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Aetna/SRC gives guidance on it’s Expense Incurred Copay Plans

PPACA’s “Grandfathering” and Annual Limit Provisions and SRC Group Limited Benefit Medical Plans

This document is a high-level summary and should not be relied upon for legal advice. The June 14, 2010 and June 22, 2010 interim regulations are subject to change by HHS when final regulations are issued.

A: Overview
As you may know, Aetna and SRC have been leading an effort to ask the Department of Health & Human Services (HHS) if limited benefit plans can be exempted from the annual benefit limit prohibition set forth in the Patient Protection and Affordable Care Act (PPACA) signed into law on March 23, 2010.

Regulations released on June 22, 2010 specifically acknowledge the concerns we raised, and authorize HHS to create a program under which we may obtain a waiver if we can demonstrate that the limits are necessary in order to prevent a significant loss of coverage or increase in premiums. We will know more about what is required once that waiver program is established. See Section D. for further discussion.

Since it is likely that the waivers will apply only to grandfathered plans, it is important to understand the criteria for retaining grandfathered plan status.

B: Plan Changes Which Jeopardize Grandfathered Status
Clarifying regulations regarding grandfathering were provided by HHS on June 14, 2010. Per these regulations, a plan sponsor’s plan will be considered grandfathered if the plan sponsor has not made any of the following changes after March 23, 2010. These rules apply separately to each benefit package offered by an employer:

1. Changed insurance companies or insurance policies;*
2. Cut benefits resulting in loss of coverage for a particular condition;
3. Reduced an employer’s contribution by more than 5%;
4. Increased a member’s coinsurance percentage;
5. Increased a member’s fixed-amount copayment or cost-sharing above a specified level based on medical inflation;
6. Increased deductibles above a specified level based on medical inflation;
7. Reclassified employees so that the reclassified employees are eligible for a different plan (even if it’s a grandfathered plan), without a bona fide employment reason;
8. Added an overall annual limit, or reducing an existing overall annual limit; or
9. Failed to maintain at least one covered individual (not necessarily the same individual).

If a plan sponsor has made any of these invalidating changes, the regulations allow a plan to undo those changes effective as of the next plan year on or after September 23, 2010. SRC will work with plan sponsors to identify and address any issues concerning the grandfathered status of their plans.

C: Plan Changes Which Will Not Jeopardize Grandfathered Status
The regulations also provide guidance on changes which are acceptable and will not affect a plan’s grandfathered status. If a plan sponsor has made any of the changes listed below to the plan after March 23, 2010, there will be no adverse impact to the plan’s grandfathered status:

1. Changed third-party administrators (without changing insurers);
2. Changed premiums;
3. Made changes to comply with state or federal law, including PPACA;
4. Agreed to binding renewals before March 23, 2010, effective on or after March 23, 2010;
5. Allowed new employees and their dependents to enroll; or
6. Allowed new dependents of current subscribers to enroll.

D: Annual Benefit Limit Regulations
Under PPACA, HHS is authorized to allow some annual limits on the dollar value of benefits for plan years that begin on or after September 23, 2010—even for grandfathered plans.* Regulations issued on June 22, 2010 describe how annual limits will be phased out over three years. For plan years beginning September 23

• 2010, annual limits on essential health benefits may not be less than $750,000.
• 2011, annual limits on essential health benefits may not be less than $1.25 million.
• 2012, annual limits on essential health benefits may not be less than $2 million.

Annual limits will be eliminated altogether in January 2014.

HHS may create a program under which plans may obtain waivers from the annual benefit limit provisions if they show that complying with them would result in a significance loss of coverage or increase in premiums. We do not yet know what standards will be required or whether waivers will be available to plans that are not grandfathered. We will offer input to HHS about the criteria for approving waivers so that the negative impact on limited benefit plans will be reduced.

E: Summary
If HHS grants waivers from the annual benefit limit provisions for grandfathered limited benefit medical plans, and a plan sponsor’s group plan meets the conditions set forth in B above to be considered grandfathered, then our interpretation is that plan sponsors will be allowed to continue their plans at least until 2014.

Further, if a plan meets the grandfathered criteria listed above, plan sponsors will not be subject to other provisions of PPACA, such as:

• Coverage of preventive services with no cost sharing;
• Comprehensive coverage of “essential health benefits” (TBD); and
• Premium rates varying only by individual vs. family coverage, rating area, actuarial value, age, and tobacco use.

If you have questions, please contact your SRC Account Manager.

* Other key provisions of PPACA that apply to grandfathered group plans are:

• No lifetime limits;
• Extension of coverage to dependents until age 26;
• No pre-existing condition limitations for children under 19;
• Minimum Medical Loss Ratio requirements (beginning 2011; details TBD); and
• Required disclosure in member materials about the plan’s grandfathered status.

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