[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)]
[Rules and Regulations]
[Pages 72192-72294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29294]



[[Page 72191]]

Vol. 80

Wednesday,

No. 222

November 18, 2015

Part III





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 54





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2590





Department of Health and Human Services





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45 CFR Parts 144, 146 and 147





Final Rules for Grandfathered Plans, Preexisting Condition Exclusions, 
Lifetime and Annual Limits, Rescissions, Dependent Coverage, Appeals, 
and Patient Protections Under the Affordable Care Act; Final Rules

  Federal Register / Vol. 80 , No. 222 / Wednesday, November 18, 2015 / 
Rules and Regulations  

[[Page 72192]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9744]
RIN 1545-BJ45, 1545-BJ50, 1545-BJ62, 1545-BJ57

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB72

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146 and 147

[CMS-9993-F]
RIN 0938-AS56


Final Rules for Grandfathered Plans, Preexisting Condition 
Exclusions, Lifetime and Annual Limits, Rescissions, Dependent 
Coverage, Appeals, and Patient Protections Under the Affordable Care 
Act

AGENCY: 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.

ACTION: Final rules.

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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.

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

I. Background

    The Patient Protection and Affordable Care Act, Public Law 111-148, 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act (the Reconciliation Act), Public Law 111-152, was 
enacted on March 30, 2010 (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 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.
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    \1\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is 
distinct from the term ``health plan,'' as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' does 
not include self-insured group health plans.
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    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 comments \4\ in 
response to the 2010 interim final regulations, the Departments are 
issuing these final regulations.
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    \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.
    \3\ 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.
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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

[[Page 72193]]

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 incorporate 
the clarifications issued thus far in subregulatory guidance.
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    \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.
    \7\ 75 FR 70114.
    \8\ 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/Fact-Sheets-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.
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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 rules on a benefit-package-by-benefit-package 
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.
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    \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.
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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\
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    \10\ 29 CFR 2590.715-1251(a)(2)(ii); 45 CFR 147.140(a)(2)(ii).
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    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 process 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

[[Page 72194]]

understand and make informed choices regarding health coverage.\11\
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    \11\ 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.
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    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.
    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.
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 employees. 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\
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    \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.
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    These final regulations include those examples of bona fide 
employment-based reasons. The Departments continue to interpret the 
term ``bona fide employment-based 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.
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

[[Page 72195]]

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.
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    \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).
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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 Departments decline to 
establish a bright-line 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.
b. Increase in Fixed-Amount Copayments
    The interim final regulations provided standards for when increases 
in fixed-amount 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 increase \14\ or five dollars increased by 
medical inflation.\15\
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    \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).
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    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.
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    \16\ 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.
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c. Decrease in Contribution Rate by Employers and Employee Organization
    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 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 \17\ 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.
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    \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).
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    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

[[Page 72196]]

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 Affordable 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 Affordable 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.
---------------------------------------------------------------------------

    \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.
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    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 fixed-dollar 
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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 
Affordable 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 self-only, 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., self-plus-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.
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    \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.
---------------------------------------------------------------------------

    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 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

[[Page 72197]]

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.
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    \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.
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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 insurance 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 formula.\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 fixed-amount 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.
---------------------------------------------------------------------------

    \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.
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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.
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    \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).
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    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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

[[Page 72198]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 clarification 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 
HIPAA \28\ 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 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, Q6 \32\ 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.
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    \28\ HIPAA is the Health Insurance Portability and 
Accountability Act of 1996 (Pub. L. 104-191).
    \29\ 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.
    \30\ 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).
    \31\ 75 FR 37188 (June 28, 2010).
    \32\ 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.
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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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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

[[Page 72199]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 non-grandfathered 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 implemented in regulations issued by HHS 
\35\ 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.
---------------------------------------------------------------------------

    \35\ See 45 CFR 147.102, 154.101 et seq., and 156.80.
---------------------------------------------------------------------------

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 child-only 
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 
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.
---------------------------------------------------------------------------

    \36\ 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.
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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

[[Page 72200]]

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.
---------------------------------------------------------------------------

    \37\ 75 FR 37188 (June 28, 2010).
    \38\ 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/tr13-03.html. See footnote 51 for a list of additional 
items of guidance under PHS Act section 2711.
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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 
State-specific benchmark plan and required each State to select a 
benchmark plan from among several options.\40\ While self-insured, 
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.' ''
---------------------------------------------------------------------------

    \39\ 78 FR 12834.
    \40\ 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.
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    In a 2012 FAQ, HHS stated that the Departments would consider a 
self-insured 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 base-benchmark plans that were authorized 
by the Secretary for a State or the District of Columbia \42\ 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 EHB-
benchmark option, and that is the only benchmark plan ``authorized'' to 
be used for defining EHB in that State or the District of Columbia.
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    \41\ 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.
    \42\ 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.
---------------------------------------------------------------------------

    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.
    In addition to the foregoing base-benchmark plans, there are three 
base-benchmark 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 base-benchmark 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 base-benchmark 
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 in-network benefits as opposed to both in-network 
and out-of-network benefits. The statute and interim final regulations 
made no distinction between in-network or out-of-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-of-network 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,

[[Page 72201]]

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 three-
year 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 low-cost 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 restricted 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.
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    \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.
    \44\ Guidance regarding the annual dollar limit waiver program 
was issued at https://www.cms.gov/cciio/resources/Regulations-and-Guidance/index.html#Annual Limits.
---------------------------------------------------------------------------

4. HRAs and Other Account Based Plans
    In general, HRAs and other account-based 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 account-based 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.
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    \45\ 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).
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    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.
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    \46\ See 75 FR 37188, 37190 (June 28, 2010).
    \47\ 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).
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    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 2013-03 \48\ and IRS 
Notice 2013-54 \49\ 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.
---------------------------------------------------------------------------

    \48\ Technical Release 2013-03, available at www.dol.gov/ebsa/pdf/tr13-03.pdf.
    \49\ 2013-40 IRB 287.
---------------------------------------------------------------------------

    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 guidance \51\ 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

[[Page 72202]]

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 forth in 
various forms of subregulatory guidance and have been included in these 
final regulations.
---------------------------------------------------------------------------

    \50\ 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.
---------------------------------------------------------------------------

    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 employer-provided 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 benefits \53\ 
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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 termination 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.
---------------------------------------------------------------------------

    \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 Sec.  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 Sec.  1.36B-2(c)(3)(iv).
---------------------------------------------------------------------------

    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

[[Page 72203]]

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. 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.

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.
---------------------------------------------------------------------------

    \57\ 75 FR 37188 (June 28, 2010).
    \58\ 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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \59\ 78 FR 13406, 13414 (February 13, 2013).
---------------------------------------------------------------------------

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

[[Page 72204]]

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\
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    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \62\ 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.
---------------------------------------------------------------------------

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 
non-grandfathered 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 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 permitted). 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'

[[Page 72205]]

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 
coverage \63\ 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.
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    \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).
    \66\ 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/faq-aca5.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.
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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) include eligibility for other coverage \67\ 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.
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    \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).
---------------------------------------------------------------------------

    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 
disproportionate 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

[[Page 72206]]

2714 nor the interim final regulations defined the term child for 
purpose of the dependent coverage provision.\70\
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    \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.
---------------------------------------------------------------------------

    In response to comments requesting guidance on the definition of 
the term child and questions from stakeholders, the Departments 
released an FAQ \71\ 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.
---------------------------------------------------------------------------

    \71\ 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.
---------------------------------------------------------------------------

    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.
    Following the 2010 interim final regulations, the Departments 
issued an FAQ \72\ 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.
---------------------------------------------------------------------------

    \72\ 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/faq-aca5.html and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
    \73\ See 45 CFR 156.125.
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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;

[[Page 72207]]

     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.
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, including 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 72208]]

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 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 non-English 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\
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    \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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    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 non-
grandfathered 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 NAIC-similar for a limited time (the NAIC-similar 
external review

[[Page 72209]]

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 apply \76\ 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
    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

[[Page 72210]]

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 judgment: (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\
---------------------------------------------------------------------------

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

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 non-grandfathered 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 Federally-administered external review process \80\ 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.
---------------------------------------------------------------------------

    \79\ 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.
---------------------------------------------------------------------------

    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 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 (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 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 Federally-administered 
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

[[Page 72211]]

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 HHS-administered 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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \82\ 75 FR 37188 (June 28, 2010).
    \83\ 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.
---------------------------------------------------------------------------

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 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

[[Page 72212]]

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 Departments' 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 cost-effective 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 unduly 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 cost-sharing requirements that would be imposed if the 
services were provided in-network. 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 billing \84\). 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

[[Page 72213]]

cost sharing expressed as a copayment amount or coinsurance rate. 
Because the statute neither 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 in-network 
amounts.\85\
---------------------------------------------------------------------------

    \84\ 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.
    \85\ 75 FR 37188, 37194 (June 28, 2010).
---------------------------------------------------------------------------

    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-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 (minimum payment standards). 
The interim final regulations under PHS Act section 2719 clarified that 
the cost-sharing 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-of-network emergency services and urged the Departments to require 
plans and issuers to use a transparent database to determine out-of-
network amounts. The Departments 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 cost-sharing 
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[hyphen]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-of-network 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 because 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 FAQ \86\ 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-of-network 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 out-of-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\
---------------------------------------------------------------------------

    \87\ 42 U.S.C. 1395dd(a)-(b).

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

[[Page 72214]]

    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 EMTALA, section 
1867 of the Social Security Act.\88\
---------------------------------------------------------------------------

    \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/Regulations-and-Guidance/Guidance/Manuals/downloads/som107ap_v_emerg.pdf.
---------------------------------------------------------------------------

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 
Understanding \89\ 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

[[Page 72215]]

priorities in enforcement. 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.
---------------------------------------------------------------------------

    \89\ See 64 FR 70164 (December 15, 1999).
---------------------------------------------------------------------------

    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.
2. Expatriate Plans
    On December 16, 2014, Congress enacted the Expatriate Health 
Coverage Clarification Act of 2014 (EHCCA) as part of the Consolidated 
and Further Continuing 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 FAQs \90\ 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.
---------------------------------------------------------------------------

    \90\ 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-Sheets-and-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/faq-aca18.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/ACA_implementation_faqs18.html.
---------------------------------------------------------------------------

III. Economic Impact Analysis--Departments of Labor and Health and 
Human Services

Executive Orders 12866 and 13563

    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, 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 benefits and costs. 
This is because they primarily provide clarifications of the previous 
interim final regulations issued in 2010 and 2011 and incorporate 
subregulatory guidance, including frequently asked questions and safe 
harbors issued by the Departments. The Departments do not have 
sufficient data to quantify these costs and benefits, but they are 
qualitatively discussed throughout the remainder of this section and 
summarized in the Accounting Table.

[[Page 72216]]



                                            Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
            Category                   Estimate           Year dollar        Discount rate      Period covered
----------------------------------------------------------------------------------------------------------------
Benefits--Qualitative: 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........  $169.9............  2015..............  7%................  2016-2025
    ($millions/year)............  $169.9............  2015..............  3%................  2016-2025
----------------------------------------------------------------------------------------------------------------
Qualitative: 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........  $53.5.............  2015..............  7%................  2016-2025
    ($millions/year)............  $53.5.............  2015..............  3%................  2016-2025
----------------------------------------------------------------------------------------------------------------
Qualitative: 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 legislation, 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 
annual basis: Premiums fluctuate, provider networks and drug 
formularies change, employer and employee contributions and cost-
sharing 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 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 Americans \91\ 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 
disease \92\)--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/

[[Page 72217]]

or deny benefits for a preexisting condition.\95\
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    \91\ ASPE. At Risk: Pre-Existing Conditions Could Affect 1 in 2 
Americans: 129 Million People Could Be Denied Affordable Coverage 
Without Health Reform, 2011.
    \92\ Mozzafarian, D., et al. Heart Disease and Stroke 
Statistics--2015 Update: A Report From the American Heart 
Association. Circulation. 2015; 131(4):e29-322.
    \93\ National Cancer Institute: Surveillance, Epidemiology, and 
End Results Program (SEER) Stat Fact Sheet: All Cancer Types. http://seer.cancer.gov/statfacts/html/all.html.
    \94\ Pollitz, K., et al. How Accessible is Individual Health 
Insurance for Consumers in Less than Perfect Health? Kaiser Family 
Foundation, June 2001.
    \95\ Levitt, L., et al. How Buying Insurance Will Change Under 
Obamacare. Kaiser Family Foundation, September 2013.
---------------------------------------------------------------------------

    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 prohibits 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.
---------------------------------------------------------------------------

    \96\ 29 CFR 2560.503-1.
---------------------------------------------------------------------------

    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

[[Page 72218]]

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    The emergency care provisions of PHS Act section 2719A require (1) 
non-grandfathered group health plans and health insurance issuers that 
cover emergency services to cover such services without prior 
authorization and without regard to whether the health care provider 
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 in-network. 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 plans \100\ with an estimated 21.1 million policy 
holders and 41.1 million participants and beneficiaries in those 
plans.\101\
---------------------------------------------------------------------------

    \99\ 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.
---------------------------------------------------------------------------

    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 *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 plans \103\) 
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).
---------------------------------------------------------------------------

    \102\ Kaiser Family Foundation, ``2014 Employer Health Benefits 
Survey.'' http://kff.org/health-costs/report/2014-employer-health-benefits-survey/.
    \103\ The estimate of the total number of State and local 
governmental plans is based on the 2012 Census of Government.
---------------------------------------------------------------------------

    There were an estimated 1.4 million policies with grandfathered 
coverage during 2013 with 2.2 million enrollees.\104\
---------------------------------------------------------------------------

    \104\ Based on data from the McKinsey Center for U.S. Health 
System Reform and Medical Loss Ratio submissions for 2013 reporting 
year.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \105\ Adele M. Kirk. The Individual Insurance Market: A Building 
Block for Health Care Reform? Health Care Financing Organization 
Research Synthesis. May 2008.
---------------------------------------------------------------------------

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

[[Page 72219]]

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 Medicaid expansion, and the estimated 66.6-82 million with ESI 
with preexisting conditions could benefit from these final 
regulations.\107\
---------------------------------------------------------------------------

    \106\ Levitt, L., et al. How Buying Insurance Will Change Under 
Obamacare. Kaiser Family Foundation, September 2013.
    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \108\ Claxton, G. and Lundy, J. How Health Care Coverage Works: 
A Primer 2008 Update. The Kaiser Family Foundation, April 2008.
---------------------------------------------------------------------------

    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 years \111\--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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 72220]]

governments and, by extension, taxpayers.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 job 
opportunities or forego retirement to maintain coverage.\117\
---------------------------------------------------------------------------

    \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.
    \117\ Altman, D. Pre-X Redux. The Kaiser Family Foundation, June 
2013.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 cost-shifting of 
uncompensated care to the insured population as coverage expands.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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-
of-pocket. 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 72221]]

untreated or undertreated condition leads to the need for even more 
costly treatment, that could have been prevented if no loss of coverage 
had occurred. 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 one-tenth 
of a percent or less for annual limits, under a situation of pure 
community rating where all the costs get spread across the insured 
population. This impact does not apply to grandfathered individual 
market plans.
    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 pre-existing 
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 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 over-statement 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.
---------------------------------------------------------------------------

    \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.
    \125\ NAIC Rescission Data Call, December 17, 2009, p.1.
---------------------------------------------------------------------------

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.

[[Page 72222]]

    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\
---------------------------------------------------------------------------

    \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-fi-insure23feb23,1,5039339.story.
---------------------------------------------------------------------------

    As discussed previously, uninsured individuals are less likely to 
receive needed care when they become ill, resulting in the 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 young adults ,\130\ 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\
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    \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.
    \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
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    Uninsured young adults are less likely to have access to care and 
thus delay seeking needed care,\136\ leading to

[[Page 72223]]

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\
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    \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).
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    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.
---------------------------------------------------------------------------

    \139\ Mulcahy, A. et al. Insurance Coverage of Emergency Care 
for Young Adults under Health Reform. N Engl J Med. 368:22 (2013).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    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 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 non-grandfathered 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.
    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).

[[Page 72224]]

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\
---------------------------------------------------------------------------

    \142\ Affordable Care Act: Working with States to Protect 
Consumers, available at https://www.cms.gov/CCIIO/Resources/Files/external_appeals.html.
---------------------------------------------------------------------------

    Individuals participating in ERISA-covered 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 self-insured 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
     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 self-

[[Page 72225]]

insured 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 requirements \143\ 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.
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    The Departments assume that there are an estimated 1.3 external 
appeals for every 10,000 participants \144\, 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 $665.\145\ 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The actual cost per review will vary by State and type of review 
(standard or expedited). Lacking data on the percent of 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.
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    \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
---------------------------------------------------------------------------

    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)

1. Designation of Primary Care Provider
    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    This provision only applies to non-grandfathered health plans. 
However, due to the lack of data on HMO and POS enrollees by type of 
market, and the inability to predict new plans that may enter those 
markets, the Departments are unable to predict the number enrollees and 
plans that would be affected by this provision. Moreover, there is no 
data on the number of plans that auto-assigned patients to primary care 
physicians and did not already 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.
b. Benefits, Costs, and Transfers
    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

[[Page 72226]]

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 pediatric 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\
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    \150\ 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.
---------------------------------------------------------------------------

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 health outcomes and avert preventable 
health care costs.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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 (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 non-grandfathered health plans. However, 
due to the lack of data on HMO and POS enrollees by type of market, and 
the inability to predict new plans that may enter those markets, the 
Departments are unable to predict the number enrollees and plans that 
would be affected by this provision. As a reference, there are an 
estimated 7.3 million females between ages 21 to 65 with ESI who are in 
HMO plans.\152\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

[[Page 72227]]

get an authorization from a primary care provider to provide care and 
order obstetrical and gynecological items and services. To the extent 
that primary care providers spend less time seeing women who need a 
referral to an OB/GYN, access to primary care providers will be 
improved. To the extent that the items and services are critical and 
would have been delayed while getting an authorization from the primary 
care provider, this provision 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.
4. Emergency Services
    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 out-of-
network). For a plan or health insurance coverage with a network of 
providers that provide benefits for emergency services, the plan or 
issuer may not impose any administrative requirement or limitation on 
benefits for out-of-network emergency services that is more restrictive 
than the requirements or limitations that apply to in-network emergency 
services.
    Finally, 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.
a. Affected Entities and Individuals
    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 pre-Affordable 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 in- and 
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
    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 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,

[[Page 72228]]

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.
    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 non-grandfathered 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.
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    \153\ 5 CFR 1320.13.
---------------------------------------------------------------------------

    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 NW., 
Room N-5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: 
(202) 219-4745. These are not toll-free numbers. Email: 
[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\
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    \154\ Kaiser Family Foundation, ``2014 Employer Health Benefits 
Survey.'' http://kff.org/health-costs/report/2014-employer-health-benefits-survey/.
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    The Departments estimate that there are 850,700 (2.3 million ERISA-
covered plans * 0.37) ERISA-covered plans \155\--with an estimated 17.2 
million policy holders (66 million policy holders *0.26)--that will 
need to include the

[[Page 72229]]

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).
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    \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.
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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)).
---------------------------------------------------------------------------

    \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) -2(Inflated 2 years from base year) = 
$30.42.
---------------------------------------------------------------------------

    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.
    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 for-profit; 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 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

[[Page 72230]]

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\
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    \158\ 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\ 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \160\ 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.
---------------------------------------------------------------------------

    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 for-profit; 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 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 1210-0039).
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    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
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    \163\ This estimate is based on an average document size of \1/
2\ 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.
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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-of-network 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

[[Page 72231]]

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 1210-0053, 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 non-grandfathered 
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 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 $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.
    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 for-profit; 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 affected 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

[[Page 72232]]

National Occupational Employment Survey.\164\
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    \164\ 2013 National Occupational Employment Survey, April 2014, 
Bureau of Labor Statistics, http://www.bls.gov/news.release/pdf/ocwage.pdf.
---------------------------------------------------------------------------

1. ICRs Regarding Affordable Care Act Notice of Grandfather Status 
(Sec. Sec.  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 grandfathered State and local governmental 
health plans with approximately 5.5 million policyholders \165\ and 
approximately 1.4 million policyholders in the individual market with 
grandfathered coverage \166\ 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 Sec.  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\
---------------------------------------------------------------------------

    \167\ See Section 14.http://kff.org/health-costs/report/2014-employer-health-benefits-survey/.
---------------------------------------------------------------------------

    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 
(Sec.  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 notices 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 (Sec.  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

[[Page 72233]]

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 and 
incur the one-time costs to prepare the notice.
    There are an estimated 128,400 non-federal governmental plans and 
430 health insurance issuers in the individual market. We estimate that 
five percent of non-federal 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.
---------------------------------------------------------------------------

    \168\ 128,400 Governmental plans x 5% newly non-grandfathered 
plans x (13% HMOs + 23% POSs) + 430 issuers = approximately 2,700 
affected plans and issuers.
---------------------------------------------------------------------------

    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 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.
    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\
---------------------------------------------------------------------------

    \169\ [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.
    \170\ $0.05 per page * 1/2 pages per notice * 228,000 notices * 
62% = approximately $3,500.
---------------------------------------------------------------------------

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-of-network 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 (Sec. Sec.  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 burden 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.

[[Page 72234]]



                                          Table 2--Annual Reporting, Recordkeeping and Disclosure Burden (HHS)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Total annual     Total labor   Total capital/
                                            OMB Control      Number of       Responses        burden          cost of       maintenance     Total costs
                                                No.         respondents                       (hours)     reporting  ($)    costs  ($)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grandfathered Plans Disclosure (Sec.           0938-1093          47,932       6,850,695               0              $0        $106,186        $106,186
 147.140(a)(2)).........................
Grandfathered Plans Change in Carrier          0938-1093           7,440           7,440             248          $7,544              $0          $7,544
 Disclosure (Sec.   147.140(a)(3)(i))...
Rescissions Notice (Sec.                       0938-1094             430          10,200             212         $17,160          $3,400         $20,560
 147.128(a)(1)).........................
Patient Protection Disclosures (Sec.           0938-1094           2,741         228,086             685         $57,341          $3,535         $60,876
 147.138(a) (4))........................
Claims and Appeals External Review             0938-1098          95,500     399,151,000         773,996     $41,601,000    $115,827,000    $157,428,000
 ((Sec.  Sec.   147.136 (b)(2)(ii),
 147.136 (b)(2)(ii)(C), 147.136
 (b)(3)(ii), 147.136 (b)(3)(ii)(C)).....
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total...............................  ..............         154,043     406,247,421         775,141  ..............  ..............    $157,623,166
--------------------------------------------------------------------------------------------------------------------------------------------------------

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.
    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 sub-regulatory 
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.
    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.

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.).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \172\ U. S. Small Business Administration, ``Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes'', July 14, 2014.
---------------------------------------------------------------------------

    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.

[[Page 72235]]

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.
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 estimate \173\ that 15 minutes of legal 
professional time at $129.94 per hour \174\ 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 hour \175\ 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.
---------------------------------------------------------------------------

    \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) [supcaret]2 (Inflated 2 years from base year) = 
$129.94.
    \175\ 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) [supcaret]2 
(Inflated 2 years from base year) = $30.42
---------------------------------------------------------------------------

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

[[Page 72236]]

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\
---------------------------------------------------------------------------

    \176\ https://www.cms.gov/CCIIO/Resources/Files/external_appeals.html.
---------------------------------------------------------------------------

    Individuals participating in ERISA-covered 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 self-insured 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.
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 manager \177\ 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.
---------------------------------------------------------------------------

    \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) [supcaret]2 (Inflated 2 years from base 
year) = $110.30.
---------------------------------------------------------------------------

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

[[Page 72237]]

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 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.
    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).
    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 U.S.C. 300gg through 300gg-63, 
300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

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

29 CFR Part 2590

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

45 CFR Parts 144 and 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping

[[Page 72238]]

requirements, and State regulation of health insurance.

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 6 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.

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

0
Paragraph 1. The authority citation for part 54 is amended by adding 
entries for Sec. Sec.  54.9815-1251, 54.9815-2704, 54.9815-2711, 
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.


0
Par. 2. Section 54.9801-2 is amended by revising the introductory text 
and the definition of ``preexisting condition exclusion'' to read as 
follows:


Sec.  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 provided to Federally 
eligible individuals pursuant to 45 CFR part 148), such as a condition 
identified as a result of a pre-enrollment questionnaire or physical 
examination given to the individual, or review of medical records 
relating to the pre-enrollment period.
* * * * *

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


Sec.  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 Sec.  54.9801-2.
* * * * *

0
Par. 4. Section 54.9815-1251 is added to read as follows:


Sec.  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 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

[[Page 72239]]

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 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, including 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 employment-based 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 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, 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.)

[[Page 72240]]

    (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 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.
    (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 cost-sharing 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 cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
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 
cost-sharing 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 paragraph (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 Sec.  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

[[Page 72241]]

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 Sec.  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
    (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 multi-tiered 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 self-only, 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., self-plus-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 fixed-dollar 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, 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 Sec.  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 Sec.  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 Sec.  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 contract 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)

[[Page 72242]]

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 component 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.
    (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 + $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 self-only 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.

[[Page 72243]]

    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, 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).


Sec.  54.9815-1251T  [Removed]

0
Par. 5. Section 54.9815-1251T is removed.

0
Par. 6. Section 54.9815-2704 is added to read as follows:


Sec.  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 Sec.  
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 
Sec.  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.

    (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.


Sec.  54.9815-2704T  [Removed]

0
Par. 7. Section 54.9815-2704T is removed.

0
Par. 8 Section 54.9815-2711 is added to read as follows:


Sec.  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 in-network 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 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 base-benchmark 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 account-based plan will not fail to meet 
the requirements of PHS Act section 2713 and Sec.  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 integration 
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

[[Page 72244]]

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 non-HRA 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 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 account-based plan.
    (ii) Integration Method: Minimum value 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 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 non-HRA 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 
reimbursements from the HRA or other account-based 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 account-based 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 account-based 
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 consist 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 account-based 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 account-based 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.


Sec.  54.9815-2711T  [Removed]

0
Par. 9. Section 54.9815-2711T is removed.

0
Par. 10. Section 54.9815-2712 is added to read as follows:

[[Page 72245]]

Sec.  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 misrepresentation of 
material fact, as prohibited by the terms of the plan or coverage. A 
group health plan, or a health insurance issuer offering group health 
insurance coverage, must provide at least 30 days advance written 
notice to each participant who would be affected before coverage may be 
rescinded under this paragraph (a)(1), regardless of whether the 
coverage is insured or self-insured, or whether the rescission applies 
to an entire group or only to an individual within the group. (The 
rules of this paragraph (a)(1) apply regardless of any contestability 
period that may otherwise apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if--
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect;
    (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 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.


Sec.  54.9815-2712T  [Removed]

0
Par. 11. Section 54.9815-2712T is removed.

0
Par. 12. Section 54.9815-2714 is added to read as follows:


Sec.  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 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:

    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.

    (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

[[Page 72246]]

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 coverage 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 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 self-plus-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.

    (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.


Sec.  54.9815-2714T  [Removed]

0
Par. 13. Section 54.9815-2714T is removed.

0
Par. 14. Section 54.9815-2719 is added to read as follows:


Sec.  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 Sec.  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 Sec.  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).
    (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).
    (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

[[Page 72247]]

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 Sec.  54.9815-2712.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(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 
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.
    (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

[[Page 72248]]

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 violation 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 
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 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

[[Page 72249]]

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 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.
    (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.
    (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 minimum 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

[[Page 72250]]

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 Sec.  54.9812, which generally require, among 
other things, parity in the application of medical management 
techniques), as determined by the external reviewer. (A 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-of-network 
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 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);
    (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

[[Page 72251]]

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 nationally-recognized 
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:
    (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 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 
evidence-based 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.
    (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

[[Page 72252]]

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 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 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 linguistically 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 
non-English 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.

0
Par. 15. Section 54.9815-2719A is added to read as follows:


Sec.  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

[[Page 72253]]

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

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

[[Page 72254]]

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

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

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

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

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

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

[[Page 72255]]

paragraph (b)(3)(i)(B) is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health 
insurance coverage with respect to out-of-network services. Thus, for 
example, if a plan generally pays 70 percent of the usual, customary, 
and reasonable amount for out-of-network services, the amount in this 
paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 
100 percent) of the usual, customary, and reasonable amount for the 
service, not reduced by the 30 percent coinsurance that would generally 
apply to out-of-network services (but reduced by the in-network 
copayment or coinsurance that the individual would be responsible for 
if the emergency service had been provided in-network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary.
    (ii) Other cost sharing. Any cost-sharing requirement other than a 
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an 
out-of-pocket maximum generally applies to out-of-network benefits, 
that out-of-pocket maximum must apply to out-of-network emergency 
services.
    (iii) Special rules regarding out-of-network 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 out-of-network emergency services that is higher than 
the copayment or coinsurance requirement that would apply if the 
services were provided in network.
    (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 
agreed to for the emergency service is $110, and the amount under 
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4. (i) Facts. Same facts as Example 3. Subsequently, the 
plan adds another provider to its network, who has agreed to accept 
$150 for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among 
those agreed to for the emergency service is $115. (Because there is 
no one middle amount, the median is the average of the two middle 
amounts, $110 and $120.) Accordingly, the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $115 ($92).
    Example 5. (i) Facts. Same facts as Example 4. An individual 
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to 
services provided by out-of-network providers generally, the plan 
reimburses covered individuals 50% of the reasonable amount charged 
by the provider for medical services. For this purpose, the 
reasonable amount for any service is based on information on charges 
by all providers collected by a third party, on a zip code by zip 
code basis, with the plan treating charges at a specified percentile 
as reasonable. For the emergency service received by the individual, 
the reasonable amount calculated using this method is $116. The 
amount that would be paid under Medicare for the emergency service, 
excluding any copayment or coinsurance for the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to 
for the emergency service is $115 and the amount the plan would pay 
is $92 (80% of $115); the amount calculated using the same method 
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the 
Medicare payment is $80. Thus, the greatest amount is $92.80. The 
individual is responsible for the remaining $32.20 charged by the 
out-of-network provider.
    Example 6. (i) Facts. Same facts as Example 5. The group health 
plan generally imposes a $250 deductible for in-network health care. 
With respect to all health care provided by out-of-network 
providers, the plan imposes a $500 deductible. (Covered in-network 
claims are credited against the deductible.) The individual has 
incurred and submitted $260 of covered claims prior to receiving the 
emergency service out of network.
    (ii) Conclusion. In this Example 6, the plan is not responsible 
for paying anything with respect to the emergency service furnished 
by the out-of-network provider because the covered individual has 
not satisfied the higher deductible that applies generally to all 
health care provided out of network. However, the amount the 
individual is required to pay is credited against the deductible.


[[Page 72256]]


    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section 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.


Sec.  54.9815-2719AT  [Removed]

0
Par. 16. Section 54.9815-2719AT is removed.


Sec.  54.9815-2719T  [Removed]

0
Par. 17. Section 54.9815-2719T is removed.

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons stated in the preamble, the Employee Benefits 
Security Administration adopts as final the interim final rules 
amending 29 CFR part 2590, which were published in the Federal Register 
on May 13, 2010 (75 FR 27122), June 17, 2010 (75 FR 34538), June 28, 
2010 (75 FR 37188), and November 17, 2010 (75 FR 70114) with the 
following changes as set forth below:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
18. The authority citation for Part 2590 continues to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 401(b), Public 
Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Public 
Law 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Public 
Law 111-148, 124 Stat. 119, as amended by Public Law 111-152, 124 
Stat. 1029; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 
2012).

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


Sec.  2590.701-2  Definitions.

* * * * *
    Preexisting condition exclusion means a limitation or exclusion of 
benefits (including a denial of coverage) based on the fact that the 
condition was present before the effective date of coverage (or if 
coverage is denied, the date of the denial) under a group health plan 
or group or individual health insurance coverage (or other coverage 
provided to Federally eligible individuals pursuant to 45 CFR part 
148), whether or not any medical advice, diagnosis, care, or treatment 
was recommended or received before that day. A preexisting condition 
exclusion includes any limitation or exclusion of benefits (including a 
denial of coverage) applicable to an individual as a result of 
information relating to an individual's health status before the 
individual's effective date of coverage (or if coverage is denied, the 
date of the denial) under a group health plan, or group or individual 
health insurance coverage (or other coverage provided to Federally 
eligible individuals pursuant to 45 CFR part 148), such as a condition 
identified as a result of a pre-enrollment questionnaire or physical 
examination given to the individual, or review of medical records 
relating to the pre-enrollment period.
* * * * *
0
20. Section 2590.701-3 is amended by revising paragraph (a)(1) to read 
as follows:


Sec.  2590.701-3  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 Sec.  2590.701-2.
* * * * *

0
21. Section 2590.715-1251 revised to read as follows:


Sec.  2590.715-1251  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 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.

[[Page 72257]]

    (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 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, including 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 employment-based 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 this paragraph (b)(2)(ii)(C), 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 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

[[Page 72258]]

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, 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 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.
    (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 cost-sharing 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 cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
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 
cost-sharing 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

[[Page 72259]]

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 paragraph (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 Sec.  2590.702(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 Sec.  2590.702(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
    (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 multi-tiered 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 self-only, 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., self-plus-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 fixed-dollar 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, 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 Sec.  2590.715-2711, 
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 Sec.  2590.715-2711, 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 Sec.  2590.715-2711, 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 contract 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

[[Page 72260]]

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 component 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.
    (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 + $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.

[[Page 72261]]

    (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 $5,000 for self-only coverage and $12,000 for family coverage. 
The required employee contribution for the coverage is $1,000 for 
self-only coverage and $4,000 for family coverage. Thus, the 
contribution rate based on cost of coverage for 2010 is 80% ((5,000-
1,000)/5,000) for self-only coverage and 67% ((12,000-4,000)/12,000) 
for family coverage. For a subsequent plan year, the COBRA premium 
is $6,000 for self-only coverage and $15,000 for family coverage. 
The employee contributions for that plan year are $1,200 for self-
only coverage and $5,000 for family coverage. Thus, the contribution 
rate based on cost of coverage is 80% ((6,000-1,200)/6,000) for 
self-only coverage and 67% ((15,000-5,000)/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, 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).

0
22. Section 2590.715-2704 is revised to read as follows:


Sec.  2590.715-2704  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 Sec.  
2590.701-2).
    (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 
Sec.  2590.701-3(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.

    (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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.

0
23. Section 2590.715-2711 is revised to read as follows:


Sec.  2590.715-2711  No lifetime or annual limits.

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of 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 in-network 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 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 base-benchmark 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 Sec.  2590.715-
2713(a)(1), the HRA or other account-based plan will not fail to meet 
the requirements of PHS Act section 2713 and Sec.  2590.715-2713(a)(1).

[[Page 72262]]

    (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 integration 
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 Internal Revenue 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 non-HRA group 
coverage, as well as medical care (as defined under section 213(d) of 
the Internal Revenue 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 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 account-based plan.
    (ii) Integration Method: Minimum value 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 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 Internal Revenue 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 non-HRA 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 
reimbursements from the HRA or other account-based 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 account-based 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 account-based 
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 (d)(2)(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 consist 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 account-based 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

[[Page 72263]]

reimbursement subject to a maximum fixed dollar amount for a period. An 
HRA is a type of account-based 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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.
    24. Section 2590.715-2712 is revised to read as follows:


Sec.  2590.715-2712  Rules regarding rescissions.

    (a) Prohibition on rescissions--(1) A group health plan, or a 
health insurance issuer offering group health insurance coverage, must 
not rescind coverage under the plan, or under the policy, certificate, 
or contract of insurance, with respect to an individual (including a 
group to which the individual belongs or family coverage in which the 
individual is included) once the individual is covered under the plan 
or coverage, unless the individual (or a person seeking coverage on 
behalf of the individual) performs an act, practice, or omission that 
constitutes fraud, or makes an intentional misrepresentation of 
material fact, as prohibited by the terms of the plan or coverage. A 
group health plan, or a health insurance issuer offering group health 
insurance coverage, must provide at least 30 days advance written 
notice to each participant who would be affected before coverage may be 
rescinded under this paragraph (a)(1), regardless of whether the 
coverage is insured or self-insured, or whether the rescission applies 
to an entire group or only to an individual within the group. (The 
rules of this paragraph (a)(1) apply regardless of any contestability 
period that may otherwise apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if--
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect;
    (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 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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.

0
25. Section 2590.715-2714 is revised to read as follows:


Sec.  2590.715-2714  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 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:

    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.

    (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

[[Page 72264]]

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) of the Code. 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 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 coverage 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 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 self-plus-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.

    (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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.

0
26. Section 2590.715-2719 is revised to read as follows:


Sec.  2590.715-2719  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 Sec.  2590.715-1251. 
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 Sec.  2590.715-
2712(a)(2) (whether or not, in connection with the rescission, there is 
an adverse effect on any particular benefit at that time).
    (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

[[Page 72265]]

coverage must implement an effective internal claims and appeals 
process, as described in this paragraph (b).
    (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 Sec.  2590.715-2712.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(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 
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.
    (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

[[Page 72266]]

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 violation 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 
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 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

[[Page 72267]]

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 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.
    (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.
    (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 minimum 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

[[Page 72268]]

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 Sec.  54.9812, which generally require, among 
other things, parity in the application of medical management 
techniques), as determined by the external reviewer. (A 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-of-network 
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 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);
    (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

[[Page 72269]]

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 nationally-recognized 
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:
    (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 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 
evidence-based 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.
    (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

[[Page 72270]]

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 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 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 linguistically 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 
non-English 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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.

0
27. Section 2590.715-2719A is revised to read as follows:


Sec.  2590.715-2719A  Patient protections.

    (a) Choice of health care professional--(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group health insurance coverage, requires or 
provides for designation by a participant or beneficiary of a 
participating primary care provider, then the plan or issuer must 
permit each participant or beneficiary to designate any participating 
primary care provider who

[[Page 72271]]

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

    Example 1. (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. 
Participant A, a female, requests a gynecological exam with 
Physician B, an in-network physician specializing in gynecological 
care. The group health plan requires prior authorization from A's 
designated primary care provider for the gynecological exam.
    (ii) Conclusion. In this Example 1, the group health plan has 
violated the requirements of this paragraph (a)(3) because the plan 
requires prior authorization from A's primary care provider prior to 
obtaining gynecological services.
    Example 2. (i) Facts. Same facts as Example 1 except that A 
seeks gynecological services from C, an out-of-network provider.
    (ii) Conclusion. In this Example 2, the group health plan has 
not violated the requirements of this paragraph (a)(3) by requiring 
prior authorization because C is not a participating health care 
provider.
    Example 3. (i) Facts. Same facts as Example 1 except that the 
group health plan only requires B to inform A's designated primary 
care physician of treatment decisions.

[[Page 72272]]

    (ii) Conclusion. In this Example 3, the group health plan has 
not violated the requirements of this paragraph (a)(3) because A has 
direct access to B without prior authorization. The fact that the 
group health plan requires notification of treatment decisions to 
the designated primary care physician does not violate this 
paragraph (a)(3).
    Example 4. (i) Facts. A group health plan requires each 
participant to designate a physician to serve as the primary care 
provider for the participant and the participant's family. The group 
health plan requires prior authorization before providing benefits 
for uterine fibroid embolization.
    (ii) Conclusion. In this Example 4, the plan requirement for 
prior authorization before providing benefits for uterine fibroid 
embolization does not violate the requirements of this paragraph 
(a)(3) because, though the prior authorization requirement applies 
to obstetrical services, it does not restrict access to any 
providers specializing in obstetrics or gynecology.

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

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

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

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

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

[[Page 72273]]

determine payments for out-of-network services (such as the usual, 
customary, and reasonable amount), excluding any in-network copayment 
or coinsurance imposed with respect to the participant or beneficiary. 
The amount in this paragraph (b)(3)(i)(B) is determined without 
reduction for out-of-network cost sharing that generally applies under 
the plan or health insurance coverage with respect to out-of-network 
services. Thus, for example, if a plan generally pays 70 percent of the 
usual, customary, and reasonable amount for out-of-network services, 
the amount in this paragraph (b)(3)(i)(B) for an emergency service is 
the total (that is, 100 percent) of the usual, customary, and 
reasonable amount for the service, not reduced by the 30 percent 
coinsurance that would generally apply to out-of-network services (but 
reduced by the in-network copayment or coinsurance that the individual 
would be responsible for if the emergency service had been provided in-
network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or 
coinsurance imposed with respect to the participant or beneficiary.
    (ii) Other cost sharing. Any cost-sharing requirement other than a 
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an 
out-of-pocket maximum generally applies to out-of-network benefits, 
that out-of-pocket maximum must apply to out-of-network emergency 
services.
    (iii) Special rules regarding out-of-network 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 out-of-network emergency services that is higher than 
the copayment or coinsurance requirement that would apply if the 
services were provided in network.
    (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 
agreed to for the emergency service is $110, and the amount under 
paragraph (b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4. (i) Facts. Same facts as Example 3. Subsequently, the 
plan adds another provider to its network, who has agreed to accept 
$150 for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among 
those agreed to for the emergency service is $115. (Because there is 
no one middle amount, the median is the average of the two middle 
amounts, $110 and $120.) Accordingly, the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $115 ($92).
    Example 5. (i) Facts. Same facts as Example 4. An individual 
covered by the plan receives the emergency service from an out-of-
network provider, who charges $125 for the service. With respect to 
services provided by out-of-network providers generally, the plan 
reimburses covered individuals 50% of the reasonable amount charged 
by the provider for medical services. For this purpose, the 
reasonable amount for any service is based on information on charges 
by all providers collected by a third party, on a zip code by zip 
code basis, with the plan treating charges at a specified percentile 
as reasonable. For the emergency service received by the individual, 
the reasonable amount calculated using this method is $116. The 
amount that would be paid under Medicare for the emergency service, 
excluding any copayment or coinsurance for the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to 
for the emergency service is $115 and the amount the plan would pay 
is $92 (80% of $115); the amount calculated using the same method 
the plan uses to determine payments for out-of-network services--
$116--excluding the in-network 20% coinsurance, is $92.80; and the 
Medicare payment is $80. Thus, the greatest amount is $92.80. The 
individual is responsible for the remaining $32.20 charged by the 
out-of-network provider.
    Example 6. (i) Facts. Same facts as Example 5. The group health 
plan generally imposes a $250 deductible for in-network health care. 
With respect to all health care provided by out-of-network 
providers, the plan imposes a $500 deductible. (Covered in-network 
claims are credited against the deductible.) The individual has 
incurred and submitted $260 of covered claims prior to receiving the 
emergency service out of network.
    (ii) Conclusion. In this Example 6, the plan is not responsible 
for paying anything with respect to the emergency service furnished 
by the out-of-network provider because the covered individual has 
not satisfied the

[[Page 72274]]

higher deductible that applies generally to all health care provided 
out of network. However, the amount the individual is required to 
pay is credited against the deductible.

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section 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 corresponding sections of 29 CFR part 2590, contained 
in the 29 CFR, parts 1927 to end, edition revised as of July 1, 2015.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Chapter I

    For the reasons stated in the preamble, the Department of Health 
and Human Services adopts as final the interim final rules amending 45 
CFR parts 144, 146 and 147, which were published in the Federal 
Register on May 13, 2010 (75 FR 27122), June 17, 2010 (75 FR 34538), 
June 28, 2010 (75 FR 37188), and November 17, 2010 (75 FR 70114) with 
the following changes as set forth below:

PART 144--REQUIREMENTS RELATED TO HEALTH INSURANCE

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

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

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


Sec.  144.103  Definitions.

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

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
30. The authority citation for part 146 continues to read as follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92).

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


Sec.  146.111  Preexisting condition exclusions.

    (a) Preexisting condition exclusion defined--(1) A preexisting 
condition exclusion means a preexisting condition exclusion within the 
meaning of Sec.  144.103 of this subchapter.
* * * * *

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

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

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

0
33. Section 147.108 is revised to read as follows:


Sec.  147.108  Prohibition of preexisting condition exclusions.

    (a) In general. A group health plan, or a health insurance issuer 
offering group or individual health insurance coverage, may not impose 
any preexisting condition exclusion (as defined in Sec.  144.103 of 
this subchapter).
    (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 
Sec.  146.111(a)(2) of this subchapter):

    -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.

[[Page 72275]]

    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 Sec.  146.111(a)(2) of this 
subchapter 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.

    (c) Allowable screenings to determine eligibility for alternative 
coverage in the individual market--(1) In general. (i) A health 
insurance issuer offering individual health insurance coverage may 
screen applicants for eligibility for alternative coverage options 
before offering a child-only policy if--
    (A) The practice is permitted under State law;
    (B) The screening applies to all child-only applicants, regardless 
of health status; and
    (C) The alternative coverage options include options for which 
healthy children would potentially be eligible (e.g., Children's Health 
Insurance Program (CHIP) or group health insurance).
    (ii) An issuer must provide such coverage to an applicant effective 
on the first date that a child-only policy would have been effective 
had the applicant not been screened for an alternative coverage option, 
as provided by State law. A State may impose a reasonable time limit by 
when an issuer would have to enroll a child regardless of pending 
applications for other coverage.
    (2) Restrictions. A health insurance issuer offering individual 
health insurance coverage may screen applicants for eligibility for 
alternative coverage provided that:
    (i) The screening process does not by its operation significantly 
delay enrollment or artificially engineer eligibility of a child for a 
program targeted to individuals with a pre-existing condition;
    (ii) The screening process is not applied to offers of dependent 
coverage for children; or
    (ii) The issuer does not consider whether an applicant is eligible 
for, or is provided medical assistance under, Medicaid in making 
enrollment decisions, as provided under 42 U.S.C. 1396a (25)(G).
    (d) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
34. Section 147.120 is revised to read as follows:


Sec.  147.120  Eligibility of children until at least age 26.

    (a) In general--(1) A group health plan, or a health insurance 
issuer offering group or individual health insurance coverage, that 
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:

    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.

    (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 (in the individual market, the primary 
subscriber). 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 primary subscriber, or any other person); 
residency with the participant (in the individual market, the primary 
subscriber) 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) of the Code. 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 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 coverage 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 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 self-plus-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.

[[Page 72276]]

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.

    (f) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
35. Section 147.126 is revised to read as follows:


Sec.  147.126  No lifetime or annual limits.

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of this section, a group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, may not establish any lifetime limit on the dollar amount of 
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 or individual health insurance 
coverage, may not establish any annual limit on the dollar amount of 
essential health benefits for any individual, whether provided in-
network 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 or individual health 
insurance coverage, from placing annual or lifetime dollar limits with 
respect to any individual on specific covered benefits that are not 
essential health benefits to the extent that such limits are otherwise 
permitted under applicable Federal or State law. (The scope of 
essential health benefits is addressed in paragraph (c) of this 
section).
    (2) Condition-based exclusions. The rules of this section do not 
prevent a group health plan, or a health insurance issuer offering 
group or individual health insurance coverage, from excluding all 
benefits for a condition. However, if any benefits are provided for a 
condition, then the requirements of this section apply. Other 
requirements of Federal or State law may require coverage of certain 
benefits.
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations. 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 base-benchmark 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 Sec.  
147.130(a)(1), the HRA or other account-based plan will not fail to 
meet the requirements of PHS Act 2713 and Sec.  147.130(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 integration 
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 Internal Revenue 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 non-HRA group 
coverage, as well as medical care (as defined under section 213(d) of 
the Internal Revenue 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 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 account-based plan.
    (ii) Integration Method: Minimum value required. An HRA or other 
account-based plan is integrated with

[[Page 72277]]

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 Internal Revenue 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 non-HRA 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 
reimbursements from the HRA or other account-based 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 account-based 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 account-based 
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 consist 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 account-based 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 account-based plan.
    (e) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
36. Section 147.128 is revised to read as follows:


Sec.  147.128  Rules regarding rescissions.

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

[[Page 72278]]

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 Sec.  155.430 of this subchapter (other than 
under paragraph (b)(2)(iii) of this section).
    (3) The rules of this paragraph (a) are illustrated by the 
following examples:

    Example 1.  (i) Facts. Individual A seeks enrollment in an 
insured group health plan. The plan terms permit rescission of 
coverage with respect to an individual if the individual engages in 
fraud or makes an intentional misrepresentation of a material fact. 
The plan requires A to complete a questionnaire regarding A's prior 
medical history, which affects setting the group rate by the health 
insurance issuer. The questionnaire complies with the other 
requirements of this part and part 146 of this subchapter. 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 (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
37. Section 147.136 is revised to read as follows:


Sec.  147.136  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 Sec.  147.140. 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 Sec.  147.128 
(whether or not, in connection with the rescission, there is an adverse 
effect on any particular benefit at that time).
    (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 or individual 
health insurance coverage must implement an effective internal claims 
and appeals process, as described in this paragraph (b).
    (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

[[Page 72279]]

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 Sec.  147.128.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(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 
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, beneficiaries 
and enrollees, 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.
    (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

[[Page 72280]]

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 violation 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.
    (3) Requirements for individual health insurance issuers. A health 
insurance issuer offering individual health insurance coverage must 
comply with all the requirements of this paragraph (b)(3).
    (i) Minimum internal claims and appeals standards. A health 
insurance issuer offering individual health insurance coverage must 
comply with all the requirements of the ERISA internal claims and 
appeals procedures applicable to group health plans under 29 CFR 
2560.503-1 except for the requirements with respect to multiemployer 
plans, and except to the extent those requirements are modified by 
paragraph (b)(3)(ii) of this section. Accordingly, under this paragraph 
(b), with respect to individual health insurance coverage, the issuer 
is subject to the requirements in 29 CFR 2560.503-1 as if the issuer 
were a group health plan.
    (ii) Additional standards. In addition to the requirements in 
paragraph (b)(3)(i) of this section, the internal claims and appeals 
processes of a health insurance issuer offering individual health 
insurance coverage must meet the requirements of this paragraph 
(b)(3)(ii).
    (A) Clarification of meaning of adverse benefit determination. For 
purposes of this paragraph (b)(3), 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 other provisions of this paragraph (b)(3), an 
issuer must treat a rescission of coverage (whether or not the 
rescission has an adverse effect on any particular benefit at that 
time) and any decision to deny coverage in an initial eligibility 
determination as an adverse benefit determination. (Rescissions of 
coverage are subject to the requirements of Sec.  147.128.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(f)(2)(i) (which 
generally provide, among other things, in the case of urgent care 
claims for notification of the issuer's benefit determination (whether 
adverse or not) as soon as possible, taking into account the medical 
exigencies, but not later than 72 hours after receipt of the claim) 
continue to apply to the issuer. For purposes of this paragraph 
(b)(3)(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 issuer shall defer to such determination of the attending provider.
    (C) Full and fair review. An 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 issuer must provide the claimant, free of charge, with any 
new or additional evidence considered, relied upon, or generated by the 
issuer (or at the direction of the 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 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 but fails to do so, the issuer 
shall notify the claimant of the issuer's determination as soon as an 
issuer 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 
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.

[[Page 72281]]

    (E) Notice. An 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 issuer must also comply with the 
additional requirements of this paragraph (b)(3)(ii)(E).
    (1) The 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 name of 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 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 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.
    (3) The 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 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 issuer must provide a description of available internal 
appeals and external review processes, including information regarding 
how to initiate an appeal.
    (5) The 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 an issuer that fails to adhere to all the requirements 
of this paragraph (b)(3) 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)(3)(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 State law, as 
applicable, on the basis that the issuer has failed to provide a 
reasonable internal claims and appeals process that would yield a 
decision on the merits of the claim.
    (2) Notwithstanding paragraph (b)(3)(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 issuer demonstrates that the violation was for good cause or due to 
matters beyond the control of the issuer and that the violation 
occurred in the context of an ongoing, good faith exchange of 
information between the issuer and the claimant. This exception is not 
available if the violation is part of a pattern or practice of 
violations by the issuer. The claimant may request a written 
explanation of the violation from the issuer, and the 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)(3)(ii)(F)(1) of this section on the basis that the issuer 
met the standards for the exception under this paragraph 
(b)(3)(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 issuer 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.
    (G) One level of internal appeal. Notwithstanding the requirements 
in 29 CFR 2560.503-1(c)(3), a health insurance issuer offering 
individual health insurance coverage must provide for only one level of 
internal appeal before issuing a final determination.
    (H) Recordkeeping requirements. A health insurance issuer offering 
individual health insurance coverage must maintain for six years 
records of all claims and notices associated with the internal claims 
and appeals process, including the information detailed in paragraph 
(b)(3)(ii)(E) of this section and any other information specified by 
the Secretary. An issuer must make such records available for 
examination by the claimant or State or Federal oversight agency upon 
request.
    (iii) Requirement to provide continued coverage pending the outcome 
of an appeal. An issuer subject to the requirements of this paragraph 
(b)(3) is required to provide continued coverage pending the outcome of 
an appeal. For this purpose, the issuer must comply with the 
requirements of 29 CFR 2560.503-1(f)(2)(ii) as if the issuer were a 
group health plan, so that the issuer cannot reduce or terminate an 
ongoing course of treatment 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 or individual 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 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

[[Page 72282]]

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 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 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.
    (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.
    (xiv) The State process must require that issuers (or, if 
applicable, plans)

[[Page 72283]]

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 minimum 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 Sec.  54.9812, which generally require, among 
other things, parity in the application of medical management 
techniques), as determined by the external reviewer. (A 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-of-network 
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 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

[[Page 72284]]

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);
    (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 nationally-recognized 
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:
    (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 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 
evidence-based standards and may include any other practice guidelines 
developed by the Federal government, national or professional medical 
societies, boards, and associations;

[[Page 72285]]

    (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.
    (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 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 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 and a self-insured 
nonfederal governmental plan 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 or individual health insurance coverage are considered to provide 
relevant notices in a culturally and linguistically appropriate manner 
if the plan or issuer meets all the requirements of paragraph (e)(2) of 
this section with respect to the

[[Page 72286]]

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 
non-English 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 (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
38. Section 147.138 is revised to read as follows:


Sec.  147.138  Patient protections.

    (a) Choice of health care professional--(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, requires or provides for designation by a participant, 
beneficiary, or enrollee of a participating primary care provider, then 
the plan or issuer must permit each participant, beneficiary, or 
enrollee to designate any participating primary care provider who is 
available to accept the participant, beneficiary, or enrollee. In such 
a case, the plan or issuer must comply with the rules of paragraph 
(a)(4) of this section by informing each participant (in the individual 
market, primary subscriber) of the terms of the plan or health 
insurance coverage regarding designation of a primary care provider.
    (ii) 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 or individual health insurance coverage, requires or provides for 
the designation of a participating primary care provider for a child by 
a participant, beneficiary, or enrollee, the plan or issuer must permit 
the participant, beneficiary, or enrollee to designate a physician 
(allopathic or osteopathic) who specializes in pediatrics (including 
pediatric 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. In such a case, the plan or issuer must 
comply with the rules of paragraph (a)(4) of this section by informing 
each participant (in the individual market, primary subscriber) of the 
terms of the plan or health insurance coverage regarding designation of 
a pediatrician as the child's primary care provider.
    (ii) Construction. Nothing in paragraph (a)(2)(i) of this section 
is to be construed to waive any exclusions of coverage under the terms 
and conditions of the plan or health insurance coverage with respect to 
coverage of pediatric care.
    (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 or individual health insurance 
coverage, described in paragraph (a)(3)(ii) of this section may not 
require authorization or referral by the plan, issuer, or any person 
(including a primary care provider) in the case of a female 
participant, beneficiary, or enrollee who seeks coverage for 
obstetrical or gynecological care provided by a participating health 
care professional who specializes in obstetrics or gynecology. In such 
a case, the plan or issuer must comply with the rules of paragraph 
(a)(4) of this section by informing each participant (in the individual 
market, primary subscriber) that the plan may not require authorization 
or referral for obstetrical or gynecological care by a participating 
health care professional who specializes in obstetrics or gynecology. 
The plan or issuer may require such a professional to agree to 
otherwise adhere to the plan's or issuer's policies and procedures, 
including procedures regarding referrals and obtaining prior 
authorization and providing services pursuant to a treatment plan (if 
any) approved by the plan or issuer. For purposes of this paragraph 
(a)(3), a

[[Page 72287]]

health care professional who specializes in obstetrics or gynecology is 
any individual (including a person other than a physician) who is 
authorized under applicable State law to provide obstetrical or 
gynecological care.
    (B) Obstetrical and gynecological care. A group health plan or 
health insurance issuer described in paragraph (a)(3)(ii) of this 
section must treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, pursuant to the direct access described under paragraph 
(a)(3)(i)(A) of this section, by a participating health care 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider.
    (ii) Application of paragraph. A group health plan, or a health 
insurance issuer offering group or individual health insurance 
coverage, is described in this paragraph (a)(3) if the plan or issuer--
    (A) Provides coverage for obstetrical or gynecological care; and
    (B) Requires the designation by a participant, beneficiary, or 
enrollee of a participating primary care provider.
    (iii) Construction. Nothing in paragraph (a)(3)(i) of this section 
is to be construed to--
    (A) Waive any exclusions of coverage under the terms and conditions 
of the plan or health insurance coverage with respect to coverage of 
obstetrical or gynecological care; or
    (B) Preclude the group health plan or health insurance issuer 
involved from requiring that the obstetrical or gynecological provider 
notify the primary care health care professional or the plan or issuer 
of treatment decisions.
    (iv) Examples. The rules of this paragraph (a)(3) are illustrated 
by the following examples:

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

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

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

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

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

    (b) Coverage of emergency services--(1) Scope. If a group health 
plan, or a health insurance issuer offering group or individual health 
insurance coverage, provides any benefits with respect to services in 
an emergency department of a hospital, the plan or issuer must cover 
emergency services (as defined in paragraph (b)(4)(ii) of this section) 
consistent with the rules of this paragraph (b).
    (2) General rules. A plan or issuer subject to the requirements of 
this paragraph (b) must provide coverage for

[[Page 72288]]

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

[[Page 72289]]

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

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) so that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in a condition described in clause (i), (ii), or 
(iii) of section 1867(e)(1)(A) of the Social Security Act (42 U.S.C. 
1395dd(e)(1)(A)). (In that provision of the Social Security Act, clause 
(i) refers to placing the health of the individual (or, with respect to 
a pregnant woman, the health of the woman or her unborn child) in 
serious jeopardy; clause (ii) refers to serious impairment to bodily 
functions; and clause (iii) refers to serious dysfunction of any bodily 
organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an 
emergency medical condition (as defined in paragraph (b)(4)(i) of this 
section) has the meaning given in section 1867(e)(3) of the Social 
Security Act (42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years (in the individual market, policy 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 
corresponding sections of 45 CFR parts 144, 146 and 147, contained in 
the 45 CFR, parts 1 to 199, edition revised as of October 1, 2015.

0
39. Section 147.140 is revised to read as follows:


Sec.  147.140  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 group or individual 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 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

[[Page 72290]]

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 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 or individual 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, including 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 employment-based 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 this paragraph (b)(2)(ii)(C), 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 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

[[Page 72291]]

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, 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 (in the 
individual market, policy years) beginning on or after September 23, 
2010. The provisions of PHS Act section 2708 apply to grandfathered 
health plans for plan years (in the individual market, policy 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 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.
    (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 cost-sharing 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 cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
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 
cost-sharing 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

[[Page 72292]]

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 paragraph (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 Sec.  146.121(d) of this subchapter) 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 Sec.  146.121(d) of this subchapter) 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
    (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 multi-tiered 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 self-only, 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., self-plus-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 fixed-dollar 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 or individual 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. (But see Sec.  147.126, 
which generally prohibits all annual dollar limits on essential health 
benefits for plan years (in the individual market, policy years) 
beginning on or after January 1, 2014).
    (B) Decrease in limit for a plan or coverage with only a lifetime 
limit. Grandfathered individual 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 Sec.  147.126, which generally prohibits all annual 
dollar limits on essential health benefits for plan years (in the 
individual market, policy 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 or individual 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 Sec.  147.126, which 
generally prohibits all annual dollar limits on essential health 
benefits for plan years (in the individual market, policy 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 contract 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.

[[Page 72293]]

    (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 component 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.
    (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 + $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

[[Page 72294]]

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 self-only 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, 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).

[FR Doc. 2015-29294 Filed 11-13-15; 4:15 pm]
 BILLING CODE 4150-28-P; 4830-01-P; 4120-01-P; 6325-64-P