Patient Protection and Affordable Care Act

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Grandfathered Status

Various requirements of PPACA do not apply to grandfathered plans; for example, the requirement that preventive health services be covered without any cost sharing (which otherwise becomes generally applicable for plan years, or in the individual market, policy years, beginning on or after September 23, 2010).

However, grandfathered health plans must comply with a subset of the Affordable Care Act’s health reform provisions. Thus, for example, grandfathered health plans must comply with the prohibition on rescissions of coverage except in the case of fraud or intentional misrepresentation and the elimination of lifetime limits (both of which apply for plan years, or in the individual market, policy years, beginning on or after September 23, 2010).

See the Interim Final Rules for a chart on the application of various PPACA provisions to grandfathered plans.

Definition

A group health plan or group or individual health insurance coverage is a grandfathered health plan with respect to individuals enrolled on March 23, 2010. The interim final regulations provide that a group health plan does not cease to be grandfathered health plan coverage merely because one or more (or even all) individuals enrolled on March 23, 2010 cease to be covered, provided that the plan or group health insurance coverage has continuously covered someone since March 23, 2010 (not necessarily the same person, but at all times at least one person). The determination under the rules of these interim final regulations is made separately with respect to each benefit package made available under a group health plan.

Adding New Employees

A group health plan that provided coverage on March 23, 2010 generally is also a grandfathered health plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll in the grandfathered health plan after March 23, 2010.

To prevent abuse, the interim final regulations provide that if the principal purpose of a merger, acquisition, or similar business restructuring is to cover new individuals under a grandfathered health plan, the plan ceases to be a grandfathered health plan.

Loss of Grandfathered Status

The elimination of all or substantially all benefits to diagnose or treat a particular condition causes a plan or health insurance coverage to cease to be a grandfathered health plan.

Another set of rules limits the extent to which plans and issuers can increase the fixed-amount and the percentage cost-sharing requirements that are imposed with respect to individuals for covered items and services. In addition, the regulations limit the ability of an employer to decrease its contribution rate for coverage under a group health plan by more than 5 percent.

Finally, there are also constraints on the imposition of a new or modified annual limit by a plan.

Notice

To maintain status as a grandfathered health plan, a plan or health insurance coverage must include a statement, in any plan materials provided to a participant or beneficiary describing the benefits provided under the plan or health insurance coverage, that the plan or coverage believes it is a grandfathered health plan within the meaning of section 1251 of the Patient Protection and Affordable Care Act and must provide contact information for questions and complaints.

See Grandfathered Plan Model Notice.

Young Adult Coverage

Section 2714 of the PHS Act, as added by the Affordable Care Act (and amended by the Reconciliation Act), provides that a plan or issuer that makes available dependent coverage of children must make such coverage available for children until attainment of 26 years of age.

Definition of Dependent

The interim final regulations clarify that, with respect to children who have not attained age 26, a plan or issuer may not define dependent for purposes of eligibility for dependent coverage of children other than in terms of the relationship between the child and the participant.

Examples of factors that cannot be used for defining dependent for purposes of eligibility (or continued eligibility) include:

  • financial dependency on the participant,
  • residency with the participant,
  • student status,
  • employment,
  • eligibility for other coverage.

Uniform Coverage

The interim final regulations provide that the terms of the plan or policy for dependent coverage cannot vary based on the age of a child, except for children age 26 or older. In particular, any surcharges for children under the age of 26 must be uniform.

Effective Date

This rule applies immediately to all plans in the individual market and to new (non-grandfathered) employer plans. It also applies to existing (grandfathered) employer plans unless the adult child has another offer of employer-based coverage (such as through his or her job). Beginning in 2014, children up to age 26 can stay on their parent’s employer plan even if they have another offer of coverage through an employer.

Notice and Special Enrollment Period

The interim final regulations extending dependent coverage to age 26 provide transitional relief for a child who was not covered under a group health plan or health insurance coverage because dependent coverage of children ended before the attainment of age 26.

The regulations require a plan or issuer to give such a child an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll). This enrollment opportunity (including the written notice) must be provided not later than the first day of the first plan year beginning on or after September 23, 2010. The notice may be included with other enrollment materials that a plan distributes, provided the statement is prominent. Enrollment must be effective as of the first day of the first plan year beginning on or after September 23, 2010.

See Extension of Coverage for Adult Children Model Notice.

Regulations

Lifetime Limits

Lifetime limits on essential benefits are prohibited for plan years beginning on or after Sept. 23, 2010.

Notice and Special Enrollment

Plans and issuers are required to give written notice that the lifetime limit on the dollar value of all benefits no longer applies and that an individual, if covered, is once again eligible for benefits under the plan. Additionally, if the individual is not enrolled in the plan or health insurance coverage, or if an enrolled individual is eligible for but not enrolled in any benefit package under the plan or health insurance coverage, then the plan or issuer must also give such an individual an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll). The notices and enrollment opportunity must be provided beginning not later than the first day of the first plan year beginning on or after September 23, 2010. For individuals who enroll under this opportunity, coverage must take effect not later than the first day of the first plan year beginning on or after September 23, 2010.

These notices may be provided to an employee on behalf of the employee’s dependent. In addition, the notices may be included with other enrollment materials that a plan distributes to employees, provided the statement is prominent. For either notice, if a notice satisfying the requirements is provided to an individual, the obligation to provide the notice with respect to that individual is satisfied for both the plan and the issuer.

See Lifetime Limits Model Notice.

Annual Limits

PPACA imposes restrictions on the imposition of annual limits on the dollar value of essential health benefits (as defined in section 1302(b) of the Affordable Care Act) prior to January 1, 2014, at which time such limits will no longer be permitted (except in grandfathered individual market policies).

As set forth in the interim final regulations, the restricted annual limits on the dollar value of essential health benefits cannot be lower than:

  • 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, $1.25 million; and
  • For plan or policy years beginning on or after September 23, 2012 but before January 1, 2014, $2 million.

Limited benefit and mini med plans can obtain a waiver of this requirement if compliance with the interim final regulations would result in a significant decrease in access to benefits or a significant increase in premiums. See OCIIO Sub-Regulatory Guidance (OCIIO 2010 - 1): Process for Obtaining Waivers of the Annual Limits Requirements of PHS

Coverage of Preventive Services

Section 2713 of PPACA and the interim final regulations require that a health plan and a health provide preventive care benefits without any cost-sharing requirements. The benefits that must be provided are:

  • Evidence-based items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force (Task Force) with respect to the individual involved.
  • Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (Advisory Committee) with respect to the individual involved. (A recommendation is considered to be for routine use if it appears on the Immunization Schedules of the Centers for Disease Control and Prevention.)
  • For infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA).
  • For women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA (not otherwise addressed by the recommendations of the Task Force). (The Department of HHS is developing these guidelines and expects to issue them no later than August 1, 2011.)

The complete list of recommendations and guidelines that are required to be covered under the interim final regulations can be found at this Web page.

Prohibition of Cost-Sharing for Preventive Services

If a recommended preventive service is billed separately (or is tracked as individual encounter data separately) from an office visit, then a plan may impose cost-sharing requirements with respect to the office visit. If a recommended preventive service is not billed separately (or is not tracked as individual encounter data separately) from an office visit but the primary purpose of the office visit is the delivery of such an item or service, then a plan or issuer also may not impose cost-sharing requirements with respect to the office visit.

However, if a recommended preventive service is not billed separately (or is not tracked as individual encounter data separately) from an office visit and the primary purpose of the office visit is not the delivery of such an item or service, then a plan or issuer may impose cost-sharing requirements with respect to the office visit.

Effective Dates

The interim final regulations provide that such coverage must be provided for plan years beginning on or after the later of September 23, 2010, or one year after the date the recommendation or guideline is issued. Thus, recommendations and guidelines issued prior to September 23, 2009 must be provided for plan years beginning on or after September 23, 2010.

2011 Guidelines

The 2011 guidelines on recommended preventive services were released effective August 1, 2011. This means that the guidelines go into effect for plan years on and after August 1, 2012.

Exemption for Religious Employers

Contraceptive services are considered preventive services, but religious employers that sponsor health plans are exempt from providing such services. The amended regulations specify that, for purposes of this policy, a "religious employer" is one that: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization under section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Code.

Application to Grandfathered Plans

The preventive care provisions of PPACA do not apply to grandfathered plans.

Claims Review Procedures

PPACA provides (see PHSA Section 2719) that a group health plan must:

  • have in effect an internal claims appeal process;
  • provide notice to enrollees, in a culturally and linguistically appropriate manner, of available internal and external appeals processes, and the availability of any applicable office of health insurance consumer assistance or ombudsman established under PHSA section 2793 to assist such enrollees with the appeals processes;
  • allow an enrollee to review their file, to present evidence and testimony as part of the appeals process, and to receive continued coverage pending the outcome of the appeals process; and
  • provide an external review process for such plans and issuers that, at a minimum, includes the consumer protections set forth in the Uniform External Review Model Act promulgated by the National Association of Insurance Commissioners and is binding on such plans.

See Interim Final Rules on Internal Claims and Appeals and External Review Processes (effective Sept. 21, 2010) and the Amendment to the Interim Final Rules for recent guidance on these provisions.

Internal Claims Appeals

A group health plan and a health insurance issuer offering group health insurance coverage must comply with all the requirements applicable to group health plans under the DOL claims procedure regulation (29 CFR 2560.503–1).

The interim final regulations also set forth six new requirements in addition to those in the DOL claims procedure regulation.

First, the definition of an adverse benefit determination is broader than the definition in the DOL claims procedure regulation, in that an adverse benefit determination for purposes of the interim final regulations also includes a rescission of coverage.

Second, the interim final regulations provide that a plan must notify a claimant of a benefit determination (whether adverse or not) with respect to a claim involving urgent care (as defined in the DOL claims procedure regulation) as soon as possible, taking into account the medical exigencies, but not later than 72 hours (changed by amendment from 24 hours in the initial interim regulations) after the receipt of the claim by the plan, unless the claimant fails to provide sufficient information to determine whether, or to what extent, benefits are covered under the plan.

Third, the interim final regulations provide additional criteria to ensure that a claimant receives a full and fair review. Specifically, in addition to complying with the requirements of the DOL claims procedure regulation, the plan must provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan in connection with the claim. Additionally, before the plan can issue an adverse benefit determination on review based on a new or additional rationale, the claimant must be provided, free of charge, with the rationale.

Fourth, the interim final regulations provide new criteria with respect to avoiding conflicts of interest. The plan must ensure that all claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical expert) must not be made based upon the likelihood that the individual will support a denial of benefits.

Fifth, the interim final regulations provide new standards regarding notice to enrollees. Specifically, the statute and the interim final regulations require a plan to provide notice to enrollees, in a culturally and linguistically appropriate manner. Plans must comply with the requirements of paragraphs (g) and (j) of the DOL claims procedure regulation, which detail requirements regarding the issuance of a notice of adverse benefit determination.

Moreover, additional content requirements apply for these notices. A plan must ensure that any notice of adverse benefit determination or final internal adverse benefit determination includes information sufficient to identify the claim involved. This includes the date of service, the health care provider, and the claim amount (if applicable), as well as an opportunity to request the diagnosis code, the treatment code, and the corresponding meanings of these codes. A plan must also ensure that the reason or reasons for the adverse benefit determination or final internal adverse benefit determination includes the denial code and its corresponding meaning. It must also include a description of the plan’s standard, if any, that was used in denying the claim (for example, if a plan applies a medical necessity standard in denying a claim, the notice must include a description of the medical necessity standard). In the case of a notice of final internal adverse benefit determination, this description must include a discussion of the decision. Additionally, the plan or issuer must provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal. Finally, the plan or issuer must disclose the availability of, and contact information for, any applicable office of health insurance consumer assistance or ombudsman established under PHSA section 2793 to assist enrollees with the internal claims and appeals and external review processes.

The Departments intend to issue model notices that could be used to satisfy all the notice requirements under these interim final regulations in the very near future. These notices will be made available at [1] and [2].

Sixth, the interim final regulations provide that, in the case of a plan or issuer that fails to strictly adhere to all the requirements of the internal claims and appeals process with respect to a claim, the claimant is deemed to have exhausted the internal claims and appeals process, regardless of whether the plan or issuer asserts that it substantially complied with these requirements or that any error it committed was de minimis. Accordingly, upon such a failure, the claimant may initiate an external review and pursue any available remedies under applicable law, such as judicial review.

Continuing Coverage During Appeal

In addition to the six new requirements, the statute and the interim final regulations require a plan and issuer to provide continued coverage pending the outcome of an internal appeal.

EBSA Technical Release 2010-02 and 2011-01

EBSA Technical Release 2010-02 provides interim procedures for internal claims procedures, including an enforcement grace period until July 1, 2011 for certain requirements. EBSA Technical Release 2011-01 extended the grace period for some requirements to plan years on or after January 1, 2012.

External Review

The statute and the interim final regulations provide that plans and issuers must comply with either a State external review process or the Federal external review process.

For health insurance coverage, if a State external review process that applies to and is binding on an issuer includes, at a minimum, the consumer protections in the NAIC Uniform Model Act in place on July 23, 2010, then the issuer must comply with the applicable State external review process and not with the Federal external review process.

PHSA section 2719(b)(2) requires the Departments to establish standards, "through guidance," governing an external review process that is similar to the State external appeals process that meets the standards in the interim final regulations.

EBSA Technical Release 2010-01

EBSA Technical Release 2010-01 provides an interim enforcement safe harbor for non- grandfathered self-insured group health plans not subject to a State external review process, and therefore subject to the Federal external review process. (In the case of health insurance coverage offered in connection with a group health plan, the issuer has primary responsibility to comply with the interim final regulations.)

The interim enforcement safe harbor applies for plan years beginning on or after September 23, 2010 and until superseded by future guidance on the Federal external review process that is being developed and that will apply after this interim period. During the period that this interim enforcement safe harbor is in effect, the Department of Labor and the Internal Revenue Service will not take any enforcement action against a self-insured group health plan that complies with either of the following interim compliance methods (and if a plan complies with one of the interim compliance methods of this notice, no excise tax liability should be reported on IRS Form 8928 with respect to PHS Act section 2719(b)):

  • Compliance with the procedures outlined in Technical Release 2010-01, or
  • Voluntary compliance with State external review processes.



Culturally and Linguistically Appropriate Notices

The statute and the interim final regulations require that notices of available internal claims and appeals and external review processes be provided in a culturally and linguistically appropriate manner. Plans and issuers are considered to provide relevant notices in a culturally and linguistically appropriate manner if notices are provided in a non-English language as described these interim final regulations.

Under the interim final regulations, the requirement to provide notices in a non-English language is based on whether 10 percent or more of the residents of the claimant's county are literate in the same non-English language. (Prior to amendment, the regulations specified varying thresholds.)

Effective Date

PHS Act section 2719 is generally effective for plan years beginning on or after September 23, 2010. The DOL has extended the nonenforcement period until plan years beginning in 2012.


Application to Grandfathered Plans

The claims review provisions of PPACA do not apply to grandfathered plans.

Model Notices

Model Notices have been released for adverse benefit determinations and external review decisions. See the Guidance section of this article for links.

Early Retiree Reinsurance Program

The Early Retiree Reinsurance Program is a temporary program to make it easier for employers to provide coverage to early retirees. It will terminate on January 1, 2014.

Qualifying Retirees and Benefits

Employers that are accepted into the program will receive reinsurance reimbursement for medical claims for retirees age 55 and older who are not eligible for Medicare, and their spouses, surviving spouses, and dependents.

Health benefits that qualify for relief include medical, surgical, hospital, prescription drug, and other benefits that may be specified by the Secretary of Health and Human Services, as well as coverage for mental health services.

Amount of Subsidy

The amount of the reimbursement to the employer plan is up to 80% of claims costs for health benefits between $15,000 and $90,000. Claims incurred between the start of the plan year and June 1st are credited towards toward the $15,000 threshold for reimbursement. However, only medical expenses incurred after June 1, 2010 are eligible for reimbursement under this program.

For example: If an individual incurs costs of $30,000 between the start of the plan year and June 1, and $40,000 after that date. The amount which may be reimbursed is $40,000 – the costs above the $15,000 threshold that occur after June 1.

If a plan incurs $90,000 or more in expenses before June 1, it is treated as having met the $15,000 threshold and is eligible for reimbursement for costs incurred after June 1.

These limits apply and claims are filed for individual’s costs. Firms cannot add two or more individuals together to attain the threshold.

Eligible Plans

Both self-funded and insured plans can apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, and other employers.

Regulations

Physician Designation and Obstetrical/Gynecological Care Rights

Individuals enrolled in a group health plan (except grandfathered plans) or health insurance coverage have the right to:

  • choose a primary care provider or a pediatrician when a plan or issuer requires designation of a primary care physician; and
  • obtain obstetrical or gynecological care without prior authorization.

Notice

The interim final regulations require plans and issuers to provide notice to participants of the above rights. The notice must be provided whenever the plan or issuer provides a participant with a summary plan description or other similar description of benefits under the plan or health insurance coverage. This notice must be provided no later than the first day of the first plan year beginning on or after September 23, 2010.

See PPACA Model Notice.

Small Employer Health Care Tax Credit

Code Section 45R offers a tax credit to certain small employers that provide health insurance coverage to their employees. It is effective for taxable years beginning in 2010. Both taxable employers and employers that are organizations described in section 501(c) that are exempt from tax under section 501(a) (tax-exempt employers) may be eligible for the section 45R credit.

Guidance

See also Small Business Health Care Tax Credit.

Retiree Plans

Most PPACA provisions do not apply to retiree-only plans. See the preamble to the Interim Final Rules on grandfathered plans.

Over-the-Counter Drug Reimbursement

New Code Section 106(f), as added by PPACA, provides that, for purposes of Code §§ 106 and 105, beginning after December 31, 2010, expenses incurred for a medicine or a drug shall be treated as a reimbursement for medical expenses only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin.

Thus, under new § 106(f), expenses incurred for medicines or drugs may be paid or reimbursed by an employer-provided plan, including a health FSA or HRA, only if:

  1. the medicine or drug requires a prescription,
  2. is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription, or
  3. is insulin.

Expenses incurred for over-the-counter medicines or drugs purchased without a prescription before January 1, 2011 may be reimbursed tax-free at any time, pursuant to the terms of the employer’s plan.

Limits on Deductions for Health Services Industry Compensation

PPACA adds Code Section 162(m)(6), which limits the allowable deduction to $500,000 for “applicable individual remuneration” and “deferred deduction remuneration” attributable to services performed by “applicable individuals” that is otherwise deductible by a “covered health insurance provider” in taxable years beginning after December 31, 2012.

See Notice 2011-2.

W-2 Reporting of Health Coverage Costs

New Section 6051(a)(14) of the Code, enacted as part of PPACA, requires employers to provide useful and comparable consumer information to employees on the cost of their health care coverage on Form W-2. This requirement is effective for 2012 tax year.

See Notice 2012-9.

Affordable Insurance Exchanges

The Affordable Insurance Exchanges established by PPACA are state-level marketplaces intended to provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options on the basis of price, quality, and other factors. The Exchanges, which will become operational by January 1, 2014, are intended to help enhance competition in the health insurance market, improve choice of affordable health insurance, and give small businesses the same purchasing clout as large businesses.

Section 1311(b) and section 1321(b) of PPACA provide that each State has the opportunity to establish an Exchange(s) that:

  1. Facilitates the purchase of insurance coverage by qualified individuals through qualified health plans (QHPs);
  2. assists qualified employers in the enrollment of their employees in QHPs; and
  3. meets other requirements specified in the Affordable Care Act.

Regulations issued by HHS establish minimum requirements for the State option to establish an Exchange, minimum Exchange functions, enrollment periods, minimum Small Business Health Options Program (SHOP) functions, and certification of QHPs.

Effective in 2010

  • Elimination of preexisting condition exclusions for children.
  • Parents may cover children until age 26.
  • Code Section 105(h) applies to new group health plans, including fully insured plans. (delayed by Notice 2011-1)
  • Plans, including self-funded plans, must offer no-cost preventive care.
  • Small Business Health Care Tax Credit
  • Temporary program offsets premiums costs for retirees age 55 to 64.
  • Severe limits on rescission.
  • No lifetime caps on coverage.
  • High-risk pool is temporarily established.
  • Medicare Part D coverage gap ("donut hole") begins to phase out.

Excise Taxes

PCORI

The amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1. For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.

Guidance


Model Notices

Penalties

Model Notices

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