Health Law Implementation Begins

Over the last month, the implementation of the new health law has begun. NAIFA remains active in the regulatory process and has developed several resources to assist members in understanding the new law as enacted.  Numerous regulations will provide guidance on how the new law will be implemented. Following is an update on the progress made by the Departments of Health and Human Services, Labor, and Treasury.

Adult Child Coverage:
On May 10, the Departments of Health and Human Services (HHS), Labor and Treasury issued new regulations to extend coverage to young adults by allowing them to stay on their parents' health care plan until age 26. While the new provision takes effect for policies and plan years beginning on or after September 23, 2010, more than 65 insurance companies have voluntarily agreed to provide coverage to young adults before the deadline. On April 27, the Internal Revenue Service released new guidance specifically stating that children can be covered tax-free on their parents' health insurance policies.

Pre-existing Conditions:
Effective for policies or plan years beginning on or after September 23, the Affordable Care Act will prohibit health insurers from excluding coverage of children because of pre-existing conditions. Regulations expected soon.

Grandfathered Plans:
The law provides that grandfathered health plans do not have to comply with a number of the new requirements including:

• Highly Compensated Nondiscrimination Rules - Grandfathered plans that are insured plans will not be subject to the nondiscrimination rules of Internal Revenue Code Section 105(h). The Act expands the application of these rules (effective for plan years beginning after March 23, 2010) to include all insured plans that are not grandfathered.  
• Essential Benefits & Cost Sharing - Grandfathered plans do not have to provide “essential benefits” without any cost sharing for those benefits.
• Appeals & External Reviews - Grandfathered plans are exempt from the requirement that group health plans must establish and maintain a claims and appeal process that includes external review.
• Preventive Care - Grandfathered plans do not have to provide the specified preventive care that other group health plans must provide.
• Emergency Services - Group health plans must provide emergency services without prior certification and allow out-of-network expenses under the same cost structure applicable to in-network emergency services. This provision does not apply to grandfathered plans.
• Provider Choice -  Grandfathered plans are not required to provide an individual with the choice of a primary care physician, do not need to permit an individual to choose a pediatrician as a primary care physician, and do not need to permit women direct access to an obstetrician or gynecologist.
• Clinical Trials - Grandfathered plans can continue to exclude coverage for a treatment solely because it is part of a clinical trial.
• Annual Reports - Grandfathered plans will not need to provide annual reports to the Secretary of Health and Human Services regarding health care quality and wellness programs.
• Cost-sharing Limits - Beginning in 2014, health plans are prohibited from imposing total cost sharing for a year that exceeds the out-of-pocket limits that are applicable to high-deductible health plans. Also in 2014, the Act will limit the maximum deductible to $2,000 for individual coverage and $4,000 for family coverage. Grandfathered plans will remain exempt from both the cost-sharing limit and the deductible requirement.

Temporary High Risk Pool:
A new transitional high-risk pool program will operate until health insurance exchanges are implemented in 2014. States may choose whether and how they participate in the program, which is funded by the federal government. As of May 3, 30 states have indicated that they want to operate their own transitional high-risk pools, while 18 have said they would prefer a federal fallback high-risk pool for eligible citizens in their state. The program begins on July 1, 2010.

Early Retiree Reinsurance Program:
On May 4, the Department of Health and Human Services issued a regulation implementing the $5 billion early retiree reinsurance program, which will be launched on June 1, 2010. Participating employment-based plans will receive reimbursement for a portion of the costs of certain medical claims associated with providing health benefits to early retirees age 55 through 64, as well as for retirees' spouses and dependents. The amount of this payment to the plan sponsor is 80 percent of the costs attributable to that claim, provided the amount of the claim is between $15,000 and $90,000. Both self-funded and insured plans may apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, and other employers.

Small Business:
The Affordable Care Act provides tax credits to small employers who purchase health insurance for employees. Small businesses can take advantage of the tax credit immediately, and, last month, the Internal Revenue Service released guidance and began delivering postcards to the estimated four million small businesses and tax-exempt organizations to make them aware of the tax credit.

Medical Loss Ratio:
A new policy in the Affordable Care Act—the "medical loss ratio"—requires large-group plans to spend 85 percent of premium dollars (80 percent in the small group market) on clinical services and activities that improve health care quality. Insurers offering coverage in the small group and individual markets must allocate at least 80 percent of premiums to such services and activities while those in the large group market must spend at least 85 percent of premiums on benefits. It also calls for the National Association of Insurance Commissioners (NAIC) to establish uniform definitions and methods for calculating medical loss ratios.  While the law requires NAIC to submit such definitions and methods for the Secretary's review by December 31, 2010, at our request, NAIC has agreed to accelerate delivery to June 1, 2010.

Medicare Part D Doughnut Hole:
As required by the new law, the U.S. Department of Health and Human Services plans to issue $250 rebate checks to Medicare beneficiaries who have reached the "doughnut hole" in prescription drug coverage. The first checks are expected be mailed on June 15, and additional checks to be mailed roughly every six weeks thereafter until the end of the year.

NAIFA Staff Contact: Diane Boyle, Vice President – Federal Government Relations, at (703) 770-8252.