The Internal Revenue Service, Department of Labor, and Department of Health and Human Services (the “Agencies”) have issued a revised, mandatory notice for fixed indemnity insurance coverage.
Background. Hospital indemnity and other fixed indemnity insurance has traditionally been used as a form of income replacement upon the occurrence of certain health-related events. Consumers can use the fixed cash benefit as they wish — such as to cover out-of-pocket expenses not covered by comprehensive coverage, or to defray non-medical expenses (for example, mortgage or rent). In the group market, the payments must be made as a fixed dollar amount per day (or other time period) of hospitalization or illness (for example, $100 per day). In the individual market, payments may be made either per period of hospitalization or illness or per service (for example, $50 per medical examination). Benefits must be paid regardless of the amount of expenses a consumer incurs. When hospital indemnity or other fixed indemnity insurance meets those payment standards and other statutory and regulatory criteria, it is an excepted benefit under the Affordable Care Act that is not subject to the federal requirements or consumer protections that apply to comprehensive coverage.
New regulations. The final rules revise the consumer notice that is currently required for fixed indemnity excepted benefits coverage in the individual market and establish a new requirement to provide a consumer notice in the group market. Plans and issuers must prominently display the notice in marketing, application, enrollment, and reenrollment materials. The notice must be prominently displayed in the policy, certificate, or contract of insurance. The plan or issuer must display the notice prominently on the first page, in at least 14-point type.
According to the Agencies, “[t]he notice is designed to highlight the differences between fixed indemnity excepted benefits coverage and comprehensive coverage. Providing a notice to consumers prior to their opportunity to enroll (or reenroll) in fixed indemnity excepted benefits coverage will help ensure that consumers are aware of the limitations of the coverage and help ensure they do not mistakenly purchase it as an alternative to, or replacement for, comprehensive coverage.”
The revised notice provisions for group and individual market fixed indemnity excepted benefits coverage apply to both new and existing coverage with respect to plan years (and, in the individual market, coverage periods) beginning on or after January 1, 2025.
The revised notice is contained in recent regulations that can be found at: https://www.federalregister.gov/documents/2024/04/03/2024-06551/short-term-limited-duration-insurance-and-independent-noncoordinated-excepted-benefits-coverage.