HHS Provides New Guidance On Limited Medical Plans - But What Does It Mean?

New details have emerged regarding health care reform’s effect on limited medical plans, thanks to recent guidance on the Patient Protection & Affordable Care Act (PPACA) and its application to non-grandfathered and grandfathered plans. And while the guidance certainly spells progress in terms of understanding what clients can and cannot utilize, many questions may still arise in the months ahead about which plans will be viable – and legal.

The PPACA mandated that group health plans, even those that have been grandfathered, will have to meet new requirements on or after Sept. 23, 2010. Plans subject that will be subject to these new regulations include:

• All limited medical plans that were considered “group health insurance plans”
• Plans that issued letters of creditable coverage under HIPAA
• Plans identified as limited major medical plans that function similarly to traditional group plans, with copayments, deductibles, co-insurance, and an annual overall maximum or a separate inpatient/outpatient maximum

And while the legislation originally stated the group health plans could not include lifetime or annual limits, new guidance from the Department of Health and Human Services (HHS) states that limited medical plans with annual limits will be allowed to apply for a waiver from these regulations if they can demonstrate that removing these limits will significantly decrease access to benefits or significantly increase premiums. HHS provide more guidance in the near future regarding the conditions and the process for applying for a waiver.

Limited medical plan types and repercussions

There are two styles of limited benefit plans within the limited medical industry:

1. Co-insurance (sometimes referred to as “copay-based” or “expense-incurred”)
2. Indemnity-based (sometimes called “fixed indemnity”) insurance

Fixed indemnity-style limited medical plans that do not issue creditable coverage letters or represent themselves as a true group health insurance plan are exempt from the new regulations because they are filed as supplemental and not subject to these new regulations, as opposed to the co-insurance-based limited medical plans, which are subject to regulations.

This new guidance means that expense-incurred plans aren’t necessarily outlawed if the carrier (or employer, on a self-funded plan) applies for and is granted a waiver by the federal government. More guidance is needed to better understand the ramifications of this, and there is a 60-day comment period, so additional information will probably arrive in late August.