On June 22, 2010, the Departments of Labor, Treasury and Health and Human Services (the Departments) issued another round of guidance implementing the Affordable Care Act group health plan provisions. (Prior guidance and our related Legal Alerts may be accessed from our Emerging Issues webpage at www.kilpatrickstockton.com.) The interim final rules (the Rules) address the provisions of the Affordable Care Act relating to preexisting condition exclusions, lifetime and annual limits, rescission of health coverage and patient protections. All of the provisions (other than the patient protections as noted below) apply to grandfathered and non-grandfathered group health plans, generally whether insured or self-insured. (Health insurance issuers offering group health insurance coverage are also covered by these Rules.) Billed by the White House as the “New Patient Bill of Rights,” the Rules adopt an expansive view of the Affordable Care Act and its protections for health plan participants. Employers must immediately begin to evaluate plan design changes and new administrative requirements that must be implemented as early as September 23, 2010 (for calendar year plans, January 1, 2011).

Preexisting Condition Exclusions (PHSA Section 2704)

Under the Affordable Care Act, group health plans are not permitted to impose any preexisting condition exclusions. This provision is effective for plan years beginning on or after September 23, 2010, (i.e., January 1, 2011, for calendar year plans) with respect to children under 19. For all other individuals, this provision is effective for plan years beginning on or after January 1, 2014.   

For purposes of this prohibition, the Rules apply the existing HIPAA definition of “preexisting condition exclusion,” but clarify that the definition includes individuals who are denied coverage altogether on the basis of a preexisting condition, as well as individuals currently enrolled in the plan who are denied coverage for a particular benefit on account of a preexisting condition.

Lifetime and Annual Dollar Limits on Essential Health Benefits (PHSA Section 2711)   

The Affordable Care Act prohibits group health plans from imposing annual or lifetime limits on the dollar value of “essential health benefits” (annual or lifetime limits on non-essential health benefits are permitted). These provisions are generally effective for plan years that begin on or after September 23, 2010. There is a transition period for the annual limit restrictions, discussed in more detail below. The Rules confirm that group health plans may elect to exclude all benefits for a particular condition without violating PHSA Section 2711 (although other federal and state laws may require coverage of certain benefits, and of course, post-March 23, 2010, changes in this regard may impact grandfather status).

Definition of Essential Health Benefits. The Rules define “essential health benefits” by reference to Section 1302(b) of the Affordable Care Act and the regulations issued there under. Section 1302(b) directs the Secretary of Health and Human Services (HHS) to define “essential health benefits,” but requires that the definition “include at least the following general categories and the items and services covered within the categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services, preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.” Until HHS issues regulations, the Departments indicate that they will take into account good faith efforts to comply with a reasonable interpretation of the term in determining whether a violation has occurred.

Exemption for Certain Health Plans. Under the Rules, certain health plans are, or may be, exempt from the prohibition on lifetime and annual limits.     

  • Health Flexible Spending Accounts. The annual limit restrictions do not apply to health flexible spending accounts and certain other account-based plans, like health savings accounts and medical savings accounts. 
  • HRAs Integrated with a Medical Plan. Health reimbursement arrangements (HRAs) that are linked to major medical coverage to comprise an integrated benefit package option (assuming the major medical coverage otherwise complies with the annual limit restrictions) will not violate the annual limit requirement notwithstanding the fact that the HRA coverage itself has an annual limit.
  • Retiree-Only HRAs. Consistent with earlier guidance (discussed in our June 16, 2010, Legal Alert), the Preamble confirms that HRAs that are stand-alone, retiree-only plans are exempt from the annual and lifetime limit restrictions.
  • Stand-alone HRAs. The Departments invited comments regarding whether and how the annual limit restrictions should apply to stand-alone HRAs (other than retiree-only HRAs), including those that provide coverage limited to dental and vision, insurance premium reimbursement or non-essential health benefits. Because the Departments did not apply the annual limit restrictions to stand-alone HRAs in the Rules, it shows a willingness on the part of the Departments to apply less stringent rules to HRAs in this regard. Sponsors and administrators are encouraged to submit comments.   

    Waiver for Limited Benefit Plans (i.e., Mini-Med Plans). The Departments note that the annual limit restrictions are designed to ensure, in the vast majority of cases, that individuals have access to needed services with minimal impact on premiums. To ensure that individuals with limited benefit plans (also known as “mini-med plans”) are not denied access to coverage or do not face substantial premium increases, the Rules authorize HHS to establish a program for plan years beginning before January 1, 2014, under which the annual limit restrictions may be waived if the plan can demonstrate that compliance with the limits would result in a significant decrease in access to benefits or significant increase in premiums. HHS will be providing additional guidance in the near future regarding the conditions and process for applying for a waiver.

    Restricted Annual Limits Permitted During the Transition Period. The Affordable Care Act authorizes HHS to provide for a transition period during which annual limits on “essential health benefits” are permitted on a restricted basis. This transition period is intended to help mitigate the potential for significant premium increases that might otherwise result from the annual limit restrictions. In that regard, the Rules establish a three-year phase in of the restrictions on annual limits. For plan years beginning prior to January 1, 2014, group health plans may impose annual limits on the dollar value of essential health benefits as long as they are not less than the following amounts

    • For plan years beginning on or after September 23, 2010, but before September 23, 2011, $750,000
    • For plan years beginning on or after September 23, 2011, but before September 23, 2012, $1.25 million
    • For plan years beginning on or after September 23, 2012, but before January 1, 2014, $2 million

      These limits are applied on an individual-by-individual basis and only “essential health benefits” may be considered for purposes of determining whether the limit is met. Employers with self-insured plans that want to take advantage of these restricted limits will have to work with their third party administrators to determine what will be considered an “essential health benefit” and to ensure that a process is implemented by which these payments can be tracked. Grandfathering issues are also present in instituting annual limits for post-March 23, 2010, coverage.

      Lifetime Limit Notice Requirement. The Rules require group health plans to notify individuals who reached a lifetime limit previously, but who are still eligible to participate in the plan, that the lifetime limits no longer apply and that the individual may enroll in the plan or, if already enrolled, is once again eligible for benefits. This notice must be provided in writing prior to the effective date of the lifetime limit provision (i.e., first day of the first plan year on or after September 23, 2010). The notice may be included with the plan’s enrollment materials as long as it is prominently placed in the materials.

      Group health plans must provide a special enrollment right to individuals otherwise eligible for coverage who have previously reached a lifetime limit, but are not enrolled in the plan. This means that the plan must allow the individual (and the employee if the individual is a dependent) to enroll in all of the benefit packages available to similarly situated individuals upon initial enrollment. The plan cannot require the individual to pay more for coverage than other similarly situated individuals.   

      Rescission of Coverage (PHSA Section 2712)

      Restrictions on Rescission of Coverage. Under the Affordable Care Act and the Rules, group health plans may not rescind an individual’s coverage under a plan, policy, certificate or contract of insurance unless the individual (or a person seeking coverage on the individual’s behalf) performs an act, practice or omission that constitutes fraud, or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. The Rules do not define “fraud” but do indicate that inadvertent misstatements of fact do not rise to the level of fraud. Employers should confirm that their plan documents and summary plan descriptions include a provision that allows coverage to be terminated retroactively upon a finding of fraud or intentional misrepresentation of a material fact by the plan participant. These provisions should also include proper definitions of fraud and misrepresentation in compliance with this requirement.   

      The Rules confirm that the rescission of coverage provision applies to both insured and self-insured plans. In addition, for insured plans, the Rules clarify that the rescission of coverage standards extend to include representations made by plan sponsors that apply for insured coverage. This means, for example, that if a plan sponsor makes a misrepresentation on an application regarding prior claims history or inadvertently continues to cover an employee or dependent who is no longer eligible, the insurer would not be permitted to rescind the coverage unless otherwise permitted under the standards.

      Definition of Rescission. The Rules clarify that a rescission is a cancellation or discontinuation of coverage that has a retroactive effect regardless of the retroactive period. It does not, however, apply to prospective cancellations or discontinuations of coverage. It also does not apply if coverage is cancelled retroactively because the required premiums are not paid in a timely manner. Because this provision prevents retroactive terminations, except for fraud or intentional misrepresentation, plan sponsors will need to review their dependent audit rules for compliance with this new requirement.   

      Notice Requirement. Group health plans must provide at least 30 calendar days advance written notice to each affected participant before coverage may be rescinded.

      Patient Protections (PHSA Section 2719A)   

      The patient protections of PHSA Section 2719A are only applicable to non-grandfathered plans beginning with the first plan year on or after September 23, 2010 (i.e., January 1, 2011, for calendar year plans).

      Designation of Primary Care Providers. If a group health plan requires or provides for designation of a participating primary care provider, then the plan must permit each participant or beneficiary to designate any participating primary care provider who is available to accept the participant or beneficiary. If this requirement also applies to a child, the plan must permit the participant to designate any participating pediatrician as the child’s primary care provider. The Rules include written notice requirements regarding these designations as well.   

      Direct Access to Ob/Gyn Providers. A group health plan may not require authorization or referral (including a primary care provider) in the case of a female participant or beneficiary who seeks coverage for obstetrical or gynecological care provided by a participating health care professional who specializes in obstetrics or gynecology. In such a case, the plan must inform each participant that the plan may not require authorization or referral for obstetrical or gynecological care by a participating health care professional who specializes in obstetrics or gynecology.

      Emergency Room Services. A plan must provide coverage for “emergency services” in the following manner:

      • Without the need for any prior authorization determination, even if the emergency services are provided on an out-of-network basis
      • Without regard to whether the health care provider furnishing the emergency services is a participating network provider with respect to the services
      • If the emergency services are provided out-of-network, without imposing any administrative requirement or limitation on coverage that is more restrictive than the requirements or limitations that apply to emergency services received from in-network providers
      • If the emergency services are provided out-of-network, by complying with certain cost sharing rules set forth below
      • Without regard to any other term or condition of the coverage, other than coordination of benefits, waiting periods and “applicable cost sharing”

      If ER services are provided out-of-network, then any copayment amount or coinsurance rate imposed for out-of-network emergency services cannot exceed the cost-sharing requirement imposed if the services were provided in-network. The Rules provide detailed and complicated requirements as to how to apply the above cost-sharing requirement for varying plan designs. However, in most cases for an employer-sponsored group health plan with a PPO option, the result will be that a plan may apply the usual, customary and reasonable (UCR) rates for out-of-network services, prior to applying the in-network coinsurance. For example, if a plan pays 90 percent of a network emergency services claim, but only 70 percent of an out-of-network emergency services claim, these rules require the plan to apply the 90 percent rate for all emergency services regardless of whether the provider or hospital is in-network. However, prior to applying the 90 percent rate, the plan can first apply the UCR rates that would otherwise apply for an out-of-network claim.

      The above requirements only apply to “emergency services” for an “emergency medical condition,” which applies a standard of a prudent layperson “who possesses an average knowledge of health and medicine.” Many plans today have lower coinsurance rates, provide no coverage at all or have surcharges for emergency services that are not “true emergencies.” These types of limitations and restrictions on coverage appear to be prevented by the above requirements to the extent that they would otherwise apply to “emergency services” under the prudent layperson standard. Therefore, under the Rules, plans will need to lower their standards for “true emergencies” to the standard set forth in the Rules for determining emergency services (i.e., the prudent layperson standard) or otherwise remove these types of limitations and restrictions.

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