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April 6‚ 2011
U.S. Department of Labor Issues Sixth Set of
Frequently Asked Questions under the Patient Protection and Affordable Care
Act
By Alden J. Bianchi
On April 1, 2011, the U.S. Department of Labor issued a sixth
set of Frequently
Asked Questions (FAQs)1
implementing certain features of the Patient Protection and Affordable
Care Act as amended by the Health Care and Education Reconciliation Act
(together, the Act). While nominally issued by the Department of Labor, the
FAQs are a collaborative effort among the Departments of Health and Human
Services, Labor, and the Treasury (collectively, the Agencies). This
advisory summarizes the FAQs, which speak to issues arising under the Act's
grandfather rules and preventative care requirements.
Grandfather Rules
Plans in existence on March 23, 2010 benefit from a series of
"grandfather" provisions, under which a plan may continue to provide the
coverage in effect on March 23, 2010 without regard to certain of the Act's
requirements. Grandfather status is not affected by renewals or the
addition of new participants after March 23, 2010. Similarly, family
members may be added provided that the plan otherwise offered family
coverage as of March 23, 2010. An interim final regulation issued in June
of 2010 interprets the Act's grandfather provisions narrowly. For a summary
of these rules, please see our Health Care Reform
Advisory of June 16, 2010.
Q&A 1: Transfers among plans—"bona fide employment-based reason"
Under the interim final rules interpreting the Act's
Grandfather provisions, transferring employees from one grandfathered plan
or benefit package (transferor plan) to another (transferee plan) will
generally cause the transferor plan to cease to be a grandfathered plan if,
treating the transferee plan as an amendment of the transferor plan, the
transferee plan would fail to satisfy the substantive rules—relating to the
elimination of benefits, changes in cost-sharing requirements, co-pays,
deductibles, etc.—governing the maintenance of grandfather status. But
there is an exception to this rule in instances where there is a "bona fide
employment-based reason" for the transfer (e.g., the closing of a plant or
division accompanied by the transfer of affected employees to another of
the employer's grandfathered group health plans). As a consequence, where
this exception is available, the transferor plan need not replicate the
material terms of the transferee plan in order to retain grandfathered
status.
In Q&A 1, the Agencies interpret the term "bona fide employment-based
reason" to include any of the following (not an exhaustive list):
·
When a benefit package is being eliminated because the issuer
is exiting the market;
·
When a benefit package is being eliminated because the issuer
no longer offers the product to the employer (for example, because the
employer no longer satisfies the issuer's minimum participation
requirement);
·
When low or declining participation by plan participants in
the benefit package makes it impractical for the plan sponsor to continue
to offer the benefit package;
·
When a benefit package is eliminated from a multiemployer
plan as agreed upon as part of the collective bargaining process; or
·
When a benefit package is eliminated for any reason and
multiple benefit packages covering a significant portion of other employees
remain available to the employees being transferred.
Q&A 2: Rx benefit cost-sharing
A plan that increases cost-sharing over the thresholds
prescribed by the interim final grandfather rule will cease to be a grandfathered
plan. This Q&A addresses a narrow issue relating to pharmacy benefits
in a plan with one level of cost-sharing for brand-name prescription drugs with
generic alternatives and another level of cost-sharing for brand-name
prescription drugs without generic alternatives. A question arose
concerning the classification of a drug that previously had no generic
alternative once a generic alternative becomes available, thereby
increasing the cost-sharing amount for the brand-name drug. The Agencies
opined that the movement of the brand-name drug into a higher cost-sharing
tier does not cause the plan to relinquish grandfather status.
Q&As 4 and 5: Timing of loss of grandfather status
These Q&As posit a plan amendment that will result in the
loss of grandfather status. In one case the amendment is effective as of
the first day of the following plan year, in the other the amendment is
effective immediately, i.e., mid-year. In each case, the question is at
what point grandfather status is lost. Sensibly, in each case, grandfather
status is forfeited as of the effective date of the amendment.
Q&A 6: Cost of living increases
In this Q&A, a plan sponsor of a plan that covers both
active employees and retirees provides for contributions on behalf of
retirees of $300 per year multiplied by the individual's years of service with
the employer, capped at $10,000 per year. The Agencies refer to this as a
"formula" provision. According to the Agencies, the plan will cease to be a
grandfathered health plan if the employer decreases its contribution rate
towards the cost of coverage by more than 5% below the contribution rate on
March 23, 2010. But if the formula does not change, the employer is not
considered to have reduced its contribution rate, regardless of any
increase in the total cost of coverage.
The Q&A clarifies that if (1) the dollar amount that
is multiplied by years of service decreases by more than 5% or (2) if
the $10,000 maximum employer contribution cap decreases by more than 5%,
the plan will cease to be a grandfathered health plan. Presumably, the
purpose of this Q&A is to assure plan sponsors that plan formula
provisions will cause the loss of grandfather status only where the
application of the formula causes the plan to exceed the limits prescribed
by the provisions of interim final grandfather rule governing cost
increases.
Preventative Services
The Act requires group health plans to cover, without
cost-sharing, certain preventive services, child preventive services, and
additional preventive care screenings, based on recommendations of the U.S.
Preventive Services Task Force. An interim final rule implementing this
requirement was issued July 19, 2010, under which the bar on cost-sharing
for preventative services was generally limited to in-network services. Since
then, the focus of compliance with this rule has shifted to medical
management techniques, including "value-based insurance designs" (VBIDs).
The premise behind VBID is that health care expenditures should be based on
the value to individual patients. VBID endeavors to tailor copayments to
the evidence-based value of specific services for targeted groups of
patients.
Q&A 3: Value-Based Insurance Design (VBID)
The issue of VBIDs in the context of preventative services
first surfaced in the Department
of Labor's previous FAQs, which involved a group health plan that did
not impose a copayment for colorectal cancer preventive services when
performed at an in-network ambulatory surgery center. But the same
preventive services provided at an in-network outpatient hospital setting
generally required a $250 copayment, although the copayment was waived for
individuals for whom it would be medically inappropriate to have the
preventive services provided in the ambulatory setting. The Agencies
determined that this VBID did not cause the plan to fail to comply with the
no cost-sharing preventive care requirements.
This Q&A posits a different situation, under which a
group health plan that makes preventive services available at an in-network
ambulatory surgery center and at an in-network outpatient hospital setting
with no copayment in either setting. The plan proposes to impose a $250
copayment for preventive services only when performed in the in-network
outpatient hospital setting (i.e., not when performed in an in-network
ambulatory surgery center), and with the same waiver of the copayment for
any individuals for whom it would be medically inappropriate to have these
preventive services provided in the ambulatory setting.
According to the Agencies, the proposed increase in the
copayment for preventive services solely in the in-network outpatient
hospital setting (subject to the waiver arrangement described above)
without any change in the copayment in the in-network ambulatory surgery
center setting would not cause the plan to relinquish grandfather status.
If you have any questions about this advisory, please contact
the author or your Mintz Levin attorney.
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Levin's Health Care Reform attorneys.
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1 All of these FAQs can be accessed
on the Department of
Labor's website.
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