[Federal Register Volume 75, Number 123 (Monday, June 28, 2010)]
[Rules and Regulations]
[Pages 37187-37241]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15278]



[[Page 37187]]

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Part III

Department of the Treasury



Internal Revenue Service



26 CFR Parts 54 and 602



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Department of Labor



Employee Benefits Security Administration

29 CFR Part 2590



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Department of Health and Human Services

45 CFR Parts 144, 146, and 147



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Patient Protection and Affordable Care Act; Requirements for Group 
Health Plans and Health Insurance Issuers Under the Patient Protection 
and Affordable Care Act Relating to Preexisting Condition Exclusions, 
Lifetime and Annual Limits, Rescissions, and Patient Protections; Final 
Rule and Proposed Rule

Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules 
and Regulations

[[Page 37188]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 54 and 602

[TD 9491]
RIN 1545-BJ61

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB43

DEPARTMENT OF HEALTH AND HUMAN SERVICES

[OCIIO-9994-IFC]

45 CFR Parts 144, 146, and 147

RIN 0991-AB69


Patient Protection and Affordable Care Act: Preexisting Condition 
Exclusions, Lifetime and Annual Limits, Rescissions, and Patient 
Protections

AGENCIES: Internal Revenue Service, Department of the Treasury; 
Employee Benefits Security Administration, Department of Labor; Office 
of Consumer Information and Insurance Oversight, Department of Health 
and Human Services.

ACTION: Interim final rules with request for comments.

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SUMMARY: This document contains interim final regulations implementing 
the rules for group health plans and health insurance coverage in the 
group and individual markets under provisions of the Patient Protection 
and Affordable Care Act regarding preexisting condition exclusions, 
lifetime and annual dollar limits on benefits, rescissions, and patient 
protections.

DATES: Effective Date. These interim final regulations are effective on 
August 27, 2010.
    Comment Date. Comments are due on or before August 27, 2010.
    Applicability Dates:
    1. Group health plans and group health insurance coverage. These 
interim final regulations, except those under Public Health Service Act 
(PHS Act) section 2704 (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 
CFR 147.108), generally apply to group health plans and group health 
insurance issuers for plan years beginning on or after September 23, 
2010. These interim final regulations under PHS Act section 2704 (26 
CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108) generally 
apply for plan years beginning on or after January 1, 2014, except that 
in the case of individuals who are under 19 years of age, these interim 
final regulations under PHS Act section 2704 apply for plan years 
beginning on or after September 23, 2010.
    2. Individual health insurance coverage. These interim final 
regulations, except those under PHS Act section 2704 (45 CFR 147.108), 
generally apply to individual health insurance issuers for policy years 
beginning on or after September 23, 2010. These interim final 
regulations under PHS Act section 2704 (45 CFR 147.108) generally apply 
to individual health insurance issuers for policy years beginning on or 
after January 1, 2014, except that in the case of enrollees who are 
under 19 years of age, these interim final regulations under PHS Act 
section 2704 apply for policy years beginning on or after September 23, 
2010.

ADDRESSES: Written comments may be submitted to any of the addresses 
specified below. Any comment that is submitted to any Department will 
be shared with the other Departments. Please do not submit duplicates.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
Internet exactly as received, and can be retrieved by most Internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    Department of Labor. Comments to the Department of Labor, 
identified by RIN 1210-AB43, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: E-OHPSCA715.EBSA@dol.gov.
     Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attention: RIN 1210-AB43.
    Comments received by the Department of Labor will be posted without 
change to http://www.regulations.gov and http://www.dol.gov/ebsa, and 
available for public inspection at the Public Disclosure Room, N-1513, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Washington, DC 20210.
    Department of Health and Human Services. In commenting, please 
refer to file code OCIIO-9994-IFC. Because of staff and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
     Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
     By regular mail. You may mail written comments to the 
following address ONLY: Office of Consumer Information and Insurance 
Oversight, Department of Health and Human Services, Attention: OCIIO-
9994-IFC, P.O. Box 8016, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
     By express or overnight mail. You may send written 
comments to the following address ONLY: Office of Consumer Information 
and Insurance Oversight, Department of Health and Human Services, 
Attention: OCIIO-9994-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
     By hand or courier. If you prefer, you may deliver (by 
hand or courier) your written comments before the close of the comment 
period to either of the following addresses:
    [cir] For delivery in Washington, DC--Office of Consumer 
Information and Insurance Oversight, Department of Health and Human 
Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the OCIIO drop slots located in the main lobby of the building. A 
stamp-in clock is available for persons wishing to retain a proof of 
filing by stamping in and retaining an extra copy of the comments being 
filed.)
    [cir] For delivery in Baltimore, MD--Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 in advance to

[[Page 37189]]

schedule your arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 
three weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.
    Internal Revenue Service. Comments to the IRS, identified by REG-
120399-10, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: CC:PA:LPD:PR (REG-120399-10), Room 5205, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.
     Hand or courier delivery: Monday through Friday between 
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-120399-10), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington DC 20224.
    All submissions to the IRS will be open to public inspection and 
copying in Room 1621, 1111 Constitution Avenue, NW., Washington, DC 
from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATION CONTACT:  Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080; Jim Mayhew, Office of Consumer Information 
and Insurance Oversight, Department of Health and Human Services, at 
(410) 786-1565. Customer Service Information: Individuals interested in 
obtaining information from the Department of Labor concerning 
employment-based health coverage laws may call the EBSA Toll-Free 
Hotline at 1-866-444-EBSA (3272) or visit the Department of Labor's Web 
site (http://www.dol.gov/ebsa). In addition, information from HHS on 
private health insurance for consumers can be found on the Centers for 
Medicare & Medicaid Services (CMS) Web site (http://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp) and information on health 
reform can be found at http://www.healthreform.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    The Patient Protection and Affordable Care Act (the Affordable Care 
Act), Public Law 111-148, was enacted on March 23, 2010; the Health 
Care and Education Reconciliation Act (the Reconciliation Act), Public 
Law 111-152, was enacted on March 30, 2010. The Affordable Care Act and 
the Reconciliation Act reorganize, amend, and add to the provisions of 
part A of title XXVII of the Public Health Service Act (PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets. The term ``group health plan'' includes 
both insured and self-insured group health plans.\1\ The Affordable 
Care Act adds section 715(a)(1) to the Employee Retirement Income 
Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue 
Code (the Code) to incorporate the provisions of part A of title XXVII 
of the PHS Act into ERISA and the Code, and make them applicable to 
group health plans, and health insurance issuers providing health 
insurance coverage in connection with group health plans. The PHS Act 
sections incorporated by this reference are sections 2701 through 2728. 
PHS Act sections 2701 through 2719A are substantially new, though they 
incorporate some provisions of prior law. PHS Act sections 2722 through 
2728 are sections of prior law renumbered, with some, mostly minor, 
changes.
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    \1\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is 
distinct from the term ``health plan,'' as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' does 
not include self-insured group health plans.
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    Subtitles A and C of title I of the Affordable Care Act amend the 
requirements of title XXVII of the PHS Act (changes to which are 
incorporated into ERISA section 715). The preemption provisions of 
ERISA section 731 and PHS Act section 2724 \2\ (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements of 
part 7 of ERISA and title XXVII of the PHS Act, as amended by the 
Affordable Care Act, are not to be ``construed to supersede any 
provision of State law which establishes, implements, or continues in 
effect any standard or requirement solely relating to health insurance 
issuers in connection with group or individual health insurance 
coverage except to the extent that such standard or requirement 
prevents the application of a requirement'' of the Affordable Care Act. 
Accordingly, State laws that impose on health insurance issuers 
requirements that are stricter than the requirements imposed by the 
Affordable Care Act will not be superseded by the Affordable Care Act.
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    \2\ Code section 9815 incorporates the preemption provisions of 
PHS Act section 2724. Prior to the Affordable Care Act, there were 
no express preemption provisions in chapter 100 of the Code.
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    The Departments of Health and Human Services, Labor, and the 
Treasury (the Departments) are issuing regulations in several phases 
implementing the revised PHS Act sections 2701 through 2719A and 
related provisions of the Affordable Care Act. The first phase in this 
series was a pair of publications consisting of a Request for 
Information relating to the medical loss ratio provisions of PHS Act 
section 2718 and a Request for Information relating to the rate review 
process of PHS Act 2794, both published in the Federal Register on 
April 14, 2010 (75 FR 19297 and 19335). The second phase was interim 
final regulations implementing PHS Act section 2714 (requiring coverage 
of adult children to age 26), published in the Federal Register on May 
13, 2010 (75 FR 27122). The third phase was interim final regulations 
implementing section 1251 of the Affordable Care Act (relating to 
status as a grandfathered health plan), published in the Federal 
Register on June 17, 2010 (75 FR 34538). These interim final 
regulations are being published to implement PHS Act sections 2704 
(prohibiting preexisting condition exclusions), 2711 (regarding 
lifetime and annual dollar limits on benefits), 2712 (regarding 
restrictions on rescissions), and 2719A (regarding patient 
protections). PHS Act section 2704 generally is effective for plan 
years (in the individual market, policy years) beginning on or after 
January 1, 2014.

[[Page 37190]]

However, with respect to enrollees, including applicants for 
enrollment, who are under 19 years of age, PHS Act section 2704 is 
effective for plan years beginning on or after September 23, 2010 
(which is six months after the March 23, 2010 date of enactment of the 
Affordable Care Act); or in the case of individual health insurance 
coverage, for policy years beginning, or applications denied, on or 
after September 23, 2010.\3\ The rest of these provisions generally are 
effective for plan years (in the individual market, policy years) 
beginning on or after September 23, 2010. The implementation of other 
provisions of PHS Act sections 2701 through 2719A will be addressed in 
future regulations.
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    \3\ Section 1255 of the Affordable Care Act. See also section 
10103(e)-(f) of the Affordable Care Act.
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II. Overview of the Regulations

A. PHS Act Section 2704, Prohibition of Preexisting Condition 
Exclusions (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108)

    Section 1201 of the Affordable Care Act adds a new PHS Act section 
2704, which amends the HIPAA \4\ rules relating to preexisting 
condition exclusions to provide that a group health plan and a health 
insurance issuer offering group or individual health insurance coverage 
may not impose any preexisting condition exclusion. The HIPAA rules (in 
effect prior to the effective date of these amendments) apply only to 
group health plans and group health insurance coverage, and permit 
limited exclusions of coverage based on a preexisting condition under 
certain circumstances. The Affordable Care Act provision prohibits any 
preexisting condition exclusion from being imposed by group health 
plans or group health insurance coverage and extends this protection to 
individual health insurance coverage. This prohibition generally is 
effective with respect to plan years (in the individual market, policy 
years) beginning on or after January 1, 2014, but for enrollees who are 
under 19 years of age, this prohibition becomes effective for plan 
years (in the individual market, policy years) beginning on or after 
September 23, 2010. Until the new Affordable Care Act rules take 
effect, the HIPAA rules regarding preexisting condition exclusions 
continue to apply.
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    \4\ HIPAA is the Health Insurance Portability and Accountability 
Act of 1996 (Pub. L. 104-191).
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    HIPAA generally defines a preexisting condition exclusion \5\ as a 
limitation or exclusion of benefits relating to a condition based on 
the fact that the condition was present before the date of enrollment 
for the coverage, whether or not any medical advice, diagnosis, care, 
or treatment was recommended or received before that date. Based on 
this definition, PHS Act section 2704, as added by the Affordable Care 
Act, prohibits not just an exclusion of coverage of specific benefits 
associated with a preexisting condition in the case of an enrollee, but 
a complete exclusion from such plan or coverage, if that exclusion is 
based on a preexisting condition.
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    \5\ Before the amendments made by the Affordable Care Act, PHS 
Act section 2701(b)(1); after the amendments made by the Affordable 
Care Act, PHS Act section 2704(b)(1). See also ERISA section 
701(b)(1) and Code section 9801(b)(1).
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    The protections in the new PHS Act section 2704 generally apply for 
plan years (in the individual market, policy years) beginning on or 
after January 1, 2014. The Affordable Care Act provides, however, that 
these protections apply with respect to enrollees under age 19 for plan 
years (in the individual market, policy years) beginning on or after 
September 23, 2010. An enrollee under age 19 thus could not be denied 
benefits based on a preexisting condition. In order for an individual 
seeking enrollment to receive the same protection that applies in the 
case of such an enrollee, the individual similarly could not be denied 
enrollment or specific benefits based on a preexisting condition. Thus, 
for plan years (in the individual market, policy years) beginning on or 
after September 23, 2010, PHS Act section 2704 protects individuals 
under age 19 with a preexisting condition from being denied coverage 
under a plan or health insurance coverage (through denial of enrollment 
or denial of specific benefits) based on the preexisting condition.
    These interim final regulations do not change the HIPAA rule that 
an exclusion of benefits for a condition under a plan or policy is not 
a preexisting condition exclusion if the exclusion applies regardless 
of when the condition arose relative to the effective date of coverage. 
This point is illustrated with examples in the HIPAA regulations on 
preexisting condition exclusions, which remain in effect.\6\ (Other 
requirements of Federal or State law, however, may prohibit certain 
benefit exclusions.)
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    \6\ See Examples 6, 7, and 8 in 26 CFR 54.9801-3(a)(1)(ii), 29 
CFR 701-3(a)(1)(ii), 45 CFR 146.111(a)(1)(ii).
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    Application to grandfathered health plans. Under the statute and 
these interim final regulations, a grandfathered health plan that is a 
group health plan or group health insurance coverage must comply with 
the PHS Act section 2704 prohibition against preexisting condition 
exclusions; however, a grandfathered health plan that is individual 
health insurance coverage is not required to comply with PHS Act 
section 2704. See 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 
CFR 147.140 regarding status as a grandfathered health plan.

B. PHS Act Section 2711, Lifetime and Annual Limits (26 CFR 54.9815-
2711T, 29 CFR 2590.715-2711, 45 CFR 147.126)

    Section 2711 of the PHS Act, as added by the Affordable Care Act, 
and these interim final regulations generally prohibit group health 
plans and health insurance issuers offering group or individual health 
insurance coverage from imposing lifetime or annual limits on the 
dollar value of health benefits.
    The restriction on annual limits applies differently to certain 
account-based plans, especially where other rules apply to limit the 
benefits available. For example, under section 9005 of the Affordable 
Care Act, salary reduction contributions for health flexible spending 
arrangements (health FSAs) are specifically limited to $2,500 (indexed 
for inflation) per year, beginning with taxable years in 2013. These 
interim final regulations provide that the PHS Act section 2711 annual 
limit rules do not apply to health FSAs. The restrictions on annual 
limits also do not apply to Medical Savings Accounts (MSAs) under 
section 220 of the Code and Health Savings Accounts (HSAs) under 
section 223 of the Code. Both MSAs and HSAs generally are not treated 
as group health plans because the amounts available under the plans are 
available for both medical and non-medical expenses.\7\ Moreover, 
annual contributions to MSAs and HSAs are subject to specific statutory 
provisions that require that the contributions be limited.
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    \7\ Distributions from MSAs and HSAs that are not used for 
qualified medical expenses are included in income and subject to an 
additional tax, under sections 220(f)(1), (4) and 223(f)(1), (4) of 
the Code.
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    Health Reimbursement Arrangements (HRAs) are another type of 
account-based health plan and typically consist of a promise by an 
employer to reimburse medical expenses for the year up to a certain 
amount, with unused amounts available to reimburse medical expenses in 
future years. See Notice 2002-45, 2002-28 IRB 93; Rev. Rul. 2002-41, 
2002-28 IRB 75. When HRAs are integrated with other coverage as part of 
a group health plan and the other coverage alone would comply with the

[[Page 37191]]

requirements of PHS Act section 2711, the fact that benefits under the 
HRA by itself are limited does not violate PHS Act section 2711 because 
the combined benefit satisfies the requirements. Also, in the case of a 
stand-alone HRA that is limited to retirees, the exemption from the 
requirements of ERISA and the Code relating to the Affordable Care Act 
for plans with fewer than two current employees means that the retiree-
only HRA is generally not subject to the rules in PHS Act section 2711 
relating to annual limits. The Departments request comments regarding 
the application of PHS Act section 2711 to stand-alone HRAs that are 
not retiree-only plans.
    The statute prohibits annual limits on the dollar value of benefits 
generally, but allows ``restricted annual limits'' with respect to 
essential health benefits (as defined in section 1302(b) of the 
Affordable Care Act) for plan years (in the individual market, policy 
years) beginning before January 1, 2014. Grandfathered individual 
market policies are exempted from this provision. In addition, the 
statute provides that, with respect to benefits that are not essential 
health benefits, a plan or issuer may impose annual or lifetime per-
individual dollar limits on specific covered benefits. These interim 
final regulations define ``essential health benefits'' by cross-
reference to section 1302(b) of the Affordable Care Act \8\ and 
applicable regulations. Regulations under section 1302(b) of the 
Affordable Care Act have not yet been issued.
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    \8\ Section 1302(b) of the Affordable Care Act defines essential 
health benefits to ``include at least the following general 
categories and the items and services covered within the categories: 
ambulatory patient services; emergency services; hospitalization; 
maternity and newborn care; mental health and substance use disorder 
services, including behavioral health treatment; prescription drugs; 
rehabilitative and habilitative services and devices; laboratory 
services; preventive and wellness services and chronic disease 
management; and pediatric services, including oral and vision 
care.''
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    For plan years (in the individual market, policy years) beginning 
before the issuance of regulations defining ``essential health 
benefits'', for purposes of enforcement, the Departments will take into 
account good faith efforts to comply with a reasonable interpretation 
of the term ``essential health benefits''. For this purpose, a plan or 
issuer must apply the definition of essential health benefits 
consistently. For example, a plan could not both apply a lifetime limit 
to a particular benefit--thus taking the position that it was not an 
essential health benefit--and at the same time treat that particular 
benefit as an essential health benefit for purposes of applying the 
restricted annual limit.
    These interim final regulations clarify that the prohibition under 
PHS Act section 2711 does not prevent a plan or issuer from excluding 
all benefits for a condition, but if any benefits are provided for a 
condition, then the requirements of the rule apply. Therefore, an 
exclusion of all benefits for a condition is not considered to be an 
annual or lifetime dollar limit.
    The statute and these interim final regulations provide that for 
plan years (in the individual market, policy years) beginning before 
January 1, 2014, group health plans and health insurance issuers 
offering group or individual health insurance coverage may establish a 
restricted annual limit on the dollar value of essential health 
benefits. The statute provides that in defining the term restricted 
annual limit, the Departments should ensure that access to needed 
services is made available with a minimal impact on premiums. For a 
detailed discussion of the basis for determining restricted annual 
limits, see section IV.B.3 later in this preamble.
    In order to mitigate the potential for premium increases for all 
plans and policies, while at the same time ensuring access to essential 
health benefits, these interim final regulations adopt a three-year 
phased approach for restricted annual limits. Under these interim final 
regulations, annual limits on the dollar value of benefits that are 
essential health benefits may not be less than the following amounts 
for plan years (in the individual market, policy years) beginning 
before January 1, 2014:
     For plan or policy years beginning on or after September 
23, 2010 but before September 23, 2011, $750,000;
     For plan or policy years beginning on or after September 
23, 2011 but before September 23, 2012, $1.25 million; and
     For plan or policy years beginning on or after September 
23, 2012 but before January 1, 2014, $2 million.

As these are minimums for plan years (in the individual market, policy 
years) beginning before 2014, plans or issuers may use higher annual 
limits or impose no limits. Plans and policies with plan or policy 
years that begin between September 23 and December 31 have more than 
one plan or policy year under which the $2 million minimum annual limit 
is available; however, a plan or policy generally may not impose an 
annual limit for a plan year (in the individual market, policy year) 
beginning after December 31, 2013.
    The minimum annual limits for plan or policy years beginning before 
2014 apply on an individual-by-individual basis. Thus, any overall 
annual dollar limit on benefits applied to families may not operate to 
deny a covered individual the minimum annual benefits for the plan year 
(in the individual market, policy year). These interim final 
regulations clarify that, in applying annual limits for plan years (in 
the individual market, policy years) beginning before January 1, 2014, 
the plan or health insurance coverage may take into account only 
essential health benefits.
    The restricted annual limits provided in these interim final 
regulations are designed to ensure, in the vast majority of cases, that 
individuals would have access to needed services with a minimal impact 
on premiums. So that individuals with certain coverage, including 
coverage under a limited benefit plan or so-called ``mini-med'' plans, 
would not be denied access to needed services or experience more than a 
minimal impact on premiums, these interim final regulations provide for 
the Secretary of Health and Human Services to establish a program under 
which the requirements relating to restricted annual limits may be 
waived if compliance with these interim final regulations would result 
in a significant decrease in access to benefits or a significant 
increase in premiums. Guidance from the Secretary of Health and Human 
Services regarding the scope and process for applying for a waiver is 
expected to be issued in the near future.
    Under these interim final regulations, individuals who reached a 
lifetime limit under a plan or health insurance coverage prior to the 
applicability date of these interim final regulations and are otherwise 
still eligible under the plan or health insurance coverage must be 
provided with a notice that the lifetime limit no longer applies. If 
such individuals are no longer enrolled in the plan or health insurance 
coverage, these interim final regulations also provide an enrollment 
(in the individual market, reinstatement) opportunity for such 
individuals. In the individual market, this reinstatement opportunity 
does not apply to individuals who reached their lifetime limits on 
individual health insurance coverage if the contract is not renewed or 
otherwise is no longer in effect. It would apply, however, to a family 
member who reached the lifetime limit in a family policy in the 
individual market while other family members remain in the coverage. 
These notices and the enrollment opportunity must be provided beginning 
not later than the first day of the first plan year (in the individual 
market, policy year) beginning on or after September 23, 2010. Anyone 
eligible for an enrollment

[[Page 37192]]

opportunity must be treated as a special enrollee.\9\ That is, they 
must be given the right to enroll in all of the benefit packages 
available to similarly situated individuals upon initial enrollment.
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    \9\ See 26 CFR 54.9801-6(d), 29 CFR 2590.701-6(d), and 45 CFR 
146.117(d).
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    Application to grandfathered health plans. The statute and these 
interim final regulations relating to the prohibition on lifetime 
limits apply to all group health plans and health insurance issuers 
offering group or individual health insurance coverage, whether or not 
the plan qualifies as a grandfathered health plan, for plan years (in 
the individual market, policy years) beginning on or after September 
23, 2010. The statute and these interim final regulations relating to 
the prohibition on annual limits, including the special rules regarding 
restricted annual limits for plan years beginning before January 1, 
2014, apply to group health plans and group health insurance coverage 
that qualify as a grandfathered health plan, but do not apply to 
grandfathered health plans that are individual health insurance 
coverage. The interim final regulations issued under section 1251 of 
the Affordable Care Act provide that:
     A plan or health insurance coverage that, on March 23, 
2010, did not impose an overall annual or lifetime limit on the dollar 
value of all benefits ceases to be a grandfathered health plan if the 
plan or health insurance coverage imposes an overall annual limit on 
the dollar value of benefits.
     A plan or health insurance coverage, that, on March 23, 
2010, imposed an overall lifetime limit on the dollar value of all 
benefits but no overall annual limit on the dollar value of all 
benefits ceases to be a grandfathered health plan if the plan or health 
insurance coverage adopts an overall annual limit at a dollar value 
that is lower than the dollar value of the lifetime limit on March 23, 
2010.
     A plan or health insurance coverage that, on March 23, 
2010, imposed an overall annual limit on the dollar value of all 
benefits ceases to be a grandfathered health plan if the plan or health 
insurance coverage decreases the dollar value of the annual limit 
(regardless of whether the plan or health insurance coverage also 
imposed an overall lifetime limit on March 23, 2010 on the dollar value 
of all benefits).

C. PHS Act Section 2712, Prohibition on Rescissions (26 CFR 54.9815-
2712T, 29 CFR 2590.715-2712, 45 CFR 147.128)

    PHS Act section 2712 provides rules regarding rescissions of health 
coverage for group health plans and health insurance issuers offering 
group or individual health insurance coverage. Under the statute and 
these interim final regulations, a group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, must not rescind coverage except in the case of fraud or an 
intentional misrepresentation of a material fact. This standard sets a 
Federal floor and is more protective of individuals with respect to the 
standard for rescission than the standard that might have previously 
existed under State insurance law or Federal common law. That is, under 
prior law, rescission may have been permissible if an individual made a 
misrepresentation of material fact, even if the misrepresentation was 
not intentional or made knowingly. Under the new standard for 
rescissions set forth in PHS Act section 2712 and these interim final 
regulations, plans and issuers cannot rescind coverage unless an 
individual was involved in fraud or made an intentional 
misrepresentation of material fact. This standard applies to all 
rescissions, whether in the group or individual insurance market, and 
whether insured or self-insured coverage. These rules also apply 
regardless of any contestability period that may otherwise apply.
    This provision in PHS Act section 2712 builds on already-existing 
protections in PHS Act sections 2703(b) and 2742(b) regarding 
cancellations of coverage. These provisions generally provide that a 
health insurance issuer in the group and individual markets cannot 
cancel, or fail to renew, coverage for an individual or a group for any 
reason other than those enumerated in the statute (that is, nonpayment 
of premiums; fraud or intentional misrepresentation of material fact; 
withdrawal of a product or withdrawal of an issuer from the market; 
movement of an individual or an employer outside the service area; or, 
for bona fide association coverage, cessation of association 
membership). Moreover, this new provision also builds on existing HIPAA 
nondiscrimination protections for group health coverage in ERISA 
section 702, Code section 9802, and PHS Act section 2705 (previously 
included in PHS Act section 2702 prior to the Affordable Care Act's 
amendments and reorganization to PHS Act title XXVII). The HIPAA 
nondiscrimination provisions generally provide that group health plans 
and group health insurance issuers may not set eligibility rules based 
on factors such as health status and evidence of insurability--
including acts of domestic violence or disability. They also provide 
limits on the ability of plans and issuers to vary premiums and 
contributions based on health status. For policy years beginning on or 
after January 1, 2014, additional protections will apply in the 
individual market, including guaranteed issue of all products, 
nondiscrimination based on health status, and no preexisting condition 
exclusions. These protections will reduce the likelihood of 
rescissions.
    These interim final regulations also clarify that other 
requirements of Federal or State law may apply in connection with a 
rescission or cancellation of coverage beyond the standards established 
in PHS Act section 2712, if they are more protective of individuals. 
For example, if a State law applicable to health insurance issuers were 
to provide that rescissions are permitted only in cases of fraud, or 
only within a contestability period, which is more protective of 
individuals, such a law would not conflict with, or be preempted by, 
the Federal standard and would apply.
    These interim final regulations include several clarifications 
regarding the standards for rescission in PHS Act section 2712. First, 
these interim final regulations clarify that the rules of PHS Act 
section 2712 apply whether the rescission applies to a single 
individual, an individual within a family, or an entire group of 
individuals. Thus, for example, if an issuer attempted to rescind 
coverage of an entire employment-based group because of the actions of 
an individual within the group, the standards of these interim final 
regulations would apply. Second, these interim final regulations 
clarify that the rules of PHS Act section 2712 apply to representations 
made by the individual or a person seeking coverage on behalf of the 
individual. Thus, if a plan sponsor seeks coverage from an issuer for 
an entire employment-based group and makes representations, for 
example, regarding the prior claims experience of the group, the 
standards of these interim final regulations would also apply. Finally, 
PHS Act section 2712 refers to acts or practices that constitute fraud. 
These interim final regulations clarify that, to the extent that an 
omission constitutes fraud, that omission would permit the plan or 
issuer to rescind coverage under this section. An example in these 
interim final regulations illustrates the application of the rule to 
misstatements of fact that are inadvertent.
    For purposes of these interim final regulations, a rescission is a 
cancellation or discontinuance of

[[Page 37193]]

coverage that has retroactive effect. For example, a cancellation that 
treats a policy as void from the time of the individual's or group's 
enrollment is a rescission. As another example, a cancellation that 
voids benefits paid up to a year before the cancellation is also a 
rescission for this purpose. A cancellation or discontinuance of 
coverage with only a prospective effect is not a rescission, and 
neither is a cancellation or discontinuance of coverage that is 
effective retroactively to the extent it is attributable to a failure 
to timely pay required premiums or contributions towards the cost of 
coverage. Cancellations of coverage are addressed under other Federal 
and State laws, including section PHS Act section 2703(b) and 2742(b), 
which limit the grounds for cancellation or non-renewal of coverage, as 
discussed above. Moreover, PHS Act section 2719, as added by the 
Affordable Care Act and incorporated in ERISA section 715 and Code 
section 9815, addresses appeals of coverage determinations and includes 
provisions for keeping coverage in effect pending an appeal. The 
Departments expect to issue guidance on PHS Act section 2719 in the 
very near future.
    In addition to setting a new Federal floor standard for 
rescissions, PHS Act section 2712 adds a new advance notice requirement 
when coverage is rescinded where still permissible. Specifically, the 
second sentence in section 2712 provides that coverage may not be 
cancelled unless prior notice is provided. These interim final 
regulations provide that a group health plan, or a health insurance 
issuer offering group health insurance coverage, must provide at least 
30 calendar days advance notice to an individual before coverage may be 
rescinded.\10\ The notice must be provided regardless of whether the 
rescission is of group or individual coverage; or whether, in the case 
of group coverage, the coverage is insured or self-insured, or the 
rescission applies to an entire group or only to an individual within 
the group. This 30-day period will provide individuals and plan 
sponsors with an opportunity to explore their rights to contest the 
rescission, or look for alternative coverage, as appropriate. The 
Departments expect to issue future guidance on any notice requirements 
under PHS Act section 2712 for cancellations of coverage other than in 
the case of rescission.
---------------------------------------------------------------------------

    \10\ Even though prior notice must be provided in the case of a 
rescission, applicable law may permit the rescission to void 
coverage retroactively.
---------------------------------------------------------------------------

    In this new Federal statutory protection against rescissions, the 
Affordable Care Act provides new rights to individuals who, for 
example, may have done their best to complete what can sometimes be 
long, complex enrollment questionnaires but may have made some errors, 
for which the consequences were overly broad and unfair. These interim 
final regulations provide initial guidance with respect to the 
statutory restrictions on rescission. If the Departments become aware 
of attempts in the marketplace to subvert these rules, the Departments 
may issue additional regulations or administrative guidance to ensure 
that individuals do not lose health coverage unjustly or without due 
process.
    Application to grandfathered health plans. The rules regarding 
rescissions and advance notice apply to all grandfathered health plans.

D. PHS Act Section 2719A, Patient Protections (26 CFR 54.9815-2719AT, 
29 CFR 2590.715-2719A, 45 CFR 147.138)

    Section 2719A of the PHS Act imposes, with respect to a group 
health plan, or group or individual health insurance coverage, a set of 
three requirements relating to the choice of a health care professional 
and requirements relating to benefits for emergency services. The three 
requirements relating to the choice of health care professional apply 
only with respect to a plan or health insurance coverage with a network 
of providers.\11\ Thus, a plan or issuer that has not negotiated with 
any provider for the delivery of health care but merely reimburses 
individuals covered under the plan for their receipt of health care is 
not subject to the requirements relating to the choice of a health care 
professional. However, such plans or health insurance coverage are 
subject to requirements relating to benefits for emergency services. 
These interim final regulations reorder the statutory requirements so 
that all three of the requirements relating to the choice of a health 
care professional are together and add a notice requirement for those 
three requirements. None of these requirements apply to grandfathered 
health plans.
---------------------------------------------------------------------------

    \11\ The statute and these interim final regulations refer to 
providers both in terms of their participation (participating 
provider) and in terms of a network (in-network provider). In both 
situations, the intent is to refer to a provider that has a 
contractual relationship or other arrangement with a plan or issuer.
---------------------------------------------------------------------------

1. Choice of Health Care Professional
    The statute and these interim final regulations provide that if a 
group health plan, or a health insurance issuer offering group or 
individual health insurance coverage, requires or provides for 
designation by a participant, beneficiary, or enrollee of a 
participating primary care provider, then the plan or issuer must 
permit each participant, beneficiary, or enrollee to designate any 
participating primary care provider who is available to accept the 
participant, beneficiary, or enrollee. Under these interim final 
regulations, the plan or issuer must provide a notice informing each 
participant (or in the individual market, the primary subscriber) of 
the terms of the plan or health insurance coverage regarding 
designation of a primary care provider.
    The statute and these interim final regulations impose a 
requirement for the designation of a pediatrician similar to the 
requirement for the designation of a primary care physician. 
Specifically, if a plan or issuer requires or provides for the 
designation of a participating primary care provider for a child by a 
participant, beneficiary, or enrollee, the plan or issuer must permit 
the designation of a physician (allopathic or osteopathic) who 
specializes in pediatrics as the child's primary care provider if the 
provider participates in the network of the plan or issuer and is 
available to accept the child. In such a case, the plan or issuer must 
comply with the notice requirements with respect to designation of a 
primary care provider. The general terms of the plan or health 
insurance coverage regarding pediatric care otherwise are unaffected, 
including any exclusions with respect to coverage of pediatric care.
    The statute and these interim final regulations also provide rules 
for a group health plan, or a health insurance issuer offering group or 
individual health insurance coverage, that provides coverage for 
obstetrical or gynecological care and requires the designation of an 
in-network primary care provider. In such a case, the plan or issuer 
may not require authorization or referral by the plan, issuer, or any 
person (including a primary care provider) for a female participant, 
beneficiary, or enrollee who seeks obstetrical or gynecological care 
provided by an in-network health care professional who specializes in 
obstetrics or gynecology. The plan or issuer must inform each 
participant (in the individual market, primary subscriber) that the 
plan or issuer may not require authorization or referral for 
obstetrical or gynecological care by a participating health care 
professional

[[Page 37194]]

who specializes in obstetrics or gynecology. Nothing in these interim 
final regulations precludes the plan or issuer from requiring an in-
network obstetrical or gynecological provider to otherwise adhere to 
policies and procedures regarding referrals, prior authorization for 
treatments, and the provision of services pursuant to a treatment plan 
approved by the plan or issuer. The plan or issuer must treat the 
provision of obstetrical and gynecological care, and the ordering of 
related obstetrical and gynecological items and services, by the 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider. For this purpose, a health 
care professional who specializes in obstetrics or gynecology is any 
individual who is authorized under applicable State law to provide 
obstetrical or gynecological care, and is not limited to a physician.
    The general terms of the plan or coverage regarding exclusions of 
coverage with respect to obstetrical or gynecological care are 
otherwise unaffected. These interim final regulations do not preclude 
the plan or issuer from requiring that the obstetrical or gynecological 
provider notify the primary care provider or the plan or issuer of 
treatment decisions.
    When applicable, it is important that individuals enrolled in a 
plan or health insurance coverage know of their rights to (1) choose a 
primary care provider or a pediatrician when a plan or issuer requires 
designation of a primary care physician; or (2) obtain obstetrical or 
gynecological care without prior authorization. Accordingly, these 
interim final regulations require such plans and issuers to provide a 
notice to participants (in the individual market, primary subscribers) 
of these rights when applicable. Model language is provided in these 
interim final regulations. The notice must be provided whenever the 
plan or issuer provides a participant with a summary plan description 
or other similar description of benefits under the plan or health 
insurance coverage, or in the individual market, provides a primary 
subscriber with a policy, certificate, or contract of health insurance.
2. Emergency Services
    If a plan or health insurance coverage provides any benefits with 
respect to emergency services in an emergency department of a hospital, 
the plan or issuer must cover emergency services in a way that is 
consistent with these interim final regulations. These interim final 
regulations require that a plan or health insurance coverage providing 
emergency services must do so without the individual or the health care 
provider having to obtain prior authorization (even if the emergency 
services are provided out of network) and without regard to whether the 
health care provider furnishing the emergency services is an in-network 
provider with respect to the services. The emergency services must be 
provided without regard to any other term or condition of the plan or 
health insurance coverage other than the exclusion or coordination of 
benefits, an affiliation or waiting period permitted under part 7 of 
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the 
Code, or applicable cost-sharing requirements. For a plan or health 
insurance coverage with a network of providers that provides benefits 
for emergency services, the plan or issuer may not impose any 
administrative requirement or limitation on benefits for out-of-network 
emergency services that is more restrictive than the requirements or 
limitations that apply to in-network emergency services.
    Additionally, for a plan or health insurance coverage with a 
network, these interim final regulations provide rules for cost-sharing 
requirements for emergency services that are expressed as a copayment 
amount or coinsurance rate, and other cost-sharing requirements. Cost-
sharing requirements expressed as a copayment amount or coinsurance 
rate imposed for out-of-network emergency services cannot exceed the 
cost-sharing requirements that would be imposed if the services were 
provided in-network. Out-of-network providers may, however, also 
balance bill patients for the difference between the providers' charges 
and the amount collected from the plan or issuer and from the patient 
in the form of a copayment or coinsurance amount. Section 1302(c)(3)(B) 
of the Affordable Care Act excludes such balance billing amounts from 
the definition of cost sharing, and the requirement in section 
2719A(b)(1)(C)(ii)(II) that cost sharing for out-of-network services be 
limited to that imposed in network only applies to cost sharing 
expressed as a copayment or coinsurance rate.
    Because the statute does not require plans or issuers to cover 
balance billing amounts, and does not prohibit balance billing, even 
where the protections in the statute apply, patients may be subject to 
balance billing. It would defeat the purpose of the protections in the 
statute if a plan or issuer paid an unreasonably low amount to a 
provider, even while limiting the coinsurance or copayment associated 
with that amount to in-network amounts. To avoid the circumvention of 
the protections of PHS Act section 2719A, it is necessary that a 
reasonable amount be paid before a patient becomes responsible for a 
balance billing amount. Thus, these interim final regulations require 
that a reasonable amount be paid for services by some objective 
standard. In establishing the reasonable amount that must be paid, the 
Departments had to account for wide variation in how plans and issuers 
determine both in-network and out-of-network rates. For example, for a 
plan using a capitation arrangement to determine in-network payments to 
providers, there is no in-network rate per service. Accordingly, these 
interim final regulations consider three amounts: the in-network rate, 
the out-of-network rate, and the Medicare rate. Specifically, a plan or 
issuer satisfies the copayment and coinsurance limitations in the 
statute if it provides benefits for out-of-network emergency services 
in an amount equal to the greatest of three possible amounts--
    (1) The amount negotiated with in-network providers for the 
emergency service furnished;
    (2) The amount for the emergency service calculated using the same 
method the plan generally uses to determine payments for out-of-network 
services (such as the usual, customary, and reasonable charges) but 
substituting the in-network cost-sharing provisions for the out-of-
network cost-sharing provisions; or
    (3) The amount that would be paid under Medicare for the emergency 
service.\12\ Each of these three amounts is calculated excluding any 
in-network copayment or coinsurance imposed with respect to the 
participant, beneficiary, or enrollee.
---------------------------------------------------------------------------

    \12\ As of the date of publication of these interim final 
regulations, these rates are available to the public at http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/downloads/oon-payments.pdf.
---------------------------------------------------------------------------

    For plans and health insurance coverage under which there is no 
per-service amount negotiated with in-network providers (such as under 
a capitation or other similar payment arrangement), the first amount 
above is disregarded, meaning that the greatest amount is going to be 
either the out-of-network amount or the Medicare amount. Additionally, 
with respect to determining the first amount, if a plan or issuer has 
more than one negotiated amount with in-network providers for a 
particular emergency service, the amount is the median of these 
amounts, treating the amount negotiated with each provider as a 
separate amount in determining the median. Thus, for example, if for a 
given emergency

[[Page 37195]]

service a plan negotiated a rate of $100 with three providers, a rate 
of $125 with one provider, and a rate of $150 with one provider; the 
amounts taken into account to determine the median would be $100, $100, 
$100, $125, and $150; and the median would be $100. Following the 
commonly accepted definition of median, if there are an even number of 
amounts, the median is the average of the middle two. (Cost sharing 
imposed with respect to the participant, beneficiary, or enrollee would 
be deducted from this amount before determining the greatest of the 
three amounts above.)
    The second amount above is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health 
insurance coverage with respect to out-of-network services. Thus, for 
example, if a plan generally pays 70 percent of the usual, customary, 
and reasonable amount for out-of-network services, the second amount 
above for an emergency service is the total (that is, 100 percent) of 
the usual, customary, and reasonable amount for the service, not 
reduced by the 30 percent coinsurance that would generally apply to 
out-of-network services (but reduced by the in-network copayment or 
coinsurance that the individual would be responsible for if the 
emergency service had been provided in-network).
    Although a plan or health insurance coverage is generally not 
constrained by the requirements of PHS Act section 2719A for cost-
sharing requirements other than copayments or coinsurance, these 
interim final regulations include an anti-abuse rule with respect to 
such other cost-sharing requirements so that the purpose of limiting 
copayments and coinsurance for emergency services to the in-network 
rate cannot be thwarted by manipulation of these other cost-sharing 
requirements. Accordingly, any other cost-sharing requirement, such as 
a deductible or out-of-pocket maximum, may be imposed with respect to 
out-of-network emergency services only if the cost-sharing requirement 
generally applies to out-of-network benefits. Specifically, a 
deductible may be imposed with respect to out-of-network emergency 
services only as part of a deductible that generally applies to out-of-
network benefits. Similarly, if an out-of-pocket maximum generally 
applies to out-of-network benefits, that out-of-pocket maximum must 
apply to out-of-network emergency services. A plan or health insurance 
coverage could fashion these other cost-sharing requirements so that a 
participant, beneficiary, or enrollee is required to pay less for 
emergency services than for general out-of-network services; the anti-
abuse rule merely prohibits a plan or health insurance coverage from 
fashioning such rules so that a participant, beneficiary, or enrollee 
is required to pay more for emergency services than for general out-of-
network services.
    In applying the rules relating to emergency services, the statute 
and these interim final regulations define the terms emergency medical 
condition, emergency services, and stabilize. These terms are defined 
generally in accordance with their meaning under the Emergency Medical 
Treatment and Labor Act (EMTALA), section 1867 of the Social Security 
Act. There are, however, some minor variances from the EMTALA 
definitions. For example, both EMTALA and PHS Act section 2719A define 
``emergency medical condition'' in terms of the same consequences that 
could reasonably be expected to occur in the absence of immediate 
medical attention. Under EMTALA regulations, the likelihood of these 
consequences is determined by qualified hospital medical personnel, 
while under PHS Act section 2719A the standard is whether a prudent 
layperson, who possesses an average knowledge of health and medicine, 
could reasonably expect the absence of immediate medical attention to 
result in such consequences.
    Application to grandfathered health plans. The statute and these 
interim final regulations relating to certain patient protections do 
not apply to grandfathered health plans. However, other Federal or 
State laws related to these patient protections may apply regardless of 
grandfather status.

III. Interim Final Regulations and Request for Comments

    Section 9833 of the Code, section 734 of ERISA, and section 2792 of 
the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS 
(collectively, the Secretaries) to promulgate any interim final rules 
that they determine are appropriate to carry out the provisions of 
chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and 
part A of title XXVII of the PHS Act, which include PHS Act sections 
2701 through 2728 and the incorporation of those sections into ERISA 
section 715 and Code section 9815.
    In addition, under Section 553(b) of the Administrative Procedure 
Act (APA) (5 U.S.C. 551 et seq.) a general notice of proposed 
rulemaking is not required when an agency, for good cause, finds that 
notice and public comment thereon are impracticable, unnecessary, or 
contrary to the public interest. The provisions of the APA that 
ordinarily require a notice of proposed rulemaking do not apply here 
because of the specific authority granted by section 9833 of the Code, 
section 734 of ERISA, and section 2792 of the PHS Act. However, even if 
the APA were applicable, the Secretaries have determined that it would 
be impracticable and contrary to the public interest to delay putting 
the provisions in these interim final regulations in place until a full 
public notice and comment process was completed. As noted above, 
numerous provisions of the Affordable Care Act are applicable for plan 
years (in the individual market, policy years) beginning on or after 
September 23, 2010, six months after date of enactment. Had the 
Departments published a notice of proposed rulemaking, provided for a 
60-day comment period, and only then prepared final regulations, which 
would be subject to a 60-day delay in effective date, it is unlikely 
that it would have been possible to have final regulations in effect 
before late September, when these requirements could be in effect for 
some plans or policies. Moreover, the requirements in these interim 
final regulations require significant lead time in order to implement. 
For example, in the case of the requirement under PHS Act section 2711 
prohibiting overall lifetime dollar limits, these interim final 
regulations require that an enrollment opportunity be provided for an 
individual whose coverage ended by reason of reaching a lifetime limit 
no later than the first day this requirement takes effect. Preparations 
presumably would have to be made to put such an enrollment process in 
place. In the case of requirements for emergency care under PHS Act 
section 2719A, plans and issuers need to know how to process charges by 
out-of-network providers by as early as the first plan or policy year 
beginning on or after September 23, 2010. With respect to all the 
changes that would be required to be made under these interim final 
regulations, whether adding coverage of children with a preexisting 
condition under PHS Act section 2704, or determining the scope of 
rescissions prohibited under PHS Act section 2712, group health plans 
and health insurance issuers have to be able to take these changes into 
account in establishing their premiums, and in making other changes to 
the designs of plan or policy benefits, and these premiums and plan or 
policy changes would have to receive necessary approvals in advance of 
the plan or policy year in question.
    Accordingly, in order to allow plans and health insurance coverage 
to be

[[Page 37196]]

designed and implemented on a timely basis, regulations must be 
published and available to the public well in advance of the effective 
date of the requirements of the Affordable Care Act. It is not possible 
to have a full notice and comment process and to publish final 
regulations in the brief time between enactment of the Affordable Care 
Act and the date regulations are needed.
    The Secretaries further find that issuance of proposed regulations 
would not be sufficient because the provisions of the Affordable Care 
Act protect significant rights of plan participants and beneficiaries 
and individuals covered by individual health insurance policies and it 
is essential that participants, beneficiaries, insureds, plan sponsors, 
and issuers have certainty about their rights and responsibilities. 
Proposed regulations are not binding and cannot provide the necessary 
certainty. By contrast, the interim final regulations provide the 
public with an opportunity for comment, but without delaying the 
effective date of the regulations.
    For the foregoing reasons, the Departments have determined that it 
is impracticable and contrary to the public interest to engage in full 
notice and comment rulemaking before putting these interim final 
regulations into effect, and that it is in the public interest to 
promulgate interim final regulations.

IV. Economic Impact and Paperwork Burden

A. Summary--Department of Labor and Department of Health and Human 
Services

    As stated earlier in this preamble, these interim final regulations 
implement PHS Act sections 2704 (prohibiting preexisting condition 
exclusions), 2711 (prohibiting lifetime and annual dollar limits on 
benefits), 2712 (rules regarding rescissions), and 2719A (patient 
protections).\13\ These interim final regulations also provide guidance 
on the requirement to provide enrollment opportunities to individuals 
who reached a lifetime limit. PHS Act section 2704 regarding 
preexisting condition exclusions generally is effective for plan years 
(in the individual market, policy years) beginning on or after January 
1, 2014. However, with respect to enrollees, including applicants for 
enrollment, who are under 19 years of age, this section is effective 
for plan years beginning on or after September 23, 2010; or in the case 
of individual health insurance coverage, for policy years beginning on 
or after September 23, 2010.\14\ The rest of these provisions generally 
are effective for plan years (in the individual market, policy years) 
beginning on or after September 23, 2010, which is six months after the 
March 23, 2010 date of enactment of the Affordable Care Act.
---------------------------------------------------------------------------

    \13\ The Affordable Care Act adds Section 715 to the Employee 
Retirement Income Security Act (ERISA) and section 9815 to the 
Internal Revenue Code (the Code) to make the provisions of part A of 
title XXVII of the PHS Act applicable to group health plans, and 
health insurance issuers providing health insurance coverage in 
connection with group health plans, under ERISA and the Code as if 
those provisions of the PHS Act were included in ERISA and the Code.
    \14\ Section 1255 of the Affordable Care Act. See also section 
10103(e)-(f) of the Affordable Care Act.
---------------------------------------------------------------------------

    The Departments have crafted these interim final regulations to 
secure the protections intended by Congress in the most economically 
efficient manner possible. In accordance with OMB Circular A-4, they 
have quantified the benefits and costs where possible and provided a 
qualitative discussion of some of the benefits and the costs that may 
stem from these interim final regulations.

B. Executive Order 12866--Department of Labor and Department of Health 
and Human Services

    Under Executive Order 12866 (58 FR 51735), ``significant'' 
regulatory actions are subject to review by the Office of Management 
and Budget (OMB). Section 3(f) of the Executive Order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more in any one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that this rule is significant within the meaning of section 
3(f)(1) of the Executive Order, because it is likely to have an effect 
on the economy of $100 million in any one year. Accordingly, OMB has 
reviewed these rules pursuant to the Executive Order. The Departments 
provide an assessment of the potential costs and benefits of each 
regulatory provision below, summarized in the following table.

Table 1.1 Accounting Table

                                           TABLE 1.1--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative: These patient protections are expected to expand coverage for children with preexisting conditions
 and individuals who face rescissions, lifetime limits, and annual limits as a result of high health care costs.
 Expanded coverage is likely to increase access to health care, improve health outcomes, improve worker
 productivity, and reduce family financial strain and ``job lock''. Many of these benefits have a distributional
 component, and promote equity, in the sense that they will be enjoyed by those who are especially vulnerable as
 a result of health problems and financial status. Choice of physician will likely lead to better, sustained
 patient-provider relationships, resulting in decreased malpractice claims and improved medication adherence and
 health promotion. Removing referrals and prior authorizations for primary care, obstetrical and gynecological
 care, and emergency services is likely to reduce administrative and time burdens on both patients and
 physicians, while improving health outcomes by allowing quicker access to medical services when necessary......
----------------------------------------------------------------------------------------------------------------
               Costs                     Estimate       Year dollar     Discount rate      Period covered \15\
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/                4.9             2010               7%                 2011-2013
 year).............................
                                                4.9             2010               3%                 2011-2013
----------------------------------------------------------------------------------------------------------------

[[Page 37197]]

 
Monetized costs are due to a requirement to notify participants that exceeded their lifetime limit and were
 disenrolled from their plan or coverage of their right to re-enroll in the plan; a requirement that a group
 health plan or a health insurance issuer offering group or individual health insurance coverage must notify an
 affected individual 30 days before coverage may be rescinded; and a notice of a participant's right to choose
 any available participating primary care provider or pediatrician as their primary care provider, and of
 increased protections for those participants seeking emergency services.
----------------------------------------------------------------------------------------------------------------
Qualitative: To the extent these patient protections increase access to health care services, increased health
 care utilization and costs will result due to increased uptake. Expanding coverage to children with preexisting
 conditions and individuals subject to rescissions will likely increase overall health care costs, given that
 these groups tend to have high cost conditions and require more costly care than average.
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Qualitative: These patient protections create a small transfer from those paying premiums in the group market to
 those obtaining the increased patient protections. To the extent there is risk pooling in the individual
 market, a similar transfer will occur.
----------------------------------------------------------------------------------------------------------------

1. Need for Regulatory Action
---------------------------------------------------------------------------

    \15\ The Departments' analysis extends to 2013. The analysis 
does not attempt to estimate effects in 2014 and beyond because the 
extensive changes provided for by the Affordable Care Act in sources 
of coverage, rating rules, and the structure of insurance markets 
make it nearly impossible to isolate the effects of the provisions 
of these interim final regulations.
---------------------------------------------------------------------------

a. Preexisting Condition Exclusions
    As discussed earlier in this preamble, Section 2704 of the PHS Act 
as added by the Affordable Care Act, prohibits group health plans and 
health insurance issuers offering group or individual health insurance 
from imposing any preexisting condition exclusion. This new protection 
applies to children who are under age 19 for plan years (in the 
individual market, policy years) beginning on or after September 23, 
2010. For individuals age 19 and over, this provision applies for plan 
years (in the individual market, policy years) beginning on or after 
January 1, 2014.
    Preexisting conditions affect millions of Americans and include a 
broad range of conditions from heart disease--which affects one in 
three adults \16\--or cancer--which affects 11 million Americans \17\--
to relatively minor conditions like hay fever, asthma, or previous 
sports injuries.\18\
---------------------------------------------------------------------------

    \16\ American Heart Association. Heart Disease and Stroke 
Statistics 2009 Update-at-a-Glance. http://www.americanheart.org/
downloadable/heart/1240250946756LS_
1982%20Heart%20and%20Stroke%20Update.042009.pdf.
    \17\ National Cancer Institute. Cancer Query System: Cancer 
Prevalence Database. http://srab.cancer.gov/prevalence/canques.html.
    \18\ Pollitz K, Sorian R. How Accessible is Individual Health 
Insurance for Consumers in Less than Perfect Health? Kaiser Family 
Foundation, June 2001.
---------------------------------------------------------------------------

    Denials of benefits or coverage based on a preexisting condition 
make adequate health insurance unavailable to millions of Americans. 
Before the enactment of the Affordable Care Act, in 45 States, health 
insurance issuers in the individual market could deny coverage, charge 
higher premiums, and/or deny benefits for a preexisting condition.\19\
---------------------------------------------------------------------------

    \19\ Kaiser State Health Facts. http://statehealthfacts.org/comparetable.jsp?ind=353&cat=7.
---------------------------------------------------------------------------

    These interim final regulations are necessary to amend the 
Departments' existing regulations to implement this statutory 
provision, which was enacted by Congress to ensure that quality health 
coverage is available to more Americans without the imposition of a 
preexisting condition exclusion.
b. Lifetime and Annual Limits
    As discussed earlier in this preamble, Section 2711 of the PHS Act 
was added to the Affordable Care Act to prohibit group health plans and 
health insurance issuers offering group or individual health insurance 
coverage from imposing lifetime limits on the dollar value of health 
benefits. Annual limits also are prohibited, but the statute includes a 
phase-in of this provision before January 1, 2014, that allows plans 
and issuers to impose ``restricted annual limits'' at the levels 
discussed earlier in this preamble.
    These new protections ensure that patients are not confronted with 
devastating health costs because they have exhausted their health 
coverage when faced with a serious medical condition. For example, in 
one recent national survey, ten percent of all cancer patients reported 
that they reached a benefit limit in their insurance policy and were 
forced to seek alternative insurance coverage or pay the remainder of 
their treatment out-of-pocket.\20\
---------------------------------------------------------------------------

    \20\ USA Today/Kaiser Family Foundation/Harvard School of Public 
Health. National Survey of Households Affected by Cancer. November 
2006.
---------------------------------------------------------------------------

    These interim final regulations are necessary to amend the 
Departments' existing regulations to implement the statutory provisions 
with respect to annual and lifetime limits that Congress enacted to 
help ensure that more Americans with chronic, long-term, and/or 
expensive illnesses have access to quality health coverage. The 
provisions of the regulations regarding restricted annual limits 
function as a type of transition rule, providing for staged 
implementation and helping ensure against adverse impacts on premiums 
or the offering of health coverage in the marketplace. For more detail 
about these provisions, see the discussion of PHS Act Section 2711, 
Lifetime and Annual Limits, in section II.B earlier in this preamble.
c. Rescission
    As discussed earlier in this preamble, Section 2712 of the PHS Act 
was added by the Affordable Care Act to prohibit group health plans and 
health insurance issuers offering group or individual health insurance 
coverage from rescinding coverage except in the case of fraud or 
intentional misrepresentation of material fact.
    Prior to the Affordable Care Act, thousands of Americans lost 
health coverage each year due to rescission. According to a House 
Energy and Commerce Committee staff memorandum,\21\ rather than 
reviewing medical histories when applications are submitted, if the 
policyholders become sick and file expensive claims, insurance 
companies then initiate investigations to scrutinize the details of the 
policyholder's application materials and medical records, and if 
discrepancies, omissions, or misrepresentations are found, the insurer 
rescinds the policies, returns the premiums, and refuses payment for 
medical services. The Committee found some questionable practices in 
this area including insurance companies rescinding coverage even when 
discrepancies are unintentional or caused by others, for conditions 
that are unknown to policyholders, and for discrepancies unrelated to 
the medical

[[Page 37198]]

conditions for which patients sought medical care.
---------------------------------------------------------------------------

    \21\ Terminations of Individual Health Insurance Policies by 
Insurance Companies, Hearing before the House Comm. on Energy and 
Commerce, Subcommittee on Oversight and Investigations, June 16, 
2009) (supplemental memorandum) http://energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf.
---------------------------------------------------------------------------

    When a coverage rescission occurs, an individual's health coverage 
is retroactively cancelled, which means that the insurance company is 
no longer responsible for medical care claims that they had previously 
accepted and paid. Rescissions can result in significant financial 
hardship for affected individuals, because, in most cases, the 
individuals have accumulated significant medical expenses. The NAIC 
Regulatory Framework Task Force collected data on 52 companies covering 
the period 2004-2008, and found that rescissions averaged 1.46 per 
thousand policies in force.\22\ This estimate implies there are 
approximately 10,700 rescissions per year.
---------------------------------------------------------------------------

    \22\ NAIC Rescission Data Call, December 17, 2009, p. 1.
---------------------------------------------------------------------------

    These interim final regulations implement the statutory provision 
enacted by Congress to protect the most vulnerable Americans, those 
that incur substantial medical expenses due to a serious medical 
condition, from financial devastation by ensuring that such individuals 
do not unjustly lose health coverage by rescission.
d. Patient Protections
    As discussed earlier in this preamble, Section 2719A of the PHS Act 
was added by the Affordable Care Act to require group health plans and 
health insurance issuers offering group or individual health insurance 
coverage to ensure choice of health care professionals and greater 
access to benefits for emergency services. As discussed in more detail 
below, provider choice is a strong predictor of patient trust in a 
provider, and patient-provider trust can increase health promotion and 
therapeutic effects.\23\ Studies also have found that patients tend to 
experience better quality health care if they have long-term 
relationships with their health care provider.\24\
---------------------------------------------------------------------------

    \23\ Piette, John, et al., ``The Role of Patient-Physician Trust 
in Moderating Medication Nonadherence Due to Cost Pressures.'' 
Archives of Internal Medicine 165, August (2005) and Roberts, 
Kathleen J., ``Physician-Patient Relationships, Patient 
Satisfaction, and Antiretroviral Medication Adherence Among HIV-
Infected Adults Attending a Public Health Clinic.'' AIDS Patient 
Care and STDs 16.1 (2002).
    \24\ Blewett, Lynn, et al., ``When a Usual Source of Care and 
Usual Provider Matter: Adult Prevention and Screening Services.'' 
Journal of General Internal Medicine 23.9 (2008).
---------------------------------------------------------------------------

    The emergency care provisions of PHS Act section 2719A require (1) 
non-grandfathered group health plans and health insurance issuers that 
cover emergency services to cover such services without prior 
authorization and without regard to whether the health care provider 
providing the services is a participating network provider, and (2) 
copayments and coinsurance for out-of-network emergency care not to 
exceed the cost-sharing requirements that would have been imposed if 
the services were provided in-network. These provisions will ensure 
that patients get emergency care when they need it, especially in 
situations where prior authorization cannot be obtained due to exigent 
circumstances or an in-network provider is not available to provide the 
services. It also will protect patients from the substantial financial 
burden that can be imposed when differing copayment or coinsurance 
arrangements apply to in-network and out-of-network emergency care.
    This regulation is necessary to implement the statutory provision 
enacted by Congress to provide these essential patient protections.
2. PHS Act Section 2704, Prohibition of Preexisting Condition 
Exclusions (26 CFR 54.9815-2704T, 29 CFR 2590.715-2704, 45 CFR 147.108)
a. Summary
    As discussed earlier in this preamble, section 1201 of the 
Affordable Care Act adds a new PHS Act section 2704, which amends the 
HIPAA rules relating to preexisting condition exclusions to provide 
that a group health plan and a health insurance issuer offering group 
or individual health insurance coverage may not impose any preexisting 
condition exclusion. The HIPAA rules (in effect prior to the effective 
date of these amendments) apply only to group health plans and group 
health insurance coverage, and permit limited exclusions of coverage 
based on a preexisting condition under certain circumstances. The 
Affordable Care Act and these interim final regulations prohibit any 
preexisting condition exclusions imposed by group health plans or group 
health insurance coverage and extends this protection to individual 
health insurance coverage. This prohibition generally is effective with 
respect to plan years (in the individual market, policy years) 
beginning on or after January 1, 2014, but for enrollees who are under 
19 years of age, this prohibition becomes effective for plan years (in 
the individual market, policy years) beginning on or after September 
23, 2010.
    Under the statute and these interim final regulations, a 
grandfathered health plan that is a group health plan or group health 
insurance coverage must comply with the prohibition against preexisting 
condition exclusions; however, a grandfathered health plan that is 
individual health insurance coverage is not required to comply with PHS 
Act section 2704.
    In this section, the Departments estimate the likely effects of 
these interim final regulations. Beginning with the population of 
individuals age 0-18, the number of individuals potentially affected is 
estimated in several steps. First, the number of children who have 
preexisting conditions that might cause them to be excluded from 
coverage is estimated. Second, a range of take-up rates is used to 
estimate the number of children who might be newly covered after these 
interim final regulations are implemented. In addition, the potential 
cost implications are discussed.
b. Estimated Number of Affected Individuals
    In the individual market, those applying for insurance will no 
longer face exclusions or denials of coverage based on a preexisting 
condition exclusion if they are under the age of 19. In addition, 
children covered by non-grandfathered individual coverage with a rider 
or an exclusion period that excludes coverage for a preexisting 
condition will gain coverage for that condition. In the group market, 
participants and dependents who are under 19 years old and have 
experienced a lapse in coverage will no longer face up to a twelve-
month exclusion for preexisting conditions.
    The Departments' estimates in this section are based on the 2004-
2006 Medical Expenditure Panel Survey Household Component (MEPS-HC) 
which was projected to 2010 and calibrated to be consistent with the 
National Health Accounts projections. The analysis tabulated counts and 
costs for persons under age 19 by age, health status, and insurance 
status.
    There are two main categories of children who are most likely to be 
directly affected by these interim final regulations: First, children 
who have a preexisting condition and who are uninsured; second, 
children who are covered by individual insurance with a rider excluding 
coverage for a preexisting condition or a preexisting condition 
exclusion period. For the latter category, obtaining coverage for the 
preexisting condition may require terminating the child's existing 
policy and beginning a new one, because individual health insurance 
coverage that is a grandfathered health plan is not required to comply 
with PHS Act section 2704 or these interim final regulations.

[[Page 37199]]

    It is difficult to estimate precisely how many uninsured children 
have a preexisting condition that would cause them to be denied 
coverage for that condition if they were to apply. Information on 
whether individuals have a preexisting condition for the purpose of 
obtaining health insurance is not collected in any major population-
based survey. In its annual survey on market practices, America's 
Health Insurance Plans (AHIP) estimated that 429,464 applications for 
children were medically underwritten, and 20,747, or 4.8 percent, were 
denied.\25\ The survey does not measure the number of applicants who 
did not make it through an underwriting process, nor does it measure 
the applicants' prior insurance status, and therefore, while useful, it 
does not provide direct estimates of the number or proportion of 
uninsured children who would be denied coverage based on a preexisting 
condition. Thus, the Departments use proxies for preexisting conditions 
available in nationally representative surveys to estimate the universe 
of potentially eligible individuals.
---------------------------------------------------------------------------

    \25\ AHIP Center for Health Policy Research. Individual Health 
Insurance 2009. http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf.
---------------------------------------------------------------------------

    The Departments estimate that in 2010 there are approximately 78.0 
million children under the age of 19 in the United States, of whom an 
estimated 19.4 million report ``fair'' or ``poor'' health or take three 
or more prescription medications. The Departments assume that these 
children have a preexisting condition. Whether or not the statute and 
these interim final regulations are likely to affect these children 
depends on their own and their parents' insurance status. Of the 19.4 
million children that potentially have a preexisting condition, 10.2 
million already have employer-sponsored insurance (ESI), 760,000 have 
individual coverage, and 7.9 million have public or other coverage, 
leaving 540,000 uninsured children with preexisting conditions.\26\ The 
Departments assume that this group of 540,000 uninsured children with a 
preexisting condition would be denied coverage for that condition or 
altogether if they were to apply.
---------------------------------------------------------------------------

    \26\ These estimates are from the Departments' analysis of the 
2004-2006 Medical Expenditure Panel Survey, trended forward to 2010.
---------------------------------------------------------------------------

    The likelihood that an uninsured child with a preexisting condition 
will gain coverage due to these interim final regulations will likely 
vary by the insurance status of the child's parent. As shown in Table 
2.1, approximately one-half of the 540,000 uninsured children who the 
Departments estimate have a preexisting condition live with a parent 
who is also uninsured and is not offered ESI. An additional 190,000 
have a parent who is covered by ESI, and 60,000 children have a parent 
who was offered ESI but did not accept the offer (and the insurance 
status of the parent is unknown).

   Table 2.1--Estimated Number of Uninsured Children With Pre-Existing
             Conditions, by Parent's Insurance Status, 2010
------------------------------------------------------------------------
                                                            Number of
               Parent's insurance status                    children
------------------------------------------------------------------------
Parent has employer-sponsored insurance (ESI).........           190,000
Parent offered ESI....................................            60,000
Parent has individual market insurance................            10,000
Parent does not have private insurance\*\.............           270,000
No parent.............................................            20,000
                                                       -----------------
    Total \**\........................................           540,000
------------------------------------------------------------------------
\*\ Primarily parents who are uninsured, but also including a small
  number who have public coverage.
\**\ Total is not the sum of the components due to rounding.
Source: Departments' analysis of MEPS-HC data, 2004-2006, trended
  forward to 2010.

    The group most likely to be affected by these interim final 
regulations is uninsured children whose parents have purchased non-
group coverage, of whom there are an estimated 10,000. These parents 
have demonstrated a strong preference for coverage by being willing to 
pay for a non-group premium for themselves, but their child is 
uninsured. Although the Departments cannot know with any certainty, it 
is quite plausible that the child is uninsured because the insurer 
refused to sell coverage to the child due to a preexisting condition. 
If an individual market insurance policy does not change substantially 
and retains its grandfather status, the insurer is not required to add 
a child with a preexisting condition. However, if the parent terminates 
the existing policy and purchases a new policy (which is quite 
plausible given the high prevalence of churning in the individual 
insurance market), then the new policy will be required to cover the 
child, and a substantial proportion of these children could gain access 
to coverage due to these interim final regulations.\27\
---------------------------------------------------------------------------

    \27\ Adele M. Kirk. The Individual Insurance Market: A Building 
Block for Health Care Reform? Health Care Financing Organization 
Research Synthesis. May 2008.
---------------------------------------------------------------------------

    At the other extreme, roughly 190,000 uninsured children with a 
preexisting condition have a parent with ESI. It is possible that these 
children are uninsured because their parents' ESI does not offer 
dependent coverage. It is also possible that the parent could not 
afford the employee portion of a family plan premium. These interim 
final regulations are not likely to have much effect on coverage for 
children in these circumstances. A very small subset of uninsured 
children whose parents have ESI could have had to be in a preexisting 
exclusion period before coverage is provided for services to treat that 
condition. Under the statute and these interim final regulations, there 
would no longer be such a period, making coverage desirable. Such 
children may be affected by this provision.
    Approximately 60,000 uninsured children with a preexisting 
condition have parents who were offered ESI but did not accept that 
offer. It also seems unlikely that these interim final regulations will 
have much effect on that group, because almost all of those parents 
could have chosen to cover themselves, and potentially their child, 
through ESI in the absence of these interim final regulations.
    In between these extremes are the approximately 270,000 uninsured 
children whose parents are themselves uninsured. Many of these parents 
have low to moderate income, and many may not be able to afford 
insurance.\28\ However, some of these parents might purchase a policy 
for their child with a preexisting condition if it were available to 
them.
---------------------------------------------------------------------------

    \28\ Approximately two-thirds of the uninsured are in families 
with income below 200 percent of the Federal Poverty Level. Current 
Population Survey, March 2008.
---------------------------------------------------------------------------

    While it is relatively easy to hypothesize about the relationship 
between parental insurance status and the likelihood that a child will 
be newly covered, it is much more difficult to estimate with any 
precision the take-up rates for each parental coverage category. 
Acknowledging substantial uncertainty, based on the discussion above, 
the Departments' mid-range estimate is that 50 percent of uninsured 
children whose parents have individual coverage will be newly insured, 
15 percent of uninsured children whose parents are uninsured will be 
newly insured, and that very few children whose parents have ESI, are 
offered ESI, or who do not live with a parent will become covered as a 
result of these

[[Page 37200]]

interim final regulations.\29\ For the high-end estimate, the 
Departments assume that the 50 percent and 15 percent assumptions 
increase to 75 percent and 20 percent, respectively. For the low-end 
assumption, they assume that they decrease to 25 percent and 10 
percent.
---------------------------------------------------------------------------

    \29\ The Departments researched the literature in an attempt to 
provide support for the take-up rate assumptions made here. There is 
a substantial literature on take-up rates among employees who are 
offered ESI, on take-up rates of public coverage among people 
eligible for Medicaid and Children's Health Insurance Program, and 
some work on the purchasing behavior of people who are choosing 
between being uninsured and buying individual insurance (Aizer, 
2006; Kronson, 2009; KFF, 2007; Bernard and Selden, 2006; Sommers 
and Krimmel, 2008). This work shows that take-up rates are very high 
for workers who are offered ESI, but that approximately 25 percent 
of people without ESI purchase individual coverage. This literature 
can also be used to estimate the price-elasticity of demand, as has 
been used by the Congressional Budget Office in its estimates of the 
effects of the Affordable Care Act (http://www.cbo.gov/ftpdocs/87xx/doc8712/10-31-HealthInsurModel.pdf) However, none of this work is 
very helpful in estimating the level of take-up the Departments 
should expect as parents are given the opportunity to purchase 
coverage for their children with preexisting conditions. In the 
absence of strong empirical guidance, the Departments consulted with 
experts, used their best judgment, and provide a wide range for our 
assumptions.
---------------------------------------------------------------------------

    As shown in Table 2.2, the Departments' mid-range estimate is that 
51,000 uninsured children with preexisting conditions could gain 
coverage as a result of these interim final regulations. At the low end 
of the range, this could be 31,000 and at the high end of the range, it 
could be 72,000. Given that most ESI already covers children with 
preexisting conditions, almost all of these children newly gaining 
coverage are expected to gain individual coverage.\30\
---------------------------------------------------------------------------

    \30\ For those parents who turned down an offer of ESI and whose 
insurance status is not known, the Departments assume that half of 
the children who takeup coverage join ESI, and half join a private 
insurance plan in the individual insurance market.

                       Table 2.2--Estimated Number of Uninsured Children Gaining Coverage
----------------------------------------------------------------------------------------------------------------
                                                             Gain employer-
                                                                sponsored      Gain individual        Total
                                                                insurance     market insurance
----------------------------------------------------------------------------------------------------------------
High Take-Up..............................................            10,000            62,000            72,000
Medium Take-Up............................................             6,000            45,000            51,000
Low Take-Up...............................................             2,000            29,000            31,000
----------------------------------------------------------------------------------------------------------------
Source: Departments' analysis of 2004-2006 MEPS-HC, trended forward to 2010.

    The other group of children who will be affected by these interim 
final regulations is children who already have non-group insurance 
coverage, but who are covered with a ``condition waiver'' that excludes 
coverage or imposes an exclusion period for coverage of a preexisting 
condition. After the implementation of these interim final regulations, 
children whose parents purchase individual coverage will not be subject 
to condition waivers or preexisting condition exclusion periods. The 
Departments estimate that there are 90,000 children covered by 
individual insurance with a condition waiver (or with a period during 
which coverage for a preexisting condition is excluded).\31\ The 
individual market issuers who insure these estimated 90,000 children 
with a condition waiver may decide to remain grandfathered health plans 
and thus these children will not be directly affected by these interim 
final regulations. However, the parents of those children could choose 
to switch from an individual policy that is a grandfathered health plan 
to a new policy that is not grandfathered, although the premium that 
they pay for such coverage could increase. Similarly, for those 
children currently covered but in a preexisting condition exclusion 
period, curtailing the exclusion period would require the termination 
of the current plan and purchase of a policy on or after September 23, 
2010.
---------------------------------------------------------------------------

    \31\ The 2009 AHIP survey for individual coverage estimated that 
approximately 2.7 percent of children with individual coverage are 
covered with a condition waiver. This 3 percent estimate was applied 
to the MEPS-based estimate that there are approximately 3.3 million 
children covered by individual insurance. A separate analysis of 
MEPS by the Departments similarly found about 90,000 children with a 
preexisting condition (defined as being in fair or poor health or 
taking three or more prescription medications) had a low actuarial 
value of coverage for their condition.
---------------------------------------------------------------------------

c. Benefits
    The benefits of PHS Act Section 2704 and these interim final 
regulations are expected to amply justify the costs. These interim 
final regulations will expand and improve coverage for those under the 
age of 19 with preexisting conditions. This will likely increase access 
to health care, improve health outcomes, and reduce family financial 
strain and ``job lock,'' as described below.
    Numerous studies confirm that when children become insured, they 
are better able to access health care. Uninsured children are six times 
more likely than insured children to lack a usual site of care.\32\ By 
contrast, one year after enrollment in health insurance, nearly every 
child in one study had a regular physician and the percentage of 
children who saw a dentist increased by approximately 25 percent.\33\ 
Insured children also experience fewer unmet needs and delays in care. 
In one study, 37 percent of the children 15 to 19 years of age faced 
some unmet need or delayed physician care in the prior 6 months, 
whereas at 12 months after insurance enrollment, only 3.7 percent 
reported such delays or care deficiencies.\34\
---------------------------------------------------------------------------

    \32\ ``Children's Health, Why Health Insurance Matters.'' Kaiser 
Commission on Medicaid and the Uninsured, available at: http://www.kff.org/uninsured/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=14132.
    \33\ Ibid.
    \34\ Keane, Christopher et al. ``The Impact of Children's Health 
Insurance Program by Age.'' Pediatrics 104:5 (1999), available at: 
http://pediatrics.aappublications.org/cgi/reprint/104/5/1051.
---------------------------------------------------------------------------

    With regular access to health care, children's health and well-
being are likely to improve. When children are sick and without health 
insurance, they may, out of financial necessity, have to forgo 
treatment; insurance improves the likelihood that children get timely 
and appropriate health care services.\35\ Insured children are less 
likely to experience avoidable hospital stays than uninsured 
children\36\ and, when hospitalized, insured children are at less risk 
of dying.\37\ When children are insured, it not only improves their 
health status, but also confers corollary benefits. Children without 
health insurance may not be allowed to participate in as many physical 
activities as peers because parents are

[[Page 37201]]

concerned about the financial impacts of unintentional injury. One 
study determined that 12 percent of uninsured children had various 
activity restrictions (e.g., related to sports or biking). However, 
almost all of these restrictions were removed once they gained 
insurance.\38\ And health insurance and access to care improve school 
attendance. An evaluation of an initiative designed to connect children 
to Healthy Kids, an insurance program piloted in Santa Clara County, 
California for children in low-income families, found that the 
proportion of children missing three or more school days in the 
previous month decreased from 11 percent among non-enrollees to 5 
percent after enrollment in the insurance program.\39\
---------------------------------------------------------------------------

    \35\ Uninsured children are at least 70 percent more likely than 
insured children to not receive medical care for common childhood 
conditions like sore throats, ear infections, and asthma. Ibid.
    \36\ Ibid.
    \37\ Bernstein, Jill et al. ``How Does Insurance Coverage 
Improve Health Outcomes?'' Mathematica Policy Research (2010), 
available: http://www.mathematica-mpr.com/publications/PDFs/Health/Reformhealthcare_IB1.pdf.
    \38\ ``Children's Health, Why Health Insurance Matters.'' Kaiser 
Commission on Medicaid and the Uninsured, available at: http://www.kff.org/uninsured/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=14132.
    \39\ Howell, Embry and Trenholm, Christopher ``Santa Clara 
County Children's Health Initiative Improves Children's Health.'' 
Mathematica Policy Research and The Urban Institute (2007), 
available at: http://www.mathematica-mpr.com/publications/PDFs/CHIimproves.pdf.
---------------------------------------------------------------------------

    In addition to their benefits relating to access to care, health, 
and well-being of children, these interim final regulations are likely 
to lower families' out of pocket health care spending. Some families 
would face the possibility of paying high out-of-pocket expenses for 
health care for children under 19 who could not obtain insurance 
because of a preexisting condition. Further, expanded insurance 
coverage should reduce the number of medical bankruptcies.\40\ In cases 
where medical expenses are substantial, families may no longer need to 
spend down their assets in order to qualify for Medicaid and other 
public assistance programs. Approximately 34 States offer Medicaid 
eligibility to adults and children who spend-down to State-established 
medically needy income limits.\41\ Eight percent of Medicaid 
beneficiaries qualify via spend-down yet this group accounts for a 
disproportionately high percentage of Medicaid spending nationally (14 
percent), due to the fact that coverage kicks in when individuals' 
medical costs are high.\42\ Despite the fact that medically needy 
populations become eligible on account of onerous medical bills, this 
group is especially vulnerable to losing coverage because States are 
not required to cover this group. For example, in 2003, when Oklahoma 
eliminated its medically needy program due to a budget shortfall, an 
estimated 800 children lost coverage.\43\ Such coverage interruptions 
likely contribute to higher rates of uncompensated care--the primary 
source for which is Federal funding.\44\ Reduced reliance on these 
programs under these interim final regulations will benefit State and 
Federal governments and, by extension, taxpayers.
---------------------------------------------------------------------------

    \40\ Himmelstein, D., Warren, E., Thorne, D., and Woolhandler, 
S. Illness and Injury as Contributors to Bankruptcy, Health Affairs 
W5-63, February 2 (2005); Himmelstein, D., Thorne, D., Warren, E., 
Woolhandler, S. Medical Bankruptcy in the United States, 2007: The 
Results of a National Study, The American Journal of Medicine June 4 
(2009).
    \41\ http://www.statehealthfacts.org/comparereport.jsp?rep=60&cat=4.
    \42\ Page 4: http://www.kff.org/medicaid/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=14325.
    \43\ Page 4: http://www.nashp.org/sites/default/files/shpmonitor_medicallyneedy.pdf.
    \44\ Page 4: http://www.kff.org/uninsured/upload/The-Cost-of-Care-for-the-Uninsured-What-Do-We-Spend-Who-Pays-and-What-Would-Full-Coverage-Add-to-Medical-Spending.pdf.
---------------------------------------------------------------------------

    In addition, these interim final regulations may reduce instances 
of ``job lock''--situations in which workers are unable to change jobs 
due to concerns regarding health insurance coverage for their 
children.\45\ For example, under the Affordable Care Act and these 
interim final regulations, someone currently insured through the group 
market with less than 18 months of continuous coverage may be more 
willing to leave her job and become a self-employed entrepreneur if she 
has a child under age 19 with a preexisting condition, because her 
child now will be able to obtain immediate coverage for the preexisting 
condition in the individual market. Similarly, even a worker with more 
than 18 months of continuous coverage who is already protected by HIPAA 
may be more likely to consider switching firms and changing policies 
because he would not have to worry that his child's preexisting 
condition would be excluded for up to 12 months.\46\ While the total 
reduction in job-lock may be small, the impact on those families with 
children with preexisting conditions may be significant. The effect of 
these interim final regulations on job-lock is discussed further in the 
summary section below.
---------------------------------------------------------------------------

    \45\ A CEA report suggests that the overall cost of job-lock 
could be $3.7 billion annually, which is about 10 percent of 
affected workers wages. While these interim final regulations may 
only have an impact on a small percentage of all individuals 
affected by job-lock it could still have a large dollar impact for 
those affected. Council of Economic Advisors Report, The Economic 
Case for Health Reform (June 2009), at http://www.whitehouse.gov/assets/documents/CEA_Health_Care_Report.pdf.
    \46\ A 2006 study found no evidence that the introduction of 
HIPAA, which reduced preexisting condition exclusions, had any 
impact on job lock, but HIPAA still allows a 12-month preexisting 
condition exclusion meaning that for conditions that need immediate 
care someone could still effectively be uninsured for up to a year. 
In contrast, the provisions of the statute and these interim final 
regulations would not allow any preexisting condition exclusion. See 
e.g., Paul Fronstin, Health Insurance Portability and Job Lock: 
Findings from the 1998 Health Confidence Survey, Employee Benefit 
Research Institute Notes, Volume 19, Number 8, pages 4-6 (Aug. 1998) 
and Anna Sanz-de-Galdeano, Job-Lock and Public Policy: Clinton's 
Second Mandate, Industrial and Labor Relations Review, Volume 59, 
Number 3, pages 430-37 (Apr. 2006).
---------------------------------------------------------------------------

    Executive Order 12866 explicitly requires agencies to take account 
of ``distributive impacts'' and ``equity.'' Requiring health insurers 
to provide coverage to children with preexisting conditions will, as 
described below, result in a small increase in premium for relatively 
healthy adults and children, and a large increase in health and 
financial security for children with preexisting conditions and their 
parents. This transfer is a meaningful increase in equity, and is a 
benefit of these interim final regulations.
d. Costs and Transfers
    Children with preexisting conditions have high health care costs--
approximately three times the average for those without such 
conditions.\47\ Although children with preexisting conditions have 
higher health care costs than healthier children, among children with 
preexisting conditions, those who are uninsured have expenditures that 
are somewhat lower than the average for all children with preexisting 
conditions. Therefore, it is expected that when uninsured children 
obtain coverage, there will be additional demand for and utilization of 
services. There will also be a transfer from out-of-pocket spending to 
spending covered by insurance, which will partially be mitigated by a 
reduction in cost-shifting of uncompensated care to the insured 
population as coverage expands.
---------------------------------------------------------------------------

    \47\ From the Departments' analysis of MEPS data.
---------------------------------------------------------------------------

    As shown above in Table 2.2, the Departments estimate that 
approximately 2,000 to 10,000 children whose parents have ESI or an 
offer of ESI will be newly covered in the group market. Because few 
children are likely to be newly covered in the group market, the 
estimated costs and transfers are extremely small, on the order of 
hundredths of a percent.
    The Departments expect that these interim final regulations will 
have a larger effect on the number of children covered in the 
individual market, resulting in new coverage for between 29,000 and 
62,000 children. Medical expenses for these newly covered children are 
likely to be greater than for the average child covered by individual 
insurance. The Departments' analysis

[[Page 37202]]

also assumes that children with preexisting conditions gaining 
insurance under these interim final regulations will have greater 
health needs than the average uninsured child with a preexisting 
condition. This assumption concerning adverse selection is common to 
most analyses of purchasing behavior in the individual insurance 
market.
    In the majority of States that do not require community rating, 
much of the additional cost of care for newly-covered children with 
preexisting condition is likely to be borne by the parents who purchase 
coverage for their children. Based on discussions with industry 
experts, it appears that even in the absence of community rating, it is 
rare for an insurer to charge more than twice the standard rate for 
someone in poor health. The Departments' analysis assumes that in non-
community rated States, the parents of newly insured children will pay 
a premium that is equal to twice the standard rate, and the remainder 
of the additional costs will be spread to other policy holders in the 
individual market.\48\ However, with the enactment of the Affordable 
care Act and the issuance of these interim final regulations, rating 
practices in the insurance industry could certainly change, lending 
uncertainty to this estimate. In the approximately twenty States that 
require adjusted community rating or rating bands in the individual 
market, the Departments' analysis assumes that all of the additional 
costs of newly covered children will be spread across policies in the 
individual market that are not grandfathered health plans.\49\ Making 
these assumptions, the estimated increase in premiums is 1 percent or 
less in community rated States, and approximately one-half of one 
percent in States without community rating.
---------------------------------------------------------------------------

    \48\ The Departments assume that in non-community rated States, 
parents purchasing individual coverage for a child with a 
preexisting condition will be charged a rate equal to 200 percent of 
the standard rate for a child, because it is rare for insurers to 
charge more than this amount, but it seems unlikely they will charge 
less. To the extent that the estimated expenditures for newly 
covered children are above the premium that the Departments assume 
will be charged, the analysis assumes that the difference will be 
spread over all policies in the individual market.
    \49\ http://www.statehealthfacts.kff.org/comparetable.jsp?ind=354&cat=7.
---------------------------------------------------------------------------

    Finally, for the estimated 90,000 children with existing individual 
coverage that excludes coverage for the preexisting condition or 
requires an exclusion period before coverage for that condition begins, 
the Departments assume that many of these children will receive 
coverage for their condition(s). Because their existing individual 
policies could be grandfathered, the parents of these children may need 
to purchase new policies in order to gain coverage for their children's 
condition without a waiver. Children in a preexisting condition 
exclusion period in particular will need to terminate their current 
policy and purchase a new one in order to take advantage of the 
elimination of any preexisting condition exclusion period. Of note, the 
Departments estimate that turnover in the individual market is between 
40 percent and 70 percent per year.\50\ Therefore, in a few years, most 
children who would have been covered with a condition waiver in the 
absence of these interim final regulations are expected to be in new 
policies that are not grandfathered health plans in any case.
---------------------------------------------------------------------------

    \50\ Adele M. Kirk. The Individual Insurance Market: A Building 
Block for Health Care Reform? Health Care Financing Organization 
Research Synthesis. May 2008.
---------------------------------------------------------------------------

    The Departments analyzed expenditures for the approximately 90,000 
children who reported fair or poor health, or who were taking three or 
more prescription medications, and for whom insurance covered only a 
small portion of spending for one or more medical conditions. Total 
spending for these 90,000 children was not much different than spending 
for the children who did not appear to have a preexisting condition 
waiver, although less of the spending was covered by private insurance, 
and more of it was paid for out-of-pocket or by other sources.\51\
---------------------------------------------------------------------------

    \51\ The Departments' analysis used MEPS data to identify 
approximately 90,000 children with individual coverage for whom 
insurance coverage for one or more conditions was extremely low--
averaging 10 percent of covered expenditures, compared to 
approximately 80 percent for other children. The analysis assumes 
that these children were subject to a preexisting condition waiver, 
and then assumes that when these waivers are eliminated, the 
expenditures that are not covered by insurance in the MEPS data will 
now be shifted to insurance.
---------------------------------------------------------------------------

    Similar to the expectations for newly covered children in the 
individual market, in States that require rating bands or some form of 
community rating, much of the additional cost for eliminating condition 
waivers will be spread across the insured population, while in States 
without rating restrictions, much of the additional costs will be borne 
by the parents who purchase the coverage. However, the estimate that 
insured benefits per child will increase by a relatively modest amount 
suggests that even in States with community rating, the cost and 
transfer effects will be relatively small, at most a few tenths of a 
percent over the next few years.
    In evaluating the impact of this provision, it is important to 
remember that the full net effects of this provision cannot be 
estimated because of its interactions with other provisions in the 
Affordable Care Act that go into effect at the same time. For example, 
under the current guaranteed renewability protections in the individual 
market, if a child with a preexisting condition is now able to obtain 
coverage on a parental plan, he or she can potentially stay on that 
plan until age 26. As another example, the Affordable Care Act will 
require non-grandfathered health plans to provide recommended 
preventive services at no cost-sharing. This will amplify the benefits 
of coverage for newly insured children with preexisting conditions. 
Therefore, the Departments cannot provide a more precise estimation of 
either the benefits or the costs and transfers of this provision.
3. PHS Act Section 2711, No Lifetime or Annual Limits (26 CFR 54.9815-
2711T, 29 CFR 2590.715-2711, 45 CFR 147.126)
a. Summary
    As discussed earlier in this preamble, section 2711 of the PHS Act, 
as added by the Affordable Care Act, and these interim final 
regulations generally prohibits group health plans and health insurance 
issuers offering group or individual health insurance coverage from 
imposing lifetime or annual limits on the dollar value of health 
benefits. The statute also provides a special rule allowing 
``restricted annual limits'' with respect to essential health benefits 
(as defined in section 1302(b) of the Affordable Care Act) for plan 
years (in the individual market, policy years) beginning before January 
1, 2014. In addition, the statute specifies that a plan or issuer may 
impose annual or lifetime per-individual limits on specific covered 
benefits that are not essential health benefits to the extent that such 
limits are permitted under Federal or State law.
    For purposes of establishing a restricted annual limit on the 
dollar value of essential health benefits, the statute provides that in 
defining the term restricted annual limit, the Departments ``ensure 
that access to needed services is made available with a minimal impact 
on premiums.'' \52\ Based on this Congressional directive, the interim 
final regulations allow annual limits on the dollar value of benefits 
that are essential health benefits of no less than $750,000 for plan 
years

[[Page 37203]]

(in the individual market, policy years) beginning on or after 
September 23, 2010, but before September 23, 2011; $1.25 million for 
plan years (in the individual market, policy years) beginning on or 
after September 23, 2011, but before September 23, 2012; and $2 million 
for plan years (in the individual market, policy years) beginning on or 
after September 23, 2012, but before January 1, 2014. For plan years 
(in the individual market, policy years) beginning January 1, 2014, no 
annual limits may be placed on essential health benefits.
---------------------------------------------------------------------------

    \52\ PHS Act section 2711(a)(2) as added by Section 1001(5) of 
the Affordable Care Act and amended by section 10101(a) of such Act.
---------------------------------------------------------------------------

    The statute and these interim final regulations relating to the 
prohibition on lifetime limits generally apply to all group health 
plans and health insurance issuers offering group or individual health 
insurance coverage, whether or not the plan qualifies as a 
grandfathered health plan, for plan years (in the individual market, 
policy years) beginning on or after September 23, 2010. The statute and 
these interim final regulations relating to the prohibition on annual 
limits, including the special rules for plan years beginning before 
January 1, 2014, generally apply to group health plans and group health 
insurance coverage that qualify as a grandfathered health plan, but do 
not apply to grandfathered health plans that are individual health 
insurance coverage.
b. Estimated Number of Affected Entities
    In 2009, the latest data available indicates that both the 
incidence and amount of lifetime limits vary by market and plan type 
(e.g., HMO, PPO, POS). Table 3.1 displays the prevalence of lifetime 
limits for large employer, small employer and individual markets by 
plan type. Sixty-three percent of large employers had lifetime limits; 
52 percent of small employers had lifetime limits and 89 percent of 
individual market plans had lifetime limits. HMO plans are the least 
likely to have a lifetime limit with only 37 percent of large employer 
HMO plans having a limit, 16 percent of small employer HMO plans having 
a limit and 23 percent of individual HMO plans having a limit. The 
generosity of the limit also varies, with 45 percent of all large 
employer plans imposing a lifetime limit of $2,000,000 or more; 39 
percent of small employers' plans imposing a limit of $2,000,000 or 
more and 86 percent of individual market plans imposing a limit of 
$2,000,000 or more. Note that small employers are more likely than 
large employers to offer HMOs that tend not to have lifetime limits, 
but when small businesses offer plans with lifetime limits, the maximum 
limit tends to be lower than those in large firms.\53\
---------------------------------------------------------------------------

    \53\ Employer Health Benefits: 2009 Annual Survey. Washington, 
DC: Henry J. Kaiser Family Foundation and Health Research & 
Educational Trust (September 2009).

                Table 3.1--Prevalence of Lifetime Limits
------------------------------------------------------------------------
                                        Prevalence of       Number of
               Market                 limit  (percent)      enrollees
------------------------------------------------------------------------
                               Large group
------------------------------------------------------------------------
Under $1,000,000....................                 1         1,000,000
$1,000,000-$2,000,000...............                18        18,700,000
$2,000,000 or higher................                45        46,600,000
No Limit............................                37        38,300,000
------------------------------------------------------------------------
                               Small group
------------------------------------------------------------------------
Under $1,000,000....................                 1           500,000
$1,000,000-$2,000,000...............                12         6,300,000
$2,000,000 or higher................                39        20,500,000
No Limit............................                48        25,200,000
------------------------------------------------------------------------
                               Individual
------------------------------------------------------------------------
Under $1,000,000....................                 2           200,000
$1,000,000-$2,000,000...............                 1           100,000
$2,000,000 or higher................                86         8,400,000
No Limit............................                11         1,100,000
------------------------------------------------------------------------
Source: Large and Small Employer Health Plan Enrollment: and Lifetime
  Maximum Exhibit 5.2 and Exhibit 13.12, respectively, Employer Health
  Benefits: 2009 Annual Survey. Washington, DC: Henry J. Kaiser Family
  Foundation and Health Research & Educational Trust (September 2009).
  Individual Health Plan Enrollment and Lifetime Maximum: Table 10 and
  Table 17, respectively, AHIP Center for Policy Research Individual
  Health Insurance 2009: A Comprehensive Survey of Premiums,
  Availability, and Benefits.

    There are scant data on annual limits on which to base this impact 
analysis. Table 3.2 displays the prevalence of annual limits by market, 
plan type and amount of the limit. Only 8 percent of large employers, 
14 percent of small employers and 19 percent of individual market 
policies impose an annual limit and thus would be directly impacted by 
these interim final regulations.\54\ In the first year of 
implementation (beginning September 23, 2010), it is estimated that 
less than 0.08 percent (less than one tenth of one percent) of large 
employer plans, approximately 2.6 percent of

[[Page 37204]]

small employer plans, and 2.3 percent of individual plans would have to 
raise their annual limit to $750,000.\55\ This first-year increase in 
annual limits would potentially affect an estimated 1,670,000 persons 
across the three markets. The second year of the phase-in, beginning 
September 23, 2011, would affect additional plans and policies, 
requiring a cumulative 0.7 percent of large employer plans, 3.9 percent 
of small employer plans, and 5.3 percent of individual policies to 
increase their annual limit to $1,250,000. The second-year increase in 
annual limits would affect an estimated 3,278,250 persons across the 
three markets. The third and final year of the phase-in period 
(beginning on September 23, 2012) would affect additional plans and 
policies requiring a cumulative 2.4 percent of large employer plans, 
8.1 percent of small employer plans and 14.3 percent of individual 
policies to increase their annual limit to $2 million. The third-year 
increase in annual limits would affect an estimated 8,104,500 persons 
across the three markets. Note that the estimated number of plans and 
people affected are upper-bound estimates since they do not take into 
account grandfathered health plans and plans that receive a waiver from 
the annual limits policy.
---------------------------------------------------------------------------

    \54\ There is limited survey data on annual total benefit 
limits. The data utilized in these analyses are derived from data 
collected by Mercer's Health and Benefits Research Unit for their 
2005, 2008 and 2009 National Survey of Employer-Sponsored Health 
Plans. For employer plans, the Mercer data provides prevalence 
information for PPOs and HMOs, and median annual limit levels for 
PPOs, split by small and large employer plans. In order to generate 
a plausible baseline of annual benefit maximums, broken by level of 
maximum, the reported percentages of employer plans that had annual 
maximums were spread into four intervals broken at $500k, $1 
million, and $2 million. For PPOs and HMOs, the data were spread 
using the dispersion observed in lifetime benefit maximums (using 
data from the KFF/HRET employer surveys), and the distribution was 
constrained to be consistent with the Mercer reported median values 
for annual maximums. For annual benefit limits in individual 
coverage the relationship observed between AHIP's reported lifetime 
benefit maximum levels and the KFF/HRET employer lifetime benefit 
maximums was used to generate corresponding distributions from the 
synthesized employer annual limits.
    \55\ These figures and the ones that follow in this paragraph 
are estimated from Tables 2.2 and 2.3 by assuming a uniform 
distribution within each cell.

                       Table 3.2--Percent of Plans Employing Annual Limits in Each Market
----------------------------------------------------------------------------------------------------------------
                                                             Large employer    Small employer      Individual
                  Annual limit  (percent)                       (percent)         (percent)         (percent)
----------------------------------------------------------------------------------------------------------------
Under $250,000............................................                 *               0.4               0.4
$250,000-499,999..........................................                 *               1.3               1.2
$500,000-999,999..........................................                 *               1.7               1.6
$1,000,000-1,999,999......................................               2.3               5.5              12.0
$2,000,000 plus...........................................               5.8               5.5               3.8
                                                           -----------------------------------------------------
    Total.................................................               8.2              14.4              19.0
----------------------------------------------------------------------------------------------------------------
* Less than 0.1%.
Source: The data are derived from data collected by Mercer's Health and Benefits Research Unit for their 2005,
  2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides
  prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large
  employer plans. In order to generate a plausible baseline of annual benefit maximums, broken by level of
  maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals
  broken at $500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion
  observed in lifetime benefit maximums (using data from the KFF/HRET employer surveys), and the distribution
  was constrained to be consistent with the Mercer reported median values for annual maximums. For annual
  benefit limits in individual coverage the relationship observed between AHIP's reported lifetime benefit
  maximum levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding
  distributions from the synthesized employer annual limits.


                     Table 3.3--Number of Persons Subjected to Annual Limits in Each Market
----------------------------------------------------------------------------------------------------------------
              Annual limit                 Large employer    Small employer      Individual           Total
----------------------------------------------------------------------------------------------------------------
Under $250,000..........................            15,000           225,000            38,000           278,000
$250,000-499,999........................            45,000           675,000           115,000           835,000
$500,000-999,999........................            60,000           900,000           153,000         1,113,000
$1,000,000-1,999,999....................         2,389,000         2,869,000         1,177,000         6,435,000
$2,000,000 plus.........................         6,041,000         2,869,000           377,000         9,287,000
                                         -----------------------------------------------------------------------
    Total...............................         8,550,000         7,538,000         1,860,000        17,948,000
----------------------------------------------------------------------------------------------------------------
Source: The data are derived from data collected by Mercer's Health and Benefits Research Unit for their 2005,
  2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides
  prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large
  employer plans. In order to generate a plausible baseline of annual benefit maximums, broken by level of
  maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals
  broken at $500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion
  observed in lifetime benefit maximums (using data from the KFF/HRET employer surveys), and the distribution
  was constrained to be consistent with the Mercer reported median values for annual maximums. For annual
  benefit limits in individual coverage the relationship observed between AHIP's reported lifetime benefit
  maximum levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding
  distributions from the synthesized employer annual limits.

    Fear and anxiety about reaching annual or lifetime limits on 
coverage is a major concern among Americans who have health insurance. 
At the same time, the data suggest that relatively few individuals 
actually reach their policies' annual and lifetime limits. Thus, while 
such limits are relatively common in health insurance, the numbers of 
people expected to exceed either an annual or lifetime limit is quite 
low. The estimates provided in Table 3.4 provide a high and low range 
of the number of people who would hit such limits. Such a range is 
necessary because of the tremendous uncertainty around high-cost 
individuals. First, data are sparse, given that high-cost individuals 
lie at the tail of statistical cost distributions. The Departments 
attempted to extrapolate characteristics of the high-cost population 
who would be affected by these interim final regulations using several 
data sources. Second, data on per-capita cost is available on a year-
by-year basis, and not on a lifetime basis. Assumptions were necessary 
to convert annual costs into lifetime costs, including considerations 
of how current spending could be related to future spending.\56\
---------------------------------------------------------------------------

    \56\ To estimate the conditional premium impact of moving a 
given plan with a given annual benefit maximum to a higher benefit 
maximum, the percentage change in estimated benefit rates (percent 
of medical spending that the plan pays for as benefits) based on 
simulated benefit payments for such coverage was used. The 
underlying assumed medical spending profile was drawn from MEPS-HC 
person level spending data, calibrated to National Health Account 
levels, with the shape of the distribution modified based on high-
cost claims data from the Society of Actuaries. The conditional 
premium increases were then applied to the fractions of plans in 
each of the three market segments by level of current annual limits 
to calculate the aggregate increase in premiums for the possible 
option.

---------------------------------------------------------------------------

[[Page 37205]]

    Considering these caveats, Table 3.4 illustrates that raising the 
restriction of annual limits to $2 million by 2013 would extend 
additional coverage to 2,700 to 3,500 people per year.\57\ The 
elimination of lifetime limits would extend coverage to an estimated 
18,650 to 20,400 people who would be expected to exceed a lifetime 
limit during a calendar year.
---------------------------------------------------------------------------

    \57\ Numbers in this paragraph calculated from Table 2.4 may 
differ due to rounding.

 Table 3.4--Percent and Number of Persons Expected To Exceed a Lifetime
                             or Annual Limit
------------------------------------------------------------------------
                                        Projected to ever exceed limit
                                     -----------------------------------
                                         Percentage          Number
------------------------------------------------------------------------
Current Lifetime Limit:
    Under $1,000,000................         0.03-0.06         550-1,050
    $1,000,000 to $1,999,999........              0.02       4,500-5,000
    $2,000,000 plus.................              0.02     13,600-14,350
Current Annual Limit:
    Under $250,000..................         0.19-0.23           550-650
    $250,000 to $499,999............         0.08-0.10           650-850
    $500,000 to $999,000............         0.03-0.06           350-700
    $1,000,000 to $1,999,999........              0.02       1,150-1,300
    $2,000,000 or more..............         0.01-0.02         750-1,750
------------------------------------------------------------------------
Source: Estimates of the expected percentage of the insured population
  who would exceed a limit are based on an analysis of the MEPS-HC
  expenditure data supplemental with adjusted insurer claims from the
  Society of Actuaries large claims database; http://www.soa.org/files/pdf/Large_Claims_Report.pdf. Numbers of people rounded to the
  nearest 50.

c. Benefits
    Annual and lifetime limits exist in the individual, small group and 
large group health insurance markets. These limits function as caps on 
how much an insurance company will spend on medical care for a given 
insured individual over the course of a year, or the individual's 
lifetime. Once a person reaches this limit or cap, the person is 
essentially uninsured: He or she must pay the remaining cost of medical 
care out-of-pocket. These limits particularly affect people with high-
cost conditions,\58\ which are typically very serious. For example, one 
recent survey found that 10 percent of cancer patients reached the 
limit of what insurance would pay for treatment.\59\ The same survey 
also found that 25 percent of cancer patients or their family members 
used up all or most of their savings, 13 percent were contacted by a 
collection agency, and 11 percent said they were unable to pay for 
basic necessities like food and housing as a result of the financial 
cost of dealing with cancer. By prohibiting lifetime limits and 
restricting annual limits, these interim final regulations will help 
families and individuals experiencing financial burdens due to 
exceeding the benefit limits of their insurance policy. By ensuring and 
continuing coverage, these interim final regulations also reduce 
uncompensated care, which would otherwise increase premiums of the 
insured population through cost-shifting, as discussed in more detail 
in section IV.B.6 later in this preamble.
---------------------------------------------------------------------------

    \58\ An April 2008 study by Milliman ``2008 U.S. Organ and 
Tissue transplant cost estimates'', found that the average one year 
billed charges related to a heart transplant averaged $787,000 while 
a liver transplant averaged $523,400. The lifetime costs for the 
treatment chronic disease such as of HIV infection have been well 
documented with one estimate of $618,000 (Med Care 2006;44: 990-
997).
    \59\ See ``National Survey of Households Affected by Cancer.'' 
(2006) accessed at http://www.kff.org/kaiserpolls/upload/7591.pdf.
---------------------------------------------------------------------------

    These interim final regulations will also improve access to care. 
Reaching a limit could interrupt or cause the termination of needed 
treatment, leading to worsening of medical conditions. Moreover, those 
with medical debt are more likely to skip a needed test or treatment, 
and less likely to fill a prescription or visit a doctor or clinic for 
a medical issue.\60\ The removal and restriction of benefit limits 
helps ensure continuity of care and the elimination of the extra costs 
that arise when an untreated or undertreated condition leads to the 
need for even more costly treatment, that could have been prevented if 
no loss of coverage had occurred. Lack of insurance coverage leads to 
additional mortality and lost workplace productivity, effects that 
would be amplified for a sicker population such as those who would 
reach a benefit limit.\61\ By ensuring continuation of coverage, these 
interim final regulations benefit the health and the economic well-
being of participants, beneficiaries, and enrollees.
---------------------------------------------------------------------------

    \60\ Seifert, Robert W., and Mark Rukavina. ``Bankruptcy Is The 
Tip Of A Medical-Debt Iceberg.'' Health Affairs Web Exclusive 
(2006).
    \61\ See Institute of Medicine.(2003). Hidden Costs, Value Lost: 
Uninsurance in America. Washington, DC: National Academy Press; and 
Institute of Medicine (2002) Care Without Coverage: Too Little, Too 
Late. Washington, DC: National Academy Press.
---------------------------------------------------------------------------

    These interim final regulations also benefit those without an 
alternative source of health coverage in the group health insurance 
market. Under HIPAA rules, when an individual exceeds a limit and loses 
coverage, that individual has a special enrollment right. If his or her 
plan offered multiple benefit packages or a spouse has access to ESI, 
the individual could enroll in the coverage, although it might lead to 
a change in providers and less generous coverage. Those without an 
alternative option would lose coverage, and the history of high medical 
claims and presence of preexisting conditions could make health 
insurance in the individual market impossible. Under these interim 
final regulations, people will no longer be treated differently 
depending on whether they have an alternative source of coverage.
    Executive Order 12866 explicitly requires agencies to take account 
of ``distributive impacts'' and ``equity,'' and these considerations 
help to motivate the relevant statutory provisions and these interim 
final regulations. Prohibiting lifetime limits and restricting annual 
limits assures that insurance will perform the function for which it 
was designed--namely, protecting health and financial well being for 
those most in need of care.

[[Page 37206]]

This represents a meaningful improvement in equity, which is a benefit 
associated with these interim final regulations.
d. Costs and Transfers
    Extending health insurance coverage for individuals who would 
otherwise hit a lifetime or annual limit will increase the demand for 
and utilization of health care services, thereby generating additional 
costs to the system. The three year phase-in of the elimination of 
annual limits and the immediate elimination of lifetime limits will 
increase the actuarial value of the insurance coverage for affected 
plans and policies if no other changes are made to the plan or policy. 
Issuers and plans in the group market may choose to make changes to the 
plan or policy to maintain the pre-regulation actuarial value of the 
plan or policy, such as changing their provider networks or copayments 
in some manner. To the extent that higher premiums (or other plan or 
policy changes) are passed on to all employees, there will be an 
explicit transfer from workers who would not incur high medical costs 
to those who do incur high medical costs. If, instead, the employers do 
not pass on the higher costs of insurance coverage to their workers, 
this could result in lower profits or higher prices for the employer's 
goods or services. Given the relatively small proportion of people who 
exceed the benefit limits in the current group markets, the Departments 
anticipate such transfers to be minimal when spread across the insured 
population (at a premium increase of one-half of a percent or less for 
lifetime limits and one-tenth of a percent or less for annual limits), 
compared with the substantial benefit rendered to individual high-cost 
enrollees. However, as this discussion demonstrates, there is 
substantial uncertainty in data and in the choices plans will decide to 
make in response to these interim final regulations, preventing more 
precise estimations of effects.
    In the individual market, where policies are individually 
underwritten with no rating bands in the majority of States, the 
Departments expect the added premium cost or other benefit changes to 
be largely borne by the individual policyholder. As discussed in the 
impact analysis for Section 2704, if costs exceed 200 percent of the 
standard rate, some of the additional costs could be spread across the 
insurance market. In the 20 States with modified community rating, 
issuers could spread the increased costs across the entire individual 
market, leading to a transfer from those who would not incur high 
medical costs to those who do incur such costs. However, as with the 
group market, such a transfer is expected to be modest, given the small 
numbers of people who would exceed their benefit limit. The Departments 
estimate that the transfer would be three-quarters of a percent or less 
for lifetime limits and one-tenth of a percent or less for annual 
limits, under a situation of pure community rating where all the costs 
get spread across the insured population. This impact does not apply to 
grandfathered individual market plans. Also, given the wide variation 
in State insurance markets, a more precise estimation is not possible, 
and the premium impact would be even less in the majority of States 
that allow underwriting in the individual insurance market.
    It is worth noting that the transfers discussed above will be 
significantly mitigated by the associated expansion of coverage that 
these interim final regulations create. The Departments expect, as a 
result of the gradual elimination of annual limits and the immediate 
elimination of lifetime limits, fewer people will be left without 
protection against high medical costs. This will lead fewer individuals 
to spend down resources and enroll in Medicaid or receive other State 
and locally funded medical support. It can be anticipated that such an 
effect will be amplified due to the high-cost nature of people who 
exceed benefit limits. As a result, there will be a reduction in 
Medicaid, State and local funded health care coverage programs, as well 
as uncompensated care, all of which would otherwise raise taxes and/or 
premiums for the larger population. Unfortunately, data around these 
high-cost individuals is limited, preventing the Departments from 
quantifying these benefits at the present time.
    Additional uncertainty prevents more precise estimation of the 
benefits and impacts of this provision. As discussed in the impact 
analysis for Section 2704, there are interactive effects of the various 
provisions in these interim final regulations which cannot be 
estimated. For example, prohibiting rescissions and lifetime limits 
could mean that someone who would have had a policy rescinded now 
maintains coverage, and also maintains coverage beyond a previous 
lifetime limit. Moreover, it is important to note that the estimates 
presented here, by necessity, utilize ``average'' experiences and 
``average'' plans. Different plans have different characteristics of 
enrollees, for example in terms of age or health status, meaning that 
provisions such as eliminating lifetime or restricting annual limits 
could affect them differently. This also means that average impacts of 
the various provisions in these interim final regulations or others 
cannot simply be added to obtain a total impact, since a plan may be 
affected by one provision but not another. Moreover, plans and issuers 
will consider these impacts when making decisions about whether or not 
to make other changes to their coverage that could affect their 
grandfather status--a consideration that is pertinent in the case of 
restricted annual limits, which do not apply to the grandfathered 
individual market. This further compounds any precise calculation of 
benefits and costs.
e. Enrollment Opportunity
    These interim final regulations provide an enrollment (or, in the 
case of the individual market, reinstatement) opportunity for 
individuals who reached their lifetime limits in a group health plan or 
health insurance coverage and remain otherwise eligible for the 
coverage. In the individual market, the reinstatement opportunity does 
not apply to individuals who reached their lifetime limits in 
individual health insurance coverage if the contract is not renewed or 
otherwise is no longer in effect. It would apply, however, to a family 
member who reached the lifetime limit in an individual health insurance 
family policy while other family members remain in coverage. Such 
enrollment opportunity would generate a total hour burden of 3,800 
hours and a cost burden of $21,000, as detailed in the Paperwork 
Reduction Act section.
f. Alternatives
    PHS Act section 2711(a)(2) requires the Departments to ``ensure 
that access to needed services is made available with a minimal impact 
on premiums.'' Accordingly, the Departments undertook an analysis of 
different restricted annual limit thresholds to study the issue, taking 
into consideration several factors: (1) The current use of annual 
limits in the group and individual market; (2) the average premium 
impact of imposing different annual limits on the individual, small 
group, and large group markets; (3) the number of individuals who will 
continue to have annual medical expenses that exceed an annual limit; 
and (4) the possibility that a plan or issuer would switch to an annual 
limit when lifetime limits are prohibited. In order to mitigate the 
potential for premium increases for all plans and policies, while at 
the same time ensuring access to essential health benefits, the 
Departments decided to

[[Page 37207]]

adopt a three-year phased approach for restricted annual limits.
    As discussed above, it is important to note that it is difficult to 
predict exactly how plans and issuers will respond under the new 
regulations. Annual or lifetime limits on benefits help control risk 
and costs, and the elimination of a lifetime limit or a possible 
increase in an annual limit may lead plans and issuers to alter benefit 
design (such as increasing cost-sharing), and/or raise premiums. The 
Departments cannot determine which option or combination of options 
plans and issuers will choose. Therefore, it is very difficult to 
measure the impact on premiums due to the elimination of lifetime 
limits and a maximum annual limit. This uncertainty is compounded by 
the data uncertainties discussed earlier in section IV.B.2.b of this 
preamble.
    Given the above data limitations, the Departments modeled the 
impact on premiums of increasing the annual limits for plans that 
currently have annual limits, assuming that the only reaction to a 
required increase in annual limits would be an increase in premiums. 
Because some plans may choose to avoid or offset the potential premium 
increase by increasing cost sharing, tightening the network of 
providers, adopting cost savings tools, or making other plan changes, 
the modeled premium impacts represent the high-end of the possible 
increases in premiums.
    The Departments modeled a range of options and ways to implement a 
restricted annual limit. Two of the options considered were setting the 
annual restricted limit on essential benefits at $1 million or at $2 
million. The higher the limit is set, the fewer the people that would 
exceed the limit and experience a gap in insurance coverage. However, 
plans with current low limits could see increases in costs and 
potentially premiums because the proportion of claims covered by the 
plans would increase. One final issue to consider is that for plan 
years (in the individual market, policy years) beginning after January 
1, 2014, all group plans and non-grandfathered individual policies will 
be required to remove annual limits. A low annual limit until 2014 
would offer less protection to those with medical expenses exceeding 
the limit, and could result in an increase in premiums in 2014 
(although a variety of other changes that will be implemented in 2014 
could be expected to result in lower premium increases in most States). 
Therefore, a stepped approach allowing the restricted annual limit to 
be phased in over time seemed to be the fairest approach and most 
likely to result in a minimal impact on premiums, so it was selected.
    Table 3.5 demonstrates premium impacts at different annual limit 
thresholds, and Table 3.4 above demonstrates the numbers of people 
expected to exceed different annual limit thresholds. The Departments 
chose to set the restricted annual limit relatively low in the first 
year, and to then increase the limit up to $2 million over the three-
year period. This phased approach was intended to ease any increases in 
premiums in any one year, particularly for plans with low initial 
annual limits, and to help group plans and non-grandfathered individual 
policies transition to no annual limits starting in 2014. With this 
approach, a threshold of $750,000 was associated with a 5.1 percent 
premium impact for plans with very low annual limits of $250,000, but 
it is anticipated that these plans comprise only less than one-half of 
one percent of the market. On the other hand, raising the restricted 
annual limits to $2,000,000 under these interim final regulations could 
be expected to help an estimated 2,700 to 3,500 people \62\ who would 
no longer exceed their annual limit, ensuring financial protection to 
those who have high medical claims.
---------------------------------------------------------------------------

    \62\ Numbers calculated from Table 3.4 may differ due to 
rounding.
---------------------------------------------------------------------------

    It is important to note that these interim final regulations also 
provide that the Secretary of HHS may establish a waiver program under 
which issuers or plans may assert that adhering to the restricted 
annual limit provisions of these interim final regulations would result 
in a significant decrease in access to benefits or a significant 
premium increase. The Departments provided for this waiver in order to 
prevent the loss of coverage for enrollees in low-benefit plans (for 
example, ``mini-med'' plans) that have low annual limits. While the 
impact of this policy is not quantified, it, too, is intended to 
mitigate any unintended consequences given the paucity of data on the 
incidence and prevalence of annual limits in the markets today.\63\
---------------------------------------------------------------------------

    \63\ If a second decimal place were included, the lower end of 
the range in this column would be greater than the lower end of the 
range in the $1.5 million column.

                                      Table 3.5--Estimated Premium Impacts for a Plan Moving to a New Annual Limit
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  New limit
                                                                                   ---------------------------------------------------------------------
                 Current limit                    People subject to  current limit                               $1 million   $1.5 million   $2 million
                                                                                      $500k  %      $750k  %          %             %             %
--------------------------------------------------------------------------------------------------------------------------------------------------------
$250k..........................................  278,000..........................           3.7           5.1           6.1       6.2-6.4  \63\ 6.2-6.6
$500k..........................................  835,000..........................  ............           1.4           2.3       2.4-2.6       2.4-2.8
$750k..........................................  1,113,000........................  ............  ............           1.0       1.0-1.2       1.0-1.5
$1 million.....................................  6,435,000........................  ............  ............  ............       0.1-0.3       0.1-0.5
                                                --------------------------------------------------------------------------------------------------------
$1.5 million...................................  9,287,000........................  ............  ............  ............  ............      0.04-0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Premium estimates are calculated based MEPS-HC supplemented with the Society of Actuaries Large Claim Database--To estimate the conditional
  premium impact of moving a given plan with a given annual benefit maximum to a higher benefit maximum, the percentage change in estimated benefit
  rates (percent of medical spending that the plan pays for as benefits) based on simulated benefit payments for such coverages was used. The underlying
  assumed medical spending profile was drawn from MEPS-HC person level spending data, calibrated to National Health Account levels, with the shape of
  the distribution modified based on high-cost claims data from the Society of Actuaries. The conditional premium increases were then applied to the
  fractions of plans in each of the three market segments by level of current annual limits to calculate the aggregate increase in premiums for the
  possible option. For the low impact estimates, the distributions were then adjusted only for the expected marginal loading impact of using commercial
  reinsurance for many of the smaller carriers. For the high impact estimates, the distributions were also adjusted to reflect possible underestimation
  of the tails of the expenditure distribution once coverage of unlimited benefit levels was required. The adjustments were set at levels that generated
  aggregate impacts that were conservative relative to estimates from PricewaterhouseCoopers' March 2009 study of lifetime limits for the National
  Hemophilia Foundation.


[[Page 37208]]

4. PHS Act Section 2712, Rescissions (26 CFR 54.9815-2712T, 29 CFR 
2590.715-2712, 45 CFR 147.128)
a. Summary
    As discussed earlier in this preamble, PHS Act Section 2712 
provides rules regarding rescissions for group health plans and health 
insurance issuers that offer group or individual health insurance 
coverage. A plan or issuer must not rescind coverage under the plan, 
policy, certificate, or contract of insurance from the individual 
covered under the plan or coverage unless the individual (or a person 
seeking coverage on behalf of the individual) performs an act, 
practice, or omission that constitutes fraud, or unless the individual 
makes an intentional misrepresentation of material fact, as prohibited 
by the terms of the plan or coverage. These interim final regulations 
provide that a group health plan, or a health insurance issuer offering 
group health insurance coverage, must provide at least 30 calendar days 
advance notice to an individual before coverage may be rescinded.\64\ 
The notice must be provided regardless of whether the rescission is of 
group or individual coverage; or whether, in the case of group 
coverage, the coverage is insured or self-insured, or the rescission 
applies to an entire group or only to an individual within the group.
---------------------------------------------------------------------------

    \64\ Even though prior notice must be provided in the case of a 
rescission, applicable law may permit the rescission to void 
coverage retroactively.
---------------------------------------------------------------------------

    PHS Act Section 2712 and these interim final regulations create a 
statutory Federal standard and enforcement power in the group and 
individual markets where it did not exist. Prior to this provision 
taking effect, varying court-made Federal common law existed for ERISA 
plans. State rules pertaining to rescission have been found to be 
preempted by ERISA by five circuit courts (5th, 6th, 7th, 9th and 11th 
as of 2008). Each styled a remedy looking to State law, the majority of 
Federal courts or the Restatement of Contracts. According to a House 
Energy and Commerce Committee staff memorandum,\65\ rather than 
reviewing medical histories when applications are submitted, some 
insurers engage in ``post-claims underwriting.'' Under this practice, 
if the policyholders become sick and file expensive claims, the 
insurance companies initiate investigations to scrutinize the details 
of the policyholder's application materials and medical records, and if 
discrepancies, omissions, or misrepresentations are found, the insurer 
rescinds the policies, returns the premiums, and refuses payment for 
medical services. The Committee found some questionable practices in 
this area including insurance companies rescinding coverage even when 
discrepancies are unintentional or caused by others, for conditions 
that are unknown to policyholders, and for discrepancies unrelated to 
the medical conditions for which patients sought medical care. 
According to the Committee, the current regulatory framework governing 
the individual insurance market in this area is a haphazard collection 
of inconsistent State and Federal laws. Protections for consumers and 
enforcement actions by regulators vary depending on where individuals 
live. Because of these varying standards, many patients lack adequate 
protections against rescission, prompting the need for and benefits 
from this rule.
---------------------------------------------------------------------------

    \65\ Terminations of Individual Health Insurance Policies by 
Insurance Companies, Hearing before the House Comm. On Energy and 
Commerce, Subcommittee On Oversight and Investigations, June 16, 
2009 (supplemental memorandum), at: http://energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf.
---------------------------------------------------------------------------

    When a coverage rescission occurs, an individual's health insurance 
coverage is retroactively cancelled, which means that the insurance 
company is no longer responsible for medical care claims that they had 
previously accepted and paid. Rescissions can result in significant 
financial hardship for affected individuals, because, in most cases, 
the individuals have accumulated significant medical expenses.
b. Estimated Number of Affected Entities
    The Departments assume that these interim final regulations will 
have their largest impact on the individual insurance market, because 
group health coverage rarely is rescinded.\66\ By creating a new 
Federal standard governing when policies can be rescinded, the 
Departments expect these interim final regulations to potentially 
affect the approximately 17 million non-elderly individual health 
insurance policy holders and their dependents in the individual health 
insurance market.\67\ In addition, approximately 490 health insurance 
issuers offering coverage in the individual health insurance market who 
currently could rescind health insurance coverage are expected to be 
affected.\68\ That said, the actual incidence of individuals who are 
subject to rescissions each year is likely to be small. The NAIC 
Regulatory Framework Task Force collected data on 52 companies covering 
the period 2004-2008, and found that rescissions averaged 1.46 per 
thousand policies in force.\69\ This estimate implies there are 
approximately 10,700 rescissions per year.
---------------------------------------------------------------------------

    \66\ This statement is based on the Departments' conversations 
with industry experts.
    \67\ 2009 Current Population Survey.
    \68\ Estimates are from 2007 NAIC financial statements data and 
the California Department of Managed Healthcare (http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx).
    \69\ NAIC Rescission Data Call, December 17, 2009, p.1.
---------------------------------------------------------------------------

c. Benefits
    There are many benefits that flow from these interim final 
regulations, which the Departments believe justify the costs. As noted, 
Executive Order 12866 requires consideration of ``distributive 
impacts'' and ``equity.'' To the extent that rescissions are arbitrary 
and revoke the insurance that enrollees paid for and expected to cover 
the cost of expensive illnesses and conditions, preventing rescissions 
would prevent inequity and greatly increase health and economic well-
being. Consumers would have greater confidence that purchasing 
insurance would be worthwhile, and policies would represent better 
value for money. As discussed further in section IV.B.6.b of this 
preamble, it is also well-documented that lack of insurance leads to 
lost workplace productivity and additional mortality and morbidity. 
Thus, these rules would contribute to reducing the burden from lost 
productivity that arises from people being uncovered. These effects 
would be especially large relative to the number of individuals 
affected given that the affected population tends to be much sicker on 
average.
    Specifically, this provision also could protect against 
interruptions or terminations in care resulting from rescissions. As a 
result of the statute and these interim final regulations, people with 
high-cost illnesses at risk of rescission would have continued access 
to care throughout their illness, possibly avoiding more expensive and 
debilitating complications down the road. Gaps in health insurance, 
even if brief, can have significant health and financial 
consequences.\70\ A survey from the Commonwealth Fund found that about 
three of five adults with any time uninsured said they had not received 
needed health care in the past year because of costs--more than two 
times the rate of adults who were insured all year. Further, 44 percent 
of respondents who had experienced any coverage break during the prior 
year said they had failed to go to a doctor or clinic

[[Page 37209]]

when they had a medical problem because of costs, compared with 15 
percent of adults who did not experience such breaks.\71\
---------------------------------------------------------------------------

    \70\ This point is discussed further in the section IV.B.6.b. 
later in this preamble.
    \71\ Collins et al. ``Gaps in Health Insurance: An All American 
Problem'' Commonwealth Fund (2006), available at: http://www.commonwealthfund.org/usr_doc/Collins_gapshltins_920.pdf.
---------------------------------------------------------------------------

    These interim final regulations will also have substantial 
financial benefits for individuals who otherwise would have had their 
policies rescinded. While there has been minimal documentation of 
financial losses associated with rescissions, reports suggest severe 
financial hardships may result. In one case, a woman faced more than 
$129,000 in medical bills and was forced to stop chemotherapy for 
several months after being dropped by an insurer.\72\ The maintenance 
of coverage through illness not only prevents financial hardship for 
the particular enrollee, but can also translate into lower premiums for 
the broader insured population by reducing cost-shifting from the costs 
of uncompensated care.
---------------------------------------------------------------------------

    \72\ Girion, Lisa ``Health Net Ordered to Pay $9 million after 
Canceling Cancer Patient's Policy,'' Los Angeles Times (2008), 
available at: http://www.latimes.com/business/la-fi-insure23feb23,1,5039339.story.
---------------------------------------------------------------------------

d. Costs and Transfers
    The prohibition of rescissions except in cases of fraud or 
intentional misrepresentation of material fact could lead insurers to 
spend more resources checking applications before issuing policies than 
they did before the Affordable Care Act, which would increase 
administrative costs. However, these costs could be partially offset by 
decreased costs associated with reduced post-claims underwriting under 
the interim final rule. Due to lack of data on the administrative costs 
of underwriting and post-claims underwriting, as well as lack of data 
on the full prevalence of rescissions, it is difficult for the 
Departments to quantify these costs. The new requirement for an advance 
notice prior to rescission of a policy imposes an hour burden of 350 
hours and a cost burden of $29,000. These costs are discussed in more 
detail in the Paperwork Reduction Act section later in this preamble.
    To the extent that continuing coverage for these generally high-
cost populations leads to additional demand for and utilization of 
health care services, there will be additional costs generated in the 
health care system. However, given the relatively low rate of 
rescissions (approximately 0.15 percent of individual policies in 
force) and the relatively sick nature of people who have policies 
rescinded (who would have difficulty going without treatment), the 
Departments estimate that these additional costs would be small.
    Under this provision of these interim final regulations, a transfer 
likely will occur within the individual health insurance market from 
policyholders whose policies would not have been rescinded before the 
Affordable Care Act to some of those whose policies would have been 
rescinded before the Affordable Care Act, depending on the market and 
the rules which apply to it. This transfer could result from higher 
overall premiums insurers will charge to recoup their increased costs 
to cover the health care costs of very sick individuals whose policies 
previously could be rescinded (the precise change in premiums depends 
on the competitive conditions in specific insurance markets). However, 
rescissions are extremely rare in group markets where such costs would 
be most likely to be transferred through premium increases. As 
described earlier, they are also rare in the individual market, 
affecting 0.15 percent of policies. In this market, the potential costs 
would likely be born by the individuals themselves unless they live in 
a State with regulations limiting rate increases based on health, as 
discussed further below.
    While the Departments are unable to estimate the impact of 
prohibiting rescissions except in cases of fraud or intentional 
misrepresentation with certainty, they expect it to be small. Even the 
high rates of rescission acknowledged by some smaller insurers would 
still be expected to translate into only a small average impact across 
the individual health insurance market. And since this small impact 
across the market would be primarily attributable to insurers paying 
benefits to persons with substantial medical expenditures, the transfer 
would be useful.
    The Departments assume for their analysis that the individuals 
covered by the rescinded policies are much sicker than average. 
Specifically, these individuals are assumed to have total spending in 
the top 10 percent of spending, which represents about 70 percent of 
total spending for the population as a whole, as estimated from the 
2007 MEPS-HC person level medical expenditure distributions. If the 
overall NAIC rescission rate of 0.15 percent comes from this subset 
randomly, then they would account for one percent of claims. Depending 
on the percentage of rescissions that no longer occur as a result of 
these interim final regulations, and other changes to the insurance 
market as detailed below, these claims would now have to be covered, 
representing a transfer of costs from the affected entities to the 
larger insured population.
    Substantial uncertainty exists around the estimated transfer 
discussed above. First, since post-claims underwriting is limited by 
these interim final regulations, plans may expand their pre-claims 
underwriting practices, potentially leading to increased denials, 
preexisting condition riders, or rate-ups.\73\ This in turn would 
decrease the number of rescissions, but without expanding coverage or 
increasing claims paid. Second, there is uncertainty concerning what 
proportion of the rescissions would be considered to result from fraud 
or intentional misrepresentation of material fact, and also uncertainty 
regarding the interaction of this provision with other provisions, such 
as the elimination of lifetime limits discussed in the impact analysis 
for PHS Act section 2711, or the prohibition of preexisting condition 
exclusions for children--since new children will now be able to enroll 
in policies which also cannot be rescinded. As a result of this 
uncertainty, the Departments are unable to precisely estimate an 
overall or average premium impact from this provision, but given the 
relatively low prevalence of rescissions in the current market, the 
impact is estimated to be at most a few tenths of a percent.
---------------------------------------------------------------------------

    \73\ These interim final regulations eliminate preexisting 
condition riders for children, but such riders will continue to be 
allowed for adults until January 1, 2014.
---------------------------------------------------------------------------

5. PHS Act Section 2719A, Patient Protections (26 CFR 54.9815-2719AT, 
29 CFR 2590.715-2719A, 45 CFR 147.138)
    As discussed earlier in this preamble, Section 2719A of the PHS Act 
and these interim final regulations impose, with respect to a group 
health plan, or group or individual health insurance coverage, a set of 
three requirements relating to the choice of a health care professional 
and requirements relating to benefits for emergency services. The three 
requirements relating to the choice of health care professional apply 
only with respect to a plan or health insurance coverage with a network 
of providers. Thus, a plan or issuer that has not negotiated with any 
provider for the delivery of health care but merely reimburses 
individuals covered under the plan for their receipt of health care is 
not subject to the requirements relating to the choice of a health care 
professional. However, all plans or health insurance coverage are 
subject to requirements relating to benefits for

[[Page 37210]]

emergency services. The cost, benefits, and transfers associated with 
each of these requirements are discussed separately below.
    PHS Act section 2719A and these interim final regulations are 
generally effective for plan years (or, in the case of the individual 
market, policy years) beginning on or after September 23, 2010.
a. Choice of Health Care Professional
i. Designation of Primary Care Provider
    Summary. The statute and these interim final regulations provide 
that if a group health plan, or a health insurance issuer offering 
group or individual health insurance coverage, requires or provides for 
designation by a participant, beneficiary, or enrollee of a 
participating primary care provider, then the plan or issuer must 
permit each participant, beneficiary, and enrollee to designate any 
participating primary care provider who is available to accept the 
participant, beneficiary, or enrollee.
    Estimated Number of Affected Entities. Choice or assignment to a 
primary care provider is typically required by health maintenance 
organizations (HMOs) and Point of Service plans (POS). Recent data 
suggest that there are 577 HMOs in the United States,\74\ accounting 
for more than 32.3 million enrollees,\75\ of whom about 40 percent have 
their primary care provider serve as a gatekeeper.\76\ Similar data 
does not exist for POS plans, although as a reference, about 10 percent 
of workers with ESI are enrolled in POS plans.\77\
---------------------------------------------------------------------------

    \74\ Kaiser Family Foundation, ``Number of HMOs, July 2008,'' 
available at http://www.statehealthfacts.kff.org/comparetable.jsp?ind=347&cat=7&sub=85&yr=71&typ=1&sort=a Note that 
the number of HMOs also includes Medicaid and Medicare only HMOs 
that are not covered by these interim final regulations.
    \75\ Departments' estimates are based on the 2009 CPS and the 
2008 Medical Expenditure Panel Survey.
    \76\ See Fang, Hai, et al., ``Has the use of physician 
gatekeepers declined among HMOs? Evidence from the United States.'' 
International Journal of Health Care Finance and Economics 9:183-19 
5 (2009).
    \77\ See Kaiser Employer Health Benefits Annual Survey, 2009, 
Exhibit 5.2 (``Distribution of Health Plan Enrollment for Covered 
Workers, by Firm Size, Region, and Industry, 2009''), available at 
http://ehbs.kff.org/pdf/2009/7936.pdf.
---------------------------------------------------------------------------

    PHS Act section 2719A and these interim final regulations only 
apply to non-grandfathered health plans. However, due to the lack of 
data on HMO and POS enrollees by type of market, and the inability to 
predict new plans that may enter those markets, the Departments are 
unable to predict the number enrollees and plans that would be affected 
by these provisions. Moreover, there are no data on the number of plans 
that auto-assign patients to primary care physicians and do not already 
allow patients to make the final provider choice, as this would be the 
population to benefit maximally from the interim final rule. From 
conversations with industry experts the Departments expect, however, 
that this number would be very small, and therefore the benefits and 
costs of this provision would be small as well, as discussed further 
below.
    Benefits. Provider choice allows patients to take into account 
factors they may value when choosing their provider, such as provider 
credentials, office hours and location, advice from professionals, and 
information on the experience of other patients.\78\ Freedom of choice 
is an important value, particularly in this domain, even if it cannot 
easily be turned into monetary equivalents. Provider choice is a strong 
predictor of patient trust in their provider, which could lead to 
decreased likelihood of malpractice claims.\79\ As well, studies show 
that better patient-provider trust results in improved medication 
adherence.\80\ Research literature suggests that better patient-
provider relationships also increase health promotion and therapeutic 
effects.\81\ Moreover, one study found that adults who identified 
having a primary care provider, rather than a specialist, as their 
regular source of care had 33 percent lower annual adjusted health care 
expenditures and lower adjusted mortality.\82\
---------------------------------------------------------------------------

    \78\ See Fanjiang, Gary, et al., ``Providing Patients Web-based 
Data to Inform Physician Choice: If You Build It, Will They Come?.'' 
Journal of General Internal Medicine 22.10 (2007).
    \79\ Balkrishnan, Rajesh, and Chu-Weininger, Ming Ying L., 
``Consumer Satisfaction with Primary Care Provider Choice and 
Associated Trust.'' BMC Health Services Research 22.10 (2007).
    \80\ Piette, John, et al., ``The Role of Patient-Physician Trust 
in Moderating Medication Nonadherence Due to Cost Pressures.'' 
Archives of Internal Medicine 165, August (2005) and Roberts, 
Kathleen J., ``Physician-Patient Relationships, Patient 
Satisfaction, and Antiretroviral Medication Adherence Among HIV-
Infected Adults Attending a Public Health Clinic.'' AIDS Patient 
Care and STDs 16.1 (2002).
    \81\ Ibid. See also DiMatteo, Robin M., et al., ``Physicians' 
Characteristics Influence Patients' Adherence to Medical Treatment: 
Results From the Medical Outcomes Study.'' Health Psychology 12.2 
(1993), and Bazemore, Andrew, and Phillips, Robert, ``Primary Care 
and Why it Matters for U.S. Health Reform.'' Health Affairs 29.5 
(2010).
    \82\ Franks, P., and K. Fiscella, ``Primary Care Physicians and 
Specialists as Personal Physicians. Health Care Expenditures and 
Mortality Experience.'' Journal of Family Practice 47 (1998).
---------------------------------------------------------------------------

    Studies have also found that patients who have long-term 
relationships with their health care providers tend to experience 
better quality health care. Adults that have a usual provider and place 
are more likely to receive preventive care and screening services than 
those who do not. For example, adults were 2.8 times more likely to 
receive a flu shot and women between the ages of 20-64 were 3.9 times 
more likely to receive a clinical breast exam if they had a usual 
provider and place of service.\83\
---------------------------------------------------------------------------

    \83\ Blewett, Lynn, et al., ``When a Usual Source of Care and 
Usual Provider Matter: Adult Prevention and Screening Services.'' 
Journal of General Internal Medicine 23.9 (2008).
---------------------------------------------------------------------------

    Regular contact with primary care providers also can decrease 
emergency department visits and hospitalizations. One study found that 
adolescents with the same regular source of care were more likely to 
receive preventive care and less likely to seek care in an emergency 
room.\84\ Another study found that patients without a relationship with 
a regular physician were 60 percent more likely to go to the emergency 
department with a non-urgent condition.\85\ Patients that have a usual 
source of care tend to also have fewer hospital admissions.\86\
---------------------------------------------------------------------------

    \84\ Macinko, James, et al., ``Contribution of Primary Care to 
Health Systems and Health.'' Milbank Quarterly 83.3 (2005).
    \85\ Burstin, ``Nonurgent Emergency Department Visits: The 
Effect of Having a Regular Doctor.''
    \86\ Bazemore, ``Primary Care and Why it Matters for U.S. Health 
Reform.''
---------------------------------------------------------------------------

    Costs and Transfers. Although difficult to estimate given the data 
limitations described above, the costs for this provision are likely to 
be minimal. As previously noted, when enrollees like their providers, 
they are more likely to maintain appointments and comply with 
treatment, both of which could induce demand for services, but these 
services could then in turn reduce costs associated with treating more 
advanced conditions. However, the number of affected entities from this 
provision is very small, leading to small additional costs.
    There will likely be negligible transfers due to this provision 
given no changes in coverage or cost-sharing.
ii. Designation of Pediatrician as Primary Care Provider
    Summary. If a plan or issuer requires or provides for the 
designation of a participating primary care provider for a child by a 
participant, beneficiary, or enrollee, the plan or issuer must permit 
the designation of a physician (allopathic or osteopathic) who 
specializes in pediatrics as the child's primary care provider if the 
provider participates in the network of the plan or issuer and is 
available to accept the child. The general terms of the plan or health 
insurance coverage regarding pediatric care otherwise are unaffected,

[[Page 37211]]

including any exclusions with respect to coverage of pediatric care.
    Estimated Number of Affected Entities. Due to lack of data on 
enrollment in managed care organizations by age, as well as lack of 
data on HMO and POS enrollees by type of market, and the inability to 
predict new plans that may enter those markets, the Departments are 
unable to predict the number enrollees and plans that would be affected 
by these provisions. As a reference, there are an estimated 11.8 
million individuals under age 19 with ESI who are in an HMO plan.\87\
---------------------------------------------------------------------------

    \87\ U.S. Department of Labor/EBSA calculations using the March 
2009 Current Population Survey Annual Social and Economic Supplement 
and the 2008 Medical Expenditure Panel Survey.
---------------------------------------------------------------------------

    Benefits. By expanding participating primary care provider options 
for children to include physicians who specialize in pediatrics, this 
provision could benefit individuals who are making decisions about care 
for their children. As discussed in the previous section, research 
indicates that when doctors and patients have a strong, trusting 
relationship, patients often have improved medication adherence, health 
promotion, and other beneficial health outcomes. Considering this 
research, this provision could lead to better, sustained patient-
provider relationships and health outcomes.
    In addition, allowing enrollees to select a physician specializing 
in pediatrics as their children's primary care provider could remove 
any referral-related delays for individuals in plans that require 
referrals to pediatricians and do not allow physicians specializing in 
pediatrics to serve as primary care providers.\88\ The American Academy 
of Pediatrics (AAP) strongly supports the idea that the choice of 
primary care clinicians for children should include pediatricians.\89\ 
Relatedly, at least two States have laws providing children immediate 
access to pediatricians.\90\
---------------------------------------------------------------------------

    \88\ There is no data available to estimate the number of plans 
that fall into this category.
    \89\ See AAP Policy, ``Guiding Principles for Managed Care 
Arrangements for the Health Care of Newborns, Infants, Children, 
Adolescents, and Young Adults,'' available at http://aappolicy.aappublications.org/cgi/reprint/pediatrics;105/1/132.pdf.
    \90\ For example, Michigan and North Carolina mandate direct 
access to pediatricians as a part of patients' rights requirements. 
See Kaiser Family Foundation, ``Patients' Rights: Direct Access to 
Providers, 2008,'' available at http://www.statehealthfacts.kff.org/comparetable.jsp?ind=364&cat=7.
---------------------------------------------------------------------------

    Regular pediatric care, including care by physicians specializing 
in pediatrics, can improve child health outcomes and avert preventable 
health care costs. For example, one study of Medicaid enrolled children 
found that when children were up to date for age on their schedule of 
well-child visits, they were less likely to have an avoidable 
hospitalization at a later time.\91\ Likewise, if providers are able to 
proactively identify and monitor obesity in child patients, they may 
reduce the incidence of adult health conditions that can be expensive 
to treat; various studies have documented links between childhood 
obesity and diabetes, hypertension, and adult obesity.\92\ One recent 
study modeled that a one-percentage-point reduction in obesity among 
twelve-year-olds would save $260.4 million in total medical 
expenditures.\93\
---------------------------------------------------------------------------

    \91\ Bye, ``Effectiveness of Compliance with Pediatric 
Preventative Care Guidelines Among Medicaid Beneficiaries.''
    \92\ ``Working Group Report on Future Research Directions in 
Childhood Obesity Prevention and Treatment.'' National Heart Lung 
and Blood Institute, National Institute of Health, U.S. Department 
of Health and Human Services (2007), available at http://www.nhlbi.nih.gov/meetings/workshops/child-obesity/index.htm.
    \93\ Ibid.
---------------------------------------------------------------------------

    Giving enrollees in covered plans (that require the designation of 
a primary care provider) the ability to select a participating 
physician who specializes in pediatrics as the child's primary care 
provider benefits individuals who would not otherwise have been given 
these choices. Again, the extent of these benefits will depend on the 
number of enrollees with children that are covered by plans that do not 
allow the selection of a pediatrician as the primary care provider, 
which industry experts suggest would be small.
    Costs and Transfers. Although difficult to estimate given the data 
limitations described above, the costs for this provision are likely to 
be small. Giving enrollees a greater choice of primary care providers 
by allowing them to select participating physicians who specialize in 
pediatrics as their child's primary care provider could lead to health 
care costs by increasing the take-up of primary care services, assuming 
they would not have utilized appropriate services as frequently if they 
had not been given this choice.
    Any transfers associated with these interim final regulations are 
expected to be minimal. To the extent that pediatricians acting as 
primary care providers would receive higher payment rates for services 
provided than would other primary care physicians, there may be some 
transfer of wealth from policy holders of non grandfathered group plans 
to those enrollees that choose the former providers. However, the 
Departments do not believe that this is likely given the similarity in 
income for primary care providers that care for children.\94\
---------------------------------------------------------------------------

    \94\ http://www.merritthawkins.com/pdf/2008-mha-survey-primary-care.pdf.
---------------------------------------------------------------------------

iii. Patient Access to Obstetrical and Gynecological Care
    Summary. The statute and these interim final regulations also 
provide rules for a group health plan, or a health insurance issuer 
offering group or individual health insurance coverage, that provides 
coverage for obstetrical or gynecological care and requires the 
designation of an in-network primary care provider. Specifically, the 
plan or issuer may not require authorization or referral by the plan, 
issuer, or any person (including a primary care provider) for a female 
participant, beneficiary, or enrollee who seeks obstetrical or 
gynecological care provided by an in-network health care professional 
who specializes in obstetrics or gynecology. These plans and issuers 
must also treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, by the professional who specializes in obstetrics or 
gynecology as the authorization of the primary care provider. For this 
purpose, a health care professional specializing in obstetrics or 
gynecology is any individual who is authorized under applicable State 
law to provide obstetrical or gynecological care, and is not limited to 
a physician.
    Estimated Number of Affected Entities. Requiring referrals or 
authorizations to health care professional who specializes in 
obstetrics or gynecology (OB/GYNs) is typically required by health 
maintenance organizations (HMOs) and Point of Service plans (POS). As a 
reference, according to the 2004 Kaiser Women's Health Survey, 46 
percent of women reported seeing an OB/GYN in the past year and 47 
percent of women of reproductive age counted OB/GYNs among their 
routine health care providers.\95\ In 2006, there were 69.4 million 
visits to an OB/GYN according to the National Ambulatory Medical Care 
Survey conducted by the Centers for Disease Control and Prevention.\96\ 
Although more recent data is not available, a 1999 survey showed that 
60 percent of all OB/GYNs in plans

[[Page 37212]]

requiring the designation of a primary care provider reported that 
their gynecologic patients were either limited or barred from seeing 
their OB/GYNs without first getting permission from another physician, 
and 28 percent reported that their pregnant patients needed permission 
before seeing an OB/GYN.\97\ Nearly 75 percent of surveyed OB/GYNs 
reported that their patients needed to return to their primary care 
physicians for permission before they could provide necessary follow-up 
care.
---------------------------------------------------------------------------

    \95\ See Salganicoff, Alina, et al., ``Women and Health Care: A 
National Profile.'' Kaiser Family Foundation (2005).
    \96\ See Cherry, Donald K., et al., ``National Ambulatory 
Medical Care Survey: 2006 Summary.'' National Health Statistics 
Reports (August 2008), Centers for Disease Control and Prevention, 
available at http://www.cdc.gov/nchs/data/nhsr/nhsr003.pdf.
    \97\ See American College of Obstetricians and Gynecologists/
Princeton Survey Research Associates, 1999.
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    Notably, beginning in 1994, due to both consumer demand and efforts 
to regulate managed care, many States passed direct access laws for OB/
GYNs, allowing patients to seek care at an OB/GYN office without a 
referral from a primary care physician. As of 2008, 36 States plus the 
District of Columbia have laws that provide direct access to OB/GYNs. 
However, 14 States have not mandated direct access: Alaska, Arizona, 
Hawaii, Indiana, Iowa, Nebraska, New Jersey, New Mexico, North Dakota, 
Oklahoma, South Dakota, Tennessee, Vermont, and Wyoming.\98\ This 
provision gives females direct access to OB/GYNs in covered plans in 
these States, who may otherwise not have had this direct access. As 
well, because State law is preempted by ERISA, women in self-insured 
plans did not previously receive this legal protection. In addition, 
these women will not need to get an authorization from their primary 
care provider for the care and ordering of obstetrical and 
gynecological items and services by their participating OB/GYN.
---------------------------------------------------------------------------

    \98\ Kaiser Family Foundation, ``Mandates Direct Access to OB/
GYNs?,'' available at http://www.statehealthfacts.kff.org/comparemaptable.jsp?ind=493&cat=10&sub=114.
---------------------------------------------------------------------------

    These interim final regulations apply to non-grandfathered health 
plans. However, due to the lack of data on HMO and POS enrollees by 
type of market, and the inability to predict new plans that may enter 
those markets, the Departments are unable to predict the number 
enrollees and plans that would be affected by this provision. As a 
reference, there are an estimated 14.8 million females between ages 21 
to 65 with ESI who are in HMO plans.\99\
---------------------------------------------------------------------------

    \99\ U.S. Department of Labor/EBSA calculations using the March 
2009 Current Population Survey Annual Social and Economic Supplement 
and the 2008 Medical Expenditure Panel Survey.
---------------------------------------------------------------------------

    Benefits. This provision gives women in covered plans easier access 
to their OB/GYNs, where they can receive preventive services such as 
pelvic and breast exams, without the added time, expense, and 
inconvenience of needing permission first from their primary care 
providers. Moreover, this provision may also save time and reduce 
administrative burden since participating OB/GYNs do not need to get an 
authorization from a primary care provider to provide care and order 
obstetrical and gynecological items and services. To the extent that 
primary care providers spend less time seeing women who need a referral 
to an OB/GYN, access to primary care providers will be improved. To the 
extent that the items and services are critical and would have been 
delayed while getting an authorization from the primary care provider, 
this provision could improve the treatment and health outcomes of 
female patients.
    Access to such care can have substantial benefits in women's lives. 
About 42,000 American women die each year from breast cancer, and it is 
estimated that about 4,000 additional lives would be saved each year 
just by increasing the percentage of women who receive recommended 
breast cancer screenings to 90 percent.\100\ As well, regular screening 
with pap smears is the major reason for the 30-year decline in cervical 
cancer mortality.\101\
---------------------------------------------------------------------------

    \100\ See National Commission on Prevention Priorities, 
``Preventive Care: A National Profile on Use, Disparities, and 
Health Benefits.'' Partnership for Prevention, August 2007.
    \101\ See ``Preventive Care: A National Profile on Use, 
Disparities, and Health Benefits'' at 26.
---------------------------------------------------------------------------

    To the extent that direct access to OB/GYN services results in 
increased utilization of recommended and appropriate care, this 
provision may result in benefits associated with improved health status 
for the women affected. Potential cost savings also exist since women 
in affected plans will not need to visit their primary care provider in 
order to get a referral for routine obstetrical and gynecological care, 
items, and services, thereby reducing unnecessary time and 
administrative burden, and decreasing the number of office visits paid 
by her and by her health plan.
    Costs and Transfers. One potential area of additional costs 
associated with this provision would be induced demand, as women who no 
longer need a referral to see an OB/GYN may be more likely to receive 
preventive screenings and other care. Data is limited to provide an 
estimate of this induced demand, but the Departments believe it to be 
small.
    To the extent these interim final regulations result in a shift in 
services to higher cost providers, it would result in a transfer of 
wealth from enrollees in non grandfathered group plans to those 
individuals using the services affected. However, such an effect is 
expected to be small.
b. Coverage of Emergency Services
i. Summary
    PHS Act section 2719A and these interim final regulations provide 
that a group health plan and a health insurance issuer covering 
emergency services must do so without the individual or the health care 
provider having to obtain prior authorization (even if the emergency 
services are provided out of network). For a plan or health insurance 
coverage with a network of providers that provide benefits for 
emergency services, the plan or issuer may not impose any 
administrative requirement or limitation on benefits for out-of-network 
emergency services that is more restrictive than the requirements or 
limitations that apply to in-network emergency services.
    Finally, these interim final regulations provide that cost-sharing 
requirements expressed as a copayment amount or coinsurance rate 
imposed for out-of-network emergency services cannot exceed the cost-
sharing requirements that would be imposed if the services were 
provided in-network. These interim final regulations also provide that 
a plan or health insurance issuer pay for out-of-network emergency 
services (prior to imposing in-network cost-sharing), the greatest of: 
(1) The median in-network rate; (2) the usual customary and reasonable 
rate (or similar rate determined using the plans or issuer's general 
formula for determining payments for out-of-network services); or (3) 
the Medicare rate.
    In applying the rules relating to emergency services, the statute 
and these interim final regulations define the terms emergency medical 
condition, emergency services, and stabilize. These terms are defined 
generally in accordance with their meaning under Emergency Medical 
Treatment and Labor Act (EMTALA), section 1867 of the Social Security 
Act. There are, however, some variances from the EMTALA definitions.
    The statute and these interim final regulations relating to 
emergency services do not apply to grandfathered health plans; however, 
other Federal or State laws related to emergency services may apply 
regardless of grandfather status.
ii. Estimated Number of Affected Entities
    These interim final regulations will directly affect out-of-pocket

[[Page 37213]]

expenditures for individuals enrolled in non-grandfathered private 
health insurance plans (group or individual) whose copayment or 
coinsurance arrangements for emergency services differ between in 
network and out of network providers. These interim final regulations 
may also require some health plans to make higher payments to out of 
network providers than are made under their current contractual 
arrangements. There are no available data, however, that allow for 
national estimates of the number of plans (or number of enrollees in 
plans) that have different payment arrangements for out of network than 
in-network providers, or differences between in- and out-of-network 
copayment and coinsurance arrangements, in order to more precisely 
estimate the number of enrollees affected.
    The Departments conducted an informal survey of benefits plans for 
large insurers in order to assess the landscape with regard to 
copayment and coinsurance for emergency department services, but found 
that a variety of arrangements currently exist in the marketplace. Many 
of the large insurers maintained identical copayment and/or coinsurance 
arrangements between in and out of network providers. Others have 
differing arrangements based on copayments, coinsurance rates, or a 
combination of the two. While useful for examining the types of 
arrangement that exist in the market place, these data do not contain 
enrollment information and therefore cannot be used to make impact 
estimates.
    Although these data do not permit quantitative estimates of plans 
or persons affected, other data can be illustrative of overall 
magnitudes for emergency services. For a point of reference, in 2005, 
115.3 million visits were made to hospital emergency departments. Of 
these, 39.9 percent were made by individuals with private insurance. 
This represents approximately 46.0 million visits, at approximately 1.7 
visits per insured person that utilized emergency department services, 
or 27.4 million people.\102\ While data on rates of out-of-network 
emergency room encounters is sparse, the Blue Cross Blue Shield (BCBS) 
Association reports that nationally about 8 percent of its emergency 
room visits are sought out-of-network.\103\ Given the breadth of the 
Blue Cross networks, it is reasonable to assume that 8 percent to 16 
percent of emergency room visits are out-of-network each year, since a 
plan with a smaller provider network will be more likely to have out-
of-network use by enrollees. If each individual was equally likely to 
utilize out of network services, a maximum of 2.1 to 4.2 million 
individuals would be potentially affected by differing out-of-pocket 
requirements. Based on the informal survey, some proportion, possibly a 
large portion, of these individuals are covered by plans that have 
identical in and out-of-network requirements. Therefore, the number of 
individuals affected by this regulatory provision would be smaller.
---------------------------------------------------------------------------

    \102\ Vital and Health Statistics, Advanced Data No. 386, June 
29, 2007.
    \103\ BCBS, however, reports its rates vary considerably by 
State, with 11 States having double digit rates ranging from 10 
percent to a high of 41 percent. Moreover, because BCBS has 
reciprocity between many State Blue Cross Blue Shield plans, its 
statistics for out of network emergency services utilization should 
be considered a conservative estimate of the proportion of ER 
services that insured individuals receive out-of-network.
---------------------------------------------------------------------------

iii. Benefits
    Insurers maintain differing copayment and coinsurance arrangements 
between in- and out-of-network providers as a cost containment 
mechanism. Implementing reduced cost sharing for the use of in-network 
providers provides financial incentive for enrollees to use these 
providers, with whom plans often have lower-cost contractual 
arrangements. In emergency situations, however, the choice of an in-
network provider may not be available--for example, when a patient is 
some distance from his or her local provider networks or when an 
ambulance transports a patient to the nearest hospital which may not 
have contractual arrangements with the person's insurer. In these 
situations, the differing copayment or coinsurance arrangements could 
place a substantial financial burden on the patient. These interim 
final regulations eliminate this disparity in out-of-pocket burden for 
enrollees, leading to potentially substantial financial benefit.
    These interim final regulations also provide for potentially higher 
payments to out-of-network providers, if usual customary rates or 
Medicare rates are higher than median in-network rates. This could have 
a direct economic benefit to providers and patients, as the remaining 
differential between provider charge and plan payment will be smaller, 
leading to a smaller balance-bill for patients.
    To the extent that expectations about such financial burden with 
out-of-network emergency department usage would cause individuals to 
delay or avoid seeking necessary medical treatment when they cannot 
access a network provider, this provision may result in more timely use 
of necessary medical care. It may therefore result in health and 
economic benefits associated with improved health status; and fewer 
complications and hospitalizations due to delayed and possibly reduced 
mortality. The Departments expect that this effect would be small, 
however, because insured individuals are less likely to delay care in 
emergency situations.
iv. Costs and Transfers
    The economic costs associated with the emergency department 
provisions are likely to be minimal. These costs would occur to the 
extent that any lower cost-sharing would induce new utilization of out 
of network emergency services. Given the nature of these services as 
emergency services, this effect is likely to be small for insured 
individuals. In addition, the demand for emergency services in truly 
emergency situations can result in health care cost savings and 
population health improvements due to the timely treatment of 
conditions that could otherwise rapidly worsen.
    The emergency services provisions are likely to result in some 
transfers from the general membership of non-grandfathered group 
policies that have differing copayment and coinsurance arrangements to 
those policy holders that use the out-of-network emergency services. 
The transfers could occur through two avenues. First, if there is 
reduced cost sharing for out-of-network emergency services, then plans 
must pay more when enrollees use those services. Out-of-pocket costs 
for the enrollees using out-of-network services will decrease, while 
plan costs will get spread across the insured market. Second, if the 
provision results in plans paying higher rates than they currently do 
for out-of-network providers, then those costs will get spread across 
the insured market while the individual enrollees using out-of-network 
care would potentially get a smaller balance bill. For all of the data 
issues described above, the precise amount of the transfer which would 
occur through an increase in premiums for these group plans is 
impossible to quantify with any precision, but it is likely to be less 
than one-tenth of one percent of premium, and only applies to non-
grandfathered health plans.
c. Application to Grandfathered Health Plans
    As discussed earlier in this preamble, the statute and these 
interim final regulations relating to certain patient protections do 
not apply to

[[Page 37214]]

grandfathered health plans. However, other Federal or State laws 
related to these patient protections may apply regardless of 
grandfather status.
d. Patient Protection Disclosure Requirement
    When applicable, it is important that individuals enrolled in a 
plan or health insurance coverage know of their rights to (1) choose a 
primary care provider or a pediatrician when a plan or issuer requires 
participants or subscribers to designate a primary care physician; or 
(2) obtain obstetrical or gynecological care without prior 
authorization. Accordingly, these interim final regulations require 
such plans and issuers to provide a notice to participants (in the 
individual market, primary subscribers) of these rights when 
applicable. Model language is provided in these interim final 
regulations. The notice must be provided whenever the plan or issuer 
provides a participant with a summary plan description or other similar 
description of benefits under the plan or health insurance coverage, or 
in the individual market, provides a primary subscriber with a policy, 
certificate, or contract of health insurance.
    The Departments estimate that the cost to plans and insurance 
issuers to prepare and distribute the disclosure is $6.1 million in 
2011. For a discussion of the Patient Protection Disclosure 
Requirement, see the Paperwork Reduction Act section later in this 
preamble.
6. Combined Effects of the Insurance Market Reforms
a. Summary
    The Affordable Care Act includes a number of provisions that are 
effective for plan years (or in the case of individual health insurance 
coverage, for policy years) beginning on or after September 23, 2010. 
These interim final regulations include four of those provisions whose 
purpose is to improve consumer protections. Two additional provisions--
the extension of dependent coverage to adult children and the rules 
defining a grandfathered health plan--were the subject of previously 
published interim final regulations. The implementation of other 
provisions--including those relating to coverage of preventive services 
(PHS Act section 2713) and appeals (PHS Act section 2719)--will be 
addressed in future regulations.
    This set of regulations is distinct from the others in that its 
primary beneficiaries are people who generally already have some type 
of illness, injury or disability. The provision prohibiting preexisting 
condition exclusions for children could help 31,000 to 72,000 uninsured 
children gain insurance, and up to 90,000 children who have insurance 
with benefit carve-outs or preexisting condition exclusion periods. The 
policy on restricted annual limits could help up to 2,700 to 3,500 
people who hit these limits each year; the prohibition on lifetime 
limits could help 18,650 to 20,400 each year who would be expected to 
have costs that exceed a limit. Based on an NAIC survey, the 
Departments estimate there are approximately 10,700 rescissions of 
policies in the individual market each year, and these interim final 
regulations are expected to reduce this number substantially.\104\ And 
one of the patient protections, access to emergency care from out-of-
network providers, could limit the out-of-pocket spending for up to 2.1 
to 4.2 million individuals with some acute health care need. While the 
estimates on the number of people affected by these policies may be 
relatively small, a much larger number of Americans are at risk of 
hitting one of these barriers to insurance coverage and will gain 
indirect benefits of the legislation. This section describes the 
potential combined benefits, costs, and transfers of these provisions.
---------------------------------------------------------------------------

    \104\ NAIC Rescission Data Call, December 17, 2009, p.1.
---------------------------------------------------------------------------

b. Benefits
    These interim final regulations could generate significant economic 
and social welfare benefits to consumers. This would take the form of 
reductions in mortality and morbidity, a reduction in medical 
expenditure risk, an increase in worker productivity, and a decrease 
the cross-subsidy in premiums to offset uncompensated care, sometimes 
referred to as the ``hidden tax.'' Each of these effects is described 
below. It should be noted that the benefits described are substantially 
greater in each of these areas once all the protections of the full 
Affordable Care Act are effective.
    A first type of benefit is reductions in mortality and morbidity. 
While the empirical literature leaves many questions unresolved, a 
growing body of evidence convincingly demonstrates that health can be 
improved by spending more on at-risk individuals and by expanding 
health insurance coverage. For example, Almond et al.\105\ find that 
newborns classified just below a medical threshold for ``very low 
birthweight'' have lower mortality rates than newborns classified as 
just above the threshold, despite an association between low birth 
weight and higher mortality in general, because they tend to receive 
additional medical care. In a study of severe automobile accidents, 
Doyle\106\ found that uninsured individuals receive less care and have 
a substantially higher mortality rate. Currie and Gruber\107\ found 
that increased eligibility for Medicaid coverage expanded utilization 
of care for otherwise uninsured children, leading to a sizeable and 
significant reduction in child mortality. A study of Medicare by Card 
et al.\108\ found that individuals just old enough to qualify for 
coverage have lower mortality rates--despite similar illness severity--
than do those just too young for eligibility. Finally, a report by the 
Institute of Medicine (IOM) \109\ found mortality risks for uninsured 
individuals that were 25 percent higher than those of observably 
similar insured individuals. In addition to the prospect that expanded 
insurance coverage will result in reductions in mortality, it will 
almost certainly substantially reduce morbidity, as demonstrated in 
extensive reviews of the literature by Hadley and the IOM.\110\
---------------------------------------------------------------------------

    \105\ Almond, Douglas, Joseph J. Doyle, Jr., Amanda E. Kowalski, 
and Heidi Williams. ``Estimating Marginal Returns to Medical Care: 
Evidence from At-Risk Newborns.'' The Quarterly Journal of 
Economics, May 2010, 125(2): 591-634. http://www.mit.edu/~jjdoyle/
vlbw.pdf.
    \106\ Doyle, Joseph J. ``Health Insurance, Treatment and 
Outcomes: Using Auto Accidents as Health Shocks.'' The Review of 
Economics and Statistics, May 2005. 87(2):256-270. http://www.mitpressjournals.org/doi/abs/10.1162/0034653053970348.
    \107\ Currie, Janet and J. Gruber. ``Health Insurance 
Eligibility, Utilization of Medical Care, and Child Health.'' The 
Quarterly Journal of Economics, May 1996. 111(2):431-466. http://www.jstor.org/stable/2946684?cookieSet=1.
    \108\ Card, David, C. Dobkin, and N. Maestas. ``Does Medicare 
Save Lives?'' The Quarterly Journal of Economics, May 2009. 
124(2):597-636. http://www.mitpressjournals.org/doi/abs/10.1162/qjec.2009.124.2.597.
    \109\ Institute of Medicine. Care Without Coverage: Too Little, 
Too Late. Washington, DC: National Academy Press, 2002. http://books.nap.edu/openbook.php?record_id=10367&page=R1.
    \110\ Institute of Medicine, op. cit. Hadley J. Sicker and 
Poorer: The consequences of being uninsured. Medical Care Research 
and Review, Vol. 60, No. 2 suppl, 3S-75S (2003).
---------------------------------------------------------------------------

    These interim final regulations will expand access to currently 
uninsured individuals. These newly insured populations will likely 
achieve both mortality and meaningful morbidity reductions from the 
regulations, especially those populations who face rescissions, 
restricted annual or lifetime limits, or preexisting conditions 
exclusions, since they are on average in worse health and thus likely 
to benefit even more from insurance coverage than uninsured individuals 
in general.

[[Page 37215]]

    Because considerable uncertainty surrounds any specific estimate of 
the effect of expanded coverage on mortality and morbidity, this 
benefit is not quantified in this analysis.\111\ However, the 
Departments conclude that reductions in mortality and morbidity are 
likely to be a significant benefit of these interim final regulations 
and will become substantially greater in 2014 and subsequent years, 
when millions of additional individuals will obtain health insurance 
coverage.
---------------------------------------------------------------------------

    \111\ Kronick, Richard. ``Health insurance coverage and 
mortality revisited.'' Health Services Research. April 2009. 
44(4):1211-1231. http://www3.interscience.wiley.com/journal/122342601/abstract?CRETRY=1&SRETRY=0.
---------------------------------------------------------------------------

    A second type of benefit from the cumulative effects of these 
interim final regulations is a reduction in medical risk. A central 
goal of health insurance is to protect individuals against catastrophic 
financial hardship that would come with a debilitating medical 
condition. By pooling expenses across healthy and sick individuals, 
insurance can substantially improve the economic well-being of the sick 
while imposing modest costs on the healthy. This insurance is valuable, 
and economic theory suggests that the gains to the sick from a properly 
implemented insurance system far exceed the costs to healthy 
individuals. A recent paper shows that the benefits from this reduction 
in exposure to financial risks would be sufficient to cover almost two-
fifths of insurance costs.\112\ Previous research also suggests that 
protecting patients who have very high medical costs or low financial 
assets is likely to have even larger benefits. Indeed, research 
indicates that approximately half of the more than 500,000 personal 
bankruptcies in the U.S. in 2007 were to some extent contributed to by 
very high medical expenses.\113\ Exclusions from health insurance 
coverage based on preexisting conditions expose the uninsured to the 
aforementioned financial risks. Rescissions of coverage and binding 
annual or lifetime limits on benefits increase the chance that medical 
expenditures will go uncompensated, exposing individuals to the 
financial risks associated with illness. Regulations that prevent these 
practices thus reduce the uncertainty and hardship associated with 
these financial risks. Moreover, because they secure coverage for 
individuals with high probabilities of incurring extensive medical 
expenses, regulations that guard against rescissions and prevent 
insurance exclusion based on preexisting conditions for children are 
likely to have especially large economic benefits in terms of reducing 
financial risk. These interim final regulations will help insurance 
more effectively protect patients from the financial hardship of 
illness, including bankruptcy and reduced funds for non-medical 
purposes.
---------------------------------------------------------------------------

    \112\ Amy Finkelstein and Robin McKnight. What Did Medicare Do? 
The Initial Impact of Medicare on Mortality and Out of Pocket 
Medical Spending. 2008. Journal of Public Economics 92: 1644-1669.
    \113\ David Himmelstein et al, 2009.
---------------------------------------------------------------------------

    A third type of benefit from these interim final regulations is 
improved workplace productivity. These interim final regulations will 
benefit employers and workers by increasing workplace productivity and 
reducing absenteeism, low productivity at work due to preventable 
illness, and ``job-lock.'' A June 2009 report by the Council of 
Economic Advisers found that increased access to health insurance 
coverage improves labor market outcomes by improving worker 
health.\114\ The health benefits of eliminating coverage rescissions 
and lifetime coverage limits, restricting annual limits, and expanding 
access to primary care providers and OB/GYNs will help to reduce 
disability, low productivity at work due to preventable illness, and 
absenteeism in the work place, thereby increasing workplace 
productivity and labor supply. Economic theory suggests that these 
benefits would likely be shared by workers, employers, and consumers. 
In addition, these interim final regulations will increase labor market 
efficiency by reducing ``job lock,'' or the reluctance to switch jobs 
or engage in entrepreneurship because such activities would result in 
the loss of health insurance or limitations on coverage. For example, 
without the regulations, a parent with generous coverage for a child 
with a medical condition might fear moving to a different employer or 
launching his or her own business given the concern that the new plan 
could exclude coverage for the child on the basis of the preexisting 
condition. These reforms will increase not only productivity and 
innovation through entrepreneurship, but also worker wages since job 
lock prevents workers from pursuing jobs with potentially higher 
salaries.\115\ The Council of Economic Advisers' June 2009 report 
estimates that for workers between the ages of 25 and 54, the short-
term gain from eliminating job lock would be an increase in wages of 
0.3 percent.
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    \114\ Council of Economic Advisers. ``The Economic Case for 
Health Reform.'' (2009).
    \115\ Gruber, J. and B. Madrian. ``Health Insurance, Labor 
Supply, and Job Mobility: A Critical Review of the Literature.'' 
(2001).
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    Fourth, the Affordable Care Act's provisions will reduce the 
transfers in the health care system due to cost shifting of 
uncompensated care that lead to higher premiums for private insurance. 
The insurance market regulations will help expand the number of 
individuals who are insured and reduce the likelihood that individuals 
who have insurance do not bankrupt themselves by paying medical bills. 
Both effects will help reduce the amount of uncompensated care that 
imposes a ``hidden tax'' on consumers of health care since the costs of 
this care are shifted to those who are able to pay for services in the 
form of higher prices.
    The Departments provide here an order of magnitude for the 
compensatory reduction in cost-shifting of uncompensated care that is 
associated with the expansion of coverage of these interim final 
regulations. Three assumptions were made. First, the uninsured 
populations affected by these interim final regulations tend to have 
worse health, greater needs for health care, higher health care 
spending, and less ability to reduce utilization when they are 
uninsured. These interim final regulations are therefore unlikely to 
induce as much demand for health care as would be assumed for the 
uninsured population in general when coverage expands. As such, the 
Departments assume that extending insurance coverage to this group is 
unlikely to significantly increase the overall costs of the U.S. health 
care system. The Departments therefore assume that the vast majority of 
the premium increases estimated in this regulatory impact analysis 
result from transfers from out-of-pocket or uncompensated care costs to 
covered costs, although we emphasize that there is considerable 
uncertainty surrounding this estimate.
    Second, on the basis of the economics literature on the 
subject,\116\ the Departments estimate that two-thirds of the 
previously uncovered costs would have been uncompensated care (with the 
remaining one-third paid for out-of-pocket), of which 75 percent would 
have been paid for by public sources, and 25 percent would have been 
paid for by private sources. If reductions in privately-financed 
uncompensated care are passed on in the form of lower prices charged by 
hospitals, and result in lower insurance premiums charged to consumers, 
then the Departments estimate that increased insurance

[[Page 37216]]

coverage for the vulnerable populations affected by these interim final 
regulations could result in reductions in insurance premiums of up to 
$1 billion in 2013.\117\ There would also be corresponding decreases in 
public expenditure as uncompensated care is reduced.
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    \116\ Hadley, Jack, J. Holahan, T. Coughlin, and D. Miller. 
``Covering the Uninsured in 2008: Current Costs, Sources of Payment, 
and Incremental Costs.'' Health Affairs, 2008, 27(5): w399[not]w415.
    \117\ The Departments come to this estimate using the following 
methods. First, they estimated the proportion of the population in 
group and individual markets using the Medical Expenditure Panel 
Survey (2008). Next, information from 75 FR 34538 (June 17, 2010) 
was used to estimate the proportion of employer and individual plans 
that maintain or lose grandfather status by 2013. Projections of 
national health expenditures from the National Health Expenditure 
Accounts to 2013 were distributed among these groups, and premium 
impacts as discussed in this regulatory impact analysis were 
applied. Potential premium reductions secondary to reductions in the 
cost-shifting of uncompensated care were then calculated using the 
information from the economic literature as presented in this 
discussion. The Departments note that to the extent that not all of 
the reductions in uncompensated care costs are passed onto insured 
populations, these estimates may be an overestimate.
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c. Costs and Transfers
    Premiums reflect both effects on health system costs as well as 
transfers in the payment of costs from one payer or group of 
individuals to another. For example, as consumer protections expand 
coverage and/or reduce cost-sharing, the costs for services that people 
previously paid for out of pocket--often creating substantial burdens 
as described above--will be distributed over a wider insured 
population. On the other hand, the cost-shifting that previously 
occurred onto the insured population when people could no longer pay 
for their out-of-pocket care will be reduced. Expansion of coverage 
will also generate induced demand for services, with corresponding 
benefits to health and productivity. These costs and transfers together 
will generate a change in premiums. As discussed previously, the 
populations affected by these interim final regulations tend to be in 
poorer health than the general uninsured population, leading to less 
induced demand when coverage expands.
    The Departments estimate that the premium effect of prohibiting 
preexisting condition exclusions for children would be on average one 
percent or less in the individual market and negligible in the group 
market. The provisions relating to annual and lifetime limits would 
have approximately one-half of one percent impact on premiums in the 
group market and less than a one percent impact on premiums in the 
individual market. While the prohibition on lifetime limits applies to 
individual plans that are grandfathered, the restricted annual limit 
policy and preexisting condition exclusion policy for children do not, 
limiting the premium effect for the grandfathered market. Although 
precise estimates of the effects of restricting rescissions and 
expanding patient protections are even more difficult to make than for 
preexisting condition exclusions or annual and lifetime limits, the 
Departments' analysis suggest that the effects of restricting 
rescissions will be no more than a few tenths of one percent of 
premium, and that patient protections will increase premiums by less 
than one tenth of one percent.
    The Departments emphasize that these individual premium effects 
cannot be simply added to get a combined impact on premiums for several 
reasons. The first relates to their simultaneous implementation. 
Quantifying the precise and unique premium impact of policies that take 
effect at the same time is difficult. Health insurers will consider the 
totality of the provisions in making decisions about coverage 
modifications, so that disentangling the effects of each provision is 
impossible. This is especially so given the complex interactions among 
the policies. For example, prohibiting rescissions and lifetime limits 
could mean that someone who would have had a policy rescinded now 
maintains coverage, and also maintains coverage beyond a previous 
lifetime limit. Under the current guaranteed renewability protections 
in the individual market, if a child with a preexisting condition is 
now able to obtain coverage on a parental plan, he or she can 
potentially stay on that plan until age 26.
    This difficulty is compounded by the flexibility afforded in the 
grandfather rule. Plans and issuers will consider the cumulative impact 
of these provisions when making decisions about whether or not to make 
other changes to their coverage that could affect their grandfather 
status. It can be expected that the plans that are most affected by 
these provisions in terms of potential premium impact will likely be 
the most aggressive in taking steps to maintain grandfather status, 
although, as described in that regulatory impact analysis, other 
factors affect plans' decisions as well. It is unlikely that plans will 
make this calculation multiple times for the multiple provisions that 
will take effect at the same time.
    Lastly, estimating these effects cumulatively compounds the errors 
of highly uncertain estimates. As discussed, plan and enrollee 
behaviors may change in response to the incentives created by these 
interim final regulations. Data are also limited in many areas, 
including: The prevalence of annual limits in insurance markets; 
characteristics of high-cost enrollees; prevalence and characteristics 
of rescissions; and take-up rates under different insurance scenarios. 
As discussed above, the estimates presented here, by necessity, utilize 
``average'' experiences and ``average'' plans. Variability around the 
average increases substantially when multiple provisions are 
considered, since the number of provisions that affect each plan will 
differ (for example, a plan may already offer coverage without 
preexisting condition exclusions and bar rescissions, meaning they will 
not be affected by those provisions, but may have a lifetime limit of 
$1 million, meaning they will be affected by that provision). Different 
plans also have different characteristics of enrollees, for example in 
terms of age or health status, meaning that provisions such as 
eliminating lifetime limits could affect them differently. It is 
especially important to note the variation in insurance market reforms 
across States. Only a few States have community rating, where costs get 
distributed across the entire insured pool. Fractions of the cost will 
get distributed across the pool and to individual enrollees in other 
States depending on the degree of rating restrictions, if any exist. 
Uncertainty compounds as ranges and errors and assumptions are summed 
across provisions.

D. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the APA (5 
U.S.C. 551 et seq.) and that are likely to have a significant economic 
impact on a substantial number of small entities. Section 9833 of the 
Code, section 734 of ERISA, and section 2792 of the PHS Act authorize 
the Secretaries to promulgate any interim final rules that they 
determine are appropriate to carry out the provisions of chapter 100 of 
the Code, part 7 of subtitle B or title I of ERISA, and part A of title 
XXVII of the PHS Act, which include PHS Act sections 2701 through 2728 
and the incorporation of those sections into ERISA section 715 and Code 
section 9815.
    Moreover, under Section 553(b) of the APA, a general notice of 
proposed rulemaking is not required when an

[[Page 37217]]

agency, for good cause, finds that notice and public comment thereon 
are impracticable, unnecessary, or contrary to the public interest. 
These interim final regulations are exempt from APA, because the 
Departments made a good cause finding that a general notice of proposed 
rulemaking is not necessary earlier in this preamble. Therefore, the 
RFA does not apply and the Departments are not required to either 
certify that the rule would not have a significant economic impact on a 
substantial number of small entities or conduct a regulatory 
flexibility analysis.
    Nevertheless, the Departments carefully considered the likely 
impact of the rule on small entities in connection with their 
assessment under Executive Order 12866. Consistent with the policy of 
the RFA, the Departments encourage the public to submit comments that 
suggest alternative rules that accomplish the stated purpose of the 
Affordable Care Act and minimize the impact on small entities.

E. Special Analyses--Department of the Treasury

    Notwithstanding the determinations of the Department of Labor and 
Department of Health and Human Services, for purposes of the Department 
of the Treasury, it has been determined that this Treasury decision is 
not a significant regulatory action for purposes of Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the APA (5 U.S.C. chapter 5) 
does not apply to these interim final regulations. For the 
applicability of the RFA, refer to the Special Analyses section in the 
preamble to the cross-referencing notice of proposed rulemaking 
published elsewhere in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Code, these temporary regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses.

F. Paperwork Reduction Act

1. Department of Labor and Department of the Treasury
    As further discussed below, these interim final regulations contain 
enrollment opportunity, rescission notice, and patient protection 
disclosure requirements that are information collection requests (ICRs) 
subject to the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3506(c)(2)(A)). Each of these requirements is discussed in detail 
below.
    Currently, the Departments are soliciting 60 days of public 
comments concerning these disclosures. The Departments have submitted a 
copy of these interim final regulations to OMB in accordance with 44 
U.S.C. 3507(d) for review of the information collections. The 
Departments and OMB are particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, for example, by 
permitting electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Attention: Desk Officer for the Employee Benefits Security 
Administration either by fax to (202) 395-7285 or by e-mail to oira_submission@omb.eop.gov. A copy of the ICR may be obtained by contacting 
the PRA addressee: G. Christopher Cosby, Office of Policy and Research, 
U.S. Department of Labor, Employee Benefits Security Administration, 
200 Constitution Avenue, NW., Room N-5718, Washington, DC 20210. 
Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free 
numbers. E-mail: ebsa.opr@dol.gov. ICRs submitted to OMB also are 
available at reginfo.gov (http://www.reginfo.gov/public/do/PRAMain).
a. ICR Regarding Affordable Care Act Enrollment Opportunity Notice 
Relating to Lifetime Limits
    As discussed earlier in this preamble these interim final 
regulations require a plan or issuer to provide an individual whose 
coverage ended due to reaching a lifetime limit on the dollar value of 
all benefits with an opportunity to enroll (including notice of an 
opportunity to enroll) that continues for at least 30 days, regardless 
of whether the plan or coverage offers an open enrollment period and 
regardless of when any open enrollment period might otherwise occur. 
This enrollment opportunity must be presented not later than the first 
day of the first plan year (or, in the individual market, policy year) 
beginning on or after September 23, 2010 (which is the applicability 
date of PHS Act section 2711). Coverage must begin not later than the 
first day of the first plan year (in the individual market, policy 
year) beginning on or after September 23, 2010.\118\ The Affordable 
Care Act dependent coverage enrollment notice is an ICR subject to the 
PRA.
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    \118\ The interim final regulations require any individual 
enrolling in group health plan coverage pursuant to this enrollment 
right must be treated as a special enrollee, as provided under HIPAA 
portability rules. Accordingly, the individual must be offered all 
the benefit packages available to similarly situated individuals who 
did not lose coverage due to reaching a lifetime limit or cessation 
of dependent status. The individual also cannot be required to pay 
more for coverage than similarly situated individuals who did not 
lose coverage due to reaching a lifetime limit.
---------------------------------------------------------------------------

    The Departments estimate that approximately 29,000 individuals 
qualify for this enrollment right, which as discussed more fully below, 
should be considered an upward bound. The estimate is based on the 
following methodology. The Departments estimate that of the 
approximately 139.6 million individuals in ERISA-covered plans,\119\ 63 
percent of such individuals are covered by plans with lifetime 
limits.\120\
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    \119\ The Departments' estimate is based on the 2009 March 
Current Population Survey (CPS).
    \120\ The Departments' estimate for large and small employer 
health plans is derived from The Kaiser Family Foundation and Health 
Research & Educational Trust, Employer Health Benefits: 2009 Annual 
Survey (Sept. 2009), at http://ehbs.kff.org/pdf/2009/7936.pdf, 
Exhibit 13.12.
---------------------------------------------------------------------------

    While limited data are available regarding lifetime limits, the 
Departments estimated that the average lifetime limit across all 
markets is about $4.7 million,\121\ which means that an individual 
would exceed a lifetime limit by incurring at least $4.7 million in 
medical expenses during one year or across many years. Although the 
Departments are unable to track spending across time to estimate the 
number of individuals that would reach the lifetime limit, the 
Departments estimate that about 0.033 percent of individuals incur more 
than $1 million in medical spending in a year.\122\ If

[[Page 37218]]

these individuals incurred this amount every year, 29,000 individuals 
would incur expenses of at least the $4.7 million limit by the fifth 
year.
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    \121\ The Departments' estimate is based on America's Health 
Insurance Plans, Individual Health Insurance 2009: A Comprehensive 
Survey of Premiums, Availability and Benefits, (Oct. 2009) at http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf, Table 17; and America's 
Health Insurance Plans, Individual Health Insurance 2008: Small 
Group Health Insurance, Table 22.
    \122\ The Departments' estimate is based on adjusted insurer 
claims and MEPS-HC expenditures.
---------------------------------------------------------------------------

    There are several reasons to suspect that these assumptions lead to 
an over-estimate. First, individuals would have to average $1 million 
in medical expenses per year to exceed the $4.7 million limit. Second, 
an individual's lifetime limit is reset if he switches employers or, 
for employees who work for employers with multiple health insurance 
coverage options, switches to a different health insurance plan.
    The interim final regulations require plans or insurers to notify 
individuals whose coverage ended due to reaching a lifetime limit on 
the dollar value of all benefits that they are now eligible to reenroll 
in the plan or policy. The Departments assume that the notice for all 
plans and policies (including self-insured plans that are administered 
by insurers) will be prepared by the estimated 630 health insurers 
operating in the United States.\123\ On average, the Departments expect 
that one-half hour of a legal professional's time, valued as $119, will 
be required to draft this notice, resulting in an hour burden of 
approximately 160 hours with an equivalent cost of $19,000.
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    \123\ While plans could prepare their own notice, the 
Departments assume that the notices will be prepared by service 
providers. The Departments have previously estimated that there are 
630 health insurers (460 providing coverage in the group market, and 
490 providing coverage in the individual market). These estimates 
are from NAIC 2007 financial statements data and the California 
Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. Because the hour and cost burden is shared 
between the Departments of Labor/Treasury and the Department of 
Health and Human Services, the burden to prepare the notices is 
calculated using half the number of insurers (315).
---------------------------------------------------------------------------

    The Departments assume that insurers track information regarding 
individuals that have lost coverage due to reaching a lifetime limit 
(including contact information in their administrative records). Based 
on the foregoing, the Departments estimate that, on average, five 
minutes of a clerical staff member's time, valued at $26 per hour will 
be required to incorporate the specific information into the notice and 
mail the estimated 29,000 notices. This results in an estimated hour 
burden of approximately 2,400 hours with an equivalent cost of $63,000. 
Therefore, the total hour burden of this notice requirement is 
approximately 2,600 hours with an equivalent cost of $82,000.
    The associated cost burden of the rule results from material and 
mailing costs that are required to distribute the estimated 29,000 
notices. The Departments estimate that the notice will be one-page in 
length, material and print costs will be five cents per page, and 
postage will be 44 cents per notice resulting in a per notice cost of 
49 cents. This leads to a total cost burden of approximately $14,000 to 
distribute the notices.
    Type of Review: New collection.
    Agencies: Employee Benefits Security Administration, Department of 
Labor; Internal Revenue Service, U.S. Department of the Treasury.
    Title: Notice of Special Enrollment Opportunity under the Patient 
Protection and Affordable Care Act Relating to Lifetime Limits.
    OMB Number: 1210-0143; 1545-2179.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 315.
    Total Responses: 29,000.
    Frequency of Response: One-time.
    Estimated Total Annual Burden Hours: 1,300 hours (Employee Benefits 
Security Administration); 1,300 hours (Internal Revenue Service).
    Estimated Total Annual Burden Cost: $7,000 (Employee Benefits 
Security Administration); $7,000 (Internal Revenue Service).
b. ICR Regarding Affordable Care Act Notice Relating to Rescission
    As discussed earlier in this preamble, PHS Act Section 2712 and 
these interim final regulations provide rules regarding rescissions for 
group health plans and health insurance issuers that offer group or 
individual health insurance coverage. A plan or issuer must not rescind 
coverage under the plan, policy, certificate, or contract of insurance 
except in the case of fraud or intentional misrepresentation of a 
material fact. These interim final regulations provide that a group 
health plan or a health insurance issuer offering group health 
insurance coverage must provide at least 30 calendar days advance 
notice to an individual before coverage may be rescinded.
    The Departments assume that rescissions are rare in the group 
market and that small group health plans are affected by rescissions. 
The Departments are not aware of a data source on the number of group 
plans whose policy is rescinded; therefore, the Departments assume that 
100 group health plan policies are rescinded in a year. The Departments 
estimate that there is an average of 16 participants in small, insured 
plans.\124\ Based on these numbers the Departments estimate that 
approximately 100 policies are rescinded during a year, which would 
result in 1,600 notices being sent to affected participants. The 
Departments estimate that 15 minutes of legal profession time at $119 
per hour would be required by the insurers of the 100 plans to prepare 
the notice and one minute per notice of clerical professional time at 
$26 per hour would be required to distribute the notice. This results 
in an hour burden of approximately 50 hours with an equivalent cost of 
approximately $3,700. The Departments estimate that the cost burden 
associated with distributing the notices will be approximately 
$800.\125\
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    \124\ U.S. Department of Labor, EBSA calculations using the 
March 2008 Current Population Survey Annual Social and Economic 
Supplement and the 2008 Medical Expenditure Panel Survey.
    \125\ This estimate is based on an average document size of one 
page, $.05 cents per page material and printing costs, and $.44 cent 
postage costs.
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    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agencies: Employee Benefits Security Administration, Department of 
Labor; Internal Revenue Service, U.S. Department of the Treasury.
    Title: Required Notice of Rescission of Coverage under the Patient 
Protection and Affordable Care Act Disclosures.
    OMB Number: 1210-0141; 1545-2180.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 100.
    Total Responses: 1,600.
    Frequency of Response: Occasionally.
    Estimated Total Annual Burden Hours: 25 hours (Employee Benefits 
Security Administration); 25 hours (Internal Revenue Service).
    Estimated Total Annual Burden Cost: $400 (Employee Benefits 
Security Administration); $400 (Internal Revenue Service).
c. ICR Regarding Affordable Care Act Patient Protection Disclosure 
Requirement
    As discussed earlier in this preamble, PHS Act section 2719A 
imposes, with respect to a group health plan, or group or individual 
health insurance coverage, a set of three requirements relating to the 
choice of health care professionals. When applicable, it is important 
that individuals enrolled in a plan or health insurance coverage know 
of their rights to (1) choose a primary care provider or a pediatrician 
when a plan or issuer requires participants or subscribers to designate 
a primary care physician; or (2) obtain obstetrical or gynecological 
care without prior authorization. Accordingly, these interim final 
regulations require such plans and issuers to provide a notice to

[[Page 37219]]

participants (in the individual market, primary subscriber) of these 
rights when applicable. Model language is provided in these interim 
final regulations. The notice must be provided whenever the plan or 
issuer provides a participant with a summary plan description or other 
similar description of benefits under the plan or health insurance 
coverage, or in the individual market, provides a primary subscriber 
with a policy, certificate, or contract of health insurance. The 
Affordable Care Act patient protection disclosure requirement is an ICR 
subject to the PRA.
    In order to satisfy these interim final regulations' patient 
protection disclosure requirement, the Departments estimate that 
339,000 ERISA-covered plans will need to notify an estimated 8.0 
million policy holders of their plans' policy in regards to designating 
a primary care physician and for obstetrical or gynecological 
visits.\126\ The following estimates are based on the assumption that 
22 percent of group health plans will not have grandfathered health 
plan status in 2011. Because the interim final regulations provide 
model language for this purpose, the Departments estimate that five 
minutes of clerical time (with a labor rate of $26.14/hour) will be 
required to incorporate the required language into the plan document 
and ten minutes of a human resource professional's time (with a labor 
rate of $89.12/hour) will be required to review the modified 
language.\127\ Therefore, the Departments estimate that plans will 
incur a one-time hour burden of 85,000 hours with an equivalent cost of 
$5.8 million to meet the disclosure requirement in the first year.
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    \126\ The Departments' estimate of the number of ERISA-covered 
health plans was obtained from the 2008 Medical Expenditure Panel 
Survey's Insurance component. The estimate of the number of policy 
holders was obtained from the 2009 Current Population Survey. 
Information on HMO and POS plans and enrollment in such plans was 
obtained from the Kaiser/HRET Survey of Employer Sponsored Health 
Benefits, 2009. The methodology used to estimate the percentage of 
plans that will not be grandfathered in 2011 is addressed in the 
Departments' Interim Final Rules for Group Health Plans and Health 
Insurance Coverage Relating to Status as a Grandfathered Health Plan 
under the Patient Protection and Affordable Care Act that were 
issued on June 17, 2010 (75 FR 34538).
    \127\ EBSA estimates of labor rates include wages, other 
benefits, and overhead based on the National Occupational Employment 
Survey (May 2008, Bureau of Labor Statistics) and the Employment 
Cost Index June 2009, Bureau of Labor Statistics).
---------------------------------------------------------------------------

    The Departments assume that only printing and material costs are 
associated with the disclosure requirement, because the interim final 
regulations provide model language that can be incorporated into 
existing plan documents, such as an SPD. The Departments estimate that 
the notice will require one-half of a page, five cents per page 
printing and material cost will be incurred, and 38 percent of the 
notices will be delivered electronically. This results in a cost burden 
of $124,000 ($0.05 per page*1/2 pages per notice * 8.0 million 
notices*0.62).
    Plans that relinquish their grandfather status in subsequent years 
also will become subject to this notice requirement and incur a cost to 
prepare and distribute the notice in the year they relinquish their 
grandfather status. The Departments estimate a total hour burden of 
62,000 hours in 2012 and 50,000 in 2013 for plans relinquishing their 
grandfather status in 2012 or 2013. There also will be an estimated 
total cost burden of $90,000 in 2012 and $73,000 in 2013.
    The Departments note that persons are not required to respond to, 
and generally are not subject to any penalty for failing to comply 
with, an ICR unless the ICR has a valid OMB control number.
    These paperwork burden estimates are summarized as follows:
    Type of Review: New Collection.
    Agencies: Employee Benefits Security Administration, Department of 
Labor; Internal Revenue Service, U.S. Department of Treasury.
    Title: Disclosure Requirement for Patient Protections under the 
Affordable Care Act.
    OMB Number: 1210-0142; 1545-2181.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 262,000 (three year average).
    Total Responses: 6,186,000 (three year average).
    Frequency of Response: One time.
    Estimated Total Annual Burden Hours: 33,000 (Employee Benefits 
Security Administration); 33,000 (Internal Revenue Service).
    Estimated Total Annual Burden Cost: $48,000 (Employee Benefits 
Security Administration); $48,000 (Internal Revenue Service).
2. Department of Health and Human Services
    As discussed above in the Department of Labor and Department of the 
Treasury PRA section, these interim final regulations contain an 
enrollment opportunity notice, rescissions notice, and patient 
protection disclosures requirement for issuers. These requirements are 
information collection requirements under the Paperwork Reduction Act. 
Each of these requirements is discussed in detail below.
a. ICR Regarding Affordable Care Act Enrollment Opportunity Notice 
Regarding Lifetime Limits
    PHS Act section 2711 and these interim final regulations require 
health insurance issuers offering individual health insurance coverage 
to provide an individual whose coverage ended due to reaching a 
lifetime limit on the dollar value of all benefits with an opportunity 
to enroll (including notice of an opportunity to enroll) that continues 
for at least 30 days, regardless of whether the plan or coverage offers 
an open enrollment period and regardless of when any open enrollment 
period might otherwise occur. This enrollment opportunity must be 
presented not later than the first day of the first plan year (or, in 
the individual market, policy year) beginning on or after September 23, 
2010 (which is the applicability date of PHS Act section 2711). 
Coverage must begin not later than the first day of the first plan year 
(or policy year in the individual market) beginning on or after 
September 23, 2010.\128\
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    \128\ The interim final regulations require any individual 
enrolling in group health plan coverage pursuant to this enrollment 
right must be treated as a special enrollee, as provided under HIPAA 
portability rules. Accordingly, the individual must be offered all 
the benefit packages available to similarly situated individuals who 
did not lose coverage due to reaching a lifetime limit or cessation 
of dependent status. The individual also cannot be required to pay 
more for coverage than similarly situated individuals who did not 
lose coverage due to reaching a lifetime limit.
---------------------------------------------------------------------------

    The Department estimates that approximately 13,182 individuals 
qualify for this enrollment right, which as discussed more fully below, 
should be considered an upward bound. The estimate is based on the 
following methodology. The Department estimates that of the 
approximately 16.5 million individuals \129\ covered by family policies 
in the individual market, 89 percent of such individuals have a policy 
with a lifetime limit.\130\ The Department also estimates that out of 
the approximately 40.1 million individuals covered by public, non-
Federal employer group health plans sponsored by State and local 
governments,\131\ 63 percent of such

[[Page 37220]]

individuals are covered by plans with lifetime limits.\132\
---------------------------------------------------------------------------

    \129\ The Department's estimate is based on the 2009 March 
Current Population Survey (CPS).
    \130\ The Department's estimate for individual health plans is 
derived from America's Health Insurance Plans, Individual Health 
Insurance 2009: A Comprehensive Survey of Premiums, Availability and 
Benefits, (Oct. 2009) at http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf, Table 10 and Table 17.
    \131\ The Department's estimate is based on the 2009 March 
Current Population Survey (CPS).
    \132\ The Departments' estimate for large and small employer 
health plans is derived from The Kaiser Family Foundation and Health 
Research & Educational Trust, Employer Health Benefits: 2009 Annual 
Survey (Sept. 2009), at http://ehbs.kff.org/pdf/2009/7936.pdf, 
Exhibit 13.12.
---------------------------------------------------------------------------

    While limited data are available regarding lifetime limits, the 
Department estimated that the average lifetime limit across all markets 
is about $4.7 million,\133\ which means that an individual would exceed 
a lifetime limit by incurring at least $4.7 million in medical expenses 
during one year or across many years. Although the Department is unable 
to track spending across time to estimate the number of individuals 
that would reach the lifetime limit, the Department estimates that 
about 0.033 percent of individuals incur more than $1 million in 
medical spending in a year.\134\ If these individuals incurred this 
amount every year, 13,000 individuals would incur expenses of at least 
the $4.7 million limit by the fifth year.
---------------------------------------------------------------------------

    \133\ The Department's estimate is based on America's Health 
Insurance Plans, Individual Health Insurance 2009: A Comprehensive 
Survey of Premiums, Availability and Benefits, (Oct. 2009) at http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf, Table 17; and America's 
Health Insurance Plans, Individual Health Insurance 2008: Small 
Group Health Insurance, Table 22.
    \134\ The Departments' estimate is based on adjusted insurer 
claims and MEPS-HC expenditures.
---------------------------------------------------------------------------

    There are several reasons to suspect that these assumptions lead to 
an over-estimate. First, individuals who incur $1 million of medical 
expenses in a year would need to sustain this level every year for five 
years to exceed the $4.7 million limit. Second, an individual's 
lifetime limit is reset if he switches employers or, for employees who 
work for employers with multiple health insurance coverage options, 
switches to a different health insurance plan.
    These interim final regulations require plans or insurers to notify 
individuals whose coverage ended due to reaching a lifetime limit on 
the dollar value of all benefits that they are now eligible to reenroll 
in the plan or policy. The Department assumes that the notice for all 
plans and policies (including self-insured plans that are administered 
by insurers) will be prepared by the estimated 630 health insurers 
operating in the United States.\135\ On average, the Department expects 
that one-half hour of a legal professional's time, valued as $119, will 
be required to draft this notice, resulting in an hour burden of 
approximately 200 hours with an equivalent cost of $19,000.
---------------------------------------------------------------------------

    \135\ While plans could prepare their own notice, the 
Departments assume that the notices will be prepared by service 
providers. The Departments have previously estimated that there are 
630 health insurers (460 providing coverage in the group market, and 
490 providing coverage in the individual market). These estimates 
are from NAIC 2007 financial statements data and the California 
Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. Because the hour and cost burden is shared 
among the Departments of Labor/Treasury and the Department of Health 
and Human Services, the burden to prepare the notices is calculated 
using half the number of insurers (315).
---------------------------------------------------------------------------

    The Department assumes that plans and insurers track information 
regarding individuals that have lost coverage due to reaching a 
lifetime limit (including contact information) in their administrative 
records. Based on the foregoing, the Department estimates that, on 
average, five minutes of a clerical staff member's time, valued at 
$26.14 per hour will be required to incorporate the specific 
information into the notice and mail the estimated 13,000 notices. This 
results in an estimated hour burden of approximately 1,100 hours with 
an equivalent cost of $29,000. Therefore, the total hour burden of this 
notice requirement is 1,300 hours with an equivalent cost of $48,000.
    The associated cost burden of the rule results from material and 
mailing cost to distribute the estimated 13,000 notices. The Department 
estimates that the notice will be one-page in length, material and 
print costs will be five cents per page, and postage will be 44 cents 
per notice resulting in a per notice cost of 49 cents. This leads to a 
total estimated cost burden of approximately $6,500 to distribute the 
notices.
    Type of Review: New collection.
    Agency: Department of Health and Human Services.
    Title: Patient Protection and Affordable Care Act Enrollment 
Opportunity Notice Relating to Lifetime Limits.
    OMB Number: 0938-1094.
    Affected Public: Business; State, Local, or Tribal Governments.
    Respondents: 630.
    Responses: 13,000.
    Frequency of Response: One-time.
    Estimated Total Annual Burden Hours: 1,300 hours.
    Estimated Total Annual Burden Cost: $6,500.
b. ICR Regarding Affordable Care Act Notice Relating to Rescission
    As discussed earlier in this preamble, PHS Act Section 2712 and 
these interim final regulations prohibit group health plans and health 
insurance issuers that offer group or individual health insurance 
coverage generally from rescinding coverage under the plan, policy, 
certificate, or contract of insurance from the individual covered under 
the plan or coverage unless the individual (or a person seeking 
coverage on behalf of the individual) performs an act, practice, or 
omission that constitutes fraud, or unless the individual makes an 
intentional misrepresentation of material fact, as prohibited by the 
terms of the plan or coverage. These interim final regulations provide 
that a group health plan or a health insurance issuer offering group 
health insurance coverage must provide at least 30 days advance notice 
to an individual before coverage may be rescinded.
    This analysis assumes that rescissions only occur in the individual 
health insurance market, because rescissions in the group market are 
rare. The Department estimates that there are approximately 7.1 million 
individual policy holders in the individual market during a year. A 
report on rescissions finds that 0.15 percent of policies were 
rescinded during the 2004 to 2008 time period.\136\ Based on these 
numbers, the Department estimates that approximately 10,700 policies 
are rescinded during a year, which would result in 10,700 notices being 
sent to affected policyholders. The Department estimates that 15 
minutes of legal profession time at $119 per hour would be required by 
the estimated 490 insurers in the individual market to prepare the 
notice and one minute per notice of clerical professional time at $26 
per hour would be required to distribute the notice. This results in an 
hour burden of approximately 300 hours with an equivalent cost of 
approximately $19,200. The Department estimates that the cost burden 
associated with distributing the notices will be approximately 
$5,200.\137\
---------------------------------------------------------------------------

    \136\ NAIC Report ``Rescission Data Call of the NAIC Regulatory 
Framework (B) Task Force'' December 17, 2009. http://www.naic.org/documents/committees_b_regulatory_framework_rescission_;data--
call--report.pdf.
    \137\ This estimate is based on an average document size of one 
page, $.05 cents per page material and printing costs, and $.44 cent 
postage costs.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agency: Department of Health and Human Services.
    Title: Required Notice of Rescission of Coverage under the Patient 
Protection and Affordable Care Act Disclosures.
    OMB Number: 0938-1094.
    Affected Public: For Profit Business.
    Respondents: 490.
    Responses: 10,700.
    Frequency of Response: Occasionally.

[[Page 37221]]

    Estimated Total Annual Burden Hours: 300 hours.
    Estimated Total Annual Burden Cost: $5,200.
c. ICR Relating to Affordable Care Act Patient Protections Disclosure 
Requirement
    As discussed above in the Department of Labor and Department of 
Treasury PRA section, these interim final regulations contains a 
disclosure requirement for non-grandfathered health plans or policies 
requiring the designation of a primary care physician or usually 
requiring a referral from a primary care physician before receiving 
care from a specialist. These requirements are information collection 
requirements under the PRA.
    In order to satisfy the interim final regulations' patient 
protection disclosure requirement, the Department estimates that 14,000 
State and local governmental plans will need to notify approximately 
2.6 million policy holders of their plans' policy in regards to 
designating a primary care physician and for obstetrical or 
gynecological visits. An estimated 490 insurers providing coverage in 
the individual market will need to notify an estimated 55,000 policy 
holders of their policy in regards to designating a primary care 
physician and for obstetrical or gynecological visits. These estimates 
are based on the assumption that 22 percent of group plans and 40 
percent of individual policies will not have grandfathered health plan 
status in 2011.\138\
---------------------------------------------------------------------------

    \138\ The Department's estimate of the number of State and local 
governmental health plans was obtained from the 2007 Census of 
Governments. The estimate of the number of policy holders in the 
individual market were obtained from the 2009 Current Population 
Survey. Information on HMO and POS plans and enrollment in such 
plans was obtained from the Kaiser/HRET Survey of Employer Sponsored 
Health Benefits, 2009. The methodology used to estimate the 
percentage of plans that will not be grandfathered in 2011 was 
discussed in Departments' Interim Final Rules for Group Health Plans 
and Health Insurance Coverage Relating to Status as a Grandfathered 
Health Plan under the Patient Protection and Affordable Care Act 
that were issued on June 15, 2010: 75 FR 34538 (June 17, 2010).
---------------------------------------------------------------------------

    Because the interim final regulations provide model language for 
this purpose, the Department estimates that five minutes of clerical 
time (with a labor rate of $26.14/hour) will be required to incorporate 
the required language into the plan document and ten minutes of a human 
resource professional's time (with a labor rate of $89.12/hour) will be 
required to review the modified language.\139\ Therefore, the 
Department estimates that plans and insurers will incur a one-time hour 
burden of 3,500 hours with an equivalent cost of $239,000 to meet the 
disclosure requirement.
---------------------------------------------------------------------------

    \139\ EBSA estimates of labor rates include wages, other 
benefits, and overhead based on the National Occupational Employment 
Survey (May 2008, Bureau of Labor Statistics) and the Employment 
Cost Index June 2009, Bureau of Labor Statistics).
---------------------------------------------------------------------------

    The Department assumes that only printing and material costs are 
associated with the disclosure requirement, because the interim final 
regulations provide model language that can be incorporated into 
existing plan documents, such as an SPD. The Department estimates that 
the notice will require one-half of a page, five cents per page 
printing and material cost will be incurred, and 38 percent of the 
notices will be delivered electronically. This results in a cost burden 
of $42,000 ($0.05 per page * 1/2 pages per notice * 1.7 million notices 
* 0.62).
    Plans that relinquish their grandfather status in subsequent years 
will also become subject to this notice requirement and incur a cost to 
prepare and distribute the notice in the year they relinquish their 
grandfather status. Policy holders of non-grandfathered policies in the 
individual market will also have to receive this notice. The Department 
estimates a total hour burden of 2,500 hours in 2012 and 2,000 in 2013 
for plans relinquishing their grandfather status in such years. There 
will, also be an estimated total cost burden of $30,000 in 2012 and 
$24,000 in 2013.
    The Department notes that persons are not required to respond to, 
and generally are not subject to any penalty for failing to comply 
with, an ICR unless the ICR has a valid OMB control number.
    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agency: Department of Health and Human Services.
    Title: Disclosure Requirements for Patient Protection under the 
Affordable Care Act.
    OMB Number: 0938-1094.
    Affected Public: Business; State, Local, or Tribal Governments.
    Respondents: 10,600.
    Responses: 2,067,000.
    Frequency of Response: One-time.
    Estimated Total Annual Burden Hours: 2,700 hours.
    Estimated Total Annual Burden Cost: $32,000.
    If you comment on any of these information collection requirements, 
please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
OCIIO-9994-IFC; Fax: (202) 395-6974; or E-mail: OIRA_
submission@omb.eop.gov.

G. Congressional Review Act

    These interim final regulations are subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted 
to Congress and the Comptroller General for review.

H. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires 
agencies to prepare several analytic statements before proposing any 
rules that may result in annual expenditures of $100 million (as 
adjusted for inflation) by State, local and tribal governments or the 
private sector. These interim final regulations are not subject to the 
Unfunded Mandates Reform Act because they are being issued as interim 
final regulations. However, consistent with the policy embodied in the 
Unfunded Mandates Reform Act, the regulation has been designed to be 
the least burdensome alternative for State, local and tribal 
governments, and the private sector, while achieving the objectives of 
the Affordable Care Act.

I. Federalism Statement--Department of Labor and Department of Health 
and Human Services

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by Federal 
agencies in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the States, the 
relationship between the national government and States, or on the 
distribution of power and responsibilities among the various levels of 
government. Federal agencies promulgating regulations that have these 
federalism implications must consult with State and local officials, 
and describe the extent of their consultation and the nature of the 
concerns of State and local officials in the preamble to the 
regulation.
    In the Departments' view, these interim final regulations have 
federalism implications, because they have direct effects on the 
States, the relationship between the national government and States, or 
on the distribution of power and

[[Page 37222]]

responsibilities among various levels of government. However, in the 
Departments' view, the federalism implications of these interim final 
regulations are substantially mitigated because, with respect to health 
insurance issuers, the Departments expect that the majority of States 
will enact laws or take other appropriate action resulting in their 
meeting or exceeding the Federal standards.
    In general, through section 514, ERISA supersedes State laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves State laws that regulate insurance, banking, or securities. 
While ERISA prohibits States from regulating a plan as an insurance or 
investment company or bank, the preemption provisions of section 731 of 
ERISA and section 2724 of the PHS Act (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the HIPAA requirements 
(including those of the Affordable Care Act) are not to be ``construed 
to supersede any provision of State law which establishes, implements, 
or continues in effect any standard or requirement solely relating to 
health insurance issuers in connection with group health insurance 
coverage except to the extent that such standard or requirement 
prevents the application of a requirement'' of a Federal standard. The 
conference report accompanying HIPAA indicates that this is intended to 
be the ``narrowest'' preemption of State laws. (See House Conf. Rep. 
No. 104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 
2018.) States may continue to apply State law requirements except to 
the extent that such requirements prevent the application of the 
Affordable Care Act requirements that are the subject of this 
rulemaking. State insurance laws that are more stringent than the 
Federal requirements are unlikely to ``prevent the application of'' the 
Affordable Care Act, and be preempted. Accordingly, States have 
significant latitude to impose requirements on health insurance issuers 
that are more restrictive than the Federal law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, the 
Departments have engaged in efforts to consult with and work 
cooperatively with affected State and local officials, including 
attending conferences of the National Association of Insurance 
Commissioners and consulting with State insurance officials on an 
individual basis. It is expected that the Departments will act in a 
similar fashion in enforcing the Affordable Care Act requirements. 
Throughout the process of developing these interim final regulations, 
to the extent feasible within the specific preemption provisions of 
HIPAA as it applies to the Affordable Care Act, the Departments have 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform minimum 
protections to consumers in every State. By doing so, it is the 
Departments' view that they have complied with the requirements of 
Executive Order 13132.
    Pursuant to the requirements set forth in section 8(a) of Executive 
Order 13132, and by the signatures affixed to these interim final 
regulations, the Departments certify that the Employee Benefits 
Security Administration and the Centers for Medicare & Medicaid 
Services have complied with the requirements of Executive Order 13132 
for the attached regulations in a meaningful and timely manner.

V. Statutory Authority

    The Department of the Treasury temporary regulations are adopted 
pursuant to the authority contained in sections 7805 and 9833 of the 
Code.
    The Department of Labor interim final regulations are adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 
1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 
401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 
512(d), Public Law 110-343, 122 Stat. 3881; sec. 1001, 1201, and 
1562(e), Public Law 111-148, 124 Stat. 119, as amended by Public Law 
111-152, 124 Stat. 1029; Secretary of Labor's Order 6-2009, 74 FR 21524 
(May 7, 2009).
    The Department of Health and Human Services interim final 
regulations are adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 144, 146, and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: June 18, 2010.
Michael F. Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 18th day of June 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: June 18, 2010.
Jay Angoff,
Director, Office of Consumer Information and Insurance Oversight.
    Dated: June 18, 2010.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

Department of the Treasury

Internal Revenue Service

26 CFR Chapter 1

0
Accordingly, 26 CFR parts 54 and 602 are amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 is amended by adding 
entries for Sec. Sec.  54.9815-2704T, 54.9815-2711T, 54.9815-2712T, and 
54.9815-2719AT in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805. * * *
    Section 54.9815-2704T also issued under 26 U.S.C. 9833.
    Section 54.9815-2711T also issued under 26 U.S.C. 9833.
    Section 54.9815-2712T also issued under 26 U.S.C. 9833. * * *
    Section 54.9815-2719AT also issued under 26 U.S.C. 9833. * * *


0
Par. 2. Section 54.9801-2 is amended by revising the definitions of 
group health plan and preexisting condition exclusion to read as 
follows:


Sec.  54.9801-2  Definitions.

* * * * *
    Group health plan or plan means a group health plan within the 
meaning of Sec.  54.9831-1(a).
* * * * *
    Preexisting condition exclusion means a limitation or exclusion of 
benefits (including a denial of coverage) based on the fact that the 
condition was

[[Page 37223]]

present before the effective date of coverage (or if coverage is 
denied, the date of the denial) under a group health plan or group or 
individual health insurance coverage (or other coverage provided to 
federally eligible individuals pursuant to 45 CFR part 148), whether or 
not any medical advice, diagnosis, care, or treatment was recommended 
or received before that day. A preexisting condition exclusion includes 
any limitation or exclusion of benefits (including a denial of 
coverage) applicable to an individual as a result of information 
relating to an individual's health status before the individual's 
effective date of coverage (or if coverage is denied, the date of the 
denial) under a group health plan, or group or individual health 
insurance coverage (or other coverage provided to Federally eligible 
individuals pursuant to 45 CFR part 148), such as a condition 
identified as a result of a pre-enrollment questionnaire or physical 
examination given to the individual, or review of medical records 
relating to the pre-enrollment period.

0
Par. 3. Section 54.9801-3 is amended by revising paragraph (a)(1)(i) to 
read as follows:


Sec.  54.9801-3  Limitations on preexisting condition exclusion period.

    (a) * * *
    (1) * * *
    (i) A preexisting condition exclusion means a preexisting condition 
exclusion within the meaning set forth in Sec.  54.9801-2.
* * * * *

0
Par. 4. Section 54.9815-2704T is added to read as follows:


Sec.  54.9815-2704T  Prohibition of preexisting condition exclusions 
(temporary).

    (a) No preexisting condition exclusions--(1) In general. A group 
health plan, or a health insurance issuer offering group health 
insurance coverage, may not impose any preexisting condition exclusion 
(as defined in Sec.  54.9801-2).
    (2) Examples. The rules of this paragraph (a) are illustrated by 
the following examples (for additional examples illustrating the 
definition of a preexisting condition exclusion, see Sec.  54.9801-
3(a)(1)(ii)):

    Example 1. (i) Facts. A group health plan provides benefits 
solely through an insurance policy offered by Issuer P. At the 
expiration of the policy, the plan switches coverage to a policy 
offered by Issuer N. N's policy excludes benefits for oral surgery 
required as a result of a traumatic injury if the injury occurred 
before the effective date of coverage under the policy.
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for oral surgery required as a result of a traumatic injury if the 
injury occurred before the effective date of coverage is a 
preexisting condition exclusion because it operates to exclude 
benefits for a condition based on the fact that the condition was 
present before the effective date of coverage under the policy.
    Example 2. (i) Facts. Individual C applies for individual health 
insurance coverage with Issuer M. M denies C's application for 
coverage because a pre-enrollment physical revealed that C has type 
2 diabetes.
    (ii) Conclusion. See Example 2 in 45 CFR 147.108(a)(2) for a 
conclusion that M's denial of C's application for coverage is a 
preexisting condition exclusion because a denial of an application 
for coverage based on the fact that a condition was present before 
the date of denial is an exclusion of benefits based on a 
preexisting condition.

    (b) Effective/applicability date--(1) General applicability date. 
Except as provided in paragraph (b)(2) of this section, the rules of 
this section apply for plan years beginning on or after January 1, 
2014.
    (2) Early applicability date for children. The rules of this 
section apply with respect to enrollees, including applicants for 
enrollment, who are under 19 years of age for plan years beginning on 
or after September 23, 2010.
    (3) Applicability to grandfathered health plans. See Sec.  54.9815-
1251T for determining the application of this section to grandfathered 
health plans (providing that a grandfathered health plan that is a 
group health plan or group health insurance coverage must comply with 
the prohibition against preexisting condition exclusions).
    (4) Example. The rules of this paragraph (b) are illustrated by the 
following example:

    Example.  (i) Facts. Individual F commences employment and 
enrolls F and F's 16-year-old child in the group health plan 
maintained by F's employer, with a first day of coverage of October 
15, 2010. F's child had a significant break in coverage because of a 
lapse of more than 63 days without creditable coverage immediately 
prior to enrolling in the plan. F's child was treated for asthma 
within the six-month period prior to the enrollment date and the 
plan imposes a 12-month preexisting condition exclusion for coverage 
of asthma. The next plan year begins on January 1, 2011.
    (ii) Conclusion. In this Example, the plan year beginning 
January 1, 2011 is the first plan year of the group health plan 
beginning on or after September 23, 2010. Thus, beginning on January 
1, 2011, because the child is under 19 years of age, the plan cannot 
impose a preexisting condition exclusion with respect to the child's 
asthma regardless of the fact that the preexisting condition 
exclusion was imposed by the plan before the applicability date of 
this provision.

    (c) Expiration date. This section expires on June 21, 2013.

0
Par. 5. Section 54.9815-2711T is added to read as follows:


Sec.  54.9815-2711T  No lifetime or annual limits (temporary).

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of this section, a group health plan, or a health 
insurance issuer offering group health insurance coverage, may not 
establish any lifetime limit on the dollar amount of benefits for any 
individual.
    (2) Annual limits--(i) General rule. Except as provided in 
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health 
plan, or a health insurance issuer offering group health insurance 
coverage, may not establish any annual limit on the dollar amount of 
benefits for any individual.
    (ii) Exception for health flexible spending arrangements. A health 
flexible spending arrangement (as defined in section 106(c)(2)) is not 
subject to the requirement in paragraph (a)(2)(i) of this section.
    (b) Construction--(1) Permissible limits on specific covered 
benefits. The rules of this section do not prevent a group health plan, 
or a health insurance issuer offering group health insurance coverage, 
from placing annual or lifetime dollar limits with respect to any 
individual on specific covered benefits that are not essential health 
benefits to the extent that such limits are otherwise permitted under 
applicable Federal or State law. (The scope of essential health 
benefits is addressed in paragraph (c) of this section.)
    (2) Condition-based exclusions. The rules of this section do not 
prevent a group health plan, or a health insurance issuer offering 
group health insurance coverage, from excluding all benefits for a 
condition. However, if any benefits are provided for a condition, then 
the requirements of this section apply. Other requirements of Federal 
or State law may require coverage of certain benefits.
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations.
    (d) Restricted annual limits permissible prior to 2014--(1) In 
general. With respect to plan years beginning prior to January 1, 2014, 
a group health plan, or a health insurance issuer offering group health 
insurance coverage, may establish, for any individual, an annual limit 
on the dollar amount of benefits that are essential health benefits, 
provided the limit is no less than the amounts in the following 
schedule:

[[Page 37224]]

    (i) For a plan year beginning on or after September 23, 2010, but 
before September 23, 2011, $750,000.
    (ii) For a plan year beginning on or after September 23, 2011, but 
before September 23, 2012, $1,250,000.
    (iii) For plan years beginning on or after September 23, 2012, but 
before January 1, 2014, $2,000,000.
    (2) Only essential health benefits taken into account. In 
determining whether an individual has received benefits that meet or 
exceed the applicable amount described in paragraph (d)(1) of this 
section, a plan or issuer must take into account only essential health 
benefits.
    (3) Waiver authority of the Secretary of Health and Human Services. 
For plan years beginning before January 1, 2014, the Secretary of 
Health and Human Services may establish a program under which the 
requirements of paragraph (d)(1) of this section relating to annual 
limits may be waived (for such period as is specified by the Secretary 
of Health and Human Services) for a group health plan or health 
insurance coverage that has an annual dollar limit on benefits below 
the restricted annual limits provided under paragraph (d)(1) of this 
section if compliance with paragraph (d)(1) of this section would 
result in a significant decrease in access to benefits under the plan 
or health insurance coverage or would significantly increase premiums 
for the plan or health insurance coverage.
    (e) Transitional rules for individuals whose coverage or benefits 
ended by reason of reaching a lifetime limit--(1) In general. The 
relief provided in the transitional rules of this paragraph (e) applies 
with respect to any individual--
    (i) Whose coverage or benefits under a group health plan or group 
health insurance coverage ended by reason of reaching a lifetime limit 
on the dollar value of all benefits for any individual (which, under 
this section, is no longer permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
benefits not subject to a lifetime limit on the dollar value of all 
benefits under the group health plan or group health insurance coverage 
on the first day of the first plan year beginning on or after September 
23, 2010, by reason of the application of this section.
    (2) Notice and enrollment opportunity requirements--(i) If an 
individual described in paragraph (e)(1) of this section is eligible 
for benefits (or is required to become eligible for benefits) under the 
group health plan--or group health insurance coverage--described in 
paragraph (e)(1) of this section, the plan and the issuer are required 
to give the individual written notice that the lifetime limit on the 
dollar value of all benefits no longer applies and that the individual, 
if covered, is once again eligible for benefits under the plan. 
Additionally, if the individual is not enrolled in the plan or health 
insurance coverage, or if an enrolled individual is eligible for but 
not enrolled in any benefit package under the plan or health insurance 
coverage, then the plan and issuer must also give such an individual an 
opportunity to enroll that continues for at least 30 days (including 
written notice of the opportunity to enroll). The notices and 
enrollment opportunity required under this paragraph (e)(2)(i) must be 
provided beginning not later than the first day of the first plan year 
beginning on or after September 23, 2010.
    (ii) The notices required under paragraph (e)(2)(i) of this section 
may be provided to an employee on behalf of the employee's dependent. 
In addition, the notices may be included with other enrollment 
materials that a plan distributes to employees, provided the statement 
is prominent. For either notice, if a notice satisfying the 
requirements of this paragraph (e)(2) is provided to an individual, the 
obligation to provide the notice with respect to that individual is 
satisfied for both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (e)(2) of this section, coverage must take 
effect not later than the first day of the first plan year beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. Any individual 
enrolling in a group health plan pursuant to paragraph (e)(2) of this 
section must be treated as if the individual were a special enrollee, 
as provided under the rules of Sec.  54.9801-6(d). Accordingly, the 
individual (and, if the individual would not be a participant once 
enrolled in the plan, the participant through whom the individual is 
otherwise eligible for coverage under the plan) must be offered all the 
benefit packages available to similarly situated individuals who did 
not lose coverage by reason of reaching a lifetime limit on the dollar 
value of all benefits. For this purpose, any difference in benefits or 
cost-sharing requirements constitutes a different benefit package. The 
individual also cannot be required to pay more for coverage than 
similarly situated individuals who did not lose coverage by reason of 
reaching a lifetime limit on the dollar value of all benefits.
    (5) Examples. The rules of this paragraph (e) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For plan years beginning before September 23, 2010, the 
plan has a lifetime limit on the dollar value of all benefits. 
Individual B, an employee of Y, was enrolled in Y's group health 
plan at the beginning of the 2008 plan year. On June 10, 2008, B 
incurred a claim for benefits that exceeded the lifetime limit under 
Y's plan and ceased to be enrolled in the plan. B is still eligible 
for coverage under Y's group health plan. On or before January 1, 
2011, Y's group health plan gives B written notice informing B that 
the lifetime limit on the dollar value of all benefits no longer 
applies, that individuals whose coverage ended by reason of reaching 
a lifetime limit under the plan are eligible to enroll in the plan, 
and that individuals can request such enrollment through February 1, 
2011 with enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (e) by providing a timely written 
notice and enrollment opportunity to B that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan has a lifetime limit on 
the dollar value of all benefits. Individual D, an employee of Z, 
and Individual E, D's child, were enrolled in family coverage under 
Z's group health plan for the plan year beginning on October 1, 
2008. On May 1, 2009, E incurred a claim for benefits that exceeded 
the lifetime limit under Z's plan. D dropped family coverage but 
remains an employee of Z and is still eligible for coverage under 
Z's group health plan.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that Z's 
plan had two benefit packages (a low-cost and a high-cost option). 
Instead of dropping coverage, D switched to the low-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible. The plan would have to provide D and E 
the opportunity to enroll in any benefit package available to 
similarly situated individuals who enroll when first eligible, even 
if D had not switched to the low-cost benefit package option.
    Example 4. (i) Facts. Employer Q maintains a group health plan 
with a plan year beginning October 1 and ending September 30. For 
the plan year beginning on October 1, 2009, Q has an annual limit on 
the dollar value of all benefits of $500,000.
    (ii) Conclusion. In this Example 4, Q must raise the annual 
limit on the dollar value of essential health benefits to at least 
$750,000

[[Page 37225]]

for the plan year beginning October 1, 2010. For the plan year 
beginning October 1, 2011, Q must raise the annual limit to at least 
$1.25 million. For the plan year beginning October 1, 2012, Q must 
raise the annual limit to at least $2 million. Q may also impose a 
restricted annual limit of $2 million for the plan year beginning 
October 1, 2013. After the conclusion of that plan year, Q cannot 
impose an overall annual limit.
    Example 5. (i) Facts. Same facts as Example 4, except that the 
annual limit for the plan year beginning on October 1, 2009 is $1 
million and Q lowers the annual limit for the plan year beginning 
October 1, 2010 to $750,000.
    (ii) Conclusion. In this Example 5, Q complies with the 
requirements of this paragraph (e). However, Q's choice to lower its 
annual limit means that under Sec.  54.9815-1251T(g)(1)(vi)(C), the 
group health plan will cease to be a grandfathered health plan and 
will be generally subject to all of the provisions of PHS Act 
sections 2701 through 2719A.

    (f) Effective/applicability date. The provisions of this section 
apply for plan years beginning on or after September 23, 2010. See 
Sec.  54.9815-1251T for determining the application of this section to 
grandfathered health plans (providing that the prohibitions on lifetime 
and annual limits apply to all grandfathered health plans that are 
group health plans and group health insurance coverage, including the 
special rules regarding restricted annual limits).
    (g) Expiration date. This section expires on June 21, 2013.
0
Par. 6. Section 54.9815-2712T is added to read as follows:


Sec.  54.9815-2712T  Rules regarding rescissions (temporary).

    (a) Prohibition on rescissions--(1) A group health plan, or a 
health insurance issuer offering group health insurance coverage, must 
not rescind coverage under the plan, or under the policy, certificate, 
or contract of insurance, with respect to an individual (including a 
group to which the individual belongs or family coverage in which the 
individual is included) once the individual is covered under the plan 
or coverage, unless the individual (or a person seeking coverage on 
behalf of the individual) performs an act, practice, or omission that 
constitutes fraud, or unless the individual makes an intentional 
misrepresentation of material fact, as prohibited by the terms of the 
plan or coverage. A group health plan, or a health insurance issuer 
offering group health insurance coverage, must provide at least 30 days 
advance written notice to each participant who would be affected before 
coverage may be rescinded under this paragraph (a)(1), regardless of 
whether the coverage is insured or self-insured, or whether the 
rescission applies to an entire group or only to an individual within 
the group. (The rules of this paragraph (a)(1) apply regardless of any 
contestability period that may otherwise apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if--
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect; or
    (ii) The cancellation or discontinuance of coverage is effective 
retroactively to the extent it is attributable to a failure to timely 
pay required premiums or contributions towards the cost of coverage.
    (3) The rules of this paragraph (a) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual A seeks enrollment in an 
insured group health plan. The plan terms permit rescission of 
coverage with respect to an individual if the individual engages in 
fraud or makes an intentional misrepresentation of a material fact. 
The plan requires A to complete a questionnaire regarding A's prior 
medical history, which affects setting the group rate by the health 
insurance issuer. The questionnaire complies with the other 
requirements of this part. The questionnaire includes the following 
question: ``Is there anything else relevant to your health that we 
should know?'' A inadvertently fails to list that A visited a 
psychologist on two occasions, six years previously. A is later 
diagnosed with breast cancer and seeks benefits under the plan. On 
or around the same time, the issuer receives information about A's 
visits to the psychologist, which was not disclosed in the 
questionnaire.
    (ii) Conclusion. In this Example 1, the plan cannot rescind A's 
coverage because A's failure to disclose the visits to the 
psychologist was inadvertent. Therefore, it was not fraudulent or an 
intentional misrepresentation of material fact.
    Example 2. (i) Facts. An employer sponsors a group health plan 
that provides coverage for employees who work at least 30 hours per 
week. Individual B has coverage under the plan as a full-time 
employee. The employer reassigns B to a part-time position. Under 
the terms of the plan, B is no longer eligible for coverage. The 
plan mistakenly continues to provide health coverage, collecting 
premiums from B and paying claims submitted by B. After a routine 
audit, the plan discovers that B no longer works at least 30 hours 
per week. The plan rescinds B's coverage effective as of the date 
that B changed from a full-time employee to a part-time employee.
    (ii) Conclusion. In this Example 2, the plan cannot rescind B's 
coverage because there was no fraud or an intentional 
misrepresentation of material fact. The plan may cancel coverage for 
B prospectively, subject to other applicable Federal and State laws.

    (b) Compliance with other requirements. Other requirements of 
Federal or State law may apply in connection with a rescission of 
coverage.
    (c) Effective/applicability date. The provisions of this section 
apply for plan years beginning on or after September 23, 2010. See 
Sec.  54.9815-1251T for determining the application of this section to 
grandfathered health plans (providing that the rules regarding 
rescissions and advance notice apply to all grandfathered health 
plans).
    (d) Expiration date. This section expires on June 21, 2013.

0
Par. 7. Section 54.9815-2719AT is added to read as follows:


Sec.  54.9815-2719AT  Patient protections (temporary).

    (a) Choice of health care professional--(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group health insurance coverage, requires or 
provides for designation by a participant or beneficiary of a 
participating primary care provider, then the plan or issuer must 
permit each participant or beneficiary to designate any participating 
primary care provider who is available to accept the participant or 
beneficiary. In such a case, the plan or issuer must comply with the 
rules of paragraph (a)(4) of this section by informing each participant 
of the terms of the plan or health insurance coverage regarding 
designation of a primary care provider.
    (ii) Example. The rules of this paragraph (a)(1) are illustrated by 
the following example:

    Example. (i) Facts. A group health plan requires individuals 
covered under the plan to designate a primary care provider. The 
plan permits each individual to designate any primary care provider 
participating in the plan's network who is available to accept the 
individual as the individual's primary care provider. If an 
individual has not designated a primary care provider, the plan 
designates one until one has been designated by the individual. The 
plan provides a notice that satisfies the requirements of paragraph 
(a)(4) of this section regarding the ability to designate a primary 
care provider.

    (ii) Conclusion. In this Example, the plan has satisfied the 
requirements of paragraph (a) of this section.

[[Page 37226]]

    (2) Designation of pediatrician as primary care provider--(i) In 
general. If a group health plan, or a health insurance issuer offering 
group health insurance coverage, requires or provides for the 
designation of a participating primary care provider for a child by a 
participant or beneficiary, the plan or issuer must permit the 
participant or beneficiary to designate a physician (allopathic or 
osteopathic) who specializes in pediatrics as the child's primary care 
provider if the provider participates in the network of the plan or 
issuer and is available to accept the child. In such a case, the plan 
or issuer must comply with the rules of paragraph (a)(4) of this 
section by informing each participant of the terms of the plan or 
health insurance coverage regarding designation of a pediatrician as 
the child's primary care provider.
    (ii) Construction. Nothing in paragraph (a)(2)(i) of this section 
is to be construed to waive any exclusions of coverage under the terms 
and conditions of the plan or health insurance coverage with respect to 
coverage of pediatric care.
    (iii) Examples. The rules of this paragraph (a)(2) are illustrated 
by the following examples:

    Example 1. (i) Facts. A group health plan's HMO designates for 
each participant a physician who specializes in internal medicine to 
serve as the primary care provider for the participant and any 
beneficiaries. Participant A requests that Pediatrician B be 
designated as the primary care provider for A's child. B is a 
participating provider in the HMO's network.
    (ii) Conclusion. In this Example 1, the HMO must permit A's 
designation of B as the primary care provider for A's child in order 
to comply with the requirements of this paragraph (a)(2).

    Example 2. (i) Facts. Same facts as Example 1, except that A 
takes A's child to B for treatment of the child's severe shellfish 
allergies. B wishes to refer A's child to an allergist for 
treatment. The HMO, however, does not provide coverage for treatment 
of food allergies, nor does it have an allergist participating in 
its network, and it therefore refuses to authorize the referral.
    (ii) Conclusion. In this Example 2, the HMO has not violated the 
requirements of this paragraph (a)(2) because the exclusion of 
treatment for food allergies is in accordance with the terms of A's 
coverage.

    (3) Patient access to obstetrical and gynecological care--(i) 
General rights--(A) Direct access. A group health plan, or a health 
insurance issuer offering group health insurance coverage, described in 
paragraph (a)(3)(ii) of this section may not require authorization or 
referral by the plan, issuer, or any person (including a primary care 
provider) in the case of a female participant or beneficiary who seeks 
coverage for obstetrical or gynecological care provided by a 
participating health care professional who specializes in obstetrics or 
gynecology. In such a case, the plan or issuer must comply with the 
rules of paragraph (a)(4) of this section by informing each participant 
that the plan may not require authorization or referral for obstetrical 
or gynecological care by a participating health care professional who 
specializes in obstetrics or gynecology. The plan or issuer may require 
such a professional to agree to otherwise adhere to the plan's or 
issuer's policies and procedures, including procedures regarding 
referrals and obtaining prior authorization and providing services 
pursuant to a treatment plan (if any) approved by the plan or issuer. 
For purposes of this paragraph (a)(3), a health care professional who 
specializes in obstetrics or gynecology is any individual (including a 
person other than a physician) who is authorized under applicable State 
law to provide obstetrical or gynecological care.
    (B) Obstetrical and gynecological care. A group health plan or 
health insurance issuer described in paragraph (a)(3)(ii) of this 
section must treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, pursuant to the direct access described under paragraph 
(a)(3)(i)(A) of this section, by a participating health care 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider.
    (ii) Application of paragraph. A group health plan, or a health 
insurance issuer offering group health insurance coverage, is described 
in this paragraph (a)(3) if the plan or issuer--
    (A) Provides coverage for obstetrical or gynecological care; and
    (B) Requires the designation by a participant or beneficiary of a 
participating primary care provider.
    (iii) Construction. Nothing in paragraph (a)(3)(i) of this section 
is to be construed to--
    (A) Waive any exclusions of coverage under the terms and conditions 
of the plan or health insurance coverage with respect to coverage of 
obstetrical or gynecological care; or
    (B) Preclude the group health plan or health insurance issuer 
involved from requiring that the obstetrical or gynecological provider 
notify the primary care health care professional or the plan or issuer 
of treatment decisions.
    (iv) Examples. The rules of this paragraph (a)(3) are illustrated 
by the following examples:

    Example 1. (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. 
Participant A, a female, requests a gynecological exam with 
Physician B, an in-network physician specializing in gynecological 
care. The group health plan requires prior authorization from A's 
designated primary care provider for the gynecological exam.
    (ii) Conclusion. In this Example 1, the group health plan has 
violated the requirements of this paragraph (a)(3) because the plan 
requires prior authorization from A's primary care provider prior to 
obtaining gynecological services.

    Example 2. (i) Facts. Same facts as Example 1 except that A 
seeks gynecological services from C, an out-of-network provider.
    (ii) Conclusion. In this Example 2, the group health plan has 
not violated the requirements of this paragraph (a)(3) by requiring 
prior authorization because C is not a participating health care 
provider.

    Example 3. (i) Facts. Same facts as Example 1 except that the 
group health plan only requires B to inform A's designated primary 
care physician of treatment decisions.
    (ii) Conclusion. In this Example 3, the group health plan has 
not violated the requirements of this paragraph (a)(3) because A has 
direct access to B without prior authorization. The fact that the 
group health plan requires notification of treatment decisions to 
the designated primary care physician does not violate this 
paragraph (a)(3).

    Example 4. (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. The group 
health plan requires prior authorization before providing benefits 
for uterine fibroid embolization.
    (ii) Conclusion. In this Example 4, the plan requirement for 
prior authorization before providing benefits for uterine fibroid 
embolization does not violate the requirements of this paragraph 
(a)(3) because, though the prior authorization requirement applies 
to obstetrical services, it does not restrict access to any 
providers specializing in obstetrics or gynecology.

    (4) Notice of right to designate a primary care provider--(i) In 
general. If a group health plan or health insurance issuer requires the 
designation by a participant or beneficiary of a primary care provider, 
the plan or issuer must provide a notice informing each participant of 
the terms of the plan or health insurance coverage regarding 
designation of a primary care provider and of the rights--
    (A) Under paragraph (a)(1)(i) of this section, that any 
participating primary care provider who is available to accept

[[Page 37227]]

the participant or beneficiary can be designated;
    (B) Under paragraph (a)(2)(i) of this section, with respect to a 
child, that any participating physician who specializes in pediatrics 
can be designated as the primary care provider; and
    (C) Under paragraph (a)(3)(i) of this section, that the plan may 
not require authorization or referral for obstetrical or gynecological 
care by a participating health care professional who specializes in 
obstetrics or gynecology.
    (ii) Timing. The notice described in paragraph (a)(4)(i) of this 
section must be included whenever the plan or issuer provides a 
participant with a summary plan description or other similar 
description of benefits under the plan or health insurance coverage.
    (iii) Model language. The following model language can be used to 
satisfy the notice requirement described in paragraph (a)(4)(i) of this 
section:
    (A) For plans and issuers that require or allow for the designation 
of primary care providers by participants or beneficiaries, insert:

    [Name of group health plan or health insurance issuer] generally 
[requires/allows] the designation of a primary care provider. You 
have the right to designate any primary care provider who 
participates in our network and who is available to accept you or 
your family members. [If the plan or health insurance coverage 
designates a primary care provider automatically, insert: Until you 
make this designation, [name of group health plan or health 
insurance issuer] designates one for you.] For information on how to 
select a primary care provider, and for a list of the participating 
primary care providers, contact the [plan administrator or issuer] 
at [insert contact information].

    (B) For plans and issuers that require or allow for the designation 
of a primary care provider for a child, add:
    For children, you may designate a pediatrician as the primary care 
provider.
    (C) For plans and issuers that provide coverage for obstetric or 
gynecological care and require the designation by a participant or 
beneficiary of a primary care provider, add:

    You do not need prior authorization from [name of group health 
plan or issuer] or from any other person (including a primary care 
provider) in order to obtain access to obstetrical or gynecological 
care from a health care professional in our network who specializes 
in obstetrics or gynecology. The health care professional, however, 
may be required to comply with certain procedures, including 
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a 
list of participating health care professionals who specialize in 
obstetrics or gynecology, contact the [plan administrator or issuer] 
at [insert contact information].

    (b) Coverage of emergency services--(1) Scope. If a group health 
plan, or a health insurance issuer offering group health insurance 
coverage, provides any benefits with respect to services in an 
emergency department of a hospital, the plan or issuer must cover 
emergency services (as defined in paragraph (b)(4)(ii) of this section) 
consistent with the rules of this paragraph (b).
    (2) General rules. A plan or issuer subject to the requirements of 
this paragraph (b) must provide coverage for emergency services in the 
following manner--
    (i) Without the need for any prior authorization determination, 
even if the emergency services are provided on an out-of-network basis;
    (ii) Without regard to whether the health care provider furnishing 
the emergency services is a participating network provider with respect 
to the services;
    (iii) If the emergency services are provided out of network, 
without imposing any administrative requirement or limitation on 
coverage that is more restrictive than the requirements or limitations 
that apply to emergency services received from in-network providers;
    (iv) If the emergency services are provided out of network, by 
complying with the cost-sharing requirements of paragraph (b)(3) of 
this section; and
    (v) Without regard to any other term or condition of the coverage, 
other than--
    (A) The exclusion of or coordination of benefits;
    (B) An affiliation or waiting period permitted under part 7 of 
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the 
Internal Revenue Code; or
    (C) Applicable cost sharing.
    (3) Cost-sharing requirements--(i) Copayments and coinsurance. Any 
cost-sharing requirement expressed as a copayment amount or coinsurance 
rate imposed with respect to a participant or beneficiary for out-of-
network emergency services cannot exceed the cost-sharing requirement 
imposed with respect to a participant or beneficiary if the services 
were provided in-network. However, a participant or beneficiary may be 
required to pay, in addition to the in-network cost sharing, the excess 
of the amount the out-of-network provider charges over the amount the 
plan or issuer is required to pay under this paragraph (b)(3)(i). A 
group health plan or health insurance issuer complies with the 
requirements of this paragraph (b)(3) if it provides benefits with 
respect to an emergency service in an amount equal to the greatest of 
the three amounts specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B), 
and (b)(3)(i)(C) of this section (which are adjusted for in-network 
cost-sharing requirements).
    (A) The amount negotiated with in-network providers for the 
emergency service furnished, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary. If 
there is more than one amount negotiated with in-network providers for 
the emergency service, the amount described under this paragraph 
(b)(3)(i)(A) is the median of these amounts, excluding any in-network 
copayment or coinsurance imposed with respect to the participant or 
beneficiary. In determining the median described in the preceding 
sentence, the amount negotiated with each in-network provider is 
treated as a separate amount (even if the same amount is paid to more 
than one provider). If there is no per-service amount negotiated with 
in-network providers (such as under a capitation or other similar 
payment arrangement), the amount under this paragraph (b)(3)(i)(A) is 
disregarded.
    (B) The amount for the emergency service calculated using the same 
method the plan generally uses to determine payments for out-of-network 
services (such as the usual, customary, and reasonable amount), 
excluding any in-network copayment or coinsurance imposed with respect 
to the participant or beneficiary. The amount in this paragraph 
(b)(3)(i)(B) is determined without reduction for out-of-network cost 
sharing that generally applies under the plan or health insurance 
coverage with respect to out-of-network services. Thus, for example, if 
a plan generally pays 70 percent of the usual, customary, and 
reasonable amount for out-of-network services, the amount in this 
paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 
100 percent) of the usual, customary, and reasonable amount for the 
service, not reduced by the 30 percent coinsurance that would generally 
apply to out-of-network services (but reduced by the in-network 
copayment or coinsurance that the individual would be responsible for 
if the emergency service had been provided in-network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary.
    (ii) Other cost sharing. Any cost-sharing requirement other than a

[[Page 37228]]

copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an 
out-of-pocket maximum generally applies to out-of-network benefits, 
that out-of-pocket maximum must apply to out-of-network emergency 
services.
    (iii) Examples. The rules of this paragraph (b)(3) are illustrated 
by the following examples. In all of these examples, the group health 
plan covers benefits with respect to emergency services.

    Example 1.  (i) Facts. A group health plan imposes a 25% 
coinsurance responsibility on individuals who are furnished 
emergency services, whether provided in network or out of network. 
If a covered individual notifies the plan within two business days 
after the day an individual receives treatment in an emergency 
department, the plan reduces the coinsurance rate to 15%.
    (ii) Conclusion. In this Example 1, the requirement to notify 
the plan in order to receive a reduction in the coinsurance rate 
does not violate the requirement that the plan cover emergency 
services without the need for any prior authorization determination. 
This is the result even if the plan required that it be notified 
before or at the time of receiving services at the emergency 
department in order to receive a reduction in the coinsurance rate.
    Example 2. (i) Facts. A group health plan imposes a $60 
copayment on emergency services without preauthorization, whether 
provided in-network or out-of-network. If emergency services are 
preauthorized, the plan waives the copayment, even if it later 
determines the medical condition was not an emergency medical 
condition.
    (ii) Conclusion. In this Example 2, by requiring an individual 
to pay more for emergency services if the individual does not obtain 
prior authorization, the plan violates the requirement that the plan 
cover emergency services without the need for any prior 
authorization determination. (By contrast, if, to have the copayment 
waived, the plan merely required that it be notified rather than a 
prior authorization, then the plan would not violate the requirement 
that the plan cover emergency services without the need for any 
prior authorization determination.)
    Example 3.  (i) Facts. A group health plan covers individuals 
who receive emergency services with respect to an emergency medical 
condition from an out-of-network provider. The plan has agreements 
with in-network providers with respect to a certain emergency 
service. Each provider has agreed to provide the service for a 
certain amount. Among all the providers for the service: One has 
agreed to accept $85, two have agreed to accept $100, two have 
agreed to accept $110, three have agreed to accept $120, and one has 
agreed to accept $150. Under the agreement, the plan agrees to pay 
the providers 80% of the agreed amount, with the individual 
receiving the service responsible for the remaining 20%.
    (ii) Conclusion. In this Example 3, the values taken into 
account in determining the median are $85, $100, $100, $110, $110, 
$120, $120, $120, and $150. Therefore, the median amount among those 
agreed to for the emergency service is $110, and the amount under 
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4. (i) Facts. Same facts as Example 3. Subsequently, the 
plan adds another provider to its network, who has agreed to accept 
$150 for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among 
those agreed to for the emergency service is $115. (Because there is 
no one middle amount, the median is the average of the two middle 
amounts, $110 and $120.) Accordingly, the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $115 ($92).
    Example 5.  (i) Facts. Same facts as Example 4. An individual 
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to 
services provided by out-of-network providers generally, the plan 
reimburses covered individuals 50% of the reasonable amount charged 
by the provider for medical services. For this purpose, the 
reasonable amount for any service is based on information on charges 
by all providers collected by a third party, on a zip-code-by-zip-
code basis, with the plan treating charges at a specified percentile 
as reasonable. For the emergency service received by the individual, 
the reasonable amount calculated using this method is $116. The 
amount that would be paid under Medicare for the emergency service, 
excluding any copayment or coinsurance for the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to 
for the emergency service is $115 and the amount the plan would pay 
is $92 (80% of $115); the amount calculated using the same method 
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the 
Medicare payment is $80. Thus, the greatest amount is $92.80. The 
individual is responsible for the remaining $32.20 charged by the 
out-of-network provider.
    Example 6.  (i) Facts. Same facts as Example 5. The group health 
plan generally imposes a $250 deductible for in-network health care. 
With respect to all health care provided by out-of-network 
providers, the plan imposes a $500 deductible. (Covered in-network 
claims are credited against the deductible.) The individual has 
incurred and submitted $260 of covered claims prior to receiving the 
emergency service out of network.
    (ii) Conclusion. In this Example 6, the plan is not responsible 
for paying anything with respect to the emergency service furnished 
by the out-of-network provider because the covered individual has 
not satisfied the higher deductible that applies generally to all 
health care provided out of network. However, the amount the 
individual is required to pay is credited against the deductible.

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Effective/applicability date. The provisions of this section 
apply for plan years beginning on or after September 23, 2010. See 
Sec.  54.9815-1251T for determining the application of this section to 
grandfathered health plans (providing that these rules regarding 
patient protections do not apply to grandfathered health plans).
    (d) Expiration date. This section expires on June 21, 2013.

[[Page 37229]]

PART 602--[AMENDED]

0
Par. 8. The authority citation for part 602 continues to read in part 
as follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 9. Section 602.101(b) is amended by adding the following entries 
in numerical order to the table to read as follows:


Sec.  602.101  OMB control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
54.9815-2711T...........................................       1545-2179
54.9815-2712T...........................................       1545-2180
 
                                * * * * *
54.9815-2719AT..........................................       1545-2181
 
                                * * * * *
------------------------------------------------------------------------

Department of Labor

Employee Benefits Security Administration

29 CFR Chapter XXV

0
For reasons stated in the preamble, EBSA amends 29 CFR part 2590 as 
follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
1. The authority citation for part 2590 continues to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 2009).

Subpart B--Other Requirements

0
2. Section 2590.701-2 is amended by revising the definition of 
preexisting condition exclusion to read as follows:


Sec.  2590.701-2  Definitions.

* * * * *
    Preexisting condition exclusion means a limitation or exclusion of 
benefits (including a denial of coverage) based on the fact that the 
condition was present before the effective date of coverage (or if 
coverage is denied, the date of the denial) under a group health plan 
or group or individual health insurance coverage (or other coverage 
provided to federally eligible individuals pursuant to 45 CFR part 
148), whether or not any medical advice, diagnosis, care, or treatment 
was recommended or received before that day. A preexisting condition 
exclusion includes any limitation or exclusion of benefits (including a 
denial of coverage) applicable to an individual as a result of 
information relating to an individual's health status before the 
individual's effective date of coverage (or if coverage is denied, the 
date of the denial) under a group health plan, or group or individual 
health insurance coverage (or other coverage provided to Federally 
eligible individuals pursuant to 45 CFR part 148), such as a condition 
identified as a result of a pre-enrollment questionnaire or physical 
examination given to the individual, or review of medical records 
relating to the pre-enrollment period.
* * * * *

0
3. Section 2590.701-3 is amended by revising paragraph (a)(1)(i) to 
read as follows:


Sec.  2590.701-3  Limitations on preexisting condition exclusion 
period.

    (a) * * *
    (1) * * *
    (i) A preexisting condition exclusion means a preexisting condition 
exclusion within the meaning set forth in Sec.  2590.701-2 of this 
part.
* * * * *

0
4. Section 2590.715-2704 is added to subpart C to read as follows:


Sec.  2590.715-2704  Prohibition of preexisting condition exclusions.

    (a) No preexisting condition exclusions--(1) In general. A group 
health plan, or a health insurance issuer offering group health 
insurance coverage, may not impose any preexisting condition exclusion 
(as defined in Sec.  2590.701-2 of this part).
    (2) Examples. The rules of this paragraph (a) are illustrated by 
the following examples (for additional examples illustrating the 
definition of a preexisting condition exclusion, see Sec.  2590.701-
3(a)(1)(ii) of this part):

    Example 1.  (i) Facts. A group health plan provides benefits 
solely through an insurance policy offered by Issuer P. At the 
expiration of the policy, the plan switches coverage to a policy 
offered by Issuer N. N's policy excludes benefits for oral surgery 
required as a result of a traumatic injury if the injury occurred 
before the effective date of coverage under the policy.
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for oral surgery required as a result of a traumatic injury if the 
injury occurred before the effective date of coverage is a 
preexisting condition exclusion because it operates to exclude 
benefits for a condition based on the fact that the condition was 
present before the effective date of coverage under the policy.
    Example 2. (i) Facts. Individual C applies for individual health 
insurance coverage with Issuer M. M denies C's application for 
coverage because a pre-enrollment physical revealed that C has type 
2 diabetes.
    (ii) Conclusion. See Example 2 in 45 CFR 147.108(a)(2) for a 
conclusion that M's denial of C's application for coverage is a 
preexisting condition exclusion because a denial of an application 
for coverage based on the fact that a condition was present before 
the date of denial is an exclusion of benefits based on a 
preexisting condition.

    (b) Applicability--(1) General applicability date. Except as 
provided in paragraph (b)(2) of this section, the rules of this section 
apply for plan years beginning on or after January 1, 2014.
    (2) Early applicability date for children. The rules of this 
section apply with respect to enrollees, including applicants for 
enrollment, who are under 19 years of age for plan years beginning on 
or after September 23, 2010.
    (3) Applicability to grandfathered health plans. See Sec.  
2590.715-1251 of this part for determining the application of this 
section to grandfathered health plans (providing that a grandfathered 
health plan that is a group health plan or group health insurance 
coverage must comply with the prohibition against preexisting condition 
exclusions).
    (4) Example. The rules of this paragraph (b) are illustrated by the 
following example:
    Example. (i) Facts. Individual F commences employment and 
enrolls F and F's 16-year-old child in the group health plan 
maintained by F's employer, with a first day of coverage of October 
15, 2010. F's child had a significant break in coverage because of a 
lapse of more than 63 days without creditable coverage immediately 
prior to enrolling in the plan. F's child was treated for asthma 
within the six-month period prior to the enrollment date and the 
plan imposes a 12-month preexisting condition exclusion for coverage 
of asthma. The next plan year begins on January 1, 2011.
    (ii) Conclusion. In this Example, the plan year beginning 
January 1, 2011 is the first plan year of the group health plan 
beginning on or after September 23, 2010. Thus, beginning on January 
1, 2011, because the child is under 19 years of age, the plan cannot 
impose a preexisting condition exclusion with respect to the child's 
asthma regardless of the fact that the preexisting condition 
exclusion was imposed by the plan before the applicability date of 
this provision.


0
5. Section 2590.715-2711 is added to subpart C to read as follows:


Sec.  2590.715-2711  No lifetime or annual limits.

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of

[[Page 37230]]

this section, a group health plan, or a health insurance issuer 
offering group health insurance coverage, may not establish any 
lifetime limit on the dollar amount of benefits for any individual.
    (2) Annual limits--(i) General rule. Except as provided in 
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health 
plan, or a health insurance issuer offering group health insurance 
coverage, may not establish any annual limit on the dollar amount of 
benefits for any individual.
    (ii) Exception for health flexible spending arrangements. A health 
flexible spending arrangement (as defined in section 106(c)(2) of the 
Internal Revenue Code) is not subject to the requirement in paragraph 
(a)(2)(i) of this section.
    (b) Construction--(1) Permissible limits on specific covered 
benefits. The rules of this section do not prevent a group health plan, 
or a health insurance issuer offering group health insurance coverage, 
from placing annual or lifetime dollar limits with respect to any 
individual on specific covered benefits that are not essential health 
benefits to the extent that such limits are otherwise permitted under 
applicable Federal or State law. (The scope of essential health 
benefits is addressed in paragraph (c) of this section).
    (2) Condition-based exclusions. The rules of this section do not 
prevent a group health plan, or a health insurance issuer offering 
group health insurance coverage, from excluding all benefits for a 
condition. However, if any benefits are provided for a condition, then 
the requirements of this section apply. Other requirements of Federal 
or State law may require coverage of certain benefits.
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations.
    (d) Restricted annual limits permissible prior to 2014--(1) In 
general. With respect to plan years beginning prior to January 1, 2014, 
a group health plan, or a health insurance issuer offering group health 
insurance coverage, may establish, for any individual, an annual limit 
on the dollar amount of benefits that are essential health benefits, 
provided the limit is no less than the amounts in the following 
schedule:
    (i) For a plan year beginning on or after September 23, 2010, but 
before September 23, 2011, $750,000.
    (ii) For a plan year beginning on or after September 23, 2011, but 
before September 23, 2012, $1,250,000.
    (iii) For plan years beginning on or after September 23, 2012, but 
before January 1, 2014, $2,000,000.
    (2) Only essential health benefits taken into account. In 
determining whether an individual has received benefits that meet or 
exceed the applicable amount described in paragraph (d)(1) of this 
section, a plan or issuer must take into account only essential health 
benefits.
    (3) Waiver authority of the Secretary of Health and Human Services. 
For plan years beginning before January 1, 2014, the Secretary of 
Health and Human Services may establish a program under which the 
requirements of paragraph (d)(1) of this section relating to annual 
limits may be waived (for such period as is specified by the Secretary 
of Health and Human Services) for a group health plan or health 
insurance coverage that has an annual dollar limit on benefits below 
the restricted annual limits provided under paragraph (d)(1) of this 
section if compliance with paragraph (d)(1) of this section would 
result in a significant decrease in access to benefits under the plan 
or health insurance coverage or would significantly increase premiums 
for the plan or health insurance coverage.
    (e) Transitional rules for individuals whose coverage or benefits 
ended by reason of reaching a lifetime limit--(1) In general. The 
relief provided in the transitional rules of this paragraph (e) applies 
with respect to any individual--
    (i) Whose coverage or benefits under a group health plan or group 
health insurance coverage ended by reason of reaching a lifetime limit 
on the dollar value of all benefits for any individual (which, under 
this section, is no longer permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
benefits not subject to a lifetime limit on the dollar value of all 
benefits under the group health plan or group health insurance coverage 
on the first day of the first plan year beginning on or after September 
23, 2010, by reason of the application of this section.
    (2) Notice and enrollment opportunity requirements-(i) If an 
individual described in paragraph (e)(1) of this section is eligible 
for benefits (or is required to become eligible for benefits) under the 
group health plan--or group health insurance coverage--described in 
paragraph (e)(1) of this section, the plan and the issuer are required 
to give the individual written notice that the lifetime limit on the 
dollar value of all benefits no longer applies and that the individual, 
if covered, is once again eligible for benefits under the plan. 
Additionally, if the individual is not enrolled in the plan or health 
insurance coverage, or if an enrolled individual is eligible for but 
not enrolled in any benefit package under the plan or health insurance 
coverage, then the plan and issuer must also give such an individual an 
opportunity to enroll that continues for at least 30 days (including 
written notice of the opportunity to enroll). The notices and 
enrollment opportunity required under this paragraph (e)(2)(i) must be 
provided beginning not later than the first day of the first plan year 
beginning on or after September 23, 2010.
    (ii) The notices required under paragraph (e)(2)(i) of this section 
may be provided to an employee on behalf of the employee's dependent. 
In addition, the notices may be included with other enrollment 
materials that a plan distributes to employees, provided the statement 
is prominent. For either notice, if a notice satisfying the 
requirements of this paragraph (e)(2) is provided to an individual, the 
obligation to provide the notice with respect to that individual is 
satisfied for both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (e)(2) of this section, coverage must take 
effect not later than the first day of the first plan year beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. Any individual 
enrolling in a group health plan pursuant to paragraph (e)(2) of this 
section must be treated as if the individual were a special enrollee, 
as provided under the rules of Sec.  2590.701-6(d) of this part. 
Accordingly, the individual (and, if the individual would not be a 
participant once enrolled in the plan, the participant through whom the 
individual is otherwise eligible for coverage under the plan) must be 
offered all the benefit packages available to similarly situated 
individuals who did not lose coverage by reason of reaching a lifetime 
limit on the dollar value of all benefits. For this purpose, any 
difference in benefits or cost-sharing requirements constitutes a 
different benefit package. The individual also cannot be required to 
pay more for coverage than similarly situated individuals who did not 
lose coverage by reason of reaching a lifetime limit on the dollar 
value of all benefits.
    (5) Examples. The rules of this paragraph (e) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For plan years beginning before September 23, 2010, the 
plan has a lifetime limit on the

[[Page 37231]]

dollar value of all benefits. Individual B, an employee of Y, was 
enrolled in Y's group health plan at the beginning of the 2008 plan 
year. On June 10, 2008, B incurred a claim for benefits that 
exceeded the lifetime limit under Y's plan and ceased to be enrolled 
in the plan. B is still eligible for coverage under Y's group health 
plan. On or before January 1, 2011, Y's group health plan gives B 
written notice informing B that the lifetime limit on the dollar 
value of all benefits no longer applies, that individuals whose 
coverage ended by reason of reaching a lifetime limit under the plan 
are eligible to enroll in the plan, and that individuals can request 
such enrollment through February 1, 2011 with enrollment effective 
retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (e) by providing a timely written 
notice and enrollment opportunity to B that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan has a lifetime limit on 
the dollar value of all benefits. Individual D, an employee of Z, 
and Individual E, D's child, were enrolled in family coverage under 
Z's group health plan for the plan year beginning on October 1, 
2008. On May 1, 2009, E incurred a claim for benefits that exceeded 
the lifetime limit under Z's plan. D dropped family coverage but 
remains an employee of Z and is still eligible for coverage under 
Z's group health plan.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3.  (i) Facts. Same facts as Example 2, except that Z's 
plan had two benefit packages (a low-cost and a high-cost option). 
Instead of dropping coverage, D switched to the low-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible. The plan would have to provide D and E 
the opportunity to enroll in any benefit package available to 
similarly situated individuals who enroll when first eligible, even 
if D had not switched to the low-cost benefit package option.
    Example 4.  (i) Facts. Employer Q maintains a group health plan 
with a plan year beginning October 1 and ending September 30. For 
the plan year beginning on October 1, 2009, Q has an annual limit on 
the dollar value of all benefits of $500,000.
    (ii) Conclusion. In this Example 4, Q must raise the annual 
limit on the dollar value of essential health benefits to at least 
$750,000 for the plan year beginning October 1, 2010. For the plan 
year beginning October 1, 2011, Q must raise the annual limit to at 
least $1.25 million. For the plan year beginning October 1, 2012, Q 
must raise the annual limit to at least $2 million. Q may also 
impose a restricted annual limit of $2 million for the plan year 
beginning October 1, 2013. After the conclusion of that plan year, Q 
cannot impose an overall annual limit.
    Example 5.  (i) Facts. Same facts as Example 4, except that the 
annual limit for the plan year beginning on October 1, 2009 is $1 
million and Q lowers the annual limit for the plan year beginning 
October 1, 2010 to $750,000.
    (ii) Conclusion. In this Example 5, Q complies with the 
requirements of this paragraph (e). However, Q's choice to lower its 
annual limit means that under Sec.  2590.715-1251(g)(1)(vi)(C), the 
group health plan will cease to be a grandfathered health plan and 
will be generally subject to all of the provisions of PHS Act 
sections 2701 through 2719A.

    (f) Applicability date. The provisions of this section apply for 
plan years beginning on or after September 23, 2010. See Sec.  
2590.715-1251 of this Part for determining the application of this 
section to grandfathered health plans (providing that the prohibitions 
on lifetime and annual limits apply to all grandfathered health plans 
that are group health plans and group health insurance coverage, 
including the special rules regarding restricted annual limits).

0
6. Section 2590.715-2712 is added to subpart C to read as follows:


Sec.  2590.715-2712  Rules regarding rescissions.

    (a) Prohibition on rescissions--(1) A group health plan, or a 
health insurance issuer offering group health insurance coverage, must 
not rescind coverage under the plan, or under the policy, certificate, 
or contract of insurance, with respect to an individual (including a 
group to which the individual belongs or family coverage in which the 
individual is included) once the individual is covered under the plan 
or coverage, unless the individual (or a person seeking coverage on 
behalf of the individual) performs an act, practice, or omission that 
constitutes fraud, or unless the individual makes an intentional 
misrepresentation of material fact, as prohibited by the terms of the 
plan or coverage. A group health plan, or a health insurance issuer 
offering group health insurance coverage, must provide at least 30 days 
advance written notice to each participant who would be affected before 
coverage may be rescinded under this paragraph (a)(1), regardless of 
whether the coverage is insured or self-insured, or whether the 
rescission applies to an entire group or only to an individual within 
the group. (The rules of this paragraph (a)(1) apply regardless of any 
contestability period that may otherwise apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if -
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect; or
    (ii) The cancellation or discontinuance of coverage is effective 
retroactively to the extent it is attributable to a failure to timely 
pay required premiums or contributions towards the cost of coverage.
    (3) The rules of this paragraph (a) are illustrated by the 
following examples:

    Example 1.  (i) Facts. Individual A seeks enrollment in an 
insured group health plan. The plan terms permit rescission of 
coverage with respect to an individual if the individual engages in 
fraud or makes an intentional misrepresentation of a material fact. 
The plan requires A to complete a questionnaire regarding A's prior 
medical history, which affects setting the group rate by the health 
insurance issuer. The questionnaire complies with the other 
requirements of this part. The questionnaire includes the following 
question: ``Is there anything else relevant to your health that we 
should know?'' A inadvertently fails to list that A visited a 
psychologist on two occasions, six years previously. A is later 
diagnosed with breast cancer and seeks benefits under the plan. On 
or around the same time, the issuer receives information about A's 
visits to the psychologist, which was not disclosed in the 
questionnaire.
    (ii) Conclusion. In this Example 1, the plan cannot rescind A's 
coverage because A's failure to disclose the visits to the 
psychologist was inadvertent. Therefore, it was not fraudulent or an 
intentional misrepresentation of material fact.
    Example 2. (i) Facts. An employer sponsors a group health plan 
that provides coverage for employees who work at least 30 hours per 
week. Individual B has coverage under the plan as a full-time 
employee. The employer reassigns B to a part-time position. Under 
the terms of the plan, B is no longer eligible for coverage. The 
plan mistakenly continues to provide health coverage, collecting 
premiums from B and paying claims submitted by B. After a routine 
audit, the plan discovers that B no longer works at least 30 hours 
per week. The plan rescinds B's coverage effective as of the date 
that B changed from a full-time employee to a part-time employee.
    (ii) Conclusion. In this Example 2, the plan cannot rescind B's 
coverage because there was no fraud or an intentional 
misrepresentation of material fact. The plan may cancel coverage for 
B prospectively, subject to other applicable Federal and State laws.


[[Page 37232]]


    (b) Compliance with other requirements. Other requirements of 
Federal or State law may apply in connection with a rescission of 
coverage.
    (c) Applicability date. The provisions of this section apply for 
plan years beginning on or after September 23, 2010. See Sec.  
2590.715-1251 of this part for determining the application of this 
section to grandfathered health plans (providing that the rules 
regarding rescissions and advance notice apply to all grandfathered 
health plans).

0
7. Section 2590.715-2719A is added to subpart C to read as follows:


Sec.  2590.715-2719A  Patient protections.

    (a) Choice of health care professional-(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group health insurance coverage, requires or 
provides for designation by a participant or beneficiary of a 
participating primary care provider, then the plan or issuer must 
permit each participant or beneficiary to designate any participating 
primary care provider who is available to accept the participant or 
beneficiary. In such a case, the plan or issuer must comply with the 
rules of paragraph (a)(4) of this section by informing each participant 
of the terms of the plan or health insurance coverage regarding 
designation of a primary care provider.
    (ii) Example. The rules of this paragraph (a)(1) are illustrated by 
the following example:

    Example.  (i) Facts. A group health plan requires individuals 
covered under the plan to designate a primary care provider. The 
plan permits each individual to designate any primary care provider 
participating in the plan's network who is available to accept the 
individual as the individual's primary care provider. If an 
individual has not designated a primary care provider, the plan 
designates one until one has been designated by the individual. The 
plan provides a notice that satisfies the requirements of paragraph 
(a)(4) of this section regarding the ability to designate a primary 
care provider.

    (ii) Conclusion. In this Example, the plan has satisfied the 
requirements of paragraph (a) of this section.
    (2) Designation of pediatrician as primary care provider--(i) In 
general. If a group health plan, or a health insurance issuer offering 
group health insurance coverage, requires or provides for the 
designation of a participating primary care provider for a child by a 
participant or beneficiary, the plan or issuer must permit the 
participant or beneficiary to designate a physician (allopathic or 
osteopathic) who specializes in pediatrics as the child's primary care 
provider if the provider participates in the network of the plan or 
issuer and is available to accept the child. In such a case, the plan 
or issuer must comply with the rules of paragraph (a)(4) of this 
section by informing each participant of the terms of the plan or 
health insurance coverage regarding designation of a pediatrician as 
the child's primary care provider.
    (ii) Construction. Nothing in paragraph (a)(2)(i) of this section 
is to be construed to waive any exclusions of coverage under the terms 
and conditions of the plan or health insurance coverage with respect to 
coverage of pediatric care.
    (iii) Examples. The rules of this paragraph (a)(2) are illustrated 
by the following examples:

    Example 1.  (i) Facts. A group health plan's HMO designates for 
each participant a physician who specializes in internal medicine to 
serve as the primary care provider for the participant and any 
beneficiaries. Participant A requests that Pediatrician B be 
designated as the primary care provider for A's child. B is a 
participating provider in the HMO's network.
    (ii) Conclusion. In this Example 1, the HMO must permit A's 
designation of B as the primary care provider for A's child in order 
to comply with the requirements of this paragraph (a)(2).
    Example 2.  (i) Facts. Same facts as Example 1, except that A 
takes A's child to B for treatment of the child's severe shellfish 
allergies. B wishes to refer A's child to an allergist for 
treatment. The HMO, however, does not provide coverage for treatment 
of food allergies, nor does it have an allergist participating in 
its network, and it therefore refuses to authorize the referral.
    (ii) Conclusion. In this Example 2, the HMO has not violated the 
requirements of this paragraph (a)(2) because the exclusion of 
treatment for food allergies is in accordance with the terms of A's 
coverage.

    (3) Patient access to obstetrical and gynecological care--(i) 
General rights--(A) Direct access. A group health plan, or a health 
insurance issuer offering group health insurance coverage, described in 
paragraph (a)(3)(ii) of this section may not require authorization or 
referral by the plan, issuer, or any person (including a primary care 
provider) in the case of a female participant or beneficiary who seeks 
coverage for obstetrical or gynecological care provided by a 
participating health care professional who specializes in obstetrics or 
gynecology. In such a case, the plan or issuer must comply with the 
rules of paragraph (a)(4) of this section by informing each participant 
that the plan may not require authorization or referral for obstetrical 
or gynecological care by a participating health care professional who 
specializes in obstetrics or gynecology. The plan or issuer may require 
such a professional to agree to otherwise adhere to the plan's or 
issuer's policies and procedures, including procedures regarding 
referrals and obtaining prior authorization and providing services 
pursuant to a treatment plan (if any) approved by the plan or issuer. 
For purposes of this paragraph (a)(3), a health care professional who 
specializes in obstetrics or gynecology is any individual (including a 
person other than a physician) who is authorized under applicable State 
law to provide obstetrical or gynecological care.
    (B) Obstetrical and gynecological care. A group health plan or 
health insurance issuer described in paragraph (a)(3)(ii) of this 
section must treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, pursuant to the direct access described under paragraph 
(a)(3)(i)(A) of this section, by a participating health care 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider.
    (ii) Application of paragraph. A group health plan, or a health 
insurance issuer offering group health insurance coverage, is described 
in this paragraph (a)(3) if the plan or issuer--
    (A) Provides coverage for obstetrical or gynecological care; and
    (B) Requires the designation by a participant or beneficiary of a 
participating primary care provider.
    (iii) Construction. Nothing in paragraph (a)(3)(i) of this section 
is to be construed to--
    (A) Waive any exclusions of coverage under the terms and conditions 
of the plan or health insurance coverage with respect to coverage of 
obstetrical or gynecological care; or
    (B) Preclude the group health plan or health insurance issuer 
involved from requiring that the obstetrical or gynecological provider 
notify the primary care health care professional or the plan or issuer 
of treatment decisions.
    (iv) Examples. The rules of this paragraph (a)(3) are illustrated 
by the following examples:

    Example 1.  (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. 
Participant A, a female, requests a gynecological exam with 
Physician B, an in-network physician specializing in gynecological 
care. The group health plan requires prior authorization from A's 
designated primary care provider for the gynecological exam.

[[Page 37233]]

    (ii) Conclusion. In this Example 1, the group health plan has 
violated the requirements of this paragraph (a)(3) because the plan 
requires prior authorization from A's primary care provider prior to 
obtaining gynecological services.
    Example 2.  (i) Facts. Same facts as Example 1 except that A 
seeks gynecological services from C, an out-of-network provider.
    (ii) Conclusion. In this Example 2, the group health plan has 
not violated the requirements of this paragraph (a)(3) by requiring 
prior authorization because C is not a participating health care 
provider.
    Example 3. (i) Facts. Same facts as Example 1 except that the 
group health plan only requires B to inform A's designated primary 
care physician of treatment decisions.
    (ii) Conclusion. In this Example 3, the group health plan has 
not violated the requirements of this paragraph (a)(3) because A has 
direct access to B without prior authorization. The fact that the 
group health plan requires notification of treatment decisions to 
the designated primary care physician does not violate this 
paragraph (a)(3).
    Example 4.  (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. The group 
health plan requires prior authorization before providing benefits 
for uterine fibroid embolization.
    (ii) Conclusion. In this Example 4, the plan requirement for 
prior authorization before providing benefits for uterine fibroid 
embolization does not violate the requirements of this paragraph 
(a)(3) because, though the prior authorization requirement applies 
to obstetrical services, it does not restrict access to any 
providers specializing in obstetrics or gynecology.

    (4) Notice of right to designate a primary care provider--(i) In 
general. If a group health plan or health insurance issuer requires the 
designation by a participant or beneficiary of a primary care provider, 
the plan or issuer must provide a notice informing each participant of 
the terms of the plan or health insurance coverage regarding 
designation of a primary care provider and of the rights--
    (A) Under paragraph (a)(1)(i) of this section, that any 
participating primary care provider who is available to accept the 
participant or beneficiary can be designated;
    (B) Under paragraph (a)(2)(i) of this section, with respect to a 
child, that any participating physician who specializes in pediatrics 
can be designated as the primary care provider; and
    (C) Under paragraph (a)(3)(i) of this section, that the plan may 
not require authorization or referral for obstetrical or gynecological 
care by a participating health care professional who specializes in 
obstetrics or gynecology.
    (ii) Timing. The notice described in paragraph (a)(4)(i) of this 
section must be included whenever the plan or issuer provides a 
participant with a summary plan description or other similar 
description of benefits under the plan or health insurance coverage.
    (iii) Model language. The following model language can be used to 
satisfy the notice requirement described in paragraph (a)(4)(i) of this 
section:
    (A) For plans and issuers that require or allow for the designation 
of primary care providers by participants or beneficiaries, insert:

    [Name of group health plan or health insurance issuer] generally 
[requires/allows] the designation of a primary care provider. You 
have the right to designate any primary care provider who 
participates in our network and who is available to accept you or 
your family members. [If the plan or health insurance coverage 
designates a primary care provider automatically, insert: Until you 
make this designation, [name of group health plan or health 
insurance issuer] designates one for you.] For information on how to 
select a primary care provider, and for a list of the participating 
primary care providers, contact the [plan administrator or issuer] 
at [insert contact information].

    (B) For plans and issuers that require or allow for the designation 
of a primary care provider for a child, add:

    For children, you may designate a pediatrician as the primary 
care provider.

    (C) For plans and issuers that provide coverage for obstetric or 
gynecological care and require the designation by a participant or 
beneficiary of a primary care provider, add:

    You do not need prior authorization from [name of group health 
plan or issuer] or from any other person (including a primary care 
provider) in order to obtain access to obstetrical or gynecological 
care from a health care professional in our network who specializes 
in obstetrics or gynecology. The health care professional, however, 
may be required to comply with certain procedures, including 
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a 
list of participating health care professionals who specialize in 
obstetrics or gynecology, contact the [plan administrator or issuer] 
at [insert contact information].

    (b) Coverage of emergency services--(1) Scope. If a group health 
plan, or a health insurance issuer offering group health insurance 
coverage, provides any benefits with respect to services in an 
emergency department of a hospital, the plan or issuer must cover 
emergency services (as defined in paragraph (b)(4)(ii) of this section) 
consistent with the rules of this paragraph (b).
    (2) General rules. A plan or issuer subject to the requirements of 
this paragraph (b) must provide coverage for emergency services in the 
following manner--
    (i) Without the need for any prior authorization determination, 
even if the emergency services are provided on an out-of-network basis;
    (ii) Without regard to whether the health care provider furnishing 
the emergency services is a participating network provider with respect 
to the services;
    (iii) If the emergency services are provided out of network, 
without imposing any administrative requirement or limitation on 
coverage that is more restrictive than the requirements or limitations 
that apply to emergency services received from in-network providers;
    (iv) If the emergency services are provided out of network, by 
complying with the cost-sharing requirements of paragraph (b)(3) of 
this section; and
    (v) Without regard to any other term or condition of the coverage, 
other than--
    (A) The exclusion of or coordination of benefits;
    (B) An affiliation or waiting period permitted under part 7 of 
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the 
Internal Revenue Code; or
    (C) Applicable cost sharing.
    (3) Cost-sharing requirements--(i) Copayments and coinsurance. Any 
cost-sharing requirement expressed as a copayment amount or coinsurance 
rate imposed with respect to a participant or beneficiary for out-of-
network emergency services cannot exceed the cost-sharing requirement 
imposed with respect to a participant or beneficiary if the services 
were provided in-network. However, a participant or beneficiary may be 
required to pay, in addition to the in-network cost sharing, the excess 
of the amount the out-of-network provider charges over the amount the 
plan or issuer is required to pay under this paragraph (b)(3)(i). A 
group health plan or health insurance issuer complies with the 
requirements of this paragraph (b)(3) if it provides benefits with 
respect to an emergency service in an amount equal to the greatest of 
the three amounts specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B), 
and (b)(3)(i)(C) of this section (which are adjusted for in-network 
cost-sharing requirements).
    (A) The amount negotiated with in-network providers for the 
emergency service furnished, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary. If 
there is more than one amount negotiated with in-network providers for 
the emergency service, the amount described under this paragraph 
(b)(3)(i)(A) is the median of these

[[Page 37234]]

amounts, excluding any in-network copayment or coinsurance imposed with 
respect to the participant or beneficiary. In determining the median 
described in the preceding sentence, the amount negotiated with each 
in-network provider is treated as a separate amount (even if the same 
amount is paid to more than one provider). If there is no per-service 
amount negotiated with in-network providers (such as under a capitation 
or other similar payment arrangement), the amount under this paragraph 
(b)(3)(i)(A) is disregarded.
    (B) The amount for the emergency service calculated using the same 
method the plan generally uses to determine payments for out-of-network 
services (such as the usual, customary, and reasonable amount), 
excluding any in-network copayment or coinsurance imposed with respect 
to the participant or beneficiary. The amount in this paragraph 
(b)(3)(i)(B) is determined without reduction for out-of-network cost 
sharing that generally applies under the plan or health insurance 
coverage with respect to out-of-network services. Thus, for example, if 
a plan generally pays 70 percent of the usual, customary, and 
reasonable amount for out-of-network services, the amount in this 
paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 
100 percent) of the usual, customary, and reasonable amount for the 
service, not reduced by the 30 percent coinsurance that would generally 
apply to out-of-network services (but reduced by the in-network 
copayment or coinsurance that the individual would be responsible for 
if the emergency service had been provided in-network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary.
    (ii) Other cost sharing. Any cost-sharing requirement other than a 
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an 
out-of-pocket maximum generally applies to out-of-network benefits, 
that out-of-pocket maximum must apply to out-of-network emergency 
services.
    (iii) Examples. The rules of this paragraph (b)(3) are illustrated 
by the following examples. In all of these examples, the group health 
plan covers benefits with respect to emergency services.

    Example 1.  (i) Facts. A group health plan imposes a 25% 
coinsurance responsibility on individuals who are furnished 
emergency services, whether provided in network or out of network. 
If a covered individual notifies the plan within two business days 
after the day an individual receives treatment in an emergency 
department, the plan reduces the coinsurance rate to 15%.
    (ii) Conclusion. In this Example 1, the requirement to notify 
the plan in order to receive a reduction in the coinsurance rate 
does not violate the requirement that the plan cover emergency 
services without the need for any prior authorization determination. 
This is the result even if the plan required that it be notified 
before or at the time of receiving services at the emergency 
department in order to receive a reduction in the coinsurance rate.
    Example 2.  (i) Facts. A group health plan imposes a $60 
copayment on emergency services without preauthorization, whether 
provided in network or out of network. If emergency services are 
preauthorized, the plan waives the copayment, even if it later 
determines the medical condition was not an emergency medical 
condition.
    (ii) Conclusion. In this Example 2, by requiring an individual 
to pay more for emergency services if the individual does not obtain 
prior authorization, the plan violates the requirement that the plan 
cover emergency services without the need for any prior 
authorization determination. (By contrast, if, to have the copayment 
waived, the plan merely required that it be notified rather than a 
prior authorization, then the plan would not violate the requirement 
that the plan cover emergency services without the need for any 
prior authorization determination.)
    Example 3.  (i) Facts. A group health plan covers individuals 
who receive emergency services with respect to an emergency medical 
condition from an out-of-network provider. The plan has agreements 
with in-network providers with respect to a certain emergency 
service. Each provider has agreed to provide the service for a 
certain amount. Among all the providers for the service: one has 
agreed to accept $85, two have agreed to accept $100, two have 
agreed to accept $110, three have agreed to accept $120, and one has 
agreed to accept $150. Under the agreement, the plan agrees to pay 
the providers 80% of the agreed amount, with the individual 
receiving the service responsible for the remaining 20%.
    (ii) Conclusion. In this Example 3, the values taken into 
account in determining the median are $85, $100, $100, $110, $110, 
$120, $120, $120, and $150. Therefore, the median amount among those 
agreed to for the emergency service is $110, and the amount under 
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4.  (i) Facts. Same facts as Example 3. Subsequently, 
the plan adds another provider to its network, who has agreed to 
accept $150 for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among 
those agreed to for the emergency service is $115. (Because there is 
no one middle amount, the median is the average of the two middle 
amounts, $110 and $120.) Accordingly, the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $115 ($92).
    Example 5.  (i) Facts. Same facts as Example 4. An individual 
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to 
services provided by out-of-network providers generally, the plan 
reimburses covered individuals 50% of the reasonable amount charged 
by the provider for medical services. For this purpose, the 
reasonable amount for any service is based on information on charges 
by all providers collected by a third party, on a zip code by zip 
code basis, with the plan treating charges at a specified percentile 
as reasonable. For the emergency service received by the individual, 
the reasonable amount calculated using this method is $116. The 
amount that would be paid under Medicare for the emergency service, 
excluding any copayment or coinsurance for the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to 
for the emergency service is $115 and the amount the plan would pay 
is $92 (80% of $115); the amount calculated using the same method 
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the 
Medicare payment is $80. Thus, the greatest amount is $92.80. The 
individual is responsible for the remaining $32.20 charged by the 
out-of-network provider.
    Example 6.  (i) Facts. Same facts as Example 5. The group health 
plan generally imposes a $250 deductible for in-network health care. 
With respect to all health care provided by out-of-network 
providers, the plan imposes a $500 deductible. (Covered in-network 
claims are credited against the deductible.) The individual has 
incurred and submitted $260 of covered claims prior to receiving the 
emergency service out of network.
    (ii) Conclusion. In this Example 6, the plan is not responsible 
for paying anything with respect to the emergency service furnished 
by the out-of-network provider because the covered individual has 
not satisfied the higher deductible that applies generally to all 
health care provided out of network. However, the amount the 
individual is required to pay is credited against the deductible.

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that

[[Page 37235]]

a prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section apply for 
plan years beginning on or after September 23, 2010. See Sec.  
2590.715-1251 of this part for determining the application of this 
section to grandfathered health plans (providing that these rules 
regarding patient protections do not apply to grandfathered health 
plans).

Department of Health and Human Services

Office of Consumer Information and Insurance Oversight

45 CFR Subtitle A

0
For the reasons stated in the preamble, the Department of Health and 
Human Services amends 45 CFR parts 144 and 146, and part 147, added May 
13, 2010, at 75 FR 27138, effective July 12, 2010, as follows:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
1. The authority citation for part 144 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.


0
2. Section 144.103 is amended by revising the definition of preexisting 
condition exclusion to read as follows:


Sec.  144.103  Definitions.

* * * * *
    Preexisting condition exclusion means a limitation or exclusion of 
benefits (including a denial of coverage) based on the fact that the 
condition was present before the effective date of coverage (or if 
coverage is denied, the date of the denial) under a group health plan 
or group or individual health insurance coverage (or other coverage 
provided to Federally eligible individuals pursuant to 45 CFR part 
148), whether or not any medical advice, diagnosis, care, or treatment 
was recommended or received before that day. A preexisting condition 
exclusion includes any limitation or exclusion of benefits (including a 
denial of coverage) applicable to an individual as a result of 
information relating to an individual's health status before the 
individual's effective date of coverage (or if coverage is denied, the 
date of the denial) under a group health plan, or group or individual 
health insurance coverage (or other coverage provided to Federally 
eligible individuals pursuant to 45 CFR part 148), such as a condition 
identified as a result of a pre-enrollment questionnaire or physical 
examination given to the individual, or review of medical records 
relating to the pre-enrollment period.
* * * * *

Subpart B--Requirements Relating to Access and Renewability of 
Coverage, and Limitations on Preexisting Condition Exclusion 
Periods

0
3. Section 146.111(a)(1)(i) is revised to read as follows:


Sec.  146.111  Limitations on preexisting condition exclusion period.

    (a) * * *
    (1) * * *
    (i) A preexisting condition exclusion means a preexisting condition 
exclusion within the meaning set forth in Sec.  144.103 of this part.
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
4. The authority citation for part 147 continues to read as follows:

    Authority: 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 USC 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.


0
5. Add Sec.  147.108 to read as follows:


Sec.  147.108  Prohibition of preexisting condition exclusions.

    (a) No preexisting condition exclusions--(1) In general. A group 
health plan, or a health insurance issuer offering group or individual 
health insurance coverage, may not impose any preexisting condition 
exclusion (as defined in Sec.  144.103).
    (2) Examples. The rules of this paragraph (a) are illustrated by 
the following examples (for additional examples illustrating the 
definition of a preexisting condition exclusion, see Sec.  
146.111(a)(1)(ii)):

    Example 1. (i) Facts. A group health plan provides benefits 
solely through an insurance policy offered by Issuer P. At the 
expiration of the policy, the plan switches coverage to a policy 
offered by Issuer N. N's policy excludes benefits for oral surgery 
required as a result of a traumatic injury if the injury occurred 
before the effective date of coverage under the policy.
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for oral surgery required as a result of a traumatic injury if the 
injury occurred before the effective date of coverage is a 
preexisting condition exclusion because it operates to exclude 
benefits for a condition based on the fact that the condition was 
present before the effective date of coverage under the policy.
    Example 2. (i) Facts. Individual C applies for individual health 
insurance coverage with Issuer M. M denies C's application for 
coverage because a pre-enrollment physical revealed that C has type 
2 diabetes.
    (ii) Conclusion. In this Example 2, M's denial of C's 
application for coverage is a preexisting condition exclusion 
because a denial of an application for coverage based on the fact 
that a condition was present before the date of denial is an 
exclusion of benefits based on a preexisting condition.

    (b) Applicability--(1) General applicability date. Except as 
provided in paragraph (b)(2) of this section, the rules of this section 
apply for plan years beginning on or after January 1, 2014; in the case 
of individual health insurance coverage, for policy years beginning, or 
applications denied, on or after January 1, 2014.
    (2) Early applicability date for children. The rules of this 
section apply with respect to enrollees, including applicants for 
enrollment, who are

[[Page 37236]]

under 19 years of age for plan years beginning on or after September 
23, 2010; in the case of individual health insurance coverage, for 
policy years beginning, or applications denied, on or after September 
23, 2010.
    (3) Applicability to grandfathered health plans. See Sec.  147.140 
of this part for determining the application of this section to 
grandfathered health plans (providing that a grandfathered health plan 
that is a group health plan or group health insurance coverage must 
comply with the prohibition against preexisting condition exclusions; 
however, a grandfathered health plan that is individual health 
insurance coverage is not required to comply with PHS Act section 
2704).
    (4) Examples. The rules of this paragraph (b) are illustrated by 
the following examples:

    Example 1. (i) Facts. Individual F commences employment and 
enrolls F and F's 16-year-old child in the group health plan 
maintained by F's employer, with a first day of coverage of October 
15, 2010. F's child had a significant break in coverage because of a 
lapse of more than 63 days without creditable coverage immediately 
prior to enrolling in the plan. F's child was treated for asthma 
within the six-month period prior to the enrollment date and the 
plan imposes a 12-month preexisting condition exclusion for coverage 
of asthma. The next plan year begins on January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan year beginning 
January 1, 2011, is the first plan year of the group health plan 
beginning on or after September 23, 2010. Thus, beginning on January 
1, 2011, because the child is under 19 years of age, the plan cannot 
impose a preexisting condition exclusion with respect to the child's 
asthma regardless of the fact that the preexisting condition 
exclusion was imposed by the plan before the applicability date of 
this provision.
    Example 2. (i) Facts. Individual G applies for a policy of 
family coverage in the individual market for G, G's spouse, and G's 
13-year-old child. The issuer denies the application for coverage on 
March 1, 2011 because G's 13-year-old child has autism.
    (ii) Conclusion. In this Example 2, the issuer's denial of G's 
application for a policy of family coverage in the individual market 
is a preexisting condition exclusion because the denial was based on 
the child's autism, which was present before the date of denial of 
coverage. Because the child is under 19 years of age and the March 
1, 2011, denial of coverage is after the applicability date of this 
section, the issuer is prohibited from imposing a preexisting 
condition exclusion with respect to G's 13-year-old child.


0
6. Add Sec.  147.126 to read as follows:


Sec.  147.126  No lifetime or annual limits.

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of this section, a group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, may not establish any lifetime limit on the dollar amount of 
benefits for any individual.
    (2) Annual limits--(i) General rule. Except as provided in 
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health 
plan, or a health insurance issuer offering group or individual health 
insurance coverage, may not establish any annual limit on the dollar 
amount of benefits for any individual.
    (ii) Exception for health flexible spending arrangements. A health 
flexible spending arrangement (as defined in section 106(c)(2) of the 
Internal Revenue Code) is not subject to the requirement in paragraph 
(a)(2)(i) of this section.
    (b) Construction--(1) Permissible limits on specific covered 
benefits. The rules of this section do not prevent a group health plan, 
or a health insurance issuer offering group or individual health 
insurance coverage, from placing annual or lifetime dollar limits with 
respect to any individual on specific covered benefits that are not 
essential health benefits to the extent that such limits are otherwise 
permitted under applicable Federal or State law. (The scope of 
essential health benefits is addressed in paragraph (c) of this 
section).
    (2) Condition-based exclusions. The rules of this section do not 
prevent a group health plan, or a health insurance issuer offering 
group or individual health insurance coverage, from excluding all 
benefits for a condition. However, if any benefits are provided for a 
condition, then the requirements of this section apply. Other 
requirements of Federal or State law may require coverage of certain 
benefits.
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations.
    (d) Restricted annual limits permissible prior to 2014--(1) In 
general. With respect to plan years (in the individual market, policy 
years) beginning prior to January 1, 2014, a group health plan, or a 
health insurance issuer offering group or individual health insurance 
coverage, may establish, for any individual, an annual limit on the 
dollar amount of benefits that are essential health benefits, provided 
the limit is no less than the amounts in the following schedule:
    (i) For a plan year (in the individual market, policy year) 
beginning on or after September 23, 2010, but before September 23, 
2011, $750,000.
    (ii) For a plan year (in the individual market, policy year) 
beginning on or after September 23, 2011, but before September 23, 
2012, $1,250,000.
    (iii) For plan years (in the individual market, policy years) 
beginning on or after September 23, 2012, but before January 1, 2014, 
$2,000,000.
    (2) Only essential health benefits taken into account. In 
determining whether an individual has received benefits that meet or 
exceed the applicable amount described in paragraph (d)(1) of this 
section, a plan or issuer must take into account only essential health 
benefits.
    (3) Waiver authority of the Secretary. For plan years (in the 
individual market, policy years) beginning before January 1, 2014, the 
Secretary may establish a program under which the requirements of 
paragraph (d)(1) of this section relating to annual limits may be 
waived (for such period as is specified by the Secretary) for a group 
health plan or health insurance coverage that has an annual dollar 
limit on benefits below the restricted annual limits provided under 
paragraph (d)(1) of this section if compliance with paragraph (d)(1) of 
this section would result in a significant decrease in access to 
benefits under the plan or health insurance coverage or would 
significantly increase premiums for the plan or health insurance 
coverage.
    (e) Transitional rules for individuals whose coverage or benefits 
ended by reason of reaching a lifetime limit--(1) In general. The 
relief provided in the transitional rules of this paragraph (e) applies 
with respect to any individual--
    (i) Whose coverage or benefits under a group health plan or group 
or individual health insurance coverage ended by reason of reaching a 
lifetime limit on the dollar value of all benefits for any individual 
(which, under this section, is no longer permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
benefits not subject to a lifetime limit on the dollar value of all 
benefits under the group health plan or group or individual health 
insurance coverage on the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010, by reason of the application of this section.
    (2) Notice and enrollment opportunity requirements--(i) If an 
individual described in paragraph (e)(1) of this section is eligible 
for benefits (or is required to become eligible for benefits) under the 
group health plan--or group or individual health insurance coverage--
described in paragraph (e)(1) of this section, the plan and the issuer

[[Page 37237]]

are required to give the individual written notice that the lifetime 
limit on the dollar value of all benefits no longer applies and that 
the individual, if covered, is once again eligible for benefits under 
the plan. Additionally, if the individual is not enrolled in the plan 
or health insurance coverage, or if an enrolled individual is eligible 
for but not enrolled in any benefit package under the plan or health 
insurance coverage, then the plan and issuer must also give such an 
individual an opportunity to enroll that continues for at least 30 days 
(including written notice of the opportunity to enroll). The notices 
and enrollment opportunity required under this paragraph (e)(2)(i) must 
be provided beginning not later than the first day of the first plan 
year (in the individual market, policy year) beginning on or after 
September 23, 2010.
    (ii) The notices required under paragraph (e)(2)(i) of this section 
may be provided to an employee on behalf of the employee's dependent 
(in the individual market, to the primary subscriber on behalf of the 
primary subscriber's dependent). In addition, for a group health plan 
or group health insurance coverage, the notices may be included with 
other enrollment materials that a plan distributes to employees, 
provided the statement is prominent. For either notice, with respect to 
a group health plan or group health insurance coverage, if a notice 
satisfying the requirements of this paragraph (e)(2) is provided to an 
individual, the obligation to provide the notice with respect to that 
individual is satisfied for both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (e)(2) of this section, coverage must take 
effect not later than the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010.
    (4) Treatment of enrollees in a group health plan. Any individual 
enrolling in a group health plan pursuant to paragraph (e)(2) of this 
section must be treated as if the individual were a special enrollee, 
as provided under the rules of Sec.  146.117(d). Accordingly, the 
individual (and, if the individual would not be a participant once 
enrolled in the plan, the participant through whom the individual is 
otherwise eligible for coverage under the plan) must be offered all the 
benefit packages available to similarly situated individuals who did 
not lose coverage by reason of reaching a lifetime limit on the dollar 
value of all benefits. For this purpose, any difference in benefits or 
cost-sharing requirements constitutes a different benefit package. The 
individual also cannot be required to pay more for coverage than 
similarly situated individuals who did not lose coverage by reason of 
reaching a lifetime limit on the dollar value of all benefits.
    (5) Examples. The rules of this paragraph (e) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For plan years beginning before September 23, 2010, the 
plan has a lifetime limit on the dollar value of all benefits. 
Individual B, an employee of Y, was enrolled in Y's group health 
plan at the beginning of the 2008 plan year. On June 10, 2008, B 
incurred a claim for benefits that exceeded the lifetime limit under 
Y's plan and ceased to be enrolled in the plan. B is still eligible 
for coverage under Y's group health plan. On or before January 1, 
2011, Y's group health plan gives B written notice informing B that 
the lifetime limit on the dollar value of all benefits no longer 
applies, that individuals whose coverage ended by reason of reaching 
a lifetime limit under the plan are eligible to enroll in the plan, 
and that individuals can request such enrollment through February 1, 
2011 with enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (e) by providing a timely written 
notice and enrollment opportunity to B that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan has a lifetime limit on 
the dollar value of all benefits. Individual D, an employee of Z, 
and Individual E, D's child, were enrolled in family coverage under 
Z's group health plan for the plan year beginning on October 1, 
2008. On May 1, 2009, E incurred a claim for benefits that exceeded 
the lifetime limit under Z's plan. D dropped family coverage but 
remains an employee of Z and is still eligible for coverage under 
Z's group health plan.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that Z's 
plan had two benefit packages (a low-cost and a high-cost option). 
Instead of dropping coverage, D switched to the low-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible. The plan would have to provide D and E 
the opportunity to enroll in any benefit package available to 
similarly situated individuals who enroll when first eligible, even 
if D had not switched to the low-cost benefit package option.
    Example 4. (i) Facts. Employer Q maintains a group health plan 
with a plan year beginning October 1 and ending September 30. For 
the plan year beginning on October 1, 2009, Q has an annual limit on 
the dollar value of all benefits of $500,000.
    (ii) Conclusion. In this Example 4, Q must raise the annual 
limit on the dollar value of essential health benefits to at least 
$750,000 for the plan year beginning October 1, 2010. For the plan 
year beginning October 1, 2011, Q must raise the annual limit to at 
least $1.25 million. For the plan year beginning October 1, 2012, Q 
must raise the annual limit to at least $2 million. Q may also 
impose a restricted annual limit of $2 million for the plan year 
beginning October 1, 2013. After the conclusion of that plan year, Q 
cannot impose an overall annual limit.
    Example 5. (i) Facts. Same facts as Example 4, except that the 
annual limit for the plan year beginning on October 1, 2009, is $1 
million and Q lowers the annual limit for the plan year beginning 
October 1, 2010 to $750,000.
    (ii) Conclusion. In this Example 5, Q complies with the 
requirements of this paragraph (e). However, Q's choice to lower its 
annual limit means that under Sec.  147.140(g)(1)(vi)(C), the group 
health plan will cease to be a grandfathered health plan and will be 
generally subject to all of the provisions of PHS Act sections 2701 
through 2719A.
    Example 6. (i) Facts. For a policy year that began on October 1, 
2009, Individual T has individual health insurance coverage with a 
lifetime limit on the dollar value of all benefits of $1 million. 
For the policy year beginning October 1, 2010, the issuer of T's 
health insurance coverage eliminates the lifetime limit and replaces 
it with an annual limit of $1 million dollars. In the policy year 
beginning October 1, 2011, the issuer of T's health insurance 
coverage maintains the annual limit of $1 million dollars.
    (ii) Conclusion. In this Example 6, the issuer's replacement of 
a lifetime limit with an equal dollar annual limit allows it to 
maintain status as a grandfathered health policy under Sec.  
147.140(g)(1)(vi)(B). Since grandfathered health plans that are 
individual health insurance coverage are not subject to the 
requirements of this section relating to annual limits, the issuer 
does not have to comply with this paragraph (e).

    (f) Applicability date. The provisions of this section apply for 
plan years (in the individual market, for policy years) beginning on or 
after September 23, 2010. See Sec.  147.140 of this part for 
determining the application of this section to grandfathered health 
plans (providing that the prohibitions on lifetime and annual limits 
apply to all grandfathered health plans that are group health plans and 
group health insurance coverage, including the special rules regarding 
restricted annual limits, and the prohibition on lifetime limits apply 
to individual health

[[Page 37238]]

insurance coverage that is a grandfathered health plan but the rules on 
annual limits do not apply to individual health insurance coverage that 
is a grandfathered health plan).

0
7. Add Sec.  147.128 to read as follows:


Sec.  147.128  Rules regarding rescissions.

    (a) Prohibition on rescissions--(1) A group health plan, or a 
health insurance issuer offering group or individual health insurance 
coverage, must not rescind coverage under the plan, or under the 
policy, certificate, or contract of insurance, with respect to an 
individual (including a group to which the individual belongs or family 
coverage in which the individual is included) once the individual is 
covered under the plan or coverage, unless the individual (or a person 
seeking coverage on behalf of the individual) performs an act, 
practice, or omission that constitutes fraud, or unless the individual 
makes an intentional misrepresentation of material fact, as prohibited 
by the terms of the plan or coverage. A group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, must provide at least 30 days advance written notice to each 
participant (in the individual market, primary subscriber) who would be 
affected before coverage may be rescinded under this paragraph (a)(1), 
regardless of, in the case of group coverage, whether the coverage is 
insured or self-insured, or whether the rescission applies to an entire 
group or only to an individual within the group. (The rules of this 
paragraph (a)(1) apply regardless of any contestability period that may 
otherwise apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if--
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect; or
    (ii) The cancellation or discontinuance of coverage is effective 
retroactively to the extent it is attributable to a failure to timely 
pay required premiums or contributions towards the cost of coverage.
    (3) The rules of this paragraph (a) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual A seeks enrollment in an 
insured group health plan. The plan terms permit rescission of 
coverage with respect to an individual if the individual engages in 
fraud or makes an intentional misrepresentation of a material fact. 
The plan requires A to complete a questionnaire regarding A's prior 
medical history, which affects setting the group rate by the health 
insurance issuer. The questionnaire complies with the other 
requirements of this part and part 146. The questionnaire includes 
the following question: ``Is there anything else relevant to your 
health that we should know?'' A inadvertently fails to list that A 
visited a psychologist on two occasions, six years previously. A is 
later diagnosed with breast cancer and seeks benefits under the 
plan. On or around the same time, the issuer receives information 
about A's visits to the psychologist, which was not disclosed in the 
questionnaire.
    (ii) Conclusion. In this Example 1, the plan cannot rescind A's 
coverage because A's failure to disclose the visits to the 
psychologist was inadvertent. Therefore, it was not fraudulent or an 
intentional misrepresentation of material fact.
    Example 2. (i) Facts. An employer sponsors a group health plan 
that provides coverage for employees who work at least 30 hours per 
week. Individual B has coverage under the plan as a full-time 
employee. The employer reassigns B to a part-time position. Under 
the terms of the plan, B is no longer eligible for coverage. The 
plan mistakenly continues to provide health coverage, collecting 
premiums from B and paying claims submitted by B. After a routine 
audit, the plan discovers that B no longer works at least 30 hours 
per week. The plan rescinds B's coverage effective as of the date 
that B changed from a full-time employee to a part-time employee.
    (ii) Conclusion. In this Example 2, the plan cannot rescind B's 
coverage because there was no fraud or an intentional 
misrepresentation of material fact. The plan may cancel coverage for 
B prospectively, subject to other applicable Federal and State laws.

    (b) Compliance with other requirements. Other requirements of 
Federal or State law may apply in connection with a rescission of 
coverage.
    (c) Applicability date. The provisions of this section apply for 
plan years (in the individual market, for policy years) beginning on or 
after September 23, 2010. See Sec.  147.140 of this part for 
determining the application of this section to grandfathered health 
plans (providing that the rules regarding rescissions and advance 
notice apply to all grandfathered health plans).

0
8. Add Sec.  147.138 to read as follows:


Sec.  147.138  Patient protections.

    (a) Choice of health care professional--(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, requires or provides for designation by a participant, 
beneficiary, or enrollee of a participating primary care provider, then 
the plan or issuer must permit each participant, beneficiary, or 
enrollee to designate any participating primary care provider who is 
available to accept the participant, beneficiary, or enrollee. In such 
a case, the plan or issuer must comply with the rules of paragraph 
(a)(4) of this section by informing each participant (in the individual 
market, primary subscriber) of the terms of the plan or health 
insurance coverage regarding designation of a primary care provider.
    (ii) Example. The rules of this paragraph (a)(1) are illustrated by 
the following example:

    Example.  (i) Facts. A group health plan requires individuals 
covered under the plan to designate a primary care provider. The 
plan permits each individual to designate any primary care provider 
participating in the plan's network who is available to accept the 
individual as the individual's primary care provider. If an 
individual has not designated a primary care provider, the plan 
designates one until one has been designated by the individual. The 
plan provides a notice that satisfies the requirements of paragraph 
(a)(4) of this section regarding the ability to designate a primary 
care provider.
    (ii) Conclusion. In this Example, the plan has satisfied the 
requirements of paragraph (a) of this section.

    (2) Designation of pediatrician as primary care provider--(i) In 
general. If a group health plan, or a health insurance issuer offering 
group or individual health insurance coverage, requires or provides for 
the designation of a participating primary care provider for a child by 
a participant, beneficiary, or enrollee, the plan or issuer must permit 
the participant, beneficiary, or enrollee to designate a physician 
(allopathic or osteopathic) who specializes in pediatrics as the 
child's primary care provider if the provider participates in the 
network of the plan or issuer and is available to accept the child. In 
such a case, the plan or issuer must comply with the rules of paragraph 
(a)(4) of this section by informing each participant (in the individual 
market, primary subscriber) of the terms of the plan or health 
insurance coverage regarding designation of a pediatrician as the 
child's primary care provider.
    (ii) Construction. Nothing in paragraph (a)(2)(i) of this section 
is to be construed to waive any exclusions of coverage under the terms 
and conditions of the plan or health insurance coverage with respect to 
coverage of pediatric care.

[[Page 37239]]

    (iii) Examples. The rules of this paragraph (a)(2) are illustrated 
by the following examples:

    Example 1.  (i) Facts. A group health plan's HMO designates for 
each participant a physician who specializes in internal medicine to 
serve as the primary care provider for the participant and any 
beneficiaries. Participant A requests that Pediatrician B be 
designated as the primary care provider for A's child. B is a 
participating provider in the HMO's network.
    (ii) Conclusion. In this Example 1, the HMO must permit A's 
designation of B as the primary care provider for A's child in order 
to comply with the requirements of this paragraph (a)(2).
    Example 2.  (i) Facts. Same facts as Example 1, except that A 
takes A's child to B for treatment of the child's severe shellfish 
allergies. B wishes to refer A's child to an allergist for 
treatment. The HMO, however, does not provide coverage for treatment 
of food allergies, nor does it have an allergist participating in 
its network, and it therefore refuses to authorize the referral.
    (ii) Conclusion. In this Example 2, the HMO has not violated the 
requirements of this paragraph (a)(2) because the exclusion of 
treatment for food allergies is in accordance with the terms of A's 
coverage.

    (3) Patient access to obstetrical and gynecological care--(i) 
General rights--(A) Direct access. A group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, described in paragraph (a)(3)(ii) of this section may not 
require authorization or referral by the plan, issuer, or any person 
(including a primary care provider) in the case of a female 
participant, beneficiary, or enrollee who seeks coverage for 
obstetrical or gynecological care provided by a participating health 
care professional who specializes in obstetrics or gynecology. In such 
a case, the plan or issuer must comply with the rules of paragraph 
(a)(4) of this section by informing each participant (in the individual 
market, primary subscriber) that the plan may not require authorization 
or referral for obstetrical or gynecological care by a participating 
health care professional who specializes in obstetrics or gynecology. 
The plan or issuer may require such a professional to agree to 
otherwise adhere to the plan's or issuer's policies and procedures, 
including procedures regarding referrals and obtaining prior 
authorization and providing services pursuant to a treatment plan (if 
any) approved by the plan or issuer. For purposes of this paragraph 
(a)(3), a health care professional who specializes in obstetrics or 
gynecology is any individual (including a person other than a 
physician) who is authorized under applicable State law to provide 
obstetrical or gynecological care.
    (B) Obstetrical and gynecological care. A group health plan or 
health insurance issuer described in paragraph (a)(3)(ii) of this 
section must treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, pursuant to the direct access described under paragraph 
(a)(3)(i)(A) of this section, by a participating health care 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider.
    (ii) Application of paragraph. A group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, is described in this paragraph (a)(3) if the plan or issuer--
    (A) Provides coverage for obstetrical or gynecological care; and
    (B) Requires the designation by a participant, beneficiary, or 
enrollee of a participating primary care provider.
    (iii) Construction. Nothing in paragraph (a)(3)(i) of this section 
is to be construed to--
    (A) Waive any exclusions of coverage under the terms and conditions 
of the plan or health insurance coverage with respect to coverage of 
obstetrical or gynecological care; or
    (B) Preclude the group health plan or health insurance issuer 
involved from requiring that the obstetrical or gynecological provider 
notify the primary care health care professional or the plan or issuer 
of treatment decisions.
    (iv) Examples. The rules of this paragraph (a)(3) are illustrated 
by the following examples:

    Example 1.  (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. 
Participant A, a female, requests a gynecological exam with 
Physician B, an in-network physician specializing in gynecological 
care. The group health plan requires prior authorization from A's 
designated primary care provider for the gynecological exam.
    (ii) Conclusion. In this Example 1, the group health plan has 
violated the requirements of this paragraph (a)(3) because the plan 
requires prior authorization from A's primary care provider prior to 
obtaining gynecological services.
    Example 2.  (i) Facts. Same facts as Example 1 except that A 
seeks gynecological services from C, an out-of-network provider.
    (ii) Conclusion. In this Example 2, the group health plan has 
not violated the requirements of this paragraph (a)(3) by requiring 
prior authorization because C is not a participating health care 
provider.
    Example 3.  (i) Facts. Same facts as Example 1 except that the 
group health plan only requires B to inform A's designated primary 
care physician of treatment decisions.
    (ii) Conclusion. In this Example 3, the group health plan has 
not violated the requirements of this paragraph (a)(3) because A has 
direct access to B without prior authorization. The fact that the 
group health plan requires notification of treatment decisions to 
the designated primary care physician does not violate this 
paragraph (a)(3).
    Example 4.  (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. The group 
health plan requires prior authorization before providing benefits 
for uterine fibroid embolization.
    (ii) Conclusion. In this Example 4, the plan requirement for 
prior authorization before providing benefits for uterine fibroid 
embolization does not violate the requirements of this paragraph 
(a)(3) because, though the prior authorization requirement applies 
to obstetrical services, it does not restrict access to any 
providers specializing in obstetrics or gynecology.

    (4) Notice of right to designate a primary care provider--(i) In 
general. If a group health plan or health insurance issuer requires the 
designation by a participant, beneficiary, or enrollee of a primary 
care provider, the plan or issuer must provide a notice informing each 
participant (in the individual market, primary subscriber) of the terms 
of the plan or health insurance coverage regarding designation of a 
primary care provider and of the rights--
    (A) Under paragraph (a)(1)(i) of this section, that any 
participating primary care provider who is available to accept the 
participant, beneficiary, or enrollee can be designated;
    (B) Under paragraph (a)(2)(i) of this section, with respect to a 
child, that any participating physician who specializes in pediatrics 
can be designated as the primary care provider; and
    (C) Under paragraph (a)(3)(i) of this section, that the plan may 
not require authorization or referral for obstetrical or gynecological 
care by a participating health care professional who specializes in 
obstetrics or gynecology.
    (ii) Timing. In the case of a group health plan or group health 
insurance coverage, the notice described in paragraph (a)(4)(i) of this 
section must be included whenever the plan or issuer provides a 
participant with a summary plan description or other similar 
description of benefits under the plan or health insurance coverage. In 
the case of individual health insurance coverage, the notice described 
in paragraph (a)(4)(i) of this section must be included whenever the 
issuer provides a primary subscriber with a policy, certificate, or 
contract of health insurance.
    (iii) Model language. The following model language can be used to 
satisfy

[[Page 37240]]

the notice requirement described in paragraph (a)(4)(i) of this 
section:
    (A) For plans and issuers that require or allow for the designation 
of primary care providers by participants, beneficiaries, or enrollees, 
insert:

    [Name of group health plan or health insurance issuer] generally 
[requires/allows] the designation of a primary care provider. You 
have the right to designate any primary care provider who 
participates in our network and who is available to accept you or 
your family members. [If the plan or health insurance coverage 
designates a primary care provider automatically, insert: Until you 
make this designation, [name of group health plan or health 
insurance issuer] designates one for you.] For information on how to 
select a primary care provider, and for a list of the participating 
primary care providers, contact the [plan administrator or issuer] 
at [insert contact information].

    (B) For plans and issuers that require or allow for the designation 
of a primary care provider for a child, add:

    For children, you may designate a pediatrician as the primary 
care provider.

    (C) For plans and issuers that provide coverage for obstetric or 
gynecological care and require the designation by a participant, 
beneficiary, or enrollee of a primary care provider, add:

    You do not need prior authorization from [name of group health 
plan or issuer] or from any other person (including a primary care 
provider) in order to obtain access to obstetrical or gynecological 
care from a health care professional in our network who specializes 
in obstetrics or gynecology. The health care professional, however, 
may be required to comply with certain procedures, including 
obtaining prior authorization for certain services, following a pre-
approved treatment plan, or procedures for making referrals. For a 
list of participating health care professionals who specialize in 
obstetrics or gynecology, contact the [plan administrator or issuer] 
at [insert contact information].

    (b) Coverage of emergency services--(1) Scope. If a group health 
plan, or a health insurance issuer offering group or individual health 
insurance coverage, provides any benefits with respect to services in 
an emergency department of a hospital, the plan or issuer must cover 
emergency services (as defined in paragraph (b)(4)(ii) of this section) 
consistent with the rules of this paragraph (b).
    (2) General rules. A plan or issuer subject to the requirements of 
this paragraph (b) must provide coverage for emergency services in the 
following manner--
    (i) Without the need for any prior authorization determination, 
even if the emergency services are provided on an out-of-network basis;
    (ii) Without regard to whether the health care provider furnishing 
the emergency services is a participating network provider with respect 
to the services;
    (iii) If the emergency services are provided out of network, 
without imposing any administrative requirement or limitation on 
coverage that is more restrictive than the requirements or limitations 
that apply to emergency services received from in-network providers;
    (iv) If the emergency services are provided out of network, by 
complying with the cost-sharing requirements of paragraph (b)(3) of 
this section; and
    (v) Without regard to any other term or condition of the coverage, 
other than--
    (A) The exclusion of or coordination of benefits;
    (B) An affiliation or waiting period permitted under part 7 of 
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the 
Internal Revenue Code; or
    (C) Applicable cost sharing.
    (3) Cost-sharing requirements--(i) Copayments and coinsurance. Any 
cost-sharing requirement expressed as a copayment amount or coinsurance 
rate imposed with respect to a participant, beneficiary, or enrollee 
for out-of-network emergency services cannot exceed the cost-sharing 
requirement imposed with respect to a participant, beneficiary, or 
enrollee if the services were provided in-network. However, a 
participant, beneficiary, or enrollee may be required to pay, in 
addition to the in-network cost-sharing, the excess of the amount the 
out-of-network provider charges over the amount the plan or issuer is 
required to pay under this paragraph (b)(3)(i). A group health plan or 
health insurance issuer complies with the requirements of this 
paragraph (b)(3) if it provides benefits with respect to an emergency 
service in an amount equal to the greatest of the three amounts 
specified in paragraphs (b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) of 
this section (which are adjusted for in-network cost-sharing 
requirements).
    (A) The amount negotiated with in-network providers for the 
emergency service furnished, excluding any in-network copayment or 
coinsurance imposed with respect to the participant, beneficiary, or 
enrollee. If there is more than one amount negotiated with in-network 
providers for the emergency service, the amount described under this 
paragraph (b)(3)(i)(A) is the median of these amounts, excluding any 
in-network copayment or coinsurance imposed with respect to the 
participant, beneficiary, or enrollee. In determining the median 
described in the preceding sentence, the amount negotiated with each 
in-network provider is treated as a separate amount (even if the same 
amount is paid to more than one provider). If there is no per-service 
amount negotiated with in-network providers (such as under a capitation 
or other similar payment arrangement), the amount under this paragraph 
(b)(3)(i)(A) is disregarded.
    (B) The amount for the emergency service calculated using the same 
method the plan generally uses to determine payments for out-of-network 
services (such as the usual, customary, and reasonable amount), 
excluding any in-network copayment or coinsurance imposed with respect 
to the participant, beneficiary, or enrollee. The amount in this 
paragraph (b)(3)(i)(B) is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health 
insurance coverage with respect to out-of-network services. Thus, for 
example, if a plan generally pays 70 percent of the usual, customary, 
and reasonable amount for out-of-network services, the amount in this 
paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 
100 percent) of the usual, customary, and reasonable amount for the 
service, not reduced by the 30 percent coinsurance that would generally 
apply to out-of-network services (but reduced by the in-network 
copayment or coinsurance that the individual would be responsible for 
if the emergency service had been provided in-network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or 
coinsurance imposed with respect to the participant, beneficiary, or 
enrollee.
    (ii) Other cost sharing. Any cost-sharing requirement other than a 
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an 
out-of-pocket maximum generally applies to out-of-network benefits, 
that out-of-pocket maximum must apply to out-of-network emergency 
services.
    (iii) Examples. The rules of this paragraph (b)(3) are illustrated 
by the following examples. In all of these examples, the group health 
plan covers

[[Page 37241]]

benefits with respect to emergency services.

    Example 1.  (i) Facts. A group health plan imposes a 25% 
coinsurance responsibility on individuals who are furnished 
emergency services, whether provided in network or out of network. 
If a covered individual notifies the plan within two business days 
after the day an individual receives treatment in an emergency 
department, the plan reduces the coinsurance rate to 15%.
    (ii) Conclusion. In this Example 1, the requirement to notify 
the plan in order to receive a reduction in the coinsurance rate 
does not violate the requirement that the plan cover emergency 
services without the need for any prior authorization determination. 
This is the result even if the plan required that it be notified 
before or at the time of receiving services at the emergency 
department in order to receive a reduction in the coinsurance rate.
    Example 2.  (i) Facts. A group health plan imposes a $60 
copayment on emergency services without preauthorization, whether 
provided in network or out of network. If emergency services are 
preauthorized, the plan waives the copayment, even if it later 
determines the medical condition was not an emergency medical 
condition.
    (ii) Conclusion. In this Example 2, by requiring an individual 
to pay more for emergency services if the individual does not obtain 
prior authorization, the plan violates the requirement that the plan 
cover emergency services without the need for any prior 
authorization determination. (By contrast, if, to have the copayment 
waived, the plan merely required that it be notified rather than a 
prior authorization, then the plan would not violate the requirement 
that the plan cover emergency services without the need for any 
prior authorization determination.)
    Example 3.  (i) Facts. A group health plan covers individuals 
who receive emergency services with respect to an emergency medical 
condition from an out-of-network provider. The plan has agreements 
with in-network providers with respect to a certain emergency 
service. Each provider has agreed to provide the service for a 
certain amount. Among all the providers for the service: one has 
agreed to accept $85, two have agreed to accept $100, two have 
agreed to accept $110, three have agreed to accept $120, and one has 
agreed to accept $150. Under the agreement, the plan agrees to pay 
the providers 80% of the agreed amount, with the individual 
receiving the service responsible for the remaining 20%.
    (ii) Conclusion. In this Example 3, the values taken into 
account in determining the median are $85, $100, $100, $110, $110, 
$120, $120, $120, and $150. Therefore, the median amount among those 
agreed to for the emergency service is $110, and the amount under 
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4.  (i) Facts. Same facts as Example 3. Subsequently, 
the plan adds another provider to its network, who has agreed to 
accept $150 for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among 
those agreed to for the emergency service is $115. (Because there is 
no one middle amount, the median is the average of the two middle 
amounts, $110 and $120.) Accordingly, the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $115 ($92).
    Example 5. (i) Facts. Same facts as Example 4. An individual 
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to 
services provided by out-of-network providers generally, the plan 
reimburses covered individuals 50% of the reasonable amount charged 
by the provider for medical services. For this purpose, the 
reasonable amount for any service is based on information on charges 
by all providers collected by a third party, on a zip code by zip 
code basis, with the plan treating charges at a specified percentile 
as reasonable. For the emergency service received by the individual, 
the reasonable amount calculated using this method is $116. The 
amount that would be paid under Medicare for the emergency service, 
excluding any copayment or coinsurance for the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to 
for the emergency service is $115 and the amount the plan would pay 
is $92 (80% of $115); the amount calculated using the same method 
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the 
Medicare payment is $80. Thus, the greatest amount is $92.80. The 
individual is responsible for the remaining $32.20 charged by the 
out-of-network provider.
    Example 6.  (i) Facts. Same facts as Example 5. The group health 
plan generally imposes a $250 deductible for in-network health care. 
With respect to all health care provided by out-of-network 
providers, the plan imposes a $500 deductible. (Covered in-network 
claims are credited against the deductible.) The individual has 
incurred and submitted $260 of covered claims prior to receiving the 
emergency service out of network.
    (ii) Conclusion. In this Example 6, the plan is not responsible 
for paying anything with respect to the emergency service furnished 
by the out-of-network provider because the covered individual has 
not satisfied the higher deductible that applies generally to all 
health care provided out of network. However, the amount the 
individual is required to pay is credited against the deductible.

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after September 23, 2010. See Sec.  147.140 of this part for 
determining the application of this section to grandfathered health 
plans (providing that these rules regarding patient protections do not 
apply to grandfathered health plans).

[FR Doc. 2010-15278 Filed 6-22-10; 11:15 am]
BILLING CODE 4830-01-P, 4510-29-P, 4120-01-P