Over the last few months, the Departments of Labor, Health and Human Services, and Treasury (collectively, the "Departments") have issued Frequently Asked Questions (“FAQs”) to address issues that have been raised about the Patient Protection and Affordable Care Act ("PPACA"). The latest set of FAQs , dated December 28, 2010, address several important issues including the application of “value-based insurance design” to control costs, and the effective dates for requirements regarding automatic enrollment and advance notice of material changes. In addition, the FAQs also provide guidance regarding the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 ("MHPAEA") and the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") nondiscrimination rules for wellness programs.
The Patient Protection and Affordable Care Act
Value-Base Insurance Design: The PPACA generally requires that group health plans cover recommended, in-network preventive services without employee cost sharing. A group health plan may use reasonable medical management methods to control costs. The FAQs confirm that plans may steer enrollees toward more cost-efficient service providers through value-based insurance designs ("VBID"). For example, a group health plan may have no copayment for preventive services performed at an in-network ambulatory surgery center, but have a $250 copayment for the same services performed at an in-network outpatient hospital, because the ambulatory center is a higher-value setting than the outpatient hospital. However, the plan must accommodate an individual who cannot use the ambulatory center because it is medically inappropriate, as determined by the patient’s physician.
Automatic Enrollment for New Employees: The PPACA requires that employers with more than 200 full-time employees automatically enroll new full-time employees in the employer's health plan. The effective date of this provision was unclear. The FAQs clarify that employers will not be required to comply with automatic enrollment until the DOL develops rules, including rules to determine full-time employee status, which it expects to issue by 2014.
Notice of Plan Modifications: The PPACA requires that group health plans provide 60 days advance notice to enrollees of a material modification to the plan's terms or coverage. Employers are not required to comply with this mandate until the Departments issue further guidance.
Varying Coverage Based on Age: The PPACA provides that group health plans providing dependent coverage for children cannot vary such coverage based on age (except if they are 26 or older). While this generally prohibits distinctions based upon age in dependent coverage, it does not prohibit distinctions based on age that apply to all enrollees, including employees, spouses, and dependent children. For example, the FAQs provide that a plan could waive a copayment for all enrollees under age 19, but require a co-payment for those over 18.
Grandfathered Health Plans: A grandfathered group health plan can lose its grandfather status if it impermissibly increases out-of-pocket expenses or deductibles. The FAQs clarify that where a grandfathered plan has a fixed cost-sharing requirement (other than a copayment) that is based on a percentage-ofcompensation formula, an increase in cost sharing resulting solely from a compensation increase will not cause the plan to lose grandfather status as long as the formula remains the same as it was on March 23, 2010.
Mental Health Parity and Addiction Equity Act of 2008
The MHPAEA generally requires that financial requirements (e.g., co-insurance or co-payments) and treatment limitations (e.g., limits on the number of visits) imposed on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial restrictions and treatment limitations imposed on medical and surgical benefits. The FAQs make the following clarifications:
Small Employer Exemption: Group health plans that are subject to ERISA will continue to be exempt from the MHPAEA as a "small employer" if the employer has 50 or fewer employees. The FAQs note, however, that nonfederal government plans are subject to the PPACA definition of “small employer,” which applies to an employer that has 100 or fewer employees.
Disclosure Requirements: The FAQs clarify that a current or potential participant, beneficiary, and medical provider is entitled, upon request, to receive a copy of the group health plan’s medical necessity criteria for mental health/substance use disorder benefits. Similarly, the FAQs emphasize that documents which disclose the medical necessity criteria for both medical/surgical benefits and mental health/substance use benefits are ERISA plan documents, and must be furnished within 30 days of a written request.
Increased Cost Exemption: If a plan makes changes to comply with the MHPAEA and those compliance changes cause its overall plan costs to increase by more than 2% in the first year the MHPAEA applies to it, or 1% in any subsequent year, then the plan is exempt from the MHPAEA the following year. The FAQs clarify that, until the Departments issue regulatory guidance on how the increased cost exemption will be implemented, plans can follow the procedures outlined in 1997 regulations. When calculating the cost increases, the plan should include increases in the plan's portion of cost sharing, and must amortize nonrecurring administrative costs. Plans applying for an exemption must further demonstrate that cost increases are directly attributable to MHPAEA compliance rather than utilization or prices, random claim experiences, or seasonal variation.
HIPAA Wellness Programs
HIPAA prohibits discrimination in eligibility, benefits, or premiums based on health factors. A wellness program which offers employees a reward (such as lower premiums) if they meet a certain health standard (such as losing weight) must satisfy the following nondiscrimination requirements: (1) the total reward cannot exceed 20% of the total cost of employee-only coverage; (2) the program must be reasonably designed to promote health or prevent disease; (3) the program must provide employees an opportunity to qualify for the reward at least once per year; (4) the reward must be available to all similarly situated employees (which means there must be a reasonable alternative standard for employees with a health condition that makes it unreasonably difficult for them to satisfy the original standard); and (5) the availability of the alternative standard is published in plan materials. The PPACA incorporates these nondiscrimination rules and, effective beginning in 2014, changes the maximum reward from 20% of the total cost of coverage to 30%.
Independent Wellness Programs: The FAQs clarify that only wellness programs that are part of a group health plan are subject to the nondiscrimination rules. Examples of wellness programs that are not part of a group health plan and, therefore, not subject to the nondiscrimination rules include: subsidizing healthier cafeteria food and gym memberships, providing pedometers (to encourage walking and exercise), and banning smoking in the workplace.
No Health Standard: The FAQs explain that the nondiscrimination rules only apply to wellness programs that require employees to meet a certain health standard to obtain a reward. For example, the nondiscrimination rules are inapplicable to a group health plan that gives an annual premium discount of 50% of the cost of coverage to employees who attend a monthly health seminar. A second example clarifies that an employer may have more than one wellness program, each of which provides a 20% award, as long as only one of the award programs is conditioned on satisfaction of a health standard.
Nondiscrimination Rules: The FAQs provide an example demonstrating application of the nondiscrimination rules to a wellness program that requires satisfaction of a health standard. In the example, a group health plan offers, as part of its wellness program, a discount of 20% of the cost of employee-only coverage to employees that achieve a cholesterol count of 200 or lower, and provides that if it unreasonably difficult for an employee to satisfy the cholesterol count within a 60-day period, then the plan will create a reasonable alternative standard that takes into account the employee’s health condition. The FAQs conclude that the plan complies with the nondiscrimination rules because the total reward does not exceed 20% of the total cost of employee-only coverage, and because it includes a reasonable alternative standard, is treated as being available to all similarly situated individuals.