Health Care Reform: Getting Ready For 2011

Many plan coverage requirements under the Patient Protection and Affordable Care Act, otherwise known as health care reform, take effect with plan years that begin on or after September 23, 2010.  This means that these requirements will take effect on January 1, 2011, for employers that use a calendar year plan.  The government has been busy releasing interim final regulations implementing many of the requirements.  Here's a summary of what you need to know now. 

Interim Final Regulations Set Parameters For Grandfathered Health Plans

Certain provisions of health care reform don't apply to so-called grandfathered group health plans.  For a plan to be considered grandfathered, two conditions must be satisfied: 1) at least one individual was enrolled in the plan on March 23, 2010, and 2) the plan has had at least one individual covered at all times since then, although the covered party needn't be the same individual. 

The health care reforms that grandfathered plans do not have to comply with include the following.  Note: All reforms are effective for plan years that begin on or after September 23, 2010, unless otherwise noted.

• Automatic enrollment (effective date to be determined when regulations are issued).
  
  
• Preventive care coverage without cost.
  
  
• Patient protections, e.g., choice of primary care providers, out-of-network emergency care covered the same as in-network.
  
  
• Internal/external claim appeals requirement.
  
  
• Quality of care reporting requirements (effective in 2012).
  
  
• Deductible limits (effective in 2014).
  
  
• Coverage for certain clinical test medical costs (effective in 2014).
  
  
• Nondiscrimination rules for insured benefits.

"Maintaining grandfathered status does not mean you are going to get a free pass on all health care reform requirements," said Norbert Kugele, a partner in the Grand Rapids office of Warner Norcross & Judd.  Grandfathered group health plans do have to comply with these reforms:

• No pre-existing condition clauses.
  
  
• No waiting periods longer than 90 days (effective in 2014).
  
  
• No lifetime or annual limits.
  
  
• Rescission limitations.
  
  
• Young adult coverage up to age 26.
  
  
• Uniform explanation of coverage documents (effective in 2012).

Note: Several of the reforms listed in the two previous bulleted lists are discussed in greater detail throughout this report.

Under interim final regulations, effective June 14, 2010, a single change could cause a group plan to forfeit its status as a grandfathered plan. 

"People say that [the reforms applicable to both grandfathered and non-grandfathered plans] are the most burdensome items, and reason that if they are going to have to comply with them anyway, then it really doesn't matter whether or not the plan is grandfathered," said Kugele.  His recommendation: "Weigh the additional costs of complying with the items that apply only to non-grandfathered plans versus the benefits you are going to get from making all of the changes you were thinking of implementing for the coming plan year.  You might very reasonably decide that maintaining grandfathered status is not important."

How To Lose Grandfathered Status

The grandfathering rules apply separately to each benefit package in a group plan.  Plans lose their grandfathered status if they eliminate all or substantially all benefits related to a particular condition (e.g., a plan eliminates all benefits for HIV/AIDS, even though it's an infrequently used benefit).  Likewise, a plan loses its status if it eliminates benefits for any element necessary to diagnose or treat a condition (e.g., a plan elimi­nates counseling, but maintains drug coverage for employees suffering from depression). Plans also cannot switch insurance companies without losing their status.

With the cost of coverage increasing each year, employ­ers may pass on some of the increases to employees.  You should pay particular attention to cost increases, because the principal way plans forfeit their grand­fathered status under the regulations is by raising employee costs above certain levels.  Cost increases (and the rate of medical inflation) are measured from March 23, 2010.  Here are the rules:

• Plans lose their status if the employer's premium contribution decreases by more than 5% (e.g., from 80% to 70%).
  
  
• Plans that increase employees' co-insurance percentage automatically lose their status.
  
  
• Plans can make minor adjustments to deductibles, out-of-pocket maximums, and co-pays, but significant changes imperil plans' status.
  
  
  For deductibles and annual out-of-pocket costs, an increase causes a loss of status if the total percentage of the increase exceeds the rate of medical inflation, plus 15%.
  
  
  For co-pays, an increase causes a loss of status if the total increase exceeds the greater of $5 adjusted upward by the rate of medical inflation, or as a percentage using the rate of medical inflation, plus 15%.

• Plans that change overall annual or lifetime limits on essential benefits lose their status if:

1. plans impose an overall annual limit on the dollar value of benefits when no overall annual or lifetime limits were previously imposed;
   
   
2. plans that impose an overall lifetime limit on the dollar value of benefits, but no overall annual limit, adopt an overall annual limit that's lower than the lifetime limit; and
   
   
3. plans that impose an overall annual limit decrease the dollar value of that limit, regardless of whether an overall lifetime limit applies.

Permissible Changes

Grandfathered plans can voluntarily increase benefits, conform their plans to required legal changes, and voluntarily adopt the health care reform law's consumer protection provisions without losing their grandfathered status.

"Changing your eligibility rules will not necessarily cause you to lose grandfathered status, either.  I'll tell you, though, that's not generally discussed in the regulations themselves," said Kugele.

Grandfathered plans can also implement changes made after March 23, 2010, pursuant to: a legally binding contract entered into on or before March 23; filings with a state insurance department on or before March 23; or written amendments to plan documents entered into on or before March 23.  Said Kugele: "Essentially, if you were committed to changes before March 23, 2010, but they weren't implemented until after March 23, 2010, then those changes will not cause you to lose grandfathered status.

"Enrollment changes will generally not cause you to lose grandfathered status, either."  He noted that it's okay for enrolled individuals to add family members, for a plan to enroll new enrollees, and for individuals to switch plans. 

What might pose a problem and cost a plan its grandfathered status, he said, is merging plans.  In such situations, plans only retain their grandfathered status when there is a bona fide employment-based reason for merging two existing plans or moving employees from one plan to another.  "My suggestion is that if you are looking at a merger situation, talk to legal counsel to understand what the impact will be on the grandfathered status of the plan people are moving into," said Kugele. 

Regulations Promote Transparency

A grandfathered plan must provide in all plan materials a description of the benefits provided, a statement of its belief that it's grandfathered, and contact information for questions and com­plaints.  The regulations contain model language for this purpose.

Plans must also maintain records documenting the terms of the plan coverage that was in effect on March 23, 2010, and any other documents necessary to verify or clarify its status as a grandfathered plan.  These records must be available for inspection by any state or federal official or by employees.

What To Do Now

Kugele recommended that employers:

• Take a close look at any plan changes under consideration for 2011.  "Look at the changes in light of the grandfathered rules and figure out whether any of them could jeopardize your grandfathered status," said Kugele.
  
  
• If the plan's grandfathered status is in jeopardy, decide whether preserving the status is important.
  
  
• If preserving grandfathered status is important, keep documentation of the plan as it existed on March 23, 2010; add model language to summary plan descriptions; and if you're planning any mergers or reorganizations, consider the impact on grandfathered status.
  
  
• Consider spinning off retiree health benefits into a separate plan because stand-alone retiree health plans generally do not have to comply with the health care coverage reforms.

New Dependent Coverage Rules For Adult Children

Health care reform made two key changes to the dependent coverage rules.  First, group health plans that offer dependent coverage must extend that coverage to employees' adult children until they reach the age of 26.  Second, employees have the option to continue to pay for that coverage on a tax-free basis until the beginning of the calendar year that their adult children turn 27. 

Extended Coverage

The requirement to extend coverage to employees' dependents applies to all group health plans and becomes effective for plan years beginning on or after September 23, 2010.  Grandfa­thered group health plans don't have to extend cov­erage if the children are eligible to be covered under another plan not related to either parent's coverage.  This provision for grandfathered plans expires in 2014.

Here are some key points that need to be communicated to employees prior to September 23, 2010.

• Adult children don't have to live with their parents, don't have to be students, can be married, and don't have to qualify as tax dependents to qualify for extended coverage.  The children's spouses and children (i.e., employees' grandchildren) aren't covered under this provision.
  
  
• Adult children can't be whipsawed out of extended coverage.  If they don't have access to their own health insurance, and their parents' separate plans offer dependent coverage, neither plan can deny extended coverage.
  
  
• Adult children who elected COBRA because they aged out of dependent coverage must be allowed to drop COBRA and re-enroll into their parents' group plan.
  
  
• Group plans must give adult children a 30-day special election period to re-enroll in their parents' group plan.  The special election period applies regardless of whether the plan offers an open enrollment period.  This enrollment opportunity, and a written notice, must be provided to employees by the first day of the first plan year beginning on or after September 23, 2010.
  
  
• Adult children cannot be charged more for extended coverage, and they must be offered all the benefit packages available to children who haven't aged out of the group plan.

What To Do Now

HR should take the following steps:

• Find out if your existing health insurance carrier is voluntarily extending coverage before this requirement becomes effective.  Most insurance companies are not doing this.
  
  
• Assign responsibility for providing written notice to employees.
  
  
• Advertise extended coverage for this coming open enrollment season.
  
  
• Track the 30-day special election period.
  
  
• Identify employees' dependents that either elected COBRA or dropped coverage altogether because they aged out of dependent coverage, and provide them with the appropriate notice and election period.

New Restriction On Purchasing OTC Medications

Beginning January 1, 2011, health care reform prohibits individuals from using money in a flexible spending account, a health savings account, or a health reimbursement account to purchase over-the-counter (OTC) medical supplies, unless the supplies are prescribed by a doctor.

What To Do Now

Spread the word about this new prohibition.  Explain that it means that, at the end of 2011, employees will no longer be able to make a trip to the store and use their account to stock up on aspirins, cold medicines, contact lens solution, etc.  As a result, don't be surprised if they request to reduce the amount they contribute into the account in the first place.

Regulations Implement Consumer Protections

Interim final regulations, effective for plan years beginning on or after September 23, 2010 (January 1, 2011, for calendar year plans), implement health care reform by establishing a so-called Patient's Bill of Rights.  Under the regulations, group health plans and health insurers can't place dollar limits on the value of essential benefits; employees must be al­lowed to choose their own in-network physicians; and many restrictions on seeking emergency care have been eliminated.

Provisions Applicable To All Plans

The following provisions apply to all group health plans, including grandfathered plans.

No pre-existing condition exclusions for children under 19.  The prohibition against deny­ing coverage to children based on their pre-existing conditions includes benefit limitations (e.g., refus­ing to pay for chemotherapy because a child had cancer before the employee joined the plan) and outright denials of coverage.  Note: This provision will be extended to all participants, regardless of age, starting with the 2014 plan year.

No rescissions of coverage.  Group plans can't rescind coverage, except in cases of fraud or an intentional misrepresentation of material facts.  Plans must provide at least 30 days' advance notice to allow participants time to appeal or to find new coverage.  Future cancellations or non-renewals of group policies aren't rescissions.

No lifetime limits on the dollar value of coverage.  Group plans can't impose lifetime limits on the dollar value of essential health ben­efits, as defined in health care reform (e.g., ambulatory patient services, emergency services, maternity and newborn care). Participants who have already reached their lifetime limits must be provided notice and are allowed to re-enroll in the plan during a 30-day special enrollment period.  The notice and enrollment opportunity must be provided beginning on the first day of the first plan year beginning on or after September 23, 2010.  Notice and re-enrollment apply separately to employees and their dependents.  Catch: Health flexible spending accounts, health savings accounts, and health reimbursement accounts are exempted from this provision.  Also, excluding all benefits for a medical condition isn't considered an impermis­sible limit.

Limited annual limits on the dollar value of coverage. Grandfathered plans lose their status if they lower an annual limit or impose an overall annual limit on the dollar value of essential benefits, when no overall annual limit or lifetime limit was previously imposed.  Until the 2014 plan year, plans that already have annual limits may impose these restricted annual limits: $750,000 for plan years beginning September 23, 2010; $1.25 million for plan years beginning September 23, 2011; and $2 million for plan years beginning September 23, 2012.  Same catch: Excluding all benefits for a medical condition isn't considered an impermissible limit.

The Department of Health and Human Services is developing an appeals process to allow "mini-med" plans to continue without higher annual limits.

Provisions Applicable To New Plans

The following provisions apply to new group health plans and to plans that lose their grand­fathered status. 

In-network doctors.  Group plans that require participants to designate a primary care physician, including pediatricians and gyne­cologists, must allow participants to choose any available in-network provider.  Women don't need referrals to see their gynecologists.  Plans must provide participants with notice, and the regula­tions contain model language for this purpose.  Catch: Plans can still require referrals and prior authorizations for specific services (e.g., an out-of-network allergist) and can exclude coverage for specific conditions (e.g., food allergies).

Emergency services.  Participants can go to any in-network or out-of-network hospital without prior authorization to receive emergency care.  Catches: Deductibles and out-of-pocket maximums that apply to out-of-network providers in general continue to apply to out-of-network emergency services.  And while the regulations prohibit plans from charging higher co-pays or co-insurance for an out-of-network hospital, out-of-network hospitals can still balance bill.  The regulations contain a formula for determining the amounts plans must pay before participants become liable for balance billing.  Also, plans can still require notification after services are provided.

What To Do Now

April Goff, Senior Counsel with Warner Norcross & Judd's Grand Rapids office, advised employers to:

• Remove pre-existing condition limitations for children under the age of 19.
  
  
• Consider whether current lifetime and annual dollar limits apply to essential health benefits.  "If so, remove lifetime limits and check to see whether you can implement annual lifetime limits," she said.
  
  
• Review the list of individuals who have become ineligible due to lifetime limits and provide them with the special enrollment window.
  
  
• Revise plan documents and administrative procedures to comply with the rescission prohibition.
  
  
• Include the model notice regarding primary care providers in the summary plan description and in open enrollment materials.
  
  
• Review plan design regarding out-of-network emergency services.

Regulations Delineate No-Cost Preventive Services

Health care reform specifies that new group health plans and grandfathered plans that lose their status must provide certain preven­tive services at no cost to employees and their dependents. Interim final regulations implementing this provision are effective for plan years beginning on or after September 23, 2010.

Preventive Services Covered

Examples of preventive items and services include routine vaccinations, annual flu shots, cholesterol screenings, and PAP smears.  Preventive items and services are identified in the law as recommendations or guidelines coming from three separate entities — the U.S. Preventive Services Task Force (Task Force); the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (Advisory Committee); and the Health Resources and Services Administration (HRSA).

The regulations don't list all the recommended preventive items and services that must be covered.  Instead, group plans must surf to the Department of Health and Human Services's (HHS) website for the current list.

Cost-Sharing Mechanisms

The regulations set up a three-tiered model for determin­ing whether patients are responsible for cost-sharing (i.e., co-payments or co-insurance) when they visit the office of an in-network provider. Those who see out-of-network providers may be required to pay full cost-sharing.  The regulations put a premium on employees specifying the reason for their office visit when they make their appointments.

• If a recommended preventive service is billed separately from the office visit (or is tracked as individual encounter data separately), plans may impose cost-sharing on the office visit only.
  
  
• If a recommended preventive service isn't billed separately from the office visit (or isn't tracked as individual encounter data separately) and the primary purpose of the employee's office visit is to receive the recommended preventive service, plans may not impose cost-sharing on the office visit.
  
  
• If a recommended preventive service isn't billed separately from an office visit (or isn't tracked as individual encounter data separately), and the primary purpose of the employee's office visit isn't to receive the recommended preventive service, the plan may impose cost-sharing on the office visit.

If a recommended preventive service doesn't specify the frequency, method, treatment, or setting for the provision of that service, the regulations allow plans to use reasonable medical management techniques to determine any coverage limitations.  Plans may provide preventive services in addition to the services that are recommended by the three entities, and may impose cost-sharing at their discretion.  In ad­dition, a treatment that results from a recommended preventive service can be subject to cost-sharing if the treatment isn't itself a recommended preventive service.

Effective Dates

The regulations state that recommended preventive services must be provided by the later of plan years beginning on or after September 23, 2010, or one year after the date the recommendation or guideline is issued.  So recommendations and guidelines issued before September 23, 2009, must be provided for plan years beginning September 23, 2010 (January 1, 2011, for calendar year plans).  However, to pre­vent plans from having to surf to the HHS's website more than once a year, for purposes of determining the one-year deadline, the regulations established these dates.

• A recommendation or guideline from the Task Force is considered issued on the last day of the month in which it publishes or releases the recommendation.
  
  
• A recommendation or guideline from the Advisory Committee is considered issued on the date on which it is adopted by the Director of the Centers for Disease Control and Prevention.
  
  
• A recommendation or guideline from the HRSA is considered issued on the date on which it is accepted by the HRSA administrator, or, if applicable, adopted by the Secretary of the HHS.

Regulations Establish Health Claim Appeals Procedures

New interim final regulations, effective for plan years beginning on or after September 23, 2010, allow consumers to appeal decisions, including claims denials and rescissions, made by non-grandfathered health plans or insurance companies.  This includes the right to appeal decisions through the plan's internal process and, for the first time, to an external, independent decision-maker. 

Internal Appeals Process

Many group plans already provide an internal appeals procedure.  These regulations standardize those procedures.  Group plans and health insurers offering group coverage must comply with ERISA's current claims procedures for adverse benefit determinations, plus these six new elements added by the regulations. 

1. Broader reach.  Current ERISA claims procedures are broadened to include rescissions of coverage as an adverse benefit determination. 
   
   
2. Notification of urgent care claims.  The regulations require that plans notify employees of a favorable or adverse benefit determination as soon as possible, taking into account medical exigencies, but not later than 24 hours after the plan receives the claim, unless the employee fails to provide sufficient information to determine whether, or to what extent, benefits are covered or payable.  Heads up: ERISA currently requires a determination not later than 72 hours. 
   
   
3. Full and fair review.  Plans must allow employees to review their claim files and present evidence and testimony as part of the internal claims and appeals process.  Plans must provide employees, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan in connection with the claim.  This documentation must be provided as soon as possible, and sufficiently in advance of the date on which the notice of final internal adverse benefit determination is required to be provided, to give employees a reasonable opportunity to respond. 
   
   Before a plan can issue a final internal adverse benefit determination based on new or additional rationale, employees must be provided with the rationale free of charge and as soon as possible. 
   
   
4. Conflicts of interest.  Plans must ensure that claims are adjudicated in a manner designed to ensure the decision-maker's independence and impartiality.  Accordingly, a plan's decisions regarding hiring, compensation, termination, promotion, etc., can't be based on the likelihood that the decision-maker will support a denial of benefits. 
   
   
5. Notice requirements.  Employees must receive notices that are culturally and linguistically appropriate, and the regulations detail how this is to be done.  Notices must include information sufficient to identify the claim involved, including: the date of service; the health care provider; the claim amount; the diagnosis code; the treatment code; the denial code; and the corresponding meaning of those codes.  Notices must describe the plan's standard, if any, that was used in denying the claim.  Notices of final internal adverse benefit determinations must include a discussion of the decision.  Plans must revise summary plan descriptions to include a description of available internal appeals and external review processes.  Finally, plans must disclose the contact information for any applicable office of health insurance consumer assistance or ombudsman.  The Department of Labor will issue model notices that can be used to satisfy all of these notice requirements. 
   
   
6. Strict compliance.  If plans fail to strictly comply with all the requirements of the internal claims and appeals process with respect to a claim, the employee will be deemed to have exhausted the internal claims and appeals process, regardless of whether the plan substantially complied or whether the error was de minimis.  Employees can then take their claims to an external review process, where they stand a better chance of prevailing. 

In addition to the six new requirements, plans must continue coverage pending the outcome of an internal appeal.  Employees in urgent care situations or those receiving ongoing treatment may be allowed to proceed with an expedited external review at the same time as the internal appeal process. 

External Review Process

Currently, 44 states have some external review mechanism.  The regulations will standardize those processes.  For plan years beginning before July 1, 2011, the regulations also provide a transition period during which the federal government will work with those states to upgrade their review procedures.  For plans that aren't subject to an existing external review process, a federal external review process will apply for plan years beginning on or after September 23, 2010.  External reviewers' final decisions are binding.

DOL Releases Health Care Reform Model Notices 

Health care reform requires the Department of Labor (DOL) to create several model notices.  The DOL has met its statutory obligations.  The following model notices, which the DOL has created in Microsoft Word, are now available.

• Grandfathered plan notice. 
  
  
• Dependents' coverage notice. 
  
  
• Patient protections notice. 
  
  
• Lifetime limit notice. 

Related Topic(s): Benefits/Cafeteria Plans, Benefits/Patient Protection and Affordable Care Act (PPACA) — Health Care Reform Law