August 9, Dear Secretary Burwell, Acting Administrator Slavitt, Assistant Secretary Borzi, and Deputy Commissioner Dalrymple:

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1 Secretary Sylvia M. Burwell Department of Health and Human Services Acting Administrator Andrew M. Slavitt Centers for Medicare & Medicaid Services Department of Health and Human Services Assistant Secretary Phyllis C. Borzi Employee Benefits Security Administration Department of Labor Mr. John Dalrymple Deputy Commissioner for Services and Enforcement Internal Revenue Service Department of the Treasury CC:PA:LPD:PR (REG ) Internal Revenue Service P.O. Box 7604 Ben Franklin Station Washington, DC Submitted electronically via: RE: Expatriate Health Plans and Other Issues AHIP Comments Dear Secretary Burwell, Acting Administrator Slavitt, Assistant Secretary Borzi, and Deputy Commissioner Dalrymple: We are writing on behalf of America s Health Insurance Plans (AHIP) to offer comments in response to the rule regarding Expatriate Health Plans and Other Issues proposed by the Internal Revenue Service, the U.S. Department of Health and Human Services, and the Department of Labor (the Departments) published in the Federal Register on June 10, AHIP is the national trade association representing the health insurance community. AHIP s members provide health and supplemental benefits through employer-sponsored coverage, the individual insurance market, and public programs such as Medicare and Medicaid. AHIP advocates for 1 81 FR 38020

2 Page 2 public policies that expand access to affordable health care coverage to all Americans through a competitive marketplace that fosters choice, quality, and innovation. We commend the Departments for recognizing that the provision of affordable and stable coverage for all consumers is an essential aspect of healthy, well-functioning insurance markets. We agree that efforts to attract and enroll more individuals into minimum essential coverage (MEC) under the Affordable Care Act s (ACA s) single risk pool requirement are needed as we approach the fourth open enrollment period. We strongly support the Departments commitment to exploring actionable solutions to improve the individual market risk pool and believe the proposal on short-term policies represents a reasonable policy approach to one in a series of interconnected challenges that need to be addressed to provide long-term stability to the individual market. We also support the Departments proposed relief from specified provisions of the ACA for expatriate plans. However, in our comments below, we raise very serious concerns about the proposals addressing group fixed indemnity coverage and specified disease insurance products. In our view, these proposals do nothing to positively address the health of the ACA s individual market and should not be adopted under the lens of the stability of this risk pool. Any connection between group fixed indemnity and specified disease insurance coverage to the ACA s individual market is tenuous at best and more likely to be nonexistent. Looking through the lens of stability of the individual market risk pool or using any other criteria, the proposals related to group fixedindemnity products and disease specific insurance should not be adopted. Moreover, the Departments proposals would completely disrupt the marketplace for fixed indemnity and specified disease insurance for consumers, largely employees who typically obtain such coverage in conjunction with benefit plans offered by their employer and find great value in these supplemental health benefit products. In fact, we question the legal authority of the Departments under the statute to impose the proposed new limits on non-coordinated excepted benefit hospital indemnity, or other fixed indemnity policies, and specified disease policies. That said, on the issue of disclosures, we recognize and support that employees and all consumers need to understand the type of coverage they are purchasing, but we contend that the states, not the federal government, are the most appropriate and best suited regulatory authorities to accomplish this goal. The following summarizes AHIP s major comments and recommendations to foster a widerange of high-quality product choices for consumers while ensuring transparency and clear information about the key features of those products. Detailed recommendations and the rationale for those recommendations are provided on the pages that follow. Summary of AHIP s Major Recommendations Effective Dates: o Provisions of the final rule should be effective for plan or policy years beginning on or after the date that is 18 months after the publication date of the final rule in the Federal Register.

3 Page 3 o We also recommend the Departments permit guaranteed renewable policies issued prior to the effective date of the rule to be renewed with the benefit structure provided in the policy when required to do so by contract or state requirements. Expatriate Health Plans: o Relief for Expatriate Plans: AHIP supports relief from specified provisions of the ACA for expatriate health plans. o Travel Frequency Requirement: AHIP recommends the Departments not finalize proposed travel frequency requirements for Categories C and A. o United States National Requirement: We recommend the Departments not finalize the proposed requirement that Category B expatriates must be United States nationals. o Clarification of substantially all health plan enrollees: AHIP proposes the Departments decline to adopt a definition of substantially all. We propose that insurers be permitted to make a good faith effort to meet that requirement and that any concerns be addressed by the Departments on a case-by-case basis. Group Hospital or Other Fixed Indemnity: o Benefits: We recommend the Departments rescind the proposed new criteria for noncoordinated excepted benefit hospital indemnity or other fixed indemnity policies to pay benefits on a per day or other time period-basis without variation based on service provided since the limitation is not permitted under the federal statute. o Disclosure: We support providing accurate information on products to consumers and assert that states should continue to be the primary regulators of required consumer notices for hospital and other fixed indemnity policies. We recommend that the Departments not finalize the proposed federal notice requirements. Specified Disease or Illness Coverage o Benefits: We recommend that the Departments not create a limitation on the number of diseases or illnesses covered under a specified disease policy since this limitation is not permitted under the federal statute. o Disclosure: We recommend the Departments defer to the current state regulatory regime on how to best communicate to consumers about the limited nature of coverage under these policies. Short-Term Limited Duration Policies: o Three-Month Limit: We strongly support efforts to improve the individual market risk pool and believe the proposed three-month limit to short-term policies represents a reasonable policy approach.

4 Page 4 o Limited Exceptions: We urge the Departments to allow short-term policies to provide coverage for periods longer than three months for: (1) individuals who need bridge coverage between employer policies and are subject to a 90-day waiting period for their new employer-based coverage; and (2) students traveling internationally who are not eligible for expatriate coverage. AHIP appreciates the opportunity to offer comments on the proposed rule. Sincerely, Matthew Eyles Executive Vice President Policy and Regulatory Affairs

5 Page 5 Detailed Comments on the Proposed Rule on Expatriate Health Plans and Other Issues I. Effective Date (81 FR 38033) The proposed regulations are proposed to be applicable for plan years (or in the individual market, policy years) beginning on or after January 1, The preamble states that issuers, employers, administrators, and individuals are permitted to rely on these proposed regulations pending the applicability date of final regulations in the Federal Register. If final regulations or other guidance is more restrictive than these proposed regulations, they will be applied without retroactive effect and entities will be provided sufficient time to come into compliance with the final regulations. We appreciate the recognition that the changes contemplated by the proposed rule would require sufficient time for entities to come into compliance with those changes incorporated into the final rule. We further appreciate the statement that if the final regulations or other guidance are more restrictive than the proposed regulations, the final regulations would be applied without retroactive effect. Unfortunately, however, that only addresses one set of concerns, i.e., those related to changes that occur between the proposed rule and the final rule. A second, and very immediate set of concerns, relate to the changes required to move from the status quo to the requirements in the proposed rule. Because the compliance protection only extends to those entities that meet the requirements of the proposed rule, that rule effectively takes on the features of an interim final rule, requiring compliance even during the comment period with attendant risks for noncompliance. This approach is not consistent with notice and comment requirements in the Federal Register. The reality is that many products for 2017 have already been filed with state regulators or presented to employer groups considering their renewal options. It is too late in 2016 to allow redesign activities for 2017 products. Insurers are thus faced with the prospect of having 2017 products that would not be in compliance with the proposed rule. Furthermore, this rulemaking does not address issuer obligations related to products already available and in force. The Departments propose changes to some policies that are guaranteed renewable and require issuers to renew or continue in force the coverage at the option of the individual. For these policies, exceptions are provided only for fraud or intentional misrepresentation and non-payment of premium. We recommend the Departments offer an appropriate grandfathering exception for these existing policies. Without such an exception, insurers would find themselves unable to comply with both new federal regulations and the terms and conditions of the policies.

6 Page 6 Recommendations: Provisions of the final rule should be effective no earlier than eighteen months after the final rule is published in the Federal Register. Given the relationship between the timing for likely finalization of the rule, state filing requirements and marketplace considerations, we recommend the rule have an effective date that is no earlier than eighteen months after the publication of the final rule in the Federal Register. This will allow issuers to complete coverage re-design activities on a schedule that allows time for completing required state review and marketing to employers on a standard annual renewal schedule. Policies issued before the effective date of the rule should be permitted to remain in force until the end of the policy term without being required to come into compliance with the final rule. Guaranteed renewable policies issued prior to the effective date of the rule should be permitted to be renewed with the benefit structure provided in the original policy when required to do so by contract or state requirements. II. Expatriate Health Plans (45 CFR ) AHIP supported the Expatriate Health Coverage Clarification Act of 2014 (EHCCA) and supports the Departments proposed conforming regulations to designate qualified expatriate plans as MEC and provide relief from the ACA market reform requirements; ACA transitional reinsurance program fees; and the Patient-Centered Outcomes Research Trust Fund (PCORTF) fee. Below, we provide specific recommendations to make the implementation of the EHCCA as simple as possible for employers so that American companies can continue to be competitive in the expatriate health plan market. A. Keeping American Companies Competitive The proposed rule includes a number of proposed limits on expatriate health plans that are in addition to what is required by the statute, including travel frequency or duration requirements for qualified expatriates in Categories C and A, a new requirement that Category B expatriates be nationals of the United States, and a bright line test for determining whether an expatriate health plan meets the statutory requirement that substantially all enrollees qualify as expatriates. These are limits to which companies based outside the United States are not subject. The statute specifically states that Congress passed the EHCCA because, American expatriate health insurance companies should be permitted to compete on a level playing field in the global marketplace 2 By its nature, expatriate health insurance is something that employers and other groups only seek if their activities span across international borders. Furthermore, this type of coverage is sold by many companies based outside the United States. While the statute permits the Departments to promulgate regulations to carry out this Act, including such rules as may be necessary to prevent inappropriate expansion of the application 2 EHCCA Section 2:(1)

7 Page 7 of the exclusions under this Act from applicable laws and regulations, 3 this rulemaking should not be a vehicle to add new requirements that have the impact of creating an unlevel playing field for U.S. companies compared to their global competitors contrary to Congress stated intent. The quantitative limits and bright line tests suggested in the proposed rule are limits to which companies based in other countries are not subject. If finalized as proposed, those limits on expatriate health plans will have the effect of driving expatriate health plan business away from American companies to companies that are not subject to those limits. Congress explicitly stated that the intention of the EHCCA is to remove disadvantages American companies face in selling this type of coverage that arose as an unintended consequence of the passage of the ACA. Our recommendations regarding the specific proposed limits of concern can be found in the recommendations that follow. B. Threshold for Substantially All (45 CFR (c)(1)) The EHCCA requires that Substantially all of the primary enrollees in such plan or coverage [expatriate health plans] are qualified expatriates with respect to such plan or coverage. 4 In the preamble to the proposed rule, the Departments state that they received a request for clarification of the term substantially all in response to Notice The Departments propose to clarify the meaning of substantially all by specifying that, as of the first day of the plan year, 95 percent of primary enrollees must meet the definition of qualified expatriate in order for the plan to qualify as an expatriate health plan. In other words, as of the first day of the plan year, less than five percent of the primary enrollees (or less than five primary enrollees if greater) are not qualified expatriates. A numeric threshold, especially one this high, puts American insurers at a competitive disadvantage because international competitors are not subject to any such limitations. Furthermore, when one considers the criteria for qualified expatriates it will be very difficult to calculate the number of plan participants who meet that numeric standard as proposed. For example, the Departments propose that Category B of qualified expatriates includes individuals who are nationals of the United States who work outside the United States for at least 180 days in a consecutive 12 month period that is within a single plan year or across two consecutive plan years. The proposed definition of substantially all requires that on the first day of the plan year 95 percent of enrollees be qualified expatriates. For an employer who provides an expatriate health plan primarily to individuals in Category B, some proportion of employees on the first day of the plan year may be tenured employees for which the employer can look back and confirm that the primary enrollee meets the Category B criteria. At the same time, it is highly likely that the employer is planning to provide this coverage to many employees over the course of the plan year who are not tenured and the employer will have to make its best 3 42 U.S.C (e) 4 EHCCA Section 3(d)((2)(A) 5 81 Fed. Reg

8 Page 8 guess on whether those employees will work outside the United States for at least 180 days over the next two plan years. Even if the employer expects 95 percent of primary enrollees in the expatriate health plan to meet that standard, employees may leave the company or return to work in the United States earlier than expected due to many reasons, such as early completion of a project or family issues that require them to return to the United States. Furthermore, the regulation as proposed creates an especially unlevel playing field for American companies selling expatriate health plans to smaller employers in need of expatriate health coverage. Under the proposed standard, a company with 25 primary enrollees in Category B on an expatriate health plan would lose their expatriate health plan status if a team of five were to finish a project overseas early and return to the United States after 179 days working abroad, rather than 180 days. If a numeric standard is to be imposed, special consideration should be given to plans for employers with fewer than 100 primary enrollees on their expatriate health plan. Recommendations: AHIP recommends the Departments not adopt a definition of substantially all. We propose that plans be permitted to make a good faith effort to meet that requirement and that any concerns be addressed by the Departments on a case-by-case basis. This type of numeric limit, especially with such a high threshold, puts American companies at a significant disadvantage when competing against international issuers not subject to such limits. If the Departments include a numeric standard for substantially all, the standard should provide that for plans with 100 or more primary enrollees, substantially all enrollees are qualified expatriates if 15 percent or less of the primary enrollees do not meet the definition of qualified expatriate. For plans with fewer than 100 primary enrollees, if 15 or fewer primary enrollees do not meet the definition of qualified expatriate, the plan should be considered to meet the substantially all requirement. If the Departments include a numeric standard for substantially all, we also recommend the Departments establish a safe harbor when the facts support that an expatriate health plan issuer acted in good faith to support the policy goals of the substantially all requirement. C. Time Limits on Category C (45 CFR (f)(3)) The statute defines qualified expatriates in Category C as individuals who are members of a group of similarly situated individuals that is formed for the purpose of traveling or relocating internationally in service of one or more of the purposes listed in section 501(c)(3) or (4) of the EHCCA, which include but are not limited to social welfare, educational, or religious purposes. Similarly-situated organizations or groups that meet certain other conditions may also qualify for this category. 6 6 EHCCA Section 3(d)(3)(C)

9 Page 9 Requirements are added in the proposed regulation for Category C individuals that are not specified in the statutory definition. First, Category C individuals that are organized to travel or relocate outside the United States, must be expected to travel or reside outside the United States for at least 180 days in a consecutive 12 month period that overlaps with the policy year. Second, for groups organized to travel or relocate within the United States, individuals must be expected to travel or reside in the United States for not more than 12 months. Recommendation: We recommend the Departments not adopt time limits for Category C as this is contrary to the intent of the statute. Congress explicitly included time limits in the definition of Category B 7 individuals, but chose not to include time limits in the statutory definition of Category C individuals. Furthermore, the proposed time limits on Category C would put American expatriate health insurers at a disadvantage to international issuers who are not subject to that requirement. D. Travel Limits on Category A (45 CFR (f)(1)) The statute defines Category A qualified expatriates as individuals who are not nationals of the United States and who are: transferred or assigned by their employer to work in the United States for a specific and temporary assignment tied to the individuals employment with the employer; reasonably determined by the plan sponsor to require health services in multiple countries; and are offered other multinational benefits on a periodic basis. 8 The Departments propose that Category A individuals must also be expected to travel outside the United States at least once per year during the coverage period, since an individual not expected to travel would not reasonably require health services in multiple countries. While the requirement that a Category A individual must require health services in multiple countries is consistent with the statutory definition of Category A, the proposed requirement that those individuals must be expected to travel outside the United States once during the coverage period is unnecessary and could create challenges. It makes sense that an employer of Category A individuals should be prepared to cover health services outside the United States for those individuals, but that does not mean an employer can require those employees to leave the United States at least once during the coverage period. As a general matter, an expatriate health insurer or plan administrator cannot control whether a Category A individual travels outside of the United States on vacation or medical leave, the timing of a project plan or schedule, and/or whether the individual will be engaged in international travel for business. Adding a requirement relating to an expectation creates a fact-based inquiry where there should not be one. 7 EHCCA Section 3(d)(3)(B) 8 EHCCA Section 3(d)(3)(A)

10 Page 10 Recommendation: We recommend the Departments not finalize the proposed requirement that Category A expatriates must be expected to travel outside the country at least once during the coverage period. E. New Requirement for Category B Expatriates (45 CFR (f)(2)) The statute defines a Category B qualified expatriate as an individual who is working outside the United States for a consecutive period of at least 180 days in a consecutive 12-month period that overlaps with the plan year. 9 The Departments propose that a Category B expatriate must be a national of the United States 10 which is not required by the statute. It is very common for enrollees in expatriate health plans to be nationals of a country other than the United States who are working in a country other than their home country. For example, a company might employ workers from the United States, Brazil and India to work on a project in Germany. When this proposed requirement that Category B employees be United States nationals is combined with the proposed definition of substantially all, the result would be to disqualify health plans provided to multinational teams working outside the United States from expatriate health plan status. Recommendation: We recommend the Departments not finalize the proposed requirement that Category B expatriates must be United States nationals. The proposed requirement is not supported by the statute and would result in American companies being unable to compete in providing expatriate health plans to the many employers who employ significant numbers of employees who are not United States nationals. F. Electronic MEC Statements (26 CFR ) AHIP supports the option provided in the EHCCA 11 for enrollees to be furnished with required MEC statements 12 electronically, assuming enrollees have been notified of the intent to provide those notices electronically. We also support the suggestion in the preamble of the proposed rule that the obligation to provide notice could be met when an enrollee receives their enrollment materials. Recommendation: We recommend the Departments consider an expatriate health plan to have met the requirement to notify enrollees of the intent to provide electronic MEC statements if notification is provided in the enrollee s enrollment materials. Because employers have a variety of approaches to on-boarding a new employee or deploying an existing employee to 9 EHCCA section 3(d)(3)(B) CFR (f)(2) 11 EHCCA section 3(b)(2) 12 Sections 6055 and 6056 of the Code

11 Page 11 an overseas assignment, we recommend that expatriate health plans still be permitted to meet the notice requirements by providing the notice separately from the enrollment materials in cases where it is more efficient or consumer-friendly to provide the notification in another manner. III. Excepted Benefits The proposed rule addresses group hospital and other fixed indemnity coverage and, in the preamble, raises questions with respect to specified disease or illness coverage. Below we provide general information about the coverage these policies provide, the value of that coverage to consumers, and the regulation of these policies and issuers of these policies by the states. Later, we provide specific recommendations in response to the proposed change to the definition of excepted benefits and we respond to the Departments requests for comment on alignment of requirements across individual and group fixed indemnity markets and whether new requirements should be issued for specified disease products. A. Consumer Satisfaction with Fixed Indemnity and Specified Disease Products Supplemental health insurance policies such as hospital or other fixed indemnity and specified disease coverages provide tens of millions of Americans with protection against the financial impact of medical treatment. Both of these coverages pay benefits in a fixed dollar amount not based on medical expenses incurred, and payment is not coordinated with benefits under other types of coverage. Benefits under hospital and other fixed indemnity policies are typically paid directly to the individual, who is then free to use the money for any purpose. This could include covering the cost of transportation, lodging, childcare, or rent or mortgage, as well as out-of-pocket costs for expenses not covered under a major medical health policy, such as co-pays and deductibles or charges associated with certain experimental treatments. In this way, these policies provide financial protection against costs not covered under other types of coverage. Hospital or other fixed indemnity coverage pays a fixed indemnity amount based on an event such as hospitalization or doctor visit, and may pay different amounts on a per day or event basis. Critical illness or specified disease coverage pays benefits when a beneficiary suffers from one or more illness or disease. Some critical illness or specified disease coverage may pay an initial lump sum, but they generally pay a fixed amount, unrelated to expenses, for the covered illnesses or diseases for hospitalization, hospital services, surgical procedures, nonsurgical treatments, and recovery care. A specified disease or illness policy may also provide a death benefit. Supplemental health products provide millions of Americans with protection against the financial impact of treatment for complex medical conditions. In a 2015 survey, AHIP found that responding members provide 4.5 million people with hospital or other fixed indemnity insurance, with another 11.6 million people choosing specified disease insurance, either through a group or

12 Page 12 individual policy. 13 Significantly, most current policies, which can be individual or groups policies, were purchased at the worksite almost 90 percent of hospital and other fixed indemnity and around 80 percent of critical illness or specified disease insurance. Employers generally make these coverages available in the workplace on a voluntary basis, i.e., employees typically pay all premiums, as part of a package of benefit options designed to meet employees insurance and financial protection needs. The AHIP survey found that employers throughout America understand the value of supplemental health insurance, with thousands of them making the products available in almost every state. The survey showed that nationwide in 2014, more than 200,000 employers made hospital indemnity or other fixed indemnity policies available and over 500,000 made specified disease policies available to their employees. As dynamics have changed in the employee benefits market, employers are making more of these types of voluntary benefits available as part of the package of benefits, giving employees the opportunity to choose from a variety of options and tailor their coverage to their needs. 14 In addition, employees who choose these products report high levels of satisfaction, with 94 percent of these employees saying they are satisfied or very satisfied with their coverage, whether fixed indemnity or specified disease coverages. 15 B. The Role of State Regulators The states have been and continue to be the primary authority for regulation of both hospital and other fixed indemnity and specified disease insurance. The Public Health Service Act (PHSA) 16 recognizes this authority, and the ACA did not change this authority for these products. State regulation includes robust consumer protections and the active enforcement of those protections. Consumer protections include requirements for policy provisions, filing and approval of policy forms, outlines of coverage, marketing, and advertising. State insurance departments monitor compliance with these requirements through consumer complaint investigations and market conduct examinations, and impose fines and order compliance as necessary to enforce the requirements. In addition, each state insurance department has a division for the reporting and investigation of fraud, inappropriate marketing, and other market abuses. To guide state regulation, the National Association of Insurance Commissioners (NAIC) has adopted a model act and regulation and many states have adopted or follow the model acts for accident and sickness insurance, providing a regulatory framework for these products. This model contains minimum policy standards, disclosure requirements on the face of the policy, as well as an outline of coverage, and other provisions designed to inform consumers of the limited nature of these coverages. 13 The AHIP survey included members offering fixed indemnity and specified disease policies, but not all insurers offering these products, and these numbers may be understated. 14 U.S. Worksite Sales: 2014 Fourth Quarter Review, LIMRA; Jay Hancock, Health insurance industry markets supplemental policies to cover medical costs, Kaiser Health News, Feb. 5, Purple Insights Strategies survey commissioned by AHIP, March U.S.C. 300gg-61(a); 65 Fed. Reg. 45,786, 45,787 (1999) ( States are the primary regulators of health insurance coverage in each State. )

13 Page 13 Continuing to recognize primary state regulation of these insurance products and markets allows the flexibility necessary for states to quickly adapt to changing market conditions and tailor state responses appropriate to protect each state s citizenry. C. Federal Statutory Context: Group Fixed Indemnity Excepted benefits are defined under federal law to include hospital indemnity or fixed indemnity policies, provided the benefits are not coordinated with a group health plan. 17 If these policies meet the following three requirements set out in statute, they are treated as non-coordinated excepted benefits and are not subject to federal regulation as health insurance coverage under the PHSA: (A) the benefits are provided under a separate policy; (B) there is no coordination between the provision of such benefits and any exclusion of benefits under a group health plan by the same sponsor; and (C) the benefits are paid with respect to an event without regard to whether benefits are provided with respect to such an event under any group health plan maintained by the same plan sponsor. 18 The Departments do not have the authority to narrow this statutory construction by limiting the exemption to less than all of the policies encompassed under these requirements. The D.C. Circuit, in Central United, has made this clear with regard to an additional requirement for MEC as a criterion for individual fixed indemnity policies: Thus, where Congress exempted all such conforming plans from the PHSA s coverage requirements, HHS, with its additional criterion, exempts less than all. Disagreeing with Congress s expressly codified policy choices isn t a luxury administrative agencies enjoy. Both before and after the enactment of this statute, these products have generally been offered on a per event basis consistent with the statute e.g., per doctor s visit or hospital stay and with varying payment amounts. Nothing in the PHSA or the ACA (which did not amend this section or regulate excepted benefits criteria) permits the Departments to add additional criteria for group fixed indemnity insurance to qualify as excepted benefits including a per day or other time period requirement and restrictions on providing different amounts of payment based on the type of item or service provided. So long as the three statutory conditions are satisfied, the plan qualifies as an excepted benefit. It is AHIP s position that new criteria for non-coordinated excepted benefit hospital indemnity or other fixed indemnity policies adds criteria not required by statute and exceeds the Departments statutory authority and discretion. Under well-settled principles of administrative law, courts apply a two-step analysis to determine whether agencies have overreached their statutory mandate. The first question is always whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, the agency must give effect to the U.S.C. 300gg-91(c)(3) (Public Health Service Act (PHSA) 2191); 300gg-21(c)(2) (PHSA 2721). 18 Id. 300gg-21(c)(2)(A)-(C).

14 Page 14 unambiguously expressed intent of Congress. If Congress has not directly addressed the precise question at issue, the question is whether the agency's regulation is based on a permissible construction of the statute. 19 This is exactly the line of reasoning adopted by the D.C. Circuit in Central United Life Insur. Co. v. Burwell when HHS attempted to amend the criteria for fixed indemnity insurance in the individual market to be treated as an excepted benefit by requiring that the plan be provided only to individuals who have minimum essential coverage. 20 Here, as in Central United, Congress has never changed course or put its original definition in any doubt. 21 As a result, the Departments in this proposal lack[ed] authority to demand more of fixed indemnity providers than Congress required 22 In addition, the Departments have failed to point out a source of regulatory authority to modify the criteria or scope of the non-coordinated excepted benefits. While the Departments describe statutory language authorizing rulemaking or definition in each of the other categories of excepted benefits in the preamble of the proposed rule, they do not identify a source of rulemaking authority for the third category (non-coordinated benefits) which includes fixed indemnity coverage. 23 This would appear to fail the test in Central United Life, et al v. Burwell, in which the Court did not accept an argument that silence by Congress created a statutory ambiguity. We also note that excluding event-based benefits, as the proposed rule appears to do, is inconsistent with one prong of the method Congress provided to determine whether a fixed indemnity plan was sufficiently non-coordinated, i.e., that benefits are paid with respect to an event without regard to whether benefits are provided with respect to such an event under any group health plan maintained by the same plan sponsor. 24 There would be no need for such a test if, by definition, these policies could not provide coverage on a per-event basis. 25 D. Previous Regulatory Guidance: Group Fixed Indemnity The Departments proposed change is a radical shift in how the long-standing underlying statute has been interpreted and enforced. Prior to the ACA, the term event has been understood to always include both per service and per time period triggers. This underscores the significance of the proposed change and why it is contrary to statute. Further, the newly announced excepted benefits criteria are inconsistent with the Departments long-standing treatment of these products. This is bolstered by the fact that the Departments and the states have not enforced prior regulation to prohibit event-based payment or variance in payment based on type of service. The 19 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). 20 Central United Life Insur. Co. v. Burwell, No , 2016 WL , at *1 (D.C. Cir. Jul. 1, 2016). 21 Id. at *2 22 Id. at * Fed. Reg. at U.S.C. 300gg-21(c)(2)(C). 25 TRW Inc. v. Andrews, 534 U.S. 19, 28 (2001) (declining to adopt interpretation of statute that would in practical effect render [another provision] entirely superfluous in all but the most unusual circumstances )

15 Page 15 proposed rule, in this regard, would create entirely new requirements and widespread disruption to a product that has been offered to consumers for many years and has not articulated a wellreasoned rationale for this shift. Both before and for the 15 years following the enactment of the excepted benefits provision, the industry, state insurance regulators, and HHS have shared a common interpretation of the exception for fixed indemnity policies that it does not exclude policies that pay event-based benefits or those that pay varying amounts for different types of services. 26 These new proposed requirements and in particular, the example that would not seem to permit different payment levels based on different services would essentially eliminate the vast majority of hospital or other fixed indemnity insurance designs offered in the market today. States have consistently approved policies that pay event-based benefits and allow variation in payments based on service as fixed indemnity or hospital indemnity policies. And it is the states who are the primary regulators of the business of insurance, and who have primary enforcement authority under the PHSA. 27 E. Group Hospital and Other Fixed Indemnity: New Benefits Criteria For hospital and other fixed indemnity insurance to qualify as excepted benefits, the proposed rule requires benefits to be paid on a fixed dollar amount per day or per other time period, such as per week. In one of the examples, it is concluded that a policy that provides benefits for doctors visits at one payment amount, hospitalization at another dollar amount, and prescription drugs at a different amount fails to qualify as excepted benefits because the benefits are not paid on a fixed dollar amount per day or other time period. 28 In their August 27, 2013 comment letter in response to the ACA Implementation FAQ #11 publication, the NAIC reminded Secretary Perez, Secretary Sebelius, and Secretary Lew that state insurance commissioners have approved for sale hospital and other fixed indemnity plans that provide a fixed dollar amount per period, regardless of the amount of expenses incurred, but allowing the fixed amount to vary based on the type of service provided. 29 They echoed concerns that the federal guidance seemed to indicate that by allowing the fixed amount to vary based on the type of service, these products would no longer be considered excepted benefits. Such a determination would raise concerns regarding the impact this interpretation would have on consumers who appreciated these products for offering them choice and options. The NAIC further stated that state regulators believe hospital and other fixed indemnity coverage with 26 Even the D.C. Circuit, in the Central United decision, described fixed indemnity with a per event trigger: Among the excepted benefits listed in the PHSA is a form of insurance known as fixed indemnity. Id. 300gg- 91(c)(3)(B). As their label suggests, these policies pay out a fixed amount of cash upon the occurrence of a particular medical event. For instance, if a policyholder visits a hospital or purchases prescription drugs, the provider pays out a predetermined amount, which the policyholder is then free to use however she chooses. Central United at *1. 27 See 42 U.S.C. 300gg-61(a); 65 Fed. Reg. 45,786, 45,787 (1999) ( States are the primary regulators of health insurance coverage in each State. ). 28 Proposed 26 CFR ; 29 CFR ; 45 CFR

16 Page 16 variable fixed amounts based on service type provides important options for consumers as supplemental coverage [p]olicies with variable fixed amounts have proven to be popular and we see no reason they should be eliminated as options for supplemental coverage. Recommendation: We recommend the Departments not finalize the proposals relating to new criteria for non-coordinated excepted benefit hospital indemnity or other fixed indemnity policies. These proposals would add new criteria and examples that require these policies to make payments only on a per day or other time period basis and not vary payment amount based on type of service. This proposal adds criteria not required by statute and exceeds the Departments statutory authority and discretion. It should be withdrawn for reasons consistent with the recent U.S. Court of Appeals, D.C. Circuit, decision in Central United v. Burwell. F. Hospital and Other Fixed Indemnity: Notice Requirements (45 CFR (D)) The Departments propose that for hospital or other fixed indemnity insurance to qualify as excepted benefits, the issuer must provide at the time or before enrollment federally-required language to be displayed in the contract and any application materials. As set forth above, the states have primary jurisdiction with respect to hospital and other fixed indemnity insurance and the NAIC has adopted models providing a regulatory framework for these products. Currently, the NAIC is reviewing its Accident and Sickness Minimum Standards Model Act and companion regulation. This review of both models has been a collaborative process, involving regulators, industry, consumer representatives, and other interested stakeholders. It is the intent of the NAIC to update both models to reflect current standards and practices, ensure compliance with related statutory changes, and review any perceived gaps in consumer protections, while looking to support a robust, stable marketplace that encourages innovation and emphasizes the financial security that these products can offer. Current notice and disclosure requirements are slated for review and discussion as part of this collaborative process, and federal action would disrupt this balanced, reasonable, and measured approach. As we have noted in our comments regarding group hospital and other fixed indemnity products, providing accurate information about products is key to consumer protection. States currently require effective and thorough explanations of benefits and coverage, and there appears to be little evidence that employees selecting this type of voluntary coverage confuse it with ACAcompliant comprehensive major medical coverage. Recommendation We recommend the Departments not finalize the proposed federal notice requirement for group fixed indemnity coverage. While we agree that consumers should understand the type of coverage they are purchasing, for the reasons stated above, we recommend states continue to be the primary regulators of required consumer notices for these products.

17 Page 17 G. Individual and Group Fixed Indemnity Markets Alignment (81 FR 38031, 38032) The Departments solicit comments on: (1) aligning conditions between the individual and group markets for conditions to be considered as excepted benefits, e.g., limiting payment strictly on a per-period basis; and (2) conforming changes in the final regulations to ensure consistency in notice requirements in the group and individual markets. As set forth earlier in our comments, the limitation to payment strictly on a per-period basis exceeds the Departments statutory authority and discretion. This holds for both the individual and group markets, and alignment will be achieved by eliminating this condition. Similar alignment can be achieved between the markets by adopting our recommendations for notice requirements, i.e., the Departments should recognize and defer to the states primary regulatory authority with respect to these requirements. (Please see the previous section on notice requirements for a more complete explanation.) Recommendation: AHIP recommends neither group nor individual fixed indemnity products be subject to per-day or other time period limitation and that the states should continue to exercise their primary jurisdiction with respect to appropriate consumer notices. H. Specified Disease or Illness Coverage (81 FR 38032) In the preamble to the proposed rule, the Departments solicit comments on whether to limit the number of diseases or illnesses that may be covered in a specified disease policy or whether issuers should be required to disclose that such policies are MEC. Under the federal statute, excepted benefits include benefits under one or more (or any combination thereof) of various benefits that are not subject to federal regulation as health insurance under the PHSA. 30 One of the types of benefits listed in the statute is coverage for a specified disease or illness if offered as independent, noncoordinated benefits. 31 Similar to group fixed indemnity policies, if group specified disease or illness policies meet the three statutory requirements for non-coordinated benefits, they are not subject to federal regulation as health insurance under the PHSA. The Departments may not limit this exemption to less than all of the policies encompassed under these requirements, as made clear for a requirement for MEC under the Central United decision. At the time of the enactment of the statute, while some specified disease policies only offered coverage for one group of disease or illnesses, e.g., cancer, many policies offered coverage for a number of diseases or illnesses, e.g., cancer, heart attack, and strokes. Since passage of the statute, many policies continued to offer coverage for multiple diseases and illnesses and, as noted earlier, many consumers purchase this type of coverage. Offering consumers policies that USC 300gg-91(c) UCS 300gg-91(c)(3)

18 Page 18 cover multiple conditions allows them to access the categories of financial protection they find most valuable in one policy without having to purchase multiple products. Given the clear statutory language that permits a combination of benefits, the Departments lack the authority to limit a specified disease policy to only one specific condition or a limited number of diseases or illnesses. Not only would this be contrary to the language, but also to the product choices available to consumers in the market at the time of enactment of the statute. Further, a change that would affect the ability of consumers to buy and keep the coverage they have chosen would disrupt the market and raise further questions as to what exactly a single policy could cover. As noted with respect to disclosure for hospital and other fixed indemnity coverages, the states currently require notices and other means to inform consumers that specified disease policies offer limited coverage. Further, there appears to be little evidence that consumers selecting this type of voluntary coverage confuse it with ACA-compliant comprehensive, major medical coverage. In addition, this is an area currently under discussion at the NAIC as it considers revisions to the models that address these types of products. As with fixed indemnity coverage, the states are the primary and appropriate regulators of these products and are best situated to enforce their laws and regulations in protection of their citizens. Recommendations: We recommend the Departments not create a limitation on the number of diseases or illnesses covered under a specified disease policy since that would impose a limitation not permitted under the federal statute. We recommend that the Departments defer to the current state regulatory regime that requires disclosure to consumers about the limited nature of coverage under these policies. IV. Short-Term Limited Duration Medical Policies (45 CFR ) 32 Short-term, limited duration policies are designed to provide coverage for consumers and their families who may have a need for a bridge before enrolling in permanent coverage. For example, an individual might need a bridge policy when changing jobs in which case there could be a gap between the end date of the coverage provided by the prior employer and the effective date of the coverage provided by the new employer. Although this short-term, limited duration coverage is a type of individual coverage, by definition it is not considered as individual health insurance under the PHSA. 33 Rules adopted under the statutory definition excluding short-term, limited-duration coverage have limited such coverage to less than 12 months Throughout this letter, all citations to Department of Health and Human Services proposed or final rules should be assumed to apply to any corresponding Department of Treasury and Department of Labor rules U.S.C.A. 300gg-91(b)(5) CFR