Editor’s Note: Earlier posts by Timothy Jost provide analyses of regulations implementing provisions of the new health reform legislation governing grandfathered plans, tax exempt hospitalsthe small employer tax creditthe Web portal, reinsurance for early retirees, and young adult coverage

On June 22, the Departments of Health and Human Services, Labor, and Treasury released interim final regulations implementing five of the insurance enrollee protections of the Patient Protection and Affordable Care Act:

  • the prohibition against preexisting condition exclusions,
  • the prohibition against lifetime health insurance coverage limits,
  • the restriction of annual coverage limits,
  • the limitation on rescissions, and
  • the provisions guaranteeing direct access to certain types of providers and access to out-of-network emergency care.

In announcing these regulations at a White House ceremony, marking the three-month anniversary of the Act’s signing, President Obama stated

Today, I’m announcing . . .  new regulations under the Affordable Care Act that will put an end to some of the worst practices in the insurance industry, and put in place the strongest consumer protections in our history — finally, what amounts to a true Patient’s Bill of Rights. 

In fact, these regulations, in combination with other provisions of the Affordable Care Act, do finally implement many of the protections of the McCain-Edwards-Kennedy bipartisan Senate patient bill of rights legislation (and of its House equivalent), which was debated contentiously through the summer of 2001 and nearly adopted before the events of that September changed the nation’s agenda. 

Most of the provisions implemented by these regulations go into effect during the first plan year beginning after the six month anniversary of enactment, on September 23, 2010.  The preexisting condition exclusion, however, goes into effect only for minors at this point, becoming effective for adults in 2014. (The Health Insurance Portability and Accountability Act, of course, already limits the use of preexisting conditions clauses in group plans and for some individual coverage).   Also, the restriction on annual dollar coverage limits is phased in, becoming fully effective only in 2014. 

The prohibition on lifetime coverage limits and the limits on rescissions apply to all grandfathered plans, while the limits on preexisting condition exclusions and on annual dollar limits apply to grandfathered group plans.  The other provisions do not apply to grandfathered plans.

Because the Affordable Care Act’s essential benefits mandate does not take effect until 2014, several of the protections have until that point a tentative quality: insurance plans are not required to provide particular benefits, but if they do, they can impose only limited annual limits and cannot limit direct access to certain specialists in certain situations.  Even after 2014, the essential benefits requirements will only apply to individual and small group plans, so large group and self-insured plans will continue to be able to exclude coverage generally for certain benefits unless they are required to provide them by some other law.

An aggressive attack on the exclusion of preexisting conditions. The ban on preexisting conditions exclusion found in the Affordable Care Act is much broader than the preexisting condition exclusion imposed by the Health Insurance Portability and Accountability Act.  It prohibits any limitation or exclusion of benefits in a group or individual plan based on the prior existence of a medical condition.  The provision not only prohibits the exclusion of coverage of specific benefits based on a preexisting condition, but also the complete exclusion from the plan of a particular person if the exclusion is based on a preexisting condition.   The regulation does not, however, prohibit coverage exclusions that apply regardless of whether a condition is a preexisting condition or not.   The provision applies to enrollees under the age of 19 effective the first plan year beginning after September 23, 2010, but to adults only beginning in 2014.

A straight-forward lifetime limit prohibition, and a more complex annual limit prohibition. The lifetime limit prohibition is quite straightforward—for plan years beginning after September 23, 2010, neither group plans nor individual plans (including grandfathered plans), may impose lifetime dollar limits on coverage of essential benefits.

The annual limit prohibition is more complex. Individual and group health plans (including grandfathered group but not individual plans) may not impose annual dollar limits on any individual plan member stricter than:

  • $750,000 for plan years beginning on or after September 23, 2010 but before September 23, 2011;
  • $1 million for plan years beginning on or after September 23, 2011 but  before September 23, 2012; and
  • $2 million for plan years beginning on or after September 23, 2012 but before January 1, 2014. 

The annual limit prohibition does not apply to flexible spending accounts, health savings accounts, or medical savings accounts, nor does it apply to health reimbursement arrangements as long as the coverage into which they are integrated complies with the requirements.  HHS will also establish a procedure that will allow “mini-med” plans to apply for a waiver of the annual limits requirement if application of the requirement would result in a significant increase in premiums or decrease in access to benefits. 

The annual and lifetime limits provisions only apply to essential benefits.  Although the Affordable Care Act lists the categories of benefits that are considered essential, it leaves to HHS the task of defining what specific benefits are in fact essential.  Until HHS actually defines what the essential benefits are, plans need only make a good faith effort to comply with a reasonable interpretation of the requirement.  Prior to 2014, plans may also totally exclude particular benefits; they simply cannot limit the dollar amount of offered benefits except as permitted in the rule.  Finally, the regulation requires that if enrollees have lost coverage because they have previously exceeded lifetime limits and are still otherwise eligible for a plan, they must be given notice of the new rule and an opportunity to reenroll. 

A prohibition on rescissions absent intentional misrepresentation or fraud. The rescission prohibition prohibits plans from rescinding coverage, “unless the individual (or a person seeking coverage on behalf of the individual) performs an act, practice, or omission that constitutes fraud, or unless the individual makes an intentional misrepresentation of material fact, as prohibited by the terms of the plan or coverage.”  A “rescission” is defined as a retroactive cancellation or discontinuance of coverage; a prospective cancellation is subject to separate HIPAA rules governing guaranteed renewal. 

An example in the rule illustrates that it prohibits not only rescissions based on unintentional omissions or misstatements with respect to medical conditions or treatment, but also rescissions based on unintentional omissions or misstatements with respect to other eligibility conditions, such as a full-time employment requirement.  A plan must give 30 days notice to an enrollee before it rescinds coverage.  Plans must also comply with more protective state laws, such as those providing that rescissions are only permitted in cases of fraud or only within a contestability period.

Access protections. The interim final regulations implement Affordable Care Act provisions governing access to providers that:

  • allow enrollees in plans that require the designation of a gatekeeper primary care provider to choose any available primary care provider who participates in the plan;
  • allow enrollees in gatekeeper plans to designate an in-network pediatrician as the primary care provider for children; and
  • permit women direct access to in-network obstetricians or gynecologists without prior authorization for obstetrical or gynecological care (although the professionals must otherwise comply with plan procedures and policies, including obtaining prior authorization for specific services).

Plans to which these provisions apply must provide notice of this right to their enrollees, and the regulation includes model language that can be used for this purpose.  Prior to 2014, these regulations do not require plans to cover any particular services, so if a plan does not cover obstetrical or gynecological services, the direct access provision would not apply.

Finally, the regulations implement statutory provisions requiring plans to cover emergency services for emergency medical conditions without prior authorization, and regardless of whether the emergency provider is in-network.  Plans cannot impose additional administrative requirements, coverage limitations, or coinsurance or copayment requirements on out-of-network emergency services.  Enrollees who receive emergency medical treatment out-of-network can be required to pay amounts billed by the provider above the amount paid by the insurer, but the insurer must pay the greater of:

  • the median amount negotiated with in-network providers for emergency services above in-network copayments or coinsurance amounts;
  • the amount that would be generally paid to out-of-network providers for services, not taking into account extra out-of-network copayments or coinsurance amounts; or
  • the Medicare payment rate.

Other cost-sharing requirements for out-of-network services, such as deductibles or out-of-pocket limits that apply to all out-of-network services are not affected by the rule.  The direct access and emergency services requirements do not apply to grandfathered plans.

An Economic Impact Analysis: Some Striking Aspects

The preface to the proposed rule contains an extensive analysis of the economic impact of the rule.  Several things are striking about this analysis.

Uncertainty. First, there is considerable uncertainty about the impact of these rules.  Although anecdotal reports of the effects of the insurance industry practices banned or restricted by this regulation are common (and were noted again by President Obama at the White House ceremony), few data are available as to the actual number of people affected by these practices or as to their actual effect.

Relatively few people will directly benefit. Second, the number of people directly benefited by the regulations, although uncertain, appears to be relatively small.  Between 31,000 and 72,000 children, for example, are expected to obtain coverage under the preexisting condition exclusion. Although millions of Americans are enrolled in plans with lifetime or annual limits (and are thus subject to anxiety that they may reach those limits if they contract a serious medical condition), only about 2,700 to 3,500 individuals per year actually are denied coverage because of annual limits and 28,650 to 20,400 because of lifetime limits. 

Only about 10,700 enrollees have their coverage rescinded each year, and many of these would not be protected by the new rule.  Although plan provisions limiting direct access to obstetricians and gynecologists are not uncommon, 36 states and the District of Columbia already require direct access.  The out-of-network emergency access provision is likely to have the greatest impact, potentially affecting 2.1 to 4.2 million individuals, although the impact is again uncertain because of lack of data.

Large benefits for those who are affected. Third, those affected by the new provisions are likely to receive significant benefits.  Children who are excluded from coverage because of preexisting conditions often have serious medical conditions.  Individuals who exceed lifetime or annual limits have very serious medical problems that require expensive treatment, and will usually face severe financial difficulties or lack of access to treatment once limits are exceeded.  Individuals who have had coverage rescinded because of inadvertent mistakes have also often have had costly medical problems.   There is considerable evidence of significant benefits from allowing individuals to select providers whom they trust and who specialize in their medical conditions.  The agencies also predict that the rules will have an overall result of reducing mortality and morbidity and financial hardship, improving workplace productivity, and reducing cost-shifting due to uncompensated care. 

Low Compliance Costs. Fourth, the cost of the rules appears to be quite low.  The regulations are expected to have little impact on plan costs or premiums, because:

  • relatively few individuals are directly affected by most of the regulations;
  • some of the rules do not apply to grandfathered plans;
  • plans have the option prior to 2014 of avoiding the impact of some of the requirements by simply eliminating coverage for services or conditions (although they might lose grandfathered status by doing so);
  • some of the practices are already restricted in many states; and
  • some of the regulations really do not impose additional costs (such as allowing individuals to choose their primary care provider or allowing children to be treated by a pediatrician),

The provision most likely to have a significant effect—increasing annual limits for policies that currently have very low limits—may raise premiums several percentage points (although these plans have the option of seeking a waiver).  However, most of the reforms are expected only to increase premiums by tenths or hundreds of a percent.  The most significant cost to plans of some of the reforms may be the expense of giving notices to enrollees as required by the law.

Underwriting’s continued impact. Health status underwriting remains legal in the individual market until 2014.  Individuals who may have benefited by some of these regulations, such as the ban on pre-existing condition exclusions for children or the removal of lifetime limits and restriction on annual limits, may be faced with high premiums when they seek to purchase or renew individual coverage. In states that require some form of community rating, this barrier will be limited. 

The agencies also note that most insurers limit premium increases for persons in poor health to twice the standard rate; thus coverage may still be affordable to many families with children with expensive conditions.  But the inescapable fact is that many individuals and families will face continuing barriers to the insurance coverage they need until the Affordable Care Act is fully implemented in 2014.