The Patient Protection and Affordable Care Act and the Health Care and Edu-cation Reconciliation Act (collectively “Healthcare Reform”) will make sweep-ing changes in the American healthcare system. However the full scope of such changes and how the operation of employer health plans will be im-pacted will only be known once all of the necessary regulations are issued. Recently, the Departments of Health and Human Services, Labor and the Treasury have issued a series of interim final regulations that cover the follow-ing topics: (i) the status of grandfathered health plans; (ii) preexisting condi-tion exclusions; (iii) lifetime and annual dollar limits on benefits; (iv) restric-tions on rescissions; (v) patient protections; (vi) preventive services; and (vii) internal claims and appeals and external review processes. This Update pro-vides a brief summary of these various regulations.
Grandfathered plans are those group health plans in effect on March 23, 2010. A group health plan will not lose its grandfathered status merely because one or more of the individuals enrolled in the plan on March 23, 2010 ceases to be covered by the plan; however, the group health plan must continu-ously cover at least one person (not necessarily the same person) after March 23, 2010 to maintain grandfathered status.
If a grandfathered plan, not maintained pursuant to a collective bargaining agreement, enters into a new policy, certificate or contract with its existing insurer or contracts with a new insurer after March 23, 2010, then the regula-tions state that such a plan will no longer be “grandfathered” because the applicable policy, certificate or contract was not in effective on March 23, 2010. Similarly, if a grandfathered plan offers several benefit packages, each of these packages must be reviewed separately for determining whether each package maintains grandfathered status. For example, an employer may maintain a plan with three options, a self insured option and two insured options. If one of the insured options replaces its issuer after March 23, 2010, then the plan coverage offered under that option will no longer have grand-fathered plan status and will be required to comply with all of the new Healthcare Reform mandates. The self insured option and the other insured option that remain unchanged will not lose their grandfathered status.
In order to maintain status as a grandfathered plan, all plan materials describing the benefits provided under the plan to participants or beneficiaries, must include a statement that the plan is intended to be a grandfathered plan. In addition, this disclosure must provide contact information for questions and complaints. The regulations provide model language that may be used to satisfy the disclosure requirement.
Grandfathered plans must also maintain records documenting the terms of the plan coverage that were in effect on March 23, 2010 and any other documents necessary to verify, explain or clarify the plan’s status as a grand-fathered plan. These records must be made available for examination upon request as long as the plan intends to maintain its status as a grandfathered plan.
A group health plan will lose its grandfathered status if the plan does any of the following:
- eliminates all or substantially all benefits to diagnose or treat a particular condition;
- increases a percentage cost-sharing requirement (such as coinsurance) above a level that was in ef-fect on March 23, 2010;
- increases fixed-amount cost-sharing requirements (other than co-payments) by a percentage that is more than the sum of medical inflation and 15%;
- increases co-payments by an amount that ex-ceeds the greater of a total percentage measured from March 23, 2010 that is more than the sum of medical inflation plus 15% or $5 increased by medical inflation measured from March 23, 2010;
- decreases in contribution rate by an employer or employee organization by more than 5% below the contribution rate in effect on March 23, 2010 or decreases its contribution rate based on a for-mula towards the cost of any tier of coverage for any class of similarly situated individuals; or
- certain changes to annual limits, such as, the addition of an annual limit, the decrease in limit for a plan or coverage with only a lifetime limit, or the decrease in a limit for a plan or coverage with an annual limit.
In the context of a merger, acquisition of similar business restructuring, a plan will lose its grandfathered status if the principal purpose of the restructuring is to maintain grandfathered status. This provision was added to avoid grandfathered status being traded as a commodity in a commercial transaction. In addition, group health plans will not be permitted to circumvent new limits on changes to grandfathered plans by transferring employees from one grandfathered plan to another grandfathered plan. There must be a bona fide employment-based reason to transfer employees from one plan into another plan.
The following Healthcare Reform provisions are applica-ble to plans maintaining grandfathered status:
- Prohibition on preexisting condition exclusions or other discrimination based on health status, for enrollees who are 19 or younger beginning with plan years on or after September 23, 2010 and for all other enrollees beginning with plan years on or after January 1, 2014;
- Prohibition on excessive waiting periods;
- No lifetime or annual limits;
- Prohibition on rescissions;
- Extension of dependent coverage until age 26 beginning with plan years prior to January 1, 2014; unless the adult child is eligible to enroll in another eligible employer sponsored health plan (e.g., a plan other than his/her parent’s grand-fathered health plan) (this exception is no longer effective with plan years beginning on or after January 1, 2014); and
- Disclosure requirements, such as the develop-ment and utilization of uniform explanation of coverage documents and standardized defini-tions. Health insurance coverage maintained purs
uant to one or more collective bargaining agreements ratified before March 23, 2010, will qualify as a grandfathered plan prior to such coverage being terminated, even if there is a change in issuers. These provisions apply only to insured plans maintained pursuant to a collective bargaining agreement and not to self-insured plans. Insured collectively bargained plans in which individuals were enrolled on the date of the enactment are subject to the same requirements as other grandfathered plans and are not provided with delayed effective date provisions with which other grandfathered plans must comply. Upon the termination of the collectively bargained plan and the issuance of a new policy, certificate or contract of insurance after March 23, 2010, the collectively bargained plan will lose its grandfathered status. If the plan is terminated but renewed under a new collective bargaining agreement after March 23, 2010 with the only changes being made are those that are permissible, then the collectively bargained plan will remain a grandfathered plan when it is renewed.
The regulations recognize a good faith effort to comply with a reasonable statutory interpretation of the requirements under Healthcare Reform and my disre-gard changes to a plan’s terms that only modestly exceed the changes under the regulations.
Certain changes made on or prior to March 23, 2010 but effective after that date, including changes are pursuant to a legally binding contract, a filing with a state department or pursuant to a written amendment, will be considered part of the terms of the group health plan and will not impact the grandfathered status of the plan.
Changes made after March 23, 2010 and adopted prior to the issuance of the regulations in certain instances will be considered to have been adopted prior to the date of the adoption of these regulations. In addition, the regulations provide a grace period within which to revoke or modify plan changes after March 23, 2010; however, the grace period has yet to be defined. Changes to group health plans must be revoked as of the first day of the new plan year to bring the plan within the limits for retaining grandfathered status.
Preexisting Condition Exclusion
Healthcare Reform prohibits any preexisting condition exclusion from being imposed under an employer group health plan. The regulations generally define a “preexist-ing condition exclusion” as a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for the coverage whether or not any medical advice or care was recommended or received before that date. Accordingly, Healthcare Reform and the regulations prohibit not just an exclusion of coverage of specific benefits associated with a preexisting condition in the case of an enrollee, but also prohibits a complete exclusion from a plan or coverage, if that exclusion is based on a preexisting condition. However, the regula-tions do not change the rule that an exclusion of benefits for a condition under a plan is not a preexisting condition exclusion if the exclusion applies regardless of when the condition arose relative to the effective date of coverage.
The Healthcare Reform prohibition on preexisting condition exclusions generally is effective with respect to plan years beginning on or after January 1, 2014. However, for enrollees who are under 19 years of age, this prohibition becomes effective for plan years beginning on or after September 23, 2010 (e.g., January 1, 2011 for calendar year plans). Employer group health plans that are “grandfathered” must comply with the prohibition on preexisting condition exclusions.
Lifetime and Annual Limits
Healthcare Reform and the new regulations generally prohibit group health plans from imposing lifetime or annual limits on the dollar value of health benefits. These restrictions generally do not apply to certain account-based plans (e.g., health flexible spending accounts, Medical Savings Accounts and Health Savings Accounts) where other rules limit the benefits available.
Healthcare Reform prohibits annual limits on the dollar value of benefits generally, but allows “restricted annual limits” with respect to essential health benefits for plan years beginning before January 1, 2014. In addition, the statute provides that, with respect to benefits that are not essential health benefits, a plan may impose annual or lifetime per-individual dollar limits on specific covered benefits. The regulations do not define the term “essential health benefits” but the statute provides that such term shall include, at a minimum: ambulatory patient services, emergency services, hospitalization, maternity and newborn care; mental health and substance use disorder services; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services. The regulations clarify that the prohibition on annual and lifetime limits do not prevent a plan from excluding all benefits for a condition. However, if any benefits are provided for a condition, then the prohibition on annual and lifetime limits will apply. Therefore, an exclusion of all benefits for a condition is not considered to be an annual or lifetime dollar limit.
The regulations provide that for plan years beginning before January 1, 2014, employer group health plans may establish a restricted annual limit on the dollar value of essential health benefits. The regulations provide for a three-year phase-in approach under which the annual limit may not be less than the following amounts:
- for plan years beginning before September 23, 2011, $750,000;
- for plan years beginning on or after September 23, 2011 but before September 23, 2012, $1.25 million; and
- for plan years beginning on or after September 23, 2012 but before January 1, 2014, $2 million.
The minimum annual limits for plan years beginning before 2014 apply on an individual-by-individual basis. Thus, any overall annual dollar limit on benefits applied to families may not operate to deny a covered individual the minimum annual benefits for the plan year. The regulations clarify that, in applying annual limits for plan years beginning before January 1, 2014, the plan may take into account only essential health benefits; however, with plan years beginning on or after January 1, 2014, annual limits on essential health benefits will be completely prohibited.
Since lifetime limits on essential health benefits are prohibited for plan years beginning on or after Septem-ber 23, 2010, under the regulations, individuals who reached a lifetime limit under a plan prior to the applicability of the lifetime limit prohibition and are otherwise still eligible under the plan must be provided with a notice that the lifetime limit no longer applies. If such individuals are no longer enrolled in the plan, the regulations provide a special enrollment opportunity for such individuals. This notice and enrollment opportunity must be provided beginning not later than the first day of the first plan year beginning on or after September 23, 2010 (e.g., January 1, 2011 for calendar year plans). Such a special enrollee must be given the right to enroll in all the benefit packages available to similarly situated individuals upon initial enrollment.
The prohibitions on lifetime and annual limits apply to all employer group health plans, including “grand-fathered” health plans. In addition, the regulations provide that a grandfathered plan that did not impose an annual or lifetime limit on the dollar value of benefits as of March 23, 2010 (i.e., the date grandfathered status is determined) will cease to be grandfathered if the plan adds such a limit. Likewise, a grandfathered plan that previously imposed an annual or lifetime limit will cease to be grandfathered if it decreases the dollar value of either such limit.
Prohibition on Rescissions
Healthcare Reform provides that an employer group health plan may not rescind coverage except in the case of fraud or intentional misrepresentation of a material fact. The regulations make clear that other require-ments of federal or state law may apply in connection with a rescission or cancellation of coverage if such other requirements are more protective of individuals. For example, a state law that allows rescission only within a contract contestability period would not be preempted.
The regulations include several clarifications regarding the standards for rescission. First, the regulations clarify that the prohibition applies whether the rescission involves a single individual, an individual within a family or an entire group of individuals. Thus, for example, if an insurance company attempted to rescind coverage of an entire employment-based group because of the actions of an individual within the group, the standards in the regulations would apply. Second, the regulations clarify that the rescission rules apply to representations made by the individual or a person seeking coverage on behalf of the individual. Thus, if an employer seeks coverage from an insurance company for an entire employment-based group and makes representations, for example, regarding the prior claims experience of the group, the standards of the regulations would apply.
The regulations also clarify that a “rescission” is a cancellation or discontinuance of coverage that has retroactive effect. For example, a cancellation that treats a policy as void from the time of the individual’s or group’s enrollment is a rescission. A cancellation or discontinuance of coverage with only a prospective effect is not a rescission and neither is a cancellation or discontinuance of coverage that is effective retroactively to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage.
Healthcare Reform provides that coverage may not be rescinded (where still permissible) unless prior notice is provided. The regulations provide that an employer group health plan must provide at least 30 days advance notice to an individual before coverage may be rescinded. The notice must be provided regardless of whether the rescission is of group or individual coverage and whether the plan is insured or self-insured.
Healthcare Reform imposes a number of new require-ments on employer group health plans relating to the choice of health care professionals and emergency services. The requirements relating to the choice of health care professionals apply only with respect to employer group health plans with a network of provid-ers. None of these new requirements apply to grand-fathered plans.
The regulations provide that if an employer group health plan requires or provides for designation by a partici-pant or dependent of a primary care provider or pediatrician, then the plan must permit each participant or dependent to designate any participating primary care provider or pediatrician, who is available to accept the participant or beneficiary. Under the regulations, the plan must provide a notice informing each participant of the terms of the plan regarding designation of a primary care provider and pediatrician. Model language is provided in the regulations.
In addition, according to the regulations, a plan that provides for obstetrical or gynecological care may not require pre-authorization or a referral for a participant or dependent who seeks such care provided by an in-network health care professional who specializes in obstetrics or gynecology. The plan must inform each participant that no pre-authorization or referral is required for obstetrical or gynecological care. The regulations do not preclude a plan from requiring that the obstetrical or gynecological provider notify the primary care provider or the plan of treatment deci-sions.
Under the regulations, an employer group health plan providing emergency services must do so without the participant or health care provider having to obtain prior authorization (even if the emergency services are provided out of network) and without regard to whether the health care provider furnishing the emergency services is an in-network provider. For a plan with a network of providers, the plan may not impose any administrative requirement or limitation on benefits for out-of-network emergency services that is more restric-tive than the requirements or limitations that apply to in-network emergency services.
Additionally, for an employer group health plan with a network of providers, the regulations provide rules for cost-sharing requirements for emergency services that are expressed as a copayment, coinsurance or other cost-sharing requirements. Cost-sharing requirements expressed as a copayment amount or coinsurance rate imposed for out-of-network emergency services cannot exceed the cost-sharing requirements that would be imposed if the services were provided in network.
Coverage of Preventive Health Services
Healthcare Reform and the applicable regulations require that a group health plan must provide coverage for all of the following items and services and may not impose any cost-sharing requirements (such as a copayment, coinsurance or deductible) with respect to such items or services:
- Items or services that have a rating of “A” or “B” from the United States Prevention Services Task Force (e.g., blood pressure screening);
- Immunizations for children, adolescents and adults that are recommended by the Advisory Committee on Immunization Practices of the Cen-ters for Disease Control and Prevention (e.g., im-munization for measles, mumps and rubella);
- Preventive care and screenings for infants, chil-dren, adolescents and women recommended by the Health Resources and Services Administra-tion.
The complete list of items and services that are required to be covered may be found at www.HealthCare.gov.
The regulations clarify the cost-sharing requirements that will be applicable when a recommended preventive service is provided during an office visit. First, if a recommended preventive service is billed separately from an office visit, then a plan or issuer may impose cost-sharing requirements with respect to the office visit. Second, if a recommended preventive service is not billed separately from an office visit and the primary purpose of the office visit is the delivery of such an item or service, then a plan may not impose cost-sharing requirements with respect to the office visit. Finally, if a recommended preventive service is not billed separately for an office visit and the primary purpose of the office visit is not the delivery of a recommended preventive service, then the plan may impose cost-sharing re-quirements with respect to the office visit.
The regulations make clear that a plan which has a network of providers is not required to provide coverage for recommended preventive services delivered by an out-of-network provider. In addition, a plan may impose cost-sharing requirements for a treatment that is not a recommended preventive service, even if the treatment results from a recommended preventive service.
Finally, the regulations acknowledge that the items and services that will qualify as recommended preventive services are subject to change. Therefore, an item or service will not be subject to the prohibition on cost-sharing until the plan year that begins on or after the date that is one year after the date the recommendation or guideline is issued. In addition, the regulations make clear that a plan is not required to provide coverage or waive cost-sharing requirements for any item or service that has ceased to be a recommended preventive service.
Internal Claims and Appeals and External Review Processes
Healthcare Reform requires non-grandfathered employer group health plans to comply with new internal claims and appeals procedures and new external review procedures. These new procedures are in addition to the claims and appeals procedures that already exist under Section 503 of the Employee Retirement Income Security Act of 1974 (the “503 Procedures”) (which in several instances are updated by the new regulations).
The new regulations require that employer group health plans must implement an effective internal claims and appeal process, which must satisfy the following six new requirements.
- The definition of an “adverse benefit determina-tion” is expanded to include a denial, reduction, or termination of, or a failure to provide or make a payment (in whole or in part) for a benefit that is based on:
- a determination of an individual’s eligibility to participate in a plan;
- a determination that a benefit is not a cov-ered benefit;
- the imposition of a preexisting condition ex-clusion or other limitation on otherwise cov-ered benefits; or
- a determination that a benefit is experimen-tal, investigational, or not medically neces-sary or appropriate.
Under the new regulations, an adverse benefit determination also includes any rescission of cov-erage (see Section IV above) whether or not, in connection with the rescission, there is an ad-verse effect on any particular benefit.
- A plan must notify a claimant of a benefit deter-mination (whether adverse or not) with respect to a claim involving urgent care as soon as possible, but not later than 24 hours after the receipt of the claim by the plan. This is a change from the exist-ing 503 Procedures, which generally require a de-termination not later than 72 hours after receipt of an urgent claim by a plan.
- A plan must allow a claimant to review the claim file and to present evidence and testimony as part of the internal claims and appeals process. In ad-dition to complying with the existing 503 Proce-dures, the plan must provide the claimant, free of charge, with any new or additional evidence con-sidered by the plan in connection with the claim. Before a plan may issue an adverse benefit de-termination on review based on a new or addi-tional rationale, the claimant must be provided, free of charge, with the rationale.
- A plan must ensure that all claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, de-cisions regarding hiring, compensation, termina-tion, promotion or other similar matters with re-spect to any individual must not be made based upon the likelihood that the individual will support a denial of benefits.
- Healthcare Reform and the regulations provide new standards regarding participant notices. No-tices must be provided in a culturally and linguis-tically appropriate manner which will require translation into non-English languages if certain percentages of plan participants are literate only in the same non-English language. In addition, adverse benefit determination notices must in-clude information sufficient to identify the claim involved. This includes the date of service, the health care provider, the claim amount and the diagnosis code (with an explanation of such code). It must also include a description of the plan’s standard, if any, that was used in denying the claim (e.g., medical necessity standard). Ad-ditionally, the notice must include a description of available internal appeals and external review proc-esses, including information regarding how to initiate an appeal. Model notices have been issued and are avail-able at www.dol.gov/ebsa and www.hhs.gov/ociio/.
- If a plan fails to strictly adhere to all the require-ments of the internal claims and appeals process with respect to a claim or an appeal, the claimant is deemed to have exhausted the internal claims and appeals process, regardless of whether the plan asserts that it substantially complied with these requirements or that any error it committed was de minimis. Accordingly, upon such a failure, the claimant may initiate an external review and pursue legal action.
In addition to the six requirements described above, Healthcare Reform and the new regulations require a plan to provide continued coverage pending the out-come of an internal appeal.
The regulations also require that plans must comply with either a State external review process or a new Federal external review process. The regulations explain when plans must comply with an applicable State external review process and when the Federal external review process will be applicable. In the case of an employer group health plan that provides benefits through insurance, if the issuer is required to provide an external review process that complies with the con-sumer protections in the National Association of Insurance Commissioners (“NAIC”) Uniform Model Act, the employer plan will not be required to comply with either the State external review process or the Federal external review process. An employer plan not subject to a State external review process or subject to a State review process that does not meet the consumer protections in the NAIC Uniform Model Act, must comply with the Federal external review process. The Department of Health and Human Services will deter-mine whether a State external review process meets the requirements of the NAIC Uniform Model Act. However, under a transition rule, all state external review proc-esses will be deemed to satisfy the minimum standards of the NAIC Uniform Model Act until plan years begin-ning on or after July 1, 2011.
In Technical Release 2010-01, the Department of Labor has established an interim enforcement safe harbor for non-grandfathered plans that are subject to the Federal external review process. This enforcement safe harbor will apply for plan years beginning on or after Septem-ber 23, 2010 (e.g., January 1, 2011 for calendar year plans) and until superseded by future guidance. The Release establishes a Federal review procedure that is based on the Uniform Health Carrier External Review Model Act. Alternatively, States may chose to expand access to their State external review process to plans that are not subject to the applicable State laws. In such circumstances, the Department of Labor and IRS will not take any enforcement action against an employer plan that voluntarily complies with the provisions of the State external review process.