Implementing Health Care Reform: New Regulatory Guidance for Group Health Plans

Implementing Health Care Reform: New Regulatory

Guidance for Group Health Plans

Kristen L. Gentry, Esq.Catherine M. Stowers, Esq.

Health Care Reform Webinar Series: Part IIIJuly 13, 2010

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Health Care Reform Creates New Obligations, Establishes New Rules for Group Health Plans

The Patient Protection and Affordable Care Act and the Reconciliation Act (collectively “PPACA”) establish eligibility and coverage mandates and tax provisions for group health plans, generally effective for plan years beginning on or after September 23, 2010.

Certain mandates apply to all group health plans and policies, others apply only to “new” plans and policies – those not in place on or before March 23, 2010 (the “grandfathered plan” rule).

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Summary of Mandates EffectiveBeginning in 2010 (All Plans)

Mandates applicable to all plans include: Elimination of lifetime limits, and restriction of annual

limits, on essential health benefits; Prohibition on rescission of coverage; Required extension of eligibility for dependent

coverage to adult children until age 26; Elimination of preexisting condition exclusions for

enrollees under age 19 (for all enrollees in 2014);

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Summary of Mandates EffectiveBeginning in 2010 (All Plans)

Medical loss ratio reporting and rebate requirements (insured policies);

Automatic enrollment requirement for large employers (200+ employees, effective upon final regulation);

Uniform summary of coverage requirement (March 2012) ;

Elimination of tax-free reimbursement for OTC medications and drugs from health FSA, HRAs and HSAs (January 2011);

$2,500 cap on allowable maximum annual election for health flexible spending accounts (January 2013).

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Summary of Mandates EffectiveBeginning in 2010 (New Plans)

Mandates applicable only to new plans and plans losing grandfathered status include: First-dollar coverage required for preventive care; Implementation of “patient protections”; Application of IRC 105(h) nondiscrimination

requirements to insured health plans; New claims procedure requirements (after HHS rules

issued); New reporting requirements for plans and insurers.

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Grandfathered Plans: Interim Final Regulations

PPACA created many questions related to the types of plan design changes that could be made to an existing plan without loss of grandfathered plan status.

Interim final regulations issued on June 14, 2010 provide answers to many grandfathered plan questions, complex rules for plan design changes, transitional rules for changes already made, and special disclosure and documentation requirements.

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Permitted Design Changes for Grandfathered Plans

A grandfathered plan may enroll new employees, and may enroll dependents.

A self-funded plan can change its TPA. An employer can eliminate a plan or a plan

option if for a bona fide employment-based reason (other than cost of coverage).

An employer can make cost-sharing design changes, but only if changes fall within strict regulatory guidelines.

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Changes Causing Loss of Grandfathered Status

Any reduction or elimination of all (or substantially all) benefits to diagnose or treat a particular condition Applies even if only a few participants affected. Not expressly limited to essential health benefits. Dropping coverage for any necessary element to

treat a particular condition will trigger loss of grandfathered status.

Regulatory example is a plan providing coverage for treating mental health conditions, through both counseling and drug therapy – elimination of counseling would be an elimination of substantially all benefits for this condition.

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Any increase in participants’ coinsurance percentage Example: Cannot change from requiring participant to

pay 20% of covered expenses (up to annual out-of-pocket max), and then change to requiring participant to pay 30% of same charges.

Increasing participant coinsurance percentage causes automatic loss of grandfathered status based on theory that coinsurance automatically rises with medical inflation.

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Inclusion of an overall annual limit on the dollar value of plan benefits if no overall annual limit imposed prior to the enactment of the PPACA;

Inclusion of an overall annual limit on the dollar value of benefits that is lower than a previously-imposed lifetime limit on the dollar value of benefits, if the plan previously had no overall annual limit;

Inclusion of a new annual limit for a particular covered benefit if no annual limit (or a lower annual limit) imposed for that covered benefit prior to enactment of the PPACA.

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For insured plans, issuance of a new group insurance policy or entering into a new group insurance contract. Prohibits employers from changing group health

insurance companies without automatic loss of grandfathered status;

Also prohibits changing policies or entering into a new group contract with an existing insurer without automatic loss of grandfathered status.

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Increasing a fixed-amount cost-sharing requirement other than a copayment (such as deductible or out-of-pocket limit), if total percentage increase (as compared to 3/23/10) exceeds medical inflation (expressed as a percentage) plus 15 percentage points.

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Increasing a fixed-dollar copayment by more than $5 (indexed for medical inflation and as compared to 3/23/10), or

If a fixed-dollar copayment expressed as a percentage, increasing by more than medical inflation (expressed as a percentage) plus 15% (as compared to 3/23/10).

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Decreasing the employer’s percentage contribution rate to the total cost of coverage by more than 5 percentage points below the employer’s contribution rate on 3/23/10 “Total cost of coverage” is the applicable

COBRA premium (less the 2% admin fee).

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Adjustment of Employer Percentage Contribution: Example Assume total cost of coverage (COBRA rate) on 3/23/10 was

$5,000 (single) and $12,000 (family). EE with single coverage paid $1,000 (20%) toward total cost, ER paid

$4,000 (80%) EE with family coverage paid $4,000 (33%) toward total cost, ER paid

$8,000 (67%) Assume total cost of coverage increases to $6,000 (single) and

$15,000 (family) on 1/1/2011. Employer adjusts contribution rates: EE with single coverage pays $1,200 (20%) toward total cost, ER paid

$4,800 (80%) EE with family coverage pays $5,000 (33%) toward total cost, ER pays

$10,000 (67%) Result: no increase to contribution rates based on total cost of

coverage, therefore, no loss of grandfathered status.

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Status Determined Separatelyfor Each Plan/Benefit Option

Rules require separate examination of changes to each benefit option (even options under the same plan or policy) to determine if grandfathered plan status lost.

Anti-abuse rules prohibit elimination of entire plan or benefit option, if resulting change in benefits or cost-sharing would be outside changes permitted to retain grandfathered status – in this case, remaining plan/option(s) will lose grandfathered status.

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Transitional Rules Changes made prior to 3/23/10 but not yet

effective when PPACA enacted will not cause loss of grandfathered status if: Changes are being made pursuant to legally binding

contract entered into on or before 3/23/10; Changes are being made pursuant to filing with a

state insurance department made on or before 3/23/10;

Changes are being made pursuant to written amendments that were adopted on or before 3/23/10.

What about plan changes announced prior to 3/23/10 that do not require a written plan amendment?

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Transitional Rules Changes adopted after 3/23/10 but prior to

6/14/10, when interim final regulations issued, will not cause loss of grandfathered status if those changes are modified or revoked prior to the effective date of PPACA. A change is considered “adopted” if: The change was effective prior to 6/14/10; If change effective after 6/14/10, the change would be

made pursuant to a legally binding contract entered into before 6/14/10, or pursuant to a written amendment adopted before 6/14/10.

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Disclosure Requirements for Grandfathered Plans

To maintain grandfathered status, all plans and policies must include a written statement to participants that it is a grandfathered plan under the PPACA, and must provide contact information for questions and complaints.

Statement must be included in any plan materials provided to participants describing the benefits provided in the plan or policy (such the SPD, benefit summaries and insurance certificates).

Interim final regulations provide model statement intended to satisfy this requirement.

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Documentation Requirements for Grandfathered Plans

For as long as a plan or policy takes the position that it is a grandfathered plan, the plan or policy must maintain records documenting terms of the plan or coverage in effect as of 3/23/10, and “any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan” under the PPACA What records will satisfy this requirement?

Records must be made available for examination upon request.

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Grandfathered Plan Status: Unanswered Questions

Interim final regulations do not address eligibility changes outside of adding new employees and additional family members Impact on elimination of eligible class of participants (such as

implementing a spousal carve-out, or eliminating participation for part-time employees) on grandfathered status not addressed

Are benefits of grandfathering worth strict restrictions on cost and benefit design? Considerations include existing plan design, current funding

method (insured v. self-funded).

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Grandfathered Plan Status: Unanswered Questions

Regulations also do not address whether an employer can make changes to benefits that are part of a health plan or policy, but not considered to be essential health benefits under the PPACA, without impacting grandfathered status (such as dental and vision).

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Patient Protection Provisions: Guidance from Interim Final Rules Published on June 28, 2010 Interim Final Rules address:

Preexisting Condition Exclusions Lifetime and Annual Limits Rescissions Patient Protections

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Preexisting Condition Limitations The PPACA amends the HIPAA preexisting

condition limitation rules to provide that a group health plan and a health insurance issuer offering group or individual health insurance coverage may not impose any preexisting limitation exclusion.

Generally effective for plan years beginning on or after January 1, 2014.

For enrollees under age 19, effective for plan years beginning on or after September 23, 2010.

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Preexisting Conditions Limitations 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 (an exclusion of coverage of specific benefits).

The PPACA not only prohibits the exclusion from coverage of specific benefits but also the complete exclusion of an individual from a plan or coverage, if that exclusion is based on a preexisting condition.

Applies to grandfathered group health plans but not to grandfathered individual policies.

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Lifetime and Annual Limits For plan years beginning after September 23, 2010,

group health plans and health insurance issuers are prohibited from imposing lifetime limits on the dollar value of health benefits.

For plan years beginning on or after January 1, 2014, group health plans and health insurance issuers are prohibited from imposing annual limits on the dollar value of essential health benefits.

“Restricted” annual limits may be imposed until plan years beginning on or after January 1, 2014.

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Restricted Annual Limits Restricted annual limits are permitted with respect to “essential

health benefits” until plan years beginning on or after January 1, 2010.

Restricted annual limits are applied on a per person basis, and thus any overall annual dollar limit applicable to families cannot operate to deny any individual participant the minimum annual benefits for the plan year.

Restricted annual limits are: 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: $1.25M For plan or policy years beginning on or after September 23,

2012 but before January 1, 2014: $2M

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Restricted Annual Limits The rules defining “essential health benefits” have yet to be

published. Until the rules defining “essential health benefits” are

published, the Departments will “take into account good faith efforts to comply with a reasonable interpretation of the term ‘essential health benefits”’.

For this purpose, a plan or issuer must apply the definition of “essential health benefits” consistently.

A waiver process will be available if compliance with the “restricted annual limits” rule “would result in a significant decrease in access to benefits or a significant increase in premiums”.

Guidance from the Sec. of Health and Human Services regarding the scope and process for applying for a waiver is expected soon.

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Notice and Open Enrollment Requirements

Group health plans and health insurance issuers must provide notice that the lifetime limit no longer applies to individuals who have reached a lifetime limit and who are otherwise still eligible under the plan or health insurance coverage.

These individuals must also be given an opportunity to re-enroll into the plan or policy.

The notices and enrollment opportunity must be provided beginning not later than the first day of the first plan year (or policy year) beginning on or after September 23, 2010.

Anyone eligible to re-enroll must be treated as a HIPAA special enrollee.

Applies to grandfathered plans. Does not apply to certain account-based plans (Health FSAs,

MSAs, certain HRAs (those which are either integrated with other group health plan coverage that would comply with the lifetime/annual limits rule or stand-alone retiree HRAs) or to individual health savings accounts.

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Prohibition on Rescissions

Prohibits plans and health insurance issuers from retroactively rescinding benefits coverage, unless the individual was involved in fraud or intentional misrepresentation of materials fact.

Meant to prohibit rescissions for inadvertent misstatements of fact.

Applies to a single individual, an individual within a family or an entire group of individuals.

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Prohibition on Rescission: Definition Rescission is defined as a cancellation or

discontinuance of coverage that has retroactive effect.

Note: A cancellation or discontinuance of coverage with a prospective effect is not a rescission, nor is a retroactive cancellation due to failure of individual to timely pay premiums or contributions to coverage.

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Prohibition on Rescission:Notice Requirement

Where rescission is still permissible, advance notice is required.

The group health plan or health insurance issuer must provide at least 30 calendar days advance notice to an individual before coverage can be rescinded.

Guidance on any new notice requirements for cancellations of coverage other than in the case of rescission is expected to be issued by HHS, DOL and the IRS soon.

Guidance on new rights to appeal rescissions is also expected soon.

Applies to all health plans, including grandfathered plans.

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Patient Protections

Choice of health care provider Applies only with respect to a plan or health

insurance coverage participating in a network of providers.

Emergency Services

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Patient Protections: Choice of Health Care Provider

If a plan or health insurance issuer requires a participant to designate a primary care provider, then each participant, beneficiary or enrollee must be permitted to designate any participating primary care provider in the network who is available to accept him/her.

A plan or health insurance issuer must now provide a notice informing each participant of the terms of the plan or health insurance coverage regarding designation of a primary care provider.

If the enrollee is a child, the plan or health insurance issuer must give him/ her the ability to designate as the primary care physician any participating pediatrician who is available to accept him/ her (and provide notice of the designation process).

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If a plan or health insurance issuer provides coverage for OB/GYN care and requires designation of an in-network primary care provider, the plan is prohibited from requiring authorization or referral by the plan, issuer or any person (including a primary care provider) for a female participant, beneficiary or enrollee seeking OB/GYN care from an in-network provider of OB/GYN care.

The plan or health insurance issuer must provide notice to each participant that the plan or issuer may not require authorization or referral for OB/GYN care by a participating health care provider. Notice must be provided when the plan provides SPDs or the insurance issuer provides the subscriber with a policy, certificate or contract.

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Model language related to the required participant notice is included in the Interim Final Rules.

General terms and exclusions of the plan or policy are not affected (i.e. medical necessity, covered benefits, etc.)

Choice of Health Care Provider Rules do NOT apply to grandfathered plans.

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Patient Protections: Emergency Services

A plan or health insurance issuer providing coverage for emergency services cannot require the individual or the health care provider to obtain prior authorization for services (even if provided out-of-network).

The plan or health insurance issuer must also not impose any administrative requirement or limitation of benefits for out-of-network emergency services that is more restrictive than the requirements or limitations that apply to in-network emergency services.

Does NOT apply to grandfathered plans.

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Patient Protections: Emergency Services and Cost-Sharing Requirements

Cost-sharing requirements expressed as a copayment amount or coinsurance rate imposed for out-of-network ER services cannot exceed those imposed if the services were provided in-network.

However, providers may balance bill patients for the difference between the billed charges and the amount paid by the plan or insurance issuer.

To ensure patients are not required to pay unreasonable balance bill amounts, the rules require the plan or insurance issuer to pay a “reasonable amount” for out-of-network services, equal to the greatest of: The in-network negotiated amount for the same service; The amount for the emergency service calculated using the same

method the plan generally uses to determine payments for out of network services but using in-network cost sharing provisions rather than out-of-network cost sharing provisions.

The amount that would be paid under Medicare for the service.

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Adult Child Eligibility Extension: Interim Final Regulations

Under PPACA, all plans and policies providing dependent coverage must extend eligibility for coverage to adult children of participants until 26th birthday.

Interim final regulations issued on May 10, 2010. Regulations make clear that adult child eligibility

cannot be conditioned on any criteria other than relationship to participant – cannot consider full-time student, tax dependency, residency or marital status.

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Adult Child Eligibility Extension:Implementation Rules

Important provisions: Extended eligibility requirements effective for first plan

year beginning on or after 9/23/10; Many insurers and TPAs are implementing part of this

requirement now, allowing adult children to remain covered even if no longer eligible under existing criteria.

Until plan years beginning on or after January 1, 2014, grandfathered plans may exclude adult children who are eligible for their own employer-sponsored coverage (cannot exclude due to availability of coverage through another parent).

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Adult Child Eligibility Extension:Implementation Rules

Important provisions: Plans are not required to extend eligibility to an

eligible adult child’s spouse or child. Plans must treat all children (including adults) the

same with respect to terms and conditions of coverage - cannot charge an increased premium or limit available plan options based on any other requirement (other than relationship to parent).

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Adult Child Eligibility Extension: Special Enrollment Requirements Plans must implement a special enrollment period for

adult children on or before first day of plan year after 9/23/10 Must treat adult children as “special enrollees” under HIPAA

Must allow employee and spouse to enroll at same time as adult child, and

Must allow election of any available plan options during enrollment opportunity.

Must inform all employees in writing of special enrollment opportunity.

Must allow a minimum of 30 days for enrollment. Can meet these requirements in conjunction with annual open

enrollment.

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Adult Child Eligibility Extension: Tax Issues

PPACA amends Sections 105 and 106 of federal tax code to exclude from employees’ gross income the value of coverage provided to adult children until tax year in which child turns 27. Imputed income calculations no longer necessary for coverage provided

to children who are not tax dependents under Code Section 152, effective 3/30/10.

Allows reimbursement of qualified medical expenses incurred by adult children under health FSAs and HRAs, individual HSAs still require that Code Section 152 tax dependency established to reimburse expenses from HSA.

Tax changes can be implemented immediately, but cafeteria plan and HRA documents should be amended on or before 12/31/10 to reflect change in law.

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Early Retiree Reinsurance Program Available to employers who provide health

coverage to retirees between ages 55 and 64. Reimburses 80% of claims costs incurred by a

retiree participant between $15,000 and $90,000 (similar to stop-loss coverage).

Program begins 6/1/10 (with respect to claims incurred) and ends either when exchanges are in place, or when $5 billion in allocated funding is exhausted.

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Early Retiree Reinsurance Program Reimbursements must be used to reduce health benefit

or health premium costs of the employer, and/or to reduce participant premiums or cost-sharing amounts; cannot be used for “general revenue” of plan sponsor.

To qualify, plan must include “programs and procedures” to generate cost savings for chronic and high cost conditions (e.g. disease management programs). Such programs and procedures could include those already in

place, or new programs. Insurer/plan must agree in writing to disclose all required

data for program participation with HHS, and attest that written policies to reduce fraud and waste are in place.

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Next Steps to Receive Early Retiree Reinsurance Payments

Plan sponsors must apply to HHS and be accepted to the program; reimbursements received on a first-come, first-served basis

Incomplete or insufficient applications will be rejected and corrected application will go to back of the line

Final application was issued by HHS on June 29, 2010, and HHS is now accepting applications.

HHS recently clarified that HHS will continue to accept applications until funds depleted.

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Thank You for Participating!Questions??

Kristen L. Gentry (317)238-6288 [email protected]

Catherine (Katy) Stowers (317)238-6257 [email protected]

mailto:[email protected]

mailto:[email protected]

Documents

Implementing Health Care Reform: New Regulatory Guidance for Group Health Plans