On March 28, 2024, the Departments of Health and Human Services (“HHS”), Labor, and the Treasury (collectively, “the Departments”) released final rules regarding short-term, limited-duration insurance (“STLDI”) and hospital indemnity or other fixed indemnity insurance. The regulations are effective on June 17, 2024. A primary motivation for the revised rulemaking relates to assisting consumers in distinguishing these plans from comprehensive medical coverage.

Employer Action Items

• Effective for plan years beginning on or after January 1, 2025, employers (as plan sponsors) and issuers in the group health insurance market must prominently display a consumer notice in all marketing, application, and enrollment (and reenrollment) materials when offering fixed indemnity excepted benefits coverage. The Departments provided text for the consumer notice so that the language will not need to be customized. The notice must be included on the first page of the materials and in at least 14-point font;
• In addition, employers should look for notice from the Departments related to finalization of additional requirements from the proposed rules that were not included in this final rulemaking, including provisions related to the tax treatment of certain fixed amount benefit payments received in connection with employer-provided accident and health plans.

Summary

STLDI is a type of health insurance coverage designed to fill temporary gaps in coverage when an individual transitions from one plan or coverage to another. STLDI is specifically exempt from the definition of “individual health insurance coverage”; therefore, it is not subject to the requirements for comprehensive coverage under the Affordable Care Act (ACA). This type of coverage typically contains broad limitations and frequently does not provide comprehensive medical coverage, and the like. Since 2018, the maximum coverage length for STLDI has been 12 months, with a maximum duration of 36 months (including renewals and extensions). Fixed indemnity coverage is also exempt from the ACA’s federal consumer protections as an “excepted benefit” when it is designed to provide a fixed cash amount rather than full medical coverage.

In July 2023, the Departments released proposed rules on STLDI and fixed indemnity coverage. The proposed rules included modifications the definition of STLDI, modifications related to the conditions for hospital indemnity and other fixed indemnity insurance if the plan or policy was deemed an excepted benefit, and clarifications respecting the tax treatment of certain fixed amount benefit payments received under employer-provided accident and health plans. Further, the Departments solicited comments regarding specified disease excepted benefits coverage (e.g., cancer insurance), as well as level-funded plan arrangements.

The recently released final regulations include the following changes which apply to new STLDI policies sold or issued on or after September 1, 2024:

• STLDI is now limited to an initial coverage term of up to three (3) months;
• STLDI is now limited to maximum coverage period of up to four (4) months, taking into account renewals and extensions (“stacking” is no longer available);
• Amendment the federal consumer notice standard and the requirement that the notice to be prominently displayed on the first page of the policy, certificate, or contract of insurance (including renewals or extensions) as well as any marketing, application, or enrollment (or reenrollment) materials.

In addition, the final regulations revise the consumer notice currently required for fixed indemnity excepted benefits in the individual market and establish a new requirement to provide a consumer notice in the group market.

The Departments did not address other parts of the rules proposed in July 2023 (e.g., standards regarding payment guidelines, non-coordination requirements, tax treatment of employer-provided fixed indemnity health insurance plans, and substantiation requirements for reimbursement from an employer-provided accident and health plan). The Departments intend to address these issues in future guidance following a study of issues and concerns raised by commentators.

For More Information

• A CMS fact sheet is available here: https://www.cms.gov/newsroom/fact-sheets/short-term-limited-duration-insurance-and-independent-noncoordinated-excepted-benefits-coverage-cms;
• The final regulations are available here: https://www.federalregister.gov/documents/2024/04/03/2024-06551/short-term-limited-duration-insurance-and-independent-noncoordinated-excepted-benefits-coverage#print.

For questions regarding this Legislative Update or any other related compliance issues, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.

This Legislative Update was prepared by the Baldwin Regulatory Compliance Collaborative (the “BRCC”), a partnership of compliance professionals offering client support and compliance solutions for the benefit the partnerships in the Baldwin Risk Partners organization, which includes Burnham Benefits Insurance Services (“Burnham Benefits”).

Burnham Benefits and the BRCC do not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with applicable federal and state law requirements, and is based on our interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.