With Affordable Care Act (the “ACA”) compliance efforts in full swing, the agencies charged with enforcing the law have been steadily issuing guidance to help employers, plans and plan participants understand their obligations and rights, respectively. On May 2, 2014, the Department of Labor (“DOL”) published new FAQs addressing various ACA provisions, including the annual limit on out-of-pocket maximums and the preventive care mandate as it relates to tobacco cessation programs. Then on May 7, 2014, the DOL issued proposed COBRA regulations and new model COBRA notices to help qualified beneficiaries better understand their coverage options under COBRA and the State and Federal Exchanges/Marketplaces.
New Model COBRA Notices
On May 7, 2014, the DOL published proposed regulations (see 79 Fed. Reg. 26192) announcing changes to its model COBRA general notice, which must be distributed to group health plan participants within 90 days of the coverage effective date. The DOL had previously updated its model qualifying event election notice to include State Health Insurance Marketplace coverage information in DOL Technical Release 2013-02. The latest proposed regulations similarly update the initial COBRA general notice to include Marketplace enrollment information for participants and beneficiaries.
The new model notices include safe harbor language advising COBRA qualified beneficiaries to compare Marketplace coverage and COBRA continuation coverage options, noting the availability of new premium assistance to qualified Marketplace enrollees. The new model qualifying event notice also explains how COBRA and the Marketplace interact, the Marketplace’s open enrollment and special enrollment periods and what a COBRA qualified beneficiary should consider when choosing ongoing coverage.
The DOL posted the updated model general and election notices on its website at www.dol.gov/ebsa/cobra.html. While plans are not required to use the model notices, they act as safe harbors, and their use will demonstrate good faith compliance with COBRA’s notice content requirements. As individuals now have more coverage options available to them, plans may wish to consider using the new model notices right away before the DOL publishes the final COBRA regulations.
Marketplace Special Enrollment Window for COBRA Participants
Concerned that the prior model COBRA election notice did not sufficiently address the Marketplace options for COBRA qualified beneficiaries, HHS issued a bulletin on May 2, 2014 announcing a special enrollment period for COBRA qualified beneficiaries to enroll in Marketplace coverage from May 2, 2014 through July 1, 2014. During this special, limited open enrollment window, anyone eligible for or currently on COBRA can enroll in Marketplace coverage without having to wait for the Marketplace’s next open enrollment period, i.e., November 15, 2014 to February 15, 2015, for coverage in 2015. Although the CMS bulletin is only applicable to federally-facilitated Marketplaces, HHS did encourage state-run exchanges to adopt a similar a mid-year enrollment period for COBRA qualified beneficiaries in their states.
For example, the State of California’s health insurance exchange (known as Covered California) launched its own limited-time special enrollment period for people who are on COBRA and would like to switch to a Covered California Marketplace plan. California’s special enrollment period runs from May 15, 2014 through July 15, 2014.
Out-of-Pocket Maximums and Out-of-Network Providers
As referenced above, the three agencies in charge of administering the ACA (the IRS, DOL and HHS; together “the Departments”) also issued FAQs (Part XIX) on various ACA provisions on May 2, 2014 (the “FAQs”). One of the FAQs addresses the ACA’s limit on out-of-pocket costs that is applicable to non-grandfathered plans. Under the Public Health Service (PHS) Act section 2707(b), a non-grandfathered group health plan may not impose any annual cost-sharing that exceeds the limitations on out-of-pockets costs provided for under section 1302(c)(1) of the ACA. For the 2014 plan year, the annual limit on out-of-pocket costs may not exceed $6,350 for self-only coverage and $12,700 for coverage other than self-only coverage (for 2015, the annual limit is expected to increase to $6,600 and $13,200, respectively).
The FAQs make the following clarifications:
- Out-of-Pocket Spending: In prior guidance, the agencies stated that if a plan uses a network of providers, it may, but is not required to, count out-of-pocket spending for out-of-network expenses towards the plan’s annual out-of-pocket maximum. The FAQs clarify that if a plan chooses to do so, it may use any reasonable method to count such out-of-network payments towards the limit. For example, if the plan covers 75% of the usual, customary and reasonable amount (“UCR”) for out-of-network services, the plan can apply the 25% paid by the participant, in full or in part, toward the annual maximum or it can apply the 25% plus the amount charged in excess of UCR.
- Generic vs. Brand Name Drugs: With respect to brand name prescription drugs and generic drugs, the agencies confirm that if a large fully-insured plan and/or a self-funded health plan is designed to cover the cost of generic drugs, if medically appropriate, and brand name drugs at a higher cost-sharing amount, the plan may count all or some of the amount paid by a participant for a brand name drug where a generic is available, towards the annual out-of-pocket limit. For example, the plan can be designed to apply only the difference between the cost of the brand and the generic drug towards the limit. The FAQs also confirm that if the plan is subject to ERISA, its summary plan description must explain which covered benefits will (and will not) count towards the out-of-pocket maximum.
- Reference-Based Pricing Program: Where a large fully-insured or self-funded health plan uses a reference-based pricing program under which the plan pays a fixed amount for a particular procedure (for example, knee replacements) if certain providers are used, the FAQs clarify that until guidance is issued otherwise, the plan can treat providers that accept the reference amount as the plan’s only in-network providers and still comply with the annual out-of-pocket limitation. The FAQs do require such a plan to use a reasonable method to ensure it provides sufficient access to quality in-network providers.
Preventive Care Services: Tobacco Cessation
Public Health Services Act (PHSA) section 2713, as added by the ACA, requires non-grandfathered plans to cover government-recommended preventive care services, including tobacco cessation programs, without cost-sharing. The FAQs clarify that a group health plan or health insurance issuer can demonstrate compliance with this requirement if the plan or issuer covers tobacco use screening and at least two tobacco cessation attempts per year for those who use tobacco products. For this purpose, covering a cessation attempt includes providing coverage for:
- four tobacco cessation counseling sessions of at least 10 minutes each (including telephone counseling, group counseling and individual counseling) without prior authorization; and
- all Food and Drug Administration (FDA)-approved tobacco cessation medications for a 90-day treatment regimen when prescribed by a health care provider without prior authorization.
No Updated Summary of Benefits & Coverage Template
PHSA section 2715 mandates that group health plans and health insurance issuers provide participants with a Summary of Benefits and Coverage (SBC), describing the available benefits under the applicable plan or coverage. The Departments confirmed in the FAQs that plans and issuers may continue to use the model SBC published in April 2013. This document may be found at http://cciio. cms.gov and http://www.dol.gov/ebsa/healthreform.
SBCs must be distributed to participants during initial enrollment, at open enrollment/renewal, upon request and within 90 days of enrollment due to a special enrollment event under the Health Insurance Portability and Accountability Act (HIPAA).
Health FSA Carryovers Do Not Affect Excepted Benefit Status
Excepted benefits are exempt from HIPAA and ACA market reform requirements of ERISA, the PHSA, and the Internal Revenue Code. Health flexible spending accounts (FSAs) generally constitute excepted benefits if:
- the employer also makes available group health plan coverage that is not excepted benefits; and
- the maximum benefit does not exceed two times the employee’s salary reduction election for the year, or, if greater, $500 plus the amount of the participant’s salary reduction election.
The IRS previously published guidance on October 31, 2013, modifying the “use-it-or-lose-it” rule for health FSAs to allow up to $500 of unused amounts remaining at the end of a plan year to carry over into the next plan year instead of being forfeited, provided the plan does not also incorporate a grace period for incurring reimbursable expenses and plan sponsors timely amend their plan documents to add this optional feature. In the FAQs, the Departments confirm that plans adopting the carryover feature need not consider any carried over amount to determine if the health FSA meets the above referenced excepted benefit criteria.