The U.S. Department of Health and Human Services (HHS) may let a major category of fixed indemnity insurance products live.

Officials at the Center for Consumer Information & Insurance Oversight (CCIIO), an arm of Centers for Medicare & Medicaid Services (CMS), say HHS will write regulations that will get many of the products out of having to comply with the new Patient Protection and Affordable Care Act (PPACA) major medical insurance rules.

The new regulations will help individual indemnity products that pay a fixed amount of cash to a consumer who has a heart attack, suffers from a stroke, enters the hospital, or experiences some other event.

CCIIO talks about individual indemnity products in a new batch of guidance.

PPACA now requires major medical issuers to comply with a long list of underwriting and benefit design rules. The issuers have to meet minimum medical loss ratio rules, eliminate annual and lifetime benefits, and cover a basic package of preventive health services without imposing co-payments or deductibles on the patient. 

PPACA exempts indemnity insurance from the rules, but HHS is using a narrow definition of indemnity insurance to try to keep employers from using the product to escape from PPACA.

Federal agencies will classify a group plan as an indemnity product only if the plan pays a fixed amount of cash each day, each week or for some other period of time.

Some individual indemnity products pay fixed amounts of cash per time period, but others pay a lump sum when a consumer has an accident, gets sick or gets medical care.

In practice, applying the major medical market rules to low-cost “gap filler” products, such as critical illness insurance or hospital indemnity insurance, would turn them into major medical plans and make the products as expensive as major medical insurance.

CCIIO says HHS will let event-based indemnity escape from PPACA if an insurer:

  • Sells the products only to people who have major medical insurance;
  • Makes no efforts to coordinate the benefits with a customer’s major medical coverage;
  • Pays a fixed amount regardless of the amount of expenses incurred and regardless of the amount of benefits paid by any other health coverage;
  • Warns the customer that the products are not major medical coverage and will not help the customer meet PPACA coverage requirements.

HHS will already start to apply those guidelines in states in which HHS has direct enforcement authority, CCIIO officials say.

In other states, HHS will encourage the states to treat a product that meets the guidelines as a product that falls outside the scope of PPACA, officials say. 

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