On March 28, 2024, the Biden-Harris Administration released final rules intended to lower health care costs and protect consumers from being induced into purchasing so-called “junk insurance” policies (the “Final Rules”).[1] According to the press release, the Final Rules are intended to close loopholes that have permitted “junk insurance” issuers to mislead consumers into buying highly restricted and discriminatory plans that provide inadequate coverage when consumers need it the most. The Final Rules primarily realign federal definitions with intended scopes of coverage and increase transparency to allow consumers to make informed, beneficial choices about their health coverage for enhanced consumer protection.
Background: “Junk Insurance”[2]
“Junk insurance” refers to health insurance plans that offer limited coverage and often lack critical consumer protections. These plans typically provide minimal coverage for only a narrow range of medical services and frequently impose high-deductibles, copayments, and coinsurance, leaving policyholders vulnerable to high out-of-pocket costs for necessary healthcare such as prescription drugs, preventative care, maternity care, mental health services, and emergency treatments. Unlike comprehensive health insurance plans, “junk insurance” plans often are not subject to certain mandated protections that address pre-existing conditions limitations, waiting periods, excessive provider network restriction, or coverage rescission.
As noted in the Centers for Medicare & Medicaid Services Fact Sheet, published in connection with the Final Rules, one category of “junk insurance” is short-term, limited-duration insurance (“STLDI”). STLDI plans were originally intended to provide temporary coverage during transitions between comprehensive plans. STLDI plans fall outside the scope of “individual health insurance coverage,” as defined by the Public Health Service Act, and typically do not fall under the purview of federal individual market consumer protections and the mandates for comprehensive coverage. Despite such deficiencies, issuers have marketed these plans as long-term alternatives to ACA-compliant coverage. Another category of “junk insurance” is fixed indemnity excepted benefits. Traditionally, hospital indemnity and other fixed indemnity insurance has been used as a form of income replacement upon the occurrence of a health-related event, under which policyholders receive fixed cash benefits that can be utilized at their discretion, covering out-of-pocket expenses not included in comprehensive coverage or non-medical expenses such as rent or mortgage payments. In group markets, payments are fixed amounts per fixed term, while in the individual market, payments can be made per hospitalization, illness, or service. When these insurance plans meet certain payment standards and regulatory criteria, they are exempt from federal requirements and consumer protections applicable to comprehensive coverage.
Biden-Harris Administration’s Action[3]
The Departments of Health and Human Services (HHS), the Department of Labor, and the Department of the Treasury (collectively, the “Departments”) issued the Final Rules, which revise the federal definition of “STLDI” to cap the initial contract term at a maximum of three months and restrict the total coverage period to no more than four months, inclusive of any renewals or extensions. This is a significant restriction on such policies as the previous administration permitted STLDI total coverage periods of up to three years. Therefore, this restriction realigns the federal definition of STLDI with its intended, traditional role as temporary coverage and more clearly distinguishes it from comprehensive coverage for consumers. The revised STLDI definition further clarifies that an STLDI renewal or extension includes STLDI sold by the same issuer, or any issuer that is a member of the same controlled group, to the same policyholder within a year. The Departments have clarified that this provision aims to reduce the practice known as “stacking,” by which issuers provide separate, sequential STLDI policies that collectively evade duration limits. The Departments also refined the federal notice standard with respect to STLDI policies, requiring issuers to prominently display a notice that uses clear and concise language that distinguishes STLDI policies from comprehensive plans on the first page of the policy, certificate, contract of insurance, and any marketing materials.[4]
In addition to those changes to the STLDI regime, the Departments also revised the consumer notice standard applicable to fixed indemnity excepted benefits coverage in the individual market and set forth a new notice requirement in the group market.[5] Under the revised standards, issuers must prominently display a notice that clearly communicates the limitations of the coverage and highlights the differences between fixed indemnity excepted benefits coverage and comprehensive coverage in all policies, certificates, contracts of insurance, and marketing materials. Notably, however, the Departments have not yet finalized additional amendments regarding the payment standards and non-coordination requirement for fixed indemnity excepted benefits coverage, which were proposed in July 2023.
Intended Stakeholder Impact
According to the Press Release, increasing consumer understanding of short-term, limited-duration insurance and fixed indemnity excepted benefits coverage and making short-term plans truly short term will empower consumers to make decisions that are “more informed” with respect to the risks associated such types of coverage and options for comprehensive coverage. This is consistent with HHS’s stated goal of helping more people gain access to high-quality, affordable coverage. HHS Secretary Becerra stated that “We want everyone to have the peace of mind that comes with having coverage that includes the protections and benefits they expect.” This goal builds upon CMS’s stated commitment to “furthering the promises made by the ACA 14 years ago.”
FOOTNOTES
[1] The Final Rules were published by the Federal Register at 26 CFR Part 54 on April 3, 2024. See Fact Sheet on Final Rules and Press Release for the Final Rules, Ctrs. for Medicare & Medicaid Servs. (Mar. 28, 2024).
[2] See generally, 88 FR 44596 Section II, “Promoting Access to High-Quality, Affordable, and Comprehensive Coverage,” Subsection B “Risks to Consumers.”
[3] See generally, 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services.”
[4] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection A “Short-Term, Limited-Duration Insurance.”
[5] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection B “Independent, Noncoordinated Excepted Benefits Coverage.”