On July 7, 2023, multiple federal agencies announced a proposed rule that modifies the definition of short-term, limited duration insurance and conditions for fixed indemnity plans to be considered an excepted benefit.
If approved, this regulation would affect the sale of short-term medical plans and hospital indemnity plans and their policyholders.
Here’s a quick summary of what health insurance agents need to know about the Department of Health & Human Services, Department of Labor, and Department of Treasury’s new proposed rule.
Potential Short-Term Medical Coverage Changes
Short-term medical plans are meant to serve as temporary coverage for people transitioning to and from other major medical plans; however, they’re sometimes sold and bought as alternative coverage to the marketplace. This is problematic since these types of plans do not provide minimum essential coverage, and members are not guaranteed the ACA’s protections.
The new rule would:
- Limit short-term medical coverage sold/issued after the final rule goes into effect to three months with an option to extend one month (four months maximum of coverage)
- Allow existing policies sold/issued prior to the effective date of the final rule to be kept for the full duration under the 2018 Short-Term, Limited-Duration Insurance Final Rule
- Allow the enrollment in consecutive contracts, that in total exceed four months in duration, only if the contracts effective within a 12-month period are sold by different issuers, and if consistent with applicable state law
Generally speaking, consumers can currently purchase short-term medical plans that provide coverage for one month, six months, or up to one year and are renewable up to two times (three years maximum of coverage). Exact coverage term availability varies by state. Some states, like Maryland, are already limiting the terms and availability on these plans, and several have already adopted a less-than-three-month maximum term.
Note: The National Association of Benefits and Insurance Professionals (NABIP) is providing feedback to the agencies recommending that short-term, limited duration plans last six months and allow one renewal of up to six months or through January 1, whichever time frame is shorter.
Potential Hospital Indemnity Coverage Changes
Fixed indemnity plans, including hospital indemnity plans, also do not meet the ACA’s minimum-essential-coverage standards. While they’re designed to serve as a form of income replacement, they’re sometimes sold as an alternative to marketplace coverage. This perpetuates problems for members not guaranteed health protections under the ACA.
The new rule would:
- Prohibit individual market fixed indemnity plans from paying benefits on a per-service basis
- Disqualify indemnity plans as part of the tax exclusion for employer-sponsored health insurance
These changes would limit carriers from designing complex, fee-for-service style fixed indemnity plans that resemble more comprehensive, ACA-compliant coverage. They also seek to help consumers distinguish between comprehensive coverage and fixed indemnity excepted benefits coverage.
When Will These Changes Go into Effect?
Right now, the government is soliciting feedback on the proposed rule. The agencies will accept comments through September 11, 2023. From there, they could modify, halt, or finalize the policy.
Any future updates will be released sometime in or after mid-September.
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Short-term medical and hospital indemnity insurance plans can serve as great options for individuals in specific circumstances. While they were never designed to act as major medical insurance for beneficiaries, they can provide useful temporary (short-term medical plans) or extra (hospital indemnity plans) coverage. Ultimately, the proposed restrictions and changes to short-term, limited duration and indemnity plans aim to discourage sales in situations where these plans likely are not the best fit and ensure key health protections for Americans. Time will tell if they pass.