On June 10, the government published proposed regulations addressing, in part, the status of travel insurance, supplemental health insurance, hospital indemnity and other fixed indemnity insurance, which, if not carefully considered, arise to the level of group health plans subject to a myriad of compliance obligations, catching unwary employers by surprise.
Employers want to offer competitive and comprehensive benefit packages to their employees. However, in deciding which benefits to offer, employers also need to consider the legal compliance obligations associated with a particular benefit and the implication of various welfare benefit laws in conjunction with the provision of benefits to employees. Large compliance and administrative obligations are anticipated by employers with respect to major plans, such as medical, dental, life insurance, and disability. But, when evaluating options, employers must keep in mind that even the seemingly simplest of policies can create substantial legal obligations.
Consider a policy marketed by an insurance company as a “hospital indemnity-only” policy. The policy pays $100 per day of hospitalization, $50 for each doctor’s visits, and various flat dollar rates for certain surgical procedures. While the policy is marketed as an indemnity product, in reality, newly issued guidance clarifies that this policy may be deemed a “group health plan” and therefore subject to various group health plan laws.
The application of various laws such as ERISA, COBRA, HIPAA, and the ACA to small voluntary benefits such as hospital (or other fixed) indemnity, specified disease, critical illness, and business travel insurance is a regulatory hot topic. Indeed, on June 10, the Internal Revenue Service, the Department of Labor, and the Department of Health and Human Services jointly published proposed regulations (applicable to plan years beginning on or after January 1, 2017) in the federal register, clarifying and seeking comment on the circumstances under which these types of benefits will be considered excepted benefits and therefore not required to comply with certain laws under HIPAA portability and the ACA PHSA mandates (such as requiring special enrollment periods, prohibiting pre-existing condition exclusions, complying with enhanced claims procedures, prohibiting annual and lifetime limits, etc).
Among other items, the proposed regulations specify and clarify conditions for travel insurance, supplemental health insurance coverage, and hospital indemnity and other fixed indemnity insurance to be considered excepted benefits. For example, the proposed regulations maintain that to qualify as hospital or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other time period) of hospitalization or illness without regard to the amount of expenses incurred or the type of item or services received and include specific language on any application or enrollment materials in the group market clarifying that the policy is not major medical coverage. Comments in this regard have also been requested with respect to policies covering multiple specified illness.
As reinforced by the proposed regulations, unbeknownst to sponsoring employers, these types of voluntary policies often have embedded medical care components requiring compliance with a myriad of complicated group health plan laws.
As such, employers offering these types of benefits to employees should have the applicable policies reviewed and analyzed to ensure proper legal compliance.
This alert serves as a general summary of a portion of the lengthy and comprehensive proposed regulations, which can be found HERE. For more information on this issue, please contact Samantha A. Kopacz at firstname.lastname@example.org or 517-377-0868.