Effects on issuers of travel insurance and short term medical insurance

On June 10, 2016, the U.S. Department of Treasury, Department of Labor, and Department of Health and Human Services (HHS) jointly issued a proposed regulation which would have a broad impact over issuers of travel insurance and short term medical insurance. Frost Brown Todd’s legal update on the proposed regulation can be found here. The comment period closed on August 9, 2016. The agencies received 153 comments on the proposal.

After consideration and notwithstanding the substantial commentary submitted, the Departments have decided to finalize the proposed regulations affecting both travel insurance and short term medical plans without change. This regulation is scheduled to be published in the Federal Register on October 31, 2016, and will apply to plans after January 1, 2017 with reference to deferred federal enforcement for plans issued up to March 31, 2017 and possible deferral of state based enforcement.

Travel Insurance

The proposed regulations clarify the definition of travel insurance and confirm that it is considered an excepted benefit from the requirements of the Affordable Care Act (ACA), title XXVI of the Public Health Service Act (PHSA), and part 7 of the Employee Retirement Income Security Act of 1974 (ERISA).

This regulation specifically provides that travel insurance products that meet the definition in the regulation (a modification of the NAIC definition of “travel insurance” purported taken from the uniform licensing standard 34 which has never really been followed and which will be at odds with the P&C inland marine line 9.009 definition and A&H individual line H19H and group line H19I definitions) are excepted benefits under the PHSA, ERISA, and the Internal Revenue Code.

Short Term Medical Plans

Issuers of short term medical plans will be significantly impacted by this regulation. Under the current regulation, limited duration medical plans are exempt from the ACA requirements because they offer coverage for less than twelve (12) months. The new final rule shortens the period required for exemption from the ACA requirements so that the “coverage must be less than three months in duration, including any period for which the policyholder renews or has an option to renew with or without the issuer’s consent.” This change is intended to prevent individuals from using short term medical insurance plans as their primary form of coverage.

The change also requires a specific federal consumer notice which must be prominently displayed in the contract and in any application materials. Implementation of the notice will require substantial effort and interplay with certain state based requirements.

Possible Future Challenges

Even though the Departments have decided to finalize this regulation, there is still the potential for a legal challenge to the Departments’ authority to promulgate the rule. In a recent case Central United Life Insurance v. Burwell in the D.C. Circuit, the court held that the HHS exceeded its regulatory authority. This case could potentially serve as the basis for challenging the Departments’ authority to promulgate this regulation.