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Appellate Court Agrees That HHS Cannot Enforce MEC Requirement for Individuals Purchasing Fixed Indemnity Policies

An appellate court has affirmed a lower court’s ruling (see our article) that permanently enjoins HHS from enforcing a regulation under which individual fixed indemnity coverage is treated as an excepted benefit only if purchasers of the insurance attest that they have minimum essential coverage. (Minimum essential coverage does not include excepted benefits, such as qualifying fixed indemnity policies.) The regulation, adopted in 2014, allows individual health insurance coverage to pay fixed dollar benefits on a per service basis (e.g., $50 per office visit) as well as per period of hospitalization or illness (e.g., $100 per day) but also requires that purchasers attest to having minimum essential coverage (see our article). Several insurers challenged the attestation rule as impermissible statutory interpretation.

The appellate court noted that many individuals have found it cost-effective to forgo minimum essential coverage in favor of fixed indemnity policies, notwithstanding health care reform’s individual shared responsibility penalties. By requiring that purchasers attest to having minimum essential coverage in order for individual fixed indemnity coverage to be treated as an excepted benefit, the regulation foreclosed that option. According to the court, HHS had acted outside its authority because the statute lists only certain criteria for excepted benefit status and does not suggest any leeway for HHS to tack on additional requirements. The court disagreed with HHS’s argument that the statute’s “independent, noncoordinated benefits” requirement presumes the existence of other coverage, concluding that this provision regulates only the seller’s conduct in offering the coverage, and that the purchaser is permitted but not required to have other coverage.

EBIA Comment: When proposing the attestation requirement, HHS implied that the requirement was needed to balance the regulation’s expansion to include per service benefits (see our article). This decision upsets that balance. (HHS has long been concerned that paying benefits on a per service basis rather than a per period basis could circumvent health care reform’s requirements.) Interestingly, in June 2016 proposed regulations, the agencies requested comments on whether the excepted benefit conditions for fixed indemnity coverage should be more substantively aligned between the group and individual markets—for example, by also limiting payment in the individual market to a per period basis (see our article). Insurers and others involved with individual indemnity policies will want to monitor future developments in this area. For more information, see EBIA’s Health Care Reform manual at Section V.F.4 (“Certain Independent, Noncoordinated Benefits”) and EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.F (“Excepted Benefits: Certain Health FSAs, Dental, Vision, and Others”).

Contributing Editors: EBIA Staff.

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