EBSA
Final Rules
Patient Protection and Affordable Care Act; Requirements for Group Health Plans and Health Insurance Issuers Under the Patient Protection and Affordable Care Act Relating to Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections; Final Rule and Proposed Rule
[ 6/28/2010]
[ PDF]
FR Doc 2010-15278
[Federal Register: June 28, 2010 (Volume 75, Number 123)]
[Rules and Regulations]
[Page 37187-37241]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jn10-14]
[[Page 37187]]
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Part III
Department of the Treasury
Internal Revenue Service
26 CFR Parts 54 and 602
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Department of Labor
Employee Benefits Security Administration
29 CFR Part 2590
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Department of Health and Human Services
45 CFR Parts 144, 146, and 147
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Patient Protection and Affordable Care Act; Requirements for Group
Health Plans and Health Insurance Issuers Under the Patient Protection
and Affordable Care Act Relating to Preexisting Condition Exclusions,
Lifetime and Annual Limits, Rescissions, and Patient Protections; Final
Rule and Proposed Rule
[[Page 37188]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 9491]
RIN 1545-BJ61
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AB43
DEPARTMENT OF HEALTH AND HUMAN SERVICES
[OCIIO-9994-IFC]
45 CFR Parts 144, 146, and 147
RIN 0991-AB69
Patient Protection and Affordable Care Act: Preexisting Condition
Exclusions, Lifetime and Annual Limits, Rescissions, and Patient
Protections
AGENCIES: Internal Revenue Service, Department of the Treasury;
Employee Benefits Security Administration, Department of Labor; Office
of Consumer Information and Insurance Oversight, Department of Health
and Human Services.
ACTION: Interim final rules with request for comments.
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SUMMARY: This document contains interim final regulations implementing
the rules for group health plans and health insurance coverage in the
group and individual markets under provisions of the Patient Protection
and Affordable Care Act regarding preexisting condition exclusions,
lifetime and annual dollar limits on benefits, rescissions, and patient
protections.
DATES: Effective Date. These interim final regulations are effective on
August 27, 2010.
Comment Date. Comments are due on or before August 27, 2010.
Applicability Dates:
1. Group health plans and group health insurance coverage. These
interim final regulations, except those under Public Health Service Act
(PHS Act) section 2704 (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45
CFR 147.108), generally apply to group health plans and group health
insurance issuers for plan years beginning on or after September 23,
2010. These interim final regulations under PHS Act section 2704 (26
CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108) generally
apply for plan years beginning on or after January 1, 2014, except that
in the case of individuals who are under 19 years of age, these interim
final regulations under PHS Act section 2704 apply for plan years
beginning on or after September 23, 2010.
2. Individual health insurance coverage. These interim final
regulations, except those under PHS Act section 2704 (45 CFR 147.108),
generally apply to individual health insurance issuers for policy years
beginning on or after September 23, 2010. These interim final
regulations under PHS Act section 2704 (45 CFR 147.108) generally apply
to individual health insurance issuers for policy years beginning on or
after January 1, 2014, except that in the case of enrollees who are
under 19 years of age, these interim final regulations under PHS Act
section 2704 apply for policy years beginning on or after September 23,
2010.
ADDRESSES: Written comments may be submitted to any of the addresses
specified below. Any comment that is submitted to any Department will
be shared with the other Departments. Please do not submit duplicates.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments are posted on the
Internet exactly as received, and can be retrieved by most Internet
search engines. No deletions, modifications, or redactions will be made
to the comments received, as they are public records. Comments may be
submitted anonymously.
Department of Labor. Comments to the Department of Labor,
identified by RIN 1210-AB43, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: E-OHPSCA715.EBSA@dol.gov.
Mail or Hand Delivery: Office of Health Plan Standards and
Compliance Assistance, Employee Benefits Security Administration, Room
N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: RIN 1210-AB43.
Comments received by the Department of Labor will be posted without
change to http://www.regulations.gov and http://www.dol.gov/ebsa, and
available for public inspection at the Public Disclosure Room, N-1513,
Employee Benefits Security Administration, 200 Constitution Avenue,
NW., Washington, DC 20210.
Department of Health and Human Services. In commenting, please
refer to file code OCIIO-9994-IFC. Because of staff and resource
limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions under
the ``More Search Options'' tab.
By regular mail. You may mail written comments to the
following address ONLY: Office of Consumer Information and Insurance
Oversight, Department of Health and Human Services, Attention: OCIIO-
9994-IFC, P.O. Box 8016, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
By express or overnight mail. You may send written
comments to the following address ONLY: Office of Consumer Information
and Insurance Oversight, Department of Health and Human Services,
Attention: OCIIO-9994-IFC, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
By hand or courier. If you prefer, you may deliver (by
hand or courier) your written comments before the close of the comment
period to either of the following addresses:
[cir] For delivery in Washington, DC--Office of Consumer
Information and Insurance Oversight, Department of Health and Human
Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the OCIIO drop slots located in the main lobby of the building. A
stamp-in clock is available for persons wishing to retain a proof of
filing by stamping in and retaining an extra copy of the comments being
filed.)
[cir] For delivery in Baltimore, MD--Centers for Medicare &
Medicaid Services, Department of Health and Human Services, 7500
Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call (410) 786-7195 in advance to
[[Page 37189]]
schedule your arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://
www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately
three weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. EST. To schedule an appointment to view public comments,
phone 1-800-743-3951.
Internal Revenue Service. Comments to the IRS, identified by REG-
120399-10, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: CC:PA:LPD:PR (REG-120399-10), Room 5205, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044.
Hand or courier delivery: Monday through Friday between
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-120399-10),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,
NW., Washington DC 20224.
All submissions to the IRS will be open to public inspection and
copying in Room 1621, 1111 Constitution Avenue, NW., Washington, DC
from 9 a.m. to 4 p.m.
FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the
Treasury, at (202) 622-6080; Jim Mayhew, Office of Consumer Information
and Insurance Oversight, Department of Health and Human Services, at
(410) 786-1565. Customer Service Information: Individuals interested in
obtaining information from the Department of Labor concerning
employment-based health coverage laws may call the EBSA Toll-Free
Hotline at 1-866-444-EBSA (3272) or visit the Department of Labor's Web
site (http://www.dol.gov/ebsa). In addition, information from HHS on
private health insurance for consumers can be found on the Centers for
Medicare & Medicaid Services (CMS) Web site (http://www.cms.hhs.gov/
HealthInsReformforConsume/01_Overview.asp) and information on health
reform can be found at http://www.healthreform.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The Patient Protection and Affordable Care Act (the Affordable Care
Act), Public Law 111-148, was enacted on March 23, 2010; the Health
Care and Education Reconciliation Act (the Reconciliation Act), Public
Law 111-152, was enacted on March 30, 2010. The Affordable Care Act and
the Reconciliation Act reorganize, amend, and add to the provisions of
part A of title XXVII of the Public Health Service Act (PHS Act)
relating to group health plans and health insurance issuers in the
group and individual markets. The term ``group health plan'' includes
both insured and self-insured group health plans.\1\ The Affordable
Care Act adds section 715(a)(1) to the Employee Retirement Income
Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue
Code (the Code) to incorporate the provisions of part A of title XXVII
of the PHS Act into ERISA and the Code, and make them applicable to
group health plans, and health insurance issuers providing health
insurance coverage in connection with group health plans. The PHS Act
sections incorporated by this reference are sections 2701 through 2728.
PHS Act sections 2701 through 2719A are substantially new, though they
incorporate some provisions of prior law. PHS Act sections 2722 through
2728 are sections of prior law renumbered, with some, mostly minor,
changes.
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\1\ The term ``group health plan'' is used in title XXVII of the
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is
distinct from the term ``health plan,'' as used in other provisions
of title I of the Affordable Care Act. The term ``health plan'' does
not include self-insured group health plans.
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Subtitles A and C of title I of the Affordable Care Act amend the
requirements of title XXVII of the PHS Act (changes to which are
incorporated into ERISA section 715). The preemption provisions of
ERISA section 731 and PHS Act section 2724 \2\ (implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements of
part 7 of ERISA and title XXVII of the PHS Act, as amended by the
Affordable Care Act, are not to be ``construed to supersede any
provision of State law which establishes, implements, or continues in
effect any standard or requirement solely relating to health insurance
issuers in connection with group or individual health insurance
coverage except to the extent that such standard or requirement
prevents the application of a requirement'' of the Affordable Care Act.
Accordingly, State laws that impose on health insurance issuers
requirements that are stricter than the requirements imposed by the
Affordable Care Act will not be superseded by the Affordable Care Act.
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\2\ Code section 9815 incorporates the preemption provisions of
PHS Act section 2724. Prior to the Affordable Care Act, there were
no express preemption provisions in chapter 100 of the Code.
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The Departments of Health and Human Services, Labor, and the
Treasury (the Departments) are issuing regulations in several phases
implementing the revised PHS Act sections 2701 through 2719A and
related provisions of the Affordable Care Act. The first phase in this
series was a pair of publications consisting of a Request for
Information relating to the medical loss ratio provisions of PHS Act
section 2718 and a Request for Information relating to the rate review
process of PHS Act 2794, both published in the Federal Register on
April 14, 2010 (75 FR 19297 and 19335). The second phase was interim
final regulations implementing PHS Act section 2714 (requiring coverage
of adult children to age 26), published in the Federal Register on May
13, 2010 (75 FR 27122). The third phase was interim final regulations
implementing section 1251 of the Affordable Care Act (relating to
status as a grandfathered health plan), published in the Federal
Register on June 17, 2010 (75 FR 34538). These interim final
regulations are being published to implement PHS Act sections 2704
(prohibiting preexisting condition exclusions), 2711 (regarding
lifetime and annual dollar limits on benefits), 2712 (regarding
restrictions on rescissions), and 2719A (regarding patient
protections). PHS Act section 2704 generally is effective for plan
years (in the individual market, policy years) beginning on or after
January 1, 2014.
[[Page 37190]]
However, with respect to enrollees, including applicants for
enrollment, who are under 19 years of age, PHS Act section 2704 is
effective for plan years beginning on or after September 23, 2010
(which is six months after the March 23, 2010 date of enactment of the
Affordable Care Act); or in the case of individual health insurance
coverage, for policy years beginning, or applications denied, on or
after September 23, 2010.\3\ The rest of these provisions generally are
effective for plan years (in the individual market, policy years)
beginning on or after September 23, 2010. The implementation of other
provisions of PHS Act sections 2701 through 2719A will be addressed in
future regulations.
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\3\ Section 1255 of the Affordable Care Act. See also section
10103(e)-(f) of the Affordable Care Act.
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II. Overview of the Regulations
A. PHS Act Section 2704, Prohibition of Preexisting Condition
Exclusions (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108)
Section 1201 of the Affordable Care Act adds a new PHS Act section
2704, which amends the HIPAA \4\ rules relating to preexisting
condition exclusions to provide that a group health plan and a health
insurance issuer offering group or individual health insurance coverage
may not impose any preexisting condition exclusion. The HIPAA rules (in
effect prior to the effective date of these amendments) apply only to
group health plans and group health insurance coverage, and permit
limited exclusions of coverage based on a preexisting condition under
certain circumstances. The Affordable Care Act provision prohibits any
preexisting condition exclusion from being imposed by group health
plans or group health insurance coverage and extends this protection to
individual health insurance coverage. This prohibition generally is
effective with respect to plan years (in the individual market, policy
years) beginning on or after January 1, 2014, but for enrollees who are
under 19 years of age, this prohibition becomes effective for plan
years (in the individual market, policy years) beginning on or after
September 23, 2010. Until the new Affordable Care Act rules take
effect, the HIPAA rules regarding preexisting condition exclusions
continue to apply.
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\4\ HIPAA is the Health Insurance Portability and Accountability
Act of 1996 (Pub. L. 104-191).
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HIPAA generally defines a preexisting condition exclusion \5\ 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 the coverage, whether or not any medical advice, diagnosis, care,
or treatment was recommended or received before that date. Based on
this definition, PHS Act section 2704, as added by the Affordable Care
Act, prohibits not just an exclusion of coverage of specific benefits
associated with a preexisting condition in the case of an enrollee, but
a complete exclusion from such plan or coverage, if that exclusion is
based on a preexisting condition.
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\5\ Before the amendments made by the Affordable Care Act, PHS
Act section 2701(b)(1); after the amendments made by the Affordable
Care Act, PHS Act section 2704(b)(1). See also ERISA section
701(b)(1) and Code section 9801(b)(1).
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The protections in the new PHS Act section 2704 generally apply for
plan years (in the individual market, policy years) beginning on or
after January 1, 2014. The Affordable Care Act provides, however, that
these protections apply with respect to enrollees under age 19 for plan
years (in the individual market, policy years) beginning on or after
September 23, 2010. An enrollee under age 19 thus could not be denied
benefits based on a preexisting condition. In order for an individual
seeking enrollment to receive the same protection that applies in the
case of such an enrollee, the individual similarly could not be denied
enrollment or specific benefits based on a preexisting condition. Thus,
for plan years (in the individual market, policy years) beginning on or
after September 23, 2010, PHS Act section 2704 protects individuals
under age 19 with a preexisting condition from being denied coverage
under a plan or health insurance coverage (through denial of enrollment
or denial of specific benefits) based on the preexisting condition.
These interim final regulations do not change the HIPAA rule that
an exclusion of benefits for a condition under a plan or policy is not
a preexisting condition exclusion if the exclusion applies regardless
of when the condition arose relative to the effective date of coverage.
This point is illustrated with examples in the HIPAA regulations on
preexisting condition exclusions, which remain in effect.\6\ (Other
requirements of Federal or State law, however, may prohibit certain
benefit exclusions.)
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\6\ See Examples 6, 7, and 8 in 26 CFR 54.9801-3(a)(1)(ii), 29
CFR 701-3(a)(1)(ii), 45 CFR 146.111(a)(1)(ii).
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Application to grandfathered health plans. Under the statute and
these interim final regulations, a grandfathered health plan that is a
group health plan or group health insurance coverage must comply with
the PHS Act section 2704 prohibition against preexisting condition
exclusions; however, a grandfathered health plan that is individual
health insurance coverage is not required to comply with PHS Act
section 2704. See 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45
CFR 147.140 regarding status as a grandfathered health plan.
B. PHS Act Section 2711, Lifetime and Annual Limits (26 CFR 54.9815-
2711T, 29 CFR 2590.715-2711, 45 CFR 147.126)
Section 2711 of the PHS Act, as added by the Affordable Care Act,
and these interim final regulations generally prohibit group health
plans and health insurance issuers offering group or individual health
insurance coverage from imposing lifetime or annual limits on the
dollar value of health benefits.
The restriction on annual limits applies differently to certain
account-based plans, especially where other rules apply to limit the
benefits available. For example, under section 9005 of the Affordable
Care Act, salary reduction contributions for health flexible spending
arrangements (health FSAs) are specifically limited to $2,500 (indexed
for inflation) per year, beginning with taxable years in 2013. These
interim final regulations provide that the PHS Act section 2711 annual
limit rules do not apply to health FSAs. The restrictions on annual
limits also do not apply to Medical Savings Accounts (MSAs) under
section 220 of the Code and Health Savings Accounts (HSAs) under
section 223 of the Code. Both MSAs and HSAs generally are not treated
as group health plans because the amounts available under the plans are
available for both medical and non-medical expenses.\7\ Moreover,
annual contributions to MSAs and HSAs are subject to specific statutory
provisions that require that the contributions be limited.
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\7\ Distributions from MSAs and HSAs that are not used for
qualified medical expenses are included in income and subject to an
additional tax, under sections 220(f)(1), (4) and 223(f)(1), (4) of
the Code.
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Health Reimbursement Arrangements (HRAs) are another type of
account-based health plan and typically consist of a promise by an
employer to reimburse medical expenses for the year up to a certain
amount, with unused amounts available to reimburse medical expenses in
future years. See Notice 2002-45, 2002-28 IRB 93; Rev. Rul. 2002-41,
2002-28 IRB 75. When HRAs are integrated with other coverage as part of
a group health plan and the other coverage alone would comply with the
[[Page 37191]]
requirements of PHS Act section 2711, the fact that benefits under the
HRA by itself are limited does not violate PHS Act section 2711 because
the combined benefit satisfies the requirements. Also, in the case of a
stand-alone HRA that is limited to retirees, the exemption from the
requirements of ERISA and the Code relating to the Affordable Care Act
for plans with fewer than two current employees means that the retiree-
only HRA is generally not subject to the rules in PHS Act section 2711
relating to annual limits. The Departments request comments regarding
the application of PHS Act section 2711 to stand-alone HRAs that are
not retiree-only plans.
The statute prohibits annual limits on the dollar value of benefits
generally, but allows ``restricted annual limits'' with respect to
essential health benefits (as defined in section 1302(b) of the
Affordable Care Act) for plan years (in the individual market, policy
years) beginning before January 1, 2014. Grandfathered individual
market policies are exempted from this provision. In addition, the
statute provides that, with respect to benefits that are not essential
health benefits, a plan or issuer may impose annual or lifetime per-
individual dollar limits on specific covered benefits. These interim
final regulations define ``essential health benefits'' by cross-
reference to section 1302(b) of the Affordable Care Act \8\ and
applicable regulations. Regulations under section 1302(b) of the
Affordable Care Act have not yet been issued.
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\8\ Section 1302(b) of the Affordable Care Act defines essential
health benefits to ``include at least the following general
categories and the items and services covered within the categories:
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.''
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For plan years (in the individual market, policy years) beginning
before the issuance of regulations defining ``essential health
benefits'', for purposes of enforcement, the Departments will take into
account good faith efforts to comply with a reasonable interpretation
of the term ``essential health benefits''. For this purpose, a plan or
issuer must apply the definition of essential health benefits
consistently. For example, a plan could not both apply a lifetime limit
to a particular benefit--thus taking the position that it was not an
essential health benefit--and at the same time treat that particular
benefit as an essential health benefit for purposes of applying the
restricted annual limit.
These interim final regulations clarify that the prohibition under
PHS Act section 2711 does not prevent a plan or issuer from excluding
all benefits for a condition, but if any benefits are provided for a
condition, then the requirements of the rule apply. Therefore, an
exclusion of all benefits for a condition is not considered to be an
annual or lifetime dollar limit.
The statute and these interim final regulations provide that for
plan years (in the individual market, policy years) beginning before
January 1, 2014, group health plans and health insurance issuers
offering group or individual health insurance coverage may establish a
restricted annual limit on the dollar value of essential health
benefits. The statute provides that in defining the term restricted
annual limit, the Departments should ensure that access to needed
services is made available with a minimal impact on premiums. For a
detailed discussion of the basis for determining restricted annual
limits, see section IV.B.3 later in this preamble.
In order to mitigate the potential for premium increases for all
plans and policies, while at the same time ensuring access to essential
health benefits, these interim final regulations adopt a three-year
phased approach for restricted annual limits. Under these interim final
regulations, annual limits on the dollar value of benefits that are
essential health benefits may not be less than the following amounts
for plan years (in the individual market, policy years) beginning
before January 1, 2014:
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.
As these are minimums for plan years (in the individual market, policy
years) beginning before 2014, plans or issuers may use higher annual
limits or impose no limits. Plans and policies with plan or policy
years that begin between September 23 and December 31 have more than
one plan or policy year under which the $2 million minimum annual limit
is available; however, a plan or policy generally may not impose an
annual limit for a plan year (in the individual market, policy year)
beginning after December 31, 2013.
The minimum annual limits for plan or policy years beginning before
2014 apply on an individual-by-individual basis. Thus, any overall
annual dollar limit on benefits applied to families may not operate to
deny a covered individual the minimum annual benefits for the plan year
(in the individual market, policy year). These interim final
regulations clarify that, in applying annual limits for plan years (in
the individual market, policy years) beginning before January 1, 2014,
the plan or health insurance coverage may take into account only
essential health benefits.
The restricted annual limits provided in these interim final
regulations are designed to ensure, in the vast majority of cases, that
individuals would have access to needed services with a minimal impact
on premiums. So that individuals with certain coverage, including
coverage under a limited benefit plan or so-called ``mini-med'' plans,
would not be denied access to needed services or experience more than a
minimal impact on premiums, these interim final regulations provide for
the Secretary of Health and Human Services to establish a program under
which the requirements relating to restricted annual limits may be
waived if compliance with these interim final regulations would result
in a significant decrease in access to benefits or a significant
increase in premiums. Guidance from the Secretary of Health and Human
Services regarding the scope and process for applying for a waiver is
expected to be issued in the near future.
Under these interim final regulations, individuals who reached a
lifetime limit under a plan or health insurance coverage prior to the
applicability date of these interim final regulations and are otherwise
still eligible under the plan or health insurance coverage must be
provided with a notice that the lifetime limit no longer applies. If
such individuals are no longer enrolled in the plan or health insurance
coverage, these interim final regulations also provide an enrollment
(in the individual market, reinstatement) opportunity for such
individuals. In the individual market, this reinstatement opportunity
does not apply to individuals who reached their lifetime limits on
individual health insurance coverage if the contract is not renewed or
otherwise is no longer in effect. It would apply, however, to a family
member who reached the lifetime limit in a family policy in the
individual market while other family members remain in the coverage.
These notices and the enrollment opportunity must be provided beginning
not later than the first day of the first plan year (in the individual
market, policy year) beginning on or after September 23, 2010. Anyone
eligible for an enrollment
[[Page 37192]]
opportunity must be treated as a special enrollee.\9\ That is, they
must be given the right to enroll in all of the benefit packages
available to similarly situated individuals upon initial enrollment.
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\9\ See 26 CFR 54.9801-6(d), 29 CFR 2590.701-6(d), and 45 CFR
146.117(d).
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Application to grandfathered health plans. The statute and these
interim final regulations relating to the prohibition on lifetime
limits apply to all group health plans and health insurance issuers
offering group or individual health insurance coverage, whether or not
the plan qualifies as a grandfathered health plan, for plan years (in
the individual market, policy years) beginning on or after September
23, 2010. The statute and these interim final regulations relating to
the prohibition on annual limits, including the special rules regarding
restricted annual limits for plan years beginning before January 1,
2014, apply to group health plans and group health insurance coverage
that qualify as a grandfathered health plan, but do not apply to
grandfathered health plans that are individual health insurance
coverage. The interim final regulations issued under section 1251 of
the Affordable Care Act provide that:
A plan or health insurance coverage that, on March 23,
2010, did not impose an overall annual or lifetime limit on the dollar
value of all benefits ceases to be a grandfathered health plan if the
plan or health insurance coverage imposes an overall annual limit on
the dollar value of benefits.
A plan or health insurance coverage, that, on March 23,
2010, imposed an overall lifetime limit on the dollar value of all
benefits but no overall annual limit on the dollar value of all
benefits ceases to be a grandfathered health plan if the plan or health
insurance coverage adopts an overall annual limit at a dollar value
that is lower than the dollar value of the lifetime limit on March 23,
2010.
A plan or health insurance coverage that, on March 23,
2010, imposed an overall annual limit on the dollar value of all
benefits ceases to be a grandfathered health plan if the plan or health
insurance coverage decreases the dollar value of the annual limit
(regardless of whether the plan or health insurance coverage also
imposed an overall lifetime limit on March 23, 2010 on the dollar value
of all benefits).
C. PHS Act Section 2712, Prohibition on Rescissions (26 CFR 54.9815-
2712T, 29 CFR 2590.715-2712, 45 CFR 147.128)
PHS Act section 2712 provides rules regarding rescissions of health
coverage for group health plans and health insurance issuers offering
group or individual health insurance coverage. Under the statute and
these interim final regulations, a group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, must not rescind coverage except in the case of fraud or an
intentional misrepresentation of a material fact. This standard sets a
Federal floor and is more protective of individuals with respect to the
standard for rescission than the standard that might have previously
existed under State insurance law or Federal common law. That is, under
prior law, rescission may have been permissible if an individual made a
misrepresentation of material fact, even if the misrepresentation was
not intentional or made knowingly. Under the new standard for
rescissions set forth in PHS Act section 2712 and these interim final
regulations, plans and issuers cannot rescind coverage unless an
individual was involved in fraud or made an intentional
misrepresentation of material fact. This standard applies to all
rescissions, whether in the group or individual insurance market, and
whether insured or self-insured coverage. These rules also apply
regardless of any contestability period that may otherwise apply.
This provision in PHS Act section 2712 builds on already-existing
protections in PHS Act sections 2703(b) and 2742(b) regarding
cancellations of coverage. These provisions generally provide that a
health insurance issuer in the group and individual markets cannot
cancel, or fail to renew, coverage for an individual or a group for any
reason other than those enumerated in the statute (that is, nonpayment
of premiums; fraud or intentional misrepresentation of material fact;
withdrawal of a product or withdrawal of an issuer from the market;
movement of an individual or an employer outside the service area; or,
for bona fide association coverage, cessation of association
membership). Moreover, this new provision also builds on existing HIPAA
nondiscrimination protections for group health coverage in ERISA
section 702, Code section 9802, and PHS Act section 2705 (previously
included in PHS Act section 2702 prior to the Affordable Care Act's
amendments and reorganization to PHS Act title XXVII). The HIPAA
nondiscrimination provisions generally provide that group health plans
and group health insurance issuers may not set eligibility rules based
on factors such as health status and evidence of insurability--
including acts of domestic violence or disability. They also provide
limits on the ability of plans and issuers to vary premiums and
contributions based on health status. For policy years beginning on or
after January 1, 2014, additional protections will apply in the
individual market, including guaranteed issue of all products,
nondiscrimination based on health status, and no preexisting condition
exclusions. These protections will reduce the likelihood of
rescissions.
These interim final regulations also clarify that other
requirements of Federal or State law may apply in connection with a
rescission or cancellation of coverage beyond the standards established
in PHS Act section 2712, if they are more protective of individuals.
For example, if a State law applicable to health insurance issuers were
to provide that rescissions are permitted only in cases of fraud, or
only within a contestability period, which is more protective of
individuals, such a law would not conflict with, or be preempted by,
the Federal standard and would apply.
These interim final regulations include several clarifications
regarding the standards for rescission in PHS Act section 2712. First,
these interim final regulations clarify that the rules of PHS Act
section 2712 apply whether the rescission applies to a single
individual, an individual within a family, or an entire group of
individuals. Thus, for example, if an issuer attempted to rescind
coverage of an entire employment-based group because of the actions of
an individual within the group, the standards of these interim final
regulations would apply. Second, these interim final regulations
clarify that the rules of PHS Act section 2712 apply to representations
made by the individual or a person seeking coverage on behalf of the
individual. Thus, if a plan sponsor seeks coverage from an issuer for
an entire employment-based group and makes representations, for
example, regarding the prior claims experience of the group, the
standards of these interim final regulations would also apply. Finally,
PHS Act section 2712 refers to acts or practices that constitute fraud.
These interim final regulations clarify that, to the extent that an
omission constitutes fraud, that omission would permit the plan or
issuer to rescind coverage under this section. An example in these
interim final regulations illustrates the application of the rule to
misstatements of fact that are inadvertent.
For purposes of these interim final regulations, a rescission is a
cancellation or discontinuance of
[[Page 37193]]
coverage that has retroactive effect. For example, a cancellation that
treats a policy as void from the time of the individual's or group's
enrollment is a rescission. As another example, a cancellation that
voids benefits paid up to a year before the cancellation is also a
rescission for this purpose. A cancellation or discontinuance of
coverage with only a prospective effect is not a rescission, and
neither is a cancellation or discontinuance of coverage that is
effective retroactively to the extent it is attributable to a failure
to timely pay required premiums or contributions towards the cost of
coverage. Cancellations of coverage are addressed under other Federal
and State laws, including section PHS Act section 2703(b) and 2742(b),
which limit the grounds for cancellation or non-renewal of coverage, as
discussed above. Moreover, PHS Act section 2719, as added by the
Affordable Care Act and incorporated in ERISA section 715 and Code
section 9815, addresses appeals of coverage determinations and includes
provisions for keeping coverage in effect pending an appeal. The
Departments expect to issue guidance on PHS Act section 2719 in the
very near future.
In addition to setting a new Federal floor standard for
rescissions, PHS Act section 2712 adds a new advance notice requirement
when coverage is rescinded where still permissible. Specifically, the
second sentence in section 2712 provides that coverage may not be
cancelled unless prior notice is provided. These interim final
regulations provide that a group health plan, or a health insurance
issuer offering group health insurance coverage, must provide at least
30 calendar days advance notice to an individual before coverage may be
rescinded.\10\ The notice must be provided regardless of whether the
rescission is of group or individual coverage; or whether, in the case
of group coverage, the coverage is insured or self-insured, or the
rescission applies to an entire group or only to an individual within
the group. This 30-day period will provide individuals and plan
sponsors with an opportunity to explore their rights to contest the
rescission, or look for alternative coverage, as appropriate. The
Departments expect to issue future guidance on any notice requirements
under PHS Act section 2712 for cancellations of coverage other than in
the case of rescission.
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\10\ Even though prior notice must be provided in the case of a
rescission, applicable law may permit the rescission to void
coverage retroactively.
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In this new Federal statutory protection against rescissions, the
Affordable Care Act provides new rights to individuals who, for
example, may have done their best to complete what can sometimes be
long, complex enrollment questionnaires but may have made some errors,
for which the consequences were overly broad and unfair. These interim
final regulations provide initial guidance with respect to the
statutory restrictions on rescission. If the Departments become aware
of attempts in the marketplace to subvert these rules, the Departments
may issue additional regulations or administrative guidance to ensure
that individuals do not lose health coverage unjustly or without due
process.
Application to grandfathered health plans. The rules regarding
rescissions and advance notice apply to all grandfathered health plans.
D. PHS Act Section 2719A, Patient Protections (26 CFR 54.9815-2719AT,
29 CFR 2590.715-2719A, 45 CFR 147.138)
Section 2719A of the PHS Act imposes, with respect to a group
health plan, or group or individual health insurance coverage, a set of
three requirements relating to the choice of a health care professional
and requirements relating to benefits for emergency services. The three
requirements relating to the choice of health care professional apply
only with respect to a plan or health insurance coverage with a network
of providers.\11\ Thus, a plan or issuer that has not negotiated with
any provider for the delivery of health care but merely reimburses
individuals covered under the plan for their receipt of health care is
not subject to the requirements relating to the choice of a health care
professional. However, such plans or health insurance coverage are
subject to requirements relating to benefits for emergency services.
These interim final regulations reorder the statutory requirements so
that all three of the requirements relating to the choice of a health
care professional are together and add a notice requirement for those
three requirements. None of these requirements apply to grandfathered
health plans.
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\11\ The statute and these interim final regulations refer to
providers both in terms of their participation (participating
provider) and in terms of a network (in-network provider). In both
situations, the intent is to refer to a provider that has a
contractual relationship or other arrangement with a plan or issuer.
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1. Choice of Health Care Professional
The statute and these interim final regulations provide that if a
group health plan, or a health insurance issuer offering group or
individual health insurance coverage, requires or provides for
designation by a participant, beneficiary, or enrollee of a
participating primary care provider, then the plan or issuer must
permit each participant, beneficiary, or enrollee to designate any
participating primary care provider who is available to accept the
participant, beneficiary, or enrollee. Under these interim final
regulations, the plan or issuer must provide a notice informing each
participant (or in the individual market, the primary subscriber) of
the terms of the plan or health insurance coverage regarding
designation of a primary care provider.
The statute and these interim final regulations impose a
requirement for the designation of a pediatrician similar to the
requirement for the designation of a primary care physician.
Specifically, if a plan or issuer requires or provides for the
designation of a participating primary care provider for a child by a
participant, beneficiary, or enrollee, the plan or issuer must permit
the designation of a physician (allopathic or osteopathic) who
specializes in pediatrics as the child's primary care provider if the
provider participates in the network of the plan or issuer and is
available to accept the child. In such a case, the plan or issuer must
comply with the notice requirements with respect to designation of a
primary care provider. The general terms of the plan or health
insurance coverage regarding pediatric care otherwise are unaffected,
including any exclusions with respect to coverage of pediatric care.
The statute and these interim final regulations also provide rules
for a group health plan, or a health insurance issuer offering group or
individual health insurance coverage, that provides coverage for
obstetrical or gynecological care and requires the designation of an
in-network primary care provider. In such a case, the plan or issuer
may not require authorization or referral by the plan, issuer, or any
person (including a primary care provider) for a female participant,
beneficiary, or enrollee who seeks obstetrical or gynecological care
provided by an in-network health care professional who specializes in
obstetrics or gynecology. The plan or issuer must inform each
participant (in the individual market, primary subscriber) that the
plan or issuer may not require authorization or referral for
obstetrical or gynecological care by a participating health care
professional
[[Page 37194]]
who specializes in obstetrics or gynecology. Nothing in these interim
final regulations precludes the plan or issuer from requiring an in-
network obstetrical or gynecological provider to otherwise adhere to
policies and procedures regarding referrals, prior authorization for
treatments, and the provision of services pursuant to a treatment plan
approved by the plan or issuer. The plan or issuer must treat the
provision of obstetrical and gynecological care, and the ordering of
related obstetrical and gynecological items and services, by the
professional who specializes in obstetrics or gynecology as the
authorization of the primary care provider. For this purpose, a health
care professional who specializes in obstetrics or gynecology is any
individual who is authorized under applicable State law to provide
obstetrical or gynecological care, and is not limited to a physician.
The general terms of the plan or coverage regarding exclusions of
coverage with respect to obstetrical or gynecological care are
otherwise unaffected. These interim final regulations do not preclude
the plan or issuer from requiring that the obstetrical or gynecological
provider notify the primary care provider or the plan or issuer of
treatment decisions.
When applicable, it is important that individuals enrolled in a
plan or health insurance coverage know of their rights to (1) choose a
primary care provider or a pediatrician when a plan or issuer requires
designation of a primary care physician; or (2) obtain obstetrical or
gynecological care without prior authorization. Accordingly, these
interim final regulations require such plans and issuers to provide a
notice to participants (in the individual market, primary subscribers)
of these rights when applicable. Model language is provided in these
interim final regulations. 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, or in the individual market, provides a primary
subscriber with a policy, certificate, or contract of health insurance.
2. Emergency Services
If a plan or health insurance coverage provides any benefits with
respect to emergency services in an emergency department of a hospital,
the plan or issuer must cover emergency services in a way that is
consistent with these interim final regulations. These interim final
regulations require that a plan or health insurance coverage providing
emergency services must do so without the individual or the health care
provider having to obtain prior authorization (even if the emergency
services are provided out of network) and without regard to 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 or
health insurance coverage other than the exclusion or coordination of
benefits, an affiliation or waiting period permitted under part 7 of
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the
Code, or applicable cost-sharing requirements. For a plan or health
insurance coverage with a network of providers that provides benefits
for emergency services, the plan or issuer may not impose any
administrative requirement or limitation on benefits for out-of-network
emergency services that is more restrictive than the requirements or
limitations that apply to in-network emergency services.
Additionally, for a plan or health insurance coverage with a
network, these interim final regulations provide rules for cost-sharing
requirements for emergency services that are expressed as a copayment
amount or coinsurance rate, and other cost-sharing requirements. Cost-
sharing requirements expressed as a copayment amount or coinsurance
rate imposed for out-of-network emergency services cannot exceed the
cost-sharing requirements that would be imposed if the services were
provided in-network. Out-of-network providers may, however, also
balance bill patients for the difference between the providers' charges
and the amount collected from the plan or issuer and from the patient
in the form of a copayment or coinsurance amount. Section 1302(c)(3)(B)
of the Affordable Care Act excludes such balance billing amounts from
the definition of cost sharing, and the requirement in section
2719A(b)(1)(C)(ii)(II) that cost sharing for out-of-network services be
limited to that imposed in network only applies to cost sharing
expressed as a copayment or coinsurance rate.
Because the statute does not require plans or issuers to cover
balance billing amounts, and does not prohibit balance billing, even
where the protections in the statute apply, patients may be subject to
balance billing. It would defeat the purpose of the protections in the
statute if a plan or issuer paid an unreasonably low amount to a
provider, even while limiting the coinsurance or copayment associated
with that amount to in-network amounts. To avoid the circumvention of
the protections of PHS Act section 2719A, it is necessary that a
reasonable amount be paid before a patient becomes responsible for a
balance billing amount. Thus, these interim final regulations require
that a reasonable amount be paid for services by some objective
standard. In establishing the reasonable amount that must be paid, the
Departments had to account for wide variation in how plans and issuers
determine both in-network and out-of-network rates. For example, for a
plan using a capitation arrangement to determine in-network payments to
providers, there is no in-network rate per service. Accordingly, these
interim final regulations consider three amounts: the in-network rate,
the out-of-network rate, and the Medicare rate. Specifically, a plan or
issuer satisfies the copayment and coinsurance limitations in the
statute if it provides benefits for out-of-network emergency services
in an amount equal to the greatest of three possible amounts--
(1) The amount negotiated with in-network providers for the
emergency service furnished;
(2) The amount for the emergency service calculated using the same
method the plan generally uses to determine payments for out-of-network
services (such as the usual, customary, and reasonable charges) but
substituting the in-network cost-sharing provisions for the out-of-
network cost-sharing provisions; or
(3) The amount that would be paid under Medicare for the emergency
service.\12\ Each of these three amounts is calculated excluding any
in-network copayment or coinsurance imposed with respect to the
participant, beneficiary, or enrollee.
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\12\ As of the date of publication of these interim final
regulations, these rates are available to the public at http://
www.cms.hhs.gov/MedicareAdvtgSpecRateStats/downloads/oon-
payments.pdf.
---------------------------------------------------------------------------
For plans and health insurance coverage under which there is no
per-service amount negotiated with in-network providers (such as under
a capitation or other similar payment arrangement), the first amount
above is disregarded, meaning that the greatest amount is going to be
either the out-of-network amount or the Medicare amount. Additionally,
with respect to determining the first amount, if a plan or issuer has
more than one negotiated amount with in-network providers for a
particular emergency service, the amount is the median of these
amounts, treating the amount negotiated with each provider as a
separate amount in determining the median. Thus, for example, if for a
given emergency
[[Page 37195]]
service a plan negotiated a rate of $100 with three providers, a rate
of $125 with one provider, and a rate of $150 with one provider; the
amounts taken into account to determine the median would be $100, $100,
$100, $125, and $150; and the median would be $100. Following the
commonly accepted definition of median, if there are an even number of
amounts, the median is the average of the middle two. (Cost sharing
imposed with respect to the participant, beneficiary, or enrollee would
be deducted from this amount before determining the greatest of the
three amounts above.)
The second amount above is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health
insurance coverage with respect to out-of-network services. Thus, for
example, if a plan generally pays 70 percent of the usual, customary,
and reasonable amount for out-of-network services, the second amount
above for an emergency service is the total (that is, 100 percent) of
the usual, customary, and reasonable amount for the service, not
reduced by the 30 percent coinsurance that would generally apply to
out-of-network services (but reduced by the in-network copayment or
coinsurance that the individual would be responsible for if the
emergency service had been provided in-network).
Although a plan or health insurance coverage is generally not
constrained by the requirements of PHS Act section 2719A for cost-
sharing requirements other than copayments or coinsurance, these
interim final regulations include an anti-abuse rule with respect to
such other cost-sharing requirements so that the purpose of limiting
copayments and coinsurance for emergency services to the in-network
rate cannot be thwarted by manipulation of these other cost-sharing
requirements. Accordingly, 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. A plan or health insurance
coverage could fashion these other cost-sharing requirements so that a
participant, beneficiary, or enrollee is required to pay less for
emergency services than for general out-of-network services; the anti-
abuse rule merely prohibits a plan or health insurance coverage from
fashioning such rules so that a participant, beneficiary, or enrollee
is required to pay more for emergency services than for general out-of-
network services.
In applying the rules relating to emergency services, the statute
and these interim final regulations define the terms emergency medical
condition, emergency services, and stabilize. These terms are defined
generally in accordance with their meaning under the Emergency Medical
Treatment and Labor Act (EMTALA), section 1867 of the Social Security
Act. There are, however, some minor variances from the EMTALA
definitions. For example, both EMTALA and PHS Act section 2719A define
``emergency medical condition'' in terms of the same consequences that
could reasonably be expected to occur in the absence of immediate
medical attention. Under EMTALA regulations, the likelihood of these
consequences is determined by qualified hospital medical personnel,
while under PHS Act section 2719A the standard is whether a prudent
layperson, who possesses an average knowledge of health and medicine,
could reasonably expect the absence of immediate medical attention to
result in such consequences.
Application to grandfathered health plans. The statute and these
interim final regulations relating to certain patient protections do
not apply to grandfathered health plans. However, other Federal or
State laws related to these patient protections may apply regardless of
grandfather status.
III. Interim Final Regulations and Request for Comments
Section 9833 of the Code, section 734 of ERISA, and section 2792 of
the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS
(collectively, the Secretaries) to promulgate any interim final rules
that they determine are appropriate to carry out the provisions of
chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and
part A of title XXVII of the PHS Act, which include PHS Act sections
2701 through 2728 and the incorporation of those sections into ERISA
section 715 and Code section 9815.
In addition, under Section 553(b) of the Administrative Procedure
Act (APA) (5 U.S.C. 551 et seq.) a general notice of proposed
rulemaking is not required when an agency, for good cause, finds that
notice and public comment thereon are impracticable, unnecessary, or
contrary to the public interest. The provisions of the APA that
ordinarily require a notice of proposed rulemaking do not apply here
because of the specific authority granted by section 9833 of the Code,
section 734 of ERISA, and section 2792 of the PHS Act. However, even if
the APA were applicable, the Secretaries have determined that it would
be impracticable and contrary to the public interest to delay putting
the provisions in these interim final regulations in place until a full
public notice and comment process was completed. As noted above,
numerous provisions of the Affordable Care Act are applicable for plan
years (in the individual market, policy years) beginning on or after
September 23, 2010, six months after date of enactment. Had the
Departments published a notice of proposed rulemaking, provided for a
60-day comment period, and only then prepared final regulations, which
would be subject to a 60-day delay in effective date, it is unlikely
that it would have been possible to have final regulations in effect
before late September, when these requirements could be in effect for
some plans or policies. Moreover, the requirements in these interim
final regulations require significant lead time in order to implement.
For example, in the case of the requirement under PHS Act section 2711
prohibiting overall lifetime dollar limits, these interim final
regulations require that an enrollment opportunity be provided for an
individual whose coverage ended by reason of reaching a lifetime limit
no later than the first day this requirement takes effect. Preparations
presumably would have to be made to put such an enrollment process in
place. In the case of requirements for emergency care under PHS Act
section 2719A, plans and issuers need to know how to process charges by
out-of-network providers by as early as the first plan or policy year
beginning on or after September 23, 2010. With respect to all the
changes that would be required to be made under these interim final
regulations, whether adding coverage of children with a preexisting
condition under PHS Act section 2704, or determining the scope of
rescissions prohibited under PHS Act section 2712, group health plans
and health insurance issuers have to be able to take these changes into
account in establishing their premiums, and in making other changes to
the designs of plan or policy benefits, and these premiums and plan or
policy changes would have to receive necessary approvals in advance of
the plan or policy year in question.
Accordingly, in order to allow plans and health insurance coverage
to be
[[Page 37196]]
designed and implemented on a timely basis, regulations must be
published and available to the public well in advance of the effective
date of the requirements of the Affordable Care Act. It is not possible
to have a full notice and comment process and to publish final
regulations in the brief time between enactment of the Affordable Care
Act and the date regulations are needed.
The Secretaries further find that issuance of proposed regulations
would not be sufficient because the provisions of the Affordable Care
Act protect significant rights of plan participants and beneficiaries
and individuals covered by individual health insurance policies and it
is essential that participants, beneficiaries, insureds, plan sponsors,
and issuers have certainty about their rights and responsibilities.
Proposed regulations are not binding and cannot provide the necessary
certainty. By contrast, the interim final regulations provide the
public with an opportunity for comment, but without delaying the
effective date of the regulations.
For the foregoing reasons, the Departments have determined that it
is impracticable and contrary to the public interest to engage in full
notice and comment rulemaking before putting these interim final
regulations into effect, and that it is in the public interest to
promulgate interim final regulations.
IV. Economic Impact and Paperwork Burden
A. Summary--Department of Labor and Department of Health and Human
Services
As stated earlier in this preamble, these interim final regulations
implement PHS Act sections 2704 (prohibiting preexisting condition
exclusions), 2711 (prohibiting lifetime and annual dollar limits on
benefits), 2712 (rules regarding rescissions), and 2719A (patient
protections).\13\ These interim final regulations also provide guidance
on the requirement to provide enrollment opportunities to individuals
who reached a lifetime limit. PHS Act section 2704 regarding
preexisting condition exclusions generally is effective for plan years
(in the individual market, policy years) beginning on or after January
1, 2014. However, with respect to enrollees, including applicants for
enrollment, who are under 19 years of age, this section is effective
for plan years beginning on or after September 23, 2010; or in the case
of individual health insurance coverage, for policy years beginning on
or after September 23, 2010.\14\ The rest of these provisions generally
are effective for plan years (in the individual market, policy years)
beginning on or after September 23, 2010, which is six months after the
March 23, 2010 date of enactment of the Affordable Care Act.
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\13\ The Affordable Care Act adds Section 715 to the Employee
Retirement Income Security Act (ERISA) and section 9815 to the
Internal Revenue Code (the Code) to make the provisions of part A of
title XXVII of the PHS Act applicable to group health plans, and
health insurance issuers providing health insurance coverage in
connection with group health plans, under ERISA and the Code as if
those provisions of the PHS Act were included in ERISA and the Code.
\14\ Section 1255 of the Affordable Care Act. See also section
10103(e)-(f) of the Affordable Care Act.
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The Departments have crafted these interim final regulations to
secure the protections intended by Congress in the most economically
efficient manner possible. In accordance with OMB Circular A-4, they
have quantified the benefits and costs where possible and provided a
qualitative discussion of some of the benefits and the costs that may
stem from these interim final regulations.
B. Executive Order 12866--Department of Labor and Department of Health
and Human Services
Under Executive Order 12866 (58 FR 51735), ``significant''
regulatory actions are subject to review by the Office of Management
and Budget (OMB). Section 3(f) of the Executive Order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more in any one year, or adversely and materially affecting a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating a
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. OMB has
determined that this rule is significant within the meaning of section
3(f)(1) of the Executive Order, because it is likely to have an effect
on the economy of $100 million in any one year. Accordingly, OMB has
reviewed these rules pursuant to the Executive Order. The Departments
provide an assessment of the potential costs and benefits of each
regulatory provision below, summarized in the following table.
Table 1.1 Accounting Table
TABLE 1.1--Accounting Table
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative: These patient protections are expected to expand coverage for children with preexisting conditions
and individuals who face rescissions, lifetime limits, and annual limits as a result of high health care costs.
Expanded coverage is likely to increase access to health care, improve health outcomes, improve worker
productivity, and reduce family financial strain and ``job lock''. Many of these benefits have a distributional
component, and promote equity, in the sense that they will be enjoyed by those who are especially vulnerable as
a result of health problems and financial status. Choice of physician will likely lead to better, sustained
patient-provider relationships, resulting in decreased malpractice claims and improved medication adherence and
health promotion. Removing referrals and prior authorizations for primary care, obstetrical and gynecological
care, and emergency services is likely to reduce administrative and time burdens on both patients and
physicians, while improving health outcomes by allowing quicker access to medical services when necessary......
----------------------------------------------------------------------------------------------------------------
Costs Estimate Year dollar Discount rate Period covered \15\
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/ 4.9 2010 7% 2011-2013
year).............................
4.9 2010 3% 2011-2013
----------------------------------------------------------------------------------------------------------------
[[Page 37197]]
Monetized costs are due to a requirement to notify participants that exceeded their lifetime limit and were
disenrolled from their plan or coverage of their right to re-enroll in the plan; a requirement that a group
health plan or a health insurance issuer offering group or individual health insurance coverage must notify an
affected individual 30 days before coverage may be rescinded; and a notice of a participant's right to choose
any available participating primary care provider or pediatrician as their primary care provider, and of
increased protections for those participants seeking emergency services.
----------------------------------------------------------------------------------------------------------------
Qualitative: To the extent these patient protections increase access to health care services, increased health
care utilization and costs will result due to increased uptake. Expanding coverage to children with preexisting
conditions and individuals subject to rescissions will likely increase overall health care costs, given that
these groups tend to have high cost conditions and require more costly care than average.
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Qualitative: These patient protections create a small transfer from those paying premiums in the group market to
those obtaining the increased patient protections. To the extent there is risk pooling in the individual
market, a similar transfer will occur.
----------------------------------------------------------------------------------------------------------------
1. Need for Regulatory Action
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\15\ The Departments' analysis extends to 2013. The analysis
does not attempt to estimate effects in 2014 and beyond because the
extensive changes provided for by the Affordable Care Act in sources
of coverage, rating rules, and the structure of insurance markets
make it nearly impossible to isolate the effects of the provisions
of these interim final regulations.
---------------------------------------------------------------------------
a. Preexisting Condition Exclusions
As discussed earlier in this preamble, Section 2704 of the PHS Act
as added by the Affordable Care Act, prohibits group health plans and
health insurance issuers offering group or individual health insurance
from imposing any preexisting condition exclusion. This new protection
applies to children who are under age 19 for plan years (in the
individual market, policy years) beginning on or after September 23,
2010. For individuals age 19 and over, this provision applies for plan
years (in the individual market, policy years) beginning on or after
January 1, 2014.
Preexisting conditions affect millions of Americans and include a
broad range of conditions from heart disease--which affects one in
three adults \16\--or cancer--which affects 11 million Americans \17\--
to relatively minor conditions like hay fever, asthma, or previous
sports injuries.\18\
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\16\ American Heart Association. Heart Disease and Stroke
Statistics 2009 Update-at-a-Glance. http://www.americanheart.org/
downloadable/heart/1240250946756LS_
1982%20Heart%20and%20Stroke%20Update.042009.pdf.
\17\ National Cancer Institute. Cancer Query System: Cancer
Prevalence Database. http://srab.cancer.gov/prevalence/canques.html.
\18\ Pollitz K, Sorian R. How Accessible is Individual Health
Insurance for Consumers in Less than Perfect Health? Kaiser Family
Foundation, June 2001.
---------------------------------------------------------------------------
Denials of benefits or coverage based on a preexisting condition
make adequate health insurance unavailable to millions of Americans.
Before the enactment of the Affordable Care Act, in 45 States, health
insurance issuers in the individual market could deny coverage, charge
higher premiums, and/or deny benefits for a preexisting condition.\19\
---------------------------------------------------------------------------
\19\ Kaiser State Health Facts. http://statehealthfacts.org/
comparetable.jsp?ind=353&cat=7.
---------------------------------------------------------------------------
These interim final regulations are necessary to amend the
Departments' existing regulations to implement this statutory
provision, which was enacted by Congress to ensure that quality health
coverage is available to more Americans without the imposition of a
preexisting condition exclusion.
b. Lifetime and Annual Limits
As discussed earlier in this preamble, Section 2711 of the PHS Act
was added to the Affordable Care Act to prohibit group health plans and
health insurance issuers offering group or individual health insurance
coverage from imposing lifetime limits on the dollar value of health
benefits. Annual limits also are prohibited, but the statute includes a
phase-in of this provision before January 1, 2014, that allows plans
and issuers to impose ``restricted annual limits'' at the levels
discussed earlier in this preamble.
These new protections ensure that patients are not confronted with
devastating health costs because they have exhausted their health
coverage when faced with a serious medical condition. For example, in
one recent national survey, ten percent of all cancer patients reported
that they reached a benefit limit in their insurance policy and were
forced to seek alternative insurance coverage or pay the remainder of
their treatment out-of-pocket.\20\
---------------------------------------------------------------------------
\20\ USA Today/Kaiser Family Foundation/Harvard School of Public
Health. National Survey of Households Affected by Cancer. November
2006.
---------------------------------------------------------------------------
These interim final regulations are necessary to amend the
Departments' existing regulations to implement the statutory provisions
with respect to annual and lifetime limits that Congress enacted to
help ensure that more Americans with chronic, long-term, and/or
expensive illnesses have access to quality health coverage. The
provisions of the regulations regarding restricted annual limits
function as a type of transition rule, providing for staged
implementation and helping ensure against adverse impacts on premiums
or the offering of health coverage in the marketplace. For more detail
about these provisions, see the discussion of PHS Act Section 2711,
Lifetime and Annual Limits, in section II.B earlier in this preamble.
c. Rescission
As discussed earlier in this preamble, Section 2712 of the PHS Act
was added by the Affordable Care Act to prohibit group health plans and
health insurance issuers offering group or individual health insurance
coverage from rescinding coverage except in the case of fraud or
intentional misrepresentation of material fact.
Prior to the Affordable Care Act, thousands of Americans lost
health coverage each year due to rescission. According to a House
Energy and Commerce Committee staff memorandum,\21\ rather than
reviewing medical histories when applications are submitted, if the
policyholders become sick and file expensive claims, insurance
companies then initiate investigations to scrutinize the details of the
policyholder's application materials and medical records, and if
discrepancies, omissions, or misrepresentations are found, the insurer
rescinds the policies, returns the premiums, and refuses payment for
medical services. The Committee found some questionable practices in
this area including insurance companies rescinding coverage even when
discrepancies are unintentional or caused by others, for conditions
that are unknown to policyholders, and for discrepancies unrelated to
the medical
[[Page 37198]]
conditions for which patients sought medical care.
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\21\ Terminations of Individual Health Insurance Policies by
Insurance Companies, Hearing before the House Comm. on Energy and
Commerce, Subcommittee on Oversight and Investigations, June 16,
2009) (supplemental memorandum) http://energycommerce.house.gov/
Press_111/20090616/rescission_supplemental.pdf.
---------------------------------------------------------------------------
When a coverage rescission occurs, an individual's health coverage
is retroactively cancelled, which means that the insurance company is
no longer responsible for medical care claims that they had previously
accepted and paid. Rescissions can result in significant financial
hardship for affected individuals, because, in most cases, the
individuals have accumulated significant medical expenses. The NAIC
Regulatory Framework Task Force collected data on 52 companies covering
the period 2004-2008, and found that rescissions averaged 1.46 per
thousand policies in force.\22\ This estimate implies there are
approximately 10,700 rescissions per year.
---------------------------------------------------------------------------
\22\ NAIC Rescission Data Call, December 17, 2009, p. 1.
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These interim final regulations implement the statutory provision
enacted by Congress to protect the most vulnerable Americans, those
that incur substantial medical expenses due to a serious medical
condition, from financial devastation by ensuring that such individuals
do not unjustly lose health coverage by rescission.
d. Patient Protections
As discussed earlier in this preamble, Section 2719A of the PHS Act
was added by the Affordable Care Act to require group health plans and
health insurance issuers offering group or individual health insurance
coverage to ensure choice of health care professionals and greater
access to benefits for emergency services. As discussed in more detail
below, provider choice is a strong predictor of patient trust in a
provider, and patient-provider trust can increase health promotion and
therapeutic effects.\23\ Studies also have found that patients tend to
experience better quality health care if they have long-term
relationships with their health care provider.\24\
---------------------------------------------------------------------------
\23\ Piette, John, et al., ``The Role of Patient-Physician Trust
in Moderating Medication Nonadherence Due to Cost Pressures.''
Archives of Internal Medicine 165, August (2005) and Roberts,
Kathleen J., ``Physician-Patient Relationships, Patient
Satisfaction, and Antiretroviral Medication Adherence Among HIV-
Infected Adults Attending a Public Health Clinic.'' AIDS Patient
Care and STDs 16.1 (2002).
\24\ Blewett, Lynn, et al., ``When a Usual Source of Care and
Usual Provider Matter: Adult Prevention and Screening Services.''
Journal of General Internal Medicine 23.9 (2008).
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The emergency care provisions of PHS Act section 2719A require (1)
non-grandfathered group health plans and health insurance issuers that
cover emergency services to cover such services without prior
authorization and without regard to whether the health care provider
providing the services is a participating network provider, and (2)
copayments and coinsurance for out-of-network emergency care not to
exceed the cost-sharing requirements that would have been imposed if
the services were provided in-network. These provisions will ensure
that patients get emergency care when they need it, especially in
situations where prior authorization cannot be obtained due to exigent
circumstances or an in-network provider is not available to provide the
services. It also will protect patients from the substantial financial
burden that can be imposed when differing copayment or coinsurance
arrangements apply to in-network and out-of-network emergency care.
This regulation is necessary to implement the statutory provision
enacted by Congress to provide these essential patient protections.
2. PHS Act Section 2704, Prohibition of Preexisting Condition
Exclusions (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108)
a. Summary
As discussed earlier in this preamble, section 1201 of the
Affordable Care Act adds a new PHS Act section 2704, which amends the
HIPAA rules relating to preexisting condition exclusions to provide
that a group health plan and a health insurance issuer offering group
or individual health insurance coverage may not impose any preexisting
condition exclusion. The HIPAA rules (in effect prior to the effective
date of these amendments) apply only to group health plans and group
health insurance coverage, and permit limited exclusions of coverage
based on a preexisting condition under certain circumstances. The
Affordable Care Act and these interim final regulations prohibit any
preexisting condition exclusions imposed by group health plans or group
health insurance coverage and extends this protection to individual
health insurance coverage. This prohibition generally is effective with
respect to plan years (in the individual market, policy years)
beginning on or after January 1, 2014, but for enrollees who are under
19 years of age, this prohibition becomes effective for plan years (in
the individual market, policy years) beginning on or after September
23, 2010.
Under the statute and these interim final regulations, a
grandfathered health plan that is a group health plan or group health
insurance coverage must comply with the prohibition against preexisting
condition exclusions; however, a grandfathered health plan that is
individual health insurance coverage is not required to comply with PHS
Act section 2704.
In this section, the Departments estimate the likely effects of
these interim final regulations. Beginning with the population of
individuals age 0-18, the number of individuals potentially affected is
estimated in several steps. First, the number of children who have
preexisting conditions that might cause them to be excluded from
coverage is estimated. Second, a range of take-up rates is used to
estimate the number of children who might be newly covered after these
interim final regulations are implemented. In addition, the potential
cost implications are discussed.
b. Estimated Number of Affected Individuals
In the individual market, those applying for insurance will no
longer face exclusions or denials of coverage based on a preexisting
condition exclusion if they are under the age of 19. In addition,
children covered by non-grandfathered individual coverage with a rider
or an exclusion period that excludes coverage for a preexisting
condition will gain coverage for that condition. In the group market,
participants and dependents who are under 19 years old and have
experienced a lapse in coverage will no longer face up to a twelve-
month exclusion for preexisting conditions.
The Departments' estimates in this section are based on the 2004-
2006 Medical Expenditure Panel Survey Household Component (MEPS-HC)
which was projected to 2010 and calibrated to be consistent with the
National Health Accounts projections. The analysis tabulated counts and
costs for persons under age 19 by age, health status, and insurance
status.
There are two main categories of children who are most likely to be
directly affected by these interim final regulations: First, children
who have a preexisting condition and who are uninsured; second,
children who are covered by individual insurance with a rider excluding
coverage for a preexisting condition or a preexisting condition
exclusion period. For the latter category, obtaining coverage for the
preexisting condition may require terminating the child's existing
policy and beginning a new one, because individual health insurance
coverage that is a grandfathered health plan is not required to comply
with PHS Act section 2704 or these interim final regulations.
[[Page 37199]]
It is difficult to estimate precisely how many uninsured children
have a preexisting condition that would cause them to be denied
coverage for that condition if they were to apply. Information on
whether individuals have a preexisting condition for the purpose of
obtaining health insurance is not collected in any major population-
based survey. In its annual survey on market practices, America's
Health Insurance Plans (AHIP) estimated that 429,464 applications for
children were medically underwritten, and 20,747, or 4.8 percent, were
denied.\25\ The survey does not measure the number of applicants who
did not make it through an underwriting process, nor does it measure
the applicants' prior insurance status, and therefore, while useful, it
does not provide direct estimates of the number or proportion of
uninsured children who would be denied coverage based on a preexisting
condition. Thus, the Departments use proxies for preexisting conditions
available in nationally representative surveys to estimate the universe
of potentially eligible individuals.
---------------------------------------------------------------------------
\25\ AHIP Center for Health Policy Research. Individual Health
Insurance 2009. http://www.ahipresearch.org/pdfs/
2009IndividualMarketSurveyFinalReport.pdf.
---------------------------------------------------------------------------
The Departments estimate that in 2010 there are approximately 78.0
million children under the age of 19 in the United States, of whom an
estimated 19.4 million report ``fair'' or ``poor'' health or take three
or more prescription medications. The Departments assume that these
children have a preexisting condition. Whether or not the statute and
these interim final regulations are likely to affect these children
depends on their own and their parents' insurance status. Of the 19.4
million children that potentially have a preexisting condition, 10.2
million already have employer-sponsored insurance (ESI), 760,000 have
individual coverage, and 7.9 million have public or other coverage,
leaving 540,000 uninsured children with preexisting conditions.\26\ The
Departments assume that this group of 540,000 uninsured children with a
preexisting condition would be denied coverage for that condition or
altogether if they were to apply.
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\26\ These estimates are from the Departments' analysis of the
2004-2006 Medical Expenditure Panel Survey, trended forward to 2010.
---------------------------------------------------------------------------
The likelihood that an uninsured child with a preexisting condition
will gain coverage due to these interim final regulations will likely
vary by the insurance status of the child's parent. As shown in Table
2.1, approximately one-half of the 540,000 uninsured children who the
Departments estimate have a preexisting condition live with a parent
who is also uninsured and is not offered ESI. An additional 190,000
have a parent who is covered by ESI, and 60,000 children have a parent
who was offered ESI but did not accept the offer (and the insurance
status of the parent is unknown).
Table 2.1--Estimated Number of Uninsured Children With Pre-Existing
Conditions, by Parent's Insurance Status, 2010
------------------------------------------------------------------------
Number of
Parent's insurance status children
------------------------------------------------------------------------
Parent has employer-sponsored insurance (ESI)......... 190,000
Parent offered ESI.................................... 60,000
Parent has individual market insurance................ 10,000
Parent does not have private insurance\*\............. 270,000
No parent............................................. 20,000
-----------------
Total \**\........................................ 540,000
------------------------------------------------------------------------
\*\ Primarily parents who are uninsured, but also including a small
number who have public coverage.
\**\ Total is not the sum of the components due to rounding.
Source: Departments' analysis of MEPS-HC data, 2004-2006, trended
forward to 2010.
The group most likely to be affected by these interim final
regulations is uninsured children whose parents have purchased non-
group coverage, of whom there are an estimated 10,000. These parents
have demonstrated a strong preference for coverage by being willing to
pay for a non-group premium for themselves, but their child is
uninsured. Although the Departments cannot know with any certainty, it
is quite plausible that the child is uninsured because the insurer
refused to sell coverage to the child due to a preexisting condition.
If an individual market insurance policy does not change substantially
and retains its grandfather status, the insurer is not required to add
a child with a preexisting condition. However, if the parent terminates
the existing policy and purchases a new policy (which is quite
plausible given the high prevalence of churning in the individual
insurance market), then the new policy will be required to cover the
child, and a substantial proportion of these children could gain access
to coverage due to these interim final regulations.\27\
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\27\ Adele M. Kirk. The Individual Insurance Market: A Building
Block for Health Care Reform? Health Care Financing Organization
Research Synthesis. May 2008.
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At the other extreme, roughly 190,000 uninsured children with a
preexisting condition have a parent with ESI. It is possible that these
children are uninsured because their parents' ESI does not offer
dependent coverage. It is also possible that the parent could not
afford the employee portion of a family plan premium. These interim
final regulations are not likely to have much effect on coverage for
children in these circumstances. A very small subset of uninsured
children whose parents have ESI could have had to be in a preexisting
exclusion period before coverage is provided for services to treat that
condition. Under the statute and these interim final regulations, there
would no longer be such a period, making coverage desirable. Such
children may be affected by this provision.
Approximately 60,000 uninsured children with a preexisting
condition have parents who were offered ESI but did not accept that
offer. It also seems unlikely that these interim final regulations will
have much effect on that group, because almost all of those parents
could have chosen to cover themselves, and potentially their child,
through ESI in the absence of these interim final regulations.
In between these extremes are the approximately 270,000 uninsured
children whose parents are themselves uninsured. Many of these parents
have low to moderate income, and many may not be able to afford
insurance.\28\ However, some of these parents might purchase a policy
for their child with a preexisting condition if it were available to
them.
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\28\ Approximately two-thirds of the uninsured are in families
with income below 200 percent of the Federal Poverty Level. Current
Population Survey, March 2008.
---------------------------------------------------------------------------
While it is relatively easy to hypothesize about the relationship
between parental insurance status and the likelihood that a child will
be newly covered, it is much more difficult to estimate with any
precision the take-up rates for each parental coverage category.
Acknowledging substantial uncertainty, based on the discussion above,
the Departments' mid-range estimate is that 50 percent of uninsured
children whose parents have individual coverage will be newly insured,
15 percent of uninsured children whose parents are uninsured will be
newly insured, and that very few children whose parents have ESI, are
offered ESI, or who do not live with a parent will become covered as a
result of these
[[Page 37200]]
interim final regulations.\29\ For the high-end estimate, the
Departments assume that the 50 percent and 15 percent assumptions
increase to 75 percent and 20 percent, respectively. For the low-end
assumption, they assume that they decrease to 25 percent and 10
percent.
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\29\ The Departments researched the literature in an attempt to
provide support for the take-up rate assumptions made here. There is
a substantial literature on take-up rates among employees who are
offered ESI, on take-up rates of public coverage among people
eligible for Medicaid and Children's Health Insurance Program, and
some work on the purchasing behavior of people who are choosing
between being uninsured and buying individual insurance (Aizer,
2006; Kronson, 2009; KFF, 2007; Bernard and Selden, 2006; Sommers
and Krimmel, 2008). This work shows that take-up rates are very high
for workers who are offered ESI, but that approximately 25 percent
of people without ESI purchase individual coverage. This literature
can also be used to estimate the price-elasticity of demand, as has
been used by the Congressional Budget Office in its estimates of the
effects of the Affordable Care Act (http://www.cbo.gov/ftpdocs/87xx/
doc8712/10-31-HealthInsurModel.pdf) However, none of this work is
very helpful in estimating the level of take-up the Departments
should expect as parents are given the opportunity to purchase
coverage for their children with preexisting conditions. In the
absence of strong empirical guidance, the Departments consulted with
experts, used their best judgment, and provide a wide range for our
assumptions.
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As shown in Table 2.2, the Departments' mid-range estimate is that
51,000 uninsured children with preexisting conditions could gain
coverage as a result of these interim final regulations. At the low end
of the range, this could be 31,000 and at the high end of the range, it
could be 72,000. Given that most ESI already covers children with
preexisting conditions, almost all of these children newly gaining
coverage are expected to gain individual coverage.\30\
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\30\ For those parents who turned down an offer of ESI and whose
insurance status is not known, the Departments assume that half of
the children who takeup coverage join ESI, and half join a private
insurance plan in the individual insurance market.
Table 2.2--Estimated Number of Uninsured Children Gaining Coverage
----------------------------------------------------------------------------------------------------------------
Gain employer-
sponsored Gain individual Total
insurance market insurance
----------------------------------------------------------------------------------------------------------------
High Take-Up.............................................. 10,000 62,000 72,000
Medium Take-Up............................................ 6,000 45,000 51,000
Low Take-Up............................................... 2,000 29,000 31,000
----------------------------------------------------------------------------------------------------------------
Source: Departments' analysis of 2004-2006 MEPS-HC, trended forward to 2010.
The other group of children who will be affected by these interim
final regulations is children who already have non-group insurance
coverage, but who are covered with a ``condition waiver'' that excludes
coverage or imposes an exclusion period for coverage of a preexisting
condition. After the implementation of these interim final regulations,
children whose parents purchase individual coverage will not be subject
to condition waivers or preexisting condition exclusion periods. The
Departments estimate that there are 90,000 children covered by
individual insurance with a condition waiver (or with a period during
which coverage for a preexisting condition is excluded).\31\ The
individual market issuers who insure these estimated 90,000 children
with a condition waiver may decide to remain grandfathered health plans
and thus these children will not be directly affected by these interim
final regulations. However, the parents of those children could choose
to switch from an individual policy that is a grandfathered health plan
to a new policy that is not grandfathered, although the premium that
they pay for such coverage could increase. Similarly, for those
children currently covered but in a preexisting condition exclusion
period, curtailing the exclusion period would require the termination
of the current plan and purchase of a policy on or after September 23,
2010.
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\31\ The 2009 AHIP survey for individual coverage estimated that
approximately 2.7 percent of children with individual coverage are
covered with a condition waiver. This 3 percent estimate was applied
to the MEPS-based estimate that there are approximately 3.3 million
children covered by individual insurance. A separate analysis of
MEPS by the Departments similarly found about 90,000 children with a
preexisting condition (defined as being in fair or poor health or
taking three or more prescription medications) had a low actuarial
value of coverage for their condition.
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c. Benefits
The benefits of PHS Act Section 2704 and these interim final
regulations are expected to amply justify the costs. These interim
final regulations will expand and improve coverage for those under the
age of 19 with preexisting conditions. This will likely increase access
to health care, improve health outcomes, and reduce family financial
strain and ``job lock,'' as described below.
Numerous studies confirm that when children become insured, they
are better able to access health care. Uninsured children are six times
more likely than insured children to lack a usual site of care.\32\ By
contrast, one year after enrollment in health insurance, nearly every
child in one study had a regular physician and the percentage of
children who saw a dentist increased by approximately 25 percent.\33\
Insured children also experience fewer unmet needs and delays in care.
In one study, 37 percent of the children 15 to 19 years of age faced
some unmet need or delayed physician care in the prior 6 months,
whereas at 12 months after insurance enrollment, only 3.7 percent
reported such delays or care deficiencies.\34\
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\32\ ``Children's Health, Why Health Insurance Matters.'' Kaiser
Commission on Medicaid and the Uninsured, available at: http://
www.kff.org/uninsured/loader.cfm?url=/commonspot/security/
getfile.cfm&PageID=14132.
\33\ Ibid.
\34\ Keane, Christopher et al. ``The Impact of Children's Health
Insurance Program by Age.'' Pediatrics 104:5 (1999), available at:
http://pediatrics.aappublications.org/cgi/reprint/104/5/1051.
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With regular access to health care, children's health and well-
being are likely to improve. When children are sick and without health
insurance, they may, out of financial necessity, have to forgo
treatment; insurance improves the likelihood that children get timely
and appropriate health care services.\35\ Insured children are less
likely to experience avoidable hospital stays than uninsured
children\36\ and, when hospitalized, insured children are at less risk
of dying.\37\ When children are insured, it not only improves their
health status, but also confers corollary benefits. Children without
health insurance may not be allowed to participate in as many physical
activities as peers because parents are
[[Page 37201]]
concerned about the financial impacts of unintentional injury. One
study determined that 12 percent of uninsured children had various
activity restrictions (e.g., related to sports or biking). However,
almost all of these restrictions were removed once they gained
insurance.\38\ And health insurance and access to care improve school
attendance. An evaluation of an initiative designed to connect children
to Healthy Kids, an insurance program piloted in Santa Clara County,
California for children in low-income families, found that the
proportion of children missing three or more school days in the
previous month decreased from 11 percent among non-enrollees to 5
percent after enrollment in the insurance program.\39\
---------------------------------------------------------------------------
\35\ Uninsured children are at least 70 percent more likely than
insured children to not receive medical care for common childhood
conditions like sore throats, ear infections, and asthma. Ibid.
\36\ Ibid.
\37\ Bernstein, Jill et al. ``How Does Insurance Coverage
Improve Health Outcomes?'' Mathematica Policy Research (2010),
available: http://www.mathematica-mpr.com/publications/PDFs/Health/
Reformhealthcare_IB1.pdf.
\38\ ``Children's Health, Why Health Insurance Matters.'' Kaiser
Commission on Medicaid and the Uninsured, available at: http://
www.kff.org/uninsured/loader.cfm?url=/commonspot/security/
getfile.cfm&PageID=14132.
\39\ Howell, Embry and Trenholm, Christopher ``Santa Clara
County Children's Health Initiative Improves Children's Health.''
Mathematica Policy Research and The Urban Institute (2007),
available at: http://www.mathematica-mpr.com/publications/PDFs/
CHIimproves.pdf.
---------------------------------------------------------------------------
In addition to their benefits relating to access to care, health,
and well-being of children, these interim final regulations are likely
to lower families' out of pocket health care spending. Some families
would face the possibility of paying high out-of-pocket expenses for
health care for children under 19 who could not obtain insurance
because of a preexisting condition. Further, expanded insurance
coverage should reduce the number of medical bankruptcies.\40\ In cases
where medical expenses are substantial, families may no longer need to
spend down their assets in order to qualify for Medicaid and other
public assistance programs. Approximately 34 States offer Medicaid
eligibility to adults and children who spend-down to State-established
medically needy income limits.\41\ Eight percent of Medicaid
beneficiaries qualify via spend-down yet this group accounts for a
disproportionately high percentage of Medicaid spending nationally (14
percent), due to the fact that coverage kicks in when individuals'
medical costs are high.\42\ Despite the fact that medically needy
populations become eligible on account of onerous medical bills, this
group is especially vulnerable to losing coverage because States are
not required to cover this group. For example, in 2003, when Oklahoma
eliminated its medically needy program due to a budget shortfall, an
estimated 800 children lost coverage.\43\ Such coverage interruptions
likely contribute to higher rates of uncompensated care--the primary
source for which is Federal funding.\44\ Reduced reliance on these
programs under these interim final regulations will benefit State and
Federal governments and, by extension, taxpayers.
---------------------------------------------------------------------------
\40\ Himmelstein, D., Warren, E., Thorne, D., and Woolhandler,
S. Illness and Injury as Contributors to Bankruptcy, Health Affairs
W5-63, February 2 (2005); Himmelstein, D., Thorne, D., Warren, E.,
Woolhandler, S. Medical Bankruptcy in the United States, 2007: The
Results of a National Study, The American Journal of Medicine June 4
(2009).
\41\ http://www.statehealthfacts.org/
comparereport.jsp?rep=60&cat=4.
\42\ Page 4: http://www.kff.org/medicaid/loader.cfm?url=/
commonspot/security/getfile.cfm&PageID=14325.
\43\ Page 4: http://www.nashp.org/sites/default/files/
shpmonitor_medicallyneedy.pdf.
\44\ Page 4: http://www.kff.org/uninsured/upload/The-Cost-of-
Care-for-the-Uninsured-What-Do-We-Spend-Who-Pays-and-What-Would-
Full-Coverage-Add-to-Medical-Spending.pdf.
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In addition, these interim final regulations may reduce instances
of ``job lock''--situations in which workers are unable to change jobs
due to concerns regarding health insurance coverage for their
children.\45\ For example, under the Affordable Care Act and these
interim final regulations, someone currently insured through the group
market with less than 18 months of continuous coverage may be more
willing to leave her job and become a self-employed entrepreneur if she
has a child under age 19 with a preexisting condition, because her
child now will be able to obtain immediate coverage for the preexisting
condition in the individual market. Similarly, even a worker with more
than 18 months of continuous coverage who is already protected by HIPAA
may be more likely to consider switching firms and changing policies
because he would not have to worry that his child's preexisting
condition would be excluded for up to 12 months.\46\ While the total
reduction in job-lock may be small, the impact on those families with
children with preexisting conditions may be significant. The effect of
these interim final regulations on job-lock is discussed further in the
summary section below.
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\45\ A CEA report suggests that the overall cost of job-lock
could be $3.7 billion annually, which is about 10 percent of
affected workers wages. While these interim final regulations may
only have an impact on a small percentage of all individuals
affected by job-lock it could still have a large dollar impact for
those affected. Council of Economic Advisors Report, The Economic
Case for Health Reform (June 2009), at http://www.whitehouse.gov/
assets/documents/CEA_Health_Care_Report.pdf.
\46\ A 2006 study found no evidence that the introduction of
HIPAA, which reduced preexisting condition exclusions, had any
impact on job lock, but HIPAA still allows a 12-month preexisting
condition exclusion meaning that for conditions that need immediate
care someone could still effectively be uninsured for up to a year.
In contrast, the provisions of the statute and these interim final
regulations would not allow any preexisting condition exclusion. See
e.g., Paul Fronstin, Health Insurance Portability and Job Lock:
Findings from the 1998 Health Confidence Survey, Employee Benefit
Research Institute Notes, Volume 19, Number 8, pages 4-6 (Aug. 1998)
and Anna Sanz-de-Galdeano, Job-Lock and Public Policy: Clinton's
Second Mandate, Industrial and Labor Relations Review, Volume 59,
Number 3, pages 430-37 (Apr. 2006).
---------------------------------------------------------------------------
Executive Order 12866 explicitly requires agencies to take account
of ``distributive impacts'' and ``equity.'' Requiring health insurers
to provide coverage to children with preexisting conditions will, as
described below, result in a small increase in premium for relatively
healthy adults and children, and a large increase in health and
financial security for children with preexisting conditions and their
parents. This transfer is a meaningful increase in equity, and is a
benefit of these interim final regulations.
d. Costs and Transfers
Children with preexisting conditions have high health care costs--
approximately three times the average for those without such
conditions.\47\ Although children with preexisting conditions have
higher health care costs than healthier children, among children with
preexisting conditions, those who are uninsured have expenditures that
are somewhat lower than the average for all children with preexisting
conditions. Therefore, it is expected that when uninsured children
obtain coverage, there will be additional demand for and utilization of
services. There will also be a transfer from out-of-pocket spending to
spending covered by insurance, which will partially be mitigated by a
reduction in cost-shifting of uncompensated care to the insured
population as coverage expands.
---------------------------------------------------------------------------
\47\ From the Departments' analysis of MEPS data.
---------------------------------------------------------------------------
As shown above in Table 2.2, the Departments estimate that
approximately 2,000 to 10,000 children whose parents have ESI or an
offer of ESI will be newly covered in the group market. Because few
children are likely to be newly covered in the group market, the
estimated costs and transfers are extremely small, on the order of
hundredths of a percent.
The Departments expect that these interim final regulations will
have a larger effect on the number of children covered in the
individual market, resulting in new coverage for between 29,000 and
62,000 children. Medical expenses for these newly covered children are
likely to be greater than for the average child covered by individual
insurance. The Departments' analysis
[[Page 37202]]
also assumes that children with preexisting conditions gaining
insurance under these interim final regulations will have greater
health needs than the average uninsured child with a preexisting
condition. This assumption concerning adverse selection is common to
most analyses of purchasing behavior in the individual insurance
market.
In the majority of States that do not require community rating,
much of the additional cost of care for newly-covered children with
preexisting condition is likely to be borne by the parents who purchase
coverage for their children. Based on discussions with industry
experts, it appears that even in the absence of community rating, it is
rare for an insurer to charge more than twice the standard rate for
someone in poor health. The Departments' analysis assumes that in non-
community rated States, the parents of newly insured children will pay
a premium that is equal to twice the standard rate, and the remainder
of the additional costs will be spread to other policy holders in the
individual market.\48\ However, with the enactment of the Affordable
care Act and the issuance of these interim final regulations, rating
practices in the insurance industry could certainly change, lending
uncertainty to this estimate. In the approximately twenty States that
require adjusted community rating or rating bands in the individual
market, the Departments' analysis assumes that all of the additional
costs of newly covered children will be spread across policies in the
individual market that are not grandfathered health plans.\49\ Making
these assumptions, the estimated increase in premiums is 1 percent or
less in community rated States, and approximately one-half of one
percent in States without community rating.
---------------------------------------------------------------------------
\48\ The Departments assume that in non-community rated States,
parents purchasing individual coverage for a child with a
preexisting condition will be charged a rate equal to 200 percent of
the standard rate for a child, because it is rare for insurers to
charge more than this amount, but it seems unlikely they will charge
less. To the extent that the estimated expenditures for newly
covered children are above the premium that the Departments assume
will be charged, the analysis assumes that the difference will be
spread over all policies in the individual market.
\49\ http://www.statehealthfacts.kff.org/
comparetable.jsp?ind=354&cat=7.
---------------------------------------------------------------------------
Finally, for the estimated 90,000 children with existing individual
coverage that excludes coverage for the preexisting condition or
requires an exclusion period before coverage for that condition begins,
the Departments assume that many of these children will receive
coverage for their condition(s). Because their existing individual
policies could be grandfathered, the parents of these children may need
to purchase new policies in order to gain coverage for their children's
condition without a waiver. Children in a preexisting condition
exclusion period in particular will need to terminate their current
policy and purchase a new one in order to take advantage of the
elimination of any preexisting condition exclusion period. Of note, the
Departments estimate that turnover in the individual market is between
40 percent and 70 percent per year.\50\ Therefore, in a few years, most
children who would have been covered with a condition waiver in the
absence of these interim final regulations are expected to be in new
policies that are not grandfathered health plans in any case.
---------------------------------------------------------------------------
\50\ Adele M. Kirk. The Individual Insurance Market: A Building
Block for Health Care Reform? Health Care Financing Organization
Research Synthesis. May 2008.
---------------------------------------------------------------------------
The Departments analyzed expenditures for the approximately 90,000
children who reported fair or poor health, or who were taking three or
more prescription medications, and for whom insurance covered only a
small portion of spending for one or more medical conditions. Total
spending for these 90,000 children was not much different than spending
for the children who did not appear to have a preexisting condition
waiver, although less of the spending was covered by private insurance,
and more of it was paid for out-of-pocket or by other sources.\51\
---------------------------------------------------------------------------
\51\ The Departments' analysis used MEPS data to identify
approximately 90,000 children with individual coverage for whom
insurance coverage for one or more conditions was extremely low--
averaging 10 percent of covered expenditures, compared to
approximately 80 percent for other children. The analysis assumes
that these children were subject to a preexisting condition waiver,
and then assumes that when these waivers are eliminated, the
expenditures that are not covered by insurance in the MEPS data will
now be shifted to insurance.
---------------------------------------------------------------------------
Similar to the expectations for newly covered children in the
individual market, in States that require rating bands or some form of
community rating, much of the additional cost for eliminating condition
waivers will be spread across the insured population, while in States
without rating restrictions, much of the additional costs will be borne
by the parents who purchase the coverage. However, the estimate that
insured benefits per child will increase by a relatively modest amount
suggests that even in States with community rating, the cost and
transfer effects will be relatively small, at most a few tenths of a
percent over the next few years.
In evaluating the impact of this provision, it is important to
remember that the full net effects of this provision cannot be
estimated because of its interactions with other provisions in the
Affordable Care Act that go into effect at the same time. For example,
under the current guaranteed renewability protections in the individual
market, if a child with a preexisting condition is now able to obtain
coverage on a parental plan, he or she can potentially stay on that
plan until age 26. As another example, the Affordable Care Act will
require non-grandfathered health plans to provide recommended
preventive services at no cost-sharing. This will amplify the benefits
of coverage for newly insured children with preexisting conditions.
Therefore, the Departments cannot provide a more precise estimation of
either the benefits or the costs and transfers of this provision.
3. PHS Act Section 2711, No Lifetime or Annual Limits (26 CFR 54.9815-
2711T, 29 CFR 2590.715-2711, 45 CFR 147.126)
a. Summary
As discussed earlier in this preamble, section 2711 of the PHS Act,
as added by the Affordable Care Act, and these interim final
regulations generally prohibits group health plans and health insurance
issuers offering group or individual health insurance coverage from
imposing lifetime or annual limits on the dollar value of health
benefits. The statute also provides a special rule allowing
``restricted annual limits'' with respect to essential health benefits
(as defined in section 1302(b) of the Affordable Care Act) for plan
years (in the individual market, policy years) beginning before January
1, 2014. In addition, the statute specifies that a plan or issuer may
impose annual or lifetime per-individual limits on specific covered
benefits that are not essential health benefits to the extent that such
limits are permitted under Federal or State law.
For purposes of establishing a restricted annual limit on the
dollar value of essential health benefits, the statute provides that in
defining the term restricted annual limit, the Departments ``ensure
that access to needed services is made available with a minimal impact
on premiums.'' \52\ Based on this Congressional directive, the interim
final regulations allow annual limits on the dollar value of benefits
that are essential health benefits of no less than $750,000 for plan
years
[[Page 37203]]
(in the individual market, policy years) beginning on or after
September 23, 2010, but before September 23, 2011; $1.25 million for
plan years (in the individual market, policy years) beginning on or
after September 23, 2011, but before September 23, 2012; and $2 million
for plan years (in the individual market, policy years) beginning on or
after September 23, 2012, but before January 1, 2014. For plan years
(in the individual market, policy years) beginning January 1, 2014, no
annual limits may be placed on essential health benefits.
---------------------------------------------------------------------------
\52\ PHS Act section 2711(a)(2) as added by Section 1001(5) of
the Affordable Care Act and amended by section 10101(a) of such Act.
---------------------------------------------------------------------------
The statute and these interim final regulations relating to the
prohibition on lifetime limits generally apply to all group health
plans and health insurance issuers offering group or individual health
insurance coverage, whether or not the plan qualifies as a
grandfathered health plan, for plan years (in the individual market,
policy years) beginning on or after September 23, 2010. The statute and
these interim final regulations relating to the prohibition on annual
limits, including the special rules for plan years beginning before
January 1, 2014, generally apply to group health plans and group health
insurance coverage that qualify as a grandfathered health plan, but do
not apply to grandfathered health plans that are individual health
insurance coverage.
b. Estimated Number of Affected Entities
In 2009, the latest data available indicates that both the
incidence and amount of lifetime limits vary by market and plan type
(e.g., HMO, PPO, POS). Table 3.1 displays the prevalence of lifetime
limits for large employer, small employer and individual markets by
plan type. Sixty-three percent of large employers had lifetime limits;
52 percent of small employers had lifetime limits and 89 percent of
individual market plans had lifetime limits. HMO plans are the least
likely to have a lifetime limit with only 37 percent of large employer
HMO plans having a limit, 16 percent of small employer HMO plans having
a limit and 23 percent of individual HMO plans having a limit. The
generosity of the limit also varies, with 45 percent of all large
employer plans imposing a lifetime limit of $2,000,000 or more; 39
percent of small employers' plans imposing a limit of $2,000,000 or
more and 86 percent of individual market plans imposing a limit of
$2,000,000 or more. Note that small employers are more likely than
large employers to offer HMOs that tend not to have lifetime limits,
but when small businesses offer plans with lifetime limits, the maximum
limit tends to be lower than those in large firms.\53\
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\53\ Employer Health Benefits: 2009 Annual Survey. Washington,
DC: Henry J. Kaiser Family Foundation and Health Research &
Educational Trust (September 2009).
Table 3.1--Prevalence of Lifetime Limits
------------------------------------------------------------------------
Prevalence of Number of
Market limit (percent) enrollees
------------------------------------------------------------------------
Large group
------------------------------------------------------------------------
Under $1,000,000.................... 1 1,000,000
$1,000,000-$2,000,000............... 18 18,700,000
$2,000,000 or higher................ 45 46,600,000
No Limit............................ 37 38,300,000
------------------------------------------------------------------------
Small group
------------------------------------------------------------------------
Under $1,000,000.................... 1 500,000
$1,000,000-$2,000,000............... 12 6,300,000
$2,000,000 or higher................ 39 20,500,000
No Limit............................ 48 25,200,000
------------------------------------------------------------------------
Individual
------------------------------------------------------------------------
Under $1,000,000.................... 2 200,000
$1,000,000-$2,000,000............... 1 100,000
$2,000,000 or higher................ 86 8,400,000
No Limit............................ 11 1,100,000
------------------------------------------------------------------------
Source: Large and Small Employer Health Plan Enrollment: and Lifetime
Maximum Exhibit 5.2 and Exhibit 13.12, respectively, Employer Health
Benefits: 2009 Annual Survey. Washington, DC: Henry J. Kaiser Family
Foundation and Health Research & Educational Trust (September 2009).
Individual Health Plan Enrollment and Lifetime Maximum: Table 10 and
Table 17, respectively, AHIP Center for Policy Research Individual
Health Insurance 2009: A Comprehensive Survey of Premiums,
Availability, and Benefits.
There are scant data on annual limits on which to base this impact
analysis. Table 3.2 displays the prevalence of annual limits by market,
plan type and amount of the limit. Only 8 percent of large employers,
14 percent of small employers and 19 percent of individual market
policies impose an annual limit and thus would be directly impacted by
these interim final regulations.\54\ In the first year of
implementation (beginning September 23, 2010), it is estimated that
less than 0.08 percent (less than one tenth of one percent) of large
employer plans, approximately 2.6 percent of
[[Page 37204]]
small employer plans, and 2.3 percent of individual plans would have to
raise their annual limit to $750,000.\55\ This first-year increase in
annual limits would potentially affect an estimated 1,670,000 persons
across the three markets. The second year of the phase-in, beginning
September 23, 2011, would affect additional plans and policies,
requiring a cumulative 0.7 percent of large employer plans, 3.9 percent
of small employer plans, and 5.3 percent of individual policies to
increase their annual limit to $1,250,000. The second-year increase in
annual limits would affect an estimated 3,278,250 persons across the
three markets. The third and final year of the phase-in period
(beginning on September 23, 2012) would affect additional plans and
policies requiring a cumulative 2.4 percent of large employer plans,
8.1 percent of small employer plans and 14.3 percent of individual
policies to increase their annual limit to $2 million. The third-year
increase in annual limits would affect an estimated 8,104,500 persons
across the three markets. Note that the estimated number of plans and
people affected are upper-bound estimates since they do not take into
account grandfathered health plans and plans that receive a waiver from
the annual limits policy.
---------------------------------------------------------------------------
\54\ There is limited survey data on annual total benefit
limits. The data utilized in these analyses are derived from data
collected by Mercer's Health and Benefits Research Unit for their
2005, 2008 and 2009 National Survey of Employer-Sponsored Health
Plans. For employer plans, the Mercer data provides prevalence
information for PPOs and HMOs, and median annual limit levels for
PPOs, split by small and large employer plans. In order to generate
a plausible baseline of annual benefit maximums, broken by level of
maximum, the reported percentages of employer plans that had annual
maximums were spread into four intervals broken at $500k, $1
million, and $2 million. For PPOs and HMOs, the data were spread
using the dispersion observed in lifetime benefit maximums (using
data from the KFF/HRET employer surveys), and the distribution was
constrained to be consistent with the Mercer reported median values
for annual maximums. For annual benefit limits in individual
coverage the relationship observed between AHIP's reported lifetime
benefit maximum levels and the KFF/HRET employer lifetime benefit
maximums was used to generate corresponding distributions from the
synthesized employer annual limits.
\55\ These figures and the ones that follow in this paragraph
are estimated from Tables 2.2 and 2.3 by assuming a uniform
distribution within each cell.
Table 3.2--Percent of Plans Employing Annual Limits in Each Market
----------------------------------------------------------------------------------------------------------------
Large employer Small employer Individual
Annual limit (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Under $250,000............................................ * 0.4 0.4
$250,000-499,999.......................................... * 1.3 1.2
$500,000-999,999.......................................... * 1.7 1.6
$1,000,000-1,999,999...................................... 2.3 5.5 12.0
$2,000,000 plus........................................... 5.8 5.5 3.8
-----------------------------------------------------
Total................................................. 8.2 14.4 19.0
----------------------------------------------------------------------------------------------------------------
* Less than 0.1%.
Source: The data are derived from data collected by Mercer's Health and Benefits Research Unit for their 2005,
2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides
prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large
employer plans. In order to generate a plausible baseline of annual benefit maximums, broken by level of
maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals
broken at $500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion
observed in lifetime benefit maximums (using data from the KFF/HRET employer surveys), and the distribution
was constrained to be consistent with the Mercer reported median values for annual maximums. For annual
benefit limits in individual coverage the relationship observed between AHIP's reported lifetime benefit
maximum levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding
distributions from the synthesized employer annual limits.
Table 3.3--Number of Persons Subjected to Annual Limits in Each Market
----------------------------------------------------------------------------------------------------------------
Annual limit Large employer Small employer Individual Total
----------------------------------------------------------------------------------------------------------------
Under $250,000.......................... 15,000 225,000 38,000 278,000
$250,000-499,999........................ 45,000 675,000 115,000 835,000
$500,000-999,999........................ 60,000 900,000 153,000 1,113,000
$1,000,000-1,999,999.................... 2,389,000 2,869,000 1,177,000 6,435,000
$2,000,000 plus......................... 6,041,000 2,869,000 377,000 9,287,000
-----------------------------------------------------------------------
Total............................... 8,550,000 7,538,000 1,860,000 17,948,000
----------------------------------------------------------------------------------------------------------------
Source: The data are derived from data collected by Mercer's Health and Benefits Research Unit for their 2005,
2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides
prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large
employer plans. In order to generate a plausible baseline of annual benefit maximums, broken by level of
maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals
broken at $500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion
observed in lifetime benefit maximums (using data from the KFF/HRET employer surveys), and the distribution
was constrained to be consistent with the Mercer reported median values for annual maximums. For annual
benefit limits in individual coverage the relationship observed between AHIP's reported lifetime benefit
maximum levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding
distributions from the synthesized employer annual limits.
Fear and anxiety about reaching annual or lifetime limits on
coverage is a major concern among Americans who have health insurance.
At the same time, the data suggest that relatively few individuals
actually reach their policies' annual and lifetime limits. Thus, while
such limits are relatively common in health insurance, the numbers of
people expected to exceed either an annual or lifetime limit is quite
low. The estimates provided in Table 3.4 provide a high and low range
of the number of people who would hit such limits. Such a range is
necessary because of the tremendous uncertainty around high-cost
individuals. First, data are sparse, given that high-cost individuals
lie at the tail of statistical cost distributions. The Departments
attempted to extrapolate characteristics of the high-cost population
who would be affected by these interim final regulations using several
data sources. Second, data on per-capita cost is available on a year-
by-year basis, and not on a lifetime basis. Assumptions were necessary
to convert annual costs into lifetime costs, including considerations
of how current spending could be related to future spending.\56\
---------------------------------------------------------------------------
\56\ To estimate the conditional premium impact of moving a
given plan with a given annual benefit maximum to a higher benefit
maximum, the percentage change in estimated benefit rates (percent
of medical spending that the plan pays for as benefits) based on
simulated benefit payments for such coverage was used. The
underlying assumed medical spending profile was drawn from MEPS-HC
person level spending data, calibrated to National Health Account
levels, with the shape of the distribution modified based on high-
cost claims data from the Society of Actuaries. The conditional
premium increases were then applied to the fractions of plans in
each of the three market segments by level of current annual limits
to calculate the aggregate increase in premiums for the possible
option.
---------------------------------------------------------------------------
[[Page 37205]]
Considering these caveats, Table 3.4 illustrates that raising the
restriction of annual limits to $2 million by 2013 would extend
additional coverage to 2,700 to 3,500 people per year.\57\ The
elimination of lifetime limits would extend coverage to an estimated
18,650 to 20,400 people who would be expected to exceed a lifetime
limit during a calendar year.
---------------------------------------------------------------------------
\57\ Numbers in this paragraph calculated from Table 2.4 may
differ due to rounding.
Table 3.4--Percent and Number of Persons Expected To Exceed a Lifetime
or Annual Limit
------------------------------------------------------------------------
Projected to ever exceed limit
-----------------------------------
Percentage Number
------------------------------------------------------------------------
Current Lifetime Limit:
Under $1,000,000................ 0.03-0.06 550-1,050
$1,000,000 to $1,999,999........ 0.02 4,500-5,000
$2,000,000 plus................. 0.02 13,600-14,350
Current Annual Limit:
Under $250,000.................. 0.19-0.23 550-650
$250,000 to $499,999............ 0.08-0.10 650-850
$500,000 to $999,000............ 0.03-0.06 350-700
$1,000,000 to $1,999,999........ 0.02 1,150-1,300
$2,000,000 or more.............. 0.01-0.02 750-1,750
------------------------------------------------------------------------
Source: Estimates of the expected percentage of the insured population
who would exceed a limit are based on an analysis of the MEPS-HC
expenditure data supplemental with adjusted insurer claims from the
Society of Actuaries large claims database; http://www.soa.org/files/
pdf/Large_Claims_Report.pdf. Numbers of people rounded to the
nearest 50.
c. Benefits
Annual and lifetime limits exist in the individual, small group and
large group health insurance markets. These limits function as caps on
how much an insurance company will spend on medical care for a given
insured individual over the course of a year, or the individual's
lifetime. Once a person reaches this limit or cap, the person is
essentially uninsured: He or she must pay the remaining cost of medical
care out-of-pocket. These limits particularly affect people with high-
cost conditions,\58\ which are typically very serious. For example, one
recent survey found that 10 percent of cancer patients reached the
limit of what insurance would pay for treatment.\59\ The same survey
also found that 25 percent of cancer patients or their family members
used up all or most of their savings, 13 percent were contacted by a
collection agency, and 11 percent said they were unable to pay for
basic necessities like food and housing as a result of the financial
cost of dealing with cancer. By prohibiting lifetime limits and
restricting annual limits, these interim final regulations will help
families and individuals experiencing financial burdens due to
exceeding the benefit limits of their insurance policy. By ensuring and
continuing coverage, these interim final regulations also reduce
uncompensated care, which would otherwise increase premiums of the
insured population through cost-shifting, as discussed in more detail
in section IV.B.6 later in this preamble.
---------------------------------------------------------------------------
\58\ An April 2008 study by Milliman ``2008 U.S. Organ and
Tissue transplant cost estimates'', found that the average one year
billed charges related to a heart transplant averaged $787,000 while
a liver transplant averaged $523,400. The lifetime costs for the
treatment chronic disease such as of HIV infection have been well
documented with one estimate of $618,000 (Med Care 2006;44: 990-
997).
\59\ See ``National Survey of Households Affected by Cancer.''
(2006) accessed at http://www.kff.org/kaiserpolls/upload/7591.pdf.
---------------------------------------------------------------------------
These interim final regulations will also improve access to care.
Reaching a limit could interrupt or cause the termination of needed
treatment, leading to worsening of medical conditions. Moreover, those
with medical debt are more likely to skip a needed test or treatment,
and less likely to fill a prescription or visit a doctor or clinic for
a medical issue.\60\ The removal and restriction of benefit limits
helps ensure continuity of care and the elimination of the extra costs
that arise when an untreated or undertreated condition leads to the
need for even more costly treatment, that could have been prevented if
no loss of coverage had occurred. Lack of insurance coverage leads to
additional mortality and lost workplace productivity, effects that
would be amplified for a sicker population such as those who would
reach a benefit limit.\61\ By ensuring continuation of coverage, these
interim final regulations benefit the health and the economic well-
being of participants, beneficiaries, and enrollees.
---------------------------------------------------------------------------
\60\ Seifert, Robert W., and Mark Rukavina. ``Bankruptcy Is The
Tip Of A Medical-Debt Iceberg.'' Health Affairs Web Exclusive
(2006).
\61\ See Institute of Medicine.(2003). Hidden Costs, Value Lost:
Uninsurance in America. Washington, DC: National Academy Press; and
Institute of Medicine (2002) Care Without Coverage: Too Little, Too
Late. Washington, DC: National Academy Press.
---------------------------------------------------------------------------
These interim final regulations also benefit those without an
alternative source of health coverage in the group health insurance
market. Under HIPAA rules, when an individual exceeds a limit and loses
coverage, that individual has a special enrollment right. If his or her
plan offered multiple benefit packages or a spouse has access to ESI,
the individual could enroll in the coverage, although it might lead to
a change in providers and less generous coverage. Those without an
alternative option would lose coverage, and the history of high medical
claims and presence of preexisting conditions could make health
insurance in the individual market impossible. Under these interim
final regulations, people will no longer be treated differently
depending on whether they have an alternative source of coverage.
Executive Order 12866 explicitly requires agencies to take account
of ``distributive impacts'' and ``equity,'' and these considerations
help to motivate the relevant statutory provisions and these interim
final regulations. Prohibiting lifetime limits and restricting annual
limits assures that insurance will perform the function for which it
was designed--namely, protecting health and financial well being for
those most in need of care.
[[Page 37206]]
This represents a meaningful improvement in equity, which is a benefit
associated with these interim final regulations.
d. Costs and Transfers
Extending health insurance coverage for individuals who would
otherwise hit a lifetime or annual limit will increase the demand for
and utilization of health care services, thereby generating additional
costs to the system. The three year phase-in of the elimination of
annual limits and the immediate elimination of lifetime limits will
increase the actuarial value of the insurance coverage for affected
plans and policies if no other changes are made to the plan or policy.
Issuers and plans in the group market may choose to make changes to the
plan or policy to maintain the pre-regulation actuarial value of the
plan or policy, such as changing their provider networks or copayments
in some manner. To the extent that higher premiums (or other plan or
policy changes) are passed on to all employees, there will be an
explicit transfer from workers who would not incur high medical costs
to those who do incur high medical costs. If, instead, the employers do
not pass on the higher costs of insurance coverage to their workers,
this could result in lower profits or higher prices for the employer's
goods or services. Given the relatively small proportion of people who
exceed the benefit limits in the current group markets, the Departments
anticipate such transfers to be minimal when spread across the insured
population (at a premium increase of one-half of a percent or less for
lifetime limits and one-tenth of a percent or less for annual limits),
compared with the substantial benefit rendered to individual high-cost
enrollees. However, as this discussion demonstrates, there is
substantial uncertainty in data and in the choices plans will decide to
make in response to these interim final regulations, preventing more
precise estimations of effects.
In the individual market, where policies are individually
underwritten with no rating bands in the majority of States, the
Departments expect the added premium cost or other benefit changes to
be largely borne by the individual policyholder. As discussed in the
impact analysis for Section 2704, if costs exceed 200 percent of the
standard rate, some of the additional costs could be spread across the
insurance market. In the 20 States with modified community rating,
issuers could spread the increased costs across the entire individual
market, leading to a transfer from those who would not incur high
medical costs to those who do incur such costs. However, as with the
group market, such a transfer is expected to be modest, given the small
numbers of people who would exceed their benefit limit. The Departments
estimate that the transfer would be three-quarters of a percent or less
for lifetime limits and one-tenth of a percent or less for annual
limits, under a situation of pure community rating where all the costs
get spread across the insured population. This impact does not apply to
grandfathered individual market plans. Also, given the wide variation
in State insurance markets, a more precise estimation is not possible,
and the premium impact would be even less in the majority of States
that allow underwriting in the individual insurance market.
It is worth noting that the transfers discussed above will be
significantly mitigated by the associated expansion of coverage that
these interim final regulations create. The Departments expect, as a
result of the gradual elimination of annual limits and the immediate
elimination of lifetime limits, fewer people will be left without
protection against high medical costs. This will lead fewer individuals
to spend down resources and enroll in Medicaid or receive other State
and locally funded medical support. It can be anticipated that such an
effect will be amplified due to the high-cost nature of people who
exceed benefit limits. As a result, there will be a reduction in
Medicaid, State and local funded health care coverage programs, as well
as uncompensated care, all of which would otherwise raise taxes and/or
premiums for the larger population. Unfortunately, data around these
high-cost individuals is limited, preventing the Departments from
quantifying these benefits at the present time.
Additional uncertainty prevents more precise estimation of the
benefits and impacts of this provision. As discussed in the impact
analysis for Section 2704, there are interactive effects of the various
provisions in these interim final regulations which cannot be
estimated. For example, prohibiting rescissions and lifetime limits
could mean that someone who would have had a policy rescinded now
maintains coverage, and also maintains coverage beyond a previous
lifetime limit. Moreover, it is important to note that the estimates
presented here, by necessity, utilize ``average'' experiences and
``average'' plans. Different plans have different characteristics of
enrollees, for example in terms of age or health status, meaning that
provisions such as eliminating lifetime or restricting annual limits
could affect them differently. This also means that average impacts of
the various provisions in these interim final regulations or others
cannot simply be added to obtain a total impact, since a plan may be
affected by one provision but not another. Moreover, plans and issuers
will consider these impacts when making decisions about whether or not
to make other changes to their coverage that could affect their
grandfather status--a consideration that is pertinent in the case of
restricted annual limits, which do not apply to the grandfathered
individual market. This further compounds any precise calculation of
benefits and costs.
e. Enrollment Opportunity
These interim final regulations provide an enrollment (or, in the
case of the individual market, reinstatement) opportunity for
individuals who reached their lifetime limits in a group health plan or
health insurance coverage and remain otherwise eligible for the
coverage. In the individual market, the reinstatement opportunity does
not apply to individuals who reached their lifetime limits in
individual health insurance coverage if the contract is not renewed or
otherwise is no longer in effect. It would apply, however, to a family
member who reached the lifetime limit in an individual health insurance
family policy while other family members remain in coverage. Such
enrollment opportunity would generate a total hour burden of 3,800
hours and a cost burden of $21,000, as detailed in the Paperwork
Reduction Act section.
f. Alternatives
PHS Act section 2711(a)(2) requires the Departments to ``ensure
that access to needed services is made available with a minimal impact
on premiums.'' Accordingly, the Departments undertook an analysis of
different restricted annual limit thresholds to study the issue, taking
into consideration several factors: (1) The current use of annual
limits in the group and individual market; (2) the average premium
impact of imposing different annual limits on the individual, small
group, and large group markets; (3) the number of individuals who will
continue to have annual medical expenses that exceed an annual limit;
and (4) the possibility that a plan or issuer would switch to an annual
limit when lifetime limits are prohibited. In order to mitigate the
potential for premium increases for all plans and policies, while at
the same time ensuring access to essential health benefits, the
Departments decided to
[[Page 37207]]
adopt a three-year phased approach for restricted annual limits.
As discussed above, it is important to note that it is difficult to
predict exactly how plans and issuers will respond under the new
regulations. Annual or lifetime limits on benefits help control risk
and costs, and the elimination of a lifetime limit or a possible
increase in an annual limit may lead plans and issuers to alter benefit
design (such as increasing cost-sharing), and/or raise premiums. The
Departments cannot determine which option or combination of options
plans and issuers will choose. Therefore, it is very difficult to
measure the impact on premiums due to the elimination of lifetime
limits and a maximum annual limit. This uncertainty is compounded by
the data uncertainties discussed earlier in section IV.B.2.b of this
preamble.
Given the above data limitations, the Departments modeled the
impact on premiums of increasing the annual limits for plans that
currently have annual limits, assuming that the only reaction to a
required increase in annual limits would be an increase in premiums.
Because some plans may choose to avoid or offset the potential premium
increase by increasing cost sharing, tightening the network of
providers, adopting cost savings tools, or making other plan changes,
the modeled premium impacts represent the high-end of the possible
increases in premiums.
The Departments modeled a range of options and ways to implement a
restricted annual limit. Two of the options considered were setting the
annual restricted limit on essential benefits at $1 million or at $2
million. The higher the limit is set, the fewer the people that would
exceed the limit and experience a gap in insurance coverage. However,
plans with current low limits could see increases in costs and
potentially premiums because the proportion of claims covered by the
plans would increase. One final issue to consider is that for plan
years (in the individual market, policy years) beginning after January
1, 2014, all group plans and non-grandfathered individual policies will
be required to remove annual limits. A low annual limit until 2014
would offer less protection to those with medical expenses exceeding
the limit, and could result in an increase in premiums in 2014
(although a variety of other changes that will be implemented in 2014
could be expected to result in lower premium increases in most States).
Therefore, a stepped approach allowing the restricted annual limit to
be phased in over time seemed to be the fairest approach and most
likely to result in a minimal impact on premiums, so it was selected.
Table 3.5 demonstrates premium impacts at different annual limit
thresholds, and Table 3.4 above demonstrates the numbers of people
expected to exceed different annual limit thresholds. The Departments
chose to set the restricted annual limit relatively low in the first
year, and to then increase the limit up to $2 million over the three-
year period. This phased approach was intended to ease any increases in
premiums in any one year, particularly for plans with low initial
annual limits, and to help group plans and non-grandfathered individual
policies transition to no annual limits starting in 2014. With this
approach, a threshold of $750,000 was associated with a 5.1 percent
premium impact for plans with very low annual limits of $250,000, but
it is anticipated that these plans comprise only less than one-half of
one percent of the market. On the other hand, raising the restricted
annual limits to $2,000,000 under these interim final regulations could
be expected to help an estimated 2,700 to 3,500 people \62\ who would
no longer exceed their annual limit, ensuring financial protection to
those who have high medical claims.
---------------------------------------------------------------------------
\62\ Numbers calculated from Table 3.4 may differ due to
rounding.
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It is important to note that these interim final regulations also
provide that the Secretary of HHS may establish a waiver program under
which issuers or plans may assert that adhering to the restricted
annual limit provisions of these interim final regulations would result
in a significant decrease in access to benefits or a significant
premium increase. The Departments provided for this waiver in order to
prevent the loss of coverage for enrollees in low-benefit plans (for
example, ``mini-med'' plans) that have low annual limits. While the
impact of this policy is not quantified, it, too, is intended to
mitigate any unintended consequences given the paucity of data on the
incidence and prevalence of annual limits in the markets today.\63\
---------------------------------------------------------------------------
\63\ If a second decimal place were included, the lower end of
the range in this column would be greater than the lower end of the
range in the $1.5 million column.
Table 3.5--Estimated Premium Impacts for a Plan Moving to a New Annual Limit
--------------------------------------------------------------------------------------------------------------------------------------------------------
New limit
---------------------------------------------------------------------
Current limit People subject to current limit $1 million $1.5 million $2 million
$500k % $750k % % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
$250k.......................................... 278,000.......................... 3.7 5.1 6.1 6.2-6.4 \63\ 6.2-6.6
$500k.......................................... 835,000.......................... ............ 1.4 2.3 2.4-2.6 2.4-2.8
$750k.......................................... 1,113,000........................ ............ ............ 1.0 1.0-1.2 1.0-1.5
$1 million..................................... 6,435,000........................ ............ ............ ............ 0.1-0.3 0.1-0.5
--------------------------------------------------------------------------------------------------------
$1.5 million................................... 9,287,000........................ ............ ............ ............ ............ 0.04-0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Premium estimates are calculated based MEPS-HC supplemented with the Society of Actuaries Large Claim Database--To estimate the conditional
premium impact of moving a given plan with a given annual benefit maximum to a higher benefit maximum, the percentage change in estimated benefit
rates (percent of medical spending that the plan pays for as benefits) based on simulated benefit payments for such coverages was used. The underlying
assumed medical spending profile was drawn from MEPS-HC person level spending data, calibrated to National Health Account levels, with the shape of
the distribution modified based on high-cost claims data from the Society of Actuaries. The conditional premium increases were then applied to the
fractions of plans in each of the three market segments by level of current annual limits to calculate the aggregate increase in premiums for the
possible option. For the low impact estimates, the distributions were then adjusted only for the expected marginal loading impact of using commercial
reinsurance for many of the smaller carriers. For the high impact estimates, the distributions were also adjusted to reflect possible underestimation
of the tails of the expenditure distribution once coverage of unlimited benefit levels was required. The adjustments were set at levels that generated
aggregate impacts that were conservative relative to estimates from PricewaterhouseCoopers' March 2009 study of lifetime limits for the National
Hemophilia Foundation.
[[Page 37208]]
4. PHS Act Section 2712, Rescissions (26 CFR 54.9815-2712T, 29 CFR
2590.715-2712, 45 CFR 147.128)
a. Summary
As discussed earlier in this preamble, PHS Act Section 2712
provides rules regarding rescissions for group health plans and health
insurance issuers that offer group or individual health insurance
coverage. A plan or issuer must not rescind coverage under the plan,
policy, certificate, or contract of insurance from the individual
covered under the plan or coverage unless the individual (or a person
seeking coverage on behalf of the individual) performs an act,
practice, or omission that constitutes fraud, or unless the individual
makes an intentional misrepresentation of material fact, as prohibited
by the terms of the plan or coverage. These interim final regulations
provide that a group health plan, or a health insurance issuer offering
group health insurance coverage, must provide at least 30 calendar days
advance notice to an individual before coverage may be rescinded.\64\
The notice must be provided regardless of whether the rescission is of
group or individual coverage; or whether, in the case of group
coverage, the coverage is insured or self-insured, or the rescission
applies to an entire group or only to an individual within the group.
---------------------------------------------------------------------------
\64\ Even though prior notice must be provided in the case of a
rescission, applicable law may permit the rescission to void
coverage retroactively.
---------------------------------------------------------------------------
PHS Act Section 2712 and these interim final regulations create a
statutory Federal standard and enforcement power in the group and
individual markets where it did not exist. Prior to this provision
taking effect, varying court-made Federal common law existed for ERISA
plans. State rules pertaining to rescission have been found to be
preempted by ERISA by five circuit courts (5th, 6th, 7th, 9th and 11th
as of 2008). Each styled a remedy looking to State law, the majority of
Federal courts or the Restatement of Contracts. According to a House
Energy and Commerce Committee staff memorandum,\65\ rather than
reviewing medical histories when applications are submitted, some
insurers engage in ``post-claims underwriting.'' Under this practice,
if the policyholders become sick and file expensive claims, the
insurance companies initiate investigations to scrutinize the details
of the policyholder's application materials and medical records, and if
discrepancies, omissions, or misrepresentations are found, the insurer
rescinds the policies, returns the premiums, and refuses payment for
medical services. The Committee found some questionable practices in
this area including insurance companies rescinding coverage even when
discrepancies are unintentional or caused by others, for conditions
that are unknown to policyholders, and for discrepancies unrelated to
the medical conditions for which patients sought medical care.
According to the Committee, the current regulatory framework governing
the individual insurance market in this area is a haphazard collection
of inconsistent State and Federal laws. Protections for consumers and
enforcement actions by regulators vary depending on where individuals
live. Because of these varying standards, many patients lack adequate
protections against rescission, prompting the need for and benefits
from this rule.
---------------------------------------------------------------------------
\65\ Terminations of Individual Health Insurance Policies by
Insurance Companies, Hearing before the House Comm. On Energy and
Commerce, Subcommittee On Oversight and Investigations, June 16,
2009 (supplemental memorandum), at: http://energycommerce.house.gov/
Press_111/20090616/rescission_supplemental.pdf.
---------------------------------------------------------------------------
When a coverage rescission occurs, an individual's health insurance
coverage is retroactively cancelled, which means that the insurance
company is no longer responsible for medical care claims that they had
previously accepted and paid. Rescissions can result in significant
financial hardship for affected individuals, because, in most cases,
the individuals have accumulated significant medical expenses.
b. Estimated Number of Affected Entities
The Departments assume that these interim final regulations will
have their largest impact on the individual insurance market, because
group health coverage rarely is rescinded.\66\ By creating a new
Federal standard governing when policies can be rescinded, the
Departments expect these interim final regulations to potentially
affect the approximately 17 million non-elderly individual health
insurance policy holders and their dependents in the individual health
insurance market.\67\ In addition, approximately 490 health insurance
issuers offering coverage in the individual health insurance market who
currently could rescind health insurance coverage are expected to be
affected.\68\ That said, the actual incidence of individuals who are
subject to rescissions each year is likely to be small. The NAIC
Regulatory Framework Task Force collected data on 52 companies covering
the period 2004-2008, and found that rescissions averaged 1.46 per
thousand policies in force.\69\ This estimate implies there are
approximately 10,700 rescissions per year.
---------------------------------------------------------------------------
\66\ This statement is based on the Departments' conversations
with industry experts.
\67\ 2009 Current Population Survey.
\68\ Estimates are from 2007 NAIC financial statements data and
the California Department of Managed Healthcare (http://
wpso.dmhc.ca.gov/hpsearch/viewall.aspx).
\69\ NAIC Rescission Data Call, December 17, 2009, p.1.
---------------------------------------------------------------------------
c. Benefits
There are many benefits that flow from these interim final
regulations, which the Departments believe justify the costs. As noted,
Executive Order 12866 requires consideration of ``distributive
impacts'' and ``equity.'' To the extent that rescissions are arbitrary
and revoke the insurance that enrollees paid for and expected to cover
the cost of expensive illnesses and conditions, preventing rescissions
would prevent inequity and greatly increase health and economic well-
being. Consumers would have greater confidence that purchasing
insurance would be worthwhile, and policies would represent better
value for money. As discussed further in section IV.B.6.b of this
preamble, it is also well-documented that lack of insurance leads to
lost workplace productivity and additional mortality and morbidity.
Thus, these rules would contribute to reducing the burden from lost
productivity that arises from people being uncovered. These effects
would be especially large relative to the number of individuals
affected given that the affected population tends to be much sicker on
average.
Specifically, this provision also could protect against
interruptions or terminations in care resulting from rescissions. As a
result of the statute and these interim final regulations, people with
high-cost illnesses at risk of rescission would have continued access
to care throughout their illness, possibly avoiding more expensive and
debilitating complications down the road. Gaps in health insurance,
even if brief, can have significant health and financial
consequences.\70\ A survey from the Commonwealth Fund found that about
three of five adults with any time uninsured said they had not received
needed health care in the past year because of costs--more than two
times the rate of adults who were insured all year. Further, 44 percent
of respondents who had experienced any coverage break during the prior
year said they had failed to go to a doctor or clinic
[[Page 37209]]
when they had a medical problem because of costs, compared with 15
percent of adults who did not experience such breaks.\71\
---------------------------------------------------------------------------
\70\ This point is discussed further in the section IV.B.6.b.
later in this preamble.
\71\ Collins et al. ``Gaps in Health Insurance: An All American
Problem'' Commonwealth Fund (2006), available at: http://
www.commonwealthfund.org/usr_doc/Collins_gapshltins_920.pdf.
---------------------------------------------------------------------------
These interim final regulations will also have substantial
financial benefits for individuals who otherwise would have had their
policies rescinded. While there has been minimal documentation of
financial losses associated with rescissions, reports suggest severe
financial hardships may result. In one case, a woman faced more than
$129,000 in medical bills and was forced to stop chemotherapy for
several months after being dropped by an insurer.\72\ The maintenance
of coverage through illness not only prevents financial hardship for
the particular enrollee, but can also translate into lower premiums for
the broader insured population by reducing cost-shifting from the costs
of uncompensated care.
---------------------------------------------------------------------------
\72\ Girion, Lisa ``Health Net Ordered to Pay $9 million after
Canceling Cancer Patient's Policy,'' Los Angeles Times (2008),
available at: http://www.latimes.com/business/la-fi-
insure23feb23,1,5039339.story.
---------------------------------------------------------------------------
d. Costs and Transfers
The prohibition of rescissions except in cases of fraud or
intentional misrepresentation of material fact could lead insurers to
spend more resources checking applications before issuing policies than
they did before the Affordable Care Act, which would increase
administrative costs. However, these costs could be partially offset by
decreased costs associated with reduced post-claims underwriting under
the interim final rule. Due to lack of data on the administrative costs
of underwriting and post-claims underwriting, as well as lack of data
on the full prevalence of rescissions, it is difficult for the
Departments to quantify these costs. The new requirement for an advance
notice prior to rescission of a policy imposes an hour burden of 350
hours and a cost burden of $29,000. These costs are discussed in more
detail in the Paperwork Reduction Act section later in this preamble.
To the extent that continuing coverage for these generally high-
cost populations leads to additional demand for and utilization of
health care services, there will be additional costs generated in the
health care system. However, given the relatively low rate of
rescissions (approximately 0.15 percent of individual policies in
force) and the relatively sick nature of people who have policies
rescinded (who would have difficulty going without treatment), the
Departments estimate that these additional costs would be small.
Under this provision of these interim final regulations, a transfer
likely will occur within the individual health insurance market from
policyholders whose policies would not have been rescinded before the
Affordable Care Act to some of those whose policies would have been
rescinded before the Affordable Care Act, depending on the market and
the rules which apply to it. This transfer could result from higher
overall premiums insurers will charge to recoup their increased costs
to cover the health care costs of very sick individuals whose policies
previously could be rescinded (the precise change in premiums depends
on the competitive conditions in specific insurance markets). However,
rescissions are extremely rare in group markets where such costs would
be most likely to be transferred through premium increases. As
described earlier, they are also rare in the individual market,
affecting 0.15 percent of policies. In this market, the potential costs
would likely be born by the individuals themselves unless they live in
a State with regulations limiting rate increases based on health, as
discussed further below.
While the Departments are unable to estimate the impact of
prohibiting rescissions except in cases of fraud or intentional
misrepresentation with certainty, they expect it to be small. Even the
high rates of rescission acknowledged by some smaller insurers would
still be expected to translate into only a small average impact across
the individual health insurance market. And since this small impact
across the market would be primarily attributable to insurers paying
benefits to persons with substantial medical expenditures, the transfer
would be useful.
The Departments assume for their analysis that the individuals
covered by the rescinded policies are much sicker than average.
Specifically, these individuals are assumed to have total spending in
the top 10 percent of spending, which represents about 70 percent of
total spending for the population as a whole, as estimated from the
2007 MEPS-HC person level medical expenditure distributions. If the
overall NAIC rescission rate of 0.15 percent comes from this subset
randomly, then they would account for one percent of claims. Depending
on the percentage of rescissions that no longer occur as a result of
these interim final regulations, and other changes to the insurance
market as detailed below, these claims would now have to be covered,
representing a transfer of costs from the affected entities to the
larger insured population.
Substantial uncertainty exists around the estimated transfer
discussed above. First, since post-claims underwriting is limited by
these interim final regulations, plans may expand their pre-claims
underwriting practices, potentially leading to increased denials,
preexisting condition riders, or rate-ups.\73\ This in turn would
decrease the number of rescissions, but without expanding coverage or
increasing claims paid. Second, there is uncertainty concerning what
proportion of the rescissions would be considered to result from fraud
or intentional misrepresentation of material fact, and also uncertainty
regarding the interaction of this provision with other provisions, such
as the elimination of lifetime limits discussed in the impact analysis
for PHS Act section 2711, or the prohibition of preexisting condition
exclusions for children--since new children will now be able to enroll
in policies which also cannot be rescinded. As a result of this
uncertainty, the Departments are unable to precisely estimate an
overall or average premium impact from this provision, but given the
relatively low prevalence of rescissions in the current market, the
impact is estimated to be at most a few tenths of a percent.
---------------------------------------------------------------------------
\73\ These interim final regulations eliminate preexisting
condition riders for children, but such riders will continue to be
allowed for adults until January 1, 2014.
---------------------------------------------------------------------------
5. PHS Act Section 2719A, Patient Protections (26 CFR 54.9815-2719AT,
29 CFR 2590.715-2719A, 45 CFR 147.138)
As discussed earlier in this preamble, Section 2719A of the PHS Act
and these interim final regulations impose, with respect to a group
health plan, or group or individual health insurance coverage, a set of
three requirements relating to the choice of a health care professional
and requirements relating to benefits for emergency services. The three
requirements relating to the choice of health care professional apply
only with respect to a plan or health insurance coverage with a network
of providers. Thus, a plan or issuer that has not negotiated with any
provider for the delivery of health care but merely reimburses
individuals covered under the plan for their receipt of health care is
not subject to the requirements relating to the choice of a health care
professional. However, all plans or health insurance coverage are
subject to requirements relating to benefits for
[[Page 37210]]
emergency services. The cost, benefits, and transfers associated with
each of these requirements are discussed separately below.
PHS Act section 2719A and these interim final regulations are
generally effective for plan years (or, in the case of the individual
market, policy years) beginning on or after September 23, 2010.
a. Choice of Health Care Professional
i. Designation of Primary Care Provider
Summary. The statute and these interim final regulations provide
that if a group health plan, or a health insurance issuer offering
group or individual health insurance coverage, requires or provides for
designation by a participant, beneficiary, or enrollee of a
participating primary care provider, then the plan or issuer must
permit each participant, beneficiary, and enrollee to designate any
participating primary care provider who is available to accept the
participant, beneficiary, or enrollee.
Estimated Number of Affected Entities. Choice or assignment to a
primary care provider is typically required by health maintenance
organizations (HMOs) and Point of Service plans (POS). Recent data
suggest that there are 577 HMOs in the United States,\74\ accounting
for more than 32.3 million enrollees,\75\ of whom about 40 percent have
their primary care provider serve as a gatekeeper.\76\ Similar data
does not exist for POS plans, although as a reference, about 10 percent
of workers with ESI are enrolled in POS plans.\77\
---------------------------------------------------------------------------
\74\ Kaiser Family Foundation, ``Number of HMOs, July 2008,''
available at http://www.statehealthfacts.kff.org/
comparetable.jsp?ind=347&cat=7&sub=85&yr=71&typ=1&sort=a Note that
the number of HMOs also includes Medicaid and Medicare only HMOs
that are not covered by these interim final regulations.
\75\ Departments' estimates are based on the 2009 CPS and the
2008 Medical Expenditure Panel Survey.
\76\ See Fang, Hai, et al., ``Has the use of physician
gatekeepers declined among HMOs? Evidence from the United States.''
International Journal of Health Care Finance and Economics 9:183-19
5 (2009).
\77\ See Kaiser Employer Health Benefits Annual Survey, 2009,
Exhibit 5.2 (``Distribution of Health Plan Enrollment for Covered
Workers, by Firm Size, Region, and Industry, 2009''), available at
http://ehbs.kff.org/pdf/2009/7936.pdf.
---------------------------------------------------------------------------
PHS Act section 2719A and these interim final regulations only
apply to non-grandfathered health plans. However, due to the lack of
data on HMO and POS enrollees by type of market, and the inability to
predict new plans that may enter those markets, the Departments are
unable to predict the number enrollees and plans that would be affected
by these provisions. Moreover, there are no data on the number of plans
that auto-assign patients to primary care physicians and do not already
allow patients to make the final provider choice, as this would be the
population to benefit maximally from the interim final rule. From
conversations with industry experts the Departments expect, however,
that this number would be very small, and therefore the benefits and
costs of this provision would be small as well, as discussed further
below.
Benefits. Provider choice allows patients to take into account
factors they may value when choosing their provider, such as provider
credentials, office hours and location, advice from professionals, and
information on the experience of other patients.\78\ Freedom of choice
is an important value, particularly in this domain, even if it cannot
easily be turned into monetary equivalents. Provider choice is a strong
predictor of patient trust in their provider, which could lead to
decreased likelihood of malpractice claims.\79\ As well, studies show
that better patient-provider trust results in improved medication
adherence.\80\ Research literature suggests that better patient-
provider relationships also increase health promotion and therapeutic
effects.\81\ Moreover, one study found that adults who identified
having a primary care provider, rather than a specialist, as their
regular source of care had 33 percent lower annual adjusted health care
expenditures and lower adjusted mortality.\82\
---------------------------------------------------------------------------
\78\ See Fanjiang, Gary, et al., ``Providing Patients Web-based
Data to Inform Physician Choice: If You Build It, Will They Come?.''
Journal of General Internal Medicine 22.10 (2007).
\79\ Balkrishnan, Rajesh, and Chu-Weininger, Ming Ying L.,
``Consumer Satisfaction with Primary Care Provider Choice and
Associated Trust.'' BMC Health Services Research 22.10 (2007).
\80\ Piette, John, et al., ``The Role of Patient-Physician Trust
in Moderating Medication Nonadherence Due to Cost Pressures.''
Archives of Internal Medicine 165, August (2005) and Roberts,
Kathleen J., ``Physician-Patient Relationships, Patient
Satisfaction, and Antiretroviral Medication Adherence Among HIV-
Infected Adults Attending a Public Health Clinic.'' AIDS Patient
Care and STDs 16.1 (2002).
\81\ Ibid. See also DiMatteo, Robin M., et al., ``Physicians'
Characteristics Influence Patients' Adherence to Medical Treatment:
Results From the Medical Outcomes Study.'' Health Psychology 12.2
(1993), and Bazemore, Andrew, and Phillips, Robert, ``Primary Care
and Why it Matters for U.S. Health Reform.'' Health Affairs 29.5
(2010).
\82\ Franks, P., and K. Fiscella, ``Primary Care Physicians and
Specialists as Personal Physicians. Health Care Expenditures and
Mortality Experience.'' Journal of Family Practice 47 (1998).
---------------------------------------------------------------------------
Studies have also found that patients who have long-term
relationships with their health care providers tend to experience
better quality health care. Adults that have a usual provider and place
are more likely to receive preventive care and screening services than
those who do not. For example, adults were 2.8 times more likely to
receive a flu shot and women between the ages of 20-64 were 3.9 times
more likely to receive a clinical breast exam if they had a usual
provider and place of service.\83\
---------------------------------------------------------------------------
\83\ Blewett, Lynn, et al., ``When a Usual Source of Care and
Usual Provider Matter: Adult Prevention and Screening Services.''
Journal of General Internal Medicine 23.9 (2008).
---------------------------------------------------------------------------
Regular contact with primary care providers also can decrease
emergency department visits and hospitalizations. One study found that
adolescents with the same regular source of care were more likely to
receive preventive care and less likely to seek care in an emergency
room.\84\ Another study found that patients without a relationship with
a regular physician were 60 percent more likely to go to the emergency
department with a non-urgent condition.\85\ Patients that have a usual
source of care tend to also have fewer hospital admissions.\86\
---------------------------------------------------------------------------
\84\ Macinko, James, et al., ``Contribution of Primary Care to
Health Systems and Health.'' Milbank Quarterly 83.3 (2005).
\85\ Burstin, ``Nonurgent Emergency Department Visits: The
Effect of Having a Regular Doctor.''
\86\ Bazemore, ``Primary Care and Why it Matters for U.S. Health
Reform.''
---------------------------------------------------------------------------
Costs and Transfers. Although difficult to estimate given the data
limitations described above, the costs for this provision are likely to
be minimal. As previously noted, when enrollees like their providers,
they are more likely to maintain appointments and comply with
treatment, both of which could induce demand for services, but these
services could then in turn reduce costs associated with treating more
advanced conditions. However, the number of affected entities from this
provision is very small, leading to small additional costs.
There will likely be negligible transfers due to this provision
given no changes in coverage or cost-sharing.
ii. Designation of Pediatrician as Primary Care Provider
Summary. If a plan or issuer requires or provides for the
designation of a participating primary care provider for a child by a
participant, beneficiary, or enrollee, the plan or issuer must permit
the designation of a physician (allopathic or osteopathic) who
specializes in pediatrics as the child's primary care provider if the
provider participates in the network of the plan or issuer and is
available to accept the child. The general terms of the plan or health
insurance coverage regarding pediatric care otherwise are unaffected,
[[Page 37211]]
including any exclusions with respect to coverage of pediatric care.
Estimated Number of Affected Entities. Due to lack of data on
enrollment in managed care organizations by age, as well as lack of
data on HMO and POS enrollees by type of market, and the inability to
predict new plans that may enter those markets, the Departments are
unable to predict the number enrollees and plans that would be affected
by these provisions. As a reference, there are an estimated 11.8
million individuals under age 19 with ESI who are in an HMO plan.\87\
---------------------------------------------------------------------------
\87\ U.S. Department of Labor/EBSA calculations using the March
2009 Current Population Survey Annual Social and Economic Supplement
and the 2008 Medical Expenditure Panel Survey.
---------------------------------------------------------------------------
Benefits. By expanding participating primary care provider options
for children to include physicians who specialize in pediatrics, this
provision could benefit individuals who are making decisions about care
for their children. As discussed in the previous section, research
indicates that when doctors and patients have a strong, trusting
relationship, patients often have improved medication adherence, health
promotion, and other beneficial health outcomes. Considering this
research, this provision could lead to better, sustained patient-
provider relationships and health outcomes.
In addition, allowing enrollees to select a physician specializing
in pediatrics as their children's primary care provider could remove
any referral-related delays for individuals in plans that require
referrals to pediatricians and do not allow physicians specializing in
pediatrics to serve as primary care providers.\88\ The American Academy
of Pediatrics (AAP) strongly supports the idea that the choice of
primary care clinicians for children should include pediatricians.\89\
Relatedly, at least two States have laws providing children immediate
access to pediatricians.\90\
---------------------------------------------------------------------------
\88\ There is no data available to estimate the number of plans
that fall into this category.
\89\ See AAP Policy, ``Guiding Principles for Managed Care
Arrangements for the Health Care of Newborns, Infants, Children,
Adolescents, and Young Adults,'' available at http://
aappolicy.aappublications.org/cgi/reprint/pediatrics;105/1/132.pdf.
\90\ For example, Michigan and North Carolina mandate direct
access to pediatricians as a part of patients' rights requirements.
See Kaiser Family Foundation, ``Patients' Rights: Direct Access to
Providers, 2008,'' available at http://www.statehealthfacts.kff.org/
comparetable.jsp?ind=364&cat=7.
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Regular pediatric care, including care by physicians specializing
in pediatrics, can improve child health outcomes and avert preventable
health care costs. For example, one study of Medicaid enrolled children
found that when children were up to date for age on their schedule of
well-child visits, they were less likely to have an avoidable
hospitalization at a later time.\91\ Likewise, if providers are able to
proactively identify and monitor obesity in child patients, they may
reduce the incidence of adult health conditions that can be expensive
to treat; various studies have documented links between childhood
obesity and diabetes, hypertension, and adult obesity.\92\ One recent
study modeled that a one-percentage-point reduction in obesity among
twelve-year-olds would save $260.4 million in total medical
expenditures.\93\
---------------------------------------------------------------------------
\91\ Bye, ``Effectiveness of Compliance with Pediatric
Preventative Care Guidelines Among Medicaid Beneficiaries.''
\92\ ``Working Group Report on Future Research Directions in
Childhood Obesity Prevention and Treatment.'' National Heart Lung
and Blood Institute, National Institute of Health, U.S. Department
of Health and Human Services (2007), available at http://
www.nhlbi.nih.gov/meetings/workshops/child-obesity/index.htm.
\93\ Ibid.
---------------------------------------------------------------------------
Giving enrollees in covered plans (that require the designation of
a primary care provider) the ability to select a participating
physician who specializes in pediatrics as the child's primary care
provider benefits individuals who would not otherwise have been given
these choices. Again, the extent of these benefits will depend on the
number of enrollees with children that are covered by plans that do not
allow the selection of a pediatrician as the primary care provider,
which industry experts suggest would be small.
Costs and Transfers. Although difficult to estimate given the data
limitations described above, the costs for this provision are likely to
be small. Giving enrollees a greater choice of primary care providers
by allowing them to select participating physicians who specialize in
pediatrics as their child's primary care provider could lead to health
care costs by increasing the take-up of primary care services, assuming
they would not have utilized appropriate services as frequently if they
had not been given this choice.
Any transfers associated with these interim final regulations are
expected to be minimal. To the extent that pediatricians acting as
primary care providers would receive higher payment rates for services
provided than would other primary care physicians, there may be some
transfer of wealth from policy holders of non grandfathered group plans
to those enrollees that choose the former providers. However, the
Departments do not believe that this is likely given the similarity in
income for primary care providers that care for children.\94\
---------------------------------------------------------------------------
\94\ http://www.merritthawkins.com/pdf/2008-mha-survey-primary-
care.pdf.
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iii. Patient Access to Obstetrical and Gynecological Care
Summary. The statute and these interim final regulations also
provide rules for a group health plan, or a health insurance issuer
offering group or individual health insurance coverage, that provides
coverage for obstetrical or gynecological care and requires the
designation of an in-network primary care provider. Specifically, the
plan or issuer may not require authorization or referral by the plan,
issuer, or any person (including a primary care provider) for a female
participant, beneficiary, or enrollee who seeks obstetrical or
gynecological care provided by an in-network health care professional
who specializes in obstetrics or gynecology. These plans and issuers
must also treat the provision of obstetrical and gynecological care,
and the ordering of related obstetrical and gynecological items and
services, by the professional who specializes in obstetrics or
gynecology as the authorization of the primary care provider. For this
purpose, a health care professional specializing in obstetrics or
gynecology is any individual who is authorized under applicable State
law to provide obstetrical or gynecological care, and is not limited to
a physician.
Estimated Number of Affected Entities. Requiring referrals or
authorizations to health care professional who specializes in
obstetrics or gynecology (OB/GYNs) is typically required by health
maintenance organizations (HMOs) and Point of Service plans (POS). As a
reference, according to the 2004 Kaiser Women's Health Survey, 46
percent of women reported seeing an OB/GYN in the past year and 47
percent of women of reproductive age counted OB/GYNs among their
routine health care providers.\95\ In 2006, there were 69.4 million
visits to an OB/GYN according to the National Ambulatory Medical Care
Survey conducted by the Centers for Disease Control and Prevention.\96\
Although more recent data is not available, a 1999 survey showed that
60 percent of all OB/GYNs in plans
[[Page 37212]]
requiring the designation of a primary care provider reported that
their gynecologic patients were either limited or barred from seeing
their OB/GYNs without first getting permission from another physician,
and 28 percent reported that their pregnant patients needed permission
before seeing an OB/GYN.\97\ Nearly 75 percent of surveyed OB/GYNs
reported that their patients needed to return to their primary care
physicians for permission before they could provide necessary follow-up
care.
---------------------------------------------------------------------------
\95\ See Salganicoff, Alina, et al., ``Women and Health Care: A
National Profile.'' Kaiser Family Foundation (2005).
\96\ See Cherry, Donald K., et al., ``National Ambulatory
Medical Care Survey: 2006 Summary.'' National Health Statistics
Reports (August 2008), Centers for Disease Control and Prevention,
available at http://www.cdc.gov/nchs/data/nhsr/nhsr003.pdf.
\97\ See American College of Obstetricians and Gynecologists/
Princeton Survey Research Associates, 1999.
---------------------------------------------------------------------------
Notably, beginning in 1994, due to both consumer demand and efforts
to regulate managed care, many States passed direct access laws for OB/
GYNs, allowing patients to seek care at an OB/GYN office without a
referral from a primary care physician. As of 2008, 36 States plus the
District of Columbia have laws that provide direct access to OB/GYNs.
However, 14 States have not mandated direct access: Alaska, Arizona,
Hawaii, Indiana, Iowa, Nebraska, New Jersey, New Mexico, North Dakota,
Oklahoma, South Dakota, Tennessee, Vermont, and Wyoming.\98\ This
provision gives females direct access to OB/GYNs in covered plans in
these States, who may otherwise not have had this direct access. As
well, because State law is preempted by ERISA, women in self-insured
plans did not previously receive this legal protection. In addition,
these women will not need to get an authorization from their primary
care provider for the care and ordering of obstetrical and
gynecological items and services by their participating OB/GYN.
---------------------------------------------------------------------------
\98\ Kaiser Family Foundation, ``Mandates Direct Access to OB/
GYNs?,'' available at http://www.statehealthfacts.kff.org/
comparemaptable.jsp?ind=493&cat=10&sub=114.
---------------------------------------------------------------------------
These interim final regulations apply to non-grandfathered health
plans. However, due to the lack of data on HMO and POS enrollees by
type of market, and the inability to predict new plans that may enter
those markets, the Departments are unable to predict the number
enrollees and plans that would be affected by this provision. As a
reference, there are an estimated 14.8 million females between ages 21
to 65 with ESI who are in HMO plans.\99\
---------------------------------------------------------------------------
\99\ U.S. Department of Labor/EBSA calculations using the March
2009 Current Population Survey Annual Social and Economic Supplement
and the 2008 Medical Expenditure Panel Survey.
---------------------------------------------------------------------------
Benefits. This provision gives women in covered plans easier access
to their OB/GYNs, where they can receive preventive services such as
pelvic and breast exams, without the added time, expense, and
inconvenience of needing permission first from their primary care
providers. Moreover, this provision may also save time and reduce
administrative burden since participating OB/GYNs do not need to get an
authorization from a primary care provider to provide care and order
obstetrical and gynecological items and services. To the extent that
primary care providers spend less time seeing women who need a referral
to an OB/GYN, access to primary care providers will be improved. To the
extent that the items and services are critical and would have been
delayed while getting an authorization from the primary care provider,
this provision could improve the treatment and health outcomes of
female patients.
Access to such care can have substantial benefits in women's lives.
About 42,000 American women die each year from breast cancer, and it is
estimated that about 4,000 additional lives would be saved each year
just by increasing the percentage of women who receive recommended
breast cancer screenings to 90 percent.\100\ As well, regular screening
with pap smears is the major reason for the 30-year decline in cervical
cancer mortality.\101\
---------------------------------------------------------------------------
\100\ See National Commission on Prevention Priorities,
``Preventive Care: A National Profile on Use, Disparities, and
Health Benefits.'' Partnership for Prevention, August 2007.
\101\ See ``Preventive Care: A National Profile on Use,
Disparities, and Health Benefits'' at 26.
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To the extent that direct access to OB/GYN services results in
increased utilization of recommended and appropriate care, this
provision may result in benefits associated with improved health status
for the women affected. Potential cost savings also exist since women
in affected plans will not need to visit their primary care provider in
order to get a referral for routine obstetrical and gynecological care,
items, and services, thereby reducing unnecessary time and
administrative burden, and decreasing the number of office visits paid
by her and by her health plan.
Costs and Transfers. One potential area of additional costs
associated with this provision would be induced demand, as women who no
longer need a referral to see an OB/GYN may be more likely to receive
preventive screenings and other care. Data is limited to provide an
estimate of this induced demand, but the Departments believe it to be
small.
To the extent these interim final regulations result in a shift in
services to higher cost providers, it would result in a transfer of
wealth from enrollees in non grandfathered group plans to those
individuals using the services affected. However, such an effect is
expected to be small.
b. Coverage of Emergency Services
i. Summary
PHS Act section 2719A and these interim final regulations provide
that a group health plan and a health insurance issuer covering
emergency services must do so without the individual or the health care
provider having to obtain prior authorization (even if the emergency
services are provided out of network). For a plan or health insurance
coverage with a network of providers that provide benefits for
emergency services, the plan or issuer may not impose any
administrative requirement or limitation on benefits for out-of-network
emergency services that is more restrictive than the requirements or
limitations that apply to in-network emergency services.
Finally, these interim final regulations provide that cost-sharing
requirements expressed as a copayment amount or coinsurance rate
imposed for out-of-network emergency services cannot exceed the cost-
sharing requirements that would be imposed if the services were
provided in-network. These interim final regulations also provide that
a plan or health insurance issuer pay for out-of-network emergency
services (prior to imposing in-network cost-sharing), the greatest of:
(1) The median in-network rate; (2) the usual customary and reasonable
rate (or similar rate determined using the plans or issuer's general
formula for determining payments for out-of-network services); or (3)
the Medicare rate.
In applying the rules relating to emergency services, the statute
and these interim final regulations define the terms emergency medical
condition, emergency services, and stabilize. These terms are defined
generally in accordance with their meaning under Emergency Medical
Treatment and Labor Act (EMTALA), section 1867 of the Social Security
Act. There are, however, some variances from the EMTALA definitions.
The statute and these interim final regulations relating to
emergency services do not apply to grandfathered health plans; however,
other Federal or State laws related to emergency services may apply
regardless of grandfather status.
ii. Estimated Number of Affected Entities
These interim final regulations will directly affect out-of-pocket
[[Page 37213]]
expenditures for individuals enrolled in non-grandfathered private
health insurance plans (group or individual) whose copayment or
coinsurance arrangements for emergency services differ between in
network and out of network providers. These interim final regulations
may also require some health plans to make higher payments to out of
network providers than are made under their current contractual
arrangements. There are no available data, however, that allow for
national estimates of the number of plans (or number of enrollees in
plans) that have different payment arrangements for out of network than
in-network providers, or differences between in- and out-of-network
copayment and coinsurance arrangements, in order to more precisely
estimate the number of enrollees affected.
The Departments conducted an informal survey of benefits plans for
large insurers in order to assess the landscape with regard to
copayment and coinsurance for emergency department services, but found
that a variety of arrangements currently exist in the marketplace. Many
of the large insurers maintained identical copayment and/or coinsurance
arrangements between in and out of network providers. Others have
differing arrangements based on copayments, coinsurance rates, or a
combination of the two. While useful for examining the types of
arrangement that exist in the market place, these data do not contain
enrollment information and therefore cannot be used to make impact
estimates.
Although these data do not permit quantitative estimates of plans
or persons affected, other data can be illustrative of overall
magnitudes for emergency services. For a point of reference, in 2005,
115.3 million visits were made to hospital emergency departments. Of
these, 39.9 percent were made by individuals with private insurance.
This represents approximately 46.0 million visits, at approximately 1.7
visits per insured person that utilized emergency department services,
or 27.4 million people.\102\ While data on rates of out-of-network
emergency room encounters is sparse, the Blue Cross Blue Shield (BCBS)
Association reports that nationally about 8 percent of its emergency
room visits are sought out-of-network.\103\ Given the breadth of the
Blue Cross networks, it is reasonable to assume that 8 percent to 16
percent of emergency room visits are out-of-network each year, since a
plan with a smaller provider network will be more likely to have out-
of-network use by enrollees. If each individual was equally likely to
utilize out of network services, a maximum of 2.1 to 4.2 million
individuals would be potentially affected by differing out-of-pocket
requirements. Based on the informal survey, some proportion, possibly a
large portion, of these individuals are covered by plans that have
identical in and out-of-network requirements. Therefore, the number of
individuals affected by this regulatory provision would be smaller.
---------------------------------------------------------------------------
\102\ Vital and Health Statistics, Advanced Data No. 386, June
29, 2007.
\103\ BCBS, however, reports its rates vary considerably by
State, with 11 States having double digit rates ranging from 10
percent to a high of 41 percent. Moreover, because BCBS has
reciprocity between many State Blue Cross Blue Shield plans, its
statistics for out of network emergency services utilization should
be considered a conservative estimate of the proportion of ER
services that insured individuals receive out-of-network.
---------------------------------------------------------------------------
iii. Benefits
Insurers maintain differing copayment and coinsurance arrangements
between in- and out-of-network providers as a cost containment
mechanism. Implementing reduced cost sharing for the use of in-network
providers provides financial incentive for enrollees to use these
providers, with whom plans often have lower-cost contractual
arrangements. In emergency situations, however, the choice of an in-
network provider may not be available--for example, when a patient is
some distance from his or her local provider networks or when an
ambulance transports a patient to the nearest hospital which may not
have contractual arrangements with the person's insurer. In these
situations, the differing copayment or coinsurance arrangements could
place a substantial financial burden on the patient. These interim
final regulations eliminate this disparity in out-of-pocket burden for
enrollees, leading to potentially substantial financial benefit.
These interim final regulations also provide for potentially higher
payments to out-of-network providers, if usual customary rates or
Medicare rates are higher than median in-network rates. This could have
a direct economic benefit to providers and patients, as the remaining
differential between provider charge and plan payment will be smaller,
leading to a smaller balance-bill for patients.
To the extent that expectations about such financial burden with
out-of-network emergency department usage would cause individuals to
delay or avoid seeking necessary medical treatment when they cannot
access a network provider, this provision may result in more timely use
of necessary medical care. It may therefore result in health and
economic benefits associated with improved health status; and fewer
complications and hospitalizations due to delayed and possibly reduced
mortality. The Departments expect that this effect would be small,
however, because insured individuals are less likely to delay care in
emergency situations.
iv. Costs and Transfers
The economic costs associated with the emergency department
provisions are likely to be minimal. These costs would occur to the
extent that any lower cost-sharing would induce new utilization of out
of network emergency services. Given the nature of these services as
emergency services, this effect is likely to be small for insured
individuals. In addition, the demand for emergency services in truly
emergency situations can result in health care cost savings and
population health improvements due to the timely treatment of
conditions that could otherwise rapidly worsen.
The emergency services provisions are likely to result in some
transfers from the general membership of non-grandfathered group
policies that have differing copayment and coinsurance arrangements to
those policy holders that use the out-of-network emergency services.
The transfers could occur through two avenues. First, if there is
reduced cost sharing for out-of-network emergency services, then plans
must pay more when enrollees use those services. Out-of-pocket costs
for the enrollees using out-of-network services will decrease, while
plan costs will get spread across the insured market. Second, if the
provision results in plans paying higher rates than they currently do
for out-of-network providers, then those costs will get spread across
the insured market while the individual enrollees using out-of-network
care would potentially get a smaller balance bill. For all of the data
issues described above, the precise amount of the transfer which would
occur through an increase in premiums for these group plans is
impossible to quantify with any precision, but it is likely to be less
than one-tenth of one percent of premium, and only applies to non-
grandfathered health plans.
c. Application to Grandfathered Health Plans
As discussed earlier in this preamble, the statute and these
interim final regulations relating to certain patient protections do
not apply to
[[Page 37214]]
grandfathered health plans. However, other Federal or State laws
related to these patient protections may apply regardless of
grandfather status.
d. Patient Protection Disclosure Requirement
When applicable, it is important that individuals enrolled in a
plan or health insurance coverage know of their rights to (1) choose a
primary care provider or a pediatrician when a plan or issuer requires
participants or subscribers to designate a primary care physician; or
(2) obtain obstetrical or gynecological care without prior
authorization. Accordingly, these interim final regulations require
such plans and issuers to provide a notice to participants (in the
individual market, primary subscribers) of these rights when
applicable. Model language is provided in these interim final
regulations. 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, or
in the individual market, provides a primary subscriber with a policy,
certificate, or contract of health insurance.
The Departments estimate that the cost to plans and insurance
issuers to prepare and distribute the disclosure is $6.1 million in
2011. For a discussion of the Patient Protection Disclosure
Requirement, see the Paperwork Reduction Act section later in this
preamble.
6. Combined Effects of the Insurance Market Reforms
a. Summary
The Affordable Care Act includes a number of provisions that are
effective for plan years (or in the case of individual health insurance
coverage, for policy years) beginning on or after September 23, 2010.
These interim final regulations include four of those provisions whose
purpose is to improve consumer protections. Two additional provisions--
the extension of dependent coverage to adult children and the rules
defining a grandfathered health plan--were the subject of previously
published interim final regulations. The implementation of other
provisions--including those relating to coverage of preventive services
(PHS Act section 2713) and appeals (PHS Act section 2719)--will be
addressed in future regulations.
This set of regulations is distinct from the others in that its
primary beneficiaries are people who generally already have some type
of illness, injury or disability. The provision prohibiting preexisting
condition exclusions for children could help 31,000 to 72,000 uninsured
children gain insurance, and up to 90,000 children who have insurance
with benefit carve-outs or preexisting condition exclusion periods. The
policy on restricted annual limits could help up to 2,700 to 3,500
people who hit these limits each year; the prohibition on lifetime
limits could help 18,650 to 20,400 each year who would be expected to
have costs that exceed a limit. Based on an NAIC survey, the
Departments estimate there are approximately 10,700 rescissions of
policies in the individual market each year, and these interim final
regulations are expected to reduce this number substantially.\104\ And
one of the patient protections, access to emergency care from out-of-
network providers, could limit the out-of-pocket spending for up to 2.1
to 4.2 million individuals with some acute health care need. While the
estimates on the number of people affected by these policies may be
relatively small, a much larger number of Americans are at risk of
hitting one of these barriers to insurance coverage and will gain
indirect benefits of the legislation. This section describes the
potential combined benefits, costs, and transfers of these provisions.
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\104\ NAIC Rescission Data Call, December 17, 2009, p.1.
---------------------------------------------------------------------------
b. Benefits
These interim final regulations could generate significant economic
and social welfare benefits to consumers. This would take the form of
reductions in mortality and morbidity, a reduction in medical
expenditure risk, an increase in worker productivity, and a decrease
the cross-subsidy in premiums to offset uncompensated care, sometimes
referred to as the ``hidden tax.'' Each of these effects is described
below. It should be noted that the benefits described are substantially
greater in each of these areas once all the protections of the full
Affordable Care Act are effective.
A first type of benefit is reductions in mortality and morbidity.
While the empirical literature leaves many questions unresolved, a
growing body of evidence convincingly demonstrates that health can be
improved by spending more on at-risk individuals and by expanding
health insurance coverage. For example, Almond et al.\105\ find that
newborns classified just below a medical threshold for ``very low
birthweight'' have lower mortality rates than newborns classified as
just above the threshold, despite an association between low birth
weight and higher mortality in general, because they tend to receive
additional medical care. In a study of severe automobile accidents,
Doyle\106\ found that uninsured individuals receive less care and have
a substantially higher mortality rate. Currie and Gruber\107\ found
that increased eligibility for Medicaid coverage expanded utilization
of care for otherwise uninsured children, leading to a sizeable and
significant reduction in child mortality. A study of Medicare by Card
et al.\108\ found that individuals just old enough to qualify for
coverage have lower mortality rates--despite similar illness severity--
than do those just too young for eligibility. Finally, a report by the
Institute of Medicine (IOM) \109\ found mortality risks for uninsured
individuals that were 25 percent higher than those of observably
similar insured individuals. In addition to the prospect that expanded
insurance coverage will result in reductions in mortality, it will
almost certainly substantially reduce morbidity, as demonstrated in
extensive reviews of the literature by Hadley and the IOM.\110\
---------------------------------------------------------------------------
\105\ Almond, Douglas, Joseph J. Doyle, Jr., Amanda E. Kowalski,
and Heidi Williams. ``Estimating Marginal Returns to Medical Care:
Evidence from At-Risk Newborns.'' The Quarterly Journal of
Economics, May 2010, 125(2): 591-634. http://www.mit.edu/~jjdoyle/
vlbw.pdf.
\106\ Doyle, Joseph J. ``Health Insurance, Treatment and
Outcomes: Using Auto Accidents as Health Shocks.'' The Review of
Economics and Statistics, May 2005. 87(2):256-270. http://
www.mitpressjournals.org/doi/abs/10.1162/0034653053970348.
\107\ Currie, Janet and J. Gruber. ``Health Insurance
Eligibility, Utilization of Medical Care, and Child Health.'' The
Quarterly Journal of Economics, May 1996. 111(2):431-466. http://
www.jstor.org/stable/2946684?cookieSet=1.
\108\ Card, David, C. Dobkin, and N. Maestas. ``Does Medicare
Save Lives?'' The Quarterly Journal of Economics, May 2009.
124(2):597-636. http://www.mitpressjournals.org/doi/abs/10.1162/
qjec.2009.124.2.597.
\109\ Institute of Medicine. Care Without Coverage: Too Little,
Too Late. Washington, DC: National Academy Press, 2002. http://
books.nap.edu/openbook.php?record_id=10367&page=R1.
\110\ Institute of Medicine, op. cit. Hadley J. Sicker and
Poorer: The consequences of being uninsured. Medical Care Research
and Review, Vol. 60, No. 2 suppl, 3S-75S (2003).
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These interim final regulations will expand access to currently
uninsured individuals. These newly insured populations will likely
achieve both mortality and meaningful morbidity reductions from the
regulations, especially those populations who face rescissions,
restricted annual or lifetime limits, or preexisting conditions
exclusions, since they are on average in worse health and thus likely
to benefit even more from insurance coverage than uninsured individuals
in general.
[[Page 37215]]
Because considerable uncertainty surrounds any specific estimate of
the effect of expanded coverage on mortality and morbidity, this
benefit is not quantified in this analysis.\111\ However, the
Departments conclude that reductions in mortality and morbidity are
likely to be a significant benefit of these interim final regulations
and will become substantially greater in 2014 and subsequent years,
when millions of additional individuals will obtain health insurance
coverage.
---------------------------------------------------------------------------
\111\ Kronick, Richard. ``Health insurance coverage and
mortality revisited.'' Health Services Research. April 2009.
44(4):1211-1231. http://www3.interscience.wiley.com/journal/
122342601/abstract?CRETRY=1&SRETRY=0.
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A second type of benefit from the cumulative effects of these
interim final regulations is a reduction in medical risk. A central
goal of health insurance is to protect individuals against catastrophic
financial hardship that would come with a debilitating medical
condition. By pooling expenses across healthy and sick individuals,
insurance can substantially improve the economic well-being of the sick
while imposing modest costs on the healthy. This insurance is valuable,
and economic theory suggests that the gains to the sick from a properly
implemented insurance system far exceed the costs to healthy
individuals. A recent paper shows that the benefits from this reduction
in exposure to financial risks would be sufficient to cover almost two-
fifths of insurance costs.\112\ Previous research also suggests that
protecting patients who have very high medical costs or low financial
assets is likely to have even larger benefits. Indeed, research
indicates that approximately half of the more than 500,000 personal
bankruptcies in the U.S. in 2007 were to some extent contributed to by
very high medical expenses.\113\ Exclusions from health insurance
coverage based on preexisting conditions expose the uninsured to the
aforementioned financial risks. Rescissions of coverage and binding
annual or lifetime limits on benefits increase the chance that medical
expenditures will go uncompensated, exposing individuals to the
financial risks associated with illness. Regulations that prevent these
practices thus reduce the uncertainty and hardship associated with
these financial risks. Moreover, because they secure coverage for
individuals with high probabilities of incurring extensive medical
expenses, regulations that guard against rescissions and prevent
insurance exclusion based on preexisting conditions for children are
likely to have especially large economic benefits in terms of reducing
financial risk. These interim final regulations will help insurance
more effectively protect patients from the financial hardship of
illness, including bankruptcy and reduced funds for non-medical
purposes.
---------------------------------------------------------------------------
\112\ Amy Finkelstein and Robin McKnight. What Did Medicare Do?
The Initial Impact of Medicare on Mortality and Out of Pocket
Medical Spending. 2008. Journal of Public Economics 92: 1644-1669.
\113\ David Himmelstein et al, 2009.
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A third type of benefit from these interim final regulations is
improved workplace productivity. These interim final regulations will
benefit employers and workers by increasing workplace productivity and
reducing absenteeism, low productivity at work due to preventable
illness, and ``job-lock.'' A June 2009 report by the Council of
Economic Advisers found that increased access to health insurance
coverage improves labor market outcomes by improving worker
health.\114\ The health benefits of eliminating coverage rescissions
and lifetime coverage limits, restricting annual limits, and expanding
access to primary care providers and OB/GYNs will help to reduce
disability, low productivity at work due to preventable illness, and
absenteeism in the work place, thereby increasing workplace
productivity and labor supply. Economic theory suggests that these
benefits would likely be shared by workers, employers, and consumers.
In addition, these interim final regulations will increase labor market
efficiency by reducing ``job lock,'' or the reluctance to switch jobs
or engage in entrepreneurship because such activities would result in
the loss of health insurance or limitations on coverage. For example,
without the regulations, a parent with generous coverage for a child
with a medical condition might fear moving to a different employer or
launching his or her own business given the concern that the new plan
could exclude coverage for the child on the basis of the preexisting
condition. These reforms will increase not only productivity and
innovation through entrepreneurship, but also worker wages since job
lock prevents workers from pursuing jobs with potentially higher
salaries.\115\ The Council of Economic Advisers' June 2009 report
estimates that for workers between the ages of 25 and 54, the short-
term gain from eliminating job lock would be an increase in wages of
0.3 percent.
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\114\ Council of Economic Advisers. ``The Economic Case for
Health Reform.'' (2009).
\115\ Gruber, J. and B. Madrian. ``Health Insurance, Labor
Supply, and Job Mobility: A Critical Review of the Literature.''
(2001).
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Fourth, the Affordable Care Act's provisions will reduce the
transfers in the health care system due to cost shifting of
uncompensated care that lead to higher premiums for private insurance.
The insurance market regulations will help expand the number of
individuals who are insured and reduce the likelihood that individuals
who have insurance do not bankrupt themselves by paying medical bills.
Both effects will help reduce the amount of uncompensated care that
imposes a ``hidden tax'' on consumers of health care since the costs of
this care are shifted to those who are able to pay for services in the
form of higher prices.
The Departments provide here an order of magnitude for the
compensatory reduction in cost-shifting of uncompensated care that is
associated with the expansion of coverage of these interim final
regulations. Three assumptions were made. First, the uninsured
populations affected by these interim final regulations tend to have
worse health, greater needs for health care, higher health care
spending, and less ability to reduce utilization when they are
uninsured. These interim final regulations are therefore unlikely to
induce as much demand for health care as would be assumed for the
uninsured population in general when coverage expands. As such, the
Departments assume that extending insurance coverage to this group is
unlikely to significantly increase the overall costs of the U.S. health
care system. The Departments therefore assume that the vast majority of
the premium increases estimated in this regulatory impact analysis
result from transfers from out-of-pocket or uncompensated care costs to
covered costs, although we emphasize that there is considerable
uncertainty surrounding this estimate.
Second, on the basis of the economics literature on the
subject,\116\ the Departments estimate that two-thirds of the
previously uncovered costs would have been uncompensated care (with the
remaining one-third paid for out-of-pocket), of which 75 percent would
have been paid for by public sources, and 25 percent would have been
paid for by private sources. If reductions in privately-financed
uncompensated care are passed on in the form of lower prices charged by
hospitals, and result in lower insurance premiums charged to consumers,
then the Departments estimate that increased insurance
[[Page 37216]]
coverage for the vulnerable populations affected by these interim final
regulations could result in reductions in insurance premiums of up to
$1 billion in 2013.\117\ There would also be corresponding decreases in
public expenditure as uncompensated care is reduced.
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\116\ Hadley, Jack, J. Holahan, T. Coughlin, and D. Miller.
``Covering the Uninsured in 2008: Current Costs, Sources of Payment,
and Incremental Costs.'' Health Affairs, 2008, 27(5): w399[not]w415.
\117\ The Departments come to this estimate using the following
methods. First, they estimated the proportion of the population in
group and individual markets using the Medical Expenditure Panel
Survey (2008). Next, information from 75 FR 34538 (June 17, 2010)
was used to estimate the proportion of employer and individual plans
that maintain or lose grandfather status by 2013. Projections of
national health expenditures from the National Health Expenditure
Accounts to 2013 were distributed among these groups, and premium
impacts as discussed in this regulatory impact analysis were
applied. Potential premium reductions secondary to reductions in the
cost-shifting of uncompensated care were then calculated using the
information from the economic literature as presented in this
discussion. The Departments note that to the extent that not all of
the reductions in uncompensated care costs are passed onto insured
populations, these estimates may be an overestimate.
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c. Costs and Transfers
Premiums reflect both effects on health system costs as well as
transfers in the payment of costs from one payer or group of
individuals to another. For example, as consumer protections expand
coverage and/or reduce cost-sharing, the costs for services that people
previously paid for out of pocket--often creating substantial burdens
as described above--will be distributed over a wider insured
population. On the other hand, the cost-shifting that previously
occurred onto the insured population when people could no longer pay
for their out-of-pocket care will be reduced. Expansion of coverage
will also generate induced demand for services, with corresponding
benefits to health and productivity. These costs and transfers together
will generate a change in premiums. As discussed previously, the
populations affected by these interim final regulations tend to be in
poorer health than the general uninsured population, leading to less
induced demand when coverage expands.
The Departments estimate that the premium effect of prohibiting
preexisting condition exclusions for children would be on average one
percent or less in the individual market and negligible in the group
market. The provisions relating to annual and lifetime limits would
have approximately one-half of one percent impact on premiums in the
group market and less than a one percent impact on premiums in the
individual market. While the prohibition on lifetime limits applies to
individual plans that are grandfathered, the restricted annual limit
policy and preexisting condition exclusion policy for children do not,
limiting the premium effect for the grandfathered market. Although
precise estimates of the effects of restricting rescissions and
expanding patient protections are even more difficult to make than for
preexisting condition exclusions or annual and lifetime limits, the
Departments' analysis suggest that the effects of restricting
rescissions will be no more than a few tenths of one percent of
premium, and that patient protections will increase premiums by less
than one tenth of one percent.
The Departments emphasize that these individual premium effects
cannot be simply added to get a combined impact on premiums for several
reasons. The first relates to their simultaneous implementation.
Quantifying the precise and unique premium impact of policies that take
effect at the same time is difficult. Health insurers will consider the
totality of the provisions in making decisions about coverage
modifications, so that disentangling the effects of each provision is
impossible. This is especially so given the complex interactions among
the policies. For example, prohibiting rescissions and lifetime limits
could mean that someone who would have had a policy rescinded now
maintains coverage, and also maintains coverage beyond a previous
lifetime limit. Under the current guaranteed renewability protections
in the individual market, if a child with a preexisting condition is
now able to obtain coverage on a parental plan, he or she can
potentially stay on that plan until age 26.
This difficulty is compounded by the flexibility afforded in the
grandfather rule. Plans and issuers will consider the cumulative impact
of these provisions when making decisions about whether or not to make
other changes to their coverage that could affect their grandfather
status. It can be expected that the plans that are most affected by
these provisions in terms of potential premium impact will likely be
the most aggressive in taking steps to maintain grandfather status,
although, as described in that regulatory impact analysis, other
factors affect plans' decisions as well. It is unlikely that plans will
make this calculation multiple times for the multiple provisions that
will take effect at the same time.
Lastly, estimating these effects cumulatively compounds the errors
of highly uncertain estimates. As discussed, plan and enrollee
behaviors may change in response to the incentives created by these
interim final regulations. Data are also limited in many areas,
including: The prevalence of annual limits in insurance markets;
characteristics of high-cost enrollees; prevalence and characteristics
of rescissions; and take-up rates under different insurance scenarios.
As discussed above, the estimates presented here, by necessity, utilize
``average'' experiences and ``average'' plans. Variability around the
average increases substantially when multiple provisions are
considered, since the number of provisions that affect each plan will
differ (for example, a plan may already offer coverage without
preexisting condition exclusions and bar rescissions, meaning they will
not be affected by those provisions, but may have a lifetime limit of
$1 million, meaning they will be affected by that provision). Different
plans also have different characteristics of enrollees, for example in
terms of age or health status, meaning that provisions such as
eliminating lifetime limits could affect them differently. It is
especially important to note the variation in insurance market reforms
across States. Only a few States have community rating, where costs get
distributed across the entire insured pool. Fractions of the cost will
get distributed across the pool and to individual enrollees in other
States depending on the degree of rating restrictions, if any exist.
Uncertainty compounds as ranges and errors and assumptions are summed
across provisions.
D. Regulatory Flexibility Act--Department of Labor and Department of
Health and Human Services
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the APA (5
U.S.C. 551 et seq.) and that are likely to have a significant economic
impact on a substantial number of small entities. Section 9833 of the
Code, section 734 of ERISA, and section 2792 of the PHS Act authorize
the Secretaries to promulgate any interim final rules that they
determine are appropriate to carry out the provisions of chapter 100 of
the Code, part 7 of subtitle B or title I of ERISA, and part A of title
XXVII of the PHS Act, which include PHS Act sections 2701 through 2728
and the incorporation of those sections into ERISA section 715 and Code
section 9815.
Moreover, under Section 553(b) of the APA, a general notice of
proposed rulemaking is not required when an
[[Page 37217]]
agency, for good cause, finds that notice and public comment thereon
are impracticable, unnecessary, or contrary to the public interest.
These interim final regulations are exempt from APA, because the
Departments made a good cause finding that a general notice of proposed
rulemaking is not necessary earlier in this preamble. Therefore, the
RFA does not apply and the Departments are not required to either
certify that the rule would not have a significant economic impact on a
substantial number of small entities or conduct a regulatory
flexibility analysis.
Nevertheless, the Departments carefully considered the likely
impact of the rule on small entities in connection with their
assessment under Executive Order 12866. Consistent with the policy of
the RFA, the Departments encourage the public to submit comments that
suggest alternative rules that accomplish the stated purpose of the
Affordable Care Act and minimize the impact on small entities.
E. Special Analyses--Department of the Treasury
Notwithstanding the determinations of the Department of Labor and
Department of Health and Human Services, for purposes of the Department
of the Treasury, it has been determined that this Treasury decision is
not a significant regulatory action for purposes of Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the APA (5 U.S.C. chapter 5)
does not apply to these interim final regulations. For the
applicability of the RFA, refer to the Special Analyses section in the
preamble to the cross-referencing notice of proposed rulemaking
published elsewhere in this issue of the Federal Register. Pursuant to
section 7805(f) of the Code, these temporary regulations have been
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small businesses.
F. Paperwork Reduction Act
1. Department of Labor and Department of the Treasury
As further discussed below, these interim final regulations contain
enrollment opportunity, rescission notice, and patient protection
disclosure requirements that are information collection requests (ICRs)
subject to the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.
3506(c)(2)(A)). Each of these requirements is discussed in detail
below.
Currently, the Departments are soliciting 60 days of public
comments concerning these disclosures. The Departments have submitted a
copy of these interim final regulations to OMB in accordance with 44
U.S.C. 3507(d) for review of the information collections. The
Departments and OMB are particularly interested in comments that:
Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, for example, by
permitting electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Attention: Desk Officer for the Employee Benefits Security
Administration either by fax to (202) 395-7285 or by e-mail to oira_
submission@omb.eop.gov. A copy of the ICR may be obtained by contacting
the PRA addressee: G. Christopher Cosby, Office of Policy and Research,
U.S. Department of Labor, Employee Benefits Security Administration,
200 Constitution Avenue, NW., Room N-5718, Washington, DC 20210.
Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free
numbers. E-mail: ebsa.opr@dol.gov. ICRs submitted to OMB also are
available at reginfo.gov (http://www.reginfo.gov/public/do/PRAMain).
a. ICR Regarding Affordable Care Act Enrollment Opportunity Notice
Relating to Lifetime Limits
As discussed earlier in this preamble these interim final
regulations require a plan or issuer to provide an individual whose
coverage ended due to reaching a lifetime limit on the dollar value of
all benefits with an opportunity to enroll (including notice of an
opportunity to enroll) that continues for at least 30 days, regardless
of whether the plan or coverage offers an open enrollment period and
regardless of when any open enrollment period might otherwise occur.
This enrollment opportunity must be presented not later than the first
day of the first plan year (or, in the individual market, policy year)
beginning on or after September 23, 2010 (which is the applicability
date of PHS Act section 2711). Coverage must begin not later than the
first day of the first plan year (in the individual market, policy
year) beginning on or after September 23, 2010.\118\ The Affordable
Care Act dependent coverage enrollment notice is an ICR subject to the
PRA.
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\118\ The interim final regulations require any individual
enrolling in group health plan coverage pursuant to this enrollment
right must be treated as a special enrollee, as provided under HIPAA
portability rules. Accordingly, the individual must be offered all
the benefit packages available to similarly situated individuals who
did not lose coverage due to reaching a lifetime limit or cessation
of dependent status. The individual also cannot be required to pay
more for coverage than similarly situated individuals who did not
lose coverage due to reaching a lifetime limit.
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The Departments estimate that approximately 29,000 individuals
qualify for this enrollment right, which as discussed more fully below,
should be considered an upward bound. The estimate is based on the
following methodology. The Departments estimate that of the
approximately 139.6 million individuals in ERISA-covered plans,\119\ 63
percent of such individuals are covered by plans with lifetime
limits.\120\
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\119\ The Departments' estimate is based on the 2009 March
Current Population Survey (CPS).
\120\ The Departments' estimate for large and small employer
health plans is derived from The Kaiser Family Foundation and Health
Research & Educational Trust, Employer Health Benefits: 2009 Annual
Survey (Sept. 2009), at http://ehbs.kff.org/pdf/2009/7936.pdf,
Exhibit 13.12.
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While limited data are available regarding lifetime limits, the
Departments estimated that the average lifetime limit across all
markets is about $4.7 million,\121\ which means that an individual
would exceed a lifetime limit by incurring at least $4.7 million in
medical expenses during one year or across many years. Although the
Departments are unable to track spending across time to estimate the
number of individuals that would reach the lifetime limit, the
Departments estimate that about 0.033 percent of individuals incur more
than $1 million in medical spending in a year.\122\ If
[[Page 37218]]
these individuals incurred this amount every year, 29,000 individuals
would incur expenses of at least the $4.7 million limit by the fifth
year.
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\121\ The Departments' estimate is based on America's Health
Insurance Plans, Individual Health Insurance 2009: A Comprehensive
Survey of Premiums, Availability and Benefits, (Oct. 2009) at http:/
/www.ahipresearch.org/pdfs/
2009IndividualMarketSurveyFinalReport.pdf, Table 17; and America's
Health Insurance Plans, Individual Health Insurance 2008: Small
Group Health Insurance, Table 22.
\122\ The Departments' estimate is based on adjusted insurer
claims and MEPS-HC expenditures.
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There are several reasons to suspect that these assumptions lead to
an over-estimate. First, individuals would have to average $1 million
in medical expenses per year to exceed the $4.7 million limit. Second,
an individual's lifetime limit is reset if he switches employers or,
for employees who work for employers with multiple health insurance
coverage options, switches to a different health insurance plan.
The interim final regulations require plans or insurers to notify
individuals whose coverage ended due to reaching a lifetime limit on
the dollar value of all benefits that they are now eligible to reenroll
in the plan or policy. The Departments assume that the notice for all
plans and policies (including self-insured plans that are administered
by insurers) will be prepared by the estimated 630 health insurers
operating in the United States.\123\ On average, the Departments expect
that one-half hour of a legal professional's time, valued as $119, will
be required to draft this notice, resulting in an hour burden of
approximately 160 hours with an equivalent cost of $19,000.
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\123\ While plans could prepare their own notice, the
Departments assume that the notices will be prepared by service
providers. The Departments have previously estimated that there are
630 health insurers (460 providing coverage in the group market, and
490 providing coverage in the individual market). These estimates
are from NAIC 2007 financial statements data and the California
Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/
hpsearch/viewall.aspx. Because the hour and cost burden is shared
between the Departments of Labor/Treasury and the Department of
Health and Human Services, the burden to prepare the notices is
calculated using half the number of insurers (315).
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The Departments assume that insurers track information regarding
individuals that have lost coverage due to reaching a lifetime limit
(including contact information in their administrative records). Based
on the foregoing, the Departments estimate that, on average, five
minutes of a clerical staff member's time, valued at $26 per hour will
be required to incorporate the specific information into the notice and
mail the estimated 29,000 notices. This results in an estimated hour
burden of approximately 2,400 hours with an equivalent cost of $63,000.
Therefore, the total hour burden of this notice requirement is
approximately 2,600 hours with an equivalent cost of $82,000.
The associated cost burden of the rule results from material and
mailing costs that are required to distribute the estimated 29,000
notices. The Departments estimate that the notice will be one-page in
length, material and print costs will be five cents per page, and
postage will be 44 cents per notice resulting in a per notice cost of
49 cents. This leads to a total cost burden of approximately $14,000 to
distribute the notices.
Type of Review: New collection.
Agencies: Employee Benefits Security Administration, Department of
Labor; Internal Revenue Service, U.S. Department of the Treasury.
Title: Notice of Special Enrollment Opportunity under the Patient
Protection and Affordable Care Act Relating to Lifetime Limits.
OMB Number: 1210-0143; 1545-2179.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Total Respondents: 315.
Total Responses: 29,000.
Frequency of Response: One-time.
Estimated Total Annual Burden Hours: 1,300 hours (Employee Benefits
Security Administration); 1,300 hours (Internal Revenue Service).
Estimated Total Annual Burden Cost: $7,000 (Employee Benefits
Security Administration); $7,000 (Internal Revenue Service).
b. ICR Regarding Affordable Care Act Notice Relating to Rescission
As discussed earlier in this preamble, PHS Act Section 2712 and
these interim final regulations provide rules regarding rescissions for
group health plans and health insurance issuers that offer group or
individual health insurance coverage. A plan or issuer must not rescind
coverage under the plan, policy, certificate, or contract of insurance
except in the case of fraud or intentional misrepresentation of a
material fact. These interim final regulations provide that a group
health plan or a health insurance issuer offering group health
insurance coverage must provide at least 30 calendar days advance
notice to an individual before coverage may be rescinded.
The Departments assume that rescissions are rare in the group
market and that small group health plans are affected by rescissions.
The Departments are not aware of a data source on the number of group
plans whose policy is rescinded; therefore, the Departments assume that
100 group health plan policies are rescinded in a year. The Departments
estimate that there is an average of 16 participants in small, insured
plans.\124\ Based on these numbers the Departments estimate that
approximately 100 policies are rescinded during a year, which would
result in 1,600 notices being sent to affected participants. The
Departments estimate that 15 minutes of legal profession time at $119
per hour would be required by the insurers of the 100 plans to prepare
the notice and one minute per notice of clerical professional time at
$26 per hour would be required to distribute the notice. This results
in an hour burden of approximately 50 hours with an equivalent cost of
approximately $3,700. The Departments estimate that the cost burden
associated with distributing the notices will be approximately
$800.\125\
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\124\ U.S. Department of Labor, EBSA calculations using the
March 2008 Current Population Survey Annual Social and Economic
Supplement and the 2008 Medical Expenditure Panel Survey.
\125\ This estimate is based on an average document size of one
page, $.05 cents per page material and printing costs, and $.44 cent
postage costs.
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These paperwork burden estimates are summarized as follows:
Type of Review: New collection.
Agencies: Employee Benefits Security Administration, Department of
Labor; Internal Revenue Service, U.S. Department of the Treasury.
Title: Required Notice of Rescission of Coverage under the Patient
Protection and Affordable Care Act Disclosures.
OMB Number: 1210-0141; 1545-2180.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Total Respondents: 100.
Total Responses: 1,600.
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours: 25 hours (Employee Benefits
Security Administration); 25 hours (Internal Revenue Service).
Estimated Total Annual Burden Cost: $400 (Employee Benefits
Security Administration); $400 (Internal Revenue Service).
c. ICR Regarding Affordable Care Act Patient Protection Disclosure
Requirement
As discussed earlier in this preamble, PHS Act section 2719A
imposes, with respect to a group health plan, or group or individual
health insurance coverage, a set of three requirements relating to the
choice of health care professionals. When applicable, it is important
that individuals enrolled in a plan or health insurance coverage know
of their rights to (1) choose a primary care provider or a pediatrician
when a plan or issuer requires participants or subscribers to designate
a primary care physician; or (2) obtain obstetrical or gynecological
care without prior authorization. Accordingly, these interim final
regulations require such plans and issuers to provide a notice to
[[Page 37219]]
participants (in the individual market, primary subscriber) of these
rights when applicable. Model language is provided in these interim
final regulations. 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, or in the individual market, provides a primary subscriber
with a policy, certificate, or contract of health insurance. The
Affordable Care Act patient protection disclosure requirement is an ICR
subject to the PRA.
In order to satisfy these interim final regulations' patient
protection disclosure requirement, the Departments estimate that
339,000 ERISA-covered plans will need to notify an estimated 8.0
million policy holders of their plans' policy in regards to designating
a primary care physician and for obstetrical or gynecological
visits.\126\ The following estimates are based on the assumption that
22 percent of group health plans will not have grandfathered health
plan status in 2011. Because the interim final regulations provide
model language for this purpose, the Departments estimate that five
minutes of clerical time (with a labor rate of $26.14/hour) will be
required to incorporate the required language into the plan document
and ten minutes of a human resource professional's time (with a labor
rate of $89.12/hour) will be required to review the modified
language.\127\ Therefore, the Departments estimate that plans will
incur a one-time hour burden of 85,000 hours with an equivalent cost of
$5.8 million to meet the disclosure requirement in the first year.
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\126\ The Departments' estimate of the number of ERISA-covered
health plans was obtained from the 2008 Medical Expenditure Panel
Survey's Insurance component. The estimate of the number of policy
holders was obtained from the 2009 Current Population Survey.
Information on HMO and POS plans and enrollment in such plans was
obtained from the Kaiser/HRET Survey of Employer Sponsored Health
Benefits, 2009. The methodology used to estimate the percentage of
plans that will not be grandfathered in 2011 is addressed in the
Departments' Interim Final Rules for Group Health Plans and Health
Insurance Coverage Relating to Status as a Grandfathered Health Plan
under the Patient Protection and Affordable Care Act that were
issued on June 17, 2010 (75 FR 34538).
\127\ EBSA estimates of labor rates include wages, other
benefits, and overhead based on the National Occupational Employment
Survey (May 2008, Bureau of Labor Statistics) and the Employment
Cost Index June 2009, Bureau of Labor Statistics).
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The Departments assume that only printing and material costs are
associated with the disclosure requirement, because the interim final
regulations provide model language that can be incorporated into
existing plan documents, such as an SPD. The Departments estimate that
the notice will require one-half of a page, five cents per page
printing and material cost will be incurred, and 38 percent of the
notices will be delivered electronically. This results in a cost burden
of $124,000 ($0.05 per page*1/2 pages per notice * 8.0 million
notices*0.62).
Plans that relinquish their grandfather status in subsequent years
also will become subject to this notice requirement and incur a cost to
prepare and distribute the notice in the year they relinquish their
grandfather status. The Departments estimate a total hour burden of
62,000 hours in 2012 and 50,000 in 2013 for plans relinquishing their
grandfather status in 2012 or 2013. There also will be an estimated
total cost burden of $90,000 in 2012 and $73,000 in 2013.
The Departments note that persons are not required to respond to,
and generally are not subject to any penalty for failing to comply
with, an ICR unless the ICR has a valid OMB control number.
These paperwork burden estimates are summarized as follows:
Type of Review: New Collection.
Agencies: Employee Benefits Security Administration, Department of
Labor; Internal Revenue Service, U.S. Department of Treasury.
Title: Disclosure Requirement for Patient Protections under the
Affordable Care Act.
OMB Number: 1210-0142; 1545-2181.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Total Respondents: 262,000 (three year average).
Total Responses: 6,186,000 (three year average).
Frequency of Response: One time.
Estimated Total Annual Burden Hours: 33,000 (Employee Benefits
Security Administration); 33,000 (Internal Revenue Service).
Estimated Total Annual Burden Cost: $48,000 (Employee Benefits
Security Administration); $48,000 (Internal Revenue Service).
2. Department of Health and Human Services
As discussed above in the Department of Labor and Department of the
Treasury PRA section, these interim final regulations contain an
enrollment opportunity notice, rescissions notice, and patient
protection disclosures requirement for issuers. These requirements are
information collection requirements under the Paperwork Reduction Act.
Each of these requirements is discussed in detail below.
a. ICR Regarding Affordable Care Act Enrollment Opportunity Notice
Regarding Lifetime Limits
PHS Act section 2711 and these interim final regulations require
health insurance issuers offering individual health insurance coverage
to provide an individual whose coverage ended due to reaching a
lifetime limit on the dollar value of all benefits with an opportunity
to enroll (including notice of an opportunity to enroll) that continues
for at least 30 days, regardless of whether the plan or coverage offers
an open enrollment period and regardless of when any open enrollment
period might otherwise occur. This enrollment opportunity must be
presented not later than the first day of the first plan year (or, in
the individual market, policy year) beginning on or after September 23,
2010 (which is the applicability date of PHS Act section 2711).
Coverage must begin not later than the first day of the first plan year
(or policy year in the individual market) beginning on or after
September 23, 2010.\128\
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\128\ The interim final regulations require any individual
enrolling in group health plan coverage pursuant to this enrollment
right must be treated as a special enrollee, as provided under HIPAA
portability rules. Accordingly, the individual must be offered all
the benefit packages available to similarly situated individuals who
did not lose coverage due to reaching a lifetime limit or cessation
of dependent status. The individual also cannot be required to pay
more for coverage than similarly situated individuals who did not
lose coverage due to reaching a lifetime limit.
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The Department estimates that approximately 13,182 individuals
qualify for this enrollment right, which as discussed more fully below,
should be considered an upward bound. The estimate is based on the
following methodology. The Department estimates that of the
approximately 16.5 million individuals \129\ covered by family policies
in the individual market, 89 percent of such individuals have a policy
with a lifetime limit.\130\ The Department also estimates that out of
the approximately 40.1 million individuals covered by public, non-
Federal employer group health plans sponsored by State and local
governments,\131\ 63 percent of such
[[Page 37220]]
individuals are covered by plans with lifetime limits.\132\
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\129\ The Department's estimate is based on the 2009 March
Current Population Survey (CPS).
\130\ The Department's estimate for individual health plans is
derived from America's Health Insurance Plans, Individual Health
Insurance 2009: A Comprehensive Survey of Premiums, Availability and
Benefits, (Oct. 2009) at http://www.ahipresearch.org/pdfs/
2009IndividualMarketSurveyFinalReport.pdf, Table 10 and Table 17.
\131\ The Department's estimate is based on the 2009 March
Current Population Survey (CPS).
\132\ The Departments' estimate for large and small employer
health plans is derived from The Kaiser Family Foundation and Health
Research & Educational Trust, Employer Health Benefits: 2009 Annual
Survey (Sept. 2009), at http://ehbs.kff.org/pdf/2009/7936.pdf,
Exhibit 13.12.
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While limited data are available regarding lifetime limits, the
Department estimated that the average lifetime limit across all markets
is about $4.7 million,\133\ which means that an individual would exceed
a lifetime limit by incurring at least $4.7 million in medical expenses
during one year or across many years. Although the Department is unable
to track spending across time to estimate the number of individuals
that would reach the lifetime limit, the Department estimates that
about 0.033 percent of individuals incur more than $1 million in
medical spending in a year.\134\ If these individuals incurred this
amount every year, 13,000 individuals would incur expenses of at least
the $4.7 million limit by the fifth year.
---------------------------------------------------------------------------
\133\ The Department's estimate is based on America's Health
Insurance Plans, Individual Health Insurance 2009: A Comprehensive
Survey of Premiums, Availability and Benefits, (Oct. 2009) at http:/
/www.ahipresearch.org/pdfs/
2009IndividualMarketSurveyFinalReport.pdf, Table 17; and America's
Health Insurance Plans, Individual Health Insurance 2008: Small
Group Health Insurance, Table 22.
\134\ The Departments' estimate is based on adjusted insurer
claims and MEPS-HC expenditures.
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There are several reasons to suspect that these assumptions lead to
an over-estimate. First, individuals who incur $1 million of medical
expenses in a year would need to sustain this level every year for five
years to exceed the $4.7 million limit. Second, an individual's
lifetime limit is reset if he switches employers or, for employees who
work for employers with multiple health insurance coverage options,
switches to a different health insurance plan.
These interim final regulations require plans or insurers to notify
individuals whose coverage ended due to reaching a lifetime limit on
the dollar value of all benefits that they are now eligible to reenroll
in the plan or policy. The Department assumes that the notice for all
plans and policies (including self-insured plans that are administered
by insurers) will be prepared by the estimated 630 health insurers
operating in the United States.\135\ On average, the Department expects
that one-half hour of a legal professional's time, valued as $119, will
be required to draft this notice, resulting in an hour burden of
approximately 200 hours with an equivalent cost of $19,000.
---------------------------------------------------------------------------
\135\ While plans could prepare their own notice, the
Departments assume that the notices will be prepared by service
providers. The Departments have previously estimated that there are
630 health insurers (460 providing coverage in the group market, and
490 providing coverage in the individual market). These estimates
are from NAIC 2007 financial statements data and the California
Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/
hpsearch/viewall.aspx. Because the hour and cost burden is shared
among the Departments of Labor/Treasury and the Department of Health
and Human Services, the burden to prepare the notices is calculated
using half the number of insurers (315).
---------------------------------------------------------------------------
The Department assumes that plans and insurers track information
regarding individuals that have lost coverage due to reaching a
lifetime limit (including contact information) in their administrative
records. Based on the foregoing, the Department estimates that, on
average, five minutes of a clerical staff member's time, valued at
$26.14 per hour will be required to incorporate the specific
information into the notice and mail the estimated 13,000 notices. This
results in an estimated hour burden of approximately 1,100 hours with
an equivalent cost of $29,000. Therefore, the total hour burden of this
notice requirement is 1,300 hours with an equivalent cost of $48,000.
The associated cost burden of the rule results from material and
mailing cost to distribute the estimated 13,000 notices. The Department
estimates that the notice will be one-page in length, material and
print costs will be five cents per page, and postage will be 44 cents
per notice resulting in a per notice cost of 49 cents. This leads to a
total estimated cost burden of approximately $6,500 to distribute the
notices.
Type of Review: New collection.
Agency: Department of Health and Human Services.
Title: Patient Protection and Affordable Care Act Enrollment
Opportunity Notice Relating to Lifetime Limits.
OMB Number: 0938-1094.
Affected Public: Business; State, Local, or Tribal Governments.
Respondents: 630.
Responses: 13,000.
Frequency of Response: One-time.
Estimated Total Annual Burden Hours: 1,300 hours.
Estimated Total Annual Burden Cost: $6,500.
b. ICR Regarding Affordable Care Act Notice Relating to Rescission
As discussed earlier in this preamble, PHS Act Section 2712 and
these interim final regulations prohibit group health plans and health
insurance issuers that offer group or individual health insurance
coverage generally from rescinding coverage under the plan, policy,
certificate, or contract of insurance from the individual covered under
the plan or coverage unless the individual (or a person seeking
coverage on behalf of the individual) performs an act, practice, or
omission that constitutes fraud, or unless the individual makes an
intentional misrepresentation of material fact, as prohibited by the
terms of the plan or coverage. These interim final regulations provide
that a group health plan or a health insurance issuer offering group
health insurance coverage must provide at least 30 days advance notice
to an individual before coverage may be rescinded.
This analysis assumes that rescissions only occur in the individual
health insurance market, because rescissions in the group market are
rare. The Department estimates that there are approximately 7.1 million
individual policy holders in the individual market during a year. A
report on rescissions finds that 0.15 percent of policies were
rescinded during the 2004 to 2008 time period.\136\ Based on these
numbers, the Department estimates that approximately 10,700 policies
are rescinded during a year, which would result in 10,700 notices being
sent to affected policyholders. The Department estimates that 15
minutes of legal profession time at $119 per hour would be required by
the estimated 490 insurers in the individual market to prepare the
notice and one minute per notice of clerical professional time at $26
per hour would be required to distribute the notice. This results in an
hour burden of approximately 300 hours with an equivalent cost of
approximately $19,200. The Department estimates that the cost burden
associated with distributing the notices will be approximately
$5,200.\137\
---------------------------------------------------------------------------
\136\ NAIC Report ``Rescission Data Call of the NAIC Regulatory
Framework (B) Task Force'' December 17, 2009. http://www.naic.org/
documents/committees_b_regulatory_framework_rescission_;data--
call--report.pdf.
\137\ This estimate is based on an average document size of one
page, $.05 cents per page material and printing costs, and $.44 cent
postage costs.
---------------------------------------------------------------------------
These paperwork burden estimates are summarized as follows:
Type of Review: New collection.
Agency: Department of Health and Human Services.
Title: Required Notice of Rescission of Coverage under the Patient
Protection and Affordable Care Act Disclosures.
OMB Number: 0938-1094.
Affected Public: For Profit Business.
Respondents: 490.
Responses: 10,700.
Frequency of Response: Occasionally.
[[Page 37221]]
Estimated Total Annual Burden Hours: 300 hours.
Estimated Total Annual Burden Cost: $5,200.
c. ICR Relating to Affordable Care Act Patient Protections Disclosure
Requirement
As discussed above in the Department of Labor and Department of
Treasury PRA section, these interim final regulations contains a
disclosure requirement for non-grandfathered health plans or policies
requiring the designation of a primary care physician or usually
requiring a referral from a primary care physician before receiving
care from a specialist. These requirements are information collection
requirements under the PRA.
In order to satisfy the interim final regulations' patient
protection disclosure requirement, the Department estimates that 14,000
State and local governmental plans will need to notify approximately
2.6 million policy holders of their plans' policy in regards to
designating a primary care physician and for obstetrical or
gynecological visits. An estimated 490 insurers providing coverage in
the individual market will need to notify an estimated 55,000 policy
holders of their policy in regards to designating a primary care
physician and for obstetrical or gynecological visits. These estimates
are based on the assumption that 22 percent of group plans and 40
percent of individual policies will not have grandfathered health plan
status in 2011.\138\
---------------------------------------------------------------------------
\138\ The Department's estimate of the number of State and local
governmental health plans was obtained from the 2007 Census of
Governments. The estimate of the number of policy holders in the
individual market were obtained from the 2009 Current Population
Survey. Information on HMO and POS plans and enrollment in such
plans was obtained from the Kaiser/HRET Survey of Employer Sponsored
Health Benefits, 2009. The methodology used to estimate the
percentage of plans that will not be grandfathered in 2011 was
discussed in Departments' Interim Final Rules for Group Health Plans
and Health Insurance Coverage Relating to Status as a Grandfathered
Health Plan under the Patient Protection and Affordable Care Act
that were issued on June 15, 2010: 75 FR 34538 (June 17, 2010).
---------------------------------------------------------------------------
Because the interim final regulations provide model language for
this purpose, the Department estimates that five minutes of clerical
time (with a labor rate of $26.14/hour) will be required to incorporate
the required language into the plan document and ten minutes of a human
resource professional's time (with a labor rate of $89.12/hour) will be
required to review the modified language.\139\ Therefore, the
Department estimates that plans and insurers will incur a one-time hour
burden of 3,500 hours with an equivalent cost of $239,000 to meet the
disclosure requirement.
---------------------------------------------------------------------------
\139\ EBSA estimates of labor rates include wages, other
benefits, and overhead based on the National Occupational Employment
Survey (May 2008, Bureau of Labor Statistics) and the Employment
Cost Index June 2009, Bureau of Labor Statistics).
---------------------------------------------------------------------------
The Department assumes that only printing and material costs are
associated with the disclosure requirement, because the interim final
regulations provide model language that can be incorporated into
existing plan documents, such as an SPD. The Department estimates that
the notice will require one-half of a page, five cents per page
printing and material cost will be incurred, and 38 percent of the
notices will be delivered electronically. This results in a cost burden
of $42,000 ($0.05 per page * 1/2 pages per notice * 1.7 million notices
* 0.62).
Plans that relinquish their grandfather status in subsequent years
will also become subject to this notice requirement and incur a cost to
prepare and distribute the notice in the year they relinquish their
grandfather status. Policy holders of non-grandfathered policies in the
individual market will also have to receive this notice. The Department
estimates a total hour burden of 2,500 hours in 2012 and 2,000 in 2013
for plans relinquishing their grandfather status in such years. There
will, also be an estimated total cost burden of $30,000 in 2012 and
$24,000 in 2013.
The Department notes that persons are not required to respond to,
and generally are not subject to any penalty for failing to comply
with, an ICR unless the ICR has a valid OMB control number.
These paperwork burden estimates are summarized as follows:
Type of Review: New collection.
Agency: Department of Health and Human Services.
Title: Disclosure Requirements for Patient Protection under the
Affordable Care Act.
OMB Number: 0938-1094.
Affected Public: Business; State, Local, or Tribal Governments.
Respondents: 10,600.
Responses: 2,067,000.
Frequency of Response: One-time.
Estimated Total Annual Burden Hours: 2,700 hours.
Estimated Total Annual Burden Cost: $32,000.
If you comment on any of these information collection requirements,
please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: CMS Desk Officer,
OCIIO-9994-IFC; Fax: (202) 395-6974; or E-mail: OIRA_
submission@omb.eop.gov.
G. Congressional Review Act
These interim final regulations are subject to the Congressional
Review Act provisions of the Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted
to Congress and the Comptroller General for review.
H. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires
agencies to prepare several analytic statements before proposing any
rules that may result in annual expenditures of $100 million (as
adjusted for inflation) by State, local and tribal governments or the
private sector. These interim final regulations are not subject to the
Unfunded Mandates Reform Act because they are being issued as interim
final regulations. However, consistent with the policy embodied in the
Unfunded Mandates Reform Act, the regulation has been designed to be
the least burdensome alternative for State, local and tribal
governments, and the private sector, while achieving the objectives of
the Affordable Care Act.
I. Federalism Statement--Department of Labor and Department of Health
and Human Services
Executive Order 13132 outlines fundamental principles of
federalism, and requires the adherence to specific criteria by Federal
agencies in the process of their formulation and implementation of
policies that have ``substantial direct effects'' on the States, the
relationship between the national government and States, or on the
distribution of power and responsibilities among the various levels of
government. Federal agencies promulgating regulations that have these
federalism implications must consult with State and local officials,
and describe the extent of their consultation and the nature of the
concerns of State and local officials in the preamble to the
regulation.
In the Departments' view, these interim final regulations have
federalism implications, because they have direct effects on the
States, the relationship between the national government and States, or
on the distribution of power and
[[Page 37222]]
responsibilities among various levels of government. However, in the
Departments' view, the federalism implications of these interim final
regulations are substantially mitigated because, with respect to health
insurance issuers, the Departments expect that the majority of States
will enact laws or take other appropriate action resulting in their
meeting or exceeding the Federal standards.
In general, through section 514, ERISA supersedes State laws to the
extent that they relate to any covered employee benefit plan, and
preserves State laws that regulate insurance, banking, or securities.
While ERISA prohibits States from regulating a plan as an insurance or
investment company or bank, the preemption provisions of section 731 of
ERISA and section 2724 of the PHS Act (implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a)) apply so that the HIPAA requirements
(including those of the Affordable Care Act) are not to be ``construed
to supersede any provision of State law which establishes, implements,
or continues in effect any standard or requirement solely relating to
health insurance issuers in connection with group health insurance
coverage except to the extent that such standard or requirement
prevents the application of a requirement'' of a Federal standard. The
conference report accompanying HIPAA indicates that this is intended to
be the ``narrowest'' preemption of State laws. (See House Conf. Rep.
No. 104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News
2018.) States may continue to apply State law requirements except to
the extent that such requirements prevent the application of the
Affordable Care Act requirements that are the subject of this
rulemaking. State insurance laws that are more stringent than the
Federal requirements are unlikely to ``prevent the application of'' the
Affordable Care Act, and be preempted. Accordingly, States have
significant latitude to impose requirements on health insurance issuers
that are more restrictive than the Federal law.
In compliance with the requirement of Executive Order 13132 that
agencies examine closely any policies that may have federalism
implications or limit the policy making discretion of the States, the
Departments have engaged in efforts to consult with and work
cooperatively with affected State and local officials, including
attending conferences of the National Association of Insurance
Commissioners and consulting with State insurance officials on an
individual basis. It is expected that the Departments will act in a
similar fashion in enforcing the Affordable Care Act requirements.
Throughout the process of developing these interim final regulations,
to the extent feasible within the specific preemption provisions of
HIPAA as it applies to the Affordable Care Act, the Departments have
attempted to balance the States' interests in regulating health
insurance issuers, and Congress' intent to provide uniform minimum
protections to consumers in every State. By doing so, it is the
Departments' view that they have complied with the requirements of
Executive Order 13132.
Pursuant to the requirements set forth in section 8(a) of Executive
Order 13132, and by the signatures affixed to these interim final
regulations, the Departments certify that the Employee Benefits
Security Administration and the Centers for Medicare & Medicaid
Services have complied with the requirements of Executive Order 13132
for the attached regulations in a meaningful and timely manner.
V. Statutory Authority
The Department of the Treasury temporary regulations are adopted
pursuant to the authority contained in sections 7805 and 9833 of the
Code.
The Department of Labor interim final regulations are adopted
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135,
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a,
1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec.
401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec.
512(d), Public Law 110-343, 122 Stat. 3881; sec. 1001, 1201, and
1562(e), Public Law 111-148, 124 Stat. 119, as amended by Public Law
111-152, 124 Stat. 1029; Secretary of Labor's Order 6-2009, 74 FR 21524
(May 7, 2009).
The Department of Health and Human Services interim final
regulations are adopted pursuant to the authority contained in sections
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg
through 300gg-63, 300gg-91, and 300gg-92), as amended.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
29 CFR Part 2590
Continuation coverage, Disclosure, Employee benefit plans, Group
health plans, Health care, Health insurance, Medical child support,
Reporting and recordkeeping requirements.
45 CFR Parts 144, 146, and 147
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Approved: June 18, 2010.
Michael F. Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
Signed this 18th day of June 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
Dated: June 18, 2010.
Jay Angoff,
Director, Office of Consumer Information and Insurance Oversight.
Dated: June 18, 2010.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
Department of the Treasury
Internal Revenue Service
26 CFR Chapter 1
0
Accordingly, 26 CFR parts 54 and 602 are amended as follows:
PART 54--PENSION EXCISE TAXES
0
Paragraph 1. The authority citation for part 54 is amended by adding
entries for Sec. Sec. 54.9815-2704T, 54.9815-2711T, 54.9815-2712T, and
54.9815-2719AT in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Section 54.9815-2704T also issued under 26 U.S.C. 9833.
Section 54.9815-2711T also issued under 26 U.S.C. 9833.
Section 54.9815-2712T also issued under 26 U.S.C. 9833. * * *
Section 54.9815-2719AT also issued under 26 U.S.C. 9833. * * *
0
Par. 2. Section 54.9801-2 is amended by revising the definitions of
group health plan and preexisting condition exclusion to read as
follows:
Sec. 54.9801-2 Definitions.
* * * * *
Group health plan or plan means a group health plan within the
meaning of Sec. 54.9831-1(a).
* * * * *
Preexisting condition exclusion means a limitation or exclusion of
benefits (including a denial of coverage) based on the fact that the
condition was
[[Page 37223]]
present before the effective date of coverage (or if coverage is
denied, the date of the denial) under a group health plan or group or
individual health insurance coverage (or other coverage provided to
federally eligible individuals pursuant to 45 CFR part 148), whether or
not any medical advice, diagnosis, care, or treatment was recommended
or received before that day. A preexisting condition exclusion includes
any limitation or exclusion of benefits (including a denial of
coverage) applicable to an individual 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) under a group health plan, or group or individual health
insurance coverage (or other coverage provided to Federally eligible
individuals pursuant to 45 CFR part 148), such as a condition
identified as a result of a pre-enrollment questionnaire or physical
examination given to the individual, or review of medical records
relating to the pre-enrollment period.
0
Par. 3. Section 54.9801-3 is amended by revising paragraph (a)(1)(i) to
read as follows:
Sec. 54.9801-3 Limitations on preexisting condition exclusion period.
(a) * * *
(1) * * *
(i) A preexisting condition exclusion means a preexisting condition
exclusion within the meaning set forth in Sec. 54.9801-2.
* * * * *
0
Par. 4. Section 54.9815-2704T is added to read as follows:
Sec. 54.9815-2704T Prohibition of preexisting condition exclusions
(temporary).
(a) No preexisting condition exclusions--(1) In general. A group
health plan, or a health insurance issuer offering group health
insurance coverage, may not impose any preexisting condition exclusion
(as defined in Sec. 54.9801-2).
(2) Examples. The rules of this paragraph (a) are illustrated by
the following examples (for additional examples illustrating the
definition of a preexisting condition exclusion, see Sec. 54.9801-
3(a)(1)(ii)):
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer P. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer N. N's policy excludes benefits for oral surgery
required as a result of a traumatic injury if the injury occurred
before the effective date of coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for oral surgery required as a result of a traumatic injury if the
injury occurred before the effective date of coverage is a
preexisting condition exclusion because it operates to exclude
benefits for a condition based on the fact that the condition was
present before the effective date of coverage under the policy.
Example 2. (i) Facts. Individual C applies for individual health
insurance coverage with Issuer M. M denies C's application for
coverage because a pre-enrollment physical revealed that C has type
2 diabetes.
(ii) Conclusion. See Example 2 in 45 CFR 147.108(a)(2) for a
conclusion that M's denial of C's application for coverage is a
preexisting condition exclusion because a denial of an application
for coverage based on the fact that a condition was present before
the date of denial is an exclusion of benefits based on a
preexisting condition.
(b) Effective/applicability date--(1) General applicability date.
Except as provided in paragraph (b)(2) of this section, the rules of
this section apply for plan years beginning on or after January 1,
2014.
(2) Early applicability date for children. The rules of this
section apply with respect to enrollees, including applicants for
enrollment, who are under 19 years of age for plan years beginning on
or after September 23, 2010.
(3) Applicability to grandfathered health plans. See Sec. 54.9815-
1251T for determining the application of this section to grandfathered
health plans (providing that a grandfathered health plan that is a
group health plan or group health insurance coverage must comply with
the prohibition against preexisting condition exclusions).
(4) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Facts. Individual F commences employment and
enrolls F and F's 16-year-old child in the group health plan
maintained by F's employer, with a first day of coverage of October
15, 2010. F's child had a significant break in coverage because of a
lapse of more than 63 days without creditable coverage immediately
prior to enrolling in the plan. F's child was treated for asthma
within the six-month period prior to the enrollment date and the
plan imposes a 12-month preexisting condition exclusion for coverage
of asthma. The next plan year begins on January 1, 2011.
(ii) Conclusion. In this Example, the plan year beginning
January 1, 2011 is the first plan year of the group health plan
beginning on or after September 23, 2010. Thus, beginning on January
1, 2011, because the child is under 19 years of age, the plan cannot
impose a preexisting condition exclusion with respect to the child's
asthma regardless of the fact that the preexisting condition
exclusion was imposed by the plan before the applicability date of
this provision.
(c) Expiration date. This section expires on June 21, 2013.
0
Par. 5. Section 54.9815-2711T is added to read as follows:
Sec. 54.9815-2711T No lifetime or annual limits (temporary).
(a) Prohibition--(1) Lifetime limits. Except as provided in
paragraph (b) of this section, a group health plan, or a health
insurance issuer offering group health insurance coverage, may not
establish any lifetime limit on the dollar amount of benefits for any
individual.
(2) Annual limits--(i) General rule. Except as provided in
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health
plan, or a health insurance issuer offering group health insurance
coverage, may not establish any annual limit on the dollar amount of
benefits for any individual.
(ii) Exception for health flexible spending arrangements. A health
flexible spending arrangement (as defined in section 106(c)(2)) is not
subject to the requirement in paragraph (a)(2)(i) of this section.
(b) Construction--(1) Permissible limits on specific covered
benefits. The rules of this section do not prevent a group health plan,
or a health insurance issuer offering group health insurance coverage,
from placing annual or lifetime dollar limits with respect to any
individual on specific covered benefits that are not essential health
benefits to the extent that such limits are otherwise permitted under
applicable Federal or State law. (The scope of essential health
benefits is addressed in paragraph (c) of this section.)
(2) Condition-based exclusions. The rules of this section do not
prevent a group health plan, or a health insurance issuer offering
group health insurance coverage, from excluding all benefits for a
condition. However, if any benefits are provided for a condition, then
the requirements of this section apply. Other requirements of Federal
or State law may require coverage of certain benefits.
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations.
(d) Restricted annual limits permissible prior to 2014--(1) In
general. With respect to plan years beginning prior to January 1, 2014,
a group health plan, or a health insurance issuer offering group health
insurance coverage, may establish, for any individual, an annual limit
on the dollar amount of benefits that are essential health benefits,
provided the limit is no less than the amounts in the following
schedule:
[[Page 37224]]
(i) For a plan year beginning on or after September 23, 2010, but
before September 23, 2011, $750,000.
(ii) For a plan year beginning on or after September 23, 2011, but
before September 23, 2012, $1,250,000.
(iii) For plan years beginning on or after September 23, 2012, but
before January 1, 2014, $2,000,000.
(2) Only essential health benefits taken into account. In
determining whether an individual has received benefits that meet or
exceed the applicable amount described in paragraph (d)(1) of this
section, a plan or issuer must take into account only essential health
benefits.
(3) Waiver authority of the Secretary of Health and Human Services.
For plan years beginning before January 1, 2014, the Secretary of
Health and Human Services may establish a program under which the
requirements of paragraph (d)(1) of this section relating to annual
limits may be waived (for such period as is specified by the Secretary
of Health and Human Services) for a group health plan or health
insurance coverage that has an annual dollar limit on benefits below
the restricted annual limits provided under paragraph (d)(1) of this
section if compliance with paragraph (d)(1) of this section would
result in a significant decrease in access to benefits under the plan
or health insurance coverage or would significantly increase premiums
for the plan or health insurance coverage.
(e) Transitional rules for individuals whose coverage or benefits
ended by reason of reaching a lifetime limit--(1) In general. The
relief provided in the transitional rules of this paragraph (e) applies
with respect to any individual--
(i) Whose coverage or benefits under a group health plan or group
health insurance coverage ended by reason of reaching a lifetime limit
on the dollar value of all benefits for any individual (which, under
this section, is no longer permissible); and
(ii) Who becomes eligible (or is required to become eligible) for
benefits not subject to a lifetime limit on the dollar value of all
benefits under the group health plan or group health insurance coverage
on the first day of the first plan year beginning on or after September
23, 2010, by reason of the application of this section.
(2) Notice and enrollment opportunity requirements--(i) If an
individual described in paragraph (e)(1) of this section is eligible
for benefits (or is required to become eligible for benefits) under the
group health plan--or group health insurance coverage--described in
paragraph (e)(1) of this section, the plan and the issuer are required
to give the individual written notice that the lifetime limit on the
dollar value of all benefits no longer applies and that the 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 and 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 required under this paragraph (e)(2)(i) must be
provided beginning not later than the first day of the first plan year
beginning on or after September 23, 2010.
(ii) The notices required under paragraph (e)(2)(i) of this section
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 of this paragraph (e)(2) 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.
(3) Effective date of coverage. In the case of an individual who
enrolls under paragraph (e)(2) of this section, coverage must take
effect not later than the first day of the first plan year beginning on
or after September 23, 2010.
(4) Treatment of enrollees in a group health plan. Any individual
enrolling in a group health plan pursuant to paragraph (e)(2) of this
section must be treated as if the individual were a special enrollee,
as provided under the rules of Sec. 54.9801-6(d). Accordingly, the
individual (and, if the individual would not be a participant once
enrolled in the plan, the participant through whom the individual is
otherwise eligible for coverage under the plan) must be offered all the
benefit packages available to similarly situated individuals who did
not lose coverage by reason of reaching a lifetime limit on the dollar
value of all benefits. For this purpose, any difference in benefits or
cost-sharing requirements constitutes a different benefit package. The
individual also cannot be required to pay more for coverage than
similarly situated individuals who did not lose coverage by reason of
reaching a lifetime limit on the dollar value of all benefits.
(5) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. Employer Y maintains a group health plan
with a calendar year plan year. The plan has a single benefit
package. For plan years beginning before September 23, 2010, the
plan has a lifetime limit on the dollar value of all benefits.
Individual B, an employee of Y, was enrolled in Y's group health
plan at the beginning of the 2008 plan year. On June 10, 2008, B
incurred a claim for benefits that exceeded the lifetime limit under
Y's plan and ceased to be enrolled in the plan. B is still eligible
for coverage under Y's group health plan. On or before January 1,
2011, Y's group health plan gives B written notice informing B that
the lifetime limit on the dollar value of all benefits no longer
applies, that individuals whose coverage ended by reason of reaching
a lifetime limit under the plan are eligible to enroll in the plan,
and that individuals can request such enrollment through February 1,
2011 with enrollment effective retroactively to January 1, 2011.
(ii) Conclusion. In this Example 1, the plan has complied with
the requirements of this paragraph (e) by providing a timely written
notice and enrollment opportunity to B that lasts at least 30 days.
Example 2. (i) Facts. Employer Z maintains a group health plan
with a plan year beginning October 1 and ending September 30. Prior
to October 1, 2010, the group health plan has a lifetime limit on
the dollar value of all benefits. Individual D, an employee of Z,
and Individual E, D's child, were enrolled in family coverage under
Z's group health plan for the plan year beginning on October 1,
2008. On May 1, 2009, E incurred a claim for benefits that exceeded
the lifetime limit under Z's plan. D dropped family coverage but
remains an employee of Z and is still eligible for coverage under
Z's group health plan.
(ii) Conclusion. In this Example 2, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll
(including written notice of an opportunity to enroll) that
continues for at least 30 days, with enrollment effective not later
than October 1, 2010.
Example 3. (i) Facts. Same facts as Example 2, except that Z's
plan had two benefit packages (a low-cost and a high-cost option).
Instead of dropping coverage, D switched to the low-cost benefit
package option.
(ii) Conclusion. In this Example 3, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll in any
benefit package available to similarly situated individuals who
enroll when first eligible. The plan would have to provide D and E
the opportunity to enroll in any benefit package available to
similarly situated individuals who enroll when first eligible, even
if D had not switched to the low-cost benefit package option.
Example 4. (i) Facts. Employer Q maintains a group health plan
with a plan year beginning October 1 and ending September 30. For
the plan year beginning on October 1, 2009, Q has an annual limit on
the dollar value of all benefits of $500,000.
(ii) Conclusion. In this Example 4, Q must raise the annual
limit on the dollar value of essential health benefits to at least
$750,000
[[Page 37225]]
for the plan year beginning October 1, 2010. For the plan year
beginning October 1, 2011, Q must raise the annual limit to at least
$1.25 million. For the plan year beginning October 1, 2012, Q must
raise the annual limit to at least $2 million. Q may also impose a
restricted annual limit of $2 million for the plan year beginning
October 1, 2013. After the conclusion of that plan year, Q cannot
impose an overall annual limit.
Example 5. (i) Facts. Same facts as Example 4, except that the
annual limit for the plan year beginning on October 1, 2009 is $1
million and Q lowers the annual limit for the plan year beginning
October 1, 2010 to $750,000.
(ii) Conclusion. In this Example 5, Q complies with the
requirements of this paragraph (e). However, Q's choice to lower its
annual limit means that under Sec. 54.9815-1251T(g)(1)(vi)(C), the
group health plan will cease to be a grandfathered health plan and
will be generally subject to all of the provisions of PHS Act
sections 2701 through 2719A.
(f) Effective/applicability date. The provisions of this section
apply for plan years beginning on or after September 23, 2010. See
Sec. 54.9815-1251T for determining the application of this section to
grandfathered health plans (providing that the prohibitions on lifetime
and annual limits apply to all grandfathered health plans that are
group health plans and group health insurance coverage, including the
special rules regarding restricted annual limits).
(g) Expiration date. This section expires on June 21, 2013.
0
Par. 6. Section 54.9815-2712T is added to read as follows:
Sec. 54.9815-2712T Rules regarding rescissions (temporary).
(a) Prohibition on rescissions--(1) A group health plan, or a
health insurance issuer offering group health insurance coverage, must
not rescind coverage under the plan, or under the policy, certificate,
or contract of insurance, with respect to an individual (including a
group to which the individual belongs or family coverage in which the
individual is included) once the individual is covered under the plan
or coverage, unless the individual (or a person seeking coverage on
behalf of the individual) performs an act, practice, or omission that
constitutes fraud, or unless the individual makes an intentional
misrepresentation of material fact, as prohibited by the terms of the
plan or coverage. A group health plan, or a health insurance issuer
offering group health insurance coverage, must provide at least 30 days
advance written notice to each participant who would be affected before
coverage may be rescinded under this paragraph (a)(1), regardless of
whether the coverage is insured or self-insured, or whether the
rescission applies to an entire group or only to an individual within
the group. (The rules of this paragraph (a)(1) apply regardless of any
contestability period that may otherwise apply.)
(2) For purposes of this section, a rescission is a cancellation or
discontinuance of coverage that has retroactive effect. For example, a
cancellation that treats a policy as void from the time of the
individual's or group's enrollment is a rescission. As another example,
a cancellation that voids benefits paid up to a year before the
cancellation is also a rescission for this purpose. A cancellation or
discontinuance of coverage is not a rescission if--
(i) The cancellation or discontinuance of coverage has only a
prospective effect; or
(ii) The cancellation or discontinuance of coverage is effective
retroactively to the extent it is attributable to a failure to timely
pay required premiums or contributions towards the cost of coverage.
(3) The rules of this paragraph (a) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A seeks enrollment in an
insured group health plan. The plan terms permit rescission of
coverage with respect to an individual if the individual engages in
fraud or makes an intentional misrepresentation of a material fact.
The plan requires A to complete a questionnaire regarding A's prior
medical history, which affects setting the group rate by the health
insurance issuer. The questionnaire complies with the other
requirements of this part. The questionnaire includes the following
question: ``Is there anything else relevant to your health that we
should know?'' A inadvertently fails to list that A visited a
psychologist on two occasions, six years previously. A is later
diagnosed with breast cancer and seeks benefits under the plan. On
or around the same time, the issuer receives information about A's
visits to the psychologist, which was not disclosed in the
questionnaire.
(ii) Conclusion. In this Example 1, the plan cannot rescind A's
coverage because A's failure to disclose the visits to the
psychologist was inadvertent. Therefore, it was not fraudulent or an
intentional misrepresentation of material fact.
Example 2. (i) Facts. An employer sponsors a group health plan
that provides coverage for employees who work at least 30 hours per
week. Individual B has coverage under the plan as a full-time
employee. The employer reassigns B to a part-time position. Under
the terms of the plan, B is no longer eligible for coverage. The
plan mistakenly continues to provide health coverage, collecting
premiums from B and paying claims submitted by B. After a routine
audit, the plan discovers that B no longer works at least 30 hours
per week. The plan rescinds B's coverage effective as of the date
that B changed from a full-time employee to a part-time employee.
(ii) Conclusion. In this Example 2, the plan cannot rescind B's
coverage because there was no fraud or an intentional
misrepresentation of material fact. The plan may cancel coverage for
B prospectively, subject to other applicable Federal and State laws.
(b) Compliance with other requirements. Other requirements of
Federal or State law may apply in connection with a rescission of
coverage.
(c) Effective/applicability date. The provisions of this section
apply for plan years beginning on or after September 23, 2010. See
Sec. 54.9815-1251T for determining the application of this section to
grandfathered health plans (providing that the rules regarding
rescissions and advance notice apply to all grandfathered health
plans).
(d) Expiration date. This section expires on June 21, 2013.
0
Par. 7. Section 54.9815-2719AT is added to read as follows:
Sec. 54.9815-2719AT Patient protections (temporary).
(a) Choice of health care professional--(1) Designation of primary
care provider--(i) In general. If a group health plan, or a health
insurance issuer offering group health insurance coverage, requires or
provides for designation by a participant or beneficiary of a
participating primary care provider, then the plan or issuer must
permit each participant or beneficiary to designate any participating
primary care provider who is available to accept the participant or
beneficiary. In such a case, the plan or issuer must comply with the
rules of paragraph (a)(4) of this section by informing each participant
of the terms of the plan or health insurance coverage regarding
designation of a primary care provider.
(ii) Example. The rules of this paragraph (a)(1) are illustrated by
the following example:
Example. (i) Facts. A group health plan requires individuals
covered under the plan to designate a primary care provider. The
plan permits each individual to designate any primary care provider
participating in the plan's network who is available to accept the
individual as the individual's primary care provider. If an
individual has not designated a primary care provider, the plan
designates one until one has been designated by the individual. The
plan provides a notice that satisfies the requirements of paragraph
(a)(4) of this section regarding the ability to designate a primary
care provider.
(ii) Conclusion. In this Example, the plan has satisfied the
requirements of paragraph (a) of this section.
[[Page 37226]]
(2) Designation of pediatrician as primary care provider--(i) In
general. If a group health plan, or a health insurance issuer offering
group health insurance coverage, requires or provides for the
designation of a participating primary care provider for a child by a
participant or beneficiary, the plan or issuer must permit the
participant or beneficiary to designate a physician (allopathic or
osteopathic) who specializes in pediatrics as the child's primary care
provider if the provider participates in the network of the plan or
issuer and is available to accept the child. In such a case, the plan
or issuer must comply with the rules of paragraph (a)(4) of this
section by informing each participant of the terms of the plan or
health insurance coverage regarding designation of a pediatrician as
the child's primary care provider.
(ii) Construction. Nothing in paragraph (a)(2)(i) of this section
is to be construed to waive any exclusions of coverage under the terms
and conditions of the plan or health insurance coverage with respect to
coverage of pediatric care.
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan's HMO designates for
each participant a physician who specializes in internal medicine to
serve as the primary care provider for the participant and any
beneficiaries. Participant A requests that Pediatrician B be
designated as the primary care provider for A's child. B is a
participating provider in the HMO's network.
(ii) Conclusion. In this Example 1, the HMO must permit A's
designation of B as the primary care provider for A's child in order
to comply with the requirements of this paragraph (a)(2).
Example 2. (i) Facts. Same facts as Example 1, except that A
takes A's child to B for treatment of the child's severe shellfish
allergies. B wishes to refer A's child to an allergist for
treatment. The HMO, however, does not provide coverage for treatment
of food allergies, nor does it have an allergist participating in
its network, and it therefore refuses to authorize the referral.
(ii) Conclusion. In this Example 2, the HMO has not violated the
requirements of this paragraph (a)(2) because the exclusion of
treatment for food allergies is in accordance with the terms of A's
coverage.
(3) Patient access to obstetrical and gynecological care--(i)
General rights--(A) Direct access. A group health plan, or a health
insurance issuer offering group health insurance coverage, described in
paragraph (a)(3)(ii) of this section may not require authorization or
referral by the plan, issuer, 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 who specializes in obstetrics or
gynecology. In such a case, the plan or issuer must comply with the
rules of paragraph (a)(4) of this section by informing each participant
that the plan may not require authorization or referral for obstetrical
or gynecological care by a participating health care professional who
specializes in obstetrics or gynecology. The plan or issuer may require
such a professional to agree to otherwise adhere to the plan's or
issuer's policies and procedures, including procedures regarding
referrals and obtaining prior authorization and providing services
pursuant to a treatment plan (if any) approved by the plan or issuer.
For purposes of this paragraph (a)(3), a health care professional who
specializes in obstetrics or gynecology is any individual (including a
person other than a physician) who is authorized under applicable State
law to provide obstetrical or gynecological care.
(B) Obstetrical and gynecological care. A group health plan or
health insurance issuer described in paragraph (a)(3)(ii) of this
section must treat the provision of obstetrical and gynecological care,
and the ordering of related obstetrical and gynecological items and
services, pursuant to the direct access described under paragraph
(a)(3)(i)(A) of this section, by a participating health care
professional who specializes in obstetrics or gynecology as the
authorization of the primary care provider.
(ii) Application of paragraph. A group health plan, or a health
insurance issuer offering group health insurance coverage, is described
in this paragraph (a)(3) if the plan or issuer--
(A) Provides coverage for obstetrical or gynecological care; and
(B) Requires the designation by a participant or beneficiary of a
participating primary care provider.
(iii) Construction. Nothing in paragraph (a)(3)(i) of this section
is to be construed to--
(A) Waive any exclusions of coverage under the terms and conditions
of the plan or health insurance coverage with respect to coverage of
obstetrical or gynecological care; or
(B) Preclude the group health plan or health insurance issuer
involved from requiring that the obstetrical or gynecological provider
notify the primary care health care professional or the plan or issuer
of treatment decisions.
(iv) Examples. The rules of this paragraph (a)(3) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family.
Participant A, a female, requests a gynecological exam with
Physician B, an in-network physician specializing in gynecological
care. The group health plan requires prior authorization from A's
designated primary care provider for the gynecological exam.
(ii) Conclusion. In this Example 1, the group health plan has
violated the requirements of this paragraph (a)(3) because the plan
requires prior authorization from A's primary care provider prior to
obtaining gynecological services.
Example 2. (i) Facts. Same facts as Example 1 except that A
seeks gynecological services from C, an out-of-network provider.
(ii) Conclusion. In this Example 2, the group health plan has
not violated the requirements of this paragraph (a)(3) by requiring
prior authorization because C is not a participating health care
provider.
Example 3. (i) Facts. Same facts as Example 1 except that the
group health plan only requires B to inform A's designated primary
care physician of treatment decisions.
(ii) Conclusion. In this Example 3, the group health plan has
not violated the requirements of this paragraph (a)(3) because A has
direct access to B without prior authorization. The fact that the
group health plan requires notification of treatment decisions to
the designated primary care physician does not violate this
paragraph (a)(3).
Example 4. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family. The group
health plan requires prior authorization before providing benefits
for uterine fibroid embolization.
(ii) Conclusion. In this Example 4, the plan requirement for
prior authorization before providing benefits for uterine fibroid
embolization does not violate the requirements of this paragraph
(a)(3) because, though the prior authorization requirement applies
to obstetrical services, it does not restrict access to any
providers specializing in obstetrics or gynecology.
(4) Notice of right to designate a primary care provider--(i) In
general. If a group health plan or health insurance issuer requires the
designation by a participant or beneficiary of a primary care provider,
the plan or issuer must provide a notice informing each participant of
the terms of the plan or health insurance coverage regarding
designation of a primary care provider and of the rights--
(A) Under paragraph (a)(1)(i) of this section, that any
participating primary care provider who is available to accept
[[Page 37227]]
the participant or beneficiary can be designated;
(B) Under paragraph (a)(2)(i) of this section, with respect to a
child, that any participating physician who specializes in pediatrics
can be designated as the primary care provider; and
(C) Under paragraph (a)(3)(i) of this section, that the plan may
not require authorization or referral for obstetrical or gynecological
care by a participating health care professional who specializes in
obstetrics or gynecology.
(ii) Timing. The notice described in paragraph (a)(4)(i) of this
section must be included 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.
(iii) Model language. The following model language can be used to
satisfy the notice requirement described in paragraph (a)(4)(i) of this
section:
(A) For plans and issuers that require or allow for the designation
of primary care providers by participants or beneficiaries, insert:
[Name of group health plan or health insurance issuer] generally
[requires/allows] the designation of a primary care provider. You
have the right to designate any primary care provider who
participates in our network and who is available to accept you or
your family members. [If the plan or health insurance coverage
designates a primary care provider automatically, insert: Until you
make this designation, [name of group health plan or health
insurance issuer] designates one for you.] For information on how to
select a primary care provider, and for a list of the participating
primary care providers, contact the [plan administrator or issuer]
at [insert contact information].
(B) For plans and issuers that require or allow for the designation
of a primary care provider for a child, add:
For children, you may designate a pediatrician as the primary care
provider.
(C) For plans and issuers that provide coverage for obstetric or
gynecological care and require the designation by a participant or
beneficiary of a primary care provider, add:
You do not need prior authorization from [name of group health
plan or issuer] or from any other person (including a primary care
provider) in order to obtain access to obstetrical or gynecological
care from a health care professional in our network who specializes
in obstetrics or gynecology. The health care professional, however,
may be required to comply with certain procedures, including
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a
list of participating health care professionals who specialize in
obstetrics or gynecology, contact the [plan administrator or issuer]
at [insert contact information].
(b) Coverage of emergency services--(1) Scope. If a group health
plan, or a health insurance issuer offering group health insurance
coverage, provides any benefits with respect to services in an
emergency department of a hospital, the plan or issuer must cover
emergency services (as defined in paragraph (b)(4)(ii) of this section)
consistent with the rules of this paragraph (b).
(2) General rules. A plan or issuer subject to the requirements of
this paragraph (b) must provide coverage for emergency services in the
following manner--
(i) Without the need for any prior authorization determination,
even if the emergency services are provided on an out-of-network basis;
(ii) Without regard to whether the health care provider furnishing
the emergency services is a participating network provider with respect
to the services;
(iii) If the emergency services are provided out of network,
without imposing any administrative requirement or limitation on
coverage that is more restrictive than the requirements or limitations
that apply to emergency services received from in-network providers;
(iv) If the emergency services are provided out of network, by
complying with the cost-sharing requirements of paragraph (b)(3) of
this section; and
(v) Without regard to any other term or condition of the coverage,
other than--
(A) The exclusion of or coordination of benefits;
(B) An affiliation or waiting period permitted under part 7 of
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the
Internal Revenue Code; or
(C) Applicable cost sharing.
(3) Cost-sharing requirements--(i) Copayments and coinsurance. Any
cost-sharing requirement expressed as a copayment amount or coinsurance
rate imposed with respect to a participant or beneficiary for out-of-
network emergency services cannot exceed the cost-sharing requirement
imposed with respect to a participant or beneficiary if the services
were provided in-network. However, a participant or beneficiary may be
required to pay, in addition to the in-network cost sharing, the excess
of the amount the out-of-network provider charges over the amount the
plan or issuer is required to pay under this paragraph (b)(3)(i). A
group health plan or health insurance issuer complies with the
requirements of this paragraph (b)(3) if it provides benefits with
respect to an emergency service in an amount equal to the greatest of
the three amounts specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B),
and (b)(3)(i)(C) of this section (which are adjusted for in-network
cost-sharing requirements).
(A) The amount negotiated with in-network providers for the
emergency service furnished, excluding any in-network copayment or
coinsurance imposed with respect to the participant or beneficiary. If
there is more than one amount negotiated with in-network providers for
the emergency service, the amount described under this paragraph
(b)(3)(i)(A) is the median of these amounts, excluding any in-network
copayment or coinsurance imposed with respect to the participant or
beneficiary. In determining the median described in the preceding
sentence, the amount negotiated with each in-network provider is
treated as a separate amount (even if the same amount is paid to more
than one provider). If there is no per-service amount negotiated with
in-network providers (such as under a capitation or other similar
payment arrangement), the amount under this paragraph (b)(3)(i)(A) is
disregarded.
(B) The amount for the emergency service calculated using the same
method the plan generally uses to determine payments for out-of-network
services (such as the usual, customary, and reasonable amount),
excluding any in-network copayment or coinsurance imposed with respect
to the participant or beneficiary. The amount in this paragraph
(b)(3)(i)(B) is determined without reduction for out-of-network cost
sharing that generally applies under the plan or health insurance
coverage with respect to out-of-network services. Thus, for example, if
a plan generally pays 70 percent of the usual, customary, and
reasonable amount for out-of-network services, the amount in this
paragraph (b)(3)(i)(B) for an emergency service is the total (that is,
100 percent) of the usual, customary, and reasonable amount for the
service, not reduced by the 30 percent coinsurance that would generally
apply to out-of-network services (but reduced by the in-network
copayment or coinsurance that the individual would be responsible for
if the emergency service had been provided in-network).
(C) The amount that would be paid under Medicare (part A or part B
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for
the emergency service, excluding any in-network copayment or
coinsurance imposed with respect to the participant or beneficiary.
(ii) Other cost sharing. Any cost-sharing requirement other than a
[[Page 37228]]
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services
provided out of network if the cost-sharing requirement generally
applies to out-of-network benefits. 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. 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.
(iii) Examples. The rules of this paragraph (b)(3) are illustrated
by the following examples. In all of these examples, the group health
plan covers benefits with respect to emergency services.
Example 1. (i) Facts. A group health plan imposes a 25%
coinsurance responsibility on individuals who are furnished
emergency services, whether provided in network or out of network.
If a covered individual notifies the plan within two business days
after the day an individual receives treatment in an emergency
department, the plan reduces the coinsurance rate to 15%.
(ii) Conclusion. In this Example 1, the requirement to notify
the plan in order to receive a reduction in the coinsurance rate
does not violate the requirement that the plan cover emergency
services without the need for any prior authorization determination.
This is the result even if the plan required that it be notified
before or at the time of receiving services at the emergency
department in order to receive a reduction in the coinsurance rate.
Example 2. (i) Facts. A group health plan imposes a $60
copayment on emergency services without preauthorization, whether
provided in-network or out-of-network. If emergency services are
preauthorized, the plan waives the copayment, even if it later
determines the medical condition was not an emergency medical
condition.
(ii) Conclusion. In this Example 2, by requiring an individual
to pay more for emergency services if the individual does not obtain
prior authorization, the plan violates the requirement that the plan
cover emergency services without the need for any prior
authorization determination. (By contrast, if, to have the copayment
waived, the plan merely required that it be notified rather than a
prior authorization, then the plan would not violate the requirement
that the plan cover emergency services without the need for any
prior authorization determination.)
Example 3. (i) Facts. A group health plan covers individuals
who receive emergency services with respect to an emergency medical
condition from an out-of-network provider. The plan has agreements
with in-network providers with respect to a certain emergency
service. Each provider has agreed to provide the service for a
certain amount. Among all the providers for the service: One has
agreed to accept $85, two have agreed to accept $100, two have
agreed to accept $110, three have agreed to accept $120, and one has
agreed to accept $150. Under the agreement, the plan agrees to pay
the providers 80% of the agreed amount, with the individual
receiving the service responsible for the remaining 20%.
(ii) Conclusion. In this Example 3, the values taken into
account in determining the median are $85, $100, $100, $110, $110,
$120, $120, $120, and $150. Therefore, the median amount among those
agreed to for the emergency service is $110, and the amount under
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
Example 4. (i) Facts. Same facts as Example 3. Subsequently, the
plan adds another provider to its network, who has agreed to accept
$150 for the emergency service.
(ii) Conclusion. In this Example 4, the median amount among
those agreed to for the emergency service is $115. (Because there is
no one middle amount, the median is the average of the two middle
amounts, $110 and $120.) Accordingly, the amount under paragraph
(b)(3)(i)(A) of this section is 80% of $115 ($92).
Example 5. (i) Facts. Same facts as Example 4. An individual
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to
services provided by out-of-network providers generally, the plan
reimburses covered individuals 50% of the reasonable amount charged
by the provider for medical services. For this purpose, the
reasonable amount for any service is based on information on charges
by all providers collected by a third party, on a zip-code-by-zip-
code basis, with the plan treating charges at a specified percentile
as reasonable. For the emergency service received by the individual,
the reasonable amount calculated using this method is $116. The
amount that would be paid under Medicare for the emergency service,
excluding any copayment or coinsurance for the service, is $80.
(ii) Conclusion. In this Example 5, the plan is responsible for
paying $92.80, 80% of $116. The median amount among those agreed to
for the emergency service is $115 and the amount the plan would pay
is $92 (80% of $115); the amount calculated using the same method
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the
Medicare payment is $80. Thus, the greatest amount is $92.80. The
individual is responsible for the remaining $32.20 charged by the
out-of-network provider.
Example 6. (i) Facts. Same facts as Example 5. The group health
plan generally imposes a $250 deductible for in-network health care.
With respect to all health care provided by out-of-network
providers, the plan imposes a $500 deductible. (Covered in-network
claims are credited against the deductible.) The individual has
incurred and submitted $260 of covered claims prior to receiving the
emergency service out of network.
(ii) Conclusion. In this Example 6, the plan is not responsible
for paying anything with respect to the emergency service furnished
by the out-of-network provider because the covered individual has
not satisfied the higher deductible that applies generally to all
health care provided out of network. However, the amount the
individual is required to pay is credited against the deductible.
(4) Definitions. The definitions in this paragraph (b)(4) govern in
applying the provisions of this paragraph (b).
(i) Emergency medical condition. The term emergency medical
condition means a medical condition manifesting itself by acute
symptoms of sufficient severity (including severe pain) so that a
prudent layperson, who possesses an average knowledge of health and
medicine, could reasonably expect the absence of immediate medical
attention to result in a condition described in clause (i), (ii), or
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C.
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause
(i) refers to placing the health of the individual (or, with respect to
a pregnant woman, the health of the woman or her unborn child) in
serious jeopardy; clause (ii) refers to serious impairment to bodily
functions; and clause (iii) refers to serious dysfunction of any bodily
organ or part.)
(ii) Emergency services. The term emergency services means, with
respect to an emergency medical condition--
(A) A medical screening examination (as required under section 1867
of the Social Security Act, 42 U.S.C. 1395dd) that is within the
capability of the emergency department of a hospital, including
ancillary services routinely available to the emergency department to
evaluate such emergency medical condition, and
(B) Such further medical examination and treatment, to the extent
they are within the capabilities of the staff and facilities available
at the hospital, as are required under section 1867 of the Social
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
(iii) Stabilize. The term to stabilize, with respect to an
emergency medical condition (as defined in paragraph (b)(4)(i) of this
section) has the meaning given in section 1867(e)(3) of the Social
Security Act (42 U.S.C. 1395dd(e)(3)).
(c) Effective/applicability date. The provisions of this section
apply for plan years beginning on or after September 23, 2010. See
Sec. 54.9815-1251T for determining the application of this section to
grandfathered health plans (providing that these rules regarding
patient protections do not apply to grandfathered health plans).
(d) Expiration date. This section expires on June 21, 2013.
[[Page 37229]]
PART 602--[AMENDED]
0
Par. 8. The authority citation for part 602 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 9. Section 602.101(b) is amended by adding the following entries
in numerical order to the table to read as follows:
Sec. 602.101 OMB control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
54.9815-2711T........................................... 1545-2179
54.9815-2712T........................................... 1545-2180
* * * * *
54.9815-2719AT.......................................... 1545-2181
* * * * *
------------------------------------------------------------------------
Department of Labor
Employee Benefits Security Administration
29 CFR Chapter XXV
0
For reasons stated in the preamble, EBSA amends 29 CFR part 2590 as
follows:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS
0
1. The authority citation for part 2590 continues to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c;
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L.
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029;
Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 2009).
Subpart B--Other Requirements
0
2. Section 2590.701-2 is amended by revising the definition of
preexisting condition exclusion to read as follows:
Sec. 2590.701-2 Definitions.
* * * * *
Preexisting condition exclusion means a limitation or exclusion of
benefits (including a denial of coverage) based on the fact that the
condition was present before the effective date of coverage (or if
coverage is denied, the date of the denial) under a group health plan
or group or individual health insurance coverage (or other coverage
provided to federally eligible individuals pursuant to 45 CFR part
148), whether or not any medical advice, diagnosis, care, or treatment
was recommended or received before that day. A preexisting condition
exclusion includes any limitation or exclusion of benefits (including a
denial of coverage) applicable to an individual 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) under a group health plan, or group or individual
health insurance coverage (or other coverage provided to Federally
eligible individuals pursuant to 45 CFR part 148), such as a condition
identified as a result of a pre-enrollment questionnaire or physical
examination given to the individual, or review of medical records
relating to the pre-enrollment period.
* * * * *
0
3. Section 2590.701-3 is amended by revising paragraph (a)(1)(i) to
read as follows:
Sec. 2590.701-3 Limitations on preexisting condition exclusion
period.
(a) * * *
(1) * * *
(i) A preexisting condition exclusion means a preexisting condition
exclusion within the meaning set forth in Sec. 2590.701-2 of this
part.
* * * * *
0
4. Section 2590.715-2704 is added to subpart C to read as follows:
Sec. 2590.715-2704 Prohibition of preexisting condition exclusions.
(a) No preexisting condition exclusions--(1) In general. A group
health plan, or a health insurance issuer offering group health
insurance coverage, may not impose any preexisting condition exclusion
(as defined in Sec. 2590.701-2 of this part).
(2) Examples. The rules of this paragraph (a) are illustrated by
the following examples (for additional examples illustrating the
definition of a preexisting condition exclusion, see Sec. 2590.701-
3(a)(1)(ii) of this part):
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer P. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer N. N's policy excludes benefits for oral surgery
required as a result of a traumatic injury if the injury occurred
before the effective date of coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for oral surgery required as a result of a traumatic injury if the
injury occurred before the effective date of coverage is a
preexisting condition exclusion because it operates to exclude
benefits for a condition based on the fact that the condition was
present before the effective date of coverage under the policy.
Example 2. (i) Facts. Individual C applies for individual health
insurance coverage with Issuer M. M denies C's application for
coverage because a pre-enrollment physical revealed that C has type
2 diabetes.
(ii) Conclusion. See Example 2 in 45 CFR 147.108(a)(2) for a
conclusion that M's denial of C's application for coverage is a
preexisting condition exclusion because a denial of an application
for coverage based on the fact that a condition was present before
the date of denial is an exclusion of benefits based on a
preexisting condition.
(b) Applicability--(1) General applicability date. Except as
provided in paragraph (b)(2) of this section, the rules of this section
apply for plan years beginning on or after January 1, 2014.
(2) Early applicability date for children. The rules of this
section apply with respect to enrollees, including applicants for
enrollment, who are under 19 years of age for plan years beginning on
or after September 23, 2010.
(3) Applicability to grandfathered health plans. See Sec.
2590.715-1251 of this part for determining the application of this
section to grandfathered health plans (providing that a grandfathered
health plan that is a group health plan or group health insurance
coverage must comply with the prohibition against preexisting condition
exclusions).
(4) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Facts. Individual F commences employment and
enrolls F and F's 16-year-old child in the group health plan
maintained by F's employer, with a first day of coverage of October
15, 2010. F's child had a significant break in coverage because of a
lapse of more than 63 days without creditable coverage immediately
prior to enrolling in the plan. F's child was treated for asthma
within the six-month period prior to the enrollment date and the
plan imposes a 12-month preexisting condition exclusion for coverage
of asthma. The next plan year begins on January 1, 2011.
(ii) Conclusion. In this Example, the plan year beginning
January 1, 2011 is the first plan year of the group health plan
beginning on or after September 23, 2010. Thus, beginning on January
1, 2011, because the child is under 19 years of age, the plan cannot
impose a preexisting condition exclusion with respect to the child's
asthma regardless of the fact that the preexisting condition
exclusion was imposed by the plan before the applicability date of
this provision.
0
5. Section 2590.715-2711 is added to subpart C to read as follows:
Sec. 2590.715-2711 No lifetime or annual limits.
(a) Prohibition--(1) Lifetime limits. Except as provided in
paragraph (b) of
[[Page 37230]]
this section, a group health plan, or a health insurance issuer
offering group health insurance coverage, may not establish any
lifetime limit on the dollar amount of benefits for any individual.
(2) Annual limits--(i) General rule. Except as provided in
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health
plan, or a health insurance issuer offering group health insurance
coverage, may not establish any annual limit on the dollar amount of
benefits for any individual.
(ii) Exception for health flexible spending arrangements. A health
flexible spending arrangement (as defined in section 106(c)(2) of the
Internal Revenue Code) is not subject to the requirement in paragraph
(a)(2)(i) of this section.
(b) Construction--(1) Permissible limits on specific covered
benefits. The rules of this section do not prevent a group health plan,
or a health insurance issuer offering group health insurance coverage,
from placing annual or lifetime dollar limits with respect to any
individual on specific covered benefits that are not essential health
benefits to the extent that such limits are otherwise permitted under
applicable Federal or State law. (The scope of essential health
benefits is addressed in paragraph (c) of this section).
(2) Condition-based exclusions. The rules of this section do not
prevent a group health plan, or a health insurance issuer offering
group health insurance coverage, from excluding all benefits for a
condition. However, if any benefits are provided for a condition, then
the requirements of this section apply. Other requirements of Federal
or State law may require coverage of certain benefits.
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations.
(d) Restricted annual limits permissible prior to 2014--(1) In
general. With respect to plan years beginning prior to January 1, 2014,
a group health plan, or a health insurance issuer offering group health
insurance coverage, may establish, for any individual, an annual limit
on the dollar amount of benefits that are essential health benefits,
provided the limit is no less than the amounts in the following
schedule:
(i) For a plan year beginning on or after September 23, 2010, but
before September 23, 2011, $750,000.
(ii) For a plan year beginning on or after September 23, 2011, but
before September 23, 2012, $1,250,000.
(iii) For plan years beginning on or after September 23, 2012, but
before January 1, 2014, $2,000,000.
(2) Only essential health benefits taken into account. In
determining whether an individual has received benefits that meet or
exceed the applicable amount described in paragraph (d)(1) of this
section, a plan or issuer must take into account only essential health
benefits.
(3) Waiver authority of the Secretary of Health and Human Services.
For plan years beginning before January 1, 2014, the Secretary of
Health and Human Services may establish a program under which the
requirements of paragraph (d)(1) of this section relating to annual
limits may be waived (for such period as is specified by the Secretary
of Health and Human Services) for a group health plan or health
insurance coverage that has an annual dollar limit on benefits below
the restricted annual limits provided under paragraph (d)(1) of this
section if compliance with paragraph (d)(1) of this section would
result in a significant decrease in access to benefits under the plan
or health insurance coverage or would significantly increase premiums
for the plan or health insurance coverage.
(e) Transitional rules for individuals whose coverage or benefits
ended by reason of reaching a lifetime limit--(1) In general. The
relief provided in the transitional rules of this paragraph (e) applies
with respect to any individual--
(i) Whose coverage or benefits under a group health plan or group
health insurance coverage ended by reason of reaching a lifetime limit
on the dollar value of all benefits for any individual (which, under
this section, is no longer permissible); and
(ii) Who becomes eligible (or is required to become eligible) for
benefits not subject to a lifetime limit on the dollar value of all
benefits under the group health plan or group health insurance coverage
on the first day of the first plan year beginning on or after September
23, 2010, by reason of the application of this section.
(2) Notice and enrollment opportunity requirements-(i) If an
individual described in paragraph (e)(1) of this section is eligible
for benefits (or is required to become eligible for benefits) under the
group health plan--or group health insurance coverage--described in
paragraph (e)(1) of this section, the plan and the issuer are required
to give the individual written notice that the lifetime limit on the
dollar value of all benefits no longer applies and that the 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 and 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 required under this paragraph (e)(2)(i) must be
provided beginning not later than the first day of the first plan year
beginning on or after September 23, 2010.
(ii) The notices required under paragraph (e)(2)(i) of this section
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 of this paragraph (e)(2) 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.
(3) Effective date of coverage. In the case of an individual who
enrolls under paragraph (e)(2) of this section, coverage must take
effect not later than the first day of the first plan year beginning on
or after September 23, 2010.
(4) Treatment of enrollees in a group health plan. Any individual
enrolling in a group health plan pursuant to paragraph (e)(2) of this
section must be treated as if the individual were a special enrollee,
as provided under the rules of Sec. 2590.701-6(d) of this part.
Accordingly, the individual (and, if the individual would not be a
participant once enrolled in the plan, the participant through whom the
individual is otherwise eligible for coverage under the plan) must be
offered all the benefit packages available to similarly situated
individuals who did not lose coverage by reason of reaching a lifetime
limit on the dollar value of all benefits. For this purpose, any
difference in benefits or cost-sharing requirements constitutes a
different benefit package. The individual also cannot be required to
pay more for coverage than similarly situated individuals who did not
lose coverage by reason of reaching a lifetime limit on the dollar
value of all benefits.
(5) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. Employer Y maintains a group health plan
with a calendar year plan year. The plan has a single benefit
package. For plan years beginning before September 23, 2010, the
plan has a lifetime limit on the
[[Page 37231]]
dollar value of all benefits. Individual B, an employee of Y, was
enrolled in Y's group health plan at the beginning of the 2008 plan
year. On June 10, 2008, B incurred a claim for benefits that
exceeded the lifetime limit under Y's plan and ceased to be enrolled
in the plan. B is still eligible for coverage under Y's group health
plan. On or before January 1, 2011, Y's group health plan gives B
written notice informing B that the lifetime limit on the dollar
value of all benefits no longer applies, that individuals whose
coverage ended by reason of reaching a lifetime limit under the plan
are eligible to enroll in the plan, and that individuals can request
such enrollment through February 1, 2011 with enrollment effective
retroactively to January 1, 2011.
(ii) Conclusion. In this Example 1, the plan has complied with
the requirements of this paragraph (e) by providing a timely written
notice and enrollment opportunity to B that lasts at least 30 days.
Example 2. (i) Facts. Employer Z maintains a group health plan
with a plan year beginning October 1 and ending September 30. Prior
to October 1, 2010, the group health plan has a lifetime limit on
the dollar value of all benefits. Individual D, an employee of Z,
and Individual E, D's child, were enrolled in family coverage under
Z's group health plan for the plan year beginning on October 1,
2008. On May 1, 2009, E incurred a claim for benefits that exceeded
the lifetime limit under Z's plan. D dropped family coverage but
remains an employee of Z and is still eligible for coverage under
Z's group health plan.
(ii) Conclusion. In this Example 2, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll
(including written notice of an opportunity to enroll) that
continues for at least 30 days, with enrollment effective not later
than October 1, 2010.
Example 3. (i) Facts. Same facts as Example 2, except that Z's
plan had two benefit packages (a low-cost and a high-cost option).
Instead of dropping coverage, D switched to the low-cost benefit
package option.
(ii) Conclusion. In this Example 3, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll in any
benefit package available to similarly situated individuals who
enroll when first eligible. The plan would have to provide D and E
the opportunity to enroll in any benefit package available to
similarly situated individuals who enroll when first eligible, even
if D had not switched to the low-cost benefit package option.
Example 4. (i) Facts. Employer Q maintains a group health plan
with a plan year beginning October 1 and ending September 30. For
the plan year beginning on October 1, 2009, Q has an annual limit on
the dollar value of all benefits of $500,000.
(ii) Conclusion. In this Example 4, Q must raise the annual
limit on the dollar value of essential health benefits to at least
$750,000 for the plan year beginning October 1, 2010. For the plan
year beginning October 1, 2011, Q must raise the annual limit to at
least $1.25 million. For the plan year beginning October 1, 2012, Q
must raise the annual limit to at least $2 million. Q may also
impose a restricted annual limit of $2 million for the plan year
beginning October 1, 2013. After the conclusion of that plan year, Q
cannot impose an overall annual limit.
Example 5. (i) Facts. Same facts as Example 4, except that the
annual limit for the plan year beginning on October 1, 2009 is $1
million and Q lowers the annual limit for the plan year beginning
October 1, 2010 to $750,000.
(ii) Conclusion. In this Example 5, Q complies with the
requirements of this paragraph (e). However, Q's choice to lower its
annual limit means that under Sec. 2590.715-1251(g)(1)(vi)(C), the
group health plan will cease to be a grandfathered health plan and
will be generally subject to all of the provisions of PHS Act
sections 2701 through 2719A.
(f) Applicability date. The provisions of this section apply for
plan years beginning on or after September 23, 2010. See Sec.
2590.715-1251 of this Part for determining the application of this
section to grandfathered health plans (providing that the prohibitions
on lifetime and annual limits apply to all grandfathered health plans
that are group health plans and group health insurance coverage,
including the special rules regarding restricted annual limits).
0
6. Section 2590.715-2712 is added to subpart C to read as follows:
Sec. 2590.715-2712 Rules regarding rescissions.
(a) Prohibition on rescissions--(1) A group health plan, or a
health insurance issuer offering group health insurance coverage, must
not rescind coverage under the plan, or under the policy, certificate,
or contract of insurance, with respect to an individual (including a
group to which the individual belongs or family coverage in which the
individual is included) once the individual is covered under the plan
or coverage, unless the individual (or a person seeking coverage on
behalf of the individual) performs an act, practice, or omission that
constitutes fraud, or unless the individual makes an intentional
misrepresentation of material fact, as prohibited by the terms of the
plan or coverage. A group health plan, or a health insurance issuer
offering group health insurance coverage, must provide at least 30 days
advance written notice to each participant who would be affected before
coverage may be rescinded under this paragraph (a)(1), regardless of
whether the coverage is insured or self-insured, or whether the
rescission applies to an entire group or only to an individual within
the group. (The rules of this paragraph (a)(1) apply regardless of any
contestability period that may otherwise apply.)
(2) For purposes of this section, a rescission is a cancellation or
discontinuance of coverage that has retroactive effect. For example, a
cancellation that treats a policy as void from the time of the
individual's or group's enrollment is a rescission. As another example,
a cancellation that voids benefits paid up to a year before the
cancellation is also a rescission for this purpose. A cancellation or
discontinuance of coverage is not a rescission if -
(i) The cancellation or discontinuance of coverage has only a
prospective effect; or
(ii) The cancellation or discontinuance of coverage is effective
retroactively to the extent it is attributable to a failure to timely
pay required premiums or contributions towards the cost of coverage.
(3) The rules of this paragraph (a) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A seeks enrollment in an
insured group health plan. The plan terms permit rescission of
coverage with respect to an individual if the individual engages in
fraud or makes an intentional misrepresentation of a material fact.
The plan requires A to complete a questionnaire regarding A's prior
medical history, which affects setting the group rate by the health
insurance issuer. The questionnaire complies with the other
requirements of this part. The questionnaire includes the following
question: ``Is there anything else relevant to your health that we
should know?'' A inadvertently fails to list that A visited a
psychologist on two occasions, six years previously. A is later
diagnosed with breast cancer and seeks benefits under the plan. On
or around the same time, the issuer receives information about A's
visits to the psychologist, which was not disclosed in the
questionnaire.
(ii) Conclusion. In this Example 1, the plan cannot rescind A's
coverage because A's failure to disclose the visits to the
psychologist was inadvertent. Therefore, it was not fraudulent or an
intentional misrepresentation of material fact.
Example 2. (i) Facts. An employer sponsors a group health plan
that provides coverage for employees who work at least 30 hours per
week. Individual B has coverage under the plan as a full-time
employee. The employer reassigns B to a part-time position. Under
the terms of the plan, B is no longer eligible for coverage. The
plan mistakenly continues to provide health coverage, collecting
premiums from B and paying claims submitted by B. After a routine
audit, the plan discovers that B no longer works at least 30 hours
per week. The plan rescinds B's coverage effective as of the date
that B changed from a full-time employee to a part-time employee.
(ii) Conclusion. In this Example 2, the plan cannot rescind B's
coverage because there was no fraud or an intentional
misrepresentation of material fact. The plan may cancel coverage for
B prospectively, subject to other applicable Federal and State laws.
[[Page 37232]]
(b) Compliance with other requirements. Other requirements of
Federal or State law may apply in connection with a rescission of
coverage.
(c) Applicability date. The provisions of this section apply for
plan years beginning on or after September 23, 2010. See Sec.
2590.715-1251 of this part for determining the application of this
section to grandfathered health plans (providing that the rules
regarding rescissions and advance notice apply to all grandfathered
health plans).
0
7. Section 2590.715-2719A is added to subpart C to read as follows:
Sec. 2590.715-2719A Patient protections.
(a) Choice of health care professional-(1) Designation of primary
care provider--(i) In general. If a group health plan, or a health
insurance issuer offering group health insurance coverage, requires or
provides for designation by a participant or beneficiary of a
participating primary care provider, then the plan or issuer must
permit each participant or beneficiary to designate any participating
primary care provider who is available to accept the participant or
beneficiary. In such a case, the plan or issuer must comply with the
rules of paragraph (a)(4) of this section by informing each participant
of the terms of the plan or health insurance coverage regarding
designation of a primary care provider.
(ii) Example. The rules of this paragraph (a)(1) are illustrated by
the following example:
Example. (i) Facts. A group health plan requires individuals
covered under the plan to designate a primary care provider. The
plan permits each individual to designate any primary care provider
participating in the plan's network who is available to accept the
individual as the individual's primary care provider. If an
individual has not designated a primary care provider, the plan
designates one until one has been designated by the individual. The
plan provides a notice that satisfies the requirements of paragraph
(a)(4) of this section regarding the ability to designate a primary
care provider.
(ii) Conclusion. In this Example, the plan has satisfied the
requirements of paragraph (a) of this section.
(2) Designation of pediatrician as primary care provider--(i) In
general. If a group health plan, or a health insurance issuer offering
group health insurance coverage, requires or provides for the
designation of a participating primary care provider for a child by a
participant or beneficiary, the plan or issuer must permit the
participant or beneficiary to designate a physician (allopathic or
osteopathic) who specializes in pediatrics as the child's primary care
provider if the provider participates in the network of the plan or
issuer and is available to accept the child. In such a case, the plan
or issuer must comply with the rules of paragraph (a)(4) of this
section by informing each participant of the terms of the plan or
health insurance coverage regarding designation of a pediatrician as
the child's primary care provider.
(ii) Construction. Nothing in paragraph (a)(2)(i) of this section
is to be construed to waive any exclusions of coverage under the terms
and conditions of the plan or health insurance coverage with respect to
coverage of pediatric care.
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan's HMO designates for
each participant a physician who specializes in internal medicine to
serve as the primary care provider for the participant and any
beneficiaries. Participant A requests that Pediatrician B be
designated as the primary care provider for A's child. B is a
participating provider in the HMO's network.
(ii) Conclusion. In this Example 1, the HMO must permit A's
designation of B as the primary care provider for A's child in order
to comply with the requirements of this paragraph (a)(2).
Example 2. (i) Facts. Same facts as Example 1, except that A
takes A's child to B for treatment of the child's severe shellfish
allergies. B wishes to refer A's child to an allergist for
treatment. The HMO, however, does not provide coverage for treatment
of food allergies, nor does it have an allergist participating in
its network, and it therefore refuses to authorize the referral.
(ii) Conclusion. In this Example 2, the HMO has not violated the
requirements of this paragraph (a)(2) because the exclusion of
treatment for food allergies is in accordance with the terms of A's
coverage.
(3) Patient access to obstetrical and gynecological care--(i)
General rights--(A) Direct access. A group health plan, or a health
insurance issuer offering group health insurance coverage, described in
paragraph (a)(3)(ii) of this section may not require authorization or
referral by the plan, issuer, 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 who specializes in obstetrics or
gynecology. In such a case, the plan or issuer must comply with the
rules of paragraph (a)(4) of this section by informing each participant
that the plan may not require authorization or referral for obstetrical
or gynecological care by a participating health care professional who
specializes in obstetrics or gynecology. The plan or issuer may require
such a professional to agree to otherwise adhere to the plan's or
issuer's policies and procedures, including procedures regarding
referrals and obtaining prior authorization and providing services
pursuant to a treatment plan (if any) approved by the plan or issuer.
For purposes of this paragraph (a)(3), a health care professional who
specializes in obstetrics or gynecology is any individual (including a
person other than a physician) who is authorized under applicable State
law to provide obstetrical or gynecological care.
(B) Obstetrical and gynecological care. A group health plan or
health insurance issuer described in paragraph (a)(3)(ii) of this
section must treat the provision of obstetrical and gynecological care,
and the ordering of related obstetrical and gynecological items and
services, pursuant to the direct access described under paragraph
(a)(3)(i)(A) of this section, by a participating health care
professional who specializes in obstetrics or gynecology as the
authorization of the primary care provider.
(ii) Application of paragraph. A group health plan, or a health
insurance issuer offering group health insurance coverage, is described
in this paragraph (a)(3) if the plan or issuer--
(A) Provides coverage for obstetrical or gynecological care; and
(B) Requires the designation by a participant or beneficiary of a
participating primary care provider.
(iii) Construction. Nothing in paragraph (a)(3)(i) of this section
is to be construed to--
(A) Waive any exclusions of coverage under the terms and conditions
of the plan or health insurance coverage with respect to coverage of
obstetrical or gynecological care; or
(B) Preclude the group health plan or health insurance issuer
involved from requiring that the obstetrical or gynecological provider
notify the primary care health care professional or the plan or issuer
of treatment decisions.
(iv) Examples. The rules of this paragraph (a)(3) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family.
Participant A, a female, requests a gynecological exam with
Physician B, an in-network physician specializing in gynecological
care. The group health plan requires prior authorization from A's
designated primary care provider for the gynecological exam.
[[Page 37233]]
(ii) Conclusion. In this Example 1, the group health plan has
violated the requirements of this paragraph (a)(3) because the plan
requires prior authorization from A's primary care provider prior to
obtaining gynecological services.
Example 2. (i) Facts. Same facts as Example 1 except that A
seeks gynecological services from C, an out-of-network provider.
(ii) Conclusion. In this Example 2, the group health plan has
not violated the requirements of this paragraph (a)(3) by requiring
prior authorization because C is not a participating health care
provider.
Example 3. (i) Facts. Same facts as Example 1 except that the
group health plan only requires B to inform A's designated primary
care physician of treatment decisions.
(ii) Conclusion. In this Example 3, the group health plan has
not violated the requirements of this paragraph (a)(3) because A has
direct access to B without prior authorization. The fact that the
group health plan requires notification of treatment decisions to
the designated primary care physician does not violate this
paragraph (a)(3).
Example 4. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family. The group
health plan requires prior authorization before providing benefits
for uterine fibroid embolization.
(ii) Conclusion. In this Example 4, the plan requirement for
prior authorization before providing benefits for uterine fibroid
embolization does not violate the requirements of this paragraph
(a)(3) because, though the prior authorization requirement applies
to obstetrical services, it does not restrict access to any
providers specializing in obstetrics or gynecology.
(4) Notice of right to designate a primary care provider--(i) In
general. If a group health plan or health insurance issuer requires the
designation by a participant or beneficiary of a primary care provider,
the plan or issuer must provide a notice informing each participant of
the terms of the plan or health insurance coverage regarding
designation of a primary care provider and of the rights--
(A) Under paragraph (a)(1)(i) of this section, that any
participating primary care provider who is available to accept the
participant or beneficiary can be designated;
(B) Under paragraph (a)(2)(i) of this section, with respect to a
child, that any participating physician who specializes in pediatrics
can be designated as the primary care provider; and
(C) Under paragraph (a)(3)(i) of this section, that the plan may
not require authorization or referral for obstetrical or gynecological
care by a participating health care professional who specializes in
obstetrics or gynecology.
(ii) Timing. The notice described in paragraph (a)(4)(i) of this
section must be included 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.
(iii) Model language. The following model language can be used to
satisfy the notice requirement described in paragraph (a)(4)(i) of this
section:
(A) For plans and issuers that require or allow for the designation
of primary care providers by participants or beneficiaries, insert:
[Name of group health plan or health insurance issuer] generally
[requires/allows] the designation of a primary care provider. You
have the right to designate any primary care provider who
participates in our network and who is available to accept you or
your family members. [If the plan or health insurance coverage
designates a primary care provider automatically, insert: Until you
make this designation, [name of group health plan or health
insurance issuer] designates one for you.] For information on how to
select a primary care provider, and for a list of the participating
primary care providers, contact the [plan administrator or issuer]
at [insert contact information].
(B) For plans and issuers that require or allow for the designation
of a primary care provider for a child, add:
For children, you may designate a pediatrician as the primary
care provider.
(C) For plans and issuers that provide coverage for obstetric or
gynecological care and require the designation by a participant or
beneficiary of a primary care provider, add:
You do not need prior authorization from [name of group health
plan or issuer] or from any other person (including a primary care
provider) in order to obtain access to obstetrical or gynecological
care from a health care professional in our network who specializes
in obstetrics or gynecology. The health care professional, however,
may be required to comply with certain procedures, including
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a
list of participating health care professionals who specialize in
obstetrics or gynecology, contact the [plan administrator or issuer]
at [insert contact information].
(b) Coverage of emergency services--(1) Scope. If a group health
plan, or a health insurance issuer offering group health insurance
coverage, provides any benefits with respect to services in an
emergency department of a hospital, the plan or issuer must cover
emergency services (as defined in paragraph (b)(4)(ii) of this section)
consistent with the rules of this paragraph (b).
(2) General rules. A plan or issuer subject to the requirements of
this paragraph (b) must provide coverage for emergency services in the
following manner--
(i) Without the need for any prior authorization determination,
even if the emergency services are provided on an out-of-network basis;
(ii) Without regard to whether the health care provider furnishing
the emergency services is a participating network provider with respect
to the services;
(iii) If the emergency services are provided out of network,
without imposing any administrative requirement or limitation on
coverage that is more restrictive than the requirements or limitations
that apply to emergency services received from in-network providers;
(iv) If the emergency services are provided out of network, by
complying with the cost-sharing requirements of paragraph (b)(3) of
this section; and
(v) Without regard to any other term or condition of the coverage,
other than--
(A) The exclusion of or coordination of benefits;
(B) An affiliation or waiting period permitted under part 7 of
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the
Internal Revenue Code; or
(C) Applicable cost sharing.
(3) Cost-sharing requirements--(i) Copayments and coinsurance. Any
cost-sharing requirement expressed as a copayment amount or coinsurance
rate imposed with respect to a participant or beneficiary for out-of-
network emergency services cannot exceed the cost-sharing requirement
imposed with respect to a participant or beneficiary if the services
were provided in-network. However, a participant or beneficiary may be
required to pay, in addition to the in-network cost sharing, the excess
of the amount the out-of-network provider charges over the amount the
plan or issuer is required to pay under this paragraph (b)(3)(i). A
group health plan or health insurance issuer complies with the
requirements of this paragraph (b)(3) if it provides benefits with
respect to an emergency service in an amount equal to the greatest of
the three amounts specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B),
and (b)(3)(i)(C) of this section (which are adjusted for in-network
cost-sharing requirements).
(A) The amount negotiated with in-network providers for the
emergency service furnished, excluding any in-network copayment or
coinsurance imposed with respect to the participant or beneficiary. If
there is more than one amount negotiated with in-network providers for
the emergency service, the amount described under this paragraph
(b)(3)(i)(A) is the median of these
[[Page 37234]]
amounts, excluding any in-network copayment or coinsurance imposed with
respect to the participant or beneficiary. In determining the median
described in the preceding sentence, the amount negotiated with each
in-network provider is treated as a separate amount (even if the same
amount is paid to more than one provider). If there is no per-service
amount negotiated with in-network providers (such as under a capitation
or other similar payment arrangement), the amount under this paragraph
(b)(3)(i)(A) is disregarded.
(B) The amount for the emergency service calculated using the same
method the plan generally uses to determine payments for out-of-network
services (such as the usual, customary, and reasonable amount),
excluding any in-network copayment or coinsurance imposed with respect
to the participant or beneficiary. The amount in this paragraph
(b)(3)(i)(B) is determined without reduction for out-of-network cost
sharing that generally applies under the plan or health insurance
coverage with respect to out-of-network services. Thus, for example, if
a plan generally pays 70 percent of the usual, customary, and
reasonable amount for out-of-network services, the amount in this
paragraph (b)(3)(i)(B) for an emergency service is the total (that is,
100 percent) of the usual, customary, and reasonable amount for the
service, not reduced by the 30 percent coinsurance that would generally
apply to out-of-network services (but reduced by the in-network
copayment or coinsurance that the individual would be responsible for
if the emergency service had been provided in-network).
(C) The amount that would be paid under Medicare (part A or part B
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for
the emergency service, excluding any in-network copayment or
coinsurance imposed with respect to the participant or beneficiary.
(ii) Other cost sharing. Any cost-sharing requirement other than a
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services
provided out of network if the cost-sharing requirement generally
applies to out-of-network benefits. 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. 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.
(iii) Examples. The rules of this paragraph (b)(3) are illustrated
by the following examples. In all of these examples, the group health
plan covers benefits with respect to emergency services.
Example 1. (i) Facts. A group health plan imposes a 25%
coinsurance responsibility on individuals who are furnished
emergency services, whether provided in network or out of network.
If a covered individual notifies the plan within two business days
after the day an individual receives treatment in an emergency
department, the plan reduces the coinsurance rate to 15%.
(ii) Conclusion. In this Example 1, the requirement to notify
the plan in order to receive a reduction in the coinsurance rate
does not violate the requirement that the plan cover emergency
services without the need for any prior authorization determination.
This is the result even if the plan required that it be notified
before or at the time of receiving services at the emergency
department in order to receive a reduction in the coinsurance rate.
Example 2. (i) Facts. A group health plan imposes a $60
copayment on emergency services without preauthorization, whether
provided in network or out of network. If emergency services are
preauthorized, the plan waives the copayment, even if it later
determines the medical condition was not an emergency medical
condition.
(ii) Conclusion. In this Example 2, by requiring an individual
to pay more for emergency services if the individual does not obtain
prior authorization, the plan violates the requirement that the plan
cover emergency services without the need for any prior
authorization determination. (By contrast, if, to have the copayment
waived, the plan merely required that it be notified rather than a
prior authorization, then the plan would not violate the requirement
that the plan cover emergency services without the need for any
prior authorization determination.)
Example 3. (i) Facts. A group health plan covers individuals
who receive emergency services with respect to an emergency medical
condition from an out-of-network provider. The plan has agreements
with in-network providers with respect to a certain emergency
service. Each provider has agreed to provide the service for a
certain amount. Among all the providers for the service: one has
agreed to accept $85, two have agreed to accept $100, two have
agreed to accept $110, three have agreed to accept $120, and one has
agreed to accept $150. Under the agreement, the plan agrees to pay
the providers 80% of the agreed amount, with the individual
receiving the service responsible for the remaining 20%.
(ii) Conclusion. In this Example 3, the values taken into
account in determining the median are $85, $100, $100, $110, $110,
$120, $120, $120, and $150. Therefore, the median amount among those
agreed to for the emergency service is $110, and the amount under
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
Example 4. (i) Facts. Same facts as Example 3. Subsequently,
the plan adds another provider to its network, who has agreed to
accept $150 for the emergency service.
(ii) Conclusion. In this Example 4, the median amount among
those agreed to for the emergency service is $115. (Because there is
no one middle amount, the median is the average of the two middle
amounts, $110 and $120.) Accordingly, the amount under paragraph
(b)(3)(i)(A) of this section is 80% of $115 ($92).
Example 5. (i) Facts. Same facts as Example 4. An individual
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to
services provided by out-of-network providers generally, the plan
reimburses covered individuals 50% of the reasonable amount charged
by the provider for medical services. For this purpose, the
reasonable amount for any service is based on information on charges
by all providers collected by a third party, on a zip code by zip
code basis, with the plan treating charges at a specified percentile
as reasonable. For the emergency service received by the individual,
the reasonable amount calculated using this method is $116. The
amount that would be paid under Medicare for the emergency service,
excluding any copayment or coinsurance for the service, is $80.
(ii) Conclusion. In this Example 5, the plan is responsible for
paying $92.80, 80% of $116. The median amount among those agreed to
for the emergency service is $115 and the amount the plan would pay
is $92 (80% of $115); the amount calculated using the same method
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the
Medicare payment is $80. Thus, the greatest amount is $92.80. The
individual is responsible for the remaining $32.20 charged by the
out-of-network provider.
Example 6. (i) Facts. Same facts as Example 5. The group health
plan generally imposes a $250 deductible for in-network health care.
With respect to all health care provided by out-of-network
providers, the plan imposes a $500 deductible. (Covered in-network
claims are credited against the deductible.) The individual has
incurred and submitted $260 of covered claims prior to receiving the
emergency service out of network.
(ii) Conclusion. In this Example 6, the plan is not responsible
for paying anything with respect to the emergency service furnished
by the out-of-network provider because the covered individual has
not satisfied the higher deductible that applies generally to all
health care provided out of network. However, the amount the
individual is required to pay is credited against the deductible.
(4) Definitions. The definitions in this paragraph (b)(4) govern in
applying the provisions of this paragraph (b).
(i) Emergency medical condition. The term emergency medical
condition means a medical condition manifesting itself by acute
symptoms of sufficient severity (including severe pain) so that
[[Page 37235]]
a prudent layperson, who possesses an average knowledge of health and
medicine, could reasonably expect the absence of immediate medical
attention to result in a condition described in clause (i), (ii), or
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C.
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause
(i) refers to placing the health of the individual (or, with respect to
a pregnant woman, the health of the woman or her unborn child) in
serious jeopardy; clause (ii) refers to serious impairment to bodily
functions; and clause (iii) refers to serious dysfunction of any bodily
organ or part.)
(ii) Emergency services. The term emergency services means, with
respect to an emergency medical condition--
(A) A medical screening examination (as required under section 1867
of the Social Security Act, 42 U.S.C. 1395dd) that is within the
capability of the emergency department of a hospital, including
ancillary services routinely available to the emergency department to
evaluate such emergency medical condition, and
(B) Such further medical examination and treatment, to the extent
they are within the capabilities of the staff and facilities available
at the hospital, as are required under section 1867 of the Social
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
(iii) Stabilize. The term to stabilize, with respect to an
emergency medical condition (as defined in paragraph (b)(4)(i) of this
section) has the meaning given in section 1867(e)(3) of the Social
Security Act (42 U.S.C. 1395dd(e)(3)).
(c) Applicability date. The provisions of this section apply for
plan years beginning on or after September 23, 2010. See Sec.
2590.715-1251 of this part for determining the application of this
section to grandfathered health plans (providing that these rules
regarding patient protections do not apply to grandfathered health
plans).
Department of Health and Human Services
Office of Consumer Information and Insurance Oversight
45 CFR Subtitle A
0
For the reasons stated in the preamble, the Department of Health and
Human Services amends 45 CFR parts 144 and 146, and part 147, added May
13, 2010, at 75 FR 27138, effective July 12, 2010, as follows:
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
0
1. The authority citation for part 144 continues to read as follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and
300gg-92.
0
2. Section 144.103 is amended by revising the definition of preexisting
condition exclusion to read as follows:
Sec. 144.103 Definitions.
* * * * *
Preexisting condition exclusion means a limitation or exclusion of
benefits (including a denial of coverage) based on the fact that the
condition was present before the effective date of coverage (or if
coverage is denied, the date of the denial) under a group health plan
or group or individual health insurance coverage (or other coverage
provided to Federally eligible individuals pursuant to 45 CFR part
148), whether or not any medical advice, diagnosis, care, or treatment
was recommended or received before that day. A preexisting condition
exclusion includes any limitation or exclusion of benefits (including a
denial of coverage) applicable to an individual 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) under a group health plan, or group or individual
health insurance coverage (or other coverage provided to Federally
eligible individuals pursuant to 45 CFR part 148), such as a condition
identified as a result of a pre-enrollment questionnaire or physical
examination given to the individual, or review of medical records
relating to the pre-enrollment period.
* * * * *
Subpart B--Requirements Relating to Access and Renewability of
Coverage, and Limitations on Preexisting Condition Exclusion
Periods
0
3. Section 146.111(a)(1)(i) is revised to read as follows:
Sec. 146.111 Limitations on preexisting condition exclusion period.
(a) * * *
(1) * * *
(i) A preexisting condition exclusion means a preexisting condition
exclusion within the meaning set forth in Sec. 144.103 of this part.
* * * * *
PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND
INDIVIDUAL HEALTH INSURANCE MARKETS
0
4. The authority citation for part 147 continues to read as follows:
Authority: 2701 through 2763, 2791, and 2792 of the Public
Health Service Act (42 USC 300gg through 300gg-63, 300gg-91, and
300gg-92), as amended.
0
5. Add Sec. 147.108 to read as follows:
Sec. 147.108 Prohibition of preexisting condition exclusions.
(a) No preexisting condition exclusions--(1) In general. A group
health plan, or a health insurance issuer offering group or individual
health insurance coverage, may not impose any preexisting condition
exclusion (as defined in Sec. 144.103).
(2) Examples. The rules of this paragraph (a) are illustrated by
the following examples (for additional examples illustrating the
definition of a preexisting condition exclusion, see Sec.
146.111(a)(1)(ii)):
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer P. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer N. N's policy excludes benefits for oral surgery
required as a result of a traumatic injury if the injury occurred
before the effective date of coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for oral surgery required as a result of a traumatic injury if the
injury occurred before the effective date of coverage is a
preexisting condition exclusion because it operates to exclude
benefits for a condition based on the fact that the condition was
present before the effective date of coverage under the policy.
Example 2. (i) Facts. Individual C applies for individual health
insurance coverage with Issuer M. M denies C's application for
coverage because a pre-enrollment physical revealed that C has type
2 diabetes.
(ii) Conclusion. In this Example 2, M's denial of C's
application for coverage is a preexisting condition exclusion
because a denial of an application for coverage based on the fact
that a condition was present before the date of denial is an
exclusion of benefits based on a preexisting condition.
(b) Applicability--(1) General applicability date. Except as
provided in paragraph (b)(2) of this section, the rules of this section
apply for plan years beginning on or after January 1, 2014; in the case
of individual health insurance coverage, for policy years beginning, or
applications denied, on or after January 1, 2014.
(2) Early applicability date for children. The rules of this
section apply with respect to enrollees, including applicants for
enrollment, who are
[[Page 37236]]
under 19 years of age for plan years beginning on or after September
23, 2010; in the case of individual health insurance coverage, for
policy years beginning, or applications denied, on or after September
23, 2010.
(3) Applicability to grandfathered health plans. See Sec. 147.140
of this part for determining the application of this section to
grandfathered health plans (providing that a grandfathered health plan
that is a group health plan or group health insurance coverage must
comply with the prohibition against preexisting condition exclusions;
however, a grandfathered health plan that is individual health
insurance coverage is not required to comply with PHS Act section
2704).
(4) Examples. The rules of this paragraph (b) are illustrated by
the following examples:
Example 1. (i) Facts. Individual F commences employment and
enrolls F and F's 16-year-old child in the group health plan
maintained by F's employer, with a first day of coverage of October
15, 2010. F's child had a significant break in coverage because of a
lapse of more than 63 days without creditable coverage immediately
prior to enrolling in the plan. F's child was treated for asthma
within the six-month period prior to the enrollment date and the
plan imposes a 12-month preexisting condition exclusion for coverage
of asthma. The next plan year begins on January 1, 2011.
(ii) Conclusion. In this Example 1, the plan year beginning
January 1, 2011, is the first plan year of the group health plan
beginning on or after September 23, 2010. Thus, beginning on January
1, 2011, because the child is under 19 years of age, the plan cannot
impose a preexisting condition exclusion with respect to the child's
asthma regardless of the fact that the preexisting condition
exclusion was imposed by the plan before the applicability date of
this provision.
Example 2. (i) Facts. Individual G applies for a policy of
family coverage in the individual market for G, G's spouse, and G's
13-year-old child. The issuer denies the application for coverage on
March 1, 2011 because G's 13-year-old child has autism.
(ii) Conclusion. In this Example 2, the issuer's denial of G's
application for a policy of family coverage in the individual market
is a preexisting condition exclusion because the denial was based on
the child's autism, which was present before the date of denial of
coverage. Because the child is under 19 years of age and the March
1, 2011, denial of coverage is after the applicability date of this
section, the issuer is prohibited from imposing a preexisting
condition exclusion with respect to G's 13-year-old child.
0
6. Add Sec. 147.126 to read as follows:
Sec. 147.126 No lifetime or annual limits.
(a) Prohibition--(1) Lifetime limits. Except as provided in
paragraph (b) of this section, a group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, may not establish any lifetime limit on the dollar amount of
benefits for any individual.
(2) Annual limits--(i) General rule. Except as provided in
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health
plan, or a health insurance issuer offering group or individual health
insurance coverage, may not establish any annual limit on the dollar
amount of benefits for any individual.
(ii) Exception for health flexible spending arrangements. A health
flexible spending arrangement (as defined in section 106(c)(2) of the
Internal Revenue Code) is not subject to the requirement in paragraph
(a)(2)(i) of this section.
(b) Construction--(1) Permissible limits on specific covered
benefits. The rules of this section do not prevent a group health plan,
or a health insurance issuer offering group or individual health
insurance coverage, from placing annual or lifetime dollar limits with
respect to any individual on specific covered benefits that are not
essential health benefits to the extent that such limits are otherwise
permitted under applicable Federal or State law. (The scope of
essential health benefits is addressed in paragraph (c) of this
section).
(2) Condition-based exclusions. The rules of this section do not
prevent a group health plan, or a health insurance issuer offering
group or individual health insurance coverage, from excluding all
benefits for a condition. However, if any benefits are provided for a
condition, then the requirements of this section apply. Other
requirements of Federal or State law may require coverage of certain
benefits.
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations.
(d) Restricted annual limits permissible prior to 2014--(1) In
general. With respect to plan years (in the individual market, policy
years) beginning prior to January 1, 2014, a group health plan, or a
health insurance issuer offering group or individual health insurance
coverage, may establish, for any individual, an annual limit on the
dollar amount of benefits that are essential health benefits, provided
the limit is no less than the amounts in the following schedule:
(i) For a plan year (in the individual market, policy year)
beginning on or after September 23, 2010, but before September 23,
2011, $750,000.
(ii) For a plan year (in the individual market, policy year)
beginning on or after September 23, 2011, but before September 23,
2012, $1,250,000.
(iii) For plan years (in the individual market, policy years)
beginning on or after September 23, 2012, but before January 1, 2014,
$2,000,000.
(2) Only essential health benefits taken into account. In
determining whether an individual has received benefits that meet or
exceed the applicable amount described in paragraph (d)(1) of this
section, a plan or issuer must take into account only essential health
benefits.
(3) Waiver authority of the Secretary. For plan years (in the
individual market, policy years) beginning before January 1, 2014, the
Secretary may establish a program under which the requirements of
paragraph (d)(1) of this section relating to annual limits may be
waived (for such period as is specified by the Secretary) for a group
health plan or health insurance coverage that has an annual dollar
limit on benefits below the restricted annual limits provided under
paragraph (d)(1) of this section if compliance with paragraph (d)(1) of
this section would result in a significant decrease in access to
benefits under the plan or health insurance coverage or would
significantly increase premiums for the plan or health insurance
coverage.
(e) Transitional rules for individuals whose coverage or benefits
ended by reason of reaching a lifetime limit--(1) In general. The
relief provided in the transitional rules of this paragraph (e) applies
with respect to any individual--
(i) Whose coverage or benefits under a group health plan or group
or individual health insurance coverage ended by reason of reaching a
lifetime limit on the dollar value of all benefits for any individual
(which, under this section, is no longer permissible); and
(ii) Who becomes eligible (or is required to become eligible) for
benefits not subject to a lifetime limit on the dollar value of all
benefits under the group health plan or group or individual health
insurance coverage on the first day of the first plan year (in the
individual market, policy year) beginning on or after September 23,
2010, by reason of the application of this section.
(2) Notice and enrollment opportunity requirements--(i) If an
individual described in paragraph (e)(1) of this section is eligible
for benefits (or is required to become eligible for benefits) under the
group health plan--or group or individual health insurance coverage--
described in paragraph (e)(1) of this section, the plan and the issuer
[[Page 37237]]
are required to give the individual written notice that the lifetime
limit on the dollar value of all benefits no longer applies and that
the 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 and 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 required under this paragraph (e)(2)(i) must
be provided beginning not later than the first day of the first plan
year (in the individual market, policy year) beginning on or after
September 23, 2010.
(ii) The notices required under paragraph (e)(2)(i) of this section
may be provided to an employee on behalf of the employee's dependent
(in the individual market, to the primary subscriber on behalf of the
primary subscriber's dependent). In addition, for a group health plan
or group health insurance coverage, the notices may be included with
other enrollment materials that a plan distributes to employees,
provided the statement is prominent. For either notice, with respect to
a group health plan or group health insurance coverage, if a notice
satisfying the requirements of this paragraph (e)(2) 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.
(3) Effective date of coverage. In the case of an individual who
enrolls under paragraph (e)(2) of this section, coverage must take
effect not later than the first day of the first plan year (in the
individual market, policy year) beginning on or after September 23,
2010.
(4) Treatment of enrollees in a group health plan. Any individual
enrolling in a group health plan pursuant to paragraph (e)(2) of this
section must be treated as if the individual were a special enrollee,
as provided under the rules of Sec. 146.117(d). Accordingly, the
individual (and, if the individual would not be a participant once
enrolled in the plan, the participant through whom the individual is
otherwise eligible for coverage under the plan) must be offered all the
benefit packages available to similarly situated individuals who did
not lose coverage by reason of reaching a lifetime limit on the dollar
value of all benefits. For this purpose, any difference in benefits or
cost-sharing requirements constitutes a different benefit package. The
individual also cannot be required to pay more for coverage than
similarly situated individuals who did not lose coverage by reason of
reaching a lifetime limit on the dollar value of all benefits.
(5) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. Employer Y maintains a group health plan
with a calendar year plan year. The plan has a single benefit
package. For plan years beginning before September 23, 2010, the
plan has a lifetime limit on the dollar value of all benefits.
Individual B, an employee of Y, was enrolled in Y's group health
plan at the beginning of the 2008 plan year. On June 10, 2008, B
incurred a claim for benefits that exceeded the lifetime limit under
Y's plan and ceased to be enrolled in the plan. B is still eligible
for coverage under Y's group health plan. On or before January 1,
2011, Y's group health plan gives B written notice informing B that
the lifetime limit on the dollar value of all benefits no longer
applies, that individuals whose coverage ended by reason of reaching
a lifetime limit under the plan are eligible to enroll in the plan,
and that individuals can request such enrollment through February 1,
2011 with enrollment effective retroactively to January 1, 2011.
(ii) Conclusion. In this Example 1, the plan has complied with
the requirements of this paragraph (e) by providing a timely written
notice and enrollment opportunity to B that lasts at least 30 days.
Example 2. (i) Facts. Employer Z maintains a group health plan
with a plan year beginning October 1 and ending September 30. Prior
to October 1, 2010, the group health plan has a lifetime limit on
the dollar value of all benefits. Individual D, an employee of Z,
and Individual E, D's child, were enrolled in family coverage under
Z's group health plan for the plan year beginning on October 1,
2008. On May 1, 2009, E incurred a claim for benefits that exceeded
the lifetime limit under Z's plan. D dropped family coverage but
remains an employee of Z and is still eligible for coverage under
Z's group health plan.
(ii) Conclusion. In this Example 2, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll
(including written notice of an opportunity to enroll) that
continues for at least 30 days, with enrollment effective not later
than October 1, 2010.
Example 3. (i) Facts. Same facts as Example 2, except that Z's
plan had two benefit packages (a low-cost and a high-cost option).
Instead of dropping coverage, D switched to the low-cost benefit
package option.
(ii) Conclusion. In this Example 3, not later than October 1,
2010, the plan must provide D and E an opportunity to enroll in any
benefit package available to similarly situated individuals who
enroll when first eligible. The plan would have to provide D and E
the opportunity to enroll in any benefit package available to
similarly situated individuals who enroll when first eligible, even
if D had not switched to the low-cost benefit package option.
Example 4. (i) Facts. Employer Q maintains a group health plan
with a plan year beginning October 1 and ending September 30. For
the plan year beginning on October 1, 2009, Q has an annual limit on
the dollar value of all benefits of $500,000.
(ii) Conclusion. In this Example 4, Q must raise the annual
limit on the dollar value of essential health benefits to at least
$750,000 for the plan year beginning October 1, 2010. For the plan
year beginning October 1, 2011, Q must raise the annual limit to at
least $1.25 million. For the plan year beginning October 1, 2012, Q
must raise the annual limit to at least $2 million. Q may also
impose a restricted annual limit of $2 million for the plan year
beginning October 1, 2013. After the conclusion of that plan year, Q
cannot impose an overall annual limit.
Example 5. (i) Facts. Same facts as Example 4, except that the
annual limit for the plan year beginning on October 1, 2009, is $1
million and Q lowers the annual limit for the plan year beginning
October 1, 2010 to $750,000.
(ii) Conclusion. In this Example 5, Q complies with the
requirements of this paragraph (e). However, Q's choice to lower its
annual limit means that under Sec. 147.140(g)(1)(vi)(C), the group
health plan will cease to be a grandfathered health plan and will be
generally subject to all of the provisions of PHS Act sections 2701
through 2719A.
Example 6. (i) Facts. For a policy year that began on October 1,
2009, Individual T has individual health insurance coverage with a
lifetime limit on the dollar value of all benefits of $1 million.
For the policy year beginning October 1, 2010, the issuer of T's
health insurance coverage eliminates the lifetime limit and replaces
it with an annual limit of $1 million dollars. In the policy year
beginning October 1, 2011, the issuer of T's health insurance
coverage maintains the annual limit of $1 million dollars.
(ii) Conclusion. In this Example 6, the issuer's replacement of
a lifetime limit with an equal dollar annual limit allows it to
maintain status as a grandfathered health policy under Sec.
147.140(g)(1)(vi)(B). Since grandfathered health plans that are
individual health insurance coverage are not subject to the
requirements of this section relating to annual limits, the issuer
does not have to comply with this paragraph (e).
(f) Applicability date. The provisions of this section apply for
plan years (in the individual market, for policy years) beginning on or
after September 23, 2010. See Sec. 147.140 of this part for
determining the application of this section to grandfathered health
plans (providing that the prohibitions on lifetime and annual limits
apply to all grandfathered health plans that are group health plans and
group health insurance coverage, including the special rules regarding
restricted annual limits, and the prohibition on lifetime limits apply
to individual health
[[Page 37238]]
insurance coverage that is a grandfathered health plan but the rules on
annual limits do not apply to individual health insurance coverage that
is a grandfathered health plan).
0
7. Add Sec. 147.128 to read as follows:
Sec. 147.128 Rules regarding rescissions.
(a) Prohibition on rescissions--(1) A group health plan, or a
health insurance issuer offering group or individual health insurance
coverage, must not rescind coverage under the plan, or under the
policy, certificate, or contract of insurance, with respect to an
individual (including a group to which the individual belongs or family
coverage in which the individual is included) once the individual is
covered under the plan or coverage, unless the individual (or a person
seeking coverage on behalf of the individual) performs an act,
practice, or omission that constitutes fraud, or unless the individual
makes an intentional misrepresentation of material fact, as prohibited
by the terms of the plan or coverage. A group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, must provide at least 30 days advance written notice to each
participant (in the individual market, primary subscriber) who would be
affected before coverage may be rescinded under this paragraph (a)(1),
regardless of, in the case of group coverage, whether the coverage is
insured or self-insured, or whether the rescission applies to an entire
group or only to an individual within the group. (The rules of this
paragraph (a)(1) apply regardless of any contestability period that may
otherwise apply.)
(2) For purposes of this section, a rescission is a cancellation or
discontinuance of coverage that has retroactive effect. For example, a
cancellation that treats a policy as void from the time of the
individual's or group's enrollment is a rescission. As another example,
a cancellation that voids benefits paid up to a year before the
cancellation is also a rescission for this purpose. A cancellation or
discontinuance of coverage is not a rescission if--
(i) The cancellation or discontinuance of coverage has only a
prospective effect; or
(ii) The cancellation or discontinuance of coverage is effective
retroactively to the extent it is attributable to a failure to timely
pay required premiums or contributions towards the cost of coverage.
(3) The rules of this paragraph (a) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A seeks enrollment in an
insured group health plan. The plan terms permit rescission of
coverage with respect to an individual if the individual engages in
fraud or makes an intentional misrepresentation of a material fact.
The plan requires A to complete a questionnaire regarding A's prior
medical history, which affects setting the group rate by the health
insurance issuer. The questionnaire complies with the other
requirements of this part and part 146. The questionnaire includes
the following question: ``Is there anything else relevant to your
health that we should know?'' A inadvertently fails to list that A
visited a psychologist on two occasions, six years previously. A is
later diagnosed with breast cancer and seeks benefits under the
plan. On or around the same time, the issuer receives information
about A's visits to the psychologist, which was not disclosed in the
questionnaire.
(ii) Conclusion. In this Example 1, the plan cannot rescind A's
coverage because A's failure to disclose the visits to the
psychologist was inadvertent. Therefore, it was not fraudulent or an
intentional misrepresentation of material fact.
Example 2. (i) Facts. An employer sponsors a group health plan
that provides coverage for employees who work at least 30 hours per
week. Individual B has coverage under the plan as a full-time
employee. The employer reassigns B to a part-time position. Under
the terms of the plan, B is no longer eligible for coverage. The
plan mistakenly continues to provide health coverage, collecting
premiums from B and paying claims submitted by B. After a routine
audit, the plan discovers that B no longer works at least 30 hours
per week. The plan rescinds B's coverage effective as of the date
that B changed from a full-time employee to a part-time employee.
(ii) Conclusion. In this Example 2, the plan cannot rescind B's
coverage because there was no fraud or an intentional
misrepresentation of material fact. The plan may cancel coverage for
B prospectively, subject to other applicable Federal and State laws.
(b) Compliance with other requirements. Other requirements of
Federal or State law may apply in connection with a rescission of
coverage.
(c) Applicability date. The provisions of this section apply for
plan years (in the individual market, for policy years) beginning on or
after September 23, 2010. See Sec. 147.140 of this part for
determining the application of this section to grandfathered health
plans (providing that the rules regarding rescissions and advance
notice apply to all grandfathered health plans).
0
8. Add Sec. 147.138 to read as follows:
Sec. 147.138 Patient protections.
(a) Choice of health care professional--(1) Designation of primary
care provider--(i) In general. If a group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, requires or provides for designation by a participant,
beneficiary, or enrollee of a participating primary care provider, then
the plan or issuer must permit each participant, beneficiary, or
enrollee to designate any participating primary care provider who is
available to accept the participant, beneficiary, or enrollee. In such
a case, the plan or issuer must comply with the rules of paragraph
(a)(4) of this section by informing each participant (in the individual
market, primary subscriber) of the terms of the plan or health
insurance coverage regarding designation of a primary care provider.
(ii) Example. The rules of this paragraph (a)(1) are illustrated by
the following example:
Example. (i) Facts. A group health plan requires individuals
covered under the plan to designate a primary care provider. The
plan permits each individual to designate any primary care provider
participating in the plan's network who is available to accept the
individual as the individual's primary care provider. If an
individual has not designated a primary care provider, the plan
designates one until one has been designated by the individual. The
plan provides a notice that satisfies the requirements of paragraph
(a)(4) of this section regarding the ability to designate a primary
care provider.
(ii) Conclusion. In this Example, the plan has satisfied the
requirements of paragraph (a) of this section.
(2) Designation of pediatrician as primary care provider--(i) In
general. If a group health plan, or a health insurance issuer offering
group or individual health insurance coverage, requires or provides for
the designation of a participating primary care provider for a child by
a participant, beneficiary, or enrollee, the plan or issuer must permit
the participant, beneficiary, or enrollee to designate a physician
(allopathic or osteopathic) who specializes in pediatrics as the
child's primary care provider if the provider participates in the
network of the plan or issuer and is available to accept the child. In
such a case, the plan or issuer must comply with the rules of paragraph
(a)(4) of this section by informing each participant (in the individual
market, primary subscriber) of the terms of the plan or health
insurance coverage regarding designation of a pediatrician as the
child's primary care provider.
(ii) Construction. Nothing in paragraph (a)(2)(i) of this section
is to be construed to waive any exclusions of coverage under the terms
and conditions of the plan or health insurance coverage with respect to
coverage of pediatric care.
[[Page 37239]]
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan's HMO designates for
each participant a physician who specializes in internal medicine to
serve as the primary care provider for the participant and any
beneficiaries. Participant A requests that Pediatrician B be
designated as the primary care provider for A's child. B is a
participating provider in the HMO's network.
(ii) Conclusion. In this Example 1, the HMO must permit A's
designation of B as the primary care provider for A's child in order
to comply with the requirements of this paragraph (a)(2).
Example 2. (i) Facts. Same facts as Example 1, except that A
takes A's child to B for treatment of the child's severe shellfish
allergies. B wishes to refer A's child to an allergist for
treatment. The HMO, however, does not provide coverage for treatment
of food allergies, nor does it have an allergist participating in
its network, and it therefore refuses to authorize the referral.
(ii) Conclusion. In this Example 2, the HMO has not violated the
requirements of this paragraph (a)(2) because the exclusion of
treatment for food allergies is in accordance with the terms of A's
coverage.
(3) Patient access to obstetrical and gynecological care--(i)
General rights--(A) Direct access. A group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, described in paragraph (a)(3)(ii) of this section may not
require authorization or referral by the plan, issuer, or any person
(including a primary care provider) in the case of a female
participant, beneficiary, or enrollee who seeks coverage for
obstetrical or gynecological care provided by a participating health
care professional who specializes in obstetrics or gynecology. In such
a case, the plan or issuer must comply with the rules of paragraph
(a)(4) of this section by informing each participant (in the individual
market, primary subscriber) that the plan may not require authorization
or referral for obstetrical or gynecological care by a participating
health care professional who specializes in obstetrics or gynecology.
The plan or issuer may require such a professional to agree to
otherwise adhere to the plan's or issuer's policies and procedures,
including procedures regarding referrals and obtaining prior
authorization and providing services pursuant to a treatment plan (if
any) approved by the plan or issuer. For purposes of this paragraph
(a)(3), a health care professional who specializes in obstetrics or
gynecology is any individual (including a person other than a
physician) who is authorized under applicable State law to provide
obstetrical or gynecological care.
(B) Obstetrical and gynecological care. A group health plan or
health insurance issuer described in paragraph (a)(3)(ii) of this
section must treat the provision of obstetrical and gynecological care,
and the ordering of related obstetrical and gynecological items and
services, pursuant to the direct access described under paragraph
(a)(3)(i)(A) of this section, by a participating health care
professional who specializes in obstetrics or gynecology as the
authorization of the primary care provider.
(ii) Application of paragraph. A group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, is described in this paragraph (a)(3) if the plan or issuer--
(A) Provides coverage for obstetrical or gynecological care; and
(B) Requires the designation by a participant, beneficiary, or
enrollee of a participating primary care provider.
(iii) Construction. Nothing in paragraph (a)(3)(i) of this section
is to be construed to--
(A) Waive any exclusions of coverage under the terms and conditions
of the plan or health insurance coverage with respect to coverage of
obstetrical or gynecological care; or
(B) Preclude the group health plan or health insurance issuer
involved from requiring that the obstetrical or gynecological provider
notify the primary care health care professional or the plan or issuer
of treatment decisions.
(iv) Examples. The rules of this paragraph (a)(3) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family.
Participant A, a female, requests a gynecological exam with
Physician B, an in-network physician specializing in gynecological
care. The group health plan requires prior authorization from A's
designated primary care provider for the gynecological exam.
(ii) Conclusion. In this Example 1, the group health plan has
violated the requirements of this paragraph (a)(3) because the plan
requires prior authorization from A's primary care provider prior to
obtaining gynecological services.
Example 2. (i) Facts. Same facts as Example 1 except that A
seeks gynecological services from C, an out-of-network provider.
(ii) Conclusion. In this Example 2, the group health plan has
not violated the requirements of this paragraph (a)(3) by requiring
prior authorization because C is not a participating health care
provider.
Example 3. (i) Facts. Same facts as Example 1 except that the
group health plan only requires B to inform A's designated primary
care physician of treatment decisions.
(ii) Conclusion. In this Example 3, the group health plan has
not violated the requirements of this paragraph (a)(3) because A has
direct access to B without prior authorization. The fact that the
group health plan requires notification of treatment decisions to
the designated primary care physician does not violate this
paragraph (a)(3).
Example 4. (i) Facts. A group health plan requires each
participant to designate a physician to serve as the primary care
provider for the participant and the participant's family. The group
health plan requires prior authorization before providing benefits
for uterine fibroid embolization.
(ii) Conclusion. In this Example 4, the plan requirement for
prior authorization before providing benefits for uterine fibroid
embolization does not violate the requirements of this paragraph
(a)(3) because, though the prior authorization requirement applies
to obstetrical services, it does not restrict access to any
providers specializing in obstetrics or gynecology.
(4) Notice of right to designate a primary care provider--(i) In
general. If a group health plan or health insurance issuer requires the
designation by a participant, beneficiary, or enrollee of a primary
care provider, the plan or issuer must provide a notice informing each
participant (in the individual market, primary subscriber) of the terms
of the plan or health insurance coverage regarding designation of a
primary care provider and of the rights--
(A) Under paragraph (a)(1)(i) of this section, that any
participating primary care provider who is available to accept the
participant, beneficiary, or enrollee can be designated;
(B) Under paragraph (a)(2)(i) of this section, with respect to a
child, that any participating physician who specializes in pediatrics
can be designated as the primary care provider; and
(C) Under paragraph (a)(3)(i) of this section, that the plan may
not require authorization or referral for obstetrical or gynecological
care by a participating health care professional who specializes in
obstetrics or gynecology.
(ii) Timing. In the case of a group health plan or group health
insurance coverage, the notice described in paragraph (a)(4)(i) of this
section must be included 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. In
the case of individual health insurance coverage, the notice described
in paragraph (a)(4)(i) of this section must be included whenever the
issuer provides a primary subscriber with a policy, certificate, or
contract of health insurance.
(iii) Model language. The following model language can be used to
satisfy
[[Page 37240]]
the notice requirement described in paragraph (a)(4)(i) of this
section:
(A) For plans and issuers that require or allow for the designation
of primary care providers by participants, beneficiaries, or enrollees,
insert:
[Name of group health plan or health insurance issuer] generally
[requires/allows] the designation of a primary care provider. You
have the right to designate any primary care provider who
participates in our network and who is available to accept you or
your family members. [If the plan or health insurance coverage
designates a primary care provider automatically, insert: Until you
make this designation, [name of group health plan or health
insurance issuer] designates one for you.] For information on how to
select a primary care provider, and for a list of the participating
primary care providers, contact the [plan administrator or issuer]
at [insert contact information].
(B) For plans and issuers that require or allow for the designation
of a primary care provider for a child, add:
For children, you may designate a pediatrician as the primary
care provider.
(C) For plans and issuers that provide coverage for obstetric or
gynecological care and require the designation by a participant,
beneficiary, or enrollee of a primary care provider, add:
You do not need prior authorization from [name of group health
plan or issuer] or from any other person (including a primary care
provider) in order to obtain access to obstetrical or gynecological
care from a health care professional in our network who specializes
in obstetrics or gynecology. The health care professional, however,
may be required to comply with certain procedures, including
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a
list of participating health care professionals who specialize in
obstetrics or gynecology, contact the [plan administrator or issuer]
at [insert contact information].
(b) Coverage of emergency services--(1) Scope. If a group health
plan, or a health insurance issuer offering group or individual health
insurance coverage, provides any benefits with respect to services in
an emergency department of a hospital, the plan or issuer must cover
emergency services (as defined in paragraph (b)(4)(ii) of this section)
consistent with the rules of this paragraph (b).
(2) General rules. A plan or issuer subject to the requirements of
this paragraph (b) must provide coverage for emergency services in the
following manner--
(i) Without the need for any prior authorization determination,
even if the emergency services are provided on an out-of-network basis;
(ii) Without regard to whether the health care provider furnishing
the emergency services is a participating network provider with respect
to the services;
(iii) If the emergency services are provided out of network,
without imposing any administrative requirement or limitation on
coverage that is more restrictive than the requirements or limitations
that apply to emergency services received from in-network providers;
(iv) If the emergency services are provided out of network, by
complying with the cost-sharing requirements of paragraph (b)(3) of
this section; and
(v) Without regard to any other term or condition of the coverage,
other than--
(A) The exclusion of or coordination of benefits;
(B) An affiliation or waiting period permitted under part 7 of
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the
Internal Revenue Code; or
(C) Applicable cost sharing.
(3) Cost-sharing requirements--(i) Copayments and coinsurance. Any
cost-sharing requirement expressed as a copayment amount or coinsurance
rate imposed with respect to a participant, beneficiary, or enrollee
for out-of-network emergency services cannot exceed the cost-sharing
requirement imposed with respect to a participant, beneficiary, or
enrollee if the services were provided in-network. However, a
participant, beneficiary, or enrollee may be required to pay, in
addition to the in-network cost-sharing, the excess of the amount the
out-of-network provider charges over the amount the plan or issuer is
required to pay under this paragraph (b)(3)(i). A group health plan or
health insurance issuer complies with the requirements of this
paragraph (b)(3) if it provides benefits with respect to an emergency
service in an amount equal to the greatest of the three amounts
specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) of
this section (which are adjusted for in-network cost-sharing
requirements).
(A) The amount negotiated with in-network providers for the
emergency service furnished, excluding any in-network copayment or
coinsurance imposed with respect to the participant, beneficiary, or
enrollee. If there is more than one amount negotiated with in-network
providers for the emergency service, the amount described under this
paragraph (b)(3)(i)(A) is the median of these amounts, excluding any
in-network copayment or coinsurance imposed with respect to the
participant, beneficiary, or enrollee. In determining the median
described in the preceding sentence, the amount negotiated with each
in-network provider is treated as a separate amount (even if the same
amount is paid to more than one provider). If there is no per-service
amount negotiated with in-network providers (such as under a capitation
or other similar payment arrangement), the amount under this paragraph
(b)(3)(i)(A) is disregarded.
(B) The amount for the emergency service calculated using the same
method the plan generally uses to determine payments for out-of-network
services (such as the usual, customary, and reasonable amount),
excluding any in-network copayment or coinsurance imposed with respect
to the participant, beneficiary, or enrollee. The amount in this
paragraph (b)(3)(i)(B) is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health
insurance coverage with respect to out-of-network services. Thus, for
example, if a plan generally pays 70 percent of the usual, customary,
and reasonable amount for out-of-network services, the amount in this
paragraph (b)(3)(i)(B) for an emergency service is the total (that is,
100 percent) of the usual, customary, and reasonable amount for the
service, not reduced by the 30 percent coinsurance that would generally
apply to out-of-network services (but reduced by the in-network
copayment or coinsurance that the individual would be responsible for
if the emergency service had been provided in-network).
(C) The amount that would be paid under Medicare (part A or part B
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for
the emergency service, excluding any in-network copayment or
coinsurance imposed with respect to the participant, beneficiary, or
enrollee.
(ii) Other cost sharing. Any cost-sharing requirement other than a
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services
provided out of network if the cost-sharing requirement generally
applies to out-of-network benefits. 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. 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.
(iii) Examples. The rules of this paragraph (b)(3) are illustrated
by the following examples. In all of these examples, the group health
plan covers
[[Page 37241]]
benefits with respect to emergency services.
Example 1. (i) Facts. A group health plan imposes a 25%
coinsurance responsibility on individuals who are furnished
emergency services, whether provided in network or out of network.
If a covered individual notifies the plan within two business days
after the day an individual receives treatment in an emergency
department, the plan reduces the coinsurance rate to 15%.
(ii) Conclusion. In this Example 1, the requirement to notify
the plan in order to receive a reduction in the coinsurance rate
does not violate the requirement that the plan cover emergency
services without the need for any prior authorization determination.
This is the result even if the plan required that it be notified
before or at the time of receiving services at the emergency
department in order to receive a reduction in the coinsurance rate.
Example 2. (i) Facts. A group health plan imposes a $60
copayment on emergency services without preauthorization, whether
provided in network or out of network. If emergency services are
preauthorized, the plan waives the copayment, even if it later
determines the medical condition was not an emergency medical
condition.
(ii) Conclusion. In this Example 2, by requiring an individual
to pay more for emergency services if the individual does not obtain
prior authorization, the plan violates the requirement that the plan
cover emergency services without the need for any prior
authorization determination. (By contrast, if, to have the copayment
waived, the plan merely required that it be notified rather than a
prior authorization, then the plan would not violate the requirement
that the plan cover emergency services without the need for any
prior authorization determination.)
Example 3. (i) Facts. A group health plan covers individuals
who receive emergency services with respect to an emergency medical
condition from an out-of-network provider. The plan has agreements
with in-network providers with respect to a certain emergency
service. Each provider has agreed to provide the service for a
certain amount. Among all the providers for the service: one has
agreed to accept $85, two have agreed to accept $100, two have
agreed to accept $110, three have agreed to accept $120, and one has
agreed to accept $150. Under the agreement, the plan agrees to pay
the providers 80% of the agreed amount, with the individual
receiving the service responsible for the remaining 20%.
(ii) Conclusion. In this Example 3, the values taken into
account in determining the median are $85, $100, $100, $110, $110,
$120, $120, $120, and $150. Therefore, the median amount among those
agreed to for the emergency service is $110, and the amount under
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
Example 4. (i) Facts. Same facts as Example 3. Subsequently,
the plan adds another provider to its network, who has agreed to
accept $150 for the emergency service.
(ii) Conclusion. In this Example 4, the median amount among
those agreed to for the emergency service is $115. (Because there is
no one middle amount, the median is the average of the two middle
amounts, $110 and $120.) Accordingly, the amount under paragraph
(b)(3)(i)(A) of this section is 80% of $115 ($92).
Example 5. (i) Facts. Same facts as Example 4. An individual
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to
services provided by out-of-network providers generally, the plan
reimburses covered individuals 50% of the reasonable amount charged
by the provider for medical services. For this purpose, the
reasonable amount for any service is based on information on charges
by all providers collected by a third party, on a zip code by zip
code basis, with the plan treating charges at a specified percentile
as reasonable. For the emergency service received by the individual,
the reasonable amount calculated using this method is $116. The
amount that would be paid under Medicare for the emergency service,
excluding any copayment or coinsurance for the service, is $80.
(ii) Conclusion. In this Example 5, the plan is responsible for
paying $92.80, 80% of $116. The median amount among those agreed to
for the emergency service is $115 and the amount the plan would pay
is $92 (80% of $115); the amount calculated using the same method
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the
Medicare payment is $80. Thus, the greatest amount is $92.80. The
individual is responsible for the remaining $32.20 charged by the
out-of-network provider.
Example 6. (i) Facts. Same facts as Example 5. The group health
plan generally imposes a $250 deductible for in-network health care.
With respect to all health care provided by out-of-network
providers, the plan imposes a $500 deductible. (Covered in-network
claims are credited against the deductible.) The individual has
incurred and submitted $260 of covered claims prior to receiving the
emergency service out of network.
(ii) Conclusion. In this Example 6, the plan is not responsible
for paying anything with respect to the emergency service furnished
by the out-of-network provider because the covered individual has
not satisfied the higher deductible that applies generally to all
health care provided out of network. However, the amount the
individual is required to pay is credited against the deductible.
(4) Definitions. The definitions in this paragraph (b)(4) govern in
applying the provisions of this paragraph (b).
(i) Emergency medical condition. The term emergency medical
condition means a medical condition manifesting itself by acute
symptoms of sufficient severity (including severe pain) so that a
prudent layperson, who possesses an average knowledge of health and
medicine, could reasonably expect the absence of immediate medical
attention to result in a condition described in clause (i), (ii), or
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C.
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause
(i) refers to placing the health of the individual (or, with respect to
a pregnant woman, the health of the woman or her unborn child) in
serious jeopardy; clause (ii) refers to serious impairment to bodily
functions; and clause (iii) refers to serious dysfunction of any bodily
organ or part.)
(ii) Emergency services. The term emergency services means, with
respect to an emergency medical condition--
(A) A medical screening examination (as required under section 1867
of the Social Security Act, 42 U.S.C. 1395dd) that is within the
capability of the emergency department of a hospital, including
ancillary services routinely available to the emergency department to
evaluate such emergency medical condition, and
(B) Such further medical examination and treatment, to the extent
they are within the capabilities of the staff and facilities available
at the hospital, as are required under section 1867 of the Social
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
(iii) Stabilize. The term to stabilize, with respect to an
emergency medical condition (as defined in paragraph (b)(4)(i) of this
section) has the meaning given in section 1867(e)(3) of the Social
Security Act (42 U.S.C. 1395dd(e)(3)).
(c) Applicability date. The provisions of this section apply for
plan years (in the individual market, policy years) beginning on or
after September 23, 2010. See Sec. 147.140 of this part for
determining the application of this section to grandfathered health
plans (providing that these rules regarding patient protections do not
apply to grandfathered health plans).
[FR Doc. 2010-15278 Filed 6-22-10; 11:15 am]
BILLING CODE 4830-01-P, 4510-29-P, 4120-01-P
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