Federal Agencies Propose Plugging Short-Term Health Plan Workaround

The Biden administration has proposed limiting short-term health plans it calls ‘junk insurance’ to four months instead of one year.


The Departments of Labor, Treasury and Health and Human Services issued a proposal Friday that would limit the amount of time employers can use short-term health coverage and indemnity plans to no more than four months, instead of the 12 months set by the administration of former President Donald Trump.

In a fact sheet issued Friday, the administration of President Joe Biden said the proposal would crack down on “junk insurance” it claims leaves consumers exposed to high medical fees when transitioning between plans.

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New proposed rules would close loopholes that the previous administration took advantage of that allow companies to offer misleading insurance products that can discriminate based on pre-existing conditions and trick consumers into buying products that provide little or no coverage when they need it most,” the administration release stated. “These plans leave families surprised by thousands of dollars in medical expenses when they actually use health care services like a surgery.”

These short-term health plans are intended to be transitional and provide coverage for an employee moving from one longer-term plan to another, says Roberta Casper Watson, a partner in the Wagner Law Group and head of its health and welfare practice group. The plans are not required to follow every provision of the Affordable Care Act, including covering of pre-existing conditions.

Watson says the agencies believe employers are using “workarounds” to avoid complying with the Affordable Care Act and adds, “and they’re right.” This proposal has been expected for a long time, and if it passes, it will “make a dent” in this practice.

Indemnity plans pay a fixed amount of money for health expenses, regardless of what expenses were actually incurred. Watson explains that these plans often pay a predetermined sum per day of missed work, such as $100, and are mainly intended to compensate for income lost due to a health event.

If finalized, the Biden administration said the rule would “establish a clear disclosure for consumers of the limits of these plans.”

The rule will be open to a 60-day public comment period after its publication in the Federal Register, listed for July 10. If enacted, the rule will be enforced for insurance sold 75 days after the date of publication of the final rule, according to the proposal.

 

FINRA Expels Brokerage Firm Monmouth for Violating Reg BI

Monmouth is the second firm to be expelled by FINRA for failing to supervise its representatives’ trading.


Monmouth Capital Management LLC has been expelled by the Financial Industry Regulatory Authority for alleged churning and excessive trading of customer accounts; violating Regulation Best Interest; failing to supervise its representatives; and providing false and misleading disclosures on its client relationship summary, Form CRS.

“Monmouth abdicated its responsibility to reasonably supervise its representatives’ trading, resulting in substantial harm to customers, including Gold Star families,” Christopher Kelly, senior vice president and acting head of FINRA’s department of enforcement, said in a statement on Friday. “The egregiousness of the firm’s sales practice and supervisory violations necessitated expulsion of the firm from FINRA membership.”

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Reg BI was implemented by the Securities and Exchange Commission in 2019 to address key obligations of advisers when providing investment advice to clients. The SEC issued additional guidance in April, which included an FAQ document emphasizing that advisers must have a comprehensive understanding of recommended investments. Monmouth is the second firm expelled for allegations that include violations of Reg BI; Salomon Whitney Financial LLC was expelled in May.

Point Pleasant Beach, New Jersey-based Monmouth has accepted and consented to FINRA’s findings but has not admitted or denied them in the settlement.

According to FINRA’s report, between August 2020 and February 2023, Monmouth, acting through six representatives, excessively traded 110 accounts, 42 of which were churned. Customers allegedly incurred about $3.9 million in commissions and trading costs, leading to significant losses. FINRA cited Monmouth for its violations of the Care Obligation of Reg BI; Section 10(b) of the Securities Exchange Act of 1934; and SEC Rule 10b-5.

In one case, a customer’s account had an annualized cost-to-equity ratio exceeding 103%, meaning the account had to grow more than 103% to cover commissions and trading costs, according to FINRA. One customer allegedly experienced a loss of $158,078 due to a cost-to-equity ratio of over 72%. FINRA’s Christopher Kelly, senior vice president and acting head of enforcement, has said that FINRA and other regulators view cost equity ratios of 20% or more as suggestive of excessive trading.

Monmouth failed to reasonably supervise the trading in these accounts despite clear indicators of churning, according to FINRA. Numerous red flags, including 24 consecutive monthly exception reports indicating potential churning, were ignored by the firm.

Notably, some of the impacted accounts belonged to Gold Star Families, meaning they have lost an immediate family member in military service, who had funded their accounts with military death gratuity or Servicemembers’ Group Life Insurance payments. Monmouth representatives excessively purchased securities in these accounts, generating significant commissions and trading costs. In one example, Monmouth allegedly opened an account for a 13-year-old child, funded by SGLI payments, according to FINRA. Despite the account having an average equity of $150,000, Monmouth purchased more than $1.9 million in securities in the account over a 20-month period, generating nearly $80,000 in commissions and trading costs.

Additionally, FINRA found that Monmouth made false and misleading statements on its Form CRS between November 2020 and February 2023. The firm falsely claimed to monitor customer accounts through daily exception reports, despite never utilizing such reports.

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