TAX NEWS - 
2010
Exclusions, benefit caps, rescissions, & patient protections under Affordable Care Act
Preexisting condition exclusions are prohibited
Group health plans – both insured and self-insured, and grandfathered and nongrandfathered – are prohibited from imposing any preexisting condition exclusions effective with the plan year beginning on or after January 1, 2014. However, for enrollees under age 19, this prohibition is effective with the plan year beginning on or after September 23, 2010. A "preexisting condition exclusion" is generally defined 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 coverage, regardless of whether any medical advice or treatment was received before that date. An exclusion of benefits for a condition is not a preexisting condition exclusion, however, if the exclusion applies regardless of when the condition arose. These underlying definitions derive from the Health Insurance Portability and Accountability Act and remain essentially unchanged.
Lifetime and annual limits are restricted
The PPACA generally prohibits group health plans – both insured and self-insured, and grandfathered and nongrandfathered – from imposing overall lifetime or overall annual limits on the dollar value of benefits effective with the plan year beginning on or after September 23, 2010. With respect to benefits that are not "essential health benefits," the plan is permitted to impose annual or lifetime per-individual dollar limits on specific covered benefits. With respect to "essential health benefits," no lifetime limits are permitted, and annual limits are restricted until the plan year beginning on and after January 1, 2014, when they are prohibited altogether. Notwithstanding these restrictions, a plan is permitted to exclude all benefits for a specific condition, and such an exclusion will not be considered an annual or lifetime limit.
Three-year phase-in for 'essential health benefits' – For plan years beginning on and after January 1, 2014, no annual limits are permitted on "essential health benefits." Before then, a three-year phase-in period is provided during which "restricted annual limits" are allowed. During that period, the annual limit for "essential health benefits" must equal or exceed the designated minimum limit for that year:
- For plan years beginning on or after September 23, 2010, but before September 23, 2011, the minimum annual limit is $750,000.
- For plan years beginning on or after September 23, 2011, but before September 23, 2012, the minimum annual limit is $1.25 million.
- For plan years beginning on or after September 23, 2012, but before January 1, 2014, the minimum annual limit is $2 million.
These limits apply on an individual basis (i.e., an overall annual limit on family benefits cannot operate to deny a covered individual the minimum annual benefit for that year). In applying the limit, only claims for "essential health benefits" may be taken into account.
The purpose of this three-year phase-in is to mitigate the potential for premium increases while enabling plan enrollees to have access to "essential health benefits." The regulations permit the Department of Health and Human Services to establish a program by which the restricted annual limits can be waived or lowered for group health plans where premium increases will be an issue.
Grandfathered group health plans are subject to these restrictions on lifetime and annual limits. Although restricted annual limits on essential health benefits are permitted (as are limits on non-essential health benefits), grandfathered plans that add or tighten annual or lifetime dollar limits may lose their grandfathered status.
Essential health benefits – What constitutes "essential health benefits" is yet to be determined. The PPACA states that they will include at least the following general categories (and the items and services covered within them):
- Ambulatory patient services;
- Emergency services;
- Hospitalization;
- 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.
The preamble provides that, until guidance is issued, a plan's "good faith" compliance with a reasonable interpretation of the term "essential health benefits" will be taken into account by the Departments of Health and Human Services, Labor, and Treasury in enforcing these provisions of the PPACA.
Notice to affected enrollees – For enrollees who reached a lifetime limit but who are still eligible for coverage as of the first day of the plan year beginning on or after September 23, 2010, the plan must provide notice that the lifetime limit no longer applies. Special enrollment opportunities must also be provided if the individual is no longer enrolled. The notice andenrollment opportunity must be provided no later than the first day of that plan year.
Excepted group health plans – The restrictions on annual and lifetime limits do not apply to health flexible spending arrangements, medical savings accounts, health savings accounts, health reimbursement arrangements (HRAs) that are integrated with a group health plan that otherwise complies, or to stand-alone HRAs for retirees. The agencies are seeking comments on applying these restrictions to other stand-alone HRAs.
Rescission allowed only for fraud or intentional misrepresentation
The PPACA prohibits group health plans – both insured and self-insured, and grandfathered and nongrandfathered – from rescinding coverage under the plan except in the case of fraud or the intentional misrepresentation of a material fact, effective for plan years beginning after September 23, 2010. This sets a minimum federal standard for the rescission of coverage under a group health plan, although more protective state laws will still apply. The preamble notes that this new standard may be higher than what previously applied under state or federal common law. Prior law, for example, may have permitted rescission for the simple misrepresentation of a material fact, even where the misrepresentation was not intentional.
Rescission is the retroactive cancellation or discontinuation of coverage other than for nonpayment of premiums. The new federal standard for rescinding health coverage applies to the coverage of a single individual, an individual in a family, or an entire group (for example, an employment-based group). Moreover, it applies to representations made by the individual or by a person seeking coverage on behalf of the individual. Therefore, the new standard would apply to the attempted rescission of an entire employment-based group's coverage where an employer representative allegedly made intentional misrepresentations about the prior year's claims experience.
The plan must provide at least 30-days' advance written notice of a rescission to each person who would be affected by it.
Patient protections
The PPACA requires certain patient protections to be offered under group health plans – insured and self-insured – effective with the first plan year beginning after September 23, 2010. These requirements do not apply to grandfathered plans.
Choice of health care professional – Plans that provide coverage though a network of providers must provide enrollees with certain rights regarding the selection of a primary care provider (PCP) the selection of a child's pediatrician, and access to an obstetrical or gynecological provider (OB-GYN). More specifically:
- Primary care provider – If the plan requires the designation of a primary care provider, the enrollees must be permitted to designate any participating PCP who is available to accept them.
- Pediatrician – If the plan requires the designation of a participating PCP for a child by an enrollee, the enrollee must be permitted to designate a physician who specializes in pediatrics as the child's PCP if the physician participates in the network and is available to accept the child.
- OB-GYN – If the plan provides obstetrical or gynecological care and requires the designation of an in-network PCP, it cannot require a referral for a female enrollee who seeks in-network care from an OB-GYN. The plan must treat the ordering of related obstetrical or gynecological items and services by the OB-GYN as the authorization of the PCP. Plans are not precluded, however, from requiring the OB-GYN to notify the PCP of treatment decisions, or to comply with plan procedures regarding referrals, prior authorization, and the provision of services pursuant to an approved treatment plan.
Enrollees must be provided with notice of these rights whenever they are provided with a summary plan description or similar description of the plan's benefits. Model language is included in the regulations.
Emergency services – Plans that provide any benefits for emergency services in the emergency room of a hospital must provide for the following:
- No preauthorization – No preauthorization can be required of either the individual or the service provider for the emergency services.
- No in-network requirement – Coverage must be provided without regard to whether the provider is in-network.
- Out-of-network services – If the emergency services are provided out-of-network, the plan (1) cannot impose administrative requirements or limitations on coverage that are more restrictive than for in-network services; (2) must provide coverage without regard to any other term or condition of coverage under the plan other than the exclusion or coordination of benefits, an affiliation or waiting period, and applicable cost sharing; and (3) must satisfy the cost-sharing requirements of the regulation.
Under the cost-sharing requirements, copayments and coinsurance imposed for out-of-network emergency services cannot exceed those imposed in-network. The out-of-network provider may balance bill the patient for the difference (that is, for the difference between its charges and the amount it receives from the plan and the patient in the form of copays and coinsurance). The plan must pay a "reasonable amount" for the out-of-network emergency services, which the regulations define as the greatest of the:
- In-network rate – The amount negotiated with in-network providers for the emergency services.
- Out-of-network rate – The amount calculated for the emergency services using the same method the plan generally uses to determine payment for out-of-network services (for example, usual, customary, and reasonable charges) but substituting the in-network cost-sharing provisions for the out-of-network ones. No reduction is made for out-of-network cost sharing.
- Medicare rate – The amount Medicare would pay for the services.
In-network copayments and coinsurance are excluded in determining the three amounts. For plans that have no per-service fee amount negotiated with in-network providers (for example, plans under a capitation arrangement), the in-network rate is disregarded in the determining the "reasonable amount" for a service (that is, the reasonable amount would be the greater of the out-of-network rate or the Medicare rate). If more than one amount is negotiated in-network for the services, the amount used is the median of the negotiated amounts.
Deductibles or out-of-pocket maximums may be imposed on out-of-network emergency services only if they apply generally to out-of-network benefits. Conversely, deductibles and out-of-pocket maximums that apply generally to out-of-network benefits must apply to out-of-network emergency services. This anti-abuse rule was established to prohibit a plan from implementing payment provisions that would require an enrollee to pay more for emergency services than for general outof-network services.
Additional resources
The regulations include numerous examples to illustrate the new requirements. A fact sheet was also released on the new regulations.
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