Nondiscrimination in Health Coverage in the Group Market; Interim Final
Rules and Proposed Rules [01/08/2001]
Volume 66, Number 5, Page 1377-1420
[[Page 1377]]
-----------------------------------------------------------------------
Part II
Department of the Treasury
Internal Revenue Service
26 CFR Part 54
-----------------------------------------------------------------------
Department of Labor
Pension and Welfare Benefits Administration
29 CFR Part 2590
-----------------------------------------------------------------------
Department of Health and Human Services
Health Care Financing Administration
45 CFR Part 146
-----------------------------------------------------------------------
Nondiscrimination in Health Coverage in the Group Market; Interim Final
Rules and Proposed Rules
[[Page 1378]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[TD 8931]
RIN 1545-AW02
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2590
RIN 1210-AA77
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
45 CFR Part 146
RIN 0938-AI08
Interim Final Rules for Nondiscrimination in Health Coverage in
the Group Market
AGENCIES: Internal Revenue Service, Department of the Treasury; Pension
and Welfare Benefits Administration, Department of Labor; Health Care
Financing Administration, Department of Health and Human Services.
ACTION: Interim final rules with request for comments.
-----------------------------------------------------------------------
SUMMARY: This document contains interim final rules governing the
provisions prohibiting discrimination based on a health factor for
group health plans and issuers of health insurance coverage offered in
connection with a group health plan. The rules contained in this
document implement changes made to the Internal Revenue Code of 1986
(Code), the Employee Retirement Income Security Act of 1974 (ERISA),
and the Public Health Service Act (PHS Act) enacted as part of the
Health Insurance Portability and Accountability Act of 1996 (HIPAA).
DATES: Effective date. The interim final rules are effective March 9,
2001.
Applicability dates. For rules describing when this section applies
to group health plans and group health insurance issuers, see paragraph
(i) of these interim regulations.\1\
---------------------------------------------------------------------------
\1\ References in this preamble to a specific paragraph in the
interim regulations are to paragraphs in each of the three sets of
regulations being published as part of this document. Specifically,
references are to paragraphs in 26 CFR 54.9802-1 and 26 CFR 54.9802-
1T (see discussion and table in ``C. Format of Regulations'' below),
29 CFR 2590.702, and 45 CFR 146.121.
---------------------------------------------------------------------------
Comment date. Written comments on these interim regulations are
invited and must be received by the Departments on or before April 9,
2001.
ADDRESSES: Written comments should be submitted with a signed original
and three copies (except for electronic submissions to the Internal
Revenue Service (IRS) or Department of Labor) to any of the addresses
specified below. Any comment that is submitted to any Department will
be shared with the other Departments.
Comments to the IRS can be addressed to: CC:M&SP:RU (REG-109707-
97), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
In the alternative, comments may be hand-delivered between the
hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU (REG-109707-97), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW.,
Washington, DC 20224.
Alternatively, comments may be transmitted electronically via the
IRS Internet site at: http://www.irs.gov/tax regs/regslist.html.
Comments to the Department of Labor can be addressed to: U.S.
Department of Labor, Pension and Welfare Benefits Administration, 200
Constitution Avenue NW., Room C-5331, Washington, DC 20210, Attention:
Nondiscrimination Comments.
Alternatively, comments may be hand-delivered between the hours of
9 a.m. and 5 p.m. to the same address. Comments may also be transmitted
by e-mail to: HIPAA702@pwba.dol.gov.
Comments to HHS can be addressed to: Health Care Financing
Administration, Department of Health and Human Services, Attention:
HCFA-2022-IFC, P.O. Box 26688, Baltimore, MD 21207.
In the alternative, comments may be hand-delivered between the
hours of 8:30 a.m. and 5 p.m. to either: Room 443-G, Hubert Humphrey
Building, 200 Independence Avenue, SW., Washington, DC 20201 or Room
C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.
All submissions to the IRS will be open to public inspection and
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC
from 9 a.m. to 4 p.m.
All submissions to the Department of Labor will be open to public
inspection and copying in the Public Documents Room, Pension and
Welfare Benefits Administration, U.S. Department of Labor, Room N-1513,
200 Constitution Avenue, NW., Washington, DC from 8:30 a.m. to 5:30
p.m.
All submissions to HHS will be open to public inspection and
copying in room 309-G of the Department of Health and Human Services,
200 Independence Avenue, SW., Washington, DC from 8:30 a.m. to 5 p.m.
FOR FURTHER INFORMATION CONTACT: Russ Weinheimer, Internal Revenue
Service, Department of the Treasury, at (202) 622-6080; Amy J. Turner,
Pension and Welfare Benefits Administration, Department of Labor, at
(202) 219-7006; or Ruth A. Bradford, Health Care Financing
Administration, Department of Health and Human Services, at (410) 786-
1565.
SUPPLEMENTARY INFORMATION:
Customer Service Information:
Individuals interested in obtaining additional information on
HIPAA's nondiscrimination rules may request a copy of the Department of
Labor's booklet entitled ``Questions and Answers: Recent Changes in
Health Care Law'' by calling the PWBA Toll-Free Publication Hotline at
1-800-998-7542 or may request a copy of the Health Care Financing
Administration's new publication entitled ``Protecting Your Health
Insurance Coverage'' by calling (410) 786-1565. Information on HIPAA's
nondiscrimination rules and other recent health care laws is also
available on the Department of Labor's website (http://www.dol.gov/dol/
pwba) and the Department of Health and Human Services' website (http://
hipaa.hcfa.gov).
I. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, was enacted on August 21, 1996. HIPAA
amended the Internal Revenue Code of 1986 (Code), the Employee
Retirement Income Security Act of 1974 (ERISA), and the Public Health
Service Act (PHS Act) to provide for, among other things, improved
portability and continuity of health coverage. HIPAA added section 9802
of the Code, section 702 of ERISA, and section 2702 of the PHS Act,
which prohibit discrimination in health coverage. Interim final rules
implementing the HIPAA provisions were first made available to the
public on April 1, 1997 (published in the Federal Register on April 8,
1997, 62 FR 16894) (April 1997 interim rules). On December 29, 1997,
the Departments published a clarification of the April 1997 interim
rules as they relate to individuals who were denied coverage before the
effective date of HIPAA on the basis of any health factor (62 FR
67689).
In the preamble to the April 1997 interim rules, the Departments
invited
[[Page 1379]]
comments on whether additional guidance was needed concerning--
The extent to which the statute prohibits discrimination
against individuals in eligibility for particular benefits;
The extent to which the statute may permit benefit
limitations based on the source of an injury;
The permissible standards for defining groups of similarly
situated individuals;
Application of the prohibitions on discrimination between
groups of similarly situated individuals; and
The permissible standards for determining bona fide
wellness programs.
In the preamble to the April 1997 interim rules, the Departments
stated that they intend to issue further regulations on the
nondiscrimination rules and that in no event would the Departments take
any enforcement action against a plan or issuer that had sought to
comply in good faith with section 9802 of the Code, section 702 of
ERISA, and section 2702 of the PHS Act before the additional guidance
is provided. Accordingly, with the issuance of these interim
regulations, the Departments have determined that the period for
nonenforcement in cases of good faith compliance ends in accordance
with the rules described in paragraph (i) of these interim
regulations.\2\ However, because the interim regulations do not include
a discussion of bona fide wellness programs (see proposed rules
relating to bona fide wellness programs published elsewhere in this
issue of the Federal Register), the period for good faith compliance
continues with respect to those provisions until further guidance is
issued.
---------------------------------------------------------------------------
\2\ See footnote 1.
---------------------------------------------------------------------------
II. Overview of the Regulations
Section 9802 of the Code, section 702 of ERISA, and section 2702 of
the PHS Act (the HIPAA nondiscrimination provisions) establish rules
generally prohibiting group health plans and group health insurance
issuers from discriminating against individual participants or
beneficiaries based on any health factor of such participants or
beneficiaries. These interim regulations interpret the HIPAA
nondiscrimination provisions. Among other things, the interim
regulations--
Explain the application of these provisions to benefits;
Clarify the relationship between the HIPAA
nondiscrimination provisions and the HIPAA preexisting condition
exclusion limitations;
Explain the application of these provisions to premiums;
Describe similarly situated individuals;
Explain the application of these provisions to actively-
at-work and nonconfinement clauses; and
Clarify that more favorable treatment of individuals with
medical needs generally is permitted.
Described elsewhere in this issue of the Federal Register are
proposed standards for defining bona fide wellness programs.
Of course, plans and benefits that are not subject to the HIPAA
portability provisions (set forth in Chapter 100 of the Code, part 7 of
subtitle B of title I of ERISA, and title XXVII of the PHS Act) are not
subject to the HIPAA nondiscrimination requirements. Accordingly, the
following plans and benefits are not subject to the HIPAA
nondiscrimination requirements: benefits that qualify under the HIPAA
portability provisions as excepted benefits; plans with fewer than two
participants who are current employees on the first day of the plan
year;\3\ and self-funded non-Federal governmental plans that elect,
under 45 CFR 146.180, to be exempt from these nondiscrimination
requirements. In addition, under a proposed regulation published by the
Department of the Treasury and described elsewhere in this issue of the
Federal Register, certain church plans are treated as not violating the
general HIPAA nondiscrimination provisions if the plan requires
evidence of good health for the coverage of certain individuals.
---------------------------------------------------------------------------
\3\ However, a State may impose the requirements of the HIPAA
portability provisions, in whole or in part, on health insurance
coverage sold to groups that contain fewer than 2 current employees
on the first day of the plan year. See sections 2723 and 2791(e) of
the PHS Act.
---------------------------------------------------------------------------
Health Factors
The HIPAA nondiscrimination provisions set forth eight health
status-related factors. The interim regulations refer to these as
``health factors.'' The eight health factors are health status, medical
condition (including both physical and mental illnesses), claims
experience, receipt of health care, medical history, genetic
information, evidence of insurability, and disability. These terms are
largely overlapping and, in combination, include any factor related to
an individual's health.
Evidence of insurability. Several commenters urged that the health
factor ``evidence of insurability'' be interpreted to prohibit plans
and issuers from denying coverage to individuals who engage in certain
types of activities. Commenters cited language in the conference report
that states, ``The inclusion of evidence of insurability in the
definition of health status is intended to ensure, among other things,
that individuals are not excluded from health care coverage due to
their participation in activities such as motorcycling, snowmobiling,
all-terrain vehicle riding, horseback riding, skiing and other similar
activities.'' H.R. Conf. Rep. No. 736, 104th Cong., 2d Sess. 186
(1996). The interim regulations clarify that evidence of insurability
includes participation in activities listed in the conference report.
In addition, the interim regulations incorporate the statutory
clarification that evidence of insurability includes conditions arising
out of acts of domestic violence. See also the discussion below
concerning source-of-injury restrictions under the heading
``Application to Benefits.''
Late enrollees and special enrollees. Some commenters asked whether
treating late enrollees differently from other enrollees is
discrimination based on one or more health factors. HIPAA was designed
to encourage individuals to enroll in health coverage when first
eligible and to maintain coverage for as long as they continue to be
eligible. Permitting plans and issuers to treat late enrollees less
favorably than other enrollees is consistent with this objective. The
interim regulations clarify that the decision whether to elect health
coverage, including the time an individual chooses to enroll, such as
late enrollment, is not itself within the scope of any health factor.
Thus, the interim regulations permit plans and issuers to treat late
enrollees differently from similarly situated individuals who enroll
when first eligible.
Although the HIPAA nondiscrimination requirements do not prohibit
different treatment of special enrollees, any differential treatment
would violate the HIPAA special enrollment requirements. These interim
regulations provide a cross-reference to the HIPAA regulations
requiring special enrollees to be treated the same as individuals who
enroll when first eligible.
Prohibited Discrimination in Rules for Eligibility
These interim regulations provide that group health plans and group
health insurance issuers generally may not establish any rule for
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. Under these interim
[[Page 1380]]
regulations, rules for eligibility include, but are not limited to,
rules relating to enrollment, the effective date of coverage, waiting
(or affiliation) periods, late and special enrollment, eligibility for
benefit packages (including rules for individuals to change their
selection among benefit packages), benefits (as described below under
the heading ``Application to Benefits''), continued eligibility, and
terminating coverage of any individual under the plan.
The rules for eligibility apply in tandem with the rules describing
similarly situated individuals (described below under the heading
``Similarly Situated Individuals'') to prevent discrimination in
eligibility based on any health factor. Thus, while it is permissible
for a plan or issuer to impose waiting periods of different lengths on
different groups of similarly situated individuals, a plan or issuer
would violate the interim regulations if it imposed a longer waiting
period for individuals within the same group of similarly situated
individuals based on the higher claims of those individuals (or based
on any other adverse health factor of those individuals).
While the interim regulations clarify that late enrollment itself
is not within the scope of any health factor, eligibility for late
enrollment comes within the scope of rules for eligibility under which
discrimination based on one or more health factors is prohibited. The
effect of these rules is to permit plans or issuers to treat late
enrollees differently from individuals who enroll when first eligible
but to prohibit plans and issuers from distinguishing among applicants
for late enrollment based on any health factor of the applicant. Thus,
a plan could impose an 18-month preexisting condition exclusion on late
enrollees while imposing no preexisting condition exclusion on
individuals who enroll in the plan when first eligible, but a plan
would violate the interim regulations if it conditioned the ability to
enroll as a late enrollee on the passing of a physical examination (or
on any other health factor of the individual, such as having incurred
health claims during a past period below a certain dollar amount).
Application to Benefits
General rules. The extent to which the statutory language prohibits
discrimination against individuals in eligibility for particular
benefits is subject to a wide range of interpretations. At one extreme,
the language could be interpreted as applying only to enrollment and to
premiums. Under this interpretation, for example, it would be possible
for a plan or issuer to impose a $100 lifetime limit on a particular
individual with a history of high health claims (provided that the
individual is permitted to enroll in the plan and is charged the same
premium as similarly situated individuals), while imposing a $1 million
lifetime limit on all other participants in the plan.
At the other extreme, the statutory language could be interpreted
to mandate parity in health benefits. This interpretation would prevent
plans and issuers from designing benefit packages that control costs
and are responsive to employees' preferences for balancing additional
benefits with additional costs.
In the preamble to the April 1997 interim rules, the Departments
specifically invited comments on whether guidance was needed concerning
this issue. The comments received ranged between these two extremes.
The approach in these interim regulations takes into account the
concerns expressed by commenters, as well as the conference report.
Specifically, the conference report states that:
It is the intent of the conferees that a plan cannot knowingly
be designed to exclude individuals and their dependents on the basis
of health status. However, generally applicable terms of the plan
may have a disparate impact on individual enrollees. For example, a
plan may exclude all coverage of a specific condition, or may
include a lifetime cap on all benefits, or a lifetime cap on
specific benefits. Although individuals with the specific condition
would be adversely affected by an exclusion of coverage for that
condition * * * such plan characteristics would be permitted as long
as they are not directed at individual sick employees or dependents.
H.R. Conf. Rep. No. 736, 104th Cong., 2d Sess. 186-187 (1996).
The interim regulations clarify that they do not require a plan or
issuer to provide coverage for any particular benefit to any group of
similarly situated individuals. However, benefits provided under a plan
or group health insurance coverage must be uniformly available to all
similarly situated individuals. 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.\4\ These interim regulations clarify
that whether any plan provision with respect to benefits complies with
the interim regulations does not affect whether the provision is
permitted under the Americans with Disabilities Act (ADA), or any other
law, whether State or federal.\5\
---------------------------------------------------------------------------
\4\ For special rules that apply to cost-sharing mechanisms that
are part of a bona fide wellness program, see the proposed
regulations relating to bona fide wellness programs published
elsewhere in this issue of the Federal Register.
\5\ In this regard, the Equal Employment Opportunity Commission
has commented, by letter of July 7, 1997, ``Title I of the ADA
prohibits disability-based employment discrimination, including
discrimination in fringe benefits such as health insurance plans.''
---------------------------------------------------------------------------
Accordingly, for example, a group health plan may apply a lifetime
limit on all benefits provided to each participant covered under the
plan. While this limitation on all benefits may adversely impact
individuals with serious medical conditions, the limitation is
permitted provided that it applies to all similarly situated
individuals and is not directed at individual participants or
beneficiaries. Similarly, a plan or issuer may establish a specific
lifetime limit on the treatment of a particular condition (such as the
treatment of temporomandibular joint syndrome (TMJ)) for all similarly
situated individuals in the plan. Although individuals with TMJ may be
adversely affected by this limitation, because benefits for the
treatment of TMJ are available uniformly to all similarly situated
individuals and because the limit on benefits for TMJ applies to all
similarly situated individuals, the limit is permissible.
Under these interim regulations, plans and issuers therefore have
significant flexibility in designing benefits. However, to prevent
plans and issuers from restricting benefits based on a
[[Page 1381]]
specific health factor of an individual under the plan, the interim
regulations prohibit benefit restrictions, even if applied uniformly to
all similarly situated individuals, from being directed at individual
participants or beneficiaries based on any health factor of the
participants or beneficiaries. The interim regulations clarify that 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 individual participants
and beneficiaries. This exception to the general facts and
circumstances determination that a change is directed at an individual
is necessary to preserve the flexibility of small employers that might
otherwise be disproportionately affected and prevented from adopting
changes in benefit design. If small employers are unable to modify
future benefits to keep health coverage affordable, their alternative
may be to eliminate health coverage entirely. At the same time, the
exception reflects the common practice of modifying the terms of a plan
on an annual basis. Finally, changes in benefit design that are
effective earlier than the first day of the next plan year remain
subject to a facts and circumstances determination regarding whether
the change is directed at individual participants and beneficiaries.
An example illustrates that if an individual files a claim for the
treatment of a condition, and shortly thereafter the plan is modified
to restrict benefits for the treatment of the condition, effective
before the beginning of the next plan year, the restriction would be
directed at the individual based on a health factor (absent additional
facts to indicate that the change was made independent of the claim)
and the plan would violate these interim regulations.
Source-of-injury restrictions. While a person cannot be excluded
from a plan for engaging in certain recreational activities (see
previous discussion on evidence of insurability under the heading
``Health Factors''), benefits for a particular injury can, in some
cases, be excluded based on the source of an injury. These plan
restrictions are known as source-of-injury restrictions.\6\ Under these
interim regulations, if a plan or group health insurance coverage
generally provides benefits for a type of injury, the plan or issuer
may not use a source-of-injury restriction to deny benefits otherwise
provided for treatment of the injury if it results from an act of
domestic violence or a medical condition (including both physical and
mental health conditions). An example in the interim regulations
clarifies that benefits for injuries generally covered under the plan
cannot be excluded merely because they were self-inflicted or were
sustained in connection with a suicide or attempted suicide if the
injuries resulted from a medical condition such as depression. Another
example illustrates that a plan can nonetheless exclude benefits for
injuries because they were sustained in connection with various
recreational activities if the accident did not result from any medical
condition (or from domestic violence).
---------------------------------------------------------------------------
\6\ A commenter pointed out that this type of restriction is
distinct from two other restrictions sometimes referred to as
``source-of-injury restrictions''--(1) those based on the geographic
location where the injury occurred, and (2) those based on when the
injury occurred and whether other coverage was in effect.
---------------------------------------------------------------------------
The Relationship Between the HIPAA Nondiscrimination Provisions and the
HIPAA Preexisting Condition Exclusion Provisions
Restrictions on benefits based on the fact that a medical condition
was present before the first day of coverage discriminate against
individuals based on one or more health factors. The statute
nonetheless provides that the nondiscrimination provisions are intended
to be construed in a manner consistent with the HIPAA provisions
specifically allowing the application of preexisting condition
exclusions. These latter provisions restrict the ability of a group
health plan or group health insurance issuer to apply preexisting
condition exclusions, both by restricting the circumstances under which
an individual's condition is considered preexisting and by limiting the
length of the exclusion period. The interim regulations clarify that a
preexisting condition exclusion that satisfies the requirements of the
HIPAA preexisting condition exclusion provisions is permitted under the
HIPAA nondiscrimination requirements if the exclusion applies uniformly
to individuals within the same group of similarly situated individuals
and is not directed at individual participants or beneficiaries based
on any health factor of the participants or beneficiaries. 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 individual participants or beneficiaries.
The examples illustrate that a typical preexisting condition
exclusion permitted under the HIPAA preexisting condition exclusion
requirements does not violate the HIPAA nondiscrimination requirements
even though the exclusion inherently discriminates based on one or more
health factors. The examples also illustrate that a plan nonetheless
must apply the preexisting condition exclusion to similarly situated
individuals in a uniform manner and cannot apply a longer preexisting
condition exclusion period based on the submission of claims during the
first part of the exclusion period.
Prohibited Discrimination in Premiums or Contributions
Under the interim regulations, 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
enrolled in the plan or group health insurance coverage, based on any
health factor that relates to that individual or a dependent of that
individual. Under the interim regulations, when determining an
individual's premium or contribution rate, discounts, rebates, payments
in kind, or other premium differential mechanisms are taken into
account.\7\
---------------------------------------------------------------------------
\7\ However, a group health plan or a health insurance issuer
offering group health insurance coverage may establish premium or
contribution differentials through a bona fide wellness program.
(See proposed regulations relating to bona fide wellness programs
published elsewhere in this issue of the Federal Register).
---------------------------------------------------------------------------
In general, the interim regulations do not restrict the amount that
an employer may be quoted or charged by an issuer (or, in the case of a
multiemployer plan, by the plan) for coverage of a group of similarly
situated individuals. However, the interim regulations prohibit certain
billing practices because in many instances they could directly or
indirectly result in an individual's being charged more than a
similarly situated individual based on a health factor.
Some health insurance issuers that offer health insurance coverage
in connection with a group health plan use billing practices with
separate individual rates that vary based, in part, on the health
factors of the individuals who are eligible to participate in the plan.
This practice is generally known as list billing. List billing based on
a
[[Page 1382]]
health factor is prohibited under the interim regulations.
The HIPAA nondiscrimination requirements do not prohibit an issuer
from considering all relevant health factors of individuals in order to
establish aggregate rates for coverage provided under the group health
plan. However, an individual may not be required to pay a higher
premium based on any health factor of the individual. Under the interim
regulations, an issuer (or a multiemployer plan) may not quote or
charge an employer different premium rates on an individual-by-
individual basis in a group of similarly situated individuals based on
any health factor of the individuals, even if the employer does not
pass the different rates through to the individuals. If an issuer
wishes to increase rates to cover the additional exposure to expenses
that may result from an individual's health factor, the issuer must
blend the increase into an overall group rate and then quote or charge
a higher per-participant rate. Nonetheless, the prohibition on the
practice of list billing based on a health factor does not restrict
communications between issuers and plans regarding rate calculations.
Similarly Situated Individuals
The statutory HIPAA nondiscrimination requirements clarify that the
general rule prohibiting discrimination in eligibility does not prevent
a group health plan or group health insurance coverage from
establishing limitations or restrictions on the amount, level, extent,
or nature of benefits for ``similarly situated individuals'' enrolled
in the plan or coverage. The statutory rule prohibiting discrimination
in charging individuals premiums or contributions prohibits a plan or
issuer from requiring any individual, based on any health factor of
that individual or a dependent of that individual, to pay a premium or
contribution that is greater than the premium or contribution required
of a ``similarly situated individual.'' In the preamble to the April
1997 interim rules, the Departments requested comments both on the
permissible standards for defining groups of similarly situated
individuals and on the application of the prohibitions on
discrimination between groups of similarly situated individuals.
Many commenters suggested that discrimination between groups of
similarly situated individuals should be permitted, with the caveat
that it should not be permissible to define a group based on a health
factor. These interim regulations provide that the nondiscrimination
rules apply only within a group of similarly situated individuals.
Thus, these interim regulations do not prohibit discrimination between
or among groups of similarly situated individuals. However, these
interim regulations also provide that 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.
This is intended to be a broad anti-abuse standard that applies based
on the relevant facts and circumstances of each case.
The permissibility of discrimination between or among groups of
similarly situated individuals increases the possibility of abuse in
establishing groups of similarly situated individuals. Most commenters
addressing this issue focused on the classification of participants and
suggested that classifications should be based on work activities and
not on a health factor or on activities unrelated to employment. The
interim regulations provide generally that participants may be treated
as two or more groups of similarly situated individuals if the
distinction between or among the groups is based on a bona fide
employment-based classification consistent with the employer's usual
business practice. The validity of a category as a bona fide
employment-based classification is determined based on 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 the anti-abuse standard (described in the
preceding paragraph), the interim regulations allow distinctions to be
made based on 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.
Some commenters expressed concern that allowing similarly situated
individuals to be determined based on occupation or geographic location
would allow plans and issuers to create artificial classifications,
ostensibly based on occupation or geographic location, that are
actually designed to discriminate based on a health factor of an
individual or individuals. These interim regulations permit bona fide
classifications based on occupation or geographic location. In this
connection, commenters had two principal concerns. First, there was a
concern about reclassifications targeting unhealthy individuals. For
example, a participant receiving expensive medical treatment might be
reclassified to a separate employment category either with reduced
health benefits or none at all. The broad anti-abuse standard of these
interim regulations is intended, among other things, to prohibit
reclassifications directed at individuals such as this.
A second concern that commenters had was that plans and issuers
might design health benefits differently for employees in different
occupations or geographic locations based, at least in part, on the
health factors of these groups of individuals. One example is a plan
that offers fewer benefits to employees in one occupation than to
employees in another occupation at least in part because of the higher
average historical claims of the employees in the first occupation. A
second example is a plan that charges employees in one area more than
employees in another area at least in part because the cost of medical
care is generally higher in the first area. The statute and legislative
history appear to allow this practice, and thus these interim
regulations do not prohibit the provision of different health benefits
for employees in different occupations or geographic locations, based
at least in part on the health factors of the group as a whole, if the
classifications are not directed at individual participants or
beneficiaries based on a health factor of the participants or
beneficiaries.
These interim regulations also permit plans and issuers, in certain
circumstances, to treat beneficiaries as different groups of similarly
situated individuals. Beneficiaries may be treated as a group of
similarly situated individuals separate from participants, and
different treatment is permitted among beneficiaries based on bona fide
employment-based classifications of the participants through whom the
beneficiaries are receiving coverage. Thus, if the plan provides
different benefits to full-time employees than to part-time employees,
then it may also provide different benefits to dependents of full-time
employees than to dependents of part-time employees. Similarly,
different treatment is permitted based on the beneficiary's
relationship to the participant (for example, as a spouse or as a
dependent child). Different treatment is also permitted based on the
beneficiary's marital status, based on a dependent
[[Page 1383]]
child's age or student status, or based on any other factor if the
factor is not a health factor.
The rules in these interim regulations allowing the different
treatment of individuals in different groups of similarly situated
individuals are distinct from rules requiring that qualified
beneficiaries under a COBRA continuation provision \8\ have available
the same coverage as similarly situated non-COBRA beneficiaries.
Although these interim regulations would not prohibit making benefit
packages available to non-COBRA beneficiaries (such as current
employees) that are not made available to COBRA qualified beneficiaries
(such as former employees), the COBRA continuation provisions prohibit
such a difference.
---------------------------------------------------------------------------
\8\ The term COBRA continuation provision is defined in 26 CFR
54.9801-2T, 29 CFR 2590.701-2, and 45 CFR 144.103.
---------------------------------------------------------------------------
Finally, all of the requirements relating to determining groups of
similarly situated individuals are subject to other rules in these
interim regulations permitting favorable treatment of individuals with
certain adverse health factors (discussed below under the heading
``More Favorable Treatment of Individuals with Adverse Health Factors
Permitted'').
Nonconfinement Provisions
Some group health plans and health insurance issuers refuse to
provide benefits to an individual based on the individual's confinement
to a hospital or other health care institution at the time coverage
otherwise would become effective. Plan provisions like these are often
called ``nonconfinement clauses.'' Any reasonable interpretation or
application of the statutory HIPAA nondiscrimination provisions
prohibits a plan or issuer from imposing a nonconfinement clause.\9\
Thus, a plan or issuer may not deny the eligibility of any individual
to enroll for benefits or charge any individual a higher premium (or
contribution) because the individual, or a dependent of the individual,
is confined to a hospital or other health care institution. In
addition, some plans and issuers refuse to provide benefits to an
individual based on an individual's inability to engage in normal life
activities. A plan or issuer generally may not deny the eligibility of
any individual to enroll for benefits or charge any individual a higher
premium (or contribution) based on any individual's ability to engage
in normal life activities. However, these interim regulations provide
an exception that permits plans and issuers to distinguish among
employees based on the performance of services. Although in practice
nonconfinement clauses generally apply only to dependents, in some
cases they apply also to employees. Thus, the interim regulations
clarify that a nonconfinement clause would also be impermissible if
applied to an employee.
---------------------------------------------------------------------------
\9\ For an example illustrating that the imposition of a
nonconfinement clause is not a good faith interpretation of the
HIPAA nondiscrimination provisions, and the rule requiring that
individuals denied enrollment without a good faith interpretation of
the law be provided an opportunity to enroll, see the discussion
below under the heading ``Transitional Rule for Individuals
Previously Denied Coverage Based on a Health Factor.''
---------------------------------------------------------------------------
These rules are of particular interest in the case of a group
health plan switching coverage from one health insurance issuer to a
succeeding health insurance issuer. In such a case, the HIPAA
nondiscrimination provisions prohibit the succeeding issuer from
denying eligibility to any individual due to confinement to a hospital
or other health care institution because such a denial would
discriminate in eligibility based on one or more health factors. The
obligation of the succeeding issuer to provide coverage to such an
individual does not preempt any obligation that the prior issuer may
have under other applicable law, including State extension of benefits
laws.
Actively-at-Work and Other Service Requirements
Some group health plans and health insurance issuers refuse to
provide benefits to an individual if the individual is not actively at
work on the day the individual would otherwise become eligible for
benefits. Plan provisions like these are often called ``actively-at-
work clauses.'' These interim regulations provide that a plan or issuer
generally may not impose an ``actively-at-work clause.'' That is, these
interim regulations prohibit a plan or issuer from denying the
eligibility of any individual to enroll for benefits or charging any
individual a higher premium or contribution based on whether an
individual is actively at work (including whether an individual is
continuously employed). However, an actively-at-work clause is
permitted if individuals who are absent from work due to any health
factor (for example, individuals taking sick leave) are treated, for
purposes of health coverage, as if they are actively at work.
Accordingly, plan provisions that delay enrollment until an individual
is actively at work on a day following a waiting period (or for a
continuous period) are prohibited unless absence from work due to any
health factor is considered being actively at work.
These interim regulations also provide an exception for the first
day of work to the general prohibition against actively-at-work
clauses. Under the exception, a plan or issuer may require an
individual to begin work before coverage may become effective.
The interim regulations explain the relationship between the rules
governing actively-at-work clauses and the rules describing similarly
situated individuals. Under the interim regulations, a plan or issuer
is generally permitted to distinguish between groups of similarly
situated individuals (provided the distinction is not directed at
individual participants or beneficiaries based on a health factor).
Examples illustrate that a plan or issuer may condition coverage on an
individual's meeting the plan's requirement of working full-time (such
as a minimum of 250 hours in a three-month period or 30 hours per
week). In addition, a plan or issuer may terminate coverage for former
employees while providing coverage to current employees without
violating the HIPAA nondiscrimination provisions if the rules
describing similarly situated individuals are satisfied, even if the
former employee is unable to work due to a health factor. Similarly, a
plan or issuer may charge a higher premium to employees no longer
performing services than to employees currently performing services
without violating the HIPAA nondiscrimination provisions if the rules
describing similarly situated individuals are met. An example
illustrates that the interim regulations would not, however, permit a
plan or issuer to treat individuals on annual or bereavement leave
better than individuals on sick leave because groups of similarly
situated individuals cannot be established based on any health factor
(including the taking of sick leave).
In any case, other federal or State laws, including the COBRA
continuation provisions and the Family and Medical Leave Act of 1993
(FMLA), may require individuals to be offered coverage and set limits
on the premium or contribution rate.
Bona Fide Wellness Programs
The HIPAA nondiscrimination provisions do not prevent a plan or
issuer from establishing premium discounts or rebates or modifying
otherwise applicable copayments or deductibles in return for adherence
to programs of health promotion and disease prevention. Thus, there is
an exception to the general rule prohibiting
[[Page 1384]]
discrimination based on a health factor if the reward, such as a
premium discount or waiver of a cost-sharing requirement, is based on
participation in a program of health promotion or disease prevention.
The April 1997 interim rules, these interim regulations, and proposed
regulations published elsewhere in this issue of the Federal Register
refer to programs of health promotion and disease prevention allowed
under this exception as ``bona fide wellness programs.'' For a
discussion of bona fide wellness programs, see the preamble to proposed
regulations published elsewhere in this issue of the Federal Register.
More Favorable Treatment of Individuals With Adverse Health Factors
Permitted
Many group health plans make certain periods of extended coverage
available to employees no longer performing services only if the
employee is unable to work due to disability, and many plans make
coverage available to dependent children past a certain age only if the
child is disabled. Some plans waive or reduce the required employee
contribution for coverage if the employee or a member of the employee's
immediate family is in a critical medical condition for a prolonged
period. Disability and medical condition are listed in the statute as
health factors, and several commenters recognized that, under one
possible interpretation of the HIPAA nondiscrimination requirements,
plan provisions or practices such as these would be impermissible.
These commenters asked for guidance clarifying that plan provisions and
practices like these would be permissible. Other commenters cited the
rule under the COBRA continuation provisions permitting plans to
require payment of a higher amount during the disability extension than
during other periods of COBRA coverage and asked whether following this
COBRA rule is permissible under the HIPAA nondiscrimination
requirements.
Eligibility. These interim regulations permit plans and issuers to
establish rules for eligibility favoring individuals based on an
adverse health factor, such as disability. Thus, a plan or issuer does
not violate the HIPAA nondiscrimination requirements by making extended
coverage available to employees no longer providing services only if
the employee is unable to work due to disability nor by making coverage
available to dependent children past a certain age only if the child is
disabled. Examples clarify this rule.
Premiums. These interim regulations also address the circumstances
under which differential premiums (or contributions) may be charged to
an individual based on an adverse health factor. These interim
regulations permit plans and issuers to charge a higher rate in some
situations and also a lower rate to individuals based on an adverse
health factor, such as disability. A higher rate may be charged only in
situations where the individual with the adverse health factor would
not have coverage were it not for the adverse health factor. Thus, in a
case where a plan or issuer makes extended coverage available to
employees no longer performing services only if the employee is unable
to work due to disability, the plan could require a higher payment from
the employee only while the employee is receiving coverage under that
special eligibility provision. However, the plan could not charge a
disabled employee a higher rate than nondisabled employees while the
disabled employee was still eligible under a generally-applicable
eligibility provision, rather than the special extended coverage
provision. Accordingly, under the interim regulations, a plan or issuer
could charge a higher rate for COBRA coverage during the disability
extension than for COBRA coverage outside the disability extension (and
the result is the same if the extended coverage for disability is
provided pursuant to State law or plan provision rather than pursuant
to a COBRA continuation provision).\10\
---------------------------------------------------------------------------
\10\ This result is consistent with the result under the COBRA
continuation provisions. Under those provisions, plans are generally
permitted to require payment of up to 102 percent of the applicable
premium but are permitted to require payment for coverage of a
disabled qualified beneficiary of up to 150 percent of the
applicable premium during the disability extension period.
---------------------------------------------------------------------------
Although charging a higher rate based on an adverse health factor
is limited to the situation in which coverage would not be available
but for the adverse health factor, under these interim regulations a
plan or issuer is always permitted to charge an individual a lower rate
based on an adverse health factor. Thus, even though an employee is
receiving coverage under the same eligibility provision as other
employees who are required to pay the full employee share of the
premium, under the interim regulations it is permissible to waive or
reduce the employee share of the premium if the employee or a family
member is in critical medical condition for a prolonged period.
No Effect on Other Laws
Compliance with these interim regulations is not determinative of
compliance with any other provision of ERISA, or any other State or
federal law, including the Americans with Disabilities Act. Therefore,
while these interim regulations generally do not impose any new
disclosure requirements on plans or issuers, other applicable law
continues to apply. For example, under Title I of ERISA, administrators
of ERISA-covered group health plans are required to provide
participants and beneficiaries with a summary plan description that is
sufficiently accurate and comprehensive to reasonably apprise such
participants and beneficiaries of their rights and obligations under
the plan.\11\ In addition, some courts have held that fiduciaries of
ERISA-covered group health plans are obligated to ensure that plan
documents and disclosures are consistent with applicable disclosure
requirements and do not serve to mislead or misinform participants and
beneficiaries concerning their rights and obligations under the plans
in which they participate.\12\ Fiduciaries are advised to take steps to
ensure that plan disclosures are accurate and are not misleading.
---------------------------------------------------------------------------
\11\ See ERISA section 102, and the Department of Labaor's
regulations issued thereunder.
\12\ See Varity Corp v. Howe, 516 U.S. 489, 506 (1996).
---------------------------------------------------------------------------
These interim regulations are also not determinative of compliance
with the COBRA continuation provisions, or any other State or federal
law, such as the Americans with Disabilities Act.
Applicability Date
These interim regulations generally apply for plan years beginning
on or after July 1, 2001 (although some provisions apply earlier, as
discussed below under the heading ``III. Format of Regulations''). As
noted above, in the preamble to the April 1997 interim rules the
Departments stated that they intended to issue further regulations on
the statutory nondiscrimination rules. That preamble also stated that
in no event would the Departments take any enforcement action against a
plan or issuer that had sought to comply in good faith with the
statutory nondiscrimination provisions before the additional guidance
was issued. The Departments will not take any enforcement action
against a plan or issuer with respect to efforts to comply in good
faith with the statutory nondiscrimination provisions before the first
plan year beginning on or after July 1, 2001. (See the description of
[[Page 1385]]
transitional rules immediately below regarding certain interpretations
that are not good faith interpretations of the statutory
nondiscrimination requirements.) Upon the applicability of these
regulations, however, good faith efforts to comply with the statutory
provisions addressed by these interim regulations may not be sufficient
to avoid adverse enforcement actions by the Departments. Therefore, for
plan years beginning on or after July 1, 2001, plans and issuers must
comply with the requirements of these regulations in order to avoid
adverse enforcement actions. As discussed earlier, under the heading
``Background,'' the period for good faith compliance continues with
respect to bona fide wellness programs until further guidance is
issued.
Transitional Rules for Individuals Previously Denied Coverage Based on
a Health Factor
The April 1997 interim rules clarified that a plan or issuer
violates the HIPAA nondiscrimination requirements if it requires an
individual to pass a physical examination as a condition for
enrollment, even if the condition is imposed only on late enrollees.
The HIPAA nondiscrimination requirements apply both to eligibility and
continued eligibility of any individual to enroll under a plan.
Consequently, once HIPAA became effective with respect to a plan or
health insurance issuer, it was a violation of the nondiscrimination
requirements to continue to deny an individual eligibility to enroll if
the reason the individual was denied enrollment previously was due to
one or more health factors (such as requiring the individual to pass a
physical examination).
On December 29, 1997, the Departments issued in the Federal
Register a clarification of the April 1997 interim rules relating to
individuals who were denied coverage due to a health factor before the
effective date of HIPAA (62 FR 67689). The clarification restates the
requirement of the April 1997 interim rules that an individual cannot
be denied coverage based on a health factor on or after the effective
date of HIPAA. The clarification then states that individuals to whom
coverage had not been made available before the effective date of HIPAA
based on a health factor and who enrolled when first eligible on or
after the effective date of the HIPAA nondiscrimination provisions
could not be treated as a late enrollee for purposes of the HIPAA
preexisting condition exclusion provisions. Under the clarification,
individuals to whom coverage had not been made available include any
individual who did not apply for coverage because it was reasonable to
believe that the application would have been futile. The rules in the
clarification apply whether or not the plan offered late enrollment.
Neither the April 1997 interim rules nor the December 1997 guidance
clearly addressed the situation where an individual was denied only
late enrollment based on a health factor prior to the effective date of
HIPAA and, by the effective date of HIPAA, the plan eliminated late
enrollment. For example, prior to HIPAA many plans and issuers allowed
individuals to enroll when first eligible without regard to health
status, but allowed late enrollees to enroll only if they could pass a
physical examination (or present evidence of good health). Upon the
effective date of HIPAA, some of these plans and issuers eliminated
late enrollment.
Any plan or issuer that permitted these individuals to enroll once
the HIPAA nondiscrimination provisions took effect, of course, is in
compliance with this provision of the nondiscrimination rules. In
contrast, a plan or issuer that continued to deny coverage to these
individuals may have done so based on a good faith interpretation of
the statute and the Departments' published guidance. For example, a
plan or issuer might reasonably have thought that HIPAA did not require
it to remedy pre-HIPAA denials of late enrollment based on a health
factor for individuals who could have enrolled initially without regard
to their health if the plan or issuer eliminated late enrollment by the
effective date of HIPAA.
The interim regulations provide transitional rules for situations
where coverage was denied to individuals based on one or more health
factors, both where the denial was based on a good faith interpretation
of the statute or the Departments' published guidance and where it was
not. In either event, a safe harbor provides that the Departments will
not take any enforcement action with respect to such a denial of
coverage if the plan or issuer complies with the transitional rules.
Where the denial was not based on a good faith interpretation, the
interim regulations provide that 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 March 9, 2001. If the
opportunity is presented within the first plan year beginning on or
after the effective date of the statutory HIPAA nondiscrimination
rules, the enrollment must be effective within that plan year. If this
enrollment opportunity is presented after such plan year, the
individual must be given an option to have coverage effective either
(1) prospectively from the date the plan receives a request for
enrollment in connection with the enrollment opportunity or (2)
retroactively to the first day of the first plan year beginning on
HIPAA's effective date for the plan (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).
The reason for giving the individual the opportunity to elect
retroactive coverage is to make the individual whole; that is, to put
the individual in the same financial condition that the individual
would have been in had the individual not been denied enrollment. Thus,
if the individual elects retroactive coverage, the plan or issuer may
require the individual to pay premiums or contributions for the
retroactive period (but the plan or issuer cannot charge interest on
that amount).
The rule differs for situations where coverage was denied to
individuals based on one or more health factors but where the denial
was based on a good faith interpretation of the statute or the
Departments' prior published guidance. In those situations, these
interim regulations require plans and issuers to give the individuals
an opportunity to enroll that continues for at least 30 days and with
coverage effective not later than July 1, 2001.
In both situations (whether the denial of coverage was or was not
based on a good faith interpretation), the interim regulations also
clarify that, once enrolled, these individuals cannot be treated as
late enrollees. The individual's enrollment date under the plan is the
effective date of HIPAA (or, if later, the date the individual would
have otherwise been eligible to enroll). In addition, any period
between an individual's enrollment date and the effective date of
coverage is treated as a waiting period. Thus, for example, with
respect to a calendar year plan that is not collectively bargained, an
individual who was previously denied late enrollment due to a health
factor before the effective date of HIPAA has an enrollment date of
January 1, 1998 (HIPAA's effective date for that plan) and a waiting
period that begins on that date. Moreover, because any waiting period
must begin on the individual's enrollment date, January 1, 1998, and
the maximum preexisting exclusion period that can be applied is 12
months,
[[Page 1386]]
individuals who enroll in the plan on July 1, 2001 cannot be subject to
any preexisting condition exclusion period.
Special Transitional Rule for Self-Funded Non-Federal Governmental
Plans Exempted Under 45 CFR 146.180
The sponsor of a self-funded non-Federal governmental plan may
elect under section 2721(b)(2) of the PHS Act and 45 CFR 146.180 to
exempt its group health plan from the nondiscrimination requirements of
section 2702 of the PHS Act and 45 CFR 146.121. If the plan sponsor
subsequently chooses to bring the plan into compliance with these
nondiscrimination requirements, the plan must provide notice to that
effect to individuals who were denied enrollment based on one or more
health factors, and afford those individuals an opportunity, that
continues for at least 30 days, to enroll in the plan. (An individual
is considered to have been denied coverage if he or she failed to apply
for coverage because, given an exemption election under 45 CFR 146.180,
it was reasonable to believe that an application for coverage would
have been denied based on a health factor.) The notice must specify the
effective date of compliance, and inform the individual regarding any
enrollment restrictions that may apply under the terms of the plan once
the plan comes into compliance. The plan may not treat the individual
as a late enrollee or a special enrollee. Coverage must be effective no
later than the date the exemption election under 45 CFR 146.180 (with
regard to these nondiscrimination requirements) no longer applies, or
July 1, 2001 (if later) and the plan was acting in accordance with a
good faith interpretation of the statutory HIPAA nondiscrimination
provisions and guidance published by the Health Care Financing
Administration.
III. Format of Regulations
Final and Temporary Treasury Regulations
The Department of the Treasury is issuing a portion of these
regulations as final regulations and a portion as temporary and cross-
referencing proposed regulations. The April 1997 interim rules were
originally issued by Treasury in the form of temporary and cross-
referencing proposed regulations. Under section 7805(e)(2) of the Code,
however, any temporary regulation issued under the Code expires within
three years after the date issued. Treasury is issuing final
regulations that restate the rules relating to the HIPAA
nondiscrimination requirements from the April 1997 regulations without
significant modification. The final regulations apply March 9, 2001.
Table 1 identifies which paragraphs of the final regulation issued
today correspond to which paragraphs of the April 1997 regulation. New
guidance being published today by Treasury is being issued as temporary
and cross-referencing proposed regulations. This guidance will apply to
group health plans beginning with the first plan year on or after July
1, 2001. (These new temporary regulations will also expire after three
years pursuant to section 7805(e) of the Code.)
Table 1.--Comparison of Treasury's April 1997 Regulations With
Treasury's Final Regulations
------------------------------------------------------------------------
Final regulation under Sec.
April 1997 regulations 9802
------------------------------------------------------------------------
Sec. 54.9802-1T(a)(1)................. Sec. 54.9802-1(a)(1),(2);
(b)(1)
Sec. 54.9802-1T(a)(2)(i).............. Sec. 54.9802-1(b)(2)(i)(A)
Sec. 54.9802-1T(a)(3)................. [The corresponding provision is
in the new temporary
regulations.]
Sec. 54.9802-1T(a)(4)................. Sec. 54.9802-1(b)(1)(iii)
Sec. 54.9802-1T(b)(1)................. Sec. 54.9802-1(c)(1)(i)
Sec. 54.9802-1T(b)(2)(i).............. Sec. 54.9802-1(c)(2)(i)
Sec. 54.9802-1T(b)(2)(ii)............. Sec. 54.9802-1(b)(2)(i);
(c)(3)
Sec. 54.9802-1T(b)(3)................. [The corresponding provision is
in the new proposed
regulations for wellness
programs.]
------------------------------------------------------------------------
Interim Final Labor and HHS Regulations
The guidance issued by the Departments of Labor (Labor) and Health
and Human Services (HHS) in April 1997 is not subject to a statutory
expiration date. Accordingly, the Labor and HHS guidance is being
published as interim final regulations. These regulations contain two
applicability dates that parallel the two separate applicability dates
in the Treasury guidance. Table 2 identifies which paragraphs of the
interim final regulation issued today are applicable on March 9, 2001
and which paragraphs apply on or after July 1, 2001.
Table 2.--Applicability Dates for the Interim Final Regulations
----------------------------------------------------------------------------------------------------------------
Applies plan
Paragraph of the interim final years beginning
Subject regulations Applies 3/9/01 on or after 7/1/
2001
----------------------------------------------------------------------------------------------------------------
Health factors............................... (a)(1)......................... ...............
Health factors--Evidence of insurability-- (a)(2)(i)...................... ...............
Conditions arising out of an act of domestic
violence.
Health factors--Evidence of insurability-- (a)(2)(ii)..................... ...............
Participation in certain activities.
Health factors--The decision whether health (a)(3)......................... ...............
coverage is elected.
Prohibited discrimination in rules for (b)(1)(i)...................... ...............
eligibility--General rule.
Prohibited discrimination in rules for (b)(1)(ii)..................... ...............
eligibility--Rules for eligibility described.
Prohibited discrimination in eligibility-- (b)(1)(iii) Example 1.......... ...............
General rule--Example 1.
Prohibited discrimination in eligibility-- (b)(1)(iii) Examples 2 through ...............
General rule--Examples 2 through 4. 4.
Prohibited discrimination in eligibility-- (b)(2)(i)(A)................... ...............
Application to benefits--No benefits
mandated.
[[Page 1387]]
Prohibited discrimination in eligibility-- (b)(2)(i)(B), (C), & (D)....... ...............
Application to benefits--Nondiscriminatory
benefit restrictions permitted.
Prohibited discrimination in eligibility-- (b)(2)(ii)..................... ...............
Application to benefits--Certain cost-
sharing mechanisms.
Prohibited discrimination in eligibility-- (b)(2)(iii).................... ...............
Application to benefits--Source-of-injury
exclusions.
Prohibited discrimination in eligibility-- (b)(3)......................... ...............
Application to benefits--Relationship to
HIPAA preexisting condition exclusion rules.
Prohibited discrimination in premiums or (c)(1)(i)...................... ...............
contributions--General rule.
Prohibited discrimination in premiums or (c)(1)(ii)..................... ...............
contributions--Determining an individual's
premium rate.
Prohibited discrimination in premiums or (c)(2)(i)...................... ...............
contributions--Group rating on health
factors not restricted.
Prohibited discrimination in premiums or (c)(2)(ii) & (iii)............. ...............
contributions--List billing based on a
health factor prohibited.
Prohibited discrimination in premiums or (c)(3)......................... ...............
contributions--Exception for bona fide
wellness programs.
Similarly situated individuals............... (d)............................ ...............
Nonconfinement and actively-at-work (e)............................ ...............
provisions.
---------------------------------
Bona fide wellness programs.................. (f) [Reserved.]................ See proposed regulations
published elsewhere in this
Federal Register.
---------------------------------
More favorable treatment of individuals with (g)............................ ...............
adverse health factors permitted.
No effect on other laws...................... (h)............................ ...............
----------------------------------------------------------------------------------------------------------------
IV. Interim Final Regulations With Request for Comments
The principal purpose of these interim final regulations is to
provide additional guidance on how to comply with the HIPAA
nondiscrimination provisions contained in section 9802 of the Code,
section 702 of ERISA, and section 2702 of the PHS Act. Code section
9833, ERISA section 734, and PHS Act section 2792 authorize the
Secretaries of the Treasury, Labor, and HHS to issue any interim final
rules as the Secretaries deem are appropriate to carry out certain
provisions of HIPAA, including the nondiscrimination provisions. As
explained below, the Secretaries have determined that these regulations
should be issued as interim final rules with requests for comments.
HIPAA was enacted in August of 1996. The Secretaries first issued
interim final rules providing guidance on HIPAA's nondiscrimination
provisions in April of 1997. In publishing this guidance, the
Secretaries relied on the authority granted in section 9833 of the
Code, section 734 of ERISA, and section 2792 of the PHS Act, as well as
other authority including section 101(g)(4) of HIPAA and section 505 of
ERISA. As part of the April 1997 rulemaking, the Secretaries requested
comments on whether additional guidance was needed concerning the
extent to which the statutory HIPAA nondiscrimination provisions
prohibit discrimination against individuals in eligibility for
particular benefits; the extent to which the statute may permit benefit
limitations based on the source of an injury; the permissible standards
for defining groups of similarly situated individuals; the application
of the prohibitions on discrimination between groups of similarly
situated individuals; and the permissible standards for determining
bona fide wellness programs. Numerous comments were received in
response to this request.
After evaluating all of the comments, and after speaking with
various interested parties in the course of an extensive educational
outreach campaign, the Departments have developed these comprehensive
regulations. Among other things, the comments reflected the need for
more comprehensive guidance on the application of the nondiscrimination
provisions. In the period since HIPAA was enacted and the April 1997
regulations were issued, numerous issues have arisen concerning how
plans and issuers should apply the nondiscrimination provisions. In
addition, the number of comments and the breadth of issues raised
demonstrates that these regulations should go into effect on an interim
basis pending receipt of further comments. This need to act on an
interim basis is also supported by the General Accounting Office's
request that the Departments ``promptly complete regulations related to
HIPAA's non-discrimination provisions'' (GAO/HEHS 00-85). Therefore,
the Departments have determined that it is appropriate to issue the
guidance on an interim final basis, with the exception of the bona fide
wellness program provisions.\13\ With respect to these last provisions,
the Departments would like to better develop the administrative record
before any provisions regarding such programs go into effect.
---------------------------------------------------------------------------
\13\ See proposed rules relating to bona fide wellness programs
published elsewhere in this issue of the Federal Register.
---------------------------------------------------------------------------
The Secretaries believe that this period of interim effectiveness
will provide ample opportunity for the regulated community to comment
specifically on this comprehensive guidance, providing a sound basis
for developing final rules. The Departments are seeking comments from
all those affected by these regulations, and the Departments will
consider such comments and will reevaluate these regulations following
the comment period in the same way that it would if the regulations had
been published in proposed form. Based on such comments and other
information obtained through the administration of the
nondiscrimination requirements, the Departments will make any necessary
modifications to the regulations when they are issued in final form.
[[Page 1388]]
V. Economic Impact and Paperwork Burden
Summary--Department of Labor and Department of Health and Human
Services
HIPAA's nondiscrimination provisions generally prohibit group
health plans and group health plan issuers from discriminating against
individuals in eligibility or premium on the basis of health status
factors. The Departments crafted this regulation to secure these
protections as intended by Congress in as economically efficient a
manner as possible, and believe that the economic benefits of the
regulation outweigh its costs.
The primary economic benefits associated with securing HIPAA's
nondiscrimination provisions derive from increased access to affordable
group health plan coverage for individuals with health problems.
Increased access benefits both newly covered individuals and society at
large. It fosters expanded insurance coverage, timelier and fuller
medical care, better health outcomes, and improved productivity and
quality of life. This is especially true for the individuals most
affected by HIPAA's nondiscrimination provisions--those with adverse
health conditions. Denied insurance, individuals in poorer health are
more likely to suffer economic hardship, to forgo badly needed care for
financial reasons, and to suffer adverse health outcomes as a result.
For them, gaining insurance is more likely to mean gaining economic
security, receiving timely, quality care, and living healthier, more
productive lives.
Additional economic benefits derive directly from the improved
clarity provided by the regulation. The regulation will reduce
uncertainty and costly disputes and promote confidence in health
benefits' value, thereby improving labor market efficiency and
fostering the establishment and continuation of group health plans.
The Departments estimate that the cost of plans to implement
amendments in order to comply with this regulation, revise materials
accordingly, and provide notices of opportunities to enroll as required
by the regulation will amount to less than $19 million. This is a one-
time cost distinguishable from the transfer that will result from the
self-implementing requirements of HIPAA's nondiscrimination provisions
and the discretion exercised by the Departments in this regulation.
Such a transfer occurs when resources are redistributed without any
direct change in aggregate social welfare. In this instance, the
premium and claims cost incurred by group health plans to provide
coverage under HIPAA's statutory nondiscrimination provisions to
individuals previously denied coverage or offered restricted coverage
based on health factors are offset by the commensurate or greater
benefits realized by the newly eligible participants on whose behalf
the premiums or claims are paid. Although the Departments are not aware
of any published estimates of transfers attributable to HIPAA's
statutory nondiscrimination provisions, a rough attempt to gauge the
order of magnitude of this transfer suggests that it may amount to more
than $400 million annually, which is a small fraction of 1 percent of
total expenditures by group plans. The regulation clarifies at the
margin exactly what practices are permitted or prohibited by these
provisions, and may have the effect of slightly increasing the amount
of this transfer.
Executive Order 12866--Department of Labor and Department of Health
and Human Services
Under Executive Order 12866, the Departments must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this action raises novel policy issues arising out of
legal mandates. In addition, the magnitude of the transfer that arises
from the implementation of HIPAA's statutory nondiscrimination
provisions is estimated to exceed $100 million. Therefore, this notice
is ``significant'' and subject to OMB review under Sections 3(f)(1) and
3(f)(4) of the Executive Order. Consistent with the Executive Order,
the Departments have assessed the costs and benefits of this regulatory
action. The Departments' assessment, and the analysis underlying that
assessment, is detailed below. The Departments performed a
comprehensive, unified analysis to estimate the costs and benefits
attributable to the interim regulation for purposes of compliance with
the Executive Order 12866, the Regulatory Flexibility Act, and the
Paperwork Reduction Act.
1. Statement of Need for Proposed Action
These interim regulations are needed to clarify and interpret the
HIPAA nondiscrimination provisions (prohibiting discrimination against
individual participants and beneficiaries based on health status) under
section 702 of the Employee Retirement Income Security Act of 1974
(ERISA), section 2702 of the Public Health Service Act, and section
9802 of the Internal Revenue Code of 1986. The provisions are needed to
ensure that group health plans and group health insurers and issuers do
not discriminate against individuals, participants, and beneficiaries
based on any health factors with respect to health care coverage and
premiums. Additional guidance was required to explain the application
of the statute to benefits, clarify the relationship between the HIPAA
nondiscrimination provisions and the HIPAA preexisting condition
exclusion limitations, explain the applications of these provisions to
premiums, describe similarly situated individuals, explain the
application of the provisions to actively-at-work and nonconfinement
clauses, clarify that more favorable treatment of individuals with
medical needs generally is permitted, and describe plans' and issuers'
obligations with respect to plan amendments.
2. Costs and Benefits
The primary economic benefits associated with the HIPAA
nondiscrimination provisions derive from increased access to affordable
group health plan coverage for individuals with health problems.
Expanding access benefits both newly covered individuals and society at
large by fostering expanded insurance coverage, timelier and fuller
medical care, better health outcomes, and improved productivity and
quality of life. Additional economic benefits derive directly from the
improved clarity provided by the regulation. By clarifying employees'
rights and plan sponsors' obligations under HIPAA's
[[Page 1389]]
nondiscrimination provisions, the regulation will reduce uncertainty
and costly disputes and promote confidence in health benefits' value,
thereby improving labor market efficiency and fostering the
establishment and continuation of group health plans.
The Departments estimate that the cost to plans to implement
amendments in order to comply with this regulation, revise materials
accordingly, and provide notices of opportunities to enroll as required
by the regulation will amount to less than $19 million. This is a one-
time cost distinguishable from the transfer that will result from the
self-implementing requirements of HIPAA's nondiscrimination provisions
and the discretion exercised by the Departments in this regulation.
Such a transfer occurs when resources are redistributed without any
direct change in aggregate social welfare. In this instance, the
premium and claims cost incurred by group health plans to provide
coverage under HIPAA's statutory nondiscrimination provisions to
individuals previously denied coverage or offered restricted coverage
based on health factors are offset by the commensurate or greater
benefits realized by the newly eligible participants on whose behalf
the premiums or claims are paid. Although the Departments are not aware
of any published estimates of transfers attributable to HIPAA's
statutory nondiscrimination provisions, a rough attempt to gauge the
order of magnitude of this transfer suggests that it may amount to more
than $400 million annually. The regulation clarifies at the margin
exactly what practices are permitted or prohibited by these provisions,
and may have the effect of slightly increasing the amount of this
transfer. The Departments note that this transfer is the direct
reflection of the intent and beneficial effect of HIPAA's
nondiscrimination provisions: increasing access to affordable group
health plan coverage for individuals with health problems. They also
note that even the full transfer to plans attributable to HIPAA's
statutory nondiscrimination provisions probably amounts to a small
fraction of 1 percent of total expenditures by these plans.
The Departments believe that the benefits of the regulation
outweigh its costs.
A fuller discussion of the Departments assessment of the costs and
benefits of this regulation is provided below.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and likely to have
a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a proposed rule will not have
a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present an
initial regulatory flexibility analysis at the time of the publication
of the notice of proposed rule making describing the impact of the rule
on small entities and seeking public comment on such impact. Small
entities include small businesses, organizations, and governmental
jurisdictions.
Because these rules are being issued as interim final rules and not
as a notice of proposed rule making, the RFA does not apply and the
Departments are not required to either certify that the rule will not
have a significant impact on a substantial number of small businesses
or conduct a regulatory flexibility analysis. The Departments
nonetheless crafted this regulation in careful consideration of its
effects on small entities, and have conducted an analysis of the likely
impact of the rules on small entities.
For purposes of this discussion, the Departments consider a small
entity to be an employee benefit plan with fewer than 100 participants.
The basis of this definition is found in section 104(a)(2) of ERISA,
which permits the Secretary of Labor to prescribe simplified annual
reports for pension plans which cover fewer than 100 participants. The
Departments believe that assessing the impact of this interim final
rule on small plans is an appropriate substitute for evaluating the
effect on small entities as that term is defined in the RFA.
Small plans in particular will benefit from the regulations'
provisions that affirm and clarify the flexibility available to plans
under HIPAA's nondiscrimination requirements. Consideration of small
plans' needs and circumstances played an important part in the
development of these provisions. These provisions are discussed in more
detail below.
The Departments estimate that plans with 100 or fewer participants
will incur costs of $4 million on aggregate to amend their provisions
to comply with the regulation and revise their materials accordingly.
These costs generally will fall directly to issuers who supply small
group insurance products and stop-loss insurers who provide services to
small self-insured plans, who will spread those costs across the much
larger number of small plans that buy them. These same small plans will
incur costs of $10 million to prepare and distribute notices of
enrollment opportunities as required by the regulation, the Departments
estimate. The total economic cost to small plans to comply with this
regulation is estimated to be $14 million. This is a one-time cost
distinguishable from the transfer that will result from the self-
implementing requirements of HIPAA's nondiscrimination provisions and
the discretion exercised by the Departments in this regulation.
Such a transfer occurs when resources are redistributed without any
direct change in aggregate social welfare. In this instance, the
premium and claims cost incurred by group health plans to provide
coverage under HIPAA's statutory nondiscrimination provisions to
individuals previously denied coverage or offered restricted coverage
based on health factors are offset by the commensurate or greater
benefits realized by the newly eligible participants on whose behalf
the premiums or claims are paid. The Departments note that transfers to
small plans attributable to HIPAA's statutory nondiscrimination
provisions may amount to approximately $110 million. The regulation
clarifies at the margin exactly what practices are permitted or
prohibited by these provisions, and may have the effect of slightly
increasing the amount of this transfer. The Departments note that this
transfer is the direct reflection of the intent and beneficial effect
of HIPAA's nondiscrimination provisions: increasing access to
affordable group health plan coverage for individuals with health
problems. They also note that even the full transfer to small plans
attributable to HIPAA's statutory nondiscrimination provisions amounts
to a small fraction of total expenditures by these plans.
Paperwork Reduction Act--Department of Labor and Department of the
Treasury
1. Department of Labor
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95), 44 U.S.C. 3506(c)(2)(A). This helps to ensure that requested data
can be provided in the desired format,
[[Page 1390]]
reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the impact of
collection requirements on respondents can be properly assessed.
Currently, the Pension and Welfare Benefits Administration (PWBA)
is soliciting comments concerning the proposed information collection
request (ICR) included in the Interim Final Rules for Nondiscrimination
in Health Coverage in the Group Market.
The Department has submitted this ICR using emergency review
procedures to the Office of Management and Budget (OMB) for its review
and clearance in accordance with PRA 95. OMB approval has been
requested by March 9, 2001. The Department and OMB are particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of the responses.
Comments on the collection of information should be sent to the
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington DC 20503;
Attention: Desk Officer for the Pension and Welfare Benefits
Administration. Although comments may be submitted through March 9,
2001, OMB requests that comments be received within February 7, 2001 of
the publication of the Interim Final Rule to ensure their consideration
in OMB's review of the request for emergency approval. All comments
will be shared among the Departments.
Requests for copies of the ICR may be addressed to: Gerald B.
Lindrew, Office of Policy and Research, U.S. Department of Labor,
Pension and Welfare Benefits Administration, 200 Constitution Avenue,
NW, Room N-5647, Washington, DC, 20210. Telephone: (202) 219-4782; Fax:
(202) 219-4745 (these are not toll-free numbers).
2. Department of the Treasury
The collection of information is in 26 CFR 54.9802-1T(i)(3)(ii) and
(iii). This information is required to be provided so that participants
who have been denied group health plan coverage based on a health
status factor may be made aware of the opportunity to enroll in the
plan. The likely respondents are business or other for-profit
institutions, non-profit institutions, small businesses or
organizations, and Taft-Hartley trusts. Responses to this collection of
information are mandatory for affected group health plans.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC, 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collection of information should be received by
February 7, 2001. In light of the request for OMB clearance by March 9,
2001, the early submission of comments is encouraged to ensure their
consideration. Comments are specifically requested concerning:
Whether the proposed collection of information is
necessary for the proper performance of the functions of the Internal
Revenue Service, including whether the information will have practical
utility;
How to enhance the quality, utility, and clarity of the
information to be collected;
How to minimize the burden of complying with the proposed
collection of information, including the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start up costs and costs of
operation, maintenance, and purchase of services to provide
information.
3. Description of Collection of Information
29 CFR 2590.702(i)(3)(ii) and (iii) and 26 CFR 54.9802-1T(i)(3)(ii)
and (iii) of these interim rules include information collection
requests. Paragraphs (i)(3)(ii) and (iii) describe the requirement that
individuals previously denied coverage under a group health plan be
provided with an opportunity to enroll in the plan, and a notice
concerning this opportunity. Pursuant to paragraph (i)(3)(ii), where
coverage denials were not based on a good faith interpretation of
section 702 of the ERISA and section 9802 of the Code, notices of the
opportunity for individuals previously denied coverage to enroll are
required to be provided within 60 days of publication of this interim
final rule. Where coverage was denied based on a good faith
interpretation of section 702 of ERISA and section 9802 of the Code,
the plan or issuer must provide notice of the opportunity to enroll
that continues for at least 30 days, with coverage effective no later
than July 1, 2001.
The method of estimating the hour and cost burdens of the
information collection request is described in the section of this
preamble appearing below entitled Costs and Benefits of the Regulation.
Generally, the Departments have conservatively estimated that all group
health plans that excluded individuals on the basis of health status
factors prior to HIPAA's enactment will provide a notice of the
opportunity to enroll to all participants. The total burden of
providing notices to participants of private employers is divided
equally between the Departments of Labor and Treasury.
Paragraph (h), No effect on other laws, is not considered to
include an information collection request because the provision makes
no substantive or material change to the Department of Labor's existing
information collection request for the Summary Plan Description and
Summary of Material Modifications currently approved under OMB control
number 1210-0039.
Type of Review: New.
Agency: Pension and Welfare Benefits Administration, Department of
Labor; U.S. Department of the Treasury, Internal Revenue Service.
Title: Notice of Opportunity To Enroll.
OMB Number: 1210-0NEW; 1545-0NEW.
Affected Public: Individuals or households; Business or other for-
profit institutions; Not-for-profit institutions.
Total Respondents: 120,000.
Frequency of Response: One time.
Total Responses: 2.0 million.
Estimated Burden Hours: 5,950 (Pension and Welfare Benefits
Administration); 5,950 (Internal Revenue Service).
Estimated Annual Costs (Operating and Maintenance): $5.1 million
[[Page 1391]]
(Pension and Welfare Benefits Administration); $5.1 million (Internal
Revenue Service).
Estimated Total Annual Costs: $5.1 million (Pension and Welfare
Benefits Administration); $5.1 million (Internal Revenue Service).
Comments submitted in response to the information collection
provisions of these Interim Final, final, and temporary rules will be
shared among the Departments and summarized and/or included in the
request for continuing OMB approval of the information collection
request; they will also become a matter of public record.
Paperwork Reduction Act--Department of Health and Human Services
Under the Paperwork Reduction Act of 1995 (PRA), agencies are
required to provide a 60-day notice in the Federal Register and solicit
public comment before a collection of information requirement is
submitted to the OMB for review and approval. In order to fairly
evaluate whether an information collection should be approved by OMB,
section 3506(c)(2)(A) of the PRA requires that we solicit comment on
the following issues:
Whether the information collection is necessary and useful
to carry out the proper functions of the agency;
The accuracy of the agency's estimate of the information
collection burden;
The quality, utility, and clarity of the information to be
collected; and
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are, however, requesting an emergency review of this interim
final rule with comment period. In compliance with section
3506(c)(2)(A) of the PRA, we are submitting to OMB the following
requirements for emergency review. We are requesting an emergency
review because the collection of this information is needed before the
expiration of the normal time limits under OMB's regulations at 5 CFR
Part 1320, to ensure compliance with section 2702 of the PHS Act. This
section generally prohibits group health plans and group health
insurance issuers from discriminating against individual participants
or beneficiaries based on any health factor of such participants or
beneficiaries. We cannot reasonably comply with normal clearance
procedures because public harm is likely to result if the agency cannot
enforce the requirements of this section 2702 of the PHS Act in order
to ensure that individual participants or beneficiaries are not subject
to unfair discrimination.
HCFA is requesting OMB review and approval of this collection 60
working days after the publication of this rule, with a 180-day
approval period. Written comments and recommendations will be accepted
from the public if received by the individuals designated below within
30 working days after the publication of this rule.
During this 180-day period, we will publish a separate Federal
Register notice announcing the initiation of an extensive 60-day agency
review and public comment period on these requirements. We will submit
the requirements for OMB review and an extension of this emergency
approval.
We are soliciting public comment on each of the issues for the
provisions summarized below that contain information collection
requirements:
Section 146.121 Prohibiting Discrimination Against Participants and
Beneficiaries Based on a Health Factor.
(h) No effect on other laws. Although this section generally does
not impose new disclosure obligations on plans and issuers, this
paragraph (h) states that this section does not affect any other laws,
including those that require accurate disclosures and prohibit
intentional misrepresentation. Therefore, plan documents (including,
for example, group health insurance policies and certificates of
insurance) must be amended if they do not accurately reflect the
requirements set forth in this section, by the applicability date of
this section.
The revisions to the plan documents are intended to eliminate
provisions that do not comply with the HIPAA nondiscrimination statute
and regulations. In particular, it is anticipated that changes will be
required to the majority of actively-at-work provisions and
nonconfinement clauses found in plan documents. The modifications are
to be made by the applicability date of the regulation and the
requirements do not impose any on-going burden. The revisions are
anticipated to take 100 hours for state governmental plans and 4,900
hours for local governmental plans. The changes are expected to involve
one hour of an attorney's time at a $72 hourly rate. The corresponding
plan amendment cost to be performed by service providers who are acting
on behalf of the plans, is $32,000 for State governmental plans and
$1,311,000 for local governmental plans.
(i) Special transitional rule for self-funded non-Federal
governmental plans exempted under 45 CFR 146.180. Paragraph (4)(i)
requires that if coverage has been denied to any individual because the
sponsor of a self-funded non-Federal governmental plan has elected
under Sec. 146.180 of this part to exempt the plan from the
requirements of this section, and the plan sponsor subsequently chooses
to bring the plan into compliance with the requirements of this
section, the plan must: notify the individual that the plan will be
coming into compliance with the requirements of this section; afford
the individual an opportunity that continues for at least 30 days,
specify the effective date of compliance; and inform the individual
regarding any enrollment restrictions that may apply under the terms of
the plan once the plan is in compliance with this section (as a matter
of administrative convenience; the notice may be disseminated to all
employees).
The regulation clarifies that self-funded non-Federal governmental
plans are required to give individuals who were previously
discriminated against an opportunity to enroll, including notice of an
opportunity to enroll. The development of the number of plans that are
required to notify individuals were conservatively arrived at by
assuming that all plans which have excluded individuals must notify all
individuals who are eligible to participate in the plan. Development of
the transitional notices are estimated to take 0 hours for State
governmental plans and 200 hours for local governmental plans. The
corresponding burden for work performed by service providers is
anticipated to be $1,000 for State governmental plans and $535,000 for
local governmental plans. The Department estimates that the burden to
distribute transitional notices will require State governmental plans
800 hours and 1,400 hours for local governmental plans. The
corresponding distribution burden performed by service providers is
$72,000 for State governmental plans and $158,000 for local
governmental plans.
The above costs will be reduced to the extent that State and local
governmental plans have elected to opt out of the HIPAA requirements.
As of the date of publishing, approximately 600 plans have opted out of
the HIPAA statutory and regulatory requirements.
We have submitted a copy of this rule to OMB for its review of the
information collection requirements. These requirements are not
effective until they have been approved by OMB. A notice will be
published in the Federal Register when approval is obtained.
If you comment on any of these information collection and record
[[Page 1392]]
keeping requirements, please mail copies directly to the following:
Health Care Financing Administration, Office of Information Services,
Information Technology Investment Management Group, Division of HCFA
Enterprise Standards, Room C2-26-17, 7500 Security Boulevard,
Baltimore, MD 21244-1850, Attn: John Burke HCFA-2022,
and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn.: Allison Herron Eydt, HCFA-2022.
Small Business Regulatory Enforcement Fairness Act
This interim final rule is subject to the provisions of the Small
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et
seq.) and is being transmitted to Congress and the Comptroller General
for review. The interim final rule, is a ``major rule,'' as that term
is defined in 5 U.S.C. 804, because it is likely to result in an annual
effect on the economy of $100 million or more. As such, this interim
final rule is being transmitted to Congress and the Comptroller General
for review.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this interim final rule does
not include any Federal mandate that may result in expenditures by
State, local, or tribal governments, nor does it include mandates which
may impose an annual burden of $100 million or more on the private
sector.
Federalism Statement--Department of Labor and Department of Health
and Human Services
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism, and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and States, or
on the distribution of power and responsibilities among the various
levels of government. Agencies promulgating regulations that have these
federalism implications must consult with State and local officials,
and describe the extent of their consultation and the nature of the
concerns of State and local officials in the preamble to the
regulation.
In the Departments' view, these interim final regulations do not
have federalism implications, because they do not have substantial
direct effects on the States, the relationship between the national
government and States, or on the distribution of power and
responsibilities among various levels of government. This is largely
because, with respect to health insurance issuers, the vast majority of
States have enacted laws which meet or exceed the federal standards in
HIPAA prohibiting discrimination based on health factors. Therefore,
the regulations are not likely to require substantial additional
oversight of States by the Department of Health and Human Services.
In general, through section 514, ERISA supersedes State laws to the
extent that they relate to any covered employee benefit plan, and
preserves State laws that regulate insurance, banking, or securities.
While ERISA prohibits States from regulating a plan as an insurance or
investment company or bank, HIPAA added a new preemption provision to
ERISA (as well as to the PHS Act) preserving the applicability of State
laws establishing requirements for issuers of group health insurance
coverage, except to the extent that these requirements prevent the
application of the portability, access, and renewability requirements
of HIPAA. The nondiscrimination provisions that are the subject of this
rulemaking are included among those requirements.
In enacting these new preemption provisions, Congress indicated its
intent to establish a preemption of State insurance requirements only
to the extent that those requirements prevent the application of the
basic protections set forth in HIPAA. HIPAA's Conference Report states
that the conferees intended the narrowest preemption of State laws with
regard to health insurance issuers. H.R. Conf. Rep. No. 736, 104th
Cong. 2d Session 205 (1996). Consequently, under the statute and the
Conference Report, State insurance laws that are more stringent than
the federal requirements are unlikely to ``prevent the application of''
the HIPAA nondiscrimination provisions.
Accordingly, States are given significant latitude to impose
requirements on health insurance issuers that are more restrictive than
the federal law. In many cases, the federal law imposes minimum
requirements which States are free to exceed. Guidance conveying this
interpretation was published in the Federal Register on April 8, 1997
and these regulations do not reduce the discretion given to the States
by the statute. It is the Departments' understanding that the vast
majority of States have in fact implemented provisions which meet or
exceed the minimum requirements of the HIPAA non-discrimination
provisions.
HIPAA provides that the States may enforce the provisions of HIPAA
as they pertain to issuers, but that the Secretary of Health and Human
Services must enforce any provisions that a State fails to
substantially enforce. When exercising its responsibility to enforce
the provisions of HIPAA, HCFA works cooperatively with the States for
the purpose of addressing State concerns and avoiding conflicts with
the exercise of State authority.\14\ HCFA has developed procedures to
implement its enforcement responsibilities, and to afford the States
the maximum opportunity to enforce HIPAA's requirements in the first
instance. HCFA's procedures address the handling of reports that States
may not be enforcing HIPAA's requirements, and the mechanism for
allocating enforcement responsibility between the States and HCFA. To
date, HCFA has had occasion to enforce the HIPAA non-discrimination
provisions in only two States.
---------------------------------------------------------------------------
\14\ This authority applies to insurance issued with respect to
group health plans generally, including plans covering employees of
church organizations. Thus, this discussion of federalism applies to
all group health insurance coverage that is subject to the PHS Act,
including those church plans that provide coverage through a health
insurance issuer (but not to church plans that do not provide
coverage through a health insurance issuer). For additional
information relating to the application of these nondiscrimination
rules to church plans, see the preamble to regulations being
proposed elsewhere in this issue of the Federal Register regarding
section 9802(c) of the Code relating to church plans.
---------------------------------------------------------------------------
Although the Departments conclude that these interim final rules do
not have federalism implications, in keeping with the spirit of the
Executive Order that agencies closely examine any policies that may
have federalism implications or limit the policy making discretion of
the States, the Department of Labor and HCFA have engaged in numerous
efforts to consult with and work cooperatively with affected State and
local officials.
For example, the Departments were aware that some States commented
on the way the federal provisions should be interpreted. Therefore, the
Departments have sought and received input from State insurance
regulators and the National Association of Insurance Commissioners
(NAIC). The NAIC is a non-profit corporation established by the
insurance commissioners of the 50 States, the District of Columbia, and
the four U.S. territories, that among other
[[Page 1393]]
things provides a forum for the development of uniform policy when
uniformity is appropriate. Its members meet, discuss, and offer
solutions to mutual problems. The NAIC sponsors quarterly meetings to
provide a forum for the exchange of ideas, and in-depth consideration
of insurance issues by regulators, industry representatives, and
consumers. HCFA and Department of Labor staff have attended the
quarterly meetings consistently to listen to the concerns of the State
Insurance Departments regarding HIPAA issues, including the
nondiscrimination provisions. In addition to the general discussions,
committee meetings and task groups, the NAIC sponsors the following two
standing HIPAA meetings for members during the quarterly conferences:
HCFA/DOL Meeting on HIPAA Issues (This meeting provides
HCFA and Labor the opportunity to provide updates on regulations,
bulletins, enforcement actions and outreach efforts regarding HIPAA.)
The NAIC/HCFA Liaison Meeting (This meeting provides HCFA
and the NAIC the opportunity to discuss HIPAA and other health care
programs.)
In addition, in developing these interim final regulations, the
Departments consulted with the NAIC and requested their assistance to
obtain information from the State Insurance Departments. Specifically,
we sought and received their input on certain insurance rating
practices and late enrollment issues.
The Departments employed the States' insights on insurance rating
practices in developing the provisions prohibiting ``list-billing,''
and their experience with late enrollment in crafting the regulatory
provision clarifying the relationship between the nondiscrimination
provisions and late enrollment. Specifically, the regulations clarify
that while late enrollment, if offered by a plan, must be available to
all similarly situated individuals regardless of any health factor, an
individual's status as a late enrollee is not itself within the scope
of any health factor.
The Departments also cooperate with the States in several ongoing
outreach initiatives, through which information on HIPAA is shared
among federal regulators, State regulators, and the regulated
community. In particular, the Department of Labor has established a
Health Benefits Education Campaign with more than 70 partners,
including HCFA, NAIC and many business and consumer groups. HCFA has
sponsored four conferences with the States--the Consumer Outreach and
Advocacy conferences in March 1999 and June 2000, the Implementation
and Enforcement of HIPAA National State-Federal Conferences in August
1999 and 2000. Furthermore, both the Department of Labor and HCFA
websites offer links to important State websites and other resources,
facilitating coordination between the State and federal regulators and
the regulated community.
In conclusion, throughout the process of developing these
regulations, to the extent feasible within the specific preemption
provisions of HIPAA, the Departments have attempted to balance the
States' interests in regulating health insurance issuers, and
Congress's intent to provide uniform minimum protections to consumers
in every State.
Unified Analysis of Costs and Benefits
1. Introduction
HIPAA's nondiscrimination provisions generally prohibit group
health plans and group health plan issuers from discriminating against
individuals on the basis of health status factors. The primary effect
and intent of the provision is to increase access to affordable group
health coverage for individuals with health problems. This effect, and
the economic costs, benefits, and transfers attendant to it, generally
flow directly from the HIPAA's statutory provisions, which are largely
self-implementing. However, the statute alone leaves room for varying
interpretations of exactly which practices are prohibited or permitted
at the margin. This regulation draws on the Departments' authority to
clarify and interpret HIPAA's statutory nondiscrimination provisions in
order to secure the protections intended by Congress for plan
participants and beneficiaries. The Departments crafted it to satisfy
this mandate in as economically efficient a manner as possible, and
believe that the economic benefits of the regulation outweigh its
costs. The analysis underlying this conclusion takes into account both
the effect of the statute and the impact of the discretion exercised in
the regulation.
The nondiscrimination provisions of the HIPAA statute and of this
regulation generally apply to both group health plans and to issuers of
group health plan policies. Economic theory predicts that issuers will
pass their costs of compliance back to plans, and that plans may pass
some or all of issuers' and their own costs of compliance to
participants. This analysis is carried out in light of this prediction.
2. Costs and Benefits of HIPAA's Statutory Nondiscrimination Provisions
As noted above, HIPAA's statutory nondiscrimination provisions are
largely self-implementing even in the absence of interpretive guidance.
It is the Departments' policy where practicable to evaluate such
impacts separately from the impact of discretion exercised in
regulation. The Departments provide qualitative assessments of the
nature of the costs, benefits, and transfers that are expected to
derive from statutory provisions, and provide summaries of any
credible, empirical estimates of these effects that are available.
To the Departments' knowledge, there is no publicly available work
that quantifies the magnitude or presents the nature of these benefits,
costs, and transfers. In its initial scoring of the statute, the
Congressional Budget Office did not separately quantify the costs of
the nondiscrimination provisions. Therefore, this analysis considers
the nature of anticipated costs, benefits, and transfers, and offers a
basis for estimating separately the impacts of the statute and
regulatory discretion, but does not present a detailed description of
any other quantitative analysis of the statute's impact.
HIPAA's statutory nondiscrimination provisions entail new economic
costs and benefits, as well as transfers of health care costs among
plan sponsors and participants.
The primary statutory economic benefits associated with the HIPAA
nondiscrimination provisions derive from increased access to affordable
group health plan coverage for individuals with certain health status-
related factors. Expanding access benefits both newly covered
individuals and society at large. Individuals without health insurance
are less likely to get preventive care and less likely to have a
regular source of care.\15\ A lack of health insurance generally
increases the likelihood that needed medical treatment will be forgone
or delayed. Forgoing or delaying care increases the risk of adverse
health outcomes. These adverse outcomes in turn spawn higher medical
costs which are often shifted to public funding sources (and therefore
to taxpayers) or to other payers. They also erode productivity and the
quality of life. Improved access to affordable group health coverage
for individuals with health problems under HIPAA's
[[Page 1394]]
nondiscrimination provisions will lead to more insurance coverage,
timelier and fuller medical care, better health outcomes, and improved
productivity and quality of life. This is especially true for the
individuals most affected by HIPAA's nondiscrimination provisions--
those with adverse health conditions. Denied insurance, individuals in
poorer health are more likely to suffer economic hardship, to forgo
badly needed care for financial reasons, and to suffer adv |
