The U.S. Departments of Treasury, Labor, and Health and Human Services have jointly released regulations that address several requirements established by the recent health care reform legislation. Most of the changes addressed by the regulations apply to plan years beginning on and after September 23, 2010.  For calendar year plans, the rules take effect January 1, 2011.

Preexisting Condition Limitations. For individuals under age 19, the effective date for the prohibition on preexisting condition limitations is January 1, 2011 (for calendar year health plans). For other enrollees, the effective date is delayed until 2014. The new regulations clarify that any preexisting condition limitation that applies as of the date the new regulation takes effect will terminate as of that effective date. 

Lifetime and Annual Limits. The new rules generally prohibit plans from applying lifetime limits on benefits, except for limits on specific non-essential covered benefits. Annual limits on essential benefits will be phased out, ending completely in 2014. The health care reform legislation identifies broad categories of care that will be considered essential, including: hospitalization, emergency care, ambulatory care, mental health and substance abuse treatment, pediatric services, prescription drugs, and preventive and wellness services. Until further guidance is issued on what constitutes an essential benefit, plan sponsors may rely on a reasonable, good-faith interpretation. 

The new regulations provide additional guidance on lifetime and annual limits:

  • The phase-out for annual limits on essential benefits permits an annual limit of $750,000 for the first plan year beginning on or after September 23, 2010.  This ceiling on annual limits increases over the next two years, first to $1.25 million, then to $2 million. The U.S. Department of Health and Human Services may make exceptions in certain circumstances.

  • The prohibition against annual dollar limits does not apply to health flexible spending accounts (health FSAs). The explanatory comments to the regulations also make it clear that the prohibition does not apply to medical savings accounts (MSAs) or health savings accounts (HSAs) or to health reimbursement accounts (HRAs) if they are “integrated” with other coverage that complies with the rules or if they provide stand-alone retiree-only coverage. 

  • Individuals who are subject to lifetime limits need to be notified that they will once again be eligible for benefits and of the right to enroll (if they are no longer enrolled in the plan). This notice must be provided before January 1, 2011 (for calendar year plans), and an enrollment period of at least 30 days must be provided.  Notice may be provided individually or in applicable annual enrollment materials.

Limits on Rescission of Coverage. Under the health care reform legislation, coverage may be rescinded only for fraud or the intentional misrepresentation of a material fact. Plans must specify that coverage can be rescinded in these situations. The regulations make several significant clarifications, including:

  • A "rescission" is defined to be the retroactive discontinuance of coverage. The rules do not apply to prospective terminations.

  • Retroactive termination for the failure to pay premiums timely will be permitted.

  • At least 30 days’ advance written notice must be provided for a rescission (even though the effect will be retroactive).

Patient Protections. The patient protection provisions address issues affecting access to network providers and the availability of benefits for emergency services.

  • Plans must notify employees of certain terms that apply with respect to the designation of a primary care physician. These terms include the individual’s right to designate any primary care physician who is available to accept the individual as a patient and the right to designate a network pediatrician as a child’s primary care physician. 

  • Plans providing obstetrical or gynecological care must notify female enrollees of the right to obtain services from any network OB/GYN without a referral.

  • The regulations include model language to meet certain of these notice requirements.

  • Coverage for emergency services under a plan may not be conditioned on prior authorization or limited to network providers. Plans may not apply any requirement on out-of-network emergency services that is more restrictive than the requirements applicable to emergency services provided in-network. The new regulations introduce certain restrictions on cost-sharing.

All of these requirements, except for the patient protection provisions, apply regardless of whether a plan is grandfathered under the regulations issued last week.

As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.


Copyright © 2010 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.