Federal Agencies Issue Final Rule on STLDI and Hospital Indemnity

On March 28, 2024, the Departments of Labor, Treasury, and Health and Human Services (collectively, “the Departments”), issued a Final Rule pertaining to the treatment of short-term, limited duration insurance (STLDI) along with hospital and other such fixed indemnity insurance. The new requirements discussed herein are intended to take effect beginning on or after January 1, 2025, and will be applicable to new and existing coverages.

Addressing STLDI, the Final Rule echoed the proposed regulations from July 7, 2023. However, the Final Rule did not fully resolve all of the matters related to the hospital and fixed indemnity plans that were previously discussed at that time. The proposed rule spoke to new requirements for fixed indemnity plans to be considered excepted benefits and alluded to some important taxation changes for accident and health plan benefits. While the Departments opted not to delve further into these issues in the Final Rule, they did signal that they would potentially pick the topic back up at a later date.

Although it did not fully explore the previous proposals, the Final Rule did tack on new consumer notice requirements for fixed indemnity plans. For group coverage, the below responsibilities fall to the either the plan (i.e., the employer) or issuer (i.e., the insurance company) and for individual coverage, the issuer is solely responsible for ensuring compliance with the regulations. In instances in which the insurance company already includes the notice with written materials to be distributed by the employer, the employer is not obligated to produce additional materials with the same information. However, when employees only receive information directly from their employer, the employer will be solely responsible for fulfilling the notice requirement.

The new requirements are as follows:

• 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 re-enrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or re-enroll) in the coverage, in at least 14-point font.

Overall, the notice requirements will serve as a way to “ensure that consumers purchasing fixed indemnity excepted benefits coverage are aware of the type of coverage they are purchasing, including the limitations of the coverage, and that it is not mistakenly purchased as an alternative or replacement for comprehensive coverage…”, with the primary goals of combatting misinformation in the marketplace and providing a prominently displayed notice that would be considered both concise and understandable. Of importance, while critical illness and accident plans are indemnity plans, they are not lumped into the requirements under the Final Rule being discussed here so do not have to make adjustments under the new regulations.

The updated language to be used is found in the regulations and noted below for reference: