New Notice Requirement for Fixed Indemnity Policies

On April 3, 2024, the Departments of Treasury, Labor, and Health and Human Services (collectively the Departments) issued finalized regulations that apply to employers and plan sponsors that offer fixed indemnity excepted benefits coverage (such as hospital indemnity insurance). The rule introduces a new notice requirement that applies to employers and plan sponsors who offer such plans.
 

Effective Date

This new notice requirement applies to plan years beginning on or after January 1, 2025. The requirement applies to both new and existing coverage.
 

Background on Fixed Indemnity Policies

As background, fixed indemnity insurance policies are a type of excepted benefit. These policies pay a fixed dollar amount per hospitalization or illness or per service. As a rule, they are considered to be an income-replacement benefit rather than a benefit to specifically pay for medical expenses. These types of policies typically pay a fixed dollar amount per day (for example, $100 per day) upon hospitalization. 

Hospital indemnity policies are often sold alongside specified disease policies (for example, cancer-only and critical illness policies). Notably, coverage for a specified disease or illness only is not considered fixed indemnity insurance. As such, specified disease coverage policies are not impacted by the notice requirement in the final rules.
 

Purpose of New Notice

This new notice is designed to highlight the differences between fixed indemnity insurance policies and traditional health insurance. It was born out of a concern by regulators that employees could confuse fixed indemnity insurance with comprehensive health insurance policies and be unaware of the type of coverage they are purchasing, specifically, the limitations of such coverage.
 

Notice Details

The regulations outline both content requirements as well as style and form requirements as follows.

Content Requirements

• Must explain that a fixed indemnity policy pays a limited amount when sick or hospitalized, but that it is not comprehensive health insurance. Specifically, it must indicate that the policy will not cover the cost of medical care and is not a substitute for comprehensive medical coverage.

• Must include contact information for the Marketplace (or other sources of comprehensive health insurance).

• Must identify where to find state insurance commissioners’ contact information if someone has a question or complaint.
   

Style and Form Requirements

• Must be in at least 14-point fontand on the first page (whether in paper or electronic form, including websites).

• Must be provided at or before the time participants have the opportunity to enroll in the coverage.

• Must reflect the specific language set forth in the regulations.
   

Types of Communication Materials

• Applies to any enrollment process/form or re-enrollment process/form

• Applies to any application process/forms

• Applies to any marketing materials provided to participants

• Applies to all methods of communications/documentation whether in paper or electronic form, including websites.

Who Provides the Notice

Either the plan sponsor or the carrier may provide the notice. In most cases, employers will prefer that carriers take responsibility for providing the notice since they are typically the creators of the enrollment and application forms and other marketing materials for such policies.
 

Text of the Model Notice

While the Departments are still finalizing specific content for the notice, the following is the current draft language for group market policies. 
 

• The payment you get isn’t based on the size of your medical bill.
• There might be a limit on how much this policy will pay each year.
• This policy isn’t a substitute for comprehensive health insurance.
• Since this policy isn’t health insurance, it doesn’t have to include most federal consumer protections that apply to health insurance.

• Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options.
• To find out if you can get health insurance through your job, or a family member’s job, contact the employer.

• For questions or complaints about this policy, contact your state Department of Insurance. Find their number on the National Association of Insurance Commissioners’ website (naic.org) under “Insurance Departments.”
• If you have this policy through your job, or a family member’s job, contact the employer.

Employer Action Item

Employers who sponsor hospital or fixed indemnity insurance policies should confirm the following with their carriers:

1. All plan materials for fixed indemnity policies are updated to reflect the required disclosure notifications.

2. Revisions will be completed prior to any materials being distributed for Open Enrollment.

3. Employer SPD is updated to include the disclosure notice (assuming the plans are subject to ERISA).

4. Employer benefits admin system is updated to reflect the disclosure notice if employee elections are made through the system (since this would be considered an enrollment process).

Importantly, for employers offering hospital and fixed indemnity policies, while including the notice in the SPD is recommended, the notice requirement cannot be fully satisfied by simply adding the required notice language to a Wrap Summary Plan Description or other consolidated disclosure materials for welfare benefit plans. The requirement can only be satisfied by including the required notice on all materials at every point of contact in the enrollment/marketing process. This typically will include coordination with the carrier. 

References

Final Regulations