On September 20, 2010, new important guidance relating to the Patient Protection and Affordable Care Act ("PPACA") was issued by the U.S. Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”). On its web site, the DOL posted new frequently asked questions (“FAQs”), providing guidance on various new mandates. The DOL simultaneously issued DOL Technical Release 2010-02 addressing certain issues affecting the new internal appeals and external review requirements. Separately, the IRS issued Notice 2010-63 announcing that the IRS is seeking comments on the application of nondiscrimination rules to insured arrangements.

Statement of Agency Approach

  • The FAQs, which are referred to as “subregulatory guidance,” are intended to provide comfort to plan sponsors, issuers and plans making diligent, good-faith efforts to comply with PPACA. In this regard, the DOL reinforced a message that government representatives have articulated in various seminars and webinars – specifically, that the various agencies responsible for enforcing PPACA (including Health and Human Services ("HHS"), the DOL and the IRS) are focused on assisting plans and issuers in implementation, rather than imposing penalties on plan issuers and others that are working diligently and in good faith to understand and comply with the new law. This is not intended as a “free pass” to disregard the rules pending final guidance. Instead, it is intended to reassure those who operate in good faith with a reasonably diligent effort at compliance that they will not be penalized for the slightest of errors.

Grandfathered Health Plans

  • The FAQs indicated that until final regulations are issued, an insured plan will not be treated as a nongrandfathered plan immediately due to a change in the employer contribution rate, provided that (i) the issuer, upon renewal, required the plan sponsor to make a representation regarding its contribution rate for the new plan year and its rate as of March 23, 2010 and (ii) the insurance policy/certificate/contract prominently states that plan sponsors are required to notify the issuer of contribution rate changes during the plan year. These steps must be taken by January 1, 2011 for policies renewed prior to that date. Such a plan will lose grandfathered status once the issuer learns of a five percent reduction (or earlier if another change is made that would cause the loss of grandfathering).
  • The FAQs also provided a similar rule for multiemployer plans, since, like insurance issuers, they often do not know of changes to employer contribution rates. (These steps will be more challenging for a multiemployer plan that does not have annual employer renewals in the same manner as insurance companies.)
  • In another clarification for grandfathered multiemployer plans, the FAQs indicate that a multiemployer plan with a fixed dollar contribution rate or no employee contribution will not lose its grandfather status solely as a result of a change in the employer contribution rate if there is no increase in the employee contribution toward coverage.
  • The DOL indicated that final regulations under PPACA are expected in 2011. Until then, there may be further subregulatory guidance. It appears that one issue that will be raised in this future subregulatory guidance is relief that will permit, under certain circumstances, group health plans to change insurance carriers without relinquishing their status as grandfathered health plans. Therefore, the DOL (along with HHS and IRS) encourage comments on all of the outstanding interim final regulations and other PPACA releases.

Dependent Coverage of Children up to Age 26

  • The FAQs clarify that a group health plan or issuer may limit coverage to children described in Internal Revenue Code Section 152(f)(1) (which includes sons, daughters and stepchildren, including those who are adopted or placed for adoption, as well as foster children). In an important clarification, additional or alternative requirements (including, for example, income tax dependency or legal guardianship) could be imposed for individuals (such as grandchildren or nieces and nephews) who otherwise do not qualify as tax dependents within the meaning of Section 152(f)(1).

Claims, Appeals, and External Review Procedures (for non-grandfathered plans)

  • In prior guidance (Technical Release 2010-01), the DOL articulated a safe harbor federal standard for external review procedures. For plans that do not strictly comply with every item in that prior guidance, the FAQs clarified that the plan could still be considered in compliance with the external review requirements based on the facts and circumstances (and depending on the reason for non-adherence). For example, suppose a plan does not contract with at least three independent review organizations (“IROs”) and rotate claims among the three IROs. The FAQs clarify that such a plan might still be able to show that its external review process is unbiased through other steps.
  • With respect to hiring IROs, the FAQs reinforce informal statements made by the Departments indicating that a self-insured plan need not contract directly with an IRO but can contract with a third-party administrator that does so. In addition, a plan could contract with an IRO located in a separate state from the plan.
  • The FAQs clarify that the interim final regulations governing claims procedures that shorten the time to make initial determinations with respect to urgent care claims do not change the time period for appeals of those claims. A revised model notice of adverse benefit determination was issued by the DOL to clarify that issue (click here).
  • The FAQs referenced DOL-issued Technical Release 2010-02 (click here), which also was issued on September 20, 2010. This Technical Release provides a nonenforcement grace period (until July 1, 2011) to allow nongrandfathered plans to incorporate new content in notices of adverse benefit determination and notices of final adverse benefit determination and to give them more time to implement procedures in order to comply fully. This grace period relates only to (i) changes in the time frame for making urgent care claims decisions, (ii) providing notices in a culturally and linguistically appropriate manner, (iii) certain additional content requirements in notices, and (iv) the substantial compliance requirement. (Click here to see our prior client alert for further information regarding these requirements.)

Emergency Services (for nongrandfathered plans)

  • The FAQs provide that where state law prohibits balance billing for emergency services or where a plan or issuer is contractually responsible for amounts balance billed by an out-of-network emergency services provider, plans and issuers need not satisfy the minimum payment requirements set forth in the interim final regulations (which would otherwise require that a plan reimburse emergency services at a minimum rate, based generally on its in-network allowance or other standards). However, patients must be provided with adequate and prominent notice of their lack of financial responsibility (and the plan or issuer is still subject to the prohibition against imposing a copayment or coinsurance requirement that is higher than the network requirement).

Highly Compensated Employees (for nongrandfathered plans)

  • Finally, the FAQs refer plans and issuers to IRS Notice 2010-63 [link], which provides general information regarding the provisions of PPACA prohibiting insured plans from discriminating in favor of highly compensated employees. This IRS Notice not only requests comments on expected future regulatory guidance but also confirms that a nongrandfathered insured plan that does not comply with these requirements is subject to the taxes, remedies and penalties that would otherwise apply in the case of a violation of the mandates of PPACA, including a $100 excise tax/penalty per day per individual discriminated against, and possible equitable relief under ERISA (including an injunction to compel compliance). In contrast, under existing law, if a self-insured plan (whether or not grandfathered) violates Section 105(h), the highly compensated employees would lose certain tax benefits.

These recent items of PPACA guidance provide helpful information on the subject matter covered. They also reinforce the importance of filing comments with the government agencies responsible for the guidance. Each of the FAQs was issued in response to feedback that the government received from concerned employers and plans. But even more than that, the guidance clarifies the importance of making good-faith determinations on how to comply with the new health care reform requirements, especially in unclear areas, in order to avoid penalties.