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.
- 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.
- 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).
- 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.
- 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 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.