Td 9491

Monday,
June 28, 2010

Part III
Department of the Treasury
Internal Revenue Service
26 CFR Parts 54 and 602

Department of Labor
Employee Benefits Security
Administration
29 CFR Part 2590

Department of Health and
Human Services

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45 CFR Parts 144, 146, and 147
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
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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations

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

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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: [email protected].
• 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

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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:
Æ 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.)
Æ 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

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

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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.
Subtitles A and C of title I of the
Affordable Care Act amend the
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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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.
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.
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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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.
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.
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.)
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

3 Section 1255 of the Affordable Care Act. See
also section 10103(e)–(f) of the Affordable Care Act.
4 HIPAA is the Health Insurance Portability and
Accountability Act of 1996 (Pub. L. 104–191).
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).
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).

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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II. Overview of the Regulations

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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 accountbased 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 nonmedical expenses.7 Moreover, annual
contributions to MSAs and HSAs are
subject to specific statutory provisions
that require that the contributions be
limited.
Health Reimbursement Arrangements
(HRAs) are another type of accountbased 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
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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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.
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.
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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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

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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

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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.
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
9 See 26 CFR 54.9801–6(d), 29 CFR 2590.701–
6(d), and 45 CFR 146.117(d).

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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

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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

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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 30day 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.

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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.

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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

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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
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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-ofnetwork emergency services cannot
exceed the cost-sharing requirements
that would be imposed if the services
were provided in-network. Out-ofnetwork 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

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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 innetwork 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 innetwork 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.
For plans and health insurance
coverage under which there is no perservice amount negotiated with innetwork 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-ofnetwork 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
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/oonpayments.pdf.

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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 outof-network cost sharing that generally
applies under the plan or health
insurance coverage with respect to outof-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 costsharing requirements. Accordingly, any
other cost-sharing requirement, such as
a deductible or out-of-pocket maximum,
may be imposed with respect to out-ofnetwork 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 outof-network benefits. Similarly, if an outof-pocket maximum generally applies to
out-of-network benefits, that out-ofpocket maximum must apply to out-ofnetwork 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-

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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

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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

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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.
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

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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/year) ............................................

4.9
4.9

2010
2010

7%
3%

2011–2013
2011–2013

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

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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

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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.

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37197

TABLE 1.1—Accounting Table—Continued
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
a. Preexisting Condition Exclusions

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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
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/
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.
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.

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or deny benefits for a preexisting
condition.19
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
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
19 Kaiser

State Health Facts. http://
statehealthfacts.org/comparetable.jsp?ind=353
&cat=7.
20 USA Today/Kaiser Family Foundation/Harvard
School of Public Health. National Survey of
Households Affected by Cancer. November 2006.

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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
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.

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conditions for which patients sought
medical care.
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.
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 patientprovider 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
The emergency care provisions of
PHS Act section 2719A require (1) nongrandfathered group health plans and
health insurance issuers that cover
emergency services to cover such
services without prior authorization and
22 NAIC

Rescission Data Call, December 17, 2009,

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p. 1.
23 Piette, John, et al., ‘‘The Role of PatientPhysician 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).

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without regard to whether the health
care provider providing the services is
a participating network provider, and
(2) copayments and coinsurance for outof-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 innetwork 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

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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 nongrandfathered 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.

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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 populationbased 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.
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.
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
25 AHIP Center for Health Policy Research.
Individual Health Insurance 2009. http://
www.ahipresearch.org/pdfs/
2009IndividualMarketSurveyFinalReport.pdf.
26 These estimates are from the Departments’
analysis of the 2004–2006 Medical Expenditure
Panel Survey, trended forward to 2010.

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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).

37199

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

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.
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

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

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.

TABLE 2.1—ESTIMATED NUMBER OF
UNINSURED CHILDREN WITH PREEXISTING CONDITIONS, BY PARENT’S
INSURANCE STATUS, 2010
Parent’s insurance status

Number of
children

Parent has employersponsored insurance
(ESI) ..............................
Parent offered ESI ............
Parent has individual market insurance .................
Parent does not have private insurance* .............
No parent ..........................
Total

**

.......................

190,000
60,000
10,000
270,000
20,000
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.

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interim final regulations.29 For the highend estimate, the Departments assume
that the 50 percent and 15 percent
assumptions increase to 75 percent and
20 percent, respectively. For the lowend assumption, they assume that they
decrease to 25 percent and 10 percent.

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

TABLE 2.2—ESTIMATED NUMBER OF UNINSURED CHILDREN GAINING COVERAGE
Gain employersponsored
insurance
High Take-Up ...................................................................................................................
Medium Take-Up .............................................................................................................
Low Take-Up ...................................................................................................................

Gain individual
market insurance

10,000
6,000
2,000

62,000
45,000
29,000

Total
72,000
51,000
31,000

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Source: Departments’ analysis of 2004–2006 MEPS–HC, trended forward to 2010.

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.

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,

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
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 children36 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

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.
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.
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.

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.
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.

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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
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
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.
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.

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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.
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
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-WeSpend-Who-Pays-and-What-Would-Full-CoverageAdd-to-Medical-Spending.pdf.
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:

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37201

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 joblock is discussed further in the
summary section below.
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.
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
Clinton’s Second Mandate, Industrial and Labor
Relations Review, Volume 59, Number 3, pages
430–37 (Apr. 2006).
47 From the Departments’ analysis of MEPS data.

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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 newlycovered 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.
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).
48 The Departments assume that in noncommunity 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.

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

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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
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.

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(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.
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

37203

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

TABLE 3.1—PREVALENCE OF LIFETIME LIMITS
Prevalence of
limit
(percent)

Market

Number of
enrollees

Large group
Under $1,000,000 ............................................................................................................................................
$1,000,000–$2,000,000 ...................................................................................................................................
$2,000,000 or higher .......................................................................................................................................
No Limit ............................................................................................................................................................

1
18
45
37

1,000,000
18,700,000
46,600,000
38,300,000

1
12
39
48

500,000
6,300,000
20,500,000
25,200,000

2
1
86
11

200,000
100,000
8,400,000
1,100,000

Small group
Under $1,000,000 ............................................................................................................................................
$1,000,000–$2,000,000 ...................................................................................................................................
$2,000,000 or higher .......................................................................................................................................
No Limit ............................................................................................................................................................
Individual
Under $1,000,000 ............................................................................................................................................
$1,000,000–$2,000,000 ...................................................................................................................................
$2,000,000 or higher .......................................................................................................................................
No Limit ............................................................................................................................................................

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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

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

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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 phasein, 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 thirdyear 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.

TABLE 3.2—PERCENT OF PLANS EMPLOYING ANNUAL LIMITS IN EACH MARKET
Annual limit
(percent)

Large employer
(percent)

Small employer
(percent)

Individual
(percent)

Under $250,000 ...............................................................................................................
$250,000–499,999 ...........................................................................................................
$500,000–999,999 ...........................................................................................................
$1,000,000–1,999,999 .....................................................................................................
$2,000,000 plus ...............................................................................................................

*
*
*
2.3
5.8

0.4
1.3
1.7
5.5
5.5

0.4
1.2
1.6
12.0
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 ...............................................................................
$250,000–499,999 ...........................................................................
$500,000–999,999 ...........................................................................
$1,000,000–1,999,999 .....................................................................
$2,000,000 plus ...............................................................................

15,000
45,000
60,000
2,389,000
6,041,000

225,000
675,000
900,000
2,869,000
2,869,000

38,000
115,000
153,000
1,177,000
377,000

278,000
835,000
1,113,000
6,435,000
9,287,000

Total ..........................................................................................

8,550,000

7,538,000

1,860,000

17,948,000

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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-byyear 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

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.

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

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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.

TABLE 3.4—PERCENT AND NUMBER OF PERSONS EXPECTED TO EXCEED A LIFETIME OR ANNUAL LIMIT
Projected to ever exceed limit
Percentage
Current Lifetime Limit:
Under $1,000,000 .....................................................................................................................................
$1,000,000 to $1,999,999 ........................................................................................................................
$2,000,000 plus ........................................................................................................................................
Current Annual Limit:
Under $250,000 ........................................................................................................................................
$250,000 to $499,999 ..............................................................................................................................
$500,000 to $999,000 ..............................................................................................................................
$1,000,000 to $1,999,999 ........................................................................................................................
$2,000,000 or more ..................................................................................................................................

Number

0.03–0.06
0.02
0.02

550–1,050
4,500–5,000
13,600–14,350

0.19–0.23
0.08–0.10
0.03–0.06
0.02
0.01–0.02

550–650
650–850
350–700
1,150–1,300
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.

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 costshifting, as discussed in more detail in
section IV.B.6 later in this preamble.
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.

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.

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

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.

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.

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c. Benefits

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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

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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 highcost 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

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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

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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

37207

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.
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

TABLE 3.5—ESTIMATED PREMIUM IMPACTS FOR A PLAN MOVING TO A NEW ANNUAL LIMIT

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New limit
Current limit

People subject to
current limit

$250k .......................................
$500k .......................................
$750k .......................................
$1 million ..................................
$1.5 million ...............................

$500k
%

$750k
%

$1 million
%

$1.5 million
%

$2 million
%

278,000 ....................................
835,000 ....................................
1,113,000 .................................
6,435,000 .................................

3.7
......................
......................
......................

5.1
1.4
......................
......................

6.1
2.3
1.0
......................

6.2–6.4
2.4–2.6
1.0–1.2
0.1–0.3

63 6.2–6.6

9,287,000 .................................

......................

......................

......................

......................

0.04–0.2

2.4–2.8
1.0–1.5
0.1–0.5

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.

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

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4. PHS Act Section 2712, Rescissions
(26 CFR 54.9815–2712T, 29 CFR
2590.715–2712, 45 CFR 147.128)

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

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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.
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 nonelderly 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
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).

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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.
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 welldocumented 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
69 NAIC

Rescission Data Call, December 17, 2009,

p.1.
70 This point is discussed further in the section
IV.B.6.b. later in this preamble.

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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations
when they had a medical problem
because of costs, compared with 15
percent of adults who did not
experience such breaks.71
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.

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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
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.
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-insure23feb
23,1,5039339.story.

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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

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37209

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 preclaims underwriting practices,
potentially leading to increased denials,
preexisting condition riders, or rateups.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.
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
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.

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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

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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
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
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.

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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 patientprovider trust results in improved
medication adherence.80 Research
literature suggests that better patientprovider 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
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
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 PatientPhysician 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).

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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
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
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,
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).
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.’’

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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
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 referralrelated 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
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
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.
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.

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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 onepercentage-point reduction in obesity
among twelve-year-olds would save
$260.4 million in total medical
expenditures.93
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

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

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.

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

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is likely given the similarity in income
for primary care providers that care for
children.94

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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.
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.
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
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
97 See American College of Obstetricians and
Gynecologists/Princeton Survey Research
Associates, 1999.
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.
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.

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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
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.
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.

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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-ofnetwork 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-ofnetwork 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

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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-ofnetwork 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-ofnetwork 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-ofnetwork.103 Given the breadth of the
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,

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Blue Cross networks, it is reasonable to
assume that 8 percent to 16 percent of
emergency room visits are out-ofnetwork 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.
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 innetwork 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-ofnetwork emergency department usage
would cause individuals to delay or
avoid seeking necessary medical
treatment when they cannot access a
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.

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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 nongrandfathered 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

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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
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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

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

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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,
Doyle106 found that uninsured
individuals receive less care and have a
substantially higher mortality rate.
Currie and Gruber107 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
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.
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).

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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.
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
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.
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.

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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.
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 shortterm gain from eliminating job lock
would be an increase in wages of 0.3
percent.
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 outof-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-ofpocket), 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
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™w415.

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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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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 costsharing, 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 costshifting that previously occurred onto
the insured population when people
could no longer pay for their out-ofpocket 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
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 costshifting 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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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

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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

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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

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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.

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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
[email protected]. 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:
[email protected]. 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

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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.
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
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
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.
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.
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.

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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.
There are several reasons to suspect
that these assumptions lead to an overestimate. 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 selfinsured 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.
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
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).

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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 forprofit; 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
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.

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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
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 forprofit; 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
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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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.
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
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).

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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 forprofit; 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

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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
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, nonFederal employer group health plans
sponsored by State and local
governments,131 63 percent of such
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.
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).

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individuals are covered by plans with
lifetime limits.132
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.
There are several reasons to suspect
that these assumptions lead to an overestimate. 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 selfinsured plans that are administered by
insurers) will be prepared by the
estimated 630 health insurers operating
in the United States.135 On average, the
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.
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.
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

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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.
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
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).

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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
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.
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.

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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

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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
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
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).
139 EBSA estimates of labor rates include wages,
other benefits, and overhead based on the National

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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.
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
Occupational Employment Survey (May 2008,
Bureau of Labor Statistics) and the Employment
Cost Index June 2009, Bureau of Labor Statistics).

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ADDRESSES

37221

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:
[email protected].
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

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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

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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.
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,

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

■

PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation
for part 54 is amended by adding entries
for §§ 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. * * *

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

■

List of Subjects

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§ 54.9801–2

*

Definitions.

*
*
*
*
Group health plan or plan means a
group health plan within the meaning of
§ 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

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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 preenrollment period.
■ Par. 3. Section 54.9801–3 is amended
by revising paragraph (a)(1)(i) to read as
follows:
§ 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
§ 54.9801–2.
*
*
*
*
*
■ Par. 4. Section 54.9815–2704T is
added to read as follows:
§ 54.9815–2704T Prohibition of preexisting
condition exclusions (temporary).

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(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 § 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
§ 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

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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 § 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 12month 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.

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

■

§ 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:

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(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

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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 § 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 costsharing 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:

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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

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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 § 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 § 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.
■ Par. 6. Section 54.9815–2712T is
added to read as follows:

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§ 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

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whether the coverage is insured or selfinsured, 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

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37225

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 § 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.
■ Par. 7. Section 54.9815–2719AT is
added to read as follows:
§ 54.9815–2719AT
(temporary).

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.

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(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).

sroberts on DSKD5P82C1PROD with RULES

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

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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.

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(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

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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].

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(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

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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 innetwork 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 costsharing 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

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37227

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 innetwork providers for the emergency
service furnished, excluding any innetwork 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 innetwork 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-ofnetwork 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 costsharing requirement other than a

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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-ofnetwork benefits. A deductible may be
imposed with respect to out-of-network
emergency services only as part of a
deductible that generally applies to outof-network benefits. If an out-of-pocket
maximum generally applies to out-ofnetwork 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 innetwork 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

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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-ofnetwork 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 innetwork 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

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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 § 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.

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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations
provided to federally eligible
individuals pursuant to 45 CFR part
■ Par. 8. The authority citation for part
148), whether or not any medical
602 continues to read in part as follows: advice, diagnosis, care, or treatment was
recommended or received before that
Authority: 26 U.S.C. 7805 * * *
day. A preexisting condition exclusion
■ Par. 9. Section 602.101(b) is amended
includes any limitation or exclusion of
by adding the following entries in
benefits (including a denial of coverage)
numerical order to the table to read as
applicable to an individual as a result of
follows:
information relating to an individual’s
health status before the individual’s
§ 602.101 OMB control numbers.
effective date of coverage (or if coverage
*
*
*
*
*
is denied, the date of the denial) under
(b) * * *
a group health plan, or group or
individual health insurance coverage (or
CFR part or section where
Current OMB
other coverage provided to Federally
identified and described
control No.
eligible individuals pursuant to 45 CFR
part 148), such as a condition identified
*
*
*
*
*
as a result of a pre-enrollment
54.9815–2711T .....................
1545–2179
questionnaire or physical examination
54.9815–2712T .....................
1545–2180
given to the individual, or review of
medical records relating to the pre*
*
*
*
*
54.9815–2719AT ..................
1545–2181 enrollment period.
*
*
*
*
*
*
*
*
*
*
■ 3. Section 2590.701–3 is amended by
revising paragraph (a)(1)(i) to read as
Department of Labor
follows:
Employee Benefits Security
§ 2590.701–3 Limitations on preexisting
Administration
PART 602—[AMENDED]

condition exclusion period.

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

■

PART 2590—RULES AND
REGULATIONS FOR GROUP HEALTH
PLANS
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
2. Section 2590.701–2 is amended by
revising the definition of preexisting
condition exclusion to read as follows:

■

§ 2590.701–2

Definitions.

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*

*
*
*
*
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

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(a) * * *
(1) * * *
(i) A preexisting condition exclusion
means a preexisting condition exclusion
within the meaning set forth in
§ 2590.701–2 of this part.
*
*
*
*
*
■ 4. Section 2590.715–2704 is added to
subpart C to read as follows:
§ 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 § 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
§ 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

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37229

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 § 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 12month 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.

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

■

§ 2590.715–2711
limits.

No lifetime or annual

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

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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.

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(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

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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 § 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 costsharing 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

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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

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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
§ 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 § 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).
■ 6. Section 2590.715–2712 is added to
subpart C to read as follows:
§ 2590.715–2712
rescissions.

Rules regarding

(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 selfinsured, 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.)

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(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.

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(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 § 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).
■ 7. Section 2590.715–2719A is added
to subpart C to read as follows:
§ 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:

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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

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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

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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.

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(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

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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

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37233

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 innetwork 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 costsharing 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 innetwork providers for the emergency
service furnished, excluding any innetwork 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

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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 innetwork 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-ofnetwork 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 costsharing 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-ofnetwork benefits. A deductible may be
imposed with respect to out-of-network
emergency services only as part of a
deductible that generally applies to outof-network benefits. If an out-of-pocket
maximum generally applies to out-ofnetwork benefits, that out-of-pocket
maximum must apply to out-of-network
emergency services.

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(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 innetwork 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

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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-ofnetwork 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 innetwork 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

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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 § 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

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Jkt 220001

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

■

§ 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 preenrollment period.
*
*
*
*
*
Subpart B—Requirements Relating to
Access and Renewability of Coverage,
and Limitations on Preexisting
Condition Exclusion Periods

§ 146.111 Limitations on preexisting
condition exclusion period.

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:

20:16 Jun 25, 2010

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.

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

45 CFR Subtitle A

VerDate Mar<15>2010

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

■

■

Office of Consumer Information and
Insurance Oversight

■

PART 144—REQUIREMENTS
RELATING TO HEALTH INSURANCE
COVERAGE

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

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37235

PART 147—HEALTH INSURANCE
REFORM REQUIREMENTS FOR THE
GROUP AND INDIVIDUAL HEALTH
INSURANCE MARKETS
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.
■

5. Add § 147.108 to read as follows:

§ 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 § 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
§ 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

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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 § 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:

sroberts on DSKD5P82C1PROD with RULES

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 12month 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.
■

6. Add § 147.126 to read as follows:

§ 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

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20:16 Jun 25, 2010

Jkt 220001

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.

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(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

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

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20:16 Jun 25, 2010

Jkt 220001

any difference in benefits or costsharing 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

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37237

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
§ 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 § 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 § 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

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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).
■ 7. Add § 147.128 to read as follows:

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§ 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.

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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 § 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).
■ 8. Add § 147.138 to read as follows:
§ 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,

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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.

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

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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.

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(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.

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37239

(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

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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:

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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;

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(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 innetwork 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 costsharing requirement expressed as a
copayment amount or coinsurance rate
imposed with respect to a participant,
beneficiary, or enrollee for out-ofnetwork 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 innetwork 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 innetwork providers for the emergency
service furnished, excluding any innetwork copayment or coinsurance
imposed with respect to the participant,
beneficiary, or enrollee. If there is more
than one amount negotiated with innetwork providers for the emergency
service, the amount described under
this paragraph (b)(3)(i)(A) is the median
of these amounts, excluding any innetwork copayment or coinsurance
imposed with respect to the participant,
beneficiary, or enrollee. In determining
the median described in the preceding

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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-ofnetwork 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 costsharing 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-ofnetwork benefits. A deductible may be
imposed with respect to out-of-network
emergency services only as part of a
deductible that generally applies to outof-network benefits. If an out-of-pocket
maximum generally applies to out-ofnetwork 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

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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 innetwork 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).

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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-ofnetwork 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 innetwork 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.

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(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 § 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

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