Coverage that Falls Outside Affordable Care Act Protections: A Primer on “Excepted Benefits” and Short Term Health Insurance

We recently released an issue brief on “short-term, limited-duration insurance” and “excepted benefits” for the Robert Wood Johnson Foundation’s State Health Reform Assistance Network. This brief provides a framework of the federal law governing requirements for identifying both “short-term, limited-duration insurance” and “excepted benefits,” which are not subject to certain requirements of the Public Health Service Act (PHS Act), as amended by the Affordable Care Act (ACA). Those requirements include guaranteed renewability, minimum value requirements, prohibitions on pre-existing condition exclusions, prohibitions on health status-based discrimination, prohibitions on lifetime or annual limits, extension of dependent coverage to age 26, coverage of essential health benefits, and coverage for preventive health services.

In the issue brief, we identify the characteristics of insurance products that meet the definitions of both “short-term, limited-duration insurance” and “excepted benefits.” Both policy types are exempted from the protections provided by the ACA. In the individual market, “short-term, limited-duration insurance” is defined as a contract for health insurance that is less than 12 months, accounting for any extensions the policyholder may elect without the insurer’s consent. These policies are expressly excluded from the definition of “individual health insurance coverage” and not subject to many of the requirements under the PHS Act. “Short-term, limited-duration insurance” is relatively easy to identify because the only requirement is that the policy be less than 12 months in duration.

“Excepted benefits” are also exempt from many PHS Act requirements, but identifying whether a particular product meets the definition of “excepted benefits” is more complicated. “Excepted benefits” are divided into four categories: (i) benefits that are not health coverage (even if they incidentally cover medical care), (ii) limited-scope benefits, (iii) non-coordinated benefits, and (iv) supplemental benefits. Policies that are non-health types of coverage are narrow and specifically defined in the statute and regulation (e.g., workers’ compensation, automobile medical payment insurance, and liability insurance). Each of the remaining categories of “excepted benefits” are described both by the types of products that fit into the group and further requirements that a product must meet to be considered “excepted benefits” within that category. Federal regulations have done much to describe how specific products, such as fixed indemnity insurance and employee assistance plans, might be considered “excepted benefits.” However, the rules surrounding excepted benefits continue to change: A proposed federal rule, released in late December, would amend the five requirements for wraparound coverage to be considered excepted benefits. Furthermore, the federal rules have left some categories somewhat vague (supplemental health insurance), so it is difficult to determine whether a particular product might fit into that category.

Ultimately, a careful analysis is necessary to determine if an insurance product fits into a category of “excepted benefits.” While the new federal regulations provide some clarification, additional guidance would likely be useful in making determinations about whether or not particular products should be considered excepted benefits. For a detailed discussion of “excepted benefits” and “short-term, limited-duration insurance,” check out the issue brief.

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