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Feds: Some "indemnity plans" come under PPACA

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Selling health insurance products outside the Patient Protection and Affordable Care Act (PPACA) framework could get trickier.

Officials at the federal agencies responsible for implementing PPACA have emphasized in a new batch of answers to frequently asked questions (FAQs) that the agencies will be using a narrow definition of the term “indemnity insurance” when deciding which products are and are not excepted from PPACA health insurance requirements.

The Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, developed the answers together with the U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service, which is an arm of the U.S. Treasury Department.

Officials acknowledged in the FAQ answers, for example, that there is no way that the agencies and employers will be able to meet the March 1, 2013, PPACA exchange availability notice deadline.

PPACA Section 1512 will require affected employers to give employees written notices of the existence of the PPACA health insurance exchange system and the PPACA premium assistance tax credit system. 

In the real world, federal agencies need more time to set final PPACA program details, and they need to give employers enough time to comply with the notice requirements, EBSA officials said.

EBSA is expecting the exchange notices to start going out in the late summer or in the fall, officials said.

EBSA officials have given sobering advice to companies that want to sell “limited benefit health insurance” products, such as hospital indemnity insurance policies, that fall outside the new PPACA rules on health-status-based underwriting, annual and lifetime benefits limits, and benefits package design.

Insurers and producers have been selling employer-paid group plan programs and employee-paid voluntary plan programs that incorporate indemnity products to employers that still do not offer major medical coverage, and to employers that do offer major medical coverage but want to offer employees products that can help the employees handle bills for deductibles and coinsurance amounts.

Insurers also have been selling indemnity programs through bank affinity marketing programs and other affinity marketing programs, and, to some extent, through the individual market.

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PPACA itself excepts indemnity policies, EBSA officials wrote in a FAQ answer.

But officials said the agency PPACA regulations include a number of rules governing when an indemnity policy included in an employer benefits package falls outside the PPACA framework.

If the indemnity policy is “offered under a group health plan,” the indemnity policy can fall outside the PPACA requirements only if the indemnity policy is separate from the group health policy, and only if the system for handling and paying the indemnity policy claims is completely separate from the sytem for handling and paying the group health claims, and is completely separate from anything that the group health plan does or does not do.

The indemnity insurance also “must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100 per day) regardless of the amount of expenses incurred,” officials said.

Some health insurers or distributors are marketing “indemnity coverage” that, for example, pays $50 for a doctor’s visit or various rates for various surgical procedures.

To qualify as a fixed an indemnity policy, a policy must pay “a fixed dollar amount per day (or per other period),” officials said.

“When a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy,” officials said. “Accordingly, it does not meet the conditions for excepted benefits.”

Federal agencies plan to work with the states to ensure that health insurance issuers comply with the relevant requirements for different types of insurance policies, officials said.

Also in the FAQ answers, officials dealt with questions about how PPACA will affect health reimbursement arrangements (HRAs) and whether part of PPACA restricts communications between health care professionals and their patients concerning firearms or ammunition.

A federal statute “prohibits an organization operating a wellness or health promotion program from requiring the disclosure of information relating to certain information concerning firearms,” officials said. “However, nothing in this section prohibits or otherwise limits communication between health care professionals and their patients, including communications about firearms. Health care providers can play an important role in promoting gun safety.” 

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