ERISA Strategist

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On January 9, the U.S. Department of Labor, jointly with the U.S. Departments of Health and Human Services and the Treasury, issued additional clarifications regarding the implementation of the market reform provisions of the Patient Protection and Affordable Care Act as well as the Mental Health Parity and Addiction Equity Act of 2008. The guidance, as with prior guidance, was issued in the form of several Frequently Asked Questions. The FAQs offer additional guidance related to several topics, including coverage of preventive services; limitations on cost-sharing; expatriate health plans; wellness programs; fixed indemnity insurance; and the Mental Health Parity Act. This bulletin provides a summary of the FAQs as well as some practical insight for employers.

FAQ 1: Coverage of Preventative Services

The guidance specifically addresses plan changes regarding coverage of medications for risk reduction of primary breast cancer in women. Under the Public Health Services Act, as amended by the Affordable Care Act, and interim final regulations issued July 19, 2010, non-grandfathered health plans are prohibited from, among other things, imposing cost-sharing requirements for certain preventive items or services rated as either "A" or "B" by the United States Preventative Services Task Force; provided that, if a recommendation or guideline does not specify the frequency, method, treatment or setting for the provision of that service, the plan can use reasonable medical management techniques to determine any coverage limitations. In September 2013, the Task Force revised its recommendation regarding certain medications for risk reduction of primary breast cancer in women to a class "B" rating.

What this means: For plan or policy years beginning on or after September 24, 2014, non-grandfathered health plans will be required to cover these medications (e.g., tamoxifen or raloxifene) for applicable women who are at an increased risk for breast cancer without cost sharing and subject to reasonable medical management.

FAQs 2-5: Out-of-Pocket Maximums

The Public Health Services Act, as amended by Affordable Care Act, also imposes annual limits on out-of-pocket costs under non-grandfathered health plans. Beginning in 2014, the annual limitation on out-of-pocket costs is $6,350 for self-only coverage and $12,700 for all coverage other than self-only. In prior guidance the Departments recognized that plans may use multiple service providers as part of plan administration and that those providers may impose and credit out-of-pocket limits differently. Because providers need time to coordinate communications, the Departments set out certain requirements specifically applicable to 2014 plan years, but did not offer guidance for years beyond 2014. The new guidance addresses this issue in FAQ 2 and states that for plan years beginning on or after January 1, 2015, all non-grandfathered health plans must have an out-of-pocket maximum that limits overall out-of-pocket costs on all essential health benefits.

What this means: The departments will not be extending the 2014 transitional relief. For plan years beginning on or after January 1, 2015, non-grandfathered group health plans and group health insurance coverage must have an out-of-pocket maximum which limits overall out-of-pocket costs on all EHBs. Plans are not required to apply out-of-pocket limits with respect to benefits that are not EHBs.

The guidance also indicates in FAQ 3 that plans with multiple service providers are permitted to structure a benefit design using separate out-of-pocket limits across multiple categories of benefits (as opposed to reconciling claims across the service providers), as long as the combined amounts of such limits do not exceed the annual out-of-pocket maximum for the given year. If a plan includes a network of providers, FAQ 4 says that the plan may, but is not required to, count out-of-pocket spending for out-of-network items and services toward the plan's annual limit. Lastly, FAQ 5 says that plans are not required to, but may, count out-of-pocket spending for non-covered services (such as cosmetic services) toward the plans' annual maximum out-of-pocket costs.

FAQs 6-7: Expatriate Health Plans

Prior guidance also addressed the extent to which the Affordable Care Act applied to expatriate health plans. In FAQ 6, the Departments provide clarification to the definition of expatriate plans as

An insured group health plan with respect to which enrollment is limited to primary insured for whom there is a good faith expectation that such individuals will reside outside their home country or outside the United States for at least six months of a 12-month period and any covered dependents, and also with respect to group health insurance coverage offered in conjunction with the expatriate group health plan. The 12-month period can fall within a single plan year or across two consecutive plan years.

FAQ 7 adds that the Departments will continue to consider issuing additional, narrowly tailored, guidance with respect to expatriate health plans, but such guidance would not be applicable to plan years ending on or before December 31, 2016, meaning that insured expatriate health plans can rely on the temporary transitional relief set forth in the DOL FAQs Part XIII, Q1 at least through those plan years.

FAQs 8-10: Wellness Programs

In June of 2013, the Departments issued final regulations regarding changes affecting wellness programs. The new guidance offers several clarifications to the wellness program regulations.

What this means: First, the guidance (FAQ 8) provides that, if a participant is provided a reasonable opportunity to enroll in a tobacco cessation program at the beginning of a plan year and qualify for a reward (i.e., avoiding the tobacco premium surcharge) under the program, the plan is not required (but is permitted) to provide another opportunity to avoid the tobacco premium surcharge until renewal or reenrollment for coverage for the next plan year. Although not required, the guidance also indicates that nothing prevents a plan from allowing rewards (including pro-rated rewards) for mid-year enrollment in a wellness program.

The guidance (FAQ 9) also clarifies when a plan participant's doctor's recommendation must be accommodated. If an individual's personal physician states that the outcome-based wellness program is not medically appropriate for the individual and recommends, for example, a weight reduction program (an activity-based program) instead, the plan must provide a reasonable alternative standard that accommodates the recommendations of the individual's personal physician with regard to medical appropriateness. Because many different programs may be reasonable for this purpose, a participant should discuss different options with the plan.

Lastly, the guidance (FAQ 10) clarifies that the sample notice language provided in the final wellness regulations may be used to satisfy the notice requirements with regard to the availability of reasonable alternative standards. Employers may use the language as is, or modify the language to reflect the details of their wellness programs provided that any modifications included the required content specified in the final regulations.

FAQ 11: Fixed Indemnity Plans

Fixed indemnity insurance provided under a group health plan is an excepted benefit under (and generally exempt from) Affordable Care Act market reforms if it meets certain regulatory requirements. DOL FAQs Part XI provided guidance reiterating that, in order for a fixed indemnity policy to be considered an excepted benefit, it must pay on a per-period basis and not a per-service basis. By way of example, FAQ Part XI noted that an indemnity plan that covers doctors' visits at $50 per visit, hospitalization at $100 per day, various surgical procedures at different dollar rates per procedure, and/or prescription drugs at $15 per prescription would not be considered excepted benefits because payment is determined on a per-service basis. The new guidance notes that "the Departments have noticed a significant increase in the number of health insurance policies labeled as fixed indemnity insurance."

The FAQ clarifies that fixed indemnity coverage that supplements other group health plan coverage may, nonetheless, qualify as excepted benefits under existing law even if it pays on a per-service versus a per-period basis. Furthermore, HHS intends to amend the federal regulations to allow fixed indemnity coverage sold in the individual health insurance market to be considered to be an excepted benefit if it meets the following conditions:

• It is sold only to individuals who have other health coverage that is minimum essential coverage;
• There is no coordination between the provision of benefits and an exclusion of benefits under any other health coverage;
• The benefits are paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to the amount of benefits provided with respect to an event or service under any other health coverage; and
• A notice is displayed prominently in the plan materials informing policyholders that the coverage does not meet the definition of minimum essential coverage and will not satisfy the individual mandate.

What this means: If these proposed revisions are implemented, fixed indemnity insurance in the individual market would no longer have to pay benefits solely on a per-period basis to qualify as an excepted benefit. Until HHS finalizes its rulemaking, FAQ 11 states that HHS will treat fixed indemnity coverage in the individual market as excepted benefits for enforcement purposes if it meets the above conditions, and that HHS encourages states with primary enforcement authority to follow the same policy.

FAQ 12: Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)

MHPAEA provides increased parity between mental health and substance use disorder benefits and medical/surgical benefits. In general, MHPAEA requires that the financial requirements (such as coinsurance) and treatment limitations (such as visit limits) imposed on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical/surgical benefits. On November 13, 2013, the Departments published final regulations on the MHPAEA, which contain some clarifications regarding the statute's protections. The rules promulgated under the final regulations are generally applicable to plan and policy years (for grandfathered and non-grandfathered plans) beginning on and after July 1, 2014 (January 1, 2015, for most calendar year plans).

The Individual and Small Group Market

The Affordable Care Act builds on the MHPAEA and provides that mental health and substance use disorder services are one of ten essential health benefits categories. Under the EHB rule, non-grandfathered health plans in the individual and small group markets are required to comply with the requirements of the parity regulations to satisfy the requirement to provide EHB. FAQ 12 clarifies the effective date of this compliance as follows:

For non-grandfathered individual market coverage: For policy years beginning on or after January 1, 2014, all non-grandfathered individual market coverage that is not otherwise subject to the HHS transitional policy must include coverage for mental health and substance use disorder benefits, and that coverage must comply with the Federal parity requirements set forth in the interim final regulations issued in February 2010. The final regulations apply for policy years beginning on or after July 1, 2014 (which, for calendar year policies, is January 1, 2015).

For grandfathered individual market coverage: Grandfathered individual health insurance coverage is not subject to the EHB requirements and therefore is not required to cover mental health or substance use disorder benefits. However, to the extent that mental health or substance use disorder benefits are covered under the policy, coverage must comply with the Federal parity requirements set forth in final regulations for policy years beginning on or after July 1, 2014 (which, for calendar year policies, is January 1, 2015).

For non-grandfathered small group market coverage: For plan years beginning on or after January 1, 2014, all non-grandfathered small group market coverage that is not otherwise subject to the HHS transitional policy must include coverage for mental health and substance use disorder benefits, and that coverage must comply with the Federal parity requirements set forth in the interim final regulations issued in February 2010. The final regulations apply for plan years beginning on or after July 1, 2014 (which, for calendar year plans, is January 1, 2015).

Constangy is committed to keeping its clients aware of new and evolving rules and trends in the law. For more information on the guidance addressed in this ERISA Strategist or health care reform generally, please contact any member of Constangy's Employee Benefits practice group, or the Constangy attorney of your choice.

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