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Proposed Regulations Tackle “Junk Health Insurance”

On July 7, 2023, the Departments of Health and Human Services, Labor, and Treasury (the “Agencies”) published proposed regulations to, in part, address short-term limited duration health insurance (“STLDI”) and fixed indemnity plans that consumers incorrectly believe offer comprehensive medical coverage.

STLDI is short-term insurance often used to fill brief gaps in health insurance coverage, for example, for college students during the summer months and for new employees during a waiting period before health coverage commences. STLDI policies in effect for less than 12 months are exempt from the Affordable Care Act (“ACA”) and the other federal laws that regulate health coverage.

The proposed regulations seek to limit the term of STLDI coverage to three months, after which a policy must comply with the ACA and other federal law requirements. In addition, issuers would be required to prominently display a disclosure to consumers to inform them per day that the coverage offered is not “minimum essential coverage” under the ACA.

A similar disclosure is proposed for fixed-indemnity plans which provide income replacement, for example, on a per-day basis for hospitalization or on a per-service basis. The proposed rules seek disclosure because consumers often believe that fixed indemnity plans are health insurance. Additionally, the Agencies intend to issue guidance to prohibit the improper characterization of fixed indemnity payments as health insurance for tax purposes. Comments on the proposed regulations are due sixty days following publication in the federal register.


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