Fixed indemnity insurance is not considered to be traditional medical insurance. It started as income replacement insurance for people who were not able to work due to health issues. Over the years it has, however, morphed into a more complex product.
In 2013, in an effort to limit the use of fixed indemnity policies as a loophole out of the Affordable Care Act’s (ACA) provisions, HHS issued what came to be known in the industry as ‘FAQ 7’. The rule required that fixed indemnity insurance must pay benefits on a fixed amount basis, without regard to the cost of the actual service and on a pay per-period basis, not a per-service basis. A policy that did not pay this way would not be a ‘excepted benefit’ product and would be subject to the requirements of the ACA.
On March 14, 2014, in response to industry and regulatory pressure, HHS released proposed changes for individual fixed indemnity insurance rules as follows:
- Elimination of the current requirement that policies pay benefits on a per-period basis only.
- Imposition of a new requirement that insurers only sell fixed indemnity insurance to people who already have essential health benefit coverage as defined under the ACA.
- Prohibition of coordination between the benefits of a fixed indemnity policy and an exclusion of benefits under other health insurance.
- Prominent display of a notice that states: "THIS IS A SUPPLEMENT TO HEALTH INSURANCE AND IS NOT A SUBSTITUTE FOR MAJOR
MEDICAL COVERAGE. LACK OF MAJOR MEDICAL COVERAGE (OR OTHER MINIMUM ESSENTIAL COVERAGE) MAY RESULT IN AN ADDITIONAL PAYMENT WITH YOUR TAXES."
There are protections in the group market so that major medical and fixed indemnity plans are sold by different insurers, but not in the individual market. In the preamble to this proposed rule, federal regulators suggest that this might be an important protection to include in final regulations.
More information can be found at: http://www.dol.gov/ebsa/faqs/faq-aca18.html