Biden Administration Softens Final Health Regulations

President Joe Biden in the State Dining Room of the White House

The U.S. Department of Labor is part of a three-department Biden administration team that today backed off from the tougher provisions included in draft health insurance regulations released in July.

The final version of the regulations, which is set to appear in the Federal Register April 3, would limit the maximum duration of a short-term health insurance policy from one corporate family to four months.

The final version would also add tougher notice requirements for short-term health insurance policies and "fixed indemnity" health insurance policies, or policies that pay a set amount of cash when people get sick, suffer injuries or go to the hospital.

The departments suggested that they could come back and add tougher regulations later.

But the final regulations would continue to allow the sale of both short-term health insurance and fixed indemnity coverage, would not impose any new marketing rules; and would not change the benefit design or underwriting rules. Healthy clients who want to try to cut premium costs by using short-term health insurance as their main medical coverage could simply line up short-term coverage from a different corporate family every four months.

What it means: Biden administration agencies may be open to ending or slowing some formidable regulation-writing efforts.

The team: In addition to the Labor Department's Employee Benefits Security Administration, the team includes the U.S. Treasury Department's Internal Revenue Service and the U.S. Department of Health and Human Services' Centers for Medicare and Medicaid Services.

The products: Short-term health insurance — a product officially described in the regulations as "short-term, limited-duration insurance" — is a product that traditionally has provided temporary coverage for people who are between jobs or in a tryout period at a new job and have no access to employer-sponsored health coverage.

The fixed indemnity product category includes products that pay fixed amounts when people have health problems.

That category could also include critical illness insurance, cancer insurance and other products that pay benefits when people suffer specified illnesses or injuries, but the regulation-writing team decided to keep that out of the new final regulations.

About 236,000 people had short-term health insurance in 2022, and as many as 8.1 million people could have individual or group fixed indemnity coverage, depending on the definitions used, according to National Association of Insurance Commissioners' data and America's Health Insurance Plans survey data cited by the regulation writers.

The Health Insurance Portability and Accountability Act of 1996 and the Affordable Care Act package of 2010 have excluded, or "excepted," short-term health insurance, fixed indemnity products and some other products from the federal rules that apply to major medical coverage, such as the federal ban on medical underwriting, Federal agencies have typically left regulation of those products to state insurance departments, and the rules for the products vary widely from state to state.

While President Barack Obama was in office, federal agencies tried to tighten excepted benefits product rules.

When Donald Trump became president, agencies loosened the rules.

Under President Joe Biden, the pendulum has swung back toward tightening.

The departments' thinking: Department officials argue that they need to act because short-term health insurance and fixed indemnity fail to provide the benefits and consumer protection rules that the ACA provides; sellers often confuse consumers into thinking they are getting major medical insurance; and the products lure younger, healthier people away from the individual major medical policies sold through the Affordable Care Act public exchange system.

Officials cited the story of a Montana resident who faced $43,000 in out-of-pocket costs because his insurers claimed that his cancer was a pre-existing condition and a Pennsylvania woman who ended with $20,000 in out-of-pocket costs related to an amputation.

Between 2018 and 2020, ACA exchange plan enrollment fell 27% in states that let short-term health insurance policies stay in force for 364 days and just 4% in all states, according to a study cited by the regulation writers.

The critics' thinking: The drafting team received about 15,800 comments supporting and opposing their proposed regulations.

Critics of the departments' proposed regulations argued that short-term health insurance competes well against ACA exchange plans, in spite of medical underwriting and the lack of ACA exchange plan premium tax credit subsidies, because the short-term health insurance policies are often cheaper and may offer coverage the better fits typical insureds' needs.

An anonymous broker told the drafting team, in a comment posted on Regulations.gov, that the departments are making a mistake by adding restrictions on short-term health insurance.

"I've sold over 300 plans, and I've seen people get sick on them and never incur extra charges after their deductibles met," the broker said. "First and foremost, so many 'good' doctors don't take ACA plans, but they take short-term plans."

The regulations: The new final regulations are set to take effect 75 days after the official Federal Register publication date.

Coverage already in effect would be exempt from the new rules. The current federal rules let short-term health insurance policies stay in effect, with renewals for up to three years.

The rules specify consumer warning notice formats for both short-term health insurance and the affected fixed indemnity products.

A short-term health insurance policy will be able to stay in place for just three months. An issuer and members of its corporate family can provide up to 30 days in additional coverage through a policy renewal or a separate policy sale.

But a consumer can keep signing up for short-term health insurance carriers from different carriers when their old coverage expires.

"Issuers will not be prohibited from selling STLDI and consumers may continue to choose to purchase it," officials say in the regulation "preamble," or official introduction.

Originally, the regulation writers hinted that they could impose additional restrictions on marketing and tighten the current limits on how much fixed indemnity plans sold by employers can plug in the deductibles and other holes in employer-sponsored group health coverage.

In the preamble to the draft regulations, the regulation writers solicited "solicit comments on additional ways to help consumers distinguish between STDI ([short-term, long-duration insurance]) and comprehensive coverage."

Officials noted that they were especially interested in "feedback on ways to prevent or otherwise mitigate the potential for direct competition between STLDI and comprehensive coverage during the open enrollment period for individual market coverage," such as prohibiting the sale of short-term health insurance during the open enrollment period for ACA exchange plan coverage.

The departments did not end up imposing any short-term health restrictions beyond what they described in the proposed regulations.

"To provide more time to study the issues and concerns raised in comments," the final rules also put off imposing any new rules, other than the notice rules, on issuers of fixed indemnity coverage.

States can continue to regulate excepted benefits products, and they can, for example, limit "stacking," or use of multiple excepted benefits policies to get around the federal limits on what any one excepted benefits policy can provide, according to the regulation writers.

The impact: Regulation benefits impact analysts at the Office of Management and Budget, an arm of the White House, predicted that the regulations could cut the number of people with short-term health insurance by about 60,000.

The future: The departments that worked on the regulations warned insurers and marketers against assuming that the departments have stopped writing regulations.

The regulation writers could use suggestions provided through comments on the current effort to draft new short-term health insurance regulations, and they are likely to write fixed indemnity regulations, officials said.

"No inference should be drawn from the decision not to finalize the proposed payment standards as part of these final rules, and plans and issuers should not assume that current market practices that are inconsistent with the 2023 proposed payment standards comply with the existing federal regulations that apply to fixed indemnity excepted benefits coverage," officials warned.

Views: Jeff Brabant, a vice president with the National Federation of Independent Business, a Washington-based group that represents small and independent businesses, expressed disappointment about the new notice requirements and called for the Biden administration to withdraw them.

"This rule adds another layer of complexity and red tape," Brabant said.

Susan Neely, president of the American Council of Life Insurers, acknowledged that the final rule is different from what was posted last summer.

"The agencies took care in the final regulations to ensure they did not adversely affect supplemental benefits," Neely said. "The new disclosure requirements are consistent with life insurers' commitment to ensuring that consumers are informed on what supplemental benefits products cover and the financial protections they provide prior to purchase."

The fiduciary rule angle: EBSA is the same agency that's responsible for drafting the new investment advice fiduciary definition and related regulations.

The regulations could impose a fiduciary standard of care on advisors and insurance agents who help savers move assets from retirement plans into annuities.

One open question is whether the fiduciary standard effort will follow the same trajectory as the excepted benefits regulation effort.

President Joe Biden in the State Dining Room of the White House (Credit: Bloomberg)