Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage, 26 CFR Part 54; 29 CFR Part 2590; 45 CFR Parts 144, 146, and 148, 89 Fed. Reg. 23338 (Apr. 3, 2024); Short-Term, Limited Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage (CMS-9904-F) Fact Sheet (Mar. 28, 2024)
The DOL, HHS, and IRS have jointly issued final regulations that limit the permissible duration of short-term, limited-duration health insurance (STLDI). The regulations also modify the notice requirements for certain fixed indemnity insurance; however, the agencies did not finalize several of the fixed indemnity proposals. As background, STLDI is designed to fill temporary gaps in coverage when an individual is transitioning from one source of health coverage to another. Individual STLDI typically has higher out-of-pocket costs and covers fewer services than traditional insurance and is generally not subject to certain group health insurance mandates. Hospital indemnity or other fixed indemnity insurance is designed to pay a fixed cash amount after a health-related event. When certain requirements are met, it is considered independent, noncoordinated coverage that is an excepted benefit and is not subject to certain group health plan mandates. Here are highlights of the final regulations:
- For policies issued on or after September 1, 2024, “short term” means an initial coverage period of no more than three months and “limited duration” means a maximum coverage period of no more than four months, taking into account renewals or extensions. (Previous rules allowed an initial coverage period of fewer than 12 months, with renewals or extensions permitted for up to a total of 36 months.) To eliminate “stacking” of separate, sequential policies, insurers are prohibited from issuing multiple STLDI policies to the same individual within a 12-month period.
- Association Coverage. Noting that most STLDI policies are sold through group trusts and associations, the preamble warns that coverage sold to individuals through a group trust or association (other than in connection with a group health plan) must meet the definition of STLDI or comply with the requirements for comprehensive individual health insurance coverage. Although the agencies indicate that they will continue to work closely with states to support oversight of STLDI offered through associations and related enforcement efforts, the final regulations do not include any specific requirements or changes for association coverage.
- Fixed Indemnity Insurance. The final regulations revise the notice highlighting the differences between fixed indemnity and comprehensive coverage that is currently required in the individual market. There is also a new notice requirement for the group market. However, the agencies did not finalize proposed amendments to the payment standards and noncoordination requirement. The agencies intend to address these topics in future rulemaking after further consideration of public comments.
- Tax Treatment. To allow for further study of issues raised in comments, the agencies did not finalize proposed clarifications that payments from employer-provided fixed indemnity health insurance and similar plans are not excluded from a taxpayer’s gross income if the payments are made without regard to the actual amount of incurred medical expenses and premiums for the coverage were paid pre-tax. Also not finalized are proposals clarifying the substantiation requirements for medical expense reimbursements from employer-provided accident and health plans.
EBIA Comment: Because the agencies have only finalized a portion of the sweeping changes that were proposed, employers and their advisors should watch for further guidance as the agencies continue to consider the comments received on the remaining proposals. For more information, see EBIA’s Health Care Reform manual at Sections V.C.4.d (“Short-Term, Limited-Duration Insurance Is Generally Not Subject to PHSA Mandates”) and V.F (“Excepted Benefits: Certain Health FSAs, Dental, Vision, and Others”). See also EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.F (“Excepted Benefits: Certain Health FSAs, Dental, Vision, and Others”) and EBIA’s Cafeteria Plans manual at Section X.B.1.c (“Coverage Under Specified Illness or Fixed Indemnity Policies”).
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