In FAQs about Affordable Care Act Implementation Part XI, the Employee Benefits Security Administration (the "EBSA") provides guidance on whether fixed indemnity insurance is an "excepted benefit" under health care law.
The FAQs say that fixed indemnity coverage under a group health plan, which meets the conditions outlined in the Department of Labors' regulations at 26 CFR 54.9831-1(c)(4), 29 CFR 732(c)(4), 45 CFR 146.145(c)(4), is an "excepted benefit" under PHS Act section 2791(c)(3)(B), ERISA section 733(c)(3)(B), and Code section 9832(c)(3)(B). As such, it is exempt from the health coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code. These requirements include: provision of health care coverage for dependents up to age 26; no pre-existing conditions on enrollment for care health coverage; no lifetime or annual limits on essential health care benefits; no rescission of health care coverage except for fraud; mandatory independent (external) review of benefit claims; and requirements pertaining to preventive care services.
The FAQs say further that, under the Department of Labor's regulations cited above, a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if:
--the benefits are provided under a separate policy, certificate, or contract of insurance;
--there is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and
--the benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor.
The regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred.
The FAQs indicate that, in some cases, a health insurance policy is advertised as fixed indemnity coverage, but then covers doctors' visits at $50 per visit, hospitalization at $100 per day, various surgical procedures at different dollar rates per procedure, and/or prescription drugs at $15 per prescription. In such circumstances, for doctors' visits, surgery, and prescription drugs, payment is made not on a per-period basis, but instead is based on the type of procedure or item, such as the surgery or doctor visit actually performed or the prescribed drug, and the amount of payment varies widely based on the type of surgery or the cost of the drug. Because office visits and surgery are not paid based on "a fixed dollar amount per day (or per other period)," a policy such as this is not hospital indemnity or other fixed indemnity insurance, and is therefore not provide excepted benefits. When a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy. Accordingly, it does not meet the conditions for excepted benefits.