Bulletin No. 2024–19
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HIGHLIGHTS
OF THIS ISSUE
Bulletin No. 2024–19
May 6, 2024
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE, INCOME TAX
Rev. Proc. 2024-21, page 1054.
This Revenue Procedure provides issuers of qualified mortgage bonds and mortgage credit certificates with (1) the
nationwide average purchase price for residences located in
the United States, and (2) the average area purchase price
safe harbors for residences located in statistical areas in
each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and
Guam.
EMPLOYEE PLANS, EXCISE TAX
Notice 2024-35, page 1051.
This notice provides relief with respect to certain required
minimum distributions (RMDs) that are not made in 2024.
This relief was provided with respect to certain RMDs in
2021, 2022, and 2023, and is being extended in this notice
to certain RMDs in 2024. Specifically, the notice provides
that if certain requirements are met, a plan will not fail to be
qualified for failing to make a specified RMD in 2024, and a
taxpayer will not be assessed an excise tax for failing to take
the RMD. This notice also announces that the final regulations
intended to be published relating to RMDs are anticipated to
apply for purposes of determining RMDs for calendar years
beginning on or after January 1, 2025.
T.D. 9990, page 966.
These final rules amend the definition of short-term, limited-duration insurance for purposes of the exclusion from the
Finding Lists begin on page ii.
definition of “individual health insurance coverage” in 26 CFR
part 54, 29 CFR part 2590, and 45 CFR part 144. These
final rules also amend 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.
EXEMPT ORGANIZATIONS
Announcement 2024-20, page 1069.
Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).
INCOME TAX
Rev. Proc. 2024-20, page 1053.
Revenue Procedure 2024-20 provides domestic asset/liability percentages and domestic investment yields needed
by foreign life insurance companies and foreign property
and liability insurance companies to compute their minimum
effectively connected net investment income under section
842(b) of the Internal Revenue Code for taxable years beginning after December 31, 2022.
Rev. Rul. 2024-9, page 964.
Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax-exempt rate. For purposes
of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for May 2024.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
May 6, 2024
Bulletin No. 2024–19
Part I
Section 1274.—
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
(Also Sections 42, 280G, 382, 467, 468, 482, 483,
1288, 7520, 7872.)
Rev. Rul. 2024-09
This revenue ruling provides various prescribed rates for federal income
Annual
AFR
110% AFR
120% AFR
130% AFR
4.97%
5.47%
5.98%
6.48%
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR
4.42%
4.87%
5.31%
5.76%
6.67%
7.80%
AFR
110% AFR
120% AFR
130% AFR
4.55%
5.01%
5.47%
5.94%
Short-term adjusted AFR
Mid-term adjusted AFR
Long-term adjusted AFR
May 6, 2024
tax purposes for May 2024 (the current
month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current
month for purposes of section 1274(d)
of the Internal Revenue Code. Table 2
contains the short-term, mid-term, and
long-term adjusted applicable federal
rates (adjusted AFR) for the current
month for purposes of section 1288(b).
Table 3 sets forth the adjusted federal long-term rate and the long-term
tax-exempt rate described in section
382(f). Table 4 contains the appropri-
ate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service
after July 30, 2008, shall not be less
than 9%. Finally, Table 5 contains the
federal rate for determining the present
value of an annuity, an interest for life
or for a term of years, or a remainder or
a reversionary interest for purposes of
section 7520.
REV. RUL. 2024-09 TABLE 1
Applicable Federal Rates (AFR) for May 2024
Period for Compounding
Semiannual
Quarterly
Short-term
4.91%
4.88%
5.40%
5.36%
5.89%
5.85%
6.38%
6.33%
Mid-term
4.37%
4.35%
4.81%
4.78%
5.24%
5.21%
5.68%
5.64%
6.56%
6.51%
7.65%
7.58%
Long-term
4.50%
4.47%
4.95%
4.92%
5.40%
5.36%
5.85%
5.81%
Annual
3.76%
3.35%
3.45%
REV. RUL. 2024-09 TABLE 2
Adjusted AFR for May 2024
Period for Compounding
Semiannual
3.73%
3.32%
3.42%
964
Monthly
4.86%
5.34%
5.82%
6.30%
4.33%
4.76%
5.18%
5.61%
6.47%
7.53%
4.46%
4.90%
5.34%
5.78%
Quarterly
3.71%
3.31%
3.41%
Monthly
3.70%
3.30%
3.40%
Bulletin No. 2024–19
REV. RUL. 2024-09 TABLE 3
Rates Under Section 382 for May 2024
Adjusted federal long-term rate for the current month
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal
long-term rates for the current month and the prior two months.)
3.45%
3.45%
REV. RUL. 2024-09 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for May 2024
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
8.04%
Appropriate percentage for the 30% present value low-income housing credit
3.45%
REV. RUL. 2024-09 TABLE 5
Rate Under Section 7520 for May 2024
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest
Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of May 2024. See Rev.
Rul. 2024-09, page 964.
Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of May 2024. See Rev. Rul.
2024-09, page 964.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
5.40%
Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of May 2024. See Rev. Rul.
2024-09, page 964.
Section 7872.—Treatment
of Loans With BelowMarket Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
May 2024. See Rev. Rul. 2024-09, page 964.
Bulletin No. 2024–19
965
May 6, 2024
26 CFR 54.9801-2: Definitions; 26 CFR 54.9831-1:
Special rules relating to group health plans; 26 CFR
54.9833-1: Applicability dates
T.D. 9990
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
45 CFR Parts 144, 146,
and 148
Short-Term, LimitedDuration 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.
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. § 1.105-2 at this time.
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. § 1.105-2 to clarify the tax treatment
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.
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.
1
May 6, 2024
966
Bulletin No. 2024–19
of benefit payments in fixed amounts
under hospital indemnity or other fixed
indemnity coverage purchased on a pretax basis.
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 arrangements5 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, August 21, 1996) added
chapter 100 to the Code, part 7 to ERISA,
and title XXVII to the PHS Act, which
set forth portability and nondiscrimination rules with respect to health coverage.
These provisions of the Code, ERISA,
and the PHS Act were later augmented by
other laws, including the Mental Health
Parity Act of 1996 (Pub. L. 104-204, September 26, 1996), the Paul Wellstone and
Pete Domenici Mental Health Parity and
Addiction Equity Act of 2008 (MHPAEA)
(Pub. L. 110-343, October 3, 2008), the
Newborns’ and Mothers’ Health Protection Act (Pub. L. 104-204, September 26,
1996), the Women’s Health and Cancer
Rights Act (Pub. L. 105-277, October
21, 1998), the Genetic Information Nondiscrimination Act of 2008 (Pub. L. 110233, 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
4
5
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.
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 (COVID19) 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,
88 FR 44596 at 44632 (July 12, 2023).
Id. at 44632-34.
Bulletin No. 2024–19
967
May 6, 2024
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
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 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
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 COVID19 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
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,
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.
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).
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).
12
Executive Order 13995 of January 21, 2021, 86 FR 7193 (January 26, 2021).
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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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, 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.
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 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 ShortTerm, 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 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 mate-
rials provided in connection with enrollment in STLDI, in at least 14 point type:
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 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
Some State laws apply some consumer protections and requirements that parallel those in the ACA to STLDI.
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).
17
See Pub. L. 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.
21
Id.
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.”).
14
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May 6, 2024
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.
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.
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
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 identi-
ty-related health concerns, and victims of
rape and domestic violence. Many of these
commenters also expressed concern about
aggressive and deceptive marketing practices utilized by marketers of STLDI.
Other commenters highlighted the
important role that STLDI could play in
providing temporary coverage to individuals who would otherwise be uninsured.
These commenters, who supported the
proposed changes to the definition, also
noted that such changes would allow purchasers of STLDI to obtain the coverage
they want at a more affordable price for a
longer period.
With respect to the maximum length of
the initial contract term for STLDI, most
commenters opposed extending the maximum duration beyond 3 months. Others
suggested periods such as less than 6 or 8
months. However, most commenters who
supported extending the maximum initial
contract term beyond 3 months suggested
it should be 364 days. A few commenters suggested more than 1 year. Other
commenters stated the maximum length
of coverage should be left to the States.
Commenters who supported the 2018 proposed rules generally favored permitting
renewals of STLDI policies, while those
who opposed the 2018 proposed rules
generally opposed permitting such renewals.
After reviewing comments and feedback received from interested parties, on
August 3, 2018, the Departments published final rules in the Federal Register titled “Short-Term, Limited-Duration
Insurance” (2018 final rules)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
Pub. L. 99-272, April 7, 1986. COBRA added parallel provisions at Code section 4980B, ERISA sections 601-608, and PHS Act sections 2201-2208.
83 FR 7437 (February 21, 2018).
26
Id. at 7441.
27
Id. at 7440-7441.
28
Pub. L. 115–97, December 22, 2017.
29
83 FR 38212 (August 3, 2018).
30
Id.
24
25
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970
Bulletin No. 2024–19
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:
his coverage is not required to
T
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
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
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
See id. at 38222-38225.
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 longterm 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).
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).
31
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May 6, 2024
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 cod-
ified 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
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
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
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
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/CRPT104hrpt496-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.”).
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.
44
62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971 (April 8, 1997).
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.
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.
51
81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-38046 (June 10, 2016).
52
Id. at 38031-38032.
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972
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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 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
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.
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
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
Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.
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).
56
62 FR 16985 at 16992 and 17004 (April 8, 1997).
57
Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).
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.
61
79 FR 15807 at 15818-15820, 15869 (March 21, 2014).
62
Id.
63
79 FR 30239 (May 27, 2014).
53
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May 6, 2024
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.
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 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.
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
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
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).
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).
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.
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).
64
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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
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 incurred generally
would not qualify for exclusion from
gross income, FICA, FUTA, or Federal
income tax withholding.
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
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. § 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.
72
Subtitle C, chapter 21 of the Code.
73
Subtitle C, chapter 23 of the Code.
74
Subtitle C, chapter 24 of the Code.
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May 6, 2024
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.
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
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 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
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.
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/.)
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.
May 6, 2024
976
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year, and that 2.2 million fewer individuals would be without health insurance,
on average, over the period from 2023
through 2032.84
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
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 per-
cent 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.
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.
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 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.
Additionally, a consumer enrolled in
STLDI may discover that a newly-diagnosed medical condition is categorized
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=202207/58313-Crapo_letter.pdf.
85
87 FR 61979 (October 13, 2022).
86
Id. at 61999.
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.
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.
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.
84
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May 6, 2024
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
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 outof-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.
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 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 policy99 that supplements
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.
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.
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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comprehensive coverage by providing
financial assistance, rather than serving as
an alternative to comprehensive coverage.
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. 116136, March 27, 2020), to cover COVID19 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.
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-ofpocket health care expenditures for comprehensive coverage purchased through an
Exchange.105 A recent study that engaged
83 FR 38212, 38229 (October 2, 2018).
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 (COVID19). 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/faqspart-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.
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.
100
101
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May 6, 2024
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
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
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, and might
therefore mistakenly enroll in STLDI or
fixed indemnity excepted benefits coverage in lieu of comprehensive coverage.
C. Impact on Risk Pools
At the time the 2018 final rules were
issued, the Departments acknowledged
that expanding access to STLDI could
Government Accountability Office (2020). “Private Health Coverage: Results of Covert Testing for Selected Offerings,” available at: https://www.gao.gov/products/gao-20-634r.
Young, Christen Linke and Kathleen Hannick (2020). “Fixed Indemnity 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.
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.
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.
106
107
May 6, 2024
980
Bulletin No. 2024–19
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.
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.
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
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 defi-
nition 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.
In light of the Departments’ ongoing
concerns about the numerous negative
impacts of STLDI and fixed indemnity
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.
114
83 FR 38212 at 38218 (August 3, 2018).
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.
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
119
Id.
81 FR 75316 at 75317 (October 31, 2016).
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May 6, 2024
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 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, certifi-
cate, 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:
IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage
This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like
those on HealthCare.gov.
This policy
Insurance on HealthCare.gov
Might not cover you due to preexisting health conditions like
diabetes, cancer, stroke, arthritis, heart disease, mental health & Can’t deny you coverage due to preexisting health conditions
substance use disorders
Might not cover things like prescription drugs, preventive
screenings, maternity care, emergency services, hospitalization, Covers all essential health benefits
pediatric care, physical therapy & more
Protects you with limits on what you pay each year out-ofMight have no limit on what you pay ut-of-pocket for care
pocket for essential health benefits
You won’t qualify for Federal financial help to pay premiums
Many people qualify for Federal financial help
& out-of-pocket costs
Doesn’t have to meet Federal standards for comprehensive
All plans must meet Federal standards
health coverage
Looking for comprehensive health insurance?
• Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options.
• To find out if you can get health insurance through your job, or a family member’s job, contact the employer.
Questions about this policy?
• For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National
Association of Insurance Commissioners’ website (naic.org) under “Insurance Departments.”
May 6, 2024
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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 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.
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.
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,
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.
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.
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).
120
121
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May 6, 2024
the Departments must give meaning to the
term STLDI.126
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.
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. 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:
“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
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.
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 under-
writing 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 rules132 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
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.
127
See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act.
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).
130
Id. at 789.
131
Id. at 789 and 792 (citing to Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016)).
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).
126
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984
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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
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 reason-
able 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
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.
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 pro-
posed 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.
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
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).
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)
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.
139
136 S. Ct. 2117, 2125 (2016).
140
966 F. 3d at 792.
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.
133
134
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May 6, 2024
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
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 within the
Departments’ authority, and is consistent
with other applicable Federal law, and is
therefore not arbitrary and capricious.
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 respon-
sive 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 States145 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.
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 the Regulatory Impact Analysis in section V of this preamble.
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-bystate-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.
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.
142
143
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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.
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 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, ERI
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