Hot Topic - How Central United Life v. Burwellwill affect the fixed indemnity market


For many years, at least some state insurance regulators have sought to place limitations on the sale of fixed indemnity medical insurance or "limited medical benefit" plans on the ground that they mislead consumers into thinking they are purchasing comprehensive health insurance when they are not. Insurers have countered that limited indemnity plans can provide valuable, low cost coverage alternatives, particularly for people who might not be able to afford comprehensive health insurance.

The passage of the Affordable Care Act (ACA) in 2010 drastically altered this debate by requiring for the first time that every applicable person have "minimum essential coverage." 26 USC 5000(a) The so-called individual mandate means that anyone who does not have essential minimum coverage is subject to a pay a special tax assessment. Fixed indemnity plans do not qualify as minimum essential coverage under the ACA.

In 2014, the US Department of Health and Human Services (HHS) issued a rule requiring insurers, among other things, to limit the sale of fixed indemnity plans to people who have already purchased minimum essential coverage that is compliant with the ACA. See (the "2014 Rule") As of January 1, 2015, insurers who sold fixed indemnity plans faced fines of up to US$100 per day if they did not receive an attestation from each policyholder that they had purchased minimum essential coverage.

The Central United Life case

On September 11, 2015, in the case of Central United Life, Inc. v. Burwell, the United States District Court for the District of Columbia enjoined enforcement of the 2014 Rule as it pertains to fixed indemnity insurance. The court's injunction appears to specifically apply to the requirement that a purchaser of a fixed indemnity policy also have minimum essential coverage. Thus, the decision does not apply, for example, to the requirement that fixed indemnity coverage be sold with a warning that it is not minimum essential coverage. The court also based its decision on an understanding that the plaintiff was willing to comply with an earlier rule which only permitted the sale of per-period rather than per-service fixed indemnity coverage. Therefore, the court's decision does not appear to extend to per-service coverage.

Effect of decision

It is likely that some state regulators will not view this decision favorably based on their longstanding view that consumers may be adversely impacted by purchasing less expensive policies that may not provide sufficient coverage when the policyholder becomes ill or injured. In addition, HHS and state regulators will likely remain concerned that consumers will not understand that fixed indemnity coverage does not comply with the ACA's individual mandate and will therefore be exposed to the ACA's individual responsibility tax despite having purchased insurance. In addition, this decision could inspire carriers to resume aggressive marketing of fixed indemnity plans. If so, market conduct scrutiny will almost certainly follow as a result.

A copy of the decision can be found here. It is likely that this decision will be appealed. If so, it will be important to monitor the outcome of a decision and its impact on the fixed indemnity market.


Noteworthy links from the past two weeks


  • Incoming National Association of Insurance Commissioners President John Huff testified before Congress on the state of insurance regulation in the US []
  • Roy Woodall the insurance expert on the Financial Stability Oversight Council, testified to Congress that efforts to create global insurance capital standards may be going too far. [Ambest]
  • Major amicus briefs were filed in MetLife's case challenging its designation as a Systemically Important Financial Institution. [Law360]

Life & Health

  • Congress continued to move forward with Affordable Care Act tweaks relating to small group requirements. [Modern Healthcare]
  • A study found that health insurance deductibles are outpacing wage increases. [New York Times]
  • The U.S. Department of Justice delayed its decision on the Aetna-Humana merger. [Wall Street Journal]
  • CNN examined the effectiveness of the federal mental health parity law. [CNN]
  • The Pennsylvania Insurance Department announced a hearing on "surprise" medical billing. [TribLive]
  • The US Department of Health and Human Services Inspector General reported on''s continuing cyber security problems. [Law 360 | The Hill]

Property & Casualty

  • The Federal Insurance Office released a report on the market for insurance covering natural disasters []
  • The Rhode Island insurance commissioner ordered companies to remove non-risk factors from their price optimization programs. [Ambest]


  • The European Commission announced that it is considering giving insurers preferential accounting treatment for infrastructure investments. [Bloomberg]