On June 28, 2010, the Departments of the Treasury, Labor and Health and Human Services issued interim final regulations (the “Regulations”) to implement certain provisions under the Patient Protection and Affordable Care Act as Amended by the Health Care and Education Reconciliation Act (the “Affordable Care Act”). This article summarizes the Regulations as they implement rules for group health plans and health insurance issuers related to:

• preexisting condition exclusions;
• lifetime and annual dollar limits on benefits;
• prohibitions on rescissions; and
• patient protections.

The Regulations become effective on August 27, 2010. Comments on these Regulations are due to appropriate government agencies on or before August 27, 2010.

Preexisting Condition Exclusions

The Affordable Care Act prohibits any group health plan, group health insurance coverage, or individual health insurance coverage from imposing exclusions from coverage based on preexisting conditions. Under the Affordable Care Act a group health plan, including a grandfathered plan, may not impose any preexisting condition exclusions with respect to an individual under age 19, effective for the first plan or policy year beginning on or after September 23, 2010. This requirement applies to adults effective for the first plan or policy year beginning on or after January 1, 2014. (See our March 2010 issue for more information.)

The Regulations clarify that the definition of preexisting condition exclusion provided under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) will be applied under the Affordable Care Act. HIPAA generally defines a preexisting condition exclusion as a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for the coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before that date. The adoption of this definition prohibits a plan or policy from excluding coverage of specific benefits associated with a preexisting condition, as well as excluding coverage in its entirety if the exclusion is based on a preexisting condition.

In response to questions regarding retroactive application of the preexisting condition exclusion prohibition, the Regulations explain that if an individual is excluded from coverage due to a preexisting condition prior to the effective date, a plan or policy may not continue to exclude the individual based on the preexisting condition once the new rules take effect. For example, if an individual commences employment on October 15, 2010, and attempts to enroll his 16-year-old child with asthma in a group health plan, the plan must enroll the child as of the first day of the first plan year that begins on or after September 23, 2010, even if the child had a significant break in coverage due to a lapse of more than 63 days without creditable coverage immediately prior to enrolling in the plan. Thus, while the plan may temporarily exclude the child, once the plan becomes subject to the rules the child may not be excluded based upon a preexisting condition.

Lifetime and Annual Benefit Limits

Lifetime Limits

Effective for plan or policy years beginning on or after September 23, 2010, group health plans, including grandfathered plans, may not establish lifetime limits on the dollar amount of essential health benefits. Under the Affordable Care Act, essential health benefits include:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance disorder services
• 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

The Regulations state that a further definition of “essential health benefits” is forthcoming in future regulations. In the interim, the agencies will take into account good faith efforts to comply with a reasonable interpretation of the term.

The Regulations also clarify that individuals who reach a lifetime limit under a plan prior to the applicability date of the Regulations, but otherwise remain eligible to participate in the plan, must be provided with a notice that the lifetime limit no longer applies, and that they are again eligible for benefits and the right to enroll in the plan.

Annual Limits

Effective for plan or policy years beginning on or after September 23, 2010, group health plans, including grandfathered plans, generally may not establish annual limits on the dollar amount of essential health benefits. However, in order to mitigate the potential increase in premiums, the Regulations adopt a three year phased-in approach to removing annual limits. Plans may establish restricted annual dollar limits on essential health benefits for individuals as follows:

• For plan or policy years beginning on or after September 23, 2010, but before September 23, 2011: $750,000.00
• For plan or policy years beginning on or after September 23, 2011, but before September 23, 2012: $1.25 million
• For plan or policy years beginning on or after September 23, 2012, but before January 1, 2014: $2 million

If a grandfathered plan is to apply the restricted annual limits on essential health benefits, the plan must consider how this affects its grandfathered status. For example, if the plan had a previous lifetime limit of $1 million and no overall annual limit, for the first plan year after September 23, 2010, the plan could add an overall annual limit on essential health benefits equal to $1 million and still maintain grandfathered status. However, if it adopted an overall annual limit on essential health benefits of $750,000 (which is lower than the previous lifetime limit), the plan would be in compliance with the above rule but it would lose its grandfathered status.

The Regulations clarify that this prohibition against annual dollar limits will not apply to health flexible spending accounts, medical savings accounts or health savings accounts, or to health reimbursement accounts which are either integrated with other coverage that complies with the rules or provide only stand-alone retiree-only coverage.

Rescission of Coverage Limits

Under the Affordable Care Act, health plans and health insurance issuers, including grandfathered plans, may not rescind coverage except in the case of an individual (or person seeking coverage for the individual) “who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of a material fact as prohibited by the terms of the plan or coverage.” Under prior law, rescission may have been permitted if an individual made a misrepresentation of material fact, even if the misrepresentation was not intentional or made knowingly. The Regulations define a rescission of coverage to be the discontinuance or cancellation of coverage that has a retroactive effect, and also identifies two events that are not rescissions:

• A cancellation or discontinuance with only a prospective effect
• Discontinuance of coverage with a retroactive effect due to the failure to timely pay required premiums or contributions toward the cost of coverage

In the few situations where a rescission is allowed, the plan or issuer must provide 30-calendar days advance written notice before the rescission may take effect, even though the rescission is retroactive. This notification requirement is effective for plan or policy years beginning on or after September 23, 2010.

Patient Protections

In addition to removing preexisting condition exclusions and lifetime and annual limits, the Regulations set forth a series of patient protections designed to promote levels of choice, including choice of primary care providers and requirements for coverage of out-of-network emergency services.

Primary Care Providers

The Regulations provide that if a health plan or policy requires or provides for designation of a participating primary care provider by a participant or beneficiary, then the participant or beneficiary must be permitted to designate any participating primary care provider who is available to accept them as a new patient. If a plan or policy provides child coverage, the plan or policy must also allow the participant or beneficiary to designate a physician who specializes in pediatrics as the child’s primary care provider if the provider participates in the plan or policy’s network and is available to accept the child. In addition, a plan or policy may not require authorization or referral by the plan, or any person (including the primary care provider) for a female participant or beneficiary to seek obstetrical and gynecological care provided by an in-network health care professional who specializes in obstetrics or gynecology. The Regulations require that participants be notified of these rights and this notification must inform participants of their right to:

• designate a primary care provider;
• designate a pediatrician for their children; and/or
• seek obstetrical or gynecological care without authorization or referral.

Model language is provided in the Regulations. This notice must be provided whenever the plan provides the participant with a summary plan description or other similar description of benefits under the plan.

Out-of-Network Emergency Services

If a plan or policy provides benefits with respect to emergency services in a hospital, the plan must cover emergency services pursuant to the Regulations. For purposes of defining “emergency medical condition” and “emergency services” the Regulations reference the Emergency Medical Treatment and Labor Act.

The Regulations explain that any plan or policy providing such emergency hospital services must do so without the individual 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. Any cost-sharing (copayment or coinsurance) provision in the plan or policy for such emergency services must be the same for both in-network and out-of-network services. An out-of-network provider may, however, bill the patient for the cost difference between the provider’s charges and the amount collected from the plan, so long as the plan’s payment is equal to the greatest of the following three amounts:

• The median amount negotiated with in-network providers for emergency services furnished
• The amount for the emergency services calculated using the same method the plan generally uses to determine payments for out-of-network services (the usual, customary, and reasonable charges), but substituting the in-network cost-sharing provisions for the out-of network cost sharing provisions
• The amount that would be paid under Medicare for the emergency service

Each of the three amounts described above must be calculated excluding any in-network copayment or coinsurance imposed on the participant, beneficiary, or enrollee.

Additional Information

The Regulations are available on the DOL’s website.

Additional information on the Affordable Care Act, including a fact sheet on these Regulations is available on the DOL’s website.

Please contact us if you have any questions regarding these Patient Protections or any other provisions of the Affordable Care Act that impact employee benefit plans.