Federal Departments Issue Requirements for Fixed Indemnity Coverage in 2025

The federal government recently released final rules surrounding fixed indemnity coverage and short-term limited duration insurance (STLDI).

On March 28, 2024, the Departments of Health and Human Services (HHS), Labor, and the Treasury (collectively, the Departments) released final rules regarding fixed indemnity excepted benefits coverage and short-term limited duration insurance (STLDI). These new regulations aim to provide clearer guidelines and consumer protections for these types of plans.

Short-Term Limited Duration Insurance (STLDI)

STLDI is a type of health insurance coverage that is primarily designed to fill temporary gaps in coverage when an individual transitions from one plan to another. Unlike traditional individual health insurance, STLDI is exempt from the Affordable Care Act (ACA) requirements for comprehensive coverage. Individuals enrolled in STLDI are not guaranteed key consumer protection under the ACA.

The new rules, effective for policies issued or sold on or after September 1, 2024, limit the initial contract period for member coverage to no more than three months, with a maximum coverage period of four months, including any renewals or extensions.

Fixed Indemnity Policies

Fixed indemnity coverage is a type of excepted benefit not subject to certain key ACA reforms. Fixed indemnity insurance has traditionally been used as a form of income replacement upon the occurrence of a health-related event. Individuals can use the fixed cash benefit as they wish, such as to help offset unexpected life expenses (i.e. meals, travel) which are not covered under traditional health insurance policies. In the group market, these payments must be made as a fixed dollar amount per day (or per other time period) of hospitalization or illness. An example of a ‘per-period’ benefit is a flat $100 payment for each day in a hospital.

The final rules establish a new requirement to provide a consumer notice in the group market. The notice is designed to highlight the differences between fixed indemnity excepted benefits coverage and comprehensive coverage.

For plan years beginning on or after Jan. 1, 2025, the final rule requires plans and issuers to provide a consumer notice when offering fixed indemnity coverage. This notice applies to both new and existing fixed indemnity coverage that pay a benefit per day (or other period) as opposed to lump sum for services or diagnosis. It does not apply to:

• Accident indemnity plans that pay a lump sum per diagnosis or per service
• Critical illness or specified disease plans that pay a lump sum per diagnosis or per service
• Cancer indemnity policies that pay a lump sum per diagnosis or per service
• Any other indemnity policy that pays a lump sum per diagnosis or per service

Plans and issuers must prominently display the notice in marketing, application, and enrollment (and reenrollment) materials. Providing a notice to consumers prior to their opportunity to enroll (or re-enroll) in fixed indemnity excepted benefits coverage is intended to help ensure that consumers are aware of the limitations of the coverage and help ensure they do not mistakenly purchase it as an alternative to, or replacement for, comprehensive coverage.

Takeaways for Employers With Fixed Indemnity Policies

Employers with fixed indemnity policies should ensure the required notice is included in enrollment applications and marketing materials for plan years beginning in 2025.

If the carrier will not be providing the notice, the employer will be responsible for ensuring the notice is included with any materials it sends.

For employers offering fixed indemnity policies, this development adds another to-do item during open enrollment season. To make sure your organization doesn’t miss anything during this critical time, check out the 2025 Open Enrollment Checklist for employers.