Bulletin No. 2023–33

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HIGHLIGHTS

OF THIS ISSUE

Bulletin No. 2023–33

August 14, 2023

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

Rev. Proc. 2023-26, page 486.

This revenue procedure describes a program that provides

an opportunity for fast-track processing of certain requests

for letter rulings solely or primarily under the jurisdiction of

the Associate Chief Counsel (Corporate). This new program

replaces the pilot program established by Rev. Proc. 202210, 2022-6 I.R.B. 473.

EMPLOYEE PLANS, EXCISE TAX,

INCOME TAX

REG-120730-21, page 491.

These proposed rules would amend the definition of shortterm, limited-duration insurance for purposes of the exclusion from the definition of “individual health insurance

coverage” in 26 CFR part 54, 29 CFR part 2590, and 45

CFR part 144. These proposed rules would 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. In addition,

Treasury and IRS propose rules that would clarify the tax

treatment of amounts received by a taxpayer through certain

employment-based accident or health insurance that generally are paid without regard to incurred medical expenses in

Finding Lists begin on page ii.

26 CFR part 1. If finalized, the proposed rule would include

in income and wages benefits from fixed indemnity policies

purchased with employer funds, including by salary reduction through a section 125 cafeteria plan. Furthermore,

these proposed rules include technical amendments to

clarify that, under longstanding regulations and guidance,

the substantiation requirements for reimbursement of qualified medical care expenses apply to reimbursements under

section 105(b) of the Internal Revenue Code in order for

those reimbursements to be excluded from an individual’s

gross income.

INCOME TAX

Rev. Rul. 2023-14, page 484.

This revenue ruling provides that if a taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives

additional units of cryptocurrency as rewards when validation occurs, the fair market value of the rewards received is

included in the taxpayer’s gross income in the taxable year

in which the taxpayer gains dominion and control over the

rewards. The fair market value is determined as of the date

and time the taxpayer gains dominion and control over the

rewards. The revenue ruling also clarifies that this also is the

case if a taxpayer stakes cryptocurrency through a cryptocurrency exchange and the taxpayer receives additional units of

cryptocurrency as rewards as a result of the validation.

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.

August 14, 2023

Bulletin No. 2023–33

Part I

26 CFR 1.61-1: Gross income.

(Also § 61)

Rev. Rul. 2023-14

ISSUE

If a taxpayer that uses a cash method of

accounting (cash-method taxpayer) stakes

cryptocurrency native to a proof-of-stake

blockchain and receives additional units

of cryptocurrency as rewards when validation occurs (validation rewards or

rewards), must the taxpayer include the

value of the rewards in the taxpayer’s

gross income and, if so, in which taxable

year?

BACKGROUND

Section 6045(g)(3)(D) of the Internal

Revenue Code1 generally defines a digital asset, for purposes of information

reporting by brokers, as any digital representation of value which is recorded on a

cryptographically secured distributed ledger or any similar technology as specified

by the Secretary.

Digital assets do not exist in physical

form and include, but are not limited to,

property the Department of the Treasury

and the Internal Revenue Service have previously referred to as convertible virtual

currency and cryptocurrency. See Notice

2014-21, 2014-16 I.R.B. 938, as modified

by Notice 2023-34, 2023-19 I.R.B. 837;

Rev. Rul. 2019-24, 2019-44 I.R.B. 1004.

Notice 2014-21 defines convertible virtual

currency as virtual currency that has an

equivalent value in real currency or acts

as a substitute for real currency. Notice

2014-21 provides that convertible virtual

currency is treated as property and that

general tax principles applicable to property transactions apply to convertible virtual currency.

Cryptocurrency is a type of virtual currency that utilizes cryptography to secure

transactions that are digitally recorded on

a distributed ledger. See Rev. Rul. 201924. References to cryptocurrency in this

revenue ruling are to cryptocurrency that

is convertible virtual currency. Units of

cryptocurrency are generally referred to

as coins or tokens.

Many cryptocurrencies utilize blockchain technology, a specific type of distributed ledger technology. Distributed

ledger technology uses independent digital systems to record, share, and synchronize transactions, the details of which

are recorded simultaneously on multiple

nodes on a network. In this context, a node

generally refers to a device that maintains

a copy of the distributed ledger and runs

copies of the software associated with the

protocol for the distributed ledger at issue.

In general, it is these nodes that maintain the integrity of a blockchain by validating transactions and ensuring that

new entries in the ledger, in the form of

blocks of transactions, are legitimate and

not duplicative so that a new block can

be recorded on the blockchain. This can

be done, for example, by rejecting transactions that attempt to move the same

units to two different wallet addresses at

the same time. The creation of new blocks

on a blockchain generally requires the

participation of multiple validators who

are selected and rewarded pursuant to

the blockchain protocol. These validation

rewards typically consist of one or more

newly created units of the cryptocurrency

native to that blockchain.

A consensus mechanism is a set of protocols by which nodes reach agreement

on updates to the blockchain. One consensus mechanism is commonly referred

to as proof-of-stake. In a proof-of-stake

consensus mechanism, persons who hold

cryptocurrency may participate in the

validation process by staking their holdings, if they hold the requisite number

of units of a particular cryptocurrency.

Persons may also participate in the validation process by staking their holdings

through a cryptocurrency exchange. In

a proof-of-stake consensus mechanism,

validators may be selected by the protocol for the blockchain associated with the

specific cryptocurrency based on a variety

of factors including the number of coins

or tokens staked. These validators confirm

transactions and add blocks to the blockchain in accordance with the protocol. If

a validator is chosen by the protocol and

validation is successful, the validator will

receive a reward. If a validator is chosen

by the protocol and validation is unsuccessful, the staked units may be subject to

penalty in the form of “slashing,” a process by which the staked units, or a portion thereof, are forfeited.

FACTS

Transactions in M, a cryptocurrency,

are validated by a proof-of-stake consensus mechanism. On Date 1, Taxpayer A, a

cash-method taxpayer, owns 300 units of

M. A stakes 200 of the units of M and validates a new block of transactions on the M

blockchain, receiving 2 units of M as validation rewards. Pursuant to the M protocol, during a brief period ending on Date

2, A lacks the ability to sell, exchange, or

otherwise dispose of any interest in the 2

units of M in any manner. The following

day, on Date 3, A has the ability to sell,

exchange, or otherwise dispose of the 2

units of M.2

LAW

Section 61(a) provides the general rule

that, except as otherwise provided by subtitle A of the Code, gross income means

all income from whatever source derived.

Specifically, gross income includes, but is

not limited to, compensation for services,

gross income derived from business, and

gains from dealings in property. Under

section 61, “instances of undeniable

accessions to wealth, clearly realized, and

over which the taxpayers have complete

dominion,” require inclusion in gross

income. See Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 431 (1955).

“Gross income includes income realized

in any form, whether in money, property, or services. Income may be realized,

therefore, in the form of services, meals,

Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code (Code) or the Income Tax Regulations (26 CFR part 1).

The facts in this revenue ruling do not address any type of “gas” or transaction fees other than the validation rewards described herein.

August 14, 2023

484

Bulletin No. 2023–33

accommodations, stock, or other property,

as well as in cash.” § 1.61-1(a). Unless

otherwise provided by a Code or regulatory provision, any receipt of property

constitutes gross income in the amount of

its fair market value at the date and time

at which it is reduced to undisputed possession. See, e.g., section 61(a); Koons

v. United States, 315 F.2d 542 (9th Cir.

1963); Rooney v. Commissioner, 88 T.C.

523, 526-527 (1987); § 1.61-2(d)(1).

Cryptocurrency that is convertible virtual currency is treated as property for

Federal income tax purposes and general tax principles applicable to property

transactions apply to transactions involving cryptocurrency. See Notice 2014-21.

For example, a taxpayer who receives

cryptocurrency as a payment for goods

or services or who mines cryptocurrency

must include the fair market value of the

cryptocurrency in the taxpayer’s gross

income in the taxable year the taxpayer

obtains dominion and control of the cryptocurrency. See id., Q&A 3 and Q&A

8. Amounts received as gains derived

from dealings in property, or as rents or

royalties, also generally must be included

in a cash-method taxpayer’s gross income

in the taxable year the taxpayer obtains

dominion and control of those amounts

through actual or constructive receipt. See

also § 1.451-1(a).

ANALYSIS

The 2 units of M represent A’s reward

for staking units and validating transactions on the M blockchain. On Date 3,

A has an accession to wealth as A gains

dominion and control through A’s ability,

as of this date, to sell, exchange, or otherwise dispose of the 2 units of M received

as validation rewards. Accordingly, the

fair market value of the 2 units of M, as

of the date and time A gains dominion and

control over the 2 units of M, is included

in A’s gross income for the taxable year

that includes Date 3.

HOLDING

If a cash-method taxpayer stakes

cryptocurrency native to a proof-of-stake

blockchain and receives additional units

of cryptocurrency as rewards when validation occurs, the fair market value

of the validation rewards received is

included in the taxpayer’s gross income

in the taxable year in which the taxpayer

gains dominion and control over the validation rewards. The fair market value

is determined as of the date and time

the taxpayer gains dominion and control

over the validation rewards.3 The same is

true if a taxpayer stakes cryptocurrency

native to a proof-of-stake blockchain

through a cryptocurrency exchange and

the taxpayer receives additional units of

cryptocurrency as rewards as a result of

the validation.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Alina Lewandowski of the Office

of Associate Chief Counsel (Income Tax

& Accounting). For further information

regarding the revenue ruling, contact

Ms. Lewandowski at (202) 317-7006 (not

a toll-free number).

This revenue ruling does not address issues that may arise under any rules not specifically cited, such as section 83.

Bulletin No. 2023–33

485

August 14, 2023

Part III

26 CFR 601.201: Rulings and determination letters.

Rev. Proc. 2023-26

SECTION 1. PURPOSE

This revenue procedure describes a

program that provides an opportunity for

fast-track processing of certain requests

for letter rulings solely or primarily under

the jurisdiction of the Associate Chief

Counsel (Corporate). This new program

replaces the pilot program established by

Rev. Proc. 2022-10, 2022-6 I.R.B. 473.

SECTION 2. NOTABLE CHANGES

TO REV. PROC. 2022-10

The new program reflects two notable

changes to the program set forth in Rev.

Proc. 2022-10:

.01 Sections 4.02(2) and 5.08(2) of this

revenue procedure provide that fast-track

processing will not be granted if the letter

ruling includes a closing agreement with

respect to an issue under the jurisdiction of

the Associate Chief Counsel (Corporate) or

another Associate office. If the inclusion of

a closing agreement arises during the fasttrack processing of a letter ruling request,

the fast-track processing will be terminated, and the Internal Revenue Service

(IRS) will continue to process the letter ruling request under the procedures of section

7 of Rev. Proc. 2023-1. Expedited handling

under section 7.02(4) of Rev. Proc. 2023-1

remains available for such requests.

.02 Section 5.03(3) of this revenue

procedure clarifies that while a statement

providing one or more of the taxpayer’s

reasons for requesting fast-track processing is required, the taxpayer is not

required to demonstrate a business need

unless the taxpayer is requesting a ruling

in less than 12 weeks. The stated reason(s)

will be used as one factor to be considered

in making the determination of whether

a request for fast-track processing is

granted, and, if so, the length of the specified period defined in section 4.03 of this

revenue procedure.

SECTION 3. BACKGROUND

.01 Letter Rulings.

August 14, 2023

(1) In general. The IRS publishes

annually a revenue procedure to explain

how the IRS provides advice to taxpayers

on issues under the jurisdiction of each

Associate office. For example, Rev. Proc.

2023-1, 2023-1 I.R.B. 1, explains the

forms of advice and the manner in which

advice is requested by taxpayers and

provided by the IRS. References in this

revenue procedure to Rev. Proc. 2023-1

include references to successor revenue

procedures as appropriate.

(2) General instructions for requesting letter rulings. Section 7 of Rev. Proc.

2023‑1 provides general instructions and

procedures for requesting letter rulings

and determination letters.

(a) Expedited handling of letter ruling

requests. The IRS ordinarily processes

requests for letter rulings and determination letters in order of the date received.

However, section 7.02(4) of Rev. Proc.

2023-1 sets forth the procedures for

requesting expedited handling of letter

ruling requests (expedited handling). That

section requires a request for expedited

handling to be made in writing, preferably in a separate letter included with the

request for the letter ruling or provided

soon after its filing, and to explain in detail

the need for expedited handling. That section also sets forth the circumstances in

which the IRS will grant expedited handling of a letter ruling request. Specifically,

that section provides that a request for

expedited handling is granted only in rare

and unusual cases, out of fairness to other

taxpayers and because the IRS seeks to

process all requests as expeditiously as

possible and to give appropriate deference

to normal business exigencies in all cases.

Nevertheless, the IRS may grant a request

for expedited handling when a factor outside a taxpayer’s control creates a real

business need to obtain a letter ruling or

determination letter before a certain date

to avoid serious business consequences.

(b) Processing of letter ruling requests.

Section 8 of Rev. Proc. 2023-1 describes

the processing of letter ruling requests by

the Associate offices. Section 8.05(1) of

Rev. Proc. 2023-1 provides that, if a letter ruling request lacks essential information, the branch representative will request

such information, and that, unless an

486

extension of time is granted, the request

will be closed if the Associate office does

not receive the requested information

within 21 calendar days from the date

of the request. Section 8.05(2) of Rev.

Proc. 2023-1 provides that the IRS will

grant an extension of the 21-day period

if the extension is justified in writing by

the taxpayer and approved by the branch

reviewer. Section 8.05(3) of Rev. Proc.

2023-1 provides procedures for closing a

request if the taxpayer does not submit the

information requested within the specified

time.

(3) Conferences for letter rulings.

Section 10 of Rev. Proc. 2023-1 provides

procedures and rules regarding conferences between the taxpayer or the taxpayer’s authorized representative (taxpayer)

and IRS representatives to discuss a letter ruling request. A taxpayer generally is

entitled, as a matter of right, to only one

conference (conference of right). See Rev.

Proc. 2023-1, section 10.02.

.02 Pilot Program. In response to comments requesting faster processing of letter rulings, the Department of the Treasury

(Treasury Department) and the IRS issued

Rev. Proc. 2022-10 on January 14, 2022,

announcing an 18-month pilot program

to provide an opportunity for fast-track

processing of certain requests for letter

rulings solely or primarily under the jurisdiction of the Associate Chief Counsel

(Corporate). The Treasury Department

and the IRS have received favorable informal comments from practitioners regarding the pilot program. After considering

those comments and the results of the pilot

program, the Treasury Department and the

IRS have determined that it is in the best

interests of sound tax administration to

adopt the program set forth in this revenue

procedure.

SECTION 4. SCOPE

.01

Availability

Fast-Track

Processing. Except as provided in section

4.02 of this revenue procedure, a taxpayer

requesting a letter ruling solely or primarily under the jurisdiction of the Associate

Chief Counsel (Corporate) may request

fast-track processing but may not request

expedited handling of such request under

Bulletin No. 2023–33

section 7.02(4) of Rev. Proc. 2023-1. A

request for fast-track processing generally

will be granted if the letter ruling request

is solely under the jurisdiction of the

Associate Chief Counsel (Corporate), and

the requirements described in section 5 of

this revenue procedure are met. However,

if the letter ruling request is primarily

under the jurisdiction of the Associate

Chief Counsel (Corporate) but also

includes a request for a ruling on an issue

under the jurisdiction of another Associate

office, fast-track processing will be

granted only if the other Associate office

with jurisdiction over the issue agrees to

process the request in accordance with

this revenue procedure. If the letter ruling request is primarily under the jurisdiction of the Associate Chief Counsel

(Corporate) but also involves an issue

under the jurisdiction of another Associate

office, but no ruling with respect to such

issue is requested, fast-track processing

will be granted only if no other Associate

office with jurisdiction over the issue

objects to the request being processed in

accordance with this revenue procedure.

.02 Expedited Handling Available but

Not Fast-Track Processing. Expedited

handling under section 7.02(4) of Rev.

Proc. 2023-1, but not fast-track processing under this revenue procedure, may

be available for a letter ruling request

described in the following circumstances:

(1) A § 301.9100 request within the

meaning of section 5.03 of Rev. Proc.

2023-1 for extension of time for making an

election or for other applications for relief

under §§ 301.9100-1 through 301.9100-3

of the Procedure and Administration

Regulations (26 CFR part 301).

(2) Letter rulings that include a closing

agreement with respect to an issue under

the jurisdiction of the Associate Chief

Counsel (Corporate) or another Associate

office.

.03 Effect of Fast-Track Processing.

If a request for fast-track processing is

granted, the IRS will endeavor to complete processing of the letter ruling request

and, if appropriate, to issue the letter ruling within the time period specified by the

branch representative or branch reviewer

(specified period). The specified period

will be 12 weeks unless a shorter or longer period is designated by the branch

reviewer pursuant to section 5.06 of this

Bulletin No. 2023–33

revenue procedure. The specified period

begins on the following dates:

(1) If the letter ruling request involves

issues solely under the jurisdiction of the

Associate Chief Counsel (Corporate), the

specified period will begin on the date

the letter ruling request is assigned to and

received by the branch representative and

branch reviewer processing the letter ruling request.

(2) If the letter ruling request also

involves issues under the jurisdiction

of an Associate office other than the

Associate Chief Counsel (Corporate), the

specified period will begin on the first date

on which all other Associate offices having jurisdiction have informed the branch

representative or branch reviewer of their

agreement to fast-track processing (or, if

applicable, have indicated non-objection

to such processing).

SECTION 5. PROCEDURES FOR

FAST-TRACK PROCESSING

.01 Qualification. The IRS will provide fast-track processing of a letter ruling

request only if—

(1) the taxpayer satisfies each of the

requirements described in sections 5.02

through 5.04 of this revenue procedure

and agrees to satisfy the requirement

described in section 5.07 of this revenue

procedure; and

(2) after considering the factors listed

in section 5.05(2) of this revenue procedure, the branch reviewer determines that

fast-track processing is feasible.

.02 Pre-submission Conference.

(1) Request by taxpayer. The taxpayer

must request a pre-submission conference

with respect to the letter ruling request, in

accordance with the procedures described

in sections 10.07, 10.08, and 10.09 (as

added by section 6.02(3) of this revenue

procedure) of Rev. Proc. 2023‑1. In the

pre-submission conference, the taxpayer

should address both the substantive issues

and the taxpayer’s request for fast-track

processing.

(2) Required information before

pre-submission conference. Before the

pre-submission conference, the taxpayer

must provide the information required

pursuant to section 10.07(3) of Rev. Proc.

2023-1. Such information should include

a clear and concise description of the

487

transaction and issues to be discussed

during the pre-submission conference.

Additionally, the taxpayer must provide

a statement setting forth the reason(s)

for requesting fast-track processing, the

length of the specified period the taxpayer

requests (if other than 12 weeks), any

matters that could affect the feasibility

of fast-track processing, and any issues

under the jurisdiction of an Associate

office other than the Associate Chief

Counsel (Corporate) relevant to the transaction(s) (including whether a ruling will

be requested as to each such issue).

.03 Letter Ruling Request. A letter ruling request as to which fast-track processing is requested must satisfy all applicable

requirements of Rev. Proc. 2023-1 and

any other applicable revenue procedures

and, in addition, must include the items in

sections 5.03(1) through (5) of this revenue procedure.

(1) Required statement. The letter

ruling request must state, at the top of

the first page: “Fast-Track Processing

Is Requested under Revenue Procedure

2023‑26.”

(2) Required information. The letter

ruling request must include information

on the taxpayer’s reason(s) for requesting fast-track processing, the length of

the specified period the taxpayer requests

(if other than 12 weeks), any information

required by section 5.06 of this revenue

procedure if the specified period is less

than 12 weeks, any matters that could

affect the feasibility of fast-track processing, and any issues under the jurisdiction of an Associate office other than the

Associate Chief Counsel (Corporate) relevant to the transaction(s) (including any

rulings requested on any such issues).

(3) Rationale for fast-track processing.

The taxpayer must submit a statement providing one or more of the taxpayer’s reasons for requesting fast-track processing.

However, unless the taxpayer is requesting a specified period less than 12 weeks,

there is no requirement that the taxpayer

demonstrate a business need for requesting fast-track processing.

(4) Agreement regarding additional

information. The letter ruling request

must state that the taxpayer agrees to provide any additional information requested

by the branch representative or branch

reviewer within the seven business days

August 14, 2023

that begin on the next business day after

the day the request for information is

made (seven-day period). See section 5.07

of this revenue procedure.

(5) Draft letter ruling. The letter ruling

request must include a draft letter ruling

in a form that includes a legend of defined

terms, a description of relevant facts,

representations, requested rulings, and

administrative matters.

.04 Submitting Request for Letter

Ruling.

(1) Suggested submission by encrypted

email attachment. To avoid delay in processing of letter ruling requests submitted

by mail or delivered in physical form, it is

strongly recommended that a letter ruling

request for which fast-track processing

is requested be submitted by encrypted

email attachment, in accordance with section 7.04(3) of Rev. Proc. 2023-1.

(2) Submission other than by encrypted

email attachment. If a letter ruling

request for which fast-track processing

is requested is submitted other than by

encrypted email attachment, the draft letter ruling required by section 5.03(5) of

this revenue procedure must be submitted

separately by encrypted email attachment

in accordance with section 7.04(3) of Rev.

Proc. 2023-1.

.05 Notification of Receipt and Granting

of Request for Fast-Track Processing.

(1) Notification. No later than seven

business days after the day the letter ruling

request is assigned to and received by the

branch representative and branch reviewer,

the branch representative or branch reviewer

will contact the taxpayer to acknowledge

receipt of the letter ruling request, to provide contact information for the branch

representative and branch reviewer, and

to notify the taxpayer that the request for

fast-track processing is granted, denied, or

still pending. If the request is granted, the

branch representative or branch reviewer

will inform the taxpayer of the length of the

specified period and the date the specified

period will end. If the request is denied, the

branch representative or branch reviewer

will explain the reasons for the denial. If the

request is under consideration by another

Associate office at that time, the branch

representative or branch reviewer will so

inform the taxpayer.

(2) Factors in determining whether

a request for fast-track processing will

August 14, 2023

be granted. In making the determination

whether to grant a request for fast-track

processing, and, if so, the length of the

specified period, the branch reviewer will

consider—

(a) All the facts, representations, and

circumstances, including the complexity of the proposed transactions, and the

issues presented;

(b) Whether the letter ruling request

fully, clearly, and concisely describes and

analyzes the relevant facts and issues;

5.03 of this revenue procedure;

(d) The taxpayer’s reason(s) for

requesting fast-track processing as set

forth in a statement provided under section 5.03(3) of this revenue procedure;

(e) Any concerns communicated by

another Associate office; and

(f) Any resource constraints or other

obligations of the Associate Chief Counsel

(Corporate), including responsibilities

with respect to examination matters, litigation matters, guidance projects, assistances provided to other Associate offices,

and other letter ruling requests.

(3) Opportunity for discussion and

reconsideration; tolling. If the branch representative or the branch reviewer informs

the taxpayer that the request for fast-track

processing is denied, the taxpayer may

address that determination in writing, discuss that determination with the branch

reviewer, or both. If the branch reviewer

continues to determine that the request for

fast-track processing should be denied,

there is no right of appeal. See section 10.02

of Rev. Proc. 2023-1. If, after reconsideration, the branch reviewer determines that

the request for fast-track processing should

be granted, the specified period will be

tolled for the period beginning on the date

the taxpayer was informed that the request

for fast-track-processing was denied and

ending on the date the taxpayer is informed

of the determination that such request is

granted. The branch representative or the

branch reviewer will inform the taxpayer

that a favorable or unfavorable determination has been made as soon as possible

after the determination has been made and,

in the event of a favorable determination,

the period of tolling of the specified period.

.06 Specified Period Shorter or Longer

than 12 Weeks.

488

(1) Request for specified period shorter

than 12 weeks.

(a) In general. Upon request, the IRS

will agree to a specified period shorter than

12 weeks if the branch reviewer determines

that the taxpayer has a business need to

obtain a letter ruling within that specified

period, and that processing is feasible.

(b) Business need. In a request for a

specified period shorter than 12 weeks,

the taxpayer must demonstrate a need for

such processing by submitting information to support the following conclusions,

no later than the date on which the letter

ruling request is submitted:

(i) There is a business exigency outside

the taxpayer’s control.

(ii) There will be adverse consequences

to the taxpayer or other persons if the IRS

does not issue the requested letter ruling

within the specified period.

(iii) The taxpayer submitted the request

as promptly as possible after becoming

aware of the circumstances described

in paragraphs (i) and (ii) of this section

5.06(1)(b).

facts alone do not demonstrate a need for

a specified period shorter than 12 weeks:

(i) The scheduling of a closing date

for a transaction, a meeting of a board of

directors or shareholders of a corporation,

or any other corporate action within the

control of the taxpayer or other parties to

the transaction.

(ii) The possible effect of fluctuation in

the market price of stocks on a transaction.

(2) Specified period longer than 12

weeks.

(a) Taxpayer request. Upon request by

the taxpayer, the branch reviewer may

agree to a specified period longer than 12

weeks.

(b) Branch reviewer determination.

The branch reviewer may decide to designate a specified period longer than 12

weeks, if he or she determines (based on

the factors described in section 5.05(2)

of this revenue procedure) that fast-track

processing is not feasible within 12 weeks

(or other specified period requested by

the taxpayer) but is feasible during the

longer period. In such a case, the branch

representative or branch reviewer will

inform the taxpayer of the decision and

the reasons therefor and will provide the

taxpayer an opportunity to address the

Bulletin No. 2023–33

decision. The branch representative or the

branch reviewer will inform the taxpayer

of any subsequent favorable or unfavorable determination.

(3) Same procedures apply. The procedures described in this revenue procedure

apply to all requests for fast-track processing, regardless of whether the specified

period is 12 weeks or is shorter or longer

than 12 weeks.

.07 Requested Additional Information

Not Received Within Seven-Day Period.

If the branch representative or branch

reviewer requests additional information,

but all the requested information is not

received within the seven-day period, then,

unless the taxpayer requests an extension

before the end of the seven-day period,

and the branch reviewer grants the extension, fast-track processing will be terminated. A request for an extension of the

seven-day period may be made orally, in

writing, or both. However, the seven-day

period will not be tolled after an extension

is requested unless agreed to by the branch

reviewer. The branch reviewer will grant

an extension only if the taxpayer provides

good cause therefor. If an extension of

time to submit information is granted, and

the requested information is not provided

within the extended time, fast-track processing will also be terminated unless a

further extension is requested and granted.

If fast-track processing is terminated

under this section, the request will be subject to the procedures described in section

5.08 of this revenue procedure.

.08 Termination or Delay of Fast-Track

Processing.

(1) In general. If the branch reviewer

determines that fast-track processing

within the specified period is no longer

feasible, the branch reviewer may terminate fast-track processing or determine

that fast-track processing will be completed within a newly designated specified

period.

(2) Rationale for determination. In

determining whether fast-track processing

is no longer feasible within the specified

period, the branch reviewer will consider

any event or situation that affects the IRS’s

ability to provide fast-track processing

within the specified period, including—

(a) Any material change to the proposed transaction(s) since submission of

the letter ruling request;

Bulletin No. 2023–33

(b) Any Federal income tax issue not

addressed in the original letter ruling

request and subsequently identified;

any additional information submitted;

(d) Any pending legislation, regulations, or other guidance that may affect

the proposed transaction(s);

(e) Any resource constraints or other

obligations of the Associate Chief Counsel

(Corporate), including responsibilities

with respect to examination matters, litigation matters, guidance projects, assistances provided to other Associate offices,

and other letter ruling requests;

(f) The subsequent inclusion of a closing agreement in the letter ruling request;

and

(g) The scheduling of a conference of

right described in section 10.02 of Rev.

Proc. 2023-1 or a similar conference.

(3) Notification and opportunity for

discussion and reconsideration; tolling.

If the branch representative or the branch

reviewer informs the taxpayer that fasttrack processing has been terminated, the

specified period has been extended, or the

completion of fast-track processing has

otherwise been delayed, the taxpayer may

address that determination in writing, discuss that determination with the branch

reviewer, or both. If, upon reconsideration,

the branch reviewer continues to determine that the request for fast-track processing should be terminated, the specified

period should be extended, or completion

of fast-track processing will otherwise be

delayed, there is no right of appeal. See

section 10.02 of Rev. Proc. 2023-1. If,

upon reconsideration, the branch reviewer

determines that fast-track processing

should not be terminated, the specified

period should not be extended, or completion of fast-track processing should not

be otherwise delayed, the specified period

will be tolled for the period beginning on

the date the taxpayer was informed of the

initial unfavorable determination and ending on the date the taxpayer is informed of

the subsequent favorable determination.

The branch representative or the branch

reviewer will inform the taxpayer that a

determination following reconsideration

has been made as soon as possible after

the determination has been made and, in

the event of a favorable determination, the

period of tolling of the specified period.

489

(4) Continued processing of letter ruling request. If fast-track processing is terminated, the IRS will continue to process

the letter ruling request under the procedures of section 7 (exclusive of section

7.02(4)) of Rev. Proc. 2023-1. However,

if fast track processing is terminated

because a closing agreement that was not

initially part of a letter ruling request is

subsequently included with a letter ruling

request, the IRS will continue to process

the letter ruling request under the procedures of section 7 of Rev. Proc. 2023-1,

and will consider a request for expedited

handling under section 7.02(4) of that revenue procedure.

SECTION 6. MODIFICATIONS TO

REV. PROC. 2023-1

Rev. Proc. 2023-1 is modified as

follows:

.01 Requests for Expedited Handling.

Section 7.02(4) of Rev. Proc. 2023-1 is

modified by adding the following language at the end of the first paragraph:

“Expedited handling under this section

7.02(4) is not available as to a request

for a letter ruling solely or primarily

under the jurisdiction of the Associate

Chief Counsel (Corporate) (other than

a § 301.9100 request described in section 5.03 of this revenue procedure

for an extension of time for making

an election or other relief, or a request

that includes a closing agreement with

respect to an issue under the jurisdiction of the Associate Chief Counsel

(Corporate) or another Associate

office). For guidance on fast-track processing of such a letter ruling request,

see Rev. Proc. 2023-26, 2023-33 I.R.B.

486.”

.02 Additional Information. Section

8.05(1) of Rev. Proc. 2023-1 is modified

by adding the following language at the

end of the first paragraph:

“Special rules and procedures apply to

letter ruling requests under the jurisdiction of the Associate Chief Counsel

(Corporate) for which fast-track processing is requested. Under section

5.07 of Rev. Proc. 2023-26, failure to

provide, within seven business days

(plus extensions, if granted), a complete response to any information

request from the branch representative

August 14, 2023

or branch reviewer assigned to the letter ruling request will result in termination of fast-track processing.”

.03 Conferences for Letter Rulings.

Section 10 of Rev. Proc. 2023-1 is

Pre-submission conferences

under Rev. Proc. 2023-26.

.04 List of Guideline Revenue

Procedures. Section .01 of Appendix

F of Rev. Proc. 2023-1 is modified by

.09 Special rules and procedures apply to letter ruling requests

solely or primarily under the jurisdiction of the Associate Chief

Counsel (Corporate) for which fast-track processing has been

requested. For more information, see section 5.02 of Rev. Proc.

2023-26.

adding the following entry to the subject

matter list of guideline revenue procedures immediately before “Intercompany

Fast-track processing of letter ruling requests solely or primarily under the jurisdiction of the Associate Chief Counsel

(Corporate).

SECTION 7. EFFECT ON OTHER

DOCUMENTS

.01 Rev. Proc. 2022-10. Rev. Proc.

2022-10 is superseded for letter ruling

requests described in section 8 of this revenue procedure.

.02 Rev. Proc. 2023-1. Rev. Proc.

2023-1 is modified as provided in section

6 of this revenue procedure.

SECTION 8. APPLICABILITY DATE

The fast-track ruling program established by this revenue procedure applies

to all letter ruling requests described in

section 4.01 of this revenue procedure

postmarked or, if not mailed, received by

the IRS after July 26, 2023.

SECTION 9. PAPERWORK

REDUCTION ACT

The collections of information in

this revenue procedure have been

reviewed and approved by the Office

of Management and Budget (OMB)

in accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) under

control number 1545-1522.

August 14, 2023

modified by adding the following new

paragraph at the end:

transactions; election not to defer gain or

loss”:

Rev. Proc. 2023-26, 2023-33 I.R.B. 486.

An agency may not conduct or sponsor,

and a person is not required to respond

to, a collection of information unless the

collection of information displays a valid

OMB control number.

The collections of information in this

revenue procedure are in section 5. This

information is required to determine

whether a taxpayer qualifies for fast-track

processing. The collections of information

are required to obtain a benefit. The likely

respondents are corporations seeking private letter rulings.

The estimated total annual reporting

and/or recordkeeping burden for Rev.

Proc. 2023-1 is 316,020 hours.

The estimated annual burden per

respondent/recordkeeper for Rev. Proc.

2023-1 varies from 1 to 200 hours,

depending on individual circumstances,

with an estimated average burden of 80

hours. The estimated number of respondents and/or recordkeepers is 3,956.

The estimated total annual reporting

and/or recordkeeping burden for this revenue procedure adds 260 hours to the burden imposed by Rev. Proc. 2023-1.

The estimated annual burden per

respondent/recordkeeper for this revenue

490

procedure varies from 3 to 10 hours,

depending on individual circumstances,

with an estimate average burden of 8

hours. The estimated number of additional respondents and/or recordkeepers added to Rev. Proc. 2023-1 by this

revenue procedure is 10, increasing the

estimated number of respondents and/

or recordkeepers to Rev. Proc. 2023-1 to

3,966.

The estimated annual frequency of

response is on occasion.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue tax law. Generally, tax returns and

tax return information are confidential, as

required by section 6103 of the Internal

Revenue Code.

SECTION 10. DRAFTING

INFORMATION

The principal author of this revenue

procedure is Kelton P. Frye of the Office

of Associate Chief Counsel (Corporate).

For further information, please call Mr.

Frye at (202) 317-5363.

Bulletin No. 2023–33

Part IV

Notice of Proposed

Rulemaking

REG-120730-21

Short-Term, LimitedDuration Insurance;

Independent,

Noncoordinated Excepted

Benefits Coverage;

Level-Funded Plan

Arrangements; and Tax

Treatment of Certain

Accident and Health

Insurance

AGENCY: Internal Revenue Service,

Department of the Treasury; Employee

Benefits

Security

Administration,

Department of Labor; Centers for

Medicare & Medicaid Services,

Department of Health and Human

Services.

ACTION: Proposed rules.

SUMMARY: This document sets forth

proposed rules that would amend the

definition of short-term, limited-duration

insurance, which is excluded from the definition of individual health insurance coverage under the Public Health Service Act.

This document also sets forth proposed

amendments to the requirements for hospital indemnity or other fixed indemnity

insurance to be considered an excepted

benefit in the group and individual health

insurance markets. This document further

sets forth proposed amendments to clarify

the tax treatment of certain benefit payments in fixed amounts received under

employer-provided accident and health

plans. Finally, this document solicits

comments regarding coverage only for a

specified disease or illness that qualifies as

excepted benefits, and comments regarding level-funded plan arrangements.

DATES: To be assured consideration,

comments must be received at one of the

Bulletin No. 2023–33

addresses provided below by September

11, 2023.

ADDRESSES: In commenting, please

refer to file code CMS‑9904‑P.

Comments, including mass comment

submissions, must be submitted in one of

the following three ways (please choose

only one of the ways listed):

1. Electronically. You may submit

electronic comments on this regulation to

https://www.regulations.gov. Follow the

“Submit a comment” instructions.

2. By regular mail. You may mail written comments to the following address

ONLY:

enters for Medicare & Medicaid

Services,

Department of Health and Human

Services,

Attention: CMS-9904-P,

P.O. Box 8010,

Baltimore, MD 21244-8010.

Please allow sufficient time for mailed

comments to be received before the close

of the comment period.

3. By express or overnight mail. You

may send written comments to the following address ONLY:

enters for Medicare & Medicaid

Services,

Department of Health and Human

Services,

Attention: CMS-9904-P,

Mail Stop C4-26-05,

7500 Security Boulevard,

Baltimore, MD 21244-1850.

For information on viewing public comments, see the beginning of the

“SUPPLEMENTARY INFORMATION”

section.

FOR FURTHER INFORMATION

CONTACT:

Elizabeth Schumacher or Rebecca

Miller, Employee Benefits Security

Administration, Department of Labor

at (202) 693-8335; Jason Sandoval,

Internal Revenue Service, Department

of the Treasury at (202) 317-5500; Cam

491

Clemmons, Centers for Medicare &

Medicaid Services, Department of Health

and Human Services at (206) 615-2338;

Geraldine Doetzer, Centers for Medicare

& Medicaid Services, Department of

Health and Human Services at (667)

290-8855.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

Comments received before the close of the

comment period are available for viewing

by the public, including any personally

identifiable or confidential business information that is included in a comment. We

post comments received before the close

of the comment period on the following

website as soon as possible after they

have been received: https://www.regulations.gov. Follow the search instructions

on that website to view comments. We

will not post on Regulations.gov comments that make threats to individuals or

institutions or suggest that the individual

will take actions to harm the individual.

We continue to encourage individuals not

to submit duplicative comments. We will

post acceptable comments from multiple

unique commenters even if the content

is identical or nearly identical to other

comments.

I. Background

These proposed rules set forth proposed

revisions to the definition of “short-term,

limited-duration insurance” (STLDI) for

purposes of its exclusion from the definition of “individual health insurance coverage” in 26 CFR part 54, 29 CFR part

2590, and 45 CFR part 144. The definition

of STLDI is also relevant for purposes

of the disclosure and reporting requirements in section 2746 of the Public Health

Service Act (the PHS Act), which require

health insurance issuers offering individual health insurance coverage or STLDI

to disclose to enrollees in such coverage,

and to report annually to the Department

of Health and Human Services (HHS),

any direct or indirect compensation provided by the issuer to an agent or broker

August 14, 2023

associated with enrolling individuals in

such coverage.

These proposed rules also set forth

proposed amendments to the requirements for hospital indemnity and other

fixed indemnity insurance to be treated

as an excepted benefit in the group and

individual health insurance markets (fixed

indemnity excepted benefits coverage).1

Further, the Department of the Treasury

(Treasury Department) and the Internal

Revenue Service (IRS) propose to clarify the tax treatment under 26 CFR part

1 of fixed amounts received by a taxpayer through certain employment-based

accident or health insurance that are paid

without regard to the amount of medical

expenses incurred.

Lastly, comments are solicited regarding coverage only for a specified disease

or illness that qualifies as excepted benefits (specified disease excepted benefits

coverage),2 and regarding level-funded

plan arrangements to better understand

the key features and characteristics of

these arrangements and whether additional guidance or rulemaking is needed

to clarify plan sponsors’ obligations with

respect to coverage provided through

these arrangements.

The Treasury Department, the

Department of Labor, and HHS (collectively, the Departments) propose these

revisions to define and more clearly distinguish STLDI and fixed indemnity

excepted benefits coverage from comprehensive coverage. Comprehensive coverage is subject to the federal consumer

protections and requirements established

under chapter 100 of the Internal Revenue

Code (Code), part 7 of the Employee

Retirement Income Security Act of 1974

(ERISA), and title XXVII of the PHS Act,3

such as the prohibition on exclusions for

preexisting conditions, the prohibition on

health status discrimination, the requirement to cover certain preventive services

without cost sharing, and many others. The

Departments propose these revisions to

promote equitable access to high-quality,

affordable, comprehensive coverage by

increasing consumers’ understanding of

their health coverage options and reducing

misinformation about STLDI and fixed

indemnity excepted benefits coverage,

consistent with Executive Orders 14009

and 14070 as described in section I.B of

this preamble. Similarly, clarifying the

tax treatment of benefit payments in fixed

amounts under hospital indemnity or other

fixed indemnity coverage purchased on a

pre-tax basis when those benefits are paid

without regard to the medical expenses

incurred is also an important means by

which to distinguish that coverage from

comprehensive coverage and should serve

to promote the purchase of comprehensive

coverage in the group market.

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. 104204, September 26, 1996), the Women’s

Health and Cancer Rights Act (Pub. L.

105-277, October 21, 1998), the Genetic

Information Nondiscrimination Act of

2008 (Pub. L. 110-233, May 21, 2008),

the Children’s Health Insurance Program

Reauthorization Act of 2009 (Pub. L.

111-3, February 4, 2009), Michelle’s Law

(Pub. L. 110-381, October 9, 2008), the

Patient Protection and Affordable Care

Act (Pub. L. 111-148, March 23, 2010) (as

amended by the Health Care and Education

Reconciliation Act of 2010 (Pub. L. 111–

152, March 30, 2010) (collectively known

as the Affordable Care Act (ACA)),

and Division BB of the Consolidated

Appropriations Act, 2021 (CAA, 2021)

(Pub. L. 116-260, December 27, 2020),

which includes the No Surprises Act.

The ACA reorganized, amended, and

added to the provisions of Part A of title

XXVII of the PHS Act relating to group

health plans and health insurance issuers

in the group and individual markets. The

ACA added section 9815 of the Code and

section 715 of ERISA to incorporate the

provisions of Part A of title XXVII of the

PHS Act, as amended or added by the

ACA, into the Code and ERISA, making

them applicable to group health plans and

health insurance issuers providing health

insurance coverage in connection with

group health plans. The provisions of

the PHS Act incorporated into the Code

and ERISA, as amended or added by the

ACA, are sections 2701 through 2728. In

addition to marketwide provisions applicable to group health plans and health

insurance issuers in the group and individual markets, the ACA established Health

Benefit Exchanges (Exchanges) aimed at

promoting access to high-quality, affordable, comprehensive coverage. Section

1401(a) of the ACA added section 36B to

the Code, providing a premium tax credit

(PTC) for certain individuals with annual

household income that is at least 100 percent but not more than 400 percent of the

Federal poverty level (FPL) who enroll in,

or who have one or more family members

enrolled in, an individual market qualified

health plan (QHP) through an Exchange,

who are not otherwise eligible for minimum essential coverage (MEC). Section

1402 of the ACA provides for, among

other things, reductions in cost sharing

for essential health benefits for qualified

low- and moderate-income enrollees in

silver-level QHPs purchased through the

individual market Exchanges. This section also provides for reductions in cost

sharing for American Indians enrolled in

For simplicity and readability, this preamble refers to hospital indemnity or other fixed indemnity insurance that meets all requirements to be considered an excepted benefit under the federal

framework as “fixed indemnity excepted benefits coverage” in order to distinguish it from hospital indemnity or other fixed indemnity insurance that does not meet all such requirements.

For simplicity and readability, this preamble refers to specified disease or illness insurance coverage that meets all requirements to be considered an excepted benefit under the federal framework as “specified disease excepted benefits coverage” in order to distinguish it from specified disease or illness insurance that does not meet all such requirements.

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.

August 14, 2023

492

Bulletin No. 2023–33

QHPs purchased through the individual

market Exchanges at any metal level.

Section 5000A of the Code, added by

section 1501(b) of the ACA, provides that

individuals must maintain MEC, or make

a payment known as the individual shared

responsibility payment with their Federal

tax return for the year in which they did

not maintain MEC, if they are not otherwise exempt.4 On December 22, 2017, the

Tax Cuts and Jobs Act (Pub. L. 115-97)

was enacted, which included a provision

under which the individual shared responsibility payment under section 5000A of

the Code was reduced to $0, effective for

months beginning after December 31,

2018.

The American Rescue Plan Act of

2021 (ARP) (Pub. L. 117-2) was enacted

on March 11, 2021. Among other policies

intended to address the health care and

economic needs of the country during the

coronavirus disease-2019 (COVID-19)

pandemic, the ARP increased the PTC

amount for individuals with annual household income at or below 400 percent of

the FPL and extended PTC eligibility for

the first time to individuals with annual

household incomes above 400 percent of

the FPL. Although the expanded PTC subsidies under the ARP were applicable only

for 2021 and 2022, the Inflation Reduction

Act of 2022 (IRA) (Pub. L. 117-169,

August 16, 2022) extended the subsidies for an additional 3 years, through

December 31, 2025.

The No Surprises Act was enacted on

December 27, 2020, as title I of Division

BB of the CAA, 2021. The No Surprises

Act added new provisions in Subchapter

B of chapter 100 of the Code, Part 7 of

ERISA, and Part D of title XXVII of

the PHS Act, applicable to group health

plans and health insurance issuers offering group or individual health insurance

coverage. These provisions provide protections against surprise medical bills

for certain out-of-network services and

generally require plans and issuers and

providers and facilities to make certain

disclosures regarding balance billing protections to the public and to individual

participants, beneficiaries, and enrollees.

In addition to the new provisions applicable to group health plans and issuers

of group or individual health insurance

coverage, the No Surprises Act added a

new Part E to title XXVII of the PHS Act,

establishing corresponding requirements

applicable to health care providers, facilities, and providers of air ambulance services. The CAA, 2021 also amended title

XXVII of the PHS Act to, among other

things, add section 2746, which requires

health insurance issuers offering individual health insurance coverage or STLDI to

disclose the direct or indirect compensation provided by the issuer to an agent or

broker associated with enrolling individuals in such coverage to the enrollees in

such coverage as well as to report it annually to HHS.

The Secretaries of HHS, Labor, and

the Treasury have authority to promulgate

regulations as may be necessary or appropriate to carry out the parallel Federal

consumer protections and requirements

for comprehensive coverage established

under the Code, ERISA, and the PHS Act

(hereinafter referred to as the “Federal

consumer protections and requirements

for comprehensive coverage”).5,6

B. Recent Executive Orders

On January 28, 2021, President

Biden issued Executive Order 14009,

“Strengthening

Medicaid

and

the

Affordable Care Act,” which directed the

Departments to review policies to ensure

their consistency with the Administration’s

goal of protecting and strengthening the

ACA and making high-quality health

care accessible and affordable for every

American.7 Executive Order 14009 also

directed Federal agencies to examine policies or practices that may undermine protections for people with preexisting conditions

and that may reduce the affordability of

coverage or financial assistance for coverage. Executive Order 14009 also revoked

the previous Administration’s Executive

Order 13813, “Promoting Healthcare

Choice and Competition Across the United

States,” which directed agencies to expand

the availability of STLDI.8 On April 5,

2022, President Biden issued Executive

Order 14070, “Continuing to Strengthen

Americans’ Access to Affordable, Quality

Health Coverage,” which directed the

heads of Federal agencies with responsibilities related to Americans’ access to health

coverage to examine polices or practices

that make it easier for all consumers to

enroll in and retain coverage, understand

their coverage options, and select appropriate coverage; that strengthen benefits

and improve access to health care providers; that improve the comprehensiveness

of coverage and protect consumers from

low-quality coverage; and that help reduce

the burden of medical debt on households.9

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.10

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.

Sections 2701 through 2728 of the PHS Act, incorporated into section 715 of ERISA and section 9815 of the Code; section 104 of HIPAA; sections 408(b)(2), 505, 734, and 716-717 of

ERISA; sections 2746, 2761, 2792, 2799A-1-2, and 2799B1-B2 of the PHS Act; section 1321(a)(1) and (c) of ACA; sections 7805, 9816-9817, and 9822 of the Code; and sections 2746,

2799A-1-2, and 2799B1-B2 of the PHS Act.

See also 64 FR 70164 (December 15, 1999).

Executive Order 14009 of January 28, 2021, 86 FR 7793.

Executive Order 13813 of October 12, 2017, 82 FR 48385.

Executive Order 14070 of April 5, 2022, 87 FR 20689.

Executive Order 13995 of January 21, 2021, 86 FR 7193.

Bulletin No. 2023–33

493

August 14, 2023

Consistent with these executive orders,

the Departments have reviewed the regulatory provisions related to STLDI and

fixed indemnity excepted benefits coverage, and propose amendments to those

provisions in these proposed rules. The

Departments also solicit comments on

specified disease excepted benefit coverage (for example, cancer-only policies)

in section III.B.2 of this preamble and on

level-funded plan arrangements in section

III.C of this preamble.

C. Short-Term, Limited-Duration

Insurance (STLDI)

STLDI is a type of health insurance

coverage sold by health insurance issuers

that is primarily designed to fill temporary

gaps in coverage that may occur when an

individual is transitioning from one plan

or coverage to another, such as transitioning between employment-based coverages. Section 2791(b)(5) of the PHS Act

provides “[t]he term ‘individual health

insurance coverage’ means health insurance coverage offered to individuals in the

individual market, but does not include

short-term, limited-duration insurance.”11

The PHS Act does not, however, define

the phrase “short-term, limited-duration

insurance.” Sections 733(b)(4) of ERISA

and 2791(b)(4) of the PHS Act provide

that group health insurance coverage

means “in connection with a group health

plan, health insurance coverage offered

in connection with such plan.” Sections

733(a)(1) of ERISA and 2791(a)(1) of the

PHS Act provide that a group health plan

is generally any plan, fund, or program

established or maintained by an employer

(or employee organization or both) for

the purpose of providing medical care to

employees or their dependents (as defined

under the terms of the plan) directly, or

through insurance, reimbursement, or

otherwise. There is no corresponding

provision excluding STLDI from the

definition of group health insurance coverage. Thus, any health insurance that is

sold in the group market and purports to

be STLDI must comply with applicable

Federal group market consumer protections and requirements for comprehensive

coverage, unless the coverage satisfies

the requirements of one or more types of

group market excepted benefits.

Because STLDI is not individual

health insurance coverage, it is generally

exempt from the applicable Federal individual market consumer protections and

requirements for comprehensive coverage. STLDI is not subject to many PHS

Act provisions that apply to individual

health insurance coverage under the ACA

including, for example, the prohibition of

preexisting condition exclusions or other

discrimination based on health status (section 2704 of the PHS Act), the prohibition

on discrimination against individual participants and beneficiaries based on health

status (section 2705 of the PHS Act),

nondiscrimination in health care (section

2706 of the PHS Act), and the prohibition

on lifetime and annual dollar limits on

essential health benefits (section 2711 of

the PHS Act). In addition, STLDI is not

subject to the Federal consumer protections and requirements added to the PHS

Act by other laws that apply to individual health insurance coverage, including

MHPAEA (Pub. L. 110-343, October

3, 2008) (section 2726 of the PHS Act),

and the No Surprises Act, as added by

the CAA, 2021. Thus, individuals who

enroll in STLDI are not guaranteed these

key consumer protections under Federal

law.12 This feature of STLDI is especially

problematic when it is not readily apparent to consumers deciding whether to purchase STLDI or comprehensive individual

health insurance coverage.

In 1997, the Departments issued interim

final rules implementing the portability

and renewability requirements of HIPAA

(1997 HIPAA interim final rules).13 Those

interim final rules included definitions of

individual health insurance coverage, as

well as STLDI. That definition of STLDI,

which was finalized in rules issued in

2004 and applied through 2016, defined

“short-term, limited-duration insurance”

as “health insurance coverage provided

pursuant to a contract with an issuer that

has an expiration date specified in the contract (taking into account any extensions

that may be elected by the policyholder

without the issuer’s consent) that is less

than 12 months after the original effective

date of the contract.”14

To address the issue of STLDI being

sold as a type of primary coverage, as well

as concerns regarding possible adverse

selection impacts on the individual market risk pools that were created under

the ACA,15 the Departments published

proposed rules on June 10, 2016 in the

Federal Register titled “Expatriate Health

Plans, Expatriate Health Plan Issuers, and

Qualified Expatriates; Excepted Benefits;

Lifetime and Annual Limits; and 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.16 On October 31, 2016, the

Departments finalized the 2016 proposed

rules related to STLDI without change

in final rules published in the Federal

Lifetime and Annual Limits; and ShortTerm, Limited-Duration Insurance” (2016

final rules).17 The 2016 final rules amended

the definition of STLDI to specify that

the maximum coverage period must be

less than 3 months, taking into account

any extensions that may be elected by the

policyholder with or without the issuer’s

consent.18 In addition, the 2016 final rules

stated that the following notice must be

The definition of individual health insurance coverage (and its exclusion of STLDI) has some limited relevance with respect to certain provisions that apply to group health plans and group

health insurance issuers over which the Departments of Labor and the Treasury also have jurisdiction. For example, an individual who loses coverage due to moving out of a health maintenance organization (HMO) service area in the individual market precipitates a special enrollment right into a group health plan. See 26 CFR 54.9801-6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)

(i)(B), and 45 CFR 146.117(a)(3)(i)(B).

Some state laws apply some consumer protections and requirements that parallel those in the ACA to STLDI.

62 FR 16894 (April 8, 1997).

62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see also 69 FR 78720 (December 30, 2004).

See Pub. L. 111-148, section 1312(c)(1) and 45 CFR 156.80.

81 FR 38019 (June 10, 2016).

81 FR 75316 (October 31, 2016).

Id. at 75317 – 75318.

August 14, 2023

494

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prominently displayed in the contract and

in any application materials 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.”19

On June 12, 2017, HHS published

a request for information (RFI) in the

Federal Register titled “Reducing

Regulatory Burdens Imposed by the

Patient Protection and Affordable Care

Act & Improving Healthcare Choices

to Empower Patients,”20 which solicited comments about potential changes

to existing regulations and guidance that

could promote consumer choice, enhance

affordability of coverage for individual

consumers, and affirm the traditional

regulatory authority of the States in regulating the business of health insurance,

among other goals.21 In response to this

RFI, HHS received comments that recommended maintaining the definition of

STLDI adopted in the 2016 final rules,

and comments that recommended expanding the definition to allow for a longer

period of coverage. Commenters in support of maintaining the definition adopted

in the 2016 final rules expressed concern

that changing the definition could leave

enrollees in STLDI at risk for significant

out-of-pocket costs, and cautioned that

expanding the definition of STLDI could

facilitate its sale to individuals as their

primary form of health coverage, even

though such insurance lacks key consumer protections under Federal law that

apply to individual health insurance coverage. Commenters in favor of maintaining the definition in the 2016 final rules

also suggested that amending the 2016

final rules to include coverage lasting 3

months or more could have the effect of

pulling healthier people out of the individual market risk pools, thereby increasing

overall premium costs for enrollees in

individual health insurance coverage and

destabilizing the individual market.

In contrast, several other commenters

stated that changes to the 2016 final rules

may provide an opportunity to achieve

the goals outlined in the RFI (for example, to promote consumer choice, enhance

affordability, and affirm the traditional

authority of the States in regulating the

business of insurance). These commenters stated that shortening the permitted

length of STLDI policies in the 2016 final

rules had deprived individuals of affordable coverage options. One commenter

explained that due to the increased costs

of comprehensive coverage, many financially stressed individuals could be faced

with a choice between purchasing STLDI

and going without any coverage at all.

One commenter highlighted the need for

STLDI for individuals who are between

jobs for a relatively long period and for

whom enrolling in Consolidated Omnibus

Budget Reconciliation Act (COBRA)22

continuation coverage is financially infeasible. Another commenter noted that

States have the primary responsibility

to regulate STLDI and encouraged the

Departments to defer to the States’ authority with respect to such coverage.

On February 21, 2018, the Departments

published proposed rules in the Federal

rules) in which the Departments proposed changing the definition of STLDI

to provide that such insurance may have

a maximum coverage period of less than

12 months after the original effective date

of the contract, taking into account any

extensions that may be elected by the policyholder without the issuer’s consent.23

Among other things, the Departments

solicited comments on whether the maximum length of STLDI should be less than

12 months or some other duration and

under what conditions issuers should be

able to allow such coverage to continue

for 12 months or longer. In addition, the

Departments proposed to revise the content of the consumer notice that must

appear in the contract and any application

materials provided in connection with

enrollment in STLDI. The 2018 proposed

rules included two variations of the consumer notice – one for policies that had a

coverage start date before January 1, 2019,

and the other for policies that had a coverage start date on or after January 1, 2019,

which excluded language referencing the

individual shared responsibility payment

(which was reduced to $0 for months

beginning after December 2018).24

Some commenters on the 2018 proposed rules acknowledged that STLDI fills

an important role by providing temporary

coverage, but that such insurance should

not take the place of comprehensive coverage. These commenters expressed concern that allowing STLDI to be marketed

as a viable alternative to comprehensive

coverage would subject uninformed consumers to potentially severe financial

risks. Commenters who opposed the

proposed changes to the definition also

expressed concern that such plans would

siphon off healthier individuals from the

market for individual health insurance

coverage, thereby raising premiums for

individual health insurance coverage.

Many of these commenters also

expressed concerns about the lack of

protections for consumers who purchase

STLDI, stating that such policies are

not a viable option for people with serious or chronic medical conditions due to

potential coverage exclusions and benefit

limitations in STLDI policies. These commenters further observed that STLDI policies can discriminate against individuals

Id.

82 FR 26885 (June 12, 2017).

See also Executive Order 13813 of October 12, 2017 82 FR 48385. (Directing the Secretaries of the Treasury, Labor and HHS “…to consider proposing regulations or revising guidance,

consistent with law, to expand the availability of [STLDI]. To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover

longer periods and be renewed by the consumer.”)

Pub. L. 99-272, April 7, 1986.

83 FR 7437 (February 21, 2018).

Pub. L. 115–97, December 22, 2017.

Bulletin No. 2023–33

495

August 14, 2023

with serious illnesses or preexisting conditions, including individuals with mental

health and substance use disorders, older

consumers, women, transgender patients,

persons with gender identity-related health

concerns, and victims of rape and domestic violence. Many of these commenters

also expressed concern about aggressive

and deceptive marketing practices utilized

by marketers of STLDI.

Other commenters highlighted the

important role that STLDI could play in

providing temporary coverage to individuals who would otherwise be uninsured.

These commenters, who supported the

proposed changes to the definition, also

noted that such changes would allow purchasers of STLDI to obtain the coverage

they want at a more affordable price for a

longer period.

With respect to the maximum length of

the initial contract term for STLDI, most

commenters opposed extending the maximum duration beyond 3 months. Others

suggested periods such as less than 6 or 8

months. However, most commenters who

supported extending the maximum initial

contract term beyond 3 months suggested

it should be 364 days. A few commenters suggested more than 1 year. Other

commenters stated the maximum length

of coverage should be left to the States.

Commenters who supported the 2018 proposed rules generally favored permitting

renewals of STLDI policies, while those

who opposed the 2018 proposed rules generally opposed permitting such renewals.

After reviewing comments and feedback received from interested parties, on

August 3, 2018, the Departments published final rules in the Federal Register

titled “Short-Term, Limited‑Duration

Insurance” (2018 final rules)25 with some

modifications from the 2018 proposed

rules. Specifically, in the 2018 final rules,

the Departments amended the definition

of STLDI to provide that STLDI is coverage with an initial term specified in the

contract that is less than 12 months after

the original effective date of the contract,

and taking into account renewals or extensions, has a duration of no longer than

36 months in total.26 The 2018 final rules

also finalized the provision that issuers of

STLDI must display one of two versions of

a notice prominently in the contract and in

any application materials provided in connection with enrollment in such coverage,

in at least 14-point type. Under the 2018

final rules, the notice must read as follows

(with the final two sentences omitted for

policies sold on or after January 1, 2019):

“This coverage is not required to comply with certain Federal market requirements for health insurance, principally

those contained in the Affordable Care

Act. Be sure to check your policy carefully to make sure you are aware of any

exclusions or limitations regarding coverage of preexisting conditions or health

benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental

health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health

benefits. If this coverage expires or you

lose eligibility for this coverage, you

might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not

“minimum essential coverage.” If you

don’t have minimum essential coverage

for any month in 2018, you may have to

make a payment when you file your tax

return unless you qualify for an exemption from the requirement that you have

health coverage for that month.”

D. Independent, Noncoordinated

Excepted Benefits: Hospital Indemnity

or Other Fixed Indemnity Insurance and

Specified Disease or Illness Coverage

Section 9831 of the Code, section 732

of ERISA, and sections 2722(b)-(c) and

2763 of the PHS Act provide that the

respective Federal consumer protections

and requirements for comprehensive

coverage do not apply to any individual

coverage or any group health plan (or

group health insurance coverage offered

in connection with a group health plan)

in relation to its provision of certain types

of benefits, known as “excepted benefits.”

These excepted benefits are described

in section 9832(c) of the Code, section

733(c) of ERISA, and section 2791(c) of

the PHS Act.

HIPAA defined certain types of coverage as “excepted benefits” that were

exempt from its portability requirements.27 The same definitions are applied

to describe benefits that are not required

to comply with some of the ACA requirements.28 There are four statutory categories of excepted benefits: independent,

noncoordinated excepted benefits, which

are the subject of these proposed rules;

benefits that are excepted in all circumstances;29 limited excepted benefits;30 and

supplemental excepted benefits.31 The

category “independent, noncoordinated

excepted benefits” includes coverage for

only a 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

83 FR 38212 (August 3, 2018).

Id.

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.

Section 1551 of the ACA. See also section 1563(a) and (b)(12) of the ACA. Excepted benefits are also not subject to the consumer protections and other federal requirements that apply to

comprehensive coverage, including MHPAEA, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights Act, the Genetic Information Nondiscrimination

Act of 2008, the Children’s Health Insurance Program Reauthorization Act of 2009, Michelle’s Law, and Division BB of the CAA, 2021

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.”

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.

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.’’

August 14, 2023

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contract of insurance; (2) there is no coordination between the provision of such

benefits and any exclusion of benefits

under any group health plan maintained

by the same plan sponsor; and (3) the

benefits are paid with respect to an event

without regard to whether benefits are provided with respect to such event under any

group health plan maintained by the same

plan sponsor or, with respect to individual coverage, under any health insurance

coverage maintained by the same health

insurance issuer.32 In addition, under the

existing regulations, hospital indemnity

and other fixed indemnity insurance in

the group market must pay a fixed dollar amount per day (or other period) of

hospitalization or illness, regardless of

the amounts of expenses incurred, to be

considered an excepted benefit.33 In the

individual market, under the existing regulations, hospital indemnity and other fixed

indemnity insurance must pay benefits in

a fixed dollar amount per period of hospitalization or illness and/or per-service (for

example, $100/day or $50/visit), regardless of the amount of expense incurred, to

be considered an excepted benefit.34

The proposals in these rules related to

independent, noncoordinated excepted

benefits coverage are focused on the

conditions that must be met for hospital

indemnity and other fixed indemnity insurance in the group or individual markets

to be considered excepted benefits under

the Federal regulations. Additionally,

in section III.B.2 of this preamble, the

Departments solicit comments regarding

specified disease excepted benefits coverage in the group and individual markets

to inform potential future guidance or

rulemaking related to such coverage, but

are not proposing changes to the Federal

regulations governing such coverage in

this rulemaking.

are unnecessary and are generally absent

in this coverage.38

1. Fixed Indemnity Excepted Benefits

Coverage

a. Group Market Regulations and

Guidance

Like other forms of excepted benefits,

fixed indemnity excepted benefits coverage does not provide comprehensive

coverage. Rather, its primary purpose

is to provide income replacement benefits.35 Benefits under this type of coverage

are paid in a flat (“fixed”) cash amount

following the occurrence of a health-related event, such as a period of hospitalization or illness, subject to the terms of

the contract. In addition, benefits are typically provided at a pre‑determined level

regardless of any actual health care costs

incurred by a covered individual with

respect to the qualifying event. Although a

benefit payment may equal all or a portion

of the cost of care related to an event, it is

not necessarily designed to do so, and the

benefit payment is made without regard to

the amount of medical expense incurred.36

Traditionally, benefits under fixed

indemnity excepted benefits coverage

are paid directly to a policyholder, rather

than to a health care provider or facility,

and the policyholder has discretion over

how to use such benefits – including

using the benefits to cover non-medical

expenses that may or may not be related

to the event that precipitated the payment

of benefits.37 Because fixed indemnity

excepted benefits coverage is capped at

a maximum benefit payment, design features aimed at reducing risk to the plan or

issuer that are common in comprehensive

coverage (such as medical management

techniques, use of a preferred network of

providers, or cost-sharing requirements)

The Departments’ 1997 interim final

rules implementing the portability and

renewability requirements of HIPAA codified at 26 CFR 54.9831-1(c)(4), 29 CFR

2590.732(c)(4), and 45 CFR 146.145(b)

(4) established requirements for hospital indemnity and other fixed indemnity

insurance to qualify as an excepted benefit

in the group market. These requirements,

which were effective until February 27,

2005, provided that coverage for hospital

indemnity or other fixed dollar indemnity

insurance is excepted only if it meets each

of the following conditions: (1) the benefits are provided under a separate policy, certificate or contract of insurance;

(2) there is no coordination between the

provision of the benefits and an exclusion

of benefits under any group health plan

maintained by the same plan sponsor; and

(3) the benefits are paid with respect to

an event without regard to whether benefits are provided with respect to the event

under any group health plan maintained

by the same plan sponsor.39

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

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.”).

26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4).

45 CFR 148.220(b)(4).

See, e.g., 62 FR 16903 (April 8, 1997) and 79 FR 15818 (July 8, 2014).

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.”).

AHIP (2019). “Supplemental Health Insurance: Hospital or Other Fixed Indemnity, Accident-Only, Critical Illness,” available at: https://www.ahip.org/documents/Supplemental-HealthInsurance-Fast-Facts.pdf.

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. (“Consumers are

often seeking a product that transfers catastrophic financial risk to the health plan, but fixed indemnity products – almost by definition – do not do this. They set a payment amount associated

with a specific service or kind of service [that] is received, and consumers are responsible for any difference between this set payment amount and the actual cost of care.”).

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

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August 14, 2023

incurred.40 An illustrative example was

also codified as part of these amendments

clarifying that a policy providing benefits

only for hospital stays at a fixed percentage of hospital expenses up to a maximum amount per day does not qualify as

an excepted benefit.41 As explained in the

2004 HIPAA group market final rules, the

result is the same even if, in practice, the

policy pays the maximum for every day of

hospitalization.42

The Departments later released an

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.43

The Departments issued the FAQ in

response to reports that policies were

being advertised as fixed indemnity coverage but were paying a fixed amount on

a per-service basis (for example, per doctor visit or surgical procedure) rather than

a fixed amount per period (for example,

per day or per week). The FAQ affirmed

that, under the 2004 HIPAA group market

final rules, to qualify as fixed indemnity

excepted benefits coverage, the policy

must pay benefits on a per-period basis

as opposed to on a per-service basis.44 It

also affirmed that group health insurance

coverage that provides benefits in varying amounts based on the type of procedure or item, such as the type of surgery

actually performed or prescription drug

provided, does not qualify as fixed indemnity excepted benefits coverage because it

does not meet the condition that benefits

be provided on a per-period basis, regardless of the amount of expenses incurred.45

The Departments proposed amendments to the group market regulations

for fixed indemnity excepted benefits

coverage in the 2016 proposed rules.46

As explained in those proposed rules, the

Departments were concerned that some

individuals may mistake these policies for

comprehensive coverage that would be

considered MEC.47 To avoid this confusion, the Departments proposed to adopt a

notice requirement to inform enrollees and

potential enrollees that the coverage is a

supplement to, rather than a substitute for,

comprehensive coverage, and also proposed to codify two illustrative examples

to further clarify the condition that benefits

be provided on a per-period basis.48 The

Departments also requested comments on

whether the conditions for hospital indemnity or other fixed indemnity insurance to

be considered excepted benefits should be

more substantively aligned between the

group and individual markets.49 After consideration of comments, the Departments

did not finalize the proposed changes to

the group market regulation but noted

their intention to address hospital indemnity and other fixed indemnity insurance

in future rulemaking.50

b. Individual Market Regulations and

Guidance

HHS also issued an interim final rule

in 1997 establishing the regulatory framework for the HIPAA individual market

Federal requirements and addressing the

requirements for hospital indemnity and

other fixed indemnity insurance to qualify

as an excepted benefit in the individual

market.51 The initial HIPAA individual

market fixed indemnity excepted benefits

coverage regulation, which was effective

until July 27, 2014, provided an exemption from the Federal individual market

consumer protections and requirements

for comprehensive coverage if the hospital

indemnity or other fixed indemnity insurance provided benefits under a separate

policy, certificate, or contract of insurance

and met the noncoordination-of-benefits

requirements outlined in the HHS group

market excepted benefits regulations.52

Following issuance of the Departments’

January 24, 2013 FAQ,53 State insurance

regulators and industry groups representing health insurance issuers expressed

concerns that prohibiting hospital indemnity and other fixed indemnity insurance

from payment on a per-service basis in

order to qualify as an excepted benefit

could limit consumer access to an important supplemental coverage option.54

Based on this feedback, HHS announced

in an FAQ released in January 2014 that

it intended to propose amendments to

the individual market fixed indemnity

excepted benefits coverage regulation to

allow hospital indemnity or other fixed

indemnity insurance sold in the individual market to be considered an excepted

benefit if four conditions were met.55

First, such coverage would be sold only

to individuals who have other health

69 FR 78720 at 78735, 78762, 78780, and 78798 – 78799 (December 30, 2004).

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).

Id.

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.

Id.

81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-38046 (June 10, 2016).

Id. at 38031- 38032.

Id. at 38031- 38032, 38038, 38042- 38043, and 38045- 38046.

As described in section I.D.1.b of this preamble, HHS amended the individual market fixed indemnity excepted benefits coverage regulation to provide additional flexibility, subject to

several additional requirements that do not apply in the group market. 79 FR 30239 (May 27, 2014).

81 FR 75316 at 75317 (October 31, 2016).

62 FR 16985 at 16992 and 17004 (April 8, 1997).

Id.; 45 CFR 146.145(b)(4)(ii)(B) and (b)(4)(ii)(C).

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.

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.

Frequently Asked Questions about Affordable Care Act Implementation (Part XXVIII) and Mental Health Parity Implementation (Jan. 9, 2014), Q11, available at: https://www.dol.gov/sites/

dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-xviii.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18.

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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.56 Consistent

with the framework outlined in the January

2014 FAQ, the amendments proposed

to eliminate the requirement that individual market fixed indemnity excepted

benefits coverage must pay benefits only

on a per-period basis (as opposed to a

per-service basis) and instead proposed to

require, among other things, that it be sold

only as secondary to other health coverage that is MEC to qualify as an excepted

benefit.57

On July 28, 2014, in the rule titled

“Patient Protection and Affordable Care

Act; Exchange and Insurance Market

Standards for 2015 and Beyond; Final

Rule” (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 it is paid on either a

per-period or per-service basis subject to

several additional requirements that do not

apply to fixed indemnity excepted benefits coverage in the group market.58 Under

45 CFR 148.220(b)(4)(i), to qualify as

excepted benefits coverage, benefits under

an individual market hospital indemnity

or other fixed indemnity insurance policy may only be provided to individuals

who attest in their application that they

have other health coverage that is MEC

within the meaning of section 5000A(f) of

the Code, or that they are treated as having MEC due to their status as a bona fide

resident of any possession of the United

States pursuant to section 5000A(f)(4)

(B) of the Code.59 Further, to qualify as an

excepted benefit, 45 CFR 148.220(b)(4)

(iv) requires specific notice language be

prominently displayed in the application

materials for individual market hospital

indemnity or other fixed indemnity insurance. Finally, consistent with the group

market fixed indemnity excepted benefits

coverage regulations, 45 CFR 148.220(b)

(4)(ii) implements the statutory noncoordination standard and requires that there is

no coordination between the provision of

benefits under the individual market fixed

indemnity excepted benefits insurance

policy and an exclusion of benefits under

any other health coverage.

HHS made these changes in the 2014

final rule for two reasons. First, as stated

previously, interested parties, including

State insurance regulators and industry

groups representing health insurance

issuers, communicated to HHS that fixed

indemnity plans that paid benefits on a

per-service basis were widely available

as a complement to comprehensive coverage in the group and individual markets.

The National Association of Insurance

Commissioners (NAIC) also expressed

that State insurance regulators believed

fixed indemnity plans that paid benefits

on a per-service basis provided consumers an important supplemental coverage

option by helping consumers that purchase MEC pay for out-of-pocket costs.60

Second, beginning in 2014, most consumers were required to have MEC in order

to avoid being subject to an individual

shared responsibility payment under section 5000A of the Code. HHS adopted

the MEC attestation requirement to prevent fixed indemnity excepted benefits

coverage in the individual market from

being offered as a substitute for comprehensive coverage while also accommodating the concerns of interested parties

who supported allowing fixed indemnity

excepted benefits coverage in the individual market to pay benefits on a per-service

basis, rather than only on a per-period

basis.61 However, in its 2016 decision in

Central United Life Insurance Company

v. Burwell, the U.S. Court of Appeals for

the District of Columbia invalidated the

requirement at 45 CFR 148.220(b)(4)(i)

that an individual must attest to having

MEC prior to purchasing fixed indemnity

excepted benefits coverage in the individual market.62 The Court did not engage in a

severability analysis to determine whether

HHS would have intended to leave the

remaining provisions of the regulation in

place, and left intact the language permitting fixed indemnity excepted benefits

coverage in the individual market to be

provided on a per-service basis.

79 FR 15807 at 15818-15820, 15869 (March 21, 2014).

Id.

79 FR 30239 (May 27, 2014).

As discussed later in this section and in section III.B.1.a of this preamble, the U.S. Court of Appeals for the District of Columbia vacated the requirement at 45 CFR 148.220(b)(4)(i) that

an individual attest to having MEC prior to purchasing a fixed indemnity policy in order for the policy to qualify as an excepted benefit. Central United Life Insurance v. Burwell, 827 F.3d

70 (D.C. Cir. 2016).

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.”).

79 FR 30239 at 30255 (May 27, 2014).

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

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August 14, 2023

2. Specified Disease Excepted Benefits

Coverage

Like hospital indemnity or other fixed

indemnity insurance, coverage only for a

specified disease or illness that meets the

requirements under section 9831(c)(2) of

the Code, section 732(c)(2) of ERISA,

and section 2722(c)(2) of the PHS Act

qualifies as a form of independent, noncoordinated excepted benefits coverage.63

Specified disease excepted benefits coverage is also not an alternative to comprehensive coverage, but rather provides

a cash benefit related to the diagnosis or

the receipt of items or services related to

the treatment of one or more medical conditions specified in the insurance policy,

certificate, or contract of insurance. The

Departments are aware of various forms

of coverage being marketed to consumers as specified disease or illness coverage under a number of labels, including

“specified disease,” “critical illness,” and

“dread disease” coverage (or insurance).64

Some forms of specified disease excepted

benefits coverage pay benefits based on

diagnosis or treatment for a single condition (such as diabetes), while others pay

benefits related to diagnosis or treatment

for a disease category (such as cancer).

The Departments codified requirements for coverage only for a specified

disease or illness to qualify as an excepted

benefit in the group market in the 1997

HIPAA interim final rules.65 To qualify

as excepted benefits in the group market, specified disease or illness coverage

(for example, cancer-only policies) must

provide benefits under a separate policy,

certificate, or contract of insurance; there

must be no coordination between the provision of the benefits and an exclusion

of benefits under any group health plan

maintained by the same plan sponsor; and

benefits must be paid with respect to an

event without regard to whether benefits

are provided with respect to the event

under any group health plan maintained

by the same plan sponsor.66,67 HHS codified similar requirements for specified disease or illness coverage to qualify as an

excepted benefit in the individual market

in the 1997 interim final rule that established the regulatory framework for the

HIPAA individual market.68 Unlike fixed

indemnity excepted benefits coverage, the

Departments have not issued subsequent

rulemaking or guidance regarding specified disease excepted benefits coverage.

In the preamble to the 2016 proposed

rules, the Departments solicited comments on whether a policy covering multiple specified diseases or illnesses may

be considered to be excepted benefits, but

did not propose changes to the rules governing specified disease excepted benefits

coverage. The Departments sought comments on whether such policies should be

considered excepted benefits and, if so,

whether protections were needed to ensure

they were not mistaken for comprehensive

coverage, expressing concern that individuals who purchase a specified disease policy covering multiple diseases or illnesses

may incorrectly believe they are purchasing comprehensive coverage when,

in fact, these polices are not subject to

Federal consumer protections and requirements for comprehensive coverage.69 The

Departments declined to address specified

disease excepted benefits coverage in the

2016 final rules, but noted that they might

address such coverage in future regulations or guidance.70

E. Tax Treatment and Substantiation

Requirements for Amounts Received from

Fixed Indemnity Insurance and Certain

Other Arrangements

Hospital indemnity or other fixed

indemnity insurance and coverage only

for a specified disease or illness are treated

as “accident or health insurance” under

sections 104, 105, and 106 of the Code

whether or not they are excepted benefits.

Premiums paid by an employer (including

by salary reduction pursuant to section

125 of the Code) for accident or health

insurance are excluded from an employee’s gross income under section 106 of the

Code.

Amounts received from accident or

health insurance are excluded from a taxpayer’s gross income under section 104(a)

(3) of the Code if the premiums are paid for

on an after-tax basis. The exclusion from

gross income for these amounts under section 104(a)(3) of the Code does not apply

to amounts attributable to contributions by

an employer that were not includible in the

gross income of the employee or amounts

paid directly by the employer. This means

that the exclusion under section 104(a)

(3) of the Code does not apply where the

premiums or contributions paid for the

accident or health insurance are paid on

a pre-tax basis. The taxation of amounts

received by an employee from accident or

health insurance where the premiums or

contributions are paid on a pre-tax basis is

determined under section 105 of the Code.

Section 105(a) of the Code provides

that amounts received by an employee

through accident or health insurance for

personal injuries or sickness are included

in gross income, except as otherwise provided in section 105. Section 105(b) of the

Code excludes from gross income amounts

paid by the employer to reimburse an

employee’s expenses for medical care (as

defined in section 213(d) of the Code).

Under 26 CFR 1.105-2, the exclusion

from gross income in section 105(b) of

the Code “applies only to amounts which

are paid specifically to reimburse the taxpayer for expenses incurred by him for

the prescribed medical care. Thus, section

105(b) does not apply to amounts which

the taxpayer would be entitled to receive

See also section 2763(b) of the PHS Act.

See Healthinsurance.org (2023). “Glossary: What is a Critical Illness Plan?,” available at: https://www.healthinsurance.org/glossary/critical-illness-plan. See also American Council of Life

Insurers (2021). “Model 171 Benefits Overview: Presented to the NAIC Accident and Sickness Minimum Standards (B) Subgroup,” available at: https://content.naic.org/sites/default/files/

call_materials/Supplemental%20Benefits%20Overview.pdf.

62 FR 16894 at 16903 (April 8, 1997).

See 26 CFR 54.9831-1(c)(4)(i) and (ii), 29 CFR 2590.732(c)(4)(i) and (ii), and 45 CFR 146.145(b)(4)(i) and (ii).

The Departments’ group market regulations for specified disease excepted benefits coverage were later affirmed, without change, in the 2004 HIPAA group market final rules. See 69 FR

78720 at 78762, 78780, and 78798— 78799 (December 30, 2004). See also 45 CFR 148.220(b)(3).

62 FR 16985 at 16992, 17004 (April 8, 1997). See also section 2763(b) of the PHS Act.

81 FR 38019, 38032 (June 10, 2016).

81 FR 75316, 75317, footnote 12 (October 31, 2016).

August 14, 2023

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Bulletin No. 2023–33

irrespective of whether or not he incurs

expenses for medical care” and “section

105(b) is not applicable to the extent that

such amounts exceed the amount of the

actual expenses for such medical care.”

Further, under longstanding regulations

and guidance issued by the Treasury

Department and the IRS, amounts for

medical expenses within the meaning

of section 213(d) of the Code must be

substantiated if reimbursed by employment-based accident or health insurance

that would not be excluded from a taxpayer’s gross income but for the application

of section 105(b) of the Code.71

F. Level-Funded Plan Arrangements

The Departments understand that an

increasing number of group health plan

sponsors are utilizing a type of self-funded

arrangement in which the plan sponsor

makes set monthly payments to a service

provider to cover estimated claims costs,

administrative costs, and premiums for

stop-loss insurance for claims that surpass

a maximum dollar amount beyond which

the plan sponsor is no longer responsible

for paying claims (attachment point). This

funding mechanism or plan type, known

as level-funding, is increasingly utilized

by small employers in particular. Stop-loss

insurance is used by employers or group

health plans as part of these plan arrangements to limit their financial responsibility, and the arrangements typically involve

both employer and employee contributions. When the total dollar amount of the

claims paid during the year is lower than

the total amount of contributions attributed

to claims costs, the plan or plan sponsor

generally will receive a refund or carry the

surplus over to the next plan year. When

annual claims exceed projected claims,

the subsequent year’s monthly payments

may, and oftentimes do, increase to adjust

to the plan’s claims experience.

II. Promoting Access to High-Quality,

Affordable, and Comprehensive

Coverage

The Departments recognize that

STLDI can provide temporary health

insurance coverage for individuals who

are experiencing brief periods without health coverage (for example, due

to application of an employer waiting

period), and that fixed indemnity excepted

benefits coverage can provide consumers with income replacement that can be

used to cover out-of-pocket expenses not

covered by comprehensive coverage or to

defray non-medical expenses (for example, mortgage or rent) in the event of an

unexpected or serious health event. Both

STLDI and fixed indemnity excepted benefits coverage generally provide limited

benefits at lower premiums than comprehensive coverage,72 and enrollment is

typically available at any time (sometimes

subject to medical underwriting) rather

than being restricted to open and special

enrollment periods. However, given significant changes in the legal landscape and

market conditions since the Departments

last addressed STLDI and fixed indemnity excepted benefits coverage, and the

low value that STLDI and fixed indemnity excepted benefits coverage provide to

consumers when used as a substitute for

comprehensive coverage, the Departments

have determined that it is now necessary

and appropriate to propose to amend the

existing Federal regulations governing

both types of coverage to more clearly distinguish them from comprehensive coverage and increase consumer awareness

of coverage options that include the full

range of Federal consumer protections.

A. Access to Affordable Coverage

In the preamble to the 2018 final rules,

the Departments explained the decision to

amend the definition of STLDI to expand

access to such policies by citing STLDI

as an important means to provide more

affordable coverage options and more

choices for consumers.73 The Departments

cited a 21 percent increase in individual health insurance coverage premiums

between 2016 and 2017, and a 20 percent

decrease in average monthly enrollment

for individuals who did not receive PTC,

along with a 10 percent overall decrease

in monthly enrollment during the same

period.74 Additionally, the Departments

noted that in 2018 about 26 percent of

enrollees (living in 52 percent of counties) had access to just one issuer on the

Exchange.75

However, since the publication of the

2018 final rules, comprehensive coverage for individuals has generally become

more accessible and affordable. For example, a study examining issuer participation

trends from 2014 to 2021 in every county

in the United States found that the number

of consumers with multiple issuer options

for individual health insurance coverage

on the Exchanges has grown consistently

since 2018. In 2021, 78 percent of enrollees (living in 46 percent of counties) had

a choice of three or more health insurance

issuers, up from 67 percent of enrollees in

2020 and 58 percent of enrollees in 2019.

Only 3 percent of enrollees (residing in

10 percent of counties) resided in single-issuer counties – down from 26 percent of enrollees (residing in 52 percent

of counties).76 The Centers for Medicare

& Medicaid Services (CMS) reported

that a record 16.4 million people enrolled

in Exchange coverage during the 2023

Open Enrollment Period, including 3.7

million consumers (23 percent of total

enrollments) who were new to Exchanges

in 2023, and 12.7 million returning customers. Over 1.8 million more consumers signed up for coverage during the

2023 Open Enrollment Period compared

See, e.g., 84 FR 28888, 28917 (June 20, 2019) (describing substantiation requirements for employer-sponsored health reimbursement arrangements); see also Q44-55 of IRS Notice 201767, 2017-47 IRB 517; Prop. Treas. Reg. § 1.125-6; IRS Notice 2002-45, 2002-2 CB 93.

Although it is typically true that the unsubsidized premium price for comprehensive coverage is greater than STLDI or fixed indemnity excepted benefits coverage, consistent with the

greater level of benefits provided under comprehensive coverage, see the additional discussion in this section of this preamble regarding the availability of financial subsidies to reduce the

premium and out-of-pocket costs for comprehensive coverage purchased on an Exchange for eligible individuals.

83 FR 38212, at 38217 (October 2, 2018).

Id. at 38214, citing CMS (2018). “Trends in Subsidized and Unsubsidized Individual Health Insurance Market Enrollment,” available at: https://www.cms.gov/CCIIO/Programs-andInitiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.

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-acamarketplaces-2014-2021/.

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.

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August 14, 2023

to the same period in 2022 (a 13 percent

increase), and nearly 4.4 million more

consumers signed up compared to the

2021 Open Enrollment Period (a 36 percent increase).77 As noted in section I.A

of this preamble, enrollment gains during

2023 were influenced by the expansion

of PTC subsidies, as first expanded under

the ARP and then extended through 2025

under the IRA.78 In an analysis prior to

the passage of the IRA, the Congressional

Budget Office stated that if the ARP subsidies were made permanent, they would

attract 4.8 million new people to the

Exchanges each year, and that 2.2 million

fewer individuals would be without health

insurance, on average, over the period

from 2023-2032.79

Additionally, on October 13, 2022, the

IRS and the Treasury Department issued

final regulations under section 36B of

the Code to provide that affordability of

employer-sponsored MEC for family

members of an employee is determined

based on the employee’s share of the cost

of covering the employee and those family members, not the cost of covering only

the employee (2022 affordability rule).80

It was estimated that this rule change,

aimed at addressing the issue often called

the “family glitch,” will increase the number of individuals with PTC-subsidized

Exchange coverage by approximately 1

million per year for the next 10 years.81

These anticipated enrollment trends and

the availability of the enhanced subsidies

allay the accessibility and affordability

concerns expressed by the Departments

in the preamble to the 2018 final rules

regarding the availability of affordable

options for comprehensive coverage, and

offer further support for the proposals

in these proposed rules aimed at helping

consumers differentiate between comprehensive coverage and other forms of more

limited health coverage.

Although access to affordable comprehensive coverage has improved in recent

years, the Departments recognize that

affordability concerns continue to persist among consumers, including among

consumers who are enrolled in comprehensive coverage. A 2022 national survey conducted by the Commonwealth

Fund found that 29 percent of people with

employer coverage and 44 percent of those

with coverage purchased in the individual

market were underinsured, meaning that

their coverage did not provide them with

affordable access to health care.82 The

Departments believe that it is important to

ensure consumers have access to a wide

range of tools that can support access to

affordable health care. However, neither

STLDI nor fixed indemnity excepted

benefits coverage represents a complete

solution to larger issues of affordable

access to health care and health coverage.

Consumers who enroll in these plans as a

substitute for comprehensive coverage or

under the misapprehension that STLDI

and fixed indemnity excepted benefits are

a lower-cost equivalent to comprehensive

coverage are at risk of being exposed to

significant financial liability in the event

of a costly or unexpected health event,

often without knowledge of the risk associated with such coverage.

B. Risks to Consumers

As noted in the introduction to section II of this preamble, the limitations

on benefits and coverage under STLDI

or fixed indemnity excepted benefits coverage may allow some issuers to offer

such coverage at lower monthly premiums than comprehensive coverage. The

Departments are concerned about additional costs to consumers who enroll in

STLDI or fixed indemnity excepted benefits coverage and incur medical expenses

that are not covered by such coverage.

The typical limits on coverage provided

by STLDI and fixed indemnity excepted

benefits coverage can lead to more and

higher uncovered medical bills than consumers enrolled in comprehensive coverage would incur, exposing consumers to

greater financial risk.83 Healthy consumers

who enroll in STLDI or fixed indemnity

excepted benefits coverage as an alternative to comprehensive coverage may not

realize their STLDI or fixed indemnity

excepted benefits coverage excludes or

limits coverage for preexisting conditions

(including conditions the consumer did

not know about when they enrolled), or

conditions contracted after enrollment,

such as COVID-19.

Additionally, a consumer enrolled in

STLDI may discover that a newly-diagnosed medical condition is categorized

as a preexisting condition, and related

medical expenses will not be covered

by, or will be only partially covered by,

their STLDI policy.84 For example, a consumer in Illinois who was diagnosed with

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.

Although unsubsidized premiums for 2023 increased on average between 2.2 percent and 4.7 percent compared to the previous year, after four years of declines, PTC under the IRA largely

shielded consumers from these slight increases. See Ortaliza, Jared, Justin Lo, Krutika Amin, and Cynthia Cox (2022). “How ACA Marketplace Premiums Are Changing By County in 2023,”

KFF, available at: https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023.

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.

87 FR 61979 (October 13, 2022).

Id. at 61999.

Collins, Sara, Lauren Haynes, and Relebohile Masitha (2022). “The State of U.S. Health Insurance in 2022: Findings from the Commonwealth Fund Biennial Health Insurance Survey,”

Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-survey. Specifically, this study defined a

person as “underinsured” if they were insured all year but one of the following applied: 1) Out-of-pocket costs over the prior 12 months, excluding premiums, were equal to 10 percent or more

of household income; 2) Out-of-pocket costs over the prior 12 months, excluding premiums, were equal to 5 percent or more of household income for individuals living under 200 percent of

the FPL ($27,180 for an individual or $55,500 for a family of four in 2022); or 3) The deductible constituted 5 percent or more of household income.

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).

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.

August 14, 2023

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Stage IV cancer a month after enrolling in

STLDI was denied coverage for treatment

by the STLDI issuer, both for treatments

that led to his successful remission and

for a potentially life-saving bone marrow

transplant. In his case, the STLDI issuer

of his policy determined that his cancer

was a preexisting condition because he

had disclosed experiencing back pain of

undiagnosed cause to the broker who sold

him his STLDI policy – leaving him with

$800,000 of medical debt and without

meaningful health coverage as he continued to fight his illness.85

The financial risk for consumers that

encounter newly diagnosed conditions or

a significant medical event while enrolled

in STLDI increases with the length of

their policy. In fact, researchers found that

because the maximum annual limitation

on an individual’s cost sharing for essential health benefits under section 1302(c)

(1) of the ACA does not apply to STLDI,

the maximum out-of-pocket health care

spending limit for STLDI was on average

nearly three times that of comprehensive

coverage in 2020.86 A 2020 report found

that over 60 percent of the STLDI policies

surveyed had a maximum out-of-pocket

limit greater than the $7,900 limit that

was permitted for self-only comprehensive coverage in 2019, and 15 percent

had limits in excess of $15,000; as is typical for STLDI, these limits apply only

to the coverage period, which in some

cases was only 6 months, compared to the

annual limits required under the ACA.87

Consumers enrolled in STLDI who

ultimately require medical care are more

likely to incur higher out-of-pocket costs

than if they had enrolled in comprehensive coverage.88

As noted in section I.D.1 of this preamble, consumers who enroll in fixed

indemnity excepted benefits coverage

as an alternative to comprehensive coverage bear similar risk and exposure to

significant out-of-pocket expenses due

to their health care costs exceeding the

fixed cash benefit to which they may be

entitled, if benefits are even provided for

their illness or injury. While issuers of

fixed indemnity excepted benefits coverage may emphasize the potential for cash

benefits that sound generous outside of

the context of the true costs of a significant medical event – such as a product

suggesting that a consumer could receive

a flat payment in excess of $10,000 following a five-day hospitalization – fixed

indemnity excepted benefits coverage is

not designed to, and typically does not,

provide benefits relative to the full cost of

such events. As noted by one expert, hospitalization costs can exceed $10,000 per

day, even without accounting for provider

services.89 A consumer who relied on fixed

indemnity excepted benefits coverage and

who required hospitalization would be left

with tens of thousands of dollars in unpaid

medical bills, and without comprehensive

coverage designed to cover any long-term

follow-up care costs.

Consumers enrolled in STLDI and

fixed indemnity excepted benefits coverage may experience financial hardship

when their medical bills are unaffordable.90 Notably, the protections against

balance billing and out-of-network cost

sharing for certain out-of-network services established under the No Surprises

Act, which are intended to shield consumers from surprise bills that can drive medical debt,91 do not apply to STLDI or fixed

indemnity excepted benefits coverage.92

Because STLDI is typically subject to

medical underwriting and not guaranteed

renewable, consumers enrolled in STLDI

as an alternative to comprehensive coverage may also be unable to renew STLDI

at the end of the coverage period, increasing the risk of periods during which they

are uninsured. Such consumers may not

be able to purchase comprehensive coverage in the individual market until an open

enrollment or special enrollment period

occurs. Therefore, STLDI serves better as

a bridge between different sources of comprehensive coverage than as an alternative

to comprehensive coverage. Similarly, as

noted in section I.D.1 of this preamble,

fixed indemnity excepted benefit coverage serves best as an income replacement

policy93 that supplements comprehensive

coverage rather than as an alternative to

comprehensive coverage.

In the preamble to the 2018 final rules,

the Departments stated that individuals who purchased STLDI rather than

being uninsured would potentially experience improved health outcomes and

have greater protection from catastrophic

health care expenses.94 However, recent

experience with the COVID-19 public

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.

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.

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.”).

Id.

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

Unaffordable medical debt increasingly impacts members of disadvantaged and marginalized communities. See Lopes, Lunna, Audrey Kearney, Alex Montero, Liz Hamel, and Mollyann

Brodie (2022). “Health Care Debt In The U.S.: The Broad Consequences Of Medical And Dental Bills,” KFF, available at: https://www.kff.org/health-costs/report/kff-health-care-debt-survey. See also Himmelstein, David, Samuel Dickman, Danny McCormick, David Bor, Adam Gaffney, and Steffie Woolhandler (2022). “Prevalence and Risk Factors for Medical Debt and

Subsequent Changes in Social Determinants of Health in the US,” JAMA Network Open, Volume 5 Issue 9:e2231898, available at: https://jamanetwork.com/journals/jamanetworkopen/

fullarticle/2796358.

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-ReportFINAL.pdf.

See 26 CFR 54.9816-2T, 29 CFR 2590.716(b), and 45 CFR 149.20(b).

As an income replacement policy, the policyholder typically has broad discretion in how to use the fixed cash benefits provided, including but not limited to reimbursement for medical

expenses not covered by comprehensive coverage (for example, deductibles, coinsurance, copays) or to defray non-medical costs (for example, mortgage or, rent).

83 FR 38212, 38229 (October 2, 2018).

Bulletin No. 2023–33

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August 14, 2023

health emergency (PHE)95 has prompted

the Departments to reassess the degree of

protection generally afforded by coverage

that is not subject to the Federal consumer

protections and requirements for comprehensive coverage, such as STLDI and

fixed indemnity excepted benefits coverage, and to reassess the value of a framework that instead encourages uninsured

individuals to purchase comprehensive

coverage. Enrollees in STLDI and fixed

indemnity excepted benefits coverage

with COVID-19 typically face significant

limitations on coverage for COVID-19

related treatments, and high out-of-pocket

expenses.96 For example, neither STLDI

nor fixed indemnity excepted benefits

coverage was subject to requirements

under section 6001 of the Families First

Coronavirus Response Act (Pub. L. 116127, 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;97

or the requirement under section 3203

of the CARES Act to cover qualifying

coronavirus preventive services, including COVID-19 vaccines, without cost

sharing. Instead, both of these important

coverage expansions enacted by Congress

as part of the nation’s response to the

COVID-19 PHE only applied to comprehensive coverage. Any coverage of

COVID-19 vaccines, diagnostic testing,

or treatment by STLDI or fixed indemnity

excepted benefits coverage was subject

to the discretion of individual plans and

issuers of these policies and applicable

State law. Notably, the Health Resources

and Services Administration’s COVID-19

Coverage Assistance Fund, which reimbursed eligible health care providers for

providing COVID-19 vaccines to underinsured individuals,98 included enrollees

in STLDI and excepted benefits coverage

within the definition of underinsured.99

The CARES Act also amended the definition of “uninsured individual” in Social

Security Act section 1902(ss) to include

individuals enrolled only in STLDI. Even

individuals enrolled in STLDI or fixed

indemnity excepted benefits coverage

who are generally healthy are at risk of

needing health care, and thus at risk of

incurring unaffordable medical bills at

any time. The COVID-19 PHE has underscored the unpredictability of when the

need for medical care will arise, and the

importance of encouraging individuals to

enroll in comprehensive coverage.

The Departments have also become

aware of potentially deceptive or aggressive marketing of STLDI and fixed

indemnity excepted benefits coverage to

consumers who may be unaware of the

limits of these plans or the availability

of Federal subsidies that could reduce

the costs of premiums and out-of-pocket

health care expenditures for comprehensive coverage purchased through an

Exchange.100 The Departments note that

these concerns are not limited to individual market consumers considering STLDI

or fixed indemnity excepted benefits coverage. Reports that employers are increasingly offering fixed indemnity coverage

alongside a plan that offers only a very

limited set of primary or preventive care

benefits (or in some cases, as the only

form of health coverage) have also raised

similar concerns about consumers who

obtain this health coverage through their

On January 31, 2020, HHS Secretary Alex M. Azar II declared that as of January 27, 2020, a nationwide public health emergency (PHE) exists as a result of the 2019 novel coronavirus

(COVID-19). See HHS Office of the Assistant Secretary for Preparedness and Response, Determination of the HHS Secretary that a Public Health Emergency Exists, available at: https://

www.phe.gov/emergency/news/healthactions/phe/Pages/2019-nCoV.aspx. This declaration was last renewed by HHS Secretary Xavier Becerra on October 13, 2022, following previous

renewals on April 21, 2020, July 23, 2020, October 2, 2020, January 7, 2021, April 15, 2021, July 20, 2021, and October 18, 2021, January 14, 2022, April 12, 2022, and July 15, 2022. See

HHS Office of the Assistant Secretary for Preparedness and Response, Renewal of Determination That A Public Health Emergency Exists, available at: https://aspr.hhs.gov/legal/PHE/Pages/

covid19-13Oct2022.aspx. On January 30, 2023 and February 9, 2023, the Biden-Harris Administration announced that it intended to end the PHE at the end of the day on May 11, 2023. See

Executive Office of the President, Office of Management and Budget, Statement of Administration Policy: H.R. 382 and H.J. Res. 7 (Jan. 30, 2023), available at: https://www.whitehouse.gov/

wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf; Letter to U.S. Governors from HHS Secretary Xavier Becerra on renewing COVID-19 Public Health Emergency (PHE) (Feb.

9, 2023), available at: https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-public-health-emergency.html. The PHE did in fact

end at the end of the day on May 11, 2023.

See, e.g., Curran, Emily, Kevin Lucia, JoAnn Volk, and Dania Palanker (2020). “In the Age of COVID-19, Short-Term Plans Fall Short for Consumers,” Commonwealth Fund, available

at: https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers. This study found that STLDI policies provide less financial protection than comprehensive coverage if an enrollee needs treatment for COVID-19. The study found that, among the 12 brochures reviewed for STLDI policies being sold in Georgia, Louisiana, and Ohio, 11

excluded nearly all coverage for prescription drugs, with some providing limited coverage of inpatient drugs. The study further found that STLDI imposed high cost sharing, with deductibles

ranging from $10,000 to $12,500 (which did not count toward the enrollees’ maximum out-of-pocket costs) and that enrollees may be required to meet separate deductibles for emergency

room treatment, forcing some enrollees to face out-of-pocket costs of more than $30,000 over a 6-month period. Additionally, the study found that STLDI did not cover services related to

preexisting conditions.

FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 42, Q1 (April 11, 2020), available at: https://www.

dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf; Additional Policy and

Regulatory Revisions in Response to the COVID–19 Public Health Emergency, 85 FR 71142, 71173 (Nov. 6, 2020); FAQs about Affordable Care Act Implementation Part 51, Families

First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation (Jan. 10, 2022), available at: https://www.dol.gov/sites/dolgov/files/ebsa/aboutebsa/our-activities/resource-center/faqs/aca-part-51.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf (FAQs Part 51); and FAQs about

Families First Coronavirus Response Act, Coronavirus Aid, Relief, and Economic Security Act and Health Insurance Portability and Accountability Act Implementation (FAQs Part 58),

available at: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-58 and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqspart-58.pdf. Note that the COVID-19 PHE ended on May 11, 2023.

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.

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.

100

Palanker, Dania and Kevin Lucia (2021). “Limited Plans with Minimal Coverage Are Being Sold as Primary Coverage, Leaving Consumers at Risk,” Commonwealth Fund, available at:

https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk. (Noting (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.

August 14, 2023

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Bulletin No. 2023–33

employers.101 Consumers who are unaware

of the coverage limitations of these

arrangements, or who are employed by

employers who are similarly unaware,

can be faced with overwhelming medical

costs if they require items and services

that are not covered by their group health

plan, because the fixed indemnity excepted

benefits coverage provides only fixed cash

benefits that may be far lower than the costs

of medical services, rather than coverage

intended to cover the costs of the medical

services themselves. For example, a Texas

consumer who was enrolled in two forms

of health insurance through his employer

received a $67,000 hospital bill after he

experienced a heart attack. Although he

believed his two policies would provide

comprehensive coverage, he learned that

his coverage was provided through a group

health plan that covered only preventive

services and prescription drugs and a fixed

indemnity excepted benefits coverage

policy that provided a cash benefit of less

than $200 per day of hospitalization.102

Additionally, employers may incur penalties if they erroneously treat fixed indemnity policies as excepted benefits when the

policies do not meet the requirements for

excepted benefits (for example, when they

are not offered as independent, noncoordinated benefits) and fail to comply with

applicable group market Federal consumer

protections and requirements for comprehensive coverage, such as the requirement

to provide participants, beneficiaries, and

enrollees with a summary of benefits and

coverage that meets applicable content

requirements or the prohibition on lifetime

and annual dollar limits on essential health

benefits.103 In light of research revealing

significant disparities in health insurance

literacy among certain underserved racial

and ethnic groups and people with incomes

below the FPL,104 the Departments are also

concerned that underserved populations

may be particularly vulnerable to misleading or aggressive sales and marketing tactics that obscure the differences between

comprehensive coverage and STLDI or

fixed indemnity excepted benefits coverage, exposing these populations to higher

levels of health and financial risks. As noted

in Executive Order 13995, the COVID-19

pandemic has “exposed and exacerbated

severe and pervasive health and social

inequities in America,” highlighting the

urgency with which such inequities must

be addressed. These concerns continue

amid the Medicaid unwinding period

that began on April 1, 2023 during which

State Medicaid programs have 12 months

to initiate, and 14 months to complete, a

renewal for all individuals enrolled in

Medicaid, the Children’s Health Insurance

Program (CHIP), and, if applicable, the

Basic Health Program (BHP).105 HHS has

estimated that 15 million beneficiaries will

lose Medicaid, CHIP, or BHP coverage

as a result of Medicaid unwinding.106 The

Departments are concerned that the large

population of individuals at risk of losing

Medicaid and those other forms of coverage, due to a loss of eligibility or as a result

of administrative churn, may be susceptible to these marketing and sales tactics,

and might therefore mistakenly enroll in

STLDI or fixed indemnity excepted benefits coverage in lieu of comprehensive

coverage.

C. Impact on Risk Pools

At the time the 2018 final rules were

issued, the Departments acknowledged

that expanding access to STLDI could

have potential negative effects on the

risk pools for individual health insurance coverage and on individuals who

find themselves insufficiently protected

by the typically limited benefits of an

STLDI policy. The Departments were

of the view that the affordability and

access challenges facing consumers at

that time necessitated action to increase

access to STLDI to provide an alternative

option for individuals who were unable

or disinclined to purchase comprehensive

coverage.

As discussed earlier in this section

II, access to affordable comprehensive

coverage has significantly improved

since the 2018 final rules were published. However, research based on

individual market data for plan year

2020 has substantiated concerns about

the negative impact that the shift of

healthier individuals from comprehensive coverage to STLDI has on individuals remaining in the individual

market risk pools.107 Because healthier

individuals are more likely to enroll in

STLDI than individuals with known

medical needs, the extended contract

terms and renewal periods of STLDI

under the current Federal regulations

result in healthier consumers leaving

(or opting out of) the individual market

risk pools for extended periods of time.

This has resulted in increased premiums for individuals seeking to purchase

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.

102

Avila, Jaie (2019). “Show Me Your Bill Helps Wipe Out $70K in Charges After Heart Attack,” News 4 San Antonio, available at https://news4sanantonio.com/news/trouble-shooters/

show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack.

103

See 26 CFR 54.9815-2715(e); 29 CFR 2590.715-2715(e); 45 CFR 147.200(e). See also section 2711 of the PHS Act and section 4980D of the Code.

104

Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary Kay Rayens (2019). “Significant Disparities Exist in Consumer Health Insurance Literacy: Implications for

Health Care Reform,” Health Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496/. See also Villagra, Victor and Bhumika Bhuva (2019).

“Health Insurance Literacy: Disparities by Race, Ethnicity, and Language Preference,” The American Journal of Managed Care, available at: https://www.ajmc.com/view/

health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference.

105

As a condition of receiving a temporary Federal Medical Assistance Percentage (FMAP) increase under section 6008 of the Families First Coronavirus Response Act, states were required

to maintain enrollment of nearly all Medicaid enrollees during the COVID-19 PHE. This “continuous enrollment condition” was decoupled from the COVID-19 PHE and ended on March

31, 2023 under the Consolidated Appropriations Act, 2023. See CMS, Center for Consumer Information and Insurance Oversight, Temporary Special Enrollment Period (SEP) for Consumers

Losing Medicaid or the Children’s Health Insurance Program (CHIP) Coverage Due to Unwinding of the Medicaid Continuous Enrollment Condition– Frequently Asked Questions (FAQ)

(Jan. 27, 2023), available at: https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf.

106

HHS, Assistant Secretary for Planning and Evaluation, Office of Health Policy, “Unwinding the Medicaid Continuous Enrollment Provision: Projected Enrollment Effects and Policy

Approaches,” August 19, 2022, available at: https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf.

107

See Dieguez, Gabriela and Dane Hansen (2020). “The Impact of Short-term Limited-duration Policy Expansion on Patients and the ACA Individual Market,” Milliman, available at: https://

www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.

101

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August 14, 2023

individual health insurance coverage.108

For unsubsidized individuals, the costs

are borne directly by the consumer, and

for subsidized individuals, the costs are

borne to a large extent by the Federal

Government in the form of increased

per capita PTC spending associated

with increased individual health insurance coverage premiums. Likewise, the

increased reports and anecdotes about

fixed indemnity excepted benefits coverage being marketed and sold as an

alternative to comprehensive coverage

raise concerns about the potential for

such practices having a similar impact

on the small group and individual market risk pools.

Another study looking at States that

have adopted policies that restrict STLDI

to shorter durations than allowed under

the current Federal regulations found that,

from 2018 to 2020, States that restricted

or prohibited the sale of STLDI saw fewer

consumers enroll in such insurance, were

able to keep more healthy people in the

individual health insurance coverage market, and saw a greater decline in average

medical costs for enrollees in individual

health insurance coverage.109 The study

reported that, as a result, the risk score

– a measurement of the relative medical

costs expected for the populations covered

by comprehensive coverage in each State,

both on- and off-Exchange – decreased by

40 percent more in States with more regulation of STLDI than States with less

regulation.110 As of January 20, 2020, 12

States had enacted legislation prohibiting health status underwriting for STLDI,

effectively banning the sale of STLDI in

those States.111 Thirteen States and the

District of Columbia prohibited the sale of

STLDI policies with initial contract terms

longer than 3 months.112

In addition to ensuring that consumers can clearly distinguish STLDI from

comprehensive coverage, this new evidence provides an additional basis for the

Departments’ conclusion that it is important to amend the Federal definition of

STLDI.

D. Need for Rulemaking

For the reasons described in this section II, the Departments are of the view

that it is necessary to amend the Federal

definition of STLDI to ensure that consumers can clearly distinguish STLDI

from comprehensive coverage, protect the

risk pools and stabilize premiums in the

individual market, and promote access to

affordable comprehensive coverage.

With respect to individual market fixed

indemnity excepted benefits coverage, the

combination of the decision in the Central

United case and the reduction of the individual shared responsibility payment to

$0 for months beginning after December

31, 2018 under the Tax Cuts and Jobs Act

increased the risk that individuals would

purchase fixed indemnity excepted benefits coverage as a substitute for comprehensive coverage. The Departments are

of the view that these changes necessitate

rulemaking with respect to fixed indemnity excepted benefits coverage. Further,

while the Departments did not finalize

the proposed amendments to the group

market fixed indemnity excepted benefits coverage regulations outlined in the

2016 proposed rules, the Departments

noted their intention to address fixed

indemnity excepted benefits coverage in

future rulemaking.113 The Departments

have continued to monitor the impact of

these coverage options and remain concerned about the negative impacts of fixed

indemnity excepted benefits coverage on

consumers when such products are sold

as an alternative to comprehensive coverage. In light of the Departments’ ongoing

concerns about the numerous negative

impacts of STLDI and fixed indemnity

excepted benefits coverage being offered

as an alternative to comprehensive coverage, as well as the significant changes in

market conditions and in the legal landscape since the Departments’ last regulatory actions addressing these products,

the Departments are proposing changes to

the Federal individual and group market

regulations governing STLDI and fixed

indemnity excepted benefits coverage.

For similar reasons, as discussed in more

detail in section IV.A of this preamble, the

Treasury Department and the IRS propose to clarify the tax treatment of fixed

amounts received by a taxpayer through

certain employment-based accident or

health insurance that are paid without

regard to the amount of medical expenses

incurred. In addition, the Departments

solicit comments on specified disease

excepted benefits coverage, as discussed

in section III.B.2 of this preamble, and on

level-funded plan arrangements, as discussed in section III.C of this preamble.

III. Overview of the Proposed Rules

on Short-Term, Limited-Duration

Insurance and Fixed Indemnity

Excepted Benefits Coverage; Comment

Solicitations Regarding Specified

Disease Excepted Benefits Coverage

and Level-Funded Plan Arrangements

– The Departments of the Treasury,

Labor, and Health and Human

Services

A. Short-Term, Limited-Duration

Insurance

The Departments are proposing the

following amendments to the Federal regulations at 26 CFR 54.9801-2, 29 CFR

2590.701-2, and 45 CFR 144.103 defining

“short-term, limited-duration insurance”

108

Id. (“Carrier expectations for the impact of [regulatory actions including the expansion of short-term, limited-duration insurance policies and other loosely regulated insurance and the

repeal of the federal individual shared responsibility payment being reduced to $0] on premiums in the ACA individual market for 2020 are approximately 4 percent in states that have not

restricted the sale or duration of STLD policies … Among the states that have limited the impact of loosely regulated insurance through reinstating an individual mandate or by restricting

STLD expansion, carriers have assumed an average premium impact in 2020 due to regulatory actions that is about 5 percent lower than other states.”) As noted in section VII.B.2.e of this

preamble, this study also found that the few carriers that explicitly included a premium adjustment because of the adoption of the new federal definition of STLDI in the 2018 final rules

increased premiums by between 0.5 percent and 2 percent in 2020.

109

See Hall, Mark and Michael McCue (2022). “Short-Term Health Insurance and the ACA Market,” Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/

short-term-health-insurance-and-aca-market.

110

Id.

111

National Association of Insurance Commissioners (2023). “Short-Term Limited-Duration Health Plans,” available at: https://content.naic.org/cipr-topics/

short-term-limited-duration-health-plans.

112

Id.

113

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

August 14, 2023

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to better distinguish STLDI from individual health insurance coverage. These

amendments would apply to new STLDI

policies, certificates, or contracts of insurance sold or issued on or after the effective date of the final rules; that is, the date

that is 75 days after publication of the

final rules.114 STLDI policies, certificates,

or contracts of insurance sold or issued

before the effective date of the final rules

(including any subsequent renewals or

extensions consistent with applicable law)

could still have an initial contract term

of less than 12 months and maximum

duration of up to 36 months (taking into

account any renewals or extensions), subject to any limits under applicable State

law, but would be required to comply with

the revised notice requirement for renewals and extensions.

1. “Short-term”

Under the current Federal regulations,

contracts for STLDI must specify an expiration date that is less than 12 months

after the original effective date of the

contract, and, taking into account renewals or extensions, must have a duration of

no longer than 36 months in total.115 The

Departments, however, are no longer of

the view that permitting the longer duration for STLDI is in the best interests of

consumers.

Taking into account the potential risk

to individuals who enroll in STLDI, the

increased availability of affordable comprehensive coverage options, the potential impact on the individual market risk

pools, and consumer challenges in differentiating STLDI from individual health

insurance coverage, the Departments

propose to reinterpret the phrase “shortterm” to refer to a contract term of no

more than 3 months. More specifically,

the Departments propose to amend the

Federal definition for STLDI under 26

CFR 54.9801-2, 29 CFR 2590.701-2, and

45 CFR 144.103 such that the coverage

would have an expiration date specified in

the policy, certificate, or contract of insurance that is no more than 3 months after

the original effective date. As discussed

further in section III.A.2 of this preamble,

the Departments also propose to amend

the Federal definition of STLDI to reinterpret the phrase “limited-duration” to mean

that the maximum permitted duration for

STLDI is no longer than 4 months in total,

taking into account any renewals or extensions. Further, the new proposed Federal

definition would provide that a renewal

or extension includes the term of a new

STLDI policy, certificate, or contract of

insurance issued by the same issuer to

the same policyholder within a 12-month

period beginning on the original effective

date of the initial policy, certificate, or

contract of insurance.

As described further in section III.A.6

of this preamble, these proposed rules

would adopt a bifurcated approach to

the applicability date that distinguishes

between new STLDI that is sold or issued

on or after the effective date of the final

rules,116 and existing STLDI sold or issued

before the effective date of the final rules.

The proposed new Federal definition and

maximum duration framework in these

proposed rules would apply for new

STLDI policies, certificates, or contracts

of insurance sold or issued on or after the

effective date of the final rules. Under

the framework in these proposed rules,

existing policies, certificates, or contracts

of insurance sold or issued before the

effective date (including any subsequent

renewals or extensions consistent with

applicable law) could still have an initial

contract term of less than 12 months, and

a maximum duration of up to 36 months

(taking into account any renewals or

extensions), subject to any limits under

applicable State law. In the preamble to

the 2018 final rules, the Departments discussed the importance of ensuring that

consumers clearly understand the differences between these types of coverage in

order to select the type of coverage that

suits their needs. However, particularly in

light of recent reports regarding deceptive

marketing practices (as discussed in section III.A.3 of this preamble) and the risk

of consumer confusion, the Departments

are now of the view that interpreting

“short-term” in a manner that prevents

STLDI from having terms that are similar in length to a 12-month policy year for

comprehensive individual health insurance coverage is the most important tool

for consumers to distinguish between

STLDI and comprehensive coverage.

In addition, the Departments expressed

in the preamble to the 2018 final rules an

expectation that the amended definition

of STLDI would result in STLDI being

distinguishable from comprehensive coverage because of the differences in their

initial contract terms; the maximum duration of a policy itself; the types of notice

requirements applicable to each type of

coverage; and the classification of comprehensive coverage, but not STLDI, as

MEC.117 However, since the 2018 final

rules became effective, and in light of the

changes in the legal landscape and market

conditions discussed in section II of this

preamble, the Departments are now of the

view that the current Federal definition of

STLDI contributes to confusion between

STLDI and comprehensive coverage and

that confusion results in consumer harm.

The Departments’ proposal to reinterpret

“short-term” to refer to coverage with

a term of no more than 3 months is one

change that would help ensure consumers are better able to distinguish between

the two types of coverage and therefore

make better informed coverage pu

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