Obama administration officials want to limit useof short-term healthinsurance in the United States to periods ofthree months or less.

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Officials are also thinking about the possibility of banning thesale of critical illness policies andother policies that cover two or more specific diseases.

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The so-called "tri agency" team — the Internal Revenue Service,the Employee Benefits Security Administration and the U.S.Department of Health and Human Services — has included thoseproposals in a new batch of draft regulations.

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The agencies developed the draft regulations to implement theExpatriate Health Coverage Clarification Act of 2014, and to adjustthe requirements for health insurance products other than majormedical coverage.

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The three agencies are preparing to publish the regulations inthe Federal Register Friday. Members of the public can send incomments up until 60 days after the official publication date.

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The Centers for Medicare & Medicaid Services (CMS), part ofHHS, announced the release of the draft in a statement about whatHHS doing to help the Patient Protection and Affordable Care Act(PPACA) public exchange system.

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CMS said it and HHS want to:

  • Improve the PPACA risk-adjustment program, which is used touse cash from health plans with low-risk enrollees to compensatecompetitors that end up with high-risk enrollees. CMSwants to create an adjustment mechanism for part-year enrollees andlet plans include enrollees' prescription information whencalculating health risk scores, according to a new batch ofrisk-adjustment program guidance.

  • Forge ahead with previously announced efforts to increasedocumentation requirements for consumers who seek coverage outsidethe usual open enrollment period window. Officials saythey hope getting tough on special enrollment period applicantswill keep healthy people from waiting until they get sick to payfor health insurance.

  • Limit use of products that some consumers might see as analternative to buying major medical coverage. The threeagencies described the limits in the draft regulations.

For more details about what the tri agencies said about healthinsurance products other than major medical insurance in the draftregulations, read on:

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Passport and visas

Expat coverage

The three agencies want to distinguish travel insurance thathappens to cover travel-related health problems from "expatriatehealth plans," or coverage aimed at U.S. citizens or U.S. residentswho live outside of the United States on a long-term basis,according to the introduction to the draft regulations.

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The three agencies want to require an issuer of expat coverageto be a substantial issuer of expat coverage. An issuer would,for example, have to maintain call centers in three or morecountries, accept calls from customers in eight or more languages,and process at least $1 million in claims per year in foreigncurrency equivalents.

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An expat plan would be exempt from some requirements that applyto ordinary major medical plans. In the United States, individualsusually need to show they have "minimum essential coverage" toescape from the penalty PPACA imposes on the uninsured, orunderinsured. A minimum essential coverage plan cannot imposelifetime or annual limits on the amount of medical benefits apatient can get.

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The tri agencies say they would exempt expat plans from some ofthe PPACA requirements that apply to minimum essential coverage,such as the ban on annual and lifetime benefits limits. But, toqualify as minimum essential coverage, an expat plan would have tocover inpatient services, outpatient facility services, physicianservices and emergency services.

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An employer that sponsored a group health expat plan, and wantedto get credit for offering minimum essential coverage, would haveto "reasonably believe" that the expat plan met the usual minimumessential coverage minimum value standards.

Critical illness insurance

PPACA exempts indemnity insurance from the PPACA major medicalrequirements.

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The tri agencies have given their blessing in the past toindemnity products that pay a set, time-based benefit. Theagencies have said, for example, that an insurer can pay $100 perday to a policyholder who enters the hospital. Insurers haveasked the agencies to allow the sale of traditional supplementalpolicies that pay benefits to consumers who have certain kinds ofconditions or get certain kinds of medical service.

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The tri agencies say they are not sure whether a policy thatcovers multiple specified diseases or illnesses should qualify forexcepted benefits status.

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The agencies "are concerned that individuals who purchasea specified disease policy coveringmultiple diseases or illnesses (including policies that coverone overarching medical condition such as 'mental illness' asopposed to a specific condition such as depression) mayincorrectly believe they are purchasing comprehensive medicalcoverage when, in fact, these polices may not include many ofthe important consumer protections," officials say.

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The tri agencies "solicit comments on this issue and on whether,if such policies are permitted to be considered exceptedbenefits, protections are needed to ensure such policies are notmistaken for comprehensive medical coverage," officials say.

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If the agencies let insurers continue to sell the policies, theagencies might limit the number of conditions that a policy couldcover, officials say.

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Calendar pages

Short-term health insurance

The three agencies have been letting consumers continue to buytraditional short-term health insurance coverage outside the PPACAframework.

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A short-term health insurance issuer usually requires applicantsto go through a simple medical underwriting process. The issuer maydecline to cover pre-existing conditions, and it may leave outbenefits for mental health care, maternity care and other types ofcare that a PPACA-compliant major medical plan would cover. Anissuer may also impose annual benefits limits of $100,000 orless.

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For qualified applicants, short-term health insurance isoften cheaper than major medical coverage, marketers say.

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Issuers of short-term health insurance can sell the coverage allyear round. Issuers of individual major medical coverage requireconsumers to show they have a legal excuse to get a specialenrollment period before selling them outside the annual openenrollment coverage. The open enrollment period now lasts from Nov.1 through Jan. 31. The rules mean that, for much of the year,short-term health insurance may be the only health insurance someconsumers can buy, marketers say.

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In most states, issuers can offer short-term health insuranceavailable for periods of up to one year.

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The three agencies want to keep consumers from using short-termhealth insurance as a convenient major medical alternative bylimiting use of a policy to three months. The three-month timelimit would include the period of any policy renewals as well asthe original policy duration, officials say.

Indemnity insurance

In the past, the three agencies have let insurers continue tosell hospital indemnity insurance plans, which pay benefits toinsureds who enter the hospital, or to cancer insurance policiesand critical illness insurance policies, which pay benefits wheninsureds suffer from the covered diseases. The three agencies havesaid those products would be "excepted benefits."

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Excepted benefits are products free from the federal benefitdesign rules that usually apply to major medical policies.

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In the past, federal agencies have said that excepted benefitspolicies should be used to fill in the gaps in the major medicalpolicies that comply with PPACA, not as an alternative.

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The tri agencies now say they are hearing about group healthplan operators telling workers in employer-sponsored group healthplans that indemnity policies and other supplemental products countas minimum essential coverage.

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The agencies "are concerned that some individuals mayincorrectly understand these policies to be comprehensive majormedical coverage that would be considered minimum essentialcoverage," officials say.

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The agencies want issuers of the supplemental products toinclude prominent notices, in large type, stating that the productsare supplemental products, not minimum essential coverage.

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Allison Bell

Allison Bell, ThinkAdvisor's insurance editor, previously was LifeHealthPro's health insurance editor. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached at [email protected] or on Twitter at @Think_Allison.