[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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \56\ 62 FR 16985 at 16992 and 17004 (April 8, 1997).
    \57\ Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \61\ 79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
    \62\ Id.
---------------------------------------------------------------------------

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

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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/.)
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \179\ 88 FR 44596 at 44610-44611 (July 12, 2023).
    \180\ Id. at 44611-44614 (July 12, 2023).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \183\ 81 FR 75318 (Oct. 31, 2016).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \211\ 88 FR 44596 at 44617 (July 12, 2023).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    In the 2023 proposed rules, the Departments requested comment on 
two potential formats for the revised notice standard \217\ (Notice A 
and Notice B).
---------------------------------------------------------------------------

    \217\ 88 FR 44596 at 44616-44617 (July 12, 2023).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \219\ See 88 FR 44596 at 44614-44615 (July 12, 2023).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \220\ See section III.A.6 of this preamble for discussion of the 
STLDI applicability dates finalized in these final rules.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).

---------------------------------------------------------------------------

[[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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \236\ 827 F.3d 70 (D.C. Cir. 2016).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \241\ NAIC model laws are available at: https://content.naic.org/model-laws.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.

---------------------------------------------------------------------------

[[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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
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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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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