Employee Benefits Compliance

Short-Term Disability Plans and Fixed Indemnity Insurance See Proposed Rules Tightening Regulatory Grip

The Departments of Labor, Treasury and Health and Human Services (jointly “Agencies”) recently released Proposed Rules (“Rules”) that would reform the rules governing the treatment of excepted benefit status for Short-Term Disability (STLDI) and Fixed Indemnity Insurance Plans. (See the prior Leavitt Group article STLDI)  Currently, “excepted benefits” are exempt from certain requirements, such as COBRA. (See the prior Leavitt Group article on excepted benefits) The Rules also pose questions on level-funded plans thereby indicating the Agencies are considering additional oversight and regulation in that area. Once finalized, these Rules would:

  • Permit “excepted benefit” status only when indemnity is paid on per time-period basis without regard to costs incurred
  • Prohibiting coordination with health plan
  • Clarify taxation status of fixed indemnity plans regardless of medical expenses incurred (i.e., where pretax premiums require taxation at payout of indemnity policies)
  • STLDI limited to 3-month contracts only rather than the current 12-month

Action May Be Required

Employers and plan sponsors with STLDI and Fixed Indemnity plans should pay attention to these changes as they may impact the future viability of your plans. Be sure you are signed up for the Leavitt Group news alerts to receive alerts as these Rules develop. Comments are being accepted by the Agencies from interested parties until September 11, 2023. Instructions for those who’d like to comment on the Rules are at the Rules link above.