DEPARTMENT OF THE TREASURY Internal Revenue Service 26

[Billing Codes: 4830-01-F; 4510-29-F; 4120-01-F]

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9990]

RIN 1545-BQ28

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AC12

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, and 148

[CMS-9904-F]

RIN 0938-AU67

Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted

Benefits Coverage

AGENCY: Internal Revenue Service, Department of the Treasury; Employee Benefits Security

Administration, Department of Labor; Centers for Medicare & Medicaid Services, Department

of Health and Human Services.

ACTION: Final rules.

SUMMARY: This document sets forth final rules that amend the definition of short-term,

limited-duration insurance, which is excluded from the definition of individual health insurance

coverage under the Public Health Service Act. This document also sets forth final rules that

amend the regulations regarding the requirements for hospital indemnity or other fixed indemnity

insurance to be considered an excepted benefit in the group and individual health insurance

markets.

This document is scheduled to be published in the

Federal Register on 04/03/2024 and available online at

https://federalregister.gov/d/2024-06551, and on https://govinfo.gov

DATES: These regulations are effective on [INSERT DATE 75 DAYS AFTER DATE OF

PUBLICATION IN THE FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Shannon Hysjulien or Rebecca Miller,

Employee Benefits Security Administration, Department of Labor at (202) 693-8335; Jason

Sandoval, Internal Revenue Service, Department of the Treasury at (202) 317-5500; Cam

Clemmons, Centers for Medicare & Medicaid Services, Department of Health and Human

Services at (206) 615-2338; Lisa Cuozzo, Centers for Medicare & Medicaid Services,

Department of Health and Human Services at (667) 290-8537.

SUPPLEMENTARY INFORMATION:

I. Background

These final rules set forth revisions to the definition of “short-term, limited-duration

insurance” (STLDI) for purposes of its exclusion from the definition of “individual health

insurance coverage” in 26 CFR part 54, 29 CFR part 2590, and 45 CFR part 144. The definition

of STLDI is also relevant for purposes of the disclosure and reporting requirements in section

2746 of the Public Health Service Act (the PHS Act), which require health insurance issuers

offering individual health insurance coverage or STLDI to disclose to enrollees with individual

health insurance or STLDI coverage, and to report annually to the Department of Health and

Human Services (HHS), any direct or indirect compensation provided by the issuer to an agent or

broker associated with enrolling individuals in such coverage.

These final rules also set forth amendments to the regulations regarding the requirements

for hospital indemnity and other fixed indemnity insurance to be treated as an excepted benefit in

the group and individual health insurance markets (fixed indemnity excepted benefits coverage).

As explained in greater detail later in this section of the preamble, the Department of the

For simplicity and readability, this preamble refers to hospital indemnity or other fixed indemnity insurance that

meets all requirements to be considered an excepted benefit under the Federal framework as “fixed indemnity

excepted benefits coverage” to distinguish it from hospital indemnity or other fixed indemnity insurance that does

not meet all such requirements.

Treasury (Treasury Department), the Department of Labor, and HHS (collectively, the

Departments) are not finalizing certain aspects of the proposed rules regarding fixed indemnity

excepted benefits coverage and the Treasury Department and the Internal Revenue Service (IRS)

are not finalizing the proposed amendments to Treasury Reg. § 1.105-2 at this time.

In proposed rules published on July 12, 2023, in the Federal Register titled “Short-Term,

Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage;

Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health

Insurance” (2023 proposed rules),

the Departments proposed revisions to define and more

clearly distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive

coverage. Comprehensive coverage is coverage that is subject to the Federal consumer

protections and requirements established under chapter 100 of the Internal Revenue Code

(Code), part 7 of the Employee Retirement Income Security Act of 1974 (ERISA), and title

XXVII of the PHS Act (hereinafter referred to as the Federal consumer protections and

requirements for comprehensive coverage),

such as the prohibition on exclusions for preexisting

conditions, the prohibition on health status discrimination, and the requirement to cover certain

preventive services without cost sharing. The Departments proposed these revisions to promote

equitable access to high-quality, affordable, comprehensive coverage by increasing consumers’

understanding of their health coverage options and reducing misinformation about STLDI and

fixed indemnity excepted benefits coverage, consistent with Executive Orders 14009 and 14070

as described in section I.B of this preamble. The Treasury Department and the IRS also proposed

amendments to Treasury Reg. § 1.105-2 to clarify the tax treatment of benefit payments in fixed

amounts under hospital indemnity or other fixed indemnity coverage purchased on a pre-tax

basis.

88 FR 44596 (July 12, 2023).

While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive

coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and

reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health

insurance coverage or STLDI.

The Departments also solicited comments regarding coverage only for a specified disease

or illness that qualifies as excepted benefits (specified disease excepted benefits coverage),

and

regarding level-funded plan arrangements

to better understand the key features and

characteristics of these arrangements and whether additional guidance or rulemaking is needed to

clarify plan sponsors’ and issuers’ obligations with respect to coverage provided through these

arrangements. While specified disease excepted benefits coverage and level-funded plan

arrangements are not addressed in these final rules, the Departments appreciate the comments

received on these topics and will take them into consideration as they determine whether

additional guidance or rulemaking is warranted in the future.

A. General Statutory Background

The Health Insurance Portability and Accountability Act of 1996 (HIPAA)

(Pub. L. 104-191, August 21, 1996) added chapter 100 to the Code, part 7 to ERISA, and title

XXVII to the PHS Act, which set forth portability and nondiscrimination rules with respect to

health coverage. These provisions of the Code, ERISA, and the PHS Act were later augmented

by other laws, including the Mental Health Parity Act of 1996 (Pub. L. 104-204,

September 26, 1996), the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction

Equity Act of 2008 (MHPAEA) (Pub. L. 110-343, October 3, 2008), the Newborns’ and

Mothers’ Health Protection Act (Pub. L. 104-204, September 26, 1996), the Women’s Health

and Cancer Rights Act (Pub. L. 105-277, October 21, 1998), the Genetic Information

Nondiscrimination Act of 2008 (Pub. L. 110-233, May 21, 2008), the Children’s Health

Insurance Program Reauthorization Act of 2009 (Pub. L. 111-3, February 4, 2009), Michelle’s

Law (Pub. L. 110-381, October 9, 2008), the Patient Protection and Affordable Care Act

(Pub. L. 111-148, March 23, 2010) (as amended by the Health Care and Education

Reconciliation Act of 2010 (Pub. L. 111–152, March 30, 2010) (collectively known as the

88 FR 44596 at 44632 (July 12, 2023).

Id. at 44632-34.

Affordable Care Act (ACA)), and Division BB of the Consolidated Appropriations Act, 2021

(CAA, 2021) (Pub. L. 116-260, December 27, 2020), which includes the No Surprises Act.

The ACA reorganized, amended, and added to the provisions of part A of title XXVII of

the PHS Act relating to group health plans and health insurance issuers in the group and

individual markets. The ACA added section 9815 of the Code and section 715 of ERISA to

incorporate the provisions of part A of title XXVII of the PHS Act, as amended or added by the

ACA, into the Code and ERISA, making them applicable to group health plans and health

insurance issuers providing health insurance coverage in connection with group health plans. The

provisions of the PHS Act incorporated into the Code and ERISA, as amended or added by the

ACA, are sections 2701 through 2728.

In addition to market-wide provisions applicable to group health plans and health

insurance issuers in the group and individual markets, the ACA established Health Benefit

Exchanges (Exchanges) aimed at promoting access to high-quality, affordable, comprehensive

coverage. Section 1401(a) of the ACA added section 36B to the Code, providing a premium tax

credit (PTC) for certain individuals with annual household income that is at least 100 percent but

not more than 400 percent of the Federal poverty level (FPL) who enroll in, or who have a

member of their tax household enrolled in, an individual market qualified health plan (QHP)

through an Exchange who are not otherwise eligible for minimum essential coverage (MEC).

Section 1402 of the ACA provides for, among other things, reductions in cost sharing for

essential health benefits for qualified low- and moderate-income enrollees in silver-level QHPs

purchased through the individual market Exchanges. Section 1402 also provides for reductions in

cost sharing for American Indians enrolled in QHPs purchased through the individual market

Exchanges at any metal level.

Section 5000A of the Code, added by section 1501(b) of the ACA, provides that

individuals must maintain MEC, or make a payment known as the individual shared

responsibility payment with their Federal tax return for the year in which they did not maintain

MEC, if they are not otherwise exempt.

On December 22, 2017, the Tax Cuts and Jobs Act

(Pub. L. 115-97) was enacted, which included a provision under which the individual shared

responsibility payment under section 5000A of the Code was reduced to $0, effective for months

beginning after December 31, 2018.

The American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) was enacted on

March 11, 2021. Among other policies intended to address the health care and economic needs

of the country during the coronavirus disease 2019 (COVID-19) pandemic, the ARP increased

the PTC amount for individuals with annual household income at or below 400 percent of the

FPL and extended PTC eligibility for the first time to individuals with annual household incomes

above 400 percent of the FPL. Although the expanded PTC subsidies under the ARP were

applicable only for 2021 and 2022, the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169,

August 16, 2022) extended the subsidies for an additional 3 years, through December 31, 2025.

The No Surprises Act was enacted on December 27, 2020, as title I of Division BB of the

CAA, 2021. The No Surprises Act added new provisions in Subchapter B of chapter 100 of the

Code, part 7 of ERISA, and part D of title XXVII of the PHS Act, applicable to group health

plans and health insurance issuers offering group or individual health insurance coverage. These

provisions provide protections against surprise medical bills for certain out-of-network services

and generally require plans, issuers, providers, and facilities to make certain disclosures

regarding balance billing protections to the public and to individual participants, beneficiaries,

and enrollees. In addition to the new provisions applicable to group health plans and issuers of

group or individual health insurance coverage, the No Surprises Act added a new part E to title

XXVII of the PHS Act, establishing corresponding requirements applicable to health care

Section 5000A of the Code and Treasury regulations at 26 CFR 1.5000A-3 provide exemptions from the

requirement to maintain MEC for the following individuals: (1) members of recognized religious sects; (2) members

of health care sharing ministries; (3) exempt noncitizens; (4) incarcerated individuals; (5) individuals with no

affordable coverage; (6) individuals with household income below the income tax filing threshold; (7) members of

Federally recognized Indian tribes; (8) individuals who qualify for a hardship exemption certification; and (9)

individuals with a short coverage gap of a continuous period of less than 3 months in which the individual is not

covered under MEC. The eligibility standards for exemptions can be found at 45 CFR 155.605.

providers, facilities, and providers of air ambulance services. The CAA, 2021 also amended title

XXVII of the PHS Act to, among other things, add section 2746, which requires health insurance

issuers offering individual health insurance coverage or STLDI to disclose the direct or indirect

compensation provided by the issuer to an agent or broker associated with enrolling individuals

in individual health insurance coverage or STLDI to the enrollees in such coverage as well as to

report such compensation annually to HHS.

The Secretaries of the Treasury, Labor, and HHS have authority to issue such regulations

as may be necessary or appropriate to carry out the parallel provisions under the Code, ERISA,

and the PHS Act, including the definitions in section 9832 of the Code, section 733 of ERISA,

and section 2791 of the PHS Act.

B. Recent Executive Orders

On January 28, 2021, President Biden issued Executive Order 14009, “Strengthening

Medicaid and the Affordable Care Act,” which directed the Departments to review policies to

ensure their consistency with the Administration’s goal of protecting and strengthening the ACA

and making high-quality health care accessible and affordable for every American.

Executive

Order 14009 also directed Federal agencies to examine policies or practices that may undermine

protections for people with preexisting conditions and that may reduce the affordability of

coverage or financial assistance for coverage. Executive Order 14009 also revoked the previous

Administration’s Executive Order 13813, “Promoting Healthcare Choice and Competition

Across the United States,” which directed agencies to expand the availability of STLDI.

April 5, 2022, President Biden issued Executive Order 14070, “Continuing to Strengthen

Americans’ Access to Affordable, Quality Health Coverage,” which directed the heads of

Federal agencies with responsibilities related to Americans’ access to health coverage to examine

Section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act.

See also 64 FR 70164 (December 15, 1999).

Executive Order 14009 of January 28, 2021, 86 FR 7793 (February 2, 2021).

Executive Order 13813 of October 12, 2017, 82 FR 48385 (October 17, 2017).

polices or practices that make it easier for all consumers to enroll in and retain coverage,

understand their coverage options, and select appropriate coverage; that strengthen benefits and

improve access to health care providers; that improve the comprehensiveness of coverage and

protect consumers from low-quality coverage; and that help reduce the burden of medical debt

on households.

In addition, on January 21, 2021, President Biden issued Executive Order 13995,

“Ensuring an Equitable Pandemic Response and Recovery,” which directed the Secretaries of

Labor and HHS, and the heads of all other agencies with authorities or responsibilities relating to

the COVID-19 pandemic response and recovery, to consider any barriers that have restricted

access to preventive measures, treatment, and other health services for populations at high risk

for COVID-19 infection, and modify policies to advance equity.

Consistent with these executive orders, the Departments reviewed the regulatory

provisions related to STLDI and fixed indemnity excepted benefits coverage and, after carefully

considering public comments received, are finalizing amendments to those provisions in these

final rules.

C. Short-Term, Limited-Duration Insurance (STLDI)

STLDI is a type of health insurance coverage sold by health insurance issuers that

typically fills temporary gaps in coverage that may occur when an individual is transitioning

from one plan or coverage to another, such as transitioning between health coverage offered by

one employer to health coverage offered by another employer. Section 2791(b)(5) of the PHS

Act provides that “[t]he term ‘individual health insurance coverage’ means health insurance

coverage offered to individuals in the individual market, but does not include short-term, limited

Executive Order 14070 of April 5, 2022, 87 FR 20689 (April 5, 2022).

Executive Order 13995 of January 21, 2021, 86 FR 7193 (January 26, 2021).

duration insurance.”

The PHS Act does not, however, define the phrase “short-term, limited

duration insurance.” Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act provide that

group health insurance coverage means, “in connection with a group health plan, health

insurance coverage offered in connection with such plan.” Sections 733(a)(1) of ERISA and

2791(a)(1) of the PHS Act provide that a group health plan is generally any plan, fund, or

program established or maintained by an employer (or employee organization or both) for the

purpose of providing medical care to employees or their dependents (as defined under the terms

of the plan) directly, or through insurance, reimbursement, or otherwise. There is no

corresponding provision excluding STLDI from the definition of group health insurance

coverage. Thus, any health insurance that is sold in the group market and purports to be STLDI

must nonetheless comply with applicable Federal group market consumer protections and

requirements for comprehensive coverage, unless the coverage satisfies the requirements of one

or more types of group market excepted benefits.

Because STLDI is not individual health insurance coverage, it is generally exempt from

the Federal individual market consumer protections and requirements for comprehensive

coverage. STLDI is not subject to PHS Act provisions that apply to individual health insurance

coverage under the ACA including, for example, the prohibition of preexisting condition

exclusions or other discrimination based on health status (section 2704 of the PHS Act), the

prohibition on discrimination against individual participants and beneficiaries based on health

status (section 2705 of the PHS Act), nondiscrimination in health care (section 2706 of the PHS

Act), and the prohibition on lifetime and annual dollar limits on essential health benefits (section

2711 of the PHS Act). In addition, STLDI is not subject to the Federal consumer protections and

requirements added to the PHS Act by other laws that apply to individual health insurance

The definition of individual health insurance coverage (and its exclusion of STLDI) has some limited relevance

with respect to certain provisions that apply to group health plans and group health insurance issuers. For example,

an individual who loses coverage due to moving out of a health maintenance organization (HMO) service area in the

individual market is eligible for a special enrollment period to enroll in a group health plan. See 26 CFR 54.9801-

6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)(i)(B), and 45 CFR 146.117(a)(3)(i)(B).

coverage, including MHPAEA (Pub. L. 110-343, October 3, 2008) (section 2726 of the PHS

Act), and the No Surprises Act, as added by the CAA, 2021. Thus, individuals who enroll in

STLDI are not guaranteed these key consumer protections under Federal law.

The lack of these

key Federal consumer protections is especially problematic when the differences between STLDI

and comprehensive individual health insurance coverage are not readily apparent to consumers.

In 1997, the Departments issued interim final rules implementing the portability and

renewability requirements of HIPAA (1997 HIPAA interim final rules).

Those interim final

rules included definitions of individual health insurance coverage, as well as STLDI. That

definition of STLDI, which was finalized in rules issued in 2004 and applied through 2016,

defined “short-term, limited-duration insurance” as “health insurance coverage provided

pursuant to a contract with an issuer that has an expiration date specified in the contract (taking

into account any extensions that may be elected by the policyholder without the issuer’s consent)

that is less than 12 months after the original effective date of the contract.”

To address the issue of STLDI being sold as a type of primary coverage, as well as

concerns regarding possible adverse selection impacts on the individual market risk pools that

were created under the ACA,

the Departments published proposed rules on June 10, 2016, in

the Federal Register titled “Expatriate Health Plans, Expatriate Health Plan Issuers, and

Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-

Duration Insurance” (2016 proposed rules). Those rules proposed to revise the Federal definition

of STLDI by shortening the permitted duration of such coverage, and adopting a consumer

notice provision.

On October 31, 2016, the Departments published final rules in the Federal

Duration Insurance” (2016 final rules).

The 2016 final rules amended the definition of STLDI

Some State laws apply some consumer protections and requirements that parallel those in the ACA to STLDI.

62 FR 16894 (April 8, 1997).

62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see also 69 FR 78720 (December 30, 2004).

See Pub. L. 111-148, March 23, 2010, section 1312(c)(1) and 45 CFR 156.80.

81 FR 38019 (June 10, 2016).

81 FR 75316 (October 31, 2016).

to specify that the maximum coverage period must be less than 3 months, taking into account

any extensions that may be elected by the policyholder with or without the issuer’s consent.

addition, the 2016 final rules stated that the following notice must be prominently displayed in

the contract and in any application materials provided in connection with enrollment in STLDI,

in at least 14 point type:

THIS IS NOT QUALIFYING HEALTH COVERAGE (“MINIMUM ESSENTIAL

COVERAGE”) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE

AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE,

YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.

On June 12, 2017, HHS published a request for information (RFI) in the

Federal Register titled “Reducing Regulatory Burdens Imposed by the Patient Protection and

Affordable Care Act & Improving Healthcare Choices to Empower Patients,”

which solicited

comments about potential changes to existing regulations and guidance that could promote

consumer choice, enhance affordability of coverage for individual consumers, and affirm the

traditional regulatory authority of the States in regulating the business of health insurance,

among other goals.

In response to this RFI, HHS received comments that recommended

maintaining the definition of STLDI adopted in the 2016 final rules, and comments that

recommended expanding the definition to allow for a longer period of coverage. Commenters in

support of maintaining the definition adopted in the 2016 final rules expressed concern that

expanding the definition could leave enrollees in STLDI at risk for significant out-of-pocket

costs and cautioned that expanding the definition of STLDI could facilitate its sale to individuals

as their primary form of health coverage, even though such insurance lacks key Federal

consumer protections that apply to individual health insurance coverage. Commenters in favor of

maintaining the definition in the 2016 final rules also suggested that amending the 2016 final

Id. at 75317 – 75318.

Id.

82 FR 26885 (June 12, 2017).

See also Executive Order 13813 of October 12, 2017, 82 FR 48385 (October 17, 2017) (directing the Secretaries

of the Treasury, Labor and HHS “…to consider proposing regulations or revising guidance, consistent with law, to

expand the availability of [STLDI]. To the extent permitted by law and supported by sound policy, the Secretaries

should consider allowing such insurance to cover longer periods and be renewed by the consumer.”).

rules to include coverage lasting 3 months or more could have the effect of pulling healthier

people out of the individual market risk pools, thereby increasing overall premium costs for

enrollees in individual health insurance coverage and destabilizing the individual market.

In contrast, several other commenters stated that changes to the 2016 final rules may

provide an opportunity to achieve the goals outlined in the RFI (for example, to promote

consumer choice, enhance affordability, and affirm the traditional authority of the States in

regulating the business of insurance). These commenters stated that shortening the permitted

length of STLDI policies in the 2016 final rules had deprived individuals of affordable coverage

options. One commenter explained that due to the increased costs of comprehensive coverage,

many financially stressed individuals could be faced with a choice between purchasing STLDI or

going without any coverage at all. One commenter highlighted the need for STLDI for

individuals who are between jobs for a relatively long period and for whom enrolling in

Consolidated Omnibus Budget Reconciliation Act (COBRA)

continuation coverage is

financially infeasible. Another commenter noted that States have the primary responsibility to

regulate STLDI and encouraged the Departments to defer to the States’ authority with respect to

such coverage.

On February 21, 2018, the Departments published proposed rules in the Federal Register

titled “Short-Term, Limited-Duration Insurance” (2018 proposed rules) in which the

Departments proposed changing the definition of STLDI to have a maximum coverage period of

less than 12 months after the original effective date of the contract, taking into account any

extensions that may be elected by the policyholder without the issuer’s consent.

Among other

things, the Departments solicited comments on whether the maximum length of STLDI should

be less than 12 months or some other duration and under what conditions issuers should be able

Pub. L. 99-272, April 7, 1986. COBRA added parallel provisions at Code section 4980B, ERISA sections 601-

608, and PHS Act sections 2201-2208.

83 FR 7437 (February 21, 2018).

to allow such coverage to continue for 12 months or longer.

In addition, the Departments

proposed to revise the content of the consumer notice that must appear in the contract and any

application materials provided in connection with enrollment in STLDI. The 2018 proposed rules

included two variations of the consumer notice—one for policies that had a coverage start date

before January 1, 2019, and the other for policies that had a coverage start date on or after

January 1, 2019, the latter of which excluded language referencing the individual shared

responsibility payment (which was reduced to $0 for months beginning after December

2018).

Some commenters on the 2018 proposed rules acknowledged that STLDI fills an

important role by providing temporary coverage but stated that STLDI should not take the place

of comprehensive coverage. These commenters expressed concern that allowing STLDI to be

marketed as a viable alternative to comprehensive coverage would subject uninformed

consumers to potentially severe financial risks. Commenters who opposed the proposed changes

to the definition also expressed concern that such plans would siphon off healthier individuals

from the market for individual health insurance coverage, thereby raising premiums for

individual health insurance coverage.

Many of these commenters also expressed concerns about the lack of protections for

consumers who purchase STLDI, stating that such policies are not a viable option for people

with serious or chronic medical conditions due to potential coverage exclusions and benefit

limitations in STLDI policies. These commenters further observed that STLDI policies can

discriminate against individuals with serious illnesses or preexisting conditions, including

individuals with mental health and substance use disorders, older consumers, women,

transgender patients, persons with gender identity-related health concerns, and victims of rape

Id. at 7441.

Id. at 7440-7441.

Pub. L. 115–97, December 22, 2017.

and domestic violence. Many of these commenters also expressed concern about aggressive and

deceptive marketing practices utilized by marketers of STLDI.

Other commenters highlighted the important role that STLDI could play in providing

temporary coverage to individuals who would otherwise be uninsured. These commenters, who

supported the proposed changes to the definition, also noted that such changes would allow

purchasers of STLDI to obtain the coverage they want at a more affordable price for a longer

period.

With respect to the maximum length of the initial contract term for STLDI, most

commenters opposed extending the maximum duration beyond 3 months. Others suggested

periods such as less than 6 or 8 months. However, most commenters who supported extending

the maximum initial contract term beyond 3 months suggested it should be 364 days. A few

commenters suggested more than 1 year. Other commenters stated the maximum length of

coverage should be left to the States. Commenters who supported the 2018 proposed rules

generally favored permitting renewals of STLDI policies, while those who opposed the

2018 proposed rules generally opposed permitting such renewals.

After reviewing comments and feedback received from interested parties, on

August 3, 2018, the Departments published final rules in the Federal Register titled

“Short-Term, Limited-Duration Insurance” (2018 final rules)

with some modifications from the

2018 proposed rules. Specifically, in the 2018 final rules, the Departments amended the

definition of STLDI to provide that STLDI is coverage with an initial term specified in the

contract that is less than 12 months after the original effective date of the contract, and taking

into account renewals or extensions, has a duration of no longer than 36 months in total.

The

2018 final rules also finalized the provision that issuers of STLDI must display one of two

versions of a notice prominently in the contract and in any application materials provided in

83 FR 38212 (August 3, 2018).

Id.

connection with enrollment in such coverage, in at least 14-point type. Under the 2018 final

rules, the notice must read as follows (with the final two sentences omitted for policies sold on or

after January 1, 2019)

This coverage is not required to comply with certain Federal market requirements for

health insurance, principally those contained in the Affordable Care Act. Be sure to check

your policy carefully to make sure you are aware of any exclusions or limitations

regarding coverage of preexisting conditions or health benefits (such as hospitalization,

emergency services, maternity care, preventive care, prescription drugs, and mental

health and substance use disorder services). Your policy might also have lifetime and/or

annual dollar limits on health benefits. If this coverage expires or you lose eligibility for

this coverage, you might have to wait until an open enrollment period to get other health

insurance coverage. Also, this coverage is not “minimum essential coverage.” If you

don’t have minimum essential coverage for any month in 2018, you may have to make a

payment when you file your tax return unless you qualify for an exemption from the

requirement that you have health coverage for that month.

D. Independent, Noncoordinated Excepted Benefits: Hospital Indemnity or Other Fixed

Indemnity Insurance

Section 9831 of the Code, section 732 of ERISA, and sections 2722(b)-(c) and 2763 of

the PHS Act provide that the respective Federal consumer protections and requirements for

comprehensive coverage do not apply to any individual coverage or any group health plan (or

group health insurance coverage offered in connection with a group health plan) in relation to its

provision of certain types of benefits, known as “excepted benefits.” These excepted benefits are

described in section 9832(c) of the Code, section 733(c) of ERISA, and section 2791(c) of the

PHS Act.

HIPAA defined certain types of coverage as “excepted benefits” that were exempt from

its portability requirements.

The same definitions are applied to describe benefits that are not

required to comply with the ACA requirements.

There are four statutory categories of excepted

See id. at 38222-38225.

See sections 9831(b) – (c) and 9832(c) of the Code, sections 732(b) – (c) and 733(c) of ERISA, and sections

2722(b) – (c), 2763 and 2791(c) of the PHS Act.

Section 1551 of the ACA. See also section 1563(a) and (c)(12) of the ACA. Excepted benefits are also not subject

to the consumer protections and requirements added by other Federal laws that apply to comprehensive coverage,

including MHPAEA, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights

Act, the Children’s Health Insurance Program Reauthorization Act of 2009, Michelle’s Law, and Division BB of the

CAA, 2021.

benefits: independent, noncoordinated excepted benefits, which are the subject of these final

rules; benefits that are excepted in all circumstances;

limited excepted benefits;

and

supplemental excepted benefits.

The category “independent, noncoordinated excepted benefits” includes coverage for

only a specified disease or illness (such as cancer-only policies) and hospital indemnity or other

fixed indemnity insurance. These benefits are excepted under section 9831(c)(2) of the Code,

section 732(c)(2) of ERISA, and section 2722(c)(2) of the PHS Act only if all of the following

conditions are met: (1) the benefits are provided under a separate policy, certificate, or contract

of insurance; (2) there is no coordination between the provision of such benefits and any

exclusion of benefits under any group health plan maintained by the same plan sponsor; and (3)

the benefits are paid with respect to an event without regard to whether benefits are provided

with respect to such event under any group health plan maintained by the same plan sponsor or,

with respect to individual coverage, under any health insurance coverage maintained by the same

health insurance issuer.

In addition, under existing regulations, hospital indemnity and other

fixed indemnity insurance in the group market must pay a fixed dollar amount per day (or other

period) of hospitalization or illness, regardless of the amount of expenses incurred, to be

considered an excepted benefit.

By contrast, in the individual market, under existing

Under section 9832(c)(1) of the Code, section 733(c)(1) of ERISA, and section 2791(c)(1) of the PHS Act, this

category includes, for example, accident and disability income insurance, automobile medical payment insurance,

liability insurance and workers compensation, as well as “[o]ther similar insurance coverage, specified in

regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.”.

Under section 9832(c)(2) of the Code, section 733(c)(2) of ERISA, and section 2791(c)(2) of the PHS Act, this

category includes limited scope vision or dental benefits, benefits for long-term care, nursing home care, home

health care, or community-based care, or other, similar limited benefits specified by the Departments through

regulation.

Under section 9832(c)(4) of the Code, section 733(c)(4) of ERISA, and section 2791(c)(4) of the PHS Act, this

category includes Medicare supplemental health insurance (also known as Medigap), TRICARE supplemental

programs, or “similar supplemental coverage provided to coverage under a group health plan.” To be considered

“similar supplemental coverage” and thus an excepted benefit, the coverage, whether offered in the group or

individual market, must supplement coverage provided under a group health plan. This category does not include

coverage that supplements individual health insurance coverage. 26 CFR 54.9831-1(c)(5), 29 CFR 2590.732(c)(5),

45 CFR 146.145(b)(5) and 148.220(b)(7).

See also section 2763(b) of the PHS Act (providing that “[the] requirements of this part [related to the HIPAA

individual market reforms] shall not apply to any health insurance coverage in relation to its provision of excepted

benefits described in paragraph (2), (3), or (4) of section 2791(c) if the benefits are provided under a separate policy,

certificate or contract of insurance.”).

26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4).

regulations, hospital indemnity and other fixed indemnity insurance must also pay benefits in a

fixed dollar amount, regardless of the amount of expenses incurred, to be considered an excepted

benefit, but is permitted to pay on either a per period of hospitalization or illness, or a per-service

basis (for example, $100/day or $50/visit).

The amendments to the regulations regarding independent, noncoordinated excepted

benefits coverage that were proposed in the 2023 proposed rules and those finalized in these final

rules address the conditions that must be met for hospital indemnity and other fixed indemnity

insurance in the group or individual markets to be considered excepted benefits under the Federal

regulations.

Like other forms of excepted benefits, fixed indemnity excepted benefits coverage does

not provide comprehensive coverage. Rather, its primary purpose is to provide income

replacement benefits.

Benefits under this type of coverage are paid in a flat (“fixed”) cash

amount following the occurrence of a health-related event, such as a period of hospitalization or

illness, subject to the terms of the contract. In addition, benefits are provided at a pre-determined

level regardless of any health care costs incurred by a covered individual with respect to the

health-related event. Although a benefit payment may equal all or a portion of the cost of care

related to an event, it is not necessarily designed to do so, and the benefit payment is made

without regard to the amount of health care costs incurred.

45 CFR 148.220(b)(4)(iii).

As discussed further in section I.D.2 of this preamble, the existing individual market regulation also provides that

hospital indemnity and other fixed indemnity insurance cannot coordinate between the provision of benefits and an

exclusion of benefits under any health coverage to be considered an excepted benefit. See 45 CFR 148.220(b)(4)(ii).

The original version of HIPAA that the House Ways & Means Committee referred to the House floor referred to

hospital indemnity or other fixed indemnity insurance as a “hospital or fixed indemnity income-protection policy”

(emphasis added). See H.R. Rep. No. 104-496 part I, at 32 (1996), available at:

https://www.govinfo.gov/content/pkg/CRPT-104hrpt496/pdf/CRPT-104hrpt496-pt1.pdf. See also 79 FR 15818

(March 21, 2014) (“The primary reason fixed indemnity insurance is considered to be an excepted benefit…is that

its primary purpose is not to provide major medical coverage but to provide a cash-replacement benefit for those

individuals with other health coverage.”).

Jost, Timothy (2017). “ACA Round-Up: Market Stabilization, Fixed Indemnity Plans, Cost Sharing Reductions,

and Penalty Updates,” Health Affairs, available at:

https://www.healthaffairs.org/do/10.1377/forefront.20170208.058674/full. (“Fixed indemnity coverage is excepted

benefit coverage that pays a fixed amount per-service or per-time period of service without regard to the cost of the

service or the type of items or services provided.”).

Traditionally, benefits under fixed indemnity excepted benefits coverage are paid directly

to a policyholder, rather than to a health care provider or facility. The policyholder has discretion

over how to use such benefits – including using the payment to cover non-medical expenses,

such as childcare or transportation – that may or may not be related to the event that precipitated

the payment.

1. Group Market Regulations and Guidance

The Departments’ 1997 interim final rules implementing the portability and renewability

requirements of HIPAA codified at 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and

45 CFR 146.145(b)(4) established requirements for hospital indemnity and other fixed indemnity

insurance to qualify as an excepted benefit in the group market. These requirements, which were

effective until February 27, 2005, provided that coverage for hospital indemnity or other fixed

indemnity insurance is excepted only if it meets each of the following conditions: (1) the benefits

are provided under a separate policy, certificate or contract of insurance; (2) there is no

coordination between the provision of the benefits and an exclusion of benefits under any group

health plan maintained by the same plan sponsor; and (3) the benefits are paid with respect to an

event without regard to whether benefits are provided with respect to the event under any group

health plan maintained by the same plan sponsor.

The Departments’ group market regulations for fixed indemnity excepted benefits

coverage were first amended in the 2004 HIPAA group market final rules. Those amendments

added language to further clarify that to be hospital indemnity or other fixed indemnity insurance

that is an excepted benefit, the insurance must pay a fixed dollar amount per day (or per other

time period) of hospitalization or illness (for example, $100/day) regardless of the amount of

expenses incurred.

An example was also added as part of these amendments illustrating that a

America’s Health Insurance Plans (2019). “Supplemental Health Insurance: Hospital or Other Fixed Indemnity,

Accident-Only, Critical Illness,” available at: https://www.ahip.org/documents/Supplemental-Health-Insurance-Fast-

Facts.pdf.

62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971 (April 8, 1997).

69 FR 78720 at 78735, 78762, 78780, and 78798 – 78799 (December 30, 2004).

policy providing benefits only for hospital stays at a fixed percentage of hospital expenses up to

a maximum amount per day does not qualify as an excepted benefit.

As explained in the

2004 HIPAA group market final rules, the result is the same even if, in practice, the policy pays

the maximum for every day of hospitalization.

The Departments later released Frequently Asked Questions (FAQ) on January 24, 2013,

to offer additional guidance on the types of hospital indemnity or other fixed indemnity

insurance that meet the criteria for fixed indemnity excepted benefits coverage.

The

Departments issued the FAQ in response to reports that policies were being advertised as fixed

indemnity coverage, but were paying a fixed amount on a per-service basis (for example, per

doctor visit or surgical procedure) rather than a fixed amount per period (for example, per day or

per week). The FAQ affirmed that, under the 2004 HIPAA group market final rules, to qualify as

fixed indemnity excepted benefits coverage, the policy must pay benefits on a per-period basis as

opposed to on a per-service basis.

The FAQ also affirmed that group health insurance coverage

that provides benefits in varying amounts based on the type of procedure or item, such as the

type of surgery actually performed or prescription drug provided, does not qualify as fixed

indemnity excepted benefits coverage because it does not meet the condition that benefits be

provided on a per-period basis, regardless of the amount of expenses incurred.

The Departments proposed amendments to the group market regulations for fixed

indemnity excepted benefits coverage in the 2016 proposed rules.

As explained in those

proposed rules, the Departments were concerned that some individuals may mistake these

policies for comprehensive coverage that would be considered MEC.

To address this confusion,

Id. See also 26 CFR 54.9831-1(c)(4)(iii), 29 CFR 2590.732(c)(4)(iii), and 45 CFR 146.145(b)(4)(iii).

Id.

Frequently Asked Questions about Affordable Care Act Implementation (Part XI) (Jan. 24, 2013), Q7, available

at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and

https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.

Id.

81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-38046 (June 10, 2016).

Id. at 38031-38032.

the Departments proposed to adopt a notice provision to inform enrollees and potential enrollees

that the coverage is a supplement to, rather than a substitute for, comprehensive coverage, and

also proposed to add two illustrative examples to further clarify the condition that benefits must

be provided on a per-period basis.

The Departments also requested comments on whether to

more substantively align the rules for hospital indemnity or other fixed indemnity insurance in

the group and individual markets.

After consideration of comments, the Departments did not

finalize the proposed changes to the group market regulation but noted their intention to address

hospital indemnity and other fixed indemnity insurance in future rulemaking.

2. Individual Market Regulations and Guidance

HHS also issued an interim final rule in 1997 establishing the regulatory framework for

the HIPAA individual market Federal requirements and addressing the requirements for hospital

indemnity and other fixed indemnity insurance to qualify as an excepted benefit in the individual

market.

The initial HIPAA individual market fixed indemnity excepted benefits coverage

regulation, which was effective until July 27, 2014, provided an exemption from the Federal

individual market consumer protections and requirements for comprehensive coverage if the

hospital indemnity or other fixed indemnity insurance provided benefits under a separate policy,

certificate, or contract of insurance and met the noncoordination-of-benefits requirements

outlined in the HHS group market excepted benefits regulations.

Following issuance of the Departments’ January 24, 2013 FAQ,

State insurance

regulators and industry groups representing health insurance issuers expressed concerns that

prohibiting hospital indemnity and other fixed indemnity insurance from payment on a per-

Id. at 38031-38032, 38038, 38042-38043, and 38045-38046.

As described in section I.D.2 of this preamble, HHS amended the individual market fixed indemnity excepted

benefits coverage regulation to provide additional flexibility, subject to several additional requirements that do not

apply in the group market. 79 FR 30239 (May 27, 2014).

81 FR 75316 at 75317 (October 31, 2016).

62 FR 16985 at 16992 and 17004 (April 8, 1997).

Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C).

Frequently Asked Questions about Affordable Care Act Implementation (Part XI) (Jan. 24, 2013), available at:

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and

https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.

service basis to qualify as an excepted benefit could limit consumer access to an important

supplemental coverage option.

Based on this feedback, HHS announced in an FAQ released in

January 2014 that it intended to propose amendments to the individual market fixed indemnity

excepted benefits coverage regulation to allow hospital indemnity or other fixed indemnity

insurance sold in the individual market to be considered an excepted benefit if four conditions

were met.

First, such coverage would be sold only to individuals who have other health

coverage that is MEC, within the meaning of section 5000A(f) of the Code. Second, no

coordination between the provision of benefits and an exclusion of benefits under any other

health coverage would be permitted. Third, benefits would be paid in a fixed dollar amount

regardless of the amount of expenses incurred and without regard to whether benefits are

provided with respect to an event or service under any other health insurance coverage. Finally, a

notice would have to be prominently displayed to inform policyholders that the coverage is not

MEC and would not satisfy the individual shared responsibility requirements of section 5000A

of the Code. HHS explained that if these proposed revisions were implemented, hospital

indemnity or other fixed indemnity insurance in the individual market would no longer have to

pay benefits solely on a per-period basis to qualify as an excepted benefit.

In the proposed rule, titled “Patient Protection and Affordable Care Act; Exchange and

Insurance Market Standards for 2015 and Beyond” (2014 proposed rule), HHS proposed to

amend the criteria in 45 CFR 148.220 for fixed indemnity insurance to be treated as an excepted

benefit in the individual market.

Consistent with the framework outlined in the January 2014

FAQ, the amendments proposed to eliminate the requirement that individual market fixed

indemnity excepted benefits coverage must pay benefits only on a per-period basis (as opposed

While the FAQ only addressed fixed indemnity insurance sold in the group market, the same statutory framework

and legal analysis also applies to hospital indemnity and fixed indemnity insurance sold in the individual market.

Frequently Asked Questions about Affordable Care Act Implementation (Part XXVIII) and Mental Health Parity

Implementation (Jan. 9, 2014), Q11, available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-

activities/resource-center/faqs/aca-part-xviii.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-

FAQs/aca_implementation_faqs18.

79 FR 15807 at 15818-15820, 15869 (March 21, 2014).

to a per-service basis) and instead proposed to require, among other things, that it be sold only as

secondary to other health coverage that is MEC to qualify as an excepted benefit.

On July 28, 2014, in the rule titled “Patient Protection and Affordable Care Act;

Exchange and Insurance Market Standards for 2015 and Beyond” (2014 final rule), HHS

finalized the proposed amendments to 45 CFR 148.220(b)(4) with some modifications. Pursuant

to the finalized amendments, hospital indemnity or other fixed indemnity insurance in the

individual market may qualify as fixed indemnity excepted benefits coverage if payments are

made on a per-period and/or per-service basis subject to several additional requirements that do

not apply to fixed indemnity excepted benefits coverage in the group market.

Under 45

CFR 148.220(b)(4)(i), to qualify as excepted benefits coverage, benefits under an individual

market hospital indemnity or other fixed indemnity insurance policy may only be provided to

individuals who attest in their application that they have other health coverage that is MEC

within the meaning of section 5000A(f) of the Code, or that they are treated as having MEC due

to their status as a bona fide resident of any possession of the United States pursuant to section

5000A(f)(4)(B) of the Code.

Further, to qualify as an excepted benefit,

45 CFR 148.220(b)(4)(iv) outlines specific notice language that must be prominently displayed

in the application materials for individual market hospital indemnity or other fixed indemnity

insurance. Finally, consistent with the group market fixed indemnity excepted benefits coverage

regulations, 45 CFR 148.220(b)(4)(ii) implements the statutory noncoordination standard and

requires that there is no coordination between the provision of benefits under the individual

market fixed indemnity excepted benefits insurance policy and an exclusion of benefits under

any other health coverage.

Id.

79 FR 30239 (May 27, 2014).

As discussed later in this section and in section III.B.2 of this preamble, the U.S. Court of Appeals for the District

of Columbia vacated the requirement at 45 CFR 148.220(b)(4)(i) that an individual attest to having MEC prior to

purchasing a hospital indemnity or other fixed indemnity policy in order for the policy to qualify as an excepted

benefit. Central United Life Insurance Company v. Burwell, 827 F.3d 70 (D.C. Cir. 2016).

HHS made these changes in the 2014 final rule for two reasons. First, as stated

previously, interested parties, including State insurance regulators and industry groups

representing health insurance issuers, communicated to HHS that fixed indemnity plans that paid

benefits on a per-service basis were widely available as a complement to comprehensive

coverage in the group and individual markets. The National Association of Insurance

Commissioners (NAIC) also expressed that State insurance regulators believed fixed indemnity

plans that paid benefits on a per-service basis provided consumers an important supplemental

coverage option by helping consumers that purchase MEC pay for out-of-pocket costs.

Second,

beginning in 2014, most consumers were required to have MEC to avoid being subject to an

individual shared responsibility payment under section 5000A of the Code. HHS adopted the

MEC attestation requirement to prevent fixed indemnity excepted benefits coverage in the

individual market from being offered as a substitute for comprehensive coverage while also

accommodating the concerns of interested parties who supported allowing fixed indemnity

excepted benefits coverage in the individual market to pay benefits on a per-service basis, rather

than only on a per-period basis.

However, in its 2016 decision in Central United Life Insurance

Company v. Burwell, the U.S. Court of Appeals for the District of Columbia invalidated the

requirement at 45 CFR 148.220(b)(4)(i) that an individual must attest to having MEC prior to

purchasing fixed indemnity excepted benefits coverage in the individual market.

The Court did

not engage in a severability analysis to determine whether HHS would have intended to leave the

remaining provisions of the regulation in place, and left intact the language permitting fixed

indemnity excepted benefits coverage in the individual market to provide benefits on a per-

service basis.

National Association of Insurance Commissioners (2013). “Letter to Secretaries of Labor, Treasury, and Health

and Human Services,” available at: https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541.

(“State regulators believe hospital and other fixed indemnity coverage with variable fixed amounts based on service

type could provide important options for consumers as supplemental coverage. Consumers who purchase

comprehensive coverage that meets the definition of ‘minimum essential coverage’ may still wish to buy fixed

indemnity coverage to help meet out-of-pocket medical and other costs.”).

79 FR 30239 at 30255 (May 27, 2014).

827 F.3d 70 (D.C. Cir. July 1, 2016).

E. Tax Treatment and Substantiation Requirements for Amounts Received from Fixed

Indemnity Insurance and Certain Other Arrangements

As part of the 2023 proposed rules, the Treasury Department and the IRS proposed

amendments to 26 CFR 1.105-2. For the reasons that follow, the Treasury Department and the

IRS are not finalizing the proposed amendments at this time.

Hospital indemnity or other fixed indemnity insurance, as well as coverage only for a

specified disease or illness, generally are considered “accident or health insurance” under

sections 104, 105, and 106 of the Code, regardless of whether they are “excepted benefits” as

defined in section 9832(c) of the Code. Premiums paid by an employer (including by salary

reduction pursuant to section 125 of the Code) for accident or health insurance are excluded from

an employee’s gross income under section 106(a) of the Code. The Treasury Department and the

IRS also have recognized the ability of employers and employees to agree to include them in

employees’ gross income notwithstanding section 106(a) of the Code.

Amounts received through accident or health insurance are excluded from an employee’s

gross income under section 104(a)(3) of the Code if the premiums were paid on an after-tax

basis. However, amounts received are included in an employee’s gross income if the amounts are

attributable to contributions by an employer that were excluded from the employee’s gross

income under section 106(a) of the Code. Whether amounts received by an employee through

accident or health insurance are excluded from an employee’s gross income where the premiums

or contributions were paid on a pre-tax basis is determined under section 105. Section 105(a) of

the Code provides that such amounts are included in gross income except as otherwise provided

in section 105 of the Code. Section 105(b) of the Code excludes such amounts from gross

income amounts if they are paid to reimburse the employee’s expenses for medical care (as

See, for example, IRS Rev. Rul. 2004-55, which concludes that long-term disability benefits received by an

employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the

employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to

after-tax employee contributions and are excludable from the employee's gross income under section 104(a)(3) of

the Code.

defined in section 213(d) of the Code). Under 26 CFR 1.105-2, this means the exclusion “applies

only to amounts which are paid specifically to reimburse the taxpayer for expenses incurred by

him for the prescribed medical care.”

The 2023 proposed amendments to 26 CFR 1.105-2 would provide that the exclusion

from gross income under section 105(b) of the Code does not apply to amounts that are paid

without regard to the amount of incurred medical expenses as defined in section 213(d) of the

Code. The proposed amendments also would clarify that, consistent with guidance issued by the

Treasury Department and the IRS relating to certain specific types of health plans, the

substantiation requirements for qualified medical expenses apply to reimbursements under all

types of accident and health plans.

Finally, the proposed amendments would update several

cross-references in 26 CFR 1.105-2 to reflect statutory changes since the rules were issued in

1956.

The Treasury Department and the IRS issued the proposed amendments because

uncertainty regarding the exclusion under section 105(b) of the Code has resulted in inconsistent

treatment by taxpayers of benefits under different types of accident and health plans and has

encouraged some taxpayers to apply the exclusion to situations where the amount or even the

existence of medical expenses is doubtful. The Treasury Department and the IRS also are

concerned that uncertainty regarding the related Federal Insurance Contributions Act (FICA)

Additionally, an employer-provided accident or health insurance policy or plan that reimburses an employee for

any expenses incurred for medical care is a group health plan subject to section 4980B of the Code, regardless of

whether the reimbursements are included in an employee’s income under section 105(a) of the Code or excluded

under section 104(a)(3) or 105(b) of the Code. In contrast, a policy or plan that does not reimburse an employee for

any expenses incurred for medical care is not a group health plan subject to section 4980B of the Code (and section

105(b) of the Code cannot apply to it).

See, for example, 84 FR 28888, 28917 (June 20, 2019) (describing substantiation requirements for employer-

sponsored health reimbursement arrangements); see also Q44-55 of IRS Notice 2017-67, 2017-47 IRB 517; Prop.

Treas. Reg. § 1.125-6(b)(4) (2007); IRS Notice 2002-45, 2002-2 CB 93.

The current rules reference section 105(d) of the Code, which has been repealed. The rules also reference the

definition of a dependent in section 152(f) of the Code which may, in some circumstances, not include children up to

the age of 26 that must be eligible to enroll in a group health plan or group or individual health insurance coverage

under section 2714 of the PHS Act (which is incorporated by reference in section 9815 of the Code) if the plan or

coverage makes available dependent coverage of children.

Subtitle C, chapter 21 of the Code.

and Federal Unemployment Tax Act (FUTA)

exclusions, and the Federal income tax

withholding rules,

has resulted in instances where no FICA, FUTA, or Federal income taxes are

withheld from or paid with respect to taxable benefits from accident and health plans and

policies by either employers or payors. Although these issues are not limited to fixed indemnity

plans and policies, the Treasury Department’s and the IRS’s concerns have recently escalated

after identifying an increasing number of arrangements, some involving fixed indemnity plans

and policies, that distribute cash benefit payments, purportedly for medical expenses, even if any

expenses incurred may already have been reimbursed through other coverage, or participants do

not incur any medical expenses within the meaning of section 213(d) of the Code. In some cases,

no medical expenses are incurred and participants simply complete certain health-related

activities. Benefit payments from such accident and health plans that are not made on account of

medical expenses incurred generally would not qualify for exclusion from gross income, FICA,

FUTA, or Federal income tax withholding.

The Treasury Department and the IRS received comments in support of and in opposition

to the proposed amendments to 26 CFR 1.105-2. Commenters who opposed the proposed

amendments primarily argued that the exclusion under section 105(b) of the Code should apply

with respect to the amount of any medical expenses associated with the health-related event that

precipitates payments under accident or health insurance, even if the amount paid is determined

without regard to the amount of actual medical expenses incurred (as is required for hospital

indemnity or other fixed indemnity insurance to be considered an excepted benefit). These

commenters generally argued that only the amount in excess of the medical expenses associated

with the health-related event should be included in gross income.

The preamble to the 2023 proposed rules noted that, if the proposed amendments to

26 CFR 1.105-2 were finalized, taxpayers would need to consider the impact the proposal would

Subtitle C, chapter 23 of the Code.

Subtitle C, chapter 24 of the Code.

have on determinations of whether amounts received under accident and health plans constitute

wages for employment tax and income tax withholding purposes. Many commenters responded

that the proposed amendments would, if finalized, prompt the need for additional guidance

regarding collecting and paying employment taxes on some or all of the amounts paid through

accident or health insurance that are not excluded from gross income, and proper reporting of

such amounts on the employee’s Form W-2. Commenters also requested further clarification on

how incurred medical expenses must be substantiated.

The Treasury Department and the IRS intend to address these issues in more detail in

future guidance. Accordingly, to provide more time to study the issues and concerns raised by

commenters, the Treasury Department and the IRS are not finalizing the proposed amendments

to 26 CFR 1.105-2 at this time. No inference should be drawn regarding whether or the extent to

which the Treasury Department or the IRS agree with any comments on the scope of section

105(b) of the Code based on this decision.

IRS compliance efforts regarding the exclusion from gross income under section 105(b)

of the Code will continue to assist taxpayers to satisfy their existing tax responsibilities.

Employers are reminded that amounts received through accident or health insurance are not

taxable if premiums for the coverage are paid on an after-tax basis, thereby avoiding many of the

practical concerns relating to benefits that do not meet the criteria to be excluded from gross

income. The Treasury Department and IRS understand that is how most premiums for hospital

indemnity or other fixed indemnity insurance are paid.

II. Promoting Access to High-Quality, Affordable, and Comprehensive Coverage

The Departments recognize that STLDI can provide temporary health coverage for

individuals who are experiencing brief periods without comprehensive coverage (for example,

due to application of a waiting period for employer coverage). They also recognize that fixed

indemnity excepted benefits coverage can provide consumers with income replacement that can

be used to cover out-of-pocket expenses not covered by comprehensive coverage or to defray

non-medical expenses (for example, mortgage or rent) upon the occurrence of a health-related

event. Both STLDI and fixed indemnity excepted benefits coverage generally provide limited

benefits at lower premiums than comprehensive coverage,

and enrollment is typically available

at any time (sometimes subject to medical underwriting) rather than being restricted to open and

special enrollment periods. However, the Departments are concerned about the financial and

health risks that consumers face if they use either form of coverage as a substitute for

comprehensive coverage, particularly as a long-term substitute. Consumers who do not

understand key differences between STLDI, fixed indemnity excepted benefits coverage, and

comprehensive coverage may unknowingly take on significant financial and health risks if they

purchase STLDI or fixed indemnity excepted benefits coverage under the misapprehension that

such products provide comprehensive coverage. Consumer confusion can be exacerbated when

the products are designed in ways that resemble comprehensive coverage. As discussed further in

this section II of this preamble, given significant changes in the legal landscape and market

conditions since the Departments last addressed STLDI and fixed indemnity excepted benefits

coverage, and the low value that STLDI and fixed indemnity excepted benefits coverage provide

to some consumers when used as a substitute for comprehensive coverage, the Departments have

determined that it is necessary and appropriate to amend the existing Federal regulations

governing both types of coverage to more clearly distinguish them from comprehensive coverage

and increase consumer awareness of coverage options that include the full range of Federal

consumer protections and requirements.

A. Access to Affordable Coverage

In the preamble to the 2018 final rules, the Departments explained the decision to amend

the definition of STLDI to expand the initial term and total duration of such policies by citing

Although it is typically true that the unsubsidized premium price for comprehensive coverage is greater than

STLDI or fixed indemnity excepted benefits coverage, consistent with the greater level of benefits provided under

comprehensive coverage, see the additional discussion in this section II of this preamble regarding the availability of

financial subsidies for eligible individuals to reduce the premium and out-of-pocket costs for comprehensive

coverage purchased on an Exchange.

STLDI as an important means to provide more affordable coverage options and more choices for

consumers.

The Departments cited a 21 percent increase in individual health insurance

coverage premiums between 2016 and 2017, and a 20 percent decrease in average monthly

enrollment for individuals who did not receive PTC, along with a 10 percent overall decrease in

monthly enrollment during the same period.

Additionally, the Departments noted that in 2018

about 26 percent of enrollees (living in 52 percent of counties) had access to just one issuer on

the Exchange.

Since the publication of the 2018 final rules, comprehensive coverage for individuals has

generally become more accessible and affordable. For example, a study examining issuer

participation trends from 2014 to 2021 in every county in the United States found that the

number of consumers with multiple issuer options for individual health insurance coverage on

the Exchanges has grown consistently since 2018. In 2021, 78 percent of enrollees (living in

46 percent of counties) had a choice of three or more health insurance issuers, up from

67 percent of enrollees in 2020, 58 percent of enrollees in 2019, and 46 percent of enrollees in

2018. Only 3 percent of enrollees (residing in 10 percent of counties) resided in single-issuer

counties in 2021 – down from 26 percent of enrollees (residing in 52 percent of counties) in

2018.

Issuer participation in the Exchanges has continued to trend positively in recent years,

with the average number of issuers offering individual health insurance coverage on the

Exchanges per State increasing from 5 in 2021 to 6 in 2024.

The Centers for Medicare &

Medicaid Services (CMS) reported that a record 21.3 million people enrolled in Exchange

83 FR 38212 at 38217 (October 2, 2018).

Id. at 38214 (citing CMS (2018). “Trends in Subsidized and Unsubsidized Individual Health Insurance Market

Enrollment,” available at: https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-

Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.)

Id. (citing KFF (2017). “Insurer Participation on ACA Marketplaces, 2014-2018,” now available at:

https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021/.)

McDermott, Daniel and Cynthia Cox (2020). “Insurer Participation on the ACA Marketplaces, 2014-2021,” KFF,

available at: https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-

2021.

See KFF (2024). “Number of Issuers Participating in the Individual Health Insurance Marketplaces, 2014-2024,”

available at: https://www.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-

insurance-marketplace.

coverage during the 2024 Open Enrollment Period, including 5 million consumers

(approximately 24 percent of total enrollments) who were new to Exchanges in 2024, and

16.3 million returning customers.

Nearly 5 million more consumers signed up for coverage

during the 2024 Open Enrollment Period compared to the same period in 2023 (an increase of

more than 30 percent). This follows an increase of approximately 13 percent in 2023 and an

increase of approximately 21 percent in 2022.

The enrollment gains in recent years were

influenced by the expansion of PTC subsidies, as first provided under the ARP and then

extended through 2025 under the IRA, as discussed in section I.A of this preamble.

In an

analysis prior to the passage of the IRA, the Congressional Budget Office stated that if the ARP

subsidies were made permanent, they would attract 4.8 million new people to the Exchanges

each year, and that 2.2 million fewer individuals would be without health insurance, on average,

over the period from 2023 through 2032.

Additionally, on October 13, 2022, the Treasury Department and the IRS issued final

regulations under section 36B of the Code to provide that affordability of employer-sponsored

MEC for family members of an employee is determined based on the employee’s share of the

cost of covering the employee and those family members, not the cost of covering only the

employee (2022 affordability rule).

It was estimated that this rule change, aimed at addressing

the issue often called the “family glitch,” would increase the number of individuals with

PTC-subsidized Exchange coverage by approximately 1 million per year for the next 10 years.

See CMS (2024). “Marketplace 2024 Open Enrollment Period Report: Final National Snapshot,” available at:

https://www.cms.gov/newsroom/fact-sheets/marketplace-2024-open-enrollment-period-report-final-national-

snapshot.

See CMS (2023). “Health Insurance Marketplaces, 2023 Open Enrollment Report,” available at:

https://www.cms.gov/files/document/health-insurance-exchanges-2023-open-enrollment-report-final.pdf.

Although unsubsidized premiums for 2023 increased on average between 2.2 percent and 4.7 percent compared to

the previous year, after 4 years of declines, the expanded PTC subsidies under the IRA largely shielded many

consumers from these premium increases. See Ortaliza, Jared, Justin Lo, Krutika Amin, and Cynthia Cox (2022).

“How ACA Marketplace Premiums Are Changing By County in 2023,” KFF, available at:

https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023.

Congressional Budget Office (2022). “Letter from Phillip L. Swagel to Rep. Mike Crapo, “Re: Health Insurance

Policies,” available at: https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf.

87 FR 61979 (October 13, 2022).

Id. at 61999.

These recent and projected enrollment trends and the availability of the enhanced

subsidies lessen the accessibility and affordability concerns expressed by the Departments in the

preamble to the 2018 final rules regarding the availability of affordable options for

comprehensive coverage, and offer further support for the provisions in these final rules, which

are aimed at helping consumers differentiate between comprehensive coverage and other forms

of more limited health coverage to decide which option is best for them.

Although access to affordable comprehensive coverage has improved in recent years, the

Departments recognize that affordability concerns continue to persist among consumers,

including among consumers who are enrolled in comprehensive coverage. A 2022 national

survey conducted by the Commonwealth Fund found that 29 percent of people with employer-

sponsored coverage and 44 percent of those with coverage purchased in the individual market

(including coverage purchased through an Exchange) were underinsured, meaning that their

coverage did not provide them with affordable access to health care.

As benchmarks for

affordability, the study considered whether out-of-pocket costs over the prior 12 months,

excluding premiums, were equal to 10 percent or more of household income; out-of-pocket costs

over the prior 12 months, excluding premiums, were equal to 5 percent or more of household

income for individuals living under 200 percent of the FPL ($27,180 for an individual or $55,500

for a family of four in 2022); or the deductible constituted 5 percent or more of household

income. The performance of STLDI products along these affordability dimensions has been

proven worse, often to striking degree, as discussed in section II.B of this preamble.

The Departments also recognize that these affordability concerns could be exacerbated

when the expanded PTC subsidies under the IRA end in 2025 or if health expenditures (and

therefore premiums) continue to grow at a relatively high rate.

The Departments are of the view

Collins, Sara, Lauren Haynes, and Relebohile Masitha (2022). “The State of U.S. Health Insurance in 2022:

Findings from the Commonwealth Fund Biennial Health Insurance Survey,” Commonwealth Fund, available at:

https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-

survey.

Regarding trends in national health expenditure, see CMS (2023). “NHE Fact Sheet,” available at:

https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet.

that it is important to ensure consumers have access to a wide range of products that can support

access to affordable health care. However, neither STLDI nor fixed indemnity excepted benefits

coverage represent a complete solution to larger issues of affordable access to health care and

health coverage, and current marketing practices and benefit designs that mimic comprehensive

coverage exacerbates affordability and accessibility concerns. Consumers who enroll in these

plans as a substitute for comprehensive coverage or under the misapprehension that STLDI and

fixed indemnity excepted benefits coverage are a lower-cost equivalent to comprehensive

coverage are at risk of being exposed to significant financial liability in the event of a costly or

unexpected health event, often without knowledge of the risk associated with such coverage.

B. Risks to Consumers

As noted in the introduction to this section II of this preamble, the limitations on benefits

and coverage under STLDI or fixed indemnity excepted benefits coverage may allow some

issuers to offer such coverage at lower monthly premiums than comprehensive coverage. The

Departments are concerned about additional costs to consumers who enroll in STLDI or fixed

indemnity excepted benefits coverage and incur medical expenses that are not covered by such

coverage. The typical limits on coverage provided by STLDI and fixed indemnity excepted

benefits coverage can lead to more and higher uncovered medical bills than consumers enrolled

in comprehensive coverage would incur, exposing consumers with STLDI or fixed indemnity

excepted benefits coverage to greater financial risk.

Healthy consumers who enroll in STLDI or

fixed indemnity excepted benefits coverage as an alternative to comprehensive coverage may not

realize their STLDI or fixed indemnity excepted benefits coverage excludes or limits coverage

for preexisting conditions (including conditions the consumer did not know about when they

Palanker, Dania, JoAnn Volk, and Kevin Lucia (2018). “Short-Term Health Plan Gaps and Limits Leave People at

Risk,” Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2018/short-term-health-plan-

gaps-and-limits-leave-people-risk. (Describing STLDI marketing materials that list coverage limits that would fall

far short of typical costs to a consumer, including $1,000 a day for hospital room and board coverage, $1,250 a day

for the intensive care unit, $50 a day for doctor visits while in the hospital, $100 a day for inpatient substance abuse

treatment, and $250 for ambulance transport).

enrolled), or conditions contracted after enrollment,

such as COVID-19, as discussed in this

section and in section V.B.2.a.

Additionally, a consumer enrolled in STLDI may discover that a newly-diagnosed

medical condition is categorized as a preexisting condition, and related medical expenses will not

be covered by, or will be only partially covered by, their STLDI policy.

For example, a

consumer in Illinois who was diagnosed with Stage IV cancer a month after enrolling in STLDI

was denied coverage for treatment by the STLDI issuer, both for treatments that led to his

successful remission and for a potentially life-saving bone marrow transplant. In his case, the

issuer of his STLDI policy determined that his cancer was a preexisting condition because he had

disclosed experiencing back pain of undiagnosed cause to the broker who sold him his STLDI

policy – leaving him with $800,000 of medical debt and without meaningful health coverage as

he continued to fight his illness.

The financial risk for consumers enrolled in STLDI increases with the length of their

policy, as the longer consumers are enrolled in STLDI, the more likely they are to incur costs

that are not covered. This is especially the case for consumers who encounter newly diagnosed

conditions or have a significant medical event while enrolled in STLDI. Researchers found that

the maximum out-of-pocket health care spending limit for STLDI was on average nearly three

times that of comprehensive coverage in 2020.

A 2020 report found that over 60 percent of the

See Williams, Jackson (2022). “Addressing Low-Value Insurance Products With Improved Consumer

Information: The Case of Ancillary Health Products,” National Association of Insurance Commissioners, Journal of

Insurance Regulation, available at: https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf.

See Lueck, Sarah (2018). “Key Flaws of Short-Term Health Plans Pose Risks to Consumers,” Center on Budget

and Policy Priorities, available at: https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-

risks-to-consumers. See also Hall, Mark and Michael McCue (2022). “Short-Term Health Insurance and the ACA

Market,” Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-

insurance-and-aca-market. See also Partnership to Protect Coverage (2021). “Under-Covered: How ‘Insurance-Like’

Products are Leaving Patients Exposed,” available at: https://www.nami.org/NAMI/media/NAMI-

Media/Public%20Policy/Undercovered_Report_03252021.pdf.

Partnership to Protect Coverage (2021). “Under-Covered: How ‘Insurance-Like’ Products are Leaving Patients

Exposed,” available at:

https://www.nami.org/NAMI/media/NAMIMedia/Public%20Policy/Undercovered_Report_03252021.pdf.

Dieguez, Gabriela and Dane Hansen (2020). “The Impact of Short-term Limited-duration Policy Expansion on

Patients and the ACA Individual Market,” Milliman, available at: https://www.milliman.com/en/insight/the-impact-

of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.

STLDI policies surveyed had a maximum out-of-pocket limit greater than the $7,900 limit that

was permitted for self-only comprehensive coverage in 2019, and 15 percent had limits in excess

of $15,000; as is typical for STLDI, these limits apply only to the coverage period, which in

some cases was only 6 months, compared to the annual limits required under the ACA for

comprehensive coverage.

Consumers enrolled in STLDI who ultimately require medical care

are more likely to incur higher out-of-pocket costs than if they had enrolled in comprehensive

coverage.

Refer to section V.B.2.c of this preamble for additional discussion of the financial

risks to consumers.

As noted in section I.D of this preamble, consumers who enroll in fixed indemnity

excepted benefits coverage as an alternative to comprehensive coverage bear similar risk and

exposure to significant out-of-pocket expenses due to their health care costs exceeding the fixed

cash benefit to which they may be entitled, if benefits are even provided at all for their illness or

injury. Comments received in response to the 2023 proposed rules affirmed the Departments’

concerns by offering several examples of consumer risk and exposure resulting from enrollment

in fixed indemnity insurance. For example, one commenter described a fixed indemnity plan that

advertised that it would pay $25 for a doctor visit, $100 for a diagnostic exam, and $300 for

neonatal intensive care, and contrasted those benefits to one hospital’s pricing schedule for

NICU service, Level 4. The commenter observed that a consumer with such fixed indemnity

insurance alone could still face $8,500 daily for NICU services. Another commenter stated that

indemnity plans that are structured to pay various dollar amounts for different services appear

very similar to comprehensive insurance, even though they offer much less coverage.

Id. See also Palanker, Dania, Kevin Lucia, and Emily Curran (2017). “New Executive Order: Expanding Access

to Short-Term Health Plans Is Bad for Consumers and the Individual Market,” Commonwealth Fund, available at:

https://www.commonwealthfund.org/blog/2017/new-executive-order-expanding-access-short-term-health-plans-

bad-consumers-and-individual. (“When considering the deductible, the best-selling plans have out-of-pocket

maximums ranging from $7,000 to $20,000 for just three months of coverage. In comparison, the ACA limits out-

of-pocket maximums to $7,150 for the entire [2017 calendar] year.”).

Id.

Consumers who enroll in STLDI and fixed indemnity excepted benefits coverage and do

not also have comprehensive coverage may experience financial hardship when their medical

bills are unaffordable.

Notably, the protections against balance billing and out-of-network cost

sharing for certain out-of-network services established under the No Surprises Act, which are

intended to shield consumers from surprise bills that can result in medical debt,

do not apply to

STLDI or fixed indemnity excepted benefits coverage.

Because STLDI is typically subject to

medical underwriting and is not guaranteed renewable, consumers enrolled in STLDI in lieu of

comprehensive coverage may be unable to renew their STLDI policy at the end of the coverage

period. These consumers therefore face the risk of being uninsured until they are eligible to

purchase comprehensive coverage in the individual market during an open enrollment or when a

special enrollment period occurs. It is therefore critical for consumers to understand, prior to

purchase, that STLDI serves better as a bridge between different sources of comprehensive

coverage than as an alternative to comprehensive coverage, and that choosing to substitute

STLDI for comprehensive coverage may reduce access to coverage. Similarly, as noted in

section I.D of this preamble, consumers need to understand, prior to purchase, that fixed

indemnity excepted benefit coverage serves best as an income replacement policy

that

supplements comprehensive coverage by providing financial assistance, rather than serving as an

alternative to comprehensive coverage.

Unaffordable medical debt increasingly impacts members of disadvantaged and marginalized communities. See

Lopes, Lunna, Audrey Kearney, Alex Montero, Liz Hamel, and Mollyann Brodie (2022). “Health Care Debt In The

U.S.: The Broad Consequences Of Medical And Dental Bills,” KFF, available at: https://www.kff.org/health-

costs/report/kff-health-care-debt-survey. See also Himmelstein, David, Samuel Dickman, Danny McCormick, David

Bor, Adam Gaffney, and Steffie Woolhandler (2022). “Prevalence and Risk Factors for Medical Debt and

Subsequent Changes in Social Determinants of Health in the US,” JAMA Network Open, Volume 5, Issue 9,

available at: https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358.

Families USA (2019). “Surprise Medical Bills, Results from a National Survey,” available at:

https://familiesusa.org/wp-content/uploads/2019/11/Surprise-Billing-National-Poll-Report-FINAL.pdf.

See 26 CFR 54.9816-2T, 29 CFR 2590.716-2(b), and 45 CFR 149.20(b).

As an income replacement policy, the policyholder of a fixed indemnity excepted benefits coverage plan typically

has broad discretion in how to use the fixed cash benefits provided, including but not limited to payment for medical

expenses not covered by comprehensive coverage (for example, deductibles, coinsurance, copays) or to defray non-

medical costs (for example, mortgage or rent).

In the preamble to the 2018 final rules, the Departments stated that individuals who

purchased STLDI would potentially experience improved health outcomes and have greater

protection from catastrophic health care expenses than if those individuals were uninsured.

100

However, experience with the COVID-19 public health emergency (PHE)

101

has prompted the

Departments to reassess the degree of protection generally afforded by STLDI and fixed

indemnity excepted benefits coverage, and to reassess the value of a framework that instead

encourages uninsured individuals to purchase comprehensive coverage. Enrollees in STLDI with

COVID-19 typically face significant limitations on coverage for COVID-19 related treatments,

and high out-of-pocket expenses.

102

In addition, neither STLDI nor fixed indemnity excepted

benefits coverage was subject to requirements under section 6001 of the Families First

Coronavirus Response Act (Pub. L. 116-127, March 18, 2020), as amended by the Coronavirus

Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136, March 27, 2020), to

cover COVID-19 diagnostic testing, without cost sharing, furnished during the COVID-19 PHE;

100

83 FR 38212, 38229 (October 2, 2018).

101

On January 31, 2020, HHS Secretary Alex M. Azar II declared that as of January 27, 2020, a nationwide public

health emergency exists as a result of the 2019 novel coronavirus (COVID-19). See HHS Administration for

Strategic Preparedness and Response (January 31, 2020). “Determination That A Public Health Emergency Exists,”

available at: https://aspr.hhs.gov/legal/PHE/Pages/2019-nCoV.aspx. This declaration was last renewed by HHS

Secretary Xavier Becerra on October 13, 2022, following previous renewals on April 21, 2020, July 23, 2020,

October 2, 2020, January 7, 2021, April 15, 2021, July 20, 2021, October 18, 2021, January 14, 2022, April 12,

2022, and July 15, 2022. See “HHS Administration for Strategic Preparedness and Response, Renewal of

Determination That A Public Health Emergency Exists,” available at: https://aspr.hhs.gov/legal/PHE/Pages/covid19-

13Oct2022.aspx. On January 30, 2023, and February 9, 2023, the Biden-Harris Administration announced that it

intended to end the PHE at the end of the day on May 11, 2023. See Executive Office of the President, Office of

Management and Budget (January 30, 2023). “Statement of Administration Policy: H.R. 382 and H.J. Res. 7,”

available at: https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf; HHS

Secretary Xavier Becerra (February 9, 2023). “Letter to U.S. Governors from HHS Secretary Xavier Becerra on

renewing COVID-19 Public Health Emergency (PHE),” available at:

https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-

public-health-emergency.html. The PHE ended at the end of the day on May 11, 2023.

102

See, for example, Curran, Emily, Kevin Lucia, JoAnn Volk, and Dania Palanker (2020). “In the Age of COVID-

19, Short-Term Plans Fall Short for Consumers,” Commonwealth Fund, available at:

https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers. This study

found that STLDI policies provide less financial protection than comprehensive coverage if an enrollee needs

treatment for COVID-19. The study found that among the 12 brochures reviewed for STLDI policies being sold in

Georgia, Louisiana, and Ohio, 11 excluded nearly all coverage for prescription drugs, with some providing limited

coverage of inpatient drugs. The study further found that STLDI imposed high cost sharing, with deductibles

ranging from $10,000 to $12,500 (which did not count toward the enrollees’ maximum out-of-pocket costs) and that

enrollees may be required to meet separate deductibles for emergency room treatment, forcing some enrollees to

face out-of-pocket costs of more than $30,000 over a 6-month period. Additionally, the study found that STLDI did

not cover services related to pre-existing conditions.

or the requirement under section 3203 of the CARES Act to cover qualifying coronavirus

preventive services, including COVID-19 vaccines, without cost sharing.

103

Instead, both of

these important coverage expansions enacted by Congress as part of the nation’s response to the

COVID-19 PHE applied only to comprehensive coverage. Any coverage by STLDI of (or, with

respect to fixed indemnity excepted benefits coverage, benefits provided related to) COVID-19

diagnostic testing or vaccines was subject to the discretion of individual issuers of these policies

and applicable State law. Notably, the Health Resources and Services Administration’s

COVID-19 Coverage Assistance Fund, which reimbursed eligible health care providers for

providing COVID-19 vaccines to underinsured individuals, included enrollees in STLDI and

excepted benefits coverage within the definition of underinsured.

104

The CARES Act also

amended the definition of “uninsured individual” in Social Security Act section 1902(ss) to

include individuals enrolled only in STLDI. Even individuals enrolled in STLDI or fixed

indemnity excepted benefits coverage who are generally healthy are at risk of needing health

care, and thus at risk of incurring unaffordable medical bills at any time. The COVID-19 PHE

103

Additional Policy and Regulatory Revisions in Response to the COVID–19 Public Health Emergency, 85 FR

71142, 71173 (Nov. 6, 2020); See also Departments of the Treasury, Labor, and Health and Human Services. “FAQs

about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act

Implementation Part 42, Q1,” (April 11, 2020), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-

ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-

FAQs.pdf (FAQs Part 42); “FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and

Economic Security Act Implementation Part 50,” (October 4, 2021), available at:

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf and

https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-50.pdf (FAQs Part 50); “FAQs about

Affordable Care Act Implementation Part 51, Families First Coronavirus Response Act and Coronavirus Aid, Relief,

and Economic Security Act Implementation,” (Jan. 10, 2022), available at:

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf and

https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf (FAQs Part 51);

FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act

Implementation Part 52” (February 4, 2022), available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-

ebsa/our-activities/resource-center/faqs/aca-part-52.pdf and https://www.cms.gov/cciio/resources/fact-sheets-and-

faqs/downloads/faqs-part-52.pdf (FAQs Part 52); and “FAQs about Families First Coronavirus Response Act,

Coronavirus Aid, Relief, and Economic Security Act and Health Insurance Portability and Accountability Act

Implementation Part 58” (March 29, 2023), available at: https://www.dol.gov/agencies/ebsa/about-ebsa/our-

activities/resource-center/faqs/aca-part-58 and https://www.cms.gov/cciio/resources/fact-sheets-and-

faqs/downloads/faqs-part-58.pdf (FAQs Part 58). Note that the COVID-19 PHE ended on May 11, 2023.

104

Underinsured individuals are defined for this purpose as having a health plan that either does not include

COVID-19 vaccine administration as a covered benefit or covers COVID-19 vaccine administration but with cost

sharing. See Health Resources and Services Administration. “FAQs for The HRSA COVID-19 Coverage Assistance

Fund,” available at: https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq.

underscored the unpredictability of when the need for medical care will arise, and the importance

of encouraging individuals to enroll in comprehensive coverage.

The Departments have also become aware of potentially deceptive or aggressive

marketing of STLDI and fixed indemnity excepted benefits coverage to consumers who may be

unaware of the coverage limits of these plans or the availability of Federal subsidies that could

reduce the costs of premiums and out-of-pocket health care expenditures for comprehensive

coverage purchased through an Exchange.

105

A recent study that engaged in covert testing of

health insurance sales representatives found evidence of deceptive marketing practices by agents

and brokers who omitted or misrepresented information about the products they were selling.

106

For example, during a phone transaction, a sales representative told the consumer that they were

purchasing a comprehensive health insurance plan, but instead sold the consumer two limited

benefit insurance plans. During the exchange, the consumer repeatedly informed the sales

representative that they had diabetes and had recently been seeking treatment for the condition.

However, the application filled out by the sales representative on the consumer’s behalf stated

that consumer had not been treated for or diagnosed with diabetes for the past 5 years. In another

phone transaction, the sales representative enrolled the consumer in a benefit association offering

a limited benefit indemnity insurance plan. The representative would not provide the consumer

with documentation describing the plan prior to enrollment and stated that the consumer had to

purchase the plan on the day of the call if they wanted to be guaranteed the quoted price. The

Departments note that these concerns are not limited to individual market consumers considering

STLDI or fixed indemnity excepted benefits coverage. Reports that employers are increasingly

105

Palanker, Dania and Kevin Lucia (2021). “Limited Plans with Minimal Coverage Are Being Sold as Primary

Coverage, Leaving Consumers at Risk,” Commonwealth Fund, available at:

https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-

leaving-consumers-risk. (Noting that fixed indemnity insurance may be “bundled” with other non-comprehensive

insurance products in such a way that “the plans look like comprehensive coverage” while still offering limited

benefits). See also Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019). “Seeing Fraud and Misleading

Marketing, States Warn Consumers About Alternative Health Insurance Products,” Commonwealth Fund, available

at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-

about-alternative-health.

106

Government Accountability Office (2020). “Private Health Coverage: Results of Covert Testing for Selected

Offerings,” available at: https://www.gao.gov/products/gao-20-634r.

offering fixed indemnity coverage alongside a plan that offers only a very limited set of primary

or preventive care benefits (or in some cases, as the only form of health coverage) have also

raised concerns with respect to consumers who obtain this health coverage through their

employers.

107

Consumers who are unaware of the coverage limitations of these arrangements, or who are

employed by employers who are similarly unaware, can face overwhelming medical costs if they

require items and services that are not covered by the very limited group health plan. This is

because the fixed indemnity excepted benefits coverage generally provides only fixed cash

benefits that may be far lower than the costs of medical services, rather than coverage intended

to cover most of the costs of the medical services themselves. For example, a Texas consumer

who was enrolled in two forms of health insurance through his employer received a $67,000

hospital bill after he experienced a heart attack. Although he believed he had comprehensive

coverage, he learned that his coverage was provided through a group health plan that covered

only preventive services and prescription drugs and a fixed indemnity excepted benefits coverage

policy that provided a cash benefit of less than $200 per day of hospitalization.

108

Additionally,

employers may incur penalties if they erroneously treat fixed indemnity policies as excepted

benefits when the policies do not meet the requirements for excepted benefits (for example,

when they are not offered as independent, noncoordinated benefits) and fail to comply with

applicable group market Federal consumer protections and requirements for comprehensive

coverage, such as the requirement to provide participants, beneficiaries, and enrollees with a

107

Young, Christen Linke and Kathleen Hannick (2020). “Fixed Indemnity Coverage is a Problematic Form of

“Junk” Insurance,” USC-Brookings Schaeffer Initiative for Health Policy, available at:

https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-

coverage-is-a-problematic-form-of-junk-insurance.

108

Avila, Jaie (2019). “Show Me Your Bill Helps Wipe Out $70K in Charges After Heart Attack,” News 4 San

Antonio, available at: https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-

in-charges-after-heart-attack.

summary of benefits and coverage that meets applicable content requirements or the prohibition

on lifetime and annual dollar limits on essential health benefits.

109

In light of research revealing significant disparities in health insurance literacy among

certain underserved racial and ethnic groups and people with incomes below the FPL,

110

and as

further discussed in sections III.A.1 and V.B.2.g of this preamble, the Departments are also

concerned that underserved populations may be particularly vulnerable to misleading or

aggressive sales and marketing tactics that obscure the differences between comprehensive

coverage and STLDI or fixed indemnity excepted benefits coverage, exposing these populations

to higher levels of health and financial risks. As noted in Executive Order 13995, the COVID-19

pandemic has “exposed and exacerbated severe and pervasive health and social inequities in

America,” highlighting the urgency with which such inequities must be addressed.

111

These

concerns continue during the time frame when States are unwinding from the Medicaid

continuous enrollment condition under the Families First Coronavirus Response Act (FFCRA),

which expired on March 31, 2023, under amendments made by the Consolidated Appropriations

Act, 2023. Across the country, State agencies are currently in the process of resuming regular

eligibility and enrollment operations, which includes conducting full Medicaid and CHIP

renewals and terminating coverage for individuals who are no longer eligible.

112

As a result,

109

See 26 CFR 54.9815-2715(e); 29 CFR 2590.715-2715(e); 45 CFR 147.200(e). See also section 2711 of the PHS

Act and section 4980D of the Code.

110

Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary Kay Rayens (2019). “Significant Disparities Exist in

Consumer Health Insurance Literacy: Implications for Health Care Reform,” Health Literacy Research and

Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496. See also Villagra, Victor and Bhumika Bhuva

(2019). “Health Insurance Literacy: Disparities by Race, Ethnicity, and Language Preference,” The American

Journal of Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-

ethnicity-and-language-preference.

111

86 FR 7193 (January 26, 2021).

112

See CMS, Center for Medicaid & CHIP Services (January 5, 2023). Key Dates Related to the Medicaid

Continuous Enrollment Condition Provisions in the Consolidated Appropriations Act, 2023, available at:

https://www.medicaid.gov/sites/default/files/2023-01/cib010523_1.pdf. As a condition of receiving a temporary

Federal Medical Assistance Percentage (FMAP) increase under section 6008 of the FFCRA, States were required to

maintain enrollment of nearly all Medicaid enrollees. This “continuous enrollment condition” expired on March 31,

2023, under amendments made by the Consolidated Appropriations Act, 2023. States adopted other flexibilities in

CHIP and BHP that impacted renewals in those programs during this time.

individuals may have to transition between coverage programs, leaving them vulnerable.

113

The

Departments are concerned that those transitioning out of Medicaid coverage may be susceptible

to aggressive or deceptive marketing and sales tactics, and might therefore mistakenly enroll in

STLDI or fixed indemnity excepted benefits coverage in lieu of comprehensive coverage.

C. Impact on Risk Pools

At the time the 2018 final rules were issued, the Departments acknowledged that

expanding access to STLDI could have potential negative effects on the risk pools for individual

health insurance coverage and on individuals who find themselves insufficiently protected by the

typically limited benefits of an STLDI policy.

114

However, the Departments were of the view that

the affordability and access challenges facing consumers at that time outweighed those potential

negative effects and necessitated action to increase access to STLDI to provide an alternative

option for individuals who were unable or disinclined to purchase comprehensive coverage.

As discussed earlier in section II.A of this preamble, access to affordable comprehensive

coverage has significantly improved since the 2018 final rules were published. However,

research based on individual market data for plan year 2020 has substantiated concerns about the

negative impact that the shift of healthier individuals from comprehensive coverage to STLDI

has on individuals remaining in the risk pools for individual health insurance coverage.

115

Because healthier individuals are more likely to enroll in STLDI than individuals with known

medical needs, the extended contract terms and renewal periods of STLDI under the current

Federal regulations result in healthier consumers leaving (or opting out of) the risk pools for

individual health insurance coverage for extended periods of time. This has resulted in increased

113

See CMS, Center for Medicaid & CHIP Services (January 27, 2023). “Letter to State Health Officials from

Deputy Administrator and Director Daniel Tsai RE: Medicaid Continuous Enrollment Condition Changes,

Conditions for Receiving the FFCRA Temporary FMAP Increase, Reporting Requirements, and Enforcement

Provisions in the Consolidated Appropriations Act, 2023,” available at:

https://www.medicaid.gov/sites/default/files/2023-08/sho23002.pdf.

114

83 FR 38212 at 38218 (August 3, 2018).

115

See Dieguez, Gabriela and Dane Hansen (2020). “The Impact of Short-term Limited-duration Policy Expansion

on Patients and the ACA Individual Market,” Milliman, available at: https://www.milliman.com/en/insight/the-

impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.

premiums for individuals seeking to purchase individual health insurance coverage.

116

For

unsubsidized individuals, the costs are borne directly by the consumer, and for subsidized

individuals, the costs are borne largely by the Federal Government in the form of increased per

capita PTC spending associated with increased individual health insurance coverage premiums.

Likewise, reports of fixed indemnity excepted benefits coverage being marketed and sold as an

alternative to comprehensive coverage, as discussed in section V.B.2.a of this preamble, raise

concerns about the potential for such practices having a similar impact on the risk pools for

individual health insurance coverage.

Another study looking at States that have adopted policies that restrict STLDI to shorter

durations than allowed under the current Federal regulations found that, from 2018 to 2020,

States that restricted or prohibited the sale of STLDI saw fewer consumers enroll in such

insurance, were able to keep more healthy people in the individual health insurance coverage

market risk pool, and saw a greater decline in average medical costs for enrollees in individual

health insurance coverage.

117

The study reported that, as a result, the risk score – a measurement

of the relative medical costs expected for the populations covered by comprehensive coverage in

each State, both on- and off-Exchange – decreased by 40 percent more in States with more

regulation of STLDI than States with less regulation.

118

In addition to ensuring that consumers can clearly distinguish STLDI from

comprehensive coverage, this new evidence provides an additional basis for the Departments’

conclusion that it is important to amend the Federal definition of STLDI.

116

Id. (“Carrier expectations for the impact of [regulatory actions including the expansion of short-term, limited-

duration insurance policies and other loosely regulated insurance and the repeal of the Federal individual shared

responsibility payment being reduced to $0] on premiums in the ACA individual market for 2020 are approximately

4 percent in [S]tates that have not restricted the sale or duration of STLD policies … Among the [S]tates that have

limited the impact of loosely regulated insurance through reinstating an individual mandate or by restricting STLD

expansion, carriers have assumed an average premium impact in 2020 due to regulatory actions that is about 5

percent lower than other [S]tates.”) As noted in section V.B.2.e of this preamble, this study also found that the few

issuers that explicitly included a premium adjustment because of the adoption of the revised Federal definition of

STLDI in the 2018 final rules increased premiums by between 0.5 percent and 2 percent in 2020.

117

See Hall, Mark and Michael McCue (2022). “Short-Term Health Insurance and the ACA Market,”

Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-

and-aca-market.

118

Id.

D. Need for Rulemaking

For the reasons described in this section II of this preamble, the Departments are of the

view that it is necessary and appropriate to amend the Federal definition of STLDI to ensure that

consumers can clearly distinguish STLDI from comprehensive coverage, protect the risk pools

and stabilize premiums for individual health insurance coverage, and promote access to

affordable comprehensive coverage.

With respect to individual market fixed indemnity excepted benefits coverage, the

decision in Central United Life Ins. Co. v. Burwell, which invalidated the requirement that an

individual must attest to having MEC prior to purchasing fixed indemnity excepted benefits

coverage in the individual market, and the passage of the Tax Cuts and Jobs Act, which reduced

the individual shared responsibility payment to $0 for months beginning after

December 31, 2018, increase the likelihood that individuals would purchase fixed indemnity

excepted benefits coverage as a substitute for comprehensive coverage. HHS is of the view that

these changes necessitate rulemaking with respect to individual market fixed indemnity excepted

benefits coverage. Further, while the Departments did not finalize the proposed amendments to

the group market fixed indemnity excepted benefits coverage regulations outlined in the

2016 proposed rules, the Departments noted their intention to address fixed indemnity excepted

benefits coverage in future rulemaking.

119

The Departments have continued to monitor the impact

of these coverage options and remain concerned about the negative impacts of fixed indemnity

excepted benefits coverage on consumers when such products are sold as an alternative to

comprehensive coverage.

In light of the Departments’ ongoing concerns about the numerous negative impacts of

STLDI and fixed indemnity excepted benefits coverage being offered as an alternative to

comprehensive coverage, as well as the significant changes in market conditions and in the legal

landscape since the Departments’ last regulatory actions addressing these products, and in

119

81 FR 75316 at 75317 (October 31, 2016).

consideration of the comments on the 2023 proposed rules received by the Departments, the

Departments are finalizing changes to the Federal regulations governing STLDI and addressing

notice requirements in the individual and group market regulations related to fixed indemnity

excepted benefits coverage. HHS is also finalizing the technical amendments to the individual

market fixed indemnity excepted benefits coverage regulation to remove the MEC attestation

requirement currently codified at 45 CFR 148.220(b)(4)(i). As further explained in section III.B

of this preamble, the Departments are not finalizing the proposed payment standards and

noncoordination provisions regarding fixed indemnity excepted benefits coverage at this time.

The Departments remain concerned about the issues addressed by these proposals, and intend to

address these issues in future rulemaking, after additional study and consideration of the

concerns raised in comments.

III. Overview of the Final Regulations – The Departments of the Treasury, Labor, and

Health and Human Services

A. Short-Term, Limited-Duration Insurance

After considering the public comments, the Departments are finalizing the proposed

amendments to the Federal definition of STLDI with some modifications. Under the definition in

these final rules, STLDI means health insurance coverage provided pursuant to a policy,

certificate, or contract of insurance that has an expiration date specified in the policy, certificate,

or contract of insurance that is no more than 3 months after the original effective date of the

policy, certificate, or contract of insurance, and taking into account any renewals or extensions,

has a duration no longer than 4 months in total. For purposes of this definition, a renewal or

extension includes the term of a new STLDI policy, certificate, or contract of insurance issued by

the same issuer to the same policyholder within the 12-month period beginning on the original

effective date of the initial policy, certificate, or contract of insurance. As explained in section

III.A.2 of this preamble, in response to comments, the Departments are specifying that for

purposes of this definition, if the issuer is a member of a controlled group, a renewal or extension

also includes the term of a new STLDI policy, certificate, or contract of insurance issued by any

other issuer that is a member of such controlled group. As used in this context, the term

“controlled group” means any group treated as a single employer under section 52(a), 52(b),

414(m), or 414(o) of the Code, as amended.

These final rules also retain the requirement that STLDI issuers display a notice on the

first page (in either paper or electronic form, including on a website) of the policy, certificate, or

contract of insurance, and in any marketing, application, and enrollment materials (including

reenrollment materials) provided to individuals at or before the time an individual has the

opportunity to enroll (or reenroll) in the coverage, in at least 14-point font. As finalized in these

final rules, STLDI issuers must use the following updated language for the STLDI consumer

disclosure notice:

IMPORTANT: This is a short-term, limited-duration policy,

NOT comprehensive health coverage

This is a temporary limited policy that has fewer benefits and Federal protections

than other types of health insurance options, like those on HealthCare.gov.

This policy

Insurance on HealthCare.gov

Might not cover you due to preexisting

health conditions like diabetes, cancer,

stroke, arthritis, heart disease, mental

health & substance use disorders

Can’t deny you coverage due to

preexisting health conditions

Might not cover things like prescription

drugs, preventive screenings, maternity

care, emergency services, hospitalization,

pediatric care, physical therapy & more

Covers all essential health benefits

Might have no limit on what you pay

out-of-pocket for care

Protects you with limits on what you pay

each year out-of-pocket for essential

health benefits

You won’t qualify for Federal financial

help to pay premiums & out-of-pocket

costs

Many people qualify for Federal financial

help

Doesn’t have to meet Federal standards

for comprehensive health coverage

All plans must meet Federal standards

Looking for comprehensive health insurance?

• Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find

health coverage options.

• To find out if you can get health insurance through your job, or a family

member’s job, contact the employer.

Questions about this policy?

For questions or complaints about this policy, contact your State Department

of Insurance. Find their number on the National Association of Insurance

Commissioners’ website (naic.org) under “Insurance Departments.”

As explained in section III.A.4 of this preamble, in response to comments, the notice

adopted in these final rules contains additional specificity, including that STLDI does not have to

meet Federal standards for comprehensive coverage and information about finding contact

information for State departments of insurance on the NAIC website (naic.org).

In response to comments, the Departments are finalizing modified applicability dates.

These final rules apply to new STLDI policies sold or issued on or after September 1, 2024. The

provisions of the 2018 final rules continue to apply to STLDI policies sold or issued before

September 1, 2024, except that the updated notice provision adopted in these final rules applies

to such policies for coverage periods beginning on or after September 1, 2024. As was proposed

in the 2023 proposed rules, these final rules are effective 75 days after publication in the

Federal Register.

1. In General

The Departments received comments generally in support of and generally opposed to the

adoption of the STLDI proposals in the 2023 proposed rules. The Departments summarize and

respond to comments about the STLDI proposals in the 2023 proposed rules later in this section

of the preamble.

Some commenters stated that the 2023 proposed rules were an overreach of the

Departments’ authority because Congress did not provide an explicit delegation of authority to

define the terms “short-term” and “limited-duration.” Some commenters expressed concern that

the 2023 proposed rules are contrary to congressional intent because Congress specifically

determined that certain types of insurance would not be subject to the requirements of the ACA,

including STLDI, which is excepted from the definition of individual health insurance coverage.

Commenters suggested that the Departments’ interpretation is unreasonable because it conflicts

with and undermines Congress’s express goals for consumers to have access to STLDI plans that

are exempt from Federal regulation, to reduce gaps in health insurance and the number of

uninsured. One commenter also expressed concern that the Departments’ interpretation will

increase medical underwriting frequency to every 3 to 4 months leading to more consumers

losing coverage. One commenter stated that the Departments’ interpretation is unreasonable

because it pressures consumers into enrolling in comprehensive coverage to avoid greater

financial exposure. Several commenters stated that there is no statutory basis for the Departments

to regulate consumer behavior and the Departments have no legal authority to impose burdens or

limitations on STLDI, such as a consumer notice. One commenter argued that the Departments

lack the authority to implement a shorter maximum allowed length because the proposals are

overly broad and will unduly harm consumers. Several commenters stated that the proposed rules

are arbitrary, capricious, and not in accordance with law because the Departments rely on factors

to justify the new definition that were not relevant to Congress’s considerations.

The Departments are not persuaded by these comments. As explained in greater detail in

this section III.A.1 of this preamble, these final rules revise the definition for the term

“short-term, limited-duration insurance,” and set standards to more clearly distinguish STLDI

from individual health insurance coverage. These final rules do not regulate consumer behavior.

Consumers will continue to have access to STLDI plans that are generally exempt from the

Federal consumer protections and requirements for comprehensive coverage that apply to

individual health insurance coverage.

120

As detailed later in this section of this preamble, the

Departments have clear authority to promulgate regulations to define STLDI and to pursue the

current amendments. The Departments also disagree that the definition in the proposed rules, and

as finalized in these rules, is unreasonable, inconsistent with the law, or arbitrary and capricious.

Other commenters stated that the Departments have clear statutory authority under the

PHS Act to interpret undefined terms in the PHS Act, ERISA, and the Code,

121

and to promulgate

regulations that interpret (or reinterpret) the meaning of “short-term, limited-duration,” so long

as their interpretation is reasonable. These commenters observed that Congress did not define the

term “short-term, limited-duration insurance,” and primarily only included a reference to STLDI

120

Neither the proposed rules nor these final rules seek to extend the Federal consumer protections and requirements

for comprehensive individual health insurance coverage to STLDI.

121

See section 715 of ERISA and section 9815 of the Code, which incorporate provisions of part A of title XXVII of

the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into ERISA and the Code. See also section 104

of HIPAA. See also sections 505 and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section 1321(a)(1) and

as an exclusion from individual health insurance coverage.

122,123

These commenters explained that

the Departments must give meaning to the term short-term, limited-duration insurance to

distinguish it from individual health insurance coverage.

The Departments disagree with the commenters who questioned the Departments’ legal

authority to promulgate Federal regulations to define STLDI and distinguish it from individual

health insurance coverage. As explained in the preamble to the 2018 final rules,

124

the

Departments have clear statutory authority under the Code, ERISA, and the PHS Act to

implement those statutes.

125

To determine what is and is not individual health insurance coverage,

which is essential to ensure that the Code, ERISA, and the PHS Act function as Congress

intended, and to allow enforcement of the rules that apply to individual health insurance

coverage, the Departments must give meaning to the term STLDI.

126

The 2023 proposed rules are faithful to Congress's intent because Congress wanted

STLDI to be an option but did not intend STLDI to be a substitute for comprehensive coverage

or to pass as comprehensive coverage while avoiding ACA requirements and other Federal

consumer protections applicable to comprehensive coverage. Finally, the 2023 proposed rules

and these final rules are not designed to limit access to STLDI or pressure consumers into

enrolling in comprehensive coverage. Rather, they are designed to, among other things, ensure

that consumers can distinguish between STLDI and comprehensive coverage. Congress provided

the Secretaries of the Treasury, Labor, and HHS with explicit authority to promulgate regulations

122

See section 2791(b)(5) of the PHS Act (defining “individual health insurance coverage”).

123

While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive

coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and

reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health

insurance coverage or STLDI.

124

83 FR 38212 at 38215 (August 3, 2018).

125

See section 9815 of the Code and section 715 of ERISA, which incorporate provisions of Part A of title XVIII of

the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into the Code and ERISA. See also section 104

of HIPAA. See also section 7805 of the Code, sections 505 and 734 of ERISA, sections 2761 and 2792 of the PHS

Act, and section 1321(a)(1) and (c) of the ACA. See also Ass’n for Community Affiliated Plans v. U.S. Department

of the Treasury, 966 F.3d 782 (D.C. Cir. 2020).

126

As discussed in footnote 13, the definition of STLDI also has some relevance with respect to certain provisions

that apply to group health plans and group health insurance issuers over which the Departments of Labor and the

Treasury have jurisdiction.

as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS

Act.

127

This includes the authority to issue regulations on STLDI to define it and set standards to

distinguish it from individual health insurance coverage.

The Departments’ authority to issue regulations that define STLDI and set standards to

distinguish it from individual health insurance coverage was also recently affirmed in the D.C.

Circuit.

128

In 2020, the D.C. Circuit explicitly considered the Departments’ authority to define

STLDI as finalized in the 2018 final rules and affirmed the Departments’ authority to promulgate

such regulations.

129

The D.C. Circuit stated:

“Without further guidance from Congress, we will not place amorphous

restrictions on the Departments’ authority to define such an open-ended term. It

suffices to say that the Departments have the discretion to define STLDI to

include policies shorter than the standard policy term.”

130

Furthermore, the decision made clear that Congress gave the Departments “wide latitude”

to define STLDI, which includes the flexibility to narrow the definition of STLDI in the future,

provided the Departments provide a reasoned explanation for the change.

131

Both the 2023

proposed rules and these final rules provide the Departments’ reasoned explanations for the

changes to the Federal definition of STLDI. These final rules adopt a revised Federal definition

of the term STLDI and set standards to more clearly distinguish STLDI from individual health

insurance coverage without placing unreasonable burdens on issuers of STLDI.

The Departments acknowledge that the final rules may be associated with some

consumers being subject to medical underwriting more frequently. For example, a consumer who

prefers STLDI coverage and chooses to reenroll in STLDI coverage with a different issuer every

4 months may be subject to medical underwriting each time they enroll or renew coverage,

127

See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act.

128

Ass’n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020), aff'd

966 F.3d 782 (D.C. Cir. 2020).

129

Ass’n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020).

130

Id. at 789.

131

Id. at 789 and 792 (citing to Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016)).

whereas under the current rules they could stay in one STLDI policy for a longer duration.

However, in the Departments’ view, this possibility does not outweigh other potential benefits to

consumers of the revised definition of STLDI, in part because consumers face a similar risk

under the current rules. Even when enrolled in STLDI coverage that complies with the 2018 final

rules, a consumer can be subject to post-claims underwriting and their STLDI coverage may not

cover certain health conditions that develop unexpectedly or over time. Yet because the STLDI

coverage has a longer maximum duration under current rules, a consumer who remains in STLDI

coverage might go without necessary benefits for a longer period of time, forcing the consumer

to choose between necessary medical care and high out-of-pocket expenses. Consumers may

avoid the potential consequences of more frequent medical underwriting by enrolling in

comprehensive coverage subject to Federal consumer protections and requirements.

The definition and standards, as proposed and finalized, apply to health insurance issuers

that elect to offer STLDI, and they do not regulate consumer behavior. Issuers will not be

prohibited from selling STLDI and consumers may continue to choose to purchase it. The

changes to the Federal definition and standards for STLDI will help consumers make more

informed purchasing decisions and mitigate the risk that consumers will mistakenly enroll in

STLDI as a substitute for comprehensive coverage.

The Departments disagree that the revised Federal definition of STLDI is unreasonable or

arbitrary and capricious. As explained in the preamble to the 2023 proposed rules

132

and in the

introduction to this section III.A of this preamble, the Federal definition established in these final

rules clearly distinguishes STLDI from individual health insurance coverage that is subject to the

Federal consumer protections and requirements for comprehensive coverage. Further, the statute

does not explicitly denote a required length for STLDI or to what extent the definition of STLDI

must vary from the definition of individual health insurance coverage, so the Departments are

132

See, for example, 88 FR 44596 at 44610, 44612, 44614-44618 (July 12, 2023) (discussing how the proposed

changes to definitions of “short-term” and “limited-duration” and the proposed modifications to the required

consumer notice would allow consumers to better distinguish between STLDI and comprehensive coverage).

interpreting and implementing the statute in a manner that distinguishes between STLDI and

individual health insurance coverage. Over the last two decades, the Departments have used this

discretion to both shorten and lengthen the duration of STLDI as the Departments have deemed

appropriate and necessary given the market conditions and legal landscape they were then facing.

Beginning in 1997, the Departments defined STLDI as coverage of less than 12 months to

accommodate 12-month preexisting condition exclusion periods imposed by group health plans

and group health insurance issuers when a new hire did not have 12 months of creditable

coverage that ended no more than 63 days prior to the enrollment date in the plan or coverage.

133

Once preexisting condition exclusions were prohibited and the Departments implemented a limit

on employee waiting periods of up to 90 days plus a 1-month reasonable and bona fide

employment-based orientation period (as defined in section 9801(b)(4) of the Code, section

701(b)(4) of ERISA, and 2704(b)(4) of the PHS Act),

134

and comprehensive coverage in the

individual market was guaranteed available to individuals through or outside of the Exchanges,

the Departments determined that a shorter duration for STLDI was more appropriate and revised

the definition in the 2016 final rules.

135

Subsequently, when the Departments were concerned

about the availability of affordable health insurance options, the Departments lengthened the

initial contract term to less than 12 months with a maximum allowed duration of 36 months

(including renewals and extensions) in the 2018 final rules.

136

137

The definition of STLDI in the 2023 proposed rules, and that the Departments are

finalizing in these final rules, is consistent with applicable Federal law (for example, the Code,

ERISA, and the PHS Act). The 2023 proposed rules proposed a revised Federal definition that

set standards for STLDI that clearly distinguish it from individual health insurance coverage that

133

62 FR 16894 (April 8, 1997). See also 69 FR 78,720 (December 30, 2004) (finalizing the definition of STLDI in

the 1997 HIPAA interim final rules).

134

26 CFR 54.9815–2708, 29 CFR 2590.715–2708, and 45 CFR 147.116.

135

81 FR 75316 at 75317, 75318 (October 31, 2016)

136

As noted previously, the Departments’ authority to issue the 2018 final rules was challenged and upheld in Ass’n

for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020). See also Ass’n

for Community Affiliated Plans v. U.S. Department of the Treasury, 392 F.Supp.3d 22 (D.D.C. 2019).

137

83 FR 38212 at 38218 (August 3, 2018)

is subject to the Federal consumer protections and requirements. This proposal and the definition

finalized in these rules is consistent with Congress maintaining the exclusion of STLDI from the

PHS Act definition of individual health insurance coverage. Further, as noted by commenters

and discussed in section III.A.2 of this preamble, the new definition gives reasonable meaning to

the terms “short-term” and “limited-duration” since they reflect periods of time that are brief in

comparison to the length of comprehensive coverage sold with an initial term of 12 months, on a

guaranteed renewable basis.

138

The definition of STLDI in the 2023 proposed rules and these

final rules is consistent with the original intent of HIPAA, as reinforced by the ACA, to provide

temporary, stopgap coverage for individuals transitioning between comprehensive coverage.

Some commenters suggested that the Departments failed to provide sufficient

justification, or lacked sufficient data or analysis, to support the proposed changes to the Federal

definition of STLDI, particularly with respect to the changes to limit the initial duration of

STLDI policies to 3 months, and the maximum duration to 4 months including renewals and

extensions. In addition, one commenter expressed concern that an abrupt change to the

maximum duration of STLDI may have unintended consequences on overall health care

coverage and consumer choices, as occurred when the Departments increased the maximum

duration of STLDI from less than 3 months to less than 12 months in the 2018 final rules. Some

commenters suggested that the 2023 proposed rules would impose a market-disrupting change in

the duration of STLDI without providing evidence to support this change.

As the Supreme Court stated in Encino Motorcars v. Navarro,

139

and the D.C. Circuit

Court repeated in Association for Community Affiliated Plans v. U.S. Department of the

138

As the court noted in Ass’n for Community Affiliated Plans v. U.S. Department of the Treasury regarding the

STLDI definition adopted in the 2018 final rules, “(u)nder the Departments’ definition, ‘short-term’ refers to the

initial contract term, while ‘limited-duration’ refers to the policy’s total length, including renewals. This reasonable

reading gives independent meaning to each term.” 966 F.3d at 789. The Departments are applying the same general

framework to establish the new definition adopted in these final rules, with “short-term” referring to the initial

contract term and the term “limited-duration” referring to the policy’s total length, including extensions and

renewals.

139

136 S. Ct. 2117, 2125 (2016).

Treasury,

140

“[a]gencies are free to change their existing policies as long as they provide a

reasoned explanation for the change.” The Departments satisfy this requirement; the proposed

rules and these final rules provide a reasoned explanation of the changes to the Federal definition

of STLDI. As explained in section III.A.2 of this preamble, the Departments determined that it is

necessary and appropriate to amend the Federal definition of STLDI to ensure that consumers

can clearly distinguish STLDI from individual health insurance coverage, protect the risk pools

and stabilize premiums for individual health insurance coverage, and promote access to

affordable comprehensive coverage. While the Departments acknowledge that they have limited

data on enrollment in STLDI, the Departments have sufficient information and evidence to

conclude that the changes to the definition finalized in these rules are appropriate and justified.

The Departments are of the view that these final rules are necessary and appropriate to combat

deceptive marketing practices, distinguish STLDI from individual health insurance coverage, and

address the changes in the legal landscape and market conditions from 2018 to 2024. Further, as

discussed in section II.A of this preamble, since the publication of the 2018 final rules,

comprehensive coverage for individuals has generally become more accessible and affordable,

and while affordability concerns persist among consumers, STLDI is an inadequate substitute for

comprehensive coverage.

Aggressive, deceptive marketing practices are an ongoing challenge for consumers

shopping for coverage. As discussed in section II.B and section III.A.3 of this preamble, recent

secret shopper studies have detailed ongoing practices by sellers of STLDI that do not inform

consumers of eligibility for less expensive Exchange plans or that provide misleading

information about STLDI with limited benefits.

141

Deceptive marketing practices can have

devastating financial implications for consumers that purchased STLDI without fully

140

966 F. 3d at 792.

141

Schwab, R., & Volk, J. (August 28, 2023). “The Perfect Storm: Misleading Marketing of Limited Benefit

Products Continues as Millions Losing Medicaid Search for New Coverage,” Center on Health Insurance Reforms,

available at: https://chirblog.org/the-perfect-storm-misleading-marketing-of-limited-benefit-products-continues-as-

millions-losing-medicaid-search-for-new-coverage.

understanding its limitations and later encounter unexpected and expensive medical events that

are not covered by their insurance.

142

In addition, as explained in section III.A.2 of this preamble

and the preamble to the 2023 proposed rules, the Federal definition for STLDI in these final rules

is consistent with the group market rules regarding the 90-day waiting period provision under the

ACA and with STLDI’s traditional role of serving as temporary coverage for individuals

transitioning between other types of comprehensive coverage. The definition is also similar to

the less-than-3-month maximum term for STLDI under the 2016 final rules and under a number

of State laws and aligns with the goal of Executive Order 14009 to support protections for people

with preexisting conditions. The Departments have weighed the potential benefits and costs to

consumers when developing the proposed rules and these final rules and concluded the changes

will not unduly harm consumers.

143

While the Departments are of the view that the changes to the Federal definition of

STLDI finalized in these rules are critical, these final rules take steps to limit the potential of the

rules having an abrupt, disruptive effect, particularly with respect to consumers currently

enrolled in STLDI coverage, and to address the potential reliance interests of both issuers

offering STLDI and consumers enrolled in STLDI under the 2018 final rules. As discussed in

section III.A.6 of this preamble, with the exception of the notice provision, these final rules will

not be applicable to STLDI policies sold or issued before September 1, 2024. This will result in a

phased-in approach that limits the potential for market disrupting impact by allowing individuals

currently enrolled in STLDI to maintain coverage that meets the standards in the 2018 final rules

through the duration of their current policy. In addition, this phased-in approach does not require

issuers who have relied on the current rules to modify contracts for STLDI policies that are

currently in place. Further, the proposed changes that are finalized in these rules will not result in

an abrupt change in the maximum permitted duration of STLDI in many States. Of the States

142

Deam, Jenny (2021). “He Bought Health Insurance for Emergencies. Then He Fell Into a $33,601 Trap,”

ProPublica, available at: https://www.propublica.org/article/junk-insurance.

143

See the Regulatory Impact Analysis in section V of this preamble.

that currently permit STLDI, seven States and the District of Columbia already have a maximum

permitted length of less than 3 months for STLDI while four additional States prohibit the sale of

STLDI entirely, notwithstanding the longer duration permitted under the 2018 final rules.

144

Finally, as these final rules intend to protect against misleading marketing practices that harm

consumers, the benefits of further differentiating STLDI from comprehensive coverage outweigh

any potential unintended consequences of changing the maximum allowable duration of STLDI.

As outlined in this section and elsewhere in these rules, the definition is well reasoned, is clearly

within the Departments’ authority, and is consistent with other applicable Federal law, and is

therefore not arbitrary and capricious.

Some commenters expressed concern that the proposed definition of STLDI would

interfere with the authority of States to regulate insurance pursuant to the McCarran-Ferguson

Act and PHS Act. These commenters stated that the McCarran-Ferguson Act reserves the

regulation of insurance to States so that States can tailor their health insurance policies to the

needs of their residents. They stated that State regulators are better positioned to understand the

unique characteristics and requirements of each State’s respective insurance markets and are

more responsive to the needs of their insurance markets. Another commenter stated that under

the PHS Act, Federal authority to regulate insurance is secondary to the primary authority of the

States, and any Federal intrusion on State authority must be based on information that a State

may not be substantially enforcing PHS Act requirements. A commenter noted that States have

demonstrated their willingness and capacity to regulate STLDI coverage because half of States

have regulations in place. For example, the commenter noted that the sale of STLDI is prohibited

144

See Healthinsurance.org (2023). “Duration and Renewals of 2023 Short-Term Medical Plans by State,” available

at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf; see

also Dieguez, Gabriela and Dane Hansen (2020). “The Impact of Short-term Limited-duration Policy Expansion on

Patients and the ACA Individual Market,” Milliman, available at: https://www.milliman.com/en/insight/the-impact-

of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market.

in some States

145

and other States have restricted the maximum allowed term of STLDI to 3, 6,

or 12 months or coverage that terminates at the end of the calendar year.

146

Other commenters

stated that some States only allow limited renewals of STLDI. Another State regulates STLDI by

requiring that STLDI policies sold in the State provide certain consumer protections,

implementing a separate risk pool, and creating a special enrollment period for consumers that

exhaust the 36-month period of STLDI coverage, while setting minimum benefit and coverage

requirements to meet the needs of seasonal employees that desire flexibility and low-cost health

care coverage.

147

A commenter noted that 12 States currently prohibit health status underwriting

for STLDI, which effectively bans STLDI in those States. The commenter stated that the

proposed rules fail to balance States’ interest in regulating health insurance issuers and their

health insurance markets with Congress’s intent to provide protections to consumers. On the

other hand, a few commenters noted that variation in State oversight of STLDI has resulted in a

patchwork of consumer protections across States, and one commenter stated that consumers

would benefit from national-level STLDI regulation.

These final rules establish the Federal definition of STLDI with respect to the maximum

length of the initial contract term, the maximum allowable duration (including renewals and

extensions), and a consumer notice. The Departments acknowledge and respect States’ authority

to regulate the business of insurance. The Departments generally agree that States retain the

authority to regulate STLDI and further note that these final rules do not change or otherwise

modify the existing ERISA or PHS Act preemption standard.

148

As such, States may impose

145

The commenter noted that STLDI is not for sale in a number of States including California, Colorado,

Connecticut, Hawaii, Maine, Massachusetts, New Jersey, New Mexico, New York, Rhode Island, Vermont, and

Washington. See also Healthinsurance.org (2023). “Duration and Renewals of 2023 Short-Term Medical Plans by

State,” available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-

insurance.pdf (As of September 6, 2023, STLDI is not for sale in 14 States - California, Colorado, Connecticut,

Hawaii, Maine, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island,

Vermont, and Washington - and the District of Columbia.)

146

The commenter stated that Illinois allows the sale of STLDI that lasts for up to 180 days, and in New Hampshire,

STLDI contracts can last for up to 6 months with a renewal or extension of up to a total of 18 months.

147

The commenter stated that Iowa imposed minimum benefit and coverage requirements on short-term plans above

Federal standards.

148

Section 731 of ERISA and sections 2724 and 2762 of the PHS Act (implemented in 29 CFR 2590.731(a) and

45 CFR 146.143(a) and 148.210(b)).

requirements tailored to the needs of their populations, and may adopt limitations on stacking, as

well as limitations on sales and marketing practices. Relatedly, in section III. B of this preamble,

in these final rules, the Departments added language to the notice to alert consumers as to how

the coverage they are purchasing might vary from individual health insurance coverage. States

may impose additional language requirements for a consumer notice and remain free to regulate

STLDI.

The Departments agree that the States play an important role in regulating STLDI and

recognize the federalism implications of the proposed rules and these final rules.

149,

As noted by

commenters, the McCarran-Ferguson Act generally affirms the preeminence of State regulation,

and also explicitly allows for Federal regulation when an act of Congress specifically relates to

the business of insurance.

150

However, the commenters’ argument that Federal authority to

regulate insurance is secondary to the primary authority of the States conflates Federal authority

to regulate insurance under section 1012 of the McCarran-Ferguson Act with HHS’s authority

under section 2723 of the PHS Act to enforce requirements in part A and D of title XXVII of the

PHS Act against issuers.

151

Under section 2723 of the PHS Act, States have authority to enforce

the requirements of part A and D of title XXVII of the PHS Act, and where the State fails to

substantially enforce a provision (or provisions) of part A or D with respect to health insurance

issuers in the State, HHS shall enforce such provision (or provisions) in the State. In contrast, the

McCarran-Ferguson Act balances State and Federal interests in regulating the business of

insurance. Section 1012(a) of the McCarran-Ferguson Act maintained State regulatory authority

149

See 88 FR at 44648 - 44649. See also the federalism discussion in section V.H of this preamble.

150

Compare “The business of insurance, and every person engaged therein, shall be subject to the laws of the

several States which relate to the regulation or taxation of such business …” 15 USC 1012(a), with “No Act

of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of

regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically

relates to the business of insurance: Provided, that after June 30, 1948, the Act of July 2, 1890, as amended, known

as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act

of September 26, 1914, known as the Federal Trade Commission Act, as amended [15 U.S.C. 41 et seq.], shall be

applicable to the business of insurance to the extent that such business is not regulated by State Law. …” 15 USC

1012(b).

151

HHS also has authority under section 2761 of the PHS Act to enforce the requirements in part B of title XXVII of

the PHS Act against issuers in situations where a State fails to substantially enforce one or more provisions of part B

with respect to health insurance issuers in the State.

by enabling State preemption of some Federal law, and section 1012(b) of the

McCarran-Ferguson Act limited Federal regulatory authority by generally exempting the

“business of insurance” from Federal law.

152

Although Congress allowed an exception for State

preemption of Federal law in this way, Congress also preserved Federal authority to regulate

insurance provided that, to overcome the State preemption, congressional action must

specifically relate to the business of insurance.

153

It is without question that HIPAA, the ACA,

and the other Acts of Congress that added Federal consumer protections and requirements

applicable to health insurance issuers offering group and individual health insurance coverage

specifically relate to the business of insurance. In addition, as discussed earlier, the Departments

have clear legal authority to define STLDI and set standards to distinguish it from individual

health insurance coverage. This includes authority to adjust the interpretations for and

implementation of the terms “short-term” and “limited-duration” that set the length of the initial

contract term and the maximum duration (including renewals and extensions) for STLDI, as well

as to update the consumer notice. As outlined previously, Congress provided the Departments

with explicit authority to promulgate regulations as may be necessary or appropriate to carry out

the provisions of the Code, ERISA, and the PHS Act. The Departments are of the view that the

Federal regulatory definition of STLDI in these final rules is necessary and appropriate to carry

out the provisions of the Code, ERISA, and the PHS Act. Further, the Departments must give

meaning to the undefined statutory term STLDI, and the meaning must distinguish it from

individual health insurance coverage. This is because the PHS Act imposes certain requirements

on individual health insurance coverage and does not impose those same requirements on

152

See Steffen, Peter B. (2000) “After Fabe: Applying the Pireno Definition of Business of Insurance in First-Clause

McCarran-Ferguson Act Cases,” University of Chicago Legal Forum: Vol. 2000, available at:

https://chicagounbound.uchicago.edu/uclf/vol2000/iss1/15 (“The first clause enabled [S]tate law to supersede

[F]ederal law; the second clause provided a [F]ederal antitrust exemption for the ‘business of insurance’…The Act

gave [S]tates some powers they did not have before, by stating in the first clause that only a [F]ederal law that

‘specifically relates to the business of insurance’ can preempt a [S]tate law dealing with insurance. Congressional

legislation merely affecting insurance would not meet the first-clause test and thus would not, be exempt from the

general prohibition on preemption. Rather, in order to apply, [F]ederal law must specifically relate to the ‘business

of insurance’…”).

153

Id., citing Lee R. Russ, 3 Couch on Insurance sec. 2:4 at 2-12 (Clark 1994) (“McCarran-Ferguson turns the

traditional rule of [F]ederal preemption of [S]tate law on its head.”).

STLDI. The Departments are also of the view that it is necessary and appropriate for consumers

considering the purchase of STLDI, and those purchasing such insurance, to be aware that such

coverage is not subject to the Federal consumer protections and requirements for comprehensive

coverage. Defining STLDI in a way that requires a short, standard description of how the

coverage might vary from individual health insurance coverage allows for a clear determination

by regulators that the policy is STLDI, and promotes ease of understanding by consumers. As

explained previously and detailed in the 2023 proposed rules, the changes to the Federal

definition of STLDI, including the updates to the consumer disclosure notice, are reflective and

responsive to changes observed by the Departments in market conditions and the legal landscape.

These final rules define STLDI for purposes of the Code, ERISA, and the PHS Act.

Insurance coverage that meets the definition of STLDI in these final rules will qualify for the

exception to the Federal definition of individual health insurance coverage and be exempt from

the Federal consumer protections and requirements applicable to comprehensive coverage.

Nothing in these final rules prevents regulation of STLDI for purposes of State law. For

example, States may determine whether to permit the sale of STLDI in their insurance markets.

If a State law permits or requires an action that is inconsistent with the Federal definition of

STLDI, any coverage offered pursuant to that State law that does not meet the standards set forth

in these final rules would not qualify as STLDI under these final rules and would be subject to

the Federal consumer protections and requirements applicable to comprehensive coverage. For

example, if a State were to prohibit policies issued in that State from including the Federal

consumer notice, then coverage in that State that did not include the Federal consumer notice

language would not qualify for the exclusion from the PHS Act definition of individual health

insurance coverage and thus would be subject to the Federal consumer protections and

requirements applicable to individual health insurance coverage.

Amending the Federal regulation defining STLDI protects the distinctively Federal role

and interest in ensuring that the Federal definition for STLDI clearly distinguishes STLDI from

individual health insurance coverage for consumers in every State. As discussed in the preamble

to the 2023 proposed rules, many STLDI policies that are sold through associations are sold

across numerous States. Often consumers are purchasing STLDI policies in a different State

from the State in which the policy is regulated. This can create challenges for both consumers

and State regulators. The Departments are of the view that establishing a shorter Federal

maximum duration for STLDI may reduce the incentives for issuers to offer STLDI through

associations to the extent that they are using associations as a way to avoid State limits on

duration. This, in turn, will help minimize consumer confusion related to coverage offered

through associations. In addition, STLDI with a shorter maximum allowable duration would

decrease the impact of STLDI on Federal Government spending. As discussed in section III.A.6

of this preamble, STLDI that has a maximum allowable duration of up to 36 months, including

renewals and extensions, has an annual impact on Federal PTC spending due to selection-

induced effects.

The Departments are of the view that these final rules appropriately balance States’

interests in regulating health insurance issuers and their health insurance markets with Congress’

intent to establish a general Federal framework for health insurance coverage, including the

provision of certain key protections to consumers enrolled in comprehensive coverage.

Some commenters expressed general support for the proposed definition of STLDI.

Commenters in favor of the proposed definition noted that it would return STLDI to its

traditional and intended purpose of providing temporary, stopgap coverage between periods of

comprehensive coverage, and not serve as a long-term substitute for comprehensive coverage.

Some of these commenters highlighted that low health literacy rates, a long maximum allowed

term of STLDI that mimics the duration of comprehensive coverage, and deceptive marketing

practices cause many consumers to confuse STLDI with comprehensive coverage. These

commenters also stated that STLDI lacks Federal consumer protections and is inadequate to

serve patients grappling with complex medical needs such as those that require maternity care or

habilitative care; behavioral health problems; or chronic diseases such as cancer and

cardiovascular disease. These commenters further stated that unwary consumers unexpectedly

are underinsured when they enroll in STLDI and may end up forgoing needed, routine medical

treatment and exacerbating chronic medical conditions because of limited benefits or high cost-

sharing responsibilities. Consequently, consumers may then be sicker when they finally seek care

in the emergency room for untreated medical conditions, which can increase costs absorbed by

providers and facilities, costing the health care system more in the long run. Commenters who

supported the STLDI definition in the proposed rules warned that some consumers who enroll in

STLDI as an alternative to comprehensive coverage can become subject to unexpected medical

debt leading to unforeseen long-term financial consequences. Other commenters that supported

the revised Federal definition for STLDI stated that while STLDI is highly profitable for health

insurance issuers, agents, and brokers, the impact of STLDI on the risk pools for individual

health insurance coverage indicates that it is necessary to clarify the distinctions between STLDI

and comprehensive coverage. Other commenters expressed general opposition to the STLDI

definition proposed in the 2023 proposed rules. These commenters stated that while STLDI is

not adequate coverage for everyone, STLDI provides a useful, short-term, affordable option,

particularly for consumers who do not have access to PTC subsidies, and provides access to

specialists that are not in-network with many comprehensive coverage options.

The Departments acknowledge that the changes to the Federal definition of STLDI that

are finalized in these rules may result in individuals who prefer STLDI losing access to such

coverage as a long-term coverage option. However, as explained previously and in the

2023 proposed rules, the Departments have concluded that these concerns are now outweighed

by the negative financial and health consequences that some individuals who enroll in STLDI in

lieu of comprehensive coverage experience; consumer challenges in differentiating STLDI from

individual health insurance coverage, particularly in light of low health literacy rates and

aggressive marketing; and the negative impact on the risk pools for individual health insurance

coverage when healthier individuals enroll in STLDI in lieu of individual health insurance

coverage.

154

As the availability of affordable comprehensive coverage options has increased since the

2018 final rules were finalized, the Departments are of the view that STLDI is no longer needed

to provide a year-round coverage option for individuals and should be limited to a temporary

coverage option for shorter periods when an individual experiences gaps between comprehensive

coverage. The Departments agree with commenters that the definition of STLDI under the

2018 final rules heightened the risk that uninformed consumers will mistakenly purchase STLDI

as a substitute for comprehensive coverage, and under current market conditions, unnecessarily

expose themselves to severe financial risks if they have complex medical needs or conditions.

The Departments agree with commenters that the lack of key Federal consumer protections and

requirements that apply to benefits offered by STLDI

155

results in STLDI being an inadequate

substitute for comprehensive coverage, especially for those with complex medical needs. Some

consumers with complex health conditions may enroll in STLDI because a preferred provider

may be in-network with an STLDI policy but out-of-network with comprehensive coverage

plans.

156

However, STLDI plans are typically associated with higher overall financial risk due to

high premium increases that may be imposed upon an individual whose health condition

worsens. For example, a study that examined the potential impacts of STLDI and associated

State policies on cancer diagnoses found that individuals in States that prohibited STLDI were

associated with an increase in early-stage cancer diagnoses when compared to States that did not

154

See section V of this preamble for the regulatory impact analysis; see also 88 FR 44596 at 44608 (2023).

155

See, for example, Dieguez, Gabriela and Dane Hansen (2020). “The Impact of Short-Term Limited-Duration

Policy Expansion on Patients and the ACA Individual Market,” Milliman, available at:

https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-

the-aca-individual-market.

156

In some circumstances, even accounting for the expense of using an out-of-network provider, comprehensive

coverage still may be the less expensive choice overall because of lower out-of-pocket spending a consumer would

enjoy when enrolled in comprehensive coverage. In many cases, expenses for premiums and cost sharing for

comprehensive coverage enrollees are still lower than the uncovered costs associated with STLDI, particularly when

an individual undergoes costly medical treatment.

regulate STLDI.

157

In addition, because issuers of STLDI can engage in medical underwriting,

individuals can be charged higher premiums based on health status, gender, age and other

factors.

158

Enrolling in comprehensive coverage instead of STLDI prior to when a consumer is

diagnosed with a complex medical condition or incurs major medical expenses will promote

access to care and improve overall health outcomes.

In addition, the Departments share commenters’ concerns that low health literacy rates

can have a detrimental impact on health insurance decision-making, putting some consumers at

increased risk for purchasing STLDI when they are looking to purchase comprehensive

coverage. Low health literacy rates combined with potentially erroneous assumptions about

minimum standards for coverage makes the average consumer vulnerable to deceptive marketing

practices and creates barriers to accessing health care and comprehensive coverage. As discussed

in the preamble to the 2023 proposed rules, consumers may not understand that while some

STLDI policies may have lower premiums than comprehensive coverage, consumers may incur

steep and potentially debt-inducing health care bills once enrolled in STLDI due to limited

benefits provided by such coverage, limited Federal consumer protections, and high-cost sharing

requirements.

159

A qualitative study cited by commenters examined consumer comprehension of

marketing materials for STLDI and found that not only did participants have low health

insurance literacy rates, but they struggled to understand the plan’s limitations because the ACA

has shaped their expectations about what “typical” health plans cover.

160

As a result, consumers

often expect that all health insurance provides the same benefits and protections even absent

157

Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and Fumiko Chino (2023). “State Policies Regulating Short-

Term Limited Duration Insurance Plans and Cancer Stage at Diagnosis,” JNCI Cancer Spectrum, Volume 7, Issue 5,

available at: https://doi.org/10.1093/jncics/pkad060.

158

See Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah Kamal (2018). “Understanding Short-Term

Limited Duration Health Insurance,” KFF, available at: https://www.kff.org/affordable-care-act/issue-

brief/understanding-short-term-limited-duration-health-insurance. See also Lueck, Sarah (2018). “Key Flaws of

Short-Term Health Plans Pose Risks to Consumers,” Center on Budget and Policy Priorities, available at:

https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers.

159

See, for example, 88 FR 44596 at 44608, 44612, 44613, 44615-44617, 44646 (July 12, 2023).

160

Georgians for a Healthy Future (2019). “Report on Testing Consumer Understanding of a Short-Term Health

Insurance Plan,” available at: https://healthyfuturega.org/wp-content/uploads/2019/04/Consumer-Testing-

Report_NAIC-Consumer-Reps.pdf.

deceptive marketing practices, increasing the importance of guardrails to distinguish

comprehensive coverage from STLDI. These concerns are exacerbated in underserved

communities, given their low rates of health literacy.

161

As discussed in the 2023 proposed rule,

in addition to systemic and social structures that impact access to health care,

162

health literacy

can make it more difficult for historically underserved and marginalized groups to navigate high

deductibles, expanded cost sharing, coverage exclusions and narrow formularies found in

STLDI.

163

These barriers can lead to consumers rationing their medicine or not taking it at all or

delaying necessary health care services, causing devastating consequences to their

health.

164

Shortening the maximum allowable term and duration of STLDI will serve as a clear

indicator to consumers about the nature of each coverage option and instill more confidence in

their coverage decisions. The Departments are also concerned about the prevalence of deceptive

marketing practices, as noted by commenters who referenced secret shopper studies and

anecdotes about negative consumer experiences, including when deceptive marketing practices

were used to encourage consumers to enroll in STLDI instead of receiving education about their

eligibility for low-cost comprehensive coverage or to inhibit consumers from choosing the

coverage they need to access health care and protect themselves from financial burdens.

Finally, the Departments agree that it is necessary and appropriate to revisit the Federal

STLDI definition to further distinguish between these types of coverage given concerns about

the impact on risk pools. As discussed in section II.C of this preamble, STLDI siphons off

healthier individuals from the risk pools for individual health insurance coverage, thereby raising

premiums for such coverage.

161

Kutner M, Greenberg E, Jin Y, Paulsen C. The Health Literacy of America's Adults: Results from the 2003

National Assessment of Adult Literacy (NCES 2006-483). Washington, DC: U.S. Department of Education,

National Center for Education Statistics; 2006.

162

Muvuka, B., et al (2020). “Health Literacy in African-American Communities: Barriers and Strategies,” Health

Literacy Research and Practice, available at: https://journals.healio.com/doi/full/10.3928/24748307-20200617-01.

163

88 FR 44596 at 44608, 44613, 44615 (July 12, 2023).

164

Schumacher, Jessica R. et al. (2013). “Potentially Preventable Use of Emergency Services: The Role of Low

Health Literacy,” Medical Care 51(8), August 2013, available at:

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3756810.

Some commenters expressed particular concern about the impact of deceptive and

aggressive marketing practices for STLDI given the increase in consumers currently looking for

health coverage options as States resume Medicaid eligibility redeterminations due to the

expiration of the FFCRA Medicaid continuous enrollment condition, as discussed in section II.B

of this preamble. These commenters explained that many consumers who lose Medicaid

coverage and are seeking new coverage at a low cost will be vulnerable to misleading or

aggressive sales and marketing tactics that obscure the differences between comprehensive

coverage and STLDI, and might therefore mistakenly enroll in STLDI in lieu of comprehensive

coverage. These commenters noted that underserved populations with low health literacy and

incomes below the FPL may be particularly vulnerable.

The Departments recognize that more individuals may be considering new coverage

options as a result of an increased volume of Medicaid eligibility redeterminations, and therefore

may be particularly susceptible to this type of misleading or aggressive sales and marketing

tactics even though affordable options for comprehensive coverage may be available to them.

CMS has made it a priority to ensure that as many people as possible maintain continuous

comprehensive coverage during this “unwinding period.”

165

CMS has a robust plan in place to

reach people with Medicaid or CHIP coverage, so that they are aware of the steps they need to

take to maintain their Medicaid or CHIP coverage, or, if no longer eligible, to smoothly

transition to other forms of coverage, such as individual health insurance coverage purchased

through an Exchange.

166

This plan includes new policy and operational flexibilities, such as a

temporary exceptional circumstances special enrollment period available through

HealthCare.gov for qualified individuals and their families who lose Medicaid or CHIP coverage

165

See Temporary Special Enrollment Period (SEP) for Consumers Losing Medicaid or the Children’s Health

Insurance Program (CHIP) Coverage Due to Unwinding of the Medicaid Continuous Enrollment Condition–

Frequently Asked Questions (FAQ) (January 27, 2023), available at: https://www.cms.gov/technical-assistance-

resources/temp-sep-unwinding-faq.pdf.

166

See CMS (2023). “Unwinding and Returning to Regular Operations after COVID, Medicaid and CHIP Renewals

Outreach and Educational Resources,” available at: https://www.medicaid.gov/resources-for-states/coronavirus-

disease-2019-covid-19/unwinding-and-returning-regular-operations-after-covid-19/medicaid-and-chip-renewals-

outreach-and-educational-resources/index.html.

following the end of the continuous enrollment condition; multi-pronged, large-scale national

and local outreach and stakeholder engagement efforts; and investments and innovations in

enrollment assistance.

167

State-based Exchanges have taken similar steps to update or implement

new special enrollment period policies, as well as conduct outreach and stakeholder engagement,

to support qualified individuals and their families who lose Medicaid or CHIP coverage

following the end of the continuous enrollment condition. Despite these efforts, current data

shows that a substantial number of people have lost coverage and may want to enroll in

coverage.

168

Commenters requested that the Departments clarify whether any of the existing special

enrollment periods would allow a consumer to access comprehensive coverage if their STLDI

coverage ends outside of an open enrollment period. Some commenters recommended that the

Departments create a new special enrollment period for individuals to enroll in comprehensive

coverage after their STLDI coverage ends, or that allows an individual to enroll in coverage

through an Exchange upon the termination of STLDI coverage specifically for situations where a

consumer elected STLDI following a loss of employment-based coverage due to a job transition

or to provide temporary coverage during an employer’s waiting period. Some commenters

expressed concern about the potential for consumers to experience gaps in coverage in the

absence of access to a special enrollment period, explaining that those consumers purchasing a 3-

month STLDI plan mid-calendar year would become financially vulnerable with no continued

coverage options until the next open enrollment period.

The Departments affirm that individuals who lose eligibility for STLDI coverage, such as

when their STLDI policy ends, are already eligible for a special enrollment period and have

167

See CMS (August 26, 2022). “Biden-Harris Administration Makes Largest Investment Ever in Navigators Ahead

of HealthCare.gov Open Enrollment Period,” available at: https://www.cms.gov/newsroom/press-releases/biden-

harris-administration-makes-largest-investment-ever-navigators-ahead-healthcaregov-open.

168

See Corallo, Bradley, Jennifer Tolbert, Patrick Drake, Sophia Moreno, and Robin Rudowitz, (2024). “Halfway

Through the Medicaid Unwinding: What Do the Data Show?” KFF, available at: https://www.kff.org/policy-

watch/halfway-through-the-medicaid-unwinding-what-do-the-data-show.

60 days to enroll in group health plan coverage, either insured or self-funded.

169

HHS did not

propose to create a new individual market special enrollment period for individuals to enroll in

individual health insurance coverage (on- or off-Exchange) at the expiration of their STLDI

coverage and declines to do so in these final rules. Providing consumers with an individual

market special enrollment period to purchase off-Exchange or on-Exchange coverage when they

lose eligibility for STLDI or their STLDI policy ends could confuse or mislead consumers who

are considering their health coverage options. Consumers may delay enrolling in comprehensive

coverage when first available, on the expectation that such coverage would be available at any

time, even if STLDI coverage does not renew or is otherwise terminated. Also, as explained

previously, inflating the fraction of low-risk individuals who enroll in STLDI rather than

individual health insurance coverage will have negative consequences for the risk pools for

individual health insurance coverage.

Furthermore, there are other options for individuals who anticipate experiencing longer

gaps between comprehensive coverage. For example, an individual who loses comprehensive

coverage may be eligible for a special enrollment period that allows them to enroll in group

coverage sponsored by their employer, the employer of their parent, spouse or partner, or

individual health insurance coverage, either directly with the issuer, or through the Exchanges,

where they may be eligible for APTC.

170

171

In some circumstances, they may be eligible for other

coverage such as government-based assistance for qualified individuals under Medicaid, CHIP,

or BHP.

172

In addition, if a consumer experiences a reduction in benefits or termination of

employment and is uncertain as to when they will be eligible for other comprehensive coverage,

the consumer in many cases has the option of electing coverage under the Consolidated Omnibus

Budget Reconciliation Act (COBRA)

173

(18, 29, or 36 months depending on the nature of the

169

See 26 CFR 54.9801–6, 29 CFR 2590.701–6, 45 CFR 146.117.

170

45 CFR 155.420.

171

45 CFR 147.104(b)(2).

172

Medicaid eligibility requirements vary by State.

173

Pub. L. 99–272, April 7, 1986.

COBRA qualifying event) or State mini-COBRA continuation coverage laws. Also, as discussed

in section III.A.2 of this preamble, an individual who enrolls in STLDI coverage from one issuer

and wishes to purchase another STLDI policy maintains the option of enrolling in STLDI

coverage with another issuer that is not a member of the same controlled group.

One commenter suggested that the Departments require that certain consumer protection

provisions apply to STLDI. Other commenters urged the Departments to extend the prohibition

on rescissions to STLDI. One of these commenters explained that STLDI issuers can rescind the

patient’s coverage following post-claims underwriting,

174

leaving patients without any financial

or medical protection and at high risk of incurring medical debt.

The Departments appreciate commenters’ suggestions regarding ways in which to ensure

STLDI provides key Federal consumer protections. The Departments agree that STLDI can place

a consumer’s health and financial well-being at risk if they experience a significant medical

event or have a complex medical condition. As discussed in this preamble at section II.B,

consumers may be susceptible to deceptive marketing and sales practices that often mask post-

claims underwriting practices by STLDI issuers and the exclusion of key essential health benefits

and Federal consumer protections under STLDI plans. Consumers may be unaware of the

limitations of their STLDI coverage until they need care or have incurred significant medical

expenses, particularly those with low health literacy. However, the Departments did not propose

to apply Federal consumer protections to STLDI and are not finalizing in these final rules the

extension of any of the individual health insurance coverage Federal consumer protections and

requirements to STLDI.

175

The Departments further note it would be inconsistent with the statute

174

Post-claims underwriting refers to the practice of engaging in an underwriting review after a claim is made rather

than going through the time and expense of doing such a review to assess the consumer’s actuarial risk and medical

conditions at the time the policy is purchased.

175

While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive

coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and

reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health

insurance coverage or STLDI. Those requirements will be addressed by HHS in a separate rulemaking. See

Requirements Related to Air Ambulance Services, Agent and Broker Disclosures, and Provider Enforcement;

Proposed Rules, 86 FR 51730 at 51740 – 51744 and 51770 – 51771 (Sept. 16, 2021).

to extend the Federal prohibition on rescissions to STLDI, as Congress limited its applicability to

group health plans and health insurance issuers offering group or individual health insurance

coverage.

176

In addition, as discussed in section III.A.2 of this preamble, the Departments have

determined that limiting extensions and renewals of STLDI instead of applying guaranteed

renewability to STLDI appropriately distinguishes STLDI from individual health insurance

coverage.

Other commenters suggested that the Departments collect data on key elements,

including, for example, compensation paid by issuers to brokers or agents; plan-level

enrollment/disenrollment and claims data that is disaggregated by age, income, race/ethnicity,

and geographic locations; coverage limits; and other data to enable regulators and stakeholders to

assess whether and how children and families are being served by STLDI.

The Departments agree with commenters that it would be useful to have access to more

data on STLDI. HHS is committed to collecting information from issuers offering STLDI

regarding any direct or indirect compensation provided by the issuer to an agent or broker

associated with enrolling individuals in STLDI, as authorized under section 2746 of the PHS

Act.

177

However, beyond this requirement, the Departments do not currently have authority to

collect data from issuers of STLDI. States, in contrast, can survey and collect data on STLDI

under State authority and the NAIC Market Analysis and Procedures Working Group annually

collects data from issuers of STLDI.

178

The Departments encourage States that do not already

collect such data to consider the collection of data from STLDI issuers, as suggested by

commenters, to assist with Federal and State oversight of STLDI.

2. Definitions of “Short-term” and “Limited-duration”

176

See PHS Act section 2712.

177

See Requirements Related to Air Ambulance Services, Agent and Broker Disclosures, and Provider Enforcement;

Proposed Rules, 86 FR 51730 at 51740 – 51744 and 51770 – 51771 (Sept. 16, 2021).

178

The NAIC is currently collecting additional data on STLDI as part of its Market Conduct Annual Statement data

call for STLDI offered in 2023. See https://content.naic.org/mcas-2023.htm.

The 2023 proposed rules proposed to amend the Federal definition of “short-term,

limited-duration insurance” in 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103 to

reflect a new interpretation of the phrase “short-term” to mean a policy, certificate, or contract of

insurance with an issuer that has an expiration date specified in the policy, certificate, or contract

of insurance that is no more than 3 months after the original effective date of the policy,

certificate, or contract of insurance.

179

The 2023 proposed rules also proposed to interpret

“limited-duration” to mean a maximum coverage period that is no longer than 4 months in total,

including renewals and extensions.

180

For this purpose, the Departments proposed that a renewal

or extension would include the term of a new STLDI policy, certificate, or contract of insurance

issued by the same issuer to the same policyholder within the 12-month period, beginning on the

original effective date of the initial policy, certificate, or contract of insurance. As proposed, in

this context, the phrase “same issuer” would refer to the entity licensed to sell the policy,

consistent with the definition of health insurance issuer in 26 CFR 54.9801-2, 29 CFR 2590.701-

2, and 45 CFR 144.103. Under this proposal, the duration of coverage would be calculated based

on the total number of days of coverage (either consecutive or non-consecutive) that a

policyholder is enrolled in an STLDI policy with the same issuer within the prior 12-month

period, regardless of whether the coverage issued to the policyholder is under the same or a new

policy, certificate, or contract of insurance.

The calculation for the duration of coverage, however, would not include days of

coverage under an STLDI policy, certificate, or contract of insurance sold to the same

policyholder by a different issuer. As the Departments explained in the preamble to the

2023 proposed rules, this proposed distinction would effectively limit stacking of policies sold

by the same issuer, would be easier for issuers to track and comply with than if applied across

179

88 FR 44596 at 44610-44611 (July 12, 2023).

180

Id. at 44611-44614 (July 12, 2023).

different issuers, and would allow consumers to purchase subsequent STLDI policies from other

issuers within a 12-month period.

181

As explained in the preamble to the 2023 proposed rules, the new proposed definition for

STLDI is consistent with the group market rules regarding the 90-day waiting period provision

under the ACA and with STLDI’s traditional role of serving as a temporary coverage for

individuals transitioning between other types of comprehensive coverage. The proposed

definition is also similar to the less-than-3-month maximum term for STLDI under the 2016 final

rules and under a number of State laws,

182

and aligns with the goal of Executive Order 14009 to

support protections for people with preexisting conditions.

The Departments requested comments on the proposed new interpretations of the phrases

“short-term” and “limited-duration.” The Departments also requested comments on whether the

interpretation of “short-term” in the proposed definition of STLDI should be some other length,

such as no longer than 4 months, and why, and whether there are circumstances under which

issuers should be allowed to renew or extend STLDI for periods of time beyond what would be

permitted in the proposed rules. The Departments also requested comments on whether there are

additional ways to differentiate STLDI from comprehensive coverage options, including

information on State approaches or limits on the sale of STLDI by a different issuer, and how the

subsequent issuer would determine whether or not an applicant had previous STLDI with another

issuer. The Departments also solicited comments on whether to broaden the limits on stacking to

include issuers that are members of the same controlled group.

Given that the majority of comments addressed the definitions of “short-term” and

“limited-duration” together, the Departments are addressing comments related to the maximum

allowed length and the definitions for these two terms together, along with the comments related

181

Id. at 44612 (July 12, 2023).

182

See, for example, D.C. Code §31-3303.13d; 18 Del. Admin. Code 1320-4.0; Haw. Rev. Stat. § 431:10A-605; Md.

Code Ann., Insurance § 15-1301(s); N.M. Stat. § 13.10.3.8; Or. Rev. Stat. §743B.005; and Ver. Stat. Ann. tit. 8

§ 4084a(c). See also Healthinsurance.org (2023). “Duration and Renewals of 2023 Short-Term Medical Plans by

State,” available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-

insurance.pdf.

to the practice of stringing together multiple or consecutive policies, a practice known as

“stacking.”

Commenters suggested various options for the allowable maximum duration. Some

commenters supported finalizing the maximum duration as proposed. These commenters agreed

that STLDI serves as an adequate gap filler for consumers that need a bridge between

comprehensive forms of coverage, and a 3-month initial term makes it easier for a consumer to

distinguish between STLDI and comprehensive coverage. In addition, some of these commenters

supported a short initial term to protect consumers from the inherent risks of enrolling in

coverage that does not provide Federal consumer protections or comprehensive health benefits,

and to curb negative impacts on the risk pools for individual health insurance coverage. Some

commenters were of the view that the proposed definitions of the terms “short-term” and

“limited-duration” better align with the plain language of the statute than the current definitions.

Others supported shortening the initial maximum allowable period to a period less than allowed

under the current rules, but longer than the proposed 3-month period, for example a period of

less than 6 months, to strike a balance between the drawbacks of STLDI with consumers’ need

for gap-coverage when coverage is needed for a short period of time, they have no other

insurance options, or comprehensive coverage is otherwise unaffordable. Other commenters

stated that STLDI policies should be permitted to have longer durations as long as they end by

December 31 of the calendar year in which the policy period commences, at which point

individuals can enroll in comprehensive coverage during the annual individual market open

enrollment period. One commenter, who supported the proposed maximum duration, suggested

that the Departments require that all initial contract terms end by December 31 of the policy year

in which the policy commences (even when the STLDI policy is purchased late in the year), to

minimize situations where consumers miss the annual individual market open enrollment period.

The commenter suggested that requiring STLDI policies to end by December 31 would cause

consumers to look for new coverage during the individual market open enrollment period and

increase the likelihood that they would enroll in comprehensive coverage. The commenter

further suggested that, for alignment with the proposed maximum duration, the Departments

could allow renewal for up to 4 months (past December 31), but only if the full 4-month period

of coverage is not sold at the same time and that an additional notice is sent to consumers about

the annual individual market open enrollment period.

Other commenters opposed modifying the initial maximum allowed length of

“short-term” and instead recommended keeping the 2018 final rule’s maximum allowed length

for an initial contract term of less than 12 months. With respect to the definition of “limited-

duration,” some commenters suggested the Departments redefine the standard to allow a longer

maximum length than proposed. One commenter requested that the Departments define

“limited-duration” as up to 12 to 18 months. Another commenter suggested that the Departments

define “limited-duration” as up to 9 months in a 12-month period to allow consumers who do not

have a qualifying event for a special enrollment period to purchase comprehensive coverage to

use STLDI to bridge the gap between annual open enrollment periods in the individual market.

Commenters who supported a longer allowable maximum duration than the proposed

period stated that limiting the maximum allowed length to no more than 3 months and a 1-month

extension fails to account for all circumstances for which a consumer may need access to STLDI.

Commenters gave examples of consumers who may benefit from being able to purchase longer-

duration STLDI coverage, such as workers experiencing a change in employment, or

unemployment; contract workers who do not have coverage through their employer;

self-employed individuals or owners of a small business; college students who are not on their

parent’s insurance; workers in industries that require frequent travel, such as nurses and truckers;

consumers with varying and unpredictable incomes; or consumers eligible for little or no APTC

who would encounter a substantial premium expense if they enrolled in comprehensive

coverage. In advocating for a longer maximum allowed duration, one commenter also noted that

the average length of unemployment is 20.6 weeks, while according to a group of issuers and

marketers of STLDI the average length of enrollment in STLDI is only 7 months. Other

commenters stated that the maximum allowable length of STLDI should be left to the States.

Some commenters suggested the Departments require issuers offering STLDI with renewals and

extensions of up to 4 months to guarantee that the renewal or extension be available to the

consumer without additional underwriting if the consumer chooses to renew or extend their

coverage.

Although the Departments acknowledge that there will be times when consumers may

experience gaps in comprehensive coverage that exceed the maximum allowable duration for

STLDI finalized in these rules, the Departments are not persuaded that a longer maximum initial

contract term or longer maximum duration, taking into account renewals or extensions, is

appropriate. Maintaining the definition that permits a longer initial length of up to 1 year would

not alleviate the challenges consumers currently face in distinguishing STLDI from individual

health insurance coverage, would continue to place consumers who enroll in STLDI at financial

risk, and would not mitigate the impact on the risk pools for individual health insurance coverage

or those consumers purchasing individual health insurance coverage. Because of low health

literacy, consumers face the risk of inadvertently enrolling in STLDI coverage that does not

sufficiently provide coverage for unexpected or significant medical events that arise during the

coverage period.

The Departments are not persuaded by comments that urged the Departments to align the

maximum duration with a time frame that reflects average periods of unemployment, such as 6 to

9 months, rather than the proposed limit. The limit of no-more-than 3 months with a 1-month

extension aligns with the 90-day waiting period limitation and 1-month additional reasonable and

bona fide employment-based orientation period that is permitted under the ACA. The

Departments are of the view that aligning the maximum duration of an STLDI policy with the

period Federal law expressly permits as an “orientation” period in employment-based coverage

most appropriately reflects STLDI’s traditional role to fill temporary gaps in coverage.

Consumers who purchase STLDI during a 90-day waiting period have a predictable end to their

gap in coverage. Their gap is defined, and generally temporary, and thus is exactly the type of

gap that STLDI traditionally serves to fill. In contrast, a loss in coverage due to a loss of

employment is not the type of gap that STLDI traditionally is intended to fill because consumers

that experience a loss of employment do not have certainty regarding how long their gap in

comprehensive coverage will be, and for some that gap will not be temporary and may extend

beyond the average length of unemployment. By enrolling in STLDI in lieu of COBRA

continuation coverage or individual health insurance coverage during the 60-day period for

which they are eligible for a special enrollment period for loss of qualifying coverage, these

consumers may lose access to comprehensive coverage until the next individual market open

enrollment period. While STLDI may be an appropriate choice for some individuals during a

period of unemployment, the Departments concluded that aligning the maximum duration with

the 90-day waiting period limitation and 1-month additional reasonable and bona fide

employment-based orientation period better captures the traditional role of STLDI. In addition,

consumers are more likely to face an unexpected health issue during a longer coverage period –

such as 6, 9, or 12 months – and may find themselves insufficiently protected by the typically

limited benefits of an STLDI policy and potential resulting financial burdens.

By allowing an initial term of no more than 3 months, the interpretation of “short-term”

for purposes of the revised Federal definition of STLDI finalized in these rules provides a clear

demarcation from the 1-year length of a policy year for individual health insurance coverage. In

addition, as discussed earlier, STLDI’s traditional role is to provide coverage for temporary gaps

for consumers transitioning between comprehensive coverage. A maximum period of no more

than 3 months and 1-month extension (for a total maximum duration of 4 months, including

renewals or extensions) is more appropriate for coverage intended to fill a temporary gap in

comprehensive coverage. As explained in the preamble to the 2016 final rules, for longer gaps in

coverage, guaranteed availability of coverage and special enrollment period requirements in the

individual market under the ACA ensure that individuals can purchase individual health

insurance coverage through or outside of the Exchange that is minimum essential coverage and

includes the Federal consumer protections and requirements for comprehensive coverage.

183

Many consumers will also have the opportunity to enroll in comprehensive coverage offered by

an employer and some may be eligible for other coverage, such Medicaid, CHIP or BHP.

The Departments are similarly not persuaded by the recommendation that STLDI be

permitted to have a longer maximum duration, provided that coverage ends by December 31.

Although the Departments appreciate that this approach would minimize gaps in coverage

between when an individual’s STLDI ends and when they can enroll in comprehensive

individual health insurance coverage during the annual individual market open enrollment

period, the Departments are concerned that such an approach would not sufficiently distinguish

STLDI from individual health insurance coverage, which also ends on December 31. Finally, as

mentioned in the 2023 proposed rules, the maximum allowable length of no more than 3 months

and a 1-month extension represents a balance between providing a flexible standard that captures

many of the circumstances for which an individual would want to enroll in STLDI, responds to

the significant changes in the legal landscape and market conditions since the Departments last

addressed STLDI, and addresses the low value that STLDI provides to consumers when used as

a substitute for comprehensive coverage.

Some commenters requested that the Departments impose a guaranteed renewability

requirement on STLDI to prevent additional underwriting if a consumer chooses to renew or

extend their coverage. The Departments have determined that limiting extensions and renewals

of STLDI instead of applying guaranteed renewability to STLDI appropriately distinguishes

STLDI from individual health insurance coverage. As such, these final rules do not impose a

guaranteed renewability requirement on STLDI. Underwriting practices, including post-claims

underwriting are outside the scope of these final rules.

183

81 FR 75318 (Oct. 31, 2016).

Many commenters supported the new proposed interpretation of “limited-duration” and

accompanying proposed definition of renewal or extension to address stacking of STLDI policies

by the same issuer to the same policyholder within a 12-month period. These commenters stated

that issuers have exploited this loophole to sell consumers consecutive STLDI policies that

collectively sidestep the maximum duration limits, deliberately misleading consumers about

differences between STLDI and comprehensive coverage. According to some of these

commenters, addressing the stacking loophole would reduce the risk of consumers unknowingly

enrolling in coverage with inadequate benefits for an extended period of time. Commenters

further stated stacking practices provide consumers with a false sense of security that they

purchased a viable long-term substitute for comprehensive coverage and make it more

challenging for consumers to distinguish STLDI from individual health insurance coverage.

Commenters expressed concern about the exposure to financial risk that consumers face when

purchasing stacked STLDI policies, explaining that a consumer typically faces new deductibles,

new annual out-of-pocket limitations, and new preexisting condition limitations with each new

STLDI policy term. A commenter noted that consumers may not understand that a health event

experienced when covered under one STLDI policy could serve as the basis to impose a

preexisting exclusion under a subsequent STLDI policy to deny benefits for the same condition.

Other commenters questioned the basis for the Departments to adopt this part of the

definition of “limited-duration” to address stacking of policies sold by the same issuer, members

of the same controlled group, and/or by unrelated issuers, stating that the Departments do not

have authority to constrain consumer choice. A commenter argued that preventing consumers

from purchasing subsequent STLDI policies from an issuer of their choice is contrary to the

statute, which looks at the issuer’s conduct rather than the consumer’s conduct, and would run

afoul of the decision in Central United Life Ins. Co. v. Burwell.

184

The commenter further stated

that Congress unambiguously specified in the ACA and HIPAA the types of insurance and actors

184

827 F.3d 70, 74 (D.C. Cir. 2016).

Congress intended to regulate, and Congress consistently chose to exempt STLDI from the

definition of individual health insurance coverage and to regulate issuer behavior instead of

consumer behavior. Another commenter encouraged the Departments to defer to States on

whether and to what extent an issuer could sell consecutive or multiple STLDI policies to

consumers within a 12-month period. Other commenters stated that addressing the stacking

loophole would leave consumers financially vulnerable, as some will not understand that their

STLDI coverage cannot be renewed or extended with the same issuer and will have limited

coverage options outside the annual individual market open enrollment period.

185

Some commenters who supported addressing the stacking loophole encouraged the

Departments to extend the new interpretation of “limited-duration” and the accompanying

definition of renewal or extension to include all issuers that are a part of the same controlled

group. These commenters stated that issuers with shared ownership should not be able to exploit

their corporate structure to avoid consumer protections and effectively circumvent the otherwise

applicable maximum duration limits for STLDI coverage. Some commenters suggested that

extending the limitation to include all issuers in the same controlled group could help address

concerns regarding STLDI sold through associations,

186

as associations might be positioned to

facilitate the issuance of stacked STLDI policies from different subsidiaries of the same

controlled group. One commenter stated that members of the same controlled group should have

the data and member-tracking capabilities to know if a consumer has purchased an STLDI policy

within the 12 months from another issuer within the same controlled group.

The Departments agree with commenters that supported the Departments’ authority to

address the stacking loophole as part of the definition of renewal or extension for purposes of the

new interpretation of “limited-duration.” As stated in the preamble to the 2023 proposed rules,

the Departments are concerned that stacking practices lengthen the duration of STLDI coverage

185

See section III.A.4 of this preamble.

186

For further discussion on STLDI sold through associations, see section III.A.5 of this preamble.

without offering the benefits of comprehensive coverage that is subject to Federal consumer

protections and requirements for comprehensive coverage, including limitations on medical

underwriting, the prohibition of preexisting condition exclusions, and the prohibition on

coverage rescissions. Using the stacking loophole, issuers could enroll consumers in multiple

consecutive STLDI policies that together provide coverage for 12 months (or longer), in effect

circumventing the rules related to maximum duration and making it more challenging for

consumers to distinguish STLDI from comprehensive coverage.

187

As discussed in section III.A.1 of this preamble, the Departments have clear authority to

interpret and implement the Code, ERISA, and the PHS Act as they do here. This includes the

authority to issue regulations on STLDI to define it and set standards that distinguish it from

individual health insurance coverage. Providing a definition for what a renewal or extension

means in the context of the new interpretation of “limited-duration” is included within this

authority and is not a constraint on consumer behavior. Instead, the definition and standards, as

proposed and finalized, apply to health insurance issuers that elect to offer STLDI. Further,

consumers will continue to have access to STLDI plans that are generally exempt from the

Federal consumer protections and requirements for comprehensive coverage.

188

Neither the

proposed rules nor these final rules sought to extend to STLDI or otherwise make changes with

respect to the applicability of those consumer protections and requirements.

After considering comments, the Departments are finalizing as proposed that a renewal or

extension, for purposes of applying the interpretation of “limited-duration” under the new STLDI

definition adopted in these final rules, includes the term of a new STLDI policy, certificate, or

contract of insurance issued by the same issuer to the same policyholder within the 12-month

period beginning on the original effective date of the initial policy, certificate, or contract of

187

88 FR 44596 at 44612-44613 (July 12, 2023).

188

While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive

coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and

reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health

insurance coverage or STLDI.

insurance. Subsequent sales to the same policyholder by the same issuer within the same

12-month period will be treated comparably to renewals for purposes of calculating and applying

the limited-duration standard.

The Departments also agree that extending the definition of renewal or extension for

purposes of applying the new interpretation of “limited-duration” to limit stacking of STLDI

policies sold by issuers that are members of the same controlled group is appropriate and

necessary. This prevents issuers from circumventing the maximum duration standards in the

revised Federal STLDI definition adopted in these final rules by marketing policies of one

member of a controlled group to policyholders enrolled in STLDI coverage of another member

of the controlled group, keeping that policyholder enrolled in STLDI coverage for more than the

maximum allowed coverage period. The final rules therefore provide that for purposes of

applying the new interpretation of “limited-duration,” a renewal or extension includes the term of

a new STLDI policy, certificate, or contract of insurance offered by either the same issuer or, if

the issuer is a member of a controlled group, any other issuer that is a member of the same

controlled group. For these purposes, a “controlled group” means any group treated as a single

employer under section 52(a), 52(b), 414(m), or 414(o) of the Code. HHS uses a similar

definition of “controlled group” for purposes of the guaranteed renewability rules and QHP

issuer standards, and the Departments anticipate the usage is familiar to health insurance

issuers.

189

The relevant metric to calculate whether the duration of coverage sold by the same issuer

or any other issuer that is a member of the same controlled group to the same policyholder

satisfies the revised Federal interpretation of “limited-duration” in these final rules is the total

number of days of coverage (either consecutive or non-consecutive) that the policyholder is

enrolled in an STLDI policy with the same issuer or any other issuer that is a member of the

189

See 45 CFR 147.106(d)(3) and (4) (providing an exception to market withdrawal under guaranteed renewability

regulations) and 156.20 (defining an “issuer group” for purposes of QHP issuer standards).

same controlled group. That calculation applies regardless of whether the coverage is a renewal

or extension under the same policy, certificate, or contract of insurance, or if it involves the

issuance of a new STLDI policy, certificate, or contract of insurance to the same policyholder

within the 12-month period beginning on the original effective date of the initial policy,

certificate, or contract of insurance.

Several commenters requested that the Departments expand the approach to address the

stacking loophole to also include the sale of STLDI policies by unaffiliated issuers. These

commenters were concerned that stacking will continue through policies sold by multiple issuers.

Some commenters questioned whether focusing only on stacking policies sold by the same issuer

achieves the goals described in the proposed rules because consumers could still stack STLDI

purchased from different issuers. One commenter expressed concern that the proposed limitation

on stacking by only the same issuer would harm consumers because seeking STLDI policies

from multiple issuers would result in the coverage offering different networks and benefits. A

commenter that supported extending the approach to address the stacking loophole to also apply

to STLDI policies sold by unaffiliated issuers shared that some States prohibit consumers from

enrolling in STLDI for more than 3 months in a 12-month period, regardless of issuer. Another

commenter, who was supportive of the general concept of limiting stacking across issuers,

cautioned that it would be exceedingly difficult for issuers to implement a limit on the sale of

multiple STLDI policies by different issuers within the same year at this time. Some commenters

who supported the extension of the approach to unaffiliated issuers explained that such an

approach could be implemented by issuers certifying, by consumer attestation, or by another

similar mechanism, that the policyholder has not purchased STLDI coverage from any issuer

within the previous 12-month period, while others suggested that the Departments create a safe

harbor for issuers that require consumers to sign attestations regarding previous STLDI

coverage.

While the Departments appreciate these comments and recommendations, the

Departments decline to extend the definition of renewal or extension for purposes of applying the

revised interpretation of “limited-duration” to limit stacking of policies issued by unaffiliated

issuers. As explained in the proposed rules, the Departments are cognizant of the administrative

burden for issuers of tracking and ensuring compliance with such a prohibition.

190

However,

States may choose to further address issuer stacking practices, such as by prohibiting stacking

across issuers not within the same controlled group.

One commenter suggested the Departments limit an issuer’s ability to issue subsequent

STLDI policies to members of the same household. The Departments did not propose to limit an

issuer’s ability to sell subsequent STLDI policies to members of the same household and decline

to adopt such a limitation in these final rules. Members of the same household may need

temporary, stopgap coverage at different times over a 12-month period. Limiting the ability of

members of the same household to purchase STLDI coverage would remove flexibility for

consumers and unnecessarily complicate their health insurance enrollment process because

issuers would have to determine whether members of the same household have enrolled in any

STLDI coverage during the previous 12-month period each time any member of the household

enrolls in STLDI, which could create an administrative burden on issuers. Furthermore, whereas

limiting stacking across affiliated issuers in the same controlled group will prevent issuers from

using their corporate structure to circumvent the rules related to maximum duration, it is not

apparent to the Departments that limiting stacking across unaffiliated issuers or different

members of the same household accomplishes any similar goal. Finally, the administrative

burden of tracking members of the same household may outweigh any potential benefit of

restricting the sale of multiple STLDI policies to individuals who reside in the same household.

Some commenters requested that the Departments affirm that consumers are entitled to

renewal guarantees that might be offered by an STLDI issuer. As explained in the preamble to

190

88 FR 44596 at 44646 (July 12, 2023).

the 2018 final rules, renewal guarantees generally permit a policyholder, when purchasing their

initial insurance contract, to pay an additional amount in exchange for a guarantee that the

policyholder can elect to purchase, for periods of time following the expiration of the initial

contract, another policy or policies at some future date, at a specific premium that would not

require any additional underwriting.

191

The Departments affirm that the final rules do not address

renewal guarantees. However, the Departments acknowledge that the revisions to the Federal

definition—including the provision that requires counting the term of a new STLDI contract

issued by the same issuer or, if the issuer is a member of a controlled group, any other issuer that

is a member of the same controlled group, to the same policyholder within the 12-month period

beginning on the original effective date of the initial policy, contract, or certificate of insurance

toward the total maximum duration of STLDI—would limit the guarantees that such instruments

may be able to provide.

192

3. Sales and Marketing Practices

In the 2023 proposed rules, the Departments expressed concerns about reports of

aggressive and deceptive sales and marketing practices related to STLDI where STLDI is

marketed as a substitute for comprehensive coverage, despite being exempt from most of the

Federal individual market consumer protections and requirements for comprehensive

coverage.

193

194

The Departments solicited comments on additional ways to help consumers

distinguish between comprehensive coverage and STLDI. In particular, the Departments

requested comments on ways to prevent or otherwise mitigate the potential for direct competition

between comprehensive coverage and STLDI during the open enrollment period for

comprehensive individual health insurance coverage.

195

191

See 83 FR 38219, 38220 (Aug. 3, 2018).

192

While the Departments may be limited in their ability to take an enforcement action with respect to transactions

involving products or instruments that are not health insurance coverage, the Departments may have the authority to

regulate the coverage issued pursuant to such a product or instrument.

193

See 88 FR 44596 at 44613 (July 12, 2023).

194

The agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply

to health insurance issuers offering individual health insurance coverage or STLDI.

195

See 88 FR 44596 at 44613-44614 (July 12, 2023).

Many commenters agreed that STLDI deceptive marketing practices have caused many

consumers to confuse STLDI with comprehensive coverage. These commenters stated that these

misleading marketing practices often attract younger, healthier consumers who may not realize

how limited STLDI coverage is until faced with out-of-pocket costs. Commenters observed that

studies indicate that STLDI has been aggressively and deceptively marketed to consumers

especially during the open enrollment period for comprehensive individual health insurance

coverage,

196

which has left consumers at increased risk of purchasing plans that do not meet their

medical needs. Commenters also noted that the population of individuals affected by States

resuming Medicaid eligibility redeterminations due to the end of the FFCRA’s Medicaid

continuous enrollment condition has been vulnerable to these practices. Commenters highlighted

evidence of salespeople neglecting to tell consumers that they may be eligible for subsidized

ACA plans, asserting that an individual’s health needs would be covered by an STLDI plan

despite plan documents contradicting these assertions, or misstating an STLDI plan’s coverage

of certain preexisting conditions. Commenters also included examples of deceptive marketing

practices (some of which were identified during secret shopper studies), such as marketing

materials with images of activities for which coverage of associated injuries are excluded,

marketing materials with logos of well-known issuers that are not affiliated with the STLDI

being sold, or websites selling STLDI that include the words “Obamacare” or “ACA.”

One commenter suggested that the Departments should monitor and limit marketing of

STLDI that is conducted in a manner that may lead consumers to unwittingly enroll in STLDI.

The commenter stated that multiple States have already implemented prohibitions against

aggressive and deceptive marketing of STLDI products to protect individuals. The commenter

stated that a Federal prohibition on such marketing tactics would ensure that people are aware of

the most affordable and comprehensive health coverage options available to them, are not

196

Government Accountability Office (2020). “Private Health Coverage: Results of Covert Testing for Selected

Offerings,” available at: https://www.gao.gov/products/gao-20-634r.

exposed to deceptive marketing practices, and are able to avoid potentially catastrophic gaps in

coverage.

Other commenters expressed concern regarding the sale of STLDI over the telephone and

Internet. The commenters cited studies showing an increase in sales over the telephone and

Internet since the 2018 final rules. Commenters stated that although telephone and Internet sales

are convenient for consumers, the incentives to provide reliable customer service are low.

Commenters noted that such sales methods are prone to abuse and make it hard for consumers to

get concrete, verifiable answers about the product they are being sold before they buy it. Other

commenters suggest that sellers of STLDI be reviewed for compliance with laws enforced by the

Federal Trade Commission that prohibit deceptive marketing practices. Some commenters

suggested that marketers of STLDI sold over the telephone or Internet should be required to

provide a clear warning to consumers about the true coverage terms prior to the conclusion of a

sale.

Some commenters encouraged the Departments to collaborate with State departments of

insurance to combat misleading marketing practices. Commenters noted that the expansion of

STLDI following the 2018 final rules has presented challenges for State regulators attempting to

monitor the applicable State market and protect potential consumers against deceptive marketing

practices. Commenters suggested that the Departments, in collaboration with the Federal Trade

Commission and the Federal Bureau of Investigation, should investigate and stop lead generators

and sales agents who use deceptive marketing techniques through websites, social media, phone

calls, and other means.

Several commenters urged the Departments to establish a Federal prohibition on the sale

of STLDI during the annual open enrollment period for comprehensive individual health

insurance coverage. Commenters cautioned that when STLDI is marketed and sold during the

annual individual market open enrollment period, the potential for consumer confusion is

particularly acute. Commenters explained that sellers take advantage of the annual open

enrollment period when more consumers are shopping for comprehensive individual health

insurance coverage to push them into products that are not comprehensive and argued that

halting sales of STLDI during this period would decrease consumer confusion and facilitate

access to comprehensive coverage. Another commenter stated that legitimate needs for STLDI

coverage may arise at any time of year and recommended that if the Departments place

restrictions on the sale of STLDI during the annual individual market open enrollment period,

those restrictions should be limited to the sale of products with a January 1 effective date.

Another commenter suggested that the Departments explicitly prohibit Federal and State

Exchanges from linking to or advertising STLDI. The commenter stated that HHS should also

impose a similar requirement on agents and brokers to prohibit side-by-side advertising of

STLDI or other non-compliant plans on the same webpage as individual health insurance

coverage that is subject to the Federal consumer protections and requirements for comprehensive

coverage.

One commenter suggested that the Departments consider prohibiting the offering of

higher broker commissions for the sale of STLDI than commissions for the sale of

comprehensive coverage, arguing that this type of prohibition could significantly decrease the

financial incentive for agents and brokers to encourage consumers to purchase STLDI over

comprehensive coverage and help reduce direct competition between these two types of

products.

Some commenters encouraged the Departments to invest in and take steps to increase

consumer education and enrollment assistance activities that could improve consumer

understanding of the differences between comprehensive coverage and STLDI.

Other commenters suggested placing requirements on agents and brokers or the consumer

to better ensure consumers understand the differences between STLDI and comprehensive

coverage. For example, one commenter suggested that the Departments require agents and

brokers to sign an attestation that the information given to the consumer by the agent or broker

spells out in plain language the terms of the STLDI coverage and acknowledges that the

consumer understands the limitations. The commenter asserted this would help ensure that

underserved communities and patients with chronic medical conditions who struggle to find

affordable health insurance options are not targeted by unscrupulous sales and marketing tactics.

Another commenter urged the Departments to adopt the same disclosure and consent

requirements applicable to agents, brokers, and web-brokers assisting consumers in a

Federally-facilitated Exchange or State Exchange using the Federal platform for agents, brokers,

and web-brokers assisting consumers purchasing STLDI.

197

One commenter suggested that the

Departments require a statement for consumers to sign acknowledging that the coverage does not

meet the minimum standards required under the ACA and does not provide equivalent Federal

consumer protections.

The Departments appreciate these comments and suggestions and will take them into

consideration in any future regulations or guidance defining STLDI. In addition, the Departments

appreciate the recommendations regarding steps that the Departments can take outside of

rulemaking to educate consumers about their health coverage options and limit the possibility

that consumers inadvertently purchase STLDI when shopping for comprehensive coverage. HHS

has already taken steps separate from these final rules to limit the potential for individuals to

inadvertently purchase an STLDI plan when shopping for a qualified health plan and will

consider additional opportunities to do so. HealthCare.gov, the platform for the

Federally-facilitated Exchanges and State Exchanges using the Federal platform, neither links to

nor advertises STLDI.

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In addition, for the Federally-facilitated Exchanges and State Exchanges

197

See 45 CFR 155.220 for standards applicable to agents and brokers and web-brokers who assist qualified

individuals, qualified employers, or qualified employees enrolling in qualified health plans.

198

See section 1311(d)(2) of the ACA, which generally prohibits an Exchange from making available any health

plan that is not a qualified health plan. See also CMS, Frequently Asked Questions on Reuse of Exchange for

Ancillary Products (March 29, 2013), available at: https://www.cms.gov/cciio/resources/files/downloads/ancillary-

product-faq-03-29-2013.pdf.

using the Federal platform, direct enrollment entities

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are generally required to use three

different website pages to display and market coverage – one for qualified health plans offered

through the Exchange, one for individual health insurance coverage offered outside the

Exchange, and one for any other products, including STLDI.

200

Direct enrollment entities

participating in the Federally-facilitated Exchanges and State Exchanges using the Federal

platform must also limit marketing of non-QHPs, such as STLDI, during the Exchange eligibility

application and QHP selection process.

201

In its proposed rule entitled “Patient Protection and

Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating

Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented

Plan (CO-OP) Program; and Basic Health Program,” HHS proposed to apply these requirements

to direct enrollment entities operating in State Exchanges and to web-brokers that assist with or

facilitate enrollment in coverage in a manner that constitutes enrollment through the State-based

Exchanges.

202

4. Notice

199

“Direct enrollment entity” means an entity that an Exchange permits to assist consumers with direct enrollment in

qualified health plans offered through the Exchange in a manner considered to be through the Exchange as

authorized by 45 CFR 155.220(c)(3), 45 CFR 155.221, or 45 CFR 156.1230. 45 CFR 155.20.

200

45 CFR 155.221(b)(1).

201

45 CFR 155.221(b)(3).

202

88 FR 82510, 82568 and 82562 (Nov. 24, 2023) (“Consistent with §§ 156.1230(b)(1) and (2), to directly enroll

consumers in a manner that is considered to be through the Exchange, QHP issuer DE entities are required to

comply with the applicable requirements in § 155.221 … In this rulemaking, we propose to extend these FFE

requirements to also apply them to QHP issuer DE entities in State Exchanges. As proposed to be applied in these

State Exchanges, QHP issuer DE entities would similarly be required to provide consumers with correct

information, without omission of material fact, regarding the Exchanges, QHPs offered through the Exchanges, and

insurance affordability programs. In addition, QHP issuer DE entities in State Exchanges would also be required to

refrain from marketing or conduct that is misleading (including by having a DE website that the State Exchange

determines could mislead a consumer into believing they are visiting the Exchange's website), coercive, or

discriminates based on race, color, national origin, disability, age, or sex … Finally, we propose…to extend the

current web-broker FFE standard of conduct established at § 155.220(j)(2)(i) to also apply to web-brokers assisting

consumers in State Exchanges, and consequently to these State Exchanges. Section 155.220(j)(2)(i) requires agents,

brokers, or web-brokers that assist with or facilitate enrollment of qualified individuals, qualified employers, or

qualified employees, in coverage in a manner that constitutes enrollment through an FFE, or assist individuals in

applying for APTCs and CSRs for QHPs sold through an FFE, must provide consumers with correct information,

without omission of material fact, regarding the FFEs, QHPs offered through the FFEs, and insurance affordability

programs …

and refrain from marketing or conduct that is misleading (including by having a DE website that HHS

determines could mislead a consumer into believing they are visiting HealthCare.gov ), coercive, or discriminates

based on race, color, national origin, disability, age, or sex.”)

In the preamble to the 2023 proposed rules, the Departments explained that the notice is

important to help consumers distinguish between comprehensive coverage and STLDI and

ensure that consumers are aware of the limitations of STLDI.

203

The Departments proposed to

amend the existing STLDI notice to further clarify the differences between STLDI and

comprehensive coverage and identify options for consumers to obtain comprehensive coverage

in concise, understandable language that would be meaningful to them.

204

The Departments

proposed to apply the amendments to the notice to all STLDI policies sold or issued on or after

the effective date of the final rules and to existing STLDI policies for notices provided upon

renewal or extension on or after the effective date of the final rules.

205

In the 2023 proposed rules, the Departments proposed that the notice must be displayed

(in either paper or electronic form) prominently in at least 14-point font, on the first page of the

policy, certificate, or contract of insurance (including for renewals or extensions), in any

marketing and application materials provided in connection with enrollment in such coverage,

including on websites that advertise or enroll individuals in STLDI, and in any enrollment and

reenrollment materials that are provided at or before the time an individual has the opportunity to

enroll or reenroll in coverage (including on any website used to facilitate reenrollment in

STLDI).

206

In these final rules, the Departments are finalizing the revised notice with modifications

to implement feedback from comments and consumer testing, improve consumer comprehension

of the notice, and further distinguish between STLDI and comprehensive coverage. As discussed

in section III.A.6 of this preamble, the revised notice must be provided with respect to both new

and existing STLDI for coverage periods (including renewals or extensions) beginning on or

after September 1, 2024.

203

88 FR 44596 at 44614 (July 12, 2023).

204

Id. at 44614-44618.

205

Id. at 44618-44619.

206

Id. at 44614-44616.

Some commenters were generally opposed to revisions to the notice standard. These

commenters expressed concern that the Federal revised notice may not comport with notices that

State legislatures and regulators create, often in consultation with consumer advocates and State

insurance experts. A commenter expressed concern that the information about ACA coverage in

the proposed notice would confuse the average person shopping for health coverage. Another

commenter suggested that the Departments defer to the NAIC and State regulatory experts who

are currently drafting minimum standards for STLDI products. A commenter suggested that

States should have the option to substitute their own required disclosure language in place of the

Federal mandated language and that notice provisions should only be applicable if a State has no

comparable notice provisions.

Another commenter shared a study asserting that the revised notice did not substantially

improve consumer understanding of STLDI and that any notice should be of short length because

most consumers have trouble understanding lengthy explanations that tend to present multiple

concepts in the same notice. Other commenters supported the proposed revisions to the notice

standard and agreed that the revisions would help educate consumers about the differences

between comprehensive coverage and STLDI before a decision is finalized about health

coverage in a way that would alleviate downstream concerns about applicable benefits and costs.

The Departments agree that it is important to provide consumers with concise, accurate

information to evaluate insurance products so that consumers may make informed decisions

about health insurance coverage. The Departments sought to address potential confusion caused

by the notice by requesting comments on the proposed notice standard and conducting consumer

testing. Based on current research highlighting deceptive marketing practices and consumer

confusion,

207

208

209

the Departments are of the view that it is necessary and appropriate for issuers

of STLDI to disclose key differences between comprehensive coverage and STLDI before

completing the sale or renewal so consumers can make informed decisions. The revised notice

standard under these final rules will help clarify the differences between STLDI and

comprehensive coverage. As the Departments agree that the revisions to the notice standard

alone will not protect consumers from deceptive marketing practices, revisions to the notice

standard are being finalized in tandem with revisions to the definitions of the terms “short-term”

and “limited-duration.” The Departments disagree with and decline to adopt the suggestion that

the notice should not be part of the Federal definition of STLDI.

With respect to concerns about the lack of State input in the revisions to the notice

standard, the Departments consulted plain language experts, conducted consumer testing, and

considered comments on the 2023 proposed rules from State regulators, consumer advocates, and

other interested parties. The Departments therefore disagree that there was a lack of State input.

The Departments concluded that a uniform Federal notice best furthers the Departments’ interest

in ensuring that information is communicated to consumers to enable them to identify and

distinguish STLDI from comprehensive coverage. Therefore, the Departments decided not to

specify that the revised notice would be applicable only if a State has no comparable notice

provision. In addition, these final rules do not prevent States from requiring additional language

be included with the notice for purposes of State law or prohibit issuers from including

207

For one example of deceptive marketing practices, see Federal Trade Commission (2022). “FTC Action Against

Benefytt Results in $100 Million in Refunds for Consumers Tricked into Sham Health Plans and Charged Exorbitant

Junk Fees,” available at: https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-

results-100-million-refunds-consumers-tricked-sham-health-plans-charged.