As explained in our May newsletter, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law on March 23, 2010, and signed the Health Care and Education Reconciliation Act of 2010, which made significant substantive changes to PPACA, into law on March 30, 2010. We refer to both bills together as "PPACA." The Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) have issued several important pieces of guidance on PPACA since the last issue of this newsletter.

Required Coverage of Preventive Care. PPACA requires any group health plan or health insurance issuer in the group or individual market to provide certain preventive care recommended by the Preventive Services Task Force and other groups, and prohibits it from imposing any cost-sharing requirements on that care. "Grandfathered" plans are not subject to this requirement. On July 19, the Departments published interim final rules interpreting this requirement. The interim rules.

  • Clarify how the cost-sharing requirements apply when a recommended preventive service is provided during an office visit (which turns on whether the service is billed as a separate charge or, if not, on the primary purpose of the office visit);
  • Provide that a plan or issuer does not have to provide coverage for recommended preventive services delivered by an out-of-network provider, and if it does may impose cost-sharing requirements on those services;
  • Clarify that a plan or issuer may continue to use reasonable medical management techniques to determine the frequency, method, treatment, or setting for a recommended preventive service (to the extent not specified in the recommendation or guideline;
  • Provide that, when a new recommendation or guideline is issued, a plan or issuer must provide coverage for plan years that begin on or after the date that is one year after the date the recommendation or guideline is issued; and
  • Clarify that a plan or issuer does not have to continue to provide coverage or waive cost-sharing requirements for services that no longer are recommended preventive services, but that other requirements, such as notice requirements, might apply if the coverage is eliminated or modified.

Early Retiree Health Reinsurance Program. PPACA also requires HHS to establish an Early Retiree Reinsurance Program (ERRP) to reimburse participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees and their spouses and dependents. Federal funding for the program is capped at $5 billion. On August 31, HHS posted a fact sheet to its web site that includes an interactive map displaying the employers that have been accepted into the ERRP. It also launched an ERRP secure web site for use by plan sponsors whose applications have been approved.

Over-the-Counter Medicines and Drugs. PPACA also provides that reimbursements from HSAs, Archer Medical Savings Accounts (Archer MSAs), health flexible spending accounts (health FSAs) and health reimbursement accounts (HRAs) for medicines and drugs are excludable from income only if they are prescribed drugs or insulin. Since 2003, the IRS had taken the position that such reimbursements are excludable from income as long as they otherwise qualify as expenses for medical care. The change is effective in 2011. For FSAs and HRAs it applies to expenses incurred during the first 2½ months of 2011 even if they are reimbursed from funds contributed in 2010, as permitted by Notice 2005-42. Just before Labor Day the IRS issued a notice providing important guidance on this requirement. Notice 2010-59:

  • Confirms that a drug will qualify as a "prescribed drug" even if it is available over-the-counter as long as it is, in fact, prescribed. It explains that, for this purpose, a "prescription" is any written or electronic order that meets the legal requirements of a prescription in the applicable state and is issued by an individual who is legally authorized to issue a prescription in that state.
  • Confirms that things like crutches, bandages, and blood sugar test kits are not medicines or drugs for this purpose and therefore are not subject to the new rule.
  • Provides that health FSA and HRA debit cards generally may not be used to purchase over-the-counter medicines or drugs after January 15, 2011, because current debit card systems are not able to track whether a drug is prescribed. However, the notice allows them to be used to purchase over-the-counter medicines or drugs at a store if 90% of the store's gross receipts during the prior taxable year consists of items that qualify as expenses for medical care, as long as the required prescription is separately submitted.

The notice also allows cafeteria plans to be amended retroactively (if necessary) to reflect the new requirements as long as the amendment is made by June 30, 2011.

Internal Claims and Appeals and External Review Processes. On July 23, the Departments issued interim final regulations regarding the internal claims and appeals and external review processes under PPACA. On August 23, the DOL provided additional guidance on the external review process in Technical Release 2010-01. With respect to group health plans, which include self-insured plans, the provisions of the regulations are effective for plan years beginning on or after September 23, 2010. However, these regulations apply only to non-grandfathered plans.

With respect to the internal claims and appeal process, the regulations build on existing DOL claims and appeal requirements for ERISA-covered health plans. The regulations also provide plan participants with additional substantive coverage rights during the appeal process. With respect to the external review process, the regulation takes a first step toward establishing a framework for the process which must be provided by group health plans and issuers under group health plans as an additional level of review, and delineates the extent to which plans will be subject to the state-based review process or the federal review process. The DOL's August release provides guidelines for plans to implement the federal review process.

1. Internal Claims and Appeal Processes. Because the interim final regulations defer to the DOL claims regulations, those regulations now apply to health insurance insurers providing coverage under a group health plan to the same extent as they apply to the employer maintaining the plan. The regulations also go beyond the DOL's existing claims regulations and do the following:

  • They expand the scope of what constitutes an adverse benefit determination to include a rescission of coverage, i.e., a cancellation or discontinuance of coverage applied retroactively. Already, under the DOL's existing claims regulations, an adverse benefit determination includes a denial, reduction, termination or failure to provide coverage based on determinations regarding eligibility, covered benefits, a pre-existing condition exclusion, source of injury exclusion, network exclusion or a determination that a benefit is experimental, investigational or not medically necessary or appropriate.
  • They reduce the response time for urgent care determinations from 72 hours to 24 hours.
  • They require the plan to share evidence used in making an adverse benefit determination with the claimant free of charge and to provide the claimant a reasonable opportunity to respond to the newly provided information.
  • They establish a requirement that claims and appeals be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.
  • They provide that notices to plan enrollees must be provided "in a culturally and linguistically appropriate manner." Under this standard certain employers will be required to produce and distribute non-English language notices, namely, those employer who rely on a workforce that may include significant numbers of workers literate only in the same non-English language.
  • They emphasize that, with respect to notices of adverse benefits determinations the DOL claims regulations must be adhered to, and, accordingly, the notice must have sufficient information to identify the claim involved and must also include a description of the standard used in denying the claim (for example, that the claim was determined not to be medically necessary). The regulations also state that the final adverse determination upon appeal must include a discussion of the decision. Sample notices already have been issued by the DOL and may be found on the DOL's web site.
  • They provide that the claimant is deemed to have exhausted the internal claims and appeal process, and may pursue external review or judicial review in any case in which the plan fails strictly to adhere to the requirement of the internal claims and appeals process with respect to a claim. Under the current rules, generally only systematic deviations from the required procedures cause this result. Furthermore, the claim is deemed to have been denied without the exercise of discretion by an appropriate fiduciary, meaning that it might not be entitled to the "arbitrary and capricious" standard of review.

Pending the outcome of the internal appeals process, the group health plan and the issuer are required to continue coverage. Moreover, in urgent care situations, the regulations provide an opportunity the claimant to obtain an expedited external review while the internal appeals process is ongoing. In addition, neither a group health plan nor any issuer under a group health plan is permitted to reduce or terminate an ongoing course of treatment without advance notice and an opportunity for an advanced review of the course of treatment.

2. External Review Process. The objective of the external review process is to provide an expeditious, independent and procedurally fair additional layer of review to group health plan claimants at no cost. The review must be conducted by an independent review organization satisfying the accreditation standard of URAC or a similarly nationally recognized accreditation organization.

Under the regulations, in the case of an insured group health plan, the issuer will be primarily responsible for providing this added layer of review. Issuers must use the state's external review process in cases in which the process satisfies the minimum requirements of the regulations, and, for plan years beginning prior to July 1, 2011, existing state review processes are treated as satisfying the minimum regulatory standards. States are encouraged to establish the external review mechanism where no applicable process exists and to supplement existing processes where necessary to satisfy the minimum federal requirements. As a general matter, the minimum standard adopted in the regulations for purposes of the external review are the standards set forth in the National Association of Insurance Commissioners (NAIC) Uniform Model Act.

The federal external review process will apply to self-insured plans, and otherwise to situations where there is no applicable state external review process which meets the minimum standards set forth in the regulation. The DOL's August release gives guidance on the requirements for the federal external review process. In the case of a self-insured plan, it is the plan's responsibility to establish such an external review process. Issuers subject to the federal review process are primarily responsible for implementation.

Under the federal review process outlined in the DOL's August release, there are two tracks of external review, i.e., the standard external review and the expedited external review. A claimant has four months from the date of receipt of a notice of adverse determination or a final internal adverse benefit determination to seek a standard external review. Expedited review is available after a claimant receives an adverse benefit determination if the determination involves a condition under which the timing of the internal appeal process would jeopardize the life or health of the claimant or his or her ability to regain maximum function, provided the claimant files a request for an expedited internal appeal. The expedited external review process also is available after a participant receives a final internal adverse benefit determination if the claimant is receiving emergency services and has not yet been discharged or if the time frame for completing the standard external review would serious jeopardize the life or health of the claimant or his or her ability to regain maximum function.

It is worth noting that the issue whether a group health plan participant or beneficiary meets the eligibility requirements of the plan (for example, if in a covered classification of employees) is not within the scope of the federal external review process. As a result, in cases in which the federal review process applies, this issue is left to internal claims and appeal process.

It was recently reported that, under a Mercer survey of employer group health plans, only 53% of the employer respondents believe their plans will have grandfathered status in 2011. The report did not further sort the reply by insured versus self-insured plans. However, with such a large number of employers expecting their plans to be considered non-grandfathered, it would seem that quite a significant number of self-insured plans will have to face the job of ensuring that their providers will have a compliant federal review process in place by the new year. There is similar work to be done by insured plan sponsors who expect not to be grandfathered in 2011. These sponsor will want to have a guarantee from their insurer that the external review is in place, and will want to understand where there the process will involve an existing state process.

Relief from Annual Limits for Mini-Med Plans. On September 3, HHS issued sub-regulatory guidance announcing the procedures that a group health plan or health insurance issuer must use to request a waiver of the PPACA restrictions on annual limits for essential health benefits. Interim final regulations published on June 28, 2010, allow HHS, for plan years beginning before January 1, 2014, to waive the annual limit restrictions for plans such as "mini-med" plans if the annual limits permitted under those rules for those years would result in a significant decrease in access to benefits or significant increase in premiums. The procedures require waiver applications to describe the terms of the plan or policy, the number of covered individuals, the annual limits and premium rates under the plan or policy, and "why compliance with the interim final regulations would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or significant increase in premiums paid by those covered by such plans or policies, along with any supporting documentation." They also require waiver applications to include an attestation, signed by the plan administrator (in the case of a group health plan) or CEO of the insurance issuer (in the case of a health insurance policy) certifying that that the plan or policy was in force before September 23, 2010, and that "the application of restricted annual limits to such plans or policies would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or a significant increase in premiums paid by those covered by such plans or policies." If granted, a waiver will apply to the plan year (in the case of a group health plan) or policy year (in the case of an individual health insurance policy) beginning between September 23, 2010 and September 23, 2011. New waiver applications will be required for subsequent plan years and policy years during the transition period. Waiver applications must be filed at least 30 days before the beginning of the plan year or policy year (10 days in the case of a plan year or policy year that begins before November 2, 2010).