Guidance on Pre-Existing Condition
Exclusions, Lifetime and Annual Limits, and
More Issued Under PPACA
On June 22, 2010, the Departments of Treasury, Labor, and Health and Human Services issued further Interim Final Rules on critical components of the Patient Protection and Affordable Care Act (PPACA) for employer-sponsored group health plans. Specifically, the Interim Final Rules address the following coverage mandates under the PPACA:
· the prohibition on pre-existing condition exclusions;
· the prohibition on lifetime and annual dollar limits;
· the prohibition on rescissions in health plans; and
· certain patient protections afforded under the PPACA.
These Interim Final Rules are generally applicable as of a group health plan's first plan year beginning on or after September 23, 2010 (except for the prohibition on pre-existing condition exclusions for individuals over age 18, which is applicable for the first plan year on or after January 1, 2014). The Interim Final Rules, in conjunction with the recently published Interim Final Rules on grandfathered plan status and the adult child dependent coverage mandate, provide employers with a sound basis on which to move forward with benefit planning for the upcoming plan year, which will likely require amending plan materials in time for open enrollment.
Prohibition on Pre-Existing Condition Exclusions
The PPACA's prohibition on pre-existing condition exclusions is generally applicable to a group health plan for plan years that begin on or after January 1, 2014. However, the prohibition applies earlier for individuals who are under 19 years of age. For those individuals, the prohibition will be enforced for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans). The Interim Final Rules make clear that a pre-existing condition exclusion is any limitation or exclusion of benefits (including a denial of coverage) based on the fact that the condition was present before the effective date of coverage under a group health plan, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before that date. Thus, it does not matter whether or not the condition was known, unknown, treated, or untreated at any time before the effective date of coverage under the group health plan.
No Lifetime or Annual Limits
The general rule under the PPACA is that a group health plan may not establish any lifetime or annual limits on the dollar value of benefits for any individual under the group health plan. However, there are two exceptions to the general rule. First, a group health plan may impose lifetime or annual limits on the dollar value of specific covered benefits that are not "essential health benefits," to the extent that those limits are not otherwise prohibited under applicable federal or state law. Second, with respect to plan years beginning prior to January 1, 2014, a group health plan may impose "restricted" annual limits on "essential health benefits." Therefore, to understand whether a lifetime or annual limit is permitted with respect to any benefit under a group health plan, the plan must first determine if the benefit is an "essential health benefit."
"Essential Health Benefits"
The PPACA provides that "essential health benefits" shall be defined by the Secretary of Health and Human Services, but also provides that those benefits will include at least the following general categories of benefits:
· ambulatory patient services;
· emergency services;
· 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; and
· pediatric services, including oral and vision care.
At this point, the Secretary has not issued any regulations that further define essential health benefits. The preamble to the Interim Final Rules indicates that plan sponsors may make good faith efforts to comply with a reasonable interpretation of the term "essential health benefits" until regulations are issued. In making those interpretations, plan sponsors should keep in mind that, in defining essential health benefits, the Secretary is mandated by the PPACA to take into consideration the benefits provided under a typical employer plan.
"Restricted" Annual Limits
If a group health plan determines that a benefit is an "essential health benefit," the plan cannot impose a lifetime limit on the dollar value of that benefit. However, the PPACA and Interim Final Rules permit a group health plan to impose "restricted" annual limits on essential health benefits for plan years beginning prior to January 1, 2014. The Interim Final Rules define "restricted" annual limits in three phases, such that any annual limit on the dollar value of essential health benefits cannot be less than:
· $750,000 for plan years beginning on or after September 23, 2010, but before September 23, 2011;
· $1.25 million for plan years beginning on or after September 23, 2011, but before September 23, 2012; and
· $2 million for plan years beginning on or after September 23, 2012, but before January 1, 2014.
In determining whether an individual has met the restricted annual limit in a given plan year, a group health plan may only take into account essential health benefits. Thus, amounts paid by the plan for non-essential health benefits cannot accrue toward these restricted annual limits before 2014. Note that the regulations issued with respect to grandfathered plans generally provide that a plan will lose grandfathered status if it implements or reduces an existing annual limit. Thus, if a grandfathered plan does not have any annual limit in effect on March 23, 2010, and that plan wishes to impose the permitted restricted annual limits until 2014, doing so would cause the plan to lose its grandfathered status. In any event, for plan years beginning on or after January 1, 2014, a group health plan may not impose any annual limits on the dollar value of benefits that are essential health benefits.
Second Chance for Participants Who Previously Met a Lifetime Limit
The Interim Final Rules create a special enrollment opportunity for individuals whose coverage or benefits ended by reason of reaching a lifetime limit prior to the first plan year beginning on or after September 23, 2010. Such individuals must be provided an opportunity to re-enroll in the group health plan (provided that they are otherwise eligible for coverage under the plan). The group health plan must provide affected individuals with a notice that the lifetime limit no longer applies and also provide a special enrollment period that lasts at least 30 days to allow them to re-enroll in the plan. The notice and enrollment opportunity must be provided beginning no later than the first day of the first plan year beginning on or after September 23, 2010. This special enrollment opportunity could be administered in conjunction with the plan's normal open enrollment. Note, however, that even if the plan's normal open enrollment period is less than 30 days, the special enrollment opportunity must last at least 30 days.
Special Rules for Account-Based Health Plans
The Interim Final Rules make clear that the restriction on annual limits apply differently with respect to account-based health plans, such as health flexible spending arrangements (health FSAs), health savings accounts (HSAs), and health reimbursement arrangements (HRAs). These account-based health plans have separate rules that apply to limit the benefits available. For example, the PPACA limits salary reduction contributions to a health FSA to $2,500 beginning in 2013. Contributions to HSAs are also limited by statutory provisions. The elimination of annual limits therefore does not apply to these accounts. In addition, with respect to HRAs that are integrated with other coverage as part of a group health plan where the other coverage complies with the rules on annual limits, the fact that HRA contributions are limited does not violate the PPACA. Stand-alone HRAs do not have to comply with the rules on annual limits, provided they are retiree-only plans. The Departments have requested comments as to the proper treatment of stand-alone HRAs that are not retiree-only plans.
Rules Regarding Rescissions
Under the PPACA and the Interim Final Rules, a group health plan cannot rescind coverage under the plan with respect to an individual once the individual is covered under the plan unless the individual performs an act, practice, or omission that constitutes fraud, or unless the individual makes an intentional misrepresentation of material fact. In the case of fraud or intentional misrepresentation of material fact, a group health plan must provide at least 30 days advance written notice to each participant who would be affected before coverage may be rescinded. For these purposes, a rescission is a cancellation or discontinuance of coverage that has a retroactive effect. A cancellation of coverage on a prospective basis is not a rescission. In addition, a group health plan is allowed to cancel coverage retroactively if a plan participant fails to timely pay required premiums or contributions toward the cost of coverage.
The Interim Final Rules set forth a very useful example with regard to the application of this rescission rule to group health plans. Under that example, an employer sponsors a group health plan that provides coverage for employees who work at least 30 hours per week. Individual B has coverage under the plan as a full-time employee. The employer reassigns B to a part-time position. Under the terms of the plan, B is no longer eligible for coverage. The plan mistakenly continues to provide health coverage, collecting premiums from B and paying claims submitted by B. After a routine audit, the plan discovers that B no longer works at least 30 hours per week. The plan rescinds B's coverage effective as of the date that B changed from a full-time employee to a part-time employee. According to this example, the plan cannot rescind B's coverage because there was no fraud or intentional misrepresentation of material fact. The plan may cancel coverage for B prospectively, subject to other applicable federal and state laws.
The example from the Interim Final Rules illustrates the importance of diligent monitoring of employee eligibility for health plan coverage. Under this new rescission rule, the plan will no longer be able to retroactively cancel an employee's coverage if the coverage was not in force as a result of the employee's fraud or intentional misrepresentation of material fact. Thus, an employer's or third party administrator's neglect in monitoring the eligibility of its employees for group health plan coverage will no longer justify a retroactive rescission of coverage. This rule will also impact plan sponsors who retroactively discontinue coverage as a result of dependent audits.
The PPACA establishes a new provision in the Public Health Service Act that relates to patient protections. The provision imposes a set of three requirements relating to a participant's choice of health care provider and additional requirements relating to benefits for emergency services. These requirements are effective for non-grandfathered plans only beginning with the first plan year that begins on or after September 23, 2010 (January 1, 2011 for calendar year plans).
Choosing A Primary Care Provider or Pediatrician
If a group health plan requires or provides for designation by a participant or beneficiary of a participating primary care provider or a pediatrician for the participant's child, the plan must permit the participant or beneficiary to designate any participating primary care provider or pediatrician who is available to accept the participant or beneficiary and who is in the plan's network. Furthermore, a plan may not require pre-authorization or referral by the plan in the case of a female participant or beneficiary who seeks coverage for obstetrical or gynecological care provided by a participating health care professional who specializes in obstetrics or gynecology. In other words, the plan may not require a female participant to get an authorization or referral from a primary care provider if the participant wants to see a specialist in OB/GYN care.
The Interim Final Rules do not affect the general terms of a group health plan's pediatric care, including any exclusions with respect to coverage of pediatric care. Likewise, a group health plan may still require an OB/GYN to agree to otherwise adhere to the plan's policies and procedures, including procedures regarding referrals made by the OB/GYN and obtaining prior authorization for services recommended by the OB/GYN.
The Interim Final Rules impose a notice requirement on group health plans that require the designation of primary care providers. The notice must inform participants that they may choose a primary care provider or pediatrician of their choice and obtain OB/GYN care without prior authorization. This notice must be included whenever the plan provides a participant with a summary plan description or other similar description of benefits under the plan. The Interim Final Rules provide model language for this purpose.
Coverage of Emergency Services
If a group health plan provides any benefits with respect to services in an emergency department of a hospital, the plan must cover emergency services consistent with the following rules:
· The plan may not require any prior authorization determination with respect to emergency services, even if the emergency services are provided on an out-of-network basis.
· The plan may not require that the provider furnishing emergency services be a participating network provider.
· If the emergency services are provided out-of-network, the plan may not impose any administrative requirement or limitation on coverage that is more restrictive than the requirements or limitations that apply to emergency services received from in-network providers.
· If the emergency services are provided out-of-network, the plan must comply with certain cost-sharing requirements described under the Interim Final Rules.
· In general, the plan cannot make any other distinction between in-network and out-of-network emergency services.
The Interim Final Rules provide guidance with regard to cost sharing requirements. They state that out-of-network co-payments or coinsurance for emergency services cannot exceed the in-network co-payments and coinsurance for emergency services. However, the Interim Final Rules apparently allow a beneficiary to be required to pay the excess of the amount the out-of-network provider charges over the amount the plan or issuer is required to pay under formulas set out in the Interim Final Rules. If a group health plan imposes a blanket deductible on all out-of-network services, the plan may require the participant to meet that deductible when the participant receives emergency services in an out-of-network setting to the extent that the participant has not otherwise met the out-of-network deductible.
Time to Start Planning
With the issuance of these Interim Final Rules, employers now have initial guidance on a number of the coverage mandates under the PPACA that will go into effect for plan years beginning on or after September 23, 2010. While we hope to see more guidance on some of the other coverage mandates (such as first dollar preventive health coverage and external appeals processes), a critical mass of guidance has now been issued that allows group health plans to concretely start planning for the next plan year. Particularly now that the Departments have issued rules relating to grandfathered status, employers and group health plans can start making educated decisions about whether their plans will be able to maintain grandfathered status and whether they will have to comply with additional coverage mandates, such as the mandated patient protections described in this e-alert.
Ice Miller LLP has been tracking the regulations and other guidance issued under the PPACA, and you can read about the regulations that have been issued thus far, including the grandfather rule, on Ice Miller's Health Care Reform Web site.
For more information regarding the PPACA and the regulations being issued under it, please contact Christopher S. Sears, Tara S. Sciscoe, Shalina A. Schaefer, Mary Beth Braitman, Terry A.M. Mumford or your Ice Miller LLP employee benefits attorney.
June 25, 2010
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.