Recently, the Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments) released final regulations which, among other items, implements a new notice requirement for group hospital or other fixed indemnity plans that begin on or after January 1, 2025.
Background
Hospital indemnity and other fixed indemnity insurance is generally used as income replacement for certain covered events, with payments made as a fixed dollar amount paid per time period of hospitalization or illness (e.g., $100 per day). Aiming to highlight the differences between fixed indemnity coverage and comprehensive coverage, the Departments have introduced a new notice requirement which must do the following:
- Explain that a fixed indemnity policy pays a limited amount when sick or hospitalized, but is not health insurance (i.e., it will not cover the cost of medical care and is not a substitute for comprehensive medical coverage);
- Include contact information for the Marketplace (or other sources of comprehensive health insurance); and
- Identify where to find state insurance commissioners’ contact information if someone has a question or complaint.
Applicable for plan years beginning on or after January 1, 2025, the notice must be provided at or before the time participants are given the opportunity to enroll (or re-enroll) in coverage (e.g., at new hire and open enrollment). The notice must be displayed prominently in 14-point font on the first page of any application and enrollment (or reenrollment) materials (whether paper or electronic). Importantly, either the plan or the issuer/carrier can provide this notice to participants.
The Departments are finalizing the following content for the group market model notice:
IMPORTANT: This is a fixed indemnity policy, NOT health insurance
This fixed indemnity policy may pay you a limited dollar amount if you’re sick or hospitalized. You’re still responsible for paying the cost of your care.
- The payment you get isn’t based on the size of your medical bill.
- There might be a limit on how much this policy will pay each year.
- This policy isn’t a substitute for comprehensive health insurance.
- Since this policy isn’t health insurance, it doesn’t have to include most federal consumer protections that apply to health insurance.
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.”
- If you have this policy through your job, or a family member’s job, contact the employer.
Other Updates
Limiting the scope of the proposed rules released last year, the final rule does not address the basis under which hospital indemnity or other fixed indemnity insurance would be considered an excepted benefit for purposes of ACA compliance, as proposed. Instead, the Departments expressed they intend to address excepted benefit status in future rulemaking, along with clarification on the tax treatment of certain benefit payments in fixed amounts received under group fixed indemnity plans.
While not typically employer sponsored, the final rule also modifies the definition of short-term limited-duration insurance (STLDI) by reducing the duration of an STLDI initial contract term to no more than 3 months (with maximum coverage of no more than 4 months with a renewal or extension), and also requires a new notice upon enrollment in coverage effective on or after September 1, 2024. For more information of changes to STLDI, see the final rule.
Employer Takeaways
Employers who sponsor group hospital or fixed indemnity plans should confirm with their carriers that they will comply with the new notice requirement on behalf of their plan, effective for plan years beginning on or after January 1, 2025. Sequoia will continue to monitor for further guidance as the Departments consider the remaining proposals.
Additional Resources
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