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On September 11, NAIFA submitted comments on the tri-agency (Departments of Health & Human Services (HHS), Labor (DOL) and Treasury) proposed regulations on short-term limited duration (STLD) health insurance, and on fixed payment (indemnity) health insurance.

Generally, NAIFA urged the agencies to modify their proposals to address significant difficulties with the proposed regulations as they are currently written. The recommended changes include:

  • On STLD health insurance, NAIFA pointed out that health insurance advisors report that, on average, consumers who need “gap coverage”—i.e., coverage for when they are between jobs, for example, generally need that coverage for approximately five to six months. Thus, the three-month limit on STLD coverage in the proposed regulation is too short to meet the needs of people who need interim coverage.

    NAIFA recommended that the regulations be amended to allow STLD coverage for six months, with a full renewal period. This modification would strike a prudent balance between meeting a real need and discouraging people from choosing, for a longer-than-needed period of time, less expensive (and non-comprehensive) STLD coverage over the fuller coverage provided by Affordable Care Act (ACA)-compliant health insurance with a full panoply of minimum essential benefits.

    Further, NAIFA said, there could be additional deferral options limited to individuals who are not eligible to purchase ACA-compliant individual health insurance using premium tax credits. This way, the association said, consumers will still have legal, financial protection, and health insurance options for a reasonable period of time. Eligible individuals could purchase traditional individual health coverage during the next year’s open enrollment period.
  •  On fixed payment (indemnity) health insurance, NAIFA noted that employers could cease to offer their employees indemnity coverage because of the tax consequences of doing so. Those tax consequences involve a tax increase that would be imposed on individuals whose fixed payment (indemnity) coverage would no longer qualify as a tax-free employer-provided excepted benefit. A further tax increase, imposed on both employees and employers, would come in the form of the value of an employer-offered indemnity policy becoming subject to payroll taxes.

    In addition, NAIFA pointed out, indemnity policies help those covered by them meet very real needs—not all costs associated with an illness or injury come from health care. There are cost-of-living expenses that must be met even when a person is out of work due to illness or injury. It is those very real needs that indemnity policies cover. The proposed regulation’s elimination of the service and time period benefit triggers would reduce an individual’s ability to protect him/herself from costs associated with a health event.

    Further, the proposed regulation significantly departs from the three most recent major Congressional actions on health insurance: the 1996 Health Insurance Portability and Accountability Act (HIPAA), the 2010 ACA, and the 2020 No Surprises Act. All of these laws specifically allow the indemnity/fixed payment health insurance market to proceed without interruption. There have been, until now, no federal or state legislative or regulatory proposals that suggest changing the rules on indemnity/fixed payment health insurance, which meets very real and specific needs.

    In short, there is no justification for the profound change in the rules suggested by the proposed regulation. And that change could substantially eliminate the indemnity/fixed payment market and leave individuals without an important source of supplemental protection that has been purchased and used for decades without complaint or claims of abuse. NAIFA recommends that these proposed rules be withdrawn.

In summary, NAIFA said, the proposed new rules on STLD and indemnity/fixed payment health insurance are flawed and must be revised, if not totally withdrawn, in order to protect individuals’ access to important health coverage benefits.

Prospects: These new proposed regulations are hotly controversial and are expected to trigger many comments urging their withdrawal and/or modification. The three agencies involved in the proposed regulations will be reading and evaluating the comments over the upcoming weeks and months. NAIFA will keep you informed as the process unfolds.

NAIFA Staff Contacts: Michael Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.