Final HHS Regulations Regarding Exchange and Issuer Standards Relating to Coverage of Essential Health Benefits, Actuarial Value, and Accreditation Standards

On February 20, 2013, the Department of Health and Human Services (“HHS”) issued final regulations regarding standards related to coverage of essential health benefits, cost-sharing, and actuarial value. The regulations also address the timeline for qualified health plans (“QHPs”) to be accredited under the federally-facilitated exchanges and amends the application process for the recognition of additional accrediting entities for purposes of certifying the QHPs.

As will become apparent in the discussion below, sponsors of self-insured group health plans, regardless of size and whether the plan retains grandfathered status, need to start considering design changes to their group health plans in anticipation of these changes occurring in 2014.

Standards for Essential Health Benefits

Beginning in 2014, the Affordable Care Act requires all non-grandfathered health insurance coverage in the individual and small group markets to cover “essential health benefits” (“EHBs”), which include items and services in 10 categories: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder service, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care.

Each state may identify an EHB-benchmark plan to serve as a reference plan to establish guidelines for EHBs offered in the state’s individual or small group market. If a state does not choose a benchmark plan, a default base-benchmark plan will be applied, which will be the largest plan by enrollment in the state’s small group market. The final regulations contain an appendix with benchmark plans for each state and U.S. territories.

In addition to using the EHB-benchmark plans for establishing EHBs for the individual and small group markets (including those offered through the health care exchanges), the EHB-benchmark plans are important for employers with self-insured group health plans (regardless of size and whether such plan is grandfathered) since these plans and others are prohibited from imposing lifetime and annual dollar limits (phased out in 2014) on EHBs. Employers with self-insured arrangements will need to determine the EHB definitions that it will apply in connection with its plans for 2014 and determine whether any benefits subject to an annual or lifetime limits are EHBs based on the definitions selected by the Employer. 

The final regulations generally adopted the proposed regulations’ nondiscrimination requirements in an issuer’s provision of EHBs either in the benefit design or implementation of such design. The final regulations clarify that issuers will not be prohibited from applying “reasonable medical management techniques” in their benefit design or implementation of benefit design. An example in the preambles to the final regulations provides that a “reasonable medical technique” could be to require preauthorization for coverage of the shingles vaccine in persons under the age of 60, consistent with the recommendation of the Advisory Committee on Immunization Practices.

Cost-Sharing Limits

The final regulations adopted the proposed regulations’ cost-sharing limitations on annual out-of-pocket maximums for in-network services (tied to high deductible health plan limits which, for 2013, are $6,250 for self-only coverage and $12,500 for non-self only coverage) and limitations on deductibles ($2,000 for self-only coverage and $4,000 for non-self only coverage) beginning after January 1, 2014. The limits on out-of-pocket maximums and deductibles will be adjusted by HHS pursuant to the regulations.

With respect to the limitation on deductibles, the preambles to the final regulations reiterate the approach in the proposed regulations that the deductible limitation only applies to plans and issuers in the small-group market and not to self-insured group health plans, large group health plans, or issuers offering health insurance in the large group market. This guidance is not final but can be relied upon until future guidance is issued.

The preambles to the final regulations interpret the cost-sharing limitations on annual out-of-pocket maximums apply to all group health plans (unless they retain grandfathered status), including the large group market and self-insured group health plans (regardless of size).

In a set of FAQs issued on the day the final regulations were issued, the IRS, DOL, and HHS (“Agencies”) provided some limited transition relief for self-insured non-grandfathered group health plans that use multiple service providers (e.g. third-party administrator for major medical, separate pharmacy benefit manager, etc.), recognizing the difficulty in applying the out-of-pocket maximums where multiple service providers may impose different out-of-pocket limitations and utilize different methods for crediting participants’ expenses against any out-of-pocket maximums.

The transition rule provides that for the first plan year beginning on or after January 1, 2014, where a group health plan or group health insurance issuer utilizes more than one service provider to administer benefits subject to an annual limitation on out-of-pocket maximums, the annual limitation on out-of-pocket maximums will be treated as satisfied under this transition guidance if both of the following conditions are satisfied:

• The plan complies with the annual limit on out-of-pocket maximums with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and
• To the extent that the plan includes an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (e.g. a separate out-of-pocket maximum for the prescription drug coverage), such out-of-pocket maximum also complies with the new limitations.

To comply with the Mental Health Parity and Addiction Equity Act of 2008, plans and issuers are prohibited from imposing an annual out-of-pocket maximum on all medical/surgical benefits and a separate annual out-of-pocket maximum on all mental health and substance use disorder benefits.

Actuarial Value (Metal Levels)

In addition to offering EHBs, non-grandfathered health insurance coverage in the individual and small group markets must meet certain actuarial values (“AV”) or “metal levels”, calculated based on cost-sharing features of the plan. The Affordable Care Act provides for the following actuarial values and corresponding “metal levels”: 60% for a bronze plan; 70% for a silver plan; 80% for a gold plan; and 90% for a platinum plan. The final regulations adopt the proposed regulations’ approach in permitting a small variation of +/- 2 percentage points in the actuarial valuation to determine the level of coverage. HHS has developed an AV calculator that issuers can use to determine the AV level of their plans. There are alternative methods for calculating the AV level if the AV calculator cannot accommodate the particular plan design.

The final regulations clarify that in determining the AV or metal level for a particular plan, the issuer may take into account employer contributions to a Health Savings Account or employer contributions newly made available through an integrated Health Reimbursement Account that can only be used for cost sharing, when such contribution is available and known to the issuer at the time the plan is purchased.

Determination of Minimum Value

To satisfy the “employer mandate” under the Affordable Care Act, an applicable employer-sponsored plan must, among other things, cover no less than 60% (“Minimum Value”) of the total allowed costs of benefits provided under such plan. The methodologies for determining the Minimum Value for an employer-sponsored plan were described in previous guidance. Among the methodologies described in the previous guidance was a Minimum Value calculator similar to the AV calculator that a self-insured group health plan and insured large group health plans can use to determine the applicable plan’s Minimum Value. The Minimum Value calculator is now available at http://cciio.cms.gov/resources/regulations/index.html#pm along with the continuance tables and the Minimum Value methodology. An employer’s contributions to a Health Savings Account or employer contributions newly made available through an integrated Health Reimbursement Account that can only be used for cost sharing, will be taken into account for purposes of determining a plan’s Minimum Value.

Accreditation of Qualified Health Plan Issuers

Pursuant to the final regulations, HHS will implement an application and review process by which it can recognize additional accrediting entities (in addition to NCQA and URAC that HHS previously approved) to provide certification of QHPs to be offered through the exchanges. The preambles to the final regulations clarify that for purposes of accreditation of QHPs, issuers have the flexibility to seek accreditation from any of the recognized accrediting entities and that Exchanges must accept accreditation from any of the recognized accrediting entities. The final regulations also adopt a timeline for QHPs offered in a  federally-facilitated exchange to be accredited.