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Implementing Health Reform: New Affordable Care Act Guidance; Church Plans And Contraceptive Coverage



January 10th, 2014
by Timothy Jost

The pace of Affordable Care Act regulatory activity has slowed dramatically with the new year, particularly in comparison with the frenetic pace late in 2013 leading up to the January 1, 2014 implementation date for major ACA reforms.  On January 9, 2014, however, the Departments of Labor, Treasury, and Health and Human Services issued a series of Frequently Asked Questions (FAQs) regarding implementation of the ACA, as well as the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).  This post discusses these FAQs and summarizes other recent regulatory and legal developments.

Coverage of breast cancer risk-reducing drugs.  The first FAQ provides that, pursuant to a September, 2013 recommendation from the United States Preventive Services Task Force, non-grandfathered group health plans and health insurers must cover without cost sharing breast cancer risk-reducing medications, such as tamoxifen or raloxifene, for women who are prescribed such medications by their clinicians because they are at increased risk for breast cancer and are at low-risk for adverse medication effects.

Cost-sharing guidance.  FAQs two through five address issues that have arisen with respect to ACA limits on cost sharing for essential health benefits (EHB).  An earlier guidance provided that group health plans and insurers that use more than one service provider to administer EHBs would be permitted for 2014 to apply out-of-pocket maximums up to the statutory limit ($6350 for self-only and $12,700 for family coverage for 2014) for each form of coverage they offered (for example pediatric dental or prescription drug coverage), as long as the out-of-pocket limit for major medical coverage (including mental health coverage) or for any other single form of coverage did not individually exceed the statutory out-of-pocket limit.  FAQ two clarifies that this exception only applies for 2014, and plans and insurers will be expected to be in full compliance with the out-of-pocket limits requirement by 2014.

The out-of-pocket limit only applies to essential health benefits, however, and higher out-of-pocket limits can be imposed on other health benefits.  The EHB requirements of the ACA only apply explicitly to non-grandfathered individual and small group plans, and not to large group or self-insured plans.  The FAQ clarifies that large group and self-insured plans can use any of the benchmark plans recognized under the ACA EHB regulations to define EHB for purposes of the out-of-pocket limit requirement.  Plans and issuers that offer multiple categories of benefits will also continue to be able to use separate out-of-pocket limits for each category of benefits after 2014, as long as the combined amount applicable to all plans does not exceed the statutory annual limit and as long as mental health and substance abuse benefits are not subjected to a separate lower limit compared to medical/surgical benefits.

The FAQs clarify again that plans and insurers are not required to count out-of-pocket spending for out-of-network providers towards the out-of-pocket maximum, although they may do so.  However, HHS strongly urges qualified health plans to allow in-network coverage for providers listed in the QHP’s provider directory for early months of coverage if the provider directory was not current and an individual signs up for a QHP only to find that his or her provider is not in-network.  Plans are also not required to count toward the out-of-pocket maximum expenditures for non-covered services, although they may do so.

Expatriate health plans.  A sixth and seventh FAQ expand transitional relief granted to insured expatriate health plans under an earlier guidance.  Until December 31, 2016, insured group health plans that cover individuals (and dependents) who are expected to reside outside of their home country or the United States for at least six months in a 12-month period are excused from complying with the requirements of subtitles A, C, and D of the Title I of the ACA, as long as they comply with the Health Insurance Portability and Accountability Act, ERISA, mental health parity requirements, and other legal requirements in place before the ACA was adopted.  The FAQ extends this transitional relief by one year and to additional ACA requirements found in subtitle D not covered by the earlier FAQ, which only covered subtitles A and C.

Wellness programs.  FAQs eight, nine, and ten deal with wellness programs. The wellness final regulations allow group health plans to charge program participants a tobacco premium surcharge, but they require the group plans to allow participants an opportunity to avoid the surcharge by enrolling in a tobacco cessation program.  The eighth FAQ clarifies that the opportunity to enroll in a cessation program need only be offered at the beginning of the plan year and that an individual who enrolls in a cessation program later in the year need not be excused from the premium surcharge, although a plan or issuer can allow a premium reduction (including a pro-rated reduction) for part-year participation.  FAQ nine clarifies that when a participant’s physician recommends a weight loss or activity-only program as an alternative to a medically inappropriate outcome-based program, the plan can have a say in which weight-loss or activity-only program the enrollee pursues.  Finally FAQ ten specifies that plans and issuers can modify the sample notice of availability of reasonable alternatives found in the final rule.

Indemnity insurance.  FAQ eleven deals with fixed indemnity insurance.  Fixed indemnity policies pay fixed-dollar amounts as set in the policy when coverage requirements are met.  Fixed indemnity policies are excepted benefits under the ACA, which means that they are not required to comply with ACA requirements such as the ban on health status underwriting or the prohibition on annual or lifetime dollar limits.  Fixed indemnity policies do not satisfy the individual responsibility requirement; that is, an individual who only has coverage under a fixed indemnity policy must still pay the penalty for not having minimum essential coverage.

A previous FAQ provided that fixed indemnity insurance, which is supposed to replace lost income rather than cover the cost of medical services, must be paid on a per-period rather than a per-service basis.  The FAQ notes that this limit does not apply to fixed indemnity coverage that supplements group medical coverage if certain requirements are met.  The FAQ also states, however, that HHS intends to propose amendments to its current rules to allow the sale of individual fixed indemnity policies that are not sold on a per-period basis if:
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  • the coverage supplements health coverage that is independently minimum essential coverage (that is, that covers the essential health benefits and complies with other individual market requirements);
  • there is no coordination between the provision of benefits under the fixed indemnity coverage and an exclusion under other health coverage;
  • benefits are paid in a fixed amount regardless of the expense incurred or benefits under other health coverage; and
  • a notice is displayed prominently in the plan materials informing policy holders that the coverage does not satisfy the individual responsibility requirements of the ACA.

Until the new rule is finalized, HHS will treat limited benefit plans that comply with these requirements as excepted benefits in states where it has enforcement authority.  HHS encourages states that enforce the ACA themselves to do the same.

HHS notes that there has been a significant increase in the sale of fixed dollar policies.  Because these plans do not need to comply with the ACA and can be risk-underwritten, there is a real possibility that indemnity policies could continue to be sold for much less than comprehensive, ACA-compliant policies.  It is thus very important that HHS and the states not only require insurers to give notice in their plan materials that these policies do not comply with ACA requirements, are not minimum essential coverage, and can only be sold as a supplement to — and not in place of — ACA conforming coverage, not only in their plan materials but also in their marketing materials.

The ACA and mental health coverage requirements.  A final FAQ discusses the relationship between the ACA and the MHPAEA.  Non-grandfathered individual and small-group policies (other than 2013 policies renewed in 2014 under the administrative fix) must provide mental health coverage under the EHB requirement for plan years beginning on January 1, 2014.  Non-grandfathered individual coverage must comply with the recently issued MHPAEA final regulations for plan years beginning after July 1, 2014.  Grandfathered individual policies are not subject to the EHB requirement, but if they do cover mental health they must comply with the final regulations for plan years beginning after July 1, 2014.  Grandfathered small-group plans are not subject to the mental health parity rules.

The Supreme Court Looks At Church Plans And Contraceptive Coverage

The Supreme Court is currently considering a request for an injunction pending appellate review and request for certiorari in a case challenging the accommodation that has been offered by the federal government to religious organizations allowing them not to cover contraceptives that would otherwise have to be covered under the ACA’s preventive services coverage requirement.  The Tenth Circuit denied temporary injunctive relief below.  Relief was denied one of the plaintiffs, the Christian Brothers Employee Trust, because it was a church plan and, thus its third party administrator was not subject to ERISA.

Regulation of church plans under the Affordable Care Act is a topic that has received little attention.  Church plans are employee benefit plans that are established by a church or association of churches to cover their employees.  Church plans are not limited to covering church employees, however, but can also cover employees of tax exempt organizations “controlled by or associated with” a church or association of churches, such as universities or hospitals.

Unlike most other employee benefit plans, church plans are not governed by the Employee Retirement Income Security Act of 1974 (ERISA).  Rather, church plans are subject to regulation by the Internal Revenue Service.  The IRS has authority to impose on church plans penalties of up to $100 per member per day for violations of statutory requirements that apply under the Internal Revenue Code to group health plans (subject to certain limitations).     The ACA amends the Internal Revenue Code to require group health plans subject to the Internal Revenue Code, including presumably church plans, to comply with ACA requirements that apply to group health plans.  The words “church plan” do not appear in the ACA, however, and I can find virtually no discussion of the application of the ACA to self-insured church plans in the voluminous regulations and guidance implementing the ACA.  (Insurers that provide insured church plans are subject to the ACA independently).

The Department of the Treasury, along with the Departments of Labor and Health and Human Services, has adopted regulations exempting religious organizations that object to contraceptives for religious reasons from covering contraceptives through their employee benefit plans.  These regulations presumably exempt religious organizations that participate in church plans, and thus the church plan itself to the extent that it covers exempt organizations, although the regulations do not specifically address self-insured church plans.  Under these regulations, third party administrators of self-insured plans must provide coverage for contraceptive services.  The regulation, however, only covers third party administrators that are governed by ERISA.  Since church plans are not subject to ERISA, neither are their third party administrators.  The federal government has taken the position, therefore (apparently late in the litigation), that church plans and their third party administrators do not have to cover contraceptives.  Employees insured through church plans, that is, do not have a right to access to contraceptives through their employer-sponsored insurance.

Religious organizations must still self-certify that they object to covering contraceptive coverage.  The Supreme Court is currently considering (along with a number of district and appellate courts in several other cases) whether this certification requirement is in itself a violation of the rights of these organizations under the Religious Freedom Restoration Act or the Constitution.  However, the question of the extent to which church plans, which allegedly cover millions of Americans, must comply with the ACA generally is one that could bear further attention.

Data Security And The Exchanges

On January 10, 2014, the House of Representatives by a vote of 291-122 vote passed HR 3811, a bill that would require the state or federal exchanges to notify individuals whose personally identifiable data is stolen or unlawfully accessed through an exchange within two business days of the discovery of the breach.  The legislation would only address security breaches on the part of exchanges, and not, for example, security breaches by private businesses, such as the recent breach of Target’s data systems, which reportedly resulted in personal information being stolen affecting 70 to 110 million shoppers. The legislation appears to be part of a new strategy of opponents of the ACA to pass discrete bills addressing particular politically sensitive issues, rather than simply insisting on total ACA repeal.  It follows on a letter sent by House Oversight Committee Chair Darrell Issa accusing Secretary Sebelius of offering “false and misleading” testimony on exchange security issues, which in turn drew a sharp response from Committee minority leader Elijah Cummings accusing Issa of a “reckless pattern of leaking partial and misleading information.” and offering a rebuttal of Issa’s security claims.

The exchanges do not collect any personally identifiable health information on enrollees, as health information is not relevant to any of the issues exchanges must decide.   Moreover, the federal data hub, which retrieves information from the IRS, Homeland Security, the Social Security Administration, and other agencies for the exchanges, does not itself retain any personal information.  The exchanges do collect personal information, however, including personal financial information when individuals apply for financial assistance.  Data security is a legitimate concern.

There have been to date no successful breaches of the security of healthcare.gov.  Early on, there were several instances where information regarding one applicant was erroneously provided to another applicant, but the software glitch that caused that problem has been fixed.  The exchanges  and the data hub are already governed by a number of federal laws and Office of Management Directives that address data security, as well as by HHS’s own procedures governing notification of security breaches.

The White House issued a statement in response to the legislation recognizing the importance of data security, but suggesting that it be dealt with comprehensively rather than selectively, as well as criticizing the specific legislation for the administrative burdens it would create. CMS also issued a fact sheet reaffirming the security of healthcare.gov.  A real concern raised by CMS’s own breach reporting requirements is the law enforcement efforts could be compromised if information about security breaches is prematurely disclosed because of rigid deadlines.  Data security is obviously a serious concern for the exchanges, but one that must be dealt with responsibly and not for political purposes.

Origination Clause ACA Challenge Dismissed

January 10, 2014 also saw another court decision dismissing another challenge the ACA.  This lawsuit, brought by Dr. Steven Hotze and Braidwood Management, claimed that the ACA violated  the Constitution’s requirements that revenue legislation originate in the House of Representatives and that property not be taken without just compensation. The plaintiff claimed that because of these constitutional defects, the ACA’s individual and employer mandates were unenforceable.  The federal government moved to dismiss the Hotze case, asserting that the plaintiffs had not suffered an injury giving them standing to challenge the law, that the employer’s claim contravened the tax anti-injunction act, and that the ACA does not violate either the origination or the takings clause.

Judge Nancy Atlas of the District Court for the Southern District of Texas held that Braidwood Management was directly affected by the employer mandate and thus had standing to sue.  She also rejected the government’s tax anti-injunction act defense.  Judge Atlas proceeded to hold, however, that the ACA does not violate the origination clause both because the legislation did originate in the House (even though the House bill was stripped of all of its content by the Senate and replaced with the ACA) and because the primary purpose of the ACA is not to raise revenue but rather to expand health care coverage.

A similar origination clause challenge was rejected last year by the District of Columbia District Court.     Judge Atlas also rejected the plaintiffs’ Takings Clause challenge, ruling that the mandates imposed taxes and a tax cannot violate the Takings Clause (the notion that the government would have to compensate persons from whom it collects taxes is nonsensical).  Finally, she ruled that the plaintiffs could not conceivably amend their complaint to state a cause of action and thus dismissed their case without leave to amend.

Special Enrollment Periods And Hardship Exemptions For Those With Cancelled Policies

The Centers for Medicare and Medicaid Services has also released a series of frequently asked questions (FAQs) on the REGTAP.info website.  (The FAQs are mistakenly listed for January 3, 2013 rather than 2014, so search for them under that date until this gets fixed).  Most of these FAQs address the special enrollment period currently being used to process applications for enrollment that were received by the exchanges before the December 27, 2013 deadline but not processed by that time because of exchange error.  HHS had earlier said that there were 7000 cases in this status as of December 27.

If the exchange determines that an application has qualified for a special enrollment period due to exchange error, it will communicate this to the appropriate qualified health plan insurer.  The 834 enrollment form sent to the insurer will have a February 1, 2014 enrollment date, but the insurer will be instructed to enroll the enrollee as of January 1.  A systems limitation will not allow the exchange itself to backdate the enrollment.  The enrollee must pay the January premium no later than the due date for the February 1 premium to maintain coverage.  The insurer must bill the enrollee for the January premium.

The federal exchange currently does not have the capacity to add dependents to an enrollee’s coverage.  Until that capacity is ready, insurers must add dependents themselves at the enrollee’s request.  Insurers are not expected to determine if children are eligible for Medicaid or CHIP.

Other FAQs address more technical issues.

On January 3, 2014, CMS also issued two “Questions and Answers on Options Available for Consumers with Cancelled Policies.”   This Q&A provides that persons who have received a notice that their individual health insurance policy has been cancelled and who “believe that individual market health plan options” available in their area are “unaffordable” are eligible for a hardship exemption from the individual responsibility requirement.  Affected individuals must file a hardship exemption form with the exchange and submit documentation supporting their cancellation claim to an insurer offering catastrophic coverage.

The exemption is curious as it seems to require a belief that coverage is unaffordable, but “affordability” is clearly defined in the statute and regulations  (as premiums costing more than 8 percent of modified adjusted gross income) and the affordability exemption is independent of the hardship exemption.  The earlier guidance on the cancelled-policy hardship made eligibility for the hardship exemption turn on a policy being cancelled and alternative policies being more expensive.

On January 6, 2014, the IRS released a final rule on the ACA requirement that Blue Cross and Blue Shield plans and other qualifying companies must achieve an 85 percent medical loss ratio to qualify for certain tax privileges.  This rule will not be discussed here.

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1 Response to “Implementing Health Reform: New Affordable Care Act Guidance; Church Plans And Contraceptive Coverage”

  1. George Kafantaris Says:

    “The goal of the Affordable Care Act is to expand coverage to tens of millions of Americans who lack insurance, to lower health care costs, to increase access to preventive services and to eliminate some of the pre-existing condition requirements that insurance companies have used to deny coverage.”
    What’s wrong with that?

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