need to review amended marketing materials and plan documents filed by
issuers.
Costs to agents and brokers. The Departments sought 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 the
provisions proposed in
[[Page 23402]]
the 2023 proposed rules. Many commenters anticipated that the financial
impacts of the proposals on agents and brokers would be significant,
particularly given the relatively low commission rates that agents and
brokers receive from the sale of Exchange plans as compared to STLDI
and fixed indemnity insurance. Another commenter stated that the
Departments' analysis lacked sufficient data to account for the
potential impacts on agents and brokers. However, commenters did not
provide information on the number of agents and brokers that sell STLDI
or fixed indemnity excepted benefits coverage or data that would assist
in quantifying the impact of the provisions proposed in the 2023
proposed rules on agents and brokers. Nevertheless, the Departments
acknowledge that the provisions being finalized in these final rules
may affect agents and brokers if there is an impact on enrollment in
STLDI or fixed indemnity excepted benefits products. There is the
potential for agent and broker compensation associated with the sale of
STLDI or fixed indemnity excepted benefits coverage to be negatively
affected if there is a reduction in the sale of these types of
coverage. There is also the potential for agent and broker compensation
associated with the sale of individual health insurance coverage to be
positively affected if there is an increase in sales of that coverage.
Costs to issuers. In the 2023 proposed rules, the Departments
explained they expected that issuers would incur minimal costs
associated with the notice provisions. The Departments also expected
that since issuers change their policy documents routinely, the costs
to issuers to make changes in response to these final rules would be
part of issuers' usual business costs. However, many commenters stated
that issuers would incur operational costs associated with the
provisions for fixed indemnity excepted benefits coverage proposed in
the 2023 proposed rules (to make necessary updates to systems and
processes, and other administrative tasks, for example). Many
commenters noted the costs to refile documents with State departments
of insurance, obtain State approvals, and ensure compliance, and the
costs associated with new policy issuance, marketing, enrollment, and
administration. While one commenter provided an estimate of the overall
costs of implementing all of the provisions for fixed indemnity
excepted benefits coverage proposed in the 2023 proposed rules, no
commenter provided estimates of the costs associated with the
provisions for STLDI or estimates specific to the notice provisions for
STLDI and fixed indemnity excepted benefits coverage proposed in the
2023 proposed rules.
The Departments acknowledge these comments and anticipate that
issuers will incur one-time costs to modify their products and plan
documents to comply with the provisions for STLDI and fixed indemnity
excepted benefits coverage that are being finalized in these final
rules, with issuers also incurring costs related to filing amended
marketing materials and plan documents with State departments of
insurance. These costs are expected to vary by issuer depending on the
number of States in which they offer products, State law requirements
for STLDI or fixed indemnity excepted benefits coverage, the number of
products they offer, and the overall scale of their operations.\324\
These costs will include the costs associated with the notice
provisions. Using wage information from the Bureau of Labor Statistics
to account for median labor costs (including a 100 percent increase for
the cost of fringe benefits and other indirect costs),\325\ the
Departments estimate that, on average for each issuer, a business
operations specialist will need 4 hours (at an hourly labor cost of
$73.06), an administrative assistant will need 4 hours (at an hourly
labor cost of $42.38), and a web developer will need 8 hours (at an
hourly labor cost of $75.56) to revise or place the notice that must be
displayed in their marketing, application, and enrollment materials
(including on websites) and in the individual market also to place the
notice in the policy, certificate, or contract of insurance, to come
into compliance with these final rules. The average cost per issuer to
comply with the notice provisions is estimated to be approximately
$1,066.\326\ As noted earlier in this RIA, the NAIC estimates that
there are currently 28 issuers of STLDI in the individual market and 93
issuers of ``other medical (non-comprehensive)'' coverage in the
individual market, which include fixed indemnity insurance. Therefore,
using the NAIC estimates, the total one-time cost to issuers of STLDI
and fixed indemnity coverage to comply with the notice provisions will
be at least approximately $129,015.\327\
---------------------------------------------------------------------------
\324\ The Departments do not have enough data or information to
quantify these costs.
\325\ See Bureau of Labor Statistics (2022). ``National
Occupational Employment and Wage Estimates,'' available at: https://www.bls.gov/oes/current/oes_nat.htm.
\326\ (4 business operation specialist hours * $73.06) + (4
administrative assistant hours * $42.38) + (8 web developer hours *
$75.56) = $1,066.24.
\327\ (28 STLDI issuers + 93 issuers of other medical (non-
comprehensive) coverage) * [(4 business operation specialist hours *
$73.06) + (4 administrative assistant hours * $42.38) + (8 web
developer hours * $75.56)] = $129,015.04.
---------------------------------------------------------------------------
e. Transfers
Transfers associated with transitions to comprehensive coverage.
Individuals currently enrolled in STLDI may be healthier--on average--
than individuals enrolled in comprehensive coverage, because
comprehensive coverage is subject to Federal consumer protections and
requirements for comprehensive coverage that prohibit those plans from
excluding individuals or charging higher premiums on the basis of
health status, gender, and other factors, whereas STLDI policies do not
have to comply with these requirements and are typically subject to
medical underwriting. These final rules are expected to cause some
individuals with relatively low health care costs to enroll in
individual health insurance coverage in lieu of STLDI, which is
expected to improve the risk pools for individual health insurance
coverage and lead to lower overall average 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.\328\ 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,'' \329\ would
increase premiums in the individual and small group health insurance
coverage markets by around 3 percent.\330\ An analysis of individual
health insurance coverage rate filing materials for 2020 also found
that the few issuers that explicitly included a premium adjustment
because of the 2018 final rules increased premiums by
[[Page 23403]]
between 0.5 percent and 2 percent in 2020.\331\ These analyses suggest
that these final rules should have an effect in the opposite direction,
reducing gross premiums for individual health insurance coverage. OACT
estimates that the provisions regarding STLDI will not affect gross
premiums for individuals with individual health insurance coverage
purchased on an Exchange in 2024 and 2025, given the expanded PTC
subsidies provided through the IRA, but will reduce gross premiums by
approximately 0.5 percent in 2026, 2027, and 2028, after the expanded
PTC subsidies have ended.\332\
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\328\ 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.
\329\ 83 FR 28912 (June 21, 2018). This rule was vacated by the
District Court of D.C. in State of New York, et al. v. United States
Department of Labor, et al., 363 F.Supp.3d 109 (D.D.C. 2019).
\330\ 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.
\331\ 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.
\332\ See section V.B.2.c of this preamble for a discussion of
the enrollment effects that drive these premium changes.
---------------------------------------------------------------------------
Many commenters agreed with the Departments that enrollment in
STLDI adversely affects the risk pools for individual health insurance
coverage, leading to higher premiums for individual health insurance
coverage. Specifically, one commenter stated that this adverse
selection and its effects would particularly disadvantage individuals
with preexisting conditions. Furthermore, one study suggests that the
2018 final rules had a negative effect on the risk pools for individual
health insurance coverage.\333\ As such, the Departments continue to be
of the view that access to STLDI has negative effects on the risk pools
for individual health insurance coverage.
---------------------------------------------------------------------------
\333\ 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.
---------------------------------------------------------------------------
Some commenters also noted that enrollment in STLDI in lieu of
comprehensive coverage could lead to fewer issuers in the Exchanges or
otherwise distort or destabilize the markets for comprehensive
coverage, while one commenter stated that the impact of enrollment in
STLDI on the markets for comprehensive coverage would be rather limited
(as indicated by OACT's impact estimates). A few commenters suggested
that the STLDI provisions could potentially harm the market for
individual health insurance coverage due to a reduction in competition,
for example, with one commenter suggesting that the 2018 final rules
promoted issuer competition in the overall market.\334\ The Departments
disagree with these commenters and note that STLDI and individual
health insurance coverage are two very different products that are
generally subject to different laws and regulations, and issuers of
individual health insurance coverage are unlikely to have changed their
product offerings to compete with STLDI.
---------------------------------------------------------------------------
\334\ The commenter cited a study that compared the trends in
Exchange enrollment, premiums, and issuer participation in States
that had additional restrictions on or prohibited STLDI and in
States that fully permitted STLDI (in accordance with the 2018 final
rules). The study concluded that States that fully permitted STLDI
``. . . have lost fewer enrollees in the individual market, have had
far more insurers offer coverage in the market, and have had larger
premium reductions since the [2018 final rules] took effect,''
further noting that ``the only States where individual market
premiums have increased since 2018 are the five [S]tates that
effectively prohibit short-term plans.'' See Blase, Brian (2021).
``Individual Health Insurance Markets Improving in States that Fully
Permit Short-Term Plans,'' Galen Institute, available at: https://galen.org/assets/Individual-Health-Insurance-Markets-Improving-in-States-that-Fully-Permit-Short-Term-Plans.pdf.
---------------------------------------------------------------------------
Some commenters stated that enrollment in fixed indemnity excepted
benefits coverage can adversely affect the risk pools for comprehensive
coverage. A few commenters stated that the impact of fixed indemnity
excepted benefits coverage on the risk pools for individual health
insurance coverage purchased on an Exchange is limited or nonexistent.
While the Departments expect that the notice provisions being finalized
in these final rules will encourage some individuals to enroll in
comprehensive coverage instead of fixed indemnity excepted benefits
coverage, the Departments do not expect such increased enrollment to
have a significant impact on market risk pools and therefore expect a
limited impact on premiums for comprehensive coverage, if any.
Transfers from the Federal Government to individuals. The
provisions regarding STLDI are expected to reduce Federal PTC spending
after the end of the expanded PTC subsidies provided through the IRA.
Specifically, these 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 is expected to 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 provisions will have no impact on Federal spending on PTC in
2024 and 2025 given the expanded PTC subsidies provided through the
IRA, but will reduce Federal spending on the PTC by approximately $120
million in 2026, 2027, and 2028.\335\ This reduction in Federal
spending on the PTC is viewed as a reduction in the amount of the
transfer from the Federal Government to individuals.
---------------------------------------------------------------------------
\335\ 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.
---------------------------------------------------------------------------
Transfers among issuers, consumers, and providers. These final
rules could 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 (when used as a substitute for
comprehensive coverage) to comprehensive coverage, since more health
care services would be covered under comprehensive coverage and the
out-of-pocket expenses (such as cost-sharing requirements) for
comprehensive coverage might be lower than out-of-pocket expenses for
STLDI or fixed indemnity excepted benefits coverage.\336\
---------------------------------------------------------------------------
\336\ 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, for example, 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.
---------------------------------------------------------------------------
Some commenters suggested that the STLDI provisions could lead to
an increase in uncompensated care provided by providers and facilities,
to the extent they lead to an increase in the number of individuals
without any form of health insurance coverage who are unable to pay
providers and facilities on an out-of-pocket basis, which would be a
transfer from providers and facilities to uninsured individuals.
However, a few commenters suggested that the STLDI provisions could
lead to a decrease in uncompensated care provided by providers and
facilities, to the extent that individuals with STLDI enroll in
comprehensive coverage (which would generally offer more benefits and
lower cost-sharing requirements, and increased access to health care)
in lieu of STLDI; this would be a transfer from issuers of
comprehensive coverage to providers and facilities. One commenter also
suggested that the fixed indemnity excepted benefits coverage proposals
in the 2023 proposed rules could generate costs for providers regarding
receipt of payments from patients, which would be a transfer from
providers to these individuals. The Departments lack data that would
allow for a quantification of
[[Page 23404]]
these effects but acknowledge that there may be a potential increase in
uncompensated care provided by providers and facilities given the
previously-mentioned impact of these final rules on out-of-pocket
expenditures discussed in section V.B.2.d of this preamble.
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 final rules. The Departments are unable to
forecast how all of the provisions of these final rules will affect
enrollment in STLDI and fixed indemnity excepted benefits coverage, as
the Departments are uncertain how many individuals are currently
enrolled in STLDI or fixed indemnity excepted benefits coverage, how
many of those individuals will switch to comprehensive coverage, how
many individuals will try to find another issuer of STLDI once their
current policy ends, how many individuals will choose to remain
enrolled in fixed indemnity excepted benefits coverage, or how many
individuals will choose not to purchase any form of coverage.\337\ As a
result, there is also some uncertainty about the impacts on market risk
pools, premiums, Federal expenditures on PTC, and on compensation for
agents and brokers selling STLDI, fixed indemnity excepted benefits
coverage, and individual health insurance coverage. One commenter noted
that the uncertainty in the estimates pertaining to the number of
affected entities undermines the Departments' analysis of impacts.
---------------------------------------------------------------------------
\337\ 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.
---------------------------------------------------------------------------
The Departments sought comments on all of these areas of
uncertainty regarding the impacts of the 2023 proposed rules and where
possible incorporated data and information received during the comment
period in estimating the impacts of these final rules. Despite the
uncertainty discussed in this section and throughout this preamble, the
Departments have enough data to be confident that the benefits of these
final rules outweigh the costs, and that these final rules will help
ensure that consumers can clearly distinguish STLDI and fixed indemnity
excepted benefits from comprehensive coverage, protect market risk
pools and stabilize premiums for comprehensive coverage, and promote
access to affordable comprehensive coverage.
g. Health Equity Impact
The Departments stated in section II.B of the preamble to the 2023
proposed rules that 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.\338\ STLDI and
fixed indemnity excepted benefits coverage policies typically do not
cover certain essential health benefits including prescription drugs,
mental health and substance use disorder services, or maternity
services,\339\ which could contribute to disparities in access to
health care and health outcomes (regarding mental health, maternal
health, or infant health, for instance).\340\ Many commenters stated
that issuers of STLDI policies are able to discriminate against
individuals on the basis of health status or preexisting conditions,
age, or gender.
---------------------------------------------------------------------------
\338\ See, for example, Barnes, Justin and Fumiko Chino (2022).
``Short-term Health Insurance Plans Come Up Short for Patients with
Cancer,'' JAMA Oncology, Volume 8, Issue 8, available at: https://jamanetwork.com/journals/jamaoncology/article-abstract/2793127.
\339\ 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.
\340\ See, for example, 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,\341\ might 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.\342\ Individuals in these populations arguably face the greatest
health and financial consequences if STLDI or fixed indemnity excepted
benefits coverage (when used as a substitute for comprehensive
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. Some commenters shared the
Departments' concern over the disproportionate impact that non-
comprehensive products may have on consumers with low incomes and
consumers of underserved racial and ethnic groups. Some commenters
indicated that individuals with low health literacy are
disproportionately impacted by misleading and deceptive marketing
practices, as discussed in section III.A of this preamble.
---------------------------------------------------------------------------
\341\ See, for example, 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/.
\341\ See, for example, Rikard, RV, Maxine Thompson, Julie
McKinney, and Alison Beauchamp (2016). ``Examining Health Literacy
Disparities in the United States: A Third Look at the National
Assessment of Adult Literacy,'' BMC Public Health, Volume 16, Issue
1, available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5022195/. See also Davis, Stacy, Jonathan Wischhusen, Steven
Sutton, Shannon Christy, Emmanuel Chavarria, Megan Sutter,
Siddhartha Roy, Cathy Meade, and Clement Gwede (2020). ``Demographic
and Psychosocial Factors Associated with Limited Health Literacy in
a Community-based Sample of Older Black Americans,'' Patient
Education and Counseling, Volume 103, Issue 2, available at: https://doi.org/10.1016/j.pec.2019.08.026.
\342\ 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 final rules are expected to help address these health
inequities by ensuring that consumers can more easily distinguish STLDI
and fixed indemnity excepted benefits coverage from comprehensive
coverage and thereby encouraging enrollment in comprehensive coverage.
h. Regulatory Review Cost Estimation
If regulations impose administrative costs on entities (for
example, the time needed to read and interpret rules), regulatory
agencies should estimate the
[[Page 23405]]
total cost associated with regulatory review.\343\ In the 2023 proposed
rules, the Departments assumed that approximately 250 entities would
review the 2023 proposed rules. The Departments acknowledged that the
number of entities reviewing the 2023 proposed rules could be higher or
lower than anticipated. The Departments ultimately received 571 unique
comments on the 2023 proposed rules that pertained to the proposals for
STLDI and fixed indemnity excepted benefits coverage, of which 247
commenters were identified as entities (for example, issuers, State
insurance departments, industry associations, and advocacy
organizations). Based on the comments received, the Departments now
estimate that the 571 unique commenters that commented on the 2023
proposed rules, along with at least one additional individual from each
of the 247 entities commenting on the 2023 proposed rules, will review
these final rules. That is, the Departments estimate that at least 818
individuals will read and interpret these final rules.
---------------------------------------------------------------------------
\343\ See Office of the Assistant Secretary for Planning and
Evaluation (2017). ``Guidelines for Regulatory Impact Analysis,''
available at: https://aspe.hhs.gov/reports/guidelines-regulatory-impact-analysis.
---------------------------------------------------------------------------
Using wage information from the Bureau of Labor Statistics, for
Business Operations Specialists (All Other), to account for median
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 final rules will be $73.06 per hour.\344\ The
Departments estimate that it will take each reviewing individual
approximately 6 hours on average to review these final rules, with an
associated cost of $438.36 (6 hours x $73.06). Therefore, the
Departments estimate that the (one-time) total cost of reviewing these
final rules will be approximately $358,578 (818 x $438.36). The
Departments sought comments on this approach to estimating the total
burden and cost for interested parties to read and interpret the rules,
and received one comment arguing that reading and understanding the
rules would take far longer than the 4 hours estimated in the 2023
proposed rules. The Departments agree that it might take some reviewers
longer than the previously estimated 4 hours, or the currently
estimated 6 hours, to read and interpret the rules, but that an average
estimate is reasonable.
---------------------------------------------------------------------------
\344\ See Bureau of Labor Statistics (2022). ``National
Occupational Employment and Wage Estimates,'' available at: https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------
C. Regulatory Alternatives--Departments of Health and Human Services
and Labor
In developing the proposed rules, the Departments considered
various alternative approaches. The Departments considered leaving in
place the duration standards for STLDI 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, to 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, as further discussed in in section
III.A.2 of this preamble, the Departments ultimately decided to propose
and finalize a maximum duration of no more than 4 months to align with
the rules regarding the 90-day waiting period limitation and the 1-
month reasonable and bona fide employment-based orientation period that
is permitted under the ACA.
The Departments considered proposing to limit stacking of STLDI
policies, 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 and sought comments on whether to extend
the limit on stacking to STLDI sold to an individual by issuers that
are members of the same controlled group. Some commenters suggested
limiting stacking of multiple or consecutive STLDI policies sold by
issuers that are members of the same controlled group or sold to
members of the same household. Other commenters supported the
Departments preventing stacking of STLDI policies sold by unaffiliated
issuers. The Departments decided that limiting the sale of STLDI
policies offered by issuers that are members of the same controlled
group would prevent issuers from using their corporate structure to
circumvent the rules related to maximum duration, but it is not
apparent to the Departments that limiting stacking across unaffiliated
issuers or different members of the same household accomplishes any
similar goal.
For new STLDI sold or issued on or after the effective date of the
final rules, the Departments proposed an applicability date for the
amendments to the Federal definition of STLDI that would apply for
coverage periods beginning on or after the effective date of the final
rules. Some commenters expressed concern that issuers of STLDI would
need more time to complete a number of administrative tasks--such as
evaluating plan designs, updating system processes, and re-filing
policy forms with State regulators--and suggested the Departments
finalize an applicability date between 90 days and 12 months after the
effective date of the final rules. Other commenters were concerned
about the potential for consumer confusion when STLDI is marketed and
sold during the annual individual market open enrollment period. To
provide more time for issuers to come into compliance with these final
rules for new STLDI policies and ensure that STLDI with a longer
maximum duration is not marketed during the next annual individual
market open enrollment period, the Departments decided that for new
STLDI sold or issued on or after September 1, 2024, the revised Federal
definition of STLDI under these final rules will apply for coverage
periods beginning on or after September 1, 2024. This will allow
consumers who enroll in a new STLDI policy on or after September 1,
2024, to avoid a gap between the STLDI policy and when comprehensive
coverage purchased during the next individual market open enrollment
period will begin.
The Departments considered proposing a limit on the marketing or
sale of STLDI during the annual individual market 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 appreciated the comments received
regarding how the Departments can support State efforts to limit the
marketing and/or sale of STLDI during the open enrollment period and
will take these comments into consideration as the Departments consider
potential actions they can take to address the marketing and sale of
STLDI during the individual market open enrollment period.
With respect to the proposed amendments to the notices provided to
consumers considering enrolling in or purchasing STLDI, the Departments
[[Page 23406]]
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 a review of the
comments, consulting with plain language experts and conducting
consumer testing, the Departments are of the view that providing a
complete comparison of protections that a consumer would forgo 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 required by
these final rules. The Departments solicited comments on all aspects of
the revised notice, including whether a different format or
presentation would result in a more useful, consumer-friendly notice.
For a more detailed discussion of the notices considered, please
reference section III.A.4 of this preamble.
The Departments considered several options when finalizing the
notice requirements for fixed indemnity excepted benefits coverage in
the group market. HHS considered the same options when revising the
content and standards for the consumer notice in the individual market.
As discussed in section III.B.1 of this preamble, consideration was
given to changes to the wording, appearance and timing related to the
notice provisions. The Departments considered different applicability
dates for these notices, including applying the notice to plan years
(or in the individual market, coverage periods) (including renewals)
beginning on or after the effective date of these final rules (as
proposed), September 1, 2024 (which would align with the applicability
date finalized in these rules for the STLDI notice provision), January
1, 2025, and later dates such as January 1, 2027. The Departments
concluded that applying the notice to plan years (or in the individual
market, coverage periods) (including renewals) beginning on or after
January 1, 2025, strikes an appropriate balance between providing plans
and issuers offering fixed indemnity excepted benefits coverage with
additional time to add or update the notice and ensuring that the
notices are present for new enrollments and renewals offered on a
calendar year basis. The Departments are of view that a large
proportion of group market fixed indemnity excepted benefits coverage,
for which the notice will be new, are likely to be offered on a
calendar year basis, as part of an employer's open enrollment period
for their employees. In addition, one commenter suggested that the
Departments should require an attestation from whomever sells fixed
indemnity excepted benefits coverage, confirming that the risks and
limitations were explained during the sale. The Departments are of the
view that it would be more effective and efficient to provide all
prospective enrollees with consistent messaging on all marketing,
application, and enrollment materials (and, in the individual market,
also on the first page of the policy, certificate, or contract of
insurance). The Departments also declined to impose an attestation
requirement based on the associated cost and administrative burden to
plans, issuers, plan sponsors, agents, and brokers.
One commenter suggested that the Departments should explore
additional consumer protection measures, such as requiring plans and
issuers to provide prospective consumers with a complete and easily
searchable schedule of benefits prior to purchase, as well as a longer
free-look period in which an enrollee can cancel the plan for any
reason at no cost. The Departments agree that these features would be
beneficial and encourage plans and issuers to offer them to the extent
feasible.
D. Paperwork Reduction Act
These final rules revise the Federal definition of STLDI to provide
that a revised notice 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 in STLDI).
These notice provisions apply for both new and existing STLDI for
coverage periods beginning on or after September 1, 2024.
These final rules also amend the regulations regarding fixed
indemnity excepted benefits coverage in the individual market to
provide that a revised 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 (or reenrollment) materials. These final rules also amend
the regulations regarding fixed indemnity excepted benefits coverage in
the group market to provide that a notice must be prominently displayed
(in either paper or electronic form) on the first page of any
marketing, application, and enrollment (or reenrollment) materials.
These notice provisions for group and individual market fixed indemnity
excepted benefits coverage are applicable to both new and existing
coverage with respect to plan years (in the individual market, coverage
periods) beginning on or after January 1, 2025.
The Departments are providing the exact text for the STLDI and
fixed indemnity excepted benefits coverage notices in these final
rules, and the language will not need to be customized. The burden
associated with these notices is therefore not subject to the Paperwork
Reduction Act of 1995 in accordance with 5 CFR 1320.3(c)(2) because
these notices 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.).
The Departments solicited comments on the potential burden on
issuers if the final rules were to include required notices with
language that would need to be customized with State-specific
information, as discussed in this preamble at section III.A.4 for STLDI
and section III.B.1.
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 and to prepare a regulatory flexibility analysis to describe
the impact of a 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.''
The data and conclusions presented in this section amount to the
Departments' final regulatory flexibility analysis under the RFA.
1. Need for Regulatory Action, Objectives, and Legal Basis
This rulemaking is authorized by section 9833 of the Code, section
734 of ERISA, and section 2792 of the PHS Act, which authorize the
Secretaries of the
[[Page 23407]]
Treasury, Labor, and HHS to issue such regulations as may be necessary
or appropriate to carry out the provisions of chapter 100 of the Code,
part 7 of subtitle B of title I of ERISA, and title XXVII of the PHS
Act.
These final rules address specific issues that are critical to
ensuring that consumers can clearly distinguish STLDI and fixed
indemnity excepted benefits coverage from comprehensive coverage and
make better informed decisions about the coverage they chose to
purchase. As discussed earlier in this RIA, STLDI and fixed indemnity
insurance tend to offer limited benefits and have relatively low
actuarial values when compared to comprehensive coverage. Because STLDI
and fixed indemnity insurance are sold outside of the Exchanges and are
generally not 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, and it might be mistakenly viewed as a substitute for
comprehensive coverage.
Generally, these final rules revise the Federal definition of STLDI
for new policies, certificates, or contracts of insurance to limit
their term to 3 months and maximum duration, within a 12-month period,
to 4 months. Additionally, these final rules further revise the Federal
definition of STLDI and amend the regulations regarding fixed indemnity
excepted benefits coverage to provide that a notice for both new and
existing STLDI and fixed indemnity excepted benefits coverage must be
prominently displayed (in either paper or electronic form) on the first
page of any marketing, application, and enrollment (or reenrollment)
materials, as described in this preamble at sections III.A.5 and
III.B.1.
These final rules will support the goals of the ACA by increasing
access to affordable and comprehensive health coverage, strengthening
health insurance markets, and promote better consumer understanding of
coverage options.
2. Number of Affected Small Entities as Defined by the Regulatory
Flexibility Act
The provisions in these final rules will affect issuers of STLDI,
issuers of fixed indemnity excepted benefits coverage, and agents and
brokers selling STLDI and fixed indemnity excepted benefits coverage.
For purposes of analysis under the RFA, the Departments consider
issuers of STLDI and issuers of fixed indemnity excepted benefits
coverage that have average annual receipts of $47 million or less as
small entities. Health insurance issuers are generally classified under
the North American Industry Classification System (NAICS) code 524114
(Direct Health and Medical Insurance Carriers). According to SBA size
standards,\345\ 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.\346\
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 fixed
indemnity excepted benefits coverage. As noted earlier in this RIA, the
Departments are unable to precisely determine how many small issuers of
STLDI and fixed indemnity excepted benefits coverage will be affected
by these final rules. Nevertheless, the Departments note that the NAIC
reported that there were at least 28 issuers of STLDI in the individual
market across the U.S. in 2022 and at least 93 issuers of ``other non-
comprehensive coverage'' (including fixed indemnity insurance) in the
individual market across the U.S. in 2022.\347\ Data regarding issuers
of STLDI and ``other medical (non-comprehensive)'' coverage are only
available for the individual market. The Departments have identified 2
issuers of STLDI and 3 issuers of fixed indemnity insurance that fall
below the $47 million threshold and could potentially be impacted by
these final rules.\348\ These issuers will incur costs associated with
the notice provisions and could also incur one-time costs to modify
their products to comply with the provisions for STLDI and fixed
indemnity excepted benefits coverage that are being finalized in these
final rules and to file amended marketing materials and plan documents
with State departments of insurance, as discussed further in section
V.E.3 of this preamble. The Departments solicited comments on the
number of small issuers of STLDI and the number of small issuers of
fixed indemnity excepted benefits coverage but did not receive any
additional information to inform the analysis.
---------------------------------------------------------------------------
\345\ Small Business Administration (2023). ``Table of Size
Standards (last updated March 2023),'' available at: https://www.sba.gov/document/support-table-size-standards.
\346\ 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.
\347\ Id.
\348\ This was informed by a review of issuers' financial
records ranging from 2018-2022.
---------------------------------------------------------------------------
For purposes of analysis under the RFA, the Departments consider
agents and brokers that have average annual receipts of $15 million or
less as small entities. Agents and brokers are classified under NAICS
code 524210 (Insurance Agencies and Brokerages), with a size standard
of $15 million or less. These rules may affect agents and brokers if
there is an impact on enrollment in STLDI or fixed indemnity excepted
benefits products. There is the potential for the agent and broker
compensation \349\ associated with the sale of STLDI and fixed
indemnity excepted benefits coverage to be negatively affected if there
is a reduction in sales of that coverage. There is also the potential
for agent and broker compensation associated with the sale of
individual health insurance coverage to be positively affected if there
is an increase in sales of that coverage. However, due to a lack of
data, the Departments were unable to precisely estimate how many agents
and brokers might be affected by the 2023 proposed rules and the
magnitudes of the potential changes in compensation.\350\ The
Departments solicited comments 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 the 2023 proposed rules. Many commenters stated
that the financial impacts of the proposed Federal definitions for
STLDI and fixed indemnity excepted benefits coverage on agents and
brokers would be significant, particularly given the relatively low
commission rates that agents and brokers receive from the sale of
Exchange plans as compared to STLDI and fixed indemnity insurance.
Another commenter stated that the regulatory flexibility analysis
lacked sufficient data to account for the
[[Page 23408]]
potential impacts on agents and brokers. Commenters did not provide
additional information on the number of agents and brokers that sell
STLDI and fixed indemnity insurance or data that would assist in
quantifying the impact of these final rules on agents and brokers. As
noted throughout this preamble, and discussed in section V.B.2.f of
this preamble, due to a lack of data and information, there are several
areas of uncertainty regarding the potential market impacts of these
final rules. As a result, there is also some uncertainty about the
potential impact on the compensation of agents and brokers.
---------------------------------------------------------------------------
\349\ 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.
\350\ 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.
---------------------------------------------------------------------------
To summarize, there is some uncertainty about the impacts of these
rules on the revenue of issuers of STLDI and fixed indemnity excepted
benefits coverage and the compensation of agents and brokers selling
STLDI and fixed indemnity insurance. Nevertheless, the Departments
acknowledge that to comply with these final rules, issuers of STLDI
fixed indemnity excepted benefits coverage will incur a cost and that
agents and brokers may be impacted by these final rules due to the
potential impacts on enrollment in STLDI or fixed indemnity excepted
benefits products. A brief discussion of the regulatory alternatives is
found in section V.E.4 of this preamble and a more detailed discussion
of the regulatory alternatives considered is found in section V.C of
this preamble.
3. Compliance Requirements and Costs
As discussed in section V.B.2.h of this preamble, the Departments
estimate the one-time cost to review these final rules will be
approximately $438 per entity (6 hours x $73.06). As noted in section
V.B.2.d of this preamble, the Departments acknowledge that issuers will
also incur one-time costs to modify their products to comply with the
provisions for STLDI and fixed indemnity excepted benefits coverage
that are being finalized in these rules and filing amended marketing
materials and plan documents with State departments of insurance. These
costs are expected to vary by issuer depending on the number of States
in which they offer products, the number of products they offer, and
the overall scale of their operations.\351\ Issuers of STLDI and fixed
indemnity excepted benefits coverage will incur costs associated with
the notice provisions in these final rules, which the Departments
estimate to be approximately $1,066 per issuer,\352\ as described in
section V.B.2.d of this preamble.
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\351\ The Departments do not have enough data or information to
quantify these costs.
\352\ (4 business operation specialist hours * $73.06) + (4
administrative assistant hours * $42.38) + (8 web developer hours *
$75.96) = $1,066.24.
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4. Duplication, Overlap, and Conflict With Other Rules and Regulations
The Departments do not anticipate any duplication, overlap, or
conflict with other rules and regulations associated with these rules.
These rules revise current regulations to ensure that consumers can
clearly distinguish STLDI and fixed indemnity excepted benefits
coverage from comprehensive coverage.
5. Significant Alternatives
The regulatory alternatives considered in developing these rules
are discussed in section V.C of this preamble. The Departments are of
the view that none of these alternatives would both achieve the policy
objectives and goals of these final rules as previously stated and be
less burdensome to small entities. The Departments did receive comments
on alternative timelines for issuers to comply with the requirements
(including small entities). The Departments decided to delay the
applicability dates for certain provisions to provide more time for
issuers (including small entities) to modify their products and
implement the required changes while still achieving the objectives of
these final rules. For a more detailed discussion of the regulatory
alternatives considered, please refer to section V.C of this preamble.
6. Impact on Small Rural Hospitals
In addition, section 1102(b) of the Social Security Act requires
agencies to prepare a regulatory impact analysis if a rule may have a
significant economic impact on the operations of a substantial number
of small rural hospitals. This analysis must conform to the provisions
of section 604 of the RFA. The Departments welcomed comments on this
and did not receive any comments specifically regarding the impact of
the provisions proposed in the 2023 proposed rules on small rural
hospitals. Many commenters did note that the provisions proposed in the
2023 proposed rules could increase the potential number of uninsured
individuals and a few commenters indicated that hospitals may find
themselves treating more uninsured patients that are unable to pay for
the services rendered. While these final rules are not subject to
section 1102 of the Social Security Act, the Departments are of the
view that these final rules will not have a significant impact on the
operations of a substantial number of small rural hospitals.
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 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 $183 million in 2024. As detailed in section
V.B.2.d of this preamble, the combined impact on State, local, or
Tribal governments and the private sector is not expected to be above
the $183 million threshold.
H. Federalism
Executive Order 13132 establishes certain requirements that Federal
agencies must meet when they issue 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 final rules have Federalism
implications because they may 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. Health insurance issuers offering STLDI and plans and
issuers
[[Page 23409]]
offering fixed indemnity excepted benefits coverage must meet the
minimum Federal standards for such coverage not to be subject to the
Federal consumer protections and requirements for comprehensive
coverage. States with State requirements for STLDI or fixed indemnity
excepted benefits coverage that do not follow the minimum Federal
standards for such coverage, as amended by these final rules, may
therefore choose to update their laws and regulations regarding STLDI
or fixed indemnity excepted benefits coverage to align with the minimum
Federal standards so that such coverage issued in the State is treated
as exempt from 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.\353\ 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 the ``narrowest''
preemption of State laws.\354\
---------------------------------------------------------------------------
\353\ 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.
\354\ 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.
---------------------------------------------------------------------------
These final rules define STLDI for purposes of the Code, ERISA, and
the PHS Act. Insurance coverage that meets the definition of STLDI in
these final rules will qualify for the exception to the Federal
definition of individual health insurance coverage and be exempt from
the Federal consumer protections and requirements applicable to
comprehensive coverage. Nothing in these final rules prevents
regulation of STLDI for purposes of State law. For example, States may
determine whether to permit the sale of STLDI in their insurance
markets. If a State law permits or requires an action that is
inconsistent with the Federal definition of STLDI, any coverage offered
pursuant to that State law that does not meet the standards set forth
in these final rules would not qualify as STLDI under Federal law and
would be subject to the Federal consumer protections and requirements
applicable to comprehensive coverage. For example, if a State were to
prohibit policies issued in that State from including the Federal
consumer notice, then coverage in that State that did not include the
Federal consumer notice language would not qualify for the exclusion
from the PHS Act definition of individual health insurance coverage and
thus would be subject to the Federal consumer protections and
requirements applicable to individual health insurance coverage.
Similarly, if a State law were to require the removal of language
from the Federal consumer notice for fixed indemnity excepted benefits
coverage finalized in these final rules, any policy issued in the State
that did not include the Federal notice would not be considered fixed
indemnity excepted benefits coverage for purposes of Federal law and
thus would be subject to the Federal consumer protections and
requirements applicable to comprehensive coverage.
Many commenters on the 2023 proposed rules discussed the federalism
implications of the proposed provisions for STLDI and fixed indemnity
excepted benefits coverage, as discussed in sections III.A.1 and
III.B.1, respectively of this preamble.
The Departments continue to be of the view that there is a need for
action regarding STLDI and fixed indemnity excepted benefits coverage
at the Federal level given, among other factors, the need to promote
consumer understanding of coverage options and ensure consumers do not
mistakenly enroll in STLDI and fixed indemnity excepted benefits
coverage as a substitute for comprehensive coverage, the prevalence of
aggressive and deceptive sales and marketing practices, reports of
increased enrollment in STLDI through out-of-State associations, and
the potential inability of States to regulate and collect information
about these associations.\355\
---------------------------------------------------------------------------
\355\ 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.
---------------------------------------------------------------------------
While developing these final rules, the Departments have attempted
to balance States' interests in regulating health insurance issuers and
their health insurance markets with Congress' intent to establish a
general Federal framework for health insurance coverage, including the
provision of certain key, uniform minimum protections to consumers
enrolled in comprehensive coverage in every State. It is the
Departments' view that by doing so they have complied with the
requirements of Executive Order 13132.
I. Congressional Review Act
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act, 5
U.S.C. 801 et seq.), OIRA has determined that this rule meets the
criteria set forth in 5 U.S.C. 804(2). Accordingly, this rule has been
transmitted to the Congress and the Comptroller General for review.
Heather C. Maloy,
Acting Deputy Commissioner for Services and Enforcement, Internal
Revenue Service.
Aviva Aron-Dine,
Acting Assistant Secretary (Tax Policy), Department of the Treasury.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
Xavier Becerra,
Secretary, Department of Health and Human Services.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Pensions, Reporting and recordkeeping
requirements.
29 CFR Part 2590
Child support, Employee benefit plans, Health care, Health
insurance, Infants and children, Maternal and child health, Penalties,
Pensions, Privacy, Reporting and recordkeeping requirements.
[[Page 23410]]
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.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
For the reasons stated in the preamble, the Department of the
Treasury and the IRS amend 26 CFR part 54 as set forth below:
PART 54--PENSION AND EXCISE TAX
0
1. The general authority citation for part 54 continues to read as
follows:
Authority: 26 U.S.C. 7805, unless otherwise noted.
* * * * *
0
2. Section 54.9801-2 is amended by revising the definition of ``Short-
term, limited-duration insurance'' to read as follows:
Sec. 54.9801-2 Definitions.
* * * * *
Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a policy, certificate, or contract of
insurance with an issuer that meets the conditions of paragraph (1) of
this definition.
(1) Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a policy, certificate, or contract of
insurance with an issuer that:
(i) 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)(i), 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, or if the issuer is a member of a controlled group,
any other issuer that is a member of such controlled group, 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
(ii) 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 4830-01-P
[[Page 23411]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.060
BILLING CODE 4830-01-C
(2) For purposes of paragraph (1)(i) of this definition, the term
``controlled group'' means any group treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o) of the Code.
(3) If any provision of this definition 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
[[Page 23412]]
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
3. Section 54.9831-1 is amended by adding paragraphs (c)(4)(ii)(D) and
(c)(4)(iv) to read as follows:
Sec. 54.9831-1 Special rules relating to group health plans.
* * * * *
(c) * * *
(4) * * *
(ii) * * *
(D) For plan years beginning on or after January 1, 2025, with
respect to hospital indemnity or other fixed indemnity insurance:
(1) 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:
BILLING CODE 4830-01-P
[GRAPHIC] [TIFF OMITTED] TR03AP24.061
BILLING CODE 4830-01-C
(2) 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)(1) of this
section is prominently displayed in any marketing and reenrollment
materials provided at or before the time participants are given the
opportunity to reenroll in coverage.
(3) If a plan or issuer provides a notice satisfying the
requirements in paragraphs (c)(4)(ii)(D)(1) and (2) of this section to
a participant, the obligation to
[[Page 23413]]
provide the notice is considered to be satisfied for both the plan and
issuer.
* * * * *
(iv) 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
4. Section 54.9833-1 is revised to read as follows:
Sec. 54.9833-1 Applicability dates.
Sections 54.9801-1 through 54.9801-6, and 54.9831-1 and this
section are applicable for plan years beginning on or after July 1,
2005. Notwithstanding the previous sentence, for short-term, limited-
duration insurance sold or issued on or after September 1, 2024, the
definition of short-term, limited-duration insurance in Sec. 54.9801-2
applies for coverage periods beginning on or after September 1, 2024.
For short-term, limited-duration insurance sold or issued before
September 1, 2024 (including any subsequent renewal or extension
consistent with applicable law), the definition of short-term, limited-
duration insurance in 26 CFR 54.9801-2, revised as of April 1, 2023,
continues to apply, except that paragraph (2) of the definition of
short-term, limited-duration insurance in Sec. 54.9801-2 applies for
coverage periods beginning on or after September 1, 2024.
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Chapter XXV
For the reasons stated in the preamble, the Department of Labor
amends 29 CFR part 2590 as set forth below:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS
0
5. The authority citation for part 2590 continues to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c;
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L.
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029;
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
0
6. 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 meets the conditions of paragraph (1) of
this definition.
(1) Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a policy, certificate, or contract of
insurance with an issuer that:
(i) 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)(i), 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, or if the issuer is a member of a controlled group,
any other issuer that is a member of such controlled group, 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
(ii) 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 4830-01-P
[[Page 23414]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.062
BILLING CODE 4830-01-C
(2) For purposes of paragraph (1)(i) of this definition, the term
``controlled group'' means any group treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of
1986, as amended.
(3) If any provision of this definition 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
[[Page 23415]]
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
7. Section 2590.732 is amended by adding paragraphs (c)(4)(ii)(D) and
(c)(4)(iv) to read as follows:
Sec. 2590.732 Special rules relating to group health plans.
* * * * *
(c) * * *
(4) * * *
(ii) * * *
(D) For plan years beginning on or after January 1, 2025, with
respect to hospital indemnity or other fixed indemnity insurance:
(1) 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:
BILLING CODE 4830-01-P
[GRAPHIC] [TIFF OMITTED] TR03AP24.063
BILLING CODE 4830-01-C
(2) 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)(1) of this
section is prominently displayed in any marketing and reenrollment
materials provided at or before the time participants are given the
opportunity to reenroll in coverage.
[[Page 23416]]
(3) If a plan or issuer provides a notice satisfying the
requirements in paragraphs (c)(4)(ii)(D)(1) and (2) of this section to
a participant, the obligation to provide the notice is considered to be
satisfied for both the plan and issuer.
* * * * *
(iv) 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
8. Section 2590.736 is revised to read as follows:
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. Notwithstanding the previous sentence, for short-term, limited-
duration insurance sold or issued on or after September 1, 2024, the
definition of short-term, limited-duration insurance in Sec. 2590.701-
2 applies for coverage periods beginning on or after September 1, 2024.
For short-term, limited-duration insurance sold or issued before
September 1, 2024 (including any subsequent renewal or extension
consistent with applicable law), the definition of short-term, limited-
duration insurance in 29 CFR 2590.701-2, revised as of July 1, 2023,
continues to apply, except that paragraph (1)(ii) of the definition of
short-term, limited-duration insurance in Sec. 2590.701-2 applies for
coverage periods beginning on or after September 1, 2024.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Subtitle A
For the reasons stated in the preamble, the Department of Health
and Human Services amends 45 CFR parts 144, 146, and 148 as set forth
below:
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
0
9. 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
10. 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 meets the conditions of paragraph (1) of
this definition.
(1) Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a policy, certificate, or contract of
insurance with an issuer that:
(i) 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)(i), 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, or if the issuer is a member of a controlled group,
any other issuer that is a member of such controlled group, 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
(ii) 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 4830-01-P
[[Page 23417]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.064
BILLING CODE 4830-01-C
(2) For purposes of paragraph (1)(i) of this definition, the term
``controlled group'' means any group treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of
1986, as amended.
(3) If any provision of this definition 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
[[Page 23418]]
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
11. 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
12. 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. Notwithstanding the previous sentence, for
short-term, limited-duration insurance sold or issued on or after
September 1, 2024, the definition of short-term, limited-duration
insurance in Sec. 144.103 of this subchapter applies for coverage
periods beginning on or after September 1, 2024. For short-term,
limited-duration insurance sold or issued before September 1, 2024
(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, 2023, continues
to apply, except that paragraph (1)(ii) of the definition of short-
term, limited-duration insurance in Sec. 144.103 applies for coverage
periods beginning on or after September 1, 2024.
0
13. Section 146.145 is amended by adding paragraphs (b)(4)(ii)(D) and
(b)(4)(iv) to read as follows:
Sec. 146.145 Special rules relating to group health plans.
* * * * *
(b) * * *
(4) * * *
(ii) * * *
(D) For plan years beginning on or after January 1, 2025, with
respect to hospital indemnity or other fixed indemnity insurance:
(1) 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:
BILLING CODE 4830-01-P
[[Page 23419]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.065
BILLING CODE 4830-01-C
(2) 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)(1) of this
section is prominently displayed in any marketing and reenrollment
materials provided at or before the time participants are given the
opportunity to reenroll in coverage.
(3) If a plan or issuer provides a notice satisfying the
requirements in paragraphs (b)(4)(ii)(D)(1) and (2) of this section to
a participant, the obligation to provide the notice is considered to be
satisfied for both the plan and issuer.
* * * * *
(iv) 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
14. 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 300gg-92, as amended.
0
15. Section 148.102 is amended by revising paragraph (b) to read as
follows:
Sec. 148.102 Scope and applicability dates.
* * * * *
[[Page 23420]]
(b) Applicability dates. Except as provided in Sec. Sec. 148.124,
148.170, and 148.180, 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 September 1, 2024, the definition of short-term,
limited-duration insurance in Sec. 144.103 of this subchapter applies
for coverage periods beginning on or after September 1, 2024. For
short-term, limited-duration insurance sold or issued before September
1, 2024 (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, 2023, continues
to apply, except that paragraph (1)(ii) of the definition of short-
term, limited-duration insurance in Sec. 144.103 applies for coverage
periods beginning on or after September 1, 2024.
0
16. 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;
(ii) The benefits are paid 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 expenses incurred and without
regard to the amount of benefits provided with respect to the event or
service under any other health coverage; and
(iii)(A) For coverage periods beginning on or after January 1,
2025, the issuer displays prominently on the first page (in either
paper or electronic form, including on a website) 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:
BILLING CODE 4830-01-P
[[Page 23421]]
[GRAPHIC] [TIFF OMITTED] TR03AP24.066
(B) For coverage periods beginning on or after January 1, 2015, and
prior to January 1, 2025, the issuer continues to follow the notice
provision in 45 CFR 148.220(b)(4)(iv), revised as of October 1, 2023.
(iv) 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. 2024-06551 Filed 3-28-24; 8:45 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-C