Health Care Reform Update: Guidance Issued on Limits, Exclusions, Rescissions

July 1, 2010

On June 28, the Department of Health and Human Services, the Internal Revenue Service, and the Department of Labor jointly issued interim final regulations regarding annual and lifetime limits, preexisting condition exclusions, rescissions, and patient protections under the Patient Protection and Affordable Care Act (PPACA). The rules are effective August 27 and will apply to both new and existing group health plans in plan years beginning on or after September 23. According to an accompanying fact sheet, the rules will "help children (and eventually all Americans) with preexisting conditions gain coverage and keep it, protect all Americans' choice of doctors, and end lifetime limits on the care consumers may receive."

Even though the rules were issued as interim final regulations due to the short statutory deadlines, the agencies are also seeking comments on various provisions by August 27.

The new rules will implement PPACA provisions that ban insurance companies and group health plans from:

Imposing pre-existing condition exclusions on children.
Setting lifetime limits on benefits and, eventually, most annual limits.
Rescinding or taking away coverage except in the case of fraud or intentional misrepresentation of material fact.

The rules also further seek to protect patients by:

Ensuring that employees can choose the primary care doctor or pediatrician they want from a plan's provider network.
Ensuring that employees can seek obstetrical and gynecological care without needing a referral.
Eliminating requirements that covered individuals obtain prior approval before seeking emergency care at a hospital outside a plan's network.
Setting standards for copayment and coinsurance for out-of-network emergency care.

These patient protections are effective for plan years beginning after September 23, 2010, but do not apply to grandfathered plans.

Preexisting Conditions

PPACA prohibits preexisting condition exclusions for dependent children under age 19 effective for plan years beginning on or after September 23, 2010, and extends the ban to all enrollees beginning in 2014. A preexisting condition exclusion is 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. The ban covers both exclusion of coverage of specific benefits or treatments relating to the preexisting condition and complete exclusion from a plan or coverage, if based on a preexisting condition. Grandfathered group health plans must comply with this ban.

Annual and Lifetime Limits

In general, a group health plan or health insurance coverage is prohibited from imposing lifetime or annual limits on the dollar value of health benefits. However, prior to 2014, some limits are allowed.

Annual limits on "essential health benefits" will be phased in over three years and may not be less than:

$750,000 for plan years beginning on or after September 23, 2010
$1.25 million for plan years beginning on or after September 23, 2011
$2 million for plan years beginning on or after September 23, 2012

For plan years beginning on or after January 1, 2014, no annual limit is allowed. These limits apply on an individual-by-individual basis and may take only "essential health benefits" into account. Pending forthcoming rules that will define that term in detail, issuers should make a good faith effort to make a consistent, reasonable interpretation of "essential health benefits." The statutory definition lists the following general categories:

Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance abuse services
Prescription drugs
Rehabilitative services and devices
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care

Group health plan issuers will be able to request a waiver of these provisions from the Department of Health and Human Services if compliance would lead to individuals with certain coverage being denied access to needed services or "to experience more than a minimal impact on premiums." A plan may impose annual or lifetime per-individual limits on specific covered benefits that are not essential health benefits. A plan may also exclude all benefits for a specific condition, but if any benefits are provided for a condition, then the restrictions on limits apply.

The restriction on annual limits does not apply to certain account-based plans where other rules apply to limit the benefits available. They do not apply to health Flexible Spending Accounts (FSAs), Medical Savings Accounts (MSAs), Health Savings Accounts (HSAs), or Health Reimbursement Arrangements (HRAs). The prohibition against the establishment of annual limits and lifetime limits applies to grandfathered group health plans and group health insurance policies.

Rescissions

Rescission is defined in the rules as a cancellation or discontinuance of coverage that has retroactive effect, excluding cancellation for nonpayment of premiums. PPACA prohibits rescinding coverage except in cases of fraud or "intentional misrepresentation." This provision applies to insurers seeking to rescind an employer group's coverage as well as plans seeking to rescind an individual's coverage. The rules require 30 days' advance notice of rescission. This provision applies to plans, including grandfathered plans, for plan years beginning after September 23, 2010.

Resources:

Department of Health and Human Services Fact Sheet

Society for Human Resource Management