Monday, 

June 28, 2010 

Part III 

Department of the Treasury 

Internal Revenue Service 

26 CFR Parts 54 and 602 

Department of Labor 

Employee Benefits Security 

Administration 

29 CFR Part 2590 

Department of Health and 

Human Services 

45 CFR Parts 144, 146, and 147 

Patient Protection and Affordable Care 

Act; Requirements for Group Health Plans 

and Health Insurance Issuers Under the 

Patient Protection and Affordable Care 

Act Relating to Preexisting Condition 

Exclusions, Lifetime and Annual Limits, 

Rescissions, and Patient Protections; Final 

Rule and Proposed Rule 


sroberts on DSKD5P82C1PROD with RULES
37188 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 54 and 602 

[TD 9491] 

RIN 1545–BJ61 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2590 

RIN 1210–AB43 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

[OCIIO–9994–IFC] 

45 CFR Parts 144, 146, and 147 

RIN 0991–AB69 

Patient Protection and Affordable Care 

Act: Preexisting Condition Exclusions, 

Lifetime and Annual Limits, 

Rescissions, and Patient Protections 

AGENCIES: Internal Revenue Service, 

Department of the Treasury; Employee 

Benefits Security Administration, 

Department of Labor; Office of 

Consumer Information and Insurance 

Oversight, Department of Health and 

Human Services. 

ACTION: Interim final rules with request 

for comments. 

SUMMARY: This document contains 

interim final regulations implementing 

the rules for group health plans and 

health insurance coverage in the group 

and individual markets under 

provisions of the Patient Protection and 

Affordable Care Act regarding 

preexisting condition exclusions, 

lifetime and annual dollar limits on 

benefits, rescissions, and patient 

protections. 

DATES: Effective Date. These interim 

final regulations are effective on August 

27, 2010. 

Comment Date. Comments are due on 

or before August 27, 2010. 

Applicability Dates: 

1. Group health plans and group 

health insurance coverage. These 

interim final regulations, except those 

under Public Health Service Act (PHS 

Act) section 2704 (26 CFR 54.9815– 

2704T, 29 CFR 2590.715–2704, 45 CFR 

147.108), generally apply to group 

health plans and group health insurance 

issuers for plan years beginning on or 

after September 23, 2010. These interim 

final regulations under PHS Act section 

2704 (26 CFR 54.9815–2704T, 29 CFR 

2590.715–2704, 45 CFR 147.108) 

generally apply for plan years beginning 

on or after January 1, 2014, except that 

in the case of individuals who are under 

19 years of age, these interim final 

regulations under PHS Act section 2704 

apply for plan years beginning on or 

after September 23, 2010. 

2. Individual health insurance 

coverage. These interim final 

regulations, except those under PHS Act 

section 2704 (45 CFR 147.108), 

generally apply to individual health 

insurance issuers for policy years 

beginning on or after September 23, 

2010. These interim final regulations 

under PHS Act section 2704 (45 CFR 

147.108) generally apply to individual 

health insurance issuers for policy years 

beginning on or after January 1, 2014, 

except that in the case of enrollees who 

are under 19 years of age, these interim 

final regulations under PHS Act section 

2704 apply for policy years beginning 

on or after September 23, 2010. 

ADDRESSES: Written comments may be 

submitted to any of the addresses 

specified below. Any comment that is 

submitted to any Department will be 

shared with the other Departments. 

Please do not submit duplicates. 

All comments will be made available 

to the public. Warning: Do not include 

any personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments are 

posted on the Internet exactly as 

received, and can be retrieved by most 

Internet search engines. No deletions, 

modifications, or redactions will be 

made to the comments received, as they 

are public records. Comments may be 

submitted anonymously. 

Department of Labor. Comments to 

the Department of Labor, identified by 

RIN 1210–AB43, by one of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: EOHPSCA715.EBSA@dol.gov. 

• Mail or Hand Delivery: Office of 

Health Plan Standards and Compliance 

Assistance, Employee Benefits Security 

Administration, Room N–5653, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210, 

Attention: RIN 1210–AB43. 

Comments received by the 

Department of Labor will be posted 

without change to http:// 

www.regulations.gov and http:// 

www.dol.gov/ebsa, and available for 

public inspection at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, 200 

Constitution Avenue, NW., Washington, 

DC 20210. 

Department of Health and Human 

Services. In commenting, please refer to 

file code OCIIO–9994–IFC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

• Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

• By regular mail. You may mail 

written comments to the following 

address ONLY: Office of Consumer 

Information and Insurance Oversight, 

Department of Health and Human 

Services, Attention: OCIIO–9994–IFC, 

P.O. Box 8016, Baltimore, MD 21244– 

1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

• By express or overnight mail. You 

may send written comments to the 

following address ONLY: Office of 

Consumer Information and Insurance 

Oversight, Department of Health and 

Human Services, Attention: OCIIO– 

9994–IFC, Mail Stop C4–26–05, 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

• By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

Æ For delivery in Washington, DC— 

Office of Consumer Information and 

Insurance Oversight, Department of 

Health and Human Services, Room 445– 

G, Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the OCIIO drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

Æ For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call (410) 786–7195 in advance to 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37189 

1The 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. 

2Code section 9815 incorporates the preemption 

provisions of PHS Act section 2724. Prior to the 

Affordable Care Act, there were no express 

preemption provisions in chapter 100 of the Code. 

schedule your arrival with one of our 

staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this document. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately three weeks after 

publication of a document, at the 

headquarters of the Centers for Medicare 

& Medicaid Services, 7500 Security 

Boulevard, Baltimore, Maryland 21244, 

Monday through Friday of each week 

from 8:30 a.m. to 4 p.m. EST. To 

schedule an appointment to view public 

comments, phone 1–800–743–3951. 

Internal Revenue Service. Comments 

to the IRS, identified by REG–120399– 

10, by one of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: CC:PA:LPD:PR (REG–120399– 

10), Room 5205, Internal Revenue 

Service, P.O. Box 7604, Ben Franklin 

Station, Washington, DC 20044. 

• Hand or courier delivery: Monday 

through Friday between the hours of 8 

a.m. and 4 p.m. to: CC:PA:LPD:PR 

(REG–120399–10), Courier’s Desk, 

Internal Revenue Service, 1111 

Constitution Avenue, NW., Washington 

DC 20224. 

All submissions to the IRS will be 

open to public inspection and copying 

in Room 1621, 1111 Constitution 

Avenue, NW., Washington, DC from 9 

a.m. to 4 p.m. 

FOR FURTHER INFORMATION CONTACT: 

Amy Turner or Beth Baum, Employee 

Benefits Security Administration, 

Department of Labor, at (202) 693–8335; 

Karen Levin, Internal Revenue Service, 

Department of the Treasury, at (202) 

622–6080; Jim Mayhew, Office of 

Consumer Information and Insurance 

Oversight, Department of Health and 

Human Services, at (410) 786–1565. 

Customer Service Information: 

Individuals interested in obtaining 

information from the Department of 

Labor concerning employment-based 

health coverage laws may call the EBSA 

Toll-Free Hotline at 1–866–444–EBSA 

(3272) or visit the Department of Labor’s 

Web site (http://www.dol.gov/ebsa). In 

addition, information from HHS on 

private health insurance for consumers 

can be found on the Centers for 

Medicare & Medicaid Services (CMS) 

Web site (http://www.cms.hhs.gov/ 

HealthInsReformforConsume/ 

01_Overview.asp) and information on 

health reform can be found at http:// 

www.healthreform.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Patient Protection and Affordable 

Care Act (the Affordable Care Act), 

Public Law 111–148, was enacted on 

March 23, 2010; the Health Care and 

Education Reconciliation Act (the 

Reconciliation Act), Public Law 111– 

152, was enacted on March 30, 2010. 

The Affordable Care Act and the 

Reconciliation Act reorganize, amend, 

and add to the provisions of part A of 

title XXVII of the Public Health Service 

Act (PHS Act) relating to group health 

plans and health insurance issuers in 

the group and individual markets. The 

term ‘‘group health plan’’ includes both 

insured and self-insured group health 

plans.1 The Affordable Care Act adds 

section 715(a)(1) to the Employee 

Retirement Income Security Act (ERISA) 

and section 9815(a)(1) to the Internal 

Revenue Code (the Code) to incorporate 

the provisions of part A of title XXVII 

of the PHS Act into ERISA and the 

Code, and make them applicable to 

group health plans, and health 

insurance issuers providing health 

insurance coverage in connection with 

group health plans. The PHS Act 

sections incorporated by this reference 

are sections 2701 through 2728. PHS 

Act sections 2701 through 2719A are 

substantially new, though they 

incorporate some provisions of prior 

law. PHS Act sections 2722 through 

2728 are sections of prior law 

renumbered, with some, mostly minor, 

changes. 

Subtitles A and C of title I of the 

Affordable Care Act amend the 

requirements of title XXVII of the PHS 

Act (changes to which are incorporated 

into ERISA section 715). The 

preemption provisions of ERISA section 

731 and PHS Act section 2724 2

(implemented in 29 CFR 2590.731(a) 

and 45 CFR 146.143(a)) apply so that the 

requirements of part 7 of ERISA and 

title XXVII of the PHS Act, as amended 

by the Affordable Care Act, are not to be 

‘‘construed to supersede any provision 

of State law which establishes, 

implements, or continues in effect any 

standard or requirement solely relating 

to health insurance issuers in 

connection with group or individual 

health insurance coverage except to the 

extent that such standard or 

requirement prevents the application of 

a requirement’’ of the Affordable Care 

Act. Accordingly, State laws that 

impose on health insurance issuers 

requirements that are stricter than the 

requirements imposed by the Affordable 

Care Act will not be superseded by the 

Affordable Care Act. 

The Departments of Health and 

Human Services, Labor, and the 

Treasury (the Departments) are issuing 

regulations in several phases 

implementing the revised PHS Act 

sections 2701 through 2719A and 

related provisions of the Affordable Care 

Act. The first phase in this series was a 

pair of publications consisting of a 

Request for Information relating to the 

medical loss ratio provisions of PHS Act 

section 2718 and a Request for 

Information relating to the rate review 

process of PHS Act 2794, both 

published in the Federal Register on 

April 14, 2010 (75 FR 19297 and 19335). 

The second phase was interim final 

regulations implementing PHS Act 

section 2714 (requiring coverage of 

adult children to age 26), published in 

the Federal Register on May 13, 2010 

(75 FR 27122). The third phase was 

interim final regulations implementing 

section 1251 of the Affordable Care Act 

(relating to status as a grandfathered 

health plan), published in the Federal 

Register on June 17, 2010 (75 FR 34538). 

These interim final regulations are being 

published to implement PHS Act 

sections 2704 (prohibiting preexisting 

condition exclusions), 2711 (regarding 

lifetime and annual dollar limits on 

benefits), 2712 (regarding restrictions on 

rescissions), and 2719A (regarding 

patient protections). PHS Act section 

2704 generally is effective for plan years 

(in the individual market, policy years) 

beginning on or after January 1, 2014. 


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37190 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

3Section 1255 of the Affordable Care Act. See 

also section 10103(e)–(f) of the Affordable Care Act. 

4HIPAA is the Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104–191). 

5Before the amendments made by the Affordable 

Care Act, PHS Act section 2701(b)(1); after the 

amendments made by the Affordable Care Act, PHS 

Act section 2704(b)(1). See also ERISA section 

701(b)(1) and Code section 9801(b)(1). 

6See Examples 6, 7, and 8 in 26 CFR 54.9801– 

3(a)(1)(ii), 29 CFR 701–3(a)(1)(ii), 45 CFR 

146.111(a)(1)(ii). 

7 Distributions from MSAs and HSAs that are not 

used for qualified medical expenses are included in 

income and subject to an additional tax, under 

sections 220(f)(1), (4) and 223(f)(1), (4) of the Code. 

However, with respect to enrollees, 

including applicants for enrollment, 

who are under 19 years of age, PHS Act 

section 2704 is effective for plan years 

beginning on or after September 23, 

2010 (which is six months after the 

March 23, 2010 date of enactment of the 

Affordable Care Act); or in the case of 

individual health insurance coverage, 

for policy years beginning, or 

applications denied, on or after 

September 23, 2010.3 The rest of these 

provisions generally are effective for 

plan years (in the individual market, 

policy years) beginning on or after 

September 23, 2010. The 

implementation of other provisions of 

PHS Act sections 2701 through 2719A 

will be addressed in future regulations. 

II. Overview of the Regulations 

A. PHS Act Section 2704, Prohibition of 

Preexisting Condition Exclusions (26 

CFR 54.9815–2704T, 29 CFR 2590.715– 

2704, 45 CFR 147.108) 

Section 1201 of the Affordable Care 

Act adds a new PHS Act section 2704, 

which amends the HIPAA 4 rules 

relating to preexisting condition 

exclusions to provide that a group 

health plan and a health insurance 

issuer offering group or individual 

health insurance coverage may not 

impose any preexisting condition 

exclusion. The HIPAA rules (in effect 

prior to the effective date of these 

amendments) apply only to group 

health plans and group health insurance 

coverage, and permit limited exclusions 

of coverage based on a preexisting 

condition under certain circumstances. 

The Affordable Care Act provision 

prohibits any preexisting condition 

exclusion from being imposed by group 

health plans or group health insurance 

coverage and extends this protection to 

individual health insurance coverage. 

This prohibition generally is effective 

with respect to plan years (in the 

individual market, policy years) 

beginning on or after January 1, 2014, 

but for enrollees who are under 19 years 

of age, this prohibition becomes 

effective for plan years (in the 

individual market, policy years) 

beginning on or after September 23, 

2010. Until the new Affordable Care Act 

rules take effect, the HIPAA rules 

regarding preexisting condition 

exclusions continue to apply. 

HIPAA generally defines a preexisting 

condition exclusion 5 as a limitation or 

exclusion of benefits relating to a 

condition based on the fact that the 

condition was present before the date of 

enrollment for the coverage, whether or 

not any medical advice, diagnosis, care, 

or treatment was recommended or 

received before that date. Based on this 

definition, PHS Act section 2704, as 

added by the Affordable Care Act, 

prohibits not just an exclusion of 

coverage of specific benefits associated 

with a preexisting condition in the case 

of an enrollee, but a complete exclusion 

from such plan or coverage, if that 

exclusion is based on a preexisting 

condition. 

The protections in the new PHS Act 

section 2704 generally apply for plan 

years (in the individual market, policy 

years) beginning on or after January 1, 

2014. The Affordable Care Act provides, 

however, that these protections apply 

with respect to enrollees under age 19 

for plan years (in the individual market, 

policy years) beginning on or after 

September 23, 2010. An enrollee under 

age 19 thus could not be denied benefits 

based on a preexisting condition. In 

order for an individual seeking 

enrollment to receive the same 

protection that applies in the case of 

such an enrollee, the individual 

similarly could not be denied 

enrollment or specific benefits based on 

a preexisting condition. Thus, for plan 

years (in the individual market, policy 

years) beginning on or after September 

23, 2010, PHS Act section 2704 protects 

individuals under age 19 with a 

preexisting condition from being denied 

coverage under a plan or health 

insurance coverage (through denial of 

enrollment or denial of specific benefits) 

based on the preexisting condition. 

These interim final regulations do not 

change the HIPAA rule that an 

exclusion of benefits for a condition 

under a plan or policy is not a 

preexisting condition exclusion if the 

exclusion applies regardless of when the 

condition arose relative to the effective 

date of coverage. This point is 

illustrated with examples in the HIPAA 

regulations on preexisting condition 

exclusions, which remain in effect.6

(Other requirements of Federal or State 

law, however, may prohibit certain 

benefit exclusions.) 

Application to grandfathered health 

plans. Under the statute and these 

interim final regulations, a 

grandfathered health plan that is a 

group health plan or group health 

insurance coverage must comply with 

the PHS Act section 2704 prohibition 

against preexisting condition 

exclusions; however, a grandfathered 

health plan that is individual health 

insurance coverage is not required to 

comply with PHS Act section 2704. See 

26 CFR 54.9815–1251T, 29 CFR 

2590.715–1251, and 45 CFR 147.140 

regarding status as a grandfathered 

health plan. 

B. PHS Act Section 2711, Lifetime and 

Annual Limits (26 CFR 54.9815–2711T, 

29 CFR 2590.715–2711, 45 CFR 147.126) 

Section 2711 of the PHS Act, as added 

by the Affordable Care Act, and these 

interim final regulations generally 

prohibit group health plans and health 

insurance issuers offering group or 

individual health insurance coverage 

from imposing lifetime or annual limits 

on the dollar value of health benefits. 

The restriction on annual limits 

applies differently to certain accountbased plans, especially where other 

rules apply to limit the benefits 

available. For example, under section 

9005 of the Affordable Care Act, salary 

reduction contributions for health 

flexible spending arrangements (health 

FSAs) are specifically limited to $2,500 

(indexed for inflation) per year, 

beginning with taxable years in 2013. 

These interim final regulations provide 

that the PHS Act section 2711 annual 

limit rules do not apply to health FSAs. 

The restrictions on annual limits also do 

not apply to Medical Savings Accounts 

(MSAs) under section 220 of the Code 

and Health Savings Accounts (HSAs) 

under section 223 of the Code. Both 

MSAs and HSAs generally are not 

treated as group health plans because 

the amounts available under the plans 

are available for both medical and nonmedical expenses.7 Moreover, annual 

contributions to MSAs and HSAs are 

subject to specific statutory provisions 

that require that the contributions be 

limited. 

Health Reimbursement Arrangements 

(HRAs) are another type of accountbased health plan and typically consist 

of a promise by an employer to 

reimburse medical expenses for the year 

up to a certain amount, with unused 

amounts available to reimburse medical 

expenses in future years. See Notice 

2002–45, 2002–28 IRB 93; Rev. Rul. 

2002–41, 2002–28 IRB 75. When HRAs 

are integrated with other coverage as 

part of a group health plan and the other 

coverage alone would comply with the 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37191 

8Section 1302(b) of the Affordable Care Act 

defines essential health benefits to ‘‘include at least 

the following general categories and the items and 

services covered within the categories: ambulatory 

patient services; emergency services; 

hospitalization; maternity and newborn care; 

mental health and substance use disorder services, 

including behavioral health treatment; prescription 

drugs; rehabilitative and habilitative services and 

devices; laboratory services; preventive and 

wellness services and chronic disease management; 

and pediatric services, including oral and vision 

care.’’ 

requirements of PHS Act section 2711, 

the fact that benefits under the HRA by 

itself are limited does not violate PHS 

Act section 2711 because the combined 

benefit satisfies the requirements. Also, 

in the case of a stand-alone HRA that is 

limited to retirees, the exemption from 

the requirements of ERISA and the Code 

relating to the Affordable Care Act for 

plans with fewer than two current 

employees means that the retiree-only 

HRA is generally not subject to the rules 

in PHS Act section 2711 relating to 

annual limits. The Departments request 

comments regarding the application of 

PHS Act section 2711 to stand-alone 

HRAs that are not retiree-only plans. 

The statute prohibits annual limits on 

the dollar value of benefits generally, 

but allows ‘‘restricted annual limits’’ 

with respect to essential health benefits 

(as defined in section 1302(b) of the 

Affordable Care Act) for plan years (in 

the individual market, policy years) 

beginning before January 1, 2014. 

Grandfathered individual market 

policies are exempted from this 

provision. In addition, the statute 

provides that, with respect to benefits 

that are not essential health benefits, a 

plan or issuer may impose annual or 

lifetime per-individual dollar limits on 

specific covered benefits. These interim 

final regulations define ‘‘essential health 

benefits’’ by cross-reference to section 

1302(b) of the Affordable Care Act 8 and 

applicable regulations. Regulations 

under section 1302(b) of the Affordable 

Care Act have not yet been issued. 

For plan years (in the individual 

market, policy years) beginning before 

the issuance of regulations defining 

‘‘essential health benefits’’, for purposes 

of enforcement, the Departments will 

take into account good faith efforts to 

comply with a reasonable interpretation 

of the term ‘‘essential health benefits’’. 

For this purpose, a plan or issuer must 

apply the definition of essential health 

benefits consistently. For example, a 

plan could not both apply a lifetime 

limit to a particular benefit—thus taking 

the position that it was not an essential 

health benefit—and at the same time 

treat that particular benefit as an 

essential health benefit for purposes of 

applying the restricted annual limit. 

These interim final regulations clarify 

that the prohibition under PHS Act 

section 2711 does not prevent a plan or 

issuer from excluding all benefits for a 

condition, but if any benefits are 

provided for a condition, then the 

requirements of the rule apply. 

Therefore, an exclusion of all benefits 

for a condition is not considered to be 

an annual or lifetime dollar limit. 

The statute and these interim final 

regulations provide that for plan years 

(in the individual market, policy years) 

beginning before January 1, 2014, group 

health plans and health insurance 

issuers offering group or individual 

health insurance coverage may establish 

a restricted annual limit on the dollar 

value of essential health benefits. The 

statute provides that in defining the 

term restricted annual limit, the 

Departments should ensure that access 

to needed services is made available 

with a minimal impact on premiums. 

For a detailed discussion of the basis for 

determining restricted annual limits, see 

section IV.B.3 later in this preamble. 

In order to mitigate the potential for 

premium increases for all plans and 

policies, while at the same time 

ensuring access to essential health 

benefits, these interim final regulations 

adopt a three-year phased approach for 

restricted annual limits. Under these 

interim final regulations, annual limits 

on the dollar value of benefits that are 

essential health benefits may not be less 

than the following amounts for plan 

years (in the individual market, policy 

years) beginning before January 1, 2014: 

• For plan or policy years beginning 

on or after September 23, 2010 but 

before September 23, 2011, $750,000; 

• For plan or policy years beginning 

on or after September 23, 2011 but 

before September 23, 2012, $1.25 

million; and 

• For plan or policy years beginning 

on or after September 23, 2012 but 

before January 1, 2014, $2 million. 

As these are minimums for plan years 

(in the individual market, policy years) 

beginning before 2014, plans or issuers 

may use higher annual limits or impose 

no limits. Plans and policies with plan 

or policy years that begin between 

September 23 and December 31 have 

more than one plan or policy year under 

which the $2 million minimum annual 

limit is available; however, a plan or 

policy generally may not impose an 

annual limit for a plan year (in the 

individual market, policy year) 

beginning after December 31, 2013. 

The minimum annual limits for plan 

or policy years beginning before 2014 

apply on an individual-by-individual 

basis. Thus, any overall annual dollar 

limit on benefits applied to families may 

not operate to deny a covered individual 

the minimum annual benefits for the 

plan year (in the individual market, 

policy year). These interim final 

regulations clarify that, in applying 

annual limits for plan years (in the 

individual market, policy years) 

beginning before January 1, 2014, the 

plan or health insurance coverage may 

take into account only essential health 

benefits. 

The restricted annual limits provided 

in these interim final regulations are 

designed to ensure, in the vast majority 

of cases, that individuals would have 

access to needed services with a 

minimal impact on premiums. So that 

individuals with certain coverage, 

including coverage under a limited 

benefit plan or so-called ‘‘mini-med’’ 

plans, would not be denied access to 

needed services or experience more 

than a minimal impact on premiums, 

these interim final regulations provide 

for the Secretary of Health and Human 

Services to establish a program under 

which the requirements relating to 

restricted annual limits may be waived 

if compliance with these interim final 

regulations would result in a significant 

decrease in access to benefits or a 

significant increase in premiums. 

Guidance from the Secretary of Health 

and Human Services regarding the 

scope and process for applying for a 

waiver is expected to be issued in the 

near future. 

Under these interim final regulations, 

individuals who reached a lifetime limit 

under a plan or health insurance 

coverage prior to the applicability date 

of these interim final regulations and are 

otherwise still eligible under the plan or 

health insurance coverage must be 

provided with a notice that the lifetime 

limit no longer applies. If such 

individuals are no longer enrolled in the 

plan or health insurance coverage, these 

interim final regulations also provide an 

enrollment (in the individual market, 

reinstatement) opportunity for such 

individuals. In the individual market, 

this reinstatement opportunity does not 

apply to individuals who reached their 

lifetime limits on individual health 

insurance coverage if the contract is not 

renewed or otherwise is no longer in 

effect. It would apply, however, to a 

family member who reached the lifetime 

limit in a family policy in the individual 

market while other family members 

remain in the coverage. These notices 

and the enrollment opportunity must be 

provided beginning not later than the 

first day of the first plan year (in the 

individual market, policy year) 

beginning on or after September 23, 

2010. Anyone eligible for an enrollment 


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9See 26 CFR 54.9801–6(d), 29 CFR 2590.701– 

6(d), and 45 CFR 146.117(d). 

opportunity must be treated as a special 

enrollee.9 That is, they must be given 

the right to enroll in all of the benefit 

packages available to similarly situated 

individuals upon initial enrollment. 

Application to grandfathered health 

plans. The statute and these interim 

final regulations relating to the 

prohibition on lifetime limits apply to 

all group health plans and health 

insurance issuers offering group or 

individual health insurance coverage, 

whether or not the plan qualifies as a 

grandfathered health plan, for plan 

years (in the individual market, policy 

years) beginning on or after September 

23, 2010. The statute and these interim 

final regulations relating to the 

prohibition on annual limits, including 

the special rules regarding restricted 

annual limits for plan years beginning 

before January 1, 2014, apply to group 

health plans and group health insurance 

coverage that qualify as a grandfathered 

health plan, but do not apply to 

grandfathered health plans that are 

individual health insurance coverage. 

The interim final regulations issued 

under section 1251 of the Affordable 

Care Act provide that: 

• A plan or health insurance coverage 

that, on March 23, 2010, did not impose 

an overall annual or lifetime limit on 

the dollar value of all benefits ceases to 

be a grandfathered health plan if the 

plan or health insurance coverage 

imposes an overall annual limit on the 

dollar value of benefits. 

• A plan or health insurance 

coverage, that, on March 23, 2010, 

imposed an overall lifetime limit on the 

dollar value of all benefits but no overall 

annual limit on the dollar value of all 

benefits ceases to be a grandfathered 

health plan if the plan or health 

insurance coverage adopts an overall 

annual limit at a dollar value that is 

lower than the dollar value of the 

lifetime limit on March 23, 2010. 

• A plan or health insurance coverage 

that, on March 23, 2010, imposed an 

overall annual limit on the dollar value 

of all benefits ceases to be a 

grandfathered health plan if the plan or 

health insurance coverage decreases the 

dollar value of the annual limit 

(regardless of whether the plan or health 

insurance coverage also imposed an 

overall lifetime limit on March 23, 2010 

on the dollar value of all benefits). 

C. PHS Act Section 2712, Prohibition on 

Rescissions (26 CFR 54.9815–2712T, 29 

CFR 2590.715–2712, 45 CFR 147.128) 

PHS Act section 2712 provides rules 

regarding rescissions of health coverage 

for group health plans and health 

insurance issuers offering group or 

individual health insurance coverage. 

Under the statute and these interim final 

regulations, a group health plan, or a 

health insurance issuer offering group or 

individual health insurance coverage, 

must not rescind coverage except in the 

case of fraud or an intentional 

misrepresentation of a material fact. 

This standard sets a Federal floor and is 

more protective of individuals with 

respect to the standard for rescission 

than the standard that might have 

previously existed under State 

insurance law or Federal common law. 

That is, under prior law, rescission may 

have been permissible if an individual 

made a misrepresentation of material 

fact, even if the misrepresentation was 

not intentional or made knowingly. 

Under the new standard for rescissions 

set forth in PHS Act section 2712 and 

these interim final regulations, plans 

and issuers cannot rescind coverage 

unless an individual was involved in 

fraud or made an intentional 

misrepresentation of material fact. This 

standard applies to all rescissions, 

whether in the group or individual 

insurance market, and whether insured 

or self-insured coverage. These rules 

also apply regardless of any 

contestability period that may otherwise 

apply. 

This provision in PHS Act section 

2712 builds on already-existing 

protections in PHS Act sections 2703(b) 

and 2742(b) regarding cancellations of 

coverage. These provisions generally 

provide that a health insurance issuer in 

the group and individual markets 

cannot cancel, or fail to renew, coverage 

for an individual or a group for any 

reason other than those enumerated in 

the statute (that is, nonpayment of 

premiums; fraud or intentional 

misrepresentation of material fact; 

withdrawal of a product or withdrawal 

of an issuer from the market; movement 

of an individual or an employer outside 

the service area; or, for bona fide 

association coverage, cessation of 

association membership). Moreover, this 

new provision also builds on existing 

HIPAA nondiscrimination protections 

for group health coverage in ERISA 

section 702, Code section 9802, and 

PHS Act section 2705 (previously 

included in PHS Act section 2702 prior 

to the Affordable Care Act’s 

amendments and reorganization to PHS 

Act title XXVII). The HIPAA 

nondiscrimination provisions generally 

provide that group health plans and 

group health insurance issuers may not 

set eligibility rules based on factors such 

as health status and evidence of 

insurability—including acts of domestic 

violence or disability. They also provide 

limits on the ability of plans and issuers 

to vary premiums and contributions 

based on health status. For policy years 

beginning on or after January 1, 2014, 

additional protections will apply in the 

individual market, including guaranteed 

issue of all products, nondiscrimination 

based on health status, and no 

preexisting condition exclusions. These 

protections will reduce the likelihood of 

rescissions. 

These interim final regulations also 

clarify that other requirements of 

Federal or State law may apply in 

connection with a rescission or 

cancellation of coverage beyond the 

standards established in PHS Act 

section 2712, if they are more protective 

of individuals. For example, if a State 

law applicable to health insurance 

issuers were to provide that rescissions 

are permitted only in cases of fraud, or 

only within a contestability period, 

which is more protective of individuals, 

such a law would not conflict with, or 

be preempted by, the Federal standard 

and would apply. 

These interim final regulations 

include several clarifications regarding 

the standards for rescission in PHS Act 

section 2712. First, these interim final 

regulations clarify that the rules of PHS 

Act section 2712 apply whether the 

rescission applies to a single individual, 

an individual within a family, or an 

entire group of individuals. Thus, for 

example, if an issuer attempted to 

rescind coverage of an entire 

employment-based group because of the 

actions of an individual within the 

group, the standards of these interim 

final regulations would apply. Second, 

these interim final regulations clarify 

that the rules of PHS Act section 2712 

apply to representations made by the 

individual or a person seeking coverage 

on behalf of the individual. Thus, if a 

plan sponsor seeks coverage from an 

issuer for an entire employment-based 

group and makes representations, for 

example, regarding the prior claims 

experience of the group, the standards 

of these interim final regulations would 

also apply. Finally, PHS Act section 

2712 refers to acts or practices that 

constitute fraud. These interim final 

regulations clarify that, to the extent 

that an omission constitutes fraud, that 

omission would permit the plan or 

issuer to rescind coverage under this 

section. An example in these interim 

final regulations illustrates the 

application of the rule to misstatements 

of fact that are inadvertent. 

For purposes of these interim final 

regulations, a rescission is a 

cancellation or discontinuance of 


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10Even though prior notice must be provided in 

the case of a rescission, applicable law may permit 

the rescission to void coverage retroactively. 

11The statute and these interim final regulations 

refer to providers both in terms of their 

participation (participating provider) and in terms 

of a network (in-network provider). In both 

situations, the intent is to refer to a provider that 

has a contractual relationship or other arrangement 

with a plan or issuer. 

coverage that has retroactive effect. For 

example, a cancellation that treats a 

policy as void from the time of the 

individual’s or group’s enrollment is a 

rescission. As another example, a 

cancellation that voids benefits paid up 

to a year before the cancellation is also 

a rescission for this purpose. A 

cancellation or discontinuance of 

coverage with only a prospective effect 

is not a rescission, and neither is a 

cancellation or discontinuance of 

coverage that is effective retroactively to 

the extent it is attributable to a failure 

to timely pay required premiums or 

contributions towards the cost of 

coverage. Cancellations of coverage are 

addressed under other Federal and State 

laws, including section PHS Act section 

2703(b) and 2742(b), which limit the 

grounds for cancellation or non-renewal 

of coverage, as discussed above. 

Moreover, PHS Act section 2719, as 

added by the Affordable Care Act and 

incorporated in ERISA section 715 and 

Code section 9815, addresses appeals of 

coverage determinations and includes 

provisions for keeping coverage in effect 

pending an appeal. The Departments 

expect to issue guidance on PHS Act 

section 2719 in the very near future. 

In addition to setting a new Federal 

floor standard for rescissions, PHS Act 

section 2712 adds a new advance notice 

requirement when coverage is rescinded 

where still permissible. Specifically, the 

second sentence in section 2712 

provides that coverage may not be 

cancelled unless prior notice is 

provided. These interim final 

regulations provide that a group health 

plan, or a health insurance issuer 

offering group health insurance 

coverage, must provide at least 30 

calendar days advance notice to an 

individual before coverage may be 

rescinded.10 The notice must be 

provided regardless of whether the 

rescission is of group or individual 

coverage; or whether, in the case of 

group coverage, the coverage is insured 

or self-insured, or the rescission applies 

to an entire group or only to an 

individual within the group. This 30- 

day period will provide individuals and 

plan sponsors with an opportunity to 

explore their rights to contest the 

rescission, or look for alternative 

coverage, as appropriate. The 

Departments expect to issue future 

guidance on any notice requirements 

under PHS Act section 2712 for 

cancellations of coverage other than in 

the case of rescission. 

In this new Federal statutory 

protection against rescissions, the 

Affordable Care Act provides new rights 

to individuals who, for example, may 

have done their best to complete what 

can sometimes be long, complex 

enrollment questionnaires but may have 

made some errors, for which the 

consequences were overly broad and 

unfair. These interim final regulations 

provide initial guidance with respect to 

the statutory restrictions on rescission. 

If the Departments become aware of 

attempts in the marketplace to subvert 

these rules, the Departments may issue 

additional regulations or administrative 

guidance to ensure that individuals do 

not lose health coverage unjustly or 

without due process. 

Application to grandfathered health 

plans. The rules regarding rescissions 

and advance notice apply to all 

grandfathered health plans. 

D. PHS Act Section 2719A, Patient 

Protections (26 CFR 54.9815–2719AT, 

29 CFR 2590.715–2719A, 45 CFR 

147.138) 

Section 2719A of the PHS Act 

imposes, with respect to a group health 

plan, or group or individual health 

insurance coverage, a set of three 

requirements relating to the choice of a 

health care professional and 

requirements relating to benefits for 

emergency services. The three 

requirements relating to the choice of 

health care professional apply only with 

respect to a plan or health insurance 

coverage with a network of providers.11

Thus, a plan or issuer that has not 

negotiated with any provider for the 

delivery of health care but merely 

reimburses individuals covered under 

the plan for their receipt of health care 

is not subject to the requirements 

relating to the choice of a health care 

professional. However, such plans or 

health insurance coverage are subject to 

requirements relating to benefits for 

emergency services. These interim final 

regulations reorder the statutory 

requirements so that all three of the 

requirements relating to the choice of a 

health care professional are together and 

add a notice requirement for those three 

requirements. None of these 

requirements apply to grandfathered 

health plans. 

1. Choice of Health Care Professional 

The statute and these interim final 

regulations provide that if a group 

health plan, or a health insurance issuer 

offering group or individual health 

insurance coverage, requires or provides 

for designation by a participant, 

beneficiary, or enrollee of a 

participating primary care provider, 

then the plan or issuer must permit each 

participant, beneficiary, or enrollee to 

designate any participating primary care 

provider who is available to accept the 

participant, beneficiary, or enrollee. 

Under these interim final regulations, 

the plan or issuer must provide a notice 

informing each participant (or in the 

individual market, the primary 

subscriber) of the terms of the plan or 

health insurance coverage regarding 

designation of a primary care provider. 

The statute and these interim final 

regulations impose a requirement for the 

designation of a pediatrician similar to 

the requirement for the designation of a 

primary care physician. Specifically, if 

a plan or issuer requires or provides for 

the designation of a participating 

primary care provider for a child by a 

participant, beneficiary, or enrollee, the 

plan or issuer must permit the 

designation of a physician (allopathic or 

osteopathic) who specializes in 

pediatrics as the child’s primary care 

provider if the provider participates in 

the network of the plan or issuer and is 

available to accept the child. In such a 

case, the plan or issuer must comply 

with the notice requirements with 

respect to designation of a primary care 

provider. The general terms of the plan 

or health insurance coverage regarding 

pediatric care otherwise are unaffected, 

including any exclusions with respect to 

coverage of pediatric care. 

The statute and these interim final 

regulations also provide rules for a 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, that provides 

coverage for obstetrical or gynecological 

care and requires the designation of an 

in-network primary care provider. In 

such a case, the plan or issuer may not 

require authorization or referral by the 

plan, issuer, or any person (including a 

primary care provider) for a female 

participant, beneficiary, or enrollee who 

seeks obstetrical or gynecological care 

provided by an in-network health care 

professional who specializes in 

obstetrics or gynecology. The plan or 

issuer must inform each participant (in 

the individual market, primary 

subscriber) that the plan or issuer may 

not require authorization or referral for 

obstetrical or gynecological care by a 

participating health care professional 


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12As of the date of publication of these interim 

final regulations, these rates are available to the 

public at http://www.cms.hhs.gov/ 

MedicareAdvtgSpecRateStats/downloads/oonpayments.pdf. 

who specializes in obstetrics or 

gynecology. Nothing in these interim 

final regulations precludes the plan or 

issuer from requiring an in-network 

obstetrical or gynecological provider to 

otherwise adhere to policies and 

procedures regarding referrals, prior 

authorization for treatments, and the 

provision of services pursuant to a 

treatment plan approved by the plan or 

issuer. The plan or issuer must treat the 

provision of obstetrical and 

gynecological care, and the ordering of 

related obstetrical and gynecological 

items and services, by the professional 

who specializes in obstetrics or 

gynecology as the authorization of the 

primary care provider. For this purpose, 

a health care professional who 

specializes in obstetrics or gynecology is 

any individual who is authorized under 

applicable State law to provide 

obstetrical or gynecological care, and is 

not limited to a physician. 

The general terms of the plan or 

coverage regarding exclusions of 

coverage with respect to obstetrical or 

gynecological care are otherwise 

unaffected. These interim final 

regulations do not preclude the plan or 

issuer from requiring that the obstetrical 

or gynecological provider notify the 

primary care provider or the plan or 

issuer of treatment decisions. 

When applicable, it is important that 

individuals enrolled in a plan or health 

insurance coverage know of their rights 

to (1) choose a primary care provider or 

a pediatrician when a plan or issuer 

requires designation of a primary care 

physician; or (2) obtain obstetrical or 

gynecological care without prior 

authorization. Accordingly, these 

interim final regulations require such 

plans and issuers to provide a notice to 

participants (in the individual market, 

primary subscribers) of these rights 

when applicable. Model language is 

provided in these interim final 

regulations. The notice must be 

provided whenever the plan or issuer 

provides a participant with a summary 

plan description or other similar 

description of benefits under the plan or 

health insurance coverage, or in the 

individual market, provides a primary 

subscriber with a policy, certificate, or 

contract of health insurance. 

2. Emergency Services 

If a plan or health insurance coverage 

provides any benefits with respect to 

emergency services in an emergency 

department of a hospital, the plan or 

issuer must cover emergency services in 

a way that is consistent with these 

interim final regulations. These interim 

final regulations require that a plan or 

health insurance coverage providing 

emergency services must do so without 

the individual or the health care 

provider having to obtain prior 

authorization (even if the emergency 

services are provided out of network) 

and without regard to whether the 

health care provider furnishing the 

emergency services is an in-network 

provider with respect to the services. 

The emergency services must be 

provided without regard to any other 

term or condition of the plan or health 

insurance coverage other than the 

exclusion or coordination of benefits, an 

affiliation or waiting period permitted 

under part 7 of ERISA, part A of title 

XXVII of the PHS Act, or chapter 100 of 

the Code, or applicable cost-sharing 

requirements. For a plan or health 

insurance coverage with a network of 

providers that provides benefits for 

emergency services, the plan or issuer 

may not impose any administrative 

requirement or limitation on benefits for 

out-of-network emergency services that 

is more restrictive than the requirements 

or limitations that apply to in-network 

emergency services. 

Additionally, for a plan or health 

insurance coverage with a network, 

these interim final regulations provide 

rules for cost-sharing requirements for 

emergency services that are expressed as 

a copayment amount or coinsurance 

rate, and other cost-sharing 

requirements. Cost-sharing requirements 

expressed as a copayment amount or 

coinsurance rate imposed for out-ofnetwork emergency services cannot 

exceed the cost-sharing requirements 

that would be imposed if the services 

were provided in-network. Out-ofnetwork providers may, however, also 

balance bill patients for the difference 

between the providers’ charges and the 

amount collected from the plan or issuer 

and from the patient in the form of a 

copayment or coinsurance amount. 

Section 1302(c)(3)(B) of the Affordable 

Care Act excludes such balance billing 

amounts from the definition of cost 

sharing, and the requirement in section 

2719A(b)(1)(C)(ii)(II) that cost sharing 

for out-of-network services be limited to 

that imposed in network only applies to 

cost sharing expressed as a copayment 

or coinsurance rate. 

Because the statute does not require 

plans or issuers to cover balance billing 

amounts, and does not prohibit balance 

billing, even where the protections in 

the statute apply, patients may be 

subject to balance billing. It would 

defeat the purpose of the protections in 

the statute if a plan or issuer paid an 

unreasonably low amount to a provider, 

even while limiting the coinsurance or 

copayment associated with that amount 

to in-network amounts. To avoid the 

circumvention of the protections of PHS 

Act section 2719A, it is necessary that 

a reasonable amount be paid before a 

patient becomes responsible for a 

balance billing amount. Thus, these 

interim final regulations require that a 

reasonable amount be paid for services 

by some objective standard. In 

establishing the reasonable amount that 

must be paid, the Departments had to 

account for wide variation in how plans 

and issuers determine both in-network 

and out-of-network rates. For example, 

for a plan using a capitation 

arrangement to determine in-network 

payments to providers, there is no innetwork rate per service. Accordingly, 

these interim final regulations consider 

three amounts: the in-network rate, the 

out-of-network rate, and the Medicare 

rate. Specifically, a plan or issuer 

satisfies the copayment and coinsurance 

limitations in the statute if it provides 

benefits for out-of-network emergency 

services in an amount equal to the 

greatest of three possible amounts— 

(1) The amount negotiated with innetwork providers for the emergency 

service furnished; 

(2) The amount for the emergency 

service calculated using the same 

method the plan generally uses to 

determine payments for out-of-network 

services (such as the usual, customary, 

and reasonable charges) but substituting 

the in-network cost-sharing provisions 

for the out-of-network cost-sharing 

provisions; or 

(3) The amount that would be paid 

under Medicare for the emergency 

service.12 Each of these three amounts is 

calculated excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant, 

beneficiary, or enrollee. 

For plans and health insurance 

coverage under which there is no perservice amount negotiated with innetwork providers (such as under a 

capitation or other similar payment 

arrangement), the first amount above is 

disregarded, meaning that the greatest 

amount is going to be either the out-ofnetwork amount or the Medicare 

amount. Additionally, with respect to 

determining the first amount, if a plan 

or issuer has more than one negotiated 

amount with in-network providers for a 

particular emergency service, the 

amount is the median of these amounts, 

treating the amount negotiated with 

each provider as a separate amount in 

determining the median. Thus, for 

example, if for a given emergency 


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service a plan negotiated a rate of $100 

with three providers, a rate of $125 with 

one provider, and a rate of $150 with 

one provider; the amounts taken into 

account to determine the median would 

be $100, $100, $100, $125, and $150; 

and the median would be $100. 

Following the commonly accepted 

definition of median, if there are an 

even number of amounts, the median is 

the average of the middle two. (Cost 

sharing imposed with respect to the 

participant, beneficiary, or enrollee 

would be deducted from this amount 

before determining the greatest of the 

three amounts above.) 

The second amount above is 

determined without reduction for outof-network cost sharing that generally 

applies under the plan or health 

insurance coverage with respect to outof-network services. Thus, for example, 

if a plan generally pays 70 percent of the 

usual, customary, and reasonable 

amount for out-of-network services, the 

second amount above for an emergency 

service is the total (that is, 100 percent) 

of the usual, customary, and reasonable 

amount for the service, not reduced by 

the 30 percent coinsurance that would 

generally apply to out-of-network 

services (but reduced by the in-network 

copayment or coinsurance that the 

individual would be responsible for if 

the emergency service had been 

provided in-network). 

Although a plan or health insurance 

coverage is generally not constrained by 

the requirements of PHS Act section 

2719A for cost-sharing requirements 

other than copayments or coinsurance, 

these interim final regulations include 

an anti-abuse rule with respect to such 

other cost-sharing requirements so that 

the purpose of limiting copayments and 

coinsurance for emergency services to 

the in-network rate cannot be thwarted 

by manipulation of these other costsharing requirements. Accordingly, any 

other cost-sharing requirement, such as 

a deductible or out-of-pocket maximum, 

may be imposed with respect to out-ofnetwork emergency services only if the 

cost-sharing requirement generally 

applies to out-of-network benefits. 

Specifically, a deductible may be 

imposed with respect to out-of-network 

emergency services only as part of a 

deductible that generally applies to outof-network benefits. Similarly, if an outof-pocket maximum generally applies to 

out-of-network benefits, that out-ofpocket maximum must apply to out-ofnetwork emergency services. A plan or 

health insurance coverage could fashion 

these other cost-sharing requirements so 

that a participant, beneficiary, or 

enrollee is required to pay less for 

emergency services than for general outof-network services; the anti-abuse rule 

merely prohibits a plan or health 

insurance coverage from fashioning 

such rules so that a participant, 

beneficiary, or enrollee is required to 

pay more for emergency services than 

for general out-of-network services. 

In applying the rules relating to 

emergency services, the statute and 

these interim final regulations define 

the terms emergency medical condition, 

emergency services, and stabilize. These 

terms are defined generally in 

accordance with their meaning under 

the Emergency Medical Treatment and 

Labor Act (EMTALA), section 1867 of 

the Social Security Act. There are, 

however, some minor variances from 

the EMTALA definitions. For example, 

both EMTALA and PHS Act section 

2719A define ‘‘emergency medical 

condition’’ in terms of the same 

consequences that could reasonably be 

expected to occur in the absence of 

immediate medical attention. Under 

EMTALA regulations, the likelihood of 

these consequences is determined by 

qualified hospital medical personnel, 

while under PHS Act section 2719A the 

standard is whether a prudent 

layperson, who possesses an average 

knowledge of health and medicine, 

could reasonably expect the absence of 

immediate medical attention to result in 

such consequences. 

Application to grandfathered health 

plans. The statute and these interim 

final regulations relating to certain 

patient protections do not apply to 

grandfathered health plans. However, 

other Federal or State laws related to 

these patient protections may apply 

regardless of grandfather status. 

III. Interim Final Regulations and 

Request for Comments 

Section 9833 of the Code, section 734 

of ERISA, and section 2792 of the PHS 

Act authorize the Secretaries of the 

Treasury, Labor, and HHS (collectively, 

the Secretaries) to promulgate any 

interim final rules that they determine 

are appropriate to carry out the 

provisions of chapter 100 of the Code, 

part 7 of subtitle B of title I of ERISA, 

and part A of title XXVII of the PHS Act, 

which include PHS Act sections 2701 

through 2728 and the incorporation of 

those sections into ERISA section 715 

and Code section 9815. 

In addition, under Section 553(b) of 

the Administrative Procedure Act (APA) 

(5 U.S.C. 551 et seq.) a general notice of 

proposed rulemaking is not required 

when an agency, for good cause, finds 

that notice and public comment thereon 

are impracticable, unnecessary, or 

contrary to the public interest. The 

provisions of the APA that ordinarily 

require a notice of proposed rulemaking 

do not apply here because of the 

specific authority granted by section 

9833 of the Code, section 734 of ERISA, 

and section 2792 of the PHS Act. 

However, even if the APA were 

applicable, the Secretaries have 

determined that it would be 

impracticable and contrary to the public 

interest to delay putting the provisions 

in these interim final regulations in 

place until a full public notice and 

comment process was completed. As 

noted above, numerous provisions of 

the Affordable Care Act are applicable 

for plan years (in the individual market, 

policy years) beginning on or after 

September 23, 2010, six months after 

date of enactment. Had the Departments 

published a notice of proposed 

rulemaking, provided for a 60-day 

comment period, and only then 

prepared final regulations, which would 

be subject to a 60-day delay in effective 

date, it is unlikely that it would have 

been possible to have final regulations 

in effect before late September, when 

these requirements could be in effect for 

some plans or policies. Moreover, the 

requirements in these interim final 

regulations require significant lead time 

in order to implement. For example, in 

the case of the requirement under PHS 

Act section 2711 prohibiting overall 

lifetime dollar limits, these interim final 

regulations require that an enrollment 

opportunity be provided for an 

individual whose coverage ended by 

reason of reaching a lifetime limit no 

later than the first day this requirement 

takes effect. Preparations presumably 

would have to be made to put such an 

enrollment process in place. In the case 

of requirements for emergency care 

under PHS Act section 2719A, plans 

and issuers need to know how to 

process charges by out-of-network 

providers by as early as the first plan or 

policy year beginning on or after 

September 23, 2010. With respect to all 

the changes that would be required to be 

made under these interim final 

regulations, whether adding coverage of 

children with a preexisting condition 

under PHS Act section 2704, or 

determining the scope of rescissions 

prohibited under PHS Act section 2712, 

group health plans and health insurance 

issuers have to be able to take these 

changes into account in establishing 

their premiums, and in making other 

changes to the designs of plan or policy 

benefits, and these premiums and plan 

or policy changes would have to receive 

necessary approvals in advance of the 

plan or policy year in question. 

Accordingly, in order to allow plans 

and health insurance coverage to be 


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37196 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

13The Affordable Care Act adds Section 715 to 

the Employee Retirement Income Security Act 

(ERISA) and section 9815 to the Internal Revenue 

Code (the Code) to make the provisions of part A 

of title XXVII of the PHS Act applicable to group 

health plans, and health insurance issuers 

providing health insurance coverage in connection 

with group health plans, under ERISA and the Code 

as if those provisions of the PHS Act were included 

in ERISA and the Code. 

14Section 1255 of the Affordable Care Act. See 

also section 10103(e)–(f) of the Affordable Care Act. 

designed and implemented on a timely 

basis, regulations must be published 

and available to the public well in 

advance of the effective date of the 

requirements of the Affordable Care Act. 

It is not possible to have a full notice 

and comment process and to publish 

final regulations in the brief time 

between enactment of the Affordable 

Care Act and the date regulations are 

needed. 

The Secretaries further find that 

issuance of proposed regulations would 

not be sufficient because the provisions 

of the Affordable Care Act protect 

significant rights of plan participants 

and beneficiaries and individuals 

covered by individual health insurance 

policies and it is essential that 

participants, beneficiaries, insureds, 

plan sponsors, and issuers have 

certainty about their rights and 

responsibilities. Proposed regulations 

are not binding and cannot provide the 

necessary certainty. By contrast, the 

interim final regulations provide the 

public with an opportunity for 

comment, but without delaying the 

effective date of the regulations. 

For the foregoing reasons, the 

Departments have determined that it is 

impracticable and contrary to the public 

interest to engage in full notice and 

comment rulemaking before putting 

these interim final regulations into 

effect, and that it is in the public interest 

to promulgate interim final regulations. 

IV. Economic Impact and Paperwork 

Burden 

A. Summary—Department of Labor and 

Department of Health and Human 

Services 

As stated earlier in this preamble, 

these interim final regulations 

implement PHS Act sections 2704 

(prohibiting preexisting condition 

exclusions), 2711 (prohibiting lifetime 

and annual dollar limits on benefits), 

2712 (rules regarding rescissions), and 

2719A (patient protections).13 These 

interim final regulations also provide 

guidance on the requirement to provide 

enrollment opportunities to individuals 

who reached a lifetime limit. PHS Act 

section 2704 regarding preexisting 

condition exclusions generally is 

effective for plan years (in the 

individual market, policy years) 

beginning on or after January 1, 2014. 

However, with respect to enrollees, 

including applicants for enrollment, 

who are under 19 years of age, this 

section is effective for plan years 

beginning on or after September 23, 

2010; or in the case of individual health 

insurance coverage, for policy years 

beginning on or after September 23, 

2010.14 The rest of these provisions 

generally are effective for plan years (in 

the individual market, policy years) 

beginning on or after September 23, 

2010, which is six months after the 

March 23, 2010 date of enactment of the 

Affordable Care Act. 

The Departments have crafted these 

interim final regulations to secure the 

protections intended by Congress in the 

most economically efficient manner 

possible. In accordance with OMB 

Circular A–4, they have quantified the 

benefits and costs where possible and 

provided a qualitative discussion of 

some of the benefits and the costs that 

may stem from these interim final 

regulations. 

B. Executive Order 12866—Department 

of Labor and Department of Health and 

Human Services 

Under Executive Order 12866 (58 FR 

51735), ‘‘significant’’ regulatory actions 

are subject to review by the Office of 

Management and Budget (OMB). 

Section 3(f) of the Executive Order 

defines a ‘‘significant regulatory action’’ 

as an action that is likely to result in a 

rule (1) having an annual effect on the 

economy of $100 million or more in any 

one year, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities (also referred to as 

‘‘economically significant’’); (2) creating 

a serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. OMB 

has determined that this rule is 

significant within the meaning of 

section 3(f)(1) of the Executive Order, 

because it is likely to have an effect on 

the economy of $100 million in any one 

year. Accordingly, OMB has reviewed 

these rules pursuant to the Executive 

Order. The Departments provide an 

assessment of the potential costs and 

benefits of each regulatory provision 

below, summarized in the following 

table. 

Table 1.1 Accounting Table 

TABLE 1.1—Accounting Table 

Benefits 

Qualitative: These patient protections are expected to expand coverage for children with preexisting conditions and individuals who face rescissions, lifetime limits, and annual limits as a result of high health care costs. Expanded coverage is likely to increase access to health care, 

improve health outcomes, improve worker productivity, and reduce family financial strain and ‘‘job lock’’. Many of these benefits have a distributional component, and promote equity, in the sense that they will be enjoyed by those who are especially vulnerable as a result of health 

problems and financial status. Choice of physician will likely lead to better, sustained patient-provider relationships, resulting in decreased 

malpractice claims and improved medication adherence and health promotion. Removing referrals and prior authorizations for primary care, 

obstetrical and gynecological care, and emergency services is likely to reduce administrative and time burdens on both patients and physicians, while improving health outcomes by allowing quicker access to medical services when necessary. 

Costs Estimate Year dollar Discount rate Period covered 15

Annualized Monetized ($millions/year) ............................................ 4.9 2010 7% 2011–2013 

4.9 2010 3% 2011–2013 


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15The Departments’ analysis extends to 2013. 

The analysis does not attempt to estimate effects in 

2014 and beyond because the extensive changes 

provided for by the Affordable Care Act in sources 

of coverage, rating rules, and the structure of 

insurance markets make it nearly impossible to 

isolate the effects of the provisions of these interim 

final regulations. 

16American Heart Association. Heart Disease and 

Stroke Statistics 2009 Update-at-a-Glance. http:// 

www.americanheart.org/downloadable/heart/

1240250946756LS—1982%20Heart

%20and%20Stroke%20Update.042009.pdf. 

17National Cancer Institute. Cancer Query 

System: Cancer Prevalence Database. http://srab.

cancer.gov/prevalence/canques.html. 

18Pollitz K, Sorian R. How Accessible is 

Individual Health Insurance for Consumers in Less 

than Perfect Health? Kaiser Family Foundation, 

June 2001. 

19 Kaiser State Health Facts. http://

statehealthfacts.org/comparetable.jsp?ind=353

&cat=7. 20USA Today/Kaiser Family Foundation/Harvard 

School of Public Health. National Survey of 

Households Affected by Cancer. November 2006. 

21Terminations of Individual Health Insurance 

Policies by Insurance Companies, Hearing before 

the House Comm. on Energy and Commerce, 

Subcommittee on Oversight and Investigations, 

June 16, 2009) (supplemental memorandum) 

http://energycommerce.house.gov/Press_111/ 

20090616/rescission_supplemental.pdf. 

TABLE 1.1—Accounting Table—Continued 

Monetized costs are due to a requirement to notify participants that exceeded their lifetime limit and were disenrolled from their plan or coverage of their right to re-enroll in the plan; a requirement that a group health plan or a health insurance issuer offering group or individual 

health insurance coverage must notify an affected individual 30 days before coverage may be rescinded; and a notice of a participant’s right 

to choose any available participating primary care provider or pediatrician as their primary care provider, and of increased protections for 

those participants seeking emergency services. 

Qualitative: To the extent these patient protections increase access to health care services, increased health care utilization and costs will result 

due to increased uptake. Expanding coverage to children with preexisting conditions and individuals subject to rescissions will likely increase 

overall health care costs, given that these groups tend to have high cost conditions and require more costly care than average.

Transfers 

Qualitative: These patient protections create a small transfer from those paying premiums in the group market to those obtaining the increased 

patient protections. To the extent there is risk pooling in the individual market, a similar transfer will occur. 

1. Need for Regulatory Action 

a. Preexisting Condition Exclusions 

As discussed earlier in this preamble, 

Section 2704 of the PHS Act as added 

by the Affordable Care Act, prohibits 

group health plans and health insurance 

issuers offering group or individual 

health insurance from imposing any 

preexisting condition exclusion. This 

new protection applies to children who 

are under age 19 for plan years (in the 

individual market, policy years) 

beginning on or after September 23, 

2010. For individuals age 19 and over, 

this provision applies for plan years (in 

the individual market, policy years) 

beginning on or after January 1, 2014. 

Preexisting conditions affect millions 

of Americans and include a broad range 

of conditions from heart disease—which 

affects one in three adults 16—or 

cancer—which affects 11 million 

Americans 17—to relatively minor 

conditions like hay fever, asthma, or 

previous sports injuries.18

Denials of benefits or coverage based 

on a preexisting condition make 

adequate health insurance unavailable 

to millions of Americans. Before the 

enactment of the Affordable Care Act, in 

45 States, health insurance issuers in 

the individual market could deny 

coverage, charge higher premiums, and/ 

or deny benefits for a preexisting 

condition.19

These interim final regulations are 

necessary to amend the Departments’ 

existing regulations to implement this 

statutory provision, which was enacted 

by Congress to ensure that quality 

health coverage is available to more 

Americans without the imposition of a 

preexisting condition exclusion. 

b. Lifetime and Annual Limits 

As discussed earlier in this preamble, 

Section 2711 of the PHS Act was added 

to the Affordable Care Act to prohibit 

group health plans and health insurance 

issuers offering group or individual 

health insurance coverage from 

imposing lifetime limits on the dollar 

value of health benefits. Annual limits 

also are prohibited, but the statute 

includes a phase-in of this provision 

before January 1, 2014, that allows plans 

and issuers to impose ‘‘restricted annual 

limits’’ at the levels discussed earlier in 

this preamble. 

These new protections ensure that 

patients are not confronted with 

devastating health costs because they 

have exhausted their health coverage 

when faced with a serious medical 

condition. For example, in one recent 

national survey, ten percent of all 

cancer patients reported that they 

reached a benefit limit in their 

insurance policy and were forced to 

seek alternative insurance coverage or 

pay the remainder of their treatment 

out-of-pocket.20

These interim final regulations are 

necessary to amend the Departments’ 

existing regulations to implement the 

statutory provisions with respect to 

annual and lifetime limits that Congress 

enacted to help ensure that more 

Americans with chronic, long-term, 

and/or expensive illnesses have access 

to quality health coverage. The 

provisions of the regulations regarding 

restricted annual limits function as a 

type of transition rule, providing for 

staged implementation and helping 

ensure against adverse impacts on 

premiums or the offering of health 

coverage in the marketplace. For more 

detail about these provisions, see the 

discussion of PHS Act Section 2711, 

Lifetime and Annual Limits, in section 

II.B earlier in this preamble. 

c. Rescission 

As discussed earlier in this preamble, 

Section 2712 of the PHS Act was added 

by the Affordable Care Act to prohibit 

group health plans and health insurance 

issuers offering group or individual 

health insurance coverage from 

rescinding coverage except in the case 

of fraud or intentional 

misrepresentation of material fact. 

Prior to the Affordable Care Act, 

thousands of Americans lost health 

coverage each year due to rescission. 

According to a House Energy and 

Commerce Committee staff 

memorandum,21 rather than reviewing 

medical histories when applications are 

submitted, if the policyholders become 

sick and file expensive claims, 

insurance companies then initiate 

investigations to scrutinize the details of 

the policyholder’s application materials 

and medical records, and if 

discrepancies, omissions, or 

misrepresentations are found, the 

insurer rescinds the policies, returns the 

premiums, and refuses payment for 

medical services. The Committee found 

some questionable practices in this area 

including insurance companies 

rescinding coverage even when 

discrepancies are unintentional or 

caused by others, for conditions that are 

unknown to policyholders, and for 

discrepancies unrelated to the medical 


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22NAIC Rescission Data Call, December 17, 2009, 

p. 1. 

23Piette, John, et al., ‘‘The Role of PatientPhysician Trust in Moderating Medication 

Nonadherence Due to Cost Pressures.’’ Archives of 

Internal Medicine 165, August (2005) and Roberts, 

Kathleen J., ‘‘Physician-Patient Relationships, 

Patient Satisfaction, and Antiretroviral Medication 

Adherence Among HIV-Infected Adults Attending a 

Public Health Clinic.’’ AIDS Patient Care and STDs 

16.1 (2002). 

24Blewett, 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). 

conditions for which patients sought 

medical care. 

When a coverage rescission occurs, an 

individual’s health coverage is 

retroactively cancelled, which means 

that the insurance company is no longer 

responsible for medical care claims that 

they had previously accepted and paid. 

Rescissions can result in significant 

financial hardship for affected 

individuals, because, in most cases, the 

individuals have accumulated 

significant medical expenses. The NAIC 

Regulatory Framework Task Force 

collected data on 52 companies covering 

the period 2004–2008, and found that 

rescissions averaged 1.46 per thousand 

policies in force.22 This estimate implies 

there are approximately 10,700 

rescissions per year. 

These interim final regulations 

implement the statutory provision 

enacted by Congress to protect the most 

vulnerable Americans, those that incur 

substantial medical expenses due to a 

serious medical condition, from 

financial devastation by ensuring that 

such individuals do not unjustly lose 

health coverage by rescission. 

d. Patient Protections 

As discussed earlier in this preamble, 

Section 2719A of the PHS Act was 

added by the Affordable Care Act to 

require group health plans and health 

insurance issuers offering group or 

individual health insurance coverage to 

ensure choice of health care 

professionals and greater access to 

benefits for emergency services. As 

discussed in more detail below, 

provider choice is a strong predictor of 

patient trust in a provider, and patientprovider trust can increase health 

promotion and therapeutic effects.23

Studies also have found that patients 

tend to experience better quality health 

care if they have long-term relationships 

with their health care provider.24

The emergency care provisions of 

PHS Act section 2719A require (1) nongrandfathered group health plans and 

health insurance issuers that cover 

emergency services to cover such 

services without prior authorization and 

without regard to whether the health 

care provider providing the services is 

a participating network provider, and 

(2) copayments and coinsurance for outof-network emergency care not to 

exceed the cost-sharing requirements 

that would have been imposed if the 

services were provided in-network. 

These provisions will ensure that 

patients get emergency care when they 

need it, especially in situations where 

prior authorization cannot be obtained 

due to exigent circumstances or an innetwork provider is not available to 

provide the services. It also will protect 

patients from the substantial financial 

burden that can be imposed when 

differing copayment or coinsurance 

arrangements apply to in-network and 

out-of-network emergency care. 

This regulation is necessary to 

implement the statutory provision 

enacted by Congress to provide these 

essential patient protections. 

2. PHS Act Section 2704, Prohibition of 

Preexisting Condition Exclusions (26 

CFR 54.9815–2704T, 29 CFR 2590.715– 

2704, 45 CFR 147.108) 

a. Summary 

As discussed earlier in this preamble, 

section 1201 of the Affordable Care Act 

adds a new PHS Act section 2704, 

which amends the HIPAA rules relating 

to preexisting condition exclusions to 

provide that a group health plan and a 

health insurance issuer offering group or 

individual health insurance coverage 

may not impose any preexisting 

condition exclusion. The HIPAA rules 

(in effect prior to the effective date of 

these amendments) apply only to group 

health plans and group health insurance 

coverage, and permit limited exclusions 

of coverage based on a preexisting 

condition under certain circumstances. 

The Affordable Care Act and these 

interim final regulations prohibit any 

preexisting condition exclusions 

imposed by group health plans or group 

health insurance coverage and extends 

this protection to individual health 

insurance coverage. This prohibition 

generally is effective with respect to 

plan years (in the individual market, 

policy years) beginning on or after 

January 1, 2014, but for enrollees who 

are under 19 years of age, this 

prohibition becomes effective for plan 

years (in the individual market, policy 

years) beginning on or after September 

23, 2010. 

Under the statute and these interim 

final regulations, a grandfathered health 

plan that is a group health plan or group 

health insurance coverage must comply 

with the prohibition against preexisting 

condition exclusions; however, a 

grandfathered health plan that is 

individual health insurance coverage is 

not required to comply with PHS Act 

section 2704. 

In this section, the Departments 

estimate the likely effects of these 

interim final regulations. Beginning 

with the population of individuals age 

0–18, the number of individuals 

potentially affected is estimated in 

several steps. First, the number of 

children who have preexisting 

conditions that might cause them to be 

excluded from coverage is estimated. 

Second, a range of take-up rates is used 

to estimate the number of children who 

might be newly covered after these 

interim final regulations are 

implemented. In addition, the potential 

cost implications are discussed. 

b. Estimated Number of Affected 

Individuals 

In the individual market, those 

applying for insurance will no longer 

face exclusions or denials of coverage 

based on a preexisting condition 

exclusion if they are under the age of 19. 

In addition, children covered by nongrandfathered individual coverage with 

a rider or an exclusion period that 

excludes coverage for a preexisting 

condition will gain coverage for that 

condition. In the group market, 

participants and dependents who are 

under 19 years old and have 

experienced a lapse in coverage will no 

longer face up to a twelve-month 

exclusion for preexisting conditions. 

The Departments’ estimates in this 

section are based on the 2004–2006 

Medical Expenditure Panel Survey 

Household Component (MEPS–HC) 

which was projected to 2010 and 

calibrated to be consistent with the 

National Health Accounts projections. 

The analysis tabulated counts and costs 

for persons under age 19 by age, health 

status, and insurance status. 

There are two main categories of 

children who are most likely to be 

directly affected by these interim final 

regulations: First, children who have a 

preexisting condition and who are 

uninsured; second, children who are 

covered by individual insurance with a 

rider excluding coverage for a 

preexisting condition or a preexisting 

condition exclusion period. For the 

latter category, obtaining coverage for 

the preexisting condition may require 

terminating the child’s existing policy 

and beginning a new one, because 

individual health insurance coverage 

that is a grandfathered health plan is not 

required to comply with PHS Act 

section 2704 or these interim final 

regulations. 


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25AHIP Center for Health Policy Research. 

Individual Health Insurance 2009. http:// 

www.ahipresearch.org/pdfs/ 

2009IndividualMarketSurveyFinalReport.pdf. 

26These estimates are from the Departments’ 

analysis of the 2004–2006 Medical Expenditure 

Panel Survey, trended forward to 2010. 

27Adele M. Kirk. The Individual Insurance 

Market: A Building Block for Health Care Reform? 

Health Care Financing Organization Research 

Synthesis. May 2008. 

28Approximately two-thirds of the uninsured are 

in families with income below 200 percent of the 

Federal Poverty Level. Current Population Survey, 

March 2008. 

It is difficult to estimate precisely 

how many uninsured children have a 

preexisting condition that would cause 

them to be denied coverage for that 

condition if they were to apply. 

Information on whether individuals 

have a preexisting condition for the 

purpose of obtaining health insurance is 

not collected in any major populationbased survey. In its annual survey on 

market practices, America’s Health 

Insurance Plans (AHIP) estimated that 

429,464 applications for children were 

medically underwritten, and 20,747, or 

4.8 percent, were denied.25 The survey 

does not measure the number of 

applicants who did not make it through 

an underwriting process, nor does it 

measure the applicants’ prior insurance 

status, and therefore, while useful, it 

does not provide direct estimates of the 

number or proportion of uninsured 

children who would be denied coverage 

based on a preexisting condition. Thus, 

the Departments use proxies for 

preexisting conditions available in 

nationally representative surveys to 

estimate the universe of potentially 

eligible individuals. 

The Departments estimate that in 

2010 there are approximately 78.0 

million children under the age of 19 in 

the United States, of whom an estimated 

19.4 million report ‘‘fair’’ or ‘‘poor’’ 

health or take three or more prescription 

medications. The Departments assume 

that these children have a preexisting 

condition. Whether or not the statute 

and these interim final regulations are 

likely to affect these children depends 

on their own and their parents’ 

insurance status. Of the 19.4 million 

children that potentially have a 

preexisting condition, 10.2 million 

already have employer-sponsored 

insurance (ESI), 760,000 have 

individual coverage, and 7.9 million 

have public or other coverage, leaving 

540,000 uninsured children with 

preexisting conditions.26 The 

Departments assume that this group of 

540,000 uninsured children with a 

preexisting condition would be denied 

coverage for that condition or altogether 

if they were to apply. 

The likelihood that an uninsured 

child with a preexisting condition will 

gain coverage due to these interim final 

regulations will likely vary by the 

insurance status of the child’s parent. 

As shown in Table 2.1, approximately 

one-half of the 540,000 uninsured 

children who the Departments estimate 

have a preexisting condition live with a 

parent who is also uninsured and is not 

offered ESI. An additional 190,000 have 

a parent who is covered by ESI, and 

60,000 children have a parent who was 

offered ESI but did not accept the offer 

(and the insurance status of the parent 

is unknown). 

TABLE 2.1—ESTIMATED NUMBER OF

UNINSURED CHILDREN WITH PREEXISTING CONDITIONS, BY PARENT’S

INSURANCE STATUS, 2010 

Parent’s insurance status Number of 

children 

Parent has employersponsored insurance 

(ESI) .............................. 190,000 

Parent offered ESI ............ 60,000 

Parent has individual market insurance ................. 10,000 

Parent does not have private insurance* ............. 270,000 

No parent .......................... 20,000 

Total ** ....................... 540,000 

*Primarily parents who are uninsured, but 

also including a small number who have public 

coverage. **Total is not the sum of the components 

due to rounding. 

Source: Departments’ analysis of MEPS–HC 

data, 2004–2006, trended forward to 2010. 

The group most likely to be affected 

by these interim final regulations is 

uninsured children whose parents have 

purchased non-group coverage, of 

whom there are an estimated 10,000. 

These parents have demonstrated a 

strong preference for coverage by being 

willing to pay for a non-group premium 

for themselves, but their child is 

uninsured. Although the Departments 

cannot know with any certainty, it is 

quite plausible that the child is 

uninsured because the insurer refused 

to sell coverage to the child due to a 

preexisting condition. If an individual 

market insurance policy does not 

change substantially and retains its 

grandfather status, the insurer is not 

required to add a child with a 

preexisting condition. However, if the 

parent terminates the existing policy 

and purchases a new policy (which is 

quite plausible given the high 

prevalence of churning in the individual 

insurance market), then the new policy 

will be required to cover the child, and 

a substantial proportion of these 

children could gain access to coverage 

due to these interim final regulations.27

At the other extreme, roughly 190,000 

uninsured children with a preexisting 

condition have a parent with ESI. It is 

possible that these children are 

uninsured because their parents’ ESI 

does not offer dependent coverage. It is 

also possible that the parent could not 

afford the employee portion of a family 

plan premium. These interim final 

regulations are not likely to have much 

effect on coverage for children in these 

circumstances. A very small subset of 

uninsured children whose parents have 

ESI could have had to be in a 

preexisting exclusion period before 

coverage is provided for services to treat 

that condition. Under the statute and 

these interim final regulations, there 

would no longer be such a period, 

making coverage desirable. Such 

children may be affected by this 

provision. 

Approximately 60,000 uninsured 

children with a preexisting condition 

have parents who were offered ESI but 

did not accept that offer. It also seems 

unlikely that these interim final 

regulations will have much effect on 

that group, because almost all of those 

parents could have chosen to cover 

themselves, and potentially their child, 

through ESI in the absence of these 

interim final regulations. 

In between these extremes are the 

approximately 270,000 uninsured 

children whose parents are themselves 

uninsured. Many of these parents have 

low to moderate income, and many may 

not be able to afford insurance.28

However, some of these parents might 

purchase a policy for their child with a 

preexisting condition if it were available 

to them. 

While it is relatively easy to 

hypothesize about the relationship 

between parental insurance status and 

the likelihood that a child will be newly 

covered, it is much more difficult to 

estimate with any precision the take-up 

rates for each parental coverage 

category. Acknowledging substantial 

uncertainty, based on the discussion 

above, the Departments’ mid-range 

estimate is that 50 percent of uninsured 

children whose parents have individual 

coverage will be newly insured, 15 

percent of uninsured children whose 

parents are uninsured will be newly 

insured, and that very few children 

whose parents have ESI, are offered ESI, 

or who do not live with a parent will 

become covered as a result of these 


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29The Departments researched the literature in an 

attempt to provide support for the take-up rate 

assumptions made here. There is a substantial 

literature on take-up rates among employees who 

are offered ESI, on take-up rates of public coverage 

among people eligible for Medicaid and Children’s 

Health Insurance Program, and some work on the 

purchasing behavior of people who are choosing 

between being uninsured and buying individual 

insurance (Aizer, 2006; Kronson, 2009; KFF, 2007; 

Bernard and Selden, 2006; Sommers and Krimmel, 

2008). This work shows that take-up rates are very 

high for workers who are offered ESI, but that 

approximately 25 percent of people without ESI 

purchase individual coverage. This literature can 

also be used to estimate the price-elasticity of 

demand, as has been used by the Congressional 

Budget Office in its estimates of the effects of the 

Affordable Care Act (http://www.cbo.gov/ftpdocs/ 

87xx/doc8712/10-31-HealthInsurModel.pdf) 

However, none of this work is very helpful in 

estimating the level of take-up the Departments 

should expect as parents are given the opportunity 

to purchase coverage for their children with 

preexisting conditions. In the absence of strong 

empirical guidance, the Departments consulted 

with experts, used their best judgment, and provide 

a wide range for our assumptions. 

30For those parents who turned down an offer of 

ESI and whose insurance status is not known, the 

Departments assume that half of the children who 

takeup coverage join ESI, and half join a private 

insurance plan in the individual insurance market. 

31The 2009 AHIP survey for individual coverage 

estimated that approximately 2.7 percent of 

children with individual coverage are covered with 

a condition waiver. This 3 percent estimate was 

applied to the MEPS-based estimate that there are 

approximately 3.3 million children covered by 

individual insurance. A separate analysis of MEPS 

by the Departments similarly found about 90,000 

children with a preexisting condition (defined as 

being in fair or poor health or taking three or more 

prescription medications) had a low actuarial value 

of coverage for their condition. 

32 ‘‘Children’s Health, Why Health Insurance 

Matters.’’ Kaiser Commission on Medicaid and the 

Uninsured, available at: http://www.kff.org/ 

uninsured/loader.cfm?url=/commonspot/security/ 

getfile.cfm&PageID=14132. 

33 Ibid. 

34 Keane, Christopher et al. ‘‘The Impact of 

Children’s Health Insurance Program by Age.’’ 

Pediatrics 104:5 (1999), available at: http:// 

pediatrics.aappublications.org/cgi/reprint/104/5/ 

1051. 

35Uninsured children are at least 70 percent more 

likely than insured children to not receive medical 

care for common childhood conditions like sore 

throats, ear infections, and asthma. Ibid. 

36 Ibid. 

37Bernstein, Jill et al. ‘‘How Does Insurance 

Coverage Improve Health Outcomes?’’ Mathematica 

Policy Research (2010), available: http:// 

www.mathematica-mpr.com/publications/PDFs/ 

Health/Reformhealthcare_IB1.pdf. 

interim final regulations.29 For the highend estimate, the Departments assume 

that the 50 percent and 15 percent 

assumptions increase to 75 percent and 

20 percent, respectively. For the lowend assumption, they assume that they 

decrease to 25 percent and 10 percent. 

As shown in Table 2.2, the 

Departments’ mid-range estimate is that 

51,000 uninsured children with 

preexisting conditions could gain 

coverage as a result of these interim 

final regulations. At the low end of the 

range, this could be 31,000 and at the 

high end of the range, it could be 

72,000. Given that most ESI already 

covers children with preexisting 

conditions, almost all of these children 

newly gaining coverage are expected to 

gain individual coverage.30

TABLE 2.2—ESTIMATED NUMBER OF UNINSURED CHILDREN GAINING COVERAGE

Gain employersponsored 

insurance 

Gain individual 

market insurance Total 

High Take-Up ................................................................................................................... 10,000 62,000 72,000 

Medium Take-Up ............................................................................................................. 6,000 45,000 51,000 

Low Take-Up ................................................................................................................... 2,000 29,000 31,000 

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

The other group of children who will 

be affected by these interim final 

regulations is children who already 

have non-group insurance coverage, but 

who are covered with a ‘‘condition 

waiver’’ that excludes coverage or 

imposes an exclusion period for 

coverage of a preexisting condition. 

After the implementation of these 

interim final regulations, children 

whose parents purchase individual 

coverage will not be subject to condition 

waivers or preexisting condition 

exclusion periods. The Departments 

estimate that there are 90,000 children 

covered by individual insurance with a 

condition waiver (or with a period 

during which coverage for a preexisting 

condition is excluded).31 The individual 

market issuers who insure these 

estimated 90,000 children with a 

condition waiver may decide to remain 

grandfathered health plans and thus 

these children will not be directly 

affected by these interim final 

regulations. However, the parents of 

those children could choose to switch 

from an individual policy that is a 

grandfathered health plan to a new 

policy that is not grandfathered, 

although the premium that they pay for 

such coverage could increase. Similarly, 

for those children currently covered but 

in a preexisting condition exclusion 

period, curtailing the exclusion period 

would require the termination of the 

current plan and purchase of a policy on 

or after September 23, 2010. 

c. Benefits 

The benefits of PHS Act Section 2704 

and these interim final regulations are 

expected to amply justify the costs. 

These interim final regulations will 

expand and improve coverage for those 

under the age of 19 with preexisting 

conditions. This will likely increase 

access to health care, improve health 

outcomes, and reduce family financial 

strain and ‘‘job lock,’’ as described 

below. 

Numerous studies confirm that when 

children become insured, they are better 

able to access health care. Uninsured 

children are six times more likely than 

insured children to lack a usual site of 

care.32 By contrast, one year after 

enrollment in health insurance, nearly 

every child in one study had a regular 

physician and the percentage of 

children who saw a dentist increased by 

approximately 25 percent.33 Insured 

children also experience fewer unmet 

needs and delays in care. In one study, 

37 percent of the children 15 to 19 years 

of age faced some unmet need or 

delayed physician care in the prior 6 

months, whereas at 12 months after 

insurance enrollment, only 3.7 percent 

reported such delays or care 

deficiencies.34

With regular access to health care, 

children’s health and well-being are 

likely to improve. When children are 

sick and without health insurance, they 

may, out of financial necessity, have to 

forgo treatment; insurance improves the 

likelihood that children get timely and 

appropriate health care services.35

Insured children are less likely to 

experience avoidable hospital stays than 

uninsured children36 and, when 

hospitalized, insured children are at less 

risk of dying.37 When children are 

insured, it not only improves their 

health status, but also confers corollary 

benefits. Children without health 

insurance may not be allowed to 

participate in as many physical 

activities as peers because parents are 


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38 ‘‘Children’s Health, Why Health Insurance 

Matters.’’ Kaiser Commission on Medicaid and the 

Uninsured, available at: http://www.kff.org/ 

uninsured/loader.cfm?url=/commonspot/security/ 

getfile.cfm&PageID=14132. 

39Howell, Embry and Trenholm, Christopher 

‘‘Santa Clara County Children’s Health Initiative 

Improves Children’s Health.’’ Mathematica Policy 

Research and The Urban Institute (2007), available 

at: http://www.mathematica-mpr.com/publications/ 

PDFs/CHIimproves.pdf. 

40Himmelstein, D., Warren, E., Thorne, D., and 

Woolhandler, S. Illness and Injury as Contributors 

to Bankruptcy, Health Affairs W5–63, February 2 

(2005); Himmelstein, D., Thorne, D., Warren, E., 

Woolhandler, S. Medical Bankruptcy in the United 

States, 2007: The Results of a National Study, The 

American Journal of Medicine June 4 (2009). 

41http://www.statehealthfacts.org/ 

comparereport.jsp?rep=60&cat=4. 

42Page 4: http://www.kff.org/medicaid/ 

loader.cfm?url=/commonspot/security/ 

getfile.cfm&PageID=14325. 

43Page 4: http://www.nashp.org/sites/default/ 

files/shpmonitor_medicallyneedy.pdf. 

44Page 4: http://www.kff.org/uninsured/upload/ 

The-Cost-of-Care-for-the-Uninsured-What-Do-WeSpend-Who-Pays-and-What-Would-Full-CoverageAdd-to-Medical-Spending.pdf. 

45A CEA report suggests that the overall cost of 

job-lock could be $3.7 billion annually, which is 

about 10 percent of affected workers wages. While 

these interim final regulations may only have an 

impact on a small percentage of all individuals 

affected by job-lock it could still have a large dollar 

impact for those affected. Council of Economic 

Advisors Report, The Economic Case for Health 

Reform (June 2009), at http://www.whitehouse.gov/ 

assets/documents/CEA_Health_Care_Report.pdf. 

46A 2006 study found no evidence that the 

introduction of HIPAA, which reduced preexisting 

condition exclusions, had any impact on job lock, 

but HIPAA still allows a 12-month preexisting 

condition exclusion meaning that for conditions 

that need immediate care someone could still 

effectively be uninsured for up to a year. In 

contrast, the provisions of the statute and these 

interim final regulations would not allow any 

preexisting condition exclusion. See e.g., Paul 

Fronstin, Health Insurance Portability and Job Lock: 

Findings from the 1998 Health Confidence Survey, 

Employee Benefit Research Institute Notes, Volume 

19, Number 8, pages 4–6 (Aug. 1998) and Anna 

Sanz-de-Galdeano, Job-Lock and Public Policy: 

Clinton’s Second Mandate, Industrial and Labor 

Relations Review, Volume 59, Number 3, pages 

430–37 (Apr. 2006). 

47From the Departments’ analysis of MEPS data. 

concerned about the financial impacts 

of unintentional injury. One study 

determined that 12 percent of uninsured 

children had various activity 

restrictions (e.g., related to sports or 

biking). However, almost all of these 

restrictions were removed once they 

gained insurance.38 And health 

insurance and access to care improve 

school attendance. An evaluation of an 

initiative designed to connect children 

to Healthy Kids, an insurance program 

piloted in Santa Clara County, 

California for children in low-income 

families, found that the proportion of 

children missing three or more school 

days in the previous month decreased 

from 11 percent among non-enrollees to 

5 percent after enrollment in the 

insurance program.39

In addition to their benefits relating to 

access to care, health, and well-being of 

children, these interim final regulations 

are likely to lower families’ out of 

pocket health care spending. Some 

families would face the possibility of 

paying high out-of-pocket expenses for 

health care for children under 19 who 

could not obtain insurance because of a 

preexisting condition. Further, 

expanded insurance coverage should 

reduce the number of medical 

bankruptcies.40 In cases where medical 

expenses are substantial, families may 

no longer need to spend down their 

assets in order to qualify for Medicaid 

and other public assistance programs. 

Approximately 34 States offer Medicaid 

eligibility to adults and children who 

spend-down to State-established 

medically needy income limits.41 Eight 

percent of Medicaid beneficiaries 

qualify via spend-down yet this group 

accounts for a disproportionately high 

percentage of Medicaid spending 

nationally (14 percent), due to the fact 

that coverage kicks in when individuals’ 

medical costs are high.42 Despite the 

fact that medically needy populations 

become eligible on account of onerous 

medical bills, this group is especially 

vulnerable to losing coverage because 

States are not required to cover this 

group. For example, in 2003, when 

Oklahoma eliminated its medically 

needy program due to a budget shortfall, 

an estimated 800 children lost 

coverage.43 Such coverage interruptions 

likely contribute to higher rates of 

uncompensated care—the primary 

source for which is Federal funding.44

Reduced reliance on these programs 

under these interim final regulations 

will benefit State and Federal 

governments and, by extension, 

taxpayers. 

In addition, these interim final 

regulations may reduce instances of ‘‘job 

lock’’—situations in which workers are 

unable to change jobs due to concerns 

regarding health insurance coverage for 

their children.45 For example, under the 

Affordable Care Act and these interim 

final regulations, someone currently 

insured through the group market with 

less than 18 months of continuous 

coverage may be more willing to leave 

her job and become a self-employed 

entrepreneur if she has a child under 

age 19 with a preexisting condition, 

because her child now will be able to 

obtain immediate coverage for the 

preexisting condition in the individual 

market. Similarly, even a worker with 

more than 18 months of continuous 

coverage who is already protected by 

HIPAA may be more likely to consider 

switching firms and changing policies 

because he would not have to worry that 

his child’s preexisting condition would 

be excluded for up to 12 months.46

While the total reduction in job-lock 

may be small, the impact on those 

families with children with preexisting 

conditions may be significant. The effect 

of these interim final regulations on joblock is discussed further in the 

summary section below. 

Executive Order 12866 explicitly 

requires agencies to take account of 

‘‘distributive impacts’’ and ‘‘equity.’’ 

Requiring health insurers to provide 

coverage to children with preexisting 

conditions will, as described below, 

result in a small increase in premium 

for relatively healthy adults and 

children, and a large increase in health 

and financial security for children with 

preexisting conditions and their parents. 

This transfer is a meaningful increase in 

equity, and is a benefit of these interim 

final regulations. 

d. Costs and Transfers 

Children with preexisting conditions 

have high health care costs— 

approximately three times the average 

for those without such conditions.47

Although children with preexisting 

conditions have higher health care costs 

than healthier children, among children 

with preexisting conditions, those who 

are uninsured have expenditures that 

are somewhat lower than the average for 

all children with preexisting conditions. 

Therefore, it is expected that when 

uninsured children obtain coverage, 

there will be additional demand for and 

utilization of services. There will also be 

a transfer from out-of-pocket spending 

to spending covered by insurance, 

which will partially be mitigated by a 

reduction in cost-shifting of 

uncompensated care to the insured 

population as coverage expands. 

As shown above in Table 2.2, the 

Departments estimate that 

approximately 2,000 to 10,000 children 

whose parents have ESI or an offer of 

ESI will be newly covered in the group 

market. Because few children are likely 

to be newly covered in the group 

market, the estimated costs and transfers 

are extremely small, on the order of 

hundredths of a percent. 

The Departments expect that these 

interim final regulations will have a 

larger effect on the number of children 

covered in the individual market, 

resulting in new coverage for between 

29,000 and 62,000 children. Medical 

expenses for these newly covered 

children are likely to be greater than for 

the average child covered by individual 

insurance. The Departments’ analysis 


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48The Departments assume that in noncommunity rated States, parents purchasing 

individual coverage for a child with a preexisting 

condition will be charged a rate equal to 200 

percent of the standard rate for a child, because it 

is rare for insurers to charge more than this amount, 

but it seems unlikely they will charge less. To the 

extent that the estimated expenditures for newly 

covered children are above the premium that the 

Departments assume will be charged, the analysis 

assumes that the difference will be spread over all 

policies in the individual market. 

49http://www.statehealthfacts.kff.org/ 

comparetable.jsp?ind=354&cat=7. 

50Adele M. Kirk. The Individual Insurance 

Market: A Building Block for Health Care Reform? 

Health Care Financing Organization Research 

Synthesis. May 2008. 

51The Departments’ analysis used MEPS data to 

identify approximately 90,000 children with 

individual coverage for whom insurance coverage 

for one or more conditions was extremely low— 

averaging 10 percent of covered expenditures, 

compared to approximately 80 percent for other 

children. The analysis assumes that these children 

were subject to a preexisting condition waiver, and 

then assumes that when these waivers are 

eliminated, the expenditures that are not covered by 

insurance in the MEPS data will now be shifted to 

insurance. 

52PHS Act section 2711(a)(2) as added by Section 

1001(5) of the Affordable Care Act and amended by 

section 10101(a) of such Act. 

also assumes that children with 

preexisting conditions gaining 

insurance under these interim final 

regulations will have greater health 

needs than the average uninsured child 

with a preexisting condition. This 

assumption concerning adverse 

selection is common to most analyses of 

purchasing behavior in the individual 

insurance market. 

In the majority of States that do not 

require community rating, much of the 

additional cost of care for newlycovered children with preexisting 

condition is likely to be borne by the 

parents who purchase coverage for their 

children. Based on discussions with 

industry experts, it appears that even in 

the absence of community rating, it is 

rare for an insurer to charge more than 

twice the standard rate for someone in 

poor health. The Departments’ analysis 

assumes that in non-community rated 

States, the parents of newly insured 

children will pay a premium that is 

equal to twice the standard rate, and the 

remainder of the additional costs will be 

spread to other policy holders in the 

individual market.48 However, with the 

enactment of the Affordable care Act 

and the issuance of these interim final 

regulations, rating practices in the 

insurance industry could certainly 

change, lending uncertainty to this 

estimate. In the approximately twenty 

States that require adjusted community 

rating or rating bands in the individual 

market, the Departments’ analysis 

assumes that all of the additional costs 

of newly covered children will be 

spread across policies in the individual 

market that are not grandfathered health 

plans.49 Making these assumptions, the 

estimated increase in premiums is 1 

percent or less in community rated 

States, and approximately one-half of 

one percent in States without 

community rating. 

Finally, for the estimated 90,000 

children with existing individual 

coverage that excludes coverage for the 

preexisting condition or requires an 

exclusion period before coverage for 

that condition begins, the Departments 

assume that many of these children will 

receive coverage for their condition(s). 

Because their existing individual 

policies could be grandfathered, the 

parents of these children may need to 

purchase new policies in order to gain 

coverage for their children’s condition 

without a waiver. Children in a 

preexisting condition exclusion period 

in particular will need to terminate their 

current policy and purchase a new one 

in order to take advantage of the 

elimination of any preexisting condition 

exclusion period. Of note, the 

Departments estimate that turnover in 

the individual market is between 40 

percent and 70 percent per year.50

Therefore, in a few years, most children 

who would have been covered with a 

condition waiver in the absence of these 

interim final regulations are expected to 

be in new policies that are not 

grandfathered health plans in any case. 

The Departments analyzed 

expenditures for the approximately 

90,000 children who reported fair or 

poor health, or who were taking three or 

more prescription medications, and for 

whom insurance covered only a small 

portion of spending for one or more 

medical conditions. Total spending for 

these 90,000 children was not much 

different than spending for the children 

who did not appear to have a 

preexisting condition waiver, although 

less of the spending was covered by 

private insurance, and more of it was 

paid for out-of-pocket or by other 

sources.51

Similar to the expectations for newly 

covered children in the individual 

market, in States that require rating 

bands or some form of community 

rating, much of the additional cost for 

eliminating condition waivers will be 

spread across the insured population, 

while in States without rating 

restrictions, much of the additional 

costs will be borne by the parents who 

purchase the coverage. However, the 

estimate that insured benefits per child 

will increase by a relatively modest 

amount suggests that even in States with 

community rating, the cost and transfer 

effects will be relatively small, at most 

a few tenths of a percent over the next 

few years. 

In evaluating the impact of this 

provision, it is important to remember 

that the full net effects of this provision 

cannot be estimated because of its 

interactions with other provisions in the 

Affordable Care Act that go into effect 

at the same time. For example, under 

the current guaranteed renewability 

protections in the individual market, if 

a child with a preexisting condition is 

now able to obtain coverage on a 

parental plan, he or she can potentially 

stay on that plan until age 26. As 

another example, the Affordable Care 

Act will require non-grandfathered 

health plans to provide recommended 

preventive services at no cost-sharing. 

This will amplify the benefits of 

coverage for newly insured children 

with preexisting conditions. Therefore, 

the Departments cannot provide a more 

precise estimation of either the benefits 

or the costs and transfers of this 

provision. 

3. PHS Act Section 2711, No Lifetime or 

Annual Limits (26 CFR 54.9815–2711T, 

29 CFR 2590.715–2711, 45 CFR 147.126) 

a. Summary 

As discussed earlier in this preamble, 

section 2711 of the PHS Act, as added 

by the Affordable Care Act, and these 

interim final regulations generally 

prohibits group health plans and health 

insurance issuers offering group or 

individual health insurance coverage 

from imposing lifetime or annual limits 

on the dollar value of health benefits. 

The statute also provides a special rule 

allowing ‘‘restricted annual limits’’ with 

respect to essential health benefits (as 

defined in section 1302(b) of the 

Affordable Care Act) for plan years (in 

the individual market, policy years) 

beginning before January 1, 2014. In 

addition, the statute specifies that a plan 

or issuer may impose annual or lifetime 

per-individual limits on specific 

covered benefits that are not essential 

health benefits to the extent that such 

limits are permitted under Federal or 

State law. 

For purposes of establishing a 

restricted annual limit on the dollar 

value of essential health benefits, the 

statute provides that in defining the 

term restricted annual limit, the 

Departments ‘‘ensure that access to 

needed services is made available with 

a minimal impact on premiums.’’ 52

Based on this Congressional directive, 

the interim final regulations allow 

annual limits on the dollar value of 

benefits that are essential health benefits 

of no less than $750,000 for plan years 


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53Employer Health Benefits: 2009 Annual Survey. 

Washington, DC: Henry J. Kaiser Family Foundation 

and Health Research & Educational Trust 

(September 2009). 

54There is limited survey data on annual total 

benefit limits. The data utilized in these analyses 

are derived from data collected by Mercer’s Health 

and Benefits Research Unit for their 2005, 2008 and 

2009 National Survey of Employer-Sponsored 

Health Plans. For employer plans, the Mercer data 

provides prevalence information for PPOs and 

HMOs, and median annual limit levels for PPOs, 

split by small and large employer plans. In order 

to generate a plausible baseline of annual benefit 

maximums, broken by level of maximum, the 

reported percentages of employer plans that had 

annual maximums were spread into four intervals 

broken at $500k, $1 million, and $2 million. For 

PPOs and HMOs, the data were spread using the 

dispersion observed in lifetime benefit maximums 

(using data from the KFF/HRET employer surveys), 

and the distribution was constrained to be 

consistent with the Mercer reported median values 

for annual maximums. For annual benefit limits in 

individual coverage the relationship observed 

between AHIP’s reported lifetime benefit maximum 

levels and the KFF/HRET employer lifetime benefit 

maximums was used to generate corresponding 

distributions from the synthesized employer annual 

limits. 

(in the individual market, policy years) 

beginning on or after September 23, 

2010, but before September 23, 2011; 

$1.25 million for plan years (in the 

individual market, policy years) 

beginning on or after September 23, 

2011, but before September 23, 2012; 

and $2 million for plan years (in the 

individual market, policy years) 

beginning on or after September 23, 

2012, but before January 1, 2014. For 

plan years (in the individual market, 

policy years) beginning January 1, 2014, 

no annual limits may be placed on 

essential health benefits. 

The statute and these interim final 

regulations relating to the prohibition 

on lifetime limits generally apply to all 

group health plans and health insurance 

issuers offering group or individual 

health insurance coverage, whether or 

not the plan qualifies as a grandfathered 

health plan, for plan years (in the 

individual market, policy years) 

beginning on or after September 23, 

2010. The statute and these interim final 

regulations relating to the prohibition 

on annual limits, including the special 

rules for plan years beginning before 

January 1, 2014, generally apply to 

group health plans and group health 

insurance coverage that qualify as a 

grandfathered health plan, but do not 

apply to grandfathered health plans that 

are individual health insurance 

coverage. 

b. Estimated Number of Affected 

Entities 

In 2009, the latest data available 

indicates that both the incidence and 

amount of lifetime limits vary by market 

and plan type (e.g., HMO, PPO, POS). 

Table 3.1 displays the prevalence of 

lifetime limits for large employer, small 

employer and individual markets by 

plan type. Sixty-three percent of large 

employers had lifetime limits; 52 

percent of small employers had lifetime 

limits and 89 percent of individual 

market plans had lifetime limits. HMO 

plans are the least likely to have a 

lifetime limit with only 37 percent of 

large employer HMO plans having a 

limit, 16 percent of small employer 

HMO plans having a limit and 23 

percent of individual HMO plans having 

a limit. The generosity of the limit also 

varies, with 45 percent of all large 

employer plans imposing a lifetime 

limit of $2,000,000 or more; 39 percent 

of small employers’ plans imposing a 

limit of $2,000,000 or more and 86 

percent of individual market plans 

imposing a limit of $2,000,000 or more. 

Note that small employers are more 

likely than large employers to offer 

HMOs that tend not to have lifetime 

limits, but when small businesses offer 

plans with lifetime limits, the maximum 

limit tends to be lower than those in 

large firms.53

TABLE 3.1—PREVALENCE OF LIFETIME LIMITS

Market 

Prevalence of 

limit 

(percent) 

Number of 

enrollees 

Large group 

Under $1,000,000 ............................................................................................................................................ 1 1,000,000 

$1,000,000–$2,000,000 ................................................................................................................................... 18 18,700,000 

$2,000,000 or higher ....................................................................................................................................... 45 46,600,000 

No Limit ............................................................................................................................................................ 37 38,300,000 

Small group 

Under $1,000,000 ............................................................................................................................................ 1 500,000 

$1,000,000–$2,000,000 ................................................................................................................................... 12 6,300,000 

$2,000,000 or higher ....................................................................................................................................... 39 20,500,000 

No Limit ............................................................................................................................................................ 48 25,200,000 

Individual 

Under $1,000,000 ............................................................................................................................................ 2 200,000 

$1,000,000–$2,000,000 ................................................................................................................................... 1 100,000 

$2,000,000 or higher ....................................................................................................................................... 86 8,400,000 

No Limit ............................................................................................................................................................ 11 1,100,000 

Source: Large and Small Employer Health Plan Enrollment: and Lifetime Maximum Exhibit 5.2 and Exhibit 13.12, respectively, Employer 

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

2009). Individual Health Plan Enrollment and Lifetime Maximum: Table 10 and Table 17, respectively, AHIP Center for Policy Research Individual 

Health Insurance 2009: A Comprehensive Survey of Premiums, Availability, and Benefits. 

There are scant data on annual limits 

on which to base this impact analysis. 

Table 3.2 displays the prevalence of 

annual limits by market, plan type and 

amount of the limit. Only 8 percent of 

large employers, 14 percent of small 

employers and 19 percent of individual 

market policies impose an annual limit 

and thus would be directly impacted by 

these interim final regulations.54 In the 

first year of implementation (beginning 

September 23, 2010), it is estimated that 

less than 0.08 percent (less than one 

tenth of one percent) of large employer 

plans, approximately 2.6 percent of 


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55These figures and the ones that follow in this 

paragraph are estimated from Tables 2.2 and 2.3 by 

assuming a uniform distribution within each cell. 

56To estimate the conditional premium impact of 

moving a given plan with a given annual benefit 

maximum to a higher benefit maximum, the 

percentage change in estimated benefit rates 

(percent of medical spending that the plan pays for 

as benefits) based on simulated benefit payments 

for such coverage was used. The underlying 

assumed medical spending profile was drawn from 

small employer plans, and 2.3 percent 

of individual plans would have to raise 

their annual limit to $750,000.55 This 

first-year increase in annual limits 

would potentially affect an estimated 

1,670,000 persons across the three 

markets. The second year of the phasein, beginning September 23, 2011, 

would affect additional plans and 

policies, requiring a cumulative 0.7 

percent of large employer plans, 3.9 

percent of small employer plans, and 

5.3 percent of individual policies to 

increase their annual limit to 

$1,250,000. The second-year increase in 

annual limits would affect an estimated 

3,278,250 persons across the three 

markets. The third and final year of the 

phase-in period (beginning on 

September 23, 2012) would affect 

additional plans and policies requiring 

a cumulative 2.4 percent of large 

employer plans, 8.1 percent of small 

employer plans and 14.3 percent of 

individual policies to increase their 

annual limit to $2 million. The thirdyear increase in annual limits would 

affect an estimated 8,104,500 persons 

across the three markets. Note that the 

estimated number of plans and people 

affected are upper-bound estimates 

since they do not take into account 

grandfathered health plans and plans 

that receive a waiver from the annual 

limits policy. 

TABLE 3.2—PERCENT OF PLANS EMPLOYING ANNUAL LIMITS IN EACH MARKET

Annual limit 

(percent) 

Large employer 

(percent) 

Small employer 

(percent) 

Individual 

(percent) 

Under $250,000 ............................................................................................................... * 0.4 0.4 

$250,000–499,999 ........................................................................................................... * 1.3 1.2 

$500,000–999,999 ........................................................................................................... * 1.7 1.6 

$1,000,000–1,999,999 ..................................................................................................... 2.3 5.5 12.0 

$2,000,000 plus ............................................................................................................... 5.8 5.5 3.8 

Total .......................................................................................................................... 8.2 14.4 19.0 

* Less than 0.1%. 

Source: The data are derived from data collected by Mercer’s Health and Benefits Research Unit for their 2005, 2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large employer plans. In order to generate a plausible baseline of annual benefit maximums, 

broken by level of maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals broken at 

$500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion observed in lifetime benefit maximums (using 

data from the KFF/HRET employer surveys), and the distribution was constrained to be consistent with the Mercer reported median values for 

annual maximums. For annual benefit limits in individual coverage the relationship observed between AHIP’s reported lifetime benefit maximum 

levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding distributions from the synthesized employer 

annual limits. 

TABLE 3.3—NUMBER OF PERSONS SUBJECTED TO ANNUAL LIMITS IN EACH MARKET

Annual limit Large employer Small employer Individual Total 

Under $250,000 ............................................................................... 15,000 225,000 38,000 278,000 

$250,000–499,999 ........................................................................... 45,000 675,000 115,000 835,000 

$500,000–999,999 ........................................................................... 60,000 900,000 153,000 1,113,000 

$1,000,000–1,999,999 ..................................................................... 2,389,000 2,869,000 1,177,000 6,435,000 

$2,000,000 plus ............................................................................... 6,041,000 2,869,000 377,000 9,287,000 

Total .......................................................................................... 8,550,000 7,538,000 1,860,000 17,948,000 

Source: The data are derived from data collected by Mercer’s Health and Benefits Research Unit for their 2005, 2008 and 2009 National Survey of Employer-Sponsored Health Plans. For employer plans, the Mercer data provides prevalence information for PPOs and HMOs, and median annual limit levels for PPOs, split by small and large employer plans. In order to generate a plausible baseline of annual benefit maximums, 

broken by level of maximum, the reported percentages of employer plans that had annual maximums were spread into four intervals broken at 

$500k, $1 million, and $2 million. For PPOs and HMOs, the data were spread using the dispersion observed in lifetime benefit maximums (using 

data from the KFF/HRET employer surveys), and the distribution was constrained to be consistent with the Mercer reported median values for 

annual maximums. For annual benefit limits in individual coverage the relationship observed between AHIP’s reported lifetime benefit maximum 

levels and the KFF/HRET employer lifetime benefit maximums was used to generate corresponding distributions from the synthesized employer 

annual limits. 

Fear and anxiety about reaching 

annual or lifetime limits on coverage is 

a major concern among Americans who 

have health insurance. At the same 

time, the data suggest that relatively few 

individuals actually reach their policies’ 

annual and lifetime limits. Thus, while 

such limits are relatively common in 

health insurance, the numbers of people 

expected to exceed either an annual or 

lifetime limit is quite low. The estimates 

provided in Table 3.4 provide a high 

and low range of the number of people 

who would hit such limits. Such a range 

is necessary because of the tremendous 

uncertainty around high-cost 

individuals. First, data are sparse, given 

that high-cost individuals lie at the tail 

of statistical cost distributions. The 

Departments attempted to extrapolate 

characteristics of the high-cost 

population who would be affected by 

these interim final regulations using 

several data sources. Second, data on 

per-capita cost is available on a year-byyear basis, and not on a lifetime basis. 

Assumptions were necessary to convert 

annual costs into lifetime costs, 

including considerations of how current 

spending could be related to future 

spending.56


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MEPS–HC person level spending data, calibrated to 

National Health Account levels, with the shape of 

the distribution modified based on high-cost claims 

data from the Society of Actuaries. The conditional 

premium increases were then applied to the 

fractions of plans in each of the three market 

segments by level of current annual limits to 

calculate the aggregate increase in premiums for the 

possible option. 

57Numbers in this paragraph calculated from 

Table 2.4 may differ due to rounding. 

58An April 2008 study by Milliman ‘‘2008 U.S. 

Organ and Tissue transplant cost estimates’’, found 

that the average one year billed charges related to 

a heart transplant averaged $787,000 while a liver 

transplant averaged $523,400. The lifetime costs for 

the treatment chronic disease such as of HIV 

infection have been well documented with one 

estimate of $618,000 (Med Care 2006;44: 990–997). 

59See ‘‘National Survey of Households Affected 

by Cancer.’’ (2006) accessed at http://www.kff.org/ 

kaiserpolls/upload/7591.pdf. 

60Seifert, Robert W., and Mark Rukavina. 

‘‘Bankruptcy Is The Tip Of A Medical-Debt Iceberg.’’ 

Health Affairs Web Exclusive (2006). 

61See Institute of Medicine.(2003). Hidden Costs, 

Value Lost: Uninsurance in America. Washington, 

DC: National Academy Press; and Institute of 

Medicine (2002) Care Without Coverage: Too Little, 

Too Late. Washington, DC: National Academy 

Press. 

Considering these caveats, Table 3.4 

illustrates that raising the restriction of 

annual limits to $2 million by 2013 

would extend additional coverage to 

2,700 to 3,500 people per year.57 The 

elimination of lifetime limits would 

extend coverage to an estimated 18,650 

to 20,400 people who would be 

expected to exceed a lifetime limit 

during a calendar year. 

TABLE 3.4—PERCENT AND NUMBER OF PERSONS EXPECTED TO EXCEED A LIFETIME OR ANNUAL LIMIT

Projected to ever exceed limit 

Percentage Number 

Current Lifetime Limit: 

Under $1,000,000 ..................................................................................................................................... 0.03–0.06 550–1,050 

$1,000,000 to $1,999,999 ........................................................................................................................ 0.02 4,500–5,000 

$2,000,000 plus ........................................................................................................................................ 0.02 13,600–14,350 

Current Annual Limit: 

Under $250,000 ........................................................................................................................................ 0.19–0.23 550–650 

$250,000 to $499,999 .............................................................................................................................. 0.08–0.10 650–850 

$500,000 to $999,000 .............................................................................................................................. 0.03–0.06 350–700 

$1,000,000 to $1,999,999 ........................................................................................................................ 0.02 1,150–1,300 

$2,000,000 or more .................................................................................................................................. 0.01–0.02 750–1,750 

Source: Estimates of the expected percentage of the insured population who would exceed a limit are based on an analysis of the MEPS–HC

expenditure data supplemental with adjusted insurer claims from the Society of Actuaries large claims database; http://www.soa.org/files/pdf/

Large_Claims_Report.pdf. Numbers of people rounded to the nearest 50. 

c. Benefits 

Annual and lifetime limits exist in the 

individual, small group and large group 

health insurance markets. These limits 

function as caps on how much an 

insurance company will spend on 

medical care for a given insured 

individual over the course of a year, or 

the individual’s lifetime. Once a person 

reaches this limit or cap, the person is 

essentially uninsured: He or she must 

pay the remaining cost of medical care 

out-of-pocket. These limits particularly 

affect people with high-cost 

conditions,58 which are typically very 

serious. For example, one recent survey 

found that 10 percent of cancer patients 

reached the limit of what insurance 

would pay for treatment.59 The same 

survey also found that 25 percent of 

cancer patients or their family members 

used up all or most of their savings, 13 

percent were contacted by a collection 

agency, and 11 percent said they were 

unable to pay for basic necessities like 

food and housing as a result of the 

financial cost of dealing with cancer. By 

prohibiting lifetime limits and 

restricting annual limits, these interim 

final regulations will help families and 

individuals experiencing financial 

burdens due to exceeding the benefit 

limits of their insurance policy. By 

ensuring and continuing coverage, these 

interim final regulations also reduce 

uncompensated care, which would 

otherwise increase premiums of the 

insured population through costshifting, as discussed in more detail in 

section IV.B.6 later in this preamble. 

These interim final regulations will 

also improve access to care. Reaching a 

limit could interrupt or cause the 

termination of needed treatment, 

leading to worsening of medical 

conditions. Moreover, those with 

medical debt are more likely to skip a 

needed test or treatment, and less likely 

to fill a prescription or visit a doctor or 

clinic for a medical issue.60 The removal 

and restriction of benefit limits helps 

ensure continuity of care and the 

elimination of the extra costs that arise 

when an untreated or undertreated 

condition leads to the need for even 

more costly treatment, that could have 

been prevented if no loss of coverage 

had occurred. Lack of insurance 

coverage leads to additional mortality 

and lost workplace productivity, effects 

that would be amplified for a sicker 

population such as those who would 

reach a benefit limit.61 By ensuring 

continuation of coverage, these interim 

final regulations benefit the health and 

the economic well-being of participants, 

beneficiaries, and enrollees. 

These interim final regulations also 

benefit those without an alternative 

source of health coverage in the group 

health insurance market. Under HIPAA 

rules, when an individual exceeds a 

limit and loses coverage, that individual 

has a special enrollment right. If his or 

her plan offered multiple benefit 

packages or a spouse has access to ESI, 

the individual could enroll in the 

coverage, although it might lead to a 

change in providers and less generous 

coverage. Those without an alternative 

option would lose coverage, and the 

history of high medical claims and 

presence of preexisting conditions could 

make health insurance in the individual 

market impossible. Under these interim 

final regulations, people will no longer 

be treated differently depending on 

whether they have an alternative source 

of coverage. 

Executive Order 12866 explicitly 

requires agencies to take account of 

‘‘distributive impacts’’ and ‘‘equity,’’ and 

these considerations help to motivate 

the relevant statutory provisions and 

these interim final regulations. 

Prohibiting lifetime limits and 

restricting annual limits assures that 

insurance will perform the function for 

which it was designed—namely, 

protecting health and financial well 

being for those most in need of care. 


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This represents a meaningful 

improvement in equity, which is a 

benefit associated with these interim 

final regulations. 

d. Costs and Transfers 

Extending health insurance coverage 

for individuals who would otherwise hit 

a lifetime or annual limit will increase 

the demand for and utilization of health 

care services, thereby generating 

additional costs to the system. The three 

year phase-in of the elimination of 

annual limits and the immediate 

elimination of lifetime limits will 

increase the actuarial value of the 

insurance coverage for affected plans 

and policies if no other changes are 

made to the plan or policy. Issuers and 

plans in the group market may choose 

to make changes to the plan or policy 

to maintain the pre-regulation actuarial 

value of the plan or policy, such as 

changing their provider networks or 

copayments in some manner. To the 

extent that higher premiums (or other 

plan or policy changes) are passed on to 

all employees, there will be an explicit 

transfer from workers who would not 

incur high medical costs to those who 

do incur high medical costs. If, instead, 

the employers do not pass on the higher 

costs of insurance coverage to their 

workers, this could result in lower 

profits or higher prices for the 

employer’s goods or services. Given the 

relatively small proportion of people 

who exceed the benefit limits in the 

current group markets, the Departments 

anticipate such transfers to be minimal 

when spread across the insured 

population (at a premium increase of 

one-half of a percent or less for lifetime 

limits and one-tenth of a percent or less 

for annual limits), compared with the 

substantial benefit rendered to 

individual high-cost enrollees. 

However, as this discussion 

demonstrates, there is substantial 

uncertainty in data and in the choices 

plans will decide to make in response 

to these interim final regulations, 

preventing more precise estimations of 

effects. 

In the individual market, where 

policies are individually underwritten 

with no rating bands in the majority of 

States, the Departments expect the 

added premium cost or other benefit 

changes to be largely borne by the 

individual policyholder. As discussed 

in the impact analysis for Section 2704, 

if costs exceed 200 percent of the 

standard rate, some of the additional 

costs could be spread across the 

insurance market. In the 20 States with 

modified community rating, issuers 

could spread the increased costs across 

the entire individual market, leading to 

a transfer from those who would not 

incur high medical costs to those who 

do incur such costs. However, as with 

the group market, such a transfer is 

expected to be modest, given the small 

numbers of people who would exceed 

their benefit limit. The Departments 

estimate that the transfer would be 

three-quarters of a percent or less for 

lifetime limits and one-tenth of a 

percent or less for annual limits, under 

a situation of pure community rating 

where all the costs get spread across the 

insured population. This impact does 

not apply to grandfathered individual 

market plans. Also, given the wide 

variation in State insurance markets, a 

more precise estimation is not possible, 

and the premium impact would be even 

less in the majority of States that allow 

underwriting in the individual 

insurance market. 

It is worth noting that the transfers 

discussed above will be significantly 

mitigated by the associated expansion of 

coverage that these interim final 

regulations create. The Departments 

expect, as a result of the gradual 

elimination of annual limits and the 

immediate elimination of lifetime 

limits, fewer people will be left without 

protection against high medical costs. 

This will lead fewer individuals to 

spend down resources and enroll in 

Medicaid or receive other State and 

locally funded medical support. It can 

be anticipated that such an effect will be 

amplified due to the high-cost nature of 

people who exceed benefit limits. As a 

result, there will be a reduction in 

Medicaid, State and local funded health 

care coverage programs, as well as 

uncompensated care, all of which 

would otherwise raise taxes and/or 

premiums for the larger population. 

Unfortunately, data around these highcost individuals is limited, preventing 

the Departments from quantifying these 

benefits at the present time. 

Additional uncertainty prevents more 

precise estimation of the benefits and 

impacts of this provision. As discussed 

in the impact analysis for Section 2704, 

there are interactive effects of the 

various provisions in these interim final 

regulations which cannot be estimated. 

For example, prohibiting rescissions 

and lifetime limits could mean that 

someone who would have had a policy 

rescinded now maintains coverage, and 

also maintains coverage beyond a 

previous lifetime limit. Moreover, it is 

important to note that the estimates 

presented here, by necessity, utilize 

‘‘average’’ experiences and ‘‘average’’ 

plans. Different plans have different 

characteristics of enrollees, for example 

in terms of age or health status, meaning 

that provisions such as eliminating 

lifetime or restricting annual limits 

could affect them differently. This also 

means that average impacts of the 

various provisions in these interim final 

regulations or others cannot simply be 

added to obtain a total impact, since a 

plan may be affected by one provision 

but not another. Moreover, plans and 

issuers will consider these impacts 

when making decisions about whether 

or not to make other changes to their 

coverage that could affect their 

grandfather status—a consideration that 

is pertinent in the case of restricted 

annual limits, which do not apply to the 

grandfathered individual market. This 

further compounds any precise 

calculation of benefits and costs. 

e. Enrollment Opportunity 

These interim final regulations 

provide an enrollment (or, in the case of 

the individual market, reinstatement) 

opportunity for individuals who 

reached their lifetime limits in a group 

health plan or health insurance coverage 

and remain otherwise eligible for the 

coverage. In the individual market, the 

reinstatement opportunity does not 

apply to individuals who reached their 

lifetime limits in individual health 

insurance coverage if the contract is not 

renewed or otherwise is no longer in 

effect. It would apply, however, to a 

family member who reached the lifetime 

limit in an individual health insurance 

family policy while other family 

members remain in coverage. Such 

enrollment opportunity would generate 

a total hour burden of 3,800 hours and 

a cost burden of $21,000, as detailed in 

the Paperwork Reduction Act section. 

f. Alternatives 

PHS Act section 2711(a)(2) requires 

the Departments to ‘‘ensure that access 

to needed services is made available 

with a minimal impact on premiums.’’ 

Accordingly, the Departments 

undertook an analysis of different 

restricted annual limit thresholds to 

study the issue, taking into 

consideration several factors: (1) The 

current use of annual limits in the group 

and individual market; (2) the average 

premium impact of imposing different 

annual limits on the individual, small 

group, and large group markets; (3) the 

number of individuals who will 

continue to have annual medical 

expenses that exceed an annual limit; 

and (4) the possibility that a plan or 

issuer would switch to an annual limit 

when lifetime limits are prohibited. In 

order to mitigate the potential for 

premium increases for all plans and 

policies, while at the same time 

ensuring access to essential health 

benefits, the Departments decided to 


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62Numbers calculated from Table 3.4 may differ 

due to rounding. 

63 If a second decimal place were included, the 

lower end of the range in this column would be 

greater than the lower end of the range in the $1.5 

million column. 

adopt a three-year phased approach for 

restricted annual limits. 

As discussed above, it is important to 

note that it is difficult to predict exactly 

how plans and issuers will respond 

under the new regulations. Annual or 

lifetime limits on benefits help control 

risk and costs, and the elimination of a 

lifetime limit or a possible increase in 

an annual limit may lead plans and 

issuers to alter benefit design (such as 

increasing cost-sharing), and/or raise 

premiums. The Departments cannot 

determine which option or combination 

of options plans and issuers will choose. 

Therefore, it is very difficult to measure 

the impact on premiums due to the 

elimination of lifetime limits and a 

maximum annual limit. This 

uncertainty is compounded by the data 

uncertainties discussed earlier in 

section IV.B.2.b of this preamble. 

Given the above data limitations, the 

Departments modeled the impact on 

premiums of increasing the annual 

limits for plans that currently have 

annual limits, assuming that the only 

reaction to a required increase in annual 

limits would be an increase in 

premiums. Because some plans may 

choose to avoid or offset the potential 

premium increase by increasing cost 

sharing, tightening the network of 

providers, adopting cost savings tools, 

or making other plan changes, the 

modeled premium impacts represent the 

high-end of the possible increases in 

premiums. 

The Departments modeled a range of 

options and ways to implement a 

restricted annual limit. Two of the 

options considered were setting the 

annual restricted limit on essential 

benefits at $1 million or at $2 million. 

The higher the limit is set, the fewer the 

people that would exceed the limit and 

experience a gap in insurance coverage. 

However, plans with current low limits 

could see increases in costs and 

potentially premiums because the 

proportion of claims covered by the 

plans would increase. One final issue to 

consider is that for plan years (in the 

individual market, policy years) 

beginning after January 1, 2014, all 

group plans and non-grandfathered 

individual policies will be required to 

remove annual limits. A low annual 

limit until 2014 would offer less 

protection to those with medical 

expenses exceeding the limit, and could 

result in an increase in premiums in 

2014 (although a variety of other 

changes that will be implemented in 

2014 could be expected to result in 

lower premium increases in most 

States). Therefore, a stepped approach 

allowing the restricted annual limit to 

be phased in over time seemed to be the 

fairest approach and most likely to 

result in a minimal impact on 

premiums, so it was selected. 

Table 3.5 demonstrates premium 

impacts at different annual limit 

thresholds, and Table 3.4 above 

demonstrates the numbers of people 

expected to exceed different annual 

limit thresholds. The Departments chose 

to set the restricted annual limit 

relatively low in the first year, and to 

then increase the limit up to $2 million 

over the three-year period. This phased 

approach was intended to ease any 

increases in premiums in any one year, 

particularly for plans with low initial 

annual limits, and to help group plans 

and non-grandfathered individual 

policies transition to no annual limits 

starting in 2014. With this approach, a 

threshold of $750,000 was associated 

with a 5.1 percent premium impact for 

plans with very low annual limits of 

$250,000, but it is anticipated that these 

plans comprise only less than one-half 

of one percent of the market. On the 

other hand, raising the restricted annual 

limits to $2,000,000 under these interim 

final regulations could be expected to 

help an estimated 2,700 to 3,500 

people 62 who would no longer exceed 

their annual limit, ensuring financial 

protection to those who have high 

medical claims. 

It is important to note that these 

interim final regulations also provide 

that the Secretary of HHS may establish 

a waiver program under which issuers 

or plans may assert that adhering to the 

restricted annual limit provisions of 

these interim final regulations would 

result in a significant decrease in access 

to benefits or a significant premium 

increase. The Departments provided for 

this waiver in order to prevent the loss 

of coverage for enrollees in low-benefit 

plans (for example, ‘‘mini-med’’ plans) 

that have low annual limits. While the 

impact of this policy is not quantified, 

it, too, is intended to mitigate any 

unintended consequences given the 

paucity of data on the incidence and 

prevalence of annual limits in the 

markets today.63

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

Current limit People subject to 

current limit 

New limit 

$500k 

% 

$750k 

% 

$1 million 

% 

$1.5 million 

% 

$2 million 

% 

$250k ....................................... 278,000 .................................... 3.7 5.1 6.1 6.2–6.4 63 6.2–6.6 

$500k ....................................... 835,000 .................................... ...................... 1.4 2.3 2.4–2.6 2.4–2.8 

$750k ....................................... 1,113,000 ................................. ...................... ...................... 1.0 1.0–1.2 1.0–1.5 

$1 million .................................. 6,435,000 ................................. ...................... ...................... ...................... 0.1–0.3 0.1–0.5 

$1.5 million ............................... 9,287,000 ................................. ...................... ...................... ...................... ...................... 0.04–0.2 

Source: Premium estimates are calculated based MEPS–HC supplemented with the Society of Actuaries Large Claim Database—To estimate 

the conditional premium impact of moving a given plan with a given annual benefit maximum to a higher benefit maximum, the percentage 

change in estimated benefit rates (percent of medical spending that the plan pays for as benefits) based on simulated benefit payments for such 

coverages was used. The underlying assumed medical spending profile was drawn from MEPS–HC person level spending data, calibrated to 

National Health Account levels, with the shape of the distribution modified based on high-cost claims data from the Society of Actuaries. The 

conditional premium increases were then applied to the fractions of plans in each of the three market segments by level of current annual limits 

to calculate the aggregate increase in premiums for the possible option. For the low impact estimates, the distributions were then adjusted only 

for the expected marginal loading impact of using commercial reinsurance for many of the smaller carriers. For the high impact estimates, the 

distributions were also adjusted to reflect possible underestimation of the tails of the expenditure distribution once coverage of unlimited benefit 

levels was required. The adjustments were set at levels that generated aggregate impacts that were conservative relative to estimates from 

PricewaterhouseCoopers’ March 2009 study of lifetime limits for the National Hemophilia Foundation. 


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64Even though prior notice must be provided in 

the case of a rescission, applicable law may permit 

the rescission to void coverage retroactively. 65Terminations of Individual Health Insurance 

Policies by Insurance Companies, Hearing before 

the House Comm. On Energy and Commerce, 

Subcommittee On Oversight and Investigations, 

June 16, 2009 (supplemental memorandum), at: 

http://energycommerce.house.gov/Press_111/ 

20090616/rescission_supplemental.pdf. 

66This statement is based on the Departments’ 

conversations with industry experts. 

67 2009 Current Population Survey. 

68Estimates are from 2007 NAIC financial 

statements data and the California Department of 

Managed Healthcare (http://wpso.dmhc.ca.gov/

hpsearch/viewall.aspx). 

69NAIC Rescission Data Call, December 17, 2009, 

p.1. 

70This point is discussed further in the section 

IV.B.6.b. later in this preamble. 

4. PHS Act Section 2712, Rescissions 

(26 CFR 54.9815–2712T, 29 CFR 

2590.715–2712, 45 CFR 147.128) 

a. Summary 

As discussed earlier in this preamble, 

PHS Act Section 2712 provides rules 

regarding rescissions for group health 

plans and health insurance issuers that 

offer group or individual health 

insurance coverage. A plan or issuer 

must not rescind coverage under the 

plan, policy, certificate, or contract of 

insurance from the individual covered 

under the plan or coverage unless the 

individual (or a person seeking coverage 

on behalf of the individual) performs an 

act, practice, or omission that 

constitutes fraud, or unless the 

individual makes an intentional 

misrepresentation of material fact, as 

prohibited by the terms of the plan or 

coverage. These interim final 

regulations provide that a group health 

plan, or a health insurance issuer 

offering group health insurance 

coverage, must provide at least 30 

calendar days advance notice to an 

individual before coverage may be 

rescinded.64 The notice must be 

provided regardless of whether the 

rescission is of group or individual 

coverage; or whether, in the case of 

group coverage, the coverage is insured 

or self-insured, or the rescission applies 

to an entire group or only to an 

individual within the group. 

PHS Act Section 2712 and these 

interim final regulations create a 

statutory Federal standard and 

enforcement power in the group and 

individual markets where it did not 

exist. Prior to this provision taking 

effect, varying court-made Federal 

common law existed for ERISA plans. 

State rules pertaining to rescission have 

been found to be preempted by ERISA 

by five circuit courts (5th, 6th, 7th, 9th 

and 11th as of 2008). Each styled a 

remedy looking to State law, the 

majority of Federal courts or the 

Restatement of Contracts. According to 

a House Energy and Commerce 

Committee staff memorandum,65 rather 

than reviewing medical histories when 

applications are submitted, some 

insurers engage in ‘‘post-claims 

underwriting.’’ Under this practice, if 

the policyholders become sick and file 

expensive claims, the insurance 

companies initiate investigations to 

scrutinize the details of the 

policyholder’s application materials and 

medical records, and if discrepancies, 

omissions, or misrepresentations are 

found, the insurer rescinds the policies, 

returns the premiums, and refuses 

payment for medical services. The 

Committee found some questionable 

practices in this area including 

insurance companies rescinding 

coverage even when discrepancies are 

unintentional or caused by others, for 

conditions that are unknown to 

policyholders, and for discrepancies 

unrelated to the medical conditions for 

which patients sought medical care. 

According to the Committee, the current 

regulatory framework governing the 

individual insurance market in this area 

is a haphazard collection of inconsistent 

State and Federal laws. Protections for 

consumers and enforcement actions by 

regulators vary depending on where 

individuals live. Because of these 

varying standards, many patients lack 

adequate protections against rescission, 

prompting the need for and benefits 

from this rule. 

When a coverage rescission occurs, an 

individual’s health insurance coverage 

is retroactively cancelled, which means 

that the insurance company is no longer 

responsible for medical care claims that 

they had previously accepted and paid. 

Rescissions can result in significant 

financial hardship for affected 

individuals, because, in most cases, the 

individuals have accumulated 

significant medical expenses. 

b. Estimated Number of Affected 

Entities 

The Departments assume that these 

interim final regulations will have their 

largest impact on the individual 

insurance market, because group health 

coverage rarely is rescinded.66 By 

creating a new Federal standard 

governing when policies can be 

rescinded, the Departments expect these 

interim final regulations to potentially 

affect the approximately 17 million nonelderly individual health insurance 

policy holders and their dependents in 

the individual health insurance 

market.67 In addition, approximately 

490 health insurance issuers offering 

coverage in the individual health 

insurance market who currently could 

rescind health insurance coverage are 

expected to be affected.68 That said, the 

actual incidence of individuals who are 

subject to rescissions each year is likely 

to be small. The NAIC Regulatory 

Framework Task Force collected data on 

52 companies covering the period 2004– 

2008, and found that rescissions 

averaged 1.46 per thousand policies in 

force.69 This estimate implies there are 

approximately 10,700 rescissions per 

year. 

c. Benefits 

There are many benefits that flow 

from these interim final regulations, 

which the Departments believe justify 

the costs. As noted, Executive Order 

12866 requires consideration of 

‘‘distributive impacts’’ and ‘‘equity.’’ To 

the extent that rescissions are arbitrary 

and revoke the insurance that enrollees 

paid for and expected to cover the cost 

of expensive illnesses and conditions, 

preventing rescissions would prevent 

inequity and greatly increase health and 

economic well-being. Consumers would 

have greater confidence that purchasing 

insurance would be worthwhile, and 

policies would represent better value for 

money. As discussed further in section 

IV.B.6.b of this preamble, it is also welldocumented that lack of insurance leads 

to lost workplace productivity and 

additional mortality and morbidity. 

Thus, these rules would contribute to 

reducing the burden from lost 

productivity that arises from people 

being uncovered. These effects would be 

especially large relative to the number 

of individuals affected given that the 

affected population tends to be much 

sicker on average. 

Specifically, this provision also could 

protect against interruptions or 

terminations in care resulting from 

rescissions. As a result of the statute and 

these interim final regulations, people 

with high-cost illnesses at risk of 

rescission would have continued access 

to care throughout their illness, possibly 

avoiding more expensive and 

debilitating complications down the 

road. Gaps in health insurance, even if 

brief, can have significant health and 

financial consequences.70 A survey from 

the Commonwealth Fund found that 

about three of five adults with any time 

uninsured said they had not received 

needed health care in the past year 

because of costs—more than two times 

the rate of adults who were insured all 

year. Further, 44 percent of respondents 

who had experienced any coverage 

break during the prior year said they 

had failed to go to a doctor or clinic 


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71Collins et al. ‘‘Gaps in Health Insurance: An All 

American Problem’’ Commonwealth Fund (2006), 

available at: http://www.commonwealthfund.org/

usr_doc/Collins_gapshltins_920.pdf. 

72 Girion, Lisa ‘‘Health Net Ordered to Pay $9 

million after Canceling Cancer Patient’s Policy,’’ Los 

Angeles Times (2008), available at: http://www.

latimes.com/business/la-fi-insure23feb

23,1,5039339.story. 

73These interim final regulations eliminate 

preexisting condition riders for children, but such 

riders will continue to be allowed for adults until 

January 1, 2014. 

when they had a medical problem 

because of costs, compared with 15 

percent of adults who did not 

experience such breaks.71

These interim final regulations will 

also have substantial financial benefits 

for individuals who otherwise would 

have had their policies rescinded. While 

there has been minimal documentation 

of financial losses associated with 

rescissions, reports suggest severe 

financial hardships may result. In one 

case, a woman faced more than 

$129,000 in medical bills and was 

forced to stop chemotherapy for several 

months after being dropped by an 

insurer.72 The maintenance of coverage 

through illness not only prevents 

financial hardship for the particular 

enrollee, but can also translate into 

lower premiums for the broader insured 

population by reducing cost-shifting 

from the costs of uncompensated care. 

d. Costs and Transfers 

The prohibition of rescissions except 

in cases of fraud or intentional 

misrepresentation of material fact could 

lead insurers to spend more resources 

checking applications before issuing 

policies than they did before the 

Affordable Care Act, which would 

increase administrative costs. However, 

these costs could be partially offset by 

decreased costs associated with reduced 

post-claims underwriting under the 

interim final rule. Due to lack of data on 

the administrative costs of underwriting 

and post-claims underwriting, as well as 

lack of data on the full prevalence of 

rescissions, it is difficult for the 

Departments to quantify these costs. The 

new requirement for an advance notice 

prior to rescission of a policy imposes 

an hour burden of 350 hours and a cost 

burden of $29,000. These costs are 

discussed in more detail in the 

Paperwork Reduction Act section later 

in this preamble. 

To the extent that continuing coverage 

for these generally high-cost 

populations leads to additional demand 

for and utilization of health care 

services, there will be additional costs 

generated in the health care system. 

However, given the relatively low rate of 

rescissions (approximately 0.15 percent 

of individual policies in force) and the 

relatively sick nature of people who 

have policies rescinded (who would 

have difficulty going without treatment), 

the Departments estimate that these 

additional costs would be small. 

Under this provision of these interim 

final regulations, a transfer likely will 

occur within the individual health 

insurance market from policyholders 

whose policies would not have been 

rescinded before the Affordable Care 

Act to some of those whose policies 

would have been rescinded before the 

Affordable Care Act, depending on the 

market and the rules which apply to it. 

This transfer could result from higher 

overall premiums insurers will charge to 

recoup their increased costs to cover the 

health care costs of very sick 

individuals whose policies previously 

could be rescinded (the precise change 

in premiums depends on the 

competitive conditions in specific 

insurance markets). However, 

rescissions are extremely rare in group 

markets where such costs would be 

most likely to be transferred through 

premium increases. As described 

earlier, they are also rare in the 

individual market, affecting 0.15 

percent of policies. In this market, the 

potential costs would likely be born by 

the individuals themselves unless they 

live in a State with regulations limiting 

rate increases based on health, as 

discussed further below. 

While the Departments are unable to 

estimate the impact of prohibiting 

rescissions except in cases of fraud or 

intentional misrepresentation with 

certainty, they expect it to be small. 

Even the high rates of rescission 

acknowledged by some smaller insurers 

would still be expected to translate into 

only a small average impact across the 

individual health insurance market. 

And since this small impact across the 

market would be primarily attributable 

to insurers paying benefits to persons 

with substantial medical expenditures, 

the transfer would be useful. 

The Departments assume for their 

analysis that the individuals covered by 

the rescinded policies are much sicker 

than average. Specifically, these 

individuals are assumed to have total 

spending in the top 10 percent of 

spending, which represents about 70 

percent of total spending for the 

population as a whole, as estimated 

from the 2007 MEPS–HC person level 

medical expenditure distributions. If the 

overall NAIC rescission rate of 0.15 

percent comes from this subset 

randomly, then they would account for 

one percent of claims. Depending on the 

percentage of rescissions that no longer 

occur as a result of these interim final 

regulations, and other changes to the 

insurance market as detailed below, 

these claims would now have to be 

covered, representing a transfer of costs 

from the affected entities to the larger 

insured population. 

Substantial uncertainty exists around 

the estimated transfer discussed above. 

First, since post-claims underwriting is 

limited by these interim final 

regulations, plans may expand their preclaims underwriting practices, 

potentially leading to increased denials, 

preexisting condition riders, or rateups.73 This in turn would decrease the 

number of rescissions, but without 

expanding coverage or increasing claims 

paid. Second, there is uncertainty 

concerning what proportion of the 

rescissions would be considered to 

result from fraud or intentional 

misrepresentation of material fact, and 

also uncertainty regarding the 

interaction of this provision with other 

provisions, such as the elimination of 

lifetime limits discussed in the impact 

analysis for PHS Act section 2711, or 

the prohibition of preexisting condition 

exclusions for children—since new 

children will now be able to enroll in 

policies which also cannot be rescinded. 

As a result of this uncertainty, the 

Departments are unable to precisely 

estimate an overall or average premium 

impact from this provision, but given 

the relatively low prevalence of 

rescissions in the current market, the 

impact is estimated to be at most a few 

tenths of a percent. 

5. PHS Act Section 2719A, Patient 

Protections (26 CFR 54.9815–2719AT, 

29 CFR 2590.715–2719A, 45 CFR 

147.138) 

As discussed earlier in this preamble, 

Section 2719A of the PHS Act and these 

interim final regulations impose, with 

respect to a group health plan, or group 

or individual health insurance coverage, 

a set of three requirements relating to 

the choice of a health care professional 

and requirements relating to benefits for 

emergency services. The three 

requirements relating to the choice of 

health care professional apply only with 

respect to a plan or health insurance 

coverage with a network of providers. 

Thus, a plan or issuer that has not 

negotiated with any provider for the 

delivery of health care but merely 

reimburses individuals covered under 

the plan for their receipt of health care 

is not subject to the requirements 

relating to the choice of a health care 

professional. However, all plans or 

health insurance coverage are subject to 

requirements relating to benefits for 


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74 Kaiser Family Foundation, ‘‘Number of HMOs, 

July 2008,’’ available at http://www.statehealthfacts.

kff.org/comparetable.jsp?ind=347&cat=7&sub=85&

yr=71&typ=1&sort=a Note that the number of HMOs 

also includes Medicaid and Medicare only HMOs 

that are not covered by these interim final 

regulations. 

75 Departments’ estimates are based on the 2009 

CPS and the 2008 Medical Expenditure Panel 

Survey. 

76See Fang, Hai, et al., ‘‘Has the use of physician 

gatekeepers declined among HMOs? Evidence from 

the United States.’’ International Journal of Health 

Care Finance and Economics 9:183–19 5 (2009). 

77See Kaiser Employer Health Benefits Annual 

Survey, 2009, Exhibit 5.2 (‘‘Distribution of Health 

Plan Enrollment for Covered Workers, by Firm Size, 

Region, and Industry, 2009’’), available at http:// 

ehbs.kff.org/pdf/2009/7936.pdf. 

78See Fanjiang, Gary, et al., ‘‘Providing Patients 

Web-based Data to Inform Physician Choice: If You 

Build It, Will They Come?.’’ Journal of General 

Internal Medicine 22.10 (2007). 

79Balkrishnan, Rajesh, and Chu-Weininger, Ming 

Ying L., ‘‘Consumer Satisfaction with Primary Care 

Provider Choice and Associated Trust.’’ BMC Health 

Services Research 22.10 (2007). 

80Piette, John, et al., ‘‘The Role of PatientPhysician Trust in Moderating Medication 

Nonadherence Due to Cost Pressures.’’ Archives of 

Internal Medicine 165, August (2005) and Roberts, 

Kathleen J., ‘‘Physician-Patient Relationships, 

Patient Satisfaction, and Antiretroviral Medication 

Adherence Among HIV-Infected Adults Attending a 

Public Health Clinic.’’ AIDS Patient Care and STDs 

16.1 (2002). 

81 Ibid. See also DiMatteo, Robin M., et al., 

‘‘Physicians’ Characteristics Influence Patients’ 

Adherence to Medical Treatment: Results From the 

Medical Outcomes Study.’’ Health Psychology 12.2 

(1993), and Bazemore, Andrew, and Phillips, 

Robert, ‘‘Primary Care and Why it Matters for U.S. 

Health Reform.’’ Health Affairs 29.5 (2010). 

82Franks, P., and K. Fiscella, ‘‘Primary Care 

Physicians and Specialists as Personal Physicians. 

Health Care Expenditures and Mortality 

Experience.’’ Journal of Family Practice 47 (1998). 

83Blewett, 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). 

84Macinko, James, et al., ‘‘Contribution of 

Primary Care to Health Systems and Health.’’ 

Milbank Quarterly 83.3 (2005). 

85Burstin, ‘‘Nonurgent Emergency Department 

Visits: The Effect of Having a Regular Doctor.’’ 

86Bazemore, ‘‘Primary Care and Why it Matters 

for U.S. Health Reform.’’ 

emergency services. The cost, benefits, 

and transfers associated with each of 

these requirements are discussed 

separately below. 

PHS Act section 2719A and these 

interim final regulations are generally 

effective for plan years (or, in the case 

of the individual market, policy years) 

beginning on or after September 23, 

2010. 

a. Choice of Health Care Professional 

i. Designation of Primary Care Provider 

Summary. The statute and these 

interim final regulations provide that if 

a group health plan, or a health 

insurance issuer offering group or 

individual health insurance coverage, 

requires or provides for designation by 

a participant, beneficiary, or enrollee of 

a participating primary care provider, 

then the plan or issuer must permit each 

participant, beneficiary, and enrollee to 

designate any participating primary care 

provider who is available to accept the 

participant, beneficiary, or enrollee. 

Estimated Number of Affected 

Entities. Choice or assignment to a 

primary care provider is typically 

required by health maintenance 

organizations (HMOs) and Point of 

Service plans (POS). Recent data suggest 

that there are 577 HMOs in the United 

States,74 accounting for more than 32.3 

million enrollees,75 of whom about 40 

percent have their primary care provider 

serve as a gatekeeper.76 Similar data 

does not exist for POS plans, although 

as a reference, about 10 percent of 

workers with ESI are enrolled in POS 

plans.77

PHS Act section 2719A and these 

interim final regulations only apply to 

non-grandfathered health plans. 

However, due to the lack of data on 

HMO and POS enrollees by type of 

market, and the inability to predict new 

plans that may enter those markets, the 

Departments are unable to predict the 

number enrollees and plans that would 

be affected by these provisions. 

Moreover, there are no data on the 

number of plans that auto-assign 

patients to primary care physicians and 

do not already allow patients to make 

the final provider choice, as this would 

be the population to benefit maximally 

from the interim final rule. From 

conversations with industry experts the 

Departments expect, however, that this 

number would be very small, and 

therefore the benefits and costs of this 

provision would be small as well, as 

discussed further below. 

Benefits. Provider choice allows 

patients to take into account factors they 

may value when choosing their 

provider, such as provider credentials, 

office hours and location, advice from 

professionals, and information on the 

experience of other patients.78 Freedom 

of choice is an important value, 

particularly in this domain, even if it 

cannot easily be turned into monetary 

equivalents. Provider choice is a strong 

predictor of patient trust in their 

provider, which could lead to decreased 

likelihood of malpractice claims.79 As 

well, studies show that better patientprovider trust results in improved 

medication adherence.80 Research 

literature suggests that better patientprovider relationships also increase 

health promotion and therapeutic 

effects.81 Moreover, one study found 

that adults who identified having a 

primary care provider, rather than a 

specialist, as their regular source of care 

had 33 percent lower annual adjusted 

health care expenditures and lower 

adjusted mortality.82

Studies have also found that patients 

who have long-term relationships with 

their health care providers tend to 

experience better quality health care. 

Adults that have a usual provider and 

place are more likely to receive 

preventive care and screening services 

than those who do not. For example, 

adults were 2.8 times more likely to 

receive a flu shot and women between 

the ages of 20–64 were 3.9 times more 

likely to receive a clinical breast exam 

if they had a usual provider and place 

of service.83

Regular contact with primary care 

providers also can decrease emergency 

department visits and hospitalizations. 

One study found that adolescents with 

the same regular source of care were 

more likely to receive preventive care 

and less likely to seek care in an 

emergency room.84 Another study found 

that patients without a relationship with 

a regular physician were 60 percent 

more likely to go to the emergency 

department with a non-urgent 

condition.85 Patients that have a usual 

source of care tend to also have fewer 

hospital admissions.86

Costs and Transfers. Although 

difficult to estimate given the data 

limitations described above, the costs 

for this provision are likely to be 

minimal. As previously noted, when 

enrollees like their providers, they are 

more likely to maintain appointments 

and comply with treatment, both of 

which could induce demand for 

services, but these services could then 

in turn reduce costs associated with 

treating more advanced conditions. 

However, the number of affected entities 

from this provision is very small, 

leading to small additional costs. 

There will likely be negligible 

transfers due to this provision given no 

changes in coverage or cost-sharing. 

ii. Designation of Pediatrician as 

Primary Care Provider 

Summary. If a plan or issuer requires 

or provides for the designation of a 

participating primary care provider for a 

child by a participant, beneficiary, or 

enrollee, the plan or issuer must permit 

the designation of a physician 

(allopathic or osteopathic) who 

specializes in pediatrics as the child’s 

primary care provider if the provider 

participates in the network of the plan 

or issuer and is available to accept the 

child. The general terms of the plan or 

health insurance coverage regarding 

pediatric care otherwise are unaffected, 


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87U.S. Department of Labor/EBSA calculations 

using the March 2009 Current Population Survey 

Annual Social and Economic Supplement and the 

2008 Medical Expenditure Panel Survey. 

88There is no data available to estimate the 

number of plans that fall into this category. 

89See AAP Policy, ‘‘Guiding Principles for 

Managed Care Arrangements for the Health Care of 

Newborns, Infants, Children, Adolescents, and 

Young Adults,’’ available at http:// 

aappolicy.aappublications.org/cgi/reprint/ 

pediatrics;105/1/132.pdf. 

90For example, Michigan and North Carolina 

mandate direct access to pediatricians as a part of 

patients’ rights requirements. See Kaiser Family 

Foundation, ‘‘Patients’ Rights: Direct Access to 

Providers, 2008,’’ available at http:// 

www.statehealthfacts.kff.org/ 

comparetable.jsp?ind=364&cat=7. 

91Bye, ‘‘Effectiveness of Compliance with 

Pediatric Preventative Care Guidelines Among 

Medicaid Beneficiaries.’’ 92 ‘‘Working Group Report on Future Research 

Directions in Childhood Obesity Prevention and 

Treatment.’’ National Heart Lung and Blood 

Institute, National Institute of Health, U.S. 

Department of Health and Human Services (2007), 

available at http://www.nhlbi.nih.gov/meetings/ 

workshops/child-obesity/index.htm. 

93 Ibid. 

94http://www.merritthawkins.com/pdf/2008- 

mha-survey-primary-care.pdf. 95See Salganicoff, Alina, et al., ‘‘Women and 

Health Care: A National Profile.’’ Kaiser Family 

Foundation (2005). 

96See Cherry, Donald K., et al., ‘‘National 

Ambulatory Medical Care Survey: 2006 Summary.’’ 

National Health Statistics Reports (August 2008), 

Centers for Disease Control and Prevention, 

available at http://www.cdc.gov/nchs/data/nhsr/ 

nhsr003.pdf. 

including any exclusions with respect to 

coverage of pediatric care. 

Estimated Number of Affected 

Entities. Due to lack of data on 

enrollment in managed care 

organizations by age, as well as lack of 

data on HMO and POS enrollees by type 

of market, and the inability to predict 

new plans that may enter those markets, 

the Departments are unable to predict 

the number enrollees and plans that 

would be affected by these provisions. 

As a reference, there are an estimated 

11.8 million individuals under age 19 

with ESI who are in an HMO plan.87

Benefits. By expanding participating 

primary care provider options for 

children to include physicians who 

specialize in pediatrics, this provision 

could benefit individuals who are 

making decisions about care for their 

children. As discussed in the previous 

section, research indicates that when 

doctors and patients have a strong, 

trusting relationship, patients often have 

improved medication adherence, health 

promotion, and other beneficial health 

outcomes. Considering this research, 

this provision could lead to better, 

sustained patient-provider relationships 

and health outcomes. 

In addition, allowing enrollees to 

select a physician specializing in 

pediatrics as their children’s primary 

care provider could remove any referralrelated delays for individuals in plans 

that require referrals to pediatricians 

and do not allow physicians 

specializing in pediatrics to serve as 

primary care providers.88 The American 

Academy of Pediatrics (AAP) strongly 

supports the idea that the choice of 

primary care clinicians for children 

should include pediatricians.89

Relatedly, at least two States have laws 

providing children immediate access to 

pediatricians.90

Regular pediatric care, including care 

by physicians specializing in pediatrics, 

can improve child health outcomes and 

avert preventable health care costs. For 

example, one study of Medicaid 

enrolled children found that when 

children were up to date for age on their 

schedule of well-child visits, they were 

less likely to have an avoidable 

hospitalization at a later time.91

Likewise, if providers are able to 

proactively identify and monitor obesity 

in child patients, they may reduce the 

incidence of adult health conditions 

that can be expensive to treat; various 

studies have documented links between 

childhood obesity and diabetes, 

hypertension, and adult obesity.92 One 

recent study modeled that a onepercentage-point reduction in obesity 

among twelve-year-olds would save 

$260.4 million in total medical 

expenditures.93

Giving enrollees in covered plans 

(that require the designation of a 

primary care provider) the ability to 

select a participating physician who 

specializes in pediatrics as the child’s 

primary care provider benefits 

individuals who would not otherwise 

have been given these choices. Again, 

the extent of these benefits will depend 

on the number of enrollees with 

children that are covered by plans that 

do not allow the selection of a 

pediatrician as the primary care 

provider, which industry experts 

suggest would be small. 

Costs and Transfers. Although 

difficult to estimate given the data 

limitations described above, the costs 

for this provision are likely to be small. 

Giving enrollees a greater choice of 

primary care providers by allowing 

them to select participating physicians 

who specialize in pediatrics as their 

child’s primary care provider could lead 

to health care costs by increasing the 

take-up of primary care services, 

assuming they would not have utilized 

appropriate services as frequently if 

they had not been given this choice. 

Any transfers associated with these 

interim final regulations are expected to 

be minimal. To the extent that 

pediatricians acting as primary care 

providers would receive higher payment 

rates for services provided than would 

other primary care physicians, there 

may be some transfer of wealth from 

policy holders of non grandfathered 

group plans to those enrollees that 

choose the former providers. However, 

the Departments do not believe that this 

is likely given the similarity in income 

for primary care providers that care for 

children.94

iii. Patient Access to Obstetrical and 

Gynecological Care 

Summary. The statute and these 

interim final regulations also provide 

rules for a group health plan, or a health 

insurance issuer offering group or 

individual health insurance coverage, 

that provides coverage for obstetrical or 

gynecological care and requires the 

designation of an in-network primary 

care provider. Specifically, the plan or 

issuer may not require authorization or 

referral by the plan, issuer, or any 

person (including a primary care 

provider) for a female participant, 

beneficiary, or enrollee who seeks 

obstetrical or gynecological care 

provided by an in-network health care 

professional who specializes in 

obstetrics or gynecology. These plans 

and issuers must also treat the provision 

of obstetrical and gynecological care, 

and the ordering of related obstetrical 

and gynecological items and services, by 

the professional who specializes in 

obstetrics or gynecology as the 

authorization of the primary care 

provider. For this purpose, a health care 

professional specializing in obstetrics or 

gynecology is any individual who is 

authorized under applicable State law to 

provide obstetrical or gynecological 

care, and is not limited to a physician. 

Estimated Number of Affected 

Entities. Requiring referrals or 

authorizations to health care 

professional who specializes in 

obstetrics or gynecology (OB/GYNs) is 

typically required by health 

maintenance organizations (HMOs) and 

Point of Service plans (POS). As a 

reference, according to the 2004 Kaiser 

Women’s Health Survey, 46 percent of 

women reported seeing an OB/GYN in 

the past year and 47 percent of women 

of reproductive age counted OB/GYNs 

among their routine health care 

providers.95 In 2006, there were 69.4 

million visits to an OB/GYN according 

to the National Ambulatory Medical 

Care Survey conducted by the Centers 

for Disease Control and Prevention.96

Although more recent data is not 

available, a 1999 survey showed that 60 

percent of all OB/GYNs in plans 


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97See American College of Obstetricians and 

Gynecologists/Princeton Survey Research 

Associates, 1999. 98 Kaiser Family Foundation, ‘‘Mandates Direct 

Access to OB/GYNs?,’’ available at http:// 

www.statehealthfacts.kff.org/ 

comparemaptable.jsp?ind=493&cat=10&sub=114. 

99U.S. Department of Labor/EBSA calculations 

using the March 2009 Current Population Survey 

Annual Social and Economic Supplement and the 

2008 Medical Expenditure Panel Survey. 

100See National Commission on Prevention 

Priorities, ‘‘Preventive Care: A National Profile on 

Use, Disparities, and Health Benefits.’’ Partnership 

for Prevention, August 2007. 

101See ‘‘Preventive Care: A National Profile on 

Use, Disparities, and Health Benefits’’ at 26. 

requiring the designation of a primary 

care provider reported that their 

gynecologic patients were either limited 

or barred from seeing their OB/GYNs 

without first getting permission from 

another physician, and 28 percent 

reported that their pregnant patients 

needed permission before seeing an OB/ 

GYN.97 Nearly 75 percent of surveyed 

OB/GYNs reported that their patients 

needed to return to their primary care 

physicians for permission before they 

could provide necessary follow-up care. 

Notably, beginning in 1994, due to 

both consumer demand and efforts to 

regulate managed care, many States 

passed direct access laws for OB/GYNs, 

allowing patients to seek care at an OB/ 

GYN office without a referral from a 

primary care physician. As of 2008, 36 

States plus the District of Columbia 

have laws that provide direct access to 

OB/GYNs. However, 14 States have not 

mandated direct access: Alaska, 

Arizona, Hawaii, Indiana, Iowa, 

Nebraska, New Jersey, New Mexico, 

North Dakota, Oklahoma, South Dakota, 

Tennessee, Vermont, and Wyoming.98

This provision gives females direct 

access to OB/GYNs in covered plans in 

these States, who may otherwise not 

have had this direct access. As well, 

because State law is preempted by 

ERISA, women in self-insured plans did 

not previously receive this legal 

protection. In addition, these women 

will not need to get an authorization 

from their primary care provider for the 

care and ordering of obstetrical and 

gynecological items and services by 

their participating OB/GYN. 

These interim final regulations apply 

to non-grandfathered health plans. 

However, due to the lack of data on 

HMO and POS enrollees by type of 

market, and the inability to predict new 

plans that may enter those markets, the 

Departments are unable to predict the 

number enrollees and plans that would 

be affected by this provision. As a 

reference, there are an estimated 14.8 

million females between ages 21 to 65 

with ESI who are in HMO plans.99

Benefits. This provision gives women 

in covered plans easier access to their 

OB/GYNs, where they can receive 

preventive services such as pelvic and 

breast exams, without the added time, 

expense, and inconvenience of needing 

permission first from their primary care 

providers. Moreover, this provision may 

also save time and reduce 

administrative burden since 

participating OB/GYNs do not need to 

get an authorization from a primary care 

provider to provide care and order 

obstetrical and gynecological items and 

services. To the extent that primary care 

providers spend less time seeing women 

who need a referral to an OB/GYN, 

access to primary care providers will be 

improved. To the extent that the items 

and services are critical and would have 

been delayed while getting an 

authorization from the primary care 

provider, this provision could improve 

the treatment and health outcomes of 

female patients. 

Access to such care can have 

substantial benefits in women’s lives. 

About 42,000 American women die 

each year from breast cancer, and it is 

estimated that about 4,000 additional 

lives would be saved each year just by 

increasing the percentage of women 

who receive recommended breast cancer 

screenings to 90 percent.100 As well, 

regular screening with pap smears is the 

major reason for the 30-year decline in 

cervical cancer mortality.101

To the extent that direct access to OB/ 

GYN services results in increased 

utilization of recommended and 

appropriate care, this provision may 

result in benefits associated with 

improved health status for the women 

affected. Potential cost savings also exist 

since women in affected plans will not 

need to visit their primary care provider 

in order to get a referral for routine 

obstetrical and gynecological care, 

items, and services, thereby reducing 

unnecessary time and administrative 

burden, and decreasing the number of 

office visits paid by her and by her 

health plan. 

Costs and Transfers. One potential 

area of additional costs associated with 

this provision would be induced 

demand, as women who no longer need 

a referral to see an OB/GYN may be 

more likely to receive preventive 

screenings and other care. Data is 

limited to provide an estimate of this 

induced demand, but the Departments 

believe it to be small. 

To the extent these interim final 

regulations result in a shift in services 

to higher cost providers, it would result 

in a transfer of wealth from enrollees in 

non grandfathered group plans to those 

individuals using the services affected. 

However, such an effect is expected to 

be small. 

b. Coverage of Emergency Services 

i. Summary 

PHS Act section 2719A and these 

interim final regulations provide that a 

group health plan and a health 

insurance issuer covering emergency 

services must do so without the 

individual or the health care provider 

having to obtain prior authorization 

(even if the emergency services are 

provided out of network). For a plan or 

health insurance coverage with a 

network of providers that provide 

benefits for emergency services, the plan 

or issuer may not impose any 

administrative requirement or limitation 

on benefits for out-of-network 

emergency services that is more 

restrictive than the requirements or 

limitations that apply to in-network 

emergency services. 

Finally, these interim final regulations 

provide that cost-sharing requirements 

expressed as a copayment amount or 

coinsurance rate imposed for out-ofnetwork emergency services cannot 

exceed the cost-sharing requirements 

that would be imposed if the services 

were provided in-network. These 

interim final regulations also provide 

that a plan or health insurance issuer 

pay for out-of-network emergency 

services (prior to imposing in-network 

cost-sharing), the greatest of: (1) The 

median in-network rate; (2) the usual 

customary and reasonable rate (or 

similar rate determined using the plans 

or issuer’s general formula for 

determining payments for out-ofnetwork services); or (3) the Medicare 

rate. 

In applying the rules relating to 

emergency services, the statute and 

these interim final regulations define 

the terms emergency medical condition, 

emergency services, and stabilize. These 

terms are defined generally in 

accordance with their meaning under 

Emergency Medical Treatment and 

Labor Act (EMTALA), section 1867 of 

the Social Security Act. There are, 

however, some variances from the 

EMTALA definitions. 

The statute and these interim final 

regulations relating to emergency 

services do not apply to grandfathered 

health plans; however, other Federal or 

State laws related to emergency services 

may apply regardless of grandfather 

status. 

ii. Estimated Number of Affected 

Entities 

These interim final regulations will 

directly affect out-of-pocket 


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102 Vital and Health Statistics, Advanced Data No. 

386, June 29, 2007. 

103BCBS, however, reports its rates vary 

considerably by State, with 11 States having double 

digit rates ranging from 10 percent to a high of 41 

percent. Moreover, because BCBS has reciprocity 

between many State Blue Cross Blue Shield plans, 

its statistics for out of network emergency services 

utilization should be considered a conservative 

estimate of the proportion of ER services that 

insured individuals receive out-of-network. 

expenditures for individuals enrolled in 

non-grandfathered private health 

insurance plans (group or individual) 

whose copayment or coinsurance 

arrangements for emergency services 

differ between in network and out of 

network providers. These interim final 

regulations may also require some 

health plans to make higher payments to 

out of network providers than are made 

under their current contractual 

arrangements. There are no available 

data, however, that allow for national 

estimates of the number of plans (or 

number of enrollees in plans) that have 

different payment arrangements for out 

of network than in-network providers, 

or differences between in- and out-ofnetwork copayment and coinsurance 

arrangements, in order to more precisely 

estimate the number of enrollees 

affected. 

The Departments conducted an 

informal survey of benefits plans for 

large insurers in order to assess the 

landscape with regard to copayment and 

coinsurance for emergency department 

services, but found that a variety of 

arrangements currently exist in the 

marketplace. Many of the large insurers 

maintained identical copayment and/or 

coinsurance arrangements between in 

and out of network providers. Others 

have differing arrangements based on 

copayments, coinsurance rates, or a 

combination of the two. While useful for 

examining the types of arrangement that 

exist in the market place, these data do 

not contain enrollment information and 

therefore cannot be used to make impact 

estimates. 

Although these data do not permit 

quantitative estimates of plans or 

persons affected, other data can be 

illustrative of overall magnitudes for 

emergency services. For a point of 

reference, in 2005, 115.3 million visits 

were made to hospital emergency 

departments. Of these, 39.9 percent 

were made by individuals with private 

insurance. This represents 

approximately 46.0 million visits, at 

approximately 1.7 visits per insured 

person that utilized emergency 

department services, or 27.4 million 

people.102 While data on rates of out-ofnetwork emergency room encounters is 

sparse, the Blue Cross Blue Shield 

(BCBS) Association reports that 

nationally about 8 percent of its 

emergency room visits are sought out-ofnetwork.103 Given the breadth of the 

Blue Cross networks, it is reasonable to 

assume that 8 percent to 16 percent of 

emergency room visits are out-ofnetwork each year, since a plan with a 

smaller provider network will be more 

likely to have out-of-network use by 

enrollees. If each individual was equally 

likely to utilize out of network services, 

a maximum of 2.1 to 4.2 million 

individuals would be potentially 

affected by differing out-of-pocket 

requirements. Based on the informal 

survey, some proportion, possibly a 

large portion, of these individuals are 

covered by plans that have identical in 

and out-of-network requirements. 

Therefore, the number of individuals 

affected by this regulatory provision 

would be smaller. 

iii. Benefits 

Insurers maintain differing copayment 

and coinsurance arrangements between 

in- and out-of-network providers as a 

cost containment mechanism. 

Implementing reduced cost sharing for 

the use of in-network providers 

provides financial incentive for 

enrollees to use these providers, with 

whom plans often have lower-cost 

contractual arrangements. In emergency 

situations, however, the choice of an innetwork provider may not be 

available—for example, when a patient 

is some distance from his or her local 

provider networks or when an 

ambulance transports a patient to the 

nearest hospital which may not have 

contractual arrangements with the 

person’s insurer. In these situations, the 

differing copayment or coinsurance 

arrangements could place a substantial 

financial burden on the patient. These 

interim final regulations eliminate this 

disparity in out-of-pocket burden for 

enrollees, leading to potentially 

substantial financial benefit. 

These interim final regulations also 

provide for potentially higher payments 

to out-of-network providers, if usual 

customary rates or Medicare rates are 

higher than median in-network rates. 

This could have a direct economic 

benefit to providers and patients, as the 

remaining differential between provider 

charge and plan payment will be 

smaller, leading to a smaller balance-bill 

for patients. 

To the extent that expectations about 

such financial burden with out-ofnetwork emergency department usage 

would cause individuals to delay or 

avoid seeking necessary medical 

treatment when they cannot access a 

network provider, this provision may 

result in more timely use of necessary 

medical care. It may therefore result in 

health and economic benefits associated 

with improved health status; and fewer 

complications and hospitalizations due 

to delayed and possibly reduced 

mortality. The Departments expect that 

this effect would be small, however, 

because insured individuals are less 

likely to delay care in emergency 

situations. 

iv. Costs and Transfers 

The economic costs associated with 

the emergency department provisions 

are likely to be minimal. These costs 

would occur to the extent that any lower 

cost-sharing would induce new 

utilization of out of network emergency 

services. Given the nature of these 

services as emergency services, this 

effect is likely to be small for insured 

individuals. In addition, the demand for 

emergency services in truly emergency 

situations can result in health care cost 

savings and population health 

improvements due to the timely 

treatment of conditions that could 

otherwise rapidly worsen. 

The emergency services provisions 

are likely to result in some transfers 

from the general membership of nongrandfathered group policies that have 

differing copayment and coinsurance 

arrangements to those policy holders 

that use the out-of-network emergency 

services. The transfers could occur 

through two avenues. First, if there is 

reduced cost sharing for out-of-network 

emergency services, then plans must 

pay more when enrollees use those 

services. Out-of-pocket costs for the 

enrollees using out-of-network services 

will decrease, while plan costs will get 

spread across the insured market. 

Second, if the provision results in plans 

paying higher rates than they currently 

do for out-of-network providers, then 

those costs will get spread across the 

insured market while the individual 

enrollees using out-of-network care 

would potentially get a smaller balance 

bill. For all of the data issues described 

above, the precise amount of the transfer 

which would occur through an increase 

in premiums for these group plans is 

impossible to quantify with any 

precision, but it is likely to be less than 

one-tenth of one percent of premium, 

and only applies to non-grandfathered 

health plans. 

c. Application to Grandfathered Health 

Plans 

As discussed earlier in this preamble, 

the statute and these interim final 

regulations relating to certain patient 

protections do not apply to 


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37214 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

104NAIC Rescission Data Call, December 17, 

2009, p.1. 

105Almond, Douglas, Joseph J. Doyle, Jr., Amanda 

E. Kowalski, and Heidi Williams. ‘‘Estimating 

Marginal Returns to Medical Care: Evidence from 

At-Risk Newborns.’’ The Quarterly Journal of 

Economics, May 2010, 125(2): 591–634. http:// 

www.mit.edu/∼jjdoyle/vlbw.pdf. 

106 Doyle, Joseph J. ‘‘Health Insurance, Treatment 

and Outcomes: Using Auto Accidents as Health 

Shocks.’’ The Review of Economics and Statistics, 

May 2005. 87(2):256–270. http:// 

www.mitpressjournals.org/doi/abs/10.1162/ 

0034653053970348. 

107Currie, Janet and J. Gruber. ‘‘Health Insurance 

Eligibility, Utilization of Medical Care, and Child 

Health.’’ The Quarterly Journal of Economics, May 

1996. 111(2):431–466. http://www.jstor.org/stable/ 

2946684?cookieSet=1. 

108Card, David, C. Dobkin, and N. Maestas. ‘‘Does 

Medicare Save Lives?’’ The Quarterly Journal of 

Economics, May 2009. 124(2):597–636. http:// 

www.mitpressjournals.org/doi/abs/10.1162/ 

qjec.2009.124.2.597. 

109 Institute of Medicine. Care Without Coverage: 

Too Little, Too Late. Washington, DC: National 

Academy Press, 2002. http://books.nap.edu/ 

openbook.php?record_id=10367&page=R1. 

110 Institute of Medicine, op. cit. Hadley J. Sicker 

and Poorer: The consequences of being uninsured. 

Medical Care Research and Review, Vol. 60, No. 2 

suppl, 3S–75S (2003). 

grandfathered health plans. However, 

other Federal or State laws related to 

these patient protections may apply 

regardless of grandfather status. 

d. Patient Protection Disclosure 

Requirement 

When applicable, it is important that 

individuals enrolled in a plan or health 

insurance coverage know of their rights 

to (1) choose a primary care provider or 

a pediatrician when a plan or issuer 

requires participants or subscribers to 

designate a primary care physician; or 

(2) obtain obstetrical or gynecological 

care without prior authorization. 

Accordingly, these interim final 

regulations require such plans and 

issuers to provide a notice to 

participants (in the individual market, 

primary subscribers) of these rights 

when applicable. Model language is 

provided in these interim final 

regulations. The notice must be 

provided whenever the plan or issuer 

provides a participant with a summary 

plan description or other similar 

description of benefits under the plan or 

health insurance coverage, or in the 

individual market, provides a primary 

subscriber with a policy, certificate, or 

contract of health insurance. 

The Departments estimate that the 

cost to plans and insurance issuers to 

prepare and distribute the disclosure is 

$6.1 million in 2011. For a discussion 

of the Patient Protection Disclosure 

Requirement, see the Paperwork 

Reduction Act section later in this 

preamble. 

6. Combined Effects of the Insurance 

Market Reforms 

a. Summary 

The Affordable Care Act includes a 

number of provisions that are effective 

for plan years (or in the case of 

individual health insurance coverage, 

for policy years) beginning on or after 

September 23, 2010. These interim final 

regulations include four of those 

provisions whose purpose is to improve 

consumer protections. Two additional 

provisions—the extension of dependent 

coverage to adult children and the rules 

defining a grandfathered health plan— 

were the subject of previously published 

interim final regulations. The 

implementation of other provisions— 

including those relating to coverage of 

preventive services (PHS Act section 

2713) and appeals (PHS Act section 

2719)—will be addressed in future 

regulations. 

This set of regulations is distinct from 

the others in that its primary 

beneficiaries are people who generally 

already have some type of illness, injury 

or disability. The provision prohibiting 

preexisting condition exclusions for 

children could help 31,000 to 72,000 

uninsured children gain insurance, and 

up to 90,000 children who have 

insurance with benefit carve-outs or 

preexisting condition exclusion periods. 

The policy on restricted annual limits 

could help up to 2,700 to 3,500 people 

who hit these limits each year; the 

prohibition on lifetime limits could help 

18,650 to 20,400 each year who would 

be expected to have costs that exceed a 

limit. Based on an NAIC survey, the 

Departments estimate there are 

approximately 10,700 rescissions of 

policies in the individual market each 

year, and these interim final regulations 

are expected to reduce this number 

substantially.104 And one of the patient 

protections, access to emergency care 

from out-of-network providers, could 

limit the out-of-pocket spending for up 

to 2.1 to 4.2 million individuals with 

some acute health care need. While the 

estimates on the number of people 

affected by these policies may be 

relatively small, a much larger number 

of Americans are at risk of hitting one 

of these barriers to insurance coverage 

and will gain indirect benefits of the 

legislation. This section describes the 

potential combined benefits, costs, and 

transfers of these provisions. 

b. Benefits 

These interim final regulations could 

generate significant economic and social 

welfare benefits to consumers. This 

would take the form of reductions in 

mortality and morbidity, a reduction in 

medical expenditure risk, an increase in 

worker productivity, and a decrease the 

cross-subsidy in premiums to offset 

uncompensated care, sometimes 

referred to as the ‘‘hidden tax.’’ Each of 

these effects is described below. It 

should be noted that the benefits 

described are substantially greater in 

each of these areas once all the 

protections of the full Affordable Care 

Act are effective. 

A first type of benefit is reductions in 

mortality and morbidity. While the 

empirical literature leaves many 

questions unresolved, a growing body of 

evidence convincingly demonstrates 

that health can be improved by 

spending more on at-risk individuals 

and by expanding health insurance 

coverage. For example, Almond et al.105

find that newborns classified just below 

a medical threshold for ‘‘very low 

birthweight’’ have lower mortality rates 

than newborns classified as just above 

the threshold, despite an association 

between low birth weight and higher 

mortality in general, because they tend 

to receive additional medical care. In a 

study of severe automobile accidents, 

Doyle106 found that uninsured 

individuals receive less care and have a 

substantially higher mortality rate. 

Currie and Gruber107 found that 

increased eligibility for Medicaid 

coverage expanded utilization of care 

for otherwise uninsured children, 

leading to a sizeable and significant 

reduction in child mortality. A study of 

Medicare by Card et al.108 found that 

individuals just old enough to qualify 

for coverage have lower mortality 

rates—despite similar illness severity— 

than do those just too young for 

eligibility. Finally, a report by the 

Institute of Medicine (IOM) 109 found 

mortality risks for uninsured 

individuals that were 25 percent higher 

than those of observably similar insured 

individuals. In addition to the prospect 

that expanded insurance coverage will 

result in reductions in mortality, it will 

almost certainly substantially reduce 

morbidity, as demonstrated in extensive 

reviews of the literature by Hadley and 

the IOM.110

These interim final regulations will 

expand access to currently uninsured 

individuals. These newly insured 

populations will likely achieve both 

mortality and meaningful morbidity 

reductions from the regulations, 

especially those populations who face 

rescissions, restricted annual or lifetime 

limits, or preexisting conditions 

exclusions, since they are on average in 

worse health and thus likely to benefit 

even more from insurance coverage than 

uninsured individuals in general. 


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111 Kronick, Richard. ‘‘Health insurance coverage 

and mortality revisited.’’ Health Services Research. 

April 2009. 44(4):1211–1231. http:// 

www3.interscience.wiley.com/journal/122342601/ 

abstract?CRETRY=1&SRETRY=0. 

112Amy Finkelstein and Robin McKnight. What 

Did Medicare Do? The Initial Impact of Medicare 

on Mortality and Out of Pocket Medical Spending. 

2008. Journal of Public Economics 92: 1644–1669. 

113 David Himmelstein et al, 2009. 

114Council of Economic Advisers. ‘‘The Economic 

Case for Health Reform.’’ (2009). 

115 Gruber, J. and B. Madrian. ‘‘Health Insurance, 

Labor Supply, and Job Mobility: A Critical Review 

of the Literature.’’ (2001). 

116Hadley, Jack, J. Holahan, T. Coughlin, and D. 

Miller. ‘‘Covering the Uninsured in 2008: Current 

Costs, Sources of Payment, and Incremental Costs.’’ 

Health Affairs, 2008, 27(5): w399TMw415. 

Because considerable uncertainty 

surrounds any specific estimate of the 

effect of expanded coverage on mortality 

and morbidity, this benefit is not 

quantified in this analysis.111 However, 

the Departments conclude that 

reductions in mortality and morbidity 

are likely to be a significant benefit of 

these interim final regulations and will 

become substantially greater in 2014 

and subsequent years, when millions of 

additional individuals will obtain 

health insurance coverage. 

A second type of benefit from the 

cumulative effects of these interim final 

regulations is a reduction in medical 

risk. A central goal of health insurance 

is to protect individuals against 

catastrophic financial hardship that 

would come with a debilitating medical 

condition. By pooling expenses across 

healthy and sick individuals, insurance 

can substantially improve the economic 

well-being of the sick while imposing 

modest costs on the healthy. This 

insurance is valuable, and economic 

theory suggests that the gains to the sick 

from a properly implemented insurance 

system far exceed the costs to healthy 

individuals. A recent paper shows that 

the benefits from this reduction in 

exposure to financial risks would be 

sufficient to cover almost two-fifths of 

insurance costs.112 Previous research 

also suggests that protecting patients 

who have very high medical costs or 

low financial assets is likely to have 

even larger benefits. Indeed, research 

indicates that approximately half of the 

more than 500,000 personal 

bankruptcies in the U.S. in 2007 were to 

some extent contributed to by very high 

medical expenses.113 Exclusions from 

health insurance coverage based on 

preexisting conditions expose the 

uninsured to the aforementioned 

financial risks. Rescissions of coverage 

and binding annual or lifetime limits on 

benefits increase the chance that 

medical expenditures will go 

uncompensated, exposing individuals to 

the financial risks associated with 

illness. Regulations that prevent these 

practices thus reduce the uncertainty 

and hardship associated with these 

financial risks. Moreover, because they 

secure coverage for individuals with 

high probabilities of incurring extensive 

medical expenses, regulations that 

guard against rescissions and prevent 

insurance exclusion based on 

preexisting conditions for children are 

likely to have especially large economic 

benefits in terms of reducing financial 

risk. These interim final regulations will 

help insurance more effectively protect 

patients from the financial hardship of 

illness, including bankruptcy and 

reduced funds for non-medical 

purposes. 

A third type of benefit from these 

interim final regulations is improved 

workplace productivity. These interim 

final regulations will benefit employers 

and workers by increasing workplace 

productivity and reducing absenteeism, 

low productivity at work due to 

preventable illness, and ‘‘job-lock.’’ A 

June 2009 report by the Council of 

Economic Advisers found that increased 

access to health insurance coverage 

improves labor market outcomes by 

improving worker health.114 The health 

benefits of eliminating coverage 

rescissions and lifetime coverage limits, 

restricting annual limits, and expanding 

access to primary care providers and 

OB/GYNs will help to reduce disability, 

low productivity at work due to 

preventable illness, and absenteeism in 

the work place, thereby increasing 

workplace productivity and labor 

supply. Economic theory suggests that 

these benefits would likely be shared by 

workers, employers, and consumers. In 

addition, these interim final regulations 

will increase labor market efficiency by 

reducing ‘‘job lock,’’ or the reluctance to 

switch jobs or engage in 

entrepreneurship because such 

activities would result in the loss of 

health insurance or limitations on 

coverage. For example, without the 

regulations, a parent with generous 

coverage for a child with a medical 

condition might fear moving to a 

different employer or launching his or 

her own business given the concern that 

the new plan could exclude coverage for 

the child on the basis of the preexisting 

condition. These reforms will increase 

not only productivity and innovation 

through entrepreneurship, but also 

worker wages since job lock prevents 

workers from pursuing jobs with 

potentially higher salaries.115 The 

Council of Economic Advisers’ June 

2009 report estimates that for workers 

between the ages of 25 and 54, the shortterm gain from eliminating job lock 

would be an increase in wages of 0.3 

percent. 

Fourth, the Affordable Care Act’s 

provisions will reduce the transfers in 

the health care system due to cost 

shifting of uncompensated care that lead 

to higher premiums for private 

insurance. The insurance market 

regulations will help expand the 

number of individuals who are insured 

and reduce the likelihood that 

individuals who have insurance do not 

bankrupt themselves by paying medical 

bills. Both effects will help reduce the 

amount of uncompensated care that 

imposes a ‘‘hidden tax’’ on consumers of 

health care since the costs of this care 

are shifted to those who are able to pay 

for services in the form of higher prices. 

The Departments provide here an 

order of magnitude for the 

compensatory reduction in cost-shifting 

of uncompensated care that is 

associated with the expansion of 

coverage of these interim final 

regulations. Three assumptions were 

made. First, the uninsured populations 

affected by these interim final 

regulations tend to have worse health, 

greater needs for health care, higher 

health care spending, and less ability to 

reduce utilization when they are 

uninsured. These interim final 

regulations are therefore unlikely to 

induce as much demand for health care 

as would be assumed for the uninsured 

population in general when coverage 

expands. As such, the Departments 

assume that extending insurance 

coverage to this group is unlikely to 

significantly increase the overall costs of 

the U.S. health care system. The 

Departments therefore assume that the 

vast majority of the premium increases 

estimated in this regulatory impact 

analysis result from transfers from outof-pocket or uncompensated care costs 

to covered costs, although we 

emphasize that there is considerable 

uncertainty surrounding this estimate. 

Second, on the basis of the economics 

literature on the subject,116 the 

Departments estimate that two-thirds of 

the previously uncovered costs would 

have been uncompensated care (with 

the remaining one-third paid for out-ofpocket), of which 75 percent would 

have been paid for by public sources, 

and 25 percent would have been paid 

for by private sources. If reductions in 

privately-financed uncompensated care 

are passed on in the form of lower 

prices charged by hospitals, and result 

in lower insurance premiums charged to 

consumers, then the Departments 

estimate that increased insurance 


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117The Departments come to this estimate using 

the following methods. First, they estimated the 

proportion of the population in group and 

individual markets using the Medical Expenditure 

Panel Survey (2008). Next, information from 75 FR 

34538 (June 17, 2010) was used to estimate the 

proportion of employer and individual plans that 

maintain or lose grandfather status by 2013. 

Projections of national health expenditures from the 

National Health Expenditure Accounts to 2013 were 

distributed among these groups, and premium 

impacts as discussed in this regulatory impact 

analysis were applied. Potential premium 

reductions secondary to reductions in the costshifting of uncompensated care were then 

calculated using the information from the economic 

literature as presented in this discussion. The 

Departments note that to the extent that not all of 

the reductions in uncompensated care costs are 

passed onto insured populations, these estimates 

may be an overestimate. 

coverage for the vulnerable populations 

affected by these interim final 

regulations could result in reductions in 

insurance premiums of up to $1 billion 

in 2013.117 There would also be 

corresponding decreases in public 

expenditure as uncompensated care is 

reduced. 

c. Costs and Transfers 

Premiums reflect both effects on 

health system costs as well as transfers 

in the payment of costs from one payer 

or group of individuals to another. For 

example, as consumer protections 

expand coverage and/or reduce costsharing, the costs for services that 

people previously paid for out of 

pocket—often creating substantial 

burdens as described above—will be 

distributed over a wider insured 

population. On the other hand, the costshifting that previously occurred onto 

the insured population when people 

could no longer pay for their out-ofpocket care will be reduced. Expansion 

of coverage will also generate induced 

demand for services, with 

corresponding benefits to health and 

productivity. These costs and transfers 

together will generate a change in 

premiums. As discussed previously, the 

populations affected by these interim 

final regulations tend to be in poorer 

health than the general uninsured 

population, leading to less induced 

demand when coverage expands. 

The Departments estimate that the 

premium effect of prohibiting 

preexisting condition exclusions for 

children would be on average one 

percent or less in the individual market 

and negligible in the group market. The 

provisions relating to annual and 

lifetime limits would have 

approximately one-half of one percent 

impact on premiums in the group 

market and less than a one percent 

impact on premiums in the individual 

market. While the prohibition on 

lifetime limits applies to individual 

plans that are grandfathered, the 

restricted annual limit policy and 

preexisting condition exclusion policy 

for children do not, limiting the 

premium effect for the grandfathered 

market. Although precise estimates of 

the effects of restricting rescissions and 

expanding patient protections are even 

more difficult to make than for 

preexisting condition exclusions or 

annual and lifetime limits, the 

Departments’ analysis suggest that the 

effects of restricting rescissions will be 

no more than a few tenths of one 

percent of premium, and that patient 

protections will increase premiums by 

less than one tenth of one percent. 

The Departments emphasize that 

these individual premium effects cannot 

be simply added to get a combined 

impact on premiums for several reasons. 

The first relates to their simultaneous 

implementation. Quantifying the precise 

and unique premium impact of policies 

that take effect at the same time is 

difficult. Health insurers will consider 

the totality of the provisions in making 

decisions about coverage modifications, 

so that disentangling the effects of each 

provision is impossible. This is 

especially so given the complex 

interactions among the policies. For 

example, prohibiting rescissions and 

lifetime limits could mean that someone 

who would have had a policy rescinded 

now maintains coverage, and also 

maintains coverage beyond a previous 

lifetime limit. Under the current 

guaranteed renewability protections in 

the individual market, if a child with a 

preexisting condition is now able to 

obtain coverage on a parental plan, he 

or she can potentially stay on that plan 

until age 26. 

This difficulty is compounded by the 

flexibility afforded in the grandfather 

rule. Plans and issuers will consider the 

cumulative impact of these provisions 

when making decisions about whether 

or not to make other changes to their 

coverage that could affect their 

grandfather status. It can be expected 

that the plans that are most affected by 

these provisions in terms of potential 

premium impact will likely be the most 

aggressive in taking steps to maintain 

grandfather status, although, as 

described in that regulatory impact 

analysis, other factors affect plans’ 

decisions as well. It is unlikely that 

plans will make this calculation 

multiple times for the multiple 

provisions that will take effect at the 

same time. 

Lastly, estimating these effects 

cumulatively compounds the errors of 

highly uncertain estimates. As 

discussed, plan and enrollee behaviors 

may change in response to the 

incentives created by these interim final 

regulations. Data are also limited in 

many areas, including: The prevalence 

of annual limits in insurance markets; 

characteristics of high-cost enrollees; 

prevalence and characteristics of 

rescissions; and take-up rates under 

different insurance scenarios. As 

discussed above, the estimates 

presented here, by necessity, utilize 

‘‘average’’ experiences and ‘‘average’’ 

plans. Variability around the average 

increases substantially when multiple 

provisions are considered, since the 

number of provisions that affect each 

plan will differ (for example, a plan may 

already offer coverage without 

preexisting condition exclusions and 

bar rescissions, meaning they will not 

be affected by those provisions, but may 

have a lifetime limit of $1 million, 

meaning they will be affected by that 

provision). Different plans also have 

different characteristics of enrollees, for 

example in terms of age or health status, 

meaning that provisions such as 

eliminating lifetime limits could affect 

them differently. It is especially 

important to note the variation in 

insurance market reforms across States. 

Only a few States have community 

rating, where costs get distributed across 

the entire insured pool. Fractions of the 

cost will get distributed across the pool 

and to individual enrollees in other 

States depending on the degree of rating 

restrictions, if any exist. Uncertainty 

compounds as ranges and errors and 

assumptions are summed across 

provisions. 

D. Regulatory Flexibility Act— 

Department of Labor and Department of 

Health and Human Services 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the APA (5 U.S.C. 551 

et seq.) and that are likely to have a 

significant economic impact on a 

substantial number of small entities. 

Section 9833 of the Code, section 734 of 

ERISA, and section 2792 of the PHS Act 

authorize the Secretaries to promulgate 

any interim final rules that they 

determine are appropriate to carry out 

the provisions of chapter 100 of the 

Code, part 7 of subtitle B or title I of 

ERISA, and part A of title XXVII of the 

PHS Act, which include PHS Act 

sections 2701 through 2728 and the 

incorporation of those sections into 

ERISA section 715 and Code section 

9815. 

Moreover, under Section 553(b) of the 

APA, a general notice of proposed 

rulemaking is not required when an 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37217 

118The interim final regulations require any 

individual enrolling in group health plan coverage 

pursuant to this enrollment right must be treated as 

a special enrollee, as provided under HIPAA 

portability rules. Accordingly, the individual must 

be offered all the benefit packages available to 

similarly situated individuals who did not lose 

coverage due to reaching a lifetime limit or 

cessation of dependent status. The individual also 

cannot be required to pay more for coverage than 

similarly situated individuals who did not lose 

coverage due to reaching a lifetime limit. 

119The Departments’ estimate is based on the 

2009 March Current Population Survey (CPS). 

120The Departments’ estimate for large and small 

employer health plans is derived from The Kaiser 

Family Foundation and Health Research & 

Educational Trust, Employer Health Benefits: 2009 

Annual Survey (Sept. 2009), at http://ehbs.kff.org/ 

pdf/2009/7936.pdf, Exhibit 13.12. 

121The Departments’ estimate is based on 

America’s Health Insurance Plans, Individual 

Health Insurance 2009: A Comprehensive Survey of 

Premiums, Availability and Benefits, (Oct. 2009) at 

http://www.ahipresearch.org/pdfs/ 

2009IndividualMarketSurveyFinalReport.pdf, Table 

17; and America’s Health Insurance Plans, 

Individual Health Insurance 2008: Small Group 

Health Insurance, Table 22. 

122The Departments’ estimate is based on 

adjusted insurer claims and MEPS–HC 

expenditures. 

agency, for good cause, finds that notice 

and public comment thereon are 

impracticable, unnecessary, or contrary 

to the public interest. These interim 

final regulations are exempt from APA, 

because the Departments made a good 

cause finding that a general notice of 

proposed rulemaking is not necessary 

earlier in this preamble. Therefore, the 

RFA does not apply and the 

Departments are not required to either 

certify that the rule would not have a 

significant economic impact on a 

substantial number of small entities or 

conduct a regulatory flexibility analysis. 

Nevertheless, the Departments 

carefully considered the likely impact of 

the rule on small entities in connection 

with their assessment under Executive 

Order 12866. Consistent with the policy 

of the RFA, the Departments encourage 

the public to submit comments that 

suggest alternative rules that accomplish 

the stated purpose of the Affordable 

Care Act and minimize the impact on 

small entities. 

E. Special Analyses—Department of the 

Treasury 

Notwithstanding the determinations 

of the Department of Labor and 

Department of Health and Human 

Services, for purposes of the Department 

of the Treasury, it has been determined 

that this Treasury decision is not a 

significant regulatory action for 

purposes of Executive Order 12866. 

Therefore, a regulatory assessment is not 

required. It has also been determined 

that section 553(b) of the APA (5 U.S.C. 

chapter 5) does not apply to these 

interim final regulations. For the 

applicability of the RFA, refer to the 

Special Analyses section in the 

preamble to the cross-referencing notice 

of proposed rulemaking published 

elsewhere in this issue of the Federal 

Register. Pursuant to section 7805(f) of 

the Code, these temporary regulations 

have been submitted to the Chief 

Counsel for Advocacy of the Small 

Business Administration for comment 

on their impact on small businesses. 

F. Paperwork Reduction Act 

1. Department of Labor and Department 

of the Treasury 

As further discussed below, these 

interim final regulations contain 

enrollment opportunity, rescission 

notice, and patient protection disclosure 

requirements that are information 

collection requests (ICRs) subject to the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3506(c)(2)(A)). Each of these 

requirements is discussed in detail 

below. 

Currently, the Departments are 

soliciting 60 days of public comments 

concerning these disclosures. The 

Departments have submitted a copy of 

these interim final regulations to OMB 

in accordance with 44 U.S.C. 3507(d) for 

review of the information collections. 

The Departments and OMB are 

particularly interested in comments 

that: 

• Evaluate whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

for example, by permitting electronic 

submission of responses. 

Comments should be sent to the 

Office of Information and Regulatory 

Affairs, Attention: Desk Officer for the 

Employee Benefits Security 

Administration either by fax to (202) 

395–7285 or by e-mail to 

oira_submission@omb.eop.gov. A copy 

of the ICR may be obtained by 

contacting the PRA addressee: G. 

Christopher Cosby, Office of Policy and 

Research, U.S. Department of Labor, 

Employee Benefits Security 

Administration, 200 Constitution 

Avenue, NW., Room N–5718, 

Washington, DC 20210. Telephone: 

(202) 693–8410; Fax: (202) 219–4745. 

These are not toll-free numbers. E-mail: 

ebsa.opr@dol.gov. ICRs submitted to 

OMB also are available at reginfo.gov 

(http://www.reginfo.gov/public/do/ 

PRAMain). 

a. ICR Regarding Affordable Care Act 

Enrollment Opportunity Notice Relating 

to Lifetime Limits 

As discussed earlier in this preamble 

these interim final regulations require a 

plan or issuer to provide an individual 

whose coverage ended due to reaching 

a lifetime limit on the dollar value of all 

benefits with an opportunity to enroll 

(including notice of an opportunity to 

enroll) that continues for at least 30 

days, regardless of whether the plan or 

coverage offers an open enrollment 

period and regardless of when any open 

enrollment period might otherwise 

occur. This enrollment opportunity 

must be presented not later than the first 

day of the first plan year (or, in the 

individual market, policy year) 

beginning on or after September 23, 

2010 (which is the applicability date of 

PHS Act section 2711). Coverage must 

begin not later than the first day of the 

first plan year (in the individual market, 

policy year) beginning on or after 

September 23, 2010.118 The Affordable 

Care Act dependent coverage 

enrollment notice is an ICR subject to 

the PRA. 

The Departments estimate that 

approximately 29,000 individuals 

qualify for this enrollment right, which 

as discussed more fully below, should 

be considered an upward bound. The 

estimate is based on the following 

methodology. The Departments estimate 

that of the approximately 139.6 million 

individuals in ERISA-covered plans,119

63 percent of such individuals are 

covered by plans with lifetime limits.120

While limited data are available 

regarding lifetime limits, the 

Departments estimated that the average 

lifetime limit across all markets is about 

$4.7 million,121 which means that an 

individual would exceed a lifetime limit 

by incurring at least $4.7 million in 

medical expenses during one year or 

across many years. Although the 

Departments are unable to track 

spending across time to estimate the 

number of individuals that would reach 

the lifetime limit, the Departments 

estimate that about 0.033 percent of 

individuals incur more than $1 million 

in medical spending in a year.122 If 


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123While plans could prepare their own notice, 

the Departments assume that the notices will be 

prepared by service providers. The Departments 

have previously estimated that there are 630 health 

insurers (460 providing coverage in the group 

market, and 490 providing coverage in the 

individual market). These estimates are from NAIC 

2007 financial statements data and the California 

Department of Managed Healthcare (2009), at 

http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. 

Because the hour and cost burden is shared 

between the Departments of Labor/Treasury and the 

Department of Health and Human Services, the 

burden to prepare the notices is calculated using 

half the number of insurers (315). 

124U.S. Department of Labor, EBSA calculations 

using the March 2008 Current Population Survey 

Annual Social and Economic Supplement and the 

2008 Medical Expenditure Panel Survey. 

125This estimate is based on an average document 

size of one page, $.05 cents per page material and 

printing costs, and $.44 cent postage costs. 

these individuals incurred this amount 

every year, 29,000 individuals would 

incur expenses of at least the $4.7 

million limit by the fifth year. 

There are several reasons to suspect 

that these assumptions lead to an overestimate. First, individuals would have 

to average $1 million in medical 

expenses per year to exceed the $4.7 

million limit. Second, an individual’s 

lifetime limit is reset if he switches 

employers or, for employees who work 

for employers with multiple health 

insurance coverage options, switches to 

a different health insurance plan. 

The interim final regulations require 

plans or insurers to notify individuals 

whose coverage ended due to reaching 

a lifetime limit on the dollar value of all 

benefits that they are now eligible to 

reenroll in the plan or policy. The 

Departments assume that the notice for 

all plans and policies (including selfinsured plans that are administered by 

insurers) will be prepared by the 

estimated 630 health insurers operating 

in the United States.123 On average, the 

Departments expect that one-half hour 

of a legal professional’s time, valued as 

$119, will be required to draft this 

notice, resulting in an hour burden of 

approximately 160 hours with an 

equivalent cost of $19,000. 

The Departments assume that insurers 

track information regarding individuals 

that have lost coverage due to reaching 

a lifetime limit (including contact 

information in their administrative 

records). Based on the foregoing, the 

Departments estimate that, on average, 

five minutes of a clerical staff member’s 

time, valued at $26 per hour will be 

required to incorporate the specific 

information into the notice and mail the 

estimated 29,000 notices. This results in 

an estimated hour burden of 

approximately 2,400 hours with an 

equivalent cost of $63,000. Therefore, 

the total hour burden of this notice 

requirement is approximately 2,600 

hours with an equivalent cost of 

$82,000. 

The associated cost burden of the rule 

results from material and mailing costs 

that are required to distribute the 

estimated 29,000 notices. The 

Departments estimate that the notice 

will be one-page in length, material and 

print costs will be five cents per page, 

and postage will be 44 cents per notice 

resulting in a per notice cost of 49 cents. 

This leads to a total cost burden of 

approximately $14,000 to distribute the 

notices. 

Type of Review: New collection. 

Agencies: Employee Benefits Security 

Administration, Department of Labor; 

Internal Revenue Service, U.S. 

Department of the Treasury. 

Title: Notice of Special Enrollment 

Opportunity under the Patient 

Protection and Affordable Care Act 

Relating to Lifetime Limits. 

OMB Number: 1210–0143; 1545– 

2179. 

Affected Public: Business or other forprofit; not-for-profit institutions. 

Total Respondents: 315. 

Total Responses: 29,000. 

Frequency of Response: One-time. 

Estimated Total Annual Burden 

Hours: 1,300 hours (Employee Benefits 

Security Administration); 1,300 hours 

(Internal Revenue Service). 

Estimated Total Annual Burden Cost: 

$7,000 (Employee Benefits Security 

Administration); $7,000 (Internal 

Revenue Service). 

b. ICR Regarding Affordable Care Act 

Notice Relating to Rescission 

As discussed earlier in this preamble, 

PHS Act Section 2712 and these interim 

final regulations provide rules regarding 

rescissions for group health plans and 

health insurance issuers that offer group 

or individual health insurance coverage. 

A plan or issuer must not rescind 

coverage under the plan, policy, 

certificate, or contract of insurance 

except in the case of fraud or intentional 

misrepresentation of a material fact. 

These interim final regulations provide 

that a group health plan or a health 

insurance issuer offering group health 

insurance coverage must provide at least 

30 calendar days advance notice to an 

individual before coverage may be 

rescinded. 

The Departments assume that 

rescissions are rare in the group market 

and that small group health plans are 

affected by rescissions. The 

Departments are not aware of a data 

source on the number of group plans 

whose policy is rescinded; therefore, the 

Departments assume that 100 group 

health plan policies are rescinded in a 

year. The Departments estimate that 

there is an average of 16 participants in 

small, insured plans.124 Based on these 

numbers the Departments estimate that 

approximately 100 policies are 

rescinded during a year, which would 

result in 1,600 notices being sent to 

affected participants. The Departments 

estimate that 15 minutes of legal 

profession time at $119 per hour would 

be required by the insurers of the 100 

plans to prepare the notice and one 

minute per notice of clerical 

professional time at $26 per hour would 

be required to distribute the notice. This 

results in an hour burden of 

approximately 50 hours with an 

equivalent cost of approximately $3,700. 

The Departments estimate that the cost 

burden associated with distributing the 

notices will be approximately $800.125

These paperwork burden estimates 

are summarized as follows: 

Type of Review: New collection. 

Agencies: Employee Benefits Security 

Administration, Department of Labor; 

Internal Revenue Service, U.S. 

Department of the Treasury. 

Title: Required Notice of Rescission of 

Coverage under the Patient Protection 

and Affordable Care Act Disclosures. 

OMB Number: 1210–0141; 1545– 

2180. 

Affected Public: Business or other forprofit; not-for-profit institutions. 

Total Respondents: 100. 

Total Responses: 1,600. 

Frequency of Response: Occasionally. 

Estimated Total Annual Burden 

Hours: 25 hours (Employee Benefits 

Security Administration); 25 hours 

(Internal Revenue Service). 

Estimated Total Annual Burden Cost: 

$400 (Employee Benefits Security 

Administration); $400 (Internal Revenue 

Service). 

c. ICR Regarding Affordable Care Act 

Patient Protection Disclosure 

Requirement 

As discussed earlier in this preamble, 

PHS Act section 2719A imposes, with 

respect to a group health plan, or group 

or individual health insurance coverage, 

a set of three requirements relating to 

the choice of health care professionals. 

When applicable, it is important that 

individuals enrolled in a plan or health 

insurance coverage know of their rights 

to (1) choose a primary care provider or 

a pediatrician when a plan or issuer 

requires participants or subscribers to 

designate a primary care physician; or 

(2) obtain obstetrical or gynecological 

care without prior authorization. 

Accordingly, these interim final 

regulations require such plans and 

issuers to provide a notice to 


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126The Departments’ estimate of the number of 

ERISA-covered health plans was obtained from the 

2008 Medical Expenditure Panel Survey’s Insurance 

component. The estimate of the number of policy 

holders was obtained from the 2009 Current 

Population Survey. Information on HMO and POS 

plans and enrollment in such plans was obtained 

from the Kaiser/HRET Survey of Employer 

Sponsored Health Benefits, 2009. The methodology 

used to estimate the percentage of plans that will 

not be grandfathered in 2011 is addressed in the 

Departments’ Interim Final Rules for Group Health 

Plans and Health Insurance Coverage Relating to 

Status as a Grandfathered Health Plan under the 

Patient Protection and Affordable Care Act that 

were issued on June 17, 2010 (75 FR 34538). 

127EBSA estimates of labor rates include wages, 

other benefits, and overhead based on the National 

Occupational Employment Survey (May 2008, 

Bureau of Labor Statistics) and the Employment 

Cost Index June 2009, Bureau of Labor Statistics). 

128The interim final regulations require any 

individual enrolling in group health plan coverage 

pursuant to this enrollment right must be treated as 

a special enrollee, as provided under HIPAA 

portability rules. Accordingly, the individual must 

be offered all the benefit packages available to 

similarly situated individuals who did not lose 

coverage due to reaching a lifetime limit or 

cessation of dependent status. The individual also 

cannot be required to pay more for coverage than 

similarly situated individuals who did not lose 

coverage due to reaching a lifetime limit. 

129The Department’s estimate is based on the 

2009 March Current Population Survey (CPS). 

130The Department’s estimate for individual 

health plans is derived from America’s Health 

Insurance Plans, Individual Health Insurance 2009: 

A Comprehensive Survey of Premiums, Availability 

and Benefits, (Oct. 2009) at http:// 

www.ahipresearch.org/pdfs/ 

2009IndividualMarketSurveyFinalReport.pdf, Table 

10 and Table 17. 

131The Department’s estimate is based on the 

2009 March Current Population Survey (CPS). 

participants (in the individual market, 

primary subscriber) of these rights when 

applicable. Model language is provided 

in these interim final regulations. The 

notice must be provided whenever the 

plan or issuer provides a participant 

with a summary plan description or 

other similar description of benefits 

under the plan or health insurance 

coverage, or in the individual market, 

provides a primary subscriber with a 

policy, certificate, or contract of health 

insurance. The Affordable Care Act 

patient protection disclosure 

requirement is an ICR subject to the 

PRA. 

In order to satisfy these interim final 

regulations’ patient protection 

disclosure requirement, the 

Departments estimate that 339,000 

ERISA-covered plans will need to notify 

an estimated 8.0 million policy holders 

of their plans’ policy in regards to 

designating a primary care physician 

and for obstetrical or gynecological 

visits.126 The following estimates are 

based on the assumption that 22 percent 

of group health plans will not have 

grandfathered health plan status in 

2011. Because the interim final 

regulations provide model language for 

this purpose, the Departments estimate 

that five minutes of clerical time (with 

a labor rate of $26.14/hour) will be 

required to incorporate the required 

language into the plan document and 

ten minutes of a human resource 

professional’s time (with a labor rate of 

$89.12/hour) will be required to review 

the modified language.127 Therefore, the 

Departments estimate that plans will 

incur a one-time hour burden of 85,000 

hours with an equivalent cost of $5.8 

million to meet the disclosure 

requirement in the first year. 

The Departments assume that only 

printing and material costs are 

associated with the disclosure 

requirement, because the interim final 

regulations provide model language that 

can be incorporated into existing plan 

documents, such as an SPD. The 

Departments estimate that the notice 

will require one-half of a page, five 

cents per page printing and material 

cost will be incurred, and 38 percent of 

the notices will be delivered 

electronically. This results in a cost 

burden of $124,000 ($0.05 per 

page*1/2 pages per notice * 8.0 million 

notices*0.62). 

Plans that relinquish their grandfather 

status in subsequent years also will 

become subject to this notice 

requirement and incur a cost to prepare 

and distribute the notice in the year 

they relinquish their grandfather status. 

The Departments estimate a total hour 

burden of 62,000 hours in 2012 and 

50,000 in 2013 for plans relinquishing 

their grandfather status in 2012 or 2013. 

There also will be an estimated total 

cost burden of $90,000 in 2012 and 

$73,000 in 2013. 

The Departments note that persons 

are not required to respond to, and 

generally are not subject to any penalty 

for failing to comply with, an ICR unless 

the ICR has a valid OMB control 

number. 

These paperwork burden estimates 

are summarized as follows: 

Type of Review: New Collection. 

Agencies: Employee Benefits Security 

Administration, Department of Labor; 

Internal Revenue Service, U.S. 

Department of Treasury. 

Title: Disclosure Requirement for 

Patient Protections under the Affordable 

Care Act. 

OMB Number: 1210–0142; 1545– 

2181. 

Affected Public: Business or other forprofit; not-for-profit institutions. 

Total Respondents: 262,000 (three 

year average). 

Total Responses: 6,186,000 (three year 

average). 

Frequency of Response: One time. 

Estimated Total Annual Burden 

Hours: 33,000 (Employee Benefits 

Security Administration); 33,000 

(Internal Revenue Service). 

Estimated Total Annual Burden Cost: 

$48,000 (Employee Benefits Security 

Administration); $48,000 (Internal 

Revenue Service). 

2. Department of Health and Human 

Services 

As discussed above in the Department 

of Labor and Department of the Treasury 

PRA section, these interim final 

regulations contain an enrollment 

opportunity notice, rescissions notice, 

and patient protection disclosures 

requirement for issuers. These 

requirements are information collection 

requirements under the Paperwork 

Reduction Act. Each of these 

requirements is discussed in detail 

below. 

a. ICR Regarding Affordable Care Act 

Enrollment Opportunity Notice 

Regarding Lifetime Limits 

PHS Act section 2711 and these 

interim final regulations require health 

insurance issuers offering individual 

health insurance coverage to provide an 

individual whose coverage ended due to 

reaching a lifetime limit on the dollar 

value of all benefits with an opportunity 

to enroll (including notice of an 

opportunity to enroll) that continues for 

at least 30 days, regardless of whether 

the plan or coverage offers an open 

enrollment period and regardless of 

when any open enrollment period might 

otherwise occur. This enrollment 

opportunity must be presented not later 

than the first day of the first plan year 

(or, in the individual market, policy 

year) beginning on or after September 

23, 2010 (which is the applicability date 

of PHS Act section 2711). Coverage 

must begin not later than the first day 

of the first plan year (or policy year in 

the individual market) beginning on or 

after September 23, 2010.128

The Department estimates that 

approximately 13,182 individuals 

qualify for this enrollment right, which 

as discussed more fully below, should 

be considered an upward bound. The 

estimate is based on the following 

methodology. The Department estimates 

that of the approximately 16.5 million 

individuals 129 covered by family 

policies in the individual market, 89 

percent of such individuals have a 

policy with a lifetime limit.130 The 

Department also estimates that out of 

the approximately 40.1 million 

individuals covered by public, nonFederal employer group health plans 

sponsored by State and local 

governments,131 63 percent of such 


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132The Departments’ estimate for large and small 

employer health plans is derived from The Kaiser 

Family Foundation and Health Research & 

Educational Trust, Employer Health Benefits: 2009 

Annual Survey (Sept. 2009), at http://ehbs.kff.org/ 

pdf/2009/7936.pdf, Exhibit 13.12. 

133The Department’s estimate is based on 

America’s Health Insurance Plans, Individual 

Health Insurance 2009: A Comprehensive Survey of 

Premiums, Availability and Benefits, (Oct. 2009) at 

http://www.ahipresearch.org/pdfs/ 

2009IndividualMarketSurveyFinalReport.pdf, Table 

17; and America’s Health Insurance Plans, 

Individual Health Insurance 2008: Small Group 

Health Insurance, Table 22. 

134The Departments’ estimate is based on 

adjusted insurer claims and MEPS–HC 

expenditures. 

135While plans could prepare their own notice, 

the Departments assume that the notices will be 

prepared by service providers. The Departments 

have previously estimated that there are 630 health 

insurers (460 providing coverage in the group 

market, and 490 providing coverage in the 

individual market). These estimates are from NAIC 

2007 financial statements data and the California 

Department of Managed Healthcare (2009), at 

http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. 

Because the hour and cost burden is shared among 

the Departments of Labor/Treasury and the 

Department of Health and Human Services, the 

burden to prepare the notices is calculated using 

half the number of insurers (315). 

136NAIC Report ‘‘Rescission Data Call of the 

NAIC Regulatory Framework (B) Task Force’’ 

December 17, 2009. http://www.naic.org/

documents/committees_b_regulatory_

framework_rescission_;data_call_report.pdf. 

137This estimate is based on an average document 

size of one page, $.05 cents per page material and 

printing costs, and $.44 cent postage costs. 

individuals are covered by plans with 

lifetime limits.132

While limited data are available 

regarding lifetime limits, the 

Department estimated that the average 

lifetime limit across all markets is about 

$4.7 million,133 which means that an 

individual would exceed a lifetime limit 

by incurring at least $4.7 million in 

medical expenses during one year or 

across many years. Although the 

Department is unable to track spending 

across time to estimate the number of 

individuals that would reach the 

lifetime limit, the Department estimates 

that about 0.033 percent of individuals 

incur more than $1 million in medical 

spending in a year.134 If these 

individuals incurred this amount every 

year, 13,000 individuals would incur 

expenses of at least the $4.7 million 

limit by the fifth year. 

There are several reasons to suspect 

that these assumptions lead to an overestimate. First, individuals who incur 

$1 million of medical expenses in a year 

would need to sustain this level every 

year for five years to exceed the $4.7 

million limit. Second, an individual’s 

lifetime limit is reset if he switches 

employers or, for employees who work 

for employers with multiple health 

insurance coverage options, switches to 

a different health insurance plan. 

These interim final regulations 

require plans or insurers to notify 

individuals whose coverage ended due 

to reaching a lifetime limit on the dollar 

value of all benefits that they are now 

eligible to reenroll in the plan or policy. 

The Department assumes that the notice 

for all plans and policies (including selfinsured plans that are administered by 

insurers) will be prepared by the 

estimated 630 health insurers operating 

in the United States.135 On average, the 

Department expects that one-half hour 

of a legal professional’s time, valued as 

$119, will be required to draft this 

notice, resulting in an hour burden of 

approximately 200 hours with an 

equivalent cost of $19,000. 

The Department assumes that plans 

and insurers track information regarding 

individuals that have lost coverage due 

to reaching a lifetime limit (including 

contact information) in their 

administrative records. Based on the 

foregoing, the Department estimates 

that, on average, five minutes of a 

clerical staff member’s time, valued at 

$26.14 per hour will be required to 

incorporate the specific information into 

the notice and mail the estimated 13,000 

notices. This results in an estimated 

hour burden of approximately 1,100 

hours with an equivalent cost of 

$29,000. Therefore, the total hour 

burden of this notice requirement is 

1,300 hours with an equivalent cost of 

$48,000. 

The associated cost burden of the rule 

results from material and mailing cost to 

distribute the estimated 13,000 notices. 

The Department estimates that the 

notice will be one-page in length, 

material and print costs will be five 

cents per page, and postage will be 44 

cents per notice resulting in a per notice 

cost of 49 cents. This leads to a total 

estimated cost burden of approximately 

$6,500 to distribute the notices. 

Type of Review: New collection. 

Agency: Department of Health and 

Human Services. 

Title: Patient Protection and 

Affordable Care Act Enrollment 

Opportunity Notice Relating to Lifetime 

Limits. 

OMB Number: 0938–1094. 

Affected Public: Business; State, 

Local, or Tribal Governments. 

Respondents: 630. 

Responses: 13,000. 

Frequency of Response: One-time. 

Estimated Total Annual Burden 

Hours: 1,300 hours. 

Estimated Total Annual Burden Cost: 

$6,500. 

b. ICR Regarding Affordable Care Act 

Notice Relating to Rescission 

As discussed earlier in this preamble, 

PHS Act Section 2712 and these interim 

final regulations prohibit group health 

plans and health insurance issuers that 

offer group or individual health 

insurance coverage generally from 

rescinding coverage under the plan, 

policy, certificate, or contract of 

insurance from the individual covered 

under the plan or coverage unless the 

individual (or a person seeking coverage 

on behalf of the individual) performs an 

act, practice, or omission that 

constitutes fraud, or unless the 

individual makes an intentional 

misrepresentation of material fact, as 

prohibited by the terms of the plan or 

coverage. These interim final 

regulations provide that a group health 

plan or a health insurance issuer 

offering group health insurance 

coverage must provide at least 30 days 

advance notice to an individual before 

coverage may be rescinded. 

This analysis assumes that rescissions 

only occur in the individual health 

insurance market, because rescissions in 

the group market are rare. The 

Department estimates that there are 

approximately 7.1 million individual 

policy holders in the individual market 

during a year. A report on rescissions 

finds that 0.15 percent of policies were 

rescinded during the 2004 to 2008 time 

period.136 Based on these numbers, the 

Department estimates that 

approximately 10,700 policies are 

rescinded during a year, which would 

result in 10,700 notices being sent to 

affected policyholders. The Department 

estimates that 15 minutes of legal 

profession time at $119 per hour would 

be required by the estimated 490 

insurers in the individual market to 

prepare the notice and one minute per 

notice of clerical professional time at 

$26 per hour would be required to 

distribute the notice. This results in an 

hour burden of approximately 300 hours 

with an equivalent cost of 

approximately $19,200. The Department 

estimates that the cost burden 

associated with distributing the notices 

will be approximately $5,200.137

These paperwork burden estimates 

are summarized as follows: 

Type of Review: New collection. 

Agency: Department of Health and 

Human Services. 

Title: Required Notice of Rescission of 

Coverage under the Patient Protection 

and Affordable Care Act Disclosures. 

OMB Number: 0938–1094. 

Affected Public: For Profit Business. 

Respondents: 490. 

Responses: 10,700. 

Frequency of Response: Occasionally. 


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138The Department’s estimate of the number of 

State and local governmental health plans was 

obtained from the 2007 Census of Governments. 

The estimate of the number of policy holders in the 

individual market were obtained from the 2009 

Current Population Survey. Information on HMO 

and POS plans and enrollment in such plans was 

obtained from the Kaiser/HRET Survey of Employer 

Sponsored Health Benefits, 2009. The methodology 

used to estimate the percentage of plans that will 

not be grandfathered in 2011 was discussed in 

Departments’ Interim Final Rules for Group Health 

Plans and Health Insurance Coverage Relating to 

Status as a Grandfathered Health Plan under the 

Patient Protection and Affordable Care Act that 

were issued on June 15, 2010: 75 FR 34538 (June 

17, 2010). 

139EBSA estimates of labor rates include wages, 

other benefits, and overhead based on the National 

Occupational Employment Survey (May 2008, 

Bureau of Labor Statistics) and the Employment 

Cost Index June 2009, Bureau of Labor Statistics). 

Estimated Total Annual Burden 

Hours: 300 hours. 

Estimated Total Annual Burden Cost: 

$5,200. 

c. ICR Relating to Affordable Care Act 

Patient Protections Disclosure 

Requirement 

As discussed above in the Department 

of Labor and Department of Treasury 

PRA section, these interim final 

regulations contains a disclosure 

requirement for non-grandfathered 

health plans or policies requiring the 

designation of a primary care physician 

or usually requiring a referral from a 

primary care physician before receiving 

care from a specialist. These 

requirements are information collection 

requirements under the PRA. 

In order to satisfy the interim final 

regulations’ patient protection 

disclosure requirement, the Department 

estimates that 14,000 State and local 

governmental plans will need to notify 

approximately 2.6 million policy 

holders of their plans’ policy in regards 

to designating a primary care physician 

and for obstetrical or gynecological 

visits. An estimated 490 insurers 

providing coverage in the individual 

market will need to notify an estimated 

55,000 policy holders of their policy in 

regards to designating a primary care 

physician and for obstetrical or 

gynecological visits. These estimates are 

based on the assumption that 22 percent 

of group plans and 40 percent of 

individual policies will not have 

grandfathered health plan status in 

2011.138

Because the interim final regulations 

provide model language for this 

purpose, the Department estimates that 

five minutes of clerical time (with a 

labor rate of $26.14/hour) will be 

required to incorporate the required 

language into the plan document and 

ten minutes of a human resource 

professional’s time (with a labor rate of 

$89.12/hour) will be required to review 

the modified language.139 Therefore, the 

Department estimates that plans and 

insurers will incur a one-time hour 

burden of 3,500 hours with an 

equivalent cost of $239,000 to meet the 

disclosure requirement. 

The Department assumes that only 

printing and material costs are 

associated with the disclosure 

requirement, because the interim final 

regulations provide model language that 

can be incorporated into existing plan 

documents, such as an SPD. The 

Department estimates that the notice 

will require one-half of a page, five 

cents per page printing and material 

cost will be incurred, and 38 percent of 

the notices will be delivered 

electronically. This results in a cost 

burden of $42,000 ($0.05 per page * 

1/2 pages per notice * 1.7 million 

notices * 0.62). 

Plans that relinquish their grandfather 

status in subsequent years will also 

become subject to this notice 

requirement and incur a cost to prepare 

and distribute the notice in the year 

they relinquish their grandfather status. 

Policy holders of non-grandfathered 

policies in the individual market will 

also have to receive this notice. The 

Department estimates a total hour 

burden of 2,500 hours in 2012 and 2,000 

in 2013 for plans relinquishing their 

grandfather status in such years. There 

will, also be an estimated total cost 

burden of $30,000 in 2012 and $24,000 

in 2013. 

The Department notes that persons 

are not required to respond to, and 

generally are not subject to any penalty 

for failing to comply with, an ICR unless 

the ICR has a valid OMB control 

number. 

These paperwork burden estimates 

are summarized as follows: 

Type of Review: New collection. 

Agency: Department of Health and 

Human Services. 

Title: Disclosure Requirements for 

Patient Protection under the Affordable 

Care Act. 

OMB Number: 0938–1094. 

Affected Public: Business; State, 

Local, or Tribal Governments. 

Respondents: 10,600. 

Responses: 2,067,000. 

Frequency of Response: One-time. 

Estimated Total Annual Burden 

Hours: 2,700 hours. 

Estimated Total Annual Burden Cost: 

$32,000. 

If you comment on any of these 

information collection requirements, 

please do either of the following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

OCIIO–9994–IFC; Fax: (202) 395–6974; 

or E-mail: 

OIRA_submission@omb.eop.gov. 

G. Congressional Review Act 

These interim final regulations are 

subject to the Congressional Review Act 

provisions of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (5 U.S.C. 801 et seq.) and have 

been transmitted to Congress and the 

Comptroller General for review. 

H. Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995 (Pub. L. 104–4) requires 

agencies to prepare several analytic 

statements before proposing any rules 

that may result in annual expenditures 

of $100 million (as adjusted for 

inflation) by State, local and tribal 

governments or the private sector. These 

interim final regulations are not subject 

to the Unfunded Mandates Reform Act 

because they are being issued as interim 

final regulations. However, consistent 

with the policy embodied in the 

Unfunded Mandates Reform Act, the 

regulation has been designed to be the 

least burdensome alternative for State, 

local and tribal governments, and the 

private sector, while achieving the 

objectives of the Affordable Care Act. 

I. Federalism Statement—Department of 

Labor and Department of Health and 

Human Services 

Executive Order 13132 outlines 

fundamental principles of federalism, 

and requires the adherence to specific 

criteria by Federal agencies in the 

process of their formulation and 

implementation of policies that have 

‘‘substantial direct effects’’ on the States, 

the relationship between the national 

government and States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. Federal agencies 

promulgating regulations that have 

these federalism implications must 

consult with State and local officials, 

and describe the extent of their 

consultation and the nature of the 

concerns of State and local officials in 

the preamble to the regulation. 

In the Departments’ view, these 

interim final regulations have 

federalism implications, because they 

have direct effects on the States, the 

relationship between the national 

government and States, or on the 

distribution of power and 


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responsibilities among various levels of 

government. However, in the 

Departments’ view, the federalism 

implications of these interim final 

regulations are substantially mitigated 

because, with respect to health 

insurance issuers, the Departments 

expect that the majority of States will 

enact laws or take other appropriate 

action resulting in their meeting or 

exceeding the Federal standards. 

In general, through section 514, 

ERISA supersedes State laws to the 

extent that they relate to any covered 

employee benefit plan, and preserves 

State laws that regulate insurance, 

banking, or securities. While ERISA 

prohibits States from regulating a plan 

as an insurance or investment company 

or bank, the preemption provisions of 

section 731 of ERISA and section 2724 

of the PHS Act (implemented in 29 CFR 

2590.731(a) and 45 CFR 146.143(a)) 

apply so that the HIPAA requirements 

(including those of the Affordable Care 

Act) are not to be ‘‘construed to 

supersede any provision of State law 

which establishes, implements, or 

continues in effect any standard or 

requirement solely relating to health 

insurance issuers in connection with 

group health insurance coverage except 

to the extent that such standard or 

requirement prevents the application of 

a requirement’’ of a Federal standard. 

The conference report accompanying 

HIPAA indicates that this is intended to 

be the ‘‘narrowest’’ preemption of State 

laws. (See House Conf. Rep. No. 104– 

736, at 205, reprinted in 1996 U.S. Code 

Cong. & Admin. News 2018.) States may 

continue to apply State law 

requirements except to the extent that 

such requirements prevent the 

application of the Affordable Care Act 

requirements that are the subject of this 

rulemaking. State insurance laws that 

are more stringent than the Federal 

requirements are unlikely to ‘‘prevent 

the application of’’ the Affordable Care 

Act, and be preempted. Accordingly, 

States have significant latitude to 

impose requirements on health 

insurance issuers that are more 

restrictive than the Federal law. 

In compliance with the requirement 

of Executive Order 13132 that agencies 

examine closely any policies that may 

have federalism implications or limit 

the policy making discretion of the 

States, the Departments have engaged in 

efforts to consult with and work 

cooperatively with affected State and 

local officials, including attending 

conferences of the National Association 

of Insurance Commissioners and 

consulting with State insurance officials 

on an individual basis. It is expected 

that the Departments will act in a 

similar fashion in enforcing the 

Affordable Care Act requirements. 

Throughout the process of developing 

these interim final regulations, to the 

extent feasible within the specific 

preemption provisions of HIPAA as it 

applies to the Affordable Care Act, the 

Departments have attempted to balance 

the States’ interests in regulating health 

insurance issuers, and Congress’ intent 

to provide uniform minimum 

protections to consumers in every State. 

By doing so, it is the Departments’ view 

that they have complied with the 

requirements of Executive Order 13132. 

Pursuant to the requirements set forth 

in section 8(a) of Executive Order 

13132, and by the signatures affixed to 

these interim final regulations, the 

Departments certify that the Employee 

Benefits Security Administration and 

the Centers for Medicare & Medicaid 

Services have complied with the 

requirements of Executive Order 13132 

for the attached regulations in a 

meaningful and timely manner. 

V. Statutory Authority 

The Department of the Treasury 

temporary regulations are adopted 

pursuant to the authority contained in 

sections 7805 and 9833 of the Code. 

The Department of Labor interim final 

regulations are adopted pursuant to the 

authority contained in 29 U.S.C. 1027, 

1059, 1135, 1161–1168, 1169, 1181– 

1183, 1181 note, 1185, 1185a, 1185b, 

1191, 1191a, 1191b, and 1191c; sec. 

101(g), Public Law 104–191, 110 Stat. 

1936; sec. 401(b), Public Law 105–200, 

112 Stat. 645 (42 U.S.C. 651 note); sec. 

512(d), Public Law 110–343, 122 Stat. 

3881; sec. 1001, 1201, and 1562(e), 

Public Law 111–148, 124 Stat. 119, as 

amended by Public Law 111–152, 124 

Stat. 1029; Secretary of Labor’s Order 6– 

2009, 74 FR 21524 (May 7, 2009). 

The Department of Health and Human 

Services interim final regulations are 

adopted pursuant to the authority 

contained in sections 2701 through 

2763, 2791, and 2792 of the PHS Act (42 

U.S.C. 300gg through 300gg–63, 300gg– 

91, and 300gg–92), as amended. 

List of Subjects 

26 CFR Part 54 

Excise taxes, Health care, Health 

insurance, Pensions, Reporting and 

recordkeeping requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements. 

29 CFR Part 2590 

Continuation coverage, Disclosure, 

Employee benefit plans, Group health 

plans, Health care, Health insurance, 

Medical child support, Reporting and 

recordkeeping requirements. 

45 CFR Parts 144, 146, and 147 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements, and State regulation of 

health insurance. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement, Internal Revenue Service. 

Approved: June 18, 2010. 

Michael F. Mundaca, 

Assistant Secretary of the Treasury (Tax 

Policy). 

Signed this 18th day of June 2010. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

Dated: June 18, 2010. 

Jay Angoff, 

Director, Office of Consumer Information and 

Insurance Oversight. 

Dated: June 18, 2010. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

Department of the Treasury 

Internal Revenue Service 

26 CFR Chapter 1 

■ Accordingly, 26 CFR parts 54 and 602 

are amended as follows: 

PART 54—PENSION EXCISE TAXES 

■ Paragraph 1. The authority citation 

for part 54 is amended by adding entries 

for §§ 54.9815–2704T, 54.9815–2711T, 

54.9815–2712T, and 54.9815–2719AT in 

numerical order to read in part as 

follows: 

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

Section 54.9815–2704T also issued under 

26 U.S.C. 9833. 

Section 54.9815–2711T also issued under 

26 U.S.C. 9833. 

Section 54.9815–2712T also issued under 

26 U.S.C. 9833. * * * 

Section 54.9815–2719AT also issued under 

26 U.S.C. 9833. * * * 

■ Par. 2. Section 54.9801–2 is amended 

by revising the definitions of group 

health plan and preexisting condition 

exclusion to read as follows: 

§ 54.9801–2 Definitions. 

* * * * * 

Group health plan or plan means a 

group health plan within the meaning of 

§ 54.9831–1(a). 

* * * * * 

Preexisting condition exclusion means 

a limitation or exclusion of benefits 

(including a denial of coverage) based 

on the fact that the condition was 


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present before the effective date of 

coverage (or if coverage is denied, the 

date of the denial) under a group health 

plan or group or individual health 

insurance coverage (or other coverage 

provided to federally eligible 

individuals pursuant to 45 CFR part 

148), whether or not any medical 

advice, diagnosis, care, or treatment was 

recommended or received before that 

day. A preexisting condition exclusion 

includes any limitation or exclusion of 

benefits (including a denial of coverage) 

applicable to an individual as a result of 

information relating to an individual’s 

health status before the individual’s 

effective date of coverage (or if coverage 

is denied, the date of the denial) under 

a group health plan, or group or 

individual health insurance coverage (or 

other coverage provided to Federally 

eligible individuals pursuant to 45 CFR 

part 148), such as a condition identified 

as a result of a pre-enrollment 

questionnaire or physical examination 

given to the individual, or review of 

medical records relating to the preenrollment period. 

■ Par. 3. Section 54.9801–3 is amended 

by revising paragraph (a)(1)(i) to read as 

follows: 

§ 54.9801–3 Limitations on preexisting 

condition exclusion period. 

(a) * * * 

(1) * * * 

(i) A preexisting condition exclusion 

means a preexisting condition exclusion 

within the meaning set forth in 

§ 54.9801–2. 

* * * * * 

■ Par. 4. Section 54.9815–2704T is 

added to read as follows: 

§ 54.9815–2704T Prohibition of preexisting 

condition exclusions (temporary). 

(a) No preexisting condition 

exclusions—(1) In general. A group 

health plan, or a health insurance issuer 

offering group health insurance 

coverage, may not impose any 

preexisting condition exclusion (as 

defined in § 54.9801–2). 

(2) Examples. The rules of this 

paragraph (a) are illustrated by the 

following examples (for additional 

examples illustrating the definition of a 

preexisting condition exclusion, see 

§ 54.9801–3(a)(1)(ii)): 

Example 1. (i) Facts. A group health plan 

provides benefits solely through an insurance 

policy offered by Issuer P. At the expiration 

of the policy, the plan switches coverage to 

a policy offered by Issuer N. N’s policy 

excludes benefits for oral surgery required as 

a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

under the policy. 

(ii) Conclusion. In this Example 1, the 

exclusion of benefits for oral surgery required 

as a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

is a preexisting condition exclusion because 

it operates to exclude benefits for a condition 

based on the fact that the condition was 

present before the effective date of coverage 

under the policy. 

Example 2. (i) Facts. Individual C applies 

for individual health insurance coverage with 

Issuer M. M denies C’s application for 

coverage because a pre-enrollment physical 

revealed that C has type 2 diabetes. 

(ii) Conclusion. See Example 2 in 45 CFR 

147.108(a)(2) for a conclusion that M’s denial 

of C’s application for coverage is a 

preexisting condition exclusion because a 

denial of an application for coverage based 

on the fact that a condition was present 

before the date of denial is an exclusion of 

benefits based on a preexisting condition. 

(b) Effective/applicability date—(1) 

General applicability date. Except as 

provided in paragraph (b)(2) of this 

section, the rules of this section apply 

for plan years beginning on or after 

January 1, 2014. 

(2) Early applicability date for 

children. The rules of this section apply 

with respect to enrollees, including 

applicants for enrollment, who are 

under 19 years of age for plan years 

beginning on or after September 23, 

2010. 

(3) Applicability to grandfathered 

health plans. See § 54.9815–1251T for 

determining the application of this 

section to grandfathered health plans 

(providing that a grandfathered health 

plan that is a group health plan or group 

health insurance coverage must comply 

with the prohibition against preexisting 

condition exclusions). 

(4) Example. The rules of this 

paragraph (b) are illustrated by the 

following example: 

Example. (i) Facts. Individual F 

commences employment and enrolls F and 

F’s 16-year-old child in the group health plan 

maintained by F’s employer, with a first day 

of coverage of October 15, 2010. F’s child had 

a significant break in coverage because of a 

lapse of more than 63 days without creditable 

coverage immediately prior to enrolling in 

the plan. F’s child was treated for asthma 

within the six-month period prior to the 

enrollment date and the plan imposes a 12- 

month preexisting condition exclusion for 

coverage of asthma. The next plan year 

begins on January 1, 2011. 

(ii) Conclusion. In this Example, the plan 

year beginning January 1, 2011 is the first 

plan year of the group health plan beginning 

on or after September 23, 2010. Thus, 

beginning on January 1, 2011, because the 

child is under 19 years of age, the plan 

cannot impose a preexisting condition 

exclusion with respect to the child’s asthma 

regardless of the fact that the preexisting 

condition exclusion was imposed by the plan 

before the applicability date of this provision. 

(c) Expiration date. This section 

expires on June 21, 2013. 

■ Par. 5. Section 54.9815–2711T is 

added to read as follows: 

§ 54.9815–2711T No lifetime or annual 

limits (temporary). 

(a) Prohibition—(1) Lifetime limits. 

Except as provided in paragraph (b) of 

this section, a group health plan, or a 

health insurance issuer offering group 

health insurance coverage, may not 

establish any lifetime limit on the dollar 

amount of benefits for any individual. 

(2) Annual limits—(i) General rule. 

Except as provided in paragraphs 

(a)(2)(ii), (b), and (d) of this section, a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, may not establish any annual 

limit on the dollar amount of benefits 

for any individual. 

(ii) Exception for health flexible 

spending arrangements. A health 

flexible spending arrangement (as 

defined in section 106(c)(2)) is not 

subject to the requirement in paragraph 

(a)(2)(i) of this section. 

(b) Construction—(1) Permissible 

limits on specific covered benefits. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, from placing annual or 

lifetime dollar limits with respect to any 

individual on specific covered benefits 

that are not essential health benefits to 

the extent that such limits are otherwise 

permitted under applicable Federal or 

State law. (The scope of essential health 

benefits is addressed in paragraph (c) of 

this section.) 

(2) Condition-based exclusions. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, from excluding all benefits for 

a condition. However, if any benefits are 

provided for a condition, then the 

requirements of this section apply. 

Other requirements of Federal or State 

law may require coverage of certain 

benefits. 

(c) Definition of essential health 

benefits. The term ‘‘essential health 

benefits’’ means essential health benefits 

under section 1302(b) of the Patient 

Protection and Affordable Care Act and 

applicable regulations. 

(d) Restricted annual limits 

permissible prior to 2014—(1) In 

general. With respect to plan years 

beginning prior to January 1, 2014, a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, may establish, for any 

individual, an annual limit on the dollar 

amount of benefits that are essential 

health benefits, provided the limit is no 

less than the amounts in the following 

schedule: 


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(i) For a plan year beginning on or 

after September 23, 2010, but before 

September 23, 2011, $750,000. 

(ii) For a plan year beginning on or 

after September 23, 2011, but before 

September 23, 2012, $1,250,000. 

(iii) For plan years beginning on or 

after September 23, 2012, but before 

January 1, 2014, $2,000,000. 

(2) Only essential health benefits 

taken into account. In determining 

whether an individual has received 

benefits that meet or exceed the 

applicable amount described in 

paragraph (d)(1) of this section, a plan 

or issuer must take into account only 

essential health benefits. 

(3) Waiver authority of the Secretary 

of Health and Human Services. For plan 

years beginning before January 1, 2014, 

the Secretary of Health and Human 

Services may establish a program under 

which the requirements of paragraph 

(d)(1) of this section relating to annual 

limits may be waived (for such period 

as is specified by the Secretary of Health 

and Human Services) for a group health 

plan or health insurance coverage that 

has an annual dollar limit on benefits 

below the restricted annual limits 

provided under paragraph (d)(1) of this 

section if compliance with paragraph 

(d)(1) of this section would result in a 

significant decrease in access to benefits 

under the plan or health insurance 

coverage or would significantly increase 

premiums for the plan or health 

insurance coverage. 

(e) Transitional rules for individuals 

whose coverage or benefits ended by 

reason of reaching a lifetime limit—(1) 

In general. The relief provided in the 

transitional rules of this paragraph (e) 

applies with respect to any individual— 

(i) Whose coverage or benefits under 

a group health plan or group health 

insurance coverage ended by reason of 

reaching a lifetime limit on the dollar 

value of all benefits for any individual 

(which, under this section, is no longer 

permissible); and 

(ii) Who becomes eligible (or is 

required to become eligible) for benefits 

not subject to a lifetime limit on the 

dollar value of all benefits under the 

group health plan or group health 

insurance coverage on the first day of 

the first plan year beginning on or after 

September 23, 2010, by reason of the 

application of this section. 

(2) Notice and enrollment opportunity 

requirements—(i) If an individual 

described in paragraph (e)(1) of this 

section is eligible for benefits (or is 

required to become eligible for benefits) 

under the group health plan—or group 

health insurance coverage—described in 

paragraph (e)(1) of this section, the plan 

and the issuer are required to give the 

individual written notice that the 

lifetime limit on the dollar value of all 

benefits no longer applies and that the 

individual, if covered, is once again 

eligible for benefits under the plan. 

Additionally, if the individual is not 

enrolled in the plan or health insurance 

coverage, or if an enrolled individual is 

eligible for but not enrolled in any 

benefit package under the plan or health 

insurance coverage, then the plan and 

issuer must also give such an individual 

an opportunity to enroll that continues 

for at least 30 days (including written 

notice of the opportunity to enroll). The 

notices and enrollment opportunity 

required under this paragraph (e)(2)(i) 

must be provided beginning not later 

than the first day of the first plan year 

beginning on or after September 23, 

2010. 

(ii) The notices required under 

paragraph (e)(2)(i) of this section may be 

provided to an employee on behalf of 

the employee’s dependent. In addition, 

the notices may be included with other 

enrollment materials that a plan 

distributes to employees, provided the 

statement is prominent. For either 

notice, if a notice satisfying the 

requirements of this paragraph (e)(2) is 

provided to an individual, the 

obligation to provide the notice with 

respect to that individual is satisfied for 

both the plan and the issuer. 

(3) Effective date of coverage. In the 

case of an individual who enrolls under 

paragraph (e)(2) of this section, coverage 

must take effect not later than the first 

day of the first plan year beginning on 

or after September 23, 2010. 

(4) Treatment of enrollees in a group 

health plan. Any individual enrolling in 

a group health plan pursuant to 

paragraph (e)(2) of this section must be 

treated as if the individual were a 

special enrollee, as provided under the 

rules of § 54.9801–6(d). Accordingly, the 

individual (and, if the individual would 

not be a participant once enrolled in the 

plan, the participant through whom the 

individual is otherwise eligible for 

coverage under the plan) must be 

offered all the benefit packages available 

to similarly situated individuals who 

did not lose coverage by reason of 

reaching a lifetime limit on the dollar 

value of all benefits. For this purpose, 

any difference in benefits or costsharing requirements constitutes a 

different benefit package. The 

individual also cannot be required to 

pay more for coverage than similarly 

situated individuals who did not lose 

coverage by reason of reaching a lifetime 

limit on the dollar value of all benefits. 

(5) Examples. The rules of this 

paragraph (e) are illustrated by the 

following examples: 

Example 1. (i) Facts. Employer Y maintains 

a group health plan with a calendar year plan 

year. The plan has a single benefit package. 

For plan years beginning before September 

23, 2010, the plan has a lifetime limit on the 

dollar value of all benefits. Individual B, an 

employee of Y, was enrolled in Y’s group 

health plan at the beginning of the 2008 plan 

year. On June 10, 2008, B incurred a claim 

for benefits that exceeded the lifetime limit 

under Y’s plan and ceased to be enrolled in 

the plan. B is still eligible for coverage under 

Y’s group health plan. On or before January 

1, 2011, Y’s group health plan gives B written 

notice informing B that the lifetime limit on 

the dollar value of all benefits no longer 

applies, that individuals whose coverage 

ended by reason of reaching a lifetime limit 

under the plan are eligible to enroll in the 

plan, and that individuals can request such 

enrollment through February 1, 2011 with 

enrollment effective retroactively to January 

1, 2011. 

(ii) Conclusion. In this Example 1, the plan 

has complied with the requirements of this 

paragraph (e) by providing a timely written 

notice and enrollment opportunity to B that 

lasts at least 30 days. 

Example 2. (i) Facts. Employer Z maintains 

a group health plan with a plan year 

beginning October 1 and ending September 

30. Prior to October 1, 2010, the group health 

plan has a lifetime limit on the dollar value 

of all benefits. Individual D, an employee of 

Z, and Individual E, D’s child, were enrolled 

in family coverage under Z’s group health 

plan for the plan year beginning on October 

1, 2008. On May 1, 2009, E incurred a claim 

for benefits that exceeded the lifetime limit 

under Z’s plan. D dropped family coverage 

but remains an employee of Z and is still 

eligible for coverage under Z’s group health 

plan. 

(ii) Conclusion. In this Example 2, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll (including 

written notice of an opportunity to enroll) 

that continues for at least 30 days, with 

enrollment effective not later than October 1, 

2010. 

Example 3. (i) Facts. Same facts as 

Example 2, except that Z’s plan had two 

benefit packages (a low-cost and a high-cost 

option). Instead of dropping coverage, D 

switched to the low-cost benefit package 

option. 

(ii) Conclusion. In this Example 3, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll in any 

benefit package available to similarly situated 

individuals who enroll when first eligible. 

The plan would have to provide D and E the 

opportunity to enroll in any benefit package 

available to similarly situated individuals 

who enroll when first eligible, even if D had 

not switched to the low-cost benefit package 

option. 

Example 4. (i) Facts. Employer Q maintains 

a group health plan with a plan year 

beginning October 1 and ending September 

30. For the plan year beginning on October 

1, 2009, Q has an annual limit on the dollar 

value of all benefits of $500,000. 

(ii) Conclusion. In this Example 4, Q must 

raise the annual limit on the dollar value of 

essential health benefits to at least $750,000 


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for the plan year beginning October 1, 2010. 

For the plan year beginning October 1, 2011, 

Q must raise the annual limit to at least $1.25 

million. For the plan year beginning October 

1, 2012, Q must raise the annual limit to at 

least $2 million. Q may also impose a 

restricted annual limit of $2 million for the 

plan year beginning October 1, 2013. After 

the conclusion of that plan year, Q cannot 

impose an overall annual limit. 

Example 5. (i) Facts. Same facts as 

Example 4, except that the annual limit for 

the plan year beginning on October 1, 2009 

is $1 million and Q lowers the annual limit 

for the plan year beginning October 1, 2010 

to $750,000. 

(ii) Conclusion. In this Example 5, Q 

complies with the requirements of this 

paragraph (e). However, Q’s choice to lower 

its annual limit means that under § 54.9815– 

1251T(g)(1)(vi)(C), the group health plan will 

cease to be a grandfathered health plan and 

will be generally subject to all of the 

provisions of PHS Act sections 2701 through 

2719A. 

(f) Effective/applicability date. The 

provisions of this section apply for plan 

years beginning on or after September 

23, 2010. See § 54.9815–1251T for 

determining the application of this 

section to grandfathered health plans 

(providing that the prohibitions on 

lifetime and annual limits apply to all 

grandfathered health plans that are 

group health plans and group health 

insurance coverage, including the 

special rules regarding restricted annual 

limits). 

(g) Expiration date. This section 

expires on June 21, 2013. 

■ Par. 6. Section 54.9815–2712T is 

added to read as follows: 

§ 54.9815–2712T Rules regarding 

rescissions (temporary). 

(a) Prohibition on rescissions—(1) A 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, must not rescind coverage 

under the plan, or under the policy, 

certificate, or contract of insurance, with 

respect to an individual (including a 

group to which the individual belongs 

or family coverage in which the 

individual is included) once the 

individual is covered under the plan or 

coverage, unless the individual (or a 

person seeking coverage on behalf of the 

individual) performs an act, practice, or 

omission that constitutes fraud, or 

unless the individual makes an 

intentional misrepresentation of 

material fact, as prohibited by the terms 

of the plan or coverage. A group health 

plan, or a health insurance issuer 

offering group health insurance 

coverage, must provide at least 30 days 

advance written notice to each 

participant who would be affected 

before coverage may be rescinded under 

this paragraph (a)(1), regardless of 

whether the coverage is insured or selfinsured, or whether the rescission 

applies to an entire group or only to an 

individual within the group. (The rules 

of this paragraph (a)(1) apply regardless 

of any contestability period that may 

otherwise apply.) 

(2) For purposes of this section, a 

rescission is a cancellation or 

discontinuance of coverage that has 

retroactive effect. For example, a 

cancellation that treats a policy as void 

from the time of the individual’s or 

group’s enrollment is a rescission. As 

another example, a cancellation that 

voids benefits paid up to a year before 

the cancellation is also a rescission for 

this purpose. A cancellation or 

discontinuance of coverage is not a 

rescission if— 

(i) The cancellation or discontinuance 

of coverage has only a prospective 

effect; or 

(ii) The cancellation or 

discontinuance of coverage is effective 

retroactively to the extent it is 

attributable to a failure to timely pay 

required premiums or contributions 

towards the cost of coverage. 

(3) The rules of this paragraph (a) are 

illustrated by the following examples: 

Example 1. (i) Facts. Individual A seeks 

enrollment in an insured group health plan. 

The plan terms permit rescission of coverage 

with respect to an individual if the 

individual engages in fraud or makes an 

intentional misrepresentation of a material 

fact. The plan requires A to complete a 

questionnaire regarding A’s prior medical 

history, which affects setting the group rate 

by the health insurance issuer. The 

questionnaire complies with the other 

requirements of this part. The questionnaire 

includes the following question: ‘‘Is there 

anything else relevant to your health that we 

should know?’’ A inadvertently fails to list 

that A visited a psychologist on two 

occasions, six years previously. A is later 

diagnosed with breast cancer and seeks 

benefits under the plan. On or around the 

same time, the issuer receives information 

about A’s visits to the psychologist, which 

was not disclosed in the questionnaire. 

(ii) Conclusion. In this Example 1, the plan 

cannot rescind A’s coverage because A’s 

failure to disclose the visits to the 

psychologist was inadvertent. Therefore, it 

was not fraudulent or an intentional 

misrepresentation of material fact. 

Example 2. (i) Facts. An employer sponsors 

a group health plan that provides coverage 

for employees who work at least 30 hours per 

week. Individual B has coverage under the 

plan as a full-time employee. The employer 

reassigns B to a part-time position. Under the 

terms of the plan, B is no longer eligible for 

coverage. The plan mistakenly continues to 

provide health coverage, collecting premiums 

from B and paying claims submitted by B. 

After a routine audit, the plan discovers that 

B no longer works at least 30 hours per week. 

The plan rescinds B’s coverage effective as of 

the date that B changed from a full-time 

employee to a part-time employee. 

(ii) Conclusion. In this Example 2, the plan 

cannot rescind B’s coverage because there 

was no fraud or an intentional 

misrepresentation of material fact. The plan 

may cancel coverage for B prospectively, 

subject to other applicable Federal and State 

laws. 

(b) Compliance with other 

requirements. Other requirements of 

Federal or State law may apply in 

connection with a rescission of 

coverage. 

(c) Effective/applicability date. The 

provisions of this section apply for plan 

years beginning on or after September 

23, 2010. See § 54.9815–1251T for 

determining the application of this 

section to grandfathered health plans 

(providing that the rules regarding 

rescissions and advance notice apply to 

all grandfathered health plans). 

(d) Expiration date. This section 

expires on June 21, 2013. 

■ Par. 7. Section 54.9815–2719AT is 

added to read as follows: 

§ 54.9815–2719AT Patient protections 

(temporary). 

(a) Choice of health care 

professional—(1) Designation of 

primary care provider—(i) In general. If 

a group health plan, or a health 

insurance issuer offering group health 

insurance coverage, requires or provides 

for designation by a participant or 

beneficiary of a participating primary 

care provider, then the plan or issuer 

must permit each participant or 

beneficiary to designate any 

participating primary care provider who 

is available to accept the participant or 

beneficiary. In such a case, the plan or 

issuer must comply with the rules of 

paragraph (a)(4) of this section by 

informing each participant of the terms 

of the plan or health insurance coverage 

regarding designation of a primary care 

provider. 

(ii) Example. The rules of this 

paragraph (a)(1) are illustrated by the 

following example: 

Example. (i) Facts. A group health plan 

requires individuals covered under the plan 

to designate a primary care provider. The 

plan permits each individual to designate 

any primary care provider participating in 

the plan’s network who is available to accept 

the individual as the individual’s primary 

care provider. If an individual has not 

designated a primary care provider, the plan 

designates one until one has been designated 

by the individual. The plan provides a notice 

that satisfies the requirements of paragraph 

(a)(4) of this section regarding the ability to 

designate a primary care provider. 

(ii) Conclusion. In this Example, the 

plan has satisfied the requirements of 

paragraph (a) of this section. 


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(2) Designation of pediatrician as 

primary care provider—(i) In general. If 

a group health plan, or a health 

insurance issuer offering group health 

insurance coverage, requires or provides 

for the designation of a participating 

primary care provider for a child by a 

participant or beneficiary, the plan or 

issuer must permit the participant or 

beneficiary to designate a physician 

(allopathic or osteopathic) who 

specializes in pediatrics as the child’s 

primary care provider if the provider 

participates in the network of the plan 

or issuer and is available to accept the 

child. In such a case, the plan or issuer 

must comply with the rules of 

paragraph (a)(4) of this section by 

informing each participant of the terms 

of the plan or health insurance coverage 

regarding designation of a pediatrician 

as the child’s primary care provider. 

(ii) Construction. Nothing in 

paragraph (a)(2)(i) of this section is to be 

construed to waive any exclusions of 

coverage under the terms and 

conditions of the plan or health 

insurance coverage with respect to 

coverage of pediatric care. 

(iii) Examples. The rules of this 

paragraph (a)(2) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan’s 

HMO designates for each participant a 

physician who specializes in internal 

medicine to serve as the primary care 

provider for the participant and any 

beneficiaries. Participant A requests that 

Pediatrician B be designated as the primary 

care provider for A’s child. B is a 

participating provider in the HMO’s network. 

(ii) Conclusion. In this Example 1, the 

HMO must permit A’s designation of B as the 

primary care provider for A’s child in order 

to comply with the requirements of this 

paragraph (a)(2). 

Example 2. (i) Facts. Same facts as 

Example 1, except that A takes A’s child to 

B for treatment of the child’s severe shellfish 

allergies. B wishes to refer A’s child to an 

allergist for treatment. The HMO, however, 

does not provide coverage for treatment of 

food allergies, nor does it have an allergist 

participating in its network, and it therefore 

refuses to authorize the referral. 

(ii) Conclusion. In this Example 2, the 

HMO has not violated the requirements of 

this paragraph (a)(2) because the exclusion of 

treatment for food allergies is in accordance 

with the terms of A’s coverage. 

(3) Patient access to obstetrical and 

gynecological care—(i) General rights— 

(A) Direct access. A group health plan, 

or a health insurance issuer offering 

group health insurance coverage, 

described in paragraph (a)(3)(ii) of this 

section may not require authorization or 

referral by the plan, issuer, or any 

person (including a primary care 

provider) in the case of a female 

participant or beneficiary who seeks 

coverage for obstetrical or gynecological 

care provided by a participating health 

care professional who specializes in 

obstetrics or gynecology. In such a case, 

the plan or issuer must comply with the 

rules of paragraph (a)(4) of this section 

by informing each participant that the 

plan may not require authorization or 

referral for obstetrical or gynecological 

care by a participating health care 

professional who specializes in 

obstetrics or gynecology. The plan or 

issuer may require such a professional 

to agree to otherwise adhere to the 

plan’s or issuer’s policies and 

procedures, including procedures 

regarding referrals and obtaining prior 

authorization and providing services 

pursuant to a treatment plan (if any) 

approved by the plan or issuer. For 

purposes of this paragraph (a)(3), a 

health care professional who specializes 

in obstetrics or gynecology is any 

individual (including a person other 

than a physician) who is authorized 

under applicable State law to provide 

obstetrical or gynecological care. 

(B) Obstetrical and gynecological 

care. A group health plan or health 

insurance issuer described in paragraph 

(a)(3)(ii) of this section must treat the 

provision of obstetrical and 

gynecological care, and the ordering of 

related obstetrical and gynecological 

items and services, pursuant to the 

direct access described under paragraph 

(a)(3)(i)(A) of this section, by a 

participating health care professional 

who specializes in obstetrics or 

gynecology as the authorization of the 

primary care provider. 

(ii) Application of paragraph. A group 

health plan, or a health insurance issuer 

offering group health insurance 

coverage, is described in this paragraph 

(a)(3) if the plan or issuer— 

(A) Provides coverage for obstetrical 

or gynecological care; and 

(B) Requires the designation by a 

participant or beneficiary of a 

participating primary care provider. 

(iii) Construction. Nothing in 

paragraph (a)(3)(i) of this section is to be 

construed to— 

(A) Waive any exclusions of coverage 

under the terms and conditions of the 

plan or health insurance coverage with 

respect to coverage of obstetrical or 

gynecological care; or 

(B) Preclude the group health plan or 

health insurance issuer involved from 

requiring that the obstetrical or 

gynecological provider notify the 

primary care health care professional or 

the plan or issuer of treatment 

decisions. 

(iv) Examples. The rules of this 

paragraph (a)(3) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. Participant A, a female, 

requests a gynecological exam with Physician 

B, an in-network physician specializing in 

gynecological care. The group health plan 

requires prior authorization from A’s 

designated primary care provider for the 

gynecological exam. 

(ii) Conclusion. In this Example 1, the 

group health plan has violated the 

requirements of this paragraph (a)(3) because 

the plan requires prior authorization from A’s 

primary care provider prior to obtaining 

gynecological services. 

Example 2. (i) Facts. Same facts as 

Example 1 except that A seeks gynecological 

services from C, an out-of-network provider. 

(ii) Conclusion. In this Example 2, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) by 

requiring prior authorization because C is not 

a participating health care provider. 

Example 3. (i) Facts. Same facts as 

Example 1 except that the group health plan 

only requires B to inform A’s designated 

primary care physician of treatment 

decisions. 

(ii) Conclusion. In this Example 3, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) because 

A has direct access to B without prior 

authorization. The fact that the group health 

plan requires notification of treatment 

decisions to the designated primary care 

physician does not violate this paragraph 

(a)(3). 

Example 4. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. The group health plan 

requires prior authorization before providing 

benefits for uterine fibroid embolization. 

(ii) Conclusion. In this Example 4, the plan 

requirement for prior authorization before 

providing benefits for uterine fibroid 

embolization does not violate the 

requirements of this paragraph (a)(3) because, 

though the prior authorization requirement 

applies to obstetrical services, it does not 

restrict access to any providers specializing 

in obstetrics or gynecology. 

(4) Notice of right to designate a 

primary care provider—(i) In general. If 

a group health plan or health insurance 

issuer requires the designation by a 

participant or beneficiary of a primary 

care provider, the plan or issuer must 

provide a notice informing each 

participant of the terms of the plan or 

health insurance coverage regarding 

designation of a primary care provider 

and of the rights— 

(A) Under paragraph (a)(1)(i) of this 

section, that any participating primary 

care provider who is available to accept 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37227 

the participant or beneficiary can be 

designated; 

(B) Under paragraph (a)(2)(i) of this 

section, with respect to a child, that any 

participating physician who specializes 

in pediatrics can be designated as the 

primary care provider; and 

(C) Under paragraph (a)(3)(i) of this 

section, that the plan may not require 

authorization or referral for obstetrical 

or gynecological care by a participating 

health care professional who specializes 

in obstetrics or gynecology. 

(ii) Timing. The notice described in 

paragraph (a)(4)(i) of this section must 

be included whenever the plan or issuer 

provides a participant with a summary 

plan description or other similar 

description of benefits under the plan or 

health insurance coverage. 

(iii) Model language. The following 

model language can be used to satisfy 

the notice requirement described in 

paragraph (a)(4)(i) of this section: 

(A) For plans and issuers that require 

or allow for the designation of primary 

care providers by participants or 

beneficiaries, insert: 

[Name of group health plan or health 

insurance issuer] generally [requires/allows] 

the designation of a primary care provider. 

You have the right to designate any primary 

care provider who participates in our 

network and who is available to accept you 

or your family members. [If the plan or health 

insurance coverage designates a primary care 

provider automatically, insert: Until you 

make this designation, [name of group health 

plan or health insurance issuer] designates 

one for you.] For information on how to 

select a primary care provider, and for a list 

of the participating primary care providers, 

contact the [plan administrator or issuer] at 

[insert contact information]. 

(B) For plans and issuers that require 

or allow for the designation of a primary 

care provider for a child, add: 

For children, you may designate a 

pediatrician as the primary care 

provider. 

(C) For plans and issuers that provide 

coverage for obstetric or gynecological 

care and require the designation by a 

participant or beneficiary of a primary 

care provider, add: 

You do not need prior authorization from 

[name of group health plan or issuer] or from 

any other person (including a primary care 

provider) in order to obtain access to 

obstetrical or gynecological care from a 

health care professional in our network who 

specializes in obstetrics or gynecology. The 

health care professional, however, may be 

required to comply with certain procedures, 

including obtaining prior authorization for 

certain services, following a pre-approved 

treatment plan, or procedures for making 

referrals. For a list of participating health 

care professionals who specialize in 

obstetrics or gynecology, contact the [plan 

administrator or issuer] at [insert contact 

information]. 

(b) Coverage of emergency services— 

(1) Scope. If a group health plan, or a 

health insurance issuer offering group 

health insurance coverage, provides any 

benefits with respect to services in an 

emergency department of a hospital, the 

plan or issuer must cover emergency 

services (as defined in paragraph 

(b)(4)(ii) of this section) consistent with 

the rules of this paragraph (b). 

(2) General rules. A plan or issuer 

subject to the requirements of this 

paragraph (b) must provide coverage for 

emergency services in the following 

manner— 

(i) Without the need for any prior 

authorization determination, even if the 

emergency services are provided on an 

out-of-network basis; 

(ii) Without regard to whether the 

health care provider furnishing the 

emergency services is a participating 

network provider with respect to the 

services; 

(iii) If the emergency services are 

provided out of network, without 

imposing any administrative 

requirement or limitation on coverage 

that is more restrictive than the 

requirements or limitations that apply to 

emergency services received from innetwork providers; 

(iv) If the emergency services are 

provided out of network, by complying 

with the cost-sharing requirements of 

paragraph (b)(3) of this section; and 

(v) Without regard to any other term 

or condition of the coverage, other 

than— 

(A) The exclusion of or coordination 

of benefits; 

(B) An affiliation or waiting period 

permitted under part 7 of ERISA, part A 

of title XXVII of the PHS Act, or chapter 

100 of the Internal Revenue Code; or 

(C) Applicable cost sharing. 

(3) Cost-sharing requirements—(i) 

Copayments and coinsurance. Any costsharing requirement expressed as a 

copayment amount or coinsurance rate 

imposed with respect to a participant or 

beneficiary for out-of-network 

emergency services cannot exceed the 

cost-sharing requirement imposed with 

respect to a participant or beneficiary if 

the services were provided in-network. 

However, a participant or beneficiary 

may be required to pay, in addition to 

the in-network cost sharing, the excess 

of the amount the out-of-network 

provider charges over the amount the 

plan or issuer is required to pay under 

this paragraph (b)(3)(i). A group health 

plan or health insurance issuer complies 

with the requirements of this paragraph 

(b)(3) if it provides benefits with respect 

to an emergency service in an amount 

equal to the greatest of the three 

amounts specified in paragraphs 

(b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) 

of this section (which are adjusted for 

in-network cost-sharing requirements). 

(A) The amount negotiated with innetwork providers for the emergency 

service furnished, excluding any innetwork copayment or coinsurance 

imposed with respect to the participant 

or beneficiary. If there is more than one 

amount negotiated with in-network 

providers for the emergency service, the 

amount described under this paragraph 

(b)(3)(i)(A) is the median of these 

amounts, excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant or 

beneficiary. In determining the median 

described in the preceding sentence, the 

amount negotiated with each in-network 

provider is treated as a separate amount 

(even if the same amount is paid to 

more than one provider). If there is no 

per-service amount negotiated with innetwork providers (such as under a 

capitation or other similar payment 

arrangement), the amount under this 

paragraph (b)(3)(i)(A) is disregarded. 

(B) The amount for the emergency 

service calculated using the same 

method the plan generally uses to 

determine payments for out-of-network 

services (such as the usual, customary, 

and reasonable amount), excluding any 

in-network copayment or coinsurance 

imposed with respect to the participant 

or beneficiary. The amount in this 

paragraph (b)(3)(i)(B) is determined 

without reduction for out-of-network 

cost sharing that generally applies under 

the plan or health insurance coverage 

with respect to out-of-network services. 

Thus, for example, if a plan generally 

pays 70 percent of the usual, customary, 

and reasonable amount for out-ofnetwork services, the amount in this 

paragraph (b)(3)(i)(B) for an emergency 

service is the total (that is, 100 percent) 

of the usual, customary, and reasonable 

amount for the service, not reduced by 

the 30 percent coinsurance that would 

generally apply to out-of-network 

services (but reduced by the in-network 

copayment or coinsurance that the 

individual would be responsible for if 

the emergency service had been 

provided in-network). 

(C) The amount that would be paid 

under Medicare (part A or part B of title 

XVIII of the Social Security Act, 42 

U.S.C. 1395 et seq.) for the emergency 

service, excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant or 

beneficiary. 

(ii) Other cost sharing. Any costsharing requirement other than a 


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37228 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

copayment or coinsurance requirement 

(such as a deductible or out-of-pocket 

maximum) may be imposed with 

respect to emergency services provided 

out of network if the cost-sharing 

requirement generally applies to out-ofnetwork benefits. A deductible may be 

imposed with respect to out-of-network 

emergency services only as part of a 

deductible that generally applies to outof-network benefits. If an out-of-pocket 

maximum generally applies to out-ofnetwork benefits, that out-of-pocket 

maximum must apply to out-of-network 

emergency services. 

(iii) Examples. The rules of this 

paragraph (b)(3) are illustrated by the 

following examples. In all of these 

examples, the group health plan covers 

benefits with respect to emergency 

services. 

Example 1. (i) Facts. A group health plan 

imposes a 25% coinsurance responsibility on 

individuals who are furnished emergency 

services, whether provided in network or out 

of network. If a covered individual notifies 

the plan within two business days after the 

day an individual receives treatment in an 

emergency department, the plan reduces the 

coinsurance rate to 15%. 

(ii) Conclusion. In this Example 1, the 

requirement to notify the plan in order to 

receive a reduction in the coinsurance rate 

does not violate the requirement that the plan 

cover emergency services without the need 

for any prior authorization determination. 

This is the result even if the plan required 

that it be notified before or at the time of 

receiving services at the emergency 

department in order to receive a reduction in 

the coinsurance rate. 

Example 2. (i) Facts. A group health plan 

imposes a $60 copayment on emergency 

services without preauthorization, whether 

provided in-network or out-of-network. If 

emergency services are preauthorized, the 

plan waives the copayment, even if it later 

determines the medical condition was not an 

emergency medical condition. 

(ii) Conclusion. In this Example 2, by 

requiring an individual to pay more for 

emergency services if the individual does not 

obtain prior authorization, the plan violates 

the requirement that the plan cover 

emergency services without the need for any 

prior authorization determination. (By 

contrast, if, to have the copayment waived, 

the plan merely required that it be notified 

rather than a prior authorization, then the 

plan would not violate the requirement that 

the plan cover emergency services without 

the need for any prior authorization 

determination.) 

Example 3. (i) Facts. A group health plan 

covers individuals who receive emergency 

services with respect to an emergency 

medical condition from an out-of-network 

provider. The plan has agreements with innetwork providers with respect to a certain 

emergency service. Each provider has agreed 

to provide the service for a certain amount. 

Among all the providers for the service: One 

has agreed to accept $85, two have agreed to 

accept $100, two have agreed to accept $110, 

three have agreed to accept $120, and one has 

agreed to accept $150. Under the agreement, 

the plan agrees to pay the providers 80% of 

the agreed amount, with the individual 

receiving the service responsible for the 

remaining 20%. 

(ii) Conclusion. In this Example 3, the 

values taken into account in determining the 

median are $85, $100, $100, $110, $110, 

$120, $120, $120, and $150. Therefore, the 

median amount among those agreed to for the 

emergency service is $110, and the amount 

under paragraph (b)(3)(i)(A) of this section is 

80% of $110 ($88). 

Example 4. (i) Facts. Same facts as 

Example 3. Subsequently, the plan adds 

another provider to its network, who has 

agreed to accept $150 for the emergency 

service. 

(ii) Conclusion. In this Example 4, the 

median amount among those agreed to for the 

emergency service is $115. (Because there is 

no one middle amount, the median is the 

average of the two middle amounts, $110 and 

$120.) Accordingly, the amount under 

paragraph (b)(3)(i)(A) of this section is 80% 

of $115 ($92). 

Example 5. (i) Facts. Same facts as 

Example 4. An individual covered by the 

plan receives the emergency service from an 

out-of-network provider, who charges $125 

for the service. With respect to services 

provided by out-of-network providers 

generally, the plan reimburses covered 

individuals 50% of the reasonable amount 

charged by the provider for medical services. 

For this purpose, the reasonable amount for 

any service is based on information on 

charges by all providers collected by a third 

party, on a zip-code-by-zip-code basis, with 

the plan treating charges at a specified 

percentile as reasonable. For the emergency 

service received by the individual, the 

reasonable amount calculated using this 

method is $116. The amount that would be 

paid under Medicare for the emergency 

service, excluding any copayment or 

coinsurance for the service, is $80. 

(ii) Conclusion. In this Example 5, the plan 

is responsible for paying $92.80, 80% of 

$116. The median amount among those 

agreed to for the emergency service is $115 

and the amount the plan would pay is $92 

(80% of $115); the amount calculated using 

the same method the plan uses to determine 

payments for out-of-network services— 

$116—excluding the in-network 20% 

coinsurance, is $92.80; and the Medicare 

payment is $80. Thus, the greatest amount is 

$92.80. The individual is responsible for the 

remaining $32.20 charged by the out-ofnetwork provider. 

Example 6. (i) Facts. Same facts as 

Example 5. The group health plan generally 

imposes a $250 deductible for in-network 

health care. With respect to all health care 

provided by out-of-network providers, the 

plan imposes a $500 deductible. (Covered innetwork claims are credited against the 

deductible.) The individual has incurred and 

submitted $260 of covered claims prior to 

receiving the emergency service out of 

network. 

(ii) Conclusion. In this Example 6, the plan 

is not responsible for paying anything with 

respect to the emergency service furnished by 

the out-of-network provider because the 

covered individual has not satisfied the 

higher deductible that applies generally to all 

health care provided out of network. 

However, the amount the individual is 

required to pay is credited against the 

deductible. 

(4) Definitions. The definitions in this 

paragraph (b)(4) govern in applying the 

provisions of this paragraph (b). 

(i) Emergency medical condition. The 

term emergency medical condition 

means a medical condition manifesting 

itself by acute symptoms of sufficient 

severity (including severe pain) so that 

a prudent layperson, who possesses an 

average knowledge of health and 

medicine, could reasonably expect the 

absence of immediate medical attention 

to result in a condition described in 

clause (i), (ii), or (iii) of section 

1867(e)(1)(A) of the Social Security Act 

(42 U.S.C. 1395dd(e)(1)(A)). (In that 

provision of the Social Security Act, 

clause (i) refers to placing the health of 

the individual (or, with respect to a 

pregnant woman, the health of the 

woman or her unborn child) in serious 

jeopardy; clause (ii) refers to serious 

impairment to bodily functions; and 

clause (iii) refers to serious dysfunction 

of any bodily organ or part.) 

(ii) Emergency services. The term 

emergency services means, with respect 

to an emergency medical condition— 

(A) A medical screening examination 

(as required under section 1867 of the 

Social Security Act, 42 U.S.C. 1395dd) 

that is within the capability of the 

emergency department of a hospital, 

including ancillary services routinely 

available to the emergency department 

to evaluate such emergency medical 

condition, and 

(B) Such further medical examination 

and treatment, to the extent they are 

within the capabilities of the staff and 

facilities available at the hospital, as are 

required under section 1867 of the 

Social Security Act (42 U.S.C. 1395dd) 

to stabilize the patient. 

(iii) Stabilize. The term to stabilize, 

with respect to an emergency medical 

condition (as defined in paragraph 

(b)(4)(i) of this section) has the meaning 

given in section 1867(e)(3) of the Social 

Security Act (42 U.S.C. 1395dd(e)(3)). 

(c) Effective/applicability date. The 

provisions of this section apply for plan 

years beginning on or after September 

23, 2010. See § 54.9815–1251T for 

determining the application of this 

section to grandfathered health plans 

(providing that these rules regarding 

patient protections do not apply to 

grandfathered health plans). 

(d) Expiration date. This section 

expires on June 21, 2013. 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37229 

PART 602—[AMENDED] 

■ Par. 8. The authority citation for part 

602 continues to read in part as follows: 

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

■ Par. 9. Section 602.101(b) is amended 

by adding the following entries in 

numerical order to the table to read as 

follows: 

§ 602.101 OMB control numbers. 

* * * * * 

(b) * * * 

CFR part or section where 

identified and described 

Current OMB 

control No. 

* * * * * 

54.9815–2711T ..................... 1545–2179 

54.9815–2712T ..................... 1545–2180 

* * * * * 

54.9815–2719AT .................. 1545–2181 

* * * * * 

Department of Labor 

Employee Benefits Security 

Administration 

29 CFR Chapter XXV 

■ For reasons stated in the preamble, 

EBSA amends 29 CFR part 2590 as 

follows: 

PART 2590—RULES AND 

REGULATIONS FOR GROUP HEALTH 

PLANS 

■ 1. The authority citation for part 2590 

continues to read as follows: 

Authority: 29 U.S.C. 1027, 1059, 1135, 

1161–1168, 1169, 1181–1183, 1181 note, 

1185, 1185a, 1185b, 1191, 1191a, 1191b, and 

1191c; sec. 101(g), Pub. L. 104–191, 110 Stat. 

1936; sec. 401(b), Pub. L. 105–200, 112 Stat. 

645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 

110–343, 122 Stat. 3881; sec. 1001, 1201, and 

1562(e), Pub. L. 111–148, 124 Stat. 119, as 

amended by Pub. L. 111–152, 124 Stat. 1029; 

Secretary of Labor’s Order 6–2009, 74 FR 

21524 (May 7, 2009). 

Subpart B—Other Requirements 

■ 2. Section 2590.701–2 is amended by 

revising the definition of preexisting 

condition exclusion to read as follows: 

§ 2590.701–2 Definitions. 

* * * * * 

Preexisting condition exclusion means 

a limitation or exclusion of benefits 

(including a denial of coverage) based 

on the fact that the condition was 

present before the effective date of 

coverage (or if coverage is denied, the 

date of the denial) under a group health 

plan or group or individual health 

insurance coverage (or other coverage 

provided to federally eligible 

individuals pursuant to 45 CFR part 

148), whether or not any medical 

advice, diagnosis, care, or treatment was 

recommended or received before that 

day. A preexisting condition exclusion 

includes any limitation or exclusion of 

benefits (including a denial of coverage) 

applicable to an individual as a result of 

information relating to an individual’s 

health status before the individual’s 

effective date of coverage (or if coverage 

is denied, the date of the denial) under 

a group health plan, or group or 

individual health insurance coverage (or 

other coverage provided to Federally 

eligible individuals pursuant to 45 CFR 

part 148), such as a condition identified 

as a result of a pre-enrollment 

questionnaire or physical examination 

given to the individual, or review of 

medical records relating to the preenrollment period. 

* * * * * 

■ 3. Section 2590.701–3 is amended by 

revising paragraph (a)(1)(i) to read as 

follows: 

§ 2590.701–3 Limitations on preexisting 

condition exclusion period. 

(a) * * * 

(1) * * * 

(i) A preexisting condition exclusion 

means a preexisting condition exclusion 

within the meaning set forth in 

§ 2590.701–2 of this part. 

* * * * * 

■ 4. Section 2590.715–2704 is added to 

subpart C to read as follows: 

§ 2590.715–2704 Prohibition of preexisting 

condition exclusions. 

(a) No preexisting condition 

exclusions—(1) In general. A group 

health plan, or a health insurance issuer 

offering group health insurance 

coverage, may not impose any 

preexisting condition exclusion (as 

defined in § 2590.701–2 of this part). 

(2) Examples. The rules of this 

paragraph (a) are illustrated by the 

following examples (for additional 

examples illustrating the definition of a 

preexisting condition exclusion, see 

§ 2590.701–3(a)(1)(ii) of this part): 

Example 1. (i) Facts. A group health plan 

provides benefits solely through an insurance 

policy offered by Issuer P. At the expiration 

of the policy, the plan switches coverage to 

a policy offered by Issuer N. N’s policy 

excludes benefits for oral surgery required as 

a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

under the policy. 

(ii) Conclusion. In this Example 1, the 

exclusion of benefits for oral surgery required 

as a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

is a preexisting condition exclusion because 

it operates to exclude benefits for a condition 

based on the fact that the condition was 

present before the effective date of coverage 

under the policy. 

Example 2. (i) Facts. Individual C applies 

for individual health insurance coverage with 

Issuer M. M denies C’s application for 

coverage because a pre-enrollment physical 

revealed that C has type 2 diabetes. 

(ii) Conclusion. See Example 2 in 45 CFR 

147.108(a)(2) for a conclusion that M’s denial 

of C’s application for coverage is a 

preexisting condition exclusion because a 

denial of an application for coverage based 

on the fact that a condition was present 

before the date of denial is an exclusion of 

benefits based on a preexisting condition. 

(b) Applicability—(1) General 

applicability date. Except as provided in 

paragraph (b)(2) of this section, the rules 

of this section apply for plan years 

beginning on or after January 1, 2014. 

(2) Early applicability date for 

children. The rules of this section apply 

with respect to enrollees, including 

applicants for enrollment, who are 

under 19 years of age for plan years 

beginning on or after September 23, 

2010. 

(3) Applicability to grandfathered 

health plans. See § 2590.715–1251 of 

this part for determining the application 

of this section to grandfathered health 

plans (providing that a grandfathered 

health plan that is a group health plan 

or group health insurance coverage must 

comply with the prohibition against 

preexisting condition exclusions). 

(4) Example. The rules of this 

paragraph (b) are illustrated by the 

following example: 

Example. (i) Facts. Individual F 

commences employment and enrolls F and 

F’s 16-year-old child in the group health plan 

maintained by F’s employer, with a first day 

of coverage of October 15, 2010. F’s child had 

a significant break in coverage because of a 

lapse of more than 63 days without creditable 

coverage immediately prior to enrolling in 

the plan. F’s child was treated for asthma 

within the six-month period prior to the 

enrollment date and the plan imposes a 12- 

month preexisting condition exclusion for 

coverage of asthma. The next plan year 

begins on January 1, 2011. 

(ii) Conclusion. In this Example, the plan 

year beginning January 1, 2011 is the first 

plan year of the group health plan beginning 

on or after September 23, 2010. Thus, 

beginning on January 1, 2011, because the 

child is under 19 years of age, the plan 

cannot impose a preexisting condition 

exclusion with respect to the child’s asthma 

regardless of the fact that the preexisting 

condition exclusion was imposed by the plan 

before the applicability date of this provision. 

■ 5. Section 2590.715–2711 is added to 

subpart C to read as follows: 

§ 2590.715–2711 No lifetime or annual 

limits. 

(a) Prohibition—(1) Lifetime limits. 

Except as provided in paragraph (b) of 


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37230 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

this section, a group health plan, or a 

health insurance issuer offering group 

health insurance coverage, may not 

establish any lifetime limit on the dollar 

amount of benefits for any individual. 

(2) Annual limits—(i) General rule. 

Except as provided in paragraphs 

(a)(2)(ii), (b), and (d) of this section, a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, may not establish any annual 

limit on the dollar amount of benefits 

for any individual. 

(ii) Exception for health flexible 

spending arrangements. A health 

flexible spending arrangement (as 

defined in section 106(c)(2) of the 

Internal Revenue Code) is not subject to 

the requirement in paragraph (a)(2)(i) of 

this section. 

(b) Construction—(1) Permissible 

limits on specific covered benefits. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, from placing annual or 

lifetime dollar limits with respect to any 

individual on specific covered benefits 

that are not essential health benefits to 

the extent that such limits are otherwise 

permitted under applicable Federal or 

State law. (The scope of essential health 

benefits is addressed in paragraph (c) of 

this section). 

(2) Condition-based exclusions. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, from excluding all benefits for 

a condition. However, if any benefits are 

provided for a condition, then the 

requirements of this section apply. 

Other requirements of Federal or State 

law may require coverage of certain 

benefits. 

(c) Definition of essential health 

benefits. The term ‘‘essential health 

benefits’’ means essential health benefits 

under section 1302(b) of the Patient 

Protection and Affordable Care Act and 

applicable regulations. 

(d) Restricted annual limits 

permissible prior to 2014—(1) In 

general. With respect to plan years 

beginning prior to January 1, 2014, a 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, may establish, for any 

individual, an annual limit on the dollar 

amount of benefits that are essential 

health benefits, provided the limit is no 

less than the amounts in the following 

schedule: 

(i) For a plan year beginning on or 

after September 23, 2010, but before 

September 23, 2011, $750,000. 

(ii) For a plan year beginning on or 

after September 23, 2011, but before 

September 23, 2012, $1,250,000. 

(iii) For plan years beginning on or 

after September 23, 2012, but before 

January 1, 2014, $2,000,000. 

(2) Only essential health benefits 

taken into account. In determining 

whether an individual has received 

benefits that meet or exceed the 

applicable amount described in 

paragraph (d)(1) of this section, a plan 

or issuer must take into account only 

essential health benefits. 

(3) Waiver authority of the Secretary 

of Health and Human Services. For plan 

years beginning before January 1, 2014, 

the Secretary of Health and Human 

Services may establish a program under 

which the requirements of paragraph 

(d)(1) of this section relating to annual 

limits may be waived (for such period 

as is specified by the Secretary of Health 

and Human Services) for a group health 

plan or health insurance coverage that 

has an annual dollar limit on benefits 

below the restricted annual limits 

provided under paragraph (d)(1) of this 

section if compliance with paragraph 

(d)(1) of this section would result in a 

significant decrease in access to benefits 

under the plan or health insurance 

coverage or would significantly increase 

premiums for the plan or health 

insurance coverage. 

(e) Transitional rules for individuals 

whose coverage or benefits ended by 

reason of reaching a lifetime limit—(1) 

In general. The relief provided in the 

transitional rules of this paragraph (e) 

applies with respect to any individual— 

(i) Whose coverage or benefits under 

a group health plan or group health 

insurance coverage ended by reason of 

reaching a lifetime limit on the dollar 

value of all benefits for any individual 

(which, under this section, is no longer 

permissible); and 

(ii) Who becomes eligible (or is 

required to become eligible) for benefits 

not subject to a lifetime limit on the 

dollar value of all benefits under the 

group health plan or group health 

insurance coverage on the first day of 

the first plan year beginning on or after 

September 23, 2010, by reason of the 

application of this section. 

(2) Notice and enrollment opportunity 

requirements–(i) If an individual 

described in paragraph (e)(1) of this 

section is eligible for benefits (or is 

required to become eligible for benefits) 

under the group health plan—or group 

health insurance coverage—described in 

paragraph (e)(1) of this section, the plan 

and the issuer are required to give the 

individual written notice that the 

lifetime limit on the dollar value of all 

benefits no longer applies and that the 

individual, if covered, is once again 

eligible for benefits under the plan. 

Additionally, if the individual is not 

enrolled in the plan or health insurance 

coverage, or if an enrolled individual is 

eligible for but not enrolled in any 

benefit package under the plan or health 

insurance coverage, then the plan and 

issuer must also give such an individual 

an opportunity to enroll that continues 

for at least 30 days (including written 

notice of the opportunity to enroll). The 

notices and enrollment opportunity 

required under this paragraph (e)(2)(i) 

must be provided beginning not later 

than the first day of the first plan year 

beginning on or after September 23, 

2010. 

(ii) The notices required under 

paragraph (e)(2)(i) of this section may be 

provided to an employee on behalf of 

the employee’s dependent. In addition, 

the notices may be included with other 

enrollment materials that a plan 

distributes to employees, provided the 

statement is prominent. For either 

notice, if a notice satisfying the 

requirements of this paragraph (e)(2) is 

provided to an individual, the 

obligation to provide the notice with 

respect to that individual is satisfied for 

both the plan and the issuer. 

(3) Effective date of coverage. In the 

case of an individual who enrolls under 

paragraph (e)(2) of this section, coverage 

must take effect not later than the first 

day of the first plan year beginning on 

or after September 23, 2010. 

(4) Treatment of enrollees in a group 

health plan. Any individual enrolling in 

a group health plan pursuant to 

paragraph (e)(2) of this section must be 

treated as if the individual were a 

special enrollee, as provided under the 

rules of § 2590.701–6(d) of this part. 

Accordingly, the individual (and, if the 

individual would not be a participant 

once enrolled in the plan, the 

participant through whom the 

individual is otherwise eligible for 

coverage under the plan) must be 

offered all the benefit packages available 

to similarly situated individuals who 

did not lose coverage by reason of 

reaching a lifetime limit on the dollar 

value of all benefits. For this purpose, 

any difference in benefits or costsharing requirements constitutes a 

different benefit package. The 

individual also cannot be required to 

pay more for coverage than similarly 

situated individuals who did not lose 

coverage by reason of reaching a lifetime 

limit on the dollar value of all benefits. 

(5) Examples. The rules of this 

paragraph (e) are illustrated by the 

following examples: 

Example 1. (i) Facts. Employer Y maintains 

a group health plan with a calendar year plan 

year. The plan has a single benefit package. 

For plan years beginning before September 

23, 2010, the plan has a lifetime limit on the 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37231 

dollar value of all benefits. Individual B, an 

employee of Y, was enrolled in Y’s group 

health plan at the beginning of the 2008 plan 

year. On June 10, 2008, B incurred a claim 

for benefits that exceeded the lifetime limit 

under Y’s plan and ceased to be enrolled in 

the plan. B is still eligible for coverage under 

Y’s group health plan. On or before January 

1, 2011, Y’s group health plan gives B written 

notice informing B that the lifetime limit on 

the dollar value of all benefits no longer 

applies, that individuals whose coverage 

ended by reason of reaching a lifetime limit 

under the plan are eligible to enroll in the 

plan, and that individuals can request such 

enrollment through February 1, 2011 with 

enrollment effective retroactively to January 

1, 2011. 

(ii) Conclusion. In this Example 1, the plan 

has complied with the requirements of this 

paragraph (e) by providing a timely written 

notice and enrollment opportunity to B that 

lasts at least 30 days. 

Example 2. (i) Facts. Employer Z maintains 

a group health plan with a plan year 

beginning October 1 and ending September 

30. Prior to October 1, 2010, the group health 

plan has a lifetime limit on the dollar value 

of all benefits. Individual D, an employee of 

Z, and Individual E, D’s child, were enrolled 

in family coverage under Z’s group health 

plan for the plan year beginning on October 

1, 2008. On May 1, 2009, E incurred a claim 

for benefits that exceeded the lifetime limit 

under Z’s plan. D dropped family coverage 

but remains an employee of Z and is still 

eligible for coverage under Z’s group health 

plan. 

(ii) Conclusion. In this Example 2, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll (including 

written notice of an opportunity to enroll) 

that continues for at least 30 days, with 

enrollment effective not later than October 1, 

2010. 

Example 3. (i) Facts. Same facts as 

Example 2, except that Z’s plan had two 

benefit packages (a low-cost and a high-cost 

option). Instead of dropping coverage, D 

switched to the low-cost benefit package 

option. 

(ii) Conclusion. In this Example 3, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll in any 

benefit package available to similarly situated 

individuals who enroll when first eligible. 

The plan would have to provide D and E the 

opportunity to enroll in any benefit package 

available to similarly situated individuals 

who enroll when first eligible, even if D had 

not switched to the low-cost benefit package 

option. 

Example 4. (i) Facts. Employer Q 

maintains a group health plan with a plan 

year beginning October 1 and ending 

September 30. For the plan year beginning on 

October 1, 2009, Q has an annual limit on the 

dollar value of all benefits of $500,000. 

(ii) Conclusion. In this Example 4, Q must 

raise the annual limit on the dollar value of 

essential health benefits to at least $750,000 

for the plan year beginning October 1, 2010. 

For the plan year beginning October 1, 2011, 

Q must raise the annual limit to at least $1.25 

million. For the plan year beginning October 

1, 2012, Q must raise the annual limit to at 

least $2 million. Q may also impose a 

restricted annual limit of $2 million for the 

plan year beginning October 1, 2013. After 

the conclusion of that plan year, Q cannot 

impose an overall annual limit. 

Example 5. (i) Facts. Same facts as 

Example 4, except that the annual limit for 

the plan year beginning on October 1, 2009 

is $1 million and Q lowers the annual limit 

for the plan year beginning October 1, 2010 

to $750,000. 

(ii) Conclusion. In this Example 5, Q 

complies with the requirements of this 

paragraph (e). However, Q’s choice to lower 

its annual limit means that under 

§ 2590.715–1251(g)(1)(vi)(C), the group 

health plan will cease to be a grandfathered 

health plan and will be generally subject to 

all of the provisions of PHS Act sections 2701 

through 2719A. 

(f) Applicability date. The provisions 

of this section apply for plan years 

beginning on or after September 23, 

2010. See § 2590.715–1251 of this Part 

for determining the application of this 

section to grandfathered health plans 

(providing that the prohibitions on 

lifetime and annual limits apply to all 

grandfathered health plans that are 

group health plans and group health 

insurance coverage, including the 

special rules regarding restricted annual 

limits). 

■ 6. Section 2590.715–2712 is added to 

subpart C to read as follows: 

§ 2590.715–2712 Rules regarding 

rescissions. 

(a) Prohibition on rescissions—(1) A 

group health plan, or a health insurance 

issuer offering group health insurance 

coverage, must not rescind coverage 

under the plan, or under the policy, 

certificate, or contract of insurance, with 

respect to an individual (including a 

group to which the individual belongs 

or family coverage in which the 

individual is included) once the 

individual is covered under the plan or 

coverage, unless the individual (or a 

person seeking coverage on behalf of the 

individual) performs an act, practice, or 

omission that constitutes fraud, or 

unless the individual makes an 

intentional misrepresentation of 

material fact, as prohibited by the terms 

of the plan or coverage. A group health 

plan, or a health insurance issuer 

offering group health insurance 

coverage, must provide at least 30 days 

advance written notice to each 

participant who would be affected 

before coverage may be rescinded under 

this paragraph (a)(1), regardless of 

whether the coverage is insured or selfinsured, or whether the rescission 

applies to an entire group or only to an 

individual within the group. (The rules 

of this paragraph (a)(1) apply regardless 

of any contestability period that may 

otherwise apply.) 

(2) For purposes of this section, a 

rescission is a cancellation or 

discontinuance of coverage that has 

retroactive effect. For example, a 

cancellation that treats a policy as void 

from the time of the individual’s or 

group’s enrollment is a rescission. As 

another example, a cancellation that 

voids benefits paid up to a year before 

the cancellation is also a rescission for 

this purpose. A cancellation or 

discontinuance of coverage is not a 

rescission if – 

(i) The cancellation or discontinuance 

of coverage has only a prospective 

effect; or 

(ii) The cancellation or 

discontinuance of coverage is effective 

retroactively to the extent it is 

attributable to a failure to timely pay 

required premiums or contributions 

towards the cost of coverage. 

(3) The rules of this paragraph (a) are 

illustrated by the following examples: 

Example 1. (i) Facts. Individual A seeks 

enrollment in an insured group health plan. 

The plan terms permit rescission of coverage 

with respect to an individual if the 

individual engages in fraud or makes an 

intentional misrepresentation of a material 

fact. The plan requires A to complete a 

questionnaire regarding A’s prior medical 

history, which affects setting the group rate 

by the health insurance issuer. The 

questionnaire complies with the other 

requirements of this part. The questionnaire 

includes the following question: ‘‘Is there 

anything else relevant to your health that we 

should know?’’ A inadvertently fails to list 

that A visited a psychologist on two 

occasions, six years previously. A is later 

diagnosed with breast cancer and seeks 

benefits under the plan. On or around the 

same time, the issuer receives information 

about A’s visits to the psychologist, which 

was not disclosed in the questionnaire. 

(ii) Conclusion. In this Example 1, the plan 

cannot rescind A’s coverage because A’s 

failure to disclose the visits to the 

psychologist was inadvertent. Therefore, it 

was not fraudulent or an intentional 

misrepresentation of material fact. 

Example 2. (i) Facts. An employer sponsors 

a group health plan that provides coverage 

for employees who work at least 30 hours per 

week. Individual B has coverage under the 

plan as a full-time employee. The employer 

reassigns B to a part-time position. Under the 

terms of the plan, B is no longer eligible for 

coverage. The plan mistakenly continues to 

provide health coverage, collecting premiums 

from B and paying claims submitted by B. 

After a routine audit, the plan discovers that 

B no longer works at least 30 hours per week. 

The plan rescinds B’s coverage effective as of 

the date that B changed from a full-time 

employee to a part-time employee. 

(ii) Conclusion. In this Example 2, the plan 

cannot rescind B’s coverage because there 

was no fraud or an intentional 

misrepresentation of material fact. The plan 

may cancel coverage for B prospectively, 

subject to other applicable Federal and State 

laws. 


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37232 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

(b) Compliance with other 

requirements. Other requirements of 

Federal or State law may apply in 

connection with a rescission of 

coverage. 

(c) Applicability date. The provisions 

of this section apply for plan years 

beginning on or after September 23, 

2010. See § 2590.715–1251 of this part 

for determining the application of this 

section to grandfathered health plans 

(providing that the rules regarding 

rescissions and advance notice apply to 

all grandfathered health plans). 

■ 7. Section 2590.715–2719A is added 

to subpart C to read as follows: 

§ 2590.715–2719A Patient protections. 

(a) Choice of health care professional– 

(1) Designation of primary care 

provider—(i) In general. If a group 

health plan, or a health insurance issuer 

offering group health insurance 

coverage, requires or provides for 

designation by a participant or 

beneficiary of a participating primary 

care provider, then the plan or issuer 

must permit each participant or 

beneficiary to designate any 

participating primary care provider who 

is available to accept the participant or 

beneficiary. In such a case, the plan or 

issuer must comply with the rules of 

paragraph (a)(4) of this section by 

informing each participant of the terms 

of the plan or health insurance coverage 

regarding designation of a primary care 

provider. 

(ii) Example. The rules of this 

paragraph (a)(1) are illustrated by the 

following example: 

Example. (i) Facts. A group health plan 

requires individuals covered under the plan 

to designate a primary care provider. The 

plan permits each individual to designate 

any primary care provider participating in 

the plan’s network who is available to accept 

the individual as the individual’s primary 

care provider. If an individual has not 

designated a primary care provider, the plan 

designates one until one has been designated 

by the individual. The plan provides a notice 

that satisfies the requirements of paragraph 

(a)(4) of this section regarding the ability to 

designate a primary care provider. 

(ii) Conclusion. In this Example, the 

plan has satisfied the requirements of 

paragraph (a) of this section. 

(2) Designation of pediatrician as 

primary care provider—(i) In general. If 

a group health plan, or a health 

insurance issuer offering group health 

insurance coverage, requires or provides 

for the designation of a participating 

primary care provider for a child by a 

participant or beneficiary, the plan or 

issuer must permit the participant or 

beneficiary to designate a physician 

(allopathic or osteopathic) who 

specializes in pediatrics as the child’s 

primary care provider if the provider 

participates in the network of the plan 

or issuer and is available to accept the 

child. In such a case, the plan or issuer 

must comply with the rules of 

paragraph (a)(4) of this section by 

informing each participant of the terms 

of the plan or health insurance coverage 

regarding designation of a pediatrician 

as the child’s primary care provider. 

(ii) Construction. Nothing in 

paragraph (a)(2)(i) of this section is to be 

construed to waive any exclusions of 

coverage under the terms and 

conditions of the plan or health 

insurance coverage with respect to 

coverage of pediatric care. 

(iii) Examples. The rules of this 

paragraph (a)(2) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan’s 

HMO designates for each participant a 

physician who specializes in internal 

medicine to serve as the primary care 

provider for the participant and any 

beneficiaries. Participant A requests that 

Pediatrician B be designated as the primary 

care provider for A’s child. B is a 

participating provider in the HMO’s network. 

(ii) Conclusion. In this Example 1, the 

HMO must permit A’s designation of B as the 

primary care provider for A’s child in order 

to comply with the requirements of this 

paragraph (a)(2). 

Example 2. (i) Facts. Same facts as 

Example 1, except that A takes A’s child to 

B for treatment of the child’s severe shellfish 

allergies. B wishes to refer A’s child to an 

allergist for treatment. The HMO, however, 

does not provide coverage for treatment of 

food allergies, nor does it have an allergist 

participating in its network, and it therefore 

refuses to authorize the referral. 

(ii) Conclusion. In this Example 2, the 

HMO has not violated the requirements of 

this paragraph (a)(2) because the exclusion of 

treatment for food allergies is in accordance 

with the terms of A’s coverage. 

(3) Patient access to obstetrical and 

gynecological care—(i) General rights— 

(A) Direct access. A group health plan, 

or a health insurance issuer offering 

group health insurance coverage, 

described in paragraph (a)(3)(ii) of this 

section may not require authorization or 

referral by the plan, issuer, or any 

person (including a primary care 

provider) in the case of a female 

participant or beneficiary who seeks 

coverage for obstetrical or gynecological 

care provided by a participating health 

care professional who specializes in 

obstetrics or gynecology. In such a case, 

the plan or issuer must comply with the 

rules of paragraph (a)(4) of this section 

by informing each participant that the 

plan may not require authorization or 

referral for obstetrical or gynecological 

care by a participating health care 

professional who specializes in 

obstetrics or gynecology. The plan or 

issuer may require such a professional 

to agree to otherwise adhere to the 

plan’s or issuer’s policies and 

procedures, including procedures 

regarding referrals and obtaining prior 

authorization and providing services 

pursuant to a treatment plan (if any) 

approved by the plan or issuer. For 

purposes of this paragraph (a)(3), a 

health care professional who specializes 

in obstetrics or gynecology is any 

individual (including a person other 

than a physician) who is authorized 

under applicable State law to provide 

obstetrical or gynecological care. 

(B) Obstetrical and gynecological 

care. A group health plan or health 

insurance issuer described in paragraph 

(a)(3)(ii) of this section must treat the 

provision of obstetrical and 

gynecological care, and the ordering of 

related obstetrical and gynecological 

items and services, pursuant to the 

direct access described under paragraph 

(a)(3)(i)(A) of this section, by a 

participating health care professional 

who specializes in obstetrics or 

gynecology as the authorization of the 

primary care provider. 

(ii) Application of paragraph. A group 

health plan, or a health insurance issuer 

offering group health insurance 

coverage, is described in this paragraph 

(a)(3) if the plan or issuer— 

(A) Provides coverage for obstetrical 

or gynecological care; and 

(B) Requires the designation by a 

participant or beneficiary of a 

participating primary care provider. 

(iii) Construction. Nothing in 

paragraph (a)(3)(i) of this section is to be 

construed to— 

(A) Waive any exclusions of coverage 

under the terms and conditions of the 

plan or health insurance coverage with 

respect to coverage of obstetrical or 

gynecological care; or 

(B) Preclude the group health plan or 

health insurance issuer involved from 

requiring that the obstetrical or 

gynecological provider notify the 

primary care health care professional or 

the plan or issuer of treatment 

decisions. 

(iv) Examples. The rules of this 

paragraph (a)(3) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. Participant A, a female, 

requests a gynecological exam with Physician 

B, an in-network physician specializing in 

gynecological care. The group health plan 

requires prior authorization from A’s 

designated primary care provider for the 

gynecological exam. 


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(ii) Conclusion. In this Example 1, the 

group health plan has violated the 

requirements of this paragraph (a)(3) because 

the plan requires prior authorization from A’s 

primary care provider prior to obtaining 

gynecological services. 

Example 2. (i) Facts. Same facts as 

Example 1 except that A seeks gynecological 

services from C, an out-of-network provider. 

(ii) Conclusion. In this Example 2, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) by 

requiring prior authorization because C is not 

a participating health care provider. 

Example 3. (i) Facts. Same facts as 

Example 1 except that the group health plan 

only requires B to inform A’s designated 

primary care physician of treatment 

decisions. 

(ii) Conclusion. In this Example 3, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) because 

A has direct access to B without prior 

authorization. The fact that the group health 

plan requires notification of treatment 

decisions to the designated primary care 

physician does not violate this paragraph 

(a)(3). 

Example 4. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. The group health plan 

requires prior authorization before providing 

benefits for uterine fibroid embolization. 

(ii) Conclusion. In this Example 4, the plan 

requirement for prior authorization before 

providing benefits for uterine fibroid 

embolization does not violate the 

requirements of this paragraph (a)(3) because, 

though the prior authorization requirement 

applies to obstetrical services, it does not 

restrict access to any providers specializing 

in obstetrics or gynecology. 

(4) Notice of right to designate a 

primary care provider—(i) In general. If 

a group health plan or health insurance 

issuer requires the designation by a 

participant or beneficiary of a primary 

care provider, the plan or issuer must 

provide a notice informing each 

participant of the terms of the plan or 

health insurance coverage regarding 

designation of a primary care provider 

and of the rights— 

(A) Under paragraph (a)(1)(i) of this 

section, that any participating primary 

care provider who is available to accept 

the participant or beneficiary can be 

designated; 

(B) Under paragraph (a)(2)(i) of this 

section, with respect to a child, that any 

participating physician who specializes 

in pediatrics can be designated as the 

primary care provider; and 

(C) Under paragraph (a)(3)(i) of this 

section, that the plan may not require 

authorization or referral for obstetrical 

or gynecological care by a participating 

health care professional who specializes 

in obstetrics or gynecology. 

(ii) Timing. The notice described in 

paragraph (a)(4)(i) of this section must 

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 innetwork providers; 

(iv) If the emergency services are 

provided out of network, by complying 

with the cost-sharing requirements of 

paragraph (b)(3) of this section; and 

(v) Without regard to any other term 

or condition of the coverage, other 

than— 

(A) The exclusion of or coordination 

of benefits; 

(B) An affiliation or waiting period 

permitted under part 7 of ERISA, part A 

of title XXVII of the PHS Act, or chapter 

100 of the Internal Revenue Code; or 

(C) Applicable cost sharing. 

(3) Cost-sharing requirements—(i) 

Copayments and coinsurance. Any costsharing requirement expressed as a 

copayment amount or coinsurance rate 

imposed with respect to a participant or 

beneficiary for out-of-network 

emergency services cannot exceed the 

cost-sharing requirement imposed with 

respect to a participant or beneficiary if 

the services were provided in-network. 

However, a participant or beneficiary 

may be required to pay, in addition to 

the in-network cost sharing, the excess 

of the amount the out-of-network 

provider charges over the amount the 

plan or issuer is required to pay under 

this paragraph (b)(3)(i). A group health 

plan or health insurance issuer complies 

with the requirements of this paragraph 

(b)(3) if it provides benefits with respect 

to an emergency service in an amount 

equal to the greatest of the three 

amounts specified in paragraphs 

(b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) 

of this section (which are adjusted for 

in-network cost-sharing requirements). 

(A) The amount negotiated with innetwork providers for the emergency 

service furnished, excluding any innetwork copayment or coinsurance 

imposed with respect to the participant 

or beneficiary. If there is more than one 

amount negotiated with in-network 

providers for the emergency service, the 

amount described under this paragraph 

(b)(3)(i)(A) is the median of these 


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amounts, excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant or 

beneficiary. In determining the median 

described in the preceding sentence, the 

amount negotiated with each in-network 

provider is treated as a separate amount 

(even if the same amount is paid to 

more than one provider). If there is no 

per-service amount negotiated with innetwork providers (such as under a 

capitation or other similar payment 

arrangement), the amount under this 

paragraph (b)(3)(i)(A) is disregarded. 

(B) The amount for the emergency 

service calculated using the same 

method the plan generally uses to 

determine payments for out-of-network 

services (such as the usual, customary, 

and reasonable amount), excluding any 

in-network copayment or coinsurance 

imposed with respect to the participant 

or beneficiary. The amount in this 

paragraph (b)(3)(i)(B) is determined 

without reduction for out-of-network 

cost sharing that generally applies under 

the plan or health insurance coverage 

with respect to out-of-network services. 

Thus, for example, if a plan generally 

pays 70 percent of the usual, customary, 

and reasonable amount for out-ofnetwork services, the amount in this 

paragraph (b)(3)(i)(B) for an emergency 

service is the total (that is, 100 percent) 

of the usual, customary, and reasonable 

amount for the service, not reduced by 

the 30 percent coinsurance that would 

generally apply to out-of-network 

services (but reduced by the in-network 

copayment or coinsurance that the 

individual would be responsible for if 

the emergency service had been 

provided in-network). 

(C) The amount that would be paid 

under Medicare (part A or part B of title 

XVIII of the Social Security Act, 42 

U.S.C. 1395 et seq.) for the emergency 

service, excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant or 

beneficiary. 

(ii) Other cost sharing. Any costsharing requirement other than a 

copayment or coinsurance requirement 

(such as a deductible or out-of-pocket 

maximum) may be imposed with 

respect to emergency services provided 

out of network if the cost-sharing 

requirement generally applies to out-ofnetwork benefits. A deductible may be 

imposed with respect to out-of-network 

emergency services only as part of a 

deductible that generally applies to outof-network benefits. If an out-of-pocket 

maximum generally applies to out-ofnetwork benefits, that out-of-pocket 

maximum must apply to out-of-network 

emergency services. 

(iii) Examples. The rules of this 

paragraph (b)(3) are illustrated by the 

following examples. In all of these 

examples, the group health plan covers 

benefits with respect to emergency 

services. 

Example 1. (i) Facts. A group health plan 

imposes a 25% coinsurance responsibility on 

individuals who are furnished emergency 

services, whether provided in network or out 

of network. If a covered individual notifies 

the plan within two business days after the 

day an individual receives treatment in an 

emergency department, the plan reduces the 

coinsurance rate to 15%. 

(ii) Conclusion. In this Example 1, the 

requirement to notify the plan in order to 

receive a reduction in the coinsurance rate 

does not violate the requirement that the plan 

cover emergency services without the need 

for any prior authorization determination. 

This is the result even if the plan required 

that it be notified before or at the time of 

receiving services at the emergency 

department in order to receive a reduction in 

the coinsurance rate. 

Example 2. (i) Facts. A group health plan 

imposes a $60 copayment on emergency 

services without preauthorization, whether 

provided in network or out of network. If 

emergency services are preauthorized, the 

plan waives the copayment, even if it later 

determines the medical condition was not an 

emergency medical condition. 

(ii) Conclusion. In this Example 2, by 

requiring an individual to pay more for 

emergency services if the individual does not 

obtain prior authorization, the plan violates 

the requirement that the plan cover 

emergency services without the need for any 

prior authorization determination. (By 

contrast, if, to have the copayment waived, 

the plan merely required that it be notified 

rather than a prior authorization, then the 

plan would not violate the requirement that 

the plan cover emergency services without 

the need for any prior authorization 

determination.) 

Example 3. (i) Facts. A group health plan 

covers individuals who receive emergency 

services with respect to an emergency 

medical condition from an out-of-network 

provider. The plan has agreements with innetwork providers with respect to a certain 

emergency service. Each provider has agreed 

to provide the service for a certain amount. 

Among all the providers for the service: one 

has agreed to accept $85, two have agreed to 

accept $100, two have agreed to accept $110, 

three have agreed to accept $120, and one has 

agreed to accept $150. Under the agreement, 

the plan agrees to pay the providers 80% of 

the agreed amount, with the individual 

receiving the service responsible for the 

remaining 20%. 

(ii) Conclusion. In this Example 3, the 

values taken into account in determining the 

median are $85, $100, $100, $110, $110, 

$120, $120, $120, and $150. Therefore, the 

median amount among those agreed to for the 

emergency service is $110, and the amount 

under paragraph (b)(3)(i)(A) of this section is 

80% of $110 ($88). 

Example 4. (i) Facts. Same facts as 

Example 3. Subsequently, the plan adds 

another provider to its network, who has 

agreed to accept $150 for the emergency 

service. 

(ii) Conclusion. In this Example 4, the 

median amount among those agreed to for the 

emergency service is $115. (Because there is 

no one middle amount, the median is the 

average of the two middle amounts, $110 and 

$120.) Accordingly, the amount under 

paragraph (b)(3)(i)(A) of this section is 80% 

of $115 ($92). 

Example 5. (i) Facts. Same facts as 

Example 4. An individual covered by the 

plan receives the emergency service from an 

out-of-network provider, who charges $125 

for the service. With respect to services 

provided by out-of-network providers 

generally, the plan reimburses covered 

individuals 50% of the reasonable amount 

charged by the provider for medical services. 

For this purpose, the reasonable amount for 

any service is based on information on 

charges by all providers collected by a third 

party, on a zip code by zip code basis, with 

the plan treating charges at a specified 

percentile as reasonable. For the emergency 

service received by the individual, the 

reasonable amount calculated using this 

method is $116. The amount that would be 

paid under Medicare for the emergency 

service, excluding any copayment or 

coinsurance for the service, is $80. 

(ii) Conclusion. In this Example 5, the plan 

is responsible for paying $92.80, 80% of 

$116. The median amount among those 

agreed to for the emergency service is $115 

and the amount the plan would pay is $92 

(80% of $115); the amount calculated using 

the same method the plan uses to determine 

payments for out-of-network services— 

$116—excluding the in-network 20% 

coinsurance, is $92.80; and the Medicare 

payment is $80. Thus, the greatest amount is 

$92.80. The individual is responsible for the 

remaining $32.20 charged by the out-ofnetwork provider. 

Example 6. (i) Facts. Same facts as 

Example 5. The group health plan generally 

imposes a $250 deductible for in-network 

health care. With respect to all health care 

provided by out-of-network providers, the 

plan imposes a $500 deductible. (Covered innetwork claims are credited against the 

deductible.) The individual has incurred and 

submitted $260 of covered claims prior to 

receiving the emergency service out of 

network. 

(ii) Conclusion. In this Example 6, the plan 

is not responsible for paying anything with 

respect to the emergency service furnished by 

the out-of-network provider because the 

covered individual has not satisfied the 

higher deductible that applies generally to all 

health care provided out of network. 

However, the amount the individual is 

required to pay is credited against the 

deductible. 

(4) Definitions. The definitions in this 

paragraph (b)(4) govern in applying the 

provisions of this paragraph (b). 

(i) Emergency medical condition. The 

term emergency medical condition 

means a medical condition manifesting 

itself by acute symptoms of sufficient 

severity (including severe pain) so that 


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a prudent layperson, who possesses an 

average knowledge of health and 

medicine, could reasonably expect the 

absence of immediate medical attention 

to result in a condition described in 

clause (i), (ii), or (iii) of section 

1867(e)(1)(A) of the Social Security Act 

(42 U.S.C. 1395dd(e)(1)(A)). (In that 

provision of the Social Security Act, 

clause (i) refers to placing the health of 

the individual (or, with respect to a 

pregnant woman, the health of the 

woman or her unborn child) in serious 

jeopardy; clause (ii) refers to serious 

impairment to bodily functions; and 

clause (iii) refers to serious dysfunction 

of any bodily organ or part.) 

(ii) Emergency services. The term 

emergency services means, with respect 

to an emergency medical condition— 

(A) A medical screening examination 

(as required under section 1867 of the 

Social Security Act, 42 U.S.C. 1395dd) 

that is within the capability of the 

emergency department of a hospital, 

including ancillary services routinely 

available to the emergency department 

to evaluate such emergency medical 

condition, and 

(B) Such further medical examination 

and treatment, to the extent they are 

within the capabilities of the staff and 

facilities available at the hospital, as are 

required under section 1867 of the 

Social Security Act (42 U.S.C. 1395dd) 

to stabilize the patient. 

(iii) Stabilize. The term to stabilize, 

with respect to an emergency medical 

condition (as defined in paragraph 

(b)(4)(i) of this section) has the meaning 

given in section 1867(e)(3) of the Social 

Security Act (42 U.S.C. 1395dd(e)(3)). 

(c) Applicability date. The provisions 

of this section apply for plan years 

beginning on or after September 23, 

2010. See § 2590.715–1251 of this part 

for determining the application of this 

section to grandfathered health plans 

(providing that these rules regarding 

patient protections do not apply to 

grandfathered health plans). 

Department of Health and Human 

Services 

Office of Consumer Information and 

Insurance Oversight 

45 CFR Subtitle A 

■ For the reasons stated in the preamble, 

the Department of Health and Human 

Services amends 45 CFR parts 144 and 

146, and part 147, added May 13, 2010, 

at 75 FR 27138, effective July 12, 2010, 

as follows: 

PART 144—REQUIREMENTS 

RELATING TO HEALTH INSURANCE 

COVERAGE 

■ 1. The authority citation for part 144 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act, 

42 U.S.C. 300gg through 300gg–63, 300gg–91, 

and 300gg–92. 

■ 2. Section 144.103 is amended by 

revising the definition of preexisting 

condition exclusion to read as follows: 

§ 144.103 Definitions. 

* * * * * 

Preexisting condition exclusion means 

a limitation or exclusion of benefits 

(including a denial of coverage) based 

on the fact that the condition was 

present before the effective date of 

coverage (or if coverage is denied, the 

date of the denial) under a group health 

plan or group or individual health 

insurance coverage (or other coverage 

provided to Federally eligible 

individuals pursuant to 45 CFR part 

148), whether or not any medical 

advice, diagnosis, care, or treatment was 

recommended or received before that 

day. A preexisting condition exclusion 

includes any limitation or exclusion of 

benefits (including a denial of coverage) 

applicable to an individual as a result of 

information relating to an individual’s 

health status before the individual’s 

effective date of coverage (or if coverage 

is denied, the date of the denial) under 

a group health plan, or group or 

individual health insurance coverage (or 

other coverage provided to Federally 

eligible individuals pursuant to 45 CFR 

part 148), such as a condition identified 

as a result of a pre-enrollment 

questionnaire or physical examination 

given to the individual, or review of 

medical records relating to the preenrollment period. 

* * * * * 

Subpart B—Requirements Relating to 

Access and Renewability of Coverage, 

and Limitations on Preexisting 

Condition Exclusion Periods 

■ 3. Section 146.111(a)(1)(i) is revised to 

read as follows: 

§ 146.111 Limitations on preexisting 

condition exclusion period. 

(a) * * * 

(1) * * * 

(i) A preexisting condition exclusion 

means a preexisting condition exclusion 

within the meaning set forth in 

§ 144.103 of this part. 

* * * * * 

PART 147—HEALTH INSURANCE 

REFORM REQUIREMENTS FOR THE 

GROUP AND INDIVIDUAL HEALTH 

INSURANCE MARKETS 

■ 4. The authority citation for part 147 

continues to read as follows: 

Authority: 2701 through 2763, 2791, and 

2792 of the Public Health Service Act (42 

USC 300gg through 300gg–63, 300gg–91, and 

300gg–92), as amended. 

■ 5. Add § 147.108 to read as follows: 

§ 147.108 Prohibition of preexisting 

condition exclusions. 

(a) No preexisting condition 

exclusions—(1) In general. A group 

health plan, or a health insurance issuer 

offering group or individual health 

insurance coverage, may not impose any 

preexisting condition exclusion (as 

defined in § 144.103). 

(2) Examples. The rules of this 

paragraph (a) are illustrated by the 

following examples (for additional 

examples illustrating the definition of a 

preexisting condition exclusion, see 

§ 146.111(a)(1)(ii)): 

Example 1. (i) Facts. A group health plan 

provides benefits solely through an insurance 

policy offered by Issuer P. At the expiration 

of the policy, the plan switches coverage to 

a policy offered by Issuer N. N’s policy 

excludes benefits for oral surgery required as 

a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

under the policy. 

(ii) Conclusion. In this Example 1, the 

exclusion of benefits for oral surgery required 

as a result of a traumatic injury if the injury 

occurred before the effective date of coverage 

is a preexisting condition exclusion because 

it operates to exclude benefits for a condition 

based on the fact that the condition was 

present before the effective date of coverage 

under the policy. 

Example 2. (i) Facts. Individual C applies 

for individual health insurance coverage with 

Issuer M. M denies C’s application for 

coverage because a pre-enrollment physical 

revealed that C has type 2 diabetes. 

(ii) Conclusion. In this Example 2, M’s 

denial of C’s application for coverage is a 

preexisting condition exclusion because a 

denial of an application for coverage based 

on the fact that a condition was present 

before the date of denial is an exclusion of 

benefits based on a preexisting condition. 

(b) Applicability—(1) General 

applicability date. Except as provided in 

paragraph (b)(2) of this section, the rules 

of this section apply for plan years 

beginning on or after January 1, 2014; in 

the case of individual health insurance 

coverage, for policy years beginning, or 

applications denied, on or after January 

1, 2014. 

(2) Early applicability date for 

children. The rules of this section apply 

with respect to enrollees, including 

applicants for enrollment, who are 


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under 19 years of age for plan years 

beginning on or after September 23, 

2010; in the case of individual health 

insurance coverage, for policy years 

beginning, or applications denied, on or 

after September 23, 2010. 

(3) Applicability to grandfathered 

health plans. See § 147.140 of this part 

for determining the application of this 

section to grandfathered health plans 

(providing that a grandfathered health 

plan that is a group health plan or group 

health insurance coverage must comply 

with the prohibition against preexisting 

condition exclusions; however, a 

grandfathered health plan that is 

individual health insurance coverage is 

not required to comply with PHS Act 

section 2704). 

(4) Examples. The rules of this 

paragraph (b) are illustrated by the 

following examples: 

Example 1. (i) Facts. Individual F 

commences employment and enrolls F and 

F’s 16-year-old child in the group health plan 

maintained by F’s employer, with a first day 

of coverage of October 15, 2010. F’s child had 

a significant break in coverage because of a 

lapse of more than 63 days without creditable 

coverage immediately prior to enrolling in 

the plan. F’s child was treated for asthma 

within the six-month period prior to the 

enrollment date and the plan imposes a 12- 

month preexisting condition exclusion for 

coverage of asthma. The next plan year 

begins on January 1, 2011. 

(ii) Conclusion. In this Example 1, the plan 

year beginning January 1, 2011, is the first 

plan year of the group health plan beginning 

on or after September 23, 2010. Thus, 

beginning on January 1, 2011, because the 

child is under 19 years of age, the plan 

cannot impose a preexisting condition 

exclusion with respect to the child’s asthma 

regardless of the fact that the preexisting 

condition exclusion was imposed by the plan 

before the applicability date of this provision. 

Example 2. (i) Facts. Individual G applies 

for a policy of family coverage in the 

individual market for G, G’s spouse, and G’s 

13-year-old child. The issuer denies the 

application for coverage on March 1, 2011 

because G’s 13-year-old child has autism. 

(ii) Conclusion. In this Example 2, the 

issuer’s denial of G’s application for a policy 

of family coverage in the individual market 

is a preexisting condition exclusion because 

the denial was based on the child’s autism, 

which was present before the date of denial 

of coverage. Because the child is under 19 

years of age and the March 1, 2011, denial 

of coverage is after the applicability date of 

this section, the issuer is prohibited from 

imposing a preexisting condition exclusion 

with respect to G’s 13-year-old child. 

■ 6. Add § 147.126 to read as follows: 

§ 147.126 No lifetime or annual limits. 

(a) Prohibition—(1) Lifetime limits. 

Except as provided in paragraph (b) of 

this section, a group health plan, or a 

health insurance issuer offering group or 

individual health insurance coverage, 

may not establish any lifetime limit on 

the dollar amount of benefits for any 

individual. 

(2) Annual limits—(i) General rule. 

Except as provided in paragraphs 

(a)(2)(ii), (b), and (d) of this section, a 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, may not 

establish any annual limit on the dollar 

amount of benefits for any individual. 

(ii) Exception for health flexible 

spending arrangements. A health 

flexible spending arrangement (as 

defined in section 106(c)(2) of the 

Internal Revenue Code) is not subject to 

the requirement in paragraph (a)(2)(i) of 

this section. 

(b) Construction—(1) Permissible 

limits on specific covered benefits. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, from placing 

annual or lifetime dollar limits with 

respect to any individual on specific 

covered benefits that are not essential 

health benefits to the extent that such 

limits are otherwise permitted under 

applicable Federal or State law. (The 

scope of essential health benefits is 

addressed in paragraph (c) of this 

section). 

(2) Condition-based exclusions. The 

rules of this section do not prevent a 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, from 

excluding all benefits for a condition. 

However, if any benefits are provided 

for a condition, then the requirements of 

this section apply. Other requirements 

of Federal or State law may require 

coverage of certain benefits. 

(c) Definition of essential health 

benefits. The term ‘‘essential health 

benefits’’ means essential health benefits 

under section 1302(b) of the Patient 

Protection and Affordable Care Act and 

applicable regulations. 

(d) Restricted annual limits 

permissible prior to 2014—(1) In 

general. With respect to plan years (in 

the individual market, policy years) 

beginning prior to January 1, 2014, a 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, may 

establish, for any individual, an annual 

limit on the dollar amount of benefits 

that are essential health benefits, 

provided the limit is no less than the 

amounts in the following schedule: 

(i) For a plan year (in the individual 

market, policy year) beginning on or 

after September 23, 2010, but before 

September 23, 2011, $750,000. 

(ii) For a plan year (in the individual 

market, policy year) beginning on or 

after September 23, 2011, but before 

September 23, 2012, $1,250,000. 

(iii) For plan years (in the individual 

market, policy years) beginning on or 

after September 23, 2012, but before 

January 1, 2014, $2,000,000. 

(2) Only essential health benefits 

taken into account. In determining 

whether an individual has received 

benefits that meet or exceed the 

applicable amount described in 

paragraph (d)(1) of this section, a plan 

or issuer must take into account only 

essential health benefits. 

(3) Waiver authority of the Secretary. 

For plan years (in the individual market, 

policy years) beginning before January 

1, 2014, the Secretary may establish a 

program under which the requirements 

of paragraph (d)(1) of this section 

relating to annual limits may be waived 

(for such period as is specified by the 

Secretary) for a group health plan or 

health insurance coverage that has an 

annual dollar limit on benefits below 

the restricted annual limits provided 

under paragraph (d)(1) of this section if 

compliance with paragraph (d)(1) of this 

section would result in a significant 

decrease in access to benefits under the 

plan or health insurance coverage or 

would significantly increase premiums 

for the plan or health insurance 

coverage. 

(e) Transitional rules for individuals 

whose coverage or benefits ended by 

reason of reaching a lifetime limit—(1) 

In general. The relief provided in the 

transitional rules of this paragraph (e) 

applies with respect to any individual— 

(i) Whose coverage or benefits under 

a group health plan or group or 

individual health insurance coverage 

ended by reason of reaching a lifetime 

limit on the dollar value of all benefits 

for any individual (which, under this 

section, is no longer permissible); and 

(ii) Who becomes eligible (or is 

required to become eligible) for benefits 

not subject to a lifetime limit on the 

dollar value of all benefits under the 

group health plan or group or individual 

health insurance coverage on the first 

day of the first plan year (in the 

individual market, policy year) 

beginning on or after September 23, 

2010, by reason of the application of 

this section. 

(2) Notice and enrollment opportunity 

requirements—(i) If an individual 

described in paragraph (e)(1) of this 

section is eligible for benefits (or is 

required to become eligible for benefits) 

under the group health plan—or group 

or individual health insurance 

coverage—described in paragraph (e)(1) 

of this section, the plan and the issuer 


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are required to give the individual 

written notice that the lifetime limit on 

the dollar value of all benefits no longer 

applies and that the individual, if 

covered, is once again eligible for 

benefits under the plan. Additionally, if 

the individual is not enrolled in the 

plan or health insurance coverage, or if 

an enrolled individual is eligible for but 

not enrolled in any benefit package 

under the plan or health insurance 

coverage, then the plan and issuer must 

also give such an individual an 

opportunity to enroll that continues for 

at least 30 days (including written 

notice of the opportunity to enroll). The 

notices and enrollment opportunity 

required under this paragraph (e)(2)(i) 

must be provided beginning not later 

than the first day of the first plan year 

(in the individual market, policy year) 

beginning on or after September 23, 

2010. 

(ii) The notices required under 

paragraph (e)(2)(i) of this section may be 

provided to an employee on behalf of 

the employee’s dependent (in the 

individual market, to the primary 

subscriber on behalf of the primary 

subscriber’s dependent). In addition, for 

a group health plan or group health 

insurance coverage, the notices may be 

included with other enrollment 

materials that a plan distributes to 

employees, provided the statement is 

prominent. For either notice, with 

respect to a group health plan or group 

health insurance coverage, if a notice 

satisfying the requirements of this 

paragraph (e)(2) is provided to an 

individual, the obligation to provide the 

notice with respect to that individual is 

satisfied for both the plan and the 

issuer. 

(3) Effective date of coverage. In the 

case of an individual who enrolls under 

paragraph (e)(2) of this section, coverage 

must take effect not later than the first 

day of the first plan year (in the 

individual market, policy year) 

beginning on or after September 23, 

2010. 

(4) Treatment of enrollees in a group 

health plan. Any individual enrolling in 

a group health plan pursuant to 

paragraph (e)(2) of this section must be 

treated as if the individual were a 

special enrollee, as provided under the 

rules of § 146.117(d). Accordingly, the 

individual (and, if the individual would 

not be a participant once enrolled in the 

plan, the participant through whom the 

individual is otherwise eligible for 

coverage under the plan) must be 

offered all the benefit packages available 

to similarly situated individuals who 

did not lose coverage by reason of 

reaching a lifetime limit on the dollar 

value of all benefits. For this purpose, 

any difference in benefits or costsharing requirements constitutes a 

different benefit package. The 

individual also cannot be required to 

pay more for coverage than similarly 

situated individuals who did not lose 

coverage by reason of reaching a lifetime 

limit on the dollar value of all benefits. 

(5) Examples. The rules of this 

paragraph (e) are illustrated by the 

following examples: 

Example 1. (i) Facts. Employer Y maintains 

a group health plan with a calendar year plan 

year. The plan has a single benefit package. 

For plan years beginning before September 

23, 2010, the plan has a lifetime limit on the 

dollar value of all benefits. Individual B, an 

employee of Y, was enrolled in Y’s group 

health plan at the beginning of the 2008 plan 

year. On June 10, 2008, B incurred a claim 

for benefits that exceeded the lifetime limit 

under Y’s plan and ceased to be enrolled in 

the plan. B is still eligible for coverage under 

Y’s group health plan. On or before January 

1, 2011, Y’s group health plan gives B written 

notice informing B that the lifetime limit on 

the dollar value of all benefits no longer 

applies, that individuals whose coverage 

ended by reason of reaching a lifetime limit 

under the plan are eligible to enroll in the 

plan, and that individuals can request such 

enrollment through February 1, 2011 with 

enrollment effective retroactively to January 

1, 2011. 

(ii) Conclusion. In this Example 1, the plan 

has complied with the requirements of this 

paragraph (e) by providing a timely written 

notice and enrollment opportunity to B that 

lasts at least 30 days. 

Example 2. (i) Facts. Employer Z maintains 

a group health plan with a plan year 

beginning October 1 and ending September 

30. Prior to October 1, 2010, the group health 

plan has a lifetime limit on the dollar value 

of all benefits. Individual D, an employee of 

Z, and Individual E, D’s child, were enrolled 

in family coverage under Z’s group health 

plan for the plan year beginning on October 

1, 2008. On May 1, 2009, E incurred a claim 

for benefits that exceeded the lifetime limit 

under Z’s plan. D dropped family coverage 

but remains an employee of Z and is still 

eligible for coverage under Z’s group health 

plan. 

(ii) Conclusion. In this Example 2, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll (including 

written notice of an opportunity to enroll) 

that continues for at least 30 days, with 

enrollment effective not later than October 1, 

2010. 

Example 3. (i) Facts. Same facts as 

Example 2, except that Z’s plan had two 

benefit packages (a low-cost and a high-cost 

option). Instead of dropping coverage, D 

switched to the low-cost benefit package 

option. 

(ii) Conclusion. In this Example 3, not later 

than October 1, 2010, the plan must provide 

D and E an opportunity to enroll in any 

benefit package available to similarly situated 

individuals who enroll when first eligible. 

The plan would have to provide D and E the 

opportunity to enroll in any benefit package 

available to similarly situated individuals 

who enroll when first eligible, even if D had 

not switched to the low-cost benefit package 

option. 

Example 4. (i) Facts. Employer Q maintains 

a group health plan with a plan year 

beginning October 1 and ending September 

30. For the plan year beginning on October 

1, 2009, Q has an annual limit on the dollar 

value of all benefits of $500,000. 

(ii) Conclusion. In this Example 4, Q must 

raise the annual limit on the dollar value of 

essential health benefits to at least $750,000 

for the plan year beginning October 1, 2010. 

For the plan year beginning October 1, 2011, 

Q must raise the annual limit to at least $1.25 

million. For the plan year beginning October 

1, 2012, Q must raise the annual limit to at 

least $2 million. Q may also impose a 

restricted annual limit of $2 million for the 

plan year beginning October 1, 2013. After 

the conclusion of that plan year, Q cannot 

impose an overall annual limit. 

Example 5. (i) Facts. Same facts as 

Example 4, except that the annual limit for 

the plan year beginning on October 1, 2009, 

is $1 million and Q lowers the annual limit 

for the plan year beginning October 1, 2010 

to $750,000. 

(ii) Conclusion. In this Example 5, Q 

complies with the requirements of this 

paragraph (e). However, Q’s choice to lower 

its annual limit means that under 

§ 147.140(g)(1)(vi)(C), the group health plan 

will cease to be a grandfathered health plan 

and will be generally subject to all of the 

provisions of PHS Act sections 2701 through 

2719A. 

Example 6. (i) Facts. For a policy year that 

began on October 1, 2009, Individual T has 

individual health insurance coverage with a 

lifetime limit on the dollar value of all 

benefits of $1 million. For the policy year 

beginning October 1, 2010, the issuer of T’s 

health insurance coverage eliminates the 

lifetime limit and replaces it with an annual 

limit of $1 million dollars. In the policy year 

beginning October 1, 2011, the issuer of T’s 

health insurance coverage maintains the 

annual limit of $1 million dollars. 

(ii) Conclusion. In this Example 6, the 

issuer’s replacement of a lifetime limit with 

an equal dollar annual limit allows it to 

maintain status as a grandfathered health 

policy under § 147.140(g)(1)(vi)(B). Since 

grandfathered health plans that are 

individual health insurance coverage are not 

subject to the requirements of this section 

relating to annual limits, the issuer does not 

have to comply with this paragraph (e). 

(f) Applicability date. The provisions 

of this section apply for plan years (in 

the individual market, for policy years) 

beginning on or after September 23, 

2010. See § 147.140 of this part for 

determining the application of this 

section to grandfathered health plans 

(providing that the prohibitions on 

lifetime and annual limits apply to all 

grandfathered health plans that are 

group health plans and group health 

insurance coverage, including the 

special rules regarding restricted annual 

limits, and the prohibition on lifetime 

limits apply to individual health 


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insurance coverage that is a 

grandfathered health plan but the rules 

on annual limits do not apply to 

individual health insurance coverage 

that is a grandfathered health plan). 

■ 7. Add § 147.128 to read as follows: 

§ 147.128 Rules regarding rescissions. 

(a) Prohibition on rescissions—(1) A 

group health plan, or a health insurance 

issuer offering group or individual 

health insurance coverage, must not 

rescind coverage under the plan, or 

under the policy, certificate, or contract 

of insurance, with respect to an 

individual (including a group to which 

the individual belongs or family 

coverage in which the individual is 

included) once the individual is covered 

under the plan or coverage, unless the 

individual (or a person seeking coverage 

on behalf of the individual) performs an 

act, practice, or omission that 

constitutes fraud, or unless the 

individual makes an intentional 

misrepresentation of material fact, as 

prohibited by the terms of the plan or 

coverage. A group health plan, or a 

health insurance issuer offering group or 

individual health insurance coverage, 

must provide at least 30 days advance 

written notice to each participant (in the 

individual market, primary subscriber) 

who would be affected before coverage 

may be rescinded under this paragraph 

(a)(1), regardless of, in the case of group 

coverage, whether the coverage is 

insured or self-insured, or whether the 

rescission applies to an entire group or 

only to an individual within the group. 

(The rules of this paragraph (a)(1) apply 

regardless of any contestability period 

that may otherwise apply.) 

(2) For purposes of this section, a 

rescission is a cancellation or 

discontinuance of coverage that has 

retroactive effect. For example, a 

cancellation that treats a policy as void 

from the time of the individual’s or 

group’s enrollment is a rescission. As 

another example, a cancellation that 

voids benefits paid up to a year before 

the cancellation is also a rescission for 

this purpose. A cancellation or 

discontinuance of coverage is not a 

rescission if— 

(i) The cancellation or discontinuance 

of coverage has only a prospective 

effect; or 

(ii) The cancellation or 

discontinuance of coverage is effective 

retroactively to the extent it is 

attributable to a failure to timely pay 

required premiums or contributions 

towards the cost of coverage. 

(3) The rules of this paragraph (a) are 

illustrated by the following examples: 

Example 1. (i) Facts. Individual A seeks 

enrollment in an insured group health plan. 

The plan terms permit rescission of coverage 

with respect to an individual if the 

individual engages in fraud or makes an 

intentional misrepresentation of a material 

fact. The plan requires A to complete a 

questionnaire regarding A’s prior medical 

history, which affects setting the group rate 

by the health insurance issuer. The 

questionnaire complies with the other 

requirements of this part and part 146. The 

questionnaire includes the following 

question: ‘‘Is there anything else relevant to 

your health that we should know?’’ A 

inadvertently fails to list that A visited a 

psychologist on two occasions, six years 

previously. A is later diagnosed with breast 

cancer and seeks benefits under the plan. On 

or around the same time, the issuer receives 

information about A’s visits to the 

psychologist, which was not disclosed in the 

questionnaire. 

(ii) Conclusion. In this Example 1, the plan 

cannot rescind A’s coverage because A’s 

failure to disclose the visits to the 

psychologist was inadvertent. Therefore, it 

was not fraudulent or an intentional 

misrepresentation of material fact. 

Example 2. (i) Facts. An employer sponsors 

a group health plan that provides coverage 

for employees who work at least 30 hours per 

week. Individual B has coverage under the 

plan as a full-time employee. The employer 

reassigns B to a part-time position. Under the 

terms of the plan, B is no longer eligible for 

coverage. The plan mistakenly continues to 

provide health coverage, collecting premiums 

from B and paying claims submitted by B. 

After a routine audit, the plan discovers that 

B no longer works at least 30 hours per week. 

The plan rescinds B’s coverage effective as of 

the date that B changed from a full-time 

employee to a part-time employee. 

(ii) Conclusion. In this Example 2, the plan 

cannot rescind B’s coverage because there 

was no fraud or an intentional 

misrepresentation of material fact. The plan 

may cancel coverage for B prospectively, 

subject to other applicable Federal and State 

laws. 

(b) Compliance with other 

requirements. Other requirements of 

Federal or State law may apply in 

connection with a rescission of 

coverage. 

(c) Applicability date. The provisions 

of this section apply for plan years (in 

the individual market, for policy years) 

beginning on or after September 23, 

2010. See § 147.140 of this part for 

determining the application of this 

section to grandfathered health plans 

(providing that the rules regarding 

rescissions and advance notice apply to 

all grandfathered health plans). 

■ 8. Add § 147.138 to read as follows: 

§ 147.138 Patient protections. 

(a) Choice of health care 

professional—(1) Designation of 

primary care provider—(i) In general. If 

a group health plan, or a health 

insurance issuer offering group or 

individual health insurance coverage, 

requires or provides for designation by 

a participant, beneficiary, or enrollee of 

a participating primary care provider, 

then the plan or issuer must permit each 

participant, beneficiary, or enrollee to 

designate any participating primary care 

provider who is available to accept the 

participant, beneficiary, or enrollee. In 

such a case, the plan or issuer must 

comply with the rules of paragraph 

(a)(4) of this section by informing each 

participant (in the individual market, 

primary subscriber) of the terms of the 

plan or health insurance coverage 

regarding designation of a primary care 

provider. 

(ii) Example. The rules of this 

paragraph (a)(1) are illustrated by the 

following example: 

Example. (i) Facts. A group health plan 

requires individuals covered under the plan 

to designate a primary care provider. The 

plan permits each individual to designate 

any primary care provider participating in 

the plan’s network who is available to accept 

the individual as the individual’s primary 

care provider. If an individual has not 

designated a primary care provider, the plan 

designates one until one has been designated 

by the individual. The plan provides a notice 

that satisfies the requirements of paragraph 

(a)(4) of this section regarding the ability to 

designate a primary care provider. 

(ii) Conclusion. In this Example, the plan 

has satisfied the requirements of paragraph 

(a) of this section. 

(2) Designation of pediatrician as 

primary care provider—(i) In general. If 

a group health plan, or a health 

insurance issuer offering group or 

individual health insurance coverage, 

requires or provides for the designation 

of a participating primary care provider 

for a child by a participant, beneficiary, 

or enrollee, the plan or issuer must 

permit the participant, beneficiary, or 

enrollee to designate a physician 

(allopathic or osteopathic) who 

specializes in pediatrics as the child’s 

primary care provider if the provider 

participates in the network of the plan 

or issuer and is available to accept the 

child. In such a case, the plan or issuer 

must comply with the rules of 

paragraph (a)(4) of this section by 

informing each participant (in the 

individual market, primary subscriber) 

of the terms of the plan or health 

insurance coverage regarding 

designation of a pediatrician as the 

child’s primary care provider. 

(ii) Construction. Nothing in 

paragraph (a)(2)(i) of this section is to be 

construed to waive any exclusions of 

coverage under the terms and 

conditions of the plan or health 

insurance coverage with respect to 

coverage of pediatric care. 


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(iii) Examples. The rules of this 

paragraph (a)(2) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan’s 

HMO designates for each participant a 

physician who specializes in internal 

medicine to serve as the primary care 

provider for the participant and any 

beneficiaries. Participant A requests that 

Pediatrician B be designated as the primary 

care provider for A’s child. B is a 

participating provider in the HMO’s network. 

(ii) Conclusion. In this Example 1, the 

HMO must permit A’s designation of B as the 

primary care provider for A’s child in order 

to comply with the requirements of this 

paragraph (a)(2). 

Example 2. (i) Facts. Same facts as 

Example 1, except that A takes A’s child to 

B for treatment of the child’s severe shellfish 

allergies. B wishes to refer A’s child to an 

allergist for treatment. The HMO, however, 

does not provide coverage for treatment of 

food allergies, nor does it have an allergist 

participating in its network, and it therefore 

refuses to authorize the referral. 

(ii) Conclusion. In this Example 2, the 

HMO has not violated the requirements of 

this paragraph (a)(2) because the exclusion of 

treatment for food allergies is in accordance 

with the terms of A’s coverage. 

(3) Patient access to obstetrical and 

gynecological care—(i) General rights— 

(A) Direct access. A group health plan, 

or a health insurance issuer offering 

group or individual health insurance 

coverage, described in paragraph 

(a)(3)(ii) of this section may not require 

authorization or referral by the plan, 

issuer, or any person (including a 

primary care provider) in the case of a 

female participant, beneficiary, or 

enrollee who seeks coverage for 

obstetrical or gynecological care 

provided by a participating health care 

professional who specializes in 

obstetrics or gynecology. In such a case, 

the plan or issuer must comply with the 

rules of paragraph (a)(4) of this section 

by informing each participant (in the 

individual market, primary subscriber) 

that the plan may not require 

authorization or referral for obstetrical 

or gynecological care by a participating 

health care professional who specializes 

in obstetrics or gynecology. The plan or 

issuer may require such a professional 

to agree to otherwise adhere to the 

plan’s or issuer’s policies and 

procedures, including procedures 

regarding referrals and obtaining prior 

authorization and providing services 

pursuant to a treatment plan (if any) 

approved by the plan or issuer. For 

purposes of this paragraph (a)(3), a 

health care professional who specializes 

in obstetrics or gynecology is any 

individual (including a person other 

than a physician) who is authorized 

under applicable State law to provide 

obstetrical or gynecological care. 

(B) Obstetrical and gynecological 

care. A group health plan or health 

insurance issuer described in paragraph 

(a)(3)(ii) of this section must treat the 

provision of obstetrical and 

gynecological care, and the ordering of 

related obstetrical and gynecological 

items and services, pursuant to the 

direct access described under paragraph 

(a)(3)(i)(A) of this section, by a 

participating health care professional 

who specializes in obstetrics or 

gynecology as the authorization of the 

primary care provider. 

(ii) Application of paragraph. A group 

health plan, or a health insurance issuer 

offering group or individual health 

insurance coverage, is described in this 

paragraph (a)(3) if the plan or issuer— 

(A) Provides coverage for obstetrical 

or gynecological care; and 

(B) Requires the designation by a 

participant, beneficiary, or enrollee of a 

participating primary care provider. 

(iii) Construction. Nothing in 

paragraph (a)(3)(i) of this section is to be 

construed to— 

(A) Waive any exclusions of coverage 

under the terms and conditions of the 

plan or health insurance coverage with 

respect to coverage of obstetrical or 

gynecological care; or 

(B) Preclude the group health plan or 

health insurance issuer involved from 

requiring that the obstetrical or 

gynecological provider notify the 

primary care health care professional or 

the plan or issuer of treatment 

decisions. 

(iv) Examples. The rules of this 

paragraph (a)(3) are illustrated by the 

following examples: 

Example 1. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. Participant A, a female, 

requests a gynecological exam with Physician 

B, an in-network physician specializing in 

gynecological care. The group health plan 

requires prior authorization from A’s 

designated primary care provider for the 

gynecological exam. 

(ii) Conclusion. In this Example 1, the 

group health plan has violated the 

requirements of this paragraph (a)(3) because 

the plan requires prior authorization from A’s 

primary care provider prior to obtaining 

gynecological services. 

Example 2. (i) Facts. Same facts as 

Example 1 except that A seeks gynecological 

services from C, an out-of-network provider. 

(ii) Conclusion. In this Example 2, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) by 

requiring prior authorization because C is not 

a participating health care provider. 

Example 3. (i) Facts. Same facts as 

Example 1 except that the group health plan 

only requires B to inform A’s designated 

primary care physician of treatment 

decisions. 

(ii) Conclusion. In this Example 3, the 

group health plan has not violated the 

requirements of this paragraph (a)(3) because 

A has direct access to B without prior 

authorization. The fact that the group health 

plan requires notification of treatment 

decisions to the designated primary care 

physician does not violate this paragraph 

(a)(3). 

Example 4. (i) Facts. A group health plan 

requires each participant to designate a 

physician to serve as the primary care 

provider for the participant and the 

participant’s family. The group health plan 

requires prior authorization before providing 

benefits for uterine fibroid embolization. 

(ii) Conclusion. In this Example 4, the plan 

requirement for prior authorization before 

providing benefits for uterine fibroid 

embolization does not violate the 

requirements of this paragraph (a)(3) because, 

though the prior authorization requirement 

applies to obstetrical services, it does not 

restrict access to any providers specializing 

in obstetrics or gynecology. 

(4) Notice of right to designate a 

primary care provider—(i) In general. If 

a group health plan or health insurance 

issuer requires the designation by a 

participant, beneficiary, or enrollee of a 

primary care provider, the plan or issuer 

must provide a notice informing each 

participant (in the individual market, 

primary subscriber) of the terms of the 

plan or health insurance coverage 

regarding designation of a primary care 

provider and of the rights— 

(A) Under paragraph (a)(1)(i) of this 

section, that any participating primary 

care provider who is available to accept 

the participant, beneficiary, or enrollee 

can be designated; 

(B) Under paragraph (a)(2)(i) of this 

section, with respect to a child, that any 

participating physician who specializes 

in pediatrics can be designated as the 

primary care provider; and 

(C) Under paragraph (a)(3)(i) of this 

section, that the plan may not require 

authorization or referral for obstetrical 

or gynecological care by a participating 

health care professional who specializes 

in obstetrics or gynecology. 

(ii) Timing. In the case of a group 

health plan or group health insurance 

coverage, the notice described in 

paragraph (a)(4)(i) of this section must 

be included whenever the plan or issuer 

provides a participant with a summary 

plan description or other similar 

description of benefits under the plan or 

health insurance coverage. In the case of 

individual health insurance coverage, 

the notice described in paragraph 

(a)(4)(i) of this section must be included 

whenever the issuer provides a primary 

subscriber with a policy, certificate, or 

contract of health insurance. 

(iii) Model language. The following 

model language can be used to satisfy 


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37240 Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 

the notice requirement described in 

paragraph (a)(4)(i) of this section: 

(A) For plans and issuers that require 

or allow for the designation of primary 

care providers by participants, 

beneficiaries, or enrollees, insert: 

[Name of group health plan or health 

insurance issuer] generally [requires/allows] 

the designation of a primary care provider. 

You have the right to designate any primary 

care provider who participates in our 

network and who is available to accept you 

or your family members. [If the plan or health 

insurance coverage designates a primary care 

provider automatically, insert: Until you 

make this designation, [name of group health 

plan or health insurance issuer] designates 

one for you.] For information on how to 

select a primary care provider, and for a list 

of the participating primary care providers, 

contact the [plan administrator or issuer] at 

[insert contact information]. 

(B) For plans and issuers that require 

or allow for the designation of a primary 

care provider for a child, add: 

For children, you may designate a 

pediatrician as the primary care provider. 

(C) For plans and issuers that provide 

coverage for obstetric or gynecological 

care and require the designation by a 

participant, beneficiary, or enrollee of a 

primary care provider, add: 

You do not need prior authorization from 

[name of group health plan or issuer] or from 

any other person (including a primary care 

provider) in order to obtain access to 

obstetrical or gynecological care from a 

health care professional in our network who 

specializes in obstetrics or gynecology. The 

health care professional, however, may be 

required to comply with certain procedures, 

including obtaining prior authorization for 

certain services, following a pre-approved 

treatment plan, or procedures for making 

referrals. For a list of participating health 

care professionals who specialize in 

obstetrics or gynecology, contact the [plan 

administrator or issuer] at [insert contact 

information]. 

(b) Coverage of emergency services— 

(1) Scope. If a group health plan, or a 

health insurance issuer offering group or 

individual health insurance coverage, 

provides any benefits with respect to 

services in an emergency department of 

a hospital, the plan or issuer must cover 

emergency services (as defined in 

paragraph (b)(4)(ii) of this section) 

consistent with the rules of this 

paragraph (b). 

(2) General rules. A plan or issuer 

subject to the requirements of this 

paragraph (b) must provide coverage for 

emergency services in the following 

manner— 

(i) Without the need for any prior 

authorization determination, even if the 

emergency services are provided on an 

out-of-network basis; 

(ii) Without regard to whether the 

health care provider furnishing the 

emergency services is a participating 

network provider with respect to the 

services; 

(iii) If the emergency services are 

provided out of network, without 

imposing any administrative 

requirement or limitation on coverage 

that is more restrictive than the 

requirements or limitations that apply to 

emergency services received from innetwork providers; 

(iv) If the emergency services are 

provided out of network, by complying 

with the cost-sharing requirements of 

paragraph (b)(3) of this section; and 

(v) Without regard to any other term 

or condition of the coverage, other 

than— 

(A) The exclusion of or coordination 

of benefits; 

(B) An affiliation or waiting period 

permitted under part 7 of ERISA, part A 

of title XXVII of the PHS Act, or chapter 

100 of the Internal Revenue Code; or 

(C) Applicable cost sharing. 

(3) Cost-sharing requirements—(i) 

Copayments and coinsurance. Any costsharing requirement expressed as a 

copayment amount or coinsurance rate 

imposed with respect to a participant, 

beneficiary, or enrollee for out-ofnetwork emergency services cannot 

exceed the cost-sharing requirement 

imposed with respect to a participant, 

beneficiary, or enrollee if the services 

were provided in-network. However, a 

participant, beneficiary, or enrollee may 

be required to pay, in addition to the innetwork cost-sharing, the excess of the 

amount the out-of-network provider 

charges over the amount the plan or 

issuer is required to pay under this 

paragraph (b)(3)(i). A group health plan 

or health insurance issuer complies 

with the requirements of this paragraph 

(b)(3) if it provides benefits with respect 

to an emergency service in an amount 

equal to the greatest of the three 

amounts specified in paragraphs 

(b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) 

of this section (which are adjusted for 

in-network cost-sharing requirements). 

(A) The amount negotiated with innetwork providers for the emergency 

service furnished, excluding any innetwork copayment or coinsurance 

imposed with respect to the participant, 

beneficiary, or enrollee. If there is more 

than one amount negotiated with innetwork providers for the emergency 

service, the amount described under 

this paragraph (b)(3)(i)(A) is the median 

of these amounts, excluding any innetwork copayment or coinsurance 

imposed with respect to the participant, 

beneficiary, or enrollee. In determining 

the median described in the preceding 

sentence, the amount negotiated with 

each in-network provider is treated as a 

separate amount (even if the same 

amount is paid to more than one 

provider). If there is no per-service 

amount negotiated with in-network 

providers (such as under a capitation or 

other similar payment arrangement), the 

amount under this paragraph (b)(3)(i)(A) 

is disregarded. 

(B) The amount for the emergency 

service calculated using the same 

method the plan generally uses to 

determine payments for out-of-network 

services (such as the usual, customary, 

and reasonable amount), excluding any 

in-network copayment or coinsurance 

imposed with respect to the participant, 

beneficiary, or enrollee. The amount in 

this paragraph (b)(3)(i)(B) is determined 

without reduction for out-of-network 

cost sharing that generally applies under 

the plan or health insurance coverage 

with respect to out-of-network services. 

Thus, for example, if a plan generally 

pays 70 percent of the usual, customary, 

and reasonable amount for out-ofnetwork services, the amount in this 

paragraph (b)(3)(i)(B) for an emergency 

service is the total (that is, 100 percent) 

of the usual, customary, and reasonable 

amount for the service, not reduced by 

the 30 percent coinsurance that would 

generally apply to out-of-network 

services (but reduced by the in-network 

copayment or coinsurance that the 

individual would be responsible for if 

the emergency service had been 

provided in-network). 

(C) The amount that would be paid 

under Medicare (part A or part B of title 

XVIII of the Social Security Act, 42 

U.S.C. 1395 et seq.) for the emergency 

service, excluding any in-network 

copayment or coinsurance imposed 

with respect to the participant, 

beneficiary, or enrollee. 

(ii) Other cost sharing. Any costsharing requirement other than a 

copayment or coinsurance requirement 

(such as a deductible or out-of-pocket 

maximum) may be imposed with 

respect to emergency services provided 

out of network if the cost-sharing 

requirement generally applies to out-ofnetwork benefits. A deductible may be 

imposed with respect to out-of-network 

emergency services only as part of a 

deductible that generally applies to outof-network benefits. If an out-of-pocket 

maximum generally applies to out-ofnetwork benefits, that out-of-pocket 

maximum must apply to out-of-network 

emergency services. 

(iii) Examples. The rules of this 

paragraph (b)(3) are illustrated by the 

following examples. In all of these 

examples, the group health plan covers 


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Federal Register / Vol. 75, No. 123 / Monday, June 28, 2010 / Rules and Regulations 37241 

benefits with respect to emergency 

services. 

Example 1. (i) Facts. A group health plan 

imposes a 25% coinsurance responsibility on 

individuals who are furnished emergency 

services, whether provided in network or out 

of network. If a covered individual notifies 

the plan within two business days after the 

day an individual receives treatment in an 

emergency department, the plan reduces the 

coinsurance rate to 15%. 

(ii) Conclusion. In this Example 1, the 

requirement to notify the plan in order to 

receive a reduction in the coinsurance rate 

does not violate the requirement that the plan 

cover emergency services without the need 

for any prior authorization determination. 

This is the result even if the plan required 

that it be notified before or at the time of 

receiving services at the emergency 

department in order to receive a reduction in 

the coinsurance rate. 

Example 2. (i) Facts. A group health plan 

imposes a $60 copayment on emergency 

services without preauthorization, whether 

provided in network or out of network. If 

emergency services are preauthorized, the 

plan waives the copayment, even if it later 

determines the medical condition was not an 

emergency medical condition. 

(ii) Conclusion. In this Example 2, by 

requiring an individual to pay more for 

emergency services if the individual does not 

obtain prior authorization, the plan violates 

the requirement that the plan cover 

emergency services without the need for any 

prior authorization determination. (By 

contrast, if, to have the copayment waived, 

the plan merely required that it be notified 

rather than a prior authorization, then the 

plan would not violate the requirement that 

the plan cover emergency services without 

the need for any prior authorization 

determination.) 

Example 3. (i) Facts. A group health plan 

covers individuals who receive emergency 

services with respect to an emergency 

medical condition from an out-of-network 

provider. The plan has agreements with innetwork providers with respect to a certain 

emergency service. Each provider has agreed 

to provide the service for a certain amount. 

Among all the providers for the service: one 

has agreed to accept $85, two have agreed to 

accept $100, two have agreed to accept $110, 

three have agreed to accept $120, and one has 

agreed to accept $150. Under the agreement, 

the plan agrees to pay the providers 80% of 

the agreed amount, with the individual 

receiving the service responsible for the 

remaining 20%. 

(ii) Conclusion. In this Example 3, the 

values taken into account in determining the 

median are $85, $100, $100, $110, $110, 

$120, $120, $120, and $150. Therefore, the 

median amount among those agreed to for the 

emergency service is $110, and the amount 

under paragraph (b)(3)(i)(A) of this section is 

80% of $110 ($88). 

Example 4. (i) Facts. Same facts as 

Example 3. Subsequently, the plan adds 

another provider to its network, who has 

agreed to accept $150 for the emergency 

service. 

(ii) Conclusion. In this Example 4, the 

median amount among those agreed to for the 

emergency service is $115. (Because there is 

no one middle amount, the median is the 

average of the two middle amounts, $110 and 

$120.) Accordingly, the amount under 

paragraph (b)(3)(i)(A) of this section is 80% 

of $115 ($92). 

Example 5. (i) Facts. Same facts as 

Example 4. An individual covered by the 

plan receives the emergency service from an 

out-of-network provider, who charges $125 

for the service. With respect to services 

provided by out-of-network providers 

generally, the plan reimburses covered 

individuals 50% of the reasonable amount 

charged by the provider for medical services. 

For this purpose, the reasonable amount for 

any service is based on information on 

charges by all providers collected by a third 

party, on a zip code by zip code basis, with 

the plan treating charges at a specified 

percentile as reasonable. For the emergency 

service received by the individual, the 

reasonable amount calculated using this 

method is $116. The amount that would be 

paid under Medicare for the emergency 

service, excluding any copayment or 

coinsurance for the service, is $80. 

(ii) Conclusion. In this Example 5, the plan 

is responsible for paying $92.80, 80% of 

$116. The median amount among those 

agreed to for the emergency service is $115 

and the amount the plan would pay is $92 

(80% of $115); the amount calculated using 

the same method the plan uses to determine 

payments for out-of-network services— 

$116—excluding the in-network 20% 

coinsurance, is $92.80; and the Medicare 

payment is $80. Thus, the greatest amount is 

$92.80. The individual is responsible for the 

remaining $32.20 charged by the out-ofnetwork provider. 

Example 6. (i) Facts. Same facts as 

Example 5. The group health plan generally 

imposes a $250 deductible for in-network 

health care. With respect to all health care 

provided by out-of-network providers, the 

plan imposes a $500 deductible. (Covered innetwork claims are credited against the 

deductible.) The individual has incurred and 

submitted $260 of covered claims prior to 

receiving the emergency service out of 

network. 

(ii) Conclusion. In this Example 6, the plan 

is not responsible for paying anything with 

respect to the emergency service furnished by 

the out-of-network provider because the 

covered individual has not satisfied the 

higher deductible that applies generally to all 

health care provided out of network. 

However, the amount the individual is 

required to pay is credited against the 

deductible. 

(4) Definitions. The definitions in this 

paragraph (b)(4) govern in applying the 

provisions of this paragraph (b). 

(i) Emergency medical condition. The 

term emergency medical condition 

means a medical condition manifesting 

itself by acute symptoms of sufficient 

severity (including severe pain) so that 

a prudent layperson, who possesses an 

average knowledge of health and 

medicine, could reasonably expect the 

absence of immediate medical attention 

to result in a condition described in 

clause (i), (ii), or (iii) of section 

1867(e)(1)(A) of the Social Security Act 

(42 U.S.C. 1395dd(e)(1)(A)). (In that 

provision of the Social Security Act, 

clause (i) refers to placing the health of 

the individual (or, with respect to a 

pregnant woman, the health of the 

woman or her unborn child) in serious 

jeopardy; clause (ii) refers to serious 

impairment to bodily functions; and 

clause (iii) refers to serious dysfunction 

of any bodily organ or part.) 

(ii) Emergency services. The term 

emergency services means, with respect 

to an emergency medical condition— 

(A) A medical screening examination 

(as required under section 1867 of the 

Social Security Act, 42 U.S.C. 1395dd) 

that is within the capability of the 

emergency department of a hospital, 

including ancillary services routinely 

available to the emergency department 

to evaluate such emergency medical 

condition, and 

(B) Such further medical examination 

and treatment, to the extent they are 

within the capabilities of the staff and 

facilities available at the hospital, as are 

required under section 1867 of the 

Social Security Act (42 U.S.C. 1395dd) 

to stabilize the patient. 

(iii) Stabilize. The term to stabilize, 

with respect to an emergency medical 

condition (as defined in paragraph 

(b)(4)(i) of this section) has the meaning 

given in section 1867(e)(3) of the Social 

Security Act (42 U.S.C. 1395dd(e)(3)). 

(c) Applicability date. The provisions 

of this section apply for plan years (in 

the individual market, policy years) 

beginning on or after September 23, 

2010. See § 147.140 of this part for 

determining the application of this 

section to grandfathered health plans 

(providing that these rules regarding 

patient protections do not apply to 

grandfathered health plans). 

[FR Doc. 2010–15278 Filed 6–22–10; 11:15 am] 

BILLING CODE 4830–01–P, 4510–29–P, 4120–01–P 


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