Td 9744

TD 9744.pdf

Affordable Care Act Notice Relating to Rescissions

TD 9744

OMB: 1545-2180

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ANNUAL RATE, COMPOUNDED DAILY
0.24 PERCENT
DAYS
FACTOR
336
.002211750
337
.002218340
338
.002224930
339
.002231520
340
.002238110

26 CFR 54.9801–2; 54.9801–3; 54.9815–1251;
54.9815–2704;
54.9815–2711;
54.9815.2712;
54.9815 2714; 54.9815.2719; 54.9815.2719A

T.D. 9744
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF LABOR
Employee Beneﬁts Security
Administration
29 CFR Part 2590

Applicability date. These ﬁnal regulations apply to group health plans and
health insurance issuers beginning on the
ﬁrst day of the ﬁrst plan year (or, in the
individual market, the ﬁrst day of the ﬁrst
policy year) beginning on or after January
1, 2017. For information on requirements
applicable prior to this date, see section
II.I. of this preamble.
FOR FURTHER INFORMATION
CONTACT: Elizabeth Schumacher or
Amber Rivers, Employee Beneﬁts Security Administration, Department of Labor, at (202) 693-8335; Karen Levin,
Internal Revenue Service, Department
of the Treasury, at (202) 927-9639; Cam
Clemmons, Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, at (410)
786-1565.

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.002244700
.002251290
.002257880
.002264470
.002271061

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.002277651
.002284241
.002290832
.002297422
.002304012

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.002310603
.002317193
.002323784
.002330375
.002336965

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.002343556
.002350147
.002356738
.002363328
.002369919

AGENCIES: Internal Revenue Service,
Department of the Treasury; Employee
Beneﬁts Security Administration, Department of Labor; Centers for Medicare &
Medicaid Services, Department of Health
and Human Services.

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.002376510
.002383101
.002389692
.002396283
.002402874

ACTION: Final rules.

I. Background

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.002409466
.002416057
.002422648
.002429239
.002435831

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.002442422

SUMMARY: This document contains ﬁnal regulations regarding grandfathered
health plans, preexisting condition exclusions, lifetime and annual dollar limits on
beneﬁts, rescissions, coverage of dependent children to age 26, internal claims
and appeal and external review processes,
and patient protections under the Affordable Care Act. It ﬁnalizes changes to the
proposed and interim ﬁnal rules based on
comments and incorporates subregulatory
guidance issued since publication of the
proposed and interim ﬁnal rules.

The Patient Protection and Affordable
Care Act, Pub. L. 111–148, was enacted
on March 23, 2010; the Health Care and
Education Reconciliation Act (the Reconciliation Act), Pub. L. 111–152, was enacted on March 30, 2010 (these are collectively known as the “Affordable Care
Act”). The Affordable Care Act reorganizes, amends, and adds 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

DEPARTMENT OF HEALTH
AND HUMAN SERVICES
45 CFR Parts 144, 146
and 147
CMS–9993–F
Final Rules for Grandfathered
Plans, Preexisting Condition
Exclusions, Lifetime and
Annual Limits, Rescissions,
Dependent Coverage,
Appeals, and Patient
Protections under the
Affordable Care Act

DATES: Effective date. These ﬁnal regulations are effective on January 19, 2016.

December 7, 2015

700

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 (www.dol.
gov/ebsa). Information from HHS on private health insurance coverage can be
found on CMS’s web site (www.cms.gov/
cciio), and information on health care reform can be found at www.HealthCare.gov.
SUPPLEMENTARY
INFORMATION:

Bulletin No. 2015– 49

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 into
the Code and ERISA are sections 2701
through 2728.
The Departments of Labor (DOL),
Health and Human Services (HHS) and
the Treasury (collectively, the Departments) have issued regulations implementing the revised PHS Act sections
2701 through 2719A in several phases.2
Throughout 2010, the Departments issued
interim ﬁnal regulations (or temporary
and proposed regulations),3 with requests
for comment, implementing Affordable
Care Act section 1251 (preservation of
right to maintain existing coverage), and
PHS Act sections 2704 (prohibition of
preexisting condition exclusions), 2711
(prohibition on lifetime or annual limits),
2712 (prohibition on rescissions), 2714
(extension of dependent coverage), 2719
(internal claims and appeals and external
review process), and 2719A (patient protections) (collectively, the 2010 interim
ﬁnal regulations). As discussed in more
detail below, after consideration of comments4 in response to the 2010 interim
ﬁnal regulations, the Departments are issuing these ﬁnal regulations.

II. Overview of the Final Regulations
A. Section 1251 of the Affordable Care
Act, Preservation of Right to Maintain
Existing Coverage (26 CFR 54.9815–
1251, 29 CFR 2590.715–1251, and 45
CFR 147.140)
Section 1251 of the Affordable Care
Act provides that certain group health
plans and health insurance coverage existing as of March 23, 2010 (the date of
enactment of the Affordable Care Act)
(grandfathered health plans) are only subject to certain provisions of the Affordable
Care Act (for as long as they maintain that
status as grandfathered health plans under
the applicable regulations).5 On June 17,
2010, the Departments issued interim ﬁnal
regulations implementing section 1251
and requesting comment.6 On November
17, 2010, the Departments issued an
amendment to the interim ﬁnal regulations
to permit certain changes in policies, certiﬁcates, or contracts of insurance without
loss of grandfathered status.7 Also in
2010, the Departments released Affordable Care Act Implementation Frequently
Asked Questions (FAQs) Parts I, II, IV,
V, and VI to answer questions related to
maintaining a plan’s status as a grandfathered health plan.8 After consideration of
the comments and feedback received from
stakeholders, the Departments are publishing these ﬁnal regulations. As discussed in
more detail below, these ﬁnal regulations
ﬁnalize the 2010 interim ﬁnal regulations
and amendment to the interim ﬁnal regulations without substantial change and incor-

porate the clariﬁcations issued thus far in
subregulatory guidance.
1. Deﬁnition of Grandfathered Health
Plan Coverage
Under the Affordable Care Act and
paragraph (a)(1) of the interim ﬁnal regulations implementing section 1251 of the
Affordable Care Act, a group health plan
or group or individual health insurance
coverage is a grandfathered health plan
with respect to individuals enrolled on
March 23, 2010 (for as long as it maintains that status under the applicable regulations). The interim ﬁnal regulations
provided that a group health plan or coverage does not relinquish its grandfather
status merely because one or more (or
even all) individuals enrolled on March
23, 2010 cease to be covered, provided
that the plan or group health insurance
coverage has continuously covered at
least one person (although not necessarily
the same person) at all times since March
23, 2010. The interim ﬁnal regulations
also provided that the determination of
grandfather status under the rules is made
separately with respect to each beneﬁt
package made available under a group
health plan or health insurance coverage.
Some commenters requested clariﬁcation with respect to the meaning of the
term “beneﬁt package” including requesting further guidance regarding what coverage option features constitute separate
beneﬁt packages. In response to the comments, the Departments issued Affordable
Care Act Implementation FAQs Part II Q2
to further clarify the application of 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.
2

Note, however, that in sections under headings listing only two of the three Departments, the term “Departments” generally refers only to the two Departments listed in the heading.

The Departments of Labor and HHS published their rules as interim ﬁnal rules and are ﬁnalizing their interim ﬁnal rules. The Department of the Treasury/Internal Revenue Service published
temporary regulations and proposed regulations with the text of the temporary regulations serving as the text of the proposed regulations. The Department of the Treasury/Internal Revenue
Service is ﬁnalizing its proposed rules.
4
In response to the 2010 interim ﬁnal regulations, the Departments received many comments that relate to early implementation issues, many of which were addressed through subregulatory
guidance (addressed more fully below). While the Departments acknowledge and have reviewed the comments provided in response to the 2010 interim ﬁnal regulations, to the extent the
issues presented are now moot, such comments are not explicitly addressed below.
5
For a list of the market reform provisions under title XXVII of the PHS Act, as added or amended by the Affordable Care Act and incorporated into ERISA and the Code, applicable to
grandfathered health plans, visit http://www.dol.gov/ebsa/pdf/grandfatherregtable.pdf.
6

75 FR 34538.

75 FR 70114.

See Affordable Care Act Implementation FAQs Part I, available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html, Affordable Care Act Implementation FAQs Part II available at http://www.dol.gov/ebsa/faqs/faq-aca2.html and https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/aca_implementation_faqs2.html, Affordable Care Act Implementation FAQs Part IV, available at http://www.dol.gov/ebsa/faqs/faq-aca4.html and https://www.cms.gov/
CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs4.html and Affordable Care Act Implementation FAQs Part V, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html and Affordable Care Act Implementation FAQs Part VI, available at http://www.dol.gov/
ebsa/faqs/faq-aca6.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs6.html.

Bulletin No. 2015– 49

701

December 7, 2015

rules on a beneﬁt-package-by-beneﬁtpackage basis.9 These ﬁnal regulations
continue to provide that the determination
of grandfather status applies separately
with respect to each beneﬁt package and
incorporate the clariﬁcations issued in the
FAQs. Therefore, as demonstrated by the
example provided in the FAQs, if a group
health plan offers three beneﬁt package
options – a PPO (preferred provider organization), a POS (point of service) arrangement, and an HMO (health maintenance organization) –the PPO, POS
arrangement, and HMO are treated as
separate beneﬁt packages. Similarly, under these ﬁnal regulations, if any beneﬁt
package ceases grandfather status, it
will not affect the grandfather status of
the other beneﬁt packages.
2. Disclosure of Grandfather Status
Paragraph (a)(2) of the interim ﬁnal
regulations implementing section 1251 of
the Affordable Care Act provided that to
maintain status as a grandfathered health
plan, a plan or health insurance coverage
(1) must include a statement, in any plan
materials provided to participants or beneﬁciaries (in the individual market, primary subscribers) describing the beneﬁts
provided under the plan or health insurance coverage, that the plan or health insurance coverage believes that it is a
grandfathered health plan within the
meaning of section 1251 of the Affordable
Care Act and (2) must provide contact
information for questions and complaints.
The interim ﬁnal regulations provided
model language that can be used to satisfy
this disclosure requirement.10
The Departments received several
comments asking the Departments to require enhanced disclosure to participants
that includes a more comprehensive explanation of grandfathered health plan status, information on the triggers that can
result in a cessation of such status, a complete listing of the speciﬁc market reforms
that are inapplicable to the plan by virtue
of its status, and access to a formal pro-

cess for obtaining a determination on a
plan’s status from the appropriate government agency. Other commenters stated
that including this disclosure requirement
in consumer materials may be confusing
to participants, may not have the intended
beneﬁt, and that it may be more appropriate to include the applicable consumer
protections in the employer plan documents or insurance coverage documents.
Additional commenters stated this requirement is unnecessary because ERISA’s disclosure requirements are already sufﬁcient
to explain to participants the information
they need about their plan (including which
beneﬁts are included or excluded), and that
including information about what beneﬁts
they could have had if their employers
chose to relinquish their grandfathered plan
status is unnecessary.
In response to these comments the Departments issued Affordable Care Act Implementation FAQs Part IV Q1, in which
the Departments clariﬁed that a grandfathered health plan is not required to provide the disclosure statement every time it
sends out a communication, such as an
explanation of beneﬁts (EOB), to a participant or beneﬁciary. Instead, a grandfathered health plan will comply with this
disclosure requirement if it includes the
model disclosure language provided in the
Departments’ interim ﬁnal grandfather
regulations (or a similar statement) whenever a summary of the beneﬁts under the
plan is provided to participants and beneﬁciaries. For example, many plans distribute summary plan descriptions upon initial eligibility to receive beneﬁts under the
plan or coverage, during an open enrollment period, or upon other opportunities
to enroll in, renew, or change coverage.
The FAQs also provided that, while it is
not necessary to include the disclosure
statement with each plan or issuer communication to participants and beneﬁciaries (such as an EOB), the Departments
encourage plan sponsors and issuers to
identify other communications in which
disclosure of grandfather status would be
appropriate and consistent with the goal of

providing participants and beneﬁciaries
information necessary to understand and
make informed choices regarding health
coverage.11
After consideration of the comments
and feedback from stakeholders, the Departments retain the approach in the interim ﬁnal regulations and subsequent
subregulatory guidance because that approach provides consumers with information about the status of their plan or health
insurance coverage, which assists them in
identifying and enforcing their rights,
without undue burden on plans and issuers. Therefore, these ﬁnal regulations clarify that, to maintain status as a grandfathered health plan, a group health plan, or
health insurance coverage, must include a
statement that the plan or health insurance
coverage believes it is a grandfathered
health plan in any summary of beneﬁts
provided under the plan. It must also provide contact information for questions and
complaints. These ﬁnal regulations also
retain the model disclosure language.
Plans and issuers may (but are not required to) utilize the model disclosure language to satisfy this disclosure requirement. The Departments also note that the
disclosure language is a model, and, thus,
plans and issuers are permitted to include
additional disclosure elements, such as the
entire list of the market reform provisions
that do not apply to grandfathered health
plans.
3. Anti-abuse rules
The interim ﬁnal regulations provided
that a group health plan that provided coverage on March 23, 2010 generally is a
grandfathered health plan with respect to
new employees (whether newly hired or
newly enrolled) and their families who
enroll in the grandfathered health plan after March 23, 2010. The interim ﬁnal regulations also provided two anti-abuse
rules to curtail attempts to retain grandfather status by indirectly making changes
that would otherwise result in a loss of
grandfather status.

9
See Affordable Care Act Implementation FAQs Part II, available at http://www.dol.gov/ebsa/faqs/faq-aca2.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
10

29 CFR 2590.715-1251(a)(2)(ii); 45 CFR 147.140(a)(2)(ii).

See Affordable Care Act Implementation FAQs Part IV, available at http://www.dol.gov/ebsa/faqs/faq-aca4.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs4.html.

December 7, 2015

702

Bulletin No. 2015– 49

The ﬁrst anti-abuse rule provided that
if the principal purpose of a merger, acquisition, or similar business restructuring
is to cover new individuals under a grandfathered health plan, the plan ceases to be
a grandfathered health plan. Under the
second anti-abuse rule, the interim ﬁnal
regulations set forth speciﬁc criteria that,
if met, would cause a plan that is transferring employees to relinquish its grandfather status. Speciﬁcally, the interim ﬁnal
regulations provided that a plan that is
transferring employees would relinquish
its grandfather status if, comparing the
terms of the transferee plan with those of
the transferor plan (as in effect on March
23, 2010) and treating the transferee plan
as if it were an amendment of the transferor plan, such amendment would cause a
loss of grandfather status and there was no
bona ﬁde employment-based reason to
transfer the employees into the transferee
plan. The second anti-abuse rule was designed to prevent a plan or issuer from
circumventing the limits on changes that
cause a plan or health insurance coverage
to cease to be a grandfathered health plan.
This rule was intended to address situations in which employees who previously
were covered by a grandfathered health
plan are transferred to another grandfathered health plan without any bona ﬁde
employment-based reason.

ployees. Examples of a bona ﬁde
employment-based reason include: when
a beneﬁt package is being eliminated because the issuer is exiting the market;
when a beneﬁt package is being eliminated because the issuer no longer offers
the product to the employer; when low or
declining participation by plan participants in the beneﬁt package makes it impractical for the plan sponsor to continue
to offer the beneﬁt package; when a beneﬁt package is eliminated from a multiemployer plan as agreed upon as part of the
collective bargaining process; or when a
beneﬁt package is eliminated for any reason and multiple beneﬁt packages covering a signiﬁcant portion of other employees remain available to the employees
being transferred.12
These ﬁnal regulations include those
examples of bona ﬁde employment-based
reasons. The Departments continue to interpret the term “bona ﬁde employmentbased reason” to embrace a variety of
circumstances, and plans and issuers
should evaluate all facts and circumstances carefully to determine whether a
bona ﬁde employment-based reason exists
when considering transferring employees
from one grandfathered health plan to another. The Departments may issue additional guidance if further questions regarding what constitutes a bona ﬁde
employment-based reason arise.

a. Bona ﬁde employment-based reasons
The Departments received several
comments regarding the anti-abuse provisions. Stakeholders requested that the Departments clarify what constitutes a bona
ﬁde employment-based reason that would
prevent a plan that is transferring employees from relinquishing its grandfather status. In response, the Departments issued
Affordable Care Act Implementation
FAQs Part VI Q1, which provided several
examples of the variety of circumstances
that would constitute a bona ﬁde
employment-based reason to transfer em-

b. Clariﬁcation regarding multiemployer
plans
Section 1251 of the Affordable Care
Act, as well as the 2010 interim ﬁnal
regulations, permit a grandfathered group
health plan to cover new employees without any effect on its status as a grandfathered plan. Several commenters requested that the Departments clarify in the
ﬁnal regulations whether a multiemployer
plan may add new contributing employers
to the plan without triggering a loss of
grandfather status. These ﬁnal regulations

clarify that the addition of a new contributing employer or new group of employees of an existing contributing employer
to a grandfathered multiemployer health
plan will not affect the plan’s grandfathered status, provided that the multiemployer plan has not made any other
changes that would cause the plan to relinquish its grandfathered status.
4. Maintenance of Grandfather Status
The interim ﬁnal regulations set forth
rules for determining when changes to the
terms of a plan or health insurance coverage cause the plan or coverage to cease to
be a grandfathered health plan. Speciﬁcally, the interim ﬁnal regulations outlined six changes to beneﬁts, cost-sharing
mechanisms, and contribution rates that
will cause a plan or health insurance coverage to relinquish its grandfather status.13
Since the promulgation of the interim ﬁnal
regulations, questions have been brought
to the Departments’ attention regarding
other speciﬁc changes to a plan’s design
and the impact of such changes on a
plan’s grandfather status.
a. Elimination of all or substantially all
beneﬁts
The 2010 interim ﬁnal regulations and
these ﬁnal regulations provide that the
elimination of all or substantially all beneﬁts to diagnose or treat a particular condition will cause a group health plan or
health insurance coverage to relinquish its
grandfathered status. One commenter requested that the Departments clarify what
constitutes eliminating “substantially all
beneﬁts” to diagnose or treat a particular
condition. As the interim ﬁnal regulations
stated, and these ﬁnal regulations continue
to provide, the elimination of beneﬁts for
any necessary element to diagnose or treat
a condition is considered the elimination
of all or substantially all beneﬁts to diagnose or treat a particular condition. The

12
See Affordable Care Act Implementation FAQs Part VI, available at http://www.dol.gov/ebsa/faqs/faq-aca6.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs6.html.
13

The six changes (measured from March 23, 2010) outlined in paragraph (g)(1) of the interim ﬁnal regulations that are considered to change a health plan so signiﬁcantly that they will
cause a group health plan or health insurance coverage to relinquish grandfather status include the following: (1) the elimination of all or substantially all beneﬁts to diagnose or treat a
particular condition, (2) any increase in percentage cost-sharing requirements, (3) an increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inﬂation plus
15 percentage points, (4) an increase in a copayment by an amount that exceeds medical inﬂation plus 15 percentage points (or, if greater, $5 plus medical inﬂation), (5) a decrease in an
employer’s contribution rate towards the cost of coverage by more than 5 percentage points, or (6) the imposition of annual dollar limits below the restricted annual dollar limits that were
in effect prior to 2014 (note that for plan years (or policy years in the individual market) beginning on and after January 1, 2014, annual dollar limits on essential health beneﬁts are prohibited,
except for grandfathered individual health insurance coverage). See 26 CFR 54.9815-1251(g), 29 CFR 2590.715-1251(g), and 45 CFR 147.140(g).

Bulletin No. 2015– 49

703

December 7, 2015

Departments decline to establish a brightline test establishing what constitutes
“substantially all beneﬁts” for purposes of
these ﬁnal regulations. Whether or not a
plan has eliminated substantially all beneﬁts to diagnose or treat a particular condition must be determined based on all the
facts and circumstances, taking into account the items and services covered for a
particular condition under the plan on
March 23, 2010, as compared to the items
and services covered at the time the plan
makes the beneﬁt change effective. The
preamble to the 2010 interim ﬁnal regulations provided two examples. First, if a
plan or health insurance coverage eliminates all beneﬁts for cystic ﬁbrosis, the
plan or coverage will lose its grandfathered status. Second, if a plan or insurance coverage provides beneﬁts for a particular mental health condition, the
treatment for which is a combination of
counseling and prescription drugs, and
subsequently eliminates beneﬁts for counseling, the plan is treated as having eliminated all or substantially all beneﬁts for
that mental health condition and will as a
result lose its grandfathered status. These
ﬁnal regulations continue to provide that
the elimination of all or substantially all
beneﬁts to diagnose or treat a particular
condition will cause a group health plan
or health insurance coverage to relinquish its grandfathered status and contain an example.

With respect to grandfathered health
plans that utilize multiple levels of copayments for different beneﬁts under the plan,
stakeholders sought clariﬁcation on what
degree of change would cause a plan to
relinquish its grandfather status. Speciﬁcally, stakeholders wanted to know
whether raising the copayment level for a
category of services by an amount that
would otherwise trigger a loss of grandfather status would cause a loss of grandfather status if the plan retained the level of
copayment on other categories of services.
The Departments clariﬁed in Affordable
Care Act Implementation FAQs Part II Q4
that a change to a copayment level for a
category of services that exceeds the standards set forth in the interim ﬁnal regulations will cause a plan to relinquish its
grandfather status, even if a plan retains
the level of copayment for other categories of services.16 These ﬁnal regulations retain this clariﬁcation, and continue to provide that each change in cost
sharing must be separately evaluated under the standards set forth in the regulations. A plan or issuer may not exceed
the standards set forth in these ﬁnal regulations with respect to one level of
copayment for a category of services,
and retain its grandfather status by retaining the level of copayments for other
categories of services.

b. Increase in ﬁxed-amount copayments

The interim ﬁnal regulations provided
that a decrease in the employer contribution rate for coverage under a group health
plan or group health insurance coverage
beyond the permitted percentage would
result in cessation of grandfather status.
There are two rules related to decreases in
employer contributions: one for a contribution based on the cost of coverage and
one for a contribution based on a formula.
First, if the contribution rate is based
on the cost of coverage, a group health
plan or group health insurance coverage

The interim ﬁnal regulations provided
standards for when increases in ﬁxedamount copayments would cause a plan or
coverage to relinquish its grandfather status. Under the interim ﬁnal regulations, a
plan or coverage ceases to be a grandfathered health plan if there is an increase
since March 23, 2010 in a copayment that
exceeds the greater of the maximum percentage increase14 or ﬁve dollars increased by medical inﬂation.15

c. Decrease in Contribution Rate by
Employers and Employee Organization

ceases to be a grandfathered health plan if
the employer or employee organization
decreases its contribution rate towards the
cost of any tier of coverage for any class
of similarly situated individuals17 by more
than 5 percentage points below the contribution rate on March 23, 2010. For this
purpose, contribution rate is deﬁned as the
amount of contributions made by an employer or employee organization compared to the total cost of coverage, expressed as a percentage. The interim ﬁnal
regulations also provided that the total
cost of coverage is determined in the same
manner as the applicable premium is calculated under the Consolidated Omnibus
Budget Reconciliation Act of 1986 (COBRA) continuation provisions of section
604 of ERISA, section 4980B(f)(4) of the
Code, and section 2204 of the PHS Act. In
the case of a self-insured group health
plan, contributions by an employer or employee organization are calculated by subtracting the employee contributions towards the total cost of coverage from the
total cost of coverage.
Second, if the contribution rate is based
on a formula, such as hours worked or
tons of coal mined, a group health plan or
group health insurance coverage ceases to
be a grandfathered health plan if the employer or employee organization decreases its contribution rate towards the
cost of any tier of coverage for any class
of similarly situated individuals by more
than 5 percentage points below the contribution rate on March 23, 2010. These ﬁnal
regulations ﬁnalize these provisions without change but incorporate the additional
clariﬁcations issued in subregulatory
guidance as discussed below.
The Departments received several
comments relating to the employer contribution limitations. Some commenters
stated that issuers do not always have the
information needed to know whether (or
when) an employer plan sponsor changes
its rate of contribution towards the cost of
group health plan coverage. In response to
this issue, the Departments issued Afford-

14
The interim ﬁnal regulations deﬁned the maximum percentage increase as medical inﬂation (from March 23, 2010) plus 15 percentage points. Medical inﬂation is deﬁned in the interim
ﬁnal regulations by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted (CPI), published by the Department of Labor. See
26 CFR 54.9815-1251(g)(3), 29 CFR 2590.715-1251(g)(3), and 45 CFR 147.140(g)(3).
15

75 FR 35538, 34543 (June 17, 2010).

See Affordable Care Act Implementation FAQs Part II, available at http://www.dol.gov/ebsa/faqs/faq-aca2.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
17

Similarly situated individuals are described in the HIPAA nondiscrimination regulations at 26 CFR 54.9802–1(d), 29 CFR 2590.702(d), and 45 CFR 146.121(d).

December 7, 2015

704

Bulletin No. 2015– 49

able Care Act Implementation FAQs Part
I Q2 and Q3 providing relief if issuers and
employer plan sponsors or contributing
employers and multiemployer plans take
certain steps to communicate regarding
changes to the contribution rate for purposes of determining grandfather status.18
These ﬁnal regulations also provide relief
to issuers, plan sponsors, employers, and
plans that take certain steps to communicate changes in contribution rates. Specifically, these ﬁnal regulations provide that
an insured group health plan that is a
grandfathered health plan will not relinquish its grandfather status immediately
based on a change in the employer contribution rate if, upon renewal, an issuer
requires a plan sponsor to make a representation regarding its contribution rate
for the plan year covered by the renewal,
as well as its contribution rate on March
23, 2010 (if the issuer does not already
have it). Additionally, the issuer’s policies, certiﬁcates, or contracts of insurance
must disclose in a prominent and effective
manner that plan sponsors are required to
notify the issuer if the contribution rate
changes at any point during the plan year.
An insured grandfathered group health
plan with a decrease in employer contributions relinquishes its grandfather status
as of the earlier of the ﬁrst date on which
the issuer knows or reasonably should
know that there has been at least a
5-percentage-point reduction or the ﬁrst
date on which the plan no longer qualiﬁes
for grandfathered status without regard to
the 5-percentage-point reduction. Similarly, if multiemployer plans and contributing employers follow these steps, the
plan will not relinquish its grandfather
status unless or until the multiemployer
plan knows or reasonably should know
that the contribution rate has changed by
at least the applicable 5-percentage point
reduction or until the date the plan no
longer qualiﬁes for grandfathered status
without regard to the 5-percentage point
reduction. Moreover, nothing in the Af-

fordable Care Act or these regulations
prevents a policy, certiﬁcate, or contract
of insurance from requiring a plan sponsor
to notify an issuer in advance (for example, 30 or 60 days in advance) of a change
in their contribution rate.
The Departments also received comments on the application of this provision
to multiemployer plans with unique contribution structures. It is common for multiemployer plans to have either a ﬁxeddollar employee contribution or no
employee contribution towards the cost of
coverage. In such cases, a contributing
employer’s contribution rate may change
(for example, after making up a funding
deﬁcit in the prior year or to reﬂect a
surplus) but the employee contribution
amount is not affected. The Departments
issued Affordable Care Act Implementation FAQs Part I Q4 clarifying that in this
case, provided any changes in the coverage terms would not otherwise cause the
plan to cease to be grandfathered and
there continues to be no employee contribution or no increase in the ﬁxed-dollar
employee contribution towards the cost of
coverage, the plan would not relinquish its
grandfather status.19 These ﬁnal regulations incorporate this clariﬁcation and apply the relief to all grandfathered group
health plans. Therefore, under these ﬁnal
regulations a group health plan that requires either ﬁxed-dollar employee contributions or no employee contributions will
not cease to be a grandfathered health plan
if the employer contribution rate changes
so long as there continues to be no employee contributions or no increase in the
ﬁxed-dollar employee contributions towards the cost of coverage and there are
no corresponding changes in coverage
terms that would otherwise cause the plan
to cease to be a grandfathered plan.
The Departments also received comments requesting clariﬁcation on the application of the rules where a group health
plan includes multiple tiers of coverage.
In response, the Departments issued Af-

fordable Care Act Implementation FAQs
Part II Q3, explaining that the standards
for employer contributions found in paragraph (g)(1)(v) of the interim ﬁnal regulations on grandfathered health plans apply on a tier-by-tier basis.20 These ﬁnal
regulations incorporate this guidance.
Therefore, if a group health plan modiﬁes
the tiers of coverage it had on March 23,
2010 (for example, from self-only and
family to a multi-tiered structure of selfonly, self-plus-one, self-plus-two, and
self-plus-three-or-more), the employer
contribution for any new tier would be
tested by comparison to the contribution
rate for the corresponding tier on March
23, 2010. For example, if the employer
contribution rate for family coverage was
50 percent on March 23, 2010, the employer contribution rate for any new tier
of coverage other than self-only (i.e., selfplus-one, self-plus-two, self-plus-three or
more) must be within 5 percentage points
of 50 percent (i.e., at least 45 percent). If,
however, the plan adds one or more new
coverage tiers without eliminating or
modifying any previous tiers and those
new coverage tiers cover classes of individuals that were not covered previously
under the plan, the new tiers would not be
analyzed under the standards for changes
in employer contributions. For example, if
a plan with self-only as the sole coverage
tier added a family coverage tier, the level
of employer contributions toward the family coverage could not cause the plan to
lose grandfather status.
The Departments also received comments asking for clariﬁcation on when a
decrease in the employer contribution rate
for coverage under a group health plan or
group health insurance beyond the permitted percentage would result in cessation of
grandfather status for a contribution based
on a formula. In response, the Departments issued Affordable Care Act Implementation FAQs Part VI Q6.21 The FAQ
provided an example under which a plan
covers both retirees and active employees

18
See Affordable Care Act Implementation FAQs Part I, available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs.html.
19
See Affordable Care Act Implementation FAQs Part I, available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs.html.
20
See Affordable Care Act Implementation FAQs Part II, available at http://www.dol.gov/ebsa/faqs/faq-aca2.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
21
See Affordable Care Act Implementation FAQs Part VI, available at http://www.dol.gov/ebsa/faqs/faq-aca6.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs6.html.

Bulletin No. 2015– 49

705

December 7, 2015

and the employer that sponsors the plan
contributes $300 per year multiplied by
the individual’s years of service for the
employer, capped at $10,000 per year. In
the example, the employer makes contributions based on a formula, and accordingly, the plan will cease to be a grandfathered health plan if the employer
decreases its contribution rate towards the
cost of coverage by more than ﬁve percent
below the contribution rate on March 23,
2010. If the formula does not change, the
employer is not considered to have reduced its contribution rate, regardless of
any increase in the total cost of coverage.
However, if the dollar amount that is multiplied by years of service decreases by
more than ﬁve percent (or if the $10,000
maximum employer contribution cap decreases by more than ﬁve percent), the plan
will cease to be a grandfathered health plan.
Although this example has not been added
to the text of the ﬁnal regulations, this guidance continues to apply.
d. Changes in annual limits
PHS Act section 2711, as added by the
Affordable Care Act, generally prohibits
lifetime and annual limits on the dollar
amount of essential health beneﬁts, as deﬁned in section 1302(b) of the Affordable
Care Act. Under PHS Act section 2711 and
its implementing regulations, plans and issuers were generally prohibited from imposing lifetime limits on the dollar value of
essential health beneﬁts for plan years (in
the individual market, policy years) beginning on or after September 23, 2010.
With respect to annual dollar limits, for
plan or policy years beginning before January 1, 2014, plans and issuers were permitted to impose restricted annual dollar
limits in accordance with the guidance set
forth in the interim ﬁnal regulations. For
plans years beginning on or after January
1, 2014, plans and issuers generally are
prohibited from imposing annual dollar
limits on essential health beneﬁts. However, grandfathered individual health in-

surance plans are not subject to the annual
dollar limit prohibition. Accordingly, the
ﬁnal regulations retain the rules regarding
loss of grandfathered status based on imposition of annual dollar limits to allow
issuers of grandfathered individual health
insurance coverage to analyze grandfathered status.
These ﬁnal regulations, like the interim
ﬁnal regulations, address three different
limit-related situations that would cause a
plan or health insurance coverage to relinquish its grandfather status: (1) 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; (2) 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; and (3) 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).
e. Changes to ﬁxed amount cost-sharing
based on a formula
On December 22, 2010, the Departments
issued Affordable Care Act Implementation
FAQs Part V Q7 to provide clariﬁcation on
the application of the thresholds under paragraph (g)(1) of the interim ﬁnal regulations
when a plan’s terms include out-of-pocket
spending limits that are based on a for-

mula.22 The Departments continue to interpret paragraph (g)(1) as clariﬁed in the
FAQ. Therefore, under these ﬁnal regulations, if a plan or coverage has a ﬁxedamount cost-sharing requirement other than
a copayment (for example, a deductible or
out-of-pocket limit) that is based on a
percentage-of-compensation formula, that
cost-sharing arrangement will not cause the
plan or coverage to cease to be a grandfathered health plan as long as the formula
remains the same as that which was in effect
on March 23, 2010. Accordingly, if the
percentage-of-compensation formula for determining an out-of-pocket limit is unchanged and an employee’s compensation
increases, then the employee could face a
higher out-of-pocket limit, but that change
would not cause the plan to relinquish
grandfather status.
f. Grandfather status and wellness
programs
Under PHS Act section 2705, ERISA
section 702, and Code section 9802 and
the Departments’ implementing regulations, group health plans and health insurance issuers in the group and individual
market are prohibited from discriminating
against participants, beneﬁciaries, and individuals in eligibility, beneﬁts, or premiums based on a health factor.23 For group
health plans and group health insurance
coverage, an exception to this general prohibition allows premium discounts, rebates, or modiﬁcation of otherwise applicable cost sharing (including copayments,
deductibles, or coinsurance) in return for
adherence to certain programs of health
promotion and disease prevention, commonly referred to as wellness programs.
Many stakeholders requested clariﬁcation with respect to how changes to contribution rates and cost-sharing mechanisms in the context of a wellness
program would impact a plan’s grandfather status. In light of these questions, the
Departments issued Affordable Care Act
Implementation FAQs Part II Q5, which
stated that while group health plans may

22
See Affordable Care Act Implementation FAQs Part V and Mental Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html and https://www.cms.gov/
CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
23
The statute and its implementing regulations set forth eight health status-related factors, which the ﬁnal regulations on Nondiscrimination and Wellness Programs in Health Coverage in
the Group Market refer to as “health factors” for simplicity. 71 FR 75014, 75016 (Dec. 13, 2006) Under the statute and the regulations, the eight health factors are health status, medical
condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising
out of acts of domestic violence), and disability. Id. In the Departments’ view, “[t]hese terms are largely overlapping and, in combination, include any factor related to an individual’s health.”
66 FR 1378, 1379 (Jan. 8, 2001).

December 7, 2015

706

Bulletin No. 2015– 49

continue to provide incentives for wellness by providing premium discounts or
additional beneﬁts to reward healthy behaviors by participants and beneﬁciaries,
penalties (such as cost-sharing surcharges) may implicate the standards outlined in paragraph (g)(1) of the grandfather interim ﬁnal regulations and should
be examined carefully.24 If additional
questions arise regarding the interaction
of wellness programs and these requirements, the Departments may issue additional subregulatory guidance.
g. Changes to multi-tiered prescription
drug formularies
In Affordable Care Act Implementation
FAQs Part VI Q2, the Departments addressed questions related to certain changes
to the level of cost sharing for brand-name
prescription drugs. Stakeholders requested
that the Departments clarify whether
changes to cost sharing for brand-name prescription drugs would cause a plan to relinquish its grandfather status in instances
where a plan classiﬁes and determines cost
sharing for prescription drugs based on the
availability of a generic alternative, and a
generic drug becomes available and is
added to the formulary. The Departments
stated that if a drug was classiﬁed in a tier as
a brand name drug with no generic available, and a generic alternative for the drug
becomes available and is added to the formulary, moving the brand-name drug to a
higher tier would not cause the plan or coverage to relinquish grandfather status.25
These ﬁnal regulations adopt this rule that
such changes will not result in a loss of
grandfather status.

h. Grandfather status and certain
changes in individual policies
Some individual health insurance policies in place on March 23, 2010 included
a feature that allowed a policyholder to
elect an option under which the individual
would pay a reduced premium in exchange for higher cost sharing. The Departments received comments asking
whether individuals enrolled in these policies as of March 23, 2010 could make
such an election after March 23, 2010
without affecting the policy’s grandfather
status, even if the increase in cost sharing
would exceed the limits set forth under the
interim ﬁnal regulations. In response, the
Departments issued Affordable Care Act
Implementation FAQs Part IV Q2, which
stated that, as long as the policyholder had
such option under the insurance policy
that was in place on March 23, 2010, he or
she could exercise the option after March
23, 2010 without affecting grandfather
status, even if as a result of electing this
option the individual’s cost sharing would
increase by an amount that exceeds the
limits established under the interim ﬁnal
regulations.26 The Departments maintain
this approach in these ﬁnal regulations.
i. Clariﬁcations on timing of the loss of
grandfather status
Since the promulgation of the 2010
interim ﬁnal regulations, questions have
arisen regarding whether or not a plan
ceases to be a grandfathered health plan
immediately after making a change that
triggers a loss of grandfathered status, and
whether or not there is an opportunity to
cure a loss of grandfather status following
a change made inadvertently or otherwise
that triggers a loss of grandfather status.
Several commenters have requested clar-

iﬁcation on when the plan or coverage
ceases to be a grandfathered health plan if
it makes an amendment to plan terms that
trigger loss of grandfather status in the
middle of the plan year. The Departments
issued Affordable Care Act Implementation FAQs Part VI Q4 and Q5 addressing
timing of the loss of grandfather status
with respect to mid-year plan amendments
that exceed the thresholds described in the
interim ﬁnal regulations.27 These ﬁnal
regulations adopt the clariﬁcation outlined
in the FAQs that a plan or coverage will
cease to be a grandfathered health plan
when an amendment to plan terms that
exceeds the thresholds described in paragraph (g)(1) of these ﬁnal regulations becomes effective – regardless of when the
amendment is adopted. Once grandfather
status is lost there is no opportunity to
cure the loss of grandfather status. A reversal after the effective date will not allow the plan or coverage to regain grandfather status. If a plan sponsor wishes to
avoid relinquishing grandfathered status
in the middle of a plan year, any changes
that will cause a plan or coverage to relinquish grandfather status should not be
effective before the ﬁrst day of a plan year
that begins after the change is adopted.
B. PHS Act Section 2704, Prohibition of
Preexisting Condition Exclusions (26
CFR 54.9815–2704, 29 CFR 2590.715–
2704, 45 CFR 147.108)
PHS Act section 2704, added by the
Affordable Care Act, amends the
HIPAA28 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 generally may not impose
any preexisting condition exclusions.29
HIPAA, as well as PHS Act section 2704

24
See Affordable Care Act Implementation FAQs Part II, available at http://www.dol.gov/ebsa/faqs/faq-aca2.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
25
Affordable Care Act Implementation FAQs Part VI, available at http://www.dol.gov/ebsa/faqs/faq-aca6.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs6.html.
26
See Affordable Care Act Implementation FAQs Part IV, available at http://www.dol.gov/ebsa/faqs/faq-aca4.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs4.html.
27
See Affordable Care Act Implementation FAQs Part VI, available at http://www.dol.gov/ebsa/faqs/faq-aca6.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs6.html.
28

HIPAA is the Health Insurance Portability and Accountability Act of 1996 (Public Law 104 –191).

The HIPAA rules (that were in effect prior to the effective date of these amendments) applied only to group health plans and group health insurance coverage, and permitted limited
exclusions of coverage based on a preexisting condition under certain circumstances. Section 2704 prohibits any preexisting condition exclusion from being imposed by group health plans
or group health insurance coverage and extends this protection to non-grandfathered individual health insurance coverage but this prohibition does not apply to grandfathered individual health
insurance coverage.

Bulletin No. 2015– 49

707

December 7, 2015

and its implementing regulations, deﬁne a
preexisting condition exclusion 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, regardless of
whether any medical advice, diagnosis,
care, or treatment was recommended or
received before that date. PHS Act section
2704,30 which became effective for enrollees who are under 19 years of age for
plan years (in the individual market, policy years) beginning on or after September 23, 2010, and effective for adults for
plan years (in the individual market, policy years) beginning on or after January 1,
2014, prohibits preexisting condition exclusions for both group health plans and
group or individual health insurance coverage (except for grandfathered individual
health insurance). On June 28, 2010, the
Departments issued interim ﬁnal regulations implementing PHS Act section 2704
and requesting comment.31 After issuance
of regulations in 2010, the Departments
also released Affordable Care Act Implementation FAQs Part V, Q632 to provide
additional clariﬁcation on the prohibition
of preexisting condition exclusions. These
ﬁnal regulations ﬁnalize the 2010 interim
ﬁnal regulations without substantial
change and incorporate the clariﬁcations
issued to date in subregulatory guidance.
1. Allowable Exclusion of Beneﬁts
Prior to implementation of PHS Act
section 2704, HIPAA rules limiting preexisting condition exclusions provided
that a plan’s or issuer’s exclusion of beneﬁts for a condition regardless of when the
condition arose relative to the effective
date of coverage is not a preexisting condition exclusion. With respect to such exclusions, the 2010 interim ﬁnal regulations did not change this approach under
HIPAA.33

Several commenters requested that the
ﬁnal regulations reiterate this rule. Other
commenters requested that all exclusions
of speciﬁc conditions be prohibited regardless of whether the exclusion relates
to when the condition arose. Another
commenter wrote that restrictions on beneﬁts concerning rehabilitation services
and devices should be considered a form
of preexisting condition exclusion and not
be allowed.
Similar to the interim ﬁnal regulations,
these ﬁnal regulations retain the approach
set forth under HIPAA relating to exclusions for a speciﬁc beneﬁt. More speciﬁcally, these ﬁnal regulations continue to
provide that a plan’s or issuer’s exclusion
of beneﬁts for a condition from the plan or
policy regardless of when the condition
arose relative to the effective date of coverage is not a preexisting condition exclusion. Other requirements of Federal or
State law, however, may prohibit certain
beneﬁt exclusions, including the essential health beneﬁts requirements applicable in the individual and small group
health insurance markets at 45 CFR
156.110 et seq.
2. Enrollment Period
The 2010 interim ﬁnal regulations did
not impose any requirement on plans to
provide for an open enrollment period.
One commenter requested that the regulations clarify that issuers in the individual
market may restrict enrollment of children
under age 19 to speciﬁed open enrollment
periods, consistent with guidance issued
by HHS.34 Another commenter requested
that the regulations specify that after the
initial enrollment period, health insurance
issuers must make open enrollment periods available to families at least once a
year during a standardized time period for
at least 90 days and that insurers should
fully advertise the availability. Another
commenter stated that having at least one

issuer that offers open enrollment at any
time during the year, without a penalty for
deferral, will be an economic incentive to
defer the purchase of insurance which
may encourage adverse selection and subsequently, higher claim costs. Additional
commenters requested continuous open
enrollment for children with preexisting
conditions, clariﬁcation of whether guaranteed issue will be available only during
open enrollment or all 12 months of the
year, and that families be given the opportunity to enroll their children when certain
life events occur. These ﬁnal regulations
do not adopt these suggestions. The provisions of the Affordable Care Act related
to guaranteed availability of coverage, including open and special enrollment periods, are implemented in regulations issued
by HHS under section 2702 of the PHS
Act and are outside the scope of this rulemaking. Additionally, while HIPAA generally permits plans and issuers to treat
participants and beneﬁciaries with adverse
health factors more favorably, such as
providing a longer open enrollment period, nothing in these regulations requires
plans and issuers to do so.
3. Premiums
Commenters raised concerns about increasing premiums related to the prohibition on preexisting condition exclusions.
Effective for plan years (or, in the individual market, policy years) beginning on
or after January 1, 2014, section 2701 of
the PHS Act and section 1312(c) of the
Affordable Care Act govern the premium
rates charged by an issuer for nongrandfathered health insurance coverage
in the individual and small group markets,
and section 2794 of the PHS Act provides
for the annual review of unreasonable increases in premiums for health insurance
coverage in the individual and small
group markets. These provisions are im-

Before the amendments made by the Affordable Care Act, PHS Act section 2701(b)(1) was the applicable provision concerning preexisting condition exclusions; after the amendments
made by the Affordable Care Act, PHS Act section 2704(b)(1) is the applicable provision. See also ERISA section 701(b)(1) and Code section 9801(b)(1).

75 FR 37188 (June 28, 2010).

See Affordable Care Act Implementation FAQs Part V, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs5.html.
33
The rule is illustrated with examples in the HIPAA regulations on preexisting condition exclusions. See Examples 6, 7, and 8 in 26 CFR 54.9801–3(a)(2), 29 CFR 2590.701–3(a)(2), 45
CFR 146.111(a)(2).
34
Center for Consumer Information & Insurance Oversight, Questions and Answers on Enrollment of Children Under 19 Under the New Policy That Prohibits Pre-Existing Condition
Exclusions, available at https://www.cms.gov/CCIIO/Resources/Files/factsheet.html.

December 7, 2015

708

Bulletin No. 2015– 49

plemented in regulations issued by HHS35
and are outside the scope of this rulemaking. However, the rating rules under PHS
Act section 2701 prohibit variations in
premiums based on a child’s health status.
4. Allowable Screenings to Determine
Eligibility for Alternative Coverage in
the Individual Market
Subsequent to the promulgation of the
interim ﬁnal regulations, questions arose
regarding whether it would be permissible
under the rules implementing PHS Act
section 2704 for issuers in the individual
market to screen certain applicants for eligibility for alternative coverage before
issuing a child-only policy. Speciﬁcally,
States expressed an interest in permitting
such screenings. In response to these concerns, the Departments issued Affordable
Care Act Implementation FAQs Part V,
Q6, which provided that under certain circumstances, States can permit issuers in
the individual market to screen applicants
for eligibility for alternative coverage options before offering a child-only policy if
(1) the practice is permitted under State
law; (2) the screening applies to all childonly applicants, regardless of health status; and (3) the alternative coverage options include options for which healthy
children would potentially be eligible,
such as the Children’s Health Insurance
Program (CHIP) and group health insurance.36 Screenings may not be limited to
programs targeted to individuals with a
preexisting condition, such as a State high
risk pool. Note that Medicaid policy, under 42 U.S.C. 1396a (25)(G), prohibits
participating States from allowing health
insurance issuers to consider whether an
individual is eligible for, or is provided
medical assistance under, Medicaid in
35

making enrollment decisions. Furthermore, issuers may not implement a
screening process that by its operation signiﬁcantly delays enrollment or artiﬁcially
engineers eligibility of a child for a program targeted to individuals with a preexisting condition. Additionally, the screening process may not be applied to offers of
dependent coverage for children. The
FAQ provided that States are encouraged
to require issuers that screen for other
coverage to enroll and provide coverage
to the applicant effective on the ﬁrst date
that the child-only policy would have
been effective had the applicant not been
screened for an alternative coverage option. It also provided that States are encouraged to impose a reasonable time
limit, such as 30 days, at which time the
issuer would have to enroll the child regardless of pending applications for other
coverage. Subsequent to the issuance of
the FAQ, the guaranteed availability requirements in section 2702 of the PHS
Act took effect, similarly precluding an
issuer from denying coverage. This
screening, as permitted under State law,
will continue to be allowed under these
ﬁnal regulations, consistent with both section 2704 and guaranteed availability obligations under section 2702.
C. PHS Act Section 2711, Prohibition on
Lifetime and Annual Limits (26 CFR
54.9815–2711, 29 CFR 2590.715–2711,
45 CFR 147.126)
PHS Act section 2711, as added by the
Affordable Care Act, generally prohibits
annual and lifetime dollar limits on essential health beneﬁts, as deﬁned in section
1302(b) of the Affordable Care Act. With
respect to annual dollar limits, PHS Act
section 2711(a)(2) provided that for plan

years beginning before January 1, 2014,
restricted annual dollar limits were allowed. On June 28, 2010, the Departments
issued interim ﬁnal regulations implementing PHS Act section 2711 and requested comment.37 After issuance of the
2010 interim ﬁnal regulations, the Departments also released Affordable Care Act
Implementation FAQs Parts IV, XI, XV,
XXII, as well as Technical Release 2013–
03, to address various requests for clariﬁcations under PHS Act section 2711.38
These ﬁnal regulations adopt the 2010 interim ﬁnal regulations without substantial
change and incorporate certain pertinent
clariﬁcations issued thus far in subregulatory guidance.
1. Deﬁnition of Essential Health Beneﬁts
On February 25, 2013, HHS issued ﬁnal regulations addressing essential health
beneﬁts (EHB) under Affordable Care Act
section 1302.39 Among other things, HHS
regulations deﬁned EHB based on a Statespeciﬁc benchmark plan and required
each State to select a benchmark plan
from among several options.40 While selfinsured, large group market, and grandfathered health plans are not required to
offer EHB, PHS Act section 2711 prohibits such plans from imposing annual and
lifetime dollar limits on covered beneﬁts
that fall within the deﬁnition of EHB. In
the interim ﬁnal regulations, the Departments said that “[f]or 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.’”

See 45 CFR 147.102, 154.101 et. seq., and 156.80.

75 FR 37188 (June 28, 2010).

Affordable Care Act Implementation FAQs Parts IV, XI, XV, XXII, available at http://www.dol.gov/ebsa/faqs/faq-aca4.html, http://www.dol.gov/ebsa/faqs/faq-aca11.html, http://
www.dol.gov/ebsa/faqs/faq-aca15.html, and http://www.dol.gov/ebsa/faqs/faq-aca22.html, or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs4.html, https://
www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html, https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs15.html and
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf; Technical Release 2013-03, available at http://www.dol.gov/ebsa/newsroom/tr1303.html. See footnote 51 for a list of additional items of guidance under PHS Act section 2711.

78 FR 12834.

The benchmark plans from which a State could choose are: (1) the largest plan by enrollment in any of the three largest products in the State’s small group market; (2) any of the largest
three State employee health beneﬁt plans options by enrollment; (3) any of the largest three national Federal Employees Health Beneﬁts Program (FEHBP) plan options by enrollment; or
(4) the largest insured commercial HMO in the State. 45 CFR 156.100. The EHB-benchmark plan serves as a reference plan, reﬂecting both the scope of services and limits offered by a
typical employer plan in each State. The term “base-benchmark plan” in 45 CFR 156.100 is distinct from the term “EHB-benchmark plan” as deﬁned in 45 CFR 156.20.

Bulletin No. 2015– 49

709

December 7, 2015

In a 2012 FAQ, HHS stated that the
Departments would consider a selfinsured group health plan, a large group
market health plan, or a grandfathered
group health plan to have used a permissible deﬁnition of EHB under section
1302(b) of the Affordable Care Act if the
deﬁnition was one of the potential EHB
base-benchmark plans that, at the time,
States could have chosen from as the standard for EHB in their State.41 At the time,
this list of potential EHB-benchmark
plans included over 510 EHB basebenchmark plans that were authorized by
the Secretary for a State or the District of
Columbia42 to select, as each State and the
District of Columbia has a choice of ten
possible benchmark plans. All of these
potential plans were “authorized” in the
sense that they were potential EHB benchmark plans that could be selected by a
State or the District of Columbia under the
EHB regulations. This approach was intended to provide plans and issuers not
subject to the EHB rules with ﬂexibility to
deﬁne what constitutes EHB under their
respective plan for purposes of the limits
in PHS Act section 2711. Since that time,
each State and the District of Columbia
has selected or defaulted to a single EHBbenchmark option, and that is the only
benchmark plan “authorized” to be used
for deﬁning EHB in that State or the District of Columbia.
Given the enforcement challenges for
Federal and State regulators and difﬁculties for participants, beneﬁciaries, and enrollees in ascertaining what beneﬁts under
their respective plans constitute EHB
posed by a choice of over 500 plans, the
Departments are codifying their interpretation that a “reasonable interpretation of
the term ‘essential health beneﬁts’” includes only those EHB base-benchmarks
that, in fact, have been selected, whether
by active State selection or by default to
be the EHB base-benchmark plan for a
State, rather than all plans that are potentially authorized.
41

In addition to the foregoing basebenchmark plans, there are three basebenchmark plan options not currently
among those a State or the District of
Columbia has either selected or had assigned by default that the Departments
believe should also continue to be made
available for plans and issuers not subject
to EHB requirements. These three plan
options are the current base-benchmark
plan options under the Federal Employees
Health Beneﬁt Program (FEHBP) speciﬁed at 45 CFR 156.100(a)(3) (the three
largest FEHBP plans available to all Federal employees nationally). These basebenchmark plan options are unique among
base-benchmark plans in that they are
available nationally, and thus can be utilized to determine what beneﬁts would be
categorized as EHBs for those employers
who provide health coverage to employees throughout the United States and are
not situated only in a single State.
Thus, under these ﬁnal regulations,
group health plans (and health insurance
coverage offered in connection with such
plans) and grandfathered individual market coverage that are not required to provide EHB may select among any of the 51
EHB base-benchmark plans identiﬁed under 45 CFR 156.100 and selected by a
State or the District of Columbia and the
FEHBP base-benchmark plan, as applicable for plan years beginning on or after
January 1, 2017, for purposes of determining which beneﬁts cannot be subject to
annual and lifetime dollar limits. The current list of the 51 proposed EHB basebenchmark plans selected by the States for
2017 can be found at https://www.cms.
gov/CCIIO/Resources/Data-Resources/ehb.
html. HHS anticipates publishing the ﬁnal
list later this month.
2. Out-of-network beneﬁts
The Departments have been asked
whether the scope of the prohibition on
lifetime and annual dollar limits in PHS

Act section 2711 applies only to innetwork beneﬁts as opposed to both innetwork and out-of-network beneﬁts. The
statute and interim ﬁnal regulations made
no distinction between in-network or outof-network beneﬁts. Therefore, lifetime
and annual dollar limits on essential
health beneﬁts are generally prohibited,
regardless of whether such beneﬁts are
provided on an in-network or out-ofnetwork basis. These ﬁnal regulations incorporate this clariﬁcation.
3. End of Waiver Program
Under PHS Act section 2711, for plan
years beginning before January 1, 2014,
the Departments were given authority to
deﬁne restricted annual dollar limits to
ensure that access to needed services was
made available with minimal impact on
premiums. As noted in the preamble to the
2010 interim ﬁnal regulations, in order to
mitigate the potential for premium increases for all plans and policies, while at
the same time ensuring access to EHB, the
interim ﬁnal regulations adopted a threeyear phased approach for restricted annual
dollar limits, with the dollar limit increasing for each year of the three year period.
Annual dollar limits, including restricted
annual dollar limits, are not allowed for
plan years (in the individual market, policy years) beginning on or after January 1,
2014, except for grandfathered individual
health insurance coverage.
Some previously widely available lowcost coverage was designed with low
maximum beneﬁts and did not meet the
phased in restricted annual dollar limits,
such as stand-alone health reimbursement
arrangements (HRAs)43 and so-called
“mini med” plans. In order to ensure that
individuals with such limited coverage
would not be denied access to needed
services or experience more than a minimal impact on premiums, the interim ﬁnal
regulations also provided for HHS to establish a program under which the re-

See Q10 of Frequently Asked Questions on Essential Health Beneﬁts Bulletin, available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/ehb-faq-508.pdf.

Initially, issuers in the territories were subject to the EHB requirement and also had potential benchmarks to choose from under the EHB regulations. A change in the interpretation of
the statute resulted in issuers in the territories being exempt from the EHB rules. See Letter to Gary R. Francis, Commissioner, Ofﬁce of Lieutenant Governor, Virgin Islands, dated July
16, 2014, available at https://www.cms.gov/CCIIO/Resources/Letters/Downloads/letter-to-Francis.pdf.
43
An HRA is an arrangement that is funded solely by an employer and that reimburses an employee for medical care expenses (as deﬁned under Code section 213(d)) incurred by the
employee, or his spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27, up to a maximum dollar amount for a coverage period. IRS Notice
2002– 45, 2002– 02 CB 93; Revenue Ruling 2002– 41, 2002–2 CB 75. This reimbursement is excludable from the employee’s income. Amounts that remain at the end of the year generally
can be used to reimburse expenses incurred in later years. HRAs generally are considered to be group health plans within the meaning of Code section 9832(a), section 733(a) of ERISA,
and section 2791(a) of the PHS Act and are subject to the rules applicable to group health plans.

December 7, 2015

710

Bulletin No. 2015– 49

stricted annual dollar limit requirements
would be waived if compliance with the
limits would result in a signiﬁcant decrease in access to beneﬁts or a signiﬁcant
increase in premiums.44 However, this
waiver program was only available for the
period during which the statute authorized
restricted annual dollar limits, that is, plan
years (in the individual market, policy
years) beginning before January 1, 2014.
Consequently such waivers are no longer
available and the waiver program rules are
not incorporated in these ﬁnal regulations.
4. HRAs and other account based plans
In general, HRAs and other accountbased group health plans are subject to the
annual dollar limit prohibition under PHS
Act section 2711 (annual dollar limit prohibition)45 and will fail to comply with
this prohibition because these arrangements impose an annual limit on the
amount of expenses the arrangement will
reimburse. However, special rules apply
to certain types of account-based plans
under which the HRA or other accountbased health plan either is not subject to
the annual dollar limit prohibition, or is
considered to comply with the annual
dollar limit prohibition if it is “integrated” with another group health plan
that complies with the annual dollar
limit prohibition.
44

The preamble to the interim ﬁnal regulations noted that the annual dollar limit
prohibition applies differently to certain
account-based plans that are subject to
other rules that limit the beneﬁts available
under those plans.46 In particular, under
the 2010 interim ﬁnal regulations and
these ﬁnal regulations, certain health Flexible Spending Arrangements (health
FSAs)47 are not subject to the PHS Act
section 2711 annual dollar limit prohibition because health FSAs are subject to
speciﬁc limits under section 9005 of the
Affordable Care Act. In addition, as noted
in the preamble to the 2010 interim ﬁnal
regulations, the annual dollar limit prohibition does not apply to Archer Medical
Savings Accounts (Archer MSAs) under
section 220 of the Code and Health Savings Accounts (HSAs) under section 223
of the Code, because both types of plans
are subject to speciﬁc statutory provisions that require that the contributions
be limited.
These ﬁnal regulations contain a clariﬁcation regarding the application of the
annual dollar limit prohibition to health
FSAs. Question and Answer 8 of DOL
Technical Release 2013– 0348 and IRS
Notice 2013–5449 clariﬁed that the annual
dollar limit prohibition applies to a health
FSA that is not offered through a Code
section 125 plan. That is because the exemption for health FSAs from the annual

dollar limit prohibition is intended to apply only to health FSAs that are subject to
the separate annual limitation under Code
section 125(i), and health FSAs that are
not offered through a Code section 125
plan are not subject to that separate statutory limit. The prior guidance provided
that this clariﬁcation was intended to apply beginning September 13, 2013 and the
guidance noted that the Departments intended to amend the annual dollar limit
prohibition regulations to conform to the
Q&A. These ﬁnal regulations include this
amendment.
Other types of account-based plans,
such as HRAs and employer payment
plans,50 are not exempt from the annual
dollar limit prohibition. However, the preamble to the interim ﬁnal regulations and
subsequently issued subregulatory guidance51 interpreting these rules included a
number of rules regarding the application
of the annual dollar limit prohibition to
these types of arrangements. In particular,
this guidance provides that if an HRA is
“integrated” with other group health plan
coverage, and the other group health plan
coverage complies with the requirements
of PHS Act section 2711, the combined
arrangement satisﬁes the requirements
even though the HRA imposes a dollar
limit.52 The basic principles for when an
HRA is considered integrated with other
group health plan coverage have been set

Guidance regarding the annual dollar limit waiver program was issued at https://www.cms.gov/cciio/resources/Regulations-and-Guidance/index.html#Annual Limits.

In accordance with Code section 9831(a)(2) and ERISA section 732(a), the market reforms, including PHS Act section 2711, do not apply to a group health plan that has fewer than two
participants who are current employees on the ﬁrst day of the plan year, and, in accordance with Code section 9831(b), ERISA section 732(b), and PHS Act sections 2722(b) and 2763,
the market reforms, including PHS Act section 2711, also do not apply to a group health plan in relation to its provision of excepted beneﬁts described in Code section 9832(c), ERISA
section 733(c) and PHS Act section 2791(c).
46

See 75 FR 37188, 37190 (June 28, 2010).

In general, a health FSA is a beneﬁt designed to reimburse employees for medical care expenses (as deﬁned in Code section 213(d), other than premiums) incurred by the employee, or
the employee’s spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27. See Employee Beneﬁts—Cafeteria Plans, 72 FR 43938, 43957 (August
6, 2007) (proposed regulations; to be codiﬁed, in part, once ﬁnal, at 26 CFR 1.125-5); Code section 105(b) and 106(c). Contributions to a health FSA offered through a cafeteria plan satisfying
the requirements of Code section 125 do not result in gross income to the employee. Code section 125(a).
48

Technical Release 2013-03, available at www.dol.gov/ebsa/pdf/tr13-03.pdf.

2013– 40 IRB 287.

An employer payment plan is a group health plan under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance
policy, such as a reimbursement arrangement described in Revenue Ruling 61–146, 1961–2 CB 25, or arrangements under which the employer uses its funds to directly pay the premium
for an individual health insurance policy covering the employee.
51
Five items of guidance have been issued on this topic: (1) Affordable Care Act Implementation FAQs Part XI, available at (http://www.dol.gov/ebsa/faqs/faq-aca11.html) or
http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html; (2) IRS Notice 2013-54 and DOL Technical Release 2013-03, issued on September 13,
2013; (3) IRS FAQ on Employer Healthcare Arrangements available at http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements; (4) Affordable Care Act Implementation FAQs Part XXII, available at http://www.dol.gov/ebsa/faqs/faq-aca22.html or http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf;
and (5) IRS Notice 2015–17, issued on February 18, 2015. See also 75 FR 37188 (June 28, 2010). This guidance, much of which is not directly addressed in these ﬁnal regulations, continues
to be in effect.
52

Issues also arise for account-based group health plans under PHS Act section 2713, which requires non-grandfathered group health plans (or health insurance issuers offering group health
insurance plans) to provide certain preventive services without imposing any cost-sharing requirements for these services. The Departments have issued guidance providing that, similar to
the analysis of the annual dollar limit prohibition, an HRA that is integrated with a group health plan will comply with the preventive services requirements if the group health plan with
which the HRA is integrated complies with the preventive services requirements. Also, a group health plan, including an HRA, used to purchase coverage on the individual market is not
integrated with that individual market coverage for purposes of the preventive services requirements and therefore will fail to comply with the preventive services requirements because an
HRA or similar arrangement does not provide preventive services without cost-sharing in all instances. See DOL Technical Release 2013– 03 and IRS Notice 2013–54.

Bulletin No. 2015– 49

711

December 7, 2015

forth in various forms of subregulatory
guidance and have been included in these
ﬁnal regulations.
These ﬁnal regulations clarify the
scope of arrangements, in addition to
HRAs, that can be integrated with other
group health plan coverage by deﬁning
and referring to “account-based plans.”
Account-based plans are employerprovided group health plans that provide
reimbursements of medical expenses
other than individual market policy premiums, with the reimbursement subject to
a maximum ﬁxed dollar amount for a period. Examples of account-based plans include health FSAs and medical reimbursement plans that are not HRAs, in addition
to HRAs. Account-based plans that do not
qualify as excepted beneﬁts53 generally
are subject to the market reforms (except that health FSAs offered through a
Code section 125 plan are not subject to
the annual dollar limit prohibition), including the preventive services requirements under PHS Act section 2713. If
the other group health plan coverage
with which an account-based plan is integrated complies with the requirements
under PHS Act sections 2711 and 2713,
the account-based plan also complies
with those requirements because, in that
case, the combined beneﬁt satisﬁes
those requirements.54
The Departments’ prior guidance regarding when an HRA is considered integrated with another group health plan provides two methods for integration, each of
which has been added to the ﬁnal regulations and extended to other account-based
plans. In addition to various other requirements, each integration method requires
that under the terms of the HRA or other
account-based plan, (1) an employee (or
former employee) must be permitted to
permanently opt out of and waive future
reimbursements from the account-based
plan at least annually, and (2) upon termi-

nation of employment either remaining
funds are forfeited or the employee is allowed to opt out of and waive future reimbursements under the account-based
plan.
Stakeholders have requested clariﬁcation regarding whether for this purpose a
forfeiture of amounts or a waiver of reimbursements under an HRA includes an
otherwise permanent forfeiture or waiver,
if the amounts will be reinstated or the
waiver will be discontinued upon a ﬁxed
date or death. The Departments interpret
the prior guidance to provide, and the ﬁnal
regulations clarify, that forfeiture or
waiver occurs even if the forfeited
amounts or waived reimbursements may
be reinstated upon a ﬁxed date, a participant’s death, or the earlier of the two
events (the reinstatement event). For this
purpose, an HRA is considered forfeited
or waived prior to a reinstatement event
only if the participant’s election to forfeit
or waive is irrevocable, meaning that, beginning on the effective date of the election, the participant and the participant’s
beneﬁciaries have no access to amounts
credited to the HRA until the reinstatement event.55 This means that the HRA
may not be used to reimburse or pay
medical expenses incurred during the
period after the forfeiture or waiver and
prior to reinstatement. An HRA need not
provide for reinstatement of forfeited
amounts or waived reimbursements to
be integrated with a non-HRA group
health plan. The ﬁnal regulations reﬂect
this clariﬁcation, and this clariﬁcation
applies for integration of HRAs as well
as other account-based plans, as deﬁned
in the regulations.
The Departments’ prior guidance regarding integration of an HRA or other
account-based plan with another group
health plan further provides that integration requires, among other requirements,
that the plan sponsor offering the HRA or

other account-based plan also offer to the
employee another group health plan (other
than the HRA or other account-based
plan). On February 18, 2015, Treasury
and IRS issued Notice 2015–17, which, in
Q&A3, provided for integration of a premium reimbursement arrangement for an
employee’s Medicare part B or D premiums for purposes of the annual dollar limit
prohibition and the preventive services requirements under PHS Act section 2713 if
the arrangement meets certain conditions
and the employer offers the employee another group health plan.56 However, Notice 2015–17 provided that the premium
reimbursement arrangement for an employee’s Medicare part B or D premiums
could not be integrated with Medicare
coverage to satisfy the market reforms
because Medicare coverage is not a group
health plan. In response to this prior guidance, stakeholders have indicated that employers with fewer than 20 employees are
unable to meet the integration test set out
in Notice 2015–17 for Medicare part B or
D premium reimbursement arrangements. That is because these employers
that offer group health plan coverage are
not required by the applicable Medicare
secondary payer rules to offer group
health plan coverage to their employees
who are eligible for Medicare coverage,
and some issuers of insurance for group
health plans do not allow these smaller
employers to offer group health plan
coverage to their employees who are
eligible for Medicare coverage. In response to these concerns, these regulations now provide a special rule for employers with fewer than 20 employees
that are not required to offer their group
health plan coverage to employees who
are eligible for Medicare coverage, and
that offer group health plan coverage to
their employees who are not eligible for
Medicare, but not to their employees
who are eligible for Medicare coverage.

53
Health FSAs will be considered to provide only excepted beneﬁts if the employer also makes available group health plan coverage that is not limited to excepted beneﬁts and the health
FSA is structured so that the maximum beneﬁt payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater,
cannot exceed $500 plus the amount of the participant’s salary reduction election). See 26 CFR 54.9831–1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR 146.145(c)(3)(v).
54
See Affordable Care Act Implementation FAQs Part XIX, available at http://www.dol.gov/ebsa/faqs/faq-aca19.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs19.html.
55
During a period in which an HRA has been forfeited or waived prior to a reinstatement event, the participant is considered not covered by the HRA. For a former employee (such as a
retiree), an individual’s right to have a forfeited or waived HRA reinstated upon a reinstatement event will not prevent the individual from receiving the premium tax credit under § 36B
during the period after forfeiture or waiver and prior to reinstatement, if the individual is otherwise eligible for a premium tax credit. See 26 CFR § 1.36B–2(c)(3)(i), proposed §
1.36B–2(c)(3)(iv).
56
Notice 2015–17 provides special rules for integration of Medicare Part B and D premium reimbursement arrangements and TRICARE-related HRAs with other group health plans, along
with various other related pieces of guidance. That guidance continues to apply but is not repeated in these ﬁnal regulations.

December 7, 2015

712

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For these employers, a premium reimbursement arrangement for Medicare
part B or D premiums may be integrated
with Medicare (and deemed to satisfy)
the annual dollar limit prohibition and
the preventive services requirements under PHS Act section 2713 if the employees who are not offered the other group
health plan coverage would be eligible
for that group health plan but for their
eligibility for Medicare. These employers may use either of the non-Medicare
speciﬁc integration tests, as applicable,
for account-based plans for employees
who are not eligible for Medicare.
Although in certain circumstances
HRAs and other account-based plans may
be integrated with another group health
plan to satisfy the annual dollar limit prohibition, these ﬁnal regulations incorporate the general rule set forth in prior
subregulatory guidance clarifying that an
HRA and other account-based plans may
not be integrated with individual market
coverage, and therefore an HRA or other
account-based plan used to reimburse premiums for the individual market coverage
fails to comply with PHS Act section
2711.
These ﬁnal regulations, however, do
not incorporate all of the other subregulatory guidance concerning the application
of the Affordable Care Act to HRAs and
other account-based plans. It has come to
the Departments’ attention that there are a
wide variety of account-based products
being marketed, often with subtle but insubstantial differences, in an attempt to
circumvent the guidance set forth by the
Departments on the application of the
annual dollar limit prohibition and the
preventive services requirements to
account-based plans. The Departments
intend to continue to address these speciﬁc instances of noncompliance. The
subregulatory guidance not speciﬁcally
addressed in these ﬁnal regulations continues to apply and the Departments will
continue to address additional situations
as necessary.
57

D. PHS Act Section 2712, Prohibition
on Rescissions (26 CFR 54.9815–2712,
29 CFR 2590.715–2712, 45 CFR
147.128)
PHS Act section 2712, as added by the
Affordable Care Act, provides that a
group health plan or health insurance issuer offering group or individual health
insurance coverage must not rescind coverage unless a covered individual commits
fraud or makes an intentional misrepresentation of material fact. This standard
applies to all rescissions, whether in the
group or individual insurance market, or
self-insured coverage. These rules also apply regardless of any contestability period
of the plan or issuer. On June 28, 2010,
the Departments issued interim ﬁnal regulations implementing PHS Act section
2712.57 The interim ﬁnal regulations included several clariﬁcations regarding the
standards for rescission, including that the
rules of PHS Act section 2712 apply
whether the coverage is rescinded for an
individual or a group. The Departments
also issued Affordable Care Act Implementation FAQs Part II Q7, which clariﬁed when retroactive terminations in the
‘normal course of business’ would not be
considered rescissions.58 These ﬁnal regulations ﬁnalize the 2010 interim ﬁnal
regulations without substantial change
and incorporate the clariﬁcations issued
thus far in subregulatory guidance.
1. Deﬁnition of rescission
Under the interim ﬁnal regulations and
these ﬁnal regulations, a rescission is a
cancellation or discontinuance of coverage that has retroactive effect. For example, a cancellation that treats an insurance
policy as void from the time of an individual’s or group’s enrollment is a rescission, whether the cancellation is a result of
the issuer subsequently determining that a
valid insurance contract does not exist or
the insurance contract was entered into
despite its noncompliance with applicable
law. As another example, a cancellation
that voids beneﬁts paid up to a year before

the cancellation is also a rescission. However, a cancellation or discontinuance of
coverage is not a rescission if it has only
prospective effect or to the extent it is
attributable to a failure to timely pay required premiums or contributions towards
the cost of coverage. Other provisions of
Federal and State law limit the grounds
for prospective cancellations of coverage, including PHS Act section 2703
regarding guaranteed renewability of
coverage and PHS Act section 2705 regarding non-discrimination in rules for
eligibility (or continued eligibility)
based on health status.
Under PHS Act section 2712, rescission is not prohibited if a covered individual commits fraud or makes an intentional
misrepresentation of material fact. Some
commenters recommended that the Departments deﬁne the term “material fact.”
These ﬁnal regulations decline this suggestion. However, the Departments have
addressed whether providing false or inaccurate information concerning tobacco use is considered a misrepresentation of material fact for this purpose.
HHS published ﬁnal regulations under
PHS Act section 2701 (regarding fair
health insurance premiums) on February
13, 2013.59 In the preamble to those
regulations, HHS stated that, with respect to an individual who is found to
have reported false or inaccurate information about their tobacco use, the individual may be charged the appropriate
premium that should have been paid retroactive to the beginning of the plan
year. However, as stated in the preamble, the “remedy of recoupment renders
any misrepresentation with regard to tobacco use no longer a ‘material’ fact for
purposes of rescission under PHS Act
section 2712 and its implementing regulations,” and therefore, coverage cannot be rescinded on such basis. The Departments may provide further guidance
regarding the deﬁnition of a “material
fact” for purposes of rescission under
PHS Act section 2712 if additional
questions arise.

75 FR 37188 (June 28, 2010).

Affordable Care Act Implementation FAQs Part II, available at http://www.dol.gov/ebsa/faqs/faq-aca2.html or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
59

78 FR 13406, 13414 (February 13, 2013).

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713

December 7, 2015

2. Scope and Application
The statutory prohibition related to rescissions is not limited to rescissions
based on prior medical history, rather it
precludes plans and issuers from rescinding coverage under any circumstances except as provided in the statute and regulations. For example, coverage cannot be
rescinded because an individual makes a
mistake on an insurance application or
enrollment form. An example in both the
interim ﬁnal regulations and in these ﬁnal
regulations clariﬁes that some plan errors
(such as mistakenly covering a part-time
employee for a period of time under a plan
that only covers full-time employees) may
be cancelled prospectively once identiﬁed, but not retroactively rescinded unless there was fraud or intentional misrepresentation of a material fact by the
employee.
The Departments received comments
on the interim ﬁnal regulations stating that
some employers’ human resource departments may reconcile lists of eligible individuals with their plan or issuer via data
feed only once per month, and that routine
enrollment adjustments in the normal
course of business should not be considered a rescission.
In response to these comments, the Departments issued an FAQ concerning rescissions on October 8, 2010.60 The FAQ
stated that if a plan covers only active
employees (subject to the COBRA continuation of coverage provisions) and an employee pays no premiums for coverage
after termination of employment, the Departments do not consider the retroactive
elimination of coverage back to the date
of termination of employment, due to delay in administrative record-keeping, to be
a rescission. Similarly, if a plan does not
cover ex-spouses and the plan is not notiﬁed of a divorce (subject to the COBRA
continuation coverage provisions), and
the full COBRA premium is not paid by
the employee or ex-spouse for coverage,
the Departments do not consider a plan’s
termination of coverage retroactive to the
divorce to be a rescission.61

3. Termination of Coverage Initiated by
Participant, Beneﬁciary, or Enrollee
The Departments have been asked
whether the rescission rules prohibit a
plan or issuer from retroactively terminating coverage at the request of a participant, beneﬁciary, or enrollee. In the Departments’ view, the statutory provision
was enacted by Congress to protect individuals against potential abuses by group
health plans and health insurance issuers;
it was not intended to prevent individuals
from exercising their rights and privileges
under the terms of the plan or coverage in
accordance with applicable State law,
where they are acting voluntarily and
without coercion by the plan or issuer.
Moreover, HHS regulations at 45 CFR
155.430, which govern termination of enrollment in the Exchange, permit enrollees
and the Exchange to initiate a retroactive
termination of enrollment in a QHP
through the Exchange, including instances
where the enrollee has the right to terminate coverage under applicable State law
(such as State “free look” cancellations
laws).62 For these reasons, the Departments clarify in these ﬁnal regulations that
a retroactive cancellation or discontinuance of coverage is not a rescission if (1)
it is initiated by the individual (or by the
individual’s authorized representative)
and the employer, sponsor, plan, or issuer
does not, directly or indirectly, take action
to inﬂuence the individual’s decision to
cancel or discontinue coverage retroactively, or otherwise take any adverse action or retaliate against, interfere with,
coerce, intimidate, or threaten the individual; or (2) it is initiated by the Exchange
pursuant to 45 CFR 155.430 (other than
under paragraph (b)(2)(iii)). The Departments may issue additional subregulatory
guidance if abusive situations or questions
arise.
4. Interaction with Internal Appeals and
External Review
Commenters requested that these ﬁnal
regulations provide that individuals have

the right to appeal a rescission to an independent third party. PHS Act section 2719
and its implementing regulations address
internal claims and appeals and external
review of adverse beneﬁt determinations.
Under the Department of Labor’s claims
procedure regulation at 29 CFR
2560.503–1 (the DOL claims procedure
regulation), adverse beneﬁt determinations eligible for internal claims and appeals processes generally include denial,
reduction, termination of, or a failure to
provide or make a payment (in whole or in
part) for a beneﬁt, including a denial, reduction, termination, or failure to make a
payment based on the imposition of a preexisting condition exclusion, a source of
injury exclusion, or other limitation on
covered beneﬁts. The Departments’ regulations under PHS Act section 2719
broaden the deﬁnition of “adverse beneﬁt
determination” to include rescissions of
coverage. Therefore, rescissions of coverage are also eligible for internal claims
and appeals and external review for nongrandfathered health plans, whether or not
the rescission has an adverse effect on any
particular beneﬁt at the time of an appeal.
The regulations under PHS Act section
2719 also contain provisions requiring
coverage to remain effective pending the
outcome of an internal appeal.
5. Interaction with COBRA Continuation
Coverage
COBRA provides for a temporary continuation of group health coverage that
would otherwise be lost due to certain life
events. COBRA requires group health
plans to offer continuation coverage to
covered employees, former employees,
spouses, former spouses, and dependent
children when group health coverage
would be terminated due to the following:
the death of a covered employee; termination or reduction in the hours of a covered employee’s employment for reasons
other than gross misconduct; a covered
employee’s becoming entitled to Medicare; divorce or legal separation of a covered employee and spouse; and a child’s

60
Affordable Care Act Implementation FAQs Part II, Q7 at http://www.dol.gov/ebsa/pdf/faq-aca2.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs2.html.
61

In such situations, COBRA may require coverage to be offered for up to 36 months if the COBRA applicable premium is paid by the qualiﬁed beneﬁciary.

State “free look” cancellation laws are laws permitting an individual to cancel coverage within a certain time period, even following the effectuation of the enrollment.

December 7, 2015

714

Bulletin No. 2015– 49

loss of dependent status (and therefore
coverage) under the plan.
COBRA sets forth rules for how and
when continuation coverage must be offered and provided, how employees and
their families may elect continuation coverage, and what circumstances justify terminating continuation coverage. COBRA
allows plans to continue coverage during
an initial 60-day election period and allows plans to continue providing coverage
during the 30-day grace periods for each
premium payment. If a qualiﬁed beneﬁciary fails to pay for coverage during the
initial election period, or fails to pay in
full before the end of a grace period, continuation coverage may be terminated retroactively under COBRA.
Several commenters sought clariﬁcation about the interaction of the COBRA
continuation provisions with the prohibition against rescissions. The Departments
clarify that the regulatory exception to the
prohibition on rescission for failure to
timely pay required premiums or contributions toward the cost of coverage also
includes failure to timely pay required
premiums towards the cost of COBRA
continuation coverage. Accordingly, if a
group health plan requires the payment of
a COBRA premium to continue coverage
after a qualifying event and that premium
is not paid by the applicable deadline, the
prohibition on rescission is not violated if
the plan retroactively terminates coverage
due to a failure to elect and pay for COBRA continuation coverage.
6. Notice of Rescission
Consistent with PHS Act section 2712,
under the interim ﬁnal regulations and
these ﬁnal regulations, a plan or issuer
must provide at least 30 calendar days
advance written notice to each participant
(in the individual market, primary subscriber) who would be affected before
coverage may be rescinded (where per-

mitted). This provides individuals time to
appeal the decision or enroll into new
coverage. This notice is required regardless of whether it is a rescission 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.
Some commenters recommended the
30-day notice of rescission be coordinated
with the rules for providing notices of
adverse beneﬁt determinations under the
Departments’ internal appeals and external review regulations under PHS Act section 2719. Other commenters made speciﬁc suggestions regarding the content of
the notice, such as that the notice indicate
the basis for the rescission and include an
explanation of the remedies available to
the individual.
Under PHS Act section 2719, the interim ﬁnal regulations, and these ﬁnal regulations, a plan or issuer must provide
notice to individuals, in a culturally and
linguistically appropriate manner, of the
reason or reasons for an adverse beneﬁt
determination or ﬁnal internal adverse
beneﬁt determination (including a rescission of coverage) and a description of
available internal appeals and external review processes, including information on
how to initiate an appeal. The Departments encourage plans and issuers to coordinate notices related to rescissions and
appeal procedures to the extent possible.
E. PHS Act section 2714, Coverage of
Dependents to Age 26 (26 CFR
54.9815–2714, 29 CFR 2590.715–2714,
45 CFR 147.120)
PHS Act section 2714, as added by the
Affordable Care Act, provides that a
group health plan or a health insurance
issuer offering group or individual health
insurance coverage that makes available
dependent coverage63 of children must

make such coverage available for children
until attainment of 26 years of age.64 On
May 13, 2010, the Departments issued
interim ﬁnal regulations implementing
PHS Act section 2714 and requesting
comment.65 After issuance of the 2010
interim ﬁnal regulations, the Departments
released Affordable Care Act Implementation FAQs Parts I and V to address
various requests for clariﬁcations under
PHS Act section 2714.66 These ﬁnal regulations adopt the 2010 interim ﬁnal regulations without substantial change and
incorporate the clariﬁcations issued thus
far in subregulatory guidance.
1. Restrictions on Plan Deﬁnition of
Dependent
a. Deﬁnition of Dependent – Based on
Relationship Between Child and
Participant
PHS Act section 2714 provides that the
“Secretary shall promulgate regulations to
deﬁne the dependents to which coverage
shall be made available’’ under the dependent coverage provision. The 2010 interim
ﬁnal regulations provided that with respect to a child who has not attained age
26, a plan or issuer may not deﬁne dependent for purposes of eligibility for dependent coverage of children other than in
terms of a relationship between a child
and the participant. For example, a plan or
issuer may not deny or restrict coverage
for a child who has not attained age 26
based on the child’s ﬁnancial dependency
(upon the participant or any other person),
residency with the participant or with any
other person, student status, employment,
or any combination of those factors. Additional examples of factors that cannot be
used for deﬁning dependent for purposes
of eligibility (or continued eligibility) in-

63
For purposes of these ﬁnal regulations, dependent coverage means coverage of any individual under the terms of a group health plan, or group or individual health insurance coverage,
because of the relationship to a participant (in the individual market, primary subscriber).
64
Under section 1004(d) of the Reconciliation Act and IRS Notice 2010 –38, 2010-20 IRB 682, released on April 27, 2010, employers may exclude from the employee’s income the value
of any employer-provided health coverage for an employee’s child for the entire taxable year the child turns 26 if the coverage continues until the end of that taxable year. This means that
if a child turns 26 in March, but stays on the plan past December 31st (the end of most individual’s taxable year), the health beneﬁts up to December 31st can be excluded from the employee’s
income.
65

See 75 FR 27122 (May 13, 2010).

Affordable Care Act Implementation FAQs Part I, Q&A-14, available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs.html and Affordable Care Act Implementation FAQs Part 5 and Mental Health Parity Implementation, Q&A 5, available at http://www.dol.gov/ebsa/faqs/faqaca5.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.http://www.dol.gov/ebsa/faqs/faq-aca5.html.

Bulletin No. 2015– 49

715

December 7, 2015

clude eligibility for other coverage67 and
marital status of a dependent child.68 Because the statute does not distinguish between coverage for minor children and
coverage for adult children under age 26,
these factors also may not be used to
determine eligibility for dependent coverage of minor children.
It has come to the Departments’ attention that certain plans that utilize an HMO
design impose restrictions on eligibility
that require participants and beneﬁciaries
to work, live or reside in the HMO service
area. While these provisions on their face
appear to be generally applicable, the
overwhelming impact of such provisions
affects dependent children, who would
otherwise be required to be covered pursuant to PHS Act section 2714. For example, a plan that utilizes an HMO design
that requires participants and beneﬁciaries
to work, live or reside in the service area
would not permit a dependent child covered under the parent’s plan to continue to
be eligible for the plan if the dependent
child moves out of the HMO’s service
area to attend college. Under the same
plan, however, most employees and their
spouses would work, live or reside in the
service area.
These ﬁnal regulations provide that, to
the extent such restrictions are applicable
to dependent children up to age 26, eligibility restrictions under a plan or coverage
that require individuals to work, live or
reside in a service area violate PHS Act
section 2714. (This rule does not relate to
the extent to which a plan must cover
participants or provide services outside
of its service area). While eligibility
provisions of general applicability are
usually outside the scope of PHS Act
section 2714, due to the disproportion-

ate effect on dependent children, these
ﬁnal regulations do not permit eligibility
provisions under a plan or coverage
based on service area, to the extent such
restrictions are applicable to dependent
children up to age 26, even if such restrictions are intended to apply generally to all participants and beneﬁciaries
under the plan.
b. Deﬁnition of Child
PHS Act section 2714 does not require
a plan to provide dependent coverage of
children but instead provides that if a plan
does provide dependent coverage of children it must continue to make such coverage available until the child turns age
26.69 Neither PHS Act section 2714 nor
the interim ﬁnal regulations deﬁned the
term child for purpose of the dependent
coverage provision.70
In response to comments requesting
guidance on the deﬁnition of the term
child and questions from stakeholders, the
Departments released an FAQ71 stating
that a group health plan or issuer will not
fail to satisfy the dependent coverage provision merely because it conditions health
coverage on support, residency, or other
dependency factors for individuals under
age 26 who are not described in section
152(f)(1) of the Code. For an individual
not described in section 152(f)(1), such as
a grandchild or niece, a plan may impose
additional conditions on eligibility for
health coverage, such as a condition that
the individual be a dependent for income
tax purposes. The FAQ also provided that
a plan or issuer does not fail to satisfy the
requirements of PHS Act section 2714 or
its implementing regulations because the
plan limits health coverage for children

until the child turns 26 to only those children who are described in section
152(f)(1) of the Code. These ﬁnal regulations incorporate the clariﬁcations provided in the FAQ.
Some commenters requested that the
Departments interpret PHS Act section
2714 to apply to grandchildren. The statute and the 2010 interim ﬁnal regulations
provided that nothing in PHS Act section
2714 requires a plan or issuer to make
available coverage for a child of a child
receiving dependent coverage. Because
the statute speciﬁcally provides that
plans and issuers are not required to
make coverage available to grandchildren, these ﬁnal regulations do not adopt
this suggestion.
2. Uniformity Irrespective of Age
The 2010 interim ﬁnal regulations provided that the terms of the plan or health
insurance coverage providing dependent
coverage of children cannot vary based on
the age of a child, except for children age
26 or older. The 2010 interim ﬁnal regulations contained examples illustrating
that age-based surcharges violate the uniformity requirement but that cost of coverage increases for tiers with more covered individuals do not violate this
requirement because such an increase applies without regard to the age of any
child. The 2010 interim ﬁnal regulations
also contained an example demonstrating
that a plan that limits the beneﬁt packages
offered based on the age of dependent
children violates the uniformity requirement. These ﬁnal regulations retain these
examples.

67
See section II.H.1. of this preamble, entitled “Special Rule Relating to Dependent Coverage of Children to Age 26 for Grandfathered Group Health Plans,” for discussion of an out-of-date
special rule for grandfathered plans regarding adult children eligible for other coverage.
68
The Affordable Care Act, as originally enacted, required plans and issuers to make dependent coverage available only to a child ‘‘who is not married.’’ This language was struck by section
2301(b) of the Reconciliation Act. Accordingly, under the interim ﬁnal regulations and these ﬁnal regulations, plans and issuers may not limit dependent coverage of children based on
whether a child is married (however, a plan or issuer is not required under the ﬁnal regulations to cover the spouse of an eligible child).
69
In general, under section 4980H of the Code, certain employers (applicable large employers) must either offer health coverage to their full-time employees (and their dependents) or
potentially pay an assessable payment if at least one full-time employee receives a premium tax credit for purchasing individual coverage on an Affordable Insurance Exchange. For purposes
of section 4980H, the term dependent means “a child (as deﬁned in section 152(f)(1) of the Code but excluding a stepson, stepdaughter or an eligible foster child (and excluding any individual
who is excluded from the deﬁnition of dependent under section 152 of the Code by operation of section 152(b)(3) of the Code)) of an employee who has not attained age 26. A child attains
age 26 on the 26th anniversary of the date the child was born. A child is a dependent for purposes of section 4980H for the entire calendar month during which he or she attains age 26.
Absent knowledge to the contrary, applicable large employer members may rely on an employee’s representation about that employee’s children and the ages of those children. The term
dependent does not include the spouse of an employee.” See 26 CFR 54.4980H–1(a)(12). Under section 152(f)(1) of the Code a child means an individual who is (i) a son, daughter, stepson,
or stepdaughter of the taxpayer (including a legally adopted child or an individual lawfully placed for adoption with the taxpayer) or (ii) an eligible foster child of the taxpayer.
70

Under section 1004(d) of the Reconciliation Act and IRS Notice 2010 –38, child means child as deﬁned in section 152(f)(1) of the Code.

Affordable Care Act Implementation FAQs Part I, Q&A 14 (released on September 20, 2010), available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/
Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html.

December 7, 2015

716

Bulletin No. 2015– 49

Following the 2010 interim ﬁnal regulations, the Departments issued an FAQ72
that addressed an arrangement under
which a group health plan charges a copayment for physician visits that do not
constitute preventive services to individuals age 19 and over, including employees,
spouses, and dependent children, but
waives the copayment for children under
age 19. The FAQ clariﬁes that the Departments do not consider such an arrangement to violate the dependent coverage
provision. This arrangement is permissible under the dependent coverage provision because, while the dependent coverage provision prohibits distinctions based
upon age in dependent coverage of children under age 26, it does not prohibit
distinctions based upon age that apply to
all coverage under the plan, including
coverage for employees and spouses as
well as dependent children. In this situation, the copayments charged to dependent children are the same as those
charged to employees and spouses. (However, with respect to individual and small
group plans required to provide essential
health beneﬁts, distinctions based on age
may be considered discriminatory under
HHS regulations regarding essential
health beneﬁts.73) The ﬁnal regulations
reﬂect the clariﬁcation contained in this
FAQ.
F. PHS Act Section 2719, Internal
Claims and Appeals and External
Review (26 CFR 54.9815–2719, 29 CFR
2590.715–2719, 45 CFR 147.136)
PHS Act section 2719, as added by the
Affordable Care Act, applies to group
health plans that are not grandfathered
health plans and health insurance issuers
offering non-grandfathered coverage in
the group and individual markets, and sets
forth standards for plans and issuers regarding both internal claims and appeals
and external review. With respect to internal claims and appeals processes for
group health plans and health insurance
issuers offering group health insurance
coverage, PHS Act section 2719 provides
that a non-grandfathered group health

plan or health insurance issuer offering
non-grandfathered group coverage must
initially incorporate the internal claims
and appeals processes set forth in regulations promulgated by the Department of
Labor (DOL) at 29 CFR 2560.503–1 (the
DOL claims procedure regulation) and
update such processes in accordance with
standards established by the Secretary of
Labor. Similarly, with respect to internal
claims and appeals processes for individual health insurance coverage, issuers
must initially incorporate the internal
claims and appeals processes set forth in
applicable State law and update such processes in accordance with standards established by the Secretary of HHS. With respect to external review, PHS Act section
2719 provides for either a State external
review process or a Federal external review process.
The following list identiﬁes certain
regulations and subregulatory guidance
that the Departments have issued to implement these requirements:
• Interim ﬁnal regulations on July 23,
2010, at 75 FR 43329, implementing
the internal claims and appeals and
external review process requirements
of PHS Act section 2719;
• Technical Release 2010 – 01, on August 23, 2010, setting forth interim
procedures for Federal External Review;
• Technical Guidance, on August 26,
2010 , setting forth interim procedures
for Federal External Review for health
insurance issuers in the group and individual markets under the Patient
Protection and Affordable Care Act;
• Affordable Care Act Implementation
FAQs part I, on September 20, 2010,
providing guidance on outstanding
questions regarding the internal claims
and appeals and external review process requirements of PHS Act section
2719;
• Technical Release 2010 – 02, on September 20, 2010, establishing an enforcement grace period with respect to
some of the internal claims and appeals standards set forth in the interim
ﬁnal regulations;

• Technical Release 2011 – 01, on
March 18, 2011, extending the enforcement grace period set forth in
Technical Release 2010 – 02;
• Technical Release 2011 – 02, on June
22, 2011, setting forth interim standards for a State-administered external
review process authorized under section 2719(b)(2) of the PHS Act and
paragraph (d) of the interim ﬁnal regulations;
• Amendments to the interim ﬁnal regulations on June 24, 2011, at 76 FR
37207, with respect to the internal
claims and appeals and external review provisions of PHS Act section
2719 in response to comments received regarding the interim ﬁnal regulations; and
• Technical Release 2013 – 01, on
March 15, 2013, extending the interim
standards for a State-administered external review process authorized under
section 2719(b)(2) of the PHS Act and
paragraph (d) of the interim ﬁnal regulations set forth in Technical Release
2011 – 02.
After consideration of the comments
and feedback received from stakeholders,
the Departments are publishing these ﬁnal
regulations. These ﬁnal regulations adopt
the interim ﬁnal regulations, as previously
amended, without substantial change.
These ﬁnal regulations also codify some
of the enforcement safe harbors, transition
relief, and clariﬁcations set forth through
subregulatory guidance. Contemporaneous with the issuance of these ﬁnal regulations, the Department of Labor is issuing
a proposed regulation to amend the DOL
claims procedure regulations under 29
CFR 2560.503–1, as applied to plans providing disability beneﬁts. The amendment
would revise and strengthen the current
DOL claims procedure regulations regarding claims and appeals applicable to plans
providing disability beneﬁts primarily by
adopting the protections and standards for
internal claims and appeals applicable to
group health plans under PHS Act section
2719 and these ﬁnal regulations.

Affordable Care Act Implementation Part V and Mental Health Parity Implementation FAQs, Q&A 5 (released on December 22, 2010), available at http://www.dol.gov/ebsa/faqs/faqaca5.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.

See 45 CFR 156.125.

Bulletin No. 2015– 49

717

December 7, 2015

1. Internal Claims and Appeals
In addition to the requirement in PHS
Act section 2719(a) that plans and issuers
must initially incorporate the internal
claims and appeals processes set forth in
the DOL claims procedure regulation, the
interim ﬁnal regulations, as amended, provide further standards for compliance with
the internal claims and appeals requirements of PHS Act 2719.74 Speciﬁcally,
under these requirements, in addition to
complying with the internal claims and
appeals processes set forth in the DOL
claims procedure regulation, plans and issuers are required to comply with the following standards: (1) The scope of adverse beneﬁt determinations eligible for
internal claims and appeals includes a rescission of coverage (whether or not the
rescission has an adverse effect on any
particular beneﬁt at the time); (2) A plan
or issuer must notify a claimant of a beneﬁt determination (whether adverse or
not) with respect to a claim involving urgent care as soon as possible, taking into
account the medical exigencies, but not
later than 72 hours after the receipt of the
claim by the plan or issuer; (3) Clariﬁcations with respect to full and fair review,
such that plans and issuers are clearly
required to provide the claimant (free of
charge) with new or additional evidence
considered, relied upon, or generated by
(or at the direction of) the plan or issuer in
connection with the claim, as well as any
new or additional rationale for a denial at
the internal appeals stage, and a reasonable opportunity for the claimant to respond to such new evidence or rationale;
(4) Clariﬁcations regarding conﬂicts of interest, such that decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect
to an individual, such as a claims adjudicator or medical expert, must not be based
upon the likelihood that the individual
will support the denial of beneﬁts; (5)
Notices must be provided in a culturally
and linguistically appropriate manner, as
required by the statute, and as set forth in
paragraph (e) of the interim ﬁnal regulations, as amended; (6) Notices to claimants must provide additional content, in-

cluding that any notice of adverse beneﬁt
determination or ﬁnal internal adverse
beneﬁt determination must include information sufﬁcient to identify the claim involved, including the date of the service,
the health care provider, the claim amount
(if applicable), and a statement describing
the availability, upon request, of the diagnosis code and its corresponding meaning,
and the treatment code and its corresponding meaning; and (7) With the exception
of de minimis violations under speciﬁed
circumstances, if a plan or issuer fails to
adhere to all the requirements of the interim ﬁnal regulations, as amended, the
claimant is deemed to have exhausted the
plan’s or issuer’s internal claims and appeals process, and the claimant may initiate any available external review process
or remedies available under ERISA or under State law.
To address certain relevant differences
in the group and individual markets the
interim ﬁnal regulations, as amended, provided that health insurance issuers offering individual coverage must comply with
three additional requirements for internal
claims and appeals processes. First, initial
eligibility determinations in the individual
market must be included within the scope
of claims eligible for internal appeals.
Second, health insurance issuers offering
individual coverage are only permitted to
have one level of internal appeal. Third,
health insurance issuers offering individual coverage must maintain records of all
claims and notices associated with the internal claims and appeals process for six
years. The issuer must make such records
available for examination by the claimant
or State, or Federal oversight agency upon
request.
These ﬁnal regulations generally incorporate the standards of the interim ﬁnal
regulations, as amended, and the Departments’ associated guidance, without major change.
a. Full and fair review
The interim ﬁnal regulations provided
that plans and issuers must provide the
claimant (free of charge) with new or additional evidence considered, relied upon,

or generated by (or at the direction of) the
plan or issuer in connection with the
claim, as well as any new or additional
rationale as soon as possible and sufﬁciently in advance of the date on which
the notice of the ﬁnal adverse beneﬁt determination is required to be provided under the DOL claims procedure regulations. Since the issuance of the interim
ﬁnal regulations and subsequent subregulatory guidance, stakeholders have requested additional clariﬁcation regarding
how to provide a full and fair review in
accordance with the requirements set forth
in the regulations.
Commenters requested additional
guidance related to the timing and amount
of information required to be provided in
order to satisfy this requirement. Speciﬁcally, individuals asked whether such information actually must be provided automatically to participants and whether or
not it would be sufﬁcient to send participants a notice informing them of the availability of new or additional evidence or
rationale. The Departments retain the requirement that plans and issuers provide
the new or additional evidence or rationale automatically. In the Departments’
view, fundamental fairness requires that
participants and beneﬁciaries have an opportunity to rebut or respond to any new
or additional evidence upon which a plan
or issuer may rely. Therefore, plans and
issuers that wish to rely on any new or
additional evidence or rationale in making
a beneﬁt determination must send such
new or additional evidence or rationale to
participants as soon as it becomes available to the plan or issuer.
In order to comply with this requirement, a plan or issuer must send the new
or additional evidence or rationale to the
participant. Merely sending a notice informing participants of the availability of
such information fails to satisfy this requirement. To address the narrow circumstance raised by some comments that the
new or additional information could be
ﬁrst received so late that it would be impossible to provide it, these ﬁnal regulations provide that if the new or additional
evidence is received so late that it would

74
The statute requires the Secretary of Health and Human Services to set forth processes for internal claims and appeals in the individual market. Under the interim ﬁnal regulations, the
Secretary of Health and Human Services has determined that a health insurance issuer offering individual health insurance coverage must generally comply with all the requirements for
the internal claims and appeals process that apply to group health coverage. Also, see 45 CFR 147.136 for additional requirements for coverage in the individual market.

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Bulletin No. 2015– 49

be impossible to provide it to the claimant
in time for the claimant to have a reasonable opportunity to respond, the period for
providing a notice of ﬁnal internal adverse
beneﬁt determination is tolled until such
time as the claimant has a reasonable opportunity to respond. After the claimant
responds, or has a reasonable opportunity
to respond but fails to do so, the plan or
issuer must notify the claimant of the beneﬁt determination as soon as a plan or
issuer acting in a reasonable and prompt
fashion can provide the notice, taking into
account the medical exigencies.
2. Culturally and linguistically
appropriate standard (CLAS)
PHS Act section 2719 requires group
health plans and health insurance issuers
to provide relevant notices in a culturally
and linguistically appropriate manner.
The interim ﬁnal regulations, as amended,
set forth a requirement to provide notices
in a non-English language if at least a
speciﬁed percentage of residents in a
county are literate only in the same nonEnglish language. Speciﬁcally, with respect to group health plans and health
insurance issuers offering group or individual health insurance coverage, the interim ﬁnal regulations established that the
threshold percentage of people who are
literate only in the same non-English language is set at ten percent or more of the
population residing in the claimant’s
county, as determined in guidance based
on American Community Survey data
published by the United States Census
Bureau. Furthermore, the interim ﬁnal
regulations, as amended, required that
each notice sent by a plan or issuer to an
address in a county that meets this threshold include a one-sentence statement in
the relevant non-English language about
the availability of language services. In
addition, under the interim ﬁnal regulations, as amended, plans and issuers must
provide a customer assistance process
(such as a telephone hotline) with oral
language services in the non-English language and provide written notices in the
non-English language upon request.

In response to the culturally and linguistically appropriate standards (CLAS)
set forth in the amendments to the interim
ﬁnal regulations described in the prior
paragraph, the Departments received
many comments from various stakeholders. Some commenters requested that the
Departments incorporate the prior proposed CLAS (rather than the amended
CLAS) into these ﬁnal regulations, citing
that the prior standard was less costly for
plans and issuers than was stated in the
proposed regulations. Other commenters
requested that the threshold percentage
that triggers the CLAS requirements be
reduced to a lower percentage to capture a
greater number of counties. Other stakeholders supported the CLAS requirements
as set forth in the amendments to the
interim ﬁnal regulations. Stakeholders
that support the amended CLAS reiterated
prior comments that the Departments received that opposed the “tagging and
tracking” requirement.75
In light of all the comments received,
these ﬁnal regulations retain the CLAS
requirements as set forth in the amendment to the interim ﬁnal regulations. The
Departments believe that the CLAS requirements appropriately balance the objective of protecting consumers by providing understandable notices to individuals
who speak primary languages other than
English with the goal of imposing reasonable language access requirements on
plans and issuers. Furthermore, the Departments note that nothing in these regulations should be construed as limiting
an individual’s rights under Federal or
State civil rights statutes, such as section
1557 of the Affordable Care Act and Title
VI of the Civil Rights Act of 1964 (Title
VI) which prohibits covered entities, including issuers participating in Medicare
Advantage, from discriminating on the basis of race, color, or national origin. To
ensure non-discrimination on the basis of
national origin under Title VI, recipients
are required to take reasonable steps to
ensure meaningful access to their programs and activities by limited English
proﬁcient persons. (For more information,
see, “Guidance to Federal Financial Assistance Recipients Regarding Title VI

Prohibition Against National Origin Discrimination Affecting Limited English
Proﬁcient Persons,” available at http://
www.hhs.gov/ocr/civilrights/resources/
laws/revisedlep.html.)
3. Extension of the Transition Period for
State External Review Processes
PHS Act section 2719(b) requires that
a non-grandfathered group health plan
that is not a self-insured plan that is not
subject to State insurance regulations and
a health insurance issuer offering nongrandfathered group or individual health
insurance coverage comply with an applicable State external review process if that
process includes, at a minimum, the consumer protections set forth in the Uniform
Health Carrier External Review Model
Act issued by the National Association of
Insurance Commissioners (the NAIC Uniform Model Act). Paragraph (c)(2) of the
2010 interim ﬁnal regulations under PHS
Act section 2719, as amended, sets forth
the minimum consumer protection standards that a State external review process
must include to qualify as an applicable
State external review process under PHS
Act section 2719(b)(1) (NAIC-parallel external review process).
Under PHS Act section 2719(b)(2), if a
State’s external review process does not
meet the minimum consumer protection
standards set forth in the NAIC Uniform
Model Act (or if a plan is self-insured and
not subject to State insurance regulation),
group health plans and health insurance
issuers in the group and individual markets in that State are required to implement an effective external review process
that meets minimum standards established
by the Secretary of HHS through guidance. These standards must be similar to
the standards established under PHS Act
section 2719(b)(1) and must meet the requirements set forth in paragraph (d) of
the 2010 interim ﬁnal regulations, as
amended.
In June 2011, the Departments amended
the July 2010 interim ﬁnal regulations and
announced that plans and issuers could continue to participate in a State external review
process that met Federal standards that were

75
Under the interim ﬁnal regulations, the CLAS standard included a “tagging and tracking requirement” which required plans and issuers, to the extent individuals request a document in
a non-English language, to “tag” and “track”’ such request so that any future notices would be provided automatically in the non-English language.

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December 7, 2015

NAIC-similar for a limited time (the NAICsimilar external review process), in anticipation that such an allowance would reduce
market disruption during a transition period.
Contemporaneous with the June 2011
amendment, the Departments issued guidance which, among other things, established
the NAIC-similar external review process.
The Departments recognize that many
States have done considerable work to
bring their external review laws and processes into compliance with the NAIC
Uniform Model Act and, because of those
efforts, the Departments have extended
the transition periods to allow States more
time to meet the NAIC-parallel external
review process standards. States continue
to make changes to their laws through
what have often proven to be complex and
time consuming processes, often involving legislative changes; and it is apparent
that more time is needed for some States
to achieve NAIC-parallel external review
processes. Therefore, the Departments are
extending the NAIC-similar external review process transition period so that the
last day of the transition period is December 31, 2017. Through December 31,
2017, an applicable State external review
process applicable to a health insurance
issuer or group health plan may be considered to meet the minimum standards of
paragraph (c)(2), if it meets the temporary
standards established by the Secretary in
guidance for a process similar to the
NAIC Uniform Model Act. During this
transition period, the NAIC-similar external review process will continue to apply76 for non-grandfathered group health
plans and issuers of non-grandfathered
group or individual coverage in the
State.77 This modiﬁcation seeks to minimize cost and confusion for participants
and enrollees, issuers, and plans alike.
Furthermore, the extension will provide
States that are currently in the process of
making changes to external review laws
time to implement NAIC-parallel external
review processes. The Departments will
continue to work with health insurance
issuers, States, and other stakeholders to
assist them in coming into compliance

with the law. Once this transition period
has ended, plans and issuers in a State that
has not implemented the NAIC-parallel
external review process will be required to
comply with a Federal external review
process.
4. Federal External Review
PHS Act section 2719(b)(2) provides
that plans and issuers in States without an
external review process that meets the requirements of PHS Act section 2719(b)(1)
or that are self-insured plans not subject to
State insurance regulation shall implement an effective external review process
that meets minimum standards established
by the Secretary of HHS through guidance
and that is similar to a State external review process described in PHS Act section 2719(b)(1). The interim ﬁnal regulations reiterated this statutory requirement,
and also provided additional standards, including that the Federal external review
process, like the State external review process, will provide for expedited external
review and additional consumer protections with respect to external review for
claims involving experimental or investigational treatment. The interim ﬁnal regulations also set forth the scope of claims
eligible for review under the Federal external review process. The interim ﬁnal
regulations also established the procedural
standards that apply to claimants, plans,
and issuers under this Federal external
review process, as well as the substantive
standards under this process. These ﬁnal
regulations incorporate both the procedural and substantive standards established in the interim ﬁnal regulations and
subsequent subregulatory guidance without substantial change and with minor
clariﬁcations.
a. Scope of Federal External Review
Process
The 2010 interim ﬁnal regulations set
forth the original scope of claims eligible
for external review under the Federal external review process. Speciﬁcally, any

adverse beneﬁt determination (including
ﬁnal internal adverse beneﬁt determination) could be reviewed unless it related to
a participant’s or beneﬁciary’s failure to
meet the requirements for eligibility under
the terms of a group health plan (for example, worker classiﬁcation and similar
issues were not within the scope of the
Federal external review process). After
considering comments received in response to the 2010 interim ﬁnal regulations, the Departments suspended the
original rule and temporarily narrowed its
scope. The amended scope limited the
Federal external review process to claims
that involve (1) medical judgment (including, but not limited to, those based on the
plan’s or issuer’s requirements for medical necessity, appropriateness, health care
setting, level of care, or effectiveness of a
covered beneﬁt, or its determination that a
treatment is experimental or investigational), as determined by the external reviewer; and (2) a rescission of coverage
(whether or not the rescission has any
effect on any particular beneﬁt at the
time). The amendments also provided two
examples of claims involving medical
judgment.
The Departments received mixed comments in response to the revised scope of
Federal external review in the 2011
amendment to the July 2010 interim ﬁnal
regulations. Generally, comments supported narrowing the scope to decisions
based on medical judgment and suggested
permanently adopting the standards in the
2011 amendment. However, there were
also commenters that objected to limiting
the scope and favored the original scope
as stated in the July 2010 interim ﬁnal
regulations. Some of these commenters
stated that the description of medical
judgment was ambiguous and that it was
unclear how to determine whether a claim
involved “medical judgment.” Other commenters disagreed with the description of
medical judgment, ﬁnding either the explanation was too vague or that certain
information in the examples did not fall
within what was normally considered
medical judgment.

76
If a State enacts an NAIC-parallel law prior to January 1, 2018, coverage subject to that State law will be required to comply with the provisions of that State law, in accordance with
ERISA section 731 and PHS Act section 2719 and 2724.
77
See Technical Release 2011– 02, Guidance on External Review for Group Health Plans and Health Insurance Issuers Offering Group and Individual Health Coverage, and Guidance for
States on State External Review Processes, June 22, 2011. The temporary standards were extended in March 15, 2013 in Technical Release 2013-01, Extension of the Transition Period for
the Temporary NAIC-Similar State External Review Process under the Affordable Care Act.

December 7, 2015

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Additionally, the Departments received
comments requesting more clarity around
the treatment of coding issues under the
amended scope of Federal external review. The Departments recognize that
there may be instances when a patient
may have a procedure performed that is
similar to another and a coding issue impacts whether coverage is provided. For
example, a patient may need a stoma revision, and recent signiﬁcant weight loss
necessitates a procedure to remove the
patient’s excess skin and tissue prior to
addressing the stoma. However, the skin
removal procedure may be coded as a
cosmetic surgery, such as an abdominoplasty or “tummy tuck”, instead of as a
panniculectomy, and is therefore not covered. In this case both procedures involve
the removal of skin from the abdomen, but
one procedure is an excluded cosmetic
surgery while the other is covered so long
as certain medical criteria are met. This
dispute would likely be resolved via an
internal appeal, but in the event that the
initial decision to deny coverage was afﬁrmed on an internal appeal, the claimant
could have the claim reviewed in a Federal external review process. Medical
judgment is necessary to determine
whether the correct code was used in the
patient’s case. To the extent that a coding
error such as this one involves medical
judgment, the claim is within the scope of
Federal external review under the July
2010 interim ﬁnal regulations, as
amended.
After consideration of comments, these
ﬁnal regulations make permanent the
scope for Federal external review as set
out in the 2011 amendments to the July
2010 interim ﬁnal regulations, to include
only an adverse beneﬁt determination that
involves medical judgment as determined
by the external reviewer, or a rescission of
coverage. The interim ﬁnal regulations included a non-exhaustive list of adverse
beneﬁt determinations that involve medical judgment. The ﬁnal regulations add
two items to the list of adverse beneﬁt
determinations that involve medical judg78

ment: (1) a plan’s or issuer’s determination of whether a participant or beneﬁciary is entitled to a reasonable alternative
standard for a reward under a wellness
program, and (2) a plan’s or issuer’s determination of whether a plan is complying with the nonquantitative treatment
limitation provisions of the Mental Health
Parity and Addiction Equity Act and its
implementing regulations, which generally require, among other things, parity in
the application of medical management
techniques. Both of these clariﬁcations
were included in preambles to regulations
issued previously by the Departments.78
b. Federal External Review Process for
Self-Insured Group Health Plans
The preamble to the 2010 interim ﬁnal
regulations stated that the Departments
will address in sub-regulatory guidance
how non-grandfathered self-insured group
health plans may comply with the requirements of the new Federal external review
process. The Department of Labor issued
Technical Releases 2010 – 01 and
2011– 02 regarding procedures for Federal
external review.79 The technical releases
set forth these procedures for nongrandfathered self-insured group health
plans not subject to a State external review process. Technical Release 2011– 02
also provided non-grandfathered health
insurance issuers subject to a Federallyadministered external review process80
and all non-grandfathered self-insured,
non-Federal governmental plans with
the option of using the external review
process set out in Technical Release
2010 – 01.
In general, under these procedures, a
group health plan must ﬁrst allow a claimant to ﬁle a request for Federal external
review with the plan. The group health
plan must then complete a preliminary
review of the request within ﬁve business
days following the date of receipt of the
external review request. Within one business day after completion of the preliminary review, the plan must issue a notiﬁ-

cation in writing to the claimant. If the
request is complete but not eligible for
external review, such notiﬁcation must include the reasons for its ineligibility and
current contact information, including the
phone number for the Employee Beneﬁts
Security Administration (toll free number
866-444-EBSA (3272)). Upon its determination that a request is eligible for external review, the group health plan must
then assign an independent review organization (IRO), accredited by URAC or by
a similar nationally-recognized accrediting organization, to conduct the external
review. The IRO must timely notify the
claimant in writing of the external review
and provide the claimant 10 business days
to submit additional information that the
IRO must consider. The group health plan
must provide the IRO with any documents
and information used in making the original determination within ﬁve business
days after the date of the assignment and
the IRO must forward any information
submitted by the claimant to the group
health plan within one business day after
receipt of the information. The IRO must
review all information and documents
timely received and must provide written
notice of the ﬁnal external review decision
to the claimant and the group health plan
within 45 days after the request for the
external review. After the ﬁnal external
review decision, the IRO must maintain
records of all associated claims and notices for six years. If the IRO has decided
to reverse the original determination, then,
upon receipt of the IRO’s notice of this
decision, the group health plan must immediately provide coverage or payment
for the claim.
The technical releases also provided
that a group health plan must allow a
claimant to make a request for expedited
external review for beneﬁt determinations
involving a medical condition for which
the timeframe for completion of an expedited internal appeal or standard external
review under the interim ﬁnal regulations
would seriously jeopardize the life or
health of the claimant or would jeopardize

See 78 FR 33158, 33164 (June 3, 2013); see also 78 FR 68240, 68247– 8 (November 13, 2013).

See Technical Release 2010 – 01, available at: http://www.dol.gov/ebsa/pdf/ACATechnicalRelease2010-01.pdf and Technical Release 2011– 02, available at: http://www.dol.gov/ebsa/
pdf/tr11-02.pdf.
80
Where a State’s external review process does not meet the Federal consumer protection standards, issuers and self-insured non-Federal governmental plans may choose to utilize either
the Federal IRO external review process or an HHS -administered Federal external review process in which a designated Federal contractor will perform all functions of the external review.

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December 7, 2015

the claimant’s ability to regain maximum
function. The IRO must provide a notice
of the ﬁnal external review decision as
expeditiously as the claimant’s medical
condition or circumstances require, but in
no event more than 72 hours after the IRO
receives the request for expedited review.
If the notice is not in writing, within 48
hours after the date of providing that notice, the assigned IRO must provide written conﬁrmation of the decision to the
claimant and the plan.
These ﬁnal regulations incorporate the
guidance in Technical Releases 2010 – 01
and 2011– 02 without substantial change.
These ﬁnal regulations also continue to
permit non-grandfathered self-insured
plans to comply with the external review
process outlined in these ﬁnal regulations
or a State external review process if the
State chooses to expand access to their
State external review process to plans that
are not subject to the applicable State
laws.
Furthermore, these ﬁnal regulations
continue to provide issuers subject to a
Federally-administered external review
process and all self-insured, non-Federal
governmental plans with the option of
electing the private accredited IRO process for external review described in these
ﬁnal regulations or the Federallyadministered external review process,
which is administered by HHS (also referred to as the HHS-administered external review process).
Similar to the technical releases, these
ﬁnal regulations continue to provide that
group health plans must assign an IRO
that is accredited by URAC or by similar
nationally-recognized accrediting organization to conduct the external review.
Moreover, the plan must take action to
protect against bias and to ensure independence. Accordingly, plans must contract
with at least three IROs for assignments
under the plan and rotate claims assignments among them (or incorporate other
independent, unbiased methods for selection of IROs, such as random selection).
In addition, the IRO may not be eligible
for any ﬁnancial incentives based on the
likelihood that the IRO will support the
denial of beneﬁts. (Of course, plans also

may not terminate an IRO’s contract in
retaliation for granting claims.) For issuers and all self-insured, non-Federal governmental plans participating in the HHSadministered external review process, the
requirement to take action to protect
against bias and to ensure independence is
satisﬁed without contracting with three
IROs for assignment and rotating the
claims assignments among them. Under
the HHS-administered external review
process, there are other unique factors that
ensure independence and the absence of
bias such as HHS oversight and lack of
privity of contract between the issuer or
self-insured non-Federal governmental
plan and the IRO.
After issuance of the interim ﬁnal regulations and technical releases, the Departments received questions relating to
self-insured group health plans contracting directly with IROs. While such a
group health plan must designate an IRO
to conduct any external review, neither the
interim ﬁnal regulations nor the technical
releases require a plan to contract directly
with any IRO. As clariﬁed in the FAQs
about the Affordable Care Act implementation, issued on September 20, 2010,
where a self-insured plan contracts with a
third party administrator that, in turn, contracts with an IRO, the standards of the
technical release can be satisﬁed in the
same manner as if the plan had contracted
directly. Such a contract does not automatically relieve the plan from responsibility if there is a failure to provide an
individual with external review and ﬁduciaries of plans that are subject to ERISA
have a duty to monitor the service providers to the plan. Furthermore, plans may
contract with an IRO in another State, as
these ﬁnal regulations do not require the
plan to be located in the same State as the
IRO. If additional questions arise regarding the IRO external review process, the
Departments may issue additional subregulatory guidance.
c. Filing Fees for External Review
The Departments also received comments related to the standard allowing
consumers to be charged a ﬁling fee when

requesting external review. While the
original 2004 NAIC model upon which
the 2010 interim ﬁnal regulations was
based expressly permitted imposition of a
nominal ﬁling fee for a claimant requesting an external review, and a small number of States have adopted this approach,
the 2010 NAIC model did not address this
topic. Commenters on the 2010 interim
ﬁnal regulations indicated that the ability
to charge a ﬁling fee should be prohibited
because such fees may dissuade consumers from ﬁling an appeal, even in cases
where the fee is not a ﬁnancial hardship
for the consumer.
The Departments ﬁnd the change in the
NAIC model to be important and are concerned that any fee may impose a ﬁnancial
hardship on some claimants or discourage
them from seeking external review.
Therefore, these ﬁnal regulations generally prohibit the imposition of ﬁling fees
for external review on claimants. However, the Departments recognize that several States’ external review processes currently applicable to group and individual
coverage permit nominal ﬁling fees.
Therefore, in determining whether a State
external review process provides the
claimants with minimum consumer protections, these ﬁnal regulations do not invalidate existing State external review
processes because they permit a nominal
ﬁling fee, consistent with the 2004 NAIC
model.81 Therefore, plans and coverage
subject to such laws may continue to impose nominal fees for as long as such laws
continue to apply. For this purpose, consistent with the interim ﬁnal regulations,
to be considered nominal, the ﬁling fee
must not exceed $25, must be refunded to
the claimant if the adverse beneﬁt determination (or ﬁnal internal adverse beneﬁt
determination) is reversed through external review, must be waived if payment of
the fee would impose an undue ﬁnancial
hardship, and the annual limit on ﬁling
fees for any claimant within a single plan
year must not exceed $75. All other plans
and coverage must pay the full cost of the
IRO for conducting the external review,
without imposing any nominal ﬁling fee.

81
Twelve States expressly authorize nominal fees: Connecticut, Hawaii, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Rhode Island, South Dakota, Vermont,
and Wyoming.

December 7, 2015

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G. PHS Act Section 2719A, Patient
Protections (26 CFR 54.9815–2719A, 29
CFR 2590.715–2719A, 45 CFR 147.138)
PHS Act section 2719A, as added by
the Affordable Care Act provides, with
respect to a non-grandfathered group
health plan or health insurance issuer offering non-grandfathered group or individual health insurance coverage, rules regarding the designation of primary care
providers, if a plan or issuer requires or
provides for designation by a participant,
beneﬁciary, or enrollee of a participating
primary care provider. In addition, the
statute provides requirements relating to
beneﬁts for emergency services. On June
28, 2010, the Departments issued interim
ﬁnal regulations implementing PHS Act
section 2719A.82 The Departments also
released Affordable Care Act Implementation FAQs Part I Q15 to address an issue
with respect to emergency services.83
These regulations adopt the 2010 interim
ﬁnal regulations without substantial
change and incorporate the clariﬁcation
issued in subregulatory guidance.
1. Choice of Healthcare Professional
The interim ﬁnal regulations and these
ﬁnal regulations state that if a plan or
issuer 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 primary care provider who is
available to accept the participant, beneﬁciary, or enrollee and who participates in
the network of the plan or issuer.
Commenters recommended clarifying
that in instances where a participant, beneﬁciary, or enrollee is incapacitated, a
family member may select the primary
care provider on their behalf. Under existing State and Federal law, including
ERISA, a duly authorized representative
is permitted to act on behalf of a participant or beneﬁciary for all purposes, including the designation of a primary care
provider as provided under these ﬁnal regulations. The ﬁnal regulations regarding
82

the designation of a primary care provider
do not include any new text to address
cases of incapacity. However, as with all
of the market reform provisions, a duly
authorized representative may act on behalf of a participant or beneﬁciary to the
extent permitted under other applicable
Federal and State law.
Commenters recommended that participants, beneﬁciaries, and enrollees be allowed to designate a provider of any specialty or licensure as their primary care
provider to improve access to care. For
example, commenters recommended that
enrollees have the option of designating a
nurse practitioner as their primary care
provider. The Departments do not deﬁne
primary care provider for purposes of
these ﬁnal regulations. The classiﬁcation
of who is considered a primary care provider is determined under the terms of the
plan or coverage and in accordance with
applicable State law.
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, including any
exclusion with respect to coverage of pediatric care.
Some commenters recommended that
participants, beneﬁciaries, or enrollees
have the option to designate physicians of
various pediatric sub-specialties as the
child’s primary care provider to improve
access to specialty care without prior authorization from a primary care coordinator. For example, commenters suggested
that a pediatric cancer patient with a serious chronic condition should have the option of designating a pediatric oncologist
that can provide cancer treatment as well
as other routine treatment as the child’s
primary care provider. The Departments
interpret this provision to mean that 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 any physician (allopathic or osteopathic) who specializes in pediatrics, including pediatric
subspecialties, based on the scope of that
provider’s license under applicable State
law. The designated provider must also
participate in the plan network and be
available to accept the child. These ﬁnal
regulations incorporate this clariﬁcation.
The interim ﬁnal regulations also established requirements for a plan or issuer
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. 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.
Commenters sought clariﬁcation that
women of all ages may receive obstetrical
and gynecological care without prior authorization or referral by the plan, issuer,
or any person (including a primary care
provider), noting that the statutory provision contains no restrictions based on the
age of a participant, beneﬁciary or enrollee. The Departments agree that all
women regardless of age are ensured direct access to obstetrical and gynecological care under this provision.
Since the promulgation of the interim
ﬁnal regulations, it has come to the De-

75 FR 37188 (June 28, 2010).

Affordable Care Act Implementation FAQs Part I, Q&A-15, available at http://www.dol.gov/ebsa/faqs/faq-aca.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
aca_implementation_faqs.html.

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December 7, 2015

partments’ attention that some plans and
issuers utilize plan designs where the delivery of care is coordinated through medical groups within the network based on
the geographic location of the participant
and the provider. Speciﬁcally, the Departments have encountered plan provisions
in insured group health plan coverage that
require participants to designate a primary
care provider but restrict a participant’s
choice of provider based on the distance
that the participant lives or works from the
provider. Stakeholders requested that the
Departments clarify in the ﬁnal regulations that the choice of healthcare professional provision does not prohibit the application of such geographical limitations
with respect to the selection of primary
care providers. Stakeholders highlighted
that prohibiting such geographical limitations would fundamentally disrupt these
plan designs, as well as the underlying negotiated capitation arrangements (where
payment is rendered on a per person rather
than per service basis). Stakeholders also
noted that the underlying provider contracts
do not permit providers to accept participants that are not within the speciﬁed geographic limit, and, accordingly, such limitations should not violate these provisions of
the regulations, as the providers are not
available to accept such participants, based
on the terms of the plan, and as required by
the regulations.
The Departments recognize the importance of allowing plans and issuers the
ﬂexibility to deliver care in a costeffective and efﬁcient manner. Accordingly, these ﬁnal regulations include a
codiﬁcation of the Departments’ interpretation that plans and issuers are not prohibited under PHS Act section 2719A
from applying reasonable and appropriate
geographic limitations with respect to
which participating primary care providers are considered available for purposes
of selection as primary care providers, in
accordance with the terms of the plan, the
underlying provider contracts, and applicable State law. The Departments may
provide additional guidance if questions
persist or if the Departments become
aware of geographic limitations that un-

duly restrict a participant’s choice of provider.
2. Emergency Services
a. Additional administrative
requirements
Under the interim ﬁnal regulations and
these ﬁnal regulations, if a group health
plan or issuer provides any beneﬁts with
respect to services in the emergency department of a hospital, then the plan or
issuer must provide coverage for emergency services 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.
b. Out-of-network cost-sharing
requirements
Cost-sharing requirements expressed
as a copayment amount or coinsurance
rate imposed for out-of-network emergency services cannot exceed the costsharing requirements that would be imposed if the services were provided innetwork. The preamble to the interim ﬁnal
regulations explained that out-of-network
providers may bill patients for the difference between the providers’ billed
charges and the amount collected from the
plan or issuer and the amount collected
from the patient in the form of a copayment
or coinsurance amount (referred to as balance billing84). 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 amount
or coinsurance rate. Because the statute nei-

ther requires plans or issuers to cover balance billing amounts, nor prohibits balance
billing, even where the protections in the
statute apply, patients may still be subject to
balance billing. In the preamble to the interim ﬁnal regulations under PHS Act section 2719A, the Departments explained that
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 innetwork amounts.85
To avoid the circumvention of the protections of PHS Act section 2719A, the
Departments determined it necessary that
a reasonable amount be paid before a patient becomes responsible for a balance
billing amount. Therefore, as provided in
the interim ﬁnal regulations and these ﬁnal regulations, a plan or issuer must pay
a reasonable amount for emergency services by some objective standard. Specifically, a plan or issuer satisﬁes the copayment or coinsurance limitations in the
statute if it provides beneﬁts for out-ofnetwork emergency services (prior to imposing in-network cost sharing) in an
amount at least equal the greatest of: (1)
the median amount negotiated with innetwork providers for the emergency service; (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
amount); or (3) the amount that would be
paid under Medicare for the emergency
service (minimum payment standards).
The interim ﬁnal regulations under PHS
Act section 2719 clariﬁed that the costsharing requirements create a minimum
payment requirement. The cost-sharing
requirements do not prohibit a group
health plan or health insurance from providing beneﬁts with respect to an emergency service that are greater than the
amounts speciﬁed in the regulations.
Some commenters expressed concern
about the level of payment for out-ofnetwork emergency services and urged
the Departments to require plans and issuers to use a transparent database to determine out-of-network amounts. The De-

See Uniform Glossary of Health Coverage and Medical Terms at http://www.dol.gov/ebsa/pdf/sbcuniformglossaryproposed.pdf and https://www.cms.gov/apps/glossary.

75 FR 37188, 37194 (June 28, 2010).

December 7, 2015

724

Bulletin No. 2015– 49

partments believe that this concern is
addressed by our requirement that the
amount be 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 costsharing requirements).
c. Clariﬁcations regarding balance
billing
Some commenters sought clariﬁcation
about the interaction of the minimum
payment standards under the interim ﬁnal regulations and State laws that prohibit balance billing for emergency services. Balance billing generally is the
practice of billing by a provider that is
not a preferred provider for the difference between the charge of a provider
that is not a preferred provider and the
allowed amount under the plan or coverage. Some stakeholders expressed
their opposition to the use of balance
billing because it creates a substantial
ﬁnancial burden and may discourage a
participant, beneﬁciary, or enrollee from
obtaining the care needed in an emergency situation. Other stakeholders suggested that plans and issuers should be
required to negotiate contracts with hospitals and facility-based providers that
avoid balance billing. However, the statute does not require plans or issuers to
cover balance billed amounts, nor does
it prohibit balance billing. Even where
the protections in the statute apply, a
participant, beneﬁciary, or enrollee may
be subject to balance billing. In the future, the Departments will consider
ways to prevent providers from billing a
participant, beneﬁciary, or enrollee for
emergency services from out-ofnetwork providers at in-network hospitals and facilities. States may also consider ways to prevent balance billing in
these circumstances.
The minimum payment standards are
designed to reduce potential amounts of
balance billing to patients. Stakeholders
commented that in circumstances where
patients will not be balance billed (because balance billing is prohibited or be-

cause the issuer, rather than the patient, is
required to cover the balance bill), the
minimum payment standards are not necessary. In response to these comments, the
Departments issued an FAQ86 stating that
the minimum payment standards set forth
in the interim ﬁnal regulations were developed to protect patients from being ﬁnancially penalized for obtaining emergency services on an out-of-network
basis. If State law prohibits balance billing, plans and issuers are not required to
satisfy the payment minimum set forth in
the regulations. Similarly, if a plan or issuer is contractually responsible for any
amounts balanced billed by an out-ofnetwork emergency services provider, the
plan or issuer is not required to satisfy the
payment minimum. In both situations,
however, a plan or issuer may not impose
any copayment or coinsurance requirement for out-of-network emergency services that is higher than the copayment or
coinsurance requirement that would apply
if the services were provided in-network.
In addition, a plan or issuer must provide
an enrollee or beneﬁciary adequate and
prominent notice of their lack of ﬁnancial
responsibility with respect to amounts balance billed in order to prevent inadvertent
payment by an enrollee or beneﬁciary.
These ﬁnal regulations incorporate this
clariﬁcation. The regulations do not preempt existing State consumer protection
laws and do not prohibit States from enacting new laws with respect to balance
billing that would provide consumer protections at least as strong as the Federal
statute.
In response to the interim ﬁnal regulations, commenters also requested that the
Departments require plans and issuers to
inform a participant, beneﬁciary, or enrollee using clear and understandable language of the consequences of using outof-network emergency services, including
the possibility of balance billing. Another
commenter stated that the summary plan
description (SPD) provides sufﬁcient information to meet the notice requirements.
The Departments agree that plans and issuers must disclose the terms of the coverage as part of plan documents and are

not adding a new notice requirement at
this time.
d. Deﬁnition of emergency services
In applying the rules relating to emergency services, the terms emergency medical condition, emergency services, and
stabilize have the meaning given to those
terms under the Emergency Medical
Treatment and Labor Act (EMTALA),
section 1867 of the Social Security Act.
Under EMTALA, the term emergency
services includes (1) “an appropriate medical screening examination that is within
the capability of the emergency department of a hospital, including ancillary services routinely available to the emergency
department, to determine whether an
emergency medical condition exists”; and
(2) “such further medical examination and
such treatment as may be required to stabilize the medical condition.”87
Some commenters recommended that
the Departments deﬁne “emergency services” such that an enrollee or beneﬁciary
may only receive emergency beneﬁts if an
enrollee or beneﬁciary seeks treatment
within 24 hours of the onset of an emergency. These ﬁnal regulations decline to
adopt this comment. The term “emergency services” as deﬁned by the interim
ﬁnal regulations and these ﬁnal regulations is based on the statutory deﬁnition,
which does not specify parameters with
respect to time. Accordingly, a plan or
issuer cannot set a time limit within which
to seek emergency services and must provide coverage for any emergency services
that meet the deﬁnition of emergency services under EMTALA.
Some commenters requested clariﬁcation as to whether air ambulance transport
and other emergency transportation is
within the scope of the term “emergency
services.” The Departments decline to
provide a rule addressing this issue. These
ﬁnal regulations continue to provide that
the terms emergency medical condition,
emergency services, and stabilize have the
meaning given to those terms under

86
See Affordable Care Act Implementation FAQ Part I Q15 at http://www.dol.gov/ebsa/faqs/faq-aca.html and.https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html.
87

42 U.S.C. 1395dd(a)–(b).

Bulletin No. 2015– 49

725

December 7, 2015

EMTALA, section 1867 of the Social Security Act.88
H. Provisions No Longer Applicable
1. Special Rule Relating to Dependent
Coverage of Children to Age 26 for
Grandfathered Group Health Plans
The dependent coverage provision of
PHS Act section 2714 applies to all group
health plans and health insurance issuers
offering group or individual health insurance coverage for plan years (in the individual market, policy years) beginning on
or after September 23, 2010, whether or
not the plan or health insurance coverage
qualiﬁes as a grandfathered health plan.
However, consistent with section 2714 of
the PHS Act, for plan years beginning
before January 1, 2014, the 2010 interim
ﬁnal regulations provided that a grandfathered health plan that is a group health
plan that makes available dependent coverage of children may exclude from coverage an adult child who has not attained
age 26 if the child is eligible to enroll in
an employer-sponsored health plan (as deﬁned in section 5000A(f)(2) of the Code)
other than a group health plan of a parent.
Because this special rule for grandfathered group health plans no longer applies, it is not incorporated into these ﬁnal
regulations.
2. Transitional Rules for Individuals
Whose Coverage Ended by Reason of
Reaching a Dependent Eligibility
Threshold
The 2010 interim ﬁnal regulations implementing PHS Act section 2714 provided transitional relief for a child whose
coverage ended, or who was denied coverage (or was not eligible for coverage)
under a group health plan or health insurance coverage because, under the terms of
the plan or coverage, the availability of
dependent coverage of children ended before the attainment of age 26. The 2010
interim ﬁnal regulations also required a
plan or issuer to give such a child a special
enrollment opportunity, which was required to be provided (including written

notice) not later than the ﬁrst day of the
ﬁrst plan year (in the individual market,
policy year) beginning on or after September 23, 2010. Because the transitional rule
no longer applies, it is not incorporated
into these ﬁnal regulations.
3. Restricted Annual Limits and
Transitional Rules for Individuals Whose
Coverage or Beneﬁts Ended by Reason
of Reaching a Lifetime Dollar Limit
PHS Act section 2711 and its implementing interim ﬁnal regulations generally prohibited lifetime or annual limits on
the dollar value of EHBs (as deﬁned in
section 1302(b) of the Affordable Care
Act). With respect to annual dollar limits,
the statute and the interim ﬁnal regulations allowed the imposition of “restricted
annual limits” with respect to EHBs for
plan years (in the individual market, policy years) beginning before January 1,
2014. The interim ﬁnal regulations adopted a three-year phased approach to restricted annual limits. As set forth in the
interim ﬁnal regulations, the restricted annual limits on the dollar value of EHBs
could not be lower than:
• 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.
With respect to plan or policy years
beginning on or after January 1, 2014,
no annual dollar limits are permitted on
essential health beneﬁts except in the
case of grandfathered individual market
coverage.
The interim ﬁnal regulations also provided transitional rules for individuals
who reached a lifetime dollar limit under a
group health plan or health insurance coverage prior to the applicability date of the
interim ﬁnal regulations. The regulations
required a plan or issuer to provide an
individual whose coverage ended due to

reaching a lifetime dollar limit with an
enrollment opportunity (including written
notice) that continues for at least 30 days.
The notice and enrollment opportunity
was required to be provided not later than
the ﬁrst day of the ﬁrst plan year (in the
individual market, policy year) beginning
on or after September 23, 2010. Because
the provisions regarding restricted annual
dollar limits and the transitional rules regarding lifetime dollar limits no longer
apply, they are not incorporated into these
ﬁnal regulations.
I. Applicability
1. General applicability
These ﬁnal regulations apply to group
health plans and health insurance issuers
beginning on the ﬁrst day of the ﬁrst plan
year (or, in the individual market, the ﬁrst
day of the ﬁrst policy year) beginning on
or after January 1, 2017. Until these ﬁnal
regulations become applicable, plans and
issuers are required to continue to comply
with the corresponding interim ﬁnal regulations at 29 CFR part 2590, contained in
the 29 CFR, parts 1927 to end, edition
revised as of July 1, 2015, and 45 CFR
parts 144, 146, and 147, contained in the
45 CFR, parts 1 to 199, edition revised as
of October 1, 2015. In accordance with
section 7805(e)(2) of the Code, the corresponding temporary regulations promulgated by the Department of the Treasury
are inapplicable. Under section 104 of the
Health Insurance Portability and Accountability Act (HIPAA), enacted on August
21, 1996, and subsequent amendments,
the Departments must coordinate policies
with respect to parallel provisions of
ERISA, the PHS Act, and the Code
(shared provisions). The Departments operate under a Memorandum of Understanding89 implementing HIPAA section
104 which provides that the shared provisions must be administered so as to have
the same effect at all times and the Departments must coordinate policies relating to enforcing the shared provisions in
order to avoid duplication of enforcement
efforts and to assign priorities in enforce-

88
For a more detailed discussion of deﬁnitions and requirements under EMTALA, see CMS State Operations Manual, Appendix V, pg. 33– 41, available at https://www.cms.gov/Regulationsand-Guidance/Guidance/Manuals/downloads/som107ap_v_emerg.pdf .
89

See 64 FR 70164 (December 15, 1999).

December 7, 2015

726

Bulletin No. 2015– 49

ment. Therefore, until these ﬁnal regulations promulgated by the Department of
the Treasury become applicable, compliance with corresponding interim ﬁnal regulations at 29 CFR part 2590, contained in
the 29 CFR, parts 1927 to end, edition
revised as of July 1, 2015 shall satisfy
corresponding requirements of the Code.
Section 1251 of the Affordable Care
Act provides that grandfathered health
plans are subject to only certain provisions of the Affordable Care Act. The
ﬁnal regulations under PHS Act section
2719, Internal Claims and Appeals and
External Review (26 CFR 54.9815–2719,
29 CFR 2590.715–2719, 45 CFR
147.136) and PHS Act Section 2719A,
Patient Protections (26 CFR 54.9815–
2719A, 29 CFR 2590.715–2719A, 45
CFR 147.138) do not apply to grandfathered health plans. Final regulations under PHS Act section 2704, Prohibition of
Preexisting Condition Exclusions (26
CFR 54.9815–2704, 29 CFR 2590.715–
2704, 45 CFR 147.108); PHS Act section
2711, Prohibition on Lifetime and Annual
Limits (26 CFR 54.9815–2711, 29 CFR
2590.715–2711, 45 CFR 147.126); PHS
Act section 2712, Prohibition on Rescissions (26 CFR 54.9815–2712, 29 CFR
2590.715–2712, 45 CFR 147.128); and
PHS Act section 2714, Coverage of Dependents to Age 26 (26 CFR 54.9815–
2714, 29 CFR 2590.715–2714, 45 CFR
147.120) apply to grandfathered health
plans, except the prohibition of preexisting condition exclusions and prohibition
on annual dollar limits do not apply to
grandfathered health plans that are individual health insurance coverage. For a
list of the market reform provisions under title XXVII of the PHS Act, as
added or amended by the Affordable
Care Act and incorporated into ERISA
and the Code, applicable to grandfathered
health plans, visit http://www.dol.gov/
ebsa/pdf/grandfatherregtable.pdf.

tinuing Appropriations Act, 2015, Division M, Public Law 113–235. The EHCCA provides that the market reform
requirements of the Affordable Care Act
generally do not apply to expatriate health
plans, expatriate health insurance issuers
with respect to expatriate health plans, and
employers in their capacity as plan sponsors of expatriate health plans. However,
the plans, coverage, sponsors and issuers
must still satisfy provisions of the PHS
Act, ERISA and the Code that would otherwise apply if not for the enactment of
the Affordable Care Act. The EHCCA
exception from the market reform requirements applies to expatriate health plans
that are issued or renewed on or after July
1, 2015.
Treasury and IRS issued Notice 2015–
43, 2015–29 I.R.B. 73, to provide interim
guidance on the EHCCA. The notice provides that until the issuance of further
guidance and except as otherwise provided in the notice, issuers, employers,
and plan sponsors generally may apply the
requirements of EHCCA using a reasonable good faith interpretation of the statute. The notice also provides that until
further guidance is issued, using the deﬁnition of expatriate health plan provided
in Affordable Care Act Implementation
FAQs90 is treated as a reasonable good
faith interpretation of the statute. As explained in the notice, the Departments intend to publish proposed regulations implementing and providing guidance on the
EHCAA. Consequently, these ﬁnal regulations do not address the application to
expatriate health plans of the Affordable
Care Act provisions under which these
ﬁnal regulations are promulgated.

2. Expatriate plans

Executive Orders 12866 and 13563 direct agencies to assess all costs and beneﬁts of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
beneﬁts (including potential economic,

On December 16, 2014, Congress enacted the Expatriate Health Coverage
Clariﬁcation Act of 2014 (EHCCA) as
part of the Consolidated and Further Con-

III. Economic Impact Analysis
—Departments of Labor and Health
and Human Services
Executive Orders 12866 and 13563

environmental, public health and safety
effects; distributive impacts; and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
beneﬁts, of reducing costs, of harmonizing rules, and of promoting ﬂexibility.
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. These ﬁnal regulations have been designated “signiﬁcant
regulatory actions” under section 3(f) of
Executive Order 12866. Accordingly, the
regulations have been reviewed by the
Ofﬁce of Management and Budget.
A regulatory impact analysis must be
prepared for major rules with economically signiﬁcant effects ($100 million or
more in any one year). The Departments
have concluded that these ﬁnal regulations
would have economic impacts of $100
million or more in at least one year, thus
meeting the deﬁnition of an “economically signiﬁcant rule” under Executive Order 12866. Therefore, consistent with Executive Orders 12866 and 13563, the
Departments have provided an assessment
of the potential beneﬁts and the costs associated with these ﬁnal regulations.
The Departments expect these ﬁnal
regulations, when compared with the interim ﬁnal regulations, to have marginal

See FAQs about Affordable Care Act Implementation (Part XIII), Q&A–1, available at http://www.dol.gov/ebsa/pdf/faq-aca13.pdf and http://www.cms.gov/CCIIO/Resources/Fact-Sheetsand-FAQs/ACA_implementation_faqs13.html. See also FAQs about Affordable Care Act Implementation (Part XVIII), Q&A-6 and Q&A–7, available at http://www.dol.gov/ebsa/pdf/faqaca18.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/ACA_implementation_faqs18.html.

Bulletin No. 2015– 49

727

December 7, 2015

beneﬁts and costs. This is because they
primarily provide clariﬁcations of the previous interim ﬁnal regulations issued in
2010 and 2011 and incorporate subreguTable 1.—Accounting Table
Category
Beneﬁts- Qualitative

Estimate

Period Covered

$169.9

2015

2016–2025

$169.9

2015

2016–2025

$53.5

2015

2016–2025

$53.5

2015

2016–2025

Due to the risk pooling nature of health insurance these patient protections and other requirements
create a transfer from those paying premiums to those individuals and families now obtaining
increased protections, coverage and services.

1. Need for Regulatory Action
a. Preservation of Right to Maintain
Existing Coverage
Section 1251 of the Affordable Care Act
provides that grandfathered health plans are
subject only to certain provisions of the Affordable Care Act. The statute, however, is
silent regarding changes plan sponsors and
issuers can make to plans and health insurance
coverage while retaining grandfather status.
These ﬁnal regulations are necessary in
order to provide rules that group health
plans and health insurance issuers can use
to determine which changes they can
make to the terms of the plan or health
insurance coverage while retaining their
grandfather status, thus exempting them
from certain provisions of the Affordable
Care Act and fulﬁlling a goal of the leg-

December 7, 2015

Discount Rate

The Departments have quantiﬁed where possible the costs associated with these ﬁnal regulations.
These costs include burden that will be incurred to prepare and distribute required disclosures
and notices, and to bring plan and issuers’ policies and procedures into compliance with the
new requirements.
The Departments have not been able to quantify cost related to increased access to care. To
the extent these patient protections increase access to health care services, increased health
care utilization and costs could result.

Transfers
Annualized Monetized
($millions/year)

Qualitative

Year Dollar

costs and beneﬁts, but they are qualitatively discussed throughout the remainder
of this section and summarized in the Accounting Table.

These ﬁnal regulations help ensure the protections and beneﬁts intended by Congress. Many of
these beneﬁts have a distributional component, and promote equity, in the sense that they will
beneﬁt those who are especially vulnerable as a result of health problems and ﬁnancial status.
Other beneﬁts include increased access to care and to information needed to protect consumer’s
rights. These ﬁnal regulations also lead to improved health outcomes for patients and increase
certainty for issuers, plans and consumers by providing clariﬁcations and guidance.

Costs
Annualized Monetized
($millions/year)

Qualitative

latory guidance, including frequently
asked questions and safe harbors issued
by the Departments. The Departments do
not have sufﬁcient data to quantify these

islation, which is to allow those that like
their coverage to keep it. These ﬁnal regulations are designed to allow individuals
to keep the coverage they had on March
23, 2010 (the date of enactment of the
Affordable Care Act) to reduce short term
disruptions in the market, and to ease the
transition required by the market reforms.
In drafting this rule, the Departments attempted to balance a number of competing
interests. For example, the Departments
sought to provide adequate ﬂexibility to
group health plans and issuers to ease transition and mitigate potential premium increases while avoiding excessive ﬂexibility
that would unduly delay implementation of
critical consumer protections in the Affordable Care Act. In addition, the Departments
recognized that many group health plans
and issuers make changes to the terms of
plans or health insurance coverage on an

728

annual basis: Premiums ﬂuctuate, provider
networks and drug formularies change, employer and employee contributions and costsharing change, and covered items and services may vary. Without some ability to
make some adjustments while retaining
grandfather status, the ability of individuals
to maintain their current coverage would be
frustrated, because most plans or health insurance coverage would quickly cease to be
regarded as the same group health plan or
health insurance coverage in existence on
March 23, 2010. At the same time, allowing
unfettered changes while retaining grandfather status would also be inconsistent with
Congress’s intent to provide a transition to
the Affordable Care Act market reforms.
These ﬁnal regulations regarding grandfather health plans are designed, among
other things, to take into account reasonable
changes routinely made by plan sponsors or

Bulletin No. 2015– 49

issuers without the plan or health insurance
coverage relinquishing its grandfather status. Thus, for example, these ﬁnal regulations generally permit plans and issuers to
make voluntary changes to increase beneﬁts, to conform to required legal changes,
and to voluntarily adopt other consumer
protections in the Affordable Care Act without relinquishing grandfather status.
b. Prohibition of Preexisting Condition
Exclusions
Section 2704 of the PHS Act, as added
by the Affordable Care Act, generally prohibits group health plans and health insurance issuers offering group or individual
health insurance coverage from imposing
any preexisting condition exclusion.
Studies estimate that preexisting conditions affect approximately 129 million
Americans91 which includes a broad range
of conditions, from heart disease – affecting
an estimated 85.6 million American adults
(with more than 1 in 3 having one or more
types of cardiovascular disease92) – to cancer
– which in 2012 affected an estimated 14
million Americans and will affect an estimated
1.7 million additional people in 2015 93 – to
relatively minor conditions like hay fever,
asthma, or previous sports injuries.94 Denials
of beneﬁts or coverage based on a preexisting
condition previously made adequate health insurance unavailable to millions of Americans.
Before enactment of the Affordable Care
Act, in 45 States, health insurance issuers in
the individual market could deny coverage,
charge higher premiums, and/or deny beneﬁts for a preexisting condition.95
These regulations ﬁnalize interim ﬁnal
regulations which were necessary to implement this statutory provision which
Congress enacted to help ensure that quality health coverage is available to more
Americans without the imposition of a
preexisting condition exclusion.
c. Lifetime and Annual Limits
Section 2711 of the PHS Act, as added
to the Affordable Care Act, generally pro-

hibits group health plans and health insurance issuers offering group or individual
health insurance coverage from imposing
annual and lifetime limits on the dollar
value of essential health beneﬁts.
These protections ensure that patients
are not confronted with devastating
healthcare costs because they have exhausted their health coverage when faced
with a serious medical condition.
These regulations ﬁnalize interim ﬁnal
regulations that were necessary 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.
d. Prohibition on Rescissions
Section 2712 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 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. 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 had previously been accepted and paid.
Rescissions can result in signiﬁcant ﬁnancial hardship for affected individuals, because, in most cases, the individuals have
accumulated signiﬁcant medical expenses.
These 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.

e. Coverage of Dependents to Age 26
PHS Act section 2714, as added by the
Affordable Care Act, requires group
health plans and health insurance issuers
offering group or individual health insurance coverage that make dependent coverage available for children to continue to
make coverage available to such children
until the attainment of age 26. With respect to a child receiving dependent coverage, coverage does not have to be extended to a child or children of the child or
a spouse of the child. Furthermore these
ﬁnal regulations clarify that for an individual not described in Code section
152(f)(1), such as a grandchild or niece, a
plan may impose additional conditions on
eligibility for health coverage, such as a
condition that the individual be a dependent for income tax purposes, and the ﬁnal
regulations also clarify that distinctions
based upon age that apply generally to all
individuals covered under the plan (employees, spouses, dependent children) are
not prohibited. These regulations ﬁnalize
the interim ﬁnal regulations, which were
necessary to implement the statute.
f. Internal Claims and Appeals and
External Review
Before the enactment of the Affordable
Care Act, health plan sponsors and issuers
were not uniformly required to implement
claims and appeals processes. For example, ERISA-covered group health plan
sponsors were required to implement internal claims and appeal processes that
complied with the DOL claims procedure
regulation,96 while group health plans that
were not covered by ERISA, such as plans
sponsored by State and local governments
were not. Health insurance issuers offering coverage in the individual insurance
market were required to comply with various applicable State internal appeals laws
but were not required to comply with the
DOL claims procedure regulation.

ASPE. At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform, 2011.

Mozzafarian, D., et al. Heart Disease and Stroke Statistics – 2015 Update: A Report From the American Heart Association. Circulation. 2015; 131(4):e29 –322

National Cancer Institute: Surveillance, Epidemiology, and End Results Program (SEER) Stat Fact Sheet: All Cancer Types. http://seer.cancer.gov/statfacts/html/all.html.

Pollitz, K., et al. How Accessible is Individual Health Insurance for Consumers in Less than Perfect Health? Kaiser Family Foundation, June 2001.

Levitt, L., et al. How Buying Insurance Will Change Under Obamacare. Kaiser Family Foundation, September 2013.

29 CFR 2560.503–1

Bulletin No. 2015– 49

729

December 7, 2015

With respect to external appeal processes, before the enactment of the Affordable Care Act, sponsors of fully insured ERISA-covered group health plans,
fully-insured State and local governmental plans, and fully-insured church plans
were required to comply with State external review laws, while self-insured
ERISA-covered group health plans were
not subject to such laws due to ERISA
preemption. In the individual health insurance market, issuers in States with external review laws were required to comply
with such laws. However, uniform external review standards did not apply, because State external review laws vary
from State-to-State. Moreover, at least six
States did not have external review laws
when the Affordable Care Act was enacted; therefore, prior to the Affordable
Care Act, issuers in those States were not
required to implement an external review
process.
Under this regulatory system, inconsistent claims and appeals processes applied
to plan sponsors and issuers and a patchwork of consumer protections were provided to participants, beneﬁciaries, and
enrollees. The applicable processes and
protections depended on several factors
including whether (1) plans were subject
to ERISA, (2) beneﬁts were self-funded or
ﬁnanced by the purchase of an insurance
policy, (3) issuers were subject to State
internal claims and appeals laws, and (4)
issuers were subject to State external review laws, and if so, the scope of such
laws (such as, whether the laws only apply
to one segment of the health insurance
market, e.g., managed care or HMO coverage). These uneven protections created
an appearance of unfairness, increased
cost for issuers and plans operating in
multiple States, and may have led to confusion among consumers about their
rights.

Congress enacted PHS Act section
2719 to ensure that plans and issuers implemented more uniform internal and external claims and appeals processes and to
set a minimum standard of consumer protections that are available to participants,
beneﬁciaries, and enrollees. These ﬁnal
regulations are necessary to provide rules
that plan sponsors and issuers can use to
implement effective internal and external
claims and appeals processes that meet the
requirements of PHS Act section 2719.
These changes do not add any incremental costs to those associated with the
2010 interim ﬁnal rules, because they simply incorporate sub-regulatory guidance
that was already issued.
g. Patient Protections
Section 2719A of the PHS Act, as
added by the Affordable Care Act, requires group health plans and health insurance issuers offering group or individual health insurance coverage to ensure
choice of healthcare professionals (including pediatricians, obstetricians, and gynecologists) and greater access to beneﬁts
for emergency services. Provider choice is
a strong predictor of patient trust in a
provider, and patient-provider trust can
increase health promotion and therapeutic
effects.97 Studies have found that patients
tend to experience better quality healthcare if they have long-term relationships
with their healthcare provider.98
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 without
regard to whether the health care provider
furnishing the services is a participating
network provider, and (2) copayments and
coinsurance for out-of-network emergency care do not exceed the cost-sharing

requirements that would have been imposed if the services were provided innetwork. These provisions will help to
ensure that patients receive covered emergency care when they need it, especially
in situations where prior authorization
cannot be obtained due to exigent circumstances or an in-network provider is not
available to provide the services. They
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.
These regulations ﬁnalize the interim
ﬁnal regulations that were necessary to
implement the statutory provision enacted
by Congress to provide these essential patient protections.
A. Section 1251 of the Affordable Care
Act, Preservation of Right to Maintain
Existing Coverage (26 CFR 54.9815–
1251 , 29 CFR 2590.715–1251, 45 CFR
147.140)
1. Affected Entities and Individuals
The Departments estimate that there
are 2.3 million ERISA-covered plans with
an estimated 66 million policy holders and
130.2 million participants and beneﬁciaries in those plans.99 Similarly, the Departments estimate that there are 128,400
State and local governmental health
plans100 with an estimated 21.1 million
policy holders and 41.1 million participants and beneﬁciaries in those plans.101
The 2014 Employer Health Beneﬁts
Survey reports that 37 percent of ﬁrms
offer health beneﬁts that have at least one
health plan that is a grandfathered plan,
and 26 percent of employees are enrolled
in grandfathered plans.102 Using the
above estimates, there are 851,000 (2.3
million ERISA-covered plans* 0.37)
ERISA-covered plans with 17.2 million
policy holders (66 million policy holders

97
Piette, John, et al., “The Role of Patient-Physician Trust in Moderating Medication Nonadherence Due to Cost Pressures.” Archives of Internal Medicine 165, August (2005) and Roberts,
Kathleen J., “Physician-Patient Relationships, Patient Satisfaction, and Antiretroviral Medication Adherence Among HIV-Infected Adults Attending a Public Health Clinic.” AIDS Patient
Care and STDs 16.1 (2002).
98

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).

EBSA estimates based on the 2014 Medical Expenditure Survey – Insurance Component.

100

The estimate of the total number of State and local governmental plans is based on the 2012 Census of Government.

101

Health Insurance Coverage Bulletin: Abstract of Auxiliary Data for the March 2014 Annual Social and Economic Supplement to the Current Population Survey, Table 3C
http://www.dol.gov/ebsa/pdf/coveragebulletin2014.pdf.
102

Kaiser Family Foundation, “2014 Employer Health Beneﬁts Survey.” http://kff.org/health-costs/report/2014-employer-health-beneﬁts-survey/.

December 7, 2015

730

Bulletin No. 2015– 49

*0.26) and 33.9 million participants and
beneﬁciaries (130.2 million participants
and beneﬁciaries * 0.26). There are approximately 47,500 grandfathered State
and local governmental health plans
(0.37*128,400 plans103) with approximately 5.5 million policyholders (21.1
million policy holders *0.26) and 10.7
million participants and beneﬁciaries
(41.1 million participants and beneﬁciaries * 0.26).
There were an estimated 1.4 million
policies with grandfathered coverage during 2013 with 2.2 million enrollees.104
2. Discussion of Economic Impacts of
Retaining or Relinquishing Grandfather
Status
The economic effects of these ﬁnal regulations will depend on decisions by plan
sponsors and issuers, as well as by those
covered under these plans and health insurance coverage.
For a plan sponsor or issuer, the potential economic impact of the application of
the provisions in the Affordable Care Act
may be one consideration in making its
decisions. To determine the value of retaining a health plan’s grandfather status,
each plan sponsor or issuer must determine whether the rules applicable to
grandfathered health plans are more or
less favorable than the rules applicable to
non-grandfathered health plans. This determination will depend on such factors as
the respective prices of grandfathered and
non-grandfathered health plans, as well as
the preferences of grandfathered health
plans’ covered populations and their willingness to pay for beneﬁts and patient protections available under non-grandfathered
health plans. In making its decision whether
to maintain grandfather status, a plan sponsor or issuer is also likely to consider the
market segment (because different rules
apply to the large and small group market
segments), and the utilization pattern of its
covered population. Those costs and beneﬁts of the various provisions of the Affordable Care Act and their interaction
with the coverages’ grandfathered status

have been discussed in the impact analysis
of those individual requirements and are
not repeated here.
3. Impacts on the Individual Market
The market for individual insurance is
signiﬁcantly different than that for group
coverage. As discussed in previous interim ﬁnal regulations issued in 2010 and
2011, for many, the market is transitional,
providing a bridge between other types of
coverage. One study found a high percentage of individual insurance policies began
and ended with employer-sponsored coverage.105 More importantly, coverage on
particular policies tends to be for short
periods of time. As such, high turnover
rates are likely the chief source of changes
in grandfather status. Reliable data are
scant, so there is no ability to update estimates as to how many people in the individual market are in non-grandfathered
plans today.
1. Disclosure of Grandfather Status and
Document Retention
To maintain grandfathered health plan
status under these ﬁnal regulations, a plan
or issuer must maintain records that document the plan or policy terms in connection with the coverage in effect on March
23, 2010, and any other documents necessary to verify, explain or clarify its status as a grandfathered health plan, disclose its status as a grandfathered health
plan, and if switching issuers and intending to maintain its status as a grandfathered plan, it must provide to the new
health insurance issuer with documentation of plan terms under the prior health
coverage sufﬁcient for it to determine
whether a change causing a cessation of
grandfathered health plan status has occurred.
The Departments estimate that the total
cost for these requirements will be $1.8
million annually. For a detailed discussion
of the grandfathered health plan document
retention and disclosure requirements, see

the Paperwork Reduction Act section later
in this preamble.
B. PHS Act Section 2704, Prohibition of
Preexisting Condition Exclusions (26
CFR 54.9815–2704, 29 CFR 2590.715–
2704, 45 CFR 147.108)
1. Affected Entities and Individuals
In the individual market, those applying for insurance will no longer face exclusions or denials of coverage based on a
preexisting condition while those covered
by non-grandfathered individual coverage
with a rider or exclusion period will gain
coverage for any preexisting condition
otherwise covered by the plan. In the
group market, participants and beneﬁciaries that have experienced a lapse in
coverage will no longer face up to a
twelve-month exclusion for preexisting
conditions.
There are two main categories of people who have most likely been directly
affected by this provision: First, those
who had a preexisting condition and who
were uninsured; second, those who were
covered by grandfathered individual policies containing riders excluding coverage
for a preexisting condition or have an exclusion period. It is difﬁcult to estimate
precisely how many uninsured individuals
had a preexisting condition as of when
this provision went into effect, as information on whether individuals have a preexisting condition for the purpose of obtaining health insurance is not collected in
any major population based survey and
can include conditions from hay fever to
HIV/AIDS, all which could result in a
denial of coverage.106 The Departments
ﬁnd it difﬁcult to estimate the number of
individuals that will be uniquely affected
by these ﬁnal regulations due to the interactions with other provisions of the Affordable Care Act; however, estimates indicate that 50 –129 million non-elderly
individuals with a preexisting condition,
25 million uninsured individuals – including the 3.7 million adults that fall into the
“coverage gap” in States without Medic-

103

The estimate of the total number of State and local governmental plans is based on the 2012 Census of Government.

104

Based on data from the McKinsey Center for US Health System Reform and Medical Loss Ratio submissions for 2013 reporting year.

105

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

106

Levitt, L., et al. How Buying Insurance Will Change Under Obamacare. Kaiser Family Foundation, September 2013.

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December 7, 2015

aid expansion, and the estimated 66.6 – 82
million with ESI with preexisting conditions
could beneﬁt from these ﬁnal regulations.107
2. Beneﬁts
These ﬁnal regulations will expand and
improve coverage for those Americans
with preexisting conditions; those currently diagnosed, undiagnosed, or who
will develop conditions as they age. This
will likely increase access to health care,
improve health outcomes, and reduce
family ﬁnancial strain and “job lock.”
For many years insurance providers/
issuers maintained risk pools that are
equal to that of the general population,
using various methodologies;108 often to
the detriment of those most in need. Passage of the Affordable Care Act on March
23, 2010, provided millions of Americans
with a way to obtain, re-obtain, or keep
their affordable health coverage without
the fear of losing or not having it when
they are at their most vulnerable.
Prior to enactment of the Affordable
Care Act, an estimated 50 –52 million
non-elderly people lacked insurance and
50 –129 million were diagnosed with a
preexisting condition.109 Numerous studies show that uninsured adults and children are 3 to 6 times more likely to go
without or postpone receiving needed
care, experience higher delays and incidences of unmet needs, have higher incidences in avoidable hospital stays, and

have a higher risk of death after an accident or when hospitalized.110 This provision beneﬁts and protects the millions of
non-elderly persons who currently have a
preexisting condition and those that will
develop some condition as they age – in
one study of those reporting good or excellent health, 15–30 percent will develop
a preexisting condition in the next eight
years111 – by providing them a means to
obtain or keep health coverage. Without
the protections of these ﬁnal regulations, many more Americans could be
faced with the fear and anxiety of trying
to obtain health coverage or faced with
insufﬁcient coverage due to preexisting
conditions.
As discussed previously, those with
preexisting condition exclusions or those
that were uninsured could have found
themselves being charged 2.5 times more
prior to the Affordable Care Act.112 The
higher cost faced by those with preexisting conditions, whether uninsured or containing riders, could have led families to
encounter ﬁnancial hardships, crisis, and
emotional stress.
Reports show that those lacking coverage are more likely to have trouble paying
bills while being more likely to take on
additional credit card debt and spend
down family assets and savings, often resulting in the loss of their homes and
personal bankruptcy: In 1981 the foreclosure rate reported to be associated with
medical issues was only 8 percent; by

2007 this rate had increased to 62.1 percent of all personal bankruptcies, and 49
percent of foreclosures.113 These higher
rates can in turn lead to many health care
organizations providing uncompensated
care: in 2008, the uninsured received $116
billion worth of hospital care – the primary
source of which was federal funding.114 In
addition to their advantages with regard to
access to care, health, and well-being these
ﬁnal regulations are likely to lower families’
out-of-pocket health care spending and the
level of uncompensated care; thus beneﬁting State and Federal governments and, by
extension, taxpayers.
Finally, these 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 them and/or their
dependents. Due to the limitations and
exclusions in individual health coverage,
many people were forced into a position
where they chose to remain in a job out of
fear of losing their existing coverage or
chose a job with sponsored coverage over
a higher wage position.115 Job lock leads
to a number of labor market distortions
resulting in workers in jobs that are a
“poor ﬁt,” with reduced satisfaction or
skills that are not properly utilized, affecting their ability to start new businesses,
retire, or reduce their work load.116 One
study indicates that 35 percent of those
surveyed worried they will have to forego

107

ASPE. At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform, 2011 and Artiga, S. et al.
The Impact of the Coverage Gap in States not Expanding Medicaid by Race and Ethnicity. The Kaiser Family Foundation, April 2015.

108

Claxton, G. and Lundy, J. How Health Care Coverage Works: A Primer 2008 Update. The Kaiser Family Foundation, April 2008.

109

ASPE. At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform, 2011; Collins, S., et al. Help
is on the Horizon: How the Recession Has Left Millions of Workers Without Health Insurance, and How Health Reform Will Bring Relief – Findings from The Commonwealth Fund Biennial
Health Insurance Survey of 2010. The Commonwealth Fund. 2011. Studies utilized 2008 MEPS data and The Commonwealth Biennial Health Insurance Survey of 2010 and prior years
to estimate the numbers of individuals with preexisting conditions.

110
Collins, S., et al. Help is on the Horizon: How the Recession Has Left Millions of Workers Without Health Insurance, and How Health Reform Will Bring Relief – Findings from The
Commonwealth Fund Biennial Health Insurance Survey of 2010. The Commonwealth Fund. 2011; Callahan, S., et al. Access to Health Care for Young Adults With Disabling Chronic
Conditions. Arch Pediatr Adolesc Med. 2006;160:178 –182; and Bernstein, J., et al. Issue Brief: How Does Insurance Coverage Improve Health Outcomes? Mathematica Policy Research,
Inc. 2010:1.
111

Bailey, K. Worry No More: Americans with Pre-Existing Conditions Are Protected by the Health Care Law, Families USA; 2012 and ASPE. At Risk: Pre-Existing Conditions Could
Affect 1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform, 2011.

112

Bailey, K. Worry No More: Americans with Pre-Existing Conditions Are Protected by the Health Care Law, Families USA; 2012 and Anderson, G. From ‘Soak The Rich’ To ‘Soak The
Poor’: Recent Trends In Hospital Pricing. Health Affairs,2007; 26(3), pp. 780 –789.

113

Himmelstein, D. et al. Medical Bankruptcy in the United States, 2007: Results of a National Study. Am Jour of Med. 2009; 122(8), pp. 741–746; Robertson, T., et al. “Get sick, get out:
the medical causes of home mortgage foreclosures.” Health Matrix: Journal of Law-Medicine. 2008; 18(65), pp 65–105; Fact Sheet. Key Facts about the Uninsured Population. The Kaiser
Family Foundation. October 2014; see also https://www.medicare.gov/your-medicare-costs/help-paying-costs/medicaid/medicaid.html.

114
Stoll, K. and Bailey, K. Hidden Health Tax: Americans Pay a Premium. Families USA, 2009 and Coughlin, T. et al. Uncompensated Care for Uninsured in 2013: A detailed Examination.
The Kaiser Family Foundation, 2014.
115

GAO, Private Health Insurance: Estimates of Individuals with Preexisting Conditions Range from 36 million to 122 million, GAO–12– 439, 2012.

116

Baker, D. Job Lock and Employer – Provided Health Insurance: Evidence from the Literature. Public Policy Institute. 2015;I–35; ASPE. At Risk: Pre-Existing Conditions Could Affect
1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform, 2011; Fact Sheet. Key Facts about the Uninsured Population. The Kaiser Family
Foundation. October 2014.

December 7, 2015

732

Bulletin No. 2015– 49

job opportunities or forego retirement to
maintain coverage.117
Under the Affordable Care Act, the
interim ﬁnal regulations, and these ﬁnal
regulations, someone currently insured
through the group market with less than
18 months of continuous coverage may be
more willing to leave their job and become a self-employed entrepreneur if they
or their dependents have a preexisting
condition – resulting in potentially 2– 4
million more self-employed individuals.118 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 they will not have to worry that
a preexisting condition could be excluded for up to 12 months.119 While the
total reduction in job-lock may be small,
the impact on those families with members that have preexisting conditions
may be signiﬁcant.
Executive Order 12866 requires agencies to take account of “distributive impacts” and “equity.” Requiring health
plans and issuers to provide coverage to
adults and children with preexisting conditions will result in a small increase in
premium for relatively healthy adults and
children, and a large increase in health and
ﬁnancial security for individuals with preexisting conditions. This transfer is a
meaningful increase in equity, and is a
beneﬁt of this ﬁnal regulation.
3. Costs and Transfers
Although those that have preexisting
condition exclusions have higher health
care costs than healthier individuals,
among individuals with preexisting conditions, those who are uninsured have expenditures that are somewhat lower than
the average insured individual.120 It is expected that when those individuals who
are uninsured or have policies with preexisting condition exclusions gain coverage,

there will be additional demand for and
utilization of services, leading to a transfer
from out-of-pocket spending to spending
covered by insurance, which will partially
be mitigated by a reduction in costshifting of uncompensated care to the insured population as coverage expands.
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. For example, under the current guaranteed availability and renewability protections in the individual market, children
and young adults with a preexisting condition are now generally able to obtain
and maintain coverage on a parental plan,
where he or she can potentially stay on
that plan until age 26. As another example, the Affordable Care Act requires that
non-grandfathered health plans provide
recommended preventive services at no
cost-sharing. This will amplify the beneﬁts of coverage for newly insured individuals with preexisting conditions. Moreover, the expansion of the preexisting
condition exclusion policy occurred at the
same time as other policies were implemented, such as the individual responsibility and premium tax credit provisions.
Therefore, the Departments cannot provide a more precise estimation of either
the beneﬁts or the costs and transfers of
this provision.
C. PHS Act Section 2711, Prohibition on
Lifetime and Annual Limits (26 CFR
54.9815–2711, 29 CFR 2590.715–2711,
45 CFR 147.126)
1. Affected Entities and Individuals
Prior to the passage of the Affordable
Care Act, both the incidence and amount
of lifetime limits varied by market and
plan type (e.g., HMO, PPO, POS). In the
RIA for the interim ﬁnal regulations, it
was estimated that only 8 percent of large
employers, 14 percent of small employers

and 19 percent of individual market policies imposed an annual limit at that time
and thus would have been directly impacted by the interim ﬁnal regulations,
which were phased in.
Fear and anxiety about reaching annual
or lifetime limits on coverage was a major
concern among Americans who have
health insurance, although while such limits were relatively common in health insurance, the numbers of people expected
to exceed either an annual or lifetime limit
was quite low.
2. Beneﬁts
As discussed in the RIA for the interim
ﬁnal regulations, annual and lifetime limits function as caps on how much a group
health plan or 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-ofpocket. These limits particularly affect
people with high-cost conditions,121
which typically are very serious and can
lead to ﬁnancial hardship. Prohibiting lifetime limits and annual limits will beneﬁt
families and individuals experiencing ﬁnancial burdens due to exceeding the beneﬁt limits of their insurance policy. By
ensuring and continuing coverage, the
regulations also reduce uncompensated
care, which would otherwise increase premiums of the insured population through
cost-shifting.
These provisions will also improve access to care. Reaching a limit could interrupt or cause the termination of needed
treatment, leading to worsening of medical conditions. 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

117

Altman, D. Pre-X Redux. The Kaiser Family Foundation, June 2013.

118

Baker, D. Job Lock and Employer – Provided Health Insurance: Evidence from the Literature. Public Policy Institute. 2015;I–35.

119

Foronstin, P. Health Insurance Portability and Job Lock: Findings from the 1998 Health Conﬁdence Survey. Employee Beneﬁt Research Institute Notes. 1998: 19(8), pp. 4 – 6.

120

Coughlin, T. et al. Uncompensated Care for Uninsured in 2013: A Detailed Examination. The Kaiser Family Foundation, 2014; GAO, Private Health Insurance: Estimates of Individuals
with Preexisting Conditions Range from 36 million to 122 million, GAO–12– 439, 2012.
121
A December 2014 study by Milliman “2014 U.S. organ and tissue transplant cost estimates and discussion” found that the average 2014 billed charges related to a heart transplant is
$1,242,200, a liver transplant averaged $739,100, while a heart-lung transplant averaged $2,313,600.

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December 7, 2015

have been prevented if no loss of coverage
had occurred. By ensuring continuation of
coverage, the regulations beneﬁt the
health and the economic well-being of
participants, beneﬁciaries, and enrollees.
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 the interim
ﬁnal regulations and these regulations.
Prohibiting lifetime and annual limits assures that insurance will perform the function for which it was designed—namely,
protecting health and ﬁnancial wellbeing
for those most in need of care. This represents a meaningful improvement in equity, which is a beneﬁt associated with the
regulations.
3. Costs and Transfers
As discussed in the regulatory impact
analysis for the interim ﬁnal regulations,
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 increased the actuarial value of
the insurance coverage for affected plans
and policies if no other changes were
made to the plan or policy. Issuers and
plans in the group market may have chosen 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 is 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 can result in lower proﬁts or
higher prices for the employer’s goods or
services. In the individual market, when
policies were individually underwritten

with no rating bands in the majority of
States, the Departments expected the
added premium cost or other beneﬁt
changes to be largely borne by the individual policyholder. With the market reforms in place, along with single risk pool
requirements, issuers can spread the increased costs across the entire individual
market, leading to a transfer from those
who do not incur high medical costs to
those who do incur such costs. However,
as with the group market, such a transfer
was expected to be modest, given the
small numbers of people who were expected to exceed their beneﬁt limits. The
Departments previously estimated that the
transfer would be three-quarters of a percent or less for lifetime limits and onetenth 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.
It is worth noting that these transfers
are expected to have been signiﬁcantly
mitigated by the associated expansion of
coverage created by the interim ﬁnal regulations and other regulations implementing the Affordable Care Act. The Departments expect that, as a result of the
gradual elimination of annual limits and
the immediate elimination of lifetime limits, fewer people have been left without
protection against high medical costs.
This results in fewer individuals spending down resources and enrolling in
Medicaid or receiving other State and
locally funded medical support. Such an
effect will likely be ampliﬁed due to the
high-cost nature of people who exceed
beneﬁt limits.
D. PHS Act Section 2712, Prohibition
on Rescissions (26 CFR 54.9815–2712,
29 CFR 2590.715–2712, 45 CFR
147.128)
1. Affected Entities and Individuals
PHS Act Section 2712 and these 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 Federal common laws 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).
The Affordable Care Act and its implementing regulations should have a large
effect on reducing the number of rescissions for two reasons. First, the Affordable Care Act raised the standard governing when coverage may be rescinded.
Group health plans and health insurance
issuers may now only rescind coverage
based on fraud or intentional misrepresentation of a material fact which is a higher
standard than most State laws required
previously. Second, the interaction of
these regulations with PHS Act sections
2704, prohibition of preexisting condition
exclusions, and sections 2705, prohibiting
discrimination against individual participants and beneﬁciaries based on health
status, could signiﬁcantly reduce the number of policies rescinded. Previously, the
issues surrounding the reporting of preexisting conditions to issuers and an individual’s health status were primary causes
of rescissions. With the main source of
rescissions removed there would be a signiﬁcant drop in rescissions even without
these regulations.
The Departments assume that these ﬁnal regulations will have their largest impact on the individual insurance market,
because group health coverage rarely is
rescinded.122 By creating a new Federal
standard governing when policies can be
rescinded, the Departments expect these
ﬁnal regulations to potentially affect the
approximately 6.7 million non-elderly individual health insurance policies covering 10.9 million policy holders and their
dependents in the individual health insurance market.123 In addition, approximately 430 health insurance issuers offering coverage in the individual health
insurance market who currently could rescind health insurance coverage are expected to be affected.124 That said, the
actual incidence of individuals who are
subject to rescissions each year is likely to

122

This statement is based on the Departments’ conversations with industry experts.

123

2013 ﬁlings of the Medical Loss Ratio Report found at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Medical-Loss-Ratio.html.

124

2013 ﬁlings of the Medical Loss Ratio Report.

December 7, 2015

734

Bulletin No. 2015– 49

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.125
These pre-Affordable Care Act estimates
are believed to be a signiﬁcant overstatement of rescissions occurring now,
however no new data is available. Using
this estimate implies that when combined
with the current numbers of policy holders
in the individual market there could be
approximately 9,900 rescissions per year.
2. Beneﬁts
Because there is little pre-Affordable
Care Act data available and no publicly
available post-Affordable Care Act data,
the Departments ﬁnd it difﬁcult to estimate the beneﬁts associated with this provision. However, the Departments believe
that the beneﬁts of this provision would
accrue to those individuals who without
these regulations would have their policies rescinded.
As noted, Executive Order 12866 requires consideration of “distributive impacts” and “equity.” To the extent that
rescissions are arbitrary, or targeted at
those most ill, 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.
Individuals who otherwise would have
had their policies rescinded are now able
to retain their coverage; the maintenance
of such coverage through severe illness
helps to prevent ﬁnancial hardship for the
enrollee and their family, creating a substantial ﬁnancial beneﬁt.126
As discussed previously, uninsured individuals are less likely to receive needed
care when they become ill, resulting in the
125

worsening of their condition. The lack of
insurance can lead to lost workplace productivity and additional mortality and
morbidity. Additionally, this provision
protects those individuals currently receiving treatment for a condition by
eliminating the potential interruptions or
terminations in care resulting from rescissions, resulting in higher losses in
productivity.127 Thus, this rule would
contribute to increased worker productivity by reducing the burden associated
with the loss of insurance coverage, and
the concomitant ﬁnancial and emotional
stress.
3. Costs and Transfers
As with the beneﬁts, the costs and
transfers of these regulations are similar to
those of the interim ﬁnal regulations. 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, under the ﬁnal regulations,
these costs could be partially offset by
decreased costs associated with reduced
post-claims underwriting.
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 relative nature of those
individuals who generally have policies
rescinded (who would have difﬁculty going without treatment), the Departments
estimate that these additional costs would
be small.
For those policies or plans that are rescinded, the requirement for an advance
notice prior to such a rescission imposes a
total hour burden of approximately 250

hours and a cost burden of approximate
$3,900. These costs are discussed in more
detail in the Paperwork Reduction Act
section later in this preamble.
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
that 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 the costs associated with the health
care costs of those individuals with
chronic or serious conditions whose policies could previously be rescinded (the
precise change in premiums depending on
the competitive conditions in speciﬁc
insurance markets). This transfer across
the market would beneﬁt those individuals with substantially higher medical
costs, due to chronic or severe conditions, and would be attributable to insurers covering those costs associated
with such individuals.
E. PHS Act Section 2714, Coverage of
Dependents to Age 26 (26 CFR
54.9815–2714, 29 CFR 2590.715–2714,
45 CFR 147.120)
1. Affected Entities and Individuals
Prior to implementation of the Affordable Care Act there were an estimated 6.6
million uninsured young adults age 19 –
26; with an estimated 3.3 million having
parents with ESI and an additional 2.7
million with individual coverage, all of
whom could potentially have been affected.128 Implementation of this provision allowed 13.7 million young adults to
either stay on or join their parents’ health
plans (from November 2010 until November 2011).129 There was a rapid response
to changes in the regulations leading to
large number of employers enrolling

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

126

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-ﬁinsure23feb23,1,5039339.story.

127

Collins et al. “Gaps in Health Insurance: An All American Problem” Commonwealth Fund (2006), available http://www.commonwealthfund.org/usr_doc/Collins_gapshltins_920.pdf.

128

Collins, S. and Nicholson, J. Rite of Passage: Young Adults and the Affordable Care Act of 2010. The Commonwealth Fund. May 2010.

129

Collins, S. et al. Young, Uninsured and in Debt: Why Young Adults Lack Health Insurance and How the Affordable Care Act is Helping. The Commonwealth Fund. June 2012.

Bulletin No. 2015– 49

735

December 7, 2015

young adults130, with thirteen percent of
small ﬁrms and 70 percent of large ﬁrms
enrolling at least one young adult – small
employers on average enrolled two young
adults while large employers enrolled on
average 492 young adults.131
Studies have shown that 2.3 million
young adults were able to gain coverage
since implementation of the Affordable
Care Act and this provision in 2010
through the start of the open enrollment
period in October 2013.132 The number of
affected young adults has continued to
increase as more employers began covering young adult dependents and those on
individual grandfathered plans began
changing policies to include dependents
up to age 26. This has resulted in an
additional 3.4 million young adults gaining coverage since October 2013, resulting in a total of an estimated 5.7 million
gaining coverage from 2010 through
March 2015.133
2. Beneﬁts
The beneﬁts of these ﬁnal regulations
are expected to outweigh the costs to the
regulated community. As of March 2015,
an estimated 5.7 million additional young
adults are now covered by their parents’
health plans due to the implementation of
this provision.134 Expanding coverage options for the 19 –26 year old population
has resulted in a decline in the number of
uninsured young adults, declining to an
uninsured rate of 26.7 percent in the third
quarter of 2013 (before the start of the
October 2013 open enrollment period).135
Uninsured young adults are less likely
to have access to care and thus delay

seeking needed care136, leading to higher
costs when care is received. Further, expanded coverage provides young adults
with security and protection from the ﬁnancial consequences of serious medical
emergencies. Recent studies have found
that due to the implementation of this provision there has been a decline in the
number of young adults facing higher
out– of-pocket expenses (greater than
$1,500);137 beneﬁting them when many
young adults are currently facing elevated
debt burdens and low wages.138
Additionally, expanding coverage to
those aged 19 –26 should decrease the
cost-shifting of uncompensated care onto
those with coverage (including $147 million from emergency department care),139
increase the receipt of preventive health
care and provide more timely access to
high quality care, resulting in a healthier
population. In particular, children with
chronic conditions or other serious health
issues will be able to continue coverage
through a parent’s plan until age 26.
Extending dependent coverage of children to age 26 will also permit greater job
mobility for this population as their health
coverage will no longer be tied to their
jobs, thus reducing the potential of “job
lock”,140 or student status.
3. Costs and Transfers
Estimates for the incremental annual
premium costs for the newly covered individuals were developed in the interim
ﬁnal regulations; estimating that for those
enrolling in their parents’ ESI, the expected annual premium cost would lead to
an expected increase of 0.7 percent in
2011, 1.0 percent in 2012, and 1.0 percent

in 2013. A recent study carried out by
Depew and Bailey found that the requirement dependent coverage provision led to
a 2.5–2.8 percent increase in premiums
for plans that cover children, and that employers did not pass on the entire premium
increase to employees in the form of
higher required plan contributions.141 To
the extent that some of these increases are
passed on to workers in the form of higher
premiums for all workers purchasing family policies or in the form of lower wages
for all workers, there will be a transfer
from workers who do not have newly covered dependents to those who do. To the
extent that these higher premiums result in
lower proﬁts or higher prices for the employer’s product, the higher premiums
will result in a transfer either from stockholders or consumers to workers who
have newly covered dependents.
In addition, to the extent these ﬁnal
regulations result in a decrease in the
number of uninsured, the Departments expect a reduction in uncompensated care,
and a reduction in liability for those who
fund uncompensated care, including public programs (primarily Medicaid and
State and local general revenue support
for public hospitals), as well as the portion
of uncompensated care that is paid for by
shifting costs from private payers. Such
effects would lead to lower premiums for
the insured population, both with or without newly covered children.
For the number of young adults enrolling in their parents’ non-group (individual) insurance policy, the Departments estimated that, to a large extent, premiums
in the individual market will be borne by
the parents who are purchasing the coverage. If, instead, these costs are distributed

130

Cantor, J. et al. Early Impact of the Affordable Care Act on Health Insurance Coverage of Young Adults. Health Services Research, 47:5 (2012):pp. 1773–1790.

131

Claxton, G. et al. Employer Health Beneﬁts: 2011 Annual Survey. Kaiser Family Foundation and Health Research & Education Trust. 2011

132

ASPE Data Point, Health Insurance Coverage and the Affordable Care Act, September 2015.

133

ASPE. Health Insurance Coverage and the Affordable Care Act. May 2015 at http://aspe.hhs.gov/sites/default/ﬁles/pdf/83966/ib_uninsured_change.pdf

134

Id.

135

Ibid and Sommers, B. Number of Young Adults Gaining Insurance Due to the Affordable Care Act Now Tops 3 Million. ASPE Issue Brief, June 2012

136

Newacheck, P. et al. Health Insurance and Access to Primary Care for Children. N Engl J Med. 338:8 (1998) and Sommers, B. et al. The Affordable Care Act Has Led To Signiﬁcant
Gains in Health Insurance and Access to Care for Young Adults. Health Affairs, 32:1 (2013):pp. 165–174

137
Busch, S. et al. ACA Dependent Coverage Provision Reduced High Out-Of-Pocket Health Care Spending For Young Adults. Health Affairs, 33:8 (2014): pp. 1361–1366 and Mulcahy,
A. et al. Insurance Coverage of Emergency Care for Young Adults under Health Reform. N Engl J Med. 368:22 (2013)
138

Chua, K–P. and Sommers, B. Changes in Health and Medical Spending Among Young Adults Under Health Reform. JAMA, 311:23 (2014)

139

Mulcahy, A. et al. Insurance Coverage of Emergency Care for Young Adults under Health Reform. N Engl J Med. 368:22 (2013)

140

Sommers, B. et al. The Affordable Care Act Has Led To Signiﬁcant Gains in Health Insurance and Access to Care for Young Adults. Health Affairs, 32:1 (2013):pp. 165–174

141

Depew, B. and Bailey, J. Did the Affordable Care Act’s dependent coverage mandate increase premiums? Journal of Health Economics, 41 (2015):pp. 1–14

December 7, 2015

736

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over the entire individual market (as
would be the case in a pure community
rated market), the Departments estimated
in the interim ﬁnal regulations that the
individual premiums would rise 0.7 percent in 2011, 1.0 percent in 2012, and 1.2
percent in 2013. However, the Departments expected the actual increase across
the entire individual market, if any, to be
much smaller than these estimates, because they expected the costs to be largely
borne by the subscribers who are directly
affected rather than distributed across the
entire individual market.
F. PHS Act Section 2719, Internal
Claims and Appeals and External
Review (26 CFR 54.9815–2719, 29 CFR
2590.715–2719, 45 CFR 147.136)
1. Estimated Number of Affected
Entities
These provisions are applicable to nongrandfathered health plans and coverage.
Using the estimates from the discussion of
affected entities for the grandfathering
provisions discussed in paragraph III.C,
there are 96.3 million individuals covered
by non-grandfathered ERISA-covered
health plans, 30.4 million individuals covered by non-grandfathered State and local
health plans, and 8.7 million individuals
in non-grandfathered health coverage in
the individual market.
Not all potentially affected individuals
will be affected equally by these ﬁnal regulations. Sponsors of ERISA-covered
group health plans were required to implement an internal appeals process that
complied with the DOL claims procedure
regulation before the Affordable Care
Act’s enactment, and the Departments
also understand that many non-Federal
governmental plans and church plans that
are not subject to ERISA had implemented internal claims and appeals processes that comply with the DOL claims
procedure regulation. Therefore, participants and beneﬁciaries covered by such
plans only will be affected by the internal
claims and appeals standards that are provided by the Secretary of Labor in paragraph (b)(2)(ii) of these ﬁnal regulations
under PHS Act section 2719.
142

These ﬁnal regulations will have the
largest impact on individuals covered in
the individual health insurance market,
because with the issuance of the interim
ﬁnal regulation, these issuers were required to comply with the DOL claims
procedure regulation for internal claims
and appeals as well as the additional standards added by the Secretary of the Department of Health and Human Services
in paragraph (b)(3) of these ﬁnal regulations that are in some cases more protective than the ERISA standard.
On the external appeals side, before the
enactment of the Affordable Care Act,
issuers offering coverage in the group and
individual health insurance market were
already required to comply with State external review laws. At that time, all States
except Alabama, Mississippi, Nebraska,
North Dakota, South Dakota, and Wyoming had external review laws, and thirteen States had external review laws that
apply only to certain market segments (for
example, managed care or HMOs). Currently, all States except, Alabama, Alaska,
Florida, Georgia, Pennsylvania, and Wisconsin have State external review laws
that satisfy the requirement to provide a
NAIC-similar or NAIC-parallel external
review process. These six States that do
not meet the requirements, must use the
HHS-administered process or must contract with accredited independent review
organizations to review external appeals
on their behalf until they meet the requirements.142
Individuals participating in ERISAcovered self-insured group health plans
will be among those most affected by the
external review requirements contained in
these ﬁnal regulations, because the preemption provisions of ERISA prevent a
State’s external review process from applying directly to an ERISA-covered selfinsured plan. These plans will now be
required to comply with the Federal external review process set forth under paragraph (d) of these ﬁnal regulations.
In summary, the number of affected
individuals depends on several factors, including whether (i) a health plan retains
its grandfather status, (ii) the plan is subject to ERISA, (iii) beneﬁts provided under the plan are self-funded or ﬁnanced by

the purchase of an insurance policy, (iii)
the applicable State has enacted an internal claims and appeals law, and (iv) the
applicable State has enacted an external
review law, and if so the scope of such
law, and (v) the number of new plans and
enrollees in such plans.
The following, is a summary of the
beneﬁts and costs as discussed in the interim ﬁnal regulations and that are still
applicable to these ﬁnal regulations.
2. Beneﬁts
Because of data limitations and a lack
of effective measures, the Departments
did not attempt to quantify the expected
beneﬁts. Nonetheless, the Departments
were able to identify several of the interim ﬁnal regulation’s major economic
beneﬁts.
The interim ﬁnal regulations and these
ﬁnal regulations will help transform the
current, highly variable health claims and
appeals process into a more uniform and
structured process. This will:
• improve the extent to which employee
beneﬁt plans provide beneﬁts consistent with the established terms of the
plan;
• ensure greater certainty and consistency in the handling of beneﬁt claims
and appeals and improved access to
information about the manner in
which claims and appeals are adjudicated;
• increase efﬁciency in the operation of
employee beneﬁt plans and health care
delivery as well as health insurance
and labor markets;
• increase efﬁciency of health plans by
enhancing their transparency and fostering participants’ conﬁdence in the
plan’s fairness;
• reduce delays and inappropriate denials;
• reduce the levels of error in the system
and improve health outcomes;
• improve health care, health plan quality, and insurance market efﬁciency by
serving as a communication channel,
providing feedback from participants,
beneﬁciaries, and providers to plans
about quality issues; and

Affordable Care Act: Working with States to Protect Consumers, available at https://www.cms.gov/CCIIO/Resources/Files/external_appeals.html.

Bulletin No. 2015– 49

737

December 7, 2015

• enhance some insurers’ and group
health plans’ abilities to effectively
control costs by limiting access to inappropriate care.
3. Costs and Transfers
The Departments have quantiﬁed the
primary source of costs associated with
these ﬁnal regulations that will be incurred
to (i) administer and conduct the internal
and external review process, and (ii) prepare
and distribute required disclosures and notices. These costs and the methodology used
to estimate them are discussed under the
Paperwork Reduction Act section. The total
cost related to the information collections is
$160.1 million annually.
a. Additional Requirements for Group
Health Plans.
Paragraph (b)(2)(i) of these ﬁnal regulations imposes additional requirements to
the DOL claims procedure regulation that
must be satisﬁed by group health plans
and issuers offering group and individual
coverage in the individual and group health
insurance markets. The Departments believe
that the additional requirements have modest costs associated with them, because they
merely clarify provisions of the DOL claims
procedure regulation.
As discussed in the impact analysis for
the interim ﬁnal regulations the Departments were not able to estimate the costs for
some of the requirements, namely for: the definition of adverse determination, expedited notiﬁcation of beneﬁt determination involving
urgent care, eliminating conﬂicts of interest,
and deemed exhaustion of internal process.
The Departments were able to quantify the
costs for Full and fair review and Enhanced
notice with culturally and linguistically appropriate notices. These costs are included in the
Paperwork Reduction Act Section.
b. Additional Requirements for Issuers
in the Individual Insurance Market.
To address certain relevant differences
in the group and individual markets,

health insurance issuers offering individual health insurance coverage must comply with three additional requirements.
First, these ﬁnal regulations expand the
scope of the group health coverage internal claims and appeals process to cover
initial eligibility determinations.
This protection is important since eligibility determinations in the individual
market are frequently based on the health
status of the applicant, including preexisting conditions. The Departments do not
have sufﬁcient data to quantify the costs
associated with this requirement.
Second, although the DOL claims procedure regulation permits group health
plans to have a second level of internal
appeals, these ﬁnal regulations require
health insurance issuers offering individual health insurance coverage to have only
one level of internal appeals. This allows
the claimant to seek either external review
or judicial review immediately after an
adverse determination is upheld in the ﬁrst
level of internal appeals. The Departments
have factored this cost into their estimate
of the cost for issuers offering coverage in
the individual market to comply with this
requirement.
Finally, these ﬁnal regulations require
health insurance issuers offering individual health insurance coverage to maintain
records of all claims and notices associated with their internal claims and appeals
processes. An issuer must make such records available for examination upon request. Accordingly, a claimant or State or
Federal agency ofﬁcial generally would
be able to request and receive such documents free of charge. The Departments
believe that minimal costs are associated with this requirement, because
most issuers retain the required information in the normal course of their business operations.
c. External Appeals.
The analysis of the cost associated with
implementing an external review process
under the interim ﬁnal regulations and

these ﬁnal regulations focuses on the cost
incurred by the following three groups
that were not required to implement an
external review process before the enactment of the Affordable Care Act: plans
and participants in ERISA-covered selfinsured plans; plans and participants in
States with no external review laws; and
plans and participants in States that have
State laws only covering speciﬁc market
segment (usually HMOs or managed care
coverage).
The Departments estimate that there
are approximately 78.7 million participants in self-insured ERISA-covered
plans and approximately 15.5 million participants in self-insured State and local
governmental plans. In the States which
currently have no external review laws or
whose laws do not meet the federal minimum requirements143 there are an estimated 13.8 million participants (8.1 million participants in ERISA-covered plans,
3.7 million participants in governmental
plans and 2 million individual covered by
policies in the individual market). These
estimates lead to a total of 108 million
participants, however, only the 80.0 million participants in non-grandfathered
plans will be required to be covered by the
external review requirement.
The Departments assume that there are
an estimated 1.3 external appeals for every 10,000 participants144, and that there
will be approximately 10,400 external appeals annually. As required by these ﬁnal
regulations or applicable State law, plans
or issuers are required to pay for most of
the cost of the external review while
claimants may be charged a nominal ﬁling
fee in States that authorized such fees as
of November 18, 2015. One study found
that the average cost of a review was
approximately $665145. The average cost
per appeal in the HHS-administered External Review Program is approximately
$625 for a standard case and $825 for an
expedited case.146
The actual cost per review will vary by
State and type of review (standard or expedited). Lacking data on the percent of

143
These states are Alabama, Alaska, Florida, Georgia, Pennsylvania, and Wisconsin. See Affordable Care Act: Working with States to Protect Consumers, available at https://www.cms.gov/
CCIIO/Resources/Files/external_appeals.html
144

AHIP Center for Policy and Research, “An Update on State External Review Programs, 2006,” July 2008.

145

North Carolina Department of Insurance “Healthcare Review Program: Annual Report,” 2013 Table 4. http://www.ncdoi.com/smart/Documents/ExternalReviewReport16.pdf

146

The HHS-administered External Review Program is approximately $625 for a standard case and $825 for an expedited case.

December 7, 2015

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Bulletin No. 2015– 49

appeals that are expedited, but with the
majority of appeals being standard appeals, the higher cost per appeal of $665
for a standard appeal is used as an estimate for all appeals. These estimates lead
to an estimated cost of the external review
of $6.9 million (10,400 reviews * $665)
annually.
On average, about 40 percent of denials are reversed on external appeal.147 An
estimate of the dollar amount per claim
reversed is $12,500.148 This leads to $53.5
million in additional claims being reversed by the external review process annually. While this amount is a cost to
plans, it represents a payment of beneﬁts
that should have previously been paid to
participants, but was denied. Part of this
amount is a transfer from plans and issuers to those now receiving payment for
denied beneﬁts. Part of the amount could
also be a cost if the reversal leads to
services and hence resources being utilized now that had been denied previously. The Departments are not able to
distinguish between the two types but believe that most reversals are associated
with a transfer.
These ﬁnal regulations also require
claimants to receive a notice informing
them of the outcome of an appeal and/or
external review. The independent review
organization that conducts the external review is required to prepare the notice;
therefore, the cost of preparing and delivering this notice is included in the fee paid
them by the insurer to conduct the review.
4. Summary
These ﬁnal rules extend the protections
of the DOL claims procedure regulation to
non-Federal governmental plans, and the
market for individual coverage. Additional protections are added that cover
these two markets and in addition to the
market for ERISA-covered plans. These
ﬁnal regulations also extend the requirement to provide an independent external
review. The Departments estimate that the
total costs for these ﬁnal regulations is

$169.9 million annually with a transfer
from the plan and its participants to those
whose claims are reversed of $53.5 million annually.
G. PHS Act Section 2719A, Patient
Protections (26 CFR 54.9815–2719A, 29
CFR 2590.715–2719A, 45 CFR 147.138)

allow patients to make the ﬁnal provider
choice, as this would be the population to
beneﬁt maximally from the interim ﬁnal
rules and these regulations. 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.

1. Designation of Primary Care Provider
b. Beneﬁts, Costs, and Transfers
The statute, the interim ﬁnal regulations and these 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 based on his or her geographic location.
a. Affected Entities and Individuals
Choice or assignment of a primary care
provider is typically required by Health
Maintenance Organizations (HMOs) and
Point of Service plans (POS). Recent data
suggest that there are 316,000 HMOs in
the United States, accounting for more
than 11.3 million enrollees with ESI.
There are also 558,000 POS plans accounting for almost 7 million enrollees
with ESI. The individual market includes
130,700 HMO policies.149 Similar data do
not exist for POS policies in the individual
market.
This provision only applies to nongrandfathered 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.
Moreover, there is no data on the number
of plans that auto-assigned patients to primary care physicians and did not already

As discussed in the RIA for the interim
ﬁnal regulations, 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. Provider choice is a strong
predictor of patient trust in their provider,
which could lead to decreased likelihood
of malpractice claims, improved medication adherence and also improves health
outcomes.
Although difﬁcult to estimate given the
data limitations described, the costs for
this provision are likely to be minimal. As
noted in the RIA for the interim ﬁnal
regulations, 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.
2. Designation of Pediatrician as
Primary Care Provider
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, including pediat-

147

Of the 105 cases fully reviewed in the HHS-administered external review process so far, 28 have been overturned and 25 have been partially overturned.

148

North Carolina Department of Insurance “Healthcare Review Program: Annual Report,” 2013. http://www.ncdoi.com/smart/Documents/ExternalReviewReport16.pdf

149

Data for the group market (plan and participant counts) were calculated using the 2012 MEPS, 2012 Census of Government, 2014 Current Population Survey, and 2014 Kaiser/HRET
Survey of Employer Sponsored Health Beneﬁts. Data for the individual market were calculated using AHIP ⬙Individual Health Insurance 2009: A Comprehensive Survey of Premiums,
Availability and Beneﬁts,” Table 10 and Medical Loss Ratio submissions for 2013 reporting year.

Bulletin No. 2015– 49

739

December 7, 2015

ric subspecialties (based on the scope of
that provider’s license under applicable
State law), 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, including any exclusions with
respect to coverage of pediatric care.
a. Affected Entities and Individuals
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 of enrollees and
plans that would be affected by these provisions. As a reference, there are an estimated 5.6 million individuals under age
19 with ESI who are in an HMO plan.150
b. Beneﬁts, Costs, and Transfers
By expanding participating primary
care provider options for children to include pediatricians, this provision beneﬁts
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.
In addition, allowing enrollees to select
a physician specializing in pediatrics as
their children’s primary care provider has
removed any referral related delays for
individuals in plans that required referrals
to pediatricians and did not allow physicians specializing in pediatrics to serve as
primary care providers. The American
Academy of Pediatrics (AAP) strongly
supports the idea that the choice of primary care clinicians for children should
include pediatricians.151 Regular pediatric
care, including care by physicians specializing in pediatrics, can improve child
150

health outcomes and avert preventable
health care costs.
Giving enrollees in covered plans (that
require the designation of a primary care
provider) the ability to select a participating pediatrician as the child’s primary
care provider beneﬁts those individuals
who would not otherwise have been given
this choice. 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.
Although difﬁcult to estimate given the
data limitations described, 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 increased 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 the interim ﬁnal regulations and these ﬁnal regulations are expected to be minimal. To
the extent that pediatricians acting as primary care providers would receive higher
payment rates for services provided than
would other primary care physicians,
there may be some transfer of wealth from
policy holders of non-grandfathered group
plans to those enrollees that choose the
former providers. However, the Departments do not believe that this is likely
given the similarity in income for primary
care providers that care for children.
3. Patient Access to Obstetrical and
Gynecological Care
The statute, the interim ﬁnal regulations and these 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 gyne-

cological 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 (OB/GYN). 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 OB/
GYN as the authorization of the primary
care provider. For this purpose, an OB/
GYN is any individual who is authorized
under applicable State law to provide obstetrical or gynecological care, and is not
limited to a physician.
a. Affected Entities and Individuals
Requiring referrals or authorizations to
OB/GYNs is typically required by HMOs
and POS plans.
This provision applies to nongrandfathered 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 7.3
million females between ages 21 to 65
with ESI who are in HMO plans.152
b. Beneﬁts, Costs, and Transfers
This provision gives women in covered
plans easier access to their OB/GYNs,
where they can receive preventive services such as pelvic and breast exams,
without the added time, expense, and inconvenience of needing permission ﬁrst
from their primary care providers. Moreover, this provision may also save time
and reduce administrative burden since
participating OB/GYNs do not need to get
an authorization from a primary care pro-

Estimate based on data from the 2012 MEPS, 2012 Census of Government, 2014 Current Population Survey, and 2014 Kaiser/HRET Survey of Employer Sponsored Health Beneﬁts.

151

See AAP Policy Statement, “Guiding Principles for Managed Care Arrangements for the Health Care of Newborns, Infants, Children, Adolescents, and Young Adults”, available at:
http://pediatrics.aappublications.org/content/132/5/e1452.full.pdf⫹html.
152

Estimate based on data from the 2012 MEPS, 2012 Census of Government, 2014 Current Population Survey, and 2014 Kaiser/HRET Survey of Employer Sponsored Health Beneﬁts.

December 7, 2015

740

Bulletin No. 2015– 49

vider 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 will improve
the treatment and health outcomes of female patients. Access to such care can
have substantial beneﬁts in women’s
lives.
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.
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 this provision results in a
shift in services to higher cost providers, it
will result in a transfer of wealth from
enrollees in non-grandfathered group
plans to those individuals using the services affected. However, such an effect is
expected to be small.

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, the interim ﬁnal regulations
and these ﬁnal regulations provide that
cost-sharing requirements expressed as a
copayment amount or coinsurance rate
imposed for out-of-network emergency
services cannot exceed the cost-sharing
requirements that would be imposed if the
services were provided in-network. The
regulations also provide that a plan or
health insurance issuer provide beneﬁts
for out-of-network emergency services
(prior to imposing in-network cost sharing) in an amount at least equal the greatest of: (1) the median amount negotiated
with in-network providers for the emergency service; (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 amount); or (3) the amount
that would be paid under Medicare for the
emergency service. In applying the rules
relating to emergency services, the statute
and the 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.
The statute and the 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.

4. Emergency Services

a. Affected Entities and Individuals

PHS Act section 2719A, the interim
ﬁnal regulations, and these 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 outof-network). For a plan or health insurance coverage with a network of providers

The interim ﬁnal regulations and these
regulations directly affect out-of-pocket
expenditures for individuals enrolled in
non-grandfathered private health plans
(group or individual) whose copayment or
coinsurance arrangements for emergency
services differ between in-network and
out-of-network providers. These regulations may also require some health plans
to change the amount they pay to out-of-

network providers compared to their preAffordable Care Act contractual arrangements. There are no available data,
however, that allow for national estimates
of the number of plans (or number of
enrollees in plans) that have different payment arrangements for out-of-network
than in-network providers, or differences
between in- and out-of-network copayment and coinsurance arrangements, in order to more precisely estimate the number
of enrollees affected.
Prior to the issuance of the interim ﬁnal
regulations, 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 existed in the marketplace
prior to the issuance of the interim ﬁnal
regulations. Many of the large insurers
maintained identical copayment and/or
coinsurance arrangements between inand out-of-network providers. Others had
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.
It was estimated in the interim ﬁnal
regulations that a maximum of 2.1 to 4.2
million individuals would be potentially
affected by differing out-of-pocket requirements. Based on an informal survey,
some proportion, possibly a large portion,
of these individuals were covered by plans
that had identical in- and out-of-network
requirements. Therefore, the number of
individuals affected by this regulatory
provision was expected to be smaller.
b. Beneﬁts, Costs, and Transfers

Bulletin No. 2015– 49

741

Insurers maintained differing copayment and coinsurance arrangements between in- and out-of-network providers as
a cost containment mechanism. Implementing reduced cost sharing for the use
of in-network providers provides ﬁnancial
incentive for enrollees to use these providers, with whom plans often have
lower-cost contractual arrangements. In
emergency situations, however, the choice
of an in-network provider may not be

December 7, 2015

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.
This provision eliminates this disparity in
out-of-pocket burden for enrollees, leading to potentially substantial ﬁnancial
beneﬁt.
The 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 can have a direct
economic beneﬁt to providers and patients, as the remaining differential between provider charge and plan payment
will be smaller, leading to a smaller
balance-bill for patients.
To the extent that expectations about
such ﬁnancial burden with out-of-network
emergency department usage would cause
individuals to delay or avoid seeking necessary medical treatment when they cannot access a network provider, this provision may result in more timely use of
necessary medical care. It may therefore
result in health and economic beneﬁts associated with improved health status; and
fewer complications and hospitalizations
due to delayed and possibly reduced mortality. The Departments expect that this
effect would be small, however, because
insured individuals are less likely to delay
care in emergency situations.
The economic costs associated with the
emergency services provisions are likely
to be minimal. These costs will occur to
the extent that any lower cost-sharing will
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.
153

As discussed in the RIA for the interim
ﬁnal regulations, the emergency services
provisions are likely to result in some
transfers from the general membership of
non-grandfathered group health plans that
have differing copayment and coinsurance
arrangements to those policy holders that
use the out-of-network emergency services. The precise amount of the transfer
which would occur through an increase in
premiums is impossible to quantify due to
lack of data, but only applies to nongrandfathered health plans.
5. Application to Grandfathered Plans
The provisions 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.
6. 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, as was provided in the
interim ﬁnal regulations, these 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 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 $940,000
in 2015. For a discussion of the Patient
Protection Disclosure Requirement, see

the Paperwork Reduction Act section later
in this preamble.
IV. Paperwork Reduction Act
A. Departments of Labor and the
Treasury
These ﬁnal regulations contain a notice
of grandfather status and third party disclosure, rescissions notice, and patient
protection disclosures requirement for issuers and notice requirements related to
internal claims and appeals and external
review that are information collection requests (ICRs) subject to the Paperwork
Reduction Act of 1995 (PRA) (44 U.S.C.
3506(c)(2)(A)).
In accordance with the requirements of
the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)), the Departments submitted an ICR to OMB in accordance with 44 U.S.C. 3507(d), contemporaneously with the publication of the
interim ﬁnal regulations, for OMB’s review under the emergency PRA Procedures.153 OMB subsequently approved the
ICRs. Contemporaneously with the publications of the emergency ICRs, the Departments published a separate Federal
Register notice informing the public that
it intended to request OMB to extend the
approval for three years and soliciting
comments on the ICRs. OMB approved
the ICR extensions.
No public comments were received in
response to the ICRs contained in the interim ﬁnal regulations that speciﬁcally addressed the paperwork burden analysis of
the information collections. The comments that were submitted contained information relevant to the costs and administrative burdens attendant to the
proposals. The Departments took into account the public comments when analyzing the economic impact of the proposals,
and developing the revised paperwork
burden analysis, which is summarized in
the following sections.
A copy of the ICRs may be obtained by
contacting the following PRA addressee
or at http://www.RegInfo.gov. PRA ADDRESSEE: G. Christopher Cosby, Ofﬁce
of Policy and Research, U.S. Department
of Labor, Employee Beneﬁts Security Administration, 200 Constitution Avenue,

5 CFR 1320.13

December 7, 2015

742

Bulletin No. 2015– 49

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].
1. ICR Regarding Affordable Care Act
Notice of Grandfather Status and Third
Party Disclosure
As discussed earlier in this preamble,
to maintain grandfathered health plan status under these ﬁnal regulations, a plan or
issuer must maintain records that document the plan or policy terms in connection with the coverage in effect on March
23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan, disclose its status as a grandfathered health
plan, and if switching issuers and intending to maintain its status as a grandfathered plan it must provide to the new
health insurance issuer documentation of
plan terms under the prior health coverage
sufﬁcient for it to determine whether a
change causing a cessation of grandfathered health plan status has occurred.
a. Grandfathered Health Plan Disclosure
The ﬁnal regulations provide that the
plan or issuer of a grandfathered plan
must disclose to participants and beneﬁciaries its status as a grandfathered health
plan. Model language is provided by the
Departments. Using data from the 2014
Employer Health Beneﬁts Survey it is estimated that 37 percent of plans are grandfathered plans and 26 percent of employees in ERISA-covered plans are in a
grandfathered plans.154
The Departments estimate that there
are 850,700 (2.3 million ERISA-covered
plans * 0.37) ERISA-covered plans155 –
with an estimated 17.2 million policy
holders (66 million policy holders *0.26)
– that will need to include the notice in
plan documents.156 After plans satisﬁed
the grandfathered health plan disclosure

requirement in 2011, any additional burden should be de minimis if a plan wants
to maintain its grandfathered status in future years. The Departments also expect
the cost of removing the notice from plan
documents as plans relinquish their grandfathered status to be de minimis and therefore it is not estimated. Based on the foregoing, the Departments estimate that plans
will incur no additional burden to maintain or remove the notice from plan documents. The Departments estimate that
the notice will require one-half of a page
and 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 total cost burden of
approximately $266,000 ($0.05 per
page*1/2 pages per notice * 17.2 million
notices*0.62).
b. Record Keeping Requirement
Plans were required to maintain records documenting the terms of the plan
or health insurance coverage in connection with the coverage in effect on March
23, 2010.
The Departments assume that most of
the documents required to be retained to
satisfy the recordkeeping requirement of
these ﬁnal regulations are already retained
by plans for tax purposes, to satisfy
ERISA’s record retention and statute of
limitations requirements, and for other
business reasons. The Departments estimated this as a one-time cost incurred in
2011, because after the ﬁrst year, the Departments anticipate that any future costs
to retain the records will be de minimis.
c. Documentation of Plan Terms
These ﬁnal regulations contain a disclosure requirement that requires that a
group health plan that is changing health
insurance coverage to provide to the succeeding health insurance issuer (and the

succeeding health insurance issuer must
require) documentation of plan terms (including beneﬁts, cost sharing, employer
contributions, and annual limits) under the
prior health insurance coverage sufﬁcient
to make a determination whether the standards of paragraph (g)(1) under the Affordable Care Act section 1251 regulations are exceeded. The number of plans
that might be effected (133,200) is estimated by multiplying the number of
grandfathered plans (850,700) by the percent of plans shopping for a new carrier
(58 percent) and the number of plans
shopping for a new carrier that switched
(27 percent). Each of these plans would
need to transmit to the carrier documentation of plan terms (including beneﬁts,
cost sharing, employer contributions, and
annual limits) under the prior health insurance coverage sufﬁcient to make a determination whether the standards of paragraph (g)(1) of the ﬁnal regulations under
Affordable Care Act section 1251 are exceeded. It is estimated that the electronic
transmission of the already retained documents would require 2 minutes of a clerical staff’s time with a labor rate of $30.42
per hour.157 These estimate result in an
hour burden of 4,440 hours (133,200*2/
60) with an equivalent cost of $135,100
(133,200*2/60*$30.42). Each of these
plans would need to transmit to the carrier
documentation of plan terms. If half of the
plans transmit the required documents
electronically then 66,600 plans will be
sent via mail resulting in a materials and
postage costs of $467,600 ((66,600*(90
pages *5 cents per page ⫹ $2.52 postage)).
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.
The paperwork burden estimates are
summarized as follows:
Type of Review: Revision.

154

Kaiser Family Foundation, “2014 Employer Health Beneﬁts Survey.” http://kff.org/health-costs/report/2014-employer-health-beneﬁts-survey/.

155

EBSA estimates based on the 2014 Medical Expenditure Survey - Insurance Component.

156

Health Insurance Coverage Bulletin: Abstract of Auxiliary Data for the March 2014 Annual Social and Economic Supplement to the Current Population Survey, Table 3C.

157

The Department’s estimated 2015 hourly labor rates include wages, other beneﬁts, and overhead are calculated as follows: mean wage from the 2013 National Occupational Employment
Survey (April 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/ocwage.pdf); wages as a percent of total compensation from the Employer Cost for Employee
Compensation (June 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/ecec.t02.htm); overhead as a multiple of compensation is assumed to be 25 percent of total
compensation for paraprofessionals, 20 percent of compensation for clerical, and 35 percent of compensation for professional; annual inﬂation assumed to be 2.3 percent annual growth of
total labor cost since 2013 (Employment Costs Index data for private industry, September 2014 http://www.bls.gov/news.release/eci.nr0.htm). Secretaries, Except Legal, Medical, and
Executive (43– 6014): $16.35(2013 BLS Wage rate)/0.675(ECEC ratio) *1.2(Overhead Load Factor) *1.023(Inﬂation rate) 2ˆ(Inﬂated 2 years from base year) ⫽ $30.42

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December 7, 2015

Agency: Employee Beneﬁt Security
Administration, Department of Labor; Internal Revenue Service, U.S. Department
of the Treasury.
Title: Disclosure and Recordkeeping
Requirements for Grandfathered Plans under the Affordable Care Act
OMB Control Number: 1210-0140;
1545-2178
Affected Public: Business or other forproﬁt; not-for-proﬁt institutions.
Total Respondents: 850,700
Total Responses: 18,143,923
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours
(three year average): 2,200 (Employee
Beneﬁts Security Administration); 2,200
(Internal Revenue Service).
Estimated Total Annual Cost Burden
(three year average): $366,800 (Employee Beneﬁts Security Administration);
$366,800 (Internal Revenue Service).
2. ICR Regarding Affordable Care Act
Notice Relating to Rescissions
As discussed earlier in this preamble,
PHS Act Section 2712 and these 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 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. This rescission notice requirement is an information collection request (ICR) subject to the
Paperwork Reduction Act of 1995 (PRA)
(44 U.S.C. 3506(c)(2)(A)).
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
158

aware of a data source on the number of
group plans whose policy is rescinded;
therefore, the Departments assume that
100 small group health plan policies are
rescinded in a year. The Departments estimate that there is an average of 15.33
participants in small, insured plans.158
Based on these numbers the Departments
estimate that approximately 100 policies
are rescinded during a year, which would
result in 1,533 notices being sent to affected participants with 38 percent transmitted electronically and 62 percent
mailed. The Departments estimate that 15
minutes of legal professional time at
$129.94 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 $30.42 per hour
would be required to distribute the paper
notices. The Departments believe the
costs of electronic transmission would be
de minimis. This results in an hour burden
of approximately 41 hours with an equivalent cost of approximately $3,700.159
The Departments estimate that the cost
burden associated with distributing the paper notices via mail will be approximately
$500. This results from distributing 950
paper notices at a cost of $0.54 per notice.160
These paperwork burden estimates are
summarized as follows:
Type of Review: Revision of existing
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: 1,533.
Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours:
20.5 hours (Employee Beneﬁts Security
Administration); 20.5 hours (Internal
Revenue Service).
Estimated Total Annual Burden Cost:
$250 (Employee Beneﬁts Security Administration); $250 (Internal Revenue
Service).
3. ICR Regarding Affordable Care Act
Patient Protection Disclosure
Requirement
a. Patient Protection Disclosure
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; (2) obtain obstetrical or gynecological care without prior authorization;
or (3) coverage of emergency services.
Accordingly, these ﬁnal regulations require such plans and issuers to provide a
notice to participants (in the individual
market, primary subscriber) of these rights
when applicable. Model language is provided in these 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 ﬁnal regulations’ patient protection disclosure requirement, the Departments estimate that
41,000 ERISA-covered plans will need to

U.S. Department of Labor, EBSA calculations using the March 2014 Current Population Survey Annual Social and Economic Supplement and the 2012 Medical Expenditure Panel Survey.

159

This estimate is based on an average document size of one page, $.05 cents per page material and printing costs, and $0.49 postage costs.

December 7, 2015

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notify an estimated 693,000 policy holders annually of their plans policy in regards to designating a primary care physician and for obstetrical or gynecological
visits.161 The Departments believe that
plans would only incur costs associated
with this notice during the ﬁrst year after
relinquishing grandfather status. In subsequent years, this notice would remain unchanged and its costs are factored into the
burden estimates associated with the Summary Plan Description information collection request (OMB Control Number 12100039).
The following estimates are based on
the assumption that ﬁve percent of group
health plans will relinquish grandfathered
health plan status annually. Because the
ﬁnal regulations provide model language
for this purpose, the Departments estimate
that ﬁve minutes of clerical time (with a
labor rate of $30.42/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 $110.30/hour) will be required to review the modiﬁed language.
Therefore, the Departments estimate that
plans relinquishing grandfathered health
plan status will incur an annual hour burden of 10,000 hours with an equivalent
cost of $866,000.162
The Departments assume that only
printing and material costs are associated
with the disclosure requirement, because
the ﬁnal regulations provide model language that can be incorporated into existing plan documents, such as an SPD. The
Departments estimate that the notice will
require one-half of a page, ﬁve cents per
page printing and material cost will be
incurred, and 38 percent of the notices
will be delivered electronically at de minimis cost. This results in a cost burden of
$11,000.163

b. Out-of-Network Emergency Services
Disclosure
The ﬁnal regulations require that a plan
or issuer may not impose any copayment
or coinsurance requirement for out-ofnetwork emergency services that is more
restrictive than the copayment or coinsurance requirement that would apply if the
services were provided in network. If
State law prohibits balance billing, or a
plan or issuer is contractually responsible
for any amounts balanced billed by an
out-of-network emergency services provider, the plan or issuer must provide an
enrollee or beneﬁciary adequate and
prominent notice of their lack of ﬁnancial
responsibility with respect to amounts balanced billed in order to prevent inadvertent payment by an enrollee or beneﬁciary.
This information should already be routinely included in the Explanation of Beneﬁt
documents sent by plans and issuers to enrollees and beneﬁciaries. Therefore, in accordance with the implementing regulations
of the PRA at 5 CFR 1320.3(b)(2), we believe this is a usual and customary business
practice. Plans and issues routinely provide
enrollees and beneﬁciaries with the Explanation of Beneﬁt documents.
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: Revision of an existing collection.
Agencies: Employee Beneﬁts Security
Administration, Department of Labor; Internal Revenue Service, U.S. Department
of Treasury.
Title: Disclosure Requirement for Patient Protections under the Affordable
Care Act.

OMB Number: 1210 – 0142; 1545–
2181.
Affected Public: Business or other for
proﬁt; not-for-proﬁt institutions.
Total Respondents: 41,000.
Total Responses: 693,000.
Frequency of Response: One time.
Estimated Total Annual Burden Hours:
5,000 (Employee Beneﬁts Security Administration); 5,000 (Internal Revenue
Service).
Estimated Total Annual Burden Cost:
$5,500 (Employee Beneﬁts Security Administration); $5,500 (Internal Revenue
Service).
4. ICR Regarding Affordable Care Act
Internal Claims and Appeals and External
Review
PHS Act section 2719 and these ﬁnal
regulations, require that group health
plans and health insurance issuers offering
group health insurance coverage must
comply with the internal claims and appeals processes set forth in 29 CFR
2560.503–1 (the DOL claims procedure
regulation) and update such processes in
accordance with standards established by
the Secretary of Labor in paragraph
(b)(2)(ii) of the regulations under PHS
Act section 2719.
The burden to comply with the DOL
claims procedure regulations is accounted
for under OMB control number 12100053, therefore it is not included here.
Paragraph (b)(2)(ii)(C) of the ﬁnal regulations under PHS Act section 2719 adds
an additional requirement that nongrandfathered ERISA-covered group health
plans provide to the claimant, free of charge,
any new or additional evidence considered
to be relied upon, or generated by the plan or
issuer in connection with the claim. The
related hour burden is 1,100 hours and the
related cost burden is $1.1 million.
The June 2011 amendment to the interim ﬁnal regulations required that plans

161
The Departments’ estimate of the number of ERISA-covered health plans was obtained from the 2014 Medical Expenditure Survey - Insurance Component and the number of policy
holders was obtained from the Health Insurance Coverage Bulletin: Abstract of Auxiliary Data for the March 2014 Annual Social and Economic Supplement to the Current Population Survey,
Table 3C http://www.dol.gov/ebsa/pdf/coveragebulletin2014.pdf. Information on HMO and POS plans and enrollment in such plans was obtained from the Kaiser/HRET Survey of Employer
Sponsored Health Beneﬁts, 2014. The Department assumes that ﬁve percent of group health plans will relinquish grandfathered health plan status annually.
162
The Department’s estimated 2015 hourly labor rates include wages, other beneﬁts, and overhead are calculated as follows: mean wage from the 2013 National Occupational Employment
Survey (April 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/ocwage.pdf); wages as a percent of total compensation from the Employer Cost for Employee
Compensation (June 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/ecec.t02.htm); overhead as a multiple of compensation is assumed to be 25 percent of total
compensation for paraprofessionals, 20 percent of compensation for clerical, and 35 percent of compensation for professional; annual inﬂation assumed to be 2.3 percent annual growth of
total labor cost since 2013 (Employment Costs Index data for private industry, September 2014 http://www.bls.gov/news.release/eci.nr0.htm).
163
This estimate is based on an average document size of ½ page, $.05 cents per page material and printing costs, and $0.49 postage costs for paper notices and de minimis costs for
electronically distributed notices. The Departments assume 62 percent of notices will be on paper and 38 percent will be distributed electronically.

Bulletin No. 2015– 49

745

December 7, 2015

and issuers must provide participants and
beneﬁciaries who reside in a county where
ten percent or more of the population residing in the county is literate only in the
same non-English language with a onesentence statement in all notices written in
the applicable non-English language
about the availability of language services. In addition to including the statement, plans and issuers are required to
provide a customer assistance process
(such as a telephone hotline) with oral
language services in the non-English language and provide written notices in the
non-English language upon request. Providing notice of the services and the translation services is estimated to have a cost
burden of $1 million annually.
Also, PHS Act section 2719 and these
ﬁnal regulations provide that group health
plans and issuers offering group health
insurance coverage must comply either
with a State external review process or a
Federal review process. Plans and issuers
must provide to those conducting the external reviews required documents. There
is an estimated 8,400 external appeals
conducted annually. The related hour burden is 3,500 hours with an equivalent cost
of $193,700 and a cost burden of $80,000
annually.
In total, the hour burden associated
with claims, appeals, and external review
is approximately 4,500 hours at an equivalent cost of $244,800 annually. Because
the burden is shared equally between the
Department of Labor and the Department
of the Treasury, each Department’s share
is 2,300 hours at an equivalent cost of
$122,400 annually.
In total, the cost burden is approximately $2.2 million annually. Because the
burden is shared equally between the Department of Labor and the Department of
the Treasury, each Department’s share is
$1.1 million annually.
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.
The paperwork burden estimates are
summarized as follows:
Type of Review: Revision.
164

Agency: Employee Beneﬁt Security
Administration, Department of Labor; Internal Revenue Service, U.S. Department
of the Treasury.
Title: Affordable Care Act Internal
Claims and Appeals and External Review
Disclosures for Non-Grandfathered Plans.
OMB Control Number: 1210-0144;
1545-2182
Affected Public: Business or other forproﬁt; not-for-proﬁt institutions.
Total Respondents: 1,769,264
Total Responses: 275,430
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours
(three year average): 2,300 (Employee
Beneﬁts Security Administration); 2,300
(Internal Revenue Service).
Estimated Total Annual Cost Burden
(three year average): $1,143,000 (Employee Beneﬁts Security Administration);
$1,143,000 (Internal Revenue Service).
B. Department of Health and Human
Services
Under the Paperwork Reduction Act of
1995, we are required to provide 60-day
notice in the Federal Register and solicit
public comment before a collection of information requirement is submitted to the
Ofﬁce of Management and Budget
(OMB) for review and approval. These
ﬁnal regulations contain ICRs that are
subject to review by OMB. A description
of these provisions is given in the following paragraphs with an estimate of the
annual burden, summarized below in the
Table below. In order to fairly evaluate
whether an information collection should be
approved by OMB, section 3506(c)(2)(A)
of the Paperwork Reduction Act of 1995
requires that we solicit comment on the following issues:
• The need for the information collection and its usefulness in carrying out
the proper functions of our agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of the
information to be collected.
• Recommendations to minimize the information collection burden on the af-

fected public, including automated
collection techniques.
As discussed above in the Department
of Labor and Department of the Treasury
PRA section, these ﬁnal regulations contain a notice of grandfather status, rescissions notice, and patient protection disclosures requirement for issuers, and notice
requirements related to internal claims
and appeals and external review. These
requirements are ICRs under the Paperwork Reduction Act. Each of these requirements is discussed in detail in the
following sections. Estimated hourly labor rates are calculated using data from
the 2013 National Occupational Employment Survey.164
1. ICRs Regarding Affordable Care Act
Notice of Grandfather Status
(§§ 147.140(a)(2), 147.140(a)(3)(i),
147.140(a)(3)(ii))
a. Grandfathered Health Plan Disclosure
The ﬁnal regulations provide model
language for the grandfathered health plan
disclosure that can be incorporated into
existing plan documents. After plans ﬁrst
satisﬁed the grandfathered health plan disclosure requirement in 2011, any additional burden is expected to be negligible
if a plan wants to maintain its grandfathered status in future years. It is also
expected that the cost of removing the
notice from plan documents as plans relinquish their grandfathered status would
be minimal and therefore it is not estimated.
Issuers and multi-employer plans must
also add a prominent disclosure in their
group policies, certiﬁcates, or contracts of
insurance that plan sponsors are required
to notify the issuer if the contribution rate
changes at any point during the plan year.
This only affects issuers of fully insured
group health plans and multi-employer
plans and after this requirement is ﬁrst
satisﬁed, any additional burden in future
years is expected to be negligible and is
therefore not estimated.
Grandfathered plans will incur printing
and material costs associated with the disclosure requirements. It is estimated that
there will be approximately 47,500 grand-

2013 National Occupational Employment Survey, April 2014, Bureau of Labor Statistics, http://www.bls.gov/news.release/pdf/ocwage.pdf.

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fathered State and local governmental
health plans with approximately 5.5 million policyholders165 and approximately
1.4 million policyholders in the individual
market with grandfathered coverage166 issued by 430 issuers during 2015. Therefore, grandfathered plans and issuers in
the individual markets will need to send
approximately 6.9 million disclosures notifying plan participants and beneﬁciaries
of their plans’ status as a grandfathered
health plan. We anticipate that the notice
will require one-half of a page and ﬁve
cents per page printing and material cost
will be incurred. We also assume that 38
percent of the notices will be delivered
electronically. This results in a total annual cost burden of approximately
$106,000. The number of notices and cost
burden are likely to be lower in subsequent years as more plans relinquish their
grandfathered status. In the absence of
data regarding how many plans will retain
grandfathered status in subsequent years,
we consider this estimate to be the upper
limit for the number of notices and cost
burden in future years.
b. Recordkeeping Requirement
It is assumed that most of the documents required to be retained to satisfy the
recordkeeping requirement of these ﬁnal
regulations are already retained by plans
for tax purposes, to satisfy ERISA’s record retention and statute of limitations
requirements, and for other business reasons. It was previously estimated that after
the one-time cost related to record keeping requirement was incurred in 2011,
costs in subsequent years will be negligible and, therefore, not estimated.
c. Grandfathered Plan Change in Carrier
Disclosure
A group health plan that is changing
health insurance issuers must provide to
the succeeding health insurance issuer
(and the succeeding health insurance issuer must require) documentation of plan
terms (including beneﬁts, cost sharing,

employer contributions, and annual limits) under the prior health insurance coverage sufﬁcient to make a determination
whether the standards of § 147.140(g)(1)
are exceeded.
The number of plans that might change
carriers and thus be affected (7,400) is
estimated by multiplying the estimated
number of grandfathered plans (47,500)
by the percent of plans shopping for a new
carrier (58 percent) and the number of
plans shopping for a new carrier that
switched (27 percent).167
Each employer will require about 2
minutes of clerical labor (at an hourly cost
of approximately $30) to send the information required for the disclosure (which
is already retained under the recordkeeping requirement) electronically to the succeeding issuer. The total annual labor burden for all employers is estimated to be
approximately 248 hours with an equivalent annual cost of approximately $7,500.
The cost of transmitting the information
electronically to the succeeding issuer is
negligible and, therefore, not estimated.
The number of disclosures and cost burden may be lower in subsequent years as
more plans relinquish their grandfathered
status. In the absence of data regarding
how many plans will retain grandfathered
status in subsequent years, we consider
this estimate to be the upper limit for the
burden in future years.
2. ICR Regarding Affordable Care Act
Notice Relating to Rescissions
(§ 147.128(a)(1))
This analysis assumes that rescissions
only occur in the individual health insurance market, because rescissions in the
group market are rare. It is estimated that
there are approximately 430 issuers issuing 6.77 million policies in the individual
market during a year. A report on rescissions found that 0.15 percent of policies
were rescinded during the 2004 to 2008
time period. Based on these numbers, it is
estimated that approximately 10,200 policies are rescinded during a year, which
would result in approximately 10,200 no-

tices being sent to affected policyholders,
with 38 percent transmitted electronically
and 62 percent mailed. It is estimated that
each issuer will require 15 minutes of
legal professional time (at approximately
$129.94 per hour) to prepare the notice
and one minute per notice of clerical professional time (at approximately $30.42
per hour) to distribute the notice to each
policyholder. Assuming that the cost of
electronic distribution is minimal, this results in an annual hour burden of approximately 212 hours with an equivalent annual cost of approximately $17,160.
Issuers will incur cost to print and send
the notices. We assume that the notice will
require one page printing and material
cost will be $0.05 per page, mailing cost
will be $0.49 per notice, and 38 percent of
the notices will be delivered electronically
at minimal cost. Therefore, it is estimated
that the cost burden associated with mailing the notices to approximately 6,300
affected policy holders will be approximately $3,400.
3. ICR Regarding Affordable Care Act
Patient Protection Disclosure
Requirement (§ 147.138(a)(4))
b. Patient Protection Disclosure
In order to satisfy the patient protection
disclosure requirement, State and local
government plans and issuers in individual markets will need to notify policy
holders of their plans policy in regards to
designating a primary care physician and
for obstetrical or gynecological visits and
will incur a one-time burden and cost to
incorporate the notice into plan documents. State and local government plans
that are currently not grandfathered and
issuers in the individual market have already incurred the one-time cost to prepare and incorporate this notice in their
existing plan documents. Only State and
local government plans and individual
market plans that relinquish their grandfathered status in subsequent years will become subject to this notice requirement

165
The Department lacks data on the number of State and local plans that are grandfathered plans. The Kaiser “Employer Health Beneﬁts Survey” has estimates for private employer plans.
Those estimates are used here as a proxy. They report that 37 percent of plans are grandfather plans and 26 percent of covered employees are in those plans. http://kff.org/health-costs/
report/2014-employer-health-beneﬁts-survey/.
166

Estimate based on data from the McKinsey Center for US Health System Reform and Medical Loss Ratio submissions for 2013 reporting year.

167

See Section 14. http://kff.org/health-costs/report/2014-employer-health-beneﬁts-survey/.

Bulletin No. 2015– 49

747

December 7, 2015

and incur the one-time costs to prepare the
notice.
There are an estimated 128,400 nonfederal governmental plans and 430 health
insurance issuers in the individual market.
We estimate that ﬁve percent of nonfederal governmental plans will relinquish
their grandfathered status annually over
the next three years and will therefore
incur one-time costs to prepare the notice.
Health insurance issuers in the individual
market will also have ﬁve percent of their
policies relinquish grandfathered status
annually over the next three years. Data
obtained from the 2014 Kaiser/HRET
Survey of Employer Sponsored Health
Beneﬁts ﬁnds that 13 percent of plans
have an HMO option and that 23 percent
of plans offer a POS option. Thus, approximately 2,740 plans and issuers will produce notices each year.168 While not all
HMO and POS options require the designation of a primary care physician or a
prior authorization or referral before a
woman can visit an OB/GYN, the Department is unable to estimate this number.
Therefore, this estimate should be considered an overestimate of the number of
affected entities.
Each of these 2,740 plans and issuers
will require a compensation and beneﬁts
manager to spend 10 minutes individualizing the model notice to ﬁt the plan’s
speciﬁcations at an hourly rate of $110.30.
This results in approximately 457 hours of
burden at an equivalent cost of $50,400.
Each plan will also require clerical staff to
spend 5 minutes adding the notice to the
plan’s documents at an hourly rate of
$30.42. This results in approximately 228
hours of burden at an equivalent cost of
$7,000. The total annual burden associated with this requirement is 685 hours at
an equivalent cost of $57,000.
The Department assumes that only
printing and material costs are associated
with the disclosure requirement, because
the ﬁnal regulations provide model language that can be incorporated into existing plan documents. The Department estimates that the notice will require onehalf of a page, ﬁve cents per page printing
168

and material cost will be incurred, and 38
percent of the notices will be delivered
electronically.
It is estimated that there are 27.9 million non-federal government plan policyholders and individual policyholders. As
stated in the previous section, it is estimated that 5 percent of plans will relinquish their grandfathered status annually
in the next three years. Data obtained from
the 2014 Kaiser/HRET Survey of Employer Sponsored Health Beneﬁts ﬁnds
that 13 percent of covered workers in
Government plans have an HMO option
and that 8 percent of covered workers
have a POS option. Data obtained from
AHIP in 2009 ﬁnds that 1.93 percent of
individual policyholders have an HMO
options. Thus, it is estimated that plans
will produce 228,000 notices each year,
38 percent of which will be sent electronically.169 This results in a cost burden of
approximately $3,500.170
c. Out-of-Network Emergency Services
Disclosure
The ﬁnal regulations require that a plan
or issuer may not impose any copayment
or coinsurance requirement for out-ofnetwork emergency services that is more
restrictive than the copayment or coinsurance requirement that would apply if the
services were provided in network. If
State law prohibits balance billing, or a
plan or issuer is contractually responsible
for any amounts balanced billed by an
out-of-network emergency services provider, the a plan or issuer must provide an
enrollee or beneﬁciary adequate and
prominent notice of their lack of ﬁnancial
responsibility with respect to amounts balanced billed in order to prevent inadvertent payment by an enrollee or beneﬁciary. This information should already be
routinely included in the Explanation of
Beneﬁt documents sent by plans and issuers to enrollees and beneﬁciaries. Therefore, in accordance with the implementing
regulations of the PRA at 5 CFR
1320.3(b)(2), we believe this is a usual
and customary business practice. Plans

and issues routinely provide enrollees and
beneﬁciaries with the Explanation of Beneﬁt documents.
4. ICRs Regarding Affordable Care Act
Internal Claims and Appeals and
External Review (§§ 14.136 (b)(2)(ii),
147.136 (b)(2)(ii)(C), 147.136 (b)(3)(ii),
147.136 (b)(3)(ii)(C))
Paragraph (b)(2)(ii)(C) of the ﬁnal regulations implementing PHS Act section
2719 provides that non-grandfathered
ERISA-covered group health plans provide to the claimant, free of charge, any
new or additional evidence considered
relied upon, or generated by the plan or
issuer in connection with the claim. The
related hour burden is 773,800 hours
and the related cost burden is $115.2
million.
The June 2011 amendment to the interim ﬁnal regulations under PHS Act section 2719 required that plans and issuers
must provide participants and beneﬁciaries who reside in a county where ten
percent or more of the population residing
in the county is literate only in the same
non-English language with a one-sentence
statement in all notices written in the applicable non-English language, about the
availability of language services. In addition to including the statement, plans and
issuers are required to provide a customer
assistance process (such as a telephone
hotline) with oral language services in the
non-English language and provide written notices in the non-English language
upon request. Providing notice of the
services and the translation services is
estimated to have a cost burden of
$633,000 annually.
Also, PHS Act section 2719 and the
ﬁnal regulations provide that group health
plans and issuers offering group health
insurance coverage must comply either
with a State external review process or a
Federal review process. Plans and issuers
must provide to those conducting the external reviews required documents. There
is an estimated 2,100 external appeals
conducted annually. The related hour bur-

128,400 Governmental plans x 5% newly non-grandfathered plans x (13% HMOs ⫹ 23% POSs) ⫹ 430 issuers ⫽ approximately 2,700 affected plans and issuers.

[21.1 million Government policyholders x 5% newly non-grandfathered plans x (13% in HMOs ⫹ 8% in POSs)] ⫹ [6.77 million individual policy holders x 5% newly non-grandfathered
plans x 1.93% in HMOs] ⫽ approximately 228,000 notices.

169

170

$0.05 per page*1/2 pages per notice * 228,000 notices*62% ⫽ approximately $3,500

December 7, 2015

748

Bulletin No. 2015– 49

den is 150 hours with an equivalent cost
of $4,600 and a cost burden of $5,400
annually.

In total, the burden associated with
claims, appeals, and external review is
approximately 774,000 hours at an equivalent cost of $41,601,000 annually. The

cost burden associated with claims, appeals, language translation, and external
review is approximately $115.8 million
annually.

Table 2.—Annual Reporting, Recordkeeping and Disclosure Burden (HHS)

Grandfathered Plans
Disclosure
(§ 147.140(a)(2))
Grandfathered Plans
Change in Carrier
Disclosure
(§ 147.140(a)(3)(i))
Rescissions Notice
(§ 147.128(a)(1))
Patient Protection Disclosures (§ 147.138(a) (4))
Claims and Appeals External Review
((§§ 147.136 (b)(2)(ii),
147.136 (b)(2)(ii)(C),
147.136 (b)(3)(ii),
147.136 (b)(3)(ii)(C))

Responses

Total
Annual
Burden
(Hours)

Total
Labor Cost
of Reporting ($)

Total Capital/
Maintenance
Costs ($)

Total Costs
($)

47,932

6,850,695

$106,186

0938–1093

7,440

248

$7,544

0938–1094

430

10,200

212

$17,160

$3,400

$20,560

0938–1094

2,741

228,086

685

$57,341

$3,535

$60,876

0938–1098

95,500

399,151,000

773,996 $41,601,000

$115,827,000

$157,428,000

154,043

406,247,421

775,141

OMB
Control
No.

Number of
Respondents

0938–1093

Total
V. Regulatory Flexibility Act
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 Administrative Procedure Act (5 U.S.C. 551
et seq.) and which are likely to have a
signiﬁcant economic impact on a substantial number of small entities.
The RFA generally deﬁnes a ‘‘small
entity’’ as (1) a proprietary ﬁrm meeting
the size standards of the Small Business
Administration (SBA) (13 CFR 121.201)
pursuant to the Small Business Act (15
U.S.C. 631 et seq.), (2) a nonproﬁt organization that is not dominant in its ﬁeld, or
(3) a small government jurisdiction with a
population of less than 50,000. (States and
individuals are not included in the deﬁnition of “small entity.”) The Departments
use as their measure of signiﬁcant economic impact on a substantial number of
small entities a change in revenues of
more than 3 to 5 percent.

Bulletin No. 2015– 49

As discussed in detail in the “Need for
Regulatory Action” section of this Regulatory Impact Analysis, these regulations
are necessary to implement the following
provisions: Affordable Care Act section
1251 (preservation of right to maintain
existing coverage), and PHS Act sections
2704 (prohibition of preexisting condition
exclusions), 2711 (no lifetime or annual
limits), 2712 (prohibition on certain rescissions), 2714 (extension of dependent
coverage), 2719 (internal appeals and external review process), and 2719A (patient
protections). In response to the 2010 interim ﬁnal regulations, the Departments
received many comments that relate to
early implementation issues and addressed many of these issues through subregulatory guidance. The Departments
also held meetings with stakeholders, including small entities affected by the
rules. After consideration of comments
and stakeholder input received in response
to the interim ﬁnal regulations, the Departments are issuing these ﬁnal regulations.

749

$157,623,166
The Regulatory Flexibility Act requires agencies to assess and consider the
direct economic impacts that regulations
impose on small entities. The primary
economic effects of these ﬁnal regulations
are indirect, because they result in transfers between individuals covered by
health insurance. While these transfers
could be signiﬁcant, they do not impose
direct effects on the regulated small entities for purposes of the RFA.
Most of the direct effects of the ﬁnal
regulations are associated with their disclosure requirements. As discussed below
and in the Paperwork Reduction Act section above, these disclosure requirements
do not have a signiﬁcant economic impact. Therefore, pursuant to section
605(b) of the RFA, the Departments
hereby certify that these ﬁnal regulations
are not likely to have a signiﬁcant economic impact on a substantial number of
small entities. The Departments’ basis for
this determination and their estimate of
small entities affected by these ﬁnal regulations is discussed below.

December 7, 2015

A. Affected Small Entities
There are several different types of
small entities affected by these ﬁnal regulations. For issuers and third party administrators, a small business is one that
has total premium revenue of $38.5 million or less. The Departments continue
to consider a small plan to be an employee beneﬁt plan with fewer than 100
participants.171 Further, while some
large employers may have small plans,
in general small employers maintain
most small plans. Thus, the Departments
believe that assessing the impact of this
ﬁnal rule on small plans is an appropriate substitute for evaluating the effect
on small entities. The deﬁnition of small
entity considered appropriate for this
purpose differs, however, from a deﬁnition of small business that is based on
size standards promulgated by the Small
Business Administration (SBA) (13
CFR 121.201) pursuant to the Small
Business Act (15 U.S.C. 631 et seq.).
Based on data from MLR annual report submissions for the 2013 MLR reporting year, approximately 141 out of
500 issuers of health insurance coverage
nationwide had total premium revenue
of $38.5 million or less.172 This estimate
may overstate the actual number of
small health insurance companies that
may be affected, since 77 percent of
these small companies belong to larger
holding groups, and many if not all of
these small companies are likely to have
non-health lines of business that would
result in their revenues exceeding $38.5
million.
As discussed previously in the RIA,
there are an estimated 2.3 million
ERISA-covered plans and 128,400 State
and local governmental health plans that
may have experienced an increase in
costs related to the provisions of these
ﬁnal rules. Ninety-seven percent of
these plans are provided by small
entities and have incurred costs related
to the provisions of these ﬁnal regulations.

B. Direct Impacts of Final Rules on
Small Entities
1. Affordable Care Act Section 1251,
Preservation of Right to Maintain
Existing Coverage (26 CFR 54.9815–
1251 , 29 CFR 2590.715–1251, 45 CFR
147.140)
The direct impacts of this provision on
affected small entities are primarily associated with notices requirements. Speciﬁcally, the ﬁnal regulations require affected
plans to maintain records documenting the
terms of the plan in effect on March 23,
2010, and any other documents that are
necessary to verify, explain or clarify status as a grandfathered health plan (the
“recordkeeping requirement”). The plan
must make such records available for examination upon request by participants,
beneﬁciaries, individual policy subscribers, or a State or Federal agency ofﬁcial.
The Departments believe this requirement
imposes a minimal burden on small entities, because they should maintain such
records in the usual and customary course
of their business operations following
standard business procedures.
To maintain status as a grandfathered
health plan, a plan or health insurance
coverage must include a statement that the
plan or coverage believes it is a grandfathered health plan within the meaning of
section 1251 of the Patient Protection and
Affordable Care Act and must provide
contact information for questions and
complaints, in any summary of beneﬁts
provided under the plan to consumers.
The Departments believe the costs associated with this disclosure are minimal, because a model statement is provided in the
ﬁnal rule and that statement can be provided in any summary of beneﬁts that
already is being provided to consumers.
Finally, if a grandfathered group health
plan switches issuers and intends to maintain its status as a grandfathered plan, it
must provide to the new health insurance
issuer with documentation of plan terms
under the prior health coverage sufﬁcient
for it to determine whether a change causing a cessation of grandfathered health
plan status has occurred. This requirement

also imposes a minimal burden on affected small entities, because the documents should be maintain in the ordinary
course of the plan’s business operations,
and the only additional cost would be incurred to prepare the documentation for
mailing and associated material and printing cost, which are estimated to total approximately $8.
1. PHS Act Section 2704, Prohibition of
Preexisting Condition Exclusions (26
CFR 54.9815–2704, 29 CFR 2590.715–
2704, 45 CFR 147.108)
The direct impacts of this rule on the
regulated small entities is limited as the
removal of preexisting condition exclusions primarily operates through the pricing of insurance products, which are paid
by plan participants. Small businesses will
be impacted when they pay for part of the
health insurance premium. The Departments have not been able to estimate this
effect separately from the effect on premiums brought about by the other the
Affordable Care Act changes.
2. PHS Act Section 2711, Prohibition on
Lifetime and Annual Limits (26 CFR
54.9815–2711, 29 CFR 2590.715–2711,
45 CFR 147.126)
The direct impacts of this rule on the
regulated small entities were primarily
limited to an initial notice sent shortly
after the issuance of the interim ﬁnal regulations requiring plans to notify participants that had lost coverage due to reaching the lifetime limit of the new coverage
option. This notice requirement is no longer in effect as the statute now bans all
annual and life time limits, so there are no
individuals losing coverage that need to
be notiﬁed. To the extent premiums increase and employers contribute part of
the premiums, or plans are self-insured
with payments from the employers general assets there could be direct effects on
employers, but for most employers those
effects are small.

171

The basis for this deﬁnition is found in section 104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe simpliﬁed annual reports for pension plans that cover fewer than
100 participants.

172

U. S. Small Business Administration, “Table of Small Business Size Standards Matched to North American Industry Classiﬁcation System Codes”, July 14, 2014.

December 7, 2015

750

Bulletin No. 2015– 49

3. PHS Act Section 2712, Prohibition on
Rescissions (26 CFR 54.9815–2712, 29
CFR 2590.715–2712, 45 CFR 147.128)
PHS Act Section 2712 and the ﬁnal
regulations prohibit group health plans
and health insurance issuers that offer
group or individual health insurance coverage generally from rescinding coverage
under the plan, policy, certiﬁcate, or contract of insurance from the individual covered under the plan or coverage unless the
individual (or a person seeking coverage
on behalf of the individual) performs an
act, practice, or omission that constitutes
fraud, or unless the individual makes an
intentional misrepresentation of material
fact, as prohibited by the terms of the plan
or coverage. The 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. The Departments believe that rescissions are rare
in the group market and that small group
health plans are affected by rescissions
more than large group health plans.
The Departments estimate173 that 15
minutes of legal professional time at
$129.94 per hour174 would be required by
the insurers of the policies to prepare the
notice, and one minute per notice of clerical professional time at $30.42 per
hour175 would be required to distribute the
paper notices. The Departments believe
the costs of electronic transmission would
be de minimis. This leads to an estimate of
less than $40 per rescission notice, which
the Departments do not believe is significant.
4. PHS Act Section 2714, Coverage of
Dependents to Age 26 (26 CFR
54.9815–2714, 29 CFR 2590.715–2714,
45 CFR 147.120)
The direct impacts of this rule on the
regulated small entities were primarily

limited to an initial notice sent shortly
after the issuance of the interim ﬁnal regulations requiring plans to notify participants of the new coverage option. To the
extent premiums increase and employers contribute part of the premiums, or
plans are self-insured with payments
from the employers general assets there
could be direct effects on employers, but
for most employers those effects are
small.
5. PHS Act Section 2719, Internal
Claims and Appeals and External
Review (26 CFR 54.9815–2719, 29 CFR
2590.715–2719, 45 CFR 147.136)
Not all potentially affected individuals
will be affected equally by these ﬁnal regulations. Sponsors of ERISA-covered
group health plans were required to implement an internal appeals process that
complied with the DOL claims procedure
regulation before the Affordable Care
Act’s enactment, and the Departments
also understand that many non-Federal
governmental plans and church plans that
are not subject to ERISA implement internal claims and appeals processes that
comply with the DOL claims procedure
regulation.
These ﬁnal regulations will have the
largest impact on individuals covered in
the individual health insurance market,
because with the issuance of the ﬁnal regulation, these issuers were required to
comply with the DOL claims procedure
regulation for internal claims and appeals as well as the additional standards
added by the Secretary of the Department of Health and Human Services in
paragraph (b)(3) of the ﬁnal regulations
under PHS Act section 2719 that are in
some cases more protective than the
ERISA standard.
Using estimates calculated for the Paperwork Reduction Act it is estimated
that there will be an average costs of 40
cents per notice that is required to be

sent related to the internal claims and
appeals.
On the external appeals side, before the
enactment of the Affordable Care Act,
issuers offering coverage in the group and
individual health insurance market were
already required to comply with State external review laws. At that time, all States
except Alabama, Mississippi, Nebraska,
North Dakota, South Dakota, and Wyoming had external review laws, and thirteen States had external review laws that
apply only to certain market segments
(for example, managed care or HMOs).
Currently, all States except, Alabama,
Alaska, Florida, Georgia, Pennsylvania,
and Wisconsin have State external review laws that satisfy these requirements. These six states that do not meet
the requirements, must use the HHS administered process or must contract with
accredited independent review organizations to review external appeals on their
behalf.176
Individuals participating in ERISAcovered self-insured group health plans
will be among those most affected by the
external review requirements contained in
these ﬁnal regulations, because the preemption provisions of ERISA prevent a
State’s external review process from applying directly to an ERISA-covered selfinsured plan. These plans will now be
required to comply with the Federal external review process set forth in these
ﬁnal regulations.
As discussed in the Regulatory Impact
Section above an estimate for the average
cost for an external appeal is $665. This
cost would be incurred by plans or issuers.
It is also estimated above that there is on
average only 1.3 external appeals per
10,000 covered lives. The Departments
believe such costs are minimal for purpose of the RFA, because most small entities will have no external appeals in a
given year.

173
The Department’s estimated 2015 hourly labor rates include wages, other beneﬁts, and overhead are calculated as follows: mean wage from the 2013 National Occupational Employment
Survey (April 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/ocwage.pdf); wages as a percent of total compensation from the Employer Cost for Employee
Compensation (June 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/ecec.t02.htm); overhead as a multiple of compensation is assumed to be 25 percent of total
compensation for paraprofessionals, 20 percent of compensation for clerical, and 35 percent of compensation for professional; annual inﬂation assumed to be 2.3 percent annual growth of
total labor cost since 2013 (Employment Costs Index data for private industry, September 2014 http://www.bls.gov/news.release/eci.nr0.htm).
174

Legal Professional (23-1011): $63.46(2013 BLS Wage rate) /0.69(ECEC ratio) *1.35(Overhead Load Factor) *1.023(Inﬂation rate) 2ˆ(Inﬂated 2 years from base year) ⫽ $129.94

Secretaries, Except Legal, Medical, and Executive (43-6014): $16.35(2013 BLS Wage rate)/0.675(ECEC ratio) *1.2(Overhead Load Factor) *1.023(Inﬂation rate) 2ˆ(Inﬂated 2 years from
base year) ⫽ $30.42

175

176

https://www.cms.gov/CCIIO/Resources/Files/external_appeals.html

Bulletin No. 2015– 49

751

December 7, 2015

6. PHS Act Section 2719A, Patient
Protections (26 CFR 54.9815–2719A, 29
CFR 2590.715–2719A, 45 CFR
147.138)
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; (2) obtain obstetrical or gynecological care without prior authorization;
or (3) coverage of emergency services.
Accordingly, these ﬁnal regulations require such plans and issuers to provide a
notice to participants (in the individual
market, primary subscriber) of these rights
when applicable. Model language is provided in these 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 assume that this provision will primarily affect Health Maintenance Organizations and Point-of-Service
type arrangements. The Department believes that insigniﬁcant costs are associated
with this notice, because a model notice is
provided in the ﬁnal rule, and it can be
distributed with existing plan documents.
The Departments estimate that each
plan or issuer would require a compensation and beneﬁts manager177 to spend 10
minutes individualizing the model notice
provided by the Departments to ﬁt the
plan’s speciﬁcations at an hourly rate of
$110.30.178 This results in a cost of approximately $21 in the ﬁrst year. The cost
per participant to receive the notice would
be less than ﬁve cents per paper notice as

the notice would be included in existing
documents.
VI. Unfunded Mandates Reform
Act—Department of Labor and
Department of Health and Human
Services
Section 202 of the Unfunded Mandates
Reform Act (UMRA) of 1995 requires
that agencies assess anticipated costs and
beneﬁts before issuing any ﬁnal rule that
includes a Federal mandate that could result in expenditure in any one year by
State, local or Tribal governments, in the
aggregate, or by the private sector, of
$100 million in 1995 dollars updated annually for inﬂation. In 2015, that threshold
level is approximately $144 million.
These ﬁnal regulations include a Federal
mandate that may result in expenditures
by State, local, or Tribal governments.
Speciﬁcally, these ﬁnal regulations include requirements regarding minimum
consumer protection standards that a State
external review process must include to
qualify as an applicable State external review process under PHS Act section
2719(b)(1). However, we conclude that
these costs would not exceed the $144
million threshold. Thus, the Departments
of Labor and HHS conclude that these
ﬁnal regulations would not impose an unfunded mandate on State, local or Tribal
governments or the private sector. Regardless, consistent with the policy embodied in UMRA, the ﬁnal requirements
described in this notice of ﬁnal rulemaking 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.
VII. 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 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 of Labor’s and
HHS’ view, these ﬁnal regulations have
federalism implications because they
would have direct effects on the States,
the relationship between the national government and the States, or on the distribution of power and responsibilities among
various levels of government. Under these
ﬁnal regulations, group health plans and
health insurance issuers offering group or
individual health insurance coverage, including non-federal governmental plans
as deﬁned in section 2791 of the PHS Act,
would be required to follow the Federal
standards developed under Affordable
Care Act section 1251 and PHS Act sections 2704, 2711, 2712, 2714, 2719 and
2719A, as added by the Affordable Care
Act. However, in the Departments’ view,
the federalism implications of these 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

177
The Department’s estimated 2015 hourly labor rates include wages, other beneﬁts, and overhead are calculated as follows: mean wage from the 2013 National Occupational Employment
Survey (April 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/ocwage.pdf); wages as a percent of total compensation from the Employer Cost for Employee
Compensation (June 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/ecec.t02.htm); overhead as a multiple of compensation is assumed to be 25 percent of total
compensation for paraprofessionals, 20 percent of compensation for clerical, and 35 percent of compensation for professional; annual inﬂation assumed to be 2.3 percent annual growth of
total labor cost since 2013 (Employment Costs Index data for private industry, September 2014 http://www.bls.gov/news.release/eci.nr0.htm).
178
Compensation and Beneﬁts Manager (11-3041): $53.87(2013 BLS Wage rate) /0.69(ECEC ratio) *1.35(Overhead Load Factor) *1.023(Inﬂation rate) 2ˆ(Inﬂated 2 years from base year)
⫽ $110.30

December 7, 2015

752

Bulletin No. 2015– 49

2724 of the PHS Act (implemented in 29
CFR 2590.731(a) and 45 CFR 146.143(a))
apply so that the requirements in title XXVII of the PHS Act (including those added
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 individual
or 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.
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 of Labor and HHS have engaged in efforts to consult with and work
cooperatively with affected States, including consulting with, and 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 of Labor and HHS will act in a
similar fashion in enforcing the Affordable Care Act.
Throughout the process of developing
these ﬁnal regulations, to the extent feasible within the applicable preemption provisions, the Departments of Labor and
HHS 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 of Labor’s and HHS’
view that they have complied with the
requirements of Executive Order 13132.

Bulletin No. 2015– 49

Pursuant to the requirements set forth
in section 8(a) of Executive Order 13132,
and by the signatures afﬁxed to this ﬁnal
rule, 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 ﬁnal rules in a meaningful and
timely manner.
VIII. Special Analyses – Department
of the Treasury
Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reafﬁrmed by Executive Order 13563.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these ﬁnal regulations. For a discussion of the impact of this ﬁnal rule on
small entities, please see section V.B. of
this preamble. Pursuant to section 7805(f)
of the Code, this notice of ﬁnal rulemaking has been submitted to the Small Business Administration for comment on its
impact on small business.
IX. Congressional Review Act
These 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.), which speciﬁes that before a
rule can take effect, the Federal agency
promulgating the rule shall submit to each
House of the Congress and to the Comptroller General a report containing a copy
of the rule along with other speciﬁed information, and has been transmitted to
Congress and the Comptroller General for
review.
X. Statutory Authority
The Department of the Treasury ﬁnal
regulations are adopted pursuant to the
authority contained in sections 7805 and
9833 of the Code.
The Department of Labor ﬁnal regulations are adopted pursuant to the authority
contained in 29 U.S.C. 1135, and 1191c;
Secretary of Labor’s Order 1–2011, 77 FR
1088 (Jan. 9, 2012).

753

The Department of Health and Human
Services ﬁnal regulations are adopted pursuant to the authority contained in sections 2701 through 2763, 2791, and 2792
of the PHS Act (42 USC 300gg through
300gg– 63, 300gg–91, and 300gg–92), as
amended.
*****

John Dalrymple
Deputy Commissioner for
Services and Enforcement
Internal Revenue Service.
Approved: October 27, 2015
Mark J. Mazur
Assistant Secretary
of the Treasury (Tax Policy).
Signed this 6th day of November 2015.
Phyllis C. Borzi,
Assistant Secretary Employee
Beneﬁts Security Administration
Department of Labor
Dated: October 15, 2015
Andrew M. Slavitt,
Acting Administrator Centers for
Medicare & Medicaid Services
Approved: October 22, 2015
Sylvia M. Burwell,
Secretary Department of
Health and Human Services
(Filed by the Ofﬁce of the Federal Register on July 13, 2015,
8:45 a.m., and published in the issue of the Federal Register
for July 14, 2015, 80 F.R. 40661)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Chapter I
For the reasons stated in the preamble,
the Internal Revenue Service amends Part
54 as set forth below:
PART 54 —PENSION EXCISE
TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding entries for
§§ 54.9815–1251, 54.9815–2704, 54.9815–

December 7, 2015

2711,
54.9815–2712,
54.9815–2714,
54.9815–2719, and 54.9815–2719A in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Section 54.9815–1251 also issued under 26 U.S.C. 9833.
*****
Section 54.9815–2704 also issued under 26 U.S.C. 9833.
*****
Section 54.9815–2711 also issued under 26 U.S.C. 9833.
*****
Section 54.9815–2712 also issued under 26 U.S.C. 9833.
*****
Section 54.9815–2714 also issued under 26 U.S.C. 9833.
*****
Section 54.9815–2719 also issued under 26 U.S.C. 9833.
Section 54.9815–2719A also issued
under 26 U.S.C. 9833.
Par.2. Section 54.9801–2 is amended
by revising the introductory text and the
deﬁnition of “preexisting condition exclusion” to read as follows:
§ 54.9801–2 Deﬁnitions.
Unless otherwise provided, the deﬁnitions in this section govern in applying the
provisions of sections 9801 through 9815
and 9831 through 9833.
*****
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 pro-

December 7, 2015

vided to Federally eligible individuals
pursuant to 45 CFR part 148), such as a
condition identiﬁed as a result of a preenrollment questionnaire or physical examination given to the individual, or review of medical records relating to the
pre-enrollment period.
*****
Par.3. Section 54.9801–3 is amended
by revising the section heading and paragraph (a)(1) to read as follows:
§ 54.9801–3 Limitations on preexisting
condition exclusion period.
(a) Preexisting condition exclusion deﬁned—(1) A preexisting condition exclusion means a preexisting condition exclusion within the meaning of § 54.9801–2.
*****
Par.4. Section 54.9815–1251 is added
to read as follows:
§ 54.9815–1251 Preservation of right
to maintain existing coverage.
(a) Deﬁnition of grandfathered health
plan coverage—(1) In general—(i)
Grandfathered health plan coverage
means coverage provided by a group
health plan, or a health insurance issuer, in
which an individual was enrolled on
March 23, 2010 (for as long as it maintains that status under the rules of this
section). A group health plan or group
health insurance coverage does not cease
to be grandfathered health plan coverage
merely because one or more (or even all)
individuals enrolled on March 23, 2010
cease to be covered, provided that the plan
or group health insurance coverage has
continuously covered someone since
March 23, 2010 (not necessarily the same
person, but at all times at least one person). In addition, subject to the limitation
set forth in paragraph (a)(1)(ii) of this
section, a group health plan (and any
health insurance coverage offered in connection with the group health plan) does
not cease to be a grandfathered health plan
merely because the plan (or its sponsor)
enters into a new policy, certiﬁcate, or
contract of insurance after March 23, 2010
(for example, a plan enters into a contract
with a new issuer or a new policy is issued
with an existing issuer). For purposes of
this section, a plan or health insurance
coverage that provides grandfathered

754

health plan coverage is referred to as a
grandfathered health plan. The rules of
this section apply separately to each beneﬁt package made available under a group
health plan or health insurance coverage.
Accordingly, if any beneﬁt package relinquishes grandfather status, it will not affect the grandfather status of the other
beneﬁt packages.
(ii) Changes in group health insurance
coverage. Subject to paragraphs (f) and
(g)(2) of this section, if a group health
plan (including a group health plan that
was self-insured on March 23, 2010) or its
sponsor enters into a new policy, certiﬁcate, or contract of insurance after March
23, 2010 that is effective before November 15, 2010, then the plan ceases to be a
grandfathered health plan.
(2) Disclosure of grandfather status—
(i) To maintain status as a grandfathered
health plan, a plan or health insurance
coverage must include a statement that the
plan or coverage believes it is a grandfathered health plan within the meaning of
section 1251 of the Patient Protection and
Affordable Care Act, and must provide
contact information for questions and
complaints, in any summary of beneﬁts
provided under the plan.
(ii) The following model language can be used
to satisfy this disclosure requirement:
This [group health plan or health insurance
issuer] believes this [plan or coverage] is a
“grandfathered health plan” under the Patient
Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan
can preserve certain basic health coverage that
was already in effect when that law was enacted. Being a grandfathered health plan means
that your [plan or policy] may not include
certain consumer protections of the Affordable
Care Act that apply to other plans, for example,
the requirement for the provision of preventive
health services without any cost sharing. However, grandfathered health plans must comply
with certain other consumer protections in the
Affordable Care Act, for example, the elimination of lifetime dollar limits on beneﬁts.
Questions regarding which protections apply
and which protections do not apply to a grandfathered health plan and what might cause a
plan to change from grandfathered health plan
status can be directed to the plan administrator
at [insert contact information]. [For ERISA
plans, insert: You may also contact the Employee Beneﬁts Security Administration, U.S.
Department of Labor at 1-866-444-3272 or

Bulletin No. 2015– 49

www.dol.gov/ebsa/healthreform. This Web
site has a table summarizing which protections
do and do not apply to grandfathered health
plans.] [For individual market policies and
nonfederal governmental plans, insert: You
may also contact the U.S. Department of
Health and Human Services at www.healthcare.
gov.]

(3)(i) Documentation of plan or policy
terms on March 23, 2010. To maintain
status as a grandfathered health plan, a
group health plan, or group health insurance coverage, must, for as long as the
plan or health insurance coverage takes
the position that it is a grandfathered
health plan –
(A) Maintain records documenting the
terms of the plan or health insurance coverage in connection with the coverage in
effect on March 23, 2010, and any other
documents necessary to verify, explain, or
clarify its status as a grandfathered health
plan; and
(B) Make such records available for
examination upon request.
(ii) Change in group health insurance
coverage. To maintain status as a grandfathered health plan, a group health plan
that enters into a new policy, certiﬁcate, or
contract of insurance must provide to the
new health insurance issuer (and the new
health insurance issuer must require) documentation of plan terms (including beneﬁts, cost sharing, employer contributions, and annual dollar limits) under the
prior health coverage sufﬁcient to determine whether a change causing a cessation of grandfathered health plan status
under paragraph (g)(1) of this section has
occurred.
(4) Family members enrolling after
March 23, 2010. With respect to an individual who is enrolled in a group health
plan or health insurance coverage on
March 23, 2010, grandfathered health
plan coverage includes coverage of family
members of the individual who enroll after March 23, 2010 in the grandfathered
health plan coverage of the individual.
(b) Allowance for new employees to
join current plan— (1) In general. Subject
to paragraph (b)(2) of this section, a group
health plan (including health insurance
coverage provided in connection with the
group health plan) that provided coverage
on March 23, 2010 and has retained its
status as a grandfathered health plan (consistent with the rules of this section, in-

Bulletin No. 2015– 49

cluding paragraph (g) of this section) is
grandfathered health plan coverage for
new employees (whether newly hired or
newly enrolled) and their families enrolling in the plan after March 23, 2010.
Further, the addition of a new contributing
employer or new group of employees of
an existing contributing employer to a
grandfathered multiemployer health plan
will not affect the plan’s grandfather status.
(2) Anti-abuse rules— (i) Mergers and
acquisitions. If the principal purpose of a
merger, acquisition, or similar business
restructuring is to cover new individuals
under a grandfathered health plan, the
plan ceases to be a grandfathered health
plan.
(ii) Change in plan eligibility. A group
health plan or health insurance coverage
(including a beneﬁt package under a
group health plan) ceases to be a grandfathered health plan if—
(A) Employees are transferred into the
plan or health insurance coverage (the
transferee plan) from a plan or health insurance coverage under which the employees were covered on March 23, 2010
(the transferor plan);
(B) Comparing the terms of the transferee plan with those of the transferor plan
(as in effect on March 23, 2010) and treating the transferee plan as if it were an
amendment of the transferor plan would
cause a loss of grandfather status under
the provisions of paragraph (g)(1) of this
section; and
(C) There was no bona ﬁde employmentbased reason to transfer the employees into
the transferee plan. For this purpose,
changing the terms or cost of coverage is
not a bona ﬁde employment-based reason.
(iii) Illustrative list of bona ﬁde
employment-based reasons. For purposes
of paragraph (b)(2)(ii)(C) of this section,
bona ﬁde employment-based reasons include –
(A) When a beneﬁt package is being
eliminated because the issuer is exiting
the market;
(B) When a beneﬁt package is being
eliminated because the issuer no longer
offers the product to the employer;
(C) When low or declining participation by plan participants in the beneﬁt
package makes it impractical for the plan

755

sponsor to continue to offer the beneﬁt
package;
(D) When a beneﬁt package is eliminated from a multiemployer plan as
agreed upon as part of the collective bargaining process; or
(E) When a beneﬁt package is eliminated for any reason and multiple beneﬁt
packages covering a signiﬁcant portion of
other employees remain available to the
employees being transferred.
(3) Examples. The rules of this paragraph (b) are illustrated by the following
examples:
Example 1. (i) Facts. A group health plan offers
two beneﬁt packages on March 23, 2010, Options F
and G. During a subsequent open enrollment period,
some of the employees enrolled in Option F on
March 23, 2010 switch to Option G.
(ii) Conclusion. In this Example 1, the group
health coverage provided under Option G remains a
grandfathered health plan under the rules of paragraph (b)(1) of this section because employees previously enrolled in Option F are allowed to enroll in
Option G as new employees.
Example 2. (i) Facts. A group health plan offers
two beneﬁt packages on March 23, 2010, Options H
and I. On March 23, 2010, Option H provides coverage only for employees in one manufacturing
plant. Subsequently, the plant is closed, and some
employees in the closed plant are moved to another
plant. The employer eliminates Option H and the
employees that are moved are transferred to Option
I. If instead of transferring employees from Option H
to Option I, Option H was amended to match the
terms of Option I, then Option H would cease to be
a grandfathered health plan.
(ii) Conclusion. In this Example 2, the plan has a
bona ﬁde employment-based reason to transfer employees from Option H to Option I. Therefore, Option I does not cease to be a grandfathered health
plan.

(c) General grandfathering rule—(1)
Except as provided in paragraphs (d) and
(e) of this section, subtitles A and C of
title I of the Patient Protection and Affordable Care Act (and the amendments made
by those subtitles, and the incorporation of
those amendments into ERISA section
715 and Internal Revenue Code section
9815) do not apply to grandfathered
health plan coverage. Accordingly, the
provisions of PHS Act sections 2701,
2702, 2703, 2705, 2706, 2707, 2709 (relating to coverage for individuals participating in approved clinical trials, as added
by section 10103 of the Patient Protection
and Affordable Care Act), 2713, 2715A,
2716, 2717, 2719, and 2719A, as added or
amended by the Patient Protection and
Affordable Care Act, do not apply to
grandfathered health plans. (In addition,

December 7, 2015

see 45 CFR 147.140(c), which provides
that the provisions of PHS Act section
2704, and PHS Act section 2711 insofar
as it relates to annual dollar limits, do not
apply to grandfathered health plans that
are individual health insurance coverage.)
(2) To the extent not inconsistent with
the rules applicable to a grandfathered
health plan, a grandfathered health plan
must comply with the requirements of the
PHS Act, ERISA, and the Internal Revenue Code applicable prior to the changes
enacted by the Patient Protection and Affordable Care Act.
(d) Provisions applicable to all grandfathered health plans. The provisions of
PHS Act section 2711 insofar as it relates
to lifetime dollar limits, and the provisions
of PHS Act sections 2712, 2714, 2715,
and 2718, apply to grandfathered health
plans for plan years beginning on or after
September 23, 2010. The provisions of
PHS Act section 2708 apply to grandfathered health plans for plan years beginning on or after January 1, 2014.
(e) Applicability of PHS Act sections
2704, 2711, and 2714 to grandfathered
group health plans and group health insurance coverage—(1) The provisions of
PHS Act section 2704 as it applies with
respect to enrollees who are under 19
years of age, and the provisions of PHS
Act section 2711 insofar as it relates to
annual dollar limits, apply to grandfathered health plans that are group health
plans (including group health insurance
coverage) for plan years beginning on or
after September 23, 2010. The provisions
of PHS Act section 2704 apply generally
to grandfathered health plans that are
group health plans (including group health
insurance coverage) for plan years beginning on or after January 1, 2014.
(2) For plan years beginning before
January 1, 2014, the provisions of PHS
Act section 2714 apply in the case of an
adult child with respect to a grandfathered
health plan that is a group health plan only
if the adult child is not eligible to enroll in
an eligible employer-sponsored health
plan (as deﬁned in section 5000A(f)(2) of
the Internal Revenue Code) other than a
grandfathered health plan of a parent. For
plan years beginning on or after January 1,
2014, the provisions of PHS Act section
2714 apply with respect to a grandfathered health plan that is a group health

December 7, 2015

plan without regard to whether an adult
child is eligible to enroll in any other
coverage.
(f) Effect on collectively bargained
plans—In general. In the case of health
insurance coverage maintained pursuant
to one or more collective bargaining
agreements between employee representatives and one or more employers that was
ratiﬁed before March 23, 2010, the coverage is grandfathered health plan coverage
at least until the date on which the last of
the collective bargaining agreements relating to the coverage that was in effect on
March 23, 2010 terminates. Any coverage
amendment made pursuant to a collective
bargaining agreement relating to the coverage that amends the coverage solely to
conform to any requirement added by subtitles A and C of title I of the Patient
Protection and Affordable Care Act (and
the amendments made by those subtitles,
and the incorporation of those amendments into ERISA section 715 and Internal Revenue Code section 9815) is not
treated as a termination of the collective
bargaining agreement. After the date on
which the last of the collective bargaining
agreements relating to the coverage that
was in effect on March 23, 2010 terminates, the determination of whether health
insurance coverage maintained pursuant
to a collective bargaining agreement is
grandfathered health plan coverage is
made under the rules of this section other
than this paragraph (f) (comparing the
terms of the health insurance coverage
after the date the last collective bargaining
agreement terminates with the terms of
the health insurance coverage that were in
effect on March 23, 2010).
(g) Maintenance of grandfather status—(1) Changes causing cessation of
grandfather status. Subject to paragraph
(g)(2) of this section, the rules of this
paragraph (g)(1) describe situations in
which a group health plan or health insurance coverage ceases to be a grandfathered health plan. A plan or coverage will
cease to be a grandfathered health plan
when an amendment to plan terms that
results in a change described in this paragraph (g)(1) becomes effective, regardless
of when the amendment was adopted.
Once grandfather status is lost, it cannot
be regained.

756

(i) Elimination of beneﬁts. The elimination of all or substantially all beneﬁts to
diagnose or treat a particular condition
causes a group health plan or health insurance coverage to cease to be a grandfathered health plan. For this purpose, the
elimination of beneﬁts for any necessary
element to diagnose or treat a condition is
considered the elimination of all or substantially all beneﬁts to diagnose or treat a
particular condition. Whether or not a plan
or coverage has eliminated substantially
all beneﬁts to diagnose or treat a particular
condition must be determined based on all
the facts and circumstances, taking into
account the items and services provided
for a particular condition under the plan
on March 23, 2010, as compared to the
beneﬁts offered at the time the plan or
coverage makes the beneﬁt change effective.
(ii) Increase in percentage costsharing requirement. Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an
individual’s coinsurance requirement)
causes a group health plan or health insurance coverage to cease to be a grandfathered health plan.
(iii) Increase in a ﬁxed-amount costsharing requirement other than a copayment. Any increase in a ﬁxed-amount
cost-sharing requirement other than a copayment (for example, deductible or outof-pocket limit), determined as of the effective date of the increase, causes a group
health plan or health insurance coverage
to cease to be a grandfathered health plan,
if the total percentage increase in the costsharing requirement measured from
March 23, 2010 exceeds the maximum
percentage increase (as deﬁned in paragraph (g)(3)(ii) of this section).
(iv) Increase in a ﬁxed-amount copayment. Any increase in a ﬁxed-amount copayment, determined as of the effective
date of the increase, and determined for
each copayment level if a plan has different copayment levels for different categories of services, causes a group health plan
or health insurance coverage to cease to
be a grandfathered health plan, if the total
increase in the copayment measured from
March 23, 2010 exceeds the greater of:
(A) An amount equal to $5 increased
by medical inﬂation, as deﬁned in para-

Bulletin No. 2015– 49

graph (g)(3)(i) of this section (that is, $5
times medical inﬂation, plus $5), or
(B) The maximum percentage increase
(as deﬁned in paragraph (g)(3)(ii) of this
section), determined by expressing the total increase in the copayment as a percentage.
(v) Decrease in contribution rate by
employers and employee organizations—
(A) Contribution rate based on cost of
coverage. A group health plan or group
health insurance coverage ceases to be a
grandfathered health plan if the employer
or employee organization decreases its
contribution rate based on cost of coverage (as deﬁned in paragraph (g)(3)(iii)(A)
of this section) towards the cost of any tier
of coverage for any class of similarly situated individuals (as described in
§ 54.9802(d)) by more than 5 percentage
points below the contribution rate for the
coverage period that includes March 23,
2010.
(B) Contribution rate based on a formula. A group health plan or group health
insurance coverage ceases to be a grandfathered health plan if the employer or
employee organization decreases its contribution rate based on a formula (as deﬁned in paragraph (g)(3)(iii)(B) of this
section) towards the cost of any tier of
coverage for any class of similarly situated individuals (as described in
§ 54.9802(d)) by more than 5 percent below the contribution rate for the coverage
period that includes March 23, 2010.
(C) Special rules regarding decreases
in contribution rates. An insured group
health plan (or a multiemployer plan) that
is a grandfathered health plan will not
cease to be a grandfathered health plan
based on a change in the employer contribution rate unless the issuer (or multiemployer plan) knows, or should know, of
the change, provided:
(1) Upon renewal (or, in the case of a
multiemployer plan, before the start of a
new plan year), the issuer (or multiemployer plan) requires relevant employers,
employee organizations, or plan sponsors,
as applicable, to make a representation
regarding its contribution rate for the plan
year covered by the renewal, as well as its
contribution rate on March 23, 2010 (if
the issuer, or multiemployer plan, does
not already have it); and

Bulletin No. 2015– 49

(2) The relevant policies, certiﬁcates,
contracts of insurance, or plan documents
disclose in a prominent and effective manner that employers, employee organizations, or plan sponsors, as applicable, are
required to notify the issuer (or multiemployer plan) if the contribution rate
changes at any point during the plan year.
(D) Application to plans with multitiered coverage structures. The standards
for employer contributions in this paragraph (g)(1)(v) apply on a tier-by-tier basis. Therefore, if a group health plan modiﬁes the tiers of coverage it had on March
23, 2010 (for example, from self-only and
family to a multi-tiered structure of selfonly, self-plus-one, self-plus-two, and
self-plus-three-or-more), the employer
contribution for any new tier would be
tested by comparison to the contribution
rate for the corresponding tier on March
23, 2010. For example, if the employer
contribution rate for family coverage was
50 percent on March 23, 2010, the employer contribution rate for any new tier
of coverage other than self-only (i.e., selfplus-one, self-plus-two, self-plus-three or
more) must be within 5 percentage points
of 50 percent (i.e., at least 45 percent). If,
however, the plan adds one or more new
coverage tiers without eliminating or
modifying any previous tiers and those
new coverage tiers cover classes of individuals that were not covered previously
under the plan, the new tiers would not be
analyzed under the standards for changes
in employer contributions. For example, if
a plan with self-only as the sole coverage
tier added a family coverage tier, the level
of employer contributions toward the family coverage would not cause the plan to
lose grandfather status.
(E) Group health plans with ﬁxeddollar employee contributions or no employee contributions. A group health plan
that requires either ﬁxed-dollar employee
contributions or no employee contributions will not cease to be a grandfathered
health plan solely because the employer
contribution rate changes so long as there
continues to be no employee contributions
or no increase in the ﬁxed-dollar employee contributions towards the cost of
coverage.
(vi) Changes in annual limits—(A) Addition of an annual limit. A group health
plan, or group health insurance coverage,

757

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. (But see § 54.9815–2711, which
prohibits all annual dollar limits on essential health beneﬁts for plan years beginning on or after January 1, 2014).
(B) Decrease in limit for a plan or
coverage with only a lifetime limit. A
group health plan, or group 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. (But see § 54.9815–2711, which
prohibits all annual dollar limits on essential health beneﬁts for plan years beginning on or after January 1, 2014).
(C) Decrease in limit for a plan or
coverage with an annual limit. A group
health plan, or group 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). (But see § 54.9815–
2711, which prohibits all annual dollar
limits on essential health beneﬁts for plan
years beginning on or after January 1,
2014).
(2) Transitional rules—(i) Changes
made prior to March 23, 2010. If a group
health plan or health insurance issuer
makes the following changes to the terms
of the plan or health insurance coverage,
the changes are considered part of the
terms of the plan or health insurance coverage on March 23, 2010 even though
they were not effective at that time and
such changes do not cause a plan or health
insurance coverage to cease to be a grandfathered health plan:
(A) Changes effective after March 23,
2010 pursuant to a legally binding con-

December 7, 2015

tract entered into on or before March 23,
2010;
(B) Changes effective after March 23,
2010 pursuant to a ﬁling on or before
March 23, 2010 with a State insurance
department; or
(C) Changes effective after March 23,
2010 pursuant to written amendments to a
plan that were adopted on or before March
23, 2010.
(ii) Changes made after March 23,
2010 and adopted prior to issuance of
regulations. If, after March 23, 2010, a
group health plan or health insurance issuer makes changes to the terms of the
plan or health insurance coverage and the
changes are adopted prior to June 14,
2010, the changes will not cause the plan
or health insurance coverage to cease to
be a grandfathered health plan if the
changes are revoked or modiﬁed effective
as of the ﬁrst day of the ﬁrst plan year (in
the individual market, policy year) beginning on or after September 23, 2010, and
the terms of the plan or health insurance
coverage on that date, as modiﬁed, would
not cause the plan or coverage to cease to
be a grandfathered health plan under the
rules of this section, including paragraph
(g)(1) of this section. For this purpose,
changes will be considered to have been
adopted prior to June 14, 2010 if:
(A) The changes are effective before
that date;
(B) The changes are effective on or
after that date pursuant to a legally binding contract entered into before that date;
(C) The changes are effective on or
after that date pursuant to a ﬁling before
that date with a State insurance department; or
(D) The changes are effective on or
after that date pursuant to written amendments to a plan that were adopted before
that date.
(3) Deﬁnitions—(i) Medical inﬂation
deﬁned. For purposes of this paragraph
(g), the term medical inﬂation means the
increase since March 2010 in the overall
medical care component of the Consumer
Price Index for All Urban Consumers
(CPI-U) (unadjusted) published by the
Department of Labor using the 1982 –
1984 base of 100. For this purpose, the
increase in the overall medical care component is computed by subtracting
387.142 (the overall medical care compo-

December 7, 2015

nent of the CPI-U (unadjusted) published
by the Department of Labor for March
2010, using the 1982 – 1984 base of 100)
from the index amount for any month in
the 12 months before the new change is to
take effect and then dividing that amount
by 387.142.
(ii) Maximum percentage increase deﬁned. For purposes of this paragraph (g),
the term maximum percentage increase
means medical inﬂation (as deﬁned in
paragraph (g)(3)(i) of this section), expressed as a percentage, plus 15 percentage points.
(iii) Contribution rate deﬁned. For purposes of paragraph (g)(1)(v) of this section:
(A) Contribution rate based on cost of
coverage. The term contribution rate
based on cost of coverage means the
amount of contributions made by an employer or employee organization compared to the total cost of coverage, expressed as a percentage. The total cost of
coverage is determined in the same manner as the applicable premium is calculated under the COBRA continuation provisions of section 604 of ERISA, section
4980B(f)(4) of the Internal Revenue
Code, and section 2204 of the PHS Act. In
the case of a self-insured plan, contributions by an employer or employee organization are equal to the total cost of coverage minus the employee contributions
towards the total cost of coverage.
(B) Contribution rate based on a formula. The term contribution rate based on
a formula means, for plans that, on March
23, 2010, made contributions based on a
formula (such as hours worked or tons of
coal mined), the formula.
(4) Examples. The rules of this paragraph (g) are illustrated by the following
examples:
Example 1. (i) Facts. On March 23, 2010, a
grandfathered health plan has a coinsurance requirement of 20% for inpatient surgery. The plan is subsequently amended to increase the coinsurance requirement to 25%.
(ii) Conclusion. In this Example 1, the increase in
the coinsurance requirement from 20% to 25%
causes the plan to cease to be a grandfathered health
plan.
Example 2. (i) Facts. Before March 23, 2010, the
terms of a group health plan provide beneﬁts for a
particular mental health condition, the treatment for
which is a combination of counseling and prescription drugs. Subsequently, the plan eliminates beneﬁts for counseling.

758

(ii) Conclusion. In this Example 2, the plan
ceases to be a grandfathered health plan because
counseling is an element that is necessary to treat the
condition. Thus the plan is considered to have eliminated substantially all beneﬁts for the treatment of
the condition.
Example 3. (i) Facts. On March 23, 2010, a
grandfathered health plan has a copayment requirement of $30 per ofﬁce visit for specialists. The plan
is subsequently amended to increase the copayment
requirement to $40. Within the 12-month period
before the $40 copayment takes effect, the greatest
value of the overall medical care component of the
CPI-U (unadjusted) is 475.
(ii) Conclusion. In this Example 3, the increase in
the copayment from $30 to $40, expressed as a
percentage, is 33.33% (40 – 30 ⫽ 10; 10 ⫼ 30 ⫽
0.3333; 0.3333 ⫽ 33.33%). Medical inﬂation (as
deﬁned in paragraph (g)(3)(i) of this section) from
March 2010 is 0.2269 (475 – 387.142 ⫽ 87.858;
87.858 ⫼ 387.142 ⫽ 0.2269). The maximum percentage increase permitted is 37.69% (0.2269 ⫽
22.69%; 22.69% ⫹ 15% ⫽ 37.69%). Because
33.33% does not exceed 37.69%, the change in the
copayment requirement at that time does not cause
the plan to cease to be a grandfathered health plan.
Example 4. (i) Facts. Same facts as Example 3,
except the grandfathered health plan subsequently
increases the $40 copayment requirement to $45 for
a later plan year. Within the 12-month period before
the $45 copayment takes effect, the greatest value of
the overall medical care component of the CPI-U
(unadjusted) is 485.
(ii) Conclusion. In this Example 4, the increase in
the copayment from $30 (the copayment that was in
effect on March 23, 2010) to $45, expressed as a
percentage, is 50% (45 – 30 ⫽ 15; 15 ⫼ 30 ⫽ 0.5;
0.5 ⫽ 50%). Medical inﬂation (as deﬁned in paragraph (g)(3)(i) of this section) from March 2010 is
0.2527 (485 – 387.142 ⫽ 97.858; 97.858 ⫼ 387.142
⫽ 0.2527). The increase that would cause a plan to
cease to be a grandfathered health plan under paragraph (g)(1)(iv) of this section is the greater of the
maximum percentage increase of 40.27% (0.2527 ⫽
25.27%; 25.27% ⫹ 15% ⫽ 40.27%), or $6.26 ($5 x
0.2527 ⫽ $1.26; $1.26 ⫹ $5 ⫽ $6.26). Because 50%
exceeds 40.27% and $15 exceeds $6.26, the change
in the copayment requirement at that time causes the
plan to cease to be a grandfathered health plan.
Example 5. (i) Facts. On March 23, 2010, a
grandfathered health plan has a copayment of $10
per ofﬁce visit for primary care providers. The plan
is subsequently amended to increase the copayment
requirement to $15. Within the 12-month period
before the $15 copayment takes effect, the greatest
value of the overall medical care component of the
CPI-U (unadjusted) is 415.
(ii) Conclusion. In this Example 5, the increase in
the copayment, expressed as a percentage, is 50%
(15 – 10 ⫽ 5; 5 ⫼ 10 ⫽ 0.5; 0.5 ⫽ 50%). Medical
inﬂation (as deﬁned in paragraph (g)(3) of this section) from March 2010 is 0.0720 (415.0 – 387.142 ⫽
27.858; 27.858 ⫼ 387.142 ⫽ 0.0720). The increase
that would cause a plan to cease to be a grandfathered health plan under paragraph (g)(1)(iv) of this
section is the greater of the maximum percentage
increase of 22.20% (0.0720 ⫽ 7.20%; 7.20% ⫹ 15%
⫽ 22.20), or $5.36 ($5 x 0.0720 ⫽ $0.36; $0.36 ⫹

Bulletin No. 2015– 49

$5 ⫽ $5.36). The $5 increase in copayment in this
Example 5 would not cause the plan to cease to be a
grandfathered health plan pursuant to paragraph
(g)(1)(iv)this section, which would permit an increase in the copayment of up to $5.36.
Example 6. (i) Facts. The same facts as Example
5, except on March 23, 2010, the grandfathered
health plan has no copayment ($0) for ofﬁce visits
for primary care providers. The plan is subsequently
amended to increase the copayment requirement to
$5.
(ii) Conclusion. In this Example 6, medical inﬂation (as deﬁned in paragraph (g)(3)(i) of this section) from March 2010 is 0.0720 (415.0 – 387.142 ⫽
27.858; 27.858 ⫼ 387.142 ⫽ 0.0720). The increase
that would cause a plan to cease to be a grandfathered health plan under paragraph (g)(1)(iv)(A) of
this section is $5.36 ($5 x 0.0720 ⫽ $0.36; $0.36 ⫹
$5 ⫽ $5.36). The $5 increase in copayment in this
Example 6 is less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of this section of
$5.36. Thus, the $5 increase in copayment does not
cause the plan to cease to be a grandfathered health
plan.
Example 7. (i) Facts. On March 23, 2010, a
self-insured group health plan provides two tiers of
coverage — self-only and family. The employer
contributes 80% of the total cost of coverage for
self-only and 60% of the total cost of coverage for
family. Subsequently, the employer reduces the contribution to 50% for family coverage, but keeps the
same contribution rate for self-only coverage.
(ii) Conclusion. In this Example 7, the decrease
of 10 percentage points for family coverage in the
contribution rate based on cost of coverage causes
the plan to cease to be a grandfathered health plan.
The fact that the contribution rate for self-only coverage remains the same does not change the result.
Example 8. (i) Facts. On March 23, 2010, a
self-insured grandfathered health plan has a COBRA
premium for the 2010 plan year of $5000 for selfonly coverage and $12,000 for family coverage. The
required employee contribution for the coverage is
$1000 for self-only coverage and $4000 for family
coverage. Thus, the contribution rate based on cost
of coverage for 2010 is 80% ((5000 – 1000)/5000)
for self-only coverage and 67% ((12,000 – 4000)/
12,000) for family coverage. For a subsequent plan
year, the COBRA premium is $6000 for self-only
coverage and $15,000 for family coverage. The employee contributions for that plan year are $1200 for
self-only coverage and $5000 for family coverage.
Thus, the contribution rate based on cost of coverage
is 80% ((6000 – 1200)/6000) for self-only coverage
and 67% ((15,000 – 5000)/15,000) for family coverage.
(ii) Conclusion. In this Example 8, because there
is no change in the contribution rate based on cost of
coverage, the plan retains its status as a grandfathered health plan. The result would be the same if
all or part of the employee contribution was made
pre-tax through a cafeteria plan under section 125 of
the Internal Revenue Code.
Example 9. (i) Facts. A group health plan not
maintained pursuant to a collective bargaining agreement offers three beneﬁt packages on March 23,
2010. Option F is a self-insured option. Options G
and H are insured options. Beginning July 1, 2013,

Bulletin No. 2015– 49

the plan increases coinsurance under Option H from
10% to 15%.
(ii) Conclusion. In this Example 9, the coverage
under Option H is not grandfathered health plan
coverage as of July 1, 2013, consistent with the (rule
in paragraph (g)(1)(ii) of this section. Whether the
coverage under Options F and G is grandfathered
health plan coverage is determined separately under
the rules of this paragraph (g).

for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.

§ 54.9815–1251T [Removed]
§ 54.9815–2704T [Removed]
Par. 5. Section 54.9815–1251T is removed.
Par.6. Section 54.9815–2704 is added
to read as follows:
§ 54.9815–2704 Prohibition of
preexisting condition exclusions.
(a) No preexisting condition exclusions. 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).
(b) Examples. The rules of paragraph
(a) of this section are illustrated by the
following examples (for additional examples illustrating the deﬁnition of a preexisting condition exclusion, see § 54.9801–
3(a)(2)):
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. Therefore, such an exclusion is prohibited.
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. Therefore,
such an exclusion is prohibited.

759

Par. 7. Section 54.9815–2704T is removed.
Par.8. Section 54.9815–2711 is added
to read as follows:
§ 54.9815–2711 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
health insurance coverage, may not establish any lifetime limit on the dollar
amount of essential health beneﬁts for any
individual, whether provided in-network
or out-of-network.
(2) Annual limits—(i) General rule.
Except as provided in paragraphs
(a)(2)(ii) and (b) 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 essential health beneﬁts
for any individual, whether provided innetwork or out-of-network.
(ii) Exception for health ﬂexible spending arrangements. A health ﬂexible
spending arrangement (as deﬁned in section 106(c)(2) of the Internal Revenue
Code) offered through a cafeteria plan
pursuant to section 125 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

December 7, 2015

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. For this purpose, a group health
plan or a health insurance issuer that is not
required to provide essential health beneﬁts under section 1302(b) must deﬁne “essential health beneﬁts” in a manner consistent with one of the three Federal
Employees Health Beneﬁt Program (FEHBP) options as deﬁned by 45 CFR
156.100(a)(3) or one of the basebenchmark plans selected by a State or
applied by default pursuant to 45 CFR
156.100.
(d) Special rule for health reimbursement arrangements (HRAs) and other
account-based plans— (1) In general. If
an HRA or other account-based plan is
integrated with other coverage under a
group health plan and the other group
health plan coverage alone satisﬁes the
requirements in paragraph (a)(2) of this
section, the fact that the beneﬁts under the
HRA or other account-based plan are limited does not mean that the HRA or other
account-based plan fails to meet the requirements of paragraph (a)(2) of this section. Similarly, if an HRA or other
account-based plan is integrated with
other coverage under a group health plan
and the other group health plan coverage
alone satisﬁes the requirements in PHS
Act section 2713 and section 54.9815–
2713(a)(1), the HRA or other accountbased plan will not fail to meet the requirements of PHS Act section 2713 and
§ 54.9815–2713(a)(1).
(2) Integration requirements. An HRA
or other account-based plan is integrated
with a group health plan for purposes of
paragraph (a)(2) of this section if it meets
the requirements under either the integra-

December 7, 2015

tion method set forth in paragraph
(d)(2)(i) of this section or the integration
method set forth in paragraph (d)(2)(ii) of
this section. Integration does not require
that the HRA (or other account-based
plan) and the group health plan with
which it is integrated share the same plan
sponsor, the same plan document, or governing instruments, or ﬁle a single Form
5500, if applicable. The term “excepted
beneﬁts” is used throughout the integration methods; for a deﬁnition of the term
“excepted beneﬁts” see Code section
9832(c), ERISA section 733(c), and PHS
Act section 2791(c).
(i) Integration Method: Minimum
value not required. An HRA or other
account-based plan is integrated with another group health plan for purposes of
this paragraph if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based plan) to the employee that
does not consist solely of excepted beneﬁts;
(B) The employee receiving the HRA
or other account-based plan is actually
enrolled in a group health plan (other than
the HRA or other account-based plan) that
does not consist solely of excepted beneﬁts, regardless of whether the plan is offered by the same plan sponsor (referred
to as non-HRA group coverage);
(C) The HRA or other account-based
plan is available only to employees who
are enrolled in non-HRA group coverage,
regardless of whether the non-HRA group
coverage is offered by the plan sponsor of
the HRA or other account-based plan (for
example, the HRA may be offered only to
employees who do not enroll in an employer’s group health plan but are enrolled
in other non-HRA group coverage, such
as a group health plan maintained by the
employer of the employee’s spouse);
(D) The beneﬁts under the HRA or
other account-based plan are limited to
reimbursement of one or more of the
following— co-payments, co-insurance,
deductibles, and premiums under the nonHRA group coverage, as well as medical
care (as deﬁned under section 213(d) of
the Code) that does not constitute essential health beneﬁts as deﬁned in paragraph
(c) of this section; and
(E) Under the terms of the HRA or
other account-based plan, an employee (or

760

former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA or other
account-based plan at least annually and,
upon termination of employment, either
the remaining amounts in the HRA or
other account-based plan are forfeited or
the employee is permitted to permanently
opt out of and waive future reimbursements from the HRA or other accountbased plan.
(ii) Integration Method: Minimum
value required. An HRA or other accountbased plan is integrated with another
group health plan for purposes of this
paragraph if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based plan) to the employee that
provides minimum value pursuant to
Code section 36B(c)(2)(C)(ii) (and its implementing regulations and applicable
guidance);
(B) The employee receiving the HRA
or other account-based plan is actually
enrolled in a group health plan that provides minimum value pursuant to section
36B(c)(2)(C)(ii) of the Code (and applicable guidance), regardless of whether the
plan is offered by the plan sponsor of the
HRA or other account-based plan (referred to as non-HRA MV group coverage);
(C) The HRA or other account-based
plan is available only to employees who
are actually enrolled in non-HRA MV
group coverage, regardless of whether the
non-HRA MV group coverage is offered
by the plan sponsor of the HRA or other
account-based plan (for example, the
HRA may be offered only to employees
who do not enroll in an employer’s group
health plan but are enrolled in other nonHRA MV group coverage, such as a group
health plan maintained by an employer of
the employee’s spouse); and
(D) Under the terms of the HRA or
other account-based plan, an employee (or
former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA or other
account-based plan at least annually, and,
upon termination of employment, either
the remaining amounts in the HRA or
other account-based plan are forfeited or
the employee is permitted to permanently
opt out of and waive future reimburse-

Bulletin No. 2015– 49

ments from the HRA or other accountbased plan.
(3) Forfeiture. For purpose of integration under paragraphs (d)(2)(i)(E) and
(d)(2)(ii)(D) of this section, forfeiture or
waiver occurs even if the forfeited or
waived amounts may be reinstated upon a
ﬁxed date, a participant’s death, or the
earlier of the two events (the reinstatement event). For this purpose coverage
under an HRA or other account-based
plan is considered forfeited or waived
prior to a reinstatement event only if the
participant’s election to forfeit or waive is
irrevocable, meaning that, beginning on
the effective date of the election and
through the date of the reinstatement
event, the participant and the participant’s
beneﬁciaries have no access to amounts
credited to the HRA or other accountbased plan. This means that upon and after
reinstatement, the reinstated amounts under the HRA or other account-based plan
may not be used to reimburse or pay medical expenses incurred during the period
after forfeiture and prior to reinstatement.
(4) No integration with individual market coverage. A group health plan, including an HRA or other account-based plan,
used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of
paragraph (a)(2) of this section (or for
purposes of the requirements of PHS Act
section 2713).
(5) Integration with Medicare parts B
and D. For employers that are not required
to offer their non-HRA group health plan
coverage to employees who are Medicare
beneﬁciaries, an HRA or other accountbased plan that may be used to reimburse
premiums under Medicare part B or D
may be integrated with Medicare (and
deemed to comply with PHS Act sections
2711 and 2713) if the following requirements are satisﬁed with respect to employees who would be eligible for the
employer’s non-HRA group health plan
but for their eligibility for Medicare (and
the integration rules under paragraphs
(d)(2)(i) and (ii) of this section continue to
apply to employees who are not eligible
for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based plan and that does not con-

Bulletin No. 2015– 49

sist solely of excepted beneﬁts) to employees who are not eligible for Medicare;
(ii) The employee receiving the HRA
or other account-based plan is actually
enrolled Medicare part B or D;
(iii) The HRA or other account-based
plan is available only to employees who
are enrolled in Medicare part B or D; and
(iv) The HRA or other account-based
plan
complies
with
paragraphs
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
(6) Account-based plan. An accountbased plan for purposes of this section is
an employer-provided group health plan
that provides reimbursements of medical
expenses other than individual market
policy premiums with the reimbursement
subject to a maximum ﬁxed dollar amount
for a period. An HRA is a type of accountbased plan.
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.
§ 54.9815–2711T [Removed]
Par. 9. Section 54.9815–2711T is removed.
Par.10. Section 54.9815–2712 is added
to read as follows:
§ 54.9815–2712 Rules regarding
rescissions.
(a) Prohibition on rescissions—(1) A
group health plan, or a health insurance
issuer offering group health insurance
coverage, must not rescind coverage under the plan, or under the policy, certiﬁcate, or contract of insurance, with respect
to an individual (including a group to
which the individual belongs or family
coverage in which the individual is included) once the individual is covered under the plan or coverage, unless the individual (or a person seeking coverage on
behalf of the individual) performs an act,
practice, or omission that constitutes
fraud, or makes an intentional misrepre-

761

sentation of material fact, as prohibited by
the terms of the plan or coverage. A group
health plan, or a health insurance issuer
offering group health insurance coverage,
must provide at least 30 days advance
written notice to each participant who
would be affected before coverage may be
rescinded under this paragraph (a)(1), regardless of whether the coverage is insured or self-insured, or whether the rescission applies to an entire group or only
to an individual within the group. (The
rules of this paragraph (a)(1) apply regardless of any contestability period that
may otherwise apply.)
(2) For purposes of this section, a rescission is a cancellation or discontinuance of coverage that has retroactive effect. For example, a cancellation that
treats a policy as void from the time of the
individual’s or group’s enrollment is a
rescission. As another example, a cancellation that voids beneﬁts paid up to a
year before the cancellation is also a
rescission for this purpose. A cancellation or discontinuance of coverage is not
a rescission if –
(i) The cancellation or discontinuance
of coverage has only a prospective effect;
(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 (including COBRA premiums) towards the cost of coverage;
(iii) The cancellation or discontinuance
of coverage is initiated by the individual
(or by the individual’s authorized representative) and the sponsor, employer,
plan, or issuer does not, directly or indirectly, take action to inﬂuence the individual’s decision to cancel or discontinue
coverage retroactively or otherwise take
any adverse action or retaliate against,
interfere with, coerce, intimidate, or
threaten the individual; or
(iv) The cancellation or discontinuance
of coverage is initiated by the Exchange
pursuant to 45 CFR 155.430 (other than
under paragraph (b)(2)(iii)).
(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

December 7, 2015

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

(b) Compliance with other requirements. Other requirements of Federal or
State law may apply in connection with a
rescission of coverage.
(c) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.
§ 54.9815–2712T [Removed]
Par. 11. Section 54.9815–2712T is removed.
Par.12. Section 54.9815–2714 is added
to read as follows:
§ 54.9815–2714 Eligibility of children
until at least age 26.
(a) In general—(1) A group health
plan, or a health insurance issuer offering
group health insurance coverage, that

December 7, 2015

makes available dependent coverage of
children must make such coverage available for children until attainment of 26
years of age.
(2) The rule of this paragraph (a) is
illustrated by the following example:

erage providing dependent coverage of
children cannot vary based on age (except
for children who are age 26 or older).
(e) Examples. The rules of paragraph
(d) of this section are illustrated by the
following examples:

Example. (i) Facts. For the plan year beginning
January 1, 2011, a group health plan provides health
coverage for employees, employees’ spouses, and
employees’ children until the child turns 26. On the
birthday of a child of an employee, July 17, 2011, the
child turns 26. The last day the plan covers the child
is July 16, 2011.
(ii) Conclusion. In this Example, the plan satisﬁes the requirement of this paragraph (a) with respect to the child.

Example 1. (i) Facts. A group health plan offers
a choice of self-only or family health coverage.
Dependent coverage is provided under family health
coverage for children of participants who have not
attained age 26. The plan imposes an additional
premium surcharge for children who are older than
age 18.
(ii) Conclusion. In this Example 1, the plan violates the requirement of paragraph (d) of this section
because the plan varies the terms for dependent
coverage of children based on age.
Example 2. (i) Facts. A group health plan offers
a choice among the following tiers of health coverage: self-only, self-plus-one, self-plus-two, and selfplus-three-or-more. The cost of coverage increases
based on the number of covered individuals. The
plan provides dependent coverage of children who
have not attained age 26.
(ii) Conclusion. In this Example 2, the plan does
not violate the requirement of paragraph (d) of this
section that the terms of dependent coverage for
children not vary based on age. Although the cost of
coverage increases for tiers with more covered individuals, the increase applies without regard to the
age of any child.
Example 3. (i) Facts. A group health plan offers
two beneﬁt packages — an HMO option and an
indemnity option. Dependent coverage is provided
for children of participants who have not attained
age 26. The plan limits children who are older than
age 18 to the HMO option.
(ii) Conclusion. In this Example 3, the plan violates the requirement of paragraph (d) of this section
because the plan, by limiting children who are older
than age 18 to the HMO option, varies the terms for
dependent coverage of children based on age.
Example 4. (i) Facts. A group health plan sponsored by a large employer normally charges a copayment for physician visits that do not constitute
preventive services. The plan charges this copayment to individuals age 19 and over, including employees, spouses, and dependent children, but waives
it for those under age 19.
(ii) Conclusion. In this Example 4, the plan does
not violate the requirement of paragraph (d) of this
section that the terms of dependent coverage for
children not vary based on age. While the requirement of paragraph (d) of this section generally prohibits distinctions based upon age in dependent coverage of children, it does not prohibit distinctions
based upon age that apply to all coverage under the
plan, including coverage for employees and spouses
as well as dependent children. In this Example 4, the
copayments charged to dependent children are the
same as those charged to employees and spouses.
Accordingly, the arrangement described in this Example 4 (including waiver, for individuals under age
19, of the generally applicable copayment) does
not violate the requirement of paragraph (d) of this
section.

(b) Restrictions on plan deﬁnition of
dependent – (1) In general. With respect
to a child who has not attained age 26, a
plan or issuer may not deﬁne dependent
for purposes of eligibility for dependent
coverage of children other than in terms of
a relationship between a child and the
participant. Thus, for example, a plan or
issuer may not deny or restrict dependent
coverage for a child who has not attained
age 26 based on the presence or absence
of the child’s ﬁnancial dependency (upon
the participant or any other person); residency with the participant or with any
other person; whether the child lives,
works, or resides in an HMO’s service
area or other network service area; marital
status; student status; employment; eligibility for other coverage; or any combination of those factors. (Other requirements
of Federal or State law, including section
609 of ERISA or section 1908 of the
Social Security Act, may require coverage
of certain children.)
(2) Construction. A plan or issuer will
not fail to satisfy the requirements of this
section if the plan or issuer limits dependent child coverage to children under age
26 who are described in section 152(f)(1)
. For an individual not described in section
152(f)(1), such as a grandchild or niece, a
plan may impose additional conditions on
eligibility for dependent child health coverage, such as a condition that the individual be a dependent for income tax purposes.
(c) Coverage of grandchildren not required. Nothing in this section requires a
plan or issuer to make coverage available
for the child of a child receiving dependent coverage.
(d) Uniformity irrespective of age. The
terms of the plan or health insurance cov-

762

Bulletin No. 2015– 49

(f) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.
§ 54.9815–2714T [Removed]
Par. 13. Section 54.9815–2714T is removed.
Par.14. Section 54.9815–2719 is added
to read as follows:
§ 54.9815–2719 Internal claims and
appeals and external review processes
(a) Scope and deﬁnitions–(1) Scope.
This section sets forth requirements with
respect to internal claims and appeals and
external review processes for group health
plans and health insurance issuers that are
not grandfathered health plans under
§ 54.9815–1251. Paragraph (b) of this
section provides requirements for internal
claims and appeals processes. Paragraph
(c) of this section sets forth rules governing the applicability of State external review processes. Paragraph (d) of this section sets forth a Federal external review
process for plans and issuers not subject to
an applicable State external review process. Paragraph (e) of this section prescribes requirements for ensuring that notices required to be provided under this
section are provided in a culturally and
linguistically appropriate manner. Paragraph (f) of this section describes the authority of the Secretary to deem certain
external review processes in existence on
March 23, 2010 as in compliance with
paragraph (c) or (d) of this section.
(2) Deﬁnitions. For purposes of this
section, the following deﬁnitions apply –
(i) Adverse beneﬁt determination. An
adverse beneﬁt determination means an
adverse beneﬁt determination as deﬁned
in 29 CFR 2560.503–1, as well as any
rescission of coverage, as described in
§ 54.9815–2712(a)(2) (whether or not, in
connection with the rescission, there is an
adverse effect on any particular beneﬁt at
that time).

Bulletin No. 2015– 49

(ii) Appeal (or internal appeal). An
appeal or internal appeal means review
by a plan or issuer of an adverse beneﬁt
determination, as required in paragraph
(b) of this section.
(iii) Claimant. Claimant means an individual who makes a claim under this
section. For purposes of this section, references to claimant include a claimant’s
authorized representative.
(iv) External review. External review
means a review of an adverse beneﬁt determination (including a ﬁnal internal adverse beneﬁt determination) conducted
pursuant to an applicable State external
review process described in paragraph (c)
of this section or the Federal external review process of paragraph (d) of this section.
(v) Final internal adverse beneﬁt determination. A ﬁnal internal adverse beneﬁt determination means an adverse beneﬁt determination that has been upheld by
a plan or issuer at the completion of the
internal appeals process applicable under
paragraph (b) of this section (or an adverse beneﬁt determination with respect to
which the internal appeals process has
been exhausted under the deemed exhaustion rules of paragraph (b)(2)(ii)(F) of this
section).
(vi) Final external review decision. A
ﬁnal external review decision means a determination by an independent review organization at the conclusion of an external
review.
(vii) Independent review organization
(or IRO). An independent review organization (or IRO) means an entity that conducts independent external reviews of adverse beneﬁt determinations and ﬁnal
internal adverse beneﬁt determinations
pursuant to paragraph (c) or (d) of this
section.
(viii) NAIC Uniform Model Act. The
NAIC Uniform Model Act means the Uniform Health Carrier External Review
Model Act promulgated by the National
Association of Insurance Commissioners
in place on July 23, 2010.
(b) Internal claims and appeals process—(1) In general. A group health plan
and a health insurance issuer offering
group health insurance coverage must implement an effective internal claims and
appeals process, as described in this paragraph (b).

763

(2) Requirements for group health
plans and group health insurance issuers.
A group health plan and a health insurance issuer offering group health insurance coverage must comply with all the
requirements of this paragraph (b)(2). In
the case of health insurance coverage offered in connection with a group health
plan, if either the plan or the issuer complies with the internal claims and appeals
process of this paragraph (b)(2), then the
obligation to comply with this paragraph
(b)(2) is satisﬁed for both the plan and the
issuer with respect to the health insurance
coverage.
(i) Minimum internal claims and appeals standards. A group health plan and
a health insurance issuer offering group
health insurance coverage must comply
with all the requirements applicable to
group health plans under 29 CFR
2560.503–1, except to the extent those
requirements are modiﬁed by paragraph
(b)(2)(ii) of this section. Accordingly, under this paragraph (b), with respect to
health insurance coverage offered in connection with a group health plan, the
group health insurance issuer is subject to
the requirements in 29 CFR 2560.503–1
to the same extent as the group health
plan.
(ii) Additional standards. In addition to
the requirements in paragraph (b)(2)(i) of
this section, the internal claims and appeals processes of a group health plan and
a health insurance issuer offering group
health insurance coverage must meet the
requirements of this paragraph (b)(2)(ii).
(A) Clariﬁcation of meaning of adverse beneﬁt determination. For purposes
of this paragraph (b)(2), an “adverse beneﬁt determination” includes an adverse
beneﬁt determination as deﬁned in paragraph (a)(2)(i) of this section. Accordingly, in complying with 29 CFR
2560.503–1, as well as the other provisions of this paragraph (b)(2), a plan or
issuer must treat a rescission of coverage
(whether or not the rescission has an adverse effect on any particular beneﬁt at
that time) as an adverse beneﬁt determination. (Rescissions of coverage are subject to the requirements of § 54.9815–
2712.)
(B) Expedited notiﬁcation of beneﬁt
determinations involving urgent care. The
requirements of 29 CFR 2560.503–

December 7, 2015

1(f)(2)(i) (which generally provide, among
other things, in the case of urgent care
claims for notiﬁcation of the plan’s beneﬁt
determination (whether adverse or not) as
soon as possible, taking into account the
medical exigencies, but not later than 72
hours after the receipt of the claim) continue
to apply to the plan and issuer. For purposes
of this paragraph (b)(2)(ii)(B), a claim involving urgent care has the meaning given
in 29 CFR 2560.503–1(m)(1), as determined by the attending provider, and the
plan or issuer shall defer to such determination of the attending provider.
(C) Full and fair review. A plan and
issuer must allow a claimant to review the
claim ﬁle and to present evidence and
testimony as part of the internal claims
and appeals process. Speciﬁcally, in addition to complying with the requirements
of 29 CFR 2560.503–1(h)(2) —
(1) The plan or issuer must provide the
claimant, free of charge, with any new or
additional evidence considered, relied
upon, or generated by the plan or issuer
(or at the direction of the plan or issuer) in
connection with the claim; such evidence
must be provided as soon as possible and
sufﬁciently in advance of the date on
which the notice of ﬁnal internal adverse
beneﬁt determination is required to be
provided under 29 CFR 2560.503–1(i) to
give the claimant a reasonable opportunity
to respond prior to that date; and
(2) Before the plan or issuer can issue
a ﬁnal internal adverse beneﬁt determination based on a new or additional rationale, the claimant must be provided, free
of charge, with the rationale; the rationale
must be provided as soon as possible and
sufﬁciently in advance of the date on
which the notice of ﬁnal internal adverse
beneﬁt determination is required to be
provided under 29 CFR 2560.503–1(i) to
give the claimant a reasonable opportunity
to respond prior to that date. Notwithstanding the rules of 29 CFR 2560.503–
1(i), if the new or additional evidence is
received so late that it would be impossible to provide it to the claimant in time for
the claimant to have a reasonable opportunity to respond, the period for providing
a notice of ﬁnal internal adverse beneﬁt
determination is tolled until such time as
the claimant has a reasonable opportunity
to respond. After the claimant responds,
or has a reasonable opportunity to respond

December 7, 2015

but fails to do so, the plan administrator
shall notify the claimant of the plan’s beneﬁt determination as soon as a plan acting
in a reasonable and prompt fashion can
provide the notice, taking into account the
medical exigencies.
(D) Avoiding conﬂicts of interest. In
addition to the requirements of 29 CFR
2560.503–1(b) and (h) regarding full and
fair review, the plan and issuer must ensure that all claims and appeals are adjudicated in a manner designed to ensure the
independence and impartiality of the persons involved in making the decision. Accordingly, decisions regarding hiring,
compensation, termination, promotion, or
other similar matters with respect to any
individual (such as a claims adjudicator or
medical expert) must not be made based
upon the likelihood that the individual
will support the denial of beneﬁts.
(E) Notice. A plan and issuer must provide notice to individuals, in a culturally
and linguistically appropriate manner (as
described in paragraph (e) of this section)
that complies with the requirements of 29
CFR 2560.503–1(g) and (j). The plan and
issuer must also comply with the additional requirements of this paragraph
(b)(2)(ii)(E).
(1) The plan and issuer must ensure
that any notice of adverse beneﬁt determination or ﬁnal internal adverse beneﬁt determination includes information sufﬁcient to identify the claim involved
(including the date of service, the health
care provider, the claim amount (if applicable), and a statement describing the
availability, upon request, of the diagnosis
code and its corresponding meaning, and
the treatment code and its corresponding
meaning).
(2) The plan and issuer must provide to
participants and beneﬁciaries, as soon as
practicable, upon request, the diagnosis
code and its corresponding meaning, and
the treatment code and its corresponding
meaning, associated with any adverse
beneﬁt determination or ﬁnal internal adverse beneﬁt determination. The plan or
issuer must not consider a request for such
diagnosis and treatment information, in
itself, to be a request for an internal appeal
under this paragraph (b) or an external
review under paragraphs (c) and (d) of
this section.

764

(3) The plan and issuer must ensure
that the reason or reasons for the adverse
beneﬁt determination or ﬁnal internal adverse beneﬁt determination includes the
denial code and its corresponding meaning, as well as a description of the plan’s
or issuer’s standard, if any, that was used
in denying the claim. In the case of a
notice of ﬁnal internal adverse beneﬁt determination, this description must include
a discussion of the decision.
(4) The plan and issuer must provide a
description of available internal appeals
and external review processes, including
information regarding how to initiate an
appeal.
(5) The plan and issuer must disclose
the availability of, and contact information for, any applicable ofﬁce of health
insurance consumer assistance or ombudsman established under PHS Act section 2793 to assist individuals with the
internal claims and appeals and external
review processes.
(F) Deemed exhaustion of internal
claims and appeals processes – (1) In the
case of a plan or issuer that fails to strictly
adhere to all the requirements of this paragraph (b)(2) with respect to a claim, the
claimant is deemed to have exhausted the
internal claims and appeals process of this
paragraph (b), except as provided in paragraph (b)(2)(ii)(F)(2) of this section. Accordingly the claimant may initiate an external review under paragraph (c) or (d) of
this section, as applicable. The claimant is
also entitled to pursue any available remedies under section 502(a) of ERISA or
under State law, as applicable, on the basis that the plan or issuer has failed to
provide a reasonable internal claims and
appeals process that would yield a decision on the merits of the claim. If a claimant chooses to pursue remedies under section 502(a) of ERISA under such
circumstances, the claim or appeal is
deemed denied on review without the exercise of discretion by an appropriate ﬁduciary.
(2)
Notwithstanding
paragraph
(b)(2)(ii)(F)(1) of this section, the internal
claims and appeals process of this paragraph (b) will not be deemed exhausted
based on de minimis violations that do not
cause, and are not likely to cause, prejudice or harm to the claimant so long as the
plan or issuer demonstrates that the viola-

Bulletin No. 2015– 49

tion was for good cause or due to matters
beyond the control of the plan or issuer
and that the violation occurred in the context of an ongoing, good faith exchange of
information between the plan and the
claimant. This exception is not available if
the violation is part of a pattern or practice
of violations by the plan or issuer. The
claimant may request a written explanation of the violation from the plan or issuer, and the plan or issuer must provide
such explanation within 10 days, including a speciﬁc description of its bases, if
any, for asserting that the violation should
not cause the internal claims and appeals
process of this paragraph (b) to be deemed
exhausted. If an external reviewer or a
court rejects the claimant’s request for
immediate review under paragraph
(b)(2)(ii)(F)(1) of this section on the basis
that the plan met the standards for the exception under this paragraph (b)(2)(ii)(F)(2),
the claimant has the right to resubmit and
pursue the internal appeal of the claim. In
such a case, within a reasonable time after
the external reviewer or court rejects the
claim for immediate review (not to exceed
10 days), the plan shall provide the claimant with notice of the opportunity to resubmit and pursue the internal appeal of
the claim. Time periods for re-ﬁling the
claim shall begin to run upon claimant’s
receipt of such notice.
(iii) Requirement to provide continued
coverage pending the outcome of an appeal. A plan and issuer subject to the
requirements of this paragraph (b)(2) are
required to provide continued coverage
pending the outcome of an appeal. For this
purpose, the plan and issuer must comply
with the requirements of 29 CFR
2560.503–1(f)(2)(ii), which generally
provides that beneﬁts for an ongoing
course of treatment cannot be reduced or
terminated without providing advance
notice and an opportunity for advance
review.
(c) State standards for external review—(1) In general. (i) If a State external review process that applies to and is
binding on a health insurance issuer offering group health insurance coverage includes at a minimum the consumer protections in the NAIC Uniform Model Act,
then the issuer must comply with the applicable State external review process and
is not required to comply with the Federal

Bulletin No. 2015– 49

external review process of paragraph (d)
of this section. In such a case, to the extent
that beneﬁts under a group health plan are
provided through health insurance coverage, the group health plan is not required
to comply with either this paragraph (c) or
the Federal external review process of
paragraph (d) of this section.
(ii) To the extent that a group health
plan provides beneﬁts other than through
health insurance coverage (that is, the plan
is self-insured) and is subject to a State
external review process that applies to and
is binding on the plan (for example, is not
preempted by ERISA) and the State external review process includes at a minimum the consumer protections in the
NAIC Uniform Model Act, then the plan
must comply with the applicable State external review process and is not required
to comply with the Federal external review process of paragraph (d) of this section. Where a self-insured plan is not subject to an applicable State external review
process, but the State has chosen to expand access to its process for plans that
are not subject to the applicable State
laws, the plan may choose to comply with
either the applicable State external review
process or the Federal external review
process of paragraph (d) of this section.
(iii) If a plan or issuer is not required
under paragraph (c)(1)(i) or (c)(1)(ii) of
this section to comply with the requirements of this paragraph (c), then the plan
or issuer must comply with the Federal
external review process of paragraph (d)
of this section, except to the extent, in the
case of a plan, the plan is not required
under paragraph (c)(1)(i) of this section to
comply with paragraph (d) of this section.
(2) Minimum standards for State external review processes. An applicable State
external review process must meet all the
minimum consumer protections in this
paragraph (c)(2). The Department of
Health and Human Services will determine whether State external review processes meet these requirements.
(i) The State process must provide for
the external review of adverse beneﬁt determinations (including ﬁnal internal adverse beneﬁt determinations) by issuers
(or, if applicable, plans) that are based on
the issuer’s (or plan’s) requirements for
medical necessity, appropriateness, health

765

care setting, level of care, or effectiveness
of a covered beneﬁt.
(ii) The State process must require issuers (or, if applicable, plans) to provide
effective written notice to claimants of
their rights in connection with an external
review for an adverse beneﬁt determination.
(iii) To the extent the State process
requires exhaustion of an internal claims
and appeals process, exhaustion must be
unnecessary where the issuer (or, if applicable, the plan) has waived the requirement; the issuer (or the plan) is considered
to have exhausted the internal claims and
appeals process under applicable law (including by failing to comply with any of
the requirements for the internal appeal
process, as outlined in paragraph (b)(2) of
this section); or the claimant has applied
for expedited external review at the same
time as applying for an expedited internal
appeal.
(iv) The State process provides that the
issuer (or, if applicable, the plan) against
which a request for external review is ﬁled
must pay the cost of the IRO for conducting the external review. Notwithstanding
this requirement, a State external review
process that expressly authorizes, as of
November 18, 2015, a nominal ﬁling fee
may continue to permit such fees. For this
purpose, to be considered nominal, a ﬁling
fee must not exceed $25; it must be refunded to the claimant if the adverse beneﬁt determination (or ﬁnal internal adverse beneﬁt determination) is reversed
through external review; it must be
waived if payment of the fee would impose an undue ﬁnancial hardship; and
the annual limit on ﬁling fees for any
claimant within a single plan year must
not exceed $75.
(v) The State process may not impose a
restriction on the minimum dollar amount
of a claim for it to be eligible for external
review. Thus, the process may not impose,
for example, a $500 minimum claims
threshold.
(vi) The State process must allow at
least four months after the receipt of a
notice of an adverse beneﬁt determination
or ﬁnal internal adverse beneﬁt determination for a request for an external review
to be ﬁled.
(vii) The State process must provide
that IROs will be assigned on a random

December 7, 2015

basis or another method of assignment
that assures the independence and impartiality of the assignment process (such as
rotational assignment) by a State or independent entity, and in no event selected by
the issuer, plan, or the individual.
(viii) The State process must provide
for maintenance of a list of approved
IROs qualiﬁed to conduct the external review based on the nature of the health care
service that is the subject of the review.
The State process must provide for approval only of IROs that are accredited by
a nationally recognized private accrediting organization.
(ix) The State process must provide
that any approved IRO has no conﬂicts of
interest that will inﬂuence its independence. Thus, the IRO may not own or
control, or be owned or controlled by a
health insurance issuer, a group health
plan, the sponsor of a group health plan, a
trade association of plans or issuers, or a
trade association of health care providers.
The State process must further provide
that the IRO and the clinical reviewer
assigned to conduct an external review
may not have a material professional, familial, or ﬁnancial conﬂict of interest with
the issuer or plan that is the subject of the
external review; the claimant (and any
related parties to the claimant) whose
treatment is the subject of the external
review; any ofﬁcer, director, or management employee of the issuer; the plan administrator, plan ﬁduciaries, or plan employees; the health care provider, the
health care provider’s group, or practice
association recommending the treatment
that is subject to the external review; the
facility at which the recommended treatment would be provided; or the developer
or manufacturer of the principal drug, device, procedure, or other therapy being
recommended.
(x) The State process allows the claimant at least ﬁve business days to submit to
the IRO in writing additional information
that the IRO must consider when conducting the external review, and it requires
that the claimant is notiﬁed of the right to
do so. The process must also require that
any additional information submitted by
the claimant to the IRO must be forwarded to the issuer (or, if applicable, the
plan) within one business day of receipt
by the IRO.

December 7, 2015

(xi) The State process must provide
that the decision is binding on the plan or
issuer, as well as the claimant except to
the extent the other remedies are available
under State or Federal law, and except that
the requirement that the decision be binding shall not preclude the plan or issuer
from making payment on the claim or
otherwise providing beneﬁts at any time,
including after a ﬁnal external review decision that denies the claim or otherwise
fails to require such payment or beneﬁts.
For this purpose, the plan or issuer must
provide beneﬁts (including by making
payment on the claim) pursuant to the
ﬁnal external review decision without delay, regardless of whether the plan or issuer intends to seek judicial review of the
external review decision and unless or until there is a judicial decision otherwise.
(xii) The State process must require,
for standard external review, that the IRO
provide written notice to the issuer (or, if
applicable, the plan) and the claimant of
its decision to uphold or reverse the adverse beneﬁt determination (or ﬁnal internal adverse beneﬁt determination) within
no more than 45 days after the receipt of
the request for external review by the
IRO.
(xiii) The State process must provide
for an expedited external review if the
adverse beneﬁt determination (or ﬁnal internal adverse beneﬁt determination) concerns an admission, availability of care,
continued stay, or health care service for
which the claimant received emergency
services, but has not been discharged from
a facility; or involves a medical condition
for which the standard external review
time frame would seriously jeopardize the
life or health of the claimant or jeopardize
the claimant’s ability to regain maximum
function. As expeditiously as possible but
within no more than 72 hours after the
receipt of the request for expedited external review by the IRO, the IRO must
make its decision to uphold or reverse the
adverse beneﬁt determination (or ﬁnal internal adverse beneﬁt determination) and
notify the claimant and the issuer (or, if
applicable, the plan) of the determination.
If the notice is not in writing, the IRO
must provide written conﬁrmation of the
decision within 48 hours after the date of
the notice of the decision.

766

(xiv) The State process must require
that issuers (or, if applicable, plans) include a description of the external review
process in or attached to the summary
plan description, policy, certiﬁcate, membership booklet, outline of coverage, or
other evidence of coverage it provides to
participants, beneﬁciaries, or enrollees,
substantially similar to what is set forth in
section 17 of the NAIC Uniform Model
Act.
(xv) The State process must require
that IROs maintain written records and
make them available upon request to the
State, substantially similar to what is set
forth in section 15 of the NAIC Uniform
Model Act.
(xvi) The State process follows procedures for external review of adverse beneﬁt determinations (or ﬁnal internal adverse beneﬁt determinations) involving
experimental or investigational treatment,
substantially similar to what is set forth in
section 10 of the NAIC Uniform Model
Act.
(3) Transition period for external review processes—(i) Through December
31, 2017, an applicable State external review process applicable to a health insurance issuer or group health plan is considered to meet the requirements of PHS Act
section 2719(b). Accordingly, through
December 31, 2017, an applicable State
external review process will be considered
binding on the issuer or plan (in lieu of the
requirements of the Federal external review process). If there is no applicable
State external review process, the issuer or
plan is required to comply with the requirements of the Federal external review
process in paragraph (d) of this section.
(ii) An applicable State external review
process must apply for ﬁnal internal adverse beneﬁt determinations (or, in the
case of simultaneous internal appeal and
external review, adverse beneﬁt determinations) provided on or after January 1,
2018. The Federal external review process
will apply to such internal adverse beneﬁt
determinations unless the Department of
Health and Human Services determines
that a State law meets all the minimum
standards of paragraph (c)(2) of this section. Through December 31, 2017, a State
external review process applicable to a
health insurance issuer or group health
plan may be considered to meet the min-

Bulletin No. 2015– 49

imum standards of paragraph (c)(2) of this
section, if it meets the temporary standards established by the Secretary in guidance for a process similar to the NAIC
Uniform Model Act.
(d) Federal external review process. A
plan or issuer not subject to an applicable
State external review process under paragraph (c) of this section must provide an
effective Federal external review process
in accordance with this paragraph (d) (except to the extent, in the case of a plan, the
plan is described in paragraph (c)(1)(i) of
this section as not having to comply with
this paragraph (d)). In the case of health
insurance coverage offered in connection
with a group health plan, if either the plan
or the issuer complies with the Federal
external review process of this paragraph
(d), then the obligation to comply with
this paragraph (d) is satisﬁed for both the
plan and the issuer with respect to the
health insurance coverage. A Multi State
Plan or MSP, as deﬁned by 45 CFR
800.20, must provide an effective Federal
external review process in accordance
with this paragraph (d). In such circumstances, the requirement to provide external review under this paragraph (d) is satisﬁed when a Multi State Plan or MSP
complies with standards established by
the Ofﬁce of Personnel Management.
(1) Scope —(i) In general. The Federal
external review process established pursuant to this paragraph (d) applies to the
following:
(A) An adverse beneﬁt determination
(including a ﬁnal internal adverse beneﬁt
determination) by a plan or issuer that
involves medical judgment (including, but
not limited to, those based on the plan’s or
issuer’s requirements for medical necessity, appropriateness, health care setting,
level of care, or effectiveness of a covered
beneﬁt; its determination that a treatment
is experimental or investigational; its determination whether a participant or beneﬁciary is entitled to a reasonable alternative standard for a reward under a
wellness program; or its determination
whether a plan or issuer is complying with
the nonquantitative treatment limitation
provisions of Code section 9812 and
§ 54.9812, which generally require,
among other things, parity in the application of medical management techniques),
as determined by the external reviewer. (A

Bulletin No. 2015– 49

denial, reduction, termination, or a failure
to provide payment for a beneﬁt based on
a determination that a participant or beneﬁciary fails to meet the requirements for
eligibility under the terms of a group
health plan or health insurance coverage is
not eligible for the Federal external review process under this paragraph (d));
and
(B) A rescission of coverage (whether
or not the rescission has any effect on any
particular beneﬁt at that time).
(ii) Examples. The rules of paragraph
(d)(1)(i) of this section are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan provides coverage for 30 physical therapy visits generally. After the 30th visit, coverage is provided only if
the service is preauthorized pursuant to an approved
treatment plan that takes into account medical necessity using the plan’s deﬁnition of the term. Individual A seeks coverage for a 31st physical therapy
visit. A’s health care provider submits a treatment
plan for approval, but it is not approved by the plan,
so coverage for the 31st visit is not preauthorized.
With respect to the 31st visit, A receives a notice of
ﬁnal internal adverse beneﬁt determination stating
that the maximum visit limit is exceeded.
(ii) Conclusion. In this Example 1, the plan’s
denial of beneﬁts is based on medical necessity and
involves medical judgment. Accordingly, the claim
is eligible for external review under paragraph
(d)(1)(i) of this section. Moreover, the plan’s notiﬁcation of ﬁnal internal adverse beneﬁt determination
is inadequate under paragraphs (b)(2)(i) and
(b)(2)(ii)(E)(3) of this section because it fails to
make clear that the plan will pay for more than 30
visits if the service is preauthorized pursuant to an
approved treatment plan that takes into account medical necessity using the plan’s deﬁnition of the term.
Accordingly, the notice of ﬁnal internal adverse beneﬁt determination should refer to the plan provision
governing the 31st visit and should describe the
plan’s standard for medical necessity, as well as how
the treatment fails to meet the plan’s standard.
Example 2. (i) Facts. A group health plan does
not provide coverage for services provided out of
network, unless the service cannot effectively be
provided in network. Individual B seeks coverage for
a specialized medical procedure from an out-ofnetwork provider because B believes that the procedure cannot be effectively provided in network. B
receives a notice of ﬁnal internal adverse beneﬁt
determination stating that the claim is denied because the provider is out-of-network.
(ii) Conclusion. In this Example 2, the plan’s
denial of beneﬁts is based on whether a service can
effectively be provided in network and, therefore,
involves medical judgment. Accordingly, the claim
is eligible for external review under paragraph
(d)(1)(i) of this section. Moreover, the plan’s notice
of ﬁnal internal adverse beneﬁt determination is inadequate
under
paragraphs
(b)(2)(i)
and
(b)(2)(ii)(E)(3) of this section because the plan does
provide beneﬁts for services on an out-of-network

767

basis if the services cannot effectively be provided in
network. Accordingly, the notice of ﬁnal internal
adverse beneﬁt determination is required to refer to
the exception to the out-of-network exclusion and
should describe the plan’s standards for determining
effectiveness of services, as well as how services
available to the claimant within the plan’s network
meet the plan’s standard for effectiveness of services.

(2) External review process standards.
The Federal external review process established pursuant to this paragraph (d) is
considered similar to the process set forth
in the NAIC Uniform Model Act and,
therefore satisﬁes the requirements of
paragraph (d)(2), if such process provides
the following.
(i) Request for external review. A
group health plan or health insurance issuer must allow a claimant to ﬁle a request
for an external review with the plan or
issuer if the request is ﬁled within four
months after the date of receipt of a notice
of an adverse beneﬁt determination or ﬁnal internal adverse beneﬁt determination.
If there is no corresponding date four
months after the date of receipt of such a
notice, then the request must be ﬁled by
the ﬁrst day of the ﬁfth month following
the receipt of the notice. For example, if
the date of receipt of the notice is October
30, because there is no February 30, the
request must be ﬁled by March 1. If the
last ﬁling date would fall on a Saturday,
Sunday, or Federal holiday, the last ﬁling
date is extended to the next day that is not
a Saturday, Sunday, or Federal holiday.
(ii) Preliminary review — (A) In general. Within ﬁve business days following
the date of receipt of the external review
request, the group health plan or health
insurance issuer must complete a preliminary review of the request to determine
whether:
(1) The claimant is or was covered
under the plan or coverage at the time the
health care item or service was requested
or, in the case of a retrospective review,
was covered under the plan or coverage at
the time the health care item or service
was provided;
(2) The adverse beneﬁt determination
or the ﬁnal adverse beneﬁt determination
does not relate to the claimant’s failure to
meet the requirements for eligibility under
the terms of the group health plan or
health insurance coverage (e.g., worker
classiﬁcation or similar determination);

December 7, 2015

(3) The claimant has exhausted the
plan’s or issuer’s internal appeal process
unless the claimant is not required to exhaust the internal appeals process under
paragraph (b)(1) of this section; and
(4) The claimant has provided all the
information and forms required to process
an external review.
(B) Within one business day after completion of the preliminary review, the plan
or issuer must issue a notiﬁcation in writing to the claimant. If the request is complete but not eligible for external review,
such notiﬁcation must include the reasons
for its ineligibility and current contact information, including the phone number,
for the Employee Beneﬁts Security Administration. If the request is not complete, such notiﬁcation must describe the
information or materials needed to make
the request complete, and the plan or issuer must allow a claimant to perfect the
request for external review within the
four-month ﬁling period or within the 48
hour period following the receipt of the
notiﬁcation, whichever is later.
(iii) Referral to Independent Review
Organization — (A) In general. The
group health plan or health insurance issuer must assign an IRO that is accredited
by URAC or by similar nationallyrecognized accrediting organization to
conduct the external review. The IRO referral process must provide for the following:
(1) The plan or issuer must ensure that
the IRO process is not biased and ensures
independence;
(2) The plan or issuer must contract
with at least three (3) IROs for assignments under the plan or coverage and rotate claims assignments among them (or
incorporate other independent, unbiased
methods for selection of IROs, such as
random selection); and
(3) The IRO may not be eligible for
any ﬁnancial incentives based on the likelihood that the IRO will support the denial
of beneﬁts.
(4) The IRO process may not impose
any costs, including ﬁling fees, on the
claimant requesting the external review.
(B) IRO contracts. A group health plan
or health insurance issuer must include the
following standards in the contract between the plan or issuer and the IRO:

December 7, 2015

(1) The assigned IRO will utilize legal
experts where appropriate to make coverage determinations under the plan or coverage.
(2) The assigned IRO will timely notify a claimant in writing whether the request is eligible for external review. This
notice will include a statement that the
claimant may submit in writing to the
assigned IRO, within ten business days
following the date of receipt of the notice,
additional information. This additional information must be considered by the IRO
when conducting the external review. The
IRO is not required to, but may, accept
and consider additional information submitted after ten business days.
(3) Within ﬁve business days after the
date of assignment of the IRO, the plan or
issuer must provide to the assigned IRO
the documents and any information considered in making the adverse beneﬁt determination or ﬁnal internal adverse beneﬁt determination. Failure by the plan or
issuer to timely provide the documents
and information must not delay the conduct of the external review. If the plan or
issuer fails to timely provide the documents and information, the assigned IRO
may terminate the external review and
make a decision to reverse the adverse
beneﬁt determination or ﬁnal internal adverse beneﬁt determination. Within one
business day after making the decision,
the IRO must notify the claimant and the
plan.
(4) Upon receipt of any information
submitted by the claimant, the assigned
IRO must within one business day forward the information to the plan or issuer.
Upon receipt of any such information, the
plan or issuer may reconsider its adverse
beneﬁt determination or ﬁnal internal adverse beneﬁt determination that is the subject of the external review. Reconsideration by the plan or issuer must not delay
the external review. The external review
may be terminated as a result of the reconsideration only if the plan decides,
upon completion of its reconsideration, to
reverse its adverse beneﬁt determination
or ﬁnal internal adverse beneﬁt determination and provide coverage or payment.
Within one business day after making
such a decision, the plan must provide
written notice of its decision to the claimant and the assigned IRO. The assigned

768

IRO must terminate the external review
upon receipt of the notice from the plan or
issuer.
(5) The IRO will review all of the
information and documents timely received. In reaching a decision, the assigned IRO will review the claim de novo
and not be bound by any decisions or
conclusions reached during the plan’s or
issuer’s internal claims and appeals process applicable under paragraph (b). In
addition to the documents and information
provided, the assigned IRO, to the extent
the information or documents are available and the IRO considers them appropriate, will consider the following in
reaching a decision:
(i) The claimant’s medical records;
(ii) The attending health care professional’s recommendation;
(iii) Reports from appropriate health
care professionals and other documents
submitted by the plan or issuer, claimant,
or the claimant’s treating provider;
(iv) The terms of the claimant’s plan or
coverage to ensure that the IRO’s decision
is not contrary to the terms of the plan or
coverage, unless the terms are inconsistent
with applicable law;
(v) Appropriate practice guidelines,
which must include applicable evidencebased standards and may include any
other practice guidelines developed by the
Federal government, national or professional medical societies, boards, and associations;
(vi) Any applicable clinical review criteria developed and used by the plan or
issuer, unless the criteria are inconsistent
with the terms of the plan or coverage or
with applicable law; and
(vii) To the extent the ﬁnal IRO decision maker is different from the IRO’s
clinical reviewer, the opinion of such clinical reviewer, after considering information described in this notice, to the extent
the information or documents are available and the clinical reviewer or reviewers
consider such information or documents
appropriate.
(6) The assigned IRO must provide
written notice of the ﬁnal external review
decision within 45 days after the IRO receives the request for the external review.
The IRO must deliver the notice of the
ﬁnal external review decision to the
claimant and the plan or issuer.

Bulletin No. 2015– 49

(7) The assigned IRO’s written notice
of the ﬁnal external review decision must
contain the following:
(i) A general description of the reason
for the request for external review, including information sufﬁcient to identify the
claim (including the date or dates of service, the health care provider, the claim
amount (if applicable), and a statement
describing the availability, upon request,
of the diagnosis code and its corresponding meaning, the treatment code and its
corresponding meaning, and the reason
for the plan’s or issuer’s denial);
(ii) The date the IRO received the assignment to conduct the external review
and the date of the IRO decision;
(iii) References to the evidence or documentation, including the speciﬁc coverage provisions and evidence-based standards, considered in reaching its decision;
(iv) A discussion of the principal reason or reasons for its decision, including
the rationale for its decision and any
evidence-based standards that were relied
on in making its decision;
(v) A statement that the IRO’s determination is binding except to the extent
that other remedies may be available under State or Federal law to either the
group health plan or health insurance issuer or to the claimant, or to the extent the
health plan or health insurance issuer voluntarily makes payment on the claim or
otherwise provides beneﬁts at any time,
including after a ﬁnal external review decision that denies the claim or otherwise
fails to require such payment or beneﬁts;
(vi) A statement that judicial review
may be available to the claimant; and
(vii) Current contact information, including phone number, for any applicable
ofﬁce of health insurance consumer assistance or ombudsman established under
PHS Act section 2793.
(viii) After a ﬁnal external review decision, the IRO must maintain records of
all claims and notices associated with the
external review process for six years. An
IRO must make such records available for
examination by the claimant, plan, issuer,
or State or Federal oversight agency upon
request, except where such disclosure
would violate State or Federal privacy
laws.
(iv) Reversal of plan’s or issuer’s decision. Upon receipt of a notice of a ﬁnal

Bulletin No. 2015– 49

external review decision reversing the adverse beneﬁt determination or ﬁnal adverse beneﬁt determination, the plan or
issuer immediately must provide coverage
or payment (including immediately authorizing care or immediately paying beneﬁts) for the claim.
(3) Expedited external review. A group
health plan or health insurance issuer must
comply with the following standards with
respect to an expedited external review:
(i) Request for external review. A
group health plan or health insurance issuer must allow a claimant to make a
request for an expedited external review
with the plan or issuer at the time the
claimant receives:
(A) An adverse beneﬁt determination if
the adverse beneﬁt determination involves
a medical condition of the claimant for
which the timeframe for completion of an
expedited internal appeal under paragraph
(b) of this section would seriously jeopardize the life or health of the claimant or
would jeopardize the claimant’s ability to
regain maximum function and the claimant has ﬁled a request for an expedited
internal appeal; or
(B) A ﬁnal internal adverse beneﬁt determination, if the claimant has a medical
condition where the timeframe for completion of a standard external review
would seriously jeopardize the life or
health of the claimant or would jeopardize
the claimant’s ability to regain maximum
function, or if the ﬁnal internal adverse
beneﬁt determination concerns an admission, availability of care, continued stay,
or health care item or service for which
the claimant received emergency services,
but has not been discharged from the facility.
(ii) Preliminary review. Immediately
upon receipt of the request for expedited
external review, the plan or issuer must
determine whether the request meets the
reviewability requirements set forth in
paragraph (d)(2)(ii) of this section for
standard external review. The plan or issuer must immediately send a notice that
meets the requirements set forth in paragraph (d)(2)(ii)(B) for standard review to
the claimant of its eligibility determination.
(iii) Referral to independent review organization. (A) Upon a determination that
a request is eligible for expedited external

769

review following the preliminary review,
the plan or issuer will assign an IRO pursuant to the requirements set forth in paragraph (d)(2)(iii) of this section for standard review. The plan or issuer must
provide or transmit all necessary documents and information considered in making the adverse beneﬁt determination or
ﬁnal internal adverse beneﬁt determination to the assigned IRO electronically or
by telephone or facsimile or any other
available expeditious method.
(B) The assigned IRO, to the extent the
information or documents are available
and the IRO considers them appropriate,
must consider the information or documents described above under the procedures for standard review. In reaching a
decision, the assigned IRO must review
the claim de novo and is not bound by any
decisions or conclusions reached during
the plan’s or issuer’s internal claims and
appeals process.
(iv) Notice of ﬁnal external review decision. The plan’s or issuer’s contract with
the assigned IRO must require the IRO to
provide notice of the ﬁnal external review
decision, in accordance with the requirements set forth in paragraph (d)(2)(iii)(B)
of this section, as expeditiously as the
claimant’s medical condition or circumstances require, but in no event more than
72 hours after the IRO receives the request for an expedited external review. If
the notice is not in writing, within 48
hours after the date of providing that notice, the assigned IRO must provide written conﬁrmation of the decision to the
claimant and the plan or issuer.
(4) Alternative, Federally-administered
external review process. Insured coverage
not subject to an applicable State external
review process under paragraph (c) of this
section may elect to use either the Federal
external review process, as set forth under
paragraph (d) of this section or the
Federally-administered external review process, as set forth by HHS in guidance. In
such circumstances, the requirement to provide external review under this paragraph
(d) is satisﬁed.
(e) Form and manner of notice — (1)
In general. For purposes of this section, a
group health plan and a health insurance
issuer offering group health insurance
coverage are considered to provide relevant notices in a culturally and linguisti-

December 7, 2015

cally appropriate manner if the plan or
issuer meets all the requirements of
paragraph (e)(2) of this section with respect to the applicable non-English languages described in paragraph (e)(3) of
this section.
(2) Requirements. (i) The plan or issuer
must provide oral language services (such
as a telephone customer assistance hotline) that includes answering questions in
any applicable non-English language
and providing assistance with ﬁling
claims and appeals (including external
review) in any applicable non-English
language;
(ii) The plan or issuer must provide,
upon request, a notice in any applicable
non-English language; and
(iii) The plan or issuer must include in
the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services
provided by the plan or issuer.
(3) Applicable non-English language.
With respect to an address in any United
States county to which a notice is sent, a
non-English language is an applicable
non-English language if ten percent or
more of the population residing in the
county is literate only in the same nonEnglish language, as determined in guidance published by the Secretary.
(f) Secretarial authority. The Secretary
may determine that the external review
process of a group health plan or health
insurance issuer, in operation as of March
23, 2010, is considered in compliance
with the applicable process established
under paragraph (c) or (d) of this section if
it substantially meets the requirements of
paragraph (c) or (d) of this section, as
applicable.
(g) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.
Par.15. Section 54.9815–2719A is
added to read as follows:

December 7, 2015

§ 54.9815–2719A 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) Construction. Nothing in paragraph
(a)(1)(i) of this section is to be construed
to prohibit the application of reasonable
and appropriate geographic limitations
with respect to the selection of primary
care providers, in accordance with the
terms of the plan or coverage, the underlying provider contracts, and applicable
State law.
(iii) Example. The rules of this paragraph (a)(1) are illustrated by the following example:
Example. (i) Facts. A group health plan requires
individuals covered under the plan to designate a
primary care provider. The plan permits each individual to designate any primary care provider participating in the plan’s network who is available to
accept the individual as the individual’s primary care
provider. If an individual has not designated a primary care provider, the plan designates one until one
has been designated by the individual. The plan
provides a notice that satisﬁes the requirements of
paragraph (a)(4) of this section regarding the ability
to designate a primary care provider.

(ii) Conclusion. In this Example, the
plan has satisﬁed the requirements of
paragraph (a) of this section.
(2) Designation of pediatrician as primary care provider—(i) In general. If a
group health plan, or a health insurance
issuer offering group health insurance
coverage, requires or provides for the designation of a participating primary care
provider for a child by a participant or
beneﬁciary, the plan or issuer must permit
the participant or beneﬁciary to designate
a physician (allopathic or osteopathic)
who specializes in pediatrics (including
pediatric subspecialties, based on the

770

scope of that provider’s license under applicable State law) 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 and is available to accept the child.
(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

Bulletin No. 2015– 49

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.

Bulletin No. 2015– 49

(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
the participant or beneﬁciary can be designated;

771

(B) Under paragraph (a)(2)(i) of this
section, with respect to a child, that any
participating physician who specializes in
pediatrics can be designated as the primary care provider; and
(C) Under paragraph (a)(3)(i) of this
section, that the plan may not require authorization or referral for obstetrical or
gynecological care by a participating
health care professional who specializes
in obstetrics or gynecology.
(ii) Timing. The notice described in
paragraph (a)(4)(i) of this section must be
included whenever the plan or issuer provides a participant with a summary plan
description or other similar description of
beneﬁts under the plan or health insurance
coverage.
(iii) Model language. The following
model language can be used to satisfy the
notice requirement described in paragraph
(a)(4)(i) of this section:
(A) For plans and issuers that require
or allow for the designation of primary
care providers by participants or beneﬁciaries, insert:
[Name of group health plan or health insurance
issuer] generally [requires/allows] the designation of a primary care provider. You have the
right to designate any primary care provider
who participates in our network and who is
available to accept you or your family members. [If the plan or health insurance coverage
designates a primary care provider automatically, insert: Until you make this designation,
[name of group health plan or health insurance
issuer] designates one for you.] For information on how to select a primary care provider,
and for a list of the participating primary care
providers, contact the [plan administrator or
issuer] at [insert contact information].

(B) For plans and issuers that require or
allow for the designation of a primary care
provider for a child, add:
For children, you may designate a pediatrician as the primary care provider.
(C) For plans and issuers that provide
coverage for obstetric or gynecological
care and require the designation by a participant or beneﬁciary of a primary care
provider, add:
You do not need prior authorization from
[name of group health plan or issuer] or from
any other person (including a primary care
provider) in order to obtain access to obstetrical or gynecological care from a health care
professional in our network who specializes in
obstetrics or gynecology. The health care professional, however, may be required to comply

December 7, 2015

with certain procedures, including obtaining
prior authorization for certain services, following a pre-approved treatment plan, or procedures for making referrals. For a list of participating health care professionals who
specialize in obstetrics or gynecology, contact
the [plan administrator or issuer] at [insert contact information].

(b) Coverage of emergency services—
(1) Scope. If a group health plan, or a
health insurance issuer offering group
health insurance coverage, provides any
beneﬁts with respect to services in an
emergency department of a hospital, the
plan or issuer must cover emergency services (as deﬁned in paragraph (b)(4)(ii) of
this section) consistent with the rules of
this paragraph (b).
(2) General rules. A plan or issuer subject to the requirements of this paragraph
(b) must provide coverage for emergency
services in the following manner –
(i) Without the need for any prior authorization determination, even if the
emergency services are provided on an
out-of-network basis;
(ii) Without regard to whether the
health care provider furnishing the emergency services is a participating network
provider with respect to the services;
(iii) If the emergency services are provided out of network, without imposing
any administrative requirement or limitation on coverage that is more restrictive
than the requirements or limitations that
apply to emergency services received
from in-network providers;
(iv) If the emergency services are provided out of network, by complying with
the cost-sharing requirements of paragraph (b)(3) of this section; and
(v) Without regard to any other term or
condition of the coverage, other than –
(A) The exclusion of or coordination of
beneﬁts;
(B) An afﬁliation or waiting period
permitted under part 7 of ERISA, part A
of title XXVII of the PHS Act, or chapter
100 of the Internal Revenue Code; or
(C) Applicable cost sharing.
(3) Cost-sharing requirements – (i)
Copayments and coinsurance. Any 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 costsharing requirement imposed with re-

December 7, 2015

spect 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 at
least equal to the greatest of the three
amounts speciﬁed in paragraphs
(b)(3)(i)(A), (B), and (C) of this section
(which are adjusted for in-network costsharing requirements).
(A) The amount negotiated with innetwork providers for the emergency service furnished, excluding any in-network
copayment or coinsurance imposed with
respect to the participant or beneﬁciary.
If there is more than one amount negotiated with in-network providers for the
emergency service, the amount described
under
this
paragraph
(b)(3)(i)(A) is the median of these
amounts, excluding any in-network copayment or coinsurance imposed with
respect to the participant or beneﬁciary.
In determining the median described in
the preceding sentence, the amount negotiated with each in-network provider
is treated as a separate amount (even if
the same amount is paid to more than
one provider). If there is no per-service
amount negotiated with in-network providers (such as under a capitation or
other similar payment arrangement), the
amount
under
this
paragraph
(b)(3)(i)(A) is disregarded.
(B) The amount for the emergency service calculated using the same method the
plan generally uses to determine payments
for out-of-network services (such as the
usual, customary, and reasonable
amount), excluding any in-network copayment or coinsurance imposed with respect to the participant or beneﬁciary. The
amount in this paragraph (b)(3)(i)(B) is
determined without reduction for out-ofnetwork 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,

772

customary, and reasonable amount for
out-of-network services, the amount in
this paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 100
percent) of the usual, customary, and
reasonable amount for the service, not
reduced by the 30 percent coinsurance
that would generally apply to out-ofnetwork 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-of-network beneﬁts. A deductible may be imposed with respect to outof-network emergency services only as
part of a deductible that generally applies
to out-of-network beneﬁts. If an out-ofpocket maximum generally applies to outof-network beneﬁts, that out-of-pocket
maximum must apply to out-of-network
emergency services.
(iii) Special rules regarding out-ofnetwork minimum payment standards –
(A) The minimum payment standards set
forth under paragraph (b)(3) of this section do not apply in cases where State law
prohibits a participant or beneﬁciary from
being 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
provides in beneﬁts, or where a group
health plan or health insurance issuer is
contractually responsible for such
amounts. Nonetheless, in such cases, a
plan or issuer may not impose any copayment or coinsurance requirement for outof-network emergency services that is
higher than the copayment or coinsurance
requirement that would apply if the services were provided in network.

Bulletin No. 2015– 49

(B) A group health plan and health
insurance issuer must provide a participant or beneﬁciary adequate and prominent notice of their lack of ﬁnancial responsibility with respect to the amounts
described under this paragraph (b)(3)(iii),
to prevent inadvertent payment by the participant or beneﬁciary.
(iv) Examples. The rules of this paragraph (b)(3) are illustrated by the following examples. In all of these examples, the
group health plan covers beneﬁts with respect to emergency services.
Example 1. (i) Facts. A group health plan imposes a 25% coinsurance responsibility on individuals who are furnished emergency services, whether
provided in network or out of network. If a covered
individual notiﬁes the plan within two business days
after the day an individual receives treatment in an
emergency department, the plan reduces the coinsurance rate to 15%.
(ii) Conclusion. In this Example 1, the requirement to notify the plan in order to receive a reduction
in the coinsurance rate does not violate the requirement that the plan cover emergency services without
the need for any prior authorization determination.
This is the result even if the plan required that it be
notiﬁed before or at the time of receiving services at
the emergency department in order to receive a reduction in the coinsurance rate.
Example 2. (i) Facts. A group health plan imposes a $60 copayment on emergency services without preauthorization, whether provided in network or
out of network. If emergency services are preauthorized, the plan waives the copayment, even if it later
determines the medical condition was not an emergency medical condition.
(ii) Conclusion. In this Example 2, by requiring
an individual to pay more for emergency services if
the individual does not obtain prior authorization, the
plan violates the requirement that the plan cover
emergency services without the need for any prior
authorization determination. (By contrast, if, to have
the copayment waived, the plan merely required that
it be notiﬁed rather than a prior authorization, then
the plan would not violate the requirement that the
plan cover emergency services without the need for
any prior authorization determination.)
Example 3. (i) Facts. A group health plan covers
individuals who receive emergency services with
respect to an emergency medical condition from an
out-of-network provider. The plan has agreements
with in-network providers with respect to a certain
emergency service. Each provider has agreed to provide the service for a certain amount. Among all the
providers for the service: one has agreed to accept
$85, two have agreed to accept $100, two have
agreed to accept $110, three have agreed to accept
$120, and one has agreed to accept $150. Under the
agreement, the plan agrees to pay the providers 80%
of the agreed amount, with the individual receiving
the service responsible for the remaining 20%.
(ii) Conclusion. In this Example 3, the values
taken into account in determining the median are
$85, $100, $100, $110, $110, $120, $120, $120, and
$150. Therefore, the median amount among those

Bulletin No. 2015– 49

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 outof-network provider.
Example 6. (i) Facts. Same facts as Example 5.
The group health plan generally imposes a $250
deductible for in-network health care. With respect
to all health care provided by out-of-network providers, the plan imposes a $500 deductible. (Covered
in-network claims are credited against the deductible.) The individual has incurred and submitted
$260 of covered claims prior to receiving the emergency service out of network.
(ii) Conclusion. In this Example 6, the plan is not
responsible for paying anything with respect to the
emergency service furnished by the out-of-network
provider because the covered individual has not satisﬁed the higher deductible that applies generally to
all health care provided out of network. However,
the amount the individual is required to pay is credited against the deductible.

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

773

cluding 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 are applicable to group
health plans and health insurance issuers
for plan years beginning on or after January 1, 2017. Until the applicability date
for this regulation, plans and issuers are
required to continue to comply with the
interim ﬁnal regulations promulgated by
the Department of Labor at 29 CFR part
2590, contained in the 29 CFR, parts 1927
to end, edition revised as of July 1, 2015.
§ 54.9815–2719AT [Removed]
Par. 16. Section 54.9815–2719AT is
removed.

December 7, 2015

§ 54.9815–2719T [Removed]
Par. 17. Section 54.9815–2719T is removed.

Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of December 2015.
See Rev. Rul. 2015–25 , page 695.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change

Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of December 2015. See Rev. Rul. 2015–25, page
695.

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Section 846.—Discounted
Unpaid Losses Deﬁned
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Section 482.—Allocation of
Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of December 2015.
See Rev. Rul. 2015–25, page 695.

Section 483.—Interest on
Certain Deferred Payments

The adjusted applicable federal long-term rate is
set forth for the month of December 2015. See Rev.
Rul. 2015–25 , page 695.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Section 412.—Minimum
Funding Standards

Section 642.—Special
Rules for Credits and
Deductions

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Federal short-term, mid-term, and long-term
rates are set forth for the month of December 2015.
See Rev. Rul. 2015–25, page 695.

December 7, 2015

Section 807.—Rules for
Certain Reserves

774

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of December 2015. See Rev. Rul. 2015–25, page
695.

Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
December 2015. See Rev. Rul. 2015–25, page 695.

Section 7872.—Treatment
of Loans With BelowMarket Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of December 2015. See Rev. Rul. 2015–25, page
695.

Bulletin No. 2015– 49

File Type	application/pdf
File Title	IRB 2015-49 (Rev. December 7, 2015)
Subject	Internal Revenue Bulletin
Author	SE:W:CAR:MP:P:SPA
File Modified	2017-02-15
File Created	2017-02-15