This is the 13th in a
series of WorkCite
articles concerning the recently enacted Patient Protection and Affordable
Care Act and its companion bill, the Health Care and Education Reconciliation
Act of 2010 (referred to collectively as the Act). This WorkCite
discusses guidance issued on September 20, 2010, by the DOL, IRS and HHS (the
Departments). The guidance consists of:
- DOL Technical Release 2010-02, regarding the application of the new
internal claims and appeals review process,
- A revised model notice for adverse claims determinations,
- IRS Notice 2010-63, which addresses the nondiscrimination requirements
for fully insured plans, and
- A set of FAQs that clarify various pieces of prior guidance issued by
the Departments.
Grace Period for Compliance with New Claims Process Rules
The Departments previously issued interim final regulations and Technical
Release 2010-01 regarding the specific requirements of the internal claims and
appeals process and the new required external review procedures. See
Installment No. 10. These requirements apply only to non-grandfathered
health plans. The new guidance provides non-grandfathered health plans with an
enforcement grace period through July 1, 2011, to comply with the new claims
review and appeals standards.
Specifically, the guidance states that the Departments will not take any
enforcement action for the failure to provide information or meet the following
new standards during the grace period:
- Time frame for deciding urgent care claims.
- “Culturally and linguistically appropriate” language in notifications.
- Broader content and specificity requirements for participant notices.
- Requirements for strict compliance with new claims and appeal
procedures.
The grace period is available only where the plan sponsor is working in good
faith to implement the standards, but does not yet have the standards in place.
The Technical Release also provides that HHS is encouraging states to provide
similar grace periods for fully insured plans, which are subject to state law.
Comment: The DOL has stated privately that the good faith condition is
not intended to be a “gotcha.” Rather, it is designed to encourage plan
sponsors and insurers to move toward compliance prior to the last day of the
grace period. Consequently, employers and insurers should make reasonable
efforts to implement these new requirements, and should not view the
guidance as a “pass” on compliance with these rules.
The grace period does not apply to all of the new claims process
requirements. Specifically, the following standards are not covered by the grace
period:
- Expanded adverse benefit determination definition.
- Additional review criteria.
- Conflicts of interest.
Non-grandfathered plans must begin complying with these standards on the
first day of the plan year that begins on or after September 23, 2010. You will
find more detail regarding the considerations for plan compliance with the new
rules in our earlier WorkCite that was published at the time the interim
final regulations were released.
See
Installment No. 9.
Comment: The extended safe harbor period provides plan sponsors much
needed additional time to evaluate how the new claims review standards will
affect plan administration, as well as set up new implementation processes
and procedures.
Revised Model Notice – Urgent Care Rules Clarified
The Departments have issued a
revised model notice
of adverse benefit determination.
The revised model notice clarifies the time constraints surrounding the urgent
care claims determination process.
Nondiscrimination Requirements for Non-grandfathered Fully Insured Plans
Prior to the Act, only self-insured group health plans were subject to the
nondiscrimination rules under Section 105(h) of the Internal Revenue Code
(Code), which prohibit discriminating in favor of highly compensated individuals
(generally, the top 25% of employees when ranked by pay and shareholders owning
more than 10% of the employer). The Act extends these rules to fully insured,
non-grandfathered group health plans, which must comply with Code Section 105(h)
for plan years beginning on and after September 23, 2010. To comply with Section
105(h), a plan may not discriminate in favor of highly compensated employees as
to both eligibility to participate in the plan and the benefits provided under
the plan.
The penalty for fully insured plans that fail to comply with the
nondiscrimination rules under the Act differs significantly from the penalty
applicable to self-insured plans. A self-insured plan that discriminates as to
eligibility or benefits results in taxation to the highly compensated
individuals based on the value of the benefits they actually received under the
plan. There is no penalty assessed on the plan or the plan sponsor. However, a
non-grandfathered fully insured group health plan that fails to comply with the
Section 105(h) nondiscrimination requirements may be subject to a civil action
under ERISA, compelling it to provide nondiscriminatory benefits, and the plan
sponsor may be liable for a penalty equal to $100 multiplied by the number of
individuals discriminated against and the number of days the plan does not
comply.
Comment: There are many situations in which the penalty tax will not be
assessed or will be limited with respect to discriminatory fully insured plans.
For example, Code Section 4980D provides that the penalty tax is limited (or may
be waived by the Secretary) where the failure to provide nondiscriminatory
benefits is unintentional (due to reasonable cause and not willful neglect), and
is corrected within a specific time frame after the failure is discovered.
Other Topics of Guidance (FAQs)
- Grandfathered Health Plans
- A decrease in the employer’s rate of contribution to a grandfathered plan of
more than 5% below the contribution rate in effect on March 23, 2010, will cause
the plan to cease to be grandfathered. It is not always clear for fully insured
group health plans and multiemployer plans whether (or when) an employer changes
its contribution rate. Such plans will not cease to be grandfathered on account
of a change in the employer contribution rate if (1) upon renewal, the employer
plan sponsor or multiemployer plan represents to the insurer that the
contribution rate has not changed by more than the 5% standard mentioned above,
and (2) the insurer’s certificate of coverage or contract of insurance includes
a clear and prominent disclosure that the employer plan sponsor or multiemployer
plan must notify the insurer of a change in the contribution rate at any point
during the year. These actions must be taken be the end of 2010 for policies
that will be renewed before January 1, 2011.
- In the case of a multiemployer plan, where there is a change in the
contributing employer’s contribution rate, but no change in the employee
contribution rate, coverage terms or other changes that would otherwise cause
the plan to lose grandfather status, the plan will continue to be grandfathered
(assuming no other changes have been made that could cause the plan to lose
grandfather status).
- Under current rules, a fully insured plan will lose its grandfathered status
when it changes carriers. The Departments announced that they will issue
guidance regarding how a group health plan may change carriers without
relinquishing grandfathered status. This guidance will be of particular interest
for employers that currently maintain a grandfathered fully insured plan that
could not comply with the new nondiscrimination rule discussed above, if the
plan ceased to be grandfathered.
- Claims, Internal Appeals & External Review
- Compliance with the Act’s external review requirement will be measured using a
facts and circumstances test on a case-by-case basis. The FAQs provide an
example where a self-insured group health plan does not automatically violate
the Act because of a failure to use three independent review organizations (IROs),
but instead can demonstrate other steps taken to ensure that the external review
process is independent and without bias.
- Plans may contract with out-of-state IROs.
- Group health plans are not required to contract directly with IROs. Rather,
plans may contract with third-party administrators that, in turn, enter into
contracts with IROs. However, plan fiduciaries maintain their duty to monitor
any IRO used by the plan.
Comment: This should result in a reduction of paperwork and improve
efficiency in the expanded world of external review. However, plan sponsors must
make sure that appropriate business associate agreements and other HIPAA
safeguards are in place. Further, where applicable, plan sponsors must decide
how to apply ERISA’s fiduciary rules to the relationship between the IROs and
the plan.
- While Technical Release 2010-02 provides a grace period with respect to new
information that must be included in a notice of adverse benefit determination
(as well as the manner in which the notice needs to be provided), the grace
period does not relieve plan sponsors of their obligation to provide notices
within the time frames and according to standards currently set forth by DOL
regulations. For example, where a group health plan participant submits a
post-service claim for benefits, and the claim is denied because the service is
not a covered benefit under the terms of the plan, the plan must still provide
the notice of adverse benefit determination within 30 days of receipt of the
participant’s claim (unless the plan notifies the participant of the need for a
15-day extension within the initial 30-day period). Also, consistent with
current DOL regulations, the notice must contain the reason for the denial,
reference the section of the plan upon which the denial is based, include a
description of any additional material necessary to perfect the claim, and
provide an explanation of the plan’s claims procedures. Similarly, the time
frame and basic content requirements for claims and appeals notices for
concurrent care and pre-service claim decisions were not altered by the Act and
are not affected by the notice grace period relief issued by the Departments.
- Coverage of Adult Dependent Children to Age 26
- Plans may limit coverage for children up to age 26 to only those children
described in Code Section 152(f)(1). A plan may, therefore, impose additional
conditions for eligibility (such as financial dependency, co-residence, or
student status) for those children who do not fall within Code Section
152(f)(1).
Comment: This guidance is welcome for two reasons. First, it aligns the
extended coverage definition of adult child with the extended tax exclusion.
Second, it permits employers to impose traditional conditions on coverage for
extended family members, such as grandchildren, nieces and nephews.
- Out-of-network Emergency Services
- Under the Act, plans and insurers generally must cover both in-network and
out-of-network emergency services, and may not impose greater copayments or
coinsurance if the emergency services are out-of-network. The Act, however, does
not require plans and insurers to pay amounts that out-of-network providers may
“balance bill.” The FAQs provide that these minimum payment rules do not apply
where state law or a contract prohibits balance billing, except to the extent
that plans and insurers will always be prohibited from imposing greater
copayments or coinsurance if the emergency services are out-of-network.
- Initial Standards for Compliance with the Act
- The Departments state that they intend to work with employers on the
implementation of the Act by, “assisting (rather than imposing penalties on)
plans, issuers and others that are working diligently and in good faith to
understand and come into compliance with the new law. This approach includes,
where appropriate, transition provisions, grace periods, safe harbors, and other
policies to ensure that the new provisions take effect smoothly, minimizing any
disruption to existing plans and practices.”
The DOL website now includes the public comments that have been submitted on
two sets of previously issued interim final rules: the adult child regulations
and the grandfathered plan regulations. The Departments stated in the FAQs that
final regulations under the Act are expected to be published early in 2011.
If you or any of your colleagues would like to listen to our recent webinar,
please visit Healthcare Reform: Rules, Reporting, Risks and Repercussions.
For more information on the Act and any of the recent guidance discussed in
this article, please contact the authors or any member of the McGuireWoods
Employee Benefits team.
