The minimum annual limits for plan or policy years beginning before 2014 apply on an individualbyindividual 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 socalled ``minimed'' 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reached their lifetime limits on individual health insurance coverage if the contract is not renewed or otherwise is no longer in effect.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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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. \9\ See 26 CFR 54.98016(d), 29 CFR 2590.7016(d), and 45 CFR 146.117(d).

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:

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 selfinsured coverage. These rules also apply regardless of any contestability period that may otherwise apply.

This provision in PHS Act section 2712 builds on alreadyexisting 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 employmentbased 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 employmentbased 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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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 nonrenewal 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 selfinsured, or the rescission applies to an entire group or only to an individual within the group. This 30day 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.
\10\ Even though prior notice must be provided in the case of a rescission, applicable law may permit the rescission to void coverage retroactively.

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 54.98152719AT, 29 CFR 2590.7152719A, 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.
\11\ The statute and these interim final regulations refer to providers both in terms of their participation (participating provider) and in terms of a network (innetwork 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. 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 innetwork 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 innetwork 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
[[Page 37194]]
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 innetwork 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 costsharing 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 outofnetwork emergency services that is more restrictive than the requirements or limitations that apply to innetwork emergency services.

Additionally, for a plan or health insurance coverage with a network, these interim final regulations provide rules for costsharing requirements for emergency services that are expressed as a copayment amount or coinsurance rate, and other costsharing requirements. Cost sharing requirements expressed as a copayment amount or coinsurance rate imposed for outofnetwork emergency services cannot exceed the costsharing requirements that would be imposed if the services were provided innetwork. Outofnetwork 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 outofnetwork 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 innetwork 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 innetwork and outofnetwork rates. For example, for a plan using a capitation arrangement to determine innetwork payments to providers, there is no innetwork rate per service. Accordingly, these interim final regulations consider three amounts: the innetwork rate, the outofnetwork rate, and the Medicare rate. Specifically, a plan or issuer satisfies the copayment and coinsurance limitations in the statute if it provides benefits for outofnetwork 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 outofnetwork services (such as the usual, customary, and reasonable charges) but substituting the innetwork costsharing provisions for the outof network costsharing 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 innetwork copayment or coinsurance imposed with respect to the participant, beneficiary, or enrollee.
\12\ As 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/oon
payments.pdf.

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 outofnetwork 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 innetwork 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 outofnetwork services. Thus, for example, if a plan generally pays 70 percent of the usual, customary, and reasonable amount for outofnetwork 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 outofnetwork services (but reduced by the innetwork copayment or coinsurance that the individual would be responsible for if the emergency service had been provided innetwork).

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 antiabuse rule with respect to such other costsharing requirements so that the purpose of limiting copayments and coinsurance for emergency services to the innetwork rate cannot be thwarted by manipulation of these other costsharing requirements. Accordingly, any other costsharing requirement, such as a deductible or outofpocket maximum, may be imposed with respect to outofnetwork emergency services only if the costsharing requirement generally applies to outofnetwork benefits. Specifically, a deductible may be imposed with respect to outofnetwork emergency services only as part of a deductible that generally applies to outof network benefits. Similarly, if an outofpocket maximum generally applies to outofnetwork benefits, that outofpocket maximum must apply to outofnetwork emergency services. A plan or health insurance coverage could fashion these other costsharing requirements so that a participant, beneficiary, or enrollee is required to pay less for emergency services than for general outofnetwork 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 outof 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 60day comment period, and only then prepared final regulations, which would be subject to a 60day 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 outofnetwork 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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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. SummaryDepartment 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. \13\ The 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. \14\ Section 1255 of the Affordable Care Act. See also section 10103(e)(f) 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 A4, 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 12866Department 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 $100 million in any one year. Accordingly, OMB has reviewed these rules pursuant to the Executive Order. The Departments provide an assessment of the potential costs and benefits of each regulatory provision below, summarized in the following table. Table 1.1 Accounting Table
TABLE 1.1Accounting Table Benefits Qualitative: These patient protections are expected to expand coverage for children with preexisting conditions and individuals who face rescissions, lifetime limits, and annual limits as a result of high health care costs. Expanded coverage is likely to increase access to health care, improve health outcomes, improve worker productivity, and reduce family financial strain and ``job lock''. Many of these benefits have a distributional component, and promote equity, in the sense that they will be enjoyed by those who are especially vulnerable as a result of health problems and financial status. Choice of physician will likely lead to better, sustained patientprovider relationships, resulting in decreased malpractice claims and improved medication adherence and health promotion. Removing referrals and prior authorizations for primary care, obstetrical and gynecological care, and emergency services is likely to reduce administrative and time burdens on both patients and physicians, while improving health outcomes by allowing quicker access to medical services when necessary...... Costs Estimate Year dollar Discount rate Period covered \15\ Annualized Monetized ($millions/ 4.9 2010 7% 20112013 year).............................
4.9 2010 3% 20112013 [[Page 37197]]
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 reenroll 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
\15\ The 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.

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 diseasewhich affects one in three adults \16\or cancerwhich affects 11 million Americans \17\ to relatively minor conditions like hay fever, asthma, or previous sports injuries.\18\
\16\ American Heart Association. Heart Disease and Stroke Statistics 2009 UpdateataGlance. http://www.americanheart.org/ downloadable/heart/1240250946756LS_
1982%20Heart%20and%20Stroke%20Update.042009.pdf.
\17\ National Cancer Institute. Cancer Query System: Cancer Prevalence Database. http://srab.cancer.gov/prevalence/canques.html. \18\ Pollitz K, Sorian R. How Accessible is Individual Health Insurance for Consumers in Less than Perfect Health? Kaiser Family Foundation, June 2001.

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\ \19\ Kaiser State Health Facts. http://statehealthfacts.org/ comparetable.jsp?ind=353&cat=7.

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 phasein 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 outofpocket.\20\
\20\ USA Today/Kaiser Family Foundation/Harvard School of Public Health. National Survey of Households Affected by Cancer. November 2006.

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, longterm, 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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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) 6226080; Jim Mayhew, Office of Consumer Information and Insurance Oversight, Department of Health and Human Services, at (410) 7861565. Customer Service Information: Individuals interested in obtaining information from the Department of Labor concerning employmentbased health coverage laws may call the EBSA TollFree Hotline at 1866444EBSA (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.