Application of HIPAA Group Market Portability Rules to Health Flexible
Spending Arrangements; Final Rule Application of HIPAA Group Market Rules to
Individuals Who Were Denied Coverage Due to a Health Status-Related Factor;
Final Rule [12/29/1997]
Volume 62, Number 248, Page 67687-67689
[[Page 67687]]
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Part II
Department of the Treasury
Internal Revenue Service
26 CFR Part 54
Department of Labor
Pension Welfare Benefits Administration
29 CFR Part 2590
Department of Health and Human Services
Health Care Financing Administration
45 CFR Subtitle A, Parts 144 and 146
_______________________________________________________________________
Application of HIPAA Group Market Portability Rules to Health Flexible
Spending Arrangements; Final Rule
Application of HIPAA Group Market Rules to Individuals Who Were Denied
Coverage Due to a Health Status-Related Factor; Final Rule
[[Page 67688]]
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 Subtitle A, Parts 144 and 146
Application of HIPAA Group Market Portability Rules to Health
Flexible Spending Arrangements
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: Clarification of regulations.
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SUMMARY: This document clarifies that it is appropriate to treat
benefits under certain health flexible spending arrangements as
excepted benefits for purposes of the group market portability
provisions added by the Health Insurance Portability and Accountability
Act of 1996 (HIPAA).
FOR FURTHER INFORMATION CONTACT: Russ Weinheimer, Internal Revenue
Service, Department of the Treasury, at (202) 622-4695; Amy Scheingold,
Pension and Welfare Benefits Administration, Department of Labor, at
(202) 219-4377; or Joan Kral, Health Care Financing Administration,
Department of Health and Human Services, at (410) 786-9539.
Customer service information. Individuals interested in obtaining a
copy of the Department of Labor's booklet entitled ``Questions and
Answers: Recent Changes in Health Care Law,'' may call the following
toll-free number: 1-800-998-7542. This information is also available on
the Department's website at: http://www.dol.gov/dol/pwba
SUPPLEMENTARY INFORMATION:
I. Purpose
This document addresses the application of certain portability
provisions added by the Health Insurance Portability and Accountability
Act of 1996, Pub. L. 104-191 (HIPAA), to flexible spending arrangements
(FSAs). The Departments of the Treasury, Labor, and Health and Human
Services (the Departments) have concluded that it is appropriate to
treat benefits under certain health FSAs as excepted benefits under
sections 9831 and 9832(c) of the Internal Revenue Code of 1986 (Code),
sections 732 and 733(c) of the Employee Retirement Income Security Act
of 1974 (ERISA), and sections 2721 and 2791(c) of the Public Health
Service Act (PHS Act).
II. Background
HIPAA Group Market Portability Provisions
HIPAA provides measures to improve portability and continuity with
respect to group health plan coverage provided in connection with
employment. These provisions include limitations on preexisting
condition exclusions, rules prohibiting discrimination on the basis of
any health status-related factor, and rules requiring special
enrollment. These provisions are generally effective for group health
plans and group health insurance coverage for plan years beginning on
or after July 1, 1997. The Departments of the Treasury, Labor, and
Health and Human Services (the Departments) issued regulations
implementing these group market provisions at 26 CFR 54.9801-1T through
54.9801-6T, 54.9802-1T, 54.9831-1T (formerly 54.9804-1T), 54.9833-1T
(formerly 54.9806-1T); 29 CFR part 2590; and 45 CFR parts 144 and 146
(made available to the public on April 1, 1997 and published in the
Federal Register on April 8, 1997, 62 FR 16893).
The HIPAA portability provisions in section 9801 of the Internal
Revenue Code of 1986 (Code), section 701 of the Employee Retirement
Income Security Act of 1974 (ERISA), and section 2701 of the Public
Health Service Act (PHS Act), and the implementing regulations impose
limits on the maximum preexisting condition exclusion period that may
be imposed by a group health plan or a group health insurance issuer.
In general, neither a group health plan nor a group health insurance
issuer may impose more than a 12-month preexisting condition exclusion
for individuals enrolling in the plan or coverage, although a plan or
issuer can impose an 18-month preexisting condition exclusion for late
enrollees. In either case, the exclusion period must be reduced by the
amount of an individual's prior ``creditable coverage.'' Plans and
issuers subject to the HIPAA requirements generally must also issue
certificates of creditable coverage for an individual to use as proof
of creditable coverage for subsequent coverage.
In general, these group market portability provisions apply to
group health plans (generally plans sponsored by employers or employee
organizations, or both) and health insurance issuers providing coverage
under a group health plan, effective for plan years beginning after
June 30, 1997, except that the obligation to provide certain
information relating to creditable coverage became effective as early
as June 1, 1997. However, the group market portability provisions do
not apply to certain excepted benefits. For example, the group market
portability provisions do not apply to certain types of supplemental
coverage provided under a separate policy, certificate, or contract of
insurance. In general, if benefits under a plan or coverage are
excepted benefits, then plans and issuers do not have to provide
certificates for the coverage, and the coverage may not qualify as
creditable coverage.
Health Flexible Spending Arrangements
Under proposed Treasury Regulations, a health FSA generally is a
benefit program that provides employees with coverage under which
specified, incurred expenses may be reimbursed (subject to
reimbursement maximums and any other reasonable conditions) and under
which the maximum amount of reimbursement that is reasonably available
to a participant for a period of coverage is not substantially in
excess of the total premium (including both employee-paid and employer-
paid portions of the premium) for the participant's coverage. Coverage
and reimbursements provided to an individual under a group health plan
that is a health FSA and that conforms to the generally applicable
rules for accident or health plans qualify for the same tax-favored
treatment that generally is extended to coverage and reimbursements
under employer-provided accident or health plans.<SUP>1</SUP> Health
FSA reimbursements typically provide coverage for medical care expenses
not otherwise covered by the employer's primary group health plan.
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\1\ See Q&A-7, prop. Treas. Reg., proposed 26 CFR 1.125-2 (54 FR
9460, 9502, March 7, 1989).
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A health FSA is permitted to operate under a cafeteria plan
described in section 125 of the Code. Pursuant to the rules of section
125, an employee can elect to reduce the employee's salary in order to
pay for health FSA coverage without the employee having to include that
portion of the salary in gross income. Commonly, the maximum benefit
payable under a health FSA for any year is equal to the amount of the
[[Page 67689]]
employee's salary reduction election for the year, plus any additional
employer contribution for the year.
III. Clarification
This document clarifies the conditions under which it is
appropriate to treat benefits under a health FSA as excepted benefits.
Specifically, benefits under a health FSA are excepted benefits if the
maximum benefit payable for the employee under the health FSA for the
year does not exceed two times the employee's salary reduction election
under the health FSA for the year (or, if greater, the amount of the
employee's salary reduction election under the health FSA for the year,
plus $500), the employee has other coverage available under a group
health plan of the employer for the year, and the other coverage is not
limited to benefits that are excepted benefits.
The effect of treating benefits under a health FSA as excepted
benefits is that the health FSA is not subject to the group market
portability provisions. Accordingly, there would be no requirement
under section 9801 of the Code, section 701 of ERISA, or section 2701
of the PHS Act and the implementing regulations to issue a certificate
of creditable coverage for such a health FSA. In addition, coverage
that consists solely of coverage under such a health FSA does not
constitute creditable coverage.
Group health plans, issuers, and other entities subject to the
group market portability provisions of HIPAA may rely on this document
in treating benefits under health FSAs described in the first paragraph
of this section III as excepted benefits.
Dated: December 18, 1997.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
Signed at Washington, DC, this 19th day of December, 1997.
Olena Berg,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
Dated: December 18, 1997.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
[FR Doc. 97-33602 Filed 12-24-97; 8:45 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P
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