ACA Regulations on Fixed Indemnity Insurance Spiked by Federal Court of Appeals

Adam Abelson

On July 1, the D.C. Circuit Court of Appeals ruled against a Health and Human Services (HHS) regulatory prohibition on the sale of fixed indemnity insurance, allowing consumers to buy certain types of insurance that do not meet the typical standards of required under the Affordable Care Act (ACA).

The ACA requires that individuals purchase insurance that contains a certain level of minimum essential coverage. “Fixed indemnity insurance” is considered an “excepted benefit,” a term that dates back to the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Fixed indemnity insurance policies are typically less comprehensive and less expensive than the minimum essential coverage insurance plans that are offered through the ACA, which is why HHS published regulations in 2014 that stated that individuals may not purchase a fixed indemnity insurance plan unless they attest to the fact that they already have an insurance policy that provides minimum essential coverage.

In Central United Life v. Burwell, the D.C. Circuit Court of Appeals ruled that since fixed indemnity coverage was governed by HIPAA, it was not amended by the ACA upon passage in 2010. The court further stated that since HIPAA does not grant authority to HHS to interpret excepted benefits and fixed indemnity insurance, the regulations published by HHS in 2014 concerning these policies were invalidated.

What does this mean moving forward? Many companies, like Central United Life (who brought this suit), along with several states (including the State of Wisconsin, who filed a friend-of-the-court brief in this case) believe that fixed indemnity policies are valuable options for individuals looking to save money on health insurance costs. In reality, however, these policies are cheaper because they offer significantly less coverage to the consumer. Fixed indemnity insurance policies are free from many limits put in place by the ACA, including annual and lifetime dollar limits on coverage, capping out-of-pocket premiums, and requiring individual and small-group policies to cover essential health benefits.

While it is possible that this decision will be appealed by HHS, in the meantime, it is important that anyone who works for an employer offering fixed indemnity policies, or anyone thinking of purchasing fixed indemnity policies as their own sole health care policy, to know that these policies are cheap alternatives to the insurance plans offered on the health care Marketplace because they do not offer the extensive coverage required under the ACA.