O’Neill Institute for National and Global Health LawO’Neill Institute for National and Global Health LawLegal Issues in Health Reform

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How Does the Health Reform Legislation Affect Self-Insured Plans?

Analysis of the application of the Patient Protection and Affordable Care Act to self-insured plans must begin with section 1562 of the Act, which adds section 715 to ERISA and section 9815 to the Internal Revenue Code. These provisions state that all of the provisions of Part A of Title XXVII of the Public Health Service Act, as amended by the PPACA, apply to ERISA group health plans and health insurance issuers that insure group health plans. The section further provides that if anything in the group plan requirements of ERISA conflicts with Part A of the PHSA, the PHSA shall apply. The fact that this section refers both to group health plans and to insured group health plans makes it clear that the provision is meant to apply to self-insured plans. This is reinforced by the subsection B of this section, which states that sections 2716 and 2718 of the PHSA do not apply to self-insured plans, suggesting that the remaining provisions do.

This analysis is strengthened by the definition of “group health plan” in section 1301(b)(3), which incorporates the definition of section 2791 of the PHSA (42 U.S.C. 30gg-91), which defines “group health plan” to mean an employee welfare benefit plan as defined in ERISA 3(1), 29 U.S.C. 1002(1). Section 1551 also provides that the definitions of PHSA 2791 apply to the PPACA.

The provisions of Part A of the PHSA, as amended by the PPACA, and the entities to which they apply, are, as best I can figure out, the following;

  • Sec. 2701. Fair health insurance premiums, limiting rating to age, geographic area, individual or family unit, and tobacco use. (Health insurance issuers for individual and small group market. Also insurers of large groups if offered through exchange.)
  • Sec. 2702. Guaranteed availability of coverage. (Former sec. 2011). (Health insurance issuers offering individual and group coverage.)
  • Sec. 2703. Guaranteed renewability of coverage. (former sec 2012) (Health insurance issuers offering individual and group coverage.)
  • Sec. 2704. (former sec. 2701) Prohibition of preexisting condition exclusions or other discrimination based on health status. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2705. (former sec. 2702) Prohibiting discrimination against individual participants and beneficiaries based on health status. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2706. Non-discrimination in health care. This section both prohibits discrimination by insurers against providers operating within their scope of practice, and against individuals in violation of section 1558, which prohibits retaliatory action against employees who complain about actions their employers take in violation of the reform act. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2707. Comprehensive health insurance coverage. Requires insurance issuers in the individual and small group market to provide essential benefits under sec. 1302(a) and group health plans to comply with the cost sharing requirements of sec. 1302(a).
  • Sec. 2708. Prohibition on excessive waiting periods (over 90 days). (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2709, Coverage for individuals participating in approved clinical trials (group plans and insurers in the group and individual market)
  • Sec. 2709. (Formerly 2733). Disclosure of information by health insurance issuers.
  • Sec. 2711. No lifetime or annual limits (group health plans and health insurance issuers offering group and individual health insurance coverage, more permissive rules for self-insured and large group plans.)
  • Sec. 2712. Prohibition on rescissions. (Group health plans and health insurance issuers offering group and individual health insurance coverage.
  • Sec. 2713. Coverage of preventive health services. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2714. Extension of dependent coverage. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2715. Development and utilization of uniform explanation of coverage documents and standardized definitions. (Secretary to develop standards. To be applied by health insurance issuers and sponsors of self-insured plans.
  • Sec. 2715A Provision of information required by sec. 1311(e)(3) to HHS and to state insurance commissioners.. (Group plans and insurers in the group and individual market).
  • Sec. 2716. Prohibition of discrimination based on salary. (Plan sponsors of group health plans other than self-insured plans.)
  • Sec. 2717. Ensuring the quality of care. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2718. Bringing down the cost of health care coverage. (minimum loss ratios) (Health insurance issuers offering group or individual health insurance coverage. Does not apply to self-insured plans.)
  • Sec. 2719. Internal and external appeals processes. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
  • Sec. 2719A Patient Protections.
  • Sec. 2722. (Formerly 2721). Exclusion of certain plans (i.e. governmental plans)
  • Sec. 2723. (Formerly 2722). Enforcement provisions.
  • Sec. 2724. (Formerly 2723). Preemption, state flexibility, construction.
  • Sec. 2725. (Formerly 2704) Drive through delivery. (Group health plan and health insurance issuer offering group and individual coverage.)
  • Sec. 2726. (Formerly 2705). Mental health parity (group health plan and health insurance issuer offering group and individual coverage.)
  • Sec. 2727. (Formerly 2706). Reconstructive surgery following mastectomies. (Group health plan and health insurance issuer offering group and individual coverage.
  • Sec. 2728. (Formerly 2707). Coverage of dependent students during medically-necessary leave of absence. (Group health plan and health insurance issuer offering group and individual coverage.
  • Sec. 2731 (Formerly 2711). Section rewritten as a limitation on guaranteed coverage based on network or financial capacity and transferred to 2702
  • Sec. 2732. (Formerly 2712). Guaranteed renewability of coverage in small group market. (revised and transferred to section 2703)

Of these provisions, section 2704, 2705, 2706, 2707 (as to maximum cost sharing), 2708, 2709 (clinical trials), 2711, 2712, 2713, 2714, 2715, 2715A, 2717, 2719, 2719A, 2725, 2726, 2727, and 2728 apply to group health plans, and thus to self-insured plans. The remaining sections apply only to insured plans.

Several sections of the PPACA refer specifically to self-insured plans. Section 2701(a)(5), applying the health status underwriting provisions to large group plans in the exchange, does not apply to self-insured plans. Section 2715 requires the plan sponsor or designated administrator to make the disclosures required by that section for self-insured plans. Section 2716, discrimination in favor of highly-compensated employees, expressly states that it does not apply to self-insured plans, which are already covered by a similar requirement under sec. 105(h). Self-insured plans are expressly subject to the external review requirements of 2719 established by HHS. The reinsurance provisions of 1341 expressly apply to self-insured plans; the risk-pooling provisions of 1343 expressly do not. Self-insured plans are expressly subject to a per-member fee to fund patient centered outcomes research under a new section 4376 of the IRC. Section 1253 requires the Secretary of Labor to collect information on self-insured plans and to file a report with Congress, while 1254 requires a similar report on the large group market, including self-insured plans.

One puzzle of the PPACA with respect to self-insured plans is section 1301(b)(1)(B), which provides

(B) EXCEPTION FOR SELF-INSURED PLANS AND MEWAS.—Except to the extent specifically provided by this title, the term ‘‘health plan’’ shall not include a group health plan or multiple employer welfare arrangement to the extent the plan or arrangement is not subject to State insurance regulation under section 514 of the Employee Retirement Income Security Act of 1974 [i.e. a self-insured plan or MEWA].

Read literally, this would mean that self-insured plans are not subject to any of the insurance reforms, since the term “group health plan,” used throughout the PPACA to define coverage, includes the term “health plan.” This would, however, run contrary to all of the other provisions of Title I that state or indicate that self-insured plans are included in “group health plans” and covered by the PPACA. The application of this exception, therefore, must be limited to section 1301, which defines “qualified health plans” as “health plans” that meet specific requirements. It would thus mean that self-insured plans cannot be qualified health plans.

The essential health benefit requirements of section 1302 specifically do not apply to self-insured plans under section 2707. This raises a final puzzle under the statute. Under section 1401 of the PPACA an employee can qualify for a premium tax credit to purchase insurance through the exchange if his or her employment-related plan fails to cover 60 percent of the allowed cost of benefits covered by the plan. An employer whose employees receive credits under this provision is liable under 1513 for a penalty of $3000 per employee who qualifies for premium subsides under the legislation. Since self-insured plans, however, are not subject to a minimum essential benefit requirement, could the employer not always offer a slim enough benefit package so as to cover 60 percent of it and avoid the fine? This issue will, it is hoped, be addressed through regulations.

The legislation does not affect 514 or 502 preemption. ERISA plan beneficiaries will still be limited to ERISA‘s remedies. States will still not have jurisdiction over ERISA plans. Section 2715A (in Title X) would seem to require ERISA plans to report information to state insurance commissioners as well as to the federal government, but I would hope that the regulations will sort this out.

4 Comments

  1. Anonymous
    Posted April 8, 2010 at 10:28 PM | Permalink

    Thank you for this helpful article.

  2. Posted April 21, 2010 at 2:41 PM | Permalink

    How about a self insured plan not governed by ERISA or the state like a church health plan?

  3. BJ
    Posted November 16, 2010 at 2:13 PM | Permalink

    Lots of them overseas for you….

  4. Posted May 13, 2010 at 6:15 AM | Permalink

    Thanks for the detailed article. Regulations are required to bring tougher regulations for insurers, the proposals would make healthcare more affordable and health insurers more accountable.

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