Federal regulators may try to kill critical illness insurance

Obama administration officials want to limit use of short-term health insurance in the United States to periods of three months or less.

Officials are also thinking about the possibility of banning the sale of critical illness policies and other policies that cover two or more specific diseases.

The so-called “tri agency” team — the Internal Revenue Service, the Employee Benefits Security Administration and the U.S. Department of Health and Human Services — has included those proposals in a new batch of draft regulations.

The agencies developed the draft regulations to implement the Expatriate Health Coverage Clarification Act of 2014, and to adjust the requirements for health insurance products other than major medical coverage.

The three agencies are preparing to publish the regulations in the Federal Register Friday. Members of the public can send in comments up until 60 days after the official publication date.

The Centers for Medicare & Medicaid Services (CMS), part of HHS, announced the release of the draft in a statement about what HHS doing to help the Patient Protection and Affordable Care Act public exchange system.

CMS said it and HHS want to:

Improve the PPACA risk-adjustment program, which is used to use cash from health plans with low-risk enrollees to compensate competitors that end up with high-risk enrollees. CMS wants to create an adjustment mechanism for part-year enrollees and let plans include enrollees’ prescription information when calculating health risk scores, according to a new batch of risk-adjustment program guidance.
Forge ahead with previously announced efforts to increase documentation requirements for consumers who seek coverage outside the usual open enrollment period window. Officials say they hope getting tough on special enrollment period applicants will keep healthy people from waiting until they get sick to pay for health insurance.
Limit use of products that some consumers might see as an alternative to buying major medical coverage. The three agencies described the limits in the draft regulations.

For more details about what the tri agencies said about health insurance products other than major medical insurance in the draft regulations, read on:

Issuers of health care coverage for Americans who live outside of the United States would have to maintain call centers in three or more countries and process at least $1 million in claims a year in foreign currency equivalents. (Photo: iStock)

Expat coverage

The three agencies want to distinguish travel insurance that happens to cover travel-related health problems from “expatriate health plans,” or coverage aimed at U.S. citizens or U.S. residents who live outside of the United States on a long-term basis, according to the introduction to the draft regulations.

The three agencies want to require an issuer of expat coverage to be a substantial issuer of expat coverage. An issuer would, for example, have to maintain call centers in three or more countries, accept calls from customers in eight or more languages, and process at least $1 million in claims per year in foreign currency equivalents.

An expat plan would be exempt from some requirements that apply to ordinary major medical plans. In the United States, individuals usually need to show they have “minimum essential coverage” to escape from the penalty PPACA imposes on the uninsured, or underinsured. A minimum essential coverage plan cannot impose lifetime or annual limits on the amount of medical benefits a patient can get.

The tri agencies say they would exempt expat plans from some of the PPACA requirements that apply to minimum essential coverage, such as the ban on annual and lifetime benefits limits. But, to qualify as minimum essential coverage, an expat plan would have to cover inpatient services, outpatient facility services, physician services and emergency services.

An employer that sponsored a group health expat plan, and wanted to get credit for offering minimum essential coverage, would have to “reasonably believe” that the expat plan met the usual minimum essential coverage minimum value standards.

Critical illness insurance

PPACA exempts indemnity insurance from the PPACA major medical requirements.

The tri agencies have given their blessing in the past to indemnity products that pay a set, time-based benefit. The agencies have said, for example, that an insurer can pay $100 per day to a policyholder who enters the hospital. Insurers have asked the agencies to allow the sale of traditional supplemental policies that pay benefits to consumers who have certain kinds of conditions or get certain kinds of medical service.

The tri agencies say they are not sure whether a policy that covers multiple specified diseases or illnesses should qualify for excepted benefits status.

The agencies ”are concerned that individuals who purchase a specified disease policy covering multiple diseases or illnesses (including policies that cover one overarching medical condition such as ‘mental illness’ as opposed to a specific condition such as depression) may incorrectly believe they are purchasing comprehensive medical coverage when, in fact, these polices may not include many of the important consumer protections,” officials say.

The tri agencies “solicit comments on this issue and on whether, if such policies are permitted to be considered excepted benefits, protections are needed to ensure such policies are not mistaken for comprehensive medical coverage,” officials say.

Short-term health insurance

The three agencies have been letting consumers continue to buy traditional short-term health insurance coverage outside the PPACA framework.

A short-term health insurance issuer usually requires applicants to go through a simple medical underwriting process. The issuer may decline to cover pre-existing conditions, and it may leave out benefits for mental health care, maternity care and other types of care that a PPACA-compliant major medical plan would cover. An issuer may also impose annual benefits limits of $100,000 or less.

Issuers of short-term health insurance can sell the coverage all year round. Issuers of individual major medical coverage require consumers to show they have a legal excuse to get a special enrollment period before selling them outside the annual open enrollment coverage. The open enrollment period now lasts from Nov. 1 through Jan. 31. The rules mean that, for much of the year, short-term health insurance may be the only health insurance some consumers can buy, marketers say.

In most states, issuers can offer short-term health insurance available for periods of up to one year.

The three agencies want to keep consumers from using short-term health insurance as a convenient major medical alternative by limiting use of a policy to three months. The three-month time limit would include the period of any policy renewals as well as the original policy duration, officials say.

Indemnity insurance

In the past, the three agencies have let insurers continue to sell hospital indemnity insurance plans, which pay benefits to insureds who enter the hospital, or to cancer insurance policies and critical illness insurance policies, which pay benefits when insureds suffer from the covered diseases. The three agencies have said those products would be “excepted benefits.”

Excepted benefits are products free from the federal benefit design rules that usually apply to major medical policies.

In the past, federal agencies have said that excepted benefits policies should be used to fill in the gaps in the major medical policies that comply with PPACA, not as an alternative.

The tri agencies now say they are hearing about group health plan operators telling workers in employer-sponsored group health plans that indemnity policies and other supplemental products count as minimum essential coverage.

The agencies “are concerned that some individuals may incorrectly understand these policies to be comprehensive major medical coverage that would be considered minimum essential coverage,” officials say.

The agencies want issuers of the supplemental products to include prominent notices, in large type, stating that the products are supplemental products, not minimum essential coverage.