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An Overview: Federal Tri-Agency Proposed Fixed Indemnity Regulations

  

The following is a recap of PIMA's 2023 Fall Legislative & Regulatory Digital Forum. Authored by Sean Cox, President of First Consulting & Administration. Sean is also a PIMA Board Member and the Legislative & Regulatory Interest Chair. It is important to note that regulations are always subject to change. 

In a significant move toward refining healthcare regulations, the Departments of Health and Human Services, Labor, and Treasury recently proposed new regulations impacting various insurance categories. These proposed regulations, published on July 12, 2023, cover Short-Term, Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health Insurance. Notably, the comment period for these regulations closed on September 11, 2023, with an impressive 15,827 public comments submitted.

Fixed Indemnity Products

One of the key areas addressed in the proposed regulations is noncoordinated excepted benefits coverage, which encompasses hospital indemnity and other fixed indemnity coverage. These fixed indemnity benefits often include coverage for transportation, hospital treatment, wellness services, physician office visits post-hospitalization, outpatient services, and, more recently, benefits for mental health and substance use disorder office visits and treatments.

Fixed indemnity insurance falls under federal regulation authority, initially established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA defined fixed indemnity coverage as "independent, noncoordinated excepted benefits." Despite subsequent federal laws introducing health coverage mandates, fixed indemnity coverage has retained its excepted benefit status. It is essential to note that states retain primary insurance regulation authority and may impose more restrictive requirements.

Under the current federal laws and regulations, fixed indemnity coverage qualifies as an excepted benefit if specific conditions are met, including separate policies, no coordination with other health plans, fixed dollar amounts for benefits, and benefits paid without regard to expenses incurred under other health coverage.

Product Changes

The proposed regulations introduce several changes to fixed indemnity insurance that would ultimately reduce the types of benefits that these plans typically cover. According to the proposal, fixed indemnity benefits must be paid only for a period of hospitalization or illness, on a per-day or other time period (a new requirement for individual coverage), and without consideration of actual or estimated expenses, severity of illness, or other treatment-related characteristics. The regulations also establish that prohibited coordination may exist even without a formal coordination of benefits arrangement.

Moreover, a new consumer disclosure requirement is proposed, aiming to alert consumers to coverage limitations and directing them to access Affordable Care Act (ACA) compliant health coverage. 

Tax Changes

Additionally, the proposed rules provide that benefits paid under fixed indemnity and specified disease coverage, when premiums are paid on a pre-tax basis, will be included in a consumer's gross income for tax purposes. Under current regulation, such benefits are not taxed if they directly or indirectly reimburse the taxpayer for substantiated medical care expenses.

Next Steps

The next steps in the proposal involve several options, including finalizing rulemaking as proposed, finalizing a portion of the proposed rulemaking, issuing an interim final rule, reissuing a revised rulemaking, reopening the rulemaking for additional public comment, or withdrawing the rulemaking. The decision on these options depends on whether public comments raised persuasive new data, policy, or legal arguments, and whether necessary revisions are substantive or logical outgrowths of the proposal.

The Departments, acting at the direction of the White House, initially expressed a preference for finalizing the proposal by the end of 2023. While that goal date was not met, it is clear that they intent is for the Departments to act quickly on this. 

Ultimately, this regulatory initiative underscores the ongoing efforts to adapt and refine healthcare regulations in response to the evolving landscape of health insurance and benefits and the perceived notion by regulators that these fixed indemnity products are being improperly marketed as a replacement for major medical coverage.

Contact us at PIMA if you’d like additional information on the proposed fixed indemnity regulations or need help preparing. Membership in our association comes with many benefits, and how to best prepare for upcoming regulatory changes is just one of them. 

PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the affinity market.

Published on January 29, 2024.

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