Consumers Have Different Health And Financial Needs. That’s Why We Have Fixed Indemnity Products

by Geralyn Trujillo

September 7, 2016

For consumers looking for additional financial protection for unexpected health events/issues, there are a number of products that can be purchased on top of their major medical insurance to offer extra support for the care and services they may need. Excepted benefits allow families to cover the miscellaneous expenses that can come up throughout the course of treatment that goes beyond medical bills – such as transportation costs or additional financial support if an individual must leave their job to care for a family member. But a recent federal proposed rule would jeopardize this critical protection and undermine the financial protection consumers want and need.

What kind of changes were proposed?

In the proposed rule, the tri-agencies (HHS, Department of Labor, and the IRS) have outlined a number of proposed policies that would have unintended consequences for families. First, these proposals would completely disrupt the marketplace for group hospital and other fixed indemnity insurance for consumers by limiting coverage to only a “per period” and not a “per service” basis, which is a common feature in this coverage. The proposed rule also raises questions that could affect the availability to consumers of specified disease insurance that covers multiple diseases or illnesses.

Supplementary health products provide millions of Americans with protection against the financial impact of treatment for complex medical conditions. Most current policies were purchased at the work site, offered to employees in conjunction with employee benefit plans offered by their employer. Consumers find great value in these supplemental health benefit products.

While the proposed changes were initially intended to address issues within the individual comprehensive medical market, the administration broadened the scope of the changes to include the group excepted benefits marketplace. The proposed changes, and the questions raised regarding specified disease insurance, do nothing to address the current state of the Affordable Care Act’s individual market. Any connection between these group excepted benefits products and the ACA’s individual market is tenuous at best and more likely to be nonexistent.

There has been a lot of discussion regarding overreach, especially in light of the recent Central United Life v. Burwell decision. What can you tell us about the tri-agencies authority in terms of this proposal?

That question has been a key component of our ongoing analysis of the proposed rule. Excepted benefits are defined under federal law to include hospital indemnity or fixed indemnity insurance policies, provided the benefits are not coordinated with a group health plan. If these policies meet the three requirements set out in statute, they are treated as non-coordinated excepted benefits and are not subject to federal regulation as health insurance coverage. The tri-agencies lack the authority to narrow this statutory construction by limiting the exemption to less than all of the policies encompassed under these requirements. The D.C. Circuit’s decision in Central United has made this clear.

Nothing in the Public Health Service Act or the ACA, which did not amend this section or regulate excepted benefits criteria, permits the tri-agencies to add additional criteria for group fixed indemnity insurance to qualify as excepted benefits – including a per day or other time period requirement and restrictions on providing different amounts of payment based on the type of item or service provided.

The proposed change is a radical shift in how the long-standing underlying statute has been interpreted and enforced. It seems that until the ACA, the term “event” has been understood to always include both per service and per time period triggers. This underscores just how significant the change is that is being proposed and why it is contrary to statute.

We saw a few headlines when the proposed rule was released in June that sparked concern that the agencies were eliminating the specified disease insurance market. What does the proposed rule say about those products?

While the proposal does not have any specific proposed regulations regarding specified disease, the tri-agencies did ask for commentary in the preamble. These questions, taken together with the proposed language regarded group hospital and other fixed indemnity, certainly created some trepidation among the supplemental insurance community.

In the preamble to the proposed rule, the tri-agencies asked if there should be a limit to the number of diseases or illnesses that may be covered in a specified disease policy and if issuers should be required to disclose that such policies are not minimum essential coverage.

The tri-agencies lack the authority to limit a specified disease policy to only one specific condition or a limited number of diseases or illnesses, given the clear statutory language that permits a combination of benefits. Not only would this be contrary to the language, but also to the product choices available to consumers in the market.

Geralyn Trujillo is Executive Director, Product Policy at AHIP.


To View AHIP’s comments on the proposed tri-agency rule on expatriate health plans and other issues, click the button below.