Employee Benefits Security Administration, HHS, IRS: Short-Term, Limited-Duration Insurance, Independent, Noncoordinated Excepted Benefits Coverage
The rule was issued by
Here are excerpts:
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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
FOR FURTHER INFORMATION CONTACT:
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
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
In proposed rules published on
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.
A. General Statutory Background
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191,
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
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
The American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) was enacted on
The No Surprises Act was enacted on
The Secretaries of the
B. Recent Executive Orders
On
In addition, on
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-
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.
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,
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]
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
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]
On
In contrast, several other commenters stated that changes to the 2016 final rules may provide an opportunity to achieve the goals outlined in the
On
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 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
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
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]
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,
The amendments to the regulations regarding independent, noncoordinated excepted benefits coverage that were 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]
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]
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
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,
The Departments later released Frequently Asked Questions (FAQ) on
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 regulation but noted their intention to address hospital indemnity and other fixed indemnity insurance in future rulemaking.[55]
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
Following issuance of the Departments'
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
On
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
E. Tax Treatment and Substantiation Requirements for Amounts Received From
As part of the 2023 proposed rules, the
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.
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]
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
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.
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The document was published in the
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