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HCR Update: OTC Rules, Rate Review Regs, Annual Limit Waivers

Jan 20, 2011

Health Care Reform Update

January 14, 2011

IRS amends rules for using spending accounts for over-the-counter drugs   

In October, we told you about a health care reform rule change for health care spending accounts. For purchases on or after January 1, 2011 (regardless of plan year dates), members can use health care spending account funds for an over-the-counter drug only if the drug is prescribed.

The rule change generally prohibited the use of health care flexible spending account and health reimbursement arrangement debit cards for over-the-counter drugs after January 15, 2011 - except at "90% pharmacies" (see the notice and guidance links in this article). However, on December 23, 2010, the IRS issued Notice 2011-5 , which amended the previous guidance on this provision.

The new notice generally permits the continued use of debit cards for over-the-counter drug expenses at pharmacies (including mail order and web-based vendors that sell prescription drugs), as well as at other vendors that have health care-related merchant codes, as long as all of the following requirements are met:

·         The member obtains a prescription for the medicine or drug

·         The prescription is presented to the pharmacist

·         The medication is dispensed by the pharmacist in accordance with applicable law and assigned an Rx number

·         Certain record-keeping requirements are satisfied

For more details about this provision and many others, check out the Library section of our health care reform website:

New fact sheets explain rate review regulations 

The health care reform law requires the U.S. Department of Health and Human Services (HHS) to establish a process for reviewing "unreasonable" premium increases, in conjunction with the states.

Proposed regulations issued by HHS on December 21, 2010, establish the process through which rate increases that meet or exceed an established threshold will be reviewed by the state or by HHS. At this time, HHS proposes that the PPACA-required rate review process only apply to nongrandfathered plans in the Individual and Small Group markets. However, HHS is soliciting comments on whether Large Group rates should fit into the review framework.

The proposed process does not presume that an increase above this threshold is unreasonable, nor does it prevent issuers from increasing rates. The process only requires such increases be reviewed and that certain information be made public. In addition, the rate review process doesn't override existing state processes. State laws and regulations may still require review of rate filings, including those for grandfathered plans.

For more details and talking points, refer to this fact sheet.

Model language released for annual limits waivers 

The Patient Protection and Affordable Care Act (or health care reform law) restricts annual limits on the dollar value of essential health benefits. The interim final rules for this provision indicated that plans can apply for a waiver if compliance with the provision would significantly decrease access to benefits or significantly increase premiums. Some of our customers have applied for and received the waiver from the U.S. Department of Health and Human Services (HHS). 

Based on a December 2010 memo from HHS, plans or issuers receiving approval for a waiver must provide notice to eligible participants and subscribers in any informational or educational materials, and in any plan or policy documents that serve as evidence of coverage and are sent to enrollees.  

We supported customers choosing to apply for the waiver but did not apply on their behalf. We are providing the following information to help customers that have received the waiver and need to communicate with their members. We are not issuing the notice on a customer's behalf. The model language below was provided by HHS and can be used by customers to communicate to members. 

Who should receive the notice?

Eligible participants and subscribers with a plan or policy year before February 1, 2011, that have received or that will receive approval for a waiver from HHS must be provided the notice by their plan or issuer no later than February 20, 2011 (60 days from the date of issuance of the guidance).  

For waivers covering plan or policy years that begin on or after February 1, 2011, the notice must be provided to eligible participants and subscribers as part of any informational or educational materials, and also in any plan or policy documents evidencing coverage that are sent to enrollees (for example, summary plan descriptions). 

What is the model language?

The following model language was provided by HHS. According to the December 10, 2010, memo, the language "shall be prominently displayed in clear, conspicuous 14-point bold type on the front of the materials" to satisfy the notice requirement:  

The Affordable Care Act prohibits health plans from applying arbitrary dollar limits for coverage for key benefits. This year, if a plan applies a dollar limit on the coverage it provides for key benefits in a year, that limit must be at least $750,000.  

Your health insurance coverage, offered by [name of group health plan or health insurance issuer], does not meet the minimum standards required by the Affordable Care Act described above. Instead, it puts an annual limit of:  

·         [dollar amount] on [all covered benefits]


·         [dollar amount(s)] on [which covered benefits - notice should describe all annual limits that apply].  

In order to apply the lower limits described above, your health plan requested a waiver of the requirement that coverage for key benefits be at least $750,000 this year. That waiver was granted by the U.S. Department of Health and Human Services based on your health plan's representation that providing $750,000 in coverage for key benefits this year would result in a significant increase in your premiums or a significant decrease in your access to benefits. This waiver is valid for one year.  

If the lower limits are a concern, there may be other options for health care coverage available to you and your family members. For more information, go to: 

If you have any questions or concerns about this notice, contact [provide contact information for plan administrator or health insurance issuer].

[For plans offered in States with a Consumer Assistance Program] In addition, you can contact [contact information for consumer assistance program].

Now you have a single, reliable resource for health care reform information.


This content is provided solely for informational purposes: it is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

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