With the enactment of the Patient Protection and Affordable Care Act on March 23, 2010, Pub. L. No. 111-148 (hereinafter “PPACA” or the “Act”) and the Health Care and Education Reconciliation Act, Pub. L. No. 111–152, President Obama and the Congress have ushered in what will be, barring major amendment or repeal, a new era for the regulation of private health insurance.
In order to implement PPACA, the Department of Health and Human Services, the Department of Labor and the Department of the Treasury (collectively, the “Agencies”) have begun issuing interim regulations for key components of the Act. The Agencies have issued interim regulations in the following areas: lifetime and annual limits, preexisting condition limitations, grandfathered health plans, policy rescissions, patient protections, dependent coverage and early retiree reinsurance programs. This article examines some of the highlights from these interim regulations with a focus on fully insured plans.
The discussion below refers to group and individual “plans” meaning major medical insurance plans. The requirements discussed in this article do not apply to “excepted benefits” as defined by the Health Insurance Portability and Accountability Act of 1996 and implementing regulations.
On June 28, 2010, the Agencies issued an interim regulation implementing PPACA requirements with respect to lifetime and annual limits on coverage, preexisting condition exclusions, recessions and certain patient protections.
No Lifetime or Annual Limits
PPACA provides that plans may not impose lifetime limits on the dollar value of “essential benefits,” as defined by the Act, for plan years beginning on or after September 23, 2010. The prohibition on lifetime limits applies to all plans, including grandfathered plans. PPACA further provides that plans generally may not impose annual limits on the dollar value of essential benefits for plan years beginning on or after September 23, 2010. The prohibition on annual limits is subject to an exception under which plans may establish “restricted annual limits,” as defined by the Secretary of Health and Human Services (the “Secretary”), for plan years beginning prior to January 1, 2014. The prohibition on annual limits applies to new plans and grandfathered group plans but not to grandfathered individual plans.
The June 28 interim regulation establishes certain exceptions to the Act’s general prohibitions against lifetime and annual limits. For example, health flexible spending accounts are excluded from the prohibition on lifetime and annual limits. In addition, the interim regulation establishes standards for the “restricted annual limits” that plans may impose until January 1, 2014. The permitted annual limits are as follows: $750,000 for plan years beginning on or after September 23, 2010, but before September 23, 2011; $1,250,000 for plan years beginning on or after September 23, 2011, but before September 23, 2012; and $2,000,000 for plans years beginning on or after September 23, 2012, but before January 1, 2014.
It appears the June 28 interim regulation does not prohibit limits that apply to specific types of treatments without establishing total lifetime or annual limits. For example, limits on the maximum number of outpatient visits for a specific type of treatment or limits on the maximum amount payable per procedure for specified types of medical procedures appear to be allowed. This aspect of the interim regulation may need to be clarified. The interim regulation does not define the term “essential benefits” except by reference to the limited definition contained in PPACA. In the preamble to the interim regulation, the Agencies say they will take into account “good faith efforts” to comply with a “reasonable interpretation” of the term “essential health benefits.”
In another important development, the June 28 interim regulation provides that the Secretary may, for plan years beginning before January 1, 2014, establish a program to waive the restriction on annual limits for any plan that has an annual dollar limit below the restricted annual limits discussed above if the Secretary determines that imposing the restriction would result in decreased access to the benefits or would significantly increase premiums for the plan. Finally, the interim regulation also includes transitional rules for individuals whose coverage or benefits ended by reason of reaching a lifetime limit.
Ban on Preexisting Condition Exclusions
Under PPACA, group and individual plans are prohibited from imposing preexisting condition exclusions on individuals under 19 years of age for plan years beginning on or after September 23, 2010. This requirement is extended to all insureds, regardless of age, for plan years beginning on or after January 1, 2014. The Act’s requirements regarding preexisting condition exclusions apply to all plans, except for grandfathered individual plans.
The Agencies have taken the position that the Act’s ban on preexisting condition exclusions for individuals under 19 years of age effectively acts as a requirement to guarantee issue coverage to such persons. The June 28 interim regulation sets forth the rationale for this stance. An example included in the interim regulation is a denial of coverage because of a preexisting condition is an “exclusion of benefits based on a preexisting condition” in violation of the Act.
Patient Protections—Access to Primary Care Providers, Emergency Care and Specialists for Women and Children
If a plan requires or provides for designation of a primary care provider, for all plan years beginning on or after September 23, 2010, the plan must allow covered individuals to designate any participating primary care provider who is available to accept the individual. If the covered individual is a child, the plan must allow designation of a participating physician specializing in pediatrics as the child’s primary care provider. In addition, a plan may not require a woman to obtain authorization or a referral for a participating provider specializing in obstetrics or gynecology. These requirements do not apply to grandfathered plans. Among other things, the June 28 interim regulation provides that if a plan requires designation of a primary care provider, it must provide participants with notice of the terms and conditions applicable to such designations, including the PPACA rights that apply. The interim regulation provides model language for this purpose.
PPACA provides that if a plan covers hospital emergency services, for all plan years beginning on or after September 23, 2010, the plan must cover emergency services without requiring prior authorization and regardless of whether the provider furnishing the services is in-network or out-of-network. This requirement does not apply to grandfathered plans. The June 28 interim regulation provides that access to emergency services must be provided without imposing any administrative requirement or limitation on coverage that is more restrictive for out-of- network services than in-network services and without regard to any other term or condition of coverage other than any applicable exclusion of benefits, coordination of benefits, waiting period or cost sharing. With respect to cost sharing, the interim regulation clarifies that, as to emergency services, a plan may impose a deductible or out-of-pocket maximum with respect to out-of-network coverage if the deductible or out-of-pocket maximum applies to all out-of-network benefits generally, and not just emergency services.
Grandfathered Health Plan Coverage
PPACA provides that “grandfathered health plans” are not subject to certain requirements of the Act. For example, they are not subject to PPACA’s prohibition against applying deductibles, co-payments or other cost sharing requirements to coverage for certain preventive healthcare services. On June 17, 2010, the Agencies published an interim regulation defining which plans qualify as grandfathered health plans and what such plans must do to maintain their grandfathered status. The interim regulation provides that to be a grandfathered plan, a plan must have had at least one individual enrolled in coverage on March 23, 2010, and the plan must have covered someone continuously since March 23, 2010 (even if not the same individual). Any new policy, certificate, or contract of insurance issued after March 23, 2010, is not grandfathered. Renewal of an existing contract does not cause it to lose its grandfathered status.
The June 17 interim regulation provides that in order to maintain grandfathered status, a health plan must provide a notice to plan beneficiaries that the plan believes it is a grandfathered health plan. The notice must also include contact information. The interim regulation includes model notice language that can be used to satisfy this disclosure requirement. The interim regulation also sets forth several examples of activities that will result in a plan losing its grandfathered status, including: 1) eliminating benefits, 2) increasing the percentage of cost sharing requirements, 3) increasing a fixed amount cost sharing requirement (other than copayments), 4) increasing fixed-amount copayments in certain ways, 5) decreasing contribution rates and 6) changing annual or lifetime limits.
Extension of Dependent Coverage
PPACA requires plans that provide dependent coverage of children to make such coverage available for an adult child until the individual turns 26 years of age. This requirement is effective for all plan years beginning on or after September 23, 2010, and applies to all plans, including grandfathered plans.
On May 13, 2010, the Agencies issued an interim regulation implementing the dependent coverage requirement of the Act. The interim regulation states that a plan may define eligibility for dependent coverage only in terms of the relationship between a child and the plan participant. Thus, a plan may not deny or restrict coverage based on factors such as financial dependency, residency, student status, employment, marital status or eligibility for other coverage, except that for plan years beginning before January 1, 2014, a grandfathered group plan may exclude an adult child if the child is eligible to enroll in an employer-sponsored health plan other than a group health plan of a parent. Plans are not required to cover grandchildren or the spouse of an adult child. The interim regulation also provides that the dependent coverage requirement applies to children whose eligibility for coverage previously terminated and to children who were previously denied coverage or were not eligible for coverage because of age. Plans are required to make coverage for such dependents available under a special 30-day enrollment period.
The interim regulations published to date are just the beginning of what will be an extensive body of new regulations and guidance implementing PPACA. Many more regulations will be forthcoming from Agencies. In addition, many states will soon begin the legislative and regulatory processes necessary to implement the state health insurance exchanges that are a centerpiece of the Act. All of these activities will require careful scrutiny, as they will give shape to many important aspects of the Act that have yet to be defined.
Chris Petersen is a Partner in the firm’s Insurance and Reinsurance Practice where he concentrates on legal and compliance services relating to the Health Insurance Portability and Accountability Act (HIPAA), privacy, state small group and individual insurance reform regulation and the interaction between state and federal law. Mr. Petersen received his bachelor’s degree from Washington University in St. Louis, Mo. and his law degree from Georgetown University School of Law.
Joseph T. Holahan is Of Counsel in the firm’s Insurance Practice and a member of the firm’s Privacy Practice. Mr. Holahan advises insurers and reinsurers on a variety of legal matters, including all aspects of regulatory compliance. Mr. Holahan received his undergraduate degree from the University of Virginia and his law degree from the Catholic University of America.