Lawyers Journal

Protecting consumers: The elimination of lifetime and annual limits on health insurance benefits

Introduction

Consistent with the commonwealth's history of robust consumer protections, such as automobile lemon laws1 and treble damages for unfair business practices,2 Massachusetts leads the nation with respect to state health care reform. While federal consumer protections exist, often these laws are not as protective as individual state laws. However, federal health reform encompasses many important consumer protections in regard to access to health insurance.

Specifically, the Patient Protection and Affordable Care Act (the "ACA"), Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010) (codified as amended in various sections of the U.S.C.) is a significant reform governing the provision of health care in the United States. The objective of this article is to analyze the intersection of the ACA and Massachusetts law as it relates to banning lifetime and annual benefit limits placed on health insurance coverage offered to residents of the commonwealth.

Lifetime and annual benefit limits function as barriers to consumers' ability to receive medically necessary care. Specifically, health plans which limit the quantity of medical visits or the dollar amount of coverage3 result in significant medical debt for a consumer, often when the consumer is most vulnerable due to chronic illness.

Clearly, lifetime limits have the potential to produce greater amounts of medical debt than annual limits because annual limits reset each year. Individuals and families whose health plans impose these types of limits are at risk of being fully exposed to the costs of health care and incurring charges higher than what a private or public payer would have paid for the same services.4

A key premise, therefore, underlying the elimination of benefit limits in health care coverage is the fundamental unfairness burdening medically needy consumers, especially those who are insured and optimize preventive care treatment. The federal government, in passing ACA's ban on lifetime limits resolved, in part, the burden of consumer medical debt because lifetime limits on essential benefits are prohibited for plans beginning coverage on or after Jan. 1, 2011.5

Annual and lifetime limits within the commonwealth

Pursuant to the commonwealth's landmark health care reform of 2006,6 all adult residents who can afford health insurance must maintain comprehensive coverage, which in effect protects residents from financial costs associated with necessary medical treatment.7 Under the law and its implementing regulations, health plans are required to provide minimum creditable coverage ("MCC").8

Although the commonwealth's health care reform was robust enough to require health plans to provide certain services to residents, it did not eliminate all annual or lifetime benefit limits.9 Specifically, the law prohibits health plans from imposing an overall annual maximum benefit limit or annual maximum benefit limit for covered core services.10 But group plans, including fully-insured employer sponsored health plans, may be permitted to offer Massachusetts residents health benefit plans that contain lifetime or annual benefit limits on non-core services.11

Examples of limitations that are allowed include, but are not limited to, the following: (1) benefit limits on substance abuse treatment to the extent consistent with federal law; (2) benefit limits on physical therapy; (3) benefit limits on inpatient rehabilitation care services; (4) benefit limits on durable medical equipment.12 Notably, effective Jan. 1, 2011, annual benefit limits are banned for prescription drugs.13

Although most insurance plans offered to consumers in the commonwealth do not reflect limits on benefits, annual benefit limits are more prevalent in health plans in the commonwealth than lifetime limits.14 Despite this, there are categories of health plans that are more likely than others to invoke such limits. Specifically, Young Adult Plans15 offered through the Commonwealth Health Insurance Connector ("Connector") and student health plans are premised on the assumption that the risk pool consists of young, healthy adults; thus, these plans may permit annual benefit maximums with the expectation that few would actually exceed these limits.16

In addition, self-funded and private group health plans may contain these annual limits. Moreover, while there is no outright prohibition on lifetime limits, the vast majority of health plans sold in the commonwealth have no lifetime limits.17 Health plans offered through the Connector, for example, whether state subsidized under the Commonwealth Care program or consumer financed under the Commonwealth Choice health plans, do not contain lifetime benefit limits on core services.18 Nonetheless, self-funded or private group plans may contain lifetime benefit limits despite the strong consumer protections afforded to commonwealth residents.

ACA - An overview of the ban on lifetime and annual limits

The ACA restricts group health plans and issuers of group or individual plans from using lifetime and annual health benefit limits.19 These plans are prohibited from placing lifetime benefit limits on essential health benefits, but are permitted to place such limits on non-essential health benefits.20 Likewise, under this section, these plans are restricted to placing reasonable limits on annual benefits for essential health benefits.21

Although the ACA does not go as far as to eliminate the practice of using lifetime and annual per beneficiary limits, the ACA's restrictions on these plans permit only "annual or lifetime per beneficiary limits on specific covered benefits to the extent that such limits are otherwise permitted under federal or state law."22

This means that even after this section of the ACA is fully implemented, if an employer-sponsored health plan does not want to cover hearing aids, for instance, it may because this benefit limitation does not run afoul of federal or state laws. The federal law mandates that if any benefits are provided for a specific medical condition, the ban on annual and lifetime limits must apply for essential benefits.

Since the ACA discriminates between essential and non-essential services, characterization of services as "essential" will prove to be important. Currently, the secretary of the Department of Health and Human Services ("HHS secretary") has discretion to determine which health benefits should be considered essential, however, "essential health benefits" must include the items and services covered within the following general categories: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care.23

As of late May 2011, the HHS secretary has yet to issue regulations defining other services that will be included as essential health benefits. Importantly, the essential benefits package must equal in scope the benefits provided under a typical employer-sponsored health plan.24 Until regulations are promulgated, for purposes of enforcement, the U.S. Department of the Treasury ("Treasury"), Department of Labor ("DOL"), and HHS will consider a plan's good-faith efforts to comply with a reasonable interpretation of the term "essential health benefits."25

The ACA eliminates annual benefit limits for essential benefits as of 2014.26 Like lifetime benefit limits, the HHS, the DOL, and the Treasury will consider a plan or issuer's good-faith efforts to comply with a reasonable interpretation of "essential health benefits" until the HHS secretary promulgates regulations.27 Importantly, the ACA's ban on annual benefit limits does not prevent group health plans or plan issuers from imposing an annual per beneficiary limit on specific covered benefits that are not essential, so long as such annual limits are otherwise permitted under state or federal law.28

Additionally, if a group health plan or issuer of a plan has not included a particular benefit and chooses to continue to exclude such benefit for a particular condition, the ACA's ban on annual benefits does not mandate that the group health plan or issuer provide the benefit.29

Until 2014, pursuant to DOL-issued interim final regulations, there is a three-year period whereby the annual dollar limits a health plan can impose on essential health benefits are phased out.30 Indeed, plans or issuers are not restricted from setting higher annual benefit limits or not imposing limits at all. Notably, the HHS secretary must ensure that as the restrictions on annual limits are enacted, there is a minimal impact on health plan premiums.31 This ensures that consumers are not inadvertently harmed by the ACA's efforts to secure affordable and quality health insurance coverage.

Conclusion

Clearly, the elimination of annual and lifetime health benefit limits is not a new concept in the commonwealth. But, Massachusetts residents will benefit from the added consumer protections under federal law. Importantly, since the federal law applies to ERISA-governed health plans, which includes self-funded employer-sponsored coverage, a group health plans that is outside the scope of the commonwealth's Division of Insurance, for example, will now have new requirements for annual and lifetime benefit limits.

As a result, the ACA's consumer protections strengthen the commonwealth's ability to safeguard residents' essential health benefits and avoid the pitfalls of burdensome consumer medical debt.

1M.G.L. c. 90, § 7N1/2 (2011).

2M.G.L c.93A § 11 (2011)

3See, e.g., Doe v. Mutual of Omaha Ins. Co., 179 F.3d 557 (7th Cir. 1999), cert. denied, Doe v. Mutual of Omaha Ins. Co., 528 U.S. 1106 (2000) (construing a challenge brought by two Chicago residents against an insurance company that sold individual policies with lifetime limits for benefits in treating AIDS); McLean Hosp. Corp. v. Lasher, 819 F. Supp. 110, 126 (D. Mass 1993) (construing benefits pursuant to a health plan that imposed a $10,000 per lifetime benefit limit for the care or treatment of behavioral health services).

4According to a recent study, "illness or medical bills contributed to 52.9 percent of bankruptcies in Massachusetts" in 2009. This was less than in 2007, where "medical bankruptcies accounted for 59.3 percent of personal bankruptcies in the state." David U. Himmelstein, Deborah Thorne, & Steffie Woolhandler, Medical Bankruptcy in Massachusetts: Has Health Reform Made a Difference, 124 AM. J. MED. 224, 225 (2011).

5See, e.g., 26 C.F.R. § 54.9815-2711T(e)(3)(Ex. 1), 29 C.F.R. § 2590.715-2711(e)(3)(Ex. 1), 45 C.F.R. § 147.126(e)(3)(Ex. 1).

6An Act Providing Access to Affordable, Quality, Accountable Health Care, St. 2006, c. 58 (codified as amended G.L. c. 6A, 10, 17, 26, 29, 32, 62, 111, 111M, 118E, 118G, 118H, 149, 151F, 175, 176A, 176B, 176G, 176J, 176M, 176N, 176Q).

7G.L. c. 111M, 118H, 151F, 176Q.

8G.L. c. 111M, § 1; 956 CMR § 5.03.

9Specifically, the Commonwealth Health Insurance Connector Authority has discretion to deem a health benefit plan in compliance with MCC requirements if it determines the plan "conforms with the regulatory requirements under 956 CMR 5.00 relating to core services (without limitation) and a 'broad range of medical benefits'; does not fail the standards of MCC established in 5.03(2)(f)(3); and has an actuarial value equal to or greater than any Bronze-level plan offered through the Connector as certified by an actuary." 956 CMR 5.03(4). Core services include "physician services, inpatient acute care services, day surgery, and diagnostic procedures and tests." 956 CMR 5.02. Beginning Jan. 1, 2010, a "broad range of medical benefits" was expanded to include: (1) ambulatory patient services, including outpatient, day surgery and related anesthesia; (2) diagnostic imaging and screening procedures, including X-rays; (3) emergency services; (4) hospitalization (including at a minimum, inpatient acute care services which generally provided by an acute care hospital for covered benefits in accordance with the member's subscriber certificate or plan description); (5) maternity and newborn care; (6) medical/surgical care, including preventative and primary care; (7) mental health and substance abuse services; (8) prescription drugs; and (9) radiation therapy and chemotherapy. 956 CMR 5.03(2)(a)(2).

10956 CMR 5.03(2)(f).

11956 CMR 5.03(2)(f)(4).

12Id.

13956 CMR 5.03(2)(f)(3).

14Mass. Div. of Ins., National Health Reform: What Does This Mean for Massachusetts?, www.mass.gov/Eoca/docs /advisories/nat_health_reform.pdf (last visited May 16, 2011).

15See M.G.L. c. 176J, § 10; 211 CMR 63.00.

16ROBERT W. SEIFERT & ANDREW P. COHEN, RE-FORMING REFORM: WHAT THE PATIENT PROTECTION AND AFFORDABLE CARE ACT MEANS TO MASSACHUSETTS 29 (2010), available at http://massmedicaid.org/~/media/Files/Publications/Policy%20Publications/062110NHRReportFINAL.pdf.

17Id.

18Id.

19Patient Protection and Affordable Care Act ("ACA"), Pub. L. No. 111-148, §§ 1001(5), as amended by § 10101(a), 124 Stat. 119, 131, 883 (2010) (codified as amended at 42 U.S.C.A. § 300gg-11 (West 2010)).

20Id.

21Id.

22Id.

23ACA § 1302(b), 124 Stat. 119, 163, 896 (2010) (codified as amended at 42 U.S.C.A. § 18022 (West 2010)).

24ACA § 1302(b)(2)(A).

25Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections; Interim Final Rule, 75 Fed. Reg. 37188, 37191 (June 28, 2010) (to be codified at 26 C.F.R. pt 54.9815-2711T, 29 C.F.R. pt 2590.715-2711, 45 C.F.R. pt 147.126).

26ACA § 1001(5), as amended by § 10101(a).

27Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections; Interim Final Rule, 75 Fed. Reg. at 37191.

28ACA § 1001(5), as amended by § 10101(a); see also Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections; Interim Final Rule, 75 Fed. Reg. at 37191.

29Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections; Interim Final Rule, 75 Fed. Reg. at 37191.

30See ACA § 1001(5), as amended by § 10101(a). Specifically, for plan years beginning on or after Sept. 23, 2010, but before Sept. 23, 2011, plans may not set annual dollar limits less than $750,000. For plan years beginning on or after Sept. 23, 2011, but before Sept. 23, 2012, plans may not set annual dollar limits less than $1.25 million. Finally, for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014, plans may not set annual dollar limits less than $2 million. 26 C.F.R. § 54.9815-2711T(d); 29 C.F.R. § 715-2711(d); 45 C.F.R. § 147.126(d).

31ACA § 1001(5), as amended by § 10101(a) ("In defining 'restricted annual limits' the Secretary of HHS must ensure that access to necessary services is made available with only a minimal impact on premiums.").

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