DEPARTMENTS OF TREASURY, LABOR AND HEALTH AND HUMAN SERVICES RELEASED INTERIM FINAL REGULATIONS ON PREEXISTING CONDITIONS, LIFETIME AND ANNUAL LIMITS, RESCISSIONS, AND PATIENT PROTECTIONS

On June 22, 2010, the Departments of the Treasury, Labor and Health and Human Services (“HHS”) released interim final regulations for group health plans and health insurance coverage relating to status as a preexisting conditions, lifetime and annual limits, rescissions, and patient protections under the Patient Protection and Affordable Care Act (“Affordable Care Act”).  These regulations are under Section 9815(a)(1) of the Internal Revenue Code (“Code”), Section 715(a)(1) of the Employee Retirement Income Security Act (“ERISA”) and Section XXVII of the Public Health Service Act (26 CFR 54.9815-2704T,2711T, 2712T, and 2719AT, 29 CFR 2590.715-2704, 2711, 2112, and 2719A and 45 CFR 147.108, 126, 128 and 138,  The following will summarize the provisions of the regulations.

Prohibitions on Preexisting Condition Exclusions

Group health plans and insurance companies will be prohibited from excluding individuals from coverage on the basis of any pre-existing condition exclusion. This rule will apply with respect to enrollees under the age of 19 for plan years beginning on or after September 23, 2010. For enrollees age 19 and over, the prohibition will apply for plan years beginning on or after January 1, 2014. This prohibition on pre-existing condition exclusions will also apply to grandfathered health plans. In addition, a blanket prohibition is created on pre-existing condition exclusions for all individual insurance policies and employer plans.

What is not considered a Preexisting Condition? These regulations make it clear the prohibition applies not just an exclusion of coverage of specific benefits associated with a preexisting condition in the case of a participant, but a complete exclusion from such plan or coverage, if that exclusion is based on a preexisting condition. These regulations do not prohibit a plan or a policy from excluding benefits if the exclusion applies regardless of when the condition arose relative to the effective date of coverage. Such exclusion will not be considered excluding a preexisting condition.

Lifetime and Annual Limits

Group health plans, and insurance companies are also prohibited from providing coverage that contains a lifetime limitation on the dollar value of “essential health benefits” for any participant or beneficiary. Similarly, group health plans and insurance companies are prohibited from imposing annual limitations on the dollar value of “essential health benefits” to any participant or beneficiary. This provision is otherwise applicable for plan years beginning on or after September 23, 2010, and it will apply to grandfathered health plans. Prior to January 1, 2014, however, a group health plan is free to establish a “restricted annual limit” on the dollar value of an individual’s benefits that are part of “essential health benefits” as determined by HHS. Additionally, group health plans and insurance companies will remain free to impose either lifetime or annual limits on benefits that will not constitute “essential health benefits.”

What are Essential Health Benefits? The regulations define “essential health benefits” by referencing Section 1302(b) of the Affordable Care Act, but do provide any detail. Regulations on Section 1302(b) of the Affordable Care Act have not been released. However, Section 1302(b) of the Affordable Care Act provides that these items must be included:

• Ambulatory patient services.
• Emergency services.
• Hospitalization.
• Maternity and newborn care.
• Mental health and substance use disorder services, including behavioral health treatment.
• Prescription drugs.
• Rehabilitative and habilitative services and devices.
• Laboratory services.
• Preventive and wellness services and chronic disease management.
• Pediatric services, including oral and vision care.

What Plans are excluded? Certain account–based plans are exempt from the restriction on annual limits. Health Flexible Spending Accounts, Medical Savings Accounts and Health Savings Accounts are specifically exempt. Health Reimbursement Accounts (“HRA”) are specifically exempt if they are integrated with other coverage as part of a group health plan. The regulations also exempt retiree-only HRAs. The regulations reserve judgment on standalone HRAs.

Are full exclusions of conditions still possible? The regulations clarify that the prohibitions from providing coverage that contain a lifetime limitation on the dollar value of “essential health benefits” does not prevent a plan or an insurance company from excluding all benefits for a condition, but if any benefits are provided for a condition, then all of the requirements will apply. An exclusion of all benefit for a condition is not considered to be an annual or lifetime dollar limit.

What are the limits on “restricted annual limits“? In order to mitigate the potential for premium increases for all plans and policies, while at the same time ensuring access to “essential health benefits“, the regulations adopt a three-year phased approach for restricted annual limits. Under these regulations, annual limits on the dollar value of benefits that are “essential health benefits” may not be less than the following amounts for plan years (in the individual market, policy years) beginning before January 1, 2014:

• For plan or policy years beginning on or after September 23, 2010 but before September 23, 2011, $750,000;

• For plan or policy years beginning on or after September 23, 2011 but before September 23, 2012, $1.25 million; and

• For plan or policy years beginning on or after September 23, 2012 but before January 1, 2014, $2 million.

As these are minimums for plan years (in the individual market, policy years) beginning before 2014, plans or insurance companies may use higher annual limits or impose no limits. Plans and policies with plan or policy years that begin between September 23 and December 31 have more than one plan or policy year under which the $2 million minimum annual limit is available; however, a plan or policy generally may not impose an annual limit for a plan year (in the individual market, policy year) beginning after December 31, 2013.

How do these limits apply? The minimum annual limits for plan or policy 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 (in the individual market, policy year). These interim final regulations clarify that, in applying annual limits for plan years (in the individual market, policy years) beginning before January 1, 2014, the plan or health insurance coverage may take into account only “essential health benefits“.

How do these restricted annual limits apply to mini-med plans? The restricted annual limits provided in these regulations are designed to ensure, in the vast majority of cases, that individuals would have access to needed services with a minimal impact on premiums. So that individuals with certain coverage, including coverage under a limited benefit plan or so-called “mini-med” plans, would not be denied access to needed services or experience more than a minimal impact on premiums, these regulations provide for HHS to establish a program under which the requirements relating to restricted annual limits may be waived if compliance with these regulations would result in a significant decrease in access to benefits or a significant increase in premiums. Guidance from HHS regarding the scope and process for applying for a waiver is expected to be issued in the near future.

Is there a new notice requirement for those who now eligible because of the repeal of life time limits? These regulations also provide that individuals who reached a lifetime limit under a plan or health insurance coverage prior to the issuance of these regulations and are otherwise still eligible under the plan or health insurance coverage must be provided with a notice that the lifetime limit no longer applies. If such individuals are no longer enrolled in the plan or health insurance coverage, the employer’s plan or insurance company must  provide an enrollment (in the individual market, reinstatement) opportunity for such individuals. In the individual market, this reinstatement opportunity does not apply to individuals who reached their lifetime limits on individual health insurance coverage if the contract is not renewed or otherwise is no longer in effect. It would apply, however, to a family member who reached the lifetime limit in a family policy in the individual market while other family members remain in the coverage. These notices and the enrollment opportunity must be provided beginning not later than the first day of the first plan year (in the individual market, policy year) beginning on or after September 23, 2010. Anyone eligible for an enrollment opportunity must be treated as a special enrollee. This means that they must be given the right to enroll in all of the benefit packages available to similarly situated individuals upon initial enrollment.

Prohibition on Rescission

Group health plans and insurance companies will generally be prohibited from rescinding coverage with respect to an enrollee once such enrollee is covered. The exceptions will be for fraud or intentional misrepresentation by the enrollee, nonpayment of premiums, termination of the plan, or loss of eligibility. This standard applies to all rescissions, whether in the group or individual insurance market, and whether for insured or self-insured coverage. These rules also apply regardless of any contestability period that may otherwise apply. This new rule is effective for plan years beginning on or after September 23, 2010, and will apply to grandfathered health plans.

How do these new standards apply? These regulations include several clarifications regarding the standards for rescission. First, these regulations clarify that these rescission rules apply whether the rescission applies to 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 of these regulations would apply. Second, these regulations clarify that these rescission rules apply to representations made by the individual or a person seeking coverage on behalf of the individual. Thus, if a plan sponsor 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 these regulations would also apply.

What is fraud? These regulations clarify that, to the extent that an omission constitutes fraud, that omission would permit the plan or issuer to rescind coverage under this section. An example in these interim final regulations illustrates the application of the rule to misstatements of fact that are inadvertent.

What is considered a rescission? For purposes of these regulations, 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. As another example, a cancellation that voids benefits paid up to a year before the cancellation is also a rescission for this purpose. 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.

When coverage is rescinded, must advance notice be sent? In addition to setting a new Federal floor standard for rescissions, the new law also adds a new advance notice requirement when coverage is rescinded where still permissible. Specifically, the new law provides that coverage may not be cancelled unless prior notice is provided. These regulations provide that a group health plan, or insurance company offering group health insurance coverage, must provide at least 30 calendar 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; or whether, in the case of group coverage, the coverage is insured or self-insured, or the rescission applies to an entire group or only to an individual within the group. This 30-day period will provide individuals and plan sponsors with an opportunity to explore their rights to contest the rescission, or look for alternative coverage, as appropriate.

Patient Protections

Group health plans and insurance companies will be subject to several “patient protection” requirements. A plan that requires the designation of a participating primary care provider will be required to allow participants to choose any such provider who is available (including the choice of a pediatric specialist as the primary care provider for a child). Additionally, group health plans that cover emergency services will be required to cover such services without the need for prior authorization and without regard to any term or condition of the coverage, or whether the provider participates in such plan. Group health plans also will not be able to require authorization or a referral before a female participant/beneficiary could seek obstetrical or gynecological care from a professional specializing in such care. These requirements will be effective for plan years beginning on or after January 1, 2014, but will not apply to grandfathered health plans.

Choice of Health Care Professional: Under these regulations, the plan or insurance company must provide a notice informing each participant (or in the individual market, the primary subscriber) of the terms of the plan or health insurance coverage regarding designation of a primary care provider. Accordingly, these regulations require such plans and insurance companies to provide a notice to participants (in the individual market, primary subscribers) of these rights when applicable. Model language is provided in these regulations. The notice must be provided whenever the plan or insurance company provides a participant with a summary plan description or other similar description of benefits under the plan or health insurance coverage, or in the individual market, provides a primary subscriber with a policy, certificate, or contract of health insurance. The following model language can be used to satisfy this disclosure requirement:

(A) For plans and issuers that require or allow for the designation of primary care providers by participants or beneficiaries, insert:

[Name of group health plan or health insurance issuer] generally [requires/allows] the designation of a primary care provider. You have the right to designate any primary care provider who participates in our network and who is available to accept you or your family members. [If the plan or health insurance coverage designates a primary care provider automatically, insert: Until you make this designation, [name of group health plan or health insurance issuer] designates one for you.] For information on how to select a primary care provider, and for a list of the participating primary care providers, contact the [plan administrator or issuer] at [insert contact information].

(B) For plans and issuers that require or allow for the designation of a primary care provider for a child, add:

For children, you may designate a pediatrician as the primary care provider.

(C) For plans and issuers that provide coverage for obstetric or gynecological care and require the designation by a participant or beneficiary of a primary care provider, add:

You do not need prior authorization from [name of group health plan or issuer] or from any other person (including a primary care provider) in order to obtain access to obstetrical or gynecological care from a health care professional in our network who specializes in obstetrics or gynecology. The health care professional, however, may be required to comply with certain procedures, including obtaining prior authorization for certain services, following a pre-approved treatment plan, or procedures for making referrals. For a list of participating health care professionals who specialize in obstetrics or gynecology, contact the [plan administrator or issuer] at [insert contact information].

Emergency Services: These regulations require that a plan or health insurance coverage providing emergency services must do so without the individual or the 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 with respect to the services. The emergency services must be provided without regard to any other term or condition of the plan or health insurance coverage other than the exclusion or coordination of benefits, an affiliation or permitted waiting period applicable or cost-sharing requirements. For a plan or health insurance coverage with a network of providers that provides benefits for emergency services, the plan or insurance company may not impose any administrative requirement or limitation on benefits for out-of-network emergency services that is more restrictive than the requirements or limitations that apply to in-network emergency services.

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. Out-of-network providers may, however, also balance bill patients for the difference between the providers’ charges and the amount collected from the plan or issuer and from the patient in the form of a copayment or coinsurance amount. The Affordable Care Act excludes such balance billing amounts from the definition of cost sharing, and the requirement that cost sharing for out-of-network services be limited to that imposed in network only applies to cost sharing expressed as a copayment or coinsurance rate.

Because the Affordable Care Act does not require plans or issuers to cover balance billing amounts, and does not prohibit balance billing, even where the protections in the statute apply, patients may be subject to balance billing.

To avoid the circumvention of these new protections, it is necessary that a reasonable amount be paid before a patient becomes responsible for a balance billing amount. Thus, these regulations require that a reasonable amount be paid for services by some objective standard. In establishing the reasonable amount that must be paid, a wide variation had to bet taken into account in how plans and insurance companies determine both in-network and out-of network rates. Accordingly, these regulations consider three amounts: the in-network rate, the out-of-network rate, and the Medicare rate. Specifically, a plan or issuer satisfies the copayment and coinsurance limitations in the law if it provides benefits for out-of-network emergency services in an amount equal to the greatest of three possible amounts:

1)    The amount negotiated with in-network providers for the emergency service furnished;

2)    The amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary, and reasonable charges) but substituting the in-network cost-sharing provisions for the out-of-network cost-sharing provisions; or

3)    The amount that would be paid under Medicare for the emergency service.

Each of these three amounts is calculated excluding any in-network copayment or coinsurance imposed with respect to the participant, beneficiary, or enrollee.

In applying the rules relating to emergency services, the law and these regulations define the terms emergency medical condition, emergency services, and stabilize. These terms are defined generally in accordance with their meaning under the Emergency Medical Treatment and Labor Act (“EMTALA“), section 1867 of the Social Security Act. There are, however, some minor variances from the EMTALA definitions. For example, both EMTALA and PHS Act section 2719A define “emergency medical condition” in terms of the same consequences that could reasonably be expected to occur in the absence of immediate medical attention. Under EMTALA regulations, the likelihood of these consequences is determined by qualified hospital medical personnel, while under the new law the standard is whether a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in such consequences.