Guest Article

(From the June 18, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CMS Addresses Affordable Care Act Requirements for Student Health Policies

In a recently issued final rule, the Centers for Medicare & Medicaid Services (CMS) clarified the application of certain critical Affordable Care Act requirements to student health insurance coverage. Among other things, the rule modifies the phase-in of the annual dollar limits on essential health benefits, requires notice to be given to students explaining how the coverage differs from other individual market coverage, and applies the medical loss ratio (MLR) requirements to the issuers (although certain adjustments are provided). With the goal of having the new requirements apply to the 2012-13 academic year, the final rule is generally effective for policy years beginning on or after July 1, 2012. The MLR requirements apply beginning January 1, 2013.

"Student Health Insurance Coverage" Defined

The Patient Protection and Affordable Care Act (PPACA) in Section 1560(c) provides that:

The final regulations define "student health insurance coverage" as individual health insurance coverage that is provided under a written agreement between an institution of higher education and a health insurance issuer. Under the definition, "student health insurance coverage" cannot be offered to individuals other than students and their dependents, eligibility for coverage cannot be conditioned on health status, and the coverage must satisfy any additional requirements under state law. Self-funded plans are excluded from the definition of "student health insurance coverage." (That is because these regulations implement PPACA provisions that were added to the Public Health Services (PHS) Act, which applies to health insurance issuers in the group and individual market and to non-federal governmental group health plans—not to self-funded student health plans. Self-funded student plans may be regulated by the states, the preamble explains.)

Exemption from Certain Individual Market Rules

Coverage that meets the definition of "student health insurance coverage" is deemed to be available only through a bona fide association. As a result, the coverage is exempt from the guaranteed availability and guaranteed renewability provisions of PHS Act sections 2741 and 2742. The guaranteed availability provisions—which generally require an issuer in the individual market to permit any individual to enroll in the coverage—would not apply because of an exception for coverage offered through a bona fide association. The guaranteed renewability provisions—which prohibit an issuer from discontinuing or refusing to renew the coverage except in very limited circumstances (such as non-payment of premiums or fraud)—would also recognize cessation of membership in the association (i.e., termination of student status) as a permitted basis for nonrenewal or discontinuance. Insured student health coverage will, therefore, want to meet the definition of "student health insurance coverage" so as to qualify for these exemptions.

"Short-Term Limited Duration Coverage" Exception

Another exemption, for short-term limited duration coverage, will not typically apply to student coverage, the preamble explains. To qualify, the insurance must have an expiration date that is less than 12 months after the original effective date of the contract, and the 12 months must take into account any extension that can be elected by the policyholder without the issuer's consent. As a result, student health insurance will generally not qualify as short-term limited duration coverage eligible for that exemption.

The preamble explains that, by the effective date of the regulations, issuers and universities that previously operated under the mistaken belief that their student health insurance qualifies for the short-term limited duration exception will need to get into compliance.

Modified Minimum Annual Limits

In response to comments regarding the elimination of annual limits—and the potentially dramatic impact the scheduled changes may have on student premiums—the final regulations adopt a more moderate schedule for eliminating annual limits.

The PPACA otherwise requires a minimum annual limit of $2 million for plan/policy years that begin on or after September 23, 2012 but before January 1, 2014. Recognizing that an increase from $100,000 to $2 million is considerable, the regulations adopt a more gradual transition to full compliance—allowing a minimum $500,000 limit for years beginning on or after September 23, 2012 but before 2014.

Required Student Notices

Issuers of student health insurance coverage must provide notice to the students that: (1) if applicable, the coverage does not meet the standard annual dollar limits (and the notice must disclose the annual dollar limit along with the benefits to which it applies), and (2) the student may be eligible for coverage as a dependent in a group health plan of a parent's employer (or under a parent's individual market coverage) if the student is under age 26. The notice must be prominently displayed in 14 point bold type on the front of the insurance policy or certificate (and in any other plan materials summarizing the terms of the coverage, such as the summary plan document). A model notice is provided in the regulations.

Modified Medical Loss Ratio Requirements

The final regulations make clear that issuers of student health insurance coverage are subject to the MLR requirements. However, as a result of the special circumstances applicable to such coverage, modifications were adopted. The experience for student coverage will be reported separately from other individual market coverage. Student coverage will be aggregated nationally and a single 80 percent MLR standard will apply in determining the rebates. Adjustments to the MLR numerator are also provided for the MLR reporting year 2013.

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, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2012, Deloitte.