Health Care Reform Developments
This is the fifth in a series of advisories we will issue on Health Care Reform. On June 22, 2010, the Department of Health and Human Services (HHS), in conjunction with the Internal Revenue Service and Department of Labor's Employee Benefits Security Administration (the “Agencies”) issued interim final regulations implementing rules for group health plans and health insurance coverage in the group and individual markets pertaining to (1) lifetime and annual dollar limits on benefits; (2) patient protections, including emergency services and open access to healthcare professionals; (3) prohibitions against rescissions; and (4) the progressive elimination of preexisting condition exclusions. In addition, on June 28, 2010, the Department of Labor issued model notices required under these regulations. All these topics are discussed in detail below. You may also click on a topic to link directly to that portion of the discussion.
These rules are effective for plan years beginning on or after September 23, 2010. This e-alert summarizes the rules as they apply to group health plans and health insurance insurers offering group or individual health insurance coverage (referred to as “plans and insurers”). It does not address the application of the rules to individual health insurance coverage.
1. Rules on Lifetime and Annual Dollar Limits on Benefits.
General. As described generally in prior advisories, under Health Care Reform, plans and insurers are generally prohibited from imposing lifetime or annual limits on the dollar value of “essential health benefits.” Essential health benefits include at least the following general categories and the items and services covered within the categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. A good faith interpretation of this definition is permissible until additional guidance is issued on the scope of essential health benefits.
A plan or insurer may impose annual or lifetime dollar limits on specific covered benefits that are not essential health benefits and apparently may apply per visit limitations. In addition, a plan or insurer is permitted to exclude all benefits for specific conditions. However, the exclusion of benefits for certain conditions after March 23, 2010 will cause an existing plan to lose grandfathered status. For more information about maintaining grandfathered status, click here.
Permissible Annual Limits. The following annual limits on essential health benefits are allowed until 2014:
· For plan years beginning on or after September 23, 2010 but before September 23, 2011, an annual overall limit not less than $750,000;
· For plan years beginning on or after September 23, 2011 but before September 23, 2012, an annual overall limit not less than $1.25 million; and
· For plan years beginning on or after September 23, 2012 but before January 1, 2014, an annual overall limit not less than $2 million.
These limits apply whether or not a plan is grandfathered. In addition, they apply on an individual-by-individual basis. Thus, the overall annual dollar limits on benefits may not be applied to families in a way that denies anyone individual benefits up to the applicable limit. In applying these limits, the plan or insurer may take into account only amounts paid for essential health benefits.
While the regulations permit these limits to be imposed, adding limits to a grandfathered plan may cause the plan to lose its grandfathered status. For more information about maintaining grandfathered status, click here.
Special Enrollment for Individuals Who Exceeded Lifetime Maximum Benefit Limits. Individuals who previously reached a plan’s lifetime limit and are otherwise still eligible under the plan must be provided with a notice that the lifetime limit no longer applies and, for those not currently enrolled, an opportunity to enroll. The enrollment period must extend for a period of at least 30 days beginning not later than the first day of the first plan year that begins on or after September 23, 2010, and coverage must become effective not later than the first day of that plan year. This enrollment period is treated as a HIPAA special enrollment period, which permits the employee as well as the individual who previously exceeded the limit to choose from among any of the benefit options offered under the plan. Written notice of the enrollment opportunity must be provided either to the individual or the employee not later than the first day of the 30-day enrollment period. This special enrollment period is similar to that required to be provided to adult children. For more information about coverage of adult children, click here. The Department of Labor recently published model notices for these special enrollment events. For the Model Notice on Lifetime Limits No Longer Applying and Enrollment Opportunity, click here. For the Model Notice of Opportunity to Enroll in Connection with Extension of Dependent Coverage to Age 26, click here.
Effect on Account-Based Plans. The restrictions on annual limits do not apply to flexible spending accounts, medical savings accounts or health savings accounts. Health reimbursement accounts (HRAs) are not exempted from the requirements, but an HRA with limited benefits which is integrated with coverage under another plan will not violate the rules if the combined benefit under both plans satisfies the requirements. The Agencies have requested comments regarding application of the rules to HRAs that are not integrated with other plans as to which additional guidance may be forthcoming.
Exclusion of Benefits. The rules on annual limits do not apply to a plan’s exclusion of benefits for specified conditions. However, such exclusion may violate other nondiscrimination rules under HIPAA or the Americans with Disabilities Act. In addition, exclusions implemented on or after March 23, 2010 may cause a grandfathered plan to lose its grandfathered status.
Waiver of Requirements for Certain Plans. HHS is developing a program under which the restrictions on annual limits may be waived for limited benefit or “mini-med” plans. Guidance on the waiver program is to be released soon.
2. Patient Protections.
Emergency Services
General. The regulations on patient protections impose mandates on plans and insurers that will limit the prior authorization necessary for emergency services. These restrictions, described in more detail below, do not apply to grandfathered plans. For more information about what constitutes a grandfathered plan, please click here.
Prior Authorization Limitations. The regulations require that plans and insurers that cover emergency services must do so without the participant or health care provider having to obtain prior authorization and without regard to whether the health care provider furnishing the emergency services is an in-network provider. If a plan has network providers that provide benefits for emergency services, the plan 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. These rules only apply to services provided in connection with an emergency medical condition. They do not apply to services rendered in an emergency room for non-emergency conditions.
Cost-sharing Limitations. Cost-sharing requirements imposed for out-of-network emergency services that are expressed as a copayment amount or a coinsurance rate cannot exceed the cost-sharing requirements that would be imposed if the services were performed in-network. The restriction on cost-sharing does not include “balance billing” by an out-of-network provider for the difference between the cost of the services and the amounts received from the plan and the patient in the form of the copayment or coinsurance amount. Because the exclusion of balance billing from the cost-sharing restrictions could permit the plan to pay an unreasonably low amount to a provider, even while limiting the coinsurance or copayment associated to in-network amounts, the regulations require that a reasonable amount be paid for services. An amount is considered reasonable if it is equal to the greatest of:
1. the amount negotiated with in-network providers for the emergency services provided;
2. the amount for the emergency services calculated using the same method the plan generally uses to determine payments for out-of-network services (such as usual, customary and reasonable charges) but substituting the in-network cost-sharing provisions for the out-of-of network cost-sharing provisions; or
3. the amount that would be paid under Medicare for the emergency services.
Cost-sharing mechanisms other than coinsurance or copayments, such as deductibles or out-of-pocket maximums, may only be imposed with respect to out-of-network emergency services if the cost-sharing requirement generally applies to other out-of-network benefits.
Definition of Emergency Services. Emergency services means screening and stabilization services with respect to a medical condition that is characterized by acute symptoms of sufficient severity (including severe pain) that a reasonable layperson would expect the absence of medical attention to place the health of the individual in serious jeopardy. Screening services includes ancillary services routinely used to evaluate a medical condition. Stabilization services include any further medical examination and treatment needed to stabilize the patient.
Choice of Health Care Professional.
General. The regulations on patient protections impose mandates on plans and insurers that will give patients greater freedom when choosing a primary care provider. These restrictions, described in more detail below, do not apply to grandfathered plans. For more information about what constitutes a grandfathered plan, please click here.
Primary Care Provider. If a plan requires or provides for a participant to make a primary care provider designation, then the plan must permit the participant to designate any primary care provider who is available to accept the participant and who participates in the network.
Pediatric Care Provider. If a plan requires or provides for a participant to designate a primary care provider for a child, then the plan must permit the designation of any physician who specializes in pediatrics as the child’s primary care provider as long as the provider participates in the network and is available to accept the child.
Obstetrical or Gynecological Care Provider. If a plan provides coverage for obstetrical or gynecological care and requires or provides for the designation of a primary care provider, the plan may not require authorization or referral by the plan or any person (including a primary care provider) for a female participant who seeks obstetrical or gynecological care provided by an in-network health care professional who specializes in obstetrics or gynecology. The plan may, however, require the health care professional to agree to otherwise adhere to the plan’s procedures regarding referrals and obtaining prior authorization and providing services pursuant to a treatment plan approved by the plan.
Notice. Participants must be provided notice of their right to (1) choose a primary care provider or a pediatrician when a plan requires designation of a primary care physician; and (2) obtain obstetrical or gynecological care without prior authorization. This notice must be included whenever a summary plan description or other similar description of benefits is provided to a participant. The Department of Labor recently published the Model Notice on Patient Protections that can be used to satisfy the notice requirement. To access the model notice, click here.
Covered Plans. The restrictions imposed by the interim final rules with respect to a patient’s choice of health care professionals only apply to a plan that uses a network of providers. Thus, a plan that has not negotiated with any provider for the delivery of health care but merely reimburses individuals for their receipt of health care is not subject to the restrictions.
3. Prohibition Against Rescission of Coverage
General. These regulations are designed to prevent plans and insurers from rescinding coverage to participants with significant claims history. The rules apply to all plans, including grandfathered plans. For more information about what constitutes a grandfathered plan, please click here.
Heightened Standard for Rescissions. Plans and insurers must not rescind coverage retroactively except in the case of fraud or an intentional misrepresentation of a material fact. Under prior law, rescission may have been permissible if an individual made a material misrepresentation, even if the misrepresentation was not intentionally or knowingly made. Under the new rules, however, plans and insurers cannot rescind coverage unless an individual commits fraud or makes an intentional misrepresentation of material fact, and the plan contains a provision allowing the rescission under these circumstances. The most important impact of this rule is that plans and insurers cannot rescind coverage on the basis of inadvertent misstatements on coverage applications. This was primarily intended to curb abusive insurance practices that resulted in retroactive rescission of coverage for groups that experienced high claims. If a plan so provides, it may rescind coverage retroactively for a dependent if there is an intentional misrepresentation about the dependent’s relationship, age or other eligibility status.
The regulations do not restrict the ability to terminate coverage prospectively. In addition, retroactive cancellation or discontinuance of coverage will not violate the rules to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage.
Notice Requirement. In order to rescind coverage, plans and insurers must provide at least 30 days advance written notice to each participant who would be affected before coverage may be rescinded, thus affording the affected person or group time to contest the rescission or locate other coverage. The Agencies expect to issue further guidance on any notice requirements for cancellations of coverage other than in the case of rescissions.
Application of other Federal or State laws. The regulations clarify that other requirements of Federal or State law may apply in connection with a rescission or cancellation of coverage if they are more protective of individuals.
Further Guidance. If the Agencies become aware of attempts in the marketplace to subvert these rules, they may issue additional regulations or administrative guidance to ensure that individuals do not lose health coverage unjustly or without due process.
4. Preexisting Condition Restrictions
General. These regulations describe the progressive elimination of preexisting condition exclusions. The restrictions apply to all plans, including grandfathered plans. For more information about what constitutes a grandfathered plan, please click here.
Progressive Elimination. As of September 23, 2010, preexisting condition exclusions imposed on children under the age of 19 are prohibited. Preexisting condition exclusions imposed on any person, regardless of age, are forbidden entirely after December 31, 2013. Furthermore, the new rules prohibit not just an exclusion of coverage of specific benefits associated with a preexisting condition, but a complete exclusion from a plan, if that exclusion is based on a preexisting condition, effective as of the dates specified above.
If you need any assistance or have any questions, please call Evelyn Traub, Edie Lindsay, or any other member of Troutman Sanders LLP’s Employee Benefits & Executive Compensation Practice Group.