Update on Recent Health Care Reform Act Guidance

September 28, 2010

As we approach the witching hour of plan years beginning after September 23, 2010, which is when many new provisions of the Patient Protection and Affordable Care Act (“PPACA”) will first go into effect, safe harbors, waivers and new definitions are being announced with respect to processes and structures that have not been fully developed since the enactment of the PPACA in March of this year.

Safe Harbor for Plans Subject to the Federal External Review Process

As we reported earlier this summer, the PPACA brought new rules for non-grandfathered plans concerning mandatory internal and external appeals processes for an adverse benefit determination. These rules will take effect for plan years beginning after September 23, 2010. The PPACA requires that all non-grandfathered plans and issuers must comply with either a State external review process or the Federal review process. Our previous article detailed the various circumstances under which the State or Federal external review would apply.

Because the Federal external review process is not yet fully developed, non-grandfathered self-funded group health plans that are not subject to a State external review process have been left without guidance thus far. However, a temporary safe harbor was recently announced and will apply while the Federal external review process is being finalized.

Under DOL Technical Release 2010-01, during this interim safe harbor period, so long as a self-funded group health plan complies with either the standards set forth in the Technical Release, which are based on the Uniform Health Carrier External Model Act promulgated by the National Association of Insurance Commissioners (the NAIC Model Act), or with a State external review process made available by a state to a self-funded plan, then the Department of Labor and the Internal Revenue Service will not take any adverse enforcement action with respect to non-compliance with the PPACA.

During the safe harbor period, a group health plan must allow a claimant to file a request for an external review within four months after receipt of a notice of an adverse benefit determination. Within five days of receipt of the request, the plan must determine whether the claimant was eligible for coverage and actually covered, that the claimant has exhausted the internal appeal process, and that the claimant has provided all necessary information and forms to process the claim. The group health plan must then assign the claim
to an accredited independent review organization (“IRO”) which will review medical records, the terms of the plan, and any other pertinent information, and issue a written notice of decision, including the basis for the decision. Upon notice that an IRO has reversed a plan’s determination, the plan must immediately provide coverage or authorize payment for the claim. An expedited review process may be requested if the timeframe for the standard review process would seriously jeopardize the life or health of the claimant, or if the adverse
benefit determination concerns emergency services related care and the claimant has not yet been discharged from a facility.

Model notices which satisfy the interim disclosure requirements are now also available at http://www.dol.gov/ebsa and http://www.hhs. gov/ociio/. These model notices may be used for initial adverse benefit determinations, final internal adverse benefit determinations and final external review decisions. In addition, check these websites in the coming months for model language for summary plan descriptions, detailing the internal claims and appeals and external review process and procedures.

NAIC Submits Medical Loss Ratio Reporting Form for HHS Approval

As we previously reported, the PPACA provides that beginning no later than January 2011, insurers will be required to report a “medical loss ratio” based on the amount of premiums expended on nonclaims costs. Insurers must spend at least 80% (for the small group and individual market) or 85% (for large group coverage of more than 100 enrollees) of premiums on costs related to medical expenses or health care quality improvement. If an insurer does not comply with the applicable ratio, it must pay an annual rebate to each enrollee. This provision applies to grandfathered and non-grandfathered fully insured plans.

Last month, the NAIC provided the Department of Health and Human Services (“HHS”) a proposed model form to be used for regulatory filing and for calculating these medical loss ratios and applicable rebates. The model form includes definitions and guidance such as which type of activities are to be considered non-claims related, and is available at http://www.naic.org. Once HHS adopts a final version of the form, we will report further.

Waiver of Annual Limits on Essential Health Benefits

We also reported earlier this summer on the interim final regulations which established phased-in restricted annual limits on “essential health benefits”. Over the next three years, annual limits on essential health benefits must not be lower than:

• For a plan year beginning on or after September 23, 2010, but before September 23, 2011 - $750,000;
• For a plan year beginning on or after September 23, 2011, but before September 23, 2012 - $1.25 million; and
• For a plan year beginning on or after September 23, 2012, but before January 1, 2014 - $2 million.

This schedule and the prohibition applies for all types of plans or coverage except for grandfathered individual insurance coverage. After January 1, 2014, annual limits on essential health benefits will be prohibited, except for grandfathered individual insurance policies.

The earlier interim final regulations also provided that these restrictions may be waived if compliance would result in significant decrease in access to benefits or a significant increase in premiums, which would generally be applicable to limited benefit plans or “mini-med” plans that have annual limits well below the foregoing thresholds. HHS recently announced guidelines regarding the scope and process for applying for such a waiver for the plan or policy year beginning between September 23, 2010 and September 23, 2011. A written application must be submitted no less than 30 days before the beginning of the policy or plan year and include:

• the terms of the plan;
• the number of individuals covered;
• the annual limits and applicable rates;
• a brief description of why compliance with the interim final regulations would result in significant decrease in access to benefits or a significant increase in premiums and any supporting documentation; and
• certification by the plan administrator or chief executive officer of the issuer of coverage that the plan was in force prior to September 23, 2010 and that application of the restricted annual limits would result in significant decrease in access to benefits or a significant increase in premiums for those currently covered by such plan or policies.

Reimbursement of OTC Medicines and Drugs

The PPACA amended the Internal Revenue Code to provide that overthe- counter (OTC) drugs and medicines may no longer be reimbursed on a tax-free basis from a health flexible spending account (FSA), health reimbursement account (HRA) or a health saving account (HSA) effective January 1, 2011. In Notice 2010-59, the IRS provided some guidance on the PPACA change. On and after January 1, 2011, a health FSA, HRA or HSA may reimburse a medicine or drug only if:

• the medicine or drug requires a prescription;
• it is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription; or
• it is insulin.

The Notice clarifies that an individual may continue to be reimbursed on a tax-free basis for medical supplies available without a prescription such as crutches, bandages and blood sugar test kits.

It is also important to note that the January 1, 2011 effective date is a fixed date and will apply regardless of a non-calendar plan year or a “grace period” under a health FSA.

Any health FSA or HRA that currently provides reimbursement for OTC drugs or medicines needs to be amended. The IRS has provided a helpful transition rule for amendments to cafeteria plans, which can be adopted by June 30, 2011, retroactively effective January 1, 2011.

Plan sponsors should include a notice of this new restriction in open enrollment materials for the upcoming plan year, so that participants are aware of the new limitation.

For further information, please feel free to 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@

Cynthia A. Moore is a member in the Troy 
office and Practice Department Manager for the
Tax, Estate Planning, Employee Benefits, Health Care,
Immigration and Gaming departments. She can be
reached at 248.433.7295 or cmoore@dickinsonwright.