(a) Health factors. (1) The term health factor means, in relation to
an individual, any of the following health status-related factors:
(i) Health status;
(ii) Medical condition (including both physical and mental
illnesses), as defined in Sec. 2590.701-2;
(iii) Claims experience;
(iv) Receipt of health care;
(v) Medical history;
(vi) Genetic information, as defined in Sec. 2590.701-2;
(vii) Evidence of insurability; or
(viii) Disability.
(2) Evidence of insurability includes--
(i) Conditions arising out of acts of domestic violence; and
(ii) Participation in activities such as motorcycling, snowmobiling,
all-terrain vehicle riding, horseback riding, skiing, and other similar
activities.
(3) The decision whether health coverage is elected for an
individual (including the time chosen to enroll, such as under special
enrollment or late enrollment) is not, itself, within the scope of any
health factor. (However, under Sec. 2590.701-6, a plan or issuer must
treat special enrollees the same as similarly situated individuals who
are enrolled when first eligible.)
(b) Prohibited discrimination in rules for eligibility--(1) In
general--(i) A group health plan, and a health insurance issuer offering
health insurance coverage in connection with a group health plan, may
not establish any rule for eligibility (including continued eligibility)
of any individual to enroll for benefits under the terms of the plan or
group health insurance coverage that discriminates based on any health
factor that relates to that individual or a dependent of that
individual. This rule is subject to the provisions of paragraph (b)(2)
of this section (explaining how this rule applies to benefits),
paragraph (b)(3) of this section (allowing plans to impose certain
preexisting condition exclusions), paragraph (d) of this section
(containing rules for establishing groups of similarly situated
individuals), paragraph (e) of this section (relating to nonconfinement,
actively-at-work, and other service requirements), paragraph (f) of this
section (relating to bona fide wellness programs), and paragraph (g) of
this section (permitting favorable treatment of individuals with adverse
health factors).
(ii) For purposes of this section, rules for eligibility include,
but are not limited to, rules relating to--
(A) Enrollment;
(B) The effective date of coverage;
(C) Waiting (or affiliation) periods;
(D) Late and special enrollment;
(E) Eligibility for benefit packages (including rules for
individuals to change their selection among benefit packages);
(F) Benefits (including rules relating to covered benefits, benefit
restrictions, and cost-sharing mechanisms such as coinsurance,
copayments, and deductibles), as described in paragraphs (b)(2) and (3)
of this section;
(G) Continued eligibility; and
(H) Terminating coverage (including disenrollment) of any individual
under the plan.
(iii) The rules of this paragraph (b)(1) are illustrated by the
following examples:
Example 1. (i) Facts. An employer sponsors a group health plan that
is available to all
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employees who enroll within the first 30 days of their employment.
However, employees who do not enroll within the first 30 days cannot
enroll later unless they pass a physical examination.
(ii) Conclusion. In this Example 1, the requirement to pass a
physical examination in order to enroll in the plan is a rule for
eligibility that discriminates based on one or more health factors and
thus violates this paragraph (b)(1).
Example 2. (i) Facts. Under an employer's group health plan,
employees who enroll during the first 30 days of employment (and during
special enrollment periods) may choose between two benefit packages: an
indemnity option and an HMO option. However, employees who enroll during
late enrollment are permitted to enroll only in the HMO option and only
if they provide evidence of good health.
(ii) Conclusion. In this Example 2, the requirement to provide
evidence of good health in order to be eligible for late enrollment in
the HMO option is a rule for eligibility that discriminates based on one
or more health factors and thus violates this paragraph (b)(1). However,
if the plan did not require evidence of good health but limited late
enrollees to the HMO option, the plan's rules for eligibility would not
discriminate based on any health factor, and thus would not violate this
paragraph (b)(1), because the time an individual chooses to enroll is
not, itself, within the scope of any health factor.
Example 3. (i) Facts. Under an employer's group health plan, all
employees generally may enroll within the first 30 days of employment.
However, individuals who participate in certain recreational activities,
including motorcycling, are excluded from coverage.
(ii) Conclusion. In this Example 3, excluding from the plan
individuals who participate in recreational activities, such as
motorcycling, is a rule for eligibility that discriminates based on one
more health factors and thus violates this paragraph (b)(1).
Example 4. (i) Facts. A group health plan applies for a group health
policy offered by an issuer. As part of the application, the issuer
receives health information about individuals to be covered under the
plan. Individual A is an employee of the employer maintaining the plan.
A and A's dependents have a history of high health claims. Based on the
information about A and A's dependents, the issuer excludes A and A's
dependents from the group policy it offers to the employer.
(ii) Conclusion. In this Example 4, the issuer's exclusion of A and
A's dependents from coverage is a rule for eligibility that
discriminates based on one or more health factors, and thus violates
this paragraph (b)(1). (If the employer is a small employer under 45 CFR
144.103 (generally, an employer with 50 or fewer employees), the issuer
also may violate 45 CFR 146.150, which requires issuers to offer all the
policies they sell in the small group market on a guaranteed available
basis to all small employers and to accept every eligible individual in
every small employer group.) If the plan provides coverage through this
policy and does not provide equivalent coverage for A and A's dependents
through other means, the plan will also violate this paragraph (b)(1).
(2) Application to benefits--(i) General rule--(A) Under this
section, a group health plan or group health insurance issuer is not
required to provide coverage for any particular benefit to any group of
similarly situated individuals.
(B) However, benefits provided under a plan or through group health
insurance coverage must be uniformly available to all similarly situated
individuals (as described in paragraph (d) of this section). Likewise,
any restriction on a benefit or benefits must apply uniformly to all
similarly situated individuals and must not be directed at individual
participants or beneficiaries based on any health factor of the
participants or beneficiaries (determined based on all the relevant
facts and circumstances). Thus, for example, a plan or issuer may limit
or exclude benefits in relation to a specific disease or condition,
limit or exclude benefits for certain types of treatments or drugs, or
limit or exclude benefits based on a determination of whether the
benefits are experimental or not medically necessary, but only if the
benefit limitation or exclusion applies uniformly to all similarly
situated individuals and is not directed at individual participants or
beneficiaries based on any health factor of the participants or
beneficiaries. In addition, a plan or issuer may impose annual,
lifetime, or other limits on benefits and may require the satisfaction
of a deductible, copayment, coinsurance, or other cost-sharing
requirement in order to obtain a benefit if the limit or cost-sharing
requirement applies uniformly to all similarly situated individuals and
is not directed at individual participants or beneficiaries based on any
health factor of the participants or beneficiaries. In the case of a
cost-sharing requirement, see also paragraph (b)(2)(ii) of this section,
which permits variances in the application of a cost-
[[Page 664]]
sharing mechanism made available under a bona fide wellness program.
(Whether any plan provision or practice with respect to benefits
complies with this paragraph (b)(2)(i) does not affect whether the
provision or practice is permitted under any other provision of the Act,
the Americans with Disabilities Act, or any other law, whether State or
federal.)
(C) For purposes of this paragraph (b)(2)(i), a plan amendment
applicable to all individuals in one or more groups of similarly
situated individuals under the plan and made effective no earlier than
the first day of the first plan year after the amendment is adopted is
not considered to be directed at any individual participants or
beneficiaries.
(D) The rules of this paragraph (b)(2)(i) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan applies a $500,000
lifetime limit on all benefits to each participant or beneficiary
covered under the plan. The limit is not directed at individual
participants or beneficiaries.
(ii) Conclusion. In this Example 1, the limit does not violate this
paragraph (b)(2)(i) because $500,000 of benefits are available uniformly
to each participant and beneficiary under the plan and because the limit
is applied uniformly to all participants and beneficiaries and is not
directed at individual participants or beneficiaries.
Example 2. (i) Facts. A group health plan has a $2 million lifetime
limit on all benefits (and no other lifetime limits) for participants
covered under the plan. Participant B files a claim for the treatment of
AIDS. At the next corporate board meeting of the plan sponsor, the claim
is discussed. Shortly thereafter, the plan is modified to impose a
$10,000 lifetime limit on benefits for the treatment of AIDS, effective
before the beginning of the next plan year.
(ii) Conclusion. Under the facts of this Example 2, the plan
violates this paragraph (b)(2)(i) because the plan modification is
directed at B based on B's claim.
Example 3. (i) A group health plan applies for a group health policy
offered by an issuer. Individual C is covered under the plan and has an
adverse health condition. As part of the application, the issuer
receives health information about the individuals to be covered,
including information about C 's adverse health condition. The policy
form offered by the issuer generally provides benefits for the adverse
health condition that C has, but in this case the issuer offers the plan
a policy modified by a rider that excludes benefits for C for that
condition. The exclusionary rider is made effective the first day of the
next plan year.
(ii) Conclusion. In this Example 3, the issuer violates this
paragraph (b)(2)(i) because benefits for C 's condition are available to
other individuals in the group of similarly situated individuals that
includes C but are not available to C. Thus, the benefits are not
uniformly available to all similarly situated individuals. Even though
the exclusionary rider is made effective the first day of the next plan
year, because the rider does not apply to all similarly situated
individuals, the issuer violates this paragraph (b)(2)(i).
Example 4. (i) Facts. A group health plan has a $2,000 lifetime
limit for the treatment of temporomandibular joint syndrome (TMJ). The
limit is applied uniformly to all similarly situated individuals and is
not directed at individual participants or beneficiaries.
(ii) Conclusion. In this Example 4, the limit does not violate this
paragraph (b)(2)(i) because $2000 of benefits for the treatment of TMJ
are available uniformly to all similarly situated individuals and a plan
may limit benefits covered in relation to a specific disease or
condition if the limit applies uniformly to all similarly situated
individuals and is not directed at individual participants or
beneficiaries.
Example 5. (i) Facts. A group health plan applies a $2 million
lifetime limit on all benefits. However, the $2 million lifetime limit
is reduced to $10,000 for any participant or beneficiary covered under
the plan who has a congenital heart defect.
(ii) Conclusion. In this Example 5, the lower lifetime limit for
participants and beneficiaries with a congenital heart defect violates
this paragraph (b)(2)(i) because benefits under the plan are not
uniformly available to all similarly situated individuals and the plan's
lifetime limit on benefits does not apply uniformly to all similarly
situated individuals.
Example 6. (i) Facts. A group health plan limits benefits for
prescription drugs to those listed on a drug formulary. The limit is
applied uniformly to all similarly situated individuals and is not
directed at individual participants or beneficiaries.
(ii) Conclusion. In this Example 6, the exclusion from coverage of
drugs not listed on the drug formulary does not violate this paragraph
(b)(2)(i) because benefits for prescription drugs listed on the
formulary are uniformly available to all similarly situated individuals
and because the exclusion of drugs not listed on the formulary applies
uniformly to all similarly situated individuals and is not directed at
individual participants or beneficiaries.
Example 7. (i) Facts. Under a group health plan, doctor visits are
generally subject to a
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$250 annual deductible and 20 percent coinsurance requirement. However,
prenatal doctor visits are not subject to any deductible or coinsurance
requirement. These rules are applied uniformly to all similarly situated
individuals and are not directed at individual participants or
beneficiaries.
(ii) Conclusion. In this Example 7, imposing different deductible
and coinsurance requirements for prenatal doctor visits and other visits
does not violate this paragraph (b)(2)(i) because a plan may establish
different deductibles or coinsurance requirements for different services
if the deductible or coinsurance requirement is applied uniformly to all
similarly situated individuals and is not directed at individual
participants or beneficiaries.
(ii) Cost-sharing mechanisms and wellness programs. A group health
plan or group health insurance coverage with a cost-sharing mechanism
(such as a deductible, copayment, or coinsurance) that requires a higher
payment from an individual, based on a health factor of that individual
or a dependent of that individual, than for a similarly situated
individual under the plan (and thus does not apply uniformly to all
similarly situated individuals) does not violate the requirements of
this paragraph (b)(2) if the payment differential is based on whether an
individual has complied with the requirements of a bona fide wellness
program.
(iii) Specific rule relating to source-of-injury exclusions--(A) If
a group health plan or group health insurance coverage generally
provides benefits for a type of injury, the plan or issuer may not deny
benefits otherwise provided for treatment of the injury if the injury
results from an act of domestic violence or a medical condition
(including both physical and mental health conditions).
(B) The rules of this paragraph (b)(2)(iii) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan generally provides
medical/surgical benefits, including benefits for hospital stays, that
are medically necessary. However, the plan excludes benefits for self-
inflicted injuries or injuries sustained in connection with attempted
suicide. Individual D suffers from depression and attempts suicide. As a
result, D sustains injuries and is hospitalized for treatment of the
injuries. Pursuant to the exclusion, the plan denies D benefits for
treatment of the injuries.
(ii) Conclusion. In this Example 1, the suicide attempt is the
result of a medical condition (depression). Accordingly, the denial of
benefits for the treatments of D's injuries violates the requirements of
this paragraph (b)(2)(iii) because the plan provision excludes benefits
for treatment of an injury resulting from a medical condition.
Example 2. (i) Facts. A group health plan provides benefits for head
injuries generally. The plan also has a general exclusion for any injury
sustained while participating in any of a number of recreational
activities, including bungee jumping. However, this exclusion does not
apply to any injury that results from a medical condition (nor from
domestic violence). Participant E sustains a head injury while bungee
jumping. The injury did not result from a medical condition (nor from
domestic violence). Accordingly, the plan denies benefits for E's head
injury.
(ii) Conclusion. In this Example 2, the plan provision that denies
benefits based on the source of an injury does not restrict benefits
based on an act of domestic violence or any medical condition.
Therefore, the provision is permissible under this paragraph (b)(2)(iii)
and does not violate this section. (However, if the plan did not allow E
to enroll in the plan (or applied different rules for eligibility to E)
because E frequently participates in bungee jumping, the plan would
violate paragraph (b)(1) of this section.)
(3) Relationship to Sec. 2590.701-3. (i) A preexisting condition
exclusion is permitted under this section if it --
(A) Complies with Sec. 2590.701-3;
(B) Applies uniformly to all similarly situated individuals (as
described in paragraph (d) of this section); and
(C) Is not directed at individual participants or beneficiaries
based on any health factor of the participants or beneficiaries. For
purposes of this paragraph (b)(3)(i)(C), a plan amendment relating to a
preexisting condition exclusion applicable to all individuals in one or
more groups of similarly situated individuals under the plan and made
effective no earlier than the first day of the first plan year after the
amendment is adopted is not considered to be directed at any individual
participants or beneficiaries.
(ii) The rules of this paragraph (b)(3) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan imposes a preexisting
condition exclusion on all individuals enrolled in the plan. The
exclusion applies to conditions for which medical advice, diagnosis,
care, or treatment was recommended or received within the six-
[[Page 666]]
month period ending on an individual's enrollment date. In addition, the
exclusion generally extends for 12 months after an individual's
enrollment date, but this 12-month period is offset by the number of
days of an individual's creditable coverage in accordance with Sec.
2590.701-3. There is nothing to indicate that the exclusion is directed
at individual participants or beneficiaries.
(ii) Conclusion. In this Example 1, even though the plan's
preexisting condition exclusion discriminates against individuals based
on one or more health factors, the preexisting condition exclusion does
not violate this section because it applies uniformly to all similarly
situated individuals, is not directed at individual participants or
beneficiaries, and complies with Sec. 2590.701-3 (that is, the
requirements relating to the six-month look-back period, the 12-month
(or 18-month) maximum exclusion period, and the creditable coverage
offset).
Example 2. (i) Facts. A group health plan excludes coverage for
conditions with respect to which medical advice, diagnosis, care, or
treatment was recommended or received within the six-month period ending
on an individual's enrollment date. Under the plan, the preexisting
condition exclusion generally extends for 12 months, offset by
creditable coverage. However, if an individual has no claims in the
first six months following enrollment, the remainder of the exclusion
period is waived.
(ii) Conclusion. In this Example 2, the plan's preexisting condition
exclusions violate this section because they do not meet the
requirements of this paragraph (b)(3); specifically, they do not apply
uniformly to all similarly situated individuals. The plan provisions do
not apply uniformly to all similarly situated individuals because
individuals who have medical claims during the first six months
following enrollment are not treated the same as similarly situated
individuals with no claims during that period. (Under paragraph (d) of
this section, the groups cannot be treated as two separate groups of
similarly situated individuals because the distinction is based on a
health factor.)
(c) Prohibited discrimination in premiums or contributions--(1) In
general--(i) A group health plan, and a health insurance issuer offering
health insurance coverage in connection with a group health plan, may
not require an individual, as a condition of enrollment or continued
enrollment under the plan or group health insurance coverage, to pay a
premium or contribution that is greater than the premium or contribution
for a similarly situated individual (described in paragraph (d) of this
section) enrolled in the plan or group health insurance coverage based
on any health factor that relates to the individual or a dependent of
the individual.
(ii) Discounts, rebates, payments in kind, and any other premium
differential mechanisms are taken into account in determining an
individual's premium or contribution rate. (For rules relating to cost-
sharing mechanisms, see paragraph (b)(2) of this section (addressing
benefits).)
(2) Rules relating to premium rates--(i) Group rating based on
health factors not restricted under this section. Nothing in this
section restricts the aggregate amount that an employer may be charged
for coverage under a group health plan.
(ii) List billing based on a health factor prohibited. However, a
group health insurance issuer, or a group health plan, may not quote or
charge an employer (or an individual) a different premium for an
individual in a group of similarly situated individuals based on a
health factor. (But see paragraph (g) of this section permitting
favorable treatment of individuals with adverse health factors.)
(iii) Examples. The rules of this paragraph (c)(2) are illustrated
by the following examples:
Example 1. (i) Facts. An employer sponsors a group health plan and
purchases coverage from a health insurance issuer. In order to determine
the premium rate for the upcoming plan year, the issuer reviews the
claims experience of individuals covered under the plan. The issuer
finds that Individual F had significantly higher claims experience than
similarly situated individuals in the plan. The issuer quotes the plan a
higher per-participant rate because of F 's claims experience.
(ii) Conclusion. In this Example 1, the issuer does not violate the
provisions of this paragraph (c)(2) because the issuer blends the rate
so that the employer is not quoted a higher rate for F than for a
similarly situated individual based on F 's claims experience.
Example 2. (i) Facts. Same facts as Example 1, except that the
issuer quotes the employer a higher premium rate for F, because of F 's
claims experience, than for a similarly situated individual.
(ii) Conclusion. In this Example 2, the issuer violates this
paragraph (c)(2). Moreover, even if the plan purchased the policy based
on the
[[Page 667]]
quote but did not require a higher participant contribution for F than
for a similarly situated individual, the issuer would still violate this
paragraph (c)(2) (but in such a case the plan would not violate this
paragraph (c)(2)).
(3) Exception for bona fide wellness programs. Notwithstanding
paragraphs (c)(1) and (2) of this section, a plan may establish a
premium or contribution differential based on whether an individual has
complied with the requirements of a bona fide wellness program.
(d) Similarly situated individuals. The requirements of this section
apply only within a group of individuals who are treated as similarly
situated individuals. A plan or issuer may treat participants as a group
of similarly situated individuals separate from beneficiaries. In
addition, participants may be treated as two or more distinct groups of
similarly situated individuals and beneficiaries may be treated as two
or more distinct groups of similarly situated individuals in accordance
with the rules of this paragraph (d). Moreover, if individuals have a
choice of two or more benefit packages, individuals choosing one benefit
package may be treated as one or more groups of similarly situated
individuals distinct from individuals choosing another benefit package.
(1) Participants. Subject to paragraph (d)(3) of this section, a
plan or issuer may treat participants as two or more distinct groups of
similarly situated individuals if the distinction between or among the
groups of participants is based on a bona fide employment-based
classification consistent with the employer's usual business practice.
Whether an employment-based classification is bona fide is determined on
the basis of all the relevant facts and circumstances. Relevant facts
and circumstances include whether the employer uses the classification
for purposes independent of qualification for health coverage (for
example, determining eligibility for other employee benefits or
determining other terms of employment). Subject to paragraph (d)(3) of
this section, examples of classifications that, based on all the
relevant facts and circumstances, may be bona fide include full-time
versus part-time status, different geographic location, membership in a
collective bargaining unit, date of hire, length of service, current
employee versus former employee status, and different occupations.
However, a classification based on any health factor is not a bona fide
employment-based classification, unless the requirements of paragraph
(g) of this section are satisfied (permitting favorable treatment of
individuals with adverse health factors).
(2) Beneficiaries--(i) Subject to paragraph (d)(3) of this section,
a plan or issuer may treat beneficiaries as two or more distinct groups
of similarly situated individuals if the distinction between or among
the groups of beneficiaries is based on any of the following factors:
(A) A bona fide employment-based classification of the participant
through whom the beneficiary is receiving coverage;
(B) Relationship to the participant (e.g., as a spouse or as a
dependent child);
(C) Marital status;
(D) With respect to children of a participant, age or student
status; or
(E) Any other factor if the factor is not a health factor.
(ii) Paragraph (d)(2)(i) of this section does not prevent more
favorable treatment of individuals with adverse health factors in
accordance with paragraph (g) of this section.
(3) Discrimination directed at individuals. Notwithstanding
paragraphs (d)(1) and (2) of this section, if the creation or
modification of an employment or coverage classification is directed at
individual participants or beneficiaries based on any health factor of
the participants or beneficiaries, the classification is not permitted
under this paragraph (d), unless it is permitted under paragraph (g) of
this section (permitting favorable treatment of individuals with adverse
health factors). Thus, if an employer modified an employment-based
classification to single out, based on a health factor, individual
participants and beneficiaries and deny them health coverage, the new
classification would not be permitted under this section.
(4) Examples. The rules of this paragraph (d) are illustrated by the
following examples:
[[Page 668]]
Example 1. (i) Facts. An employer sponsors a group health plan for
full-time employees only. Under the plan (consistent with the employer's
ususal business practice), employees who normally work at least 30 hours
per week are considered to be working full-time. Other employees are
considered to be working part-time. There is no evidence to suggest that
the classification is directed at individual participants or
beneficiaries.
(ii) Conclusion. In this Example 1, treating the full-time and part-
time employees as two separate groups of similarly situated individuals
is permitted under this paragraph (d) because the classification is bona
fide and is not directed at individual participants or beneficiaries.
Example 2. (i) Facts. Under a group health plan, coverage is made
available to employees, their spouses, and their dependent children.
However, coverage is made available to a dependent child only if the
dependent child is under age 19 (or under age 25 if the child is
continuously enrolled full-time in an institution of higher learning
(full-time students)). There is no evidence to suggest that these
classifications are directed at individual participants or
beneficiaries.
(ii) Conclusion. In this Example 2, treating spouses and dependent
children differently by imposing an age limitation on dependent
children, but not on spouses, is permitted under this paragraph (d).
Specifically, the distinction between spouses and dependent children is
permitted under paragraph (d)(2) of this section and is not prohibited
under paragraph (d)(3) of this section because it is not directed at
individual participants or beneficiaries. It is also permissible to
treat dependent children who are under age 19 (or full-time students
under age 25) as a group of similarly situated individuals separate from
those who are age 25 or older (or age 19 or older if they are not full-
time students) because the classification is permitted under paragraph
(d)(2) of this section and is not directed at individual participants or
beneficiaries.
Example 3. (i) Facts. A university sponsors a group health plan that
provides one health benefit package to faculty and another health
benefit package to other staff. Faculty and staff are treated
differently with respect to other employee benefits such as retirement
benefits and leaves of absence. There is no evidence to suggest that the
distinction is directed at individual participants or beneficiaries.
(ii) Conclusion. In this Example 3, the classification is permitted
under this paragraph (d) because there is a distinction based on a bona
fide employment-based classification consistent with the employer's
usual business practice and the distinction is not directed at
individual participants and beneficiaries.
Example 4. (i) Facts. An employer sponsors a group health plan that
is available to all current employees. Former employees may also be
eligible, but only if they complete a specified number of years of
service, are enrolled under the plan at the time of termination of
employment, and are continuously enrolled from that date. There is no
evidence to suggest that these distinctions are directed at individual
participants or beneficiaries.
(ii) Conclusion. In this Example 4, imposing additional eligibility
requirements on former employees is permitted because a classification
that distinguishes between current and former employees is a bona fide
employment-based classification that is permitted under this paragraph
(d), provided that it is not directed at individual participants or
beneficiaries. In addition, it is permissible to distinguish between
former employees who satisfy the service requirement and those who do
not, provided that the distinction is not directed at individual
participants or beneficiaries. (However, former employees who do not
satisfy the eligibility criteria may, nonetheless, be eligible for
continued coverage pursuant to a COBRA continuation provision or similar
State law.)
Example 5. (i) Facts. An employer sponsors a group health plan that
provides the same benefit package to all seven employees of the
employer. Six of the seven employees have the same job title and
responsibilities, but Employee G has a different job title and different
responsibilities. After G files an expensive claim for benefits under
the plan, coverage under the plan is modified so that employees with G's
job title receive a different benefit package that includes a lower
lifetime dollar limit than in the benefit package made available to the
other six employees.
(ii) Conclusion. Under the facts of this Example 5, changing the
coverage classification for G based on the existing employment
classification for G is not permitted under this paragraph (d) because
the creation of the new coverage classification for G is directed at G
based on one or more health factors.
(e) Nonconfinement and actively-at-work provisions--(1)
Nonconfinement provisions--(i) General rule. Under the rules of
paragraphs (b) and (c) of this section, a plan or issuer may not
establish a rule for eligibility (as described in paragraph (b)(1)(ii)
of this section) or set any individual's premium or contribution rate
based on whether an individual is confined to a hospital or other health
care institution. In addition, under the rules of paragraphs (b) and (c)
of this section, a plan or issuer may not establish a rule for
eligibility
[[Page 669]]
or set any individual's premium or contribution rate based on an
individual's ability to engage in normal life activities, except to the
extent permitted under paragraphs (e)(2)(ii) and (3) of this section
(permitting plans and issuers, under certain circumstances, to
distinguish among employees based on the performance of services).
(ii) Examples. The rules of this paragraph (e)(1) are illustrated by
the following examples:
Example 1. (i) Facts. Under a group health plan, coverage for
employees and their dependents generally becomes effective on the first
day of employment. However, coverage for a dependent who is confined to
a hospital or other health care institution does not become effective
until the confinement ends.
(ii) Conclusion. In this Example 1, the plan violates this paragraph
(e)(1) because the plan delays the effective date of coverage for
dependents based on confinement to a hospital or other health care
institution.
Example 2. (i) Facts. In previous years, a group health plan has
provided coverage through a group health insurance policy offered by
Issuer M. However, for the current year, the plan provides coverage
through a group health insurance policy offered by Issuer N. Under
Issuer N's policy, items and services provided in connection with the
confinement of a dependent to a hospital or other health care
institution are not covered if the confinement is covered under an
extension of benefits clause from a previous health insurance issuer.
(ii) Conclusion. In this Example 2, Issuer N violates this paragraph
(e)(1) because the group health insurance coverage restricts benefits (a
rule for eligibility under paragraph (b)(1)) based on whether a
dependent is confined to a hospital or other health care institution
that is covered under an extension of benefits clause from a previous
issuer. This section does not affect any obligation Issuer M may have
under applicable State law to provide any extension of benefits and does
not affect any State law governing coordination of benefits.
(2) Actively-at-work and continuous service provisions--(i) General
rule--(A) Under the rules of paragraphs (b) and (c) of this section and
subject to the exception for the first day of work described in
paragraph (e)(2)(ii) of this section, a plan or issuer may not establish
a rule for eligibility (as described in paragraph (b)(1)(ii) of this
section) or set any individual's premium or contribution rate based on
whether an individual is actively at work (including whether an
individual is continuously employed), unless absence from work due to
any health factor (such as being absent from work on sick leave) is
treated, for purposes of the plan or health insurance coverage, as being
actively at work.
(B) The rules of this paragraph (e)(2)(i) are illustrated by the
following examples:
Example 1. (i) Facts. Under a group health plan, an employee
generally becomes eligible to enroll 30 days after the first day of
employment. However, if the employee is not actively at work on the
first day after the end of the 30-day period, then eligibility for
enrollment is delayed until the first day the employee is actively at
work.
(ii) Conclusion. In this Example 1, the plan violates this paragraph
(e)(2) (and thus also violates paragraph (b) of this section). However,
the plan would not violate paragraph (e)(2) or (b) of this section if,
under the plan, an absence due to any health factor is considered being
actively at work.
Example 2. (i) Facts. Under a group health plan, coverage for an
employee becomes effective after 90 days of continuous service; that is,
if an employee is absent from work (for any reason) before completing 90
days of service, the beginning of the 90-day period is measured from the
day the employee returns to work (without any credit for service before
the absence).
(ii) Conclusion. In this Example 2, the plan violates this paragraph
(e)(2) (and thus also paragraph (b) of this section) because the 90-day
continuous service requirement is a rule for eligibility based on
whether an individual is actively at work. However, the plan would not
violate this paragraph (e)(2) or paragraph (b) of this section if, under
the plan, an absence due to any health factor is not considered an
absence for purposes of measuring 90 days of continuous service.
(ii) Exception for the first day of work--(A) Notwithstanding the
general rule in paragraph (e)(2)(i) of this section, a plan or issuer
may establish a rule for eligibility that requires an individual to
begin work for the employer sponsoring the plan (or, in the case of a
multiemployer plan, to begin a job in covered employment) before
coverage becomes effective, provided that such a rule for eligibility
applies regardless of the reason for the absence.
(B) The rules of this paragraph (e)(2)(ii) are illustrated by the
following examples:
[[Page 670]]
Example 1. (i) Facts. Under the eligibility provision of a group
health plan, coverage for new employees becomes effective on the first
day that the employee reports to work. Individual H is scheduled to
begin work on August 3. However, H is unable to begin work on that day
because of illness. H begins working on August 4, and H's coverage is
effective on August 4.
(ii) Conclusion. In this Example 1, the plan provision does not
violate this section. However, if coverage for individuals who do not
report to work on the first day they were scheduled to work for a reason
unrelated to a health factor (such as vacation or bereavement) becomes
effective on the first day they were scheduled to work, then the plan
would violate this section.
Example 2. (i) Facts. Under a group health plan, coverage for new
employees becomes effective on the first day of the month following the
employee's first day of work, regardless of whether the employee is
actively at work on the first day of the month. Individual J is
scheduled to begin work on March 24. However, J is unable to begin work
on March 24 because of illness. J begins working on April 7 and J's
coverage is effective May 1.
(ii) Conclusion. In this Example 2, the plan provision does not
violate this section. However, as in Example 1, if coverage for
individuals absent from work for reasons unrelated to a health factor
became effective despite their absence, then the plan would violate this
section.
(3) Relationship to plan provisions defining similarly situated
individuals--(i) Notwithstanding the rules of paragraphs (e)(1) and (2)
of this section, a plan or issuer may establish rules for eligibility or
set any individual's premium or contribution rate in accordance with the
rules relating to similarly situated individuals in paragraph (d) of
this section. Accordingly, a plan or issuer may distinguish in rules for
eligibility under the plan between full-time and part-time employees,
between permanent and temporary or seasonal employees, between current
and former employees, and between employees currently performing
services and employees no longer performing services for the employer,
subject to paragraph (d) of this section. However, other federal or
State laws (including the COBRA continuation provisions and the Family
and Medical Leave Act of 1993) may require an employee or the employee's
dependents to be offered coverage and set limits on the premium or
contribution rate even though the employee is not performing services.
(ii) The rules of this paragraph (e)(3) are illustrated by the
following examples:
Example 1. (i) Facts. Under a group health plan, employees are
eligible for coverage if they perform services for the employer for 30
or more hours per week or if they are on paid leave (such as vacation,
sick, or bereavement leave). Employees on unpaid leave are treated as a
separate group of similarly situated individuals in accordance with the
rules of paragraph (d) of this section.
(ii) Conclusion. In this Example 1, the plan provisions do not
violate this section. However, if the plan treated individuals
performing services for the employer for 30 or more hours per week,
individuals on vacation leave, and individuals on bereavement leave as a
group of similarly situated individuals separate from individuals on
sick leave, the plan would violate this paragraph (e) (and thus also
would violate paragraph (b) of this section) because groups of similarly
situated individuals cannot be established based on a health factor
(including the taking of sick leave) under paragraph (d) of this
section.
Example 2. (i) Facts. To be eligible for coverage under a bona fide
collectively bargained group health plan in the current calendar
quarter, the plan requires an individual to have worked 250 hours in
covered employment during the three-month period that ends one month
before the beginning of the current calendar quarter. The distinction
between employees working at least 250 hours and those working less than
250 hours in the earlier three-month period is not directed at
individual participants or beneficiaries based on any health factor of
the participants or beneficiaries.
(ii) Conclusion. In this Example 2, the plan provision does not
violate this section because, under the rules for similarly situated
individuals allowing full-time employees to be treated differently than
part-time employees, employees who work at least 250 hours in a three-
month period can be treated differently than employees who fail to work
250 hours in that period. The result would be the same if the plan
permitted individuals to apply excess hours from previous periods to
satisfy the requirement for the current quarter.
Example 3. (i) Facts. Under a group health plan, coverage of an
employee is terminated when the individual's employment is terminated,
in accordance with the rules of paragraph (d) of this section. Employee
B has been covered under the plan. B experiences a disabling illness
that prevents B from working. B takes a leave of absence under the
Family and Medical Leave Act of 1993. At the end of such leave, B
terminates employment
[[Page 671]]
and consequently loses coverage under the plan. (This termination of
coverage is without regard to whatever rights the employee (or members
of the employee's family) may have for COBRA continuation coverage.)
(ii) Conclusion. In this Example 3, the plan provision terminating
B's coverage upon B's termination of employment does not violate this
section.
Example 4. (i) Facts. Under a group health plan, coverage of an
employee is terminated when the employee ceases to perform services for
the employer sponsoring the plan, in accordance with the rules of
paragraph (d) of this section. Employee C is laid off for three months.
When the layoff begins, C 's coverage under the plan is terminated.
(This termination of coverage is without regard to whatever rights the
employee (or members of the employee's family) may have for COBRA
continuation coverage.)
(ii) Conclusion. In this Example 4, the plan provision terminating C
's coverage upon the cessation of C 's performance of services does not
violate this section.
(f) Bona fide wellness programs. [Reserved.]
(g) More favorable treatment of individuals with adverse health
factors permitted--(1) In rules for eligibility--(i) Nothing in this
section prevents a group health plan or group health insurance issuer
from establishing more favorable rules for eligibility (described in
paragraph (b)(1) of this section) for individuals with an adverse health
factor, such as disability, than for individuals without the adverse
health factor. Moreover, nothing in this section prevents a plan or
issuer from charging a higher premium or contribution with respect to
individuals with an adverse health factor if they would not be eligible
for the coverage were it not for the adverse health factor. (However,
other laws, including State insurance laws, may set or limit premium
rates; these laws are not affected by this section.)
(ii) The rules of this paragraph (g)(1) are illustrated by the
following examples:
Example 1. (i) Facts. An employer sponsors a group health plan that
generally is available to employees, spouses of employees, and dependent
children until age 23. However, dependent children who are disabled are
eligible for coverage beyond age 23.
(ii) Conclusion. In this Example 1, the plan provision allowing
coverage for disabled dependent children beyond age 23 satisfies this
paragraph (g)(1) (and thus does not violate this section).
Example 2. (i) Facts. An employer sponsors a group health plan,
which is generally available to employees (and members of the employee's
family) until the last day of the month in which the employee ceases to
perform services for the employer. The plan generally charges employees
$50 per month for employee-only coverage and $125 per month for family
coverage. However, an employee who ceases to perform services for the
employer by reason of disability may remain covered under the plan until
the last day of the month that is 12 months after the month in which the
employee ceased to perform services for the employer. During this
extended period of coverage, the plan charges the employee $100 per
month for employee-only coverage and $250 per month for family coverage.
(This extended period of coverage is without regard to whatever rights
the employee (or members of the employee's family) may have for COBRA
continuation coverage.)
(ii) Conclusion. In this Example 2, the plan provision allowing
extended coverage for disabled employees and their families satisfies
this paragraph (g)(1) (and thus does not violate this section). In
addition, the plan is permitted, under this paragraph (g)(1), to charge
the disabled employees a higher premium during the extended period of
coverage.
Example 3. (i) Facts. To comply with the requirements of a COBRA
continuation provision, a group health plan generally makes COBRA
continuation coverage available for a maximum period of 18 months in
connection with a termination of employment but makes the coverage
available for a maximum period of 29 months to certain disabled
individuals and certain members of the disabled individual's family.
Although the plan generally requires payment of 102 percent of the
applicable premium for the first 18 months of COBRA continuation
coverage, the plan requires payment of 150 percent of the applicable
premium for the disabled individual's COBRA continuation coverage during
the disability extension if the disabled individual would not be
entitled to COBRA continuation coverage but for the disability.
(ii) Conclusion. In this Example 3, the plan provision allowing
extended COBRA continuation coverage for disabled individuals satisfies
this paragraph (g)(1) (and thus does not violate this section). In
addition, the plan is permitted, under this paragraph (g)(1), to charge
the disabled individuals a higher premium for the extended coverage if
the individuals would not be eligible for COBRA continuation coverage
were it not for the disability. (Similarly, if the plan provided an
[[Page 672]]
extended period of coverage for disabled individuals pursuant to State
law or plan provision rather than pursuant to a COBRA continuation
coverage provision, the plan could likewise charge the disabled
individuals a higher premium for the extended coverage.)
(2) In premiums or contributions--(i) Nothing in this section
prevents a group health plan or group health insurance issuer from
charging individuals a premium or contribution that is less than the
premium (or contribution) for similarly situated individuals if the
lower charge is based on an adverse health factor, such as disability.
(ii) The rules of this paragraph (g)(2) are illustrated by the
following example:
Example. (i) Facts. Under a group health plan, employees are
generally required to pay $50 per month for employee-only coverage and
$125 per month for family coverage under the plan. However, employees
who are disabled receive coverage (whether employee-only or family
coverage) under the plan free of charge.
(ii) Conclusion. In this Example, the plan provision waiving premium
payment for disabled employees is permitted under this paragraph (g)(2)
(and thus does not violate this section).
(h) No effect on other laws. Compliance with this section is not
determinative of compliance with any other provision of the Act
(including the COBRA continuation provisions) or any other State or
federal law, such as the Americans with Disabilities Act. Therefore,
although the rules of this section would not prohibit a plan or issuer
from treating one group of similarly situated individuals differently
from another (such as providing different benefit packages to current
and former employees), other federal or State laws may require that two
separate groups of similarly situated individuals be treated the same
for certain purposes (such as making the same benefit package available
to COBRA qualified beneficiaries as is made available to active
employees). In addition, although this section generally does not impose
new disclosure obligations on plans and issuers, this section does not
affect any other laws, including those that require accurate disclosures
and prohibit intentional misrepresentation.
(i) Applicability dates--(1) Paragraphs applicable May 8, 2001.
Paragraphs (a)(1), (a)(2)(i), (b)(1)(i), (b)(1)(iii) Example 1,
(b)(2)(i)(A), (b)(2)(ii), (c)(1)(i), (c)(2)(i), and (c)(3) of this
section and this paragraph (i)(1) apply to group health plans and health
insurance issuers offering group health insurance coverage May 8, 2001.
(2) Paragraphs applicable for plan years beginning on or after July
1, 2001. Except as provided in paragraph (i)(3) of this section, the
provisions of this section not listed in paragraph (i)(1) of this
section apply to group health plans and health insurance issuers
offering group health insurance coverage for plan years beginning on or
after July 1, 2001. Except as provided in paragraph (i)(3) of this
section, with respect to efforts to comply with section 702 of the Act
before the first plan year beginning on or after July 1, 2001, the
Secretary will not take any enforcement action against a plan that has
sought to comply in good faith with section 702 of the Act.
(3) Transitional rules for individuals previously denied coverage
based on a health factor. This paragraph (i)(3) provides rules relating
to individuals previously denied coverage under a group health plan or
group health insurance coverage based on a health factor of the
individual. Paragraph (i)(3)(i) clarifies what constitutes a denial of
coverage under this paragraph (i)(3). Paragraph (i)(3)(ii) of this
section applies with respect to any individual who was denied coverage
if the denial was not based on a good faith interpretation of section
702 of the Act or the Secretary's published guidance. Under that
paragraph, such an individual must be allowed to enroll retroactively to
the effective date of section 702 of the Act, or, if later, the date the
individual meets eligibility criteria under the plan that do not
discriminate based on any health factor. Paragraph (i)(3)(iii) of this
section applies with respect to any individual who was denied coverage
based on a good faith interpretation of section 702 of the Act or the
Secretary's published guidance. Under that paragraph, such an individual
must be given an opportunity to enroll effective July 1, 2001. In either
event, whether under paragraph (i)(3)(ii) or (iii) of this section, the
Secretary will not take any enforcement
[[Page 673]]
action with respect to denials of coverage addressed in this paragraph
(i)(3) if the plan has complied with the transitional rules of this
paragraph (i)(3).
(i) Denial of coverage clarified. For purposes of this paragraph
(i)(3), an individual is considered to have been denied coverage if the
individual--
(A) Failed to apply for coverage because it was reasonable to
believe that an application for coverage would have been futile due to a
plan provision that discriminated based on a health factor; or
(B) Was not offered an opportunity to enroll in the plan and the
failure to give such an opportunity violates this section.
(ii) Individuals denied coverage without a good faith interpretation
of the law--(A) Opportunity to enroll required. If a plan or issuer has
denied coverage to any individual based on a health factor and that
denial was not based on a good faith interpretation of section 702 of
the Act or any guidance published by the Secretary, the plan or issuer
is required to give the individual an opportunity to enroll (including
notice of an opportunity to enroll) that continues for at least 30 days.
This opportunity must be presented not later than May 8, 2001.
(1) If this enrollment opportunity was presented before or within
the first plan year beginning on or after July 1, 1997 (or in the case
of a collectively bargained plan, before or within the first plan year
beginning on the effective date for the plan described in section
101(g)(3) of the Health Insurance Portability and Accountability Act of
1996), the coverage must be effective within that first plan year.
(2) If this enrollment opportunity is presented after such plan
year, the individual must be given the choice of having the coverage
effective on either of the following two dates--
(i) The date the plan receives a request for enrollment in
connection with the enrollment opportunity; or
(ii) Retroactively to the first day of the first plan year beginning
on the effective date for the plan described in sections 101(g)(1) and
(3) of the Health Insurance Portability and Accountability Act of 1996
(or, if the individual otherwise first became eligible to enroll for
coverage after that date, on the date the individual was otherwise
eligible to enroll in the plan). If an individual elects retroactive
coverage, the plan or issuer is required to provide the benefits it
would have provided if the individual had been enrolled for coverage
during that period (irrespective of any otherwise applicable plan
provisions governing timing for the submission of claims). The plan or
issuer may require the individual to pay whatever additional amount the
individual would have been required to pay for the coverage (but the
plan or issuer cannot charge interest on that amount).
(B) Relation to preexisting condition rules. For purposes of part 7
of subtitle B of title I of the Act, the individual may not be treated
as a late enrollee or as a special enrollee. Moreover, the individual's
enrollment date is the effective date for the plan described in sections
101(g)(1) and (3) of the Health Insurance Portability and Accountability
Act (or, if the individual otherwise first became eligible to enroll for
coverage after that date, on the date the individual was otherwise
eligible to enroll in the plan), even if the individual chooses under
paragraph (i)(3)(ii)(A) of this section to have coverage effective only
prospectively. In addition, any period between the individual's
enrollment date and the effective date of coverage is treated as a
waiting period.
(C) Examples. The rules of this paragraph (i)(3)(ii) are illustrated
by the following examples:
Example 1. (i) Facts. Employer X maintains a group health plan with
a plan year beginning October 1 and ending September 30. Individual F
was hired by Employer X before the effective date of section 702 of the
Act. Before the effective date of section 702 of the Act for this plan
(October 1, 1997), the terms of the plan allowed employees and their
dependents to enroll when the employee was first hired, and on each
January 1 thereafter, but in either case, only if the individual could
pass a physical examination. F 's application to enroll when first hired
was denied because F had diabetes and could not pass a physical
examination. Upon the effective date of section 702 of the Act for this
plan (October 1, 1997), the plan is amended to delete the requirement to
pass a physical examination. In November of 1997, the plan gives F an
opportunity to enroll in the plan
[[Page 674]]
(including notice of the opportunity to enroll) without passing a
physical examination, with coverage effective January 1, 1998.
(ii) Conclusion. In this Example 1, the plan complies with the
requirements of this paragraph (i)(3)(ii).
Example 2. (i) Facts. The plan year of a group health plan begins
January 1 and ends December 31. Under the plan, a dependent who is
unable to engage in normal life activities on the date coverage would
otherwise become effective is not enrolled until the dependent is able
to engage in normal life activities. Individual G is a dependent who is
otherwise eligible for coverage, but is unable to engage in normal life
activities. The plan has not allowed G to enroll for coverage.
(ii) Conclusion. In this Example 2, beginning on the effective date
of section 702 of the Act for the plan (January 1, 1998), the plan
provision is not permitted under any good faith interpretation of
section 702 of the Act or any guidance published by the Secretary.
Therefore, the plan is required, not later than May 8, 2001, to give G
an opportunity to enroll (including notice of the opportunity to
enroll), with coverage effective, at G's option, either retroactively
from January 1, 1998 or prospectively from the date G's request for
enrollment is received by the plan. If G elects coverage to be effective
beginning January 1, 1998, the plan can require G to pay any required
employee premiums for the retroactive coverage.
(iii) Individuals denied coverage based on a good faith
interpretation of the law--(A) Opportunity to enroll required. If a plan
or issuer has denied coverage to any individual before the first day of
the first plan year beginning on or after July 1, 2001 based in part on
a health factor and that denial was based on a good faith interpretation
of section 702 of the Act or guidance published by the Secretary, the
plan or issuer is required to give the individual an opportunity to
enroll (including notice of an opportunity to enroll) that continues for
at least 30 days, with coverage effective no later than July 1, 2001.
Individuals required to be offered an opportunity to enroll include
individuals previously offered enrollment without regard to a health
factor but subsequently denied enrollment due to a health factor.
(B) Relation to preexisting condition rules. For purposes of Part 7
of Subtitle B of Title I of the Act, the individual may not be treated
as a late enrollee or as a special enrollee. Moreover, the individual's
enrollment date is the effective date for the plan described in sections
101(g)(1) and (3) of the Health Insurance Portability and Accountability
Act (or, if the individual otherwise first became eligible to enroll for
coverage after that date, on the date the individual was otherwise
eligible to enroll in the plan). In addition, any period between the
individual's enrollment date and the effective date of coverage is
treated as a waiting period.
(C) Example. The rules of this paragraph (i)(3)(iii) are illustrated
by the following example:
Example. (i) Facts. Individual H was hired by Employer Y on May 3,
1995. Y maintains a group health plan with a plan year beginning on
February 1. Under the terms of the plan, employees and their dependents
are allowed to enroll when the employee is first hired (without a
requirement to pass a physical examination), and on each February 1
thereafter if the individual can pass a physical examination. H chose
not to enroll for coverage when hired in May of 1995. On February 1,
1997, H tried to enroll for coverage under the plan. However, H was
denied coverage for failure to pass a physical examination. Shortly
thereafter, Y's plan eliminated late enrollment, and H was not given
another opportunity to enroll in the plan. There is no evidence to
suggest that Y's plan was acting in bad faith in denying coverage under
the plan beginning on the effective date of section 702 of the Act
(February 1, 1998).
(ii) Conclusion. In this Example, because coverage previously had
been made available with respect to H without regard to any health
factor of H and because Y's plan was acting in accordance with a good
faith interpretation of section 702 (and guidance published by the
Secretary), the failure of Y's plan to allow H to enroll effective
February 1, 1998 was permissible on that date. However, under the
transitional rules of this paragraph (i)(3)(iii), Y's plan must give H
an opportunity to enroll that continues for at least 30 days, with
coverage effective no later than July 1, 2001. (In addition, February 1,
1998 is H's enrollment date under the plan and the period between
February 1, 1998 and July 1, 2001 is treated as a waiting period.
Accordingly, any preexisting condition exclusion period permitted under
Sec. 2590.701-3 will have expired before July 1, 2001.)
[66 FR 1404, Jan. 8, 2001, as amended at 66 FR 14077, Mar. 9, 2001]
[[Page 675]] 
