This Client Alert provides a summary of some of the new health care initiatives reflected in the Acts, including requirements applicable to Health Insurers and States, a national long-term care program and grant programs.  Additional Client Alerts cover other aspects of the Acts and related regulatory guidance.  Since the Acts have broad impact to the health care field and are extremely complex, it should be emphasized that these Client Alerts do not attempt to be exhaustive in the topics covered or the details presented. 

New Requirements Applicable to Health Insurers and Providers

The following provisions apply to health insurers issuing group health plans and to health care providers.

Provisions Applicable to Health Insurance Issuers

1.      Reporting Requirements

Effective for plan years beginning on or after September 23, 2010 and expiring December 31, 2013, health insurance issuers for group health plans will be required to annually report to the Secretary of Health and Human Services (the “Secretary”) the percentage of total premium revenue expended on reimbursement of covered expenses, activities that improve health care quality and other costs.  In addition, health insurers will be required to provide an annual rebate to participants, on a pro rata basis, of the amount by which the annual premium revenue expended (as described above) exceeds 20% (or such lower percentage as a State may determine). 

2.      Prohibition Against Discriminatory Premium Rates

Effective for plan years beginning on or after January 1, 2014, the premium rate charged by a health insurance issuer for health insurance coverage offered in the individual or small group market (generally, not more than 100 employees, except that for plan years beginning before January 1, 2016, a State may elect to define a small employer as having not more than 50 employees) may only vary with respect to the particular plan or coverage involved by reason of the following factors:  (i) individual or family coverage; (ii) age (except that such rate may not vary by more than three to one for adults) based upon permissible age bands defined by the Secretary; (iii) such rating areas as established by each State; and (iv) tobacco use (except that such rate may not vary by more than one and one-half to one).  Rate variations in family coverage based upon age or tobacco use are to be applied based on the portion of the premium attributable to each family member covered under the plan or policy.

Similar rules apply in the case where a State permits health insurance issuers to offer coverage in the large group market through a State Exchange.

3.      Guaranteed Availability and Renewability of Coverage 

Effective for plan years beginning on or after January 1, 2014, each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage (subject to established open or special enrollment periods) and must renew or continue in force such coverage at the option of the plan sponsor or the individual.

4.      Requirement to Offer Essential Health Benefits Coverage 

Effective for plan years beginning on or after January 1, 2014, the health insurance coverage offered by a health insurance issuer in the individual or small group market must include the “essential health benefits” package, as defined by the Secretary, including: (i) ambulatory patient services; (ii) emergency services; (iii) hospitalization; (iv) maternity and newborn care; (v) mental health and substance use disorder services; (vi) prescription drugs; (vii) rehabilitative and habilitative services and devices; (viii) laboratory services; (ix) preventive and wellness services and chronic disease management; and (x) pediatric services, including oral and vision care.  Note that the Acts do not require a qualified health plan to provide coverage for abortion services.  By Executive Order signed by the President on March 24, 2010, it was confirmed that the Acts do not change the existing prohibition on use of Federal funds for elective abortions, although such procedures may be funded in cases of rape, incest or a woman’s life being endangered.

The cost-sharing element of a non-grandfathered essential health benefit program shall be limited to the dollar limits applicable to HSAs (for either self-only
or family coverage) for the first plan year and adjusted from those amounts thereafter.

Provisions Applicable to Health Care Providers

5.      Requirements of Hospitals

Effective for plan years beginning on or after September 23, 2010, hospitals will be required to establish, and make public, a list of the hospital’s standard charges for items and services provided by the hospital and its diagnosis-related groups.

New Requirements Involving State Involvement

1.      Premium Review and Regulation

Effective March 23, 2010, insurance companies providing medical insurance will become subject to new premium oversight.  The Acts direct the Secretary to work with the States to establish a process for annual review of “unreasonable increases in premiums” by insurance companies.  An insurance issuer contemplating such an “unreasonable increase” must first advise the Secretary and the appropriate State insurance regulator of the pending increase, provide a justification for the increase and post the justification on its web site; this information would be subject to public disclosure.  Premium increase data comparing premium increases in a State but outside the insurance Exchange to increases within the Exchange are to be taken into account in deciding whether to offer qualified health plans in the large group market through an insurance Exchange in that State.  Grants are available to States for implementation; see “New Grant Programs” below.

2.      Creation of Temporary High Risk Pools 

Effective June 21, 2010, the Secretary is instructed to establish one or more temporary high-risk health insurance pools to provide coverage for eligible individuals until January 1, 2014.  The Secretary may establish a pool itself or may contract with States or eligible non-profits to establish pools.  A pool must provide health care coverage without pre-existing condition exclusions via health insurance which provides mandated coverage levels, limits on out-of-pocket maximums and regulated premiums.  Coverage will be limited to individuals who have pre-existing conditions, are U.S. citizens, nationals or lawful residents and who have not had “creditable coverage” for at least six months.  Funds are
appropriated for the five-year period from 2010 – 2014 to provide coverage under high risk pools in excess of high-risk premiums received.

3.      Consumer Access to Insurance Information 

Effective July 1, 2010, the Secretary, in consultation with the States, must establish “a mechanism, including an Internet web site” to provide information about “affordable health insurance coverage options” available in a particular State, including government programs (e.g., Medicare and Medicaid) and high-risk pools.  The Secretary is to develop a standardized disclosure format which will reveal such things as premium rates and the percentage of total premium revenues expended on non-clinical costs.  Hopefully, the web site will be helpful to employees who lose coverage, for example at the end of the COBRA period, to find new coverage.

4.      Health Benefit Exchange and Free Choice Vouchers 

Effective not later than January 1, 2014, the States are required to establish American Health Benefit Exchanges (“Exchanges”) to facilitate the availability of qualified health plans to qualified individuals and qualified employers and to establish a Small Business Health Options Program (“SHOP Exchange”), designed to assist qualified employers in the State who are small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market.  Although the Acts appropriate funds for the Secretary to award grants related to the start-up of Exchanges, the Exchanges must be self-sustaining beginning January 1, 2015.  A “qualified individual” is an individual seeking to enroll in a qualified health plan in the individual market through an Exchange.  A “qualified employer” is a small employer that elects to make all full-time employees (i.e., employees averaging 30 hours per week) eligible for one or more qualified health plans offered in the small group market through an Exchange (except that beginning in 2017, States may allow such coverage to be extended to the large group market).

A qualified health plan must provide an essential health benefits package (although States may require additional benefits) and be certified by the

Exchange through which it is offered.  See “New Requirements Applicable to Health Insurers and Providers” above for additional information relating to essential health benefits.  Such certification would, among other criteria, ensure sufficient choice of providers and provide information to enrollees on availability of in-network and out-of-network providers.  Such plan must be offered by a health insurance issuer that agrees to offer at least one plan at a silver level (coverage at a 70% level) and one plan at the gold level (coverage at an 80% level) in each Exchange and agrees to charge the same premium rate for the plan whether offered through an Exchange or directly from the insurer.  For plan years beginning in 2014, cost-sharing limits (i.e., the amounts a covered individual must pay toward health costs relating to such coverage) for self-only or family coverage may not exceed the limits on the sum of the annual deductible and out-of-pocket expenses then in effect for self-only and family coverage under the health savings account rules for a high deductible health plan.  The annual limits on deductibles for employer-sponsored plans in the small group market are set at $2,000 for a plan covering a single individual and $4,000 in the case of any other plan, which amounts are indexed for plan years beginning after 2014.

Exchanges must provide initial and annual open enrollment periods and special enrollment periods.  Also, Exchanges are required to obtain standardized comparative information as to the plans offered and assign ratings to facilitate the selection process.

Nothing in the Acts restricts the choice of a qualified individual to enroll or not to enroll in a qualified health plan or to participate in an Exchange.  Rather, a qualified individual may enroll in any qualified health plan available to such individual.  A qualified employer may provide support for coverage of employees under a qualified health plan by selecting any level of coverage (bronze, silver, gold or platinum) to be made available to employees through an Exchange.  Further, nothing in the Acts requires an individual to terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on March 23, 2010.

However, the Acts do require that for each month after 2013, an applicable individual must ensure that the individual and any dependent of such person be covered under minimum essential coverage or be subject to a penalty tax.  See the Ulmer & Berne Client Alert, entitled 2010 Health Care Reform Legislation – Tax Highlights (“U&B Tax Alert”).

Employers are not required to offer coverage, but “Applicable Employers” (having 50 or more full-time employees) are subject to certain penalties related to coverage they offer or fail to offer.  On the other hand, employers with 25 or fewer full-time employees may be eligible for certain tax credits if they pay at least 50% of the premium cost.  See the U&B Tax Alert for additional information on the tax credit.

Effective after December 31, 2013, employers that offer minimum essential coverage and make a contribution must offer “free choice vouchers” in a comparable amount to qualified employees for the purchase of a qualified health plan through an Exchange.  Employees qualify if their household income does not exceed 400% of the Federal poverty level and the required contribution under the employer’s plan would be between 8% and 9.8% of their income (as such percentages are indexed for calendar years after 2014).  Such vouchers are excludable from employees’ incomes and deductible by the employer.  Voucher recipients are not eligible for tax credits through an Exchange.  See the U&B Tax Alert for more information concerning premium assistance for low and middle income taxpayers.

New Long-Term Care Program

Effective January 1, 2011, a national voluntary insurance program for purchasing community living assistance services and supports (CLASS) is established.  Employees generally will be automatically enrolled in the CLASS Program and pay, via payroll deduction, a monthly premium into the CLASS Independence Fund for long-term care that will be provided under the CLASS Act.  The premium will be established by the Department of Health and Human Services; lower premiums will apply to certain low income employees and full-time student employees.  In addition, employees may elect to opt out of the CLASS Program.  This option to elect in and out raises the concern of adverse selection, (i.e., that the only employees who will participate are those anticipating use of its benefits).

After having contributed to the CLASS Program for five years and having met certain other eligibility requirements, employees who become unable to perform certain “activities of daily living” without substantial assistance from another individual, will become eligible to receive a daily cash benefit of not less than $50, based on their degree of functionality, to purchase non-medical assistance services and supports (e.g., payment toward a long-term care facility, home modifications, home health care aides). 

New Grant Programs 

1.      Consumer Information and Assistance Grants

Effective March 23, 2010, grants will be available to States to be used by the States (or insurance Exchanges within the States) to support offices of health insurance consumer assistance or health insurance ombudsmen.  To be eligible for a grant, a State must establish an independent agency or ombudsman charged with providing information and assistance to consumers including assistance with group health plan enrollment and the filing of claims and appeals.  The entity also would be charged with collection of data and reporting of health plan-related problems to the Secretary, who will use the information to identify areas for enforcement and furnish that information to the Secretaries of Labor and Treasury and to State insurance regulators.  Funds are appropriated for the first fiscal year of the program and additional funds may be appropriated for future years.

2.      Premium Review and Regulation Grants 

Effective March 23, 2010, grants will be available to States to implement the “Premium Review and Regulation” requirements described above.  Funds are appropriated for grants for fiscal years 2010 – 2014.  To be eligible for a grant, a State must provide the Secretary with data regarding premium increases in the State and recommend whether certain issuers should be barred from participation in the insurance Exchanges due to “a pattern or practice” of “excessive or unjustified premium increases.”

3.      Grants for Small Employers with New Wellness Programs

Effective January 1, 2011, and for five years thereafter, grants will be awarded to any employer with less than 100 employees working 25 hours or more each week for adopting a new comprehensive workplace wellness program, provided the funds appropriated for such grants have not been depleted.  A “comprehensive workplace wellness program” means a program that is available to all employees that includes the following components:  (i) health awareness initiatives (e.g., health screenings); (ii) efforts to maximize employee participation; (iii) initiatives to change unhealthy behaviors (e.g., seminars, counseling); and (iv) supportive environment efforts.