The Patient Protection and Affordable Care Act (PPACA) required several group health plan changes to be made as of Jan. 1, 2011, with formal plan amendments to be in place by June 30, 2011.
OTC Reimbursement Restrictions
The PPACA revised the definition of "medical expenses" for employer-provided accident and health plans, including health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs) to limit an employer's ability to reimburse for certain over-the-counter (OTC) medications. In addition, the PPACA revised the definition of "qualified medical expenses" under health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs) to similar effect. FSAs, HRAs, HSAs and Archer MSAs are sometimes referred to as "account-based health programs."
As of Jan. 1, 2011, an account-based health program may not reimburse a participant for the purchase of over-the-counter medicines and drugs (other than insulin) unless the participant obtains a prescription. Because debit cards used for account-based health programs operate through systems not capable of differentiating between medications purchased with a prescription and those purchased without a prescription, as of Jan. 1, 2011, debit cards cannot be used to purchase over-the-counter medicines and drugs with or without a prescription. Medical supplies, however—such as crutches, bandages and blood sugar test kits—are not affected by the new rules. These items may still qualify as medical care under Internal Revenue Code section 213(d)(1), which covers expenses for the "diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body."
Account-based health programs that provided previously for reimbursement of over-the-counter medications must be amended to conform to the new over-the-counter medicine and drug requirements. Although the IRS acknowledges that, generally, plan amendments to a cafeteria plan may be made only on a prospective basis, for expenses incurred after Dec. 31, 2010, the IRS allowed plan amendments incorporating the new rules to be adopted up to June 30, 2011. In any case, the plan must be operated in conformity with the new rules until the formal amendment is in place.
Other Plan Amendments
The provisions noted below were effective for group health plan years beginning on or after Sept. 23, 2010, (generally, effective Jan. 1, 2011, for calendar year plans). Formal plan amendments must be adopted to bring plans into compliance with these requirements:
• Extension of child coverage up to age 26. Group health plans and insurers that provide health coverage to employees' children must extend that coverage to children up to age 26, even if the child is married and not a dependent.
• Prohibition on rescissions. Group health plans and insurers are prohibited from rescinding (terminating retroactively) health coverage of a participant, except in the case of fraud or intentional misrepresentation of material fact.
• Prohibition on pre-existing condition exclusions. Group health plans and insurers are prohibited from imposing pre-existing condition exclusions for any participant under the age of 19 (note that this prohibition applies to covered employees as well as covered children). Beginning in 2014, pre-existing condition exclusions are prohibited for any participant regardless of age.
• Prohibition on lifetime benefit limits. Group health plans and insurers are prohibited from imposing a lifetime dollar limit on essential health benefits.
• Restriction on annual benefit limits. Group health plans may impose annual limits only on the dollar value of essential health benefits of $750,000 in 2011 and $1.25 million in 2012. Beginning in 2014, annual dollar limits are prohibited for all essential health benefits.
• Preventative care. Nongrandfathered group health plans and insurers must cover certain preventive care services without cost sharing, including recommended immunizations, preventative care and screenings for infants, children and adolescents, and additional preventative care and screenings for women.
• Appeals process. For nongrandfathered plans, a new appeals process for participants is required, including internal and external reviews and strict compliance with the claim procedures.
• Nondiscrimination in favor of highly-compensated employees. Nongrandfathered, fully-insured plans are subject to Internal Revenue Code section 105(h) nondiscrimination rules; however, implementation of the rules has been postponed until after regulations are issued.
• Emergency services. Nongrandfathered group health plans and insurers must cover emergency services without prior authorization or in-network requirements.
• Physician selection. Nongrandfathered group health plans and insurers providing for or requiring the designation of a primary care provider must permit each participant to designate any participating primary care provider available. The plan must permit a participant to designate a pediatrician as the primary care provider for a child. Plans are prohibited from requiring authorizations or referrals for an OB-GYN.
Plan sponsors must take care to make sure they are in compliance with the new requirements and that required amendments are made on time.
What to Do Now
• Review all group health plan documents to make sure that all are in compliance with the Employee Retirement Income Security Act and PPACA requirements.
• Contact insurers to assure administrative and document compliance.
• Assure that account-based health plan documents are in compliance with the exclusion for over-the-counter medications without a prescription.
Russell Chapman is Of Counsel, and Adam J. Peters is an Associate, in the Dallas office of Littler Mendelson PC, a national employment and labor law firm.
Reposted with permission. © 2011 Littler Mendelson P.C. All rights reserved.
Editor’s Note: This article should not be construed as legal advice.
IRS Issues Guidance on FSA and HRA Debit Cards for OTC Drugs, SHRM Online Benefits Discipline, December 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page