The Departments of the Treasury, Labor and Health and Human Services have finalized regulations regarding the definition of short-term, limited-duration insurance for purposes of the exclusion from the definition of individual health insurance coverage, and standards for travel insurance and supplemental health insurance coverage to be considered excepted benefits. These final regulations apply to group health plans and health insurance issuers beginning on the first day of the first plan year (or, in the individual market, the first day of the first policy year) beginning on or after January 1, 2017.
Short-term, limited-duration insurance is designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another. This coverage is not subject to the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) market reforms. Under existing regulations, short-term, limited-duration insurance is defined as a contract that must expire less than 12 months after the original effective date of the contract. The duration of the contract takes into account any extensions that may be elected by the policyholder without the issuer’s consent.
Because these contracts are not subject to PPACA market reform requirements, such coverage can serve as an individual’s primary coverage while bypassing important requirements such as lifetime and annual dollar limits on essential health benefits (EHB) and pre-existing condition exclusions. Additionally, because these policies can be medically underwritten based on health status, healthier individuals may be targeted for this type of coverage, thus adversely impacting the risk pool for PPACA -compliant coverage.
The new regulations change the definition of short-term, limited-duration insurance so that the coverage must be less than three months in duration. The duration of the contract takes into account any extensions that may be elected by the policyholder either with or without the issuer’s consent.
The final regulations also add a requirement that a notice must be prominently displayed in the contract and in any application materials provided in connection with enrollment in such coverage with the following language: 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.
The revised definition of short-term, limited-duration insurance applies for policy years beginning on or after January 1, 2017. Special rules apply where state regulators approved short-term, limited-duration insurance products for sale in 2017 that met the definition in effect prior to January 1, 2017.
Supplemental policies as excepted benefits. Supplemental benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance and are Medicare supplemental health insurance (also known as Medigap), TRICARE supplemental programs, or “similar supplemental coverage provided to coverage under a group health plan.” One requirement to be similar supplemental coverage is that the coverage “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.”
The final regulations provide that, if group or individual supplemental health insurance covers items and services not included in the primary coverage, the coverage will be considered to be designed “to fill gaps in primary coverage,” if none of the benefits provided by the supplemental policy are an EHB in the State in which the coverage is issued. Thus, if any benefit provided by the supplemental policy is either included in the primary coverage or is an EHB in the State where the coverage is issued, the insurance coverage would not be supplemental excepted benefits.
Travel Insurance as excepted benefits. Travel related insurance is treated as excepted benefits if the coverage is for personal risks incident to planned travel, which may include, but are not limited to, interruption or cancellation of a trip or event, loss of baggage or personal effects, damages to accommodations or rental vehicles, and sickness, accident, disability, or death occurring during travel, provided that the health benefits are not offered on a stand-alone basis and are incidental to other coverage. For this purpose, travel insurance does not include major medical plans that provide comprehensive medical protection for travelers with trips lasting six months or longer, including, for example, those working overseas as an expatriate or military personnel being deployed.
Essential Health Benefits and the Market Reforms. The PPACA requires issuers to provide a package of health benefits (called Essential Health Benefits (EHB)) if they are providing non-grandfathered health insurance coverage in the individual and small group markets, but not if they are self-insured group health plans, large group market health plans and grandfathered health plans. However, the PPACA market reforms do place lifetime or annual dollar limits on any EHB covered by these plans. These plans may impose limits other than dollar limits on EHB, as long as they comply with other applicable statutory provisions. In addition, these plans can continue to impose annual and lifetime dollar limits on benefits that do not fall within the definition of EHB.
Prior final regulations provide that, for plan years beginning on or after January 1, 2017, a plan or issuer that is not required to provide EHB must define EHB, for purposes of the prohibition on lifetime and annual dollar limits, in a manner consistent with any of the 51 EHB base-benchmark plans applicable in a State or the District of Columbia, or one of the three Federal Employees Health Benefits Program (FEHBP) EHB base-benchmark plans applicable by default. The new final regulations are clarified to refer to the provisions that capture the complete definition of EHB in a State.
T.D. 9791, 2016FED ¶47,051
Code Sec. 9801
CCH Reference – 2016 FED ¶44,051AD
Code Sec. 9815
CCH Reference – 2016FED ¶44,089HOG
Code Sec. 9831
CCH Reference – 2016FED ¶44,090A
Code Sec. 9833
CCH Reference – 2016FED ¶44,094A
Tax Research Consultant
CCH Reference – TRC HEALTH: 9,116
CCH Reference – TRC HEALTH: 9,118