GAO Report Says Virtually All Waiver Requests On Health Plan Annual Limits Were Granted

The Government Accountability Office (GAO) has issued its report on how the government handled requests for waivers from the Patient Protection and Affordable Care Act (PPACA) requirement that generally prohibits health insurance issuers and group health sponsors from imposing annual limits on the dollar value of essential covered health benefits beginning on Jan. 1, 2014. The GAO report, which was Congressionally mandated, found that waivers were granted in virtually all cases.

Background. For plan years beginning on or after Sept. 23, 2010 (e.g., Jan. 1, 2011, for calendar year plans), Public Health Service Act (PHSA) Sec. 2711, which has been incorporated into the Code, 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. IRS, Dept. of Labor (DOL), and the Dept. of Health and Human Services (HHS) have jointly issued interim regs (temporary and final regs, in IRS's case) implementing these rules. (Preamble to TD 9491)

Although annual limits on the dollar value of benefits generally are prohibited, so-called “restricted annual limits” are allowed for “essential health benefits” for plan years (in the individual market, policy years) beginning before Jan. 1, 2014, so long as the annual limit is no less than:

(i) $750,000, for a plan year beginning on or after Sept. 23, 2010, but before Sept. 23, 2011;

(ii) $1,250,000, for a plan year beginning on or after Sept. 23, 2011, but before Sept. 23, 2012; and

(iii) $2,000,000, for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014. (Reg. §54.9815-2711T(c), T.D. 9491, 6/22/2010)

Certain grandfathered individual market policies are exempted from this provision.

PHSA Sec. 2711 authorizes HHS to establish a program under which the rules regarding restricted annual limits in Reg. §54.9815-2711T(d)(1) can be waived for a group health plan or health insurance coverage that has an annual dollar limit on benefits that's below the restricted annual limits. The waiver can apply if complying with the restricted annual limit rules would significantly decrease access to benefits under the plan or health insurance coverage, or would significantly increase premiums for the plan or health insurance coverage. The waiver can apply for a period to be determined by HHS. (Reg. §54.9815-2711T(d)(3))

In response to this authorization, HHS's Office of Consumer Information and Insurance Oversight (OCIIO)—subsequently renamed as the Center for Consumer Information and Insurance Oversight (CCIIO)—has issued guidance that provides that a group health plan or health insurance issuer may apply for a waiver from the restricted annual limits set out above. The waiver may be requested if the plan or the coverage offered by the issuer was offered before Sept. 23, 2010 for the plan or policy year beginning between Sept. 23, 2010 and Sept. 23, 2011 by submitting an application not less than 30 days before the beginning of the plan or policy year, or—for a plan or policy year that begins before Nov. 2, 2010—not less than 10 days before the beginning of the plan or policy year.

The application must include:

(1) the terms of the plan or policy forms for which a waiver is being sought;

(2) the number of individuals covered by the plan or policy forms submitted;

(3) the annual limits and rates that apply to the plan or policy forms submitted;

(4) a brief description of why compliance with the restricted annual limit rules would result in a significant decrease in access to benefits for those currently covered by the plans or policies, or a significant increase in premiums paid by those covered by the plans or policies, along with any supporting documentation; and

(5) an attestation, signed by the plan administrator or chief executive officer of the issuer of the health insurance coverage, certifying (a) that the plan was in force before Sept. 23, 2010, and (b) that applying the restricted annual limits to the plans or policies would result in (i) a significant decrease in access to benefits for those currently covered by the plans or policies, or (ii) a significant increase in premiums paid by those covered by the plans or policies.

A waiver approval granted under this process applies only for the plan or policy year that begins between Sept. 23, 2010 and Sept. 23, 2011. A group health plan or health insurance issuer must reapply for any subsequent plan or policy year before Jan. 1, 2014 when this waiver expires in accordance with future guidance from HHS.

HHS says that the waiver is primarily addressed to “limited benefit” or “mini-med” plans, which often have annual limits below the restricted annual limits, and which offer low-cost coverage to part-time workers, seasonal workers, and volunteers who otherwise may not be able to afford coverage at all. HHS cautions that the waiver does not affect any state law requirements addressing annual benefit limits in group health plans, or group and individual health insurance coverage.

The Department of Defense and Full-Year Continuing Appropriations Act for Fiscal Year 2011 (P.L. 112-10) directed GAO to report on annual limit waiver requests.

New “report card” on granting of waivers. The GAO report found that as of Apr. 25, 2011, CCIIO received a total of 1,415 applications for a waiver of restrictions related to annual limits on health benefits, and approved most of these applications. For 1,347 of the applications, or over 95%, CCIIO approved waivers covering all plans in the applications. For another 25 applications, CCIIO approved waivers for some plans and denied waivers for others within the same application. It denied waivers covering all plans in 40 applications. Three applications were pending at the time of GAO's review. GAO says approximately 3 million people were covered in approved plans and approximately 153,000 people were covered in denied plans.

The bulk of the approved applications were granted to self-insured employers (i.e., those funding health coverage for employees and assuming the financial risk rather than buying covering from a health insurance issuer (38.48%), health reimbursement accounts, or HRAs (33.33%), and multi-employer plans (23%).

GAO's report concludes that CCIIO granted waivers on the basis of an application's projected significant increase in premiums or significant reduction in access to health care benefits. Applications with a projected premium increase of 10% or more tended to be approved while applications with a projected premium increase of 6% or less tended to be denied. Applications with a premium increase between 7% and 9% required additional staff reviews to determine if the application met the agency's criteria.

References: For prohibition on lifetime or annual limits on health care coverage—plan years beginning on or after Sept. 23, 2010, see FTC 2d/FIN ¶H-1325.63; United States Tax Reporter ¶98,154.03.