The Affordable Care Act (the ”Act”) prohibits covered group health plans (including grandfathered plans) from including an annual dollar cap on benefit payments (an “annual cap”). The Department of Health and Human Services (HHS) previously allowed annual waivers from the annual cap requirement for plans that requested a waiver, met certain requirements and agreed to certain annual notice and recordkeeping requirements. As discussed herein, HHS has issued two new pieces of guidance with respect to the process for obtaining such waivers (including a deadline for requesting waiver extension or a new waiver).
First, HHS has announced that the waiver process will be concluded on September 22, 2011. A plan that has already received a wavier and wishes to extend the wavier must submit a wavier extension form to HHS no later than September 22, 2011. A plan that has not yet applied for or been granted a waiver (“new applicants”) may apply for a waiver if the plan was offered before September 23, 2010, and the waiver application is submitted no later than September 22, 2011. Guidance with respect to applying for an extension or a new waiver is provided in supplemental guidance issued in the form of a memorandum issued by the Centers for Consumer Information and Insurance Oversight (CCIIO), which may be found at http://cciio.cms.gov/resources/files/06162011_annual_ limit_guidance_2011-2012_final.pdf (the “June 17, 2011, Supplemental Guidance”).
In addition, HHS has announced that certain health reimbursement arrangements (HRAs) that are subject to the restrictions on annual limits and that were in effect before September 23, 2010, do not have to file a waiver, but rather are exempt as a class from the annual limit requirements for plan years beginning before January 1, 2014. Such HRAs are subject to certain recordkeeping and participant notice requirements. The guidance with respect to HRAs is also provided in CCIIO Supplemental Guidance and may be found at http://cciio.cms.gov/resources/files/final_hra_guidance_20110819. pdf (the “August 19, 2011, Supplemental Guidance”).
This advisory addresses the impact that this new guidance will have on group health plans.
The Act generally prohibits plans from imposing annual dollar limits on essential health benefits. For plan years beginning before January 1, 2011, regulations permit “restricted” annual limits to be imposed as follows:
- 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; and
- for plan years beginning on or after September 23, 2012, but before January 1, 201 – $2 million.
The restrictions on annual limits apply to grandfathered group health plans.1
In addition to allowing plans to impose restricted annual limits, HHS established a process whereby plans that were offered before September 23, 2010, could obtain a complete waiver from the annual limit requirements if HHS determined that compliance with the annual limit requirements would result in a significant decrease in access to benefits or a significant increase in premiums. Waivers granted pursuant to this process were effective for one year only — i.e., the first plan year beginning between September 23, 2010, and September 23, 2011.
Application of Annual Limits to HRAs
Interim final regulations provide that the restrictions on annual limit do not apply to health flexible spending arrangements (FSAs) as defined under Internal Revenue Code section 106. Under this definition, a health FSA is a benefit program which provides employees with coverage under which:
A. specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and
B. the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.
Many HRAs will be FSAs under this definition, in which case the annual limits should not, barring a regulatory change, apply.
In addition, the preamble to the interim final regulations distinguishes between stand-alone HRAs and HRAs that are integrated with other coverage. The preamble states that if an HRA is integrated with coverage that satisfies the annual limit requirement, then the HRA does not have to separately satisfy the annual limit requirement. The preamble specifically requested comments on application of the annual limit requirement to stand-alone HRAs.
Extensions of Existing Waivers/New Waiver Applications
CCIIO has issued detailed instructions (“Technical Instructions”) regarding how to file an extension of an existing waiver or to make a new waiver application. The instructions may be found at http:// cciio.cms.gov/resources/files/annual%20_limit_waivers_technical_instructions_update_081911.pdf, and were updated on August 19, 2011.
Certain deadlines must be met in order for the plan to continue to be exempt from the annual limits through the first plan year beginning on or after January 1, 2014. If these deadlines are not met, then the restricted annual limits will apply:
- September 22, 2011 – deadline for filing an extension of an existing waiver or an application for a new waiver
- December 31, 2012 – deadline for submitting the first annual limit update in order to keep a wavier in effect
- December 31, 2012 – deadline for submitting the second annual limit update in order to keep a waiver in effect
The Technical Instructions also provide guidance in various situations as to when an applicant is considered a new applicant (e.g., because a waiver application was previously denied) and thus must comply with the procedures for new applicants.
The August 19, 2011, Supplemental Guidance provides that HRAs that were in existence prior to September 23, 2010, and that are subject to the restricted annual limits do not need to file an extension for a previously granted waiver or a new waiver application. Rather, such HRAs are deemed as a class to be exempt from the annual limits. The rationale for this blanket exception is that all nonexempt HRAs have limits on the amount that can be spent that are less than the restricted annual limits. Certain HRAs (e.g., retiree-only HRAs, vision- or dental-only HRAs and possibly even HRAs that qualify as FSAs) should be exempt from the Act’s annual limit requirement even without a waiver.
There are a few things of note with respect to this exemption. First, in order for the exemption to apply, the HRA must comply with the record retention and annual notice requirements that are part of the original waiver program. The earlier guidance may be found at http://cciio.cms.gov/resources/regulations/index.html#alw. The Technical Instructions provide further information on the notice requirement, as well as a model notice.
Second, the August 19, 2011, Supplemental Guidance defines an HRA as a self-insured medical reimbursement plan funded solely by employer contributions and not through salary reduction that:
- reimburses some or all of the medical care expenses of participating employees, spouses and dependents up to a maximum dollar amount for a coverage period; and
- allows participants to carry forward unused amounts remaining at the end of the coverage period for use in subsequent coverage periods.
By referring specifically to HRAs with a carry-forward, the Supplemental Guidance raises some doubt as to whether the Guidance applies with respect to a non-exempt HRA without a carry-forward.
Finally, the Supplemental Guidance addresses the wavier program only, which ceases to apply with respect to plan years beginning on or after January 1, 2014. Thus, there are still open issues remaining to be resolved as to whether the annual limits will apply to stand-alone HRAs at that time. This issue remains to be addressed in regulations.