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Paul Zimmerman
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New Federal Proposal May Make Health-Related Travel Insurance an Excepted Benefit Under ACA

For companies selling travel insurance products, there is major news out of Washington D.C. The Obama administration is seeking to curb short-term, limited duration health policies, which includes insurance products now frequently sold within the travel insurance industry. However, the proposed new rule addresses travel insurance head-on, as it makes very clear that travel insurance products with limited health coverage are excepted benefits under the Affordable Care Act (ACA). 

The ACA did not address travel insurance when it was initially enacted. Many travel insurance policies, however, include a sickness component which covers the insured in instances where he or she may become ill while on a covered trip. The intent of these travel insurance plans is not to provide comprehensive major medical insurance, but instead to provide health insurance while a person is away from their own network while traveling. Since there was no excepted benefit for travel insurance, many travel insurance companies have availed themselves of the short-term, limited-duration insurance provisions of the ACA.

However, in June, the Department of Labor, Department of Treasury, and Department of Health and Human Services (HHS) issued a proposed rule to revise the definition of short-term, limited duration coverage. Under the new rule, short-term policies may be offered only for less than three months, and coverage cannot be renewed at the end of the three month period. With respect to travel insurance specifically, the new rule states:

The proposed regulations provide that certain travel-related products that provide only incidental health benefits are excepted benefits. The proposed regulations define the term “travel insurance” as insurance coverage for personal risks incident to planned travel, which may include, but is not limited to, interruption or cancellation of a trip or event, loss of baggage or personal effects, damages to accommodations or rental vehicles, and sickness, accident, disability, or death occurring during travel, provided that the health benefits are not offered on a stand-alone basis and are incidental to other coverage. For this purpose, travel insurance does not include major medical plans that provide comprehensive medical protection for travelers with trips lasting 6 months or longer, including, for example, those working overseas as an expatriate or military personnel being deployed.

Short-term, limited-duration insurance was designed to extend health insurance benefits to fill in temporary gaps in coverage – for example, when an individual is temporarily unemployed. It is not an excepted benefit under the ACA but is similarly exempt from the ACA requirements because it is not deemed individual health insurance coverage. In order to qualify as short-term limited-duration insurance, a contract had to be less than one year. Centers for Medicare and Medicaid Services (CMS) has interpreted this requirement to mean that the actual policy from inception to end of travel for an individual, or the certificate of coverage from inception to end of travel for a person covered under a group policy, must be less than a year.

The new proposed rule revises the approved length of short-term, limited-duration insurance to contracts of less than three months. The proposed rule also imposes strict renewal standards (short-term limited-duration insurance must be nonrenewable).

This short-term limited-duration insurance revision would be extremely detrimental to the travel industry if the proposed rule did not also address travel insurance specifically. The existing code allows Departments to designate as excepted benefits such medical benefits as are secondary or incidental to other insurance, even if such benefits include a sickness component. These expected benefits may not be offered on a standalone basis and must be incidental to other coverage. The proposed rule, however, specifically acknowledges that certain travel insurance products may include limited health benefits which are not designed as major medical coverage, and that the sickness components in these travel insurance policies are incidental to the other coverage.

By specifically adding health-related travel insurance as incidental insurance, thus making it an excepted benefit, most travel insurance will no longer have to rely on the short-term, limited duration exception under the ACA. Insurers should make certain, however, that a sickness travel policy is not written on a stand-alone basis, but instead is part of a policy which includes other components such as lost baggage, trip cancellation or an accident component. Additionally, travel policies should still include a disclosure explaining that the policy is not a comprehensive major medical policy.

M&R will keep a very close eye on this proposed rule as it moves toward approval, and will offer significant updates as appropriate.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.