DEPARTMENTS OF TREASURY, LABOR AND HEALTH AND HUMAN SERVICES RELEASE INTERIM FINAL REGULATIONS ON INTERNAL CLAIMS AND APPEALS AND EXTERNAL REVIEW PROCESSES

On July 23, 2010, the Departments of the Treasury, Labor (“DOL”) and Health and Human Services (“HHS”) released interim final regulations for group health plans and health insurance coverage relating to internal claims and appeals and external review processes 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 54.9815-2719T, 29 CFR 2590.715-27109 and 45 CFR 147.136).  The following will summarize the provisions of these regulations.

Introduction

Group health plans and health insurance companies must to establish internal claims appeal and external review procedures. They must at a minimum:

• Establish an internal claims appeal process; provide notice to enrollees “in a culturally and linguistically appropriate manner” of the availability of internal and external appeals procedures and the availability of the office of health insurance consumer assistance or ombudsman to assist the enrollee with the claims procedures (which office or ombudsman must be established by the states);

• Allow the enrollee to review the enrollee’s file and present evidence and testimony as a part of the appeals process; and

• Allow the enrollee to continue to receive health coverage pending the outcome of the appeals process.

To establish an external review process, group health plans and insurance companies must comply with any applicable state external review process or implement an effective external review process that meets minimum standards to be established by the Secretary.

These requirements are in addition to any ERISA claims procedures, although the existence of ERISA claims procedures may be used to establish the existence of an internal claims appeal process.

This provision is effective for plan years beginning on and after September 23, 2010 and does not apply to grandfathered health plans.

Internal Claims and Appeals Process

All plans and insurance companies are required to comply with the 2000 claims and appeals regulations under Section 503 of ERISA, including insurance companies not otherwise subject to ERISA.  The new regulations impose six additional requirements that group insured and self-insured plans (including groups not covered by ERISA) must comply with, in addition to the existing DOL ERISA regulations:

• It extends the internal appeals process to cover rescissions as well as adverse benefit determinations.  An adverse benefit determination eligible for internal claims and appeals processes under these regulations includes a denial of, reduction of, termination of, or failure to provide or make a payment for a benefit, including the following:

• • A determination of an individual’s eligibility to participate in a plan or health insurance coverage;

• • A determination that a benefit is not a covered benefit;

• • The imposition of a preexisting condition exclusion, source-of-injury exclusion, network exclusion, or other limitation on otherwise covered benefits; or

• • A determination that a benefit is experimental, investigational, or not medically necessary or appropriate.

• It requires plans or insurance companies to notify members of determinations in urgent care claims within 24 hours rather than the 72 hours provided for in the DOL regulations.

• Plans or insurance companies must provide claimants, without charge, any new or additional information relied upon or generated by the plan as soon as possible and far enough in advance of a determination to allow an opportunity to respond.  If plans or insurance companies make an adverse determination on a new or additional rationale, they also must provide this to the claimant in time to allow a response.

• Plans and insurance companies must ensure that internal reviewers do not have a conflict of interest.  In particular, the rule prohibits hiring, compensation, terminations, or promotion of claims adjudicators or medical experts based on the likelihood that they will deny benefits.

• Plans and insurance companies must provide culturally and linguistically appropriate notices as well as detailed information on diagnosis, treatment, and denial codes, and the meaning of the codes, so that claimants can understand which claim was denied and why.  The notice must explain the standard applied in the denial and inform the claimant of the availability of internal and external appeals and how to contact the consumer assistance or ombudsman office for assistance.  The DOL and HHS will issue model notices.  Model notices that can be used to satisfy all the notice requirements under these interim final regulations will be made available in the future at http://www.dol.gov/ebsa and http://www.hhs.gov/ociio/.

• If plans or insurance companies fail to strictly adhere to the requirements of the process, the claimant may proceed to an external appeal or judicial review, even if the error was minor and the plan or insurer substantially complied with the requirements.

Application to Individual Health Plans

Individual health plans must comply with the same rules, plus three separate requirements.

• The internal appeals process also covers initial eligibility determinations, including preexisting conditions denials.

• Only one level of internal appeal is permitted, as compared to group plans where the DOL rules permit two levels of internal appeals.

• Individual health insurers must maintain records of claims and appeals for six years.  They must make these records available for examination upon request and without charge to regulators.

External Review

Plans and insurance companies must comply with either a state external review process or the federal external review process.  If a state has in place an external review process offering at least as much protection as the NAIC Model Act, an insurance company must comply with the state law.  Plans and insurance companies not subject to state law (self-insured employee benefit plans), or located in states without external review laws as protective as the NAIC Model Act, must comply with a federal external review process yet to be established.

For health insurance coverage, if a state external review process includes, at a minimum, the consumer protections in the NAIC Uniform Model Act in place on July 23, 2010, then the issuer must comply with the applicable state external review process and not with the federal external review process.  In such a case, to the extent that benefits under a group health plan are provided through health insurance coverage, the issuer is required to satisfy the obligation to provide an external review process, so the plan itself is not required to comply with either the state external review process or the federal external review process.

These regulations do not preclude a state external review process from applying to and being binding on a self-insured group health plan under some circumstances.

While the preemption provisions of ERISA ordinarily would prevent a state external review process from applying directly to an ERISA plan, ERISA preemption does not prevent a state external review process from applying to some self-insured plans, such as nonfederal governmental plans and church plans not covered by ERISA preemption, and multiple employer welfare arrangements, which can be subject to both ERISA and state insurance laws.  A state external review process could apply to such plans if the process includes, at a minimum, the consumer protections in the NAIC Uniform Model Act.

Any plan not subject to a state external review process must comply with the federal external review process.

These regulations set forth the standards that would apply to claimants, plans, and issuers under this federal external review process, and the substantive standards that would be applied under this process, which are similar to a state external review process.  They also provide that the federal external review process, like the state external review process, will provide for expedited external review and additional consumer protections with respect to external review for claims involving experimental or investigational treatment.

These requirements do not apply to grandfathered health plans.  How non-grandfathered self-insured group health plans may comply or be brought into compliance with the requirements of the new federal external review process will be addressed in future “sub-regulatory guidance.”

For a state external review to apply instead of the federal process, the state external review process must include the following elements from the NAIC Uniform Model Act:

• Provide for the external review of adverse benefit determinations that are based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit.

• Require issuers to provide effective written notice to claimants of their rights.

• Make exhaustion of internal review unnecessary if: the issuer has waived the exhaustion requirement, the claimant has exhausted the internal claims and appeals process under applicable law, or the claimant has applied for expedited external review.

• Provide that the issuer must pay the cost of an independent review organization (“IRO”) for conducting the external review.

• Not impose a restriction on the minimum dollar amount of a claim for it to be eligible for external review (for example, a $500 minimum claims threshold).

• Allow at least four months after the receipt of a notice of an adverse benefit determination or final internal adverse benefit determination for a request for an external review to be filed.

• Provide that an IRO will be assigned on a random basis or another method of assignment that assures the independence and impartiality of the assignment process.

• Provide for maintenance of a list of approved independent review organizations qualified to conduct the review based on the nature of the health care service that is the subject of the review.

• Provide that any approved IRO has no conflicts of interest that will influence its independence.

• Allow the claimant to submit to the IRO in writing additional information that the IRO must consider when conducting the external review and require that the claimant is notified of such right to do so.

• Provide that the decision is binding on the plan or issuer, as well as the claimant, except to the extent that other remedies are available under state or federal law.

• Provide that, for standard external review, within no more than 45 days after the receipt of the request for external review by the IRO, the IRO must provide written notice to the issuer and the claimant of its decision to uphold or reverse the adverse benefit determination.

• Provide for an expedited external review in certain circumstances and, in such cases, the state process must provide notice of the decision as expeditiously as possible, but not later than 72 hours after the receipt of the request.

• Require that issuers include a description of the external review process in the summary plan description, policy, certificate, membership booklet, outline of coverage, or other evidence of coverage it provides to claimants.

• Follow procedures for external review of adverse benefit determinations involving experimental or investigational treatment, substantially similar to what is set forth in the NAIC Uniform Model Act.

Existing state external review requirements that do not contain these essential elements will govern plans and insurers for a transitional period until the first plan year beginning after July 1, 2011, after which the federal process will govern unless the state updates its statute to comply.  As required by the statute, the various Departments will establish an external review process similar to the state process to govern self-insured plans and insured plans not governed by state law.

These regulations are effective on September 21, 2010 (effective 60 days after publication in the Federal Register).  However, the rules generally apply to group health plans and group health insurance issuers for plan years beginning on or after September 23, 2010.

DEPARTMENTS OF TREASURY, LABOR AND HEALTH AND HUMAN SERVICES RELEASED INTERIM FINAL REGULATIONS ON GRANDFATHER STATUS

On June 14, 2010, the Departments of the Treasury, Labor and Health and Human Services released interim final regulations for group health plans and health insurance coverage relating to status as a grandfathered health plan 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 54.9815-1251, 29 CFR 2590.715-1251, 45 CFR 147.140).  These regulations outline:

• what group health plans and individual health plans are grandfathered;
• what changes under health reform apply to grandfathered plans;
• what changes under health reform do not apply to grandfathered plans;
• what changes a plan sponsor or an insurance company can make to a health plan and still maintain grandfathered status;
• what changes a plan sponsor or an insurance company can make that will cause a health plan to lose its grandfathered status;
• what disclosure and record retention requirements must a plan sponsor or an insurance company meet to retain its grandfather status for health plans;
• what relief a plan sponsor or insurance company can have if they either made changes to its health plans effective after March 23, 2010 but made them before March 23, 2010 or made changes after March 23, 2010 but before the publication of these regulations; and
• how the grandfather status rules apply to collectively bargained plans.

Q-1: What is a grandfathered health plan?

A-1: A grandfathered group health plan is a group or individual plan in which an individual was enrolled on March 23, 2010. A grandfathered plan can be a single employer plan, a multi-employer plan, or a multiple employer plan. It can also be an insured or a self-insured arrangement.

Q-2: Are all group medical plans that covered employees as of March 23, 2010 grandfathered?

A-2: Grandfathering applies to all group health plans that are welfare benefit plans under ERISA section 3(1) and all health insurance coverage to the extent that the plan or coverage provides medical care to employees and their dependents through insurance, reimbursement, or otherwise, even if coverage is offered through a medical service policy or an HMO offered by a health insurance issuer. The rules under the regulations apply separately to each benefit package made available under a group health plan or health insurance coverage.

Q-3: What tax reform changes apply to grandfather plans?

A-3: Grandfathered Plans need to comply with the following. All provisions are effective on the first renewal date after September 23, 2010, except where noted.

• Coverage of Dependents to Age 26: Fully-insured and self-funded health plans that offer dependent coverage must permit children to stay on family policies until age 26 if the dependent is not eligible for employer coverage. (Prior to 2014, this will only apply to those dependents who cannot secure employer-sponsored coverage). Coverage provided to these dependents will not result in imputed income to the employee.
• Elimination of Lifetime Benefit Limits: For fully-insured and self-funded health plans, lifetime limits on the dollar value of benefits under all health insurance plans must be eliminated. Certain limits may be allowed on specific benefits as long as they are not considered Essential Health Benefits (yet to be defined).
• Restriction on Annual Benefit Limits: For fully-insured and self-funded health plans, the Authority for the Secretary of Health and Human Services (“HHS”) is to define tight restrictions on annual limits placed on insurance plans. (Use of annual limits will be banned entirely in 2014 when the State Insurance Exchanges are operational.)
• No Rescissions of Coverage: Fully-insured and self-funded group health plans are prohibited from rescinding coverage once coverage has already been in place for that person, except in the event of fraud.
• Cost Ratio Requirements: Beginning January 1, 2011, health insurers must provide an annual rebate to each enrollee if the minimum loss ratio (“MLR”) is not met. The MLR is 85% in the large group market (100+ employees) and 80% in the small group market (less than 100 employees). This provision will have no effect on self-funded plans.
• Elimination of Pre-Existing Condition Exclusions for Children: Pre-existing condition exclusions on self-funded or fully-insured health plans cannot apply to children. This provision will extend to adults as of 2014.
• Waiting Period Restriction (for plan years on or after January 1, 2014): Fully-insured and self-funded group health plans may not impose a waiting period in excess of 90 days for coverage.
• Distribution of Uniform Notice of Coverage: Plan administrators, plan sponsors and insurers must provide a summary of benefits and coverage explanation that describes benefits and coverage to participants prior to enrollment. The Uniform Notice of Coverage will be in addition to  a Summary Plan Description which is already required by ERISA. This requirement will extend to those plans exempted from ERISA.

The Secretary of HHS will provide specific standards for the summary. The summary must state if the plan provides Minimum Essential Coverage (yet to be defined) and if it pays less than 60% of the total cost of benefits provided under the plan. In addition, modifications to the group health plan must be summarized and sent to participants no later than 60 days prior to the change. There will be a penalty for willful non-compliance.

Grandfathered plans are exempt from mandatory compliance with many of the other new requirements imposed on new plans under the legislation.

Q-4: What tax reform changes do not apply to grandfathered plans?

A-4: Grandfathered Plans do no need to comply with:

All provisions are effective on the first renewal date after September 23, 2010, except where noted.

• Information to the Secretary of HHS: Group Health Plans, both fully-insured and self-funded, must provide information regarding claims payment, enrollment data, number of claims denied, rating practices, non-network cost-sharing, enrollee and participant rights, among other data.
• Employer Annual Reporting Requirements regarding Quality of Care: An annual report must be supplied to participants at Open Enrollment that describes health care provider reimbursement rates that improve quality of care, including wellness activities. The Secretary of HHS is to collect this data and make it available on the Internet. Reporting requirements and regulations from HHS will be available by March 23, 2012.
• First Dollar Coverage for Preventive Services: All fully-insured and self-funded health plans will be required to provide first dollar benefits for Preventive Care Services, such as immunizations, screenings and routine care for adults and children.
• Mandated Patient Protections: PCPs, OB-GYNs, and Emergency Care: In fully-insured or self-funded health plans that require the designation of a Primary Care Physician (“PCP”) members must be allowed to select any participating provider as their PCP.
• OB-GYNs and pediatricians: Women must be granted direct access to OB-GYN care without a referral and emergency services offered in a health plan must provide coverage at the in-network level, regardless of facility used and without need for prior-authorization.
• Code Section 105(h) Non-Discrimination Requirements for Fully-Insured Plans: Previously only applying to self-funded plans, group fully-insured health plans will be required to satisfy Section 105(h) non-discrimination requirements stating that employers must not establish any eligibility rules for health care coverage, or levels of coverage that has the effect of discriminating in favor of higher-wage employees.
• Mandated Claims Appeals Process: In addition to the existing ERISA internal claims appeals process for disputed claims, a new external claims procedure must be implemented in fully-insured and self-funded group health plans that will assure the review of disputed claims by a third party.
• Guaranteed Availability and Renewability of Coverage (for plan years on or after January 1, 2014): This provision requires insurance companies to make available health coverage for employers to purchase for their employees. The Act does not address or guarantee that this coverage will be affordable, however. The provision prevents health insurers from canceling an employer’s group plan in the event the plan has poor claims experience in a given year.
• No Discrimination Based on Health Status (for plan years on or after January 1, 2014): Both fully-insured and self-funded group health plans may not establish rules for eligibility to enroll based on health status factors. This same requirement was put forth by HIPAA in 1996.
• Mandated Cost-Sharing Limits (for plan years on or after January 1, 2014): Fully-insured and self-funded group health plans must limit cost-sharing amounts (deductibles, coinsurance and co-pays) to the limits applicable to high deductible health plans under Code Section 223. (For example, in 2010, the out of pocket limits on a high-deductible plan are $5,950 for single and $11,900 for family). Also, deductibles cannot exceed $2,000 per single and $4,000 per family.
• Mandated Coverage for Clinical Trials (for plan years on or after January 1, 2014): Both fully-insured and self-funded health plans must provide coverage for routine costs associated with clinical trials. An individual is eligible for coverage for clinical trials if his or her participating physician deems it appropriate with respect to the protocols of treatment of cancer or other life threatening diseases or conditions.

Q-5: What changes can a plan sponsor or an insurance company make to a health plan and keep its grandfathered status?

A-5: Plan sponsors and insurance companies can make voluntary changes to increase benefits, to conform to required legal changes, add new employees and dependents as participants, change third party administrators, renew an insurance policy and to adopt voluntarily other consumer protections in health care reform.

Q-6: What changes can a plan sponsor or an insurance company make to its health plan to cause it to lose grandfathered status?

A-6: A health plan will no longer be considered a grandfathered health plan if a plan sponsor or the insurance company:

• Eliminates all or substantially all benefits to diagnose or treat a particular condition. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat a particular condition;
• Increases a percentage cost-sharing requirement (such as coinsurance) above the level at which it was on March 23, 2010;
• Increases fixed-amount cost-sharing requirements other than copayments, such as a $500 deductible or a $2,500 out-of-pocket limit, by a total percentage measured from March 23, 2010 that is more than the sum of medical inflation and 15 percentage points;
• Increases copayments by an amount that exceeds the greater of: a total percentage measured from March 23, 2010 that is more than the sum of medical inflation plus 15 percentage points, or $5 increased by medical inflation, measured from March 23, 2010;
• For a group health plan or group health insurance coverage, an employer or employee organization decreases its contribution rate by more than five percentage points below the contribution rate on March 23, 2010;
• With respect to annual limits
  1. a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, did not impose an overall annual or lifetime limit on the dollar value of all benefits imposes an overall annual limit on the dollar value of benefits;
  2. a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010; or
  3. a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits decreases the dollar value of the annual limit (regardless of whether the plan or health insurance coverage also imposes an overall lifetime limit on the dollar value of all benefits); or
• Enters into a new policy, certificate or contract of insurance with an insurance company.

For purposes of these regulations, “medical inflation” is defined by reference to the overall medical care component of the Consumer Price Index (“CPI”) for all Urban Consumers, unadjusted, published by the Department of Labor.

Q-7: What notice and record retainer of records requirement must a plan sponsor or an insurance company meet to retain its grandfathered status of its health plans?

A-7: To maintain status as a grandfathered health plan, a plan sponsor or a insurance company must include a statement, in any plan materials provided to participants or beneficiaries (Summary Plan Description) describing the benefits provided under the plan or health insurance coverage, that the plan or health insurance coverage believes it is a grandfathered health plan and providing contact information for questions and complaints. The following model language can be used to satisfy this disclosure requirement:

This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.

Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]

In addition, to maintain status as a grandfathered health plan, a plan sponsor  or insurance company must  maintain records documenting the terms of the plan or health insurance coverage that were in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan. Such documents could include intervening and current plan documents, health insurance policies, certificates or contracts of insurance, summary plan descriptions, documentation of premiums or the cost of coverage, and documentation of required employee contribution rates. In addition, the plan or issuer must make such records available for examination. The plan sponsor or insurance company must also make such records available for examination.  Accordingly, a participant, beneficiary, State or Federal agency official would be able to inspect such documents to verify the status of the plan or health insurance coverage as a grandfathered health plan.

Q-8: What relief is provided under the regulations for a plan sponsor or an insurance company which makes a change to its health plan before March 23, 2010, but which is not effective until after March 23, 2010?

A-8: Transitional rules are provided for plan sponsors and insurance companies that made changes after the enactment of health reform pursuant to a legally binding contract entered into prior to March 23, 2010; made changes to the terms of health insurance coverage pursuant to a filing before March 23, 2010 with a State insurance department; or made changes pursuant to written amendments to a plan that were adopted prior to March 23, 2010. If a plan or insurance company makes changes in any of these situations, the changes are effectively considered part of the plan terms on March 23, 2010 even though they are not then effective. Therefore, such changes are not taken into account in considering whether the plan or health insurance coverage remains a grandfathered health plan.

For purposes of enforcement, the Departments of the Treasury, Labor and Health and Human Services will take into account good-faith efforts to comply with a reasonable interpretation of the statutory requirements and may disregard changes to plan and policy terms that only modestly exceed those changes described in the regulations and that occur before publication of the regulations.

Q-9: Is there any relief provided under the regulations to a plan sponsor or insurance company if it makes changes to the plan or contract after March 23, 2010 but before the publication of the regulations?

A-9:  Plan sponsors and insurance companies are provided with a grace period within which to revoke or modify any changes adopted prior to the date of the publication of the regulations, where the changes might otherwise cause the plan or health insurance coverage to cease to be a grandfathered health plan. Under this rule, grandfather status is preserved if the changes are revoked, and the plan or health insurance coverage is modified, effective as of the first day of the first plan or policy year beginning on or after September 23, 2010 to bring the terms within the limits for retaining grandfather status in these regulations. For this purpose and for purposes of the reasonable good faith standard, changes will be considered to have been adopted prior to when these regulations are published if the changes are effective before that date; the changes are effective on or after that date pursuant to a legally binding contract entered into before that date; the changes are effective on or after that date pursuant to a filing before that date with a State insurance department; or the changes are effective on or after that date pursuant to written amendments to a plan that were adopted before that date.

Q-10: How do the grandfather rules apply to collectively bargained plans?

A-10: Health insurance coverage maintained pursuant to one or more collective bargaining agreements that were ratified before March 23, 2010, are not subject to the insurance market reforms and coverage mandates of the Affordable Care Act and do not apply until the date on which the last collective bargaining agreement relating to coverage terminates. Before the last of the applicable collective bargaining agreements terminates, any health insurance coverage provided pursuant to the collective bargaining agreements is a grandfathered health plan, even if there is a change in insurance companies during the period of the agreement. The law refers solely to “health insurance coverage” and does not refer to a group health plan; therefore, these interim final regulations only apply this provision to insured plans maintained pursuant to a collective bargaining agreement and not to self-insured plans. After the date on which the last of the collective bargaining agreements terminates, the determination of whether health insurance coverage maintained pursuant to a collective bargaining agreement is grandfathered health plan coverage is made under the regulations.

Under the regulations, this determination is made by comparing the terms of the coverage on the date of determination with the terms of the coverage that were in effect on March 23, 2010. A change in insurance companies during the period of the agreement, by itself, will not cause the plan to cease to be a grandfathered health plan at the termination of the agreement; however, for any changes in insurance companies after the termination of the collective bargaining agreement, the issue of a new policy, certificate or contract of insurance will not be grandfathered. In addition any coverage amendments made pursuant to a collective bargaining agreement that amends the coverage to conform to health care reform will not cause the plan to lose its grandfathered status.

Collectively bargained plans (both insured and self-insured) that are grandfathered health plans are subject to the same requirements as other grandfathered health plans, and are not provided with a delayed effective date for changes under healthcare reform with which other grandfathered health plans must comply. Thus, the provisions that apply to grandfathered health plans apply to collectively bargained plans before and after termination of the last of the applicable collective bargaining agreement.

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.