Final ACA Rule on Grandfathered Plans, Coverage for Adult Children, and More
On November 18, 2015, the Departments of Labor, Health and Human Services, and Treasury jointly published a Final Rule on several Affordable Care Act (ACA) requirements that took effect in 2010 and 2011. The departments have provided guidance on these requirements previously, through a series of interim rules and informal FAQs, which may be relied on through 2016. The Final Rule consolidates the prior guidance and applies to plan years and policy years starting in 2017.
The Final Rule covers the following ACA requirements:
- Grandfathered health plans.
- Pre-existing condition exclusions.
- Lifetime and annual dollar limits.
- Coverage for children to age 26.
- Claim appeals and reviews.
- Patient protections.
The Final Rule does not make any significant changes to the guidance provided earlier, although a few issues are clarified. Items that are applicable to common types of employer-sponsored group health plans are summarized below.
Grandfathered Health Plans
Grandfathered health plans are exempt from several ACA requirements (e.g., first-dollar preventive services coverage, limits on out-of-pocket maximums). A plan is grandfathered if it was in existence on March 23, 2010 and it does not make any of the following changes:
- Eliminate benefits to diagnose or treat a condition.
- Increase percentage-based cost-sharing (co-insurance).
- Increase deductibles or out-of-pocket maximums by more than a percentage equal to medical inflation plus 15 percentage points.
- Increase co-pays by more than $5 or a percentage equal to medical inflation plus 15 percentage points.
- Reduce the employer contribution percentage by more than five percentage points.
- Impose annual dollar limits on benefits.
The Final Rule continues the existing guidance regarding changes that cause the loss of grandfathered status and regarding the requirement to include a notice of grandfathered status (with contact information for questions) with any benefit summaries provided by the plan. Each benefit package or option is considered a separate “plan” for purposes of determining grandfathered status. For example, if the employer offers two grandfathered plan options, such as a PPO and HMO, each plan’s status does not affect the other.
The Final Rule clarifies situations in which employees may be transferred into a grandfathered plan without the plan losing its status.
Pre-Existing Condition Exclusions
Group health plans are prohibited from imposing pre-existing condition limits or exclusions. The Final Rule clarifies that this provision does not prevent the plan from excluding benefits for a condition, provided that the exclusion applies regardless of when the condition arose. (Note that other ACA provisions may require the plan to cover specific benefits, such as preventive services.)
Lifetime and Annual Dollar Limits
Group health plans are prohibited from imposing a lifetime dollar limit, or an annual dollar limit, on essential health benefits (EHBs) whether provided on an in-network or out-of-network basis. EHBs refer to a comprehensive set of health care services within 10 benefit categories. Nongrandfathered policies sold in the small group insurance market are required to cover all EHBs. Other policies and plans, including large group policies and self-funded plans, are not required to cover all EHBs but are prohibited from imposing lifetime or annual dollar limits on any EHBs that are covered.
The Final Rule confirms existing guidance with respect to the ACA’s prohibition against lifetime or annual dollar limits on EHBs. For plan or policy years beginning in 2017 or later, plans will choose from any of 51 base-benchmark plans (or one of the three largest plans under the Federal Employee Health Benefit Programs) to determine which benefits are EHBs.
Rescission means any retroactive termination of coverage for which the plan participant has made payments or contributions. Group health plans are prohibited from rescinding a participant’s coverage, unless the participant commits fraud or makes an intentional misrepresentation of a material fact.
The following events are not rescissions (and therefore are permissible): terminating coverage due to failure to pay required premiums or contributions when due, or terminating coverage on a prospectively (future) basis.
The Final Rule confirms existing guidance regarding coverage rescissions, while clarifying that a rescission is an adverse benefit determination subject to internal and external appeals. Plans may terminate coverage retroactively if so requested by the participant. Plans may not, however, rescind coverage of participants that misrepresented their tobacco use status, which is not a material fact, but may adjust the required premium retroactively.
Coverage for Children to Age 26
Group health plans that cover children must extend coverage to children up to age 26. Plans are prohibited from excluding children based on employment status, marital status, student status, financial dependency, or residency.
The Final Rule confirms existing guidance and provides an important clarification — plans are prohibited from excluding children who do not reside in the plan’s designated service area. Officials noted that residency requirements affect adult children disproportionately since they often leave home for school or work.
Although plans are not required to cover non-emergency care outside of the plan’s service area, plans may not exclude a child from eligibility based on residency.
Claims Appeal and Reviews
Nongrandfathered health plans are subject to ACA provisions for internal claim appeals and external reviews. Numerous pieces of guidance, including interim rules and technical releases, have been issued over the past five years on these topics. The details can be complex — some requirements vary based on whether certain external review models are available in a particular state, and some provisions phase in over a period of years. The Final Rule confirms existing guidance, while also providing lengthy clarifications on various points.
The ACA’s appeal and review provisions primarily affect insurers and claims administrators. Employers that sponsor self-funded health plans are encouraged to work with their third-party administrators to ensure compliance based on the requirements for specific types of plans.
Nongrandfathered group health plans are required to apply several patient protection provisions:
- Plans requiring or allowing participants to designate a primary care provider (PCP) must allow each participant to designate any available in-network primary care provider. A child’s PCP may be any available in-network physician (allopathic or osteopathic) specializing in pediatrics.
- Plans are prohibited from requiring preauthorization or referrals before a participant accesses obstetrical or gynecological care.
- Plans providing benefits for emergency services are prohibited from requiring preauthorization or referrals for out-of-network services or imposing greater requirements, co-pays, or co-insurance on out-of-network services than for in-network services.
The Final Rule confirms existing guidance with respect to the ACA’s patient protection requirements. As before, out-of-network emergency care may result in balance billing to the patient. The Final Rule provides clarification on determining the plan’s allowable charges. Further, it clarifies that emergency services are not limited to a specific time period, such as 24 hours.
In summary, the Final Rule covers numerous ACA provisions that first took effect in 2010 and 2011. Plans may continue to rely on the interim rules and informal FAQs released previously through 2016. The Final Rule, which confirms prior guidance with virtually no changes, takes effect for plan and policy years that begin in 2017.