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As part of health care reform, the Departments of Treasury, Labor, and Health and Human Services jointly issued interim final regulations on June 28, 2010, governing preexisting condition exclusions, lifetime and annual limits on essential health benefits, rescissions and patient protections applicable to group health plans and health insurers. 

This is a summary of the provisions that affect employers that sponsor and maintain group health plans.

Preexisting Condition Exclusions 

Under the interim final regulations, a “preexisting condition exclusion” is defined as a limitation or exclusion of benefits (including a denial of coverage) based on the fact that a condition was present before the effective date of coverage (or if coverage is denied, the date of the denial), whether or not any medical advice, diagnosis, care or treatment was recommended or received before that day.  This includes any limitation or exclusion as a result of information relating to an individual’s health status before the individual’s effective date of coverage (or if coverage is denied, the date of the denial), such as a condition identified as a result of a pre-enrollment questionnaire, physical examination, or review of medical records.

Group health plans cannot impose preexisting condition exclusions on enrollees who are under age 19 in plan years beginning on or after September 23, 2010.  Preexisting condition exclusions are prohibited for all enrollees in plan years beginning on or after January 1, 2014.

Applicability.  Grandfathered and non-grandfathered group health plans must comply with the prohibition against preexisting condition exclusions.  For more information on whether a group health plan is a grandfathered plan, read here. 

Lifetime and Annual Limits on Essential Health Benefits

For plan years beginning on or after September 23, 2010, a group health plan may not establish any lifetime limits on the dollar amount of “essential health benefits” for any individual, and may only apply restricted annual limits.  Annual limits are not permitted starting in plan years beginning on or after January 1, 2014.

Health flexible spending arrangements (health FSAs), medical savings accounts (MSAs), and health savings accounts (HSAs) are exempt from the prohibition against annual limits.  In addition, health reimbursement accounts (HRAs) integrated with an otherwise compliant group health plan and retiree-only HRAs are generally not subject to the rules relating to annual limits.¹ 

“Essential health benefits” is defined under section 1302(b) the Patient Protection and Affordable Care Act to include 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.

Other benefits may be considered “essential health benefits” under forthcoming regulations that are expected to clarify the definition of that term.  Until those regulations are issued, good faith efforts to comply with a reasonable, consistently applied interpretation of “essential health benefits” will be taken into account for purposes of enforcement.

With respect to benefits that are not essential health benefits, a group health plan may impose lifetime or annual per-individual dollar limits on specific covered benefits.  In addition, an exclusion of all benefits for a condition is not considered to be a lifetime or annual dollar limit.

Restricted annual limits before 2014.  For plan years beginning before January 1, 2014, a group health plan may establish, for any individual, an annual limit on the dollar amount of essential health benefits, provided the limit is no less than as follows:

For a plan year beginning on or after September 23, 2010, but before September 23, 2011	$750,000
For a plan year beginning on or after September 23, 2011, but before September 23, 2012	$1,250,000
For a plan year beginning on or after September 23, 2012, but before January 1, 2014	$2,000,000

Only essential health benefits are taken into account in determining whether an individual has met or exceeded the applicable amount.

The interim final regulations provide for the Secretary of Health and Human Services to establish a program under which requirements relating to restricted annual limits may be waived if compliance would result in a significant decrease in access to benefits or a significant increase in premiums.  Guidance regarding the scope and process for applying for a waiver is expected to be issued in the near future.

Transition rules for individuals whose coverage or benefits ended by reason of reaching a lifetime limit.  Individuals who reached a lifetime limit before September 23, 2010, and are otherwise still eligible under the plan must be provided with a notice that the lifetime limit no longer applies.  If such individuals are no longer enrolled, the interim final regulations provide an enrollment opportunity.  The notices and the enrollment opportunity must be provided beginning not later than the first day of the first plan year beginning on or after September 23, 2010.  Anyone eligible for an enrollment opportunity must be given the right to enroll in all of the benefit packages available to similarly situated individuals upon initial enrollment.

Applicability.  Grandfathered and non-grandfathered group health plans must comply with the prohibition against lifetime limits and restricted annual limits. 

Rescissions

For plan years beginning on or after September 23, 2010, a group health plan must not rescind coverage except in the case of fraud or an intentional misrepresentation of material fact.  A rescission is a cancellation or discontinuance of coverage that has retroactive effect.  It is not a rescission if the cancellation or discontinuance either (1) has only a prospective effect; or (2) is effective retroactively to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage.  A group health plan must provide at least 30 calendar days’ advance notice to an individual before coverage may be rescinded, if permitted.

Applicability.  The rules regarding rescissions and advance notice apply to all grandfathered and non-grandfathered group health plans.

Patient Protections

Patient protections under the interim final regulations include the right to designate a primary care physician (for children, a pediatrician), direct access to obstetrical and gynecological care, and coverage of emergency services.

Right to designate a primary care physician.  If a group health plan requires covered individuals to designate a primary care provider, the plan must permit each individual to designate any participating primary care provider who is available to accept the individual.  For a covered child, a participating pediatrician may be designated as the primary care provider.

Required notice.  If a group health plan requires the designation of a primary care provider, the plan must provide a notice informing each participant of the terms of the plan regarding designation of primary care provider (for children, a pediatrician) and the right to direct access to obstetrical and gynecological care.  The notice must be included whenever the plan provides a participant with a summary plan description or other similar description of benefits under the plan.  Model language is available on the Department of Labor’s website.

Direct access to obstetrical and gynecological care.  A group health plan may not require authorization or referral by the plan or any person (including a primary care provider) in the case of a female participant or beneficiary who seeks coverage for obstetrical or gynecological care provided by a participating health care professional (including a person other than a physician) who specializes in obstetrics or gynecology.

Coverage of emergency services.  A group health plan that covers emergency services must do so in accordance with the following rules.  Emergency services must be provided without the individual or health care provider having to obtain prior authorization (even if the emergency services are provided out of network).  It should not matter whether the health care provider furnishing the emergency services is an in-network provider with respect to the services.  The emergency services must be provided without regard to any other term or condition of the plan other than the exclusion or coordination of benefits, an affiliation or permitted waiting period, or applicable cost-sharing requirements.

For a group health plan with a network, any administrative requirement, limitation on benefits or cost-sharing requirement expressed as a copayment amount or coinsurance rate cannot be more restrictive than, or exceed the requirements or limitations that apply to, in-network emergency services.  To satisfy the copayment and coinsurance limitation, a plan must provide out-of-network emergency benefits equal to the greatest of (1) the median negotiated in-network rate; (2) the generally applicable out-of-network rate; or (3) the Medicare rate.  Each of these three amounts is calculated excluding any in-network copayment or coinsurance imposed with respect to the individual.

Any other cost-sharing requirement, such as a deductible or out-of-pocket maximum, may be imposed with respect to out-of-network emergency services only if the cost-sharing requirement generally applies to out-of-network benefits.  Specifically, a deductible may be imposed with respect to out-of-network emergency services only as part of a deductible that generally applies to out-of-network benefits. Similarly, if an out-of-pocket maximum generally applies to out-of-network benefits, that out-of-pocket maximum must apply to out-of-network emergency services.

Applicability.  The interim final regulations relating to certain patient protections do not apply to grandfathered health plans.

The interim final regulations are complex and reference forthcoming regulations, and this Alert is intended only as a brief overview.  We have recorded a webcast on the impact of the interim final regulations on employers, which can be found here.  

If you have any questions about these regulations and their effect on your company health plans, please contact any of the individuals listed below:

In Chicago:

Anne M. Pachciarek

In Washington, DC:

Mark Muedeking

Rita M. Patel

Julia T. Kovacs

In San Francisco:

Mark H. Boxer

David F. Boyle

For more information about the health care reforms, please contact any of the members of our Employee Benefits and Executive Compensation Group.

For more information on DLA Piper’s Health Care practice generally, please contact:

Senator Tom Daschle

Kimberly K. Egan

Stephen L. Goff