Guest Article

(From the October 4, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Transition Period Is Granted for New "Opt-Out" Rules for Self-Funded Non-Federal Governmental Plans

Effective for plan years beginning on or after September 23, 2010, self-funded non-Federal governmental group health plans are no longer permitted to "opt-out" of certain provisions of the Public Health Service (PHS) Act - specifically, the provisions that impose limits on preexisting condition exclusion periods, requirements for special enrollment periods, and prohibitions against discrimination based on health status. However, the Department of Health and Human Services recently announced a transition period by which it will not take enforcement action until plan years beginning on or after April 1, 2011.

Fewer "Opt-Out" Options Under the Affordable Care Act

Before the enactment of the Patient Protection and Affordable Care Act (PPACA), sponsors of self-funded, non-Federal governmental group health plans were permitted to exempt the plan (i.e., opt-out) from certain requirements of the PHS Act. The PPACA now restricts the ability of such plans to "optout" effective with the plan year beginning on or after September 23, 2010. While previously the plans were permitted to opt-out of seven categories, the PPACA now allows them to opt-out of only four categories.

In a memorandum dated September 21, 2010, the Department of Health and Human Services (DHHS) explained the impact of the PPACA on the opt-out provisions. Effective for plan years beginning on or after September 23, 2010, self-funded, non-Federal governmental group health plans are no longer permitted to opt-out of the first three categories listed above - that is, for limits on preexisting condition exclusion periods, requirements for special enrollment periods, and prohibitions against discrimination based on health status. Plans are still permitted to opt-out of the last four categories, however. These new restrictions apply even if the plan is grandfathered. Special effective dates apply to collectively bargained plans, however. If a plan is maintained pursuant to a collective bargaining agreement that was ratified before March 23, 2010, and has been exempt from any of the first three categories above, it does not have to comply with the new restrictions until the first plan year following the expiration of the plan year governed by the collective bargaining agreement.

Transition Period Granted

Due to the timing of the guidance, the DHHS is granting a brief transition period under which it will not take enforcement action with respect to opt-out elections for the first three categories above for plan years that begin before April 1, 2011.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.