The Affordable Care Act ("ACA") and its regulations have been incorporated into the Puerto Rico Health Insurance Code, as amended, and guidance has been issued by the Office of the Insurance Commissioner to such effect.  The Department of Health & Human Services (“HHS”), however, has recently clarified that the following requirements imposed under the ACA, will not apply to individual or group health insurance in the U.S. territories, including Puerto Rico: (i) guaranteed availability; (ii) community rating; (iii) single risk pool; (iv) rate review; (v) medical loss ratio; and (vii) essential health benefits. 

For purposes of Title I of the ACA, the definition of “state” includes only the 50 States and the District of Columbia.  It does not include the U.S. territories.  However, previous to the HHS’s clarification, it relied upon the definition of “state” outlined in the Public Health Services Act (“PHS Act”) to enforce the new PHS Act requirements and funding opportunities provided under Title I of the ACA in U.S. territories, and that definition includes U.S. territories, such as Puerto Rico.  As a result of such interpretation, health insurance markets in Puerto Rico may have been adversely affected.

After careful consideration of both the situation affecting the insurance markets and the interpretation of the statute, as applied to U.S. territories, the HHS has determined that the new provisions of the PHS Act enacted under Title I of the ACA are appropriately governed by the definition of “state” set forth in that Title, and therefore, these provisions do not apply to Puerto Rico or any other U.S. territories. Furthermore, the definition of “state” set forth in the PHS Act will apply only to PHS Act requirements prior to the enactment of the ACA , or subsequent provisions that do not include a separate definition of “state” (as in the case of the ACA).

On the other hand, the HHS has stated that this new interpretation applies only to health insurance that is governed by the PHS Act.  Consequently, this interpretation will not affect the PHS Act requirements that the ACA incorporated into the Employee Retirement Income Security Act (ERISA), which apply to group health plans, since such provisions are not subject to the “state” definition of  the ACA or the PHS Act.  Therefore, all PHS and ERISA requirements applicable to group health plans still apply to Puerto Rico. 

The Centers for Medicare & Medicaid Services (“CMS”) is expected to issue regulations in accordance with this new interpretation. However, pending such regulations, CMS will apply this interpretation and will not subject insurance issuers in U.S. territories to the ACA requirements mentioned above.

Regardless of the HHS’ recent clarification, however, since the Puerto Rico Health Insurance Code had previously incorporated the ACA, until new guidance is issued under Puerto Rico law, such provisions will continue to apply to Puerto Rico through local law (and not through federal law).  However, Puerto Rico now has more flexibility in the implementation of federal healthcare reform. 

Based on the foregoing, this new interpretation from the HHS will have no immediate effect in Puerto Rico, since, as indicated above, those ACA provisions continue to be applicable in Puerto Rico through the Puerto Rico Health Insurance Code. However, since such ACA provisions are no longer required under federal law, Puerto Rico has now the authority to amend such counterpart ACA provisions included in the Puerto Rico Health Insurance Code to better fit the needs of the health insurance market in Puerto Rico.   Nonetheless, we expect no changes for health plans coverage in Puerto Rico for the short period (at least for 2015), however, we will have to wait and see if Puerto Rico will take advantage of this new interpretation to make changes to any of those requirements in the future.