Health Care Reform Requirements

The Patient Protection and Affordable Care Act (PPACA) establishes new rules related to the portion of premium payments that must be spent on medical care. These rules are effective January 1, 2011.

PPACA requires that insurance companies spend 85 percent of premium dollars on medical costs for large group plans with more than 100 employees enrolled. For small group plans and individual policies, 80 percent of premiums must be used for medical care. The remaining premiums can be used to pay administrative expenses.

If an insurer does not satisfy the minimum medical loss ratio (MLR) requirements, it will have to provide rebates to each enrollee, on a pro rata basis.

To implement the MLR rules, PPACA required the National Association of Insurance Commissioners (NAIC) to establish definitions and standard methodologies for calculating MLRs for health plans by December 31, 2010.

NAIC Finalizes Recommendations

On October 27, 2010, the NAIC sent its model regulation containing the MLR rules to the Department of Health and Human Services (HHS) for approval. Kathleen Sebelius, Secretary of HHS, had indicated previously that regulations based on the NAIC recommendations would be finalized quickly. She stated that HHS would continue to work closely with the NAIC through the approval process.

Although the NAIC unanimously approved its recommendations, it continues to have concerns about the rule. In its submission to HHS, the NAIC noted that it was worried about “unintended consequences arising from the medical loss ratio.” It went on to say that “consumers will not benefit from higher medical loss ratios if the outcome is destabilized insurance markets where consumer choice is limited and the solvency of insurers is undermined.” The NAIC also asked HHS to give deference to state regulators when implementing the new requirements.

Once particular area of concern is the impact of the rule on insurance agents and brokers. As of October 27, 2010, the model regulation includes commissions in the administrative expense category, so commissions will go toward reducing the MLR. However, the NAIC has created a group to work with HHS on determining how commissions will ultimately be treated and “to ensure that the vital role of agents and brokers is preserved, especially during years leading up to 2014.”

The 2010 Mid-Term Elections

The recent elections, held on November 2, 2010, are bringing big changes to Washington. Results of a few races are still to be finalized in the days after the elections, but it is already clear that we are looking at a new political landscape.

Republicans have taken control of the House of Representatives, gaining at least 60 seats there. These wins give the party the largest House majority it has had since the 1940s. However, Democrats are set to maintain a slim majority in the Senate.

Potential Health Care Reform Changes

Many Republican candidates included promises regarding health care reform in their campaigns. These promises ranged from making changes to the law to outright repeal. However, employers and plan sponsors should keep in mind that such changes will not be automatic or immediate. Any changes to health care reform will have to go through the same legislative process that the initial reform package endured.

Current House Minority Leader John Boehner (R-Ohio) is expected by many to become Speaker of the House. In the wake of the elections, Rep. Boehner has indicated that Republicans would move slowly with changes to “lay the groundwork before we begin to repeal” health care reform.

With a divided Congress, any efforts to completely repeal the legislation will face obstacles. Even if a full repeal could make it through the Senate, President Obama could still veto any repeal legislation. Because of that probability, some Republicans have indicated that that they would try to repeal the health care law “piece by piece,” using strategies like blocking funding or regulations. Other Republicans have also said they may try to replace, rather than repeal, parts of the law.

Provisions of the law that are likely to be targeted for revision or repeal include:

1. The requirement for businesses to report payments in excess of $600 on a Form 1099;
2. The employer responsibility provisions, which provide that employers can face penalties for not providing a certain level of health coverage to employees;
3. The individual responsibility requirement, which imposes penalties on individuals who do not obtain coverage;
4. The Cadillac Plan tax on high-cost, employer-sponsored health plans;
5. The tax on manufacturers of medical devices; and
6. Cuts to Medicare.

 Republicans have also suggested changes to the planned health insurance exchanges, which will take effect in 2014, to give states more power in designing the exchanges. However, members of the GOP have also said that they may want to keep some of the law’s provisions that are popular with consumers. Some experts have warned that keeping some parts of the law while repealing others may not be practical. 

 Democrats are standing behind the health care package and some exit polls show that the public is split on whether health care reform should be repealed. However, party leaders, such as President Obama and Senate Majority Leader Harry Reid (D-Nevada) have indicated a willingness to revise some portions of the law, especially if changes will bring faster and more effective reform to the health care system.

What’s Next?

Despite all these changes, and potential future changes, the health care reform law as we know it is the law. Employers and health plan sponsors should make sure they are implementing the requirements as they become effective. If any changes are made to parts of the law that have already taken effect, there will likely be time for employers and plan sponsors to put changes into place.

Benefit Logic will continue to update you on health care reform developments.

New Rule for Grandfathered Plans

Under the Patient Protection and Affordable Care Act (PPACA), health plans that existed on March 23, 2010 are generally considered “grandfathered plans.” Grandfathered plans are exempt from some of the health care reform requirements, including coverage of preventive care services with no cost-sharing and patient protections such as guaranteed access to OB-GYNs and pediatricians.

Regulations were issued on June 17, 2010 regarding grandfathered plans. These regulations provided that certain changes to an existing plan could cause the plan to lose its grandfathered status. For example, plans could lose grandfathered status by significantly increasing costs or reducing benefits under the plan. Under the initial rule, plans would also lose grandfathered status by changing insurance policies, even if no other prohibited changes were made to the plan.

The Departments of Labor, Health and Human Services and Treasury (the Departments) have now amended the grandfathered plan regulations to permit insured group health plans to change insurance policies or carriers. Under the amended rule, group health plans will no longer automatically lose their grandfathered status merely because of a change in the plan’s insurance policy, certificate or contract of insurance. However, making any other prohibited change will still cause a loss of grandfathered status.

 Reasons for the Amendment

The Departments stated the following reasons for reversing their position on this rule:

1. The initial rule treated insured group health plans differently than self-funded group health plans. Insured group health plans were not able to change issuers or policies without losing grandfathered status, while self-funded plans could change their third-party administrators (TPAs), as long as they did not make any other prohibited change. The amended rule allows all group health plans to keep their grandfathered status when changing insurance companies or TPAs.
2. A group health plan may not have a choice about changing its insurance issuer; for example, if the issuer withdraws from the market. Under the new rule, the plan sponsor can maintain grandfathered status if it has to contract with a new issuer.
3. The initial rule unnecessarily restricted the ability of issuers to reissue policies to current plan sponsors for administrative reasons not related to the underlying terms of the plan. Issuers can now transition policies to a subsidiary or consolidate policies without losing grandfathered plan status.
4. The initial rule potentially gave issuers undue and unfair leverage in negotiating the price of coverage renewals with grandfathered plan sponsors, which could interfere with competition and cost containment.

 The New Rule Applies Only to Certain Plans

The amendment to the grandfathered plan regulations applies to insured group health plans only. For individual policies, a change in issuer is still considered a change in the health insurance coverage in which the individual was enrolled on March 23, 2010, and the new individual policy, certificate or contract of insurance would not be a grandfathered plan. 

Also, whether the amended rule applies to your plan will depend on when the coverage under the new policy was effective. The amendment applies to changes to group health insurance coverage that are effective on or after November 15, 2010. The amendment does not apply retroactively to changes to group health insurance coverage that were effective before November 15, 2010.

For purposes of determining when a change is effective, the date the new coverage becomes effective is the operative date, not the date a contract for a new policy, certificate or contract of insurance is entered into.

For example, if a plan enters into an agreement with an issuer on September 28, 2010 for a new policy to be effective on January 1, 2011, then January 1, 2011 is the date the new policy is effective. Therefore, the relevant date for purposes of determining the application of the amendment is January 1, 2011. However, if the plan entered into an agreement with an issuer on July 1, 2010 for a new policy to be effective on September 1, 2010, then the amendment would not apply and the plan would lose its grandfathered status.

Other Grandfathered Plan Guidelines Still Apply

Although grandfathered plans can now change policies or issuers without automatically losing grandfathered status, the plan will still cease to be a grandfathered plan if the new policy includes changes that are prohibited by the regulations. As with the other provisions of the regulations, the amended rule applies separately to each benefit package made available under a group health plan.

To maintain status as a grandfathered health plan, a group health plan that enters into a new policy, certificate or contract of insurance must also give the new health insurance issuer documentation of the plan’s terms under the prior coverage, including information about benefits, cost-sharing, employer contributions and annual limits. This information must be sufficient to allow the insurer to determine whether a change causing a loss of grandfathered status has occurred.

Please contact your Benefit Logic representative with any questions about your company’s health plan.

 This Benefit Logic Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

The Patient Protection and Affordable Care Act (PPACA), makes changes to the preventive services covered at no cost-sharing for Medicare beneficiaries.  

Beginning January 1, 2011, Medicare beneficiaries will no longer pay any out-of-pocket costs for most preventive services. Medicare will also cover the cost of an annual wellness visit with a physician.

Preventive Services

The following preventive services that Medicare currently covers will be provided at no cost-sharing to the beneficiary, including:

1. Mammograms every 12 months for eligible beneficiaries age 40 and older
2. Colorectal cancer screening, including flexible sigmoidoscopy or colonoscopy
3. Cervical cancer screening, including a Pap smear test and pelvic exam
4. Cholesterol and other cardiovascular screenings
5. Diabetes screening
6. Medical nutrition therapy to help manage diabetes or kidney disease
7. Prostate cancer screening
8. An annual flu shot and the hepatitis B vaccine
9. Bone mass measurement
10. Abdominal aortic aneurysm screening to check for a bulging blood vessel
11. HIV screening tests for those who are at an increased risk or who request to receive the test

Medicare will expand the coverage of additional preventive services at no cost-sharing to the beneficiary as new services, tests or screenings become available and are recommended by the U.S. Preventive Services Task Force.

Annual Wellness Visit

Medicare will cover an annual wellness visit with a physician to develop a personalized prevention plan that takes a comprehensive approach to improving your health. Specifically, the wellness visit will cover the following services at no cost-sharing to the beneficiary:

1. Routine measurements such as height, weight, blood pressure, body-mass index or waist circumference, if appropriate
2. Review of medical and family history, including medications and current care by other health care providers
3. A personal risk assessment, including any mental health conditions
4. A review of functional ability and level of safety, including an assessment of any cognitive impairment and screening for depression
5. Set up of a schedule for the patient of Medicare screenings and preventive services for the next 5 to 10 years
6. Any other advice or referral services that may help intervene and treat potential health risks

Source: Healthcare.gov. This is a work of the U.S. Government and is not subject to copyright protection in the United States. Foreign copyrights may apply.

This brochure is for informational purposes only and is not intended to replace the advice of an insurance professional.

Reporting Requirement Delayed

The Patient Protection and Affordable Care Act (PPACA) requires employers to report the aggregate cost of employer-sponsored group health coverage on an employee’s Form W-2, beginning with the 2011 tax year. Although the information must be disclosed, the cost of the coverage remains tax-free to the employee.

On October 12, the Internal Revenue Service announced that it will delay the compliance date for this requirement. The IRS and the Treasury Department have provided the relief in order to give employers more time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.

The temporary relief from the reporting requirement is found in IRS Notice 2010-69. This notice states that reporting the cost of employer-sponsored group health coverage will not be mandatory for 2011 Forms W-2, which would be issued in 2012. Due to the extension, employers will have to include this information for the first time on the 2012 W-2s instead, which are not issued until 2013.

Specifically, the IRS has stated that employer will not be treated as failing to meet the reporting requirements for 2011, and will not be subject to penalties, just because it does not report the aggregate cost of employer-sponsored coverage on Forms W-2 issued for 2011.

This IRS and the Treasury Department also announced that they are anticipating issuing additional guidance on the reporting requirement before the end of 2010.

Benefit Logic will continue to update you if additional information becomes available with respect to this requirement.

Compliance Steps for Employers

Although the requirement has been delayed, employers should use the additional time to ensure that they (or their payroll provider) are prepared to gather this information in advance of having to complete the Forms W-2. In doing so, they should make sure they can identify the applicable employer-sponsored coverage that was provided to each employee and be prepared to calculate the aggregate cost of that coverage. The aggregate cost of the coverage is to be calculated similarly to how the COBRA applicable premium is determined.

Employers may also have to address questions from employees regarding whether their health benefits are taxable under this new requirement. They can assure employees that the rule is a reporting requirement only, and does not mean they will incur additional tax obligations.

This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

Introduction

The Patient Protection and Affordable Care Act (PPACA) generally prohibits group health plans, and group and individual health insurance issuers, from imposing lifetime or annual limits on the dollar value of essential health benefits, effective for plan years beginning on or after September 23, 2010. Although annual limits are generally prohibited, “restricted annual limits” are permitted for essential health benefits for plan years beginning before January 1, 2014.

Regulations established the restricted annual limits that are permissible. The regulations also provided that the restricted annual limits could be waived by the Department of Health and Human Services (HHS) if compliance with the restrictions would result in a significant decrease in access to benefits or a significant increase in premiums. HHS has released guidance on how to apply for a waiver.

In general, plans must apply for the waiver at least 30 days before the beginning of the plan or policy year. However, plans with plan years beginning before November 2, 2010 must apply at least 10 days before the beginning of the plan or policy year.

This Legislative Brief summarizes this guidance, which is available at www.hhs.gov/ociio/regulations/patient/ociio_2010-1_20100903_508.pdf. Please contact your Benefit Logic representative for assistance.

Annual Limit Restrictions

PPACA and the related interim final regulations allow the imposition of “restricted annual limits” on essential health benefits for plan years for group health plans and group health insurance coverage and for policy years for new, non-grandfathered individual health insurance coverage, beginning before January 1, 2014. No annual limits on essential health benefits are permitted with respect to plan or policy years beginning on or after January 1, 2014, except in the case of grandfathered individual market policies. Benefits that are considered excepted benefits under HIPAA, such as free-standing limited scope dental and vision plans, are not covered by these rules.  

The restricted annual limits on the dollar value of essential health benefits cannot be lower than:

1. For plan or policy years beginning on or after September 23, 2010 but before September 23, 2011: $750,000;
2. For plan or policy years beginning on or after September 23, 2011 but before September 23, 2012: $1.25 million; and
3. For plan or policy years beginning on or after September 23, 2012 but before January 1, 2014: $2 million.

A class of group health plans and health insurance coverage, generally known as “limited benefit” plans or “mini-med” plans, often have annual limits well below the restricted annual limits set out in the interim final regulations. These group plans and health insurance coverage often offer lower-cost coverage to part-time workers, seasonal workers and volunteers who otherwise may not be able to afford coverage at all.

In order to ensure that individuals with certain coverage, including coverage under limited benefit or mini-med plans, would not be denied access to needed services or experience more than a minimal impact on premiums, the interim final regulations contemplated a waiver process for plan or policy years beginning prior to January 1, 2014 for cases in which compliance with the restricted annual limit provisions of the interim final regulations “would result in a significant decrease in access to benefits” or “would significantly increase premiums.” This waiver process does not impact any state law requirement addressing annual benefit limits in group health plans, or group and individual health insurance coverage.

The Waiver Process

Waiver Requirements

To apply for a waiver, the group health plan or health insurance policy must have been in existence prior to September 23, 2010.

If approval is granted for the waiver, the approval applies only for the plan or policy year beginning between September 23, 2010 and September 23, 2011. Plans must reapply for later plan or policy years (that begin prior to January 1, 2014, when this waiver expires) in accordance with future guidance from HHS. HHS may modify the waiver approval process.

Information Required

The application must include:

1. The terms of the plan or policy form(s) for which a waiver is sought;
2. The number of individuals covered by the plan or policy form(s) submitted;
3. The annual limit(s) and rates applicable to the plan or policy form(s) submitted;
4. A brief description of why compliance with the restrictions would result in a significant decrease in access to benefits, or significant increase in premiums, for those currently covered by the plan or policy, along with any supporting documentation; and
5. An attestation, signed by the plan administrator or chief executive officer of the issuer of the coverage, certifying that:
   1. The plan was in force prior to September 23, 2010; and
   2. The restricted annual limits would result in a significant decrease in access to benefits, or a significant increase in premiums, for those currently covered by the plan or policy.

The plan administrator or chief executive officer should retain documents in support of this application for potential examination by HHS.

Submitting the Application

Waiver applications can be submitted via mail or e-mail. Applications can be e-mailed to healthinsurance@hhs.gov with “Waiver” as the subject of the e-mail. Alternatively, they can be mailed to the following address:

HHS will process complete waiver applications within 30 days of receipt. However, complete applications submitted for plan or policy years beginning before November 2, 2010 will be processed no later than 5 days in advance of the plan or policy year.

Application Deadlines

The deadline for the application will depend on when the plan year begins. In general, for plan years beginning between September 23, 2010 and September 23, 2011, the plan must apply no less than 30 days before the beginning of the plan or policy year.

Plans with plan years beginning after September 23, 2010 but before November 2, 2010, do not have to apply that far ahead of time. They must apply no less than 10 days before the beginning of the plan or policy year.

The Patient Protection and Affordable Care Act (PPACA) was enacted on March 23, 2010. PPACA includes a tax credit for small businesses that provide health care coverage to their employees. The tax credit is effective for tax years beginning in 2010. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

On September 7, 2010, the Internal Revenue Service (IRS) released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns. The IRS also announced how eligible tax-exempt organizations – which do not generally file income tax returns – will claim the credit during the 2011 filing season.

Form 8941 – Credit for Small Employer Health Insurance Premiums

 The IRS has posted a draft of Form 8941 on www.IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations – even those that owe no tax on unrelated business income – to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later in 2010.

 Eligibility for the Small Business Tax Credit

 In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage toward buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years. The maximum credit goes to smaller employers ­­– those with 10 or fewer full-time equivalent (FTE) employees –­­ paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

More Information

The resources listed below contain additional information about the tax credit.

• A copy of draft Form 8941: www.irs.gov/pub/irs-dft/f8941–dft.pdf.
• General IRS information about PPACA: www.irs.gov/newsroom/article/0,,id=220809,00.html.
• Steps for determining eligibility for the credit: www.irs.gov/pub/irs-utl/3_simple_steps.pdf.
• Answers to frequently asked questions about the credit: www.irs.gov/newsroom/article/0,,id=220839,00.html.

The Patient Protection and Affordable Care Act (PPACA) was enacted on March 23, 2010. PPACA includes a tax credit for small businesses that provide health care coverage to their employees. The tax credit is effective for tax years beginning in 2010. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

 On September 7, 2010, the Internal Revenue Service (IRS) released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns. The IRS also announced how eligible tax-exempt organizations – which do not generally file income tax returns – will claim the credit during the 2011 filing season.

Form 8941 – Credit for Small Employer Health Insurance Premiums

 The IRS has posted a draft of Form 8941 on www.IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations – even those that owe no tax on unrelated business income – to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later in 2010.

Eligibility for the Small Business Tax Credit

In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage toward buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years. The maximum credit goes to smaller employers ­­– those with 10 or fewer full-time equivalent (FTE) employees –­­ paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

More Information

The resources listed below contain additional information about the tax credit.

1. A copy of draft Form 8941: www.irs.gov/pub/irs-dft/f8941–dft.pdf.
2. General IRS information about PPACA: www.irs.gov/newsroom/article/0,,id=220809,00.html.
3. Steps for determining eligibility for the credit: www.irs.gov/pub/irsutl/3_simple_steps.pdf.
4. Answers to frequently asked questions about the credit: www.irs.gov/newsroom/article/0,,id=220839,00.html.

Executive Summary

Under health care reform, some fully-insured group health plans will be required to comply for the first time with federal nondiscrimination rules related to compensation. These rules prohibit discrimination in favor of highly-compensated individuals (HCIs). They will apply to non-grandfathered fully-insured plans only and are effective for plan years beginning on or after September 23, 2010.

This Legislative Brief describes the nondiscrimination rules that apply to non-grandfathered group health plans under health care reform. Please read below for more information.

Nondiscrimination Rules

The Patient Protection and Affordable Care Act (PPACA) requires non-grandfathered fully-insured plans to follow many of the same nondiscrimination rules that, up until now, have applied only to self-funded plans. Because grandfathered plans are exempt from these nondiscrimination rules, existing plans that are designed to favor HCIs may want to make the effort to retain grandfathered status. If grandfathered status is lost, discriminatory plans will have to be amended or face potential excise tax penalties.

Specifically, PPACA provides that non-grandfathered fully-insured plans must satisfy the requirements of Internal Revenue Code Section 105(h)(2), which prohibit discrimination in favor of highly compensated individuals. To satisfy the nondiscrimination rules, these fully-insured plans must pass two separate nondiscrimination tests: the eligibility test and the benefits test.

A highly-compensated individual for purposes of these rules is an individual who is:

1. One of the five highest paid officers;
2. A shareholder who owns more than 10 percent in value of the stock of the employer; or
3. One of the highest paid 25 percent of all employees (other than an employee excludable as described below).

The rules are effective for these fully-insured plans for plan years beginning on or after September 23, 2010.

Eligibility Test

To pass the eligibility test, a plan must benefit one of the following:

1. At least 70 percent of all employees;
2. At least 80 percent of all employees who are eligible to benefit under the plan (if at least 70 percent of all employees are eligible to participate in the plan); or
3. A nondiscriminatory classification of employees.

In running the eligibility test, an employer may exclude certain employees from consideration. These are employees who:

1. Have not completed three years of service;
2. Have not attained age 25;
3. Are part-time or seasonal;
4. Are collectively-bargained; or
5. Are non-resident aliens who do not receive U.S. earned income.

In order to have a nondiscriminatory classification of employees, there must be a bona fide business reason for the classification and a sufficient ratio of non-HCIs must benefit. Examples of reasonable classifications generally include specified job categories, compensation categories (such as hourly or salaried), and geographic location.

Benefits Test

To pass the benefits test, all benefits provided to the HCIs who participate in the plan must be provided to all other participants as well. Also, all the benefits available for the dependents of HCIs must be available on the same basis for dependents of all other participants. The regulations and IRS guidance indicate that the level of employer contributions should not discriminate in favor of HCIs.

A plan may have a maximum reimbursement limit for any single benefit or combination of benefits, but the maximum limit attributable to employer contributions must be uniform for all participants and their dependents. The limit may not be modified due to a participant’s age or years of service.

There are two components to the benefits test. A plan must not:

1. discriminate on its face in providing benefits in favor of HCIs; OR
2. discriminate in favor of HCIs in actual operation (whether a plan discriminates in operation is determined on a facts and circumstances basis).

A plan will discriminate on its face if the plan document contains discriminatory provisions that favor HCIs. A plan could discriminate in operation if it is amended or terminated so that the duration of the plan (or benefit) favors HCIs, or if the plan approves certain claims for medical expenses for HCIs but denies them for non-HCIs without a permissible reason for treating them differently. However, a plan will not be considered discriminatory just because HCIs participating in the plan use a broad range of plan benefits to a greater extent than do other employees participating in the plan.

As with many areas of health care reform, additional information or regulations regarding these nondiscrimination rules would be helpful. Benefit Logic will continue to monitor developments in this area and will keep you informed.

The Patient Protection and Affordable Care Act (PPACA) requires non-grandfathered group health plans and health insurance coverage to adopt an improved internal claims and appeal process and to follow minimum requirements for external review. On August 23, 2010, interim procedures for external review of claim appeals were issued by the Departments of Treasury, Labor and Health and Human Services. The Departments also announced the availability of model notices related to internal claims and appeals and external review.

This Legislative Brief summarizes the procedures and model notices. Please read below for more detailed information. For a copy of the procedures, see www.dol.gov/ebsa/pdf/ACATechnicalRelease2010-01.pdf. See below for links to the model notices.

Model Notices

Non-grandfathered health plans and issuers may use the model notices to satisfy PPACA’s requirements related an improved internal claims and appeal process. The following model notices have been issued:
• Model Notice of Adverse Benefit Determination, available at www.dol.gov/ebsa/IABDModelNotice2.doc.
• Model Notice of Final Internal Adverse Benefit Determination, available at www.dol.gov/ebsa/IABDModelNotice1.doc.
• Model Notice of Final External Review Decision, available at www.dol.gov/ebsa/IABDModelNotice3.doc.
Model language for the description for the internal claims and appeals and external review procedures in the summary plan description provided to participants and beneficiaries will be posted on the Departments’ websites in the future.

Health Care Reform Requirements for External Review

PPACA requires that plans and health insurance issuers in states without an applicable state external review process must implement an effective external review process that meets minimum federal standards. PPACA, along with the interim final regulations issued on July 23, 2010, provide a basis for determining when plans and issuers are to follow a state external review process and when they have to follow the federal process.

In general, if a state has an external review process that meets, at a minimum, the consumer protections contained in the interim final regulations, an issuer (or plan) subject to the state process must comply with that process. For plan years beginning before July 1, 2011, HHS will work with states to make any necessary changes to the state process.

Plans and issuers that are not subject to a state external review process (including self-insured plans) must follow the federal process. The federal process will apply to plan years beginning on or after September 23, 2010.

Interim Compliance Guidance for Self-Insured Plans

The DOL has released EBSA Technical Release 2010-01, which provides interim compliance guidance on the federal external review process for self-funded plans. For health insurance coverage offered in connection with a group health plan, the issuer has primary responsibility to comply with the external review rules. Final guidance is expected to be issued by July 1, 2011.

For plan years beginning on or after September 23, 2010, and until future guidance is issued, the DOL and IRS will not take any enforcement action against a self-insured group health plan that complies with one of the following interim compliance methods:

1. Compliance with the procedures outlined in Technical Release 2010-01. These procedures are based on the Uniform Health Carrier External Review Model Act promulgated by the National Association of Insurance Commissioners (the NAIC Model Act) in place on July 23, 2010.
2. Voluntary Compliance with state external review processes. Alternatively, states may choose to expand access to their state external review process to plans that are not subject to the state laws, such as self-insured plans. These plans may choose to voluntarily comply with the provisions of that state external review process.

Federal External Review Procedures for Self-Funded Plans

Technical Release 2010-01 sets forth procedures for external review for self-insured group health plans. There are procedures for both standard review and expedited review.

Standard External Review Procedures

Request for External Review

Group health plans must allow claimants to request an external review of a claim within four months of receiving notice of an adverse benefit determination or final internal adverse benefit determination. If the deadline falls on a weekend or federal holiday, the deadline is extended to the next business day.

Preliminary Review

Within five business days of receiving the request for external review, the group health plan must complete a preliminary review the request to determine whether:

1. The claimant is or was covered under the plan at the time the health care item or service was requested, or in the case of a retrospective review, was covered under the plan at the time the health care item or service was provided;
2. The adverse benefit determination or final adverse benefit determination does not relate to the claimant’s failure to meet the plan’s eligibility requirements;
3. The claimant has exhausted the plan’s internal appeal process, unless the claimant is not required to do so under the interim final regulations; and
4. The claimant has provided all the information and forms required to process an external review.

Within one business day of completing the preliminary review, the plan must issue a written notice to the claimant. If the request is complete but not eligible for external review, the notice must include the reasons it is not eligible and contact information for the DOL’s Employee Benefits Security Administration (toll-free number 866-444-EBSA (3272)). If the request is not complete, the notice must describe the information or materials needed to complete the request and the plan must allow the claimant to perfect the request within the four-month filing period, or 48 hours after receipt of the notice, whichever is later.

Referral to Independent Review Organization

The group health plan must assign an independent review organization (IRO) to conduct the external review. The IRO must be accredited by URAC or by a similar nationally recognized accrediting organization. To avoid bias and ensure independence, the plan must contract with at least three IROs and rotate claims assignments among them. The IRO may not be eligible for financial incentives based on the likelihood that the IRO will support the denial of benefits.

A contract between a plan and an IRO must provide that:

1. The IRO will utilize legal experts where appropriate to make coverage determinations under the plan.
2. The IRO will timely notify the claimant in writing of the request’s eligibility and acceptance for external review. The notice will include a statement that the claimant may submit, within 10 business days, additional information in writing that the IRO must consider. The IRO is not required to, but may, accept and consider additional information submitted after 10 business days
3. Within five business days after the assignment of the IRO, the plan must provide to the IRO the documents and information considered in making the adverse benefit determination or final adverse benefit determination. If the plan does not timely provide the documents and information, the IRO may terminate the external review and make a decision to reverse the adverse benefit determination or final adverse benefit determination. Within one business day of making its decision, the IRO must notify the claimant and the plan.
4. If the IRO receives information from the claimant, it must forward it to the plan within one business day. The plan may then reconsider its adverse benefit determination or final internal adverse benefit determination, but may not delay the external review. The external review may be terminated because of the reconsideration only if the plan decides to reverse its decision and provider coverage or payment. The plan must provide written notice of its decision to the claimant and the IRO within one business day, and the IRO must terminate the external review upon receiving the notice.
5. The IRO will review all documents that are timely received. The IRO will review the claim de novo (i.e., from the beginning) and will not be bound by any decisions or conclusions reached during the plan’s internal claims and appeals process.
6. The IRO must provide written notice of the final external review to the claimant and the plan within 45 days of receiving the request for external review.
7. The IRO must maintain records of all claims and notices associated with the external review process for six years. It must make the records available for examination by the claimant, plan, or state or federal oversight agency upon request, unless the disclosure would violate state or federal privacy laws.

Reversal of Plan’s Decision

Upon receipt of a notice of a final external review decision, reversing the adverse benefit determination or final internal adverse benefit determination, the plan must immediately provide coverage or payment for the claim, including immediately authorizing or immediately paying benefits.

Expedited External Review Procedures

Request for Expedited External Review

A group health plan must allow a claimant to make a request for an expedited external review after receiving an adverse benefit determination if:

1. The timeframe for a standard review would seriously jeopardize the health or life of the claimant and the claimant has filed a request for an expedited internal appeal; or
2. The final adverse determination involves an admission, availability of care, continued stay or health care item or service for which the claimant has received emergency services but has not been discharged from a facility.

Preliminary Review

The plan must determine whether the request meets the standards for an external review immediately upon receiving the request for expedited external review. It must also immediately send a notice to the claimant of its determination regarding eligibility for review.

Referral to Independent Review Organization

If the plan determines that the request is eligible for external review, it will assign an IRO in accordance with the standard external review requirements. The plan must provide all necessary documents and information related to the claim to the assigned IRO electronically or by telephone or fax or any other available expeditious method. The assigned IRO must consider any information that is available and appropriate under the procedures for standard review. The assigned IRO must review the claim de novo and is not bound by any decisions or conclusions reached during the plan’s internal claims and appeals process.

Notice of Final External Review Decision

The plan must require the IRO to notify the claimant of the final external review decision as expeditiously the claimant’s medical condition or circumstances require, but no more than 72 hours after the IRO receives the request for an expedited external review. If the notice is not in writing, the IRO must provide written confirmation of the decision to the claimant and the plan within 48 hours of providing the initial notice.

Interim Compliance Guidance for Issuers

Technical Release 2010-01 also contains an interim enforcement safe harbor for insurance issuers. This safe harbor will apply for plan years beginning on or after September 23, 2010, and until future guidance is issued. During this limited enforcement period, HHS will not take any enforcement action against an issuer that complies with an interim compliance method. This method will be detailed by HHS on the Office of Consumer Information and Insurance Oversight website, at www.hhs.gov/ociio/ . The method will involve use of state process or a temporary HHS process.

By July 1, 2011, HHS will issue additional guidance as to which state external review laws have been determined to satisfy the minimum standards of the NAIC Model Act and regarding the process that will replace the interim process.

This Legislative Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.