New Health Care Regulations Establish "Patient's Bill Of Rights"

July 1, 2010

The Departments of Health and Human Services, Labor and Treasury recently issued regulations to implement a new “Patient’s Bill of Rights” under the Patient Protection and Affordable Care Act (the “PPACA”), which was enacted in March. These new regulations will help to define and shape employer health plans and insurance coverage elements and requirements for both grandfathered and non-grandfathered plans.

Annual and Lifetime Limits:
New Phase-In Schedule and Notice Requirements

The PPACA prohibits lifetime limits on coverage for plan years beginning after September 23, 2010, and prohibits annual limits on coverage effective in 2014. However, annual limits are allowed on “essential health benefits” for plan years beginning after September 23, 2010 until 2014. As of now, “essential health benefits” have been defined in general categories, such as emergency services or hospitalization, but further clarification is expected.

The new regulations establish a phased-in schedule of minimum annual limits that may be applied to essential health benefits until the full prohibition takes effect. Over the next three years, annual limits on essential health benefits must not be lower than $750,000 for a plan year beginning on or after September 23, 2010 – but before September 23, 2011; $1.25 million for a plan year beginning on or after September 23, 2011 – but before September 23, 2012; and $2 million for a plan year beginning on or after September 23, 2012 – but before January 1, 2014. This schedule and the prohibition applies for all types of plans or coverage EXCEPT for grandfathered individual insurance coverage.

Individuals who were dropped from coverage due to reaching an annual or lifetime limit must be allowed to re-enroll in the health plan (so long as the individual would otherwise be eligible). No later than the first day of a new plan year or coverage term beginning after September 23, 2010, written notice must be provided for a 30 day period regarding the opportunity for reinstatement or re-enrollment. Notice may be provided to a covered individual on behalf of a dependent.

Coverage after reinstatement or re-enrollment must be provided at the same cost or premium, and at the same level, as similarly situated enrollees or participants. In other words, an individual who had previously reached an annual or lifetime limit must be offered the opportunity to re-enroll or be reinstated in coverage of the same type and at the same cost as someone who had not reached the annual or lifetime limit.

Clarification Regarding Rescission

Before the passage of the PPACA, rules on rescission of insurance coverage, or retroactive cancellation, varied greatly from state to state, even with the application of ERISA. Now, we have a standard set of rules to follow with respect to rescission that are designed to prevent what has been described as “post-claims underwriting” of more expensive claims.

Under the PPACA, coverage can now be rescinded only for fraud or for an intentional misrepresentation of a material fact. This becomes effective with plan years beginning after September 23, 2010, and applies to selffunded and insured group plans, group or individual insurance coverage and grandfathered and non-grandfathered plans alike.

The effect of this new rule will likely lead to increased costs to plan sponsors and insurers, because more resources will be required to review applications and evaluate medical histories and records.

What remains to be seen is what will be considered “fraud” and “intentional misrepresentation”.

The new regulations provide one example where an applicant “inadvertently failed to disclose” two isolated treatments, yet received coverage for an unrelated illness several years later. In that example, the regulations indicate that rescission would be impermissible (which would not be the result in certain jurisdictions today). However, in a different scenario, if the undisclosed services or treatment were related to a later claim for benefits, it remains to be seen whether that might satisfy the intent element to warrant rescission.

Another example in the new regulations makes clear that if information changes from what is stated in an application, rescission may not be allowed, but prospective coverage may be cancelled. For example, if coverage is only available to full-time employees, and an individual’s status changes to part-time, that employee’s coverage may not be rescinded – or cancelled retroactively – but ongoing coverage could be cancelled once the new status is discovered or disclosed.

Finally, 30 days advance notice must be provided before coverage may be rescinded, so that an individual has an opportunity to contest the proposed rescission.

Notice Requirements and Model Language Regarding Patient Protections

The PPACA establishes new patient protections that will apply to employer plans or insured coverage that include a provider network (typically, HMO, PPO and POS plans). These changes will be effective for plan years and policy terms beginning after September 23, 2010, and do not apply to grandfathered plans.

A plan or insurer must provide written notice of the protections contained in the PPACA (such as designation of primary care provider, no pre-authorization for obstetrical or gynecological care or out-ofnetwork emergency services), and model language is provided in the new regulations. Notice must be provided when these rights are applicable, and must be included in a summary plan description, or any other description of benefits or coverage.

In addition, the new regulations include limitations regarding out-of-network co-pay amounts for emergency services, such that the plan or the insurer must pay the greatest of: (a) median in-network rate; (b) usual, customary and reasonable rate; or (c) a reasonable rate.

Prohibition of Pre-existing Conditions

Effective January 1, 2014, the PPACA prohibits any pre-existing condition exclusions for participants of all ages. For participants under age 19, this provision becomes effective for plan years beginning on or after September 23, 2010.

This prohibition applies to grandfathered group health plans, and group or individual insurance coverage. However, the new regulations clarify that this prohibition does not apply to grandfathered individual health insurance coverage.

Further Information

For any questions you may have regarding implications of the PPACA, please contact:

Kimberly J. Ruppel is a member in the Troy
office. Her expertise is in Insurance & Healthcare and
ERISA Litigation, including defending benefit denial
disputes and breach of fiduciary duty allegations.
She can be reached at 248.433.7291 or kruppel@
dickinsonwright.com.