Health Insurance Portability for Group Health Plans; Interim Rules and
Proposed Rule [04/08/1997]
Volume 62, Number 67, Page 16893-16976[DOCID:fr08ap97_dat-18]
[[Page 16893]]
_______________________________________________________________________
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 Subtitle A, Parts 144 and 146
45 CFR Part 148
_______________________________________________________________________
Health Insurance Portability for Group Health Plans; Interim Rules and
Proposed Rule
[[Page 16894]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[T.D. 8716]
RIN 1545-AV05
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2590
RIN 1210-AA54
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
45 CFR Subtitle A, Parts 144 and 146
RIN 0938-AI08
Interim Rules for Health Insurance Portability for Group Health
Plans
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 rules with request for comments.
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SUMMARY: This document contains interim rules governing access,
portability and renewability requirements 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 certain provisions of 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).
Interested persons are invited to submit comments on the interim rules
for consideration by the Department of Health and Human Services, the
Department of Labor, and the Department of the Treasury (Departments)
in developing final rules. The rules contained in this document are
being adopted in an interim basis to accommodate statutorily
established time frames intended to ensure that sponsors and
administrators of group health plans, participants and beneficiaries,
States, and issuers of group health insurance coverage have timely
guidance concerning compliance with the recently enacted requirements
of HIPAA.
DATES: Effective date: These interim rules are effective on June 7,
1997.
Comment dates: Written comments on these interim rules are invited
and must be received by the Departments on or before July 7, 1997.
Applicability dates: For group health plans maintained pursuant to
one or more collective bargaining agreements ratified before August 21,
1996, the rules (other than the certification requirements) do not
apply to plan years beginning before the later of July 1, 1997 or the
date on which the last collective bargaining agreement relating to the
plan terminates without regard to any extension agreed to after August
21, 1996.
The rules implementing the certification provisions do not require
any action to be taken before June 1, 1997, although certain
certification requirements apply to periods of coverage and events that
occur after June 30, 1996. The certification requirement for events
that occurred on or after October 1, 1996 and before June 1, 1997 may
be satisfied using an optional notice described in this preamble.
Information collection: Affected parties do not have to comply with
the information collection requirements in these interim rules until
the Departments publish in the Federal Register the control numbers
assigned by the Office of Management and Budget (OMB) to these
information collection requirements. Publication of the control numbers
notifies the public that OMB has approved these information collection
requirements under the Paperwork Reduction Act of 1995. The Departments
have asked for OMB clearance as soon as possible, and OMB approval is
anticipated by the applicable effective date.
ADDRESSES: Written comments should be submitted with a signed original
and three copies to any of the addresses specified below. All comments
will be available for public inspection and copying in their entirety.
Interested persons are invited to submit written comments on these
interim rules to:
Health Care Financing Administration, Department of Health and Human
Services, Attention: [BPD-890-IFC], P.O. Box 26688, Baltimore, Maryland
21207
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5669, 200 Constitution Avenue, NW., Washington, DC 20210.
Attention: Interim Portability and Renewability Rules
CC:DOM:CORP:T:R (REG-253578-96), Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044
Alternatively, comments may be submitted electronically via the
Internet by selecting the ``Tax Regs'' option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/tax__regs/comments.html
In the alternative:
Written comments for the Department of Health and Human Services
may be hand delivered from 8:30 a.m. to 5:00 p.m. to:
Room 309-G, Hubert Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850
Written comments for the Department of Labor may be hand delivered
from 8:15 a.m. to 4:45 p.m. to the above address for the Pension and
Welfare Benefits Administration, U.S. Department of Labor.
Written comments for the Internal Revenue Service may be hand
delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:T:R(REG-253578-96), Courier's Desk, Internal Revenue
Service, room 5228, 1111 Constitution Avenue, NW., Washington, DC.
All submissions to the Department of Health and Human Services will
be open to public inspection as they are received, generally beginning
three weeks after publication, in room 309-G of the Department of
Health and Human Services offices at 200 Independence Avenue, SW.,
Washington, DC, from 8:30 a.m. to 5:00 p.m. All submissions to the
Department of Labor will be open to public inspection at the Public
Documents Room, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5638, 200 Constitution Avenue NW.,
Washington, DC, from 8:30 a.m. to 5:30 p.m. All submissions to the
Internal Revenue Service will be open to public inspection and copying
in room 1621, 1111 Constitution Avenue, NW., Washington, DC, from 9:00
a.m. to 4:00 p.m.
FOR FURTHER INFORMATION CONTACT: Julie Walton, Health Care Financing
Administration, at 410-786-1565; Mark Connor, Office of Regulations and
Interpretations, Pension and Welfare Benefits Administration,
Department of Labor, at 202-219-4377; Diane Pedulla, Plan Benefits
Security Division, Office of the Solicitor, Department of Labor, at
202-219-4377; or Russ Weinheimer, Internal Revenue Service, at 202-622-
[[Page 16895]]
4695. These are not toll-free numbers.
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 obtain a copy by
calling the following toll-free number 1-800-998-7542.
SUPPLEMENTARY INFORMATION:
A. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Pub. L. 104-191, was enacted on August 21, 1996. HIPAA amended
the Public Health Service Act (PHS Act), the Employee Retirement Income
Security Act of 1974 (ERISA), and the Internal Revenue Code of 1986
(Code) to provide for, among other things, improved portability and
continuity of health insurance coverage in the group and individual
insurance markets, and group health plan coverage provided in
connection with employment. Sections 102(c)(4), 101(g)(4), and
401(c)(4) of HIPAA require the Secretaries of Health and Human
Services, Labor, and the Treasury, each to issue regulations necessary
to carry out these provisions.\1\
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\1\ In addition to the group market regulations in this
document, the Department of the Treasury is issuing a proposed
Treasury regulation that cross-references these regulations and the
Department of Labor is issuing an interim regulation relating to
certain disclosure requirements under HIPAA. Each of these
regulations appears separately in this issue of the Federal
Register.
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B. Overview of HIPAA and the Interim Rules
Area of Guidance. The access, portability, and renewability
provisions of HIPAA affect group health plans and health insurance
issuers. Group health plans are generally plans sponsored by employers
or employee organizations or both. These HIPAA provisions are designed
to improve the availability and portability of health coverage by:
<bullet> Limiting exclusions for preexisting medical conditions;
<bullet> Providing credit for prior health coverage and a process
for transmitting certificates and other information concerning prior
coverage to a new group health plan or issuer;
<bullet> Providing new rights that allow individuals to enroll for
health coverage when they lose other health coverage or have a new
dependent;
<bullet> Prohibiting discrimination in enrollment and premiums
against employees and their dependents based on health status;
<bullet> Guaranteeing availability of health insurance coverage for
small employers and renewability of health insurance coverage in both
the small and large group markets; and
<bullet> Preserving, through narrow preemption provisions, the
States' traditional role in regulating health insurance, including
State flexibility to provide greater protections.
The regulations provide guidance with respect to these provisions.
In implementing these new rules, the regulations provide protections
for individuals seeking health coverage while minimizing burdens on
employers and insurers.
Reducing Burdens. The regulations reduce burdens by:
<bullet> Providing for a simple model certificate that can be used
by plans and issuers;
<bullet> Reducing unnecessary duplication in the issuance of
certificates;
<bullet> Including flexible rules for dependents to receive the
coverage information they need;
<bullet> Allowing coverage information to be provided by telephone
if all parties agree;
<bullet> Relieving plans and issuers of the need to report the
starting date of coverage and waiting period information where a
certificate shows 18 months of credible coverage;
<bullet> Including a transition rule permitting plans and issuers
to give individuals a notice in lieu of a certificate where coverage
ended before June 1, 1997; and
<bullet> Providing for a model notice that may be used to satisfy
the transition rule and a model notice for information relating to
categories of benefits provided under a plan.
Implementing Individual Protections. The regulations protect and
assist participants and their dependents by:
<bullet> Ensuring that individuals are notified of the length of
time that a preexisting condition exclusion clause in any new health
plan may apply to them after taking into account their prior creditable
coverage;
<bullet> Ensuring that individuals are notified of their rights to
special enrollment under a plan;
<bullet> Permitting individuals to obtain a certificate before
coverage under a plan ceases; and
<bullet> Creating practical ways for individuals to demonstrate
creditable coverage to a new plan (where the individual's prior plan
fails to provide the certificate).
C. Overview of Coordination of Group Market Regulation Among
Departments
The HIPAA portability provisions relating to group health plans and
health insurance coverage offered in connection with group health plans
(referred to below as the ``group market'' provisions) are set forth
under a new Part A of Title XXVII of the PHS Act, a new Part 7 of
Subtitle B of Title I of ERISA, and a new Subtitle K of the Internal
Revenue Code. HIPAA also added provisions governing insurance in the
individual market that are contained only in the PHS Act, and thus are
not within the regulatory jurisdiction of the Department of Labor or
the Department of the Treasury. (These portability provisions are
referred to below as the ``individual market'' provisions.)
In general, the group market provisions create concurrent
jurisdiction for the Secretaries of Health and Human Services, Labor,
and the Treasury. The provisions include similar rules relating to
preexisting conditions exclusions, special enrollment rights, and
prohibition of discrimination against individuals based on health
status-related factors. (These group market provisions are referred to
below as the ``shared group market'' provisions.) Accordingly, the
three Departments share regulatory responsibility for most, but not
all, of the group market provisions.
The shared group market provisions are substantially similar,
except as follows:
<bullet> The shared group market provisions in the PHS Act apply
generally to insurance issuers that offer health insurance in
connection with group health plans (subject to an exception that may
apply for plans with fewer than two participants who are current
employees (``very small plans'')), and certain State and local
government plans. Only the PHS Act contains group market provisions
relating to availability and renewability of health insurance.\2\ In
addition, the PHS Act imposes certification requirements on certain
federal entities not otherwise subject to the HIPAA portability
provisions. Further, the States, in the first instance, will enforce
the PHS Act with respect to issuers. In addition, individuals may be
able to pursue claims through State mechanisms. Only if a State does
not substantially enforce any provisions under its insurance laws, will
the Department of Health and Human Services enforce the provisions,
through the imposition of civil money penalties. (The group market
provisions relating to guaranteed renewability for multiemployer plans
and multiple employer welfare arrangements
[[Page 16896]]
(MEWAs) are in ERISA and the Internal Revenue Code, but not the PHS
Act.)
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\2\ The PHS Act does not include requirements on availability of
insurance for employers in the large group market. Under section
2711(b)(3) of the PHS Act, however, the General Accounting Office
(GAO) is to report to Congress on such availability in 1998.
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<bullet> The ERISA shared group market provisions apply generally
to all group health plans other than governmental plans, church plans,
very small plans, and certain other plans. The shared group market
provisions of ERISA also apply to health insurance issuers that offer
health insurance in connection with such group health plans. Generally,
the Secretary of Labor enforces the Provisions of HIPAA that amend
ERISA, except that no enforcement action may be taken by the Secretary
against issuers relating to the new shared group market provisions in
part 7 of ERISA. However, individuals may generally pursue actions
against issuers under ERISA and, in some circumstances, under State
laws.
<bullet> The shared group market provisions in the Internal Revenue
Code generally apply to all group health plans other than governmental
plans and very small plans, but not to health insurance issuers. A
taxpayer that fails to comply with these provisions may be subject to
an excise tax under section 4980D of the Code. (The group market
provisions relating to preemption and affiliation periods for HMOs are
in the PHS Act and ERISA, but not in the Internal Revenue Code.)
The regulation being issued today by the Secretaries of Health and
Human Services, Labor, and the Treasury have been developed on a
coordinated basis by the Departments. Except to the extent needed to
reflect the statutory differences described above, the shared group
market provisions in these regulations of each Department are
substantively identical. However, there are certain nonsubstantive
differences. The PHS Act regulations are numbered and organized
differently. Also, there are differences in the regulations that are
necessary because of statutory provisions that are not common to all
three Departments (in the definitions sections, for example). Further,
the regulations reflect certain stylistic differences in language and
structure to conform to conventions used by a particular Department.
These differences have been minimized and any differences in wording
are not intended to create any substantive difference, so that these
regulations will have the same effect with respect to overlapping
statutory provisions, as required by section 104 of HIPAA.
D. Special Information Concerning State Insurance Law
For purposes of the PHS Act and sections 144 through 148 in the PHS
Act regulations, all health insurance coverage in a State generally is
sold in one of two markets: the group market (See section 146) and the
individual market (see section 148). The group market is further
divided into the large group market and the small group market. Section
146 of the PHS Act regulations applies the group market provisions only
to insurance sold to group health plans (which are generally plans
sponsored by employers or employee organizations or both), regardless
of whether State law provides otherwise. State law may expand the
definition of the small group market to include certain coverage that,
under the federal law, would otherwise be considered coverage in the
large group market or the individual market.
The protections provided in the PHS Act to particular individuals
and employers are different depending on whether the coverage involved
is obtained in the small group market, the large group market, or the
individual market. Small employers are guaranteed availability of
insurance coverage sold in the small group market under the PHS Act.
Small and large employers are guaranteed the right to renew their group
coverage under the PHS Act, subject to certain exceptions. Eligible
individuals are guaranteed availability of coverage sold in the
individual market under the PHS Act, and all coverage in the individual
market must be guaranteed renewable under the PHS Act.
Coverage that is provided to associations, but is not related to
employment (so that the coverage is not in connection with a group
health plan), is not coverage in the group market under HIPAA. This
coverage is instead coverage in the individual market under the PHS
Act, regardless of whether it is considered group coverage under State
law.
E. Discussion of the Shared Group Market Provisions in the
Regulations
The most significant items relating to the shared group market in
these regulations are discussed in detail below.
Definitions--26 CFR 54.9801-2, 29 CFR 2590.701-2, 45 CFR 144.103
This section provides most of the definitions used in the
regulations implementing the provisions of HIPAA that were added to the
PHS Act, ERISA, and the Code, relating to the group market.\3\ The
definitions in this section of the regulations include both statutory
definitions provided in HIPAA, as well as certain others used in the
regulations.
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\3\ The regulations for the PHS Act also contain certain
definitions relating to those provisions added under the PHS Act
regarding the individual market, in order to create a single,
comprehensive reference for the definitions necessary under the PHS
Act regulations.
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Limitation on Preexisting Condition Exclusion Period--26 CFR 54.9801-3,
29 CFR 2590.71-3, 45 CFR 146.111
Definition of Preexisting Condition Exclusion
A preexisting condition exclusion is defined broadly to be any
limitation or exclusion of benefits based on the fact the condition was
present before the first day of coverage, whether or not any medical
advice, diagnosis, care, or treatment was recommended or received
before that day. HIPAA imposes certain limitations (described below) on
the use of such an exclusion in the group market (and also uses this
definition for purposes of the individual market rules, under which no
preexisting condition exclusion is permitted to be imposed on an
eligible individual). HIPAA's broad definition of a preexisting
condition exclusion is at variance with some State laws and regulations
because the relevant National Association of Insurance Commissioners
(NAIC) models, on which many State laws are based, have imposed
limitations on coverage for preexisting conditions without use of such
a definition.
New Limitations on Preexisting Condition Exclusions. Paragraph (a)
of this section \4\ of the regulations describes the limitations on the
preexisting condition exclusion period. A group health plan, and a
health insurance issuer offering group health insurance coverage, is
permitted to impose a preexisting condition exclusion with respect to a
participant or beneficiary only if the following conditions are met:
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\4\ References to paragraphs of a section refer to paragraphs of
each regulation section identified in the heading. For example, this
reference is to paragraph (a) in each of 45 CFR 146.111, 29 CFR
2590.701-3, and 26 CFR 54.9801-3.
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1. 6-month look-back rule. The preexisting condition exclusion must
relate to a condition (whether physical or mental, and regardless of
the cause of the condition) for which medical advice, diagnosis, care,
or treatment was recommended or received within the 6-month period
ending on the enrollment date. For these purposes, genetic information
is not a condition.\5\ In order
[[Page 16897]]
to be taken into account, the medical advice, diagnosis, care, or
treatment must have been recommended or received from an individual
licensed or similarly authorized to provide such services under State
law and operating within the scope of practice authorized by the State
law. Under the new HIPAA standard, a plan would generally determine
that an individual has a preexisting condition through medical records
(such as diagnosis codes on bills, a physician's notes of a visit or
telephone call, pharmacy prescription records, HMO encounter data, or
other records indicating that medical services were actually
recommended or received during the 6-month look-back period). The
``prudent person'' standard of some State laws (under which a condition
is taken into account if a prudent person would have sought care
whether or not care is actually received) no longer may be used to
determine a preexisting condition.
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\5\ The definition of genetic information in the regulations was
developed taking into account hearing testimony related to genetic
information given in connection with Senate Report 104-156, other
legislative initiatives, and public comments (including those
submitted in response to the request for information published by
the Departments on December 30, 1996).
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This 6-month ``look-back'' period is based on the 6-month
``anniversary date'' of the enrollment date. As a result, an individual
whose enrollment date is August 1, 1998 has a 6-month look-back period
from February 1, 1998 through July 31, 1998.
2. Length of preexisting condition exclusion period. The exclusion
period cannot extend for more than 12 months (18 months for late
enrollees) after the enrollment date. the 12- or 18-month ``look-
forward'' period is also based on the anniversary date of the
enrollment date. A late enrollee is defined as an individual who
enrolls in a plan at a time other than at the first time the individual
is eligible to enroll or during a special enrollment period (described
below). If an individual loses eligibility for coverage as a result of
terminating employment or a general suspension of coverage under the
plan, then upon becoming eligible again due to resumption of employment
or due to resumption of plan coverage, only the most recent period of
eligibility is considered for purposes of determining whether the
individual is a late enrollee.
3. Reduction of preexisting condition exclusion period by prior
coverage. In general, the preexisting condition exclusion period is
reduced by the individual's days of creditable coverage \6\ as of the
enrollment date. Creditable coverage is defined as coverage of an
individual from a wide range of specified sources, including group
health plans, health insurance coverage, Medicare, and Medicaid.
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\6\ The phrase ``days of creditable coverage'' is used instead
of the statutory phrase ``aggregate periods of creditable coverage''
for administrative ease in the calculation of creditable coverage.
Use of days of creditable coverage also conforms to the practice of
many States for crediting prior coverage under pre-HIPAA small group
market reforms.
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Definition of Enrollment Date. The limitations on preexisting
condition exclusions are measured from an individual's ``enrollment
date.'' The enrollment date is defined as the first day of coverage or,
if there is a waiting period, the first day of the waiting period
(typically the date employment begins).
The term ``first day of coverage'' is used in the regulations in
place of the term ``date of enrollment'' in the statute, such as in the
definitions of the terms ``preexisting condition exclusion'' and
``enrollment date.'' This is intended to clarify the difference between
the statutory terms ``date of enrollment'' and ``enrollment date''
(which have no difference in common useage).
The term ``waiting period'' generally refers to the period in which
there is a delay between the first day of employment and the first day
of coverage under the plan. Accordingly, because the preexisting
condition exclusion period runs from the enrollment date, any waiting
period would run concurrently with any preexisting condition exclusion
period. Further:
<bullet> The enrollment date for a late enrollee or anyone who
enrolls on a special enrollment date (see the section on special
enrollment periods below) is the first date of coverage. Thus, the time
between the date a late enrollee or special enrollee first becomes
eligible for enrollment under the plan and the first day of coverage is
not treated as a waiting period.
<bullet> Because the 6-month look-back limitation runs from the
beginning of any applicable waiting period, the current practice of
some plans that require physical examinations prior to commencement of
coverage for the purpose of identifying preexisting conditions may be
affected. If the examination is conducted during the waiting period
(after employment begins and before enrollment), rather than before
employment begins, a plan may not exclude coverage for any condition
identified in the examination (unless, independent of the examination,
medical advice, diagnosis, care, or treatment was in fact recommended
or received for the condition during the 6-month look-back period). The
use of such examinations for other purposes, such as worker safety, is
not affected.\7\
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\7\ However, to avoid violating the Americans with Disabilities
Act, Pub. L. 101-336, as amended by Pub. L. 102-166, the examination
should generally be conducted only after the employer has offered
employment to the individual.
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Elimination of Preexisting Condition Exclusion for Pregnancy and
for Certain Children. A preexisting condition exclusion cannot apply to
pregnancy. In addition, a preexisting condition exclusion period cannot
be applied to a newborn, an adopted child under age 18, or a child
placed for adoption under age 18, if the child becomes covered within
30 days of birth, adoption, or placement for adoption. This exception
does not apply after the child has a significant break in coverage (63
or more consecutive days). (An example in paragraph (b)(1) of the
regulations illustrates these rules.)
Rules Relating to Creditable Coverage--26 CFR 54.9801-4, 29 CFR
2590.701-4, 45 CFR 146.113
As noted above, a plan or issuer that imposes a preexisting
condition exclusion must reduce the length of the exclusion by an
individual's creditable coverage. This section defines the term
``creditable coverage'' and sets forth the rules for how creditable
coverage is applied to reduce such an exclusion period.
Creditable coverage includes health insurance coverage and other
health coverage, such as coverage under group health plans (whether or
not provided through an issuer), Medicaid, Medicare, and public health
plans, as well as other types of coverage set forth in HIPAA and the
regulations. Comments are requested on whether the definition of a
public health plan should include the public health systems of other
countries.
Under the definition of creditable coverage, all forms of health
insurance coverage are included, whether in the individual market or
group market, and whether the coverage is short-term, limited-duration
coverage or other coverage for benefits for medical care for which no
certificate of creditable coverage is required. Creditable coverage
does not include coverage consisting solely of excepted benefits as
defined in the regulations and described below.\8\
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\8\ However, if an individual has coverage of excepted benefits
in addition to other forms of creditable coverage, coverage of
excepted benefits is creditable coverage. This would make a
difference only if a plan or issuer uses the alternative method of
determining creditable coverage (described below) with respect to a
category that includes excepted benefits. For example, coverage of
excepted benefits such as limited vision or limited dental benefits,
when offered in combination with other creditable coverage, may be
used to offset a preexisting condition exclusion period for a
category that includes those benefits under the alternative method
in paragraph (c).
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Under paragraph (a)(3) of this section of the regulation, a group
health plan or health insurance issuer offering group
[[Page 16898]]
health insurance coverage may determine the amount of creditable
coverage of an individual for purposes of reducing the period of a
preexisting condition exclusion by using either the standard method
described in paragraph (b) or the alternative method described in
paragraph (c).
Standard Method
1. Counting. Under the standard method, the plan or issuer
determines the amount of an individual's creditable coverage by
determining all days during which the individual had one or more types
of creditable coverage. This determination is made without regard to
the specific benefits included in the coverage. If creditable coverage
is derived from more than one source on a particular day, all of the
creditable coverage that the individual had on that day is counted as
one day of creditable coverage.
2. Significant break in coverage. Days of creditable coverage that
occur before a significant break in coverage are not required to be
counted by the plan or issuer in reducing a preexisting condition
exclusion. A significant break in coverage means a period of 63
consecutive days during all of which the individual did not have any
creditable coverage.
a. Waiting and affiliation periods. Waiting periods and affiliation
periods, as defined in the regulation, are not taken into account in
determining a significant break in coverage. This is the case
regardless of whether the person ultimately fails to obtain coverage
under the plan (such as, where termination of employment occurs before
coverage begins). However, days in a waiting period or affiliation
period are not counted as creditable coverage.
The regulations specify that the period between the date an
individual files a substantially complete application for coverage in
the individual market and the effective date of such coverage is a
waiting period, so that the period is not taken into account in
determining a significant break in coverage. In this way, an
application processing delay or omission of details on a form would not
cause an applicant to incur a significant break in coverage, which
could adversely affect an individual who seeks coverage under a group
health plan after purchasing coverage in the individual market.
However, the waiting period for purchase of an individual policy
tolls a break in coverage only if the filing of the application for the
individual market insurance actually results in purchase of the
coverage by the individual. (See Examples 7 and 8 in paragraph
(b)(2)(iv)). By contrast, days in a waiting period for coverage under a
group health plan toll a significant break in coverage regardless of
whether coverage under the plan is ultimately obtained. (See Example
6.) The rule regarding the individual market prevents an individual
from avoiding a significant break in coverage by repeatedly submitting
applications to individual market issuers without ever purchasing
coverage. This rule responds to comments sent to the Departments in
response to the December 30, 1996 request for public comments. The
comments asked for clear rules on when a significant break is tolled in
the case of an application for individual market insurance.
Issuers of health insurance coverage in the individual market are
subject to the same certification requirements that apply to plans and
issuers in the group market. Therefore, issuers in the individual
market must provide individuals with certificates that reflect
information regarding the beginning of the waiting period (the date of
application), the effective date of coverage, and the date coverage
ends. This will assist people with coverage in the individual market
who later become covered by a group health plan in demonstrating their
creditable coverage to the plan or issuer in the group market.
b. Effect of State insurance law. HIPAA provides that the
significant break in coverage rule does not preempt State insurance
laws that provide longer periods than 63 days for a break in coverage.
(The preemption provisions are described more fully below.)
Accordingly, while federal law may allow a plan to disregard prior
coverage before a 63-day significant break in coverage, an issuer may
be required to take such coverage into account in order to comply with
State insurance law. As a result, application of the break rules can
vary between issuers located in different States. Similarly, the break
rules may vary between insured plans and self-insured plans (which are
not subject to State insurance laws) within a State, as well as between
the insured and self-insured portions of a single plan. As illustrated
by Example 3 in paragraph (b)(2)(iv), the laws of the State applicable
to the insurance policy that has the preexisting condition exclusion
are determinative of which break rule applies.
Alternative Method. Under the alternative method of counting
creditable coverage, the plan or issuer determines the amount of an
individual's creditable coverage for any of five identified categories
of benefits. Those categories are coverage for mental health, substance
abuse treatment, prescription drugs, dental care, and vision care. The
plan or issuer may use the alternative method for any or all of the
categories and may apply a different preexisting condition exclusion
period with respect to each category (as well as to coverage not within
a category). The creditable coverage determined for a category of
benefits applies only for purposes of reducing the preexisting
condition exclusion period with respect to that category. The standard
method is used to determine an individual's creditable coverage for
benefits that are not within any category for which the alternative
method is being used. Disclosure statements concerning the plan must
indicate that the alternative method is being used, and this disclosure
must also be given to each enrollee at the time of enrollment. These
statements must include a description of the effect of using the
alternative method. Any issuer in the group market must provide similar
statements to each employer at the time of offer or sale of the
coverage.
For purposes of reducing the preexisting condition exclusion period
under the alternative method, the plan or issuer determines under the
standard method the amount of the individual's creditable coverage that
can be counted, up to a total of 365 days of the most recent creditable
coverage of the individual (546 days for a late enrollee). The period
of this creditable coverage is referred to as the ``determination
period.'' The plan or issuer counts all days of coverage within the
applicable category that occurred during the determination period
(without regard to any significant breaks in that category of
coverage). Those days reduce the preexisting condition exclusion for
coverage within that category.
The regulations do not provide detailed definitions of the benefit
categories. Comments are invited on whether additional guidance is
needed.
The regulations under the alternative method of counting creditable
coverage do not include a category relating to significant differences
in deductible amounts. Commentators expressed concerns about adverse
selection if individuals can change from a high deductible plan when
they become ill and obtain ``first dollar'' coverage from an HMO or
other issuer that provides broad, comprehensive care with only low
deductibles or copayments.\9\ However, it is unclear how such a
[[Page 16899]]
category would be defined or applied. Accordingly, the Departments
solicit comments on this issue.
---------------------------------------------------------------------------
\9\ See also the discussion below under the heading ``HMO
Affiliation as Alternative to Preexisting Condition Exclusion.''
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Certificates and Disclosure of Previous Coverage--26 CFR 54.9801-5, 29
CFR 2590.701-5, 45 CFR 146.115
This section of the regulations sets forth guidance regarding the
certification requirements and other requirements concerning disclosure
of information relating to prior creditable coverage. The provision of
a certificate and other disclosures of information are intended to
enable an individual to establish his or her prior creditable coverage
for purposes of reducing any preexisting condition exclusion imposed on
the individual by any subsequent group health plan coverage.
Form of Certificate. In general, the certificate must be provided
in writing, including any form approved by the Secretaries as a
writing. In certain circumstances, where the individual requests that
the certificate be sent to another plan or issuer instead of to the
individual, and the other plan or issuer agrees, the certification
information may be provided by other means, such as by telephone. In
some States, issuers transfer coverage information by telephone.
Comments are requested as to whether, and under what conditions, other
methods of transmitting certification information (including electronic
communication) should be permitted in future guidance.
Information in Certificate. Paragraph (a)(3) of this section of the
regulations sets forth the information that must be included in a
certificate. The regulations allow a plan or issuer in an appropriate
case simply to state in the certificate that the individual has at
least 18 months of creditable coverage that was not interrupted by a
significant break in coverage and to indicate the date coverage ended.
(A certificate would never have to reflect coverage in excess of 18
months without a 63-day break because this is the maximum creditable
coverage that an individual could need under the preexisting condition
exclusion rules and the rules for access to the individual market.) In
any other case, the certificate must disclose (1) the date any waiting
or affiliation period began,\10\ (2) the date coverage began, and (3)
the date coverage ended (or indicate if coverage is continuing).\11\
For individuals with fewer than 18 months of coverage without a
significant break in coverage, the information about specific dates is
essential in order for a subsequent plan or issuer in the group or
individual market to be able to apply the break rules, especially in
light of the possibility that an individual may have other coverage
from various sources and the potential differences among State break
rules (described above).
---------------------------------------------------------------------------
\10\ Because the ending date for a waiting or affiliation period
will always be the date coverage begins, the ending date does not
have to be separately stated in a certificate.
\11\ These dates would include any period of COBRA continuation
coverage. A COBRA continuation coverage period does not have to be
separately identified.
---------------------------------------------------------------------------
Certification Events and Timing. Paragraph (a)(5) describes the
rights of participants and dependents to receive certificates. In
general, individuals have the right to receive a certificate
automatically (an ``automatic certificate'') when they lose coverage
under a plan and when they have a right to elect COBRA continuation
coverage. The certificate must be furnished within the time periods
described below:
<bullet> First, for an individual who is a qualified beneficiary
entitled to elect COBRA continuation coverage, the certificate is
required to be provided no later than when a notice is required to be
provided for a qualifying event under COBRA.
<bullet> Second, for an individual who loses coverage under a group
health plan and who is not a qualified beneficiary entitled to elect
COBRA continuation coverage, the certificate is required to be provided
within a reasonable time after the coverage ceases. (Typically, this
would apply to small employers' plans that are not subject to COBRA.)
This requirement is satisfied if the certificate is provided by the
time a notice is required to be provided under a State program similar
to COBRA.
<bullet> Third, for an individual who is a qualified beneficiary
and has elected COBRA continuation coverage, the certificate is
required to be provided within a reasonable time after either cessation
of COBRA continuation coverage or, if applicable, after the expiration
of any grace period for the payment of COBRA premiums.
In each of these three events, the regulations require the certificate
to reflect only the most recent period of continuous coverage under the
plan.
Under COBRA, multiemployer plans may provide notices within such
longer period of time as provided for such notices under the terms of
the plan. Under the general certification timing rule described above,
multiemployer plans may use the same extended time period for providing
certificates. Comments are requested on how this may affect a
multiemployer plan and its participants and their families.
A certificate may be mailed by first class mail to the
participant's last known address. A certificate for a participant's
spouse with an address different from the participant's is to be sent
to the spouse's address. A certificate may provide information with
respect to both a participant and the participant's dependents if the
information is identical for each individual, or if the information is
not identical, a certificate may provide information sufficient to
satisfy the requirements of the regulations with respect to each
individual on one document.
A certificate is also required to be provided upon the request of,
or on behalf of, an individual (whether the individual is a
participant, the participant's spouse, or any other dependent) if the
request is made within 24 months after the individual loses coverage
under the plan. The certificate is required to be provided at the
earliest time that the plan or issuer, acting in a reasonable and
prompt fashion, can provide the certificate. In this case, the
certificate reflects each period of continuous coverage ending within
the 24 months prior to the date of request.\12\
---------------------------------------------------------------------------
\12\ For example, for participation who has had a number of
interruptions in coverage, a requested certificate could consist of
copies of all of the automatic certificates that were previously
provided to the individual for each of these periods.
---------------------------------------------------------------------------
Responsibilities of Plans and Issuers. Paragraph (a)(1) clarifies
the statutory obligation of plans and issuers to provide certificates.
The statutory obligation to furnish a written certificate of
information regarding creditable coverage is imposed on both the group
health plan and the health insurance issuer offering group health
insurance coverage. This dual obligation was the subject of many of the
comments received by the three Departments in response to the December
30, 1996 request for public comments published in the Federal Register.
Concerns were raised about superfluous, duplicate certificates being
issued and the potential responsibility of issuers for reporting on an
individual's coverage under the plan after one issuer has been replaced
by another.
Paragraph (a)(1) addresses these concerns by providing that the
obligation to furnish a certificate is imposed on both the plan and
each health insurance issuer that provides group health insurance
coverage under the plan, subject to four exceptions.
First, paragraph (a)(1)(ii) provides that an entity required to
provide a certificate is deemed to have satisfied this requirement to
the extent that any other party provides the certificate and the
certificate discloses the creditable coverage (including the waiting
period
[[Page 16900]]
information) that was to be provided by the entity.
Second, paragraph (a)(1)(iii) provides that a plan is deemed to
have satisfied its obligation if there is an agreement between an
issuer and a plan under which the issuer agrees to provide certificates
for individuals covered under the plan.
Third, paragraph (a)(1)(iv)(A) provides that an issuer is not
required to provide any coverage information regarding coverage periods
for which it was not responsible.
Fourth, paragraph (a)(1)(iv)(B) provides that if an individual
switches from one issuer to another option allowed under the plan, or
an issuer is replaced by another before an individual's coverage in the
plan ceases, the first issuer is required to provide sufficient
information to the plan (or to another party designated by the plan),
so that when the individual leaves the plan, a certificate can be
provided that includes the period of coverage under the policy of the
first issuer. In this situation, no certificate is required to be
provided to the individual, but the issuer must also cooperate with the
plan by providing any information that may be requested later pursuant
to the alternative method. (This rule will reduce unnecessary and
potentially misleading information from being received while the
individual's coverage under the plan is uninterrupted.) An issuer may
presume that it is the final issuer for an individual if the
individual's coverage under the policy ends at a time other than in
connection with the plan's open season.
Other Entities Issuing Certificates. Paragraph (a)(6) identifies
the various statutory authorities that create responsibility for other
entities (that are not subject to a particular Department's
regulations) to provide certificates. As described above, there are
forms of creditable coverage other than coverage provided by group
health plans and health insurance coverage offered in connection with a
group health plan. Accordingly, individuals who leave coverage provided
by any such other entity are entitled to have that coverage counted by
a group health plan and may in many cases receive certificates for
their creditable coverage. This information is included in the
regulations because plans that impose a preexisting condition exclusion
may find it helpful to know when creditable coverage will be provable
through presentation of a certificate and when other forms of
documentation or attestation may be needed.
In cases where certifications are provided by entities not subject
to ERISA's requirements, such as Medicaid, the Indian Health Service,
and CHAMPUS, certain adjustments in the certification rules may be
appropriate. The regulations do not address how the certification
process applies to these other programs. Comments are requested on how
the certification requirements may be adapted to entities responsible
for providing this coverage.
Dependent Coverage Information. Dependents are entitled to a
written certificate of creditable coverage. Concerns were raised in
comments received from the public regarding the certification of
dependent coverage where information regarding dependents of
participants in plans was not available. Plans and issuers, the
commenters stated, often do not know the existence of dependents or
their coverage periods until claims are filed. To address these
concerns, the regulations have adopted two special rules.
First, under a transition rule that lasts through June 30, 1998, a
plan or issuer may satisfy its obligation to provide a written
certificate regarding the coverage of a dependent of a participant by
providing the name of the participant covered by the plan and
specifying the type of coverage provided in the certificate (such as
family coverage or employee-plus-spouse coverage). However, if asked to
provide a certificate relating to a dependent, the plan must make
reasonable efforts to obtain and provide the name of the dependent.
This rule will provide plans and issuers with a transition period to
update their data systems to include information on dependents.
Second, the regulations include a special rule regarding dependent
coverage that is not limited to the transition period. Under this rule,
a plan or issuer must make a reasonable effort to collect the necessary
information for dependents and include it on the certificate. However,
under this special rule, an automatic certificate is not required to be
issued until the plan or issuer knows (or, making reasonable efforts,
should know) of the dependent's cessation of coverage. This information
can be collected annually (during open enrollment).
Under the transition rule and the special rule, an individual may
use the provisions described below to establish creditable coverage
(and waiting and affiliation period information).
Information for Alternative Method of Counting Creditable Coverage.
Following receipt of the certificate, an entity that uses the
alternative method of counting creditable coverage may request that the
entity that issued the certificate disclose additional information in
order for the requesting entity to determine the individual's
creditable coverage with respect to any category of benefits described
in paragraph (b). The requested entity may charge the requesting entity
the reasonable cost of disclosing the information. The requesting
entity may ask for a copy of the summary plan description (SPD) that
applied to the individual's coverage or may ask for more specific
information. Set forth below is a model form that may be used for
specific coverage information about the categories of benefits:
Information on Categories of Benefits
1. Date of original certificate:---------------------------------------
2. Name of group health plan
providing the coverage:------------------------------------------------
3. Name of participant:------------------------------------------------
4. Identification number of participant:-------------------------------
5. Name of individual(s) to whom this information applies: ____
6. The following information applies to the coverage in the
certificate that was provided to the individual(s) identified above:
a. Mental Health:------------------------------------------------------
b. Substance Abuse Treatment:------------------------------------------
c. Prescription Drugs:-------------------------------------------------
d. Dental Care:--------------------------------------------------------
e. Vision Care:--------------------------------------------------------
For each category above, enter ``N/A'' if the individual had no
coverage within the category and either (i) enter both the date that
the individual's coverage within the category began and the date
that the individual's coverage within the category ended (or
indicate if continuing), or (ii) enter ``same'' on the line if the
beginning and ending dates for coverage within the category are the
same as the beginning and ending dates for the coverage in the
certificate.
Demonstration of Coverage if Certificate is Not Provided. Under
HIPAA, in order to prevent an individual from being adversely affected
if the individual does not receive a certificate, the individual has a
right to demonstrate creditable coverage through the presentation of
documentation or other means. For example, an individual may not have a
certificate because: an entity failed to provide a certificate within
the required time period; an entity was not required to provide a
certificate; the coverage of the individual was for a period before
July 1, 1996; or, the individual has an urgent medical condition that
necessitates an immediate determination of creditable coverage by the
plan or issuer. Under these circumstances, an individual may present
evidence of creditable coverage through documents, records, third party
statements, or other means, including telephone calls by the plan or
issuer to a third party provider. The plan administrator is required to
take into
[[Page 16901]]
account all information presented in determining whether to offset any
or all of a preexisting condition exclusion. A plan or issuer is
required to treat the individual as having furnished a certificate
provided by a plan or issuer if the individual attests to the period of
creditable coverage, the individual presents relevant corroborating
evidence of some creditable coverage during the period, and the
individual cooperates with the plan's or issuer's efforts to verify the
individual's coverage.
If an individual needs to demonstrate his or her status as a
dependent of a participant, the plan or issuer is required to treat the
individual as having furnished a certificate if an attestation to such
dependency and the period of such status is provided, and if the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
Similar rules apply relating to determining creditable coverage
under the alternative method.
Notice to Individual of Period of Preexisting Condition Exclusion.
Within a reasonable time following the receipt of the certificate,
information relating to the alternative method, or other evidence of
coverage, a plan or issuer is required to make a determination
regarding the length of any preexisting condition exclusion period that
applies to the individual and notify the individual of its
determination. Whether a determination and notification is made within
a reasonable period of time depends upon the relevant facts and
circumstances including whether the application of the preexisting
condition exclusion period would prevent access to urgent medical
services. The plan or issuer is required to notify the individual,
however, only if, after considering the evidence, it has determined
that a preexisting condition exclusion period will still be imposed on
the individual. The basis of the determination, including the source
and substance of any information on which the plan or issuer relied,
must be included in the notification. The notification must also
explain the plan's appeals procedures and the opportunity of the
individual to present additional evidence.
The plan or issuer may reconsider and modify its initial
determination if it determines that the individual did not have the
claimed creditable coverage. In this circumstance, the plan or issuer
must notify the individual of such reconsideration and, until a final
determination is made, must act in accordance with its initial
determination for purposes of approving medical services.
Model Certificate. The following model certificate has been
authorized by the Secretary of each of the Departments. Use of the
model certificate will satisfy the requirements of paragraph (a)(3)(ii)
of the regulations.
Certificate of Group Health Plan Coverage
* IMPORTANT--This certificate provides evidence of your prior
health coverage. You may need to furnish this certificate if you
become eligible under a group health plan that excludes coverage for
certain medical conditions that you have before you enroll. This
certificate may need to be provided if medical advice, diagnosis,
care, or treatment was recommended or received for the condition
within the 6-month period prior to your enrollment in the new plan.
If you become covered under another group health plan, check with
the plan administrator to see if you need to provide this
certificate. You may also need this certificate to buy, for yourself
or your family, an insurance policy that does not exclude coverage
for medical conditions that are present before you enroll.
1. Date of this certificate:-------------------------------------------
2. Name of group health plan:------------------------------------------
3. Name of participant:------------------------------------------------
4. Identification number of participant:-------------------------------
5. Name of any dependents to whom
this certificate applies:----------------------------------------------
6. Name, address, and telephone number of plan administrator or
issuer responsible for providing this certificate:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
7. For further information, call:--------------------------------------
8. If the individual(s) identified in line 3 and line 5 has at least
18 months of creditable coverage (disregarding periods of coverage
before a 63-day break), check here______ and skip lines 9 and 10.
9. Date waiting period or affiliation period
(if any) began:--------------------------------------------------------
10. Date coverage began:-----------------------------------------------
11. Date coverage ended: ______ (or check if coverage is continuing
as of the date of this certificate: ______).
Note: Separate certificates will be furnished if information is
not identical for the participant and each beneficiary.
Special Enrollment Periods--26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR
146.117
This section of the regulations provides guidance regarding the new
enrollment rights provided to employees and dependents under HIPAA. A
group health plan and a health insurance issuer offering group health
insurance coverage are required to provide for special enrollment
periods during which individuals who previously declined coverage are
allowed to enroll (without having to wait until the plan's next regular
open enrollment period). A special enrollment period can occur if a
person with other health coverage loses that coverage or if a person
becomes a dependent through marriage, birth, adoption, or placement for
adoption.
A plan must provide a description of the special enrollment rights
to anyone who declines coverage. The regulations provide a model of
such a description.
A person who enrolls during a special enrollment period (even if
the period also corresponds to a regular open enrollment period) is not
treated as a late enrollee. (Accordingly, the plan or issuer may not
impose a preexisting condition exclusion period longer than 12 months
with respect to the person.)
Special Enrollment for Loss of Other Coverage. The special
enrollment period for loss of other coverage is available to employees
and their dependents who meet certain requirements. The employee or
dependent must otherwise be eligible for coverage under the terms of
the plan. When the coverage was previously declined, the employee or
dependent must have been covered under another group health plan or
must have had other health insurance coverage. The plan can require
that, when coverage in the plan was previously declined, the employee
must have declared in writing that the reason was other coverage, in
which case the plan must at that time have provided notice of this
requirement and the consequences of the employee's failure to provide
the statement.
The special enrollment rights may apply with respect to an
employee, a dependent of the employee, or both. An employee who has not
previously enrolled can enroll under these rules if it is the employee
who loses other coverage. An employee's dependent can be enrolled under
these rules if it is the dependent who loses other coverage and the
employee is already enrolled. In addition, both the employee and a
dependent can be enrolled together under these rules if either the
employee or the dependent loses other coverage.
If the other coverage is COBRA continuation coverage, the special
enrollment can only be requested after exhausting COBRA continuation
coverage. If the other coverage is not COBRA continuation coverage,
special enrollment can only be requested after losing eligibility for
the other coverage or after cessation of employer contributions for the
other coverage. In each case, the employee has 30 days to request
special enrollment. An individual does not have to elect COBRA
continuation coverage or exercise similar continuation rights in order
to preserve the right to special enrollment. However, an individual
does not have a special enrollment right if the individual loses the
other coverage as a result of the individual's
[[Page 16902]]
failure to pay premiums or for cause (such as making a fraudulent
claim). Coverage under special enrollment must be effective no later
than the first day of the month after an employee request the
enrollment for himself or herself or on behalf of a dependent.
Special Enrollment for New Dependents. A special enrollment period
also occurs if a person has a new dependent by birth, marriage,
adoption, or placement for adoption. The election to enroll can be made
within 30 days following the birth, marriage, adoption, or placement
for adoption. In the case of a plan that does not offer any coverage
for dependents and is then modified to offer dependent coverage, the
election to enroll can instead be made during the 30 days beginning on
the date dependent coverage is made available.
The special enrollment rules allow an eligible employee to enroll
when he or she marries or has a new child (as a result of marriage,
birth, adoption, or placement for adoption). A spouse of a participant
can be enrolled separately at the time of marriage or when a child is
born, adopted or placed for adoption. The spouse can be enrolled
together with the employee when they marry or when a child is born,
adopted, or placed for adoption. A child who becomes a dependent of a
participant as a result of marriage, birth, adoption, or placement for
adoption can be enrolled when the child becomes a dependent. Similarly,
a child who becomes a dependent of an eligible employee as a result of
marriage, birth, adoption, or placement for adoption can be enrolled if
the employee enrolls at the same time.
In the case of a dependent special enrollment period, HIPAA
provides that coverage with respect to a marriage is effective no later
than the first day of the month after the date the request for
enrollment is received and coverage with respect to a birth, adoption,
or placement for adoption is effective on the date of the birth,
adoption, or placement for adoption.
HMO Affiliation Period as Alternative to Preexisting Condition
Exclusion--29 CFR 2590.701-7 and 45 CFR 146.119
This section of the regulations permits a group health plan
offering health insurance through an HMO, or an HMO that offers health
insurance coverage in connection with a group health plan, to impose an
affiliation period, but only if certain other requirements are met. An
``affiliation period'' is defined in the regulations as a period of
time that must expire before health insurance coverage provided by the
HMO becomes effective, and during which the HMO is not required to
provide benefits.
The regulations specify the following requirements for imposing an
affiliation period:
<bullet> No preexisting condition exclusion may be imposed with
respect to coverage through the HMO;
<bullet> No premium may be charged to a participant or beneficiary
for the affiliation period;
<bullet> The affiliation period must be applied uniformly without
regard to any health status-related factors; and
<bullet> The affiliation period must begin on the enrollment date,
cannot exceed two months (three months for a late enrollee), and must
run concurrently with any waiting period under the plan.
The regulations provide for the affiliation period to begin on the
enrollment date in the plan, not when coverage with the HMO begins.
Accordingly, if a plan offers multiple coverage options simultaneously,
the HMO cannot impose an affiliation period on plan participants who
change to the HMO option. Comments are requested on this rule.
The regulations permit an HMO to use alternatives in lieu of an
affiliation period to address adverse selection, as approved by the
State insurance commissioner or other official designated to regulate
HMOs. Because an affiliation period may be imposed only if no
preexisting condition exclusion is used, an alternative to an
affiliation period may not encompass an arrangement that is in the
nature of such an exclusion.\13\
---------------------------------------------------------------------------
\13\ These alternative that may be used in lieu of an
affiliation period to address adverse selection should not be
confused with the use of the alternative method for counting
creditable coverage discussed in the next paragraph.
---------------------------------------------------------------------------
While HMOs usually do not impose preexisting condition exclusions,
they could choose to apply a preexisting condition exclusion period for
all enrollees based on the alternative method of counting creditable
coverage if the regulations were to add a category relating to
deductibles. However, as described above under the heading
``Alternative Method,'' the regulations currently do not include such a
category.
Nondiscrimination in Eligibility and Premiums in the Group Market--26
CFR 54.9802-1, 29 CFR 2590.702, 45 CFR 146.121
The regulations include provisions implementing the
nondiscrimination provisions in HIPAA. Comments are welcomed on these
provisions, and, in particular, comments are requested on whether
guidance is needed concerning:
<bullet> The extent to which the statute prohibits discrimination
against individuals in eligibility for particular benefits;
<bullet> The extent to which the statute may permit benefit
limitations based on the source of an injury;
<bullet> The permissible standards for defining groups of similarly
situated individuals;
<bullet> Application of the prohibitions on discrimination between
groups of similarly situated individuals; and
<bullet> The permissible standards for determining bona fide
wellness programs.
The Departments intend to issue further regulations on the
nondiscrimination rules in the near future. In no event will the period
for good faith compliance (specified in HIPAA sections 102(c)(5),
101(g)(5), and 401(c)(5)) with respect to section 2702 of the PHS Act,
section 702 of ERISA, and section 9802 of the Code end before the
additional guidance is provided.
A plan or issuer may not establish rules for eligibility (including
continued eligibility) of an individual to enroll under the terms of
the plan based on a health status-related factor. HIPAA and the
regulations provide a list of health status-related factors. The
Departments are considering interpreting the statutory language
relating to eligibility to enroll so that a plan or issuer would be
prohibited from providing lower benefits to certain individuals based
on health status-related factors. Comments are welcomed on this
interpretation.
Among the health status-related factors listed in the statute is
``evidence of insurability (including conditions arising out of acts of
domestic violence).'' The Conference Report states that the inclusion
of evidence of insurability in the list of health status-related
factors ``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.''
However, HIPAA also provides that a plan or issuer is not required to
provide particular benefits other than those provided under the terms
of the plan. Moreover, HIPAA provides that a plan or issuer may
establish limitations or restrictions on the amount, level, extent, or
nature of the benefits or coverage for similarly situated individuals
enrolled in the plan. Comments have been received indicating that some
plans contain provisions that exclude coverage for benefits based on
the source of injury (such as benefits for injuries sustained
[[Page 16903]]
in a motorcycle accident, injuries sustained in a motorcycle accident
as the result of not wearing a helmet, or injuries sustained in the
commission of a felony). Accordingly, comments are requested on how
future guidance should treat benefit limitations based on the source of
an injury.
The Conference Report also states that ``[t]he term `similarly
situated' means that a plan or coverage would be permitted to vary
benefits available to different groups of employees, such as full-time
versus part-time employees or employees in different geographic
locations. In addition, a plan or coverage could have different benefit
schedules for different collective bargaining units.'' Accordingly,
comments are requested concerning the appropriate standards for
determining ``similarly situated individuals,'' including whether a
plan is permitted to vary benefits based on an employee's occupation.
Because these standards could impact on the small group market, the
Department of Health and Human Services is particularly interested in
receiving comments from States with respect to how varying benefits
based on occupation could affect rate setting.
The Departments also request comments regarding how the
prohibitions on discrimination should be applied between groups of
similarly situated individuals. For example, is guidance needed on
whether a plan covering employees in two different locations could have
a longer waiting period for employees at one location because the
health status of those employees results in higher health costs?
A plan or issuer may not require any individual (as a condition of
enrollment or continued enrollment) to pay a premium or contribution,
that is greater than that for a similarly situated individual enrolled
in the plan, based on a health status-related factor. However, this
limitation does not restrict the amount that an issuer can charge an
employer for the coverage. In addition, this limitation does not
prevent a plan or issuer from establishing premium discounts or rebates
or otherwise modifying applicable copayments or deductibles in return
for adherence to programs of health promotion and disease prevention
(bona fide wellness programs). Comments are requested regarding the
standards for determining bona fide wellness programs, including
whether such a program may provide a discount for non-smokers.
Special Rules--Excepted Plans and Excepted Benefits--26 CFR 54.9804-1,
29 CFR 2590.732, 45 CFR 146.145
This section of the regulations provides special rules for certain
plans and certain benefits.
Very Small Plans. The group market requirements of HIPAA do not
apply to a group health plan, or to group health insurance coverage
offered in connection with a group health plan, for any plan year if,
on the first day of the plan year, the plan has fewer than 2
participants who are current employees. However, a State may apply the
group market provisions in the PHS Act to plans with fewer than two
participants who are current employees. In this case, the State would
apply its group market insurance law requirements to such small group
plans (and such plans would not be subject to the individual market
requirements).
Excepted Benefits. The group market provisions and the related
regulations also do not apply to any group health plan or group health
insurance issuer in relation to its provision of excepted benefits. The
benefits identified in paragraph (b)(2) are generally not health
insurance coverage and are excepted in all circumstances. In contrast,
the benefits identified in paragraphs (b) (3), (4), and (5) are
generally health insurance coverage but are excepted if certain
conditions are met.
Limited-scope dental benefits, limited-scope vision benefits, and
long-term care benefits are excepted if they are provided under a
separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of the plan. For this purpose, limited-
scope dental coverage typically provides benefits for non-medical
services such as routine dental cleanings, x-rays, and other preventive
procedures. Such coverage may also provide discounts on the cost of
common dental procedures such as fillings, root canals, crowns, full or
partial plates, or orthodontic services. Limited-scope dental coverage
typically does not provide benefits for medical services, such as those
procedures associated with oral cancer or with a mouth injury that
results in broken, displaced, or lost teeth.
Similarly, limited-scope vision coverage provides benefits for
routine eye examinations or the fitting of eyeglasses or contact
lenses. This coverage does not include benefits for such
ophthalmological services as treatment of an eye disease (e.g.,
glaucoma or a bacterial eye infection) or an eye injury.
Noncoordinated benefits may be excepted benefits. The term
``noncoordinated benefits'' refers to coverage for a specified disease
or illness (such as cancer-only coverage) or hospital indemnity or
other fixed dollar indemnity insurance (such as insurance that pays
$100/day for a hospital stay as its only insurance benefit) if three
conditions are met. First, the benefits are provided under a separate
policy, certificate, or contract for insurance. Second, there is no
coordination between the provision of these benefits and another
exclusion of benefits under a plan maintained by the same plan sponsor.
Third, benefits are paid without regard to whether benefits are
provided with respect to the same event under a group health plan
maintained by the same plan sponsor.
Certain supplemental benefits are excepted only if they are
provided under a separate policy, certificate, or contract of
insurance. This category of excepted benefits includes Medicare
supplemental (commonly called ``Medigap'' or ``MedSupp'') policies,
CHAMPUS supplements, and supplements to certain employer group health
plans. Such supplemental coverage cannot duplicate primary coverage and
must be specifically designed to fill gaps in primary coverage,
coinsurance, or deductibles.\14\
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\14\ Note that a group health plan, which provides primary
coverage while an individual is an active employee, is often
extended to retirees. When the retiree becomes eligible for
Medicare, the group health plan commonly coordinates with Medicare
and may serve a supplemental function similar to that of a Medigap
policy. However, such employer-provided retiree ``wrap around''
benefits are not excepted benefits (because they are expressly
excluded from the definition of a Medicare supplement policy in
section 1882(g)(1) of the Social Security Act).
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The regulations do not address section 2721(e) of the PHS Act or
section 705(d) of ERISA relating to the treatment of partnerships (or
the application of the Code's group market rules to partnerships).
Comments are requested on these provisions, including how these
provisions coordinate with other provisions relating to self-employed
individuals and partnerships.
F. Other Group Market Provisions\15\
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\15\ In this section (``Other Group Market Provisions''),
references conform to usage in 45 CFR Part 146, which uses ``HCFA''
in place of ``Department of Health and Human Services'' or
``Secretary of Health and Human Services'' and ``HCFA regulations''
in place of ``PHS Act regulations.''
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Guaranteed Renewability in Multiemployer Plans and Multiple Employer
Welfare Arrangements--Section 703 of ERISA and Section 9803 of the Code
Requirements relating to guaranteed renewability in multiemployer
plans
[[Page 16904]]
and multiple employer welfare arrangements are set forth in section 703
of ERISA and section 9803 of the Code (but not in the PHS Act). These
provisions state that a group health plan that is a multiemployer plan
or that is a multiple employer welfare arrangement may not deny an
employer whose employees are covered under such a plan continued access
to the same or different coverage under the terms of such plan, other
than for certain specified reasons. The Departments are not issuing
regulations under section 703 of ERISA or section 9803 of the Code at
this time, but anticipate issuing regulations under these sections and
solicit comments regarding these sections.
In these provisions, the terms ``continued access'' and ``same or
different coverage'' are not defined. Comments are requested on how
rules under these provisions might address variations and changes in a
plan's benefit packages and contribution rates, differences in the
characteristics of multiemployer plans and multiple employer welfare
arrangements, and any possible implications for the financial integrity
of affected plans.
Preemption of State Laws; State Flexibility--29 CFR 2590.731 and 45 CFR
146.190
The McCarran-Ferguson Act of 1945 (Pub. L. 79-15) exempts the
business of insurance from federal antitrust regulation to the extent
that it is regulated by the States and indicates that no federal law
should be interpreted as overriding State insurance regulation unless
it does so explicitly. Section 514(a) of ERISA preempts State laws
relating to employee benefit plans (including group health plans).
However, section 514(b)(2) of the ERISA saves from preemption any State
law that regulates insurance. Section 2723 of the PHS Act and section
731 of ERISA make clear that Part A of Title XXVII of the PHS Act and
Part 7 of Subtitle B of Title I of ERISA do not in any way affect or
modify section 514 of ERISA.
In addition, section 2723 of the PHS Act and section 731(a) of
ERISA preempt State insurance laws to the extent such laws ``prevent
the application of'' Part A of Title XXVII of the PHS Act and Part 7 of
Subtitle B of Title I of ERISA. (There is no corresponding provision in
the Code.) In this regard, the Conference Report states that the
conferees intended the narrowest preemption of State laws with regard
to health insurance issuers (not group health plans) with respect to
all the provisions of Part A of Title XXVII of the PHS Act and Part 7
of Subtitle B of Title I of ERISA (except for preemption with respect
to the provisions of section 2701 of the PHS Act and section 701 of
ERISA.) Consequently, the Conference Report states that State laws with
regard to health insurance issuers that are broader than federal
requirements in certain areas would not ``prevent the application of''
the provisions of Part A of Title XXVII of the PHS Act or Part 7 of
Subtitle B of Title I of ERISA.
However, the preemption is broader for the statutory requirements
of section 2701 of the PHS Act and 701 of ERISA that limit the
application of preexisting condition exclusions. State laws cannot
``differ'' from the preexisting condition exclusion requirements of
section 2701 of the PHS Act or section 701 of ERISA, except as
specifically permitted under section 2723(b)(2) of the PHS Act and
section 731(b)(2) of ERISA. These specific exceptions permit a State to
impose on health insurance issuers certain stricter limitations
relating to preexisting condition exclusions.
Comments are also solicited on issues relating to the coordination
of the new requirements under HIPAA and State requirements for
associations that may be multiple employer welfare arrangements as
defined in section 3(40) of ERISA.
Guaranteed Availability of Coverage for Small Employers Under the PHS
Act Group Market Provisions--45 CFR 146.150
Rules relating to guaranteed availability of coverage for employers
in the small group market appear only in the PHS Act (at section 2711).
In general, this section requires health insurance issuers that offer
coverage in the small group market to offer to any small employer all
of the products they actively market in that market. This is generally
referred to as an all-products guarantee. However, as allowed under
applicable State law, the issuer can require that the employer make a
minimum contribution toward the premium charged and have a minimum
level of participation by eligible individuals. The issuer must also
accept for enrollment every eligible individual without regard to
health status. For purposes of this section, an eligible individual is
one who meets the applicable requirements of the group health plan, the
issuer, and State law for coverage under the plan.
Some States have, in recent years, made reforms in their small
group markets that only require guaranteed issue of a basic and a
standard policy, rather than an all-products guarantee. They have urged
that an all-products guarantee not be adopted, arguing that the law
does not specifically require it. However, sections 2711 and 2741 of
the PHS Act, as added by HIPAA, contain virtually identical
requirements requiring issuers that offer health insurance coverage in
either the small group or individual market to make ``such coverage''
available to, respectively, small employers or eligible individuals.
While section 2741 explicitly permits issuers to limit to two policies
the offerings they are required to make in the individual market, the
small group market provisions contain no similar exception. In fact,
section 2713(b)(1)(D) requires that an issuer that offers health
insurance to any small employer must provide information concerning
``the benefits and premiums available under all health insurance
coverage for which the employer is qualified.'' (Emphasis added.) This
indicates that Congress intended to require an all-products guarantee
in the small group market. (However, a State that implements an
``alternative mechanism'' in the individual market under section 2744
of the PHS Act has the flexibility either to impose an all-products
guarantee or to use a completely different mechanism for making
insurance available to individuals guaranteed coverage under the
statute.)
Various industry groups and persons responding to the notice that
the three Departments published on December 30, 1996 asked that the
term ``offer'' be interpreted to mean ``actively marketed,'' so that
issuers would not be required to reopen closed blocks of business. The
regulations make this clear.
Section 2711 also requires issuers to accept for enrollment any
individuals who are eligible to enroll under the terms of the plan, and
who satisfy the requirements of the issuer and applicable State law,
during the period in which the individual ``first becomes eligible'' to
enroll under the terms of the group health plan. Thus, the issuer is
not required to accept late enrollees. The regulations make it clear
that this protection extends to individuals if they ``first become
eligible'' to enroll during a special enrollment period. The special
enrollment provisions of the statute evidence the intent that
individuals who qualify for special enrollment be given the same
protections given to newly-hired employees and their dependents.
[[Page 16905]]
An issue has also been raised as to whether the statutory
definitions of premium contributions and group participation rules,
which are repeated in the regulations, related only to percentages of
employees or premium dollars or to absolute numbers of employees or
premium amounts. If the latter interpretation were permitted, the
effect would be to undermine the all-products guarantee by allowing,
for example, some products to be available to ``larger'' small
employers, but not to the smallest employers. The regulations currently
leave interpretation of this language to the States, but comments are
welcomed on this issue.
Section 146.150 also includes rules regarding the circumstances
under which issuers are permitted to deny coverage to employers. If the
product is a network plan, under which services are furnished by a
defined set of providers, the issuer can deny coverage to an employer
whose eligible individuals do not live, work, or reside in the network
plan's service area. It can also deny coverage if it has demonstrated
to the State that its network does not have the capacity to deliver
services to additional groups, but is then barred for 180 days from
offering coverage in that service area. An issuer may also deny
coverage if it demonstrates that it lacks sufficient financial reserves
to underwrite additional coverage, but is barred for 180 days from
offering coverage in the small group market in the State. Both of these
exceptions must be applied to all employers uniformly without
consideration of the health status or claims experience of an
employer's employees or dependents. Neither of these exceptions
relieves a network plan of its responsibility to continue servicing its
in-force business under the guaranteed renewability requirements of the
regulations.
Finally, Sec. 146.150 provides that if the coverage is only made
available to members of ``bona fide associations'' as that term is
defined in the regulations, it is not subject to the guaranteed
availability requirements. (Accordingly, the coverage does not have to
be offered to non-members.) However, employers that obtain coverage
through a bona fide association are assured of guaranteed access to the
association's coverage options as long as they remain members of the
association. This is because a bona fide association cannot condition
membership in the association on health status-related factors.
Moreover, it must offer coverage to all employers who are members
without regard to health status-related factors relating to their
employees or dependents. Therefore, an association cannot legally
refuse enrollment to members on a selective basis so long as they meet
the association's membership criteria.
Guaranteed Renewability of Coverage for Employers Under the PHS Act
Group Market Provisions--45 CFR 146.152
Section 146.152 of the Health Care Financing Administration (HCFA)
regulations implements section 2712 of the PHS Act, which requires
issuers to renew or continue in force any coverage in the large or
small group market at the option of the plan sponsor. The exceptions to
this requirement include nonpayment of premiums, fraud, and violation
of minimum participation or contribution rules, as permitted under
applicable State law. Also, the issuer can cease to offer either a
particular product or all coverage it offers in the particular market,
and can refuse to renew if the group health plan's participants all
leave the service area of a network plan, or if the coverage is
provided through a bona fide association and the employer's membership
ends.
Issuers that decide to discontinue offering a particular product or
all coverage in the small or large group market are subject to certain
requirements outlined in paragraphs (c) and (d) of this section of the
regulations. Issuers discontinuing only a particular product must give
90 days' notice, must offer the plan sponsor the option to purchase
other coverage the issuer offers in that market, and must discontinue
the product uniformly, without regard to claims experience or health
status of participants or dependents under a particular group health
plan. If the issuer terminates all coverage in a market or markets, it
must provide 180 days' notice to each plan sponsor, and it is
prohibited from issuing coverage in the market(s) or State involved for
five years following the date of discontinuation. Plans or issuers may
modify the health insurance coverage at the time of coverage renewal,
provided the modification is consistent with State law and, for the
small group market, is effective uniformly among group health plans
with coverage under that product.
Some States have asked whether an issuer that chooses to stop
selling comprehensive products, such as a basic or standard policy, in
a particular State's group market, must also cease selling policies
consisting of excepted benefits. Because Congress permitted these types
of supplemental policies and limited benefit plans to be excepted from
the requirements of HIPAA in both the group and individual markets,
HCFA intends to defer to the States' judgment on this issue, and
solicit comments.
State law may limit the extent to which an issuer can abandon a
product or market, and under what circumstances. For example, a State
may choose to require an issuer vacating the market to transfer its
business to another issuer through assumption reinsurance, or some
other means permitted under State law.
Paragraph (g) of this section of the regulations provides that,
with respect to group coverage offered only through associations, the
option of guaranteed renewability extends to include employer members
of an association. This provision means that all employers covered by
an issuer through an association have the right to renew the coverage
they received if the association ceases to serve its members,
regardless of the reason.
Disclosure of Information by Issuers to Employers Seeking Coverage in
the Small Group Market--45 CFR 146.160
Section 146.160 of the HCFA regulations implements section 2713 of
the PHS Act by setting forth rules relating to disclosure of
information by issuers to employers seeking coverage in the small group
market. In its solicitation and sales materials, the issuer must make a
reasonable disclosure that the specified information is available on
request. The information that must be provided includes the issuer's
right to change premium rates and the factors that may affect changes
in premium rates, renewability of coverage, any preexisting condition
exclusion (including use of the alternative method of counting
creditable coverage), any affiliation periods applied by HMOs, the
geographic areas served by HMOs, and the benefits and premiums
available under all health insurance coverage for which the employer is
qualified under minimum contribution and participation rules, as
permitted by State law. The issuer is exempted from disclosing
proprietary or trade secret information under applicable law.
``Factors that may affect changes in premium rates'' and
``proprietary and trade secret information under applicable law'' have
not been defined. Comments are requested regarding whether they should
be defined.
The information described in this section must be provided in
language that is understandable by the average small employer and
sufficient to reasonably inform small employers of their rights and
obligations under the health insurance coverage. This requirement can
be satisfied by using as
[[Page 16906]]
a model the outlines of coverage provided under Medicare Supplement
insurance. (These outlines are required to provide easy comparison of
the coverage and cost of all available products.) Reasonable
information includes rating schedules for each product to which more
than one rate applies, and, with respect to network plans, maps of
service areas or lists of counties served.
Exclusion of Certain Plans From the PHS Act Group Market Requirements--
45 CFR 146.180
Section 146.180 of the HCFA regulations implements section 2721 of
the PHS Act, which permits certain nonfederal governmental plans to
elect to be exempted from some or all of the group market requirements
of the HCFA regulations, although they are subject to the certification
and disclosure requirements of Sec. 146.115. With respect to nonfederal
governmental plans that are collectively bargained, this section does
not preempt State and local collective bargaining laws. The regulation
establishes the form and manner of the election, and requires a
nonfederal governmental plan making this election to notify plan
participants, at the time of enrollment and on an annual basis, that it
has made the election and what effect the election has. The participant
notice and certification and disclosure obligations are integral parts
of the election. Failure to comply with these obligations invalidates
an election and subjects the nonfederal governmental plan to the
requirements the election would have permitted the plan to avoid.
Only nonfederal governmental plans that are self-funded (in whole
or in part) can make the election, and the election only applies to the
self-funded portion. A health insurance issuer that sells insurance
coverage to a nonfederal plan must comply with all the group market
requirements.
Enforcement of PHS Act Requirements--45 CFR 146.184
Part 146 imposes requirements on health insurance issuers that
offer coverage in the group market in a State, and on nonfederal
governmental (i.e., State and local) group health plans. With respect
to issuers, the statute makes it clear that it is solely within the
discretion of the States, in the first instance, whether to take on the
responsibility for enforcing those requirements or whether to leave
enforcement to the federal government. HCFA anticipates that the States
will choose to enforce the requirements. However, the statute also
makes clear that if a State does not substantially enforce the
requirements, HCFA must enforce them. The statute also requires HCFA to
enforce the requirements applicable to nonfederal governmental plans.
Section 146.184(b)(2) sets forth the procedures that HCFA will
follow if a question is raised about the State's enforcement with
respect to issuers. Under the procedures, States are given every
opportunity to demonstrate why federal enforcement is not required. The
regulations also make it clear that the procedures will not be
triggered unless HCFA is satisfied that there has first been a
reasonable effort to exhaust any State remedies. However, if, after
giving the State a reasonable opportunity to enforce, HCFA makes a
final determination that a State is not substantially enforcing these
requirements, HCFA will enforce the requirements using the civil money
penalties provided for under the statute.
Parargarph (d) describes the process for imposing civil money
penalties against issuers or nonfederal plans that fail to comply with
the group market requirements in the PHS Act. If HCFA receives a
complaint or other information that indicates that a right guaranteed
by the group market rules is being denied, HCFA will first determine
which entity is potentially responsible for any penalty. If the failure
is by an issuer, the issuer will be responsible. If a nonfederal
governmental plan is sponsored by a single employer, the employer will
be liable, but if the plan is sponsored by two or more employers, the
plan will be liable. If, after giving the entity or entities an
opportunity to respond, HCFA assesses a penalty, the regulation
provides appeal rights. The penalty can consist of up to $100 for each
day, for each individual whose rights are violated.
Effective Dates--26 CFR 54.9806-1, 29 CFR 2590.736, 45 CFR 146.125
The group market provisions are generally effective for plan years
beginning after June 30, 1997.\16\ In many cases, no preexisting
condition exclusion may be imposed with respect to an individual on the
effective date because any permitted preexisting condition exclusion
period is measured from the individual's enrollment date in the plan
(even if the enrollment date is before the statutory effective date).
An individual who has not completed the maximum permitted exclusion
period under HIPAA before the effective date for his or her plan may
use creditable coverage to reduce the remaining preexisting condition
exclusion period. The regulations contain examples illustrating the
effect of these rules.
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\16\ In the case of a group health plan maintained pursuant to
one or more collective bargaining agreements between employee
representatives and one or more employers ratified before August 21,
1996, the group market provision (other than the requirements to
provide certifications) do not apply to plan years beginning before
the later of July 1, 1997 or the date on which the last of the
collective bargaining agreements relating to the plan terminates
(determined without regard to any extension agreed to after August
21, 1996).
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The requirement that a plan or issuer provide certificates to show
creditable coverage applies to events occurring on or after July 1,
1996, except that in no case is a certificate required to be provided
before June 1, 1997 or to reflect coverage before July 1, 1996.
For events occurring on or after July 1, 1996 but before October 1,
1996, a certificate is required to be provided only upon a written
request by or on behalf of the individual to whom the certificate
applies. For events occurring on or after October 1, 1996 and before
June 1, 1997, a certificate must be furnished no later than June 1,
1997 (or, if later, any date that would otherwise apply under the
standard rules).
The regulations include an optional transition rule for events
before June 1, 1997. (The transition rule applies to automatic
certificate events; it does not apply where a certificate is
requested.) A group health plan or health insurance issuer offering
group health coverage is deemed to satisfy the automatic certificate
requirements if a special notice is provided no later than June 1,
1997. The notice must be in writing and must include information
substantially similar to the information included in a model notice
authorized by the Secretaries. For this purpose, the following model
notice is authorized:
IMPORTANT NOTICE OF YOUR RIGHT TO DOCUMENTATION OF HEALTH COVERAGE
Recent changes in Federal law may affect your health coverage if
you are enrolled or become eligible to enroll in health coverage
that excludes coverage for preexisting medical conditions.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA) limits the circumstances under which coverage may be
excluded for medical conditions present before you enroll. Under the
law, a preexisting condition exclusion generally may not be imposed
for more than 12 months (18 months for a late enrollee). The 12-
month (or 18-month) exclusion period is reduced by your prior health
coverage. You are entitled to a certificate that will show evidence
of your prior health coverage. If you buy health insurance other
than through an employer group health plan, a certificate of prior
coverage may help you obtain coverage without a preexisting
condition exclusion. Contact your State insurance department for
further information.
[[Page 16907]]
For employer group health plans, these changes generally take
effect at the beginning of the first plan year starting after June
30, 1997. For example, if your employer's plan year begins on
January 1, 1998, the plan is not required to give you credit for
your prior coverage until January 1, 1998.
You have the right to receive a certificate or prior health
coverage since July 1, 1996. You may need to provide other
documentation for earlier periods of health care coverage. Check
with your new plan administrator to see if your new plan excludes
coverage for preexisting conditions and if you need to provide a
certificate or other documentation of your previous coverage.
To get a certificate, complete the attached form and return it
to:
[Insert Name of Entity:]
[Insert Address]:
For additional information contact: [Insert Telephone Number]
The certificate must be provided to you promptly. Keep a copy of
this completed form. You may also request certificates for any of
your dependents (including your spouse) who were enrolled under your
health coverage.
REQUEST FOR CERTIFICATE OF HEALTH COVERAGE
Name of Participant:---------------------------------------------------
Date:------------------------------------------------------------------
Address:---------------------------------------------------------------
Telephone Number:------------------------------------------------------
Name and relationship of any dependents for whom certificates
are requested (and their address if different from above):
----------------------------------------------------------------------
----------------------------------------------------------------------
The provisions in the regulations relating to method of delivery
and entities required to provide a certificate apply with respect to
the provision of the notice. If an individual requests a certificate
following receipt of the notice, the certificate must be provided at
the time of the request as set forth in the regulations relating to
certificates provided upon request.
HIPAA provides that no enforcement action is to be taken against a
group health plan or health insurance issuer with respect to a
violation of the group market rules before January 1, 1998 if the plan
or issuer has sought to comply in good faith with such requirements.
Compliance with the regulations is deemed to be good faith compliance
with the group market rules.
G. Interim Rules and Request for Comments
Section 707 of ERISA (redesignated as section 734 by section
603(a)(3) of the NMHPA), Section 2707 of the PHS Act, and Section 9806
of the Code added by HIPAA, provide, in part, that the Secretaries of
Labor, Treasury and HHS may promulgate any interim final rules as they
determine are appropriate to carry out the portability provisions of
HIPAA.
Under Section 553(b) of the Administrative Procedure Act (5 U.S.C.
551 et seq.) a general notice of proposed rulemaking is not required
when the agency, for good cause, finds that notice and public comment
thereon are impracticable, unnecessary or contrary to the public
interest.
These rules are being adopted on an interim basis because the
Secretaries have determined that without prompt guidance, some members
of the regulated community will have difficulty complying with the
HIPAA's certification requirements, and will be in violation of the
statute. Congress expressly intended that the certification and prior
creditable coverage provisions serve as the mechanism for increasing
the portability of health coverage for plan participants and their
beneficiaries. Without the Departments' guidance, plans would likely be
unable to produce the necessary amendments to plan documents reflecting
HIPAA's new requirements, as well as the appropriate certifications of
prior coverage that would help participants and beneficiaries reduce
any applicable preexisting condition exclusion periods imposed by a new
health plan. Thus, without the Departments' prompt guidance,
participants and beneficiaries will not have the benefit of a
convenient certificate of prior coverage to present upon changing
health coverage, and will likely have greater difficulty proving that
they are entitled to health coverage immediately, or soon after joining
a new health plan.
Moreover, HIPAA's portability requirements will affect the
regulated community in the immediate future. HIPAA's certification
requirements are effective for all group health plans on June 1, 1997.
HIPAA's underlying requirements concerning establishing periods of
prior creditable coverage, pre-existing condition exclusion provisions,
and the special enrollment requirements, are generally applicable for
group health plans for plan years beginning on or after July 1, 1997.
Plan administrators and sponsors, and participants and beneficiaries
will need guidance on how to comply with the new statutory provisions
before these effective dates. These rules have been written in order to
ensure that plan sponsors and administrators of group health plans, as
well as participants and beneficiaries, are provided timely guidance
concerning compliance with these recently enacted amendments to ERISA,
the PHS Act and the Code. These rules provide guidance on these
statutory changes, and are being adopted on an interim basis because
the Departments find that issuance of such regulations in interim final
form with a request for comments is appropriate to carry out the new
regulatory structure imposed by HIPAA on group health plans and health
insurance issuers. In addition, these rules are necessary to ensure
that plan sponsors and administrators of group health plans, as well as
participants and beneficiaries, are provided timely guidance concerning
compliance with new and important disclosure obligations imposed by
HIPAA.
Sections 101(g)(4), 102(c)(4), and 401(c)(4) of HIPAA also mandate
that the Secretaries issue regulations necessary to carry out the
portability amendments by April 1, 1997. Issuance of a notice of
proposed rule making with pubic comment thereon prior to issuing a
final rule could delay significantly the issuance of essential guidance
and prevent the Departments from complying with their statutory rule
making deadline. Furthermore, these rules are being adopted on an
interim basis and the Departments are inviting interested persons to
submit written comments on the rules for consideration in the
development of the final rules relating to HIPAA. Such final rules may
be issued in advance of January 1, 1998, after affording the public an
opportunity to review and comment.
For the foregoing reasons, the Departments find that the
publication of a proposed regulation, for the purpose of notice and
public comment thereon, would be impracticable, unnecessary, and
contrary to the public interest.
H. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to rules which would have significant
economic impact on a substantial number of small entities. Section 603
of the RFA requires an agency publishing a general notice of proposed
rulemaking (NPRM) under section 553 of the APA to present at the time
of the publication of its NPRM an initial regulatory flexibility
analysis, describing the impact of the rule on small entities, and
seeking public comment on such impact.
Small entities include small business, non-profit organizations,
and governmental agencies. A ``rule'' under the Regulatory Flexibility
Act is one for which a general notice of proposed rulemaking is
required under section 553(b) of the APA.
Since these rules are issued as interim rules, and not as a general
notice of
[[Page 16908]]
proposed rulemaking, for the reasons stated above, an Initial
Regulatory Flexibility analysis has not been prepared.
While these rules are being promulgated as interim final rules, the
Departments nevertheless invite interested persons to submit comments
for consideration in the development of the final rules regulating to
HIPAA. Consistent with the policy of the Regulatory Flexibility Act,
the public is encouraged to submit comments that suggest alternative
rules that accomplish the stated purpose of the statute and minimize
the impact on small entities. Specifically, the public in encouraged to
address:
<bullet> What information relating to prior coverage, preexisting
condition exclusion, health status, waiting periods and similar issues
do employers, plans and issuers currently rely on in maintaining health
care coverage systems?
<bullet> What are the estimated costs of complying with the
statute's requirements on certification of periods of prior creditable
coverage?
<bullet> How many small issuers offer products that may be subject
to the regulations? Is there an anticipated effect on these small
companies' competitiveness due to the regulations?
<bullet> To what extent do group health plans currently use service
providers to fulfill the administrative obligations, including
reporting and disclosure, previously imposed by ERISA? To what extent
would group health plans also use service providers to comply with this
regulation's certification requirements?
I. Executive Order 12866, the Unfunded Mandates Reform Act and the
Small Business Regulatory Enforcement Fairness Act of 1995
These rules have been determined to be a significant regulatory
action under Section 3(f) of Executive Order 12866. The following
analysis is consistent with Section 6(a)(3)(C) of the Order.
These rules are not subject to the Unfunded Mandates Reform Act of
1995 (Pub. L. 104-4), because they are interim final rules. However,
consistent with the policy embodied in the Unfunded Mandates Reform
Act, the regulation has been designed to be the least burdensome
alternative for state, local and tribal governments and the private
sector, while achieving the objectives of HIPAA. In addition, the
following analysis provides information concerning the effects of the
regulation on state, local, and tribal governments and the private
sector.
Throughout the regulatory process, HHS met and consulted with
representatives of affected state, local and tribal governments. These
groups include the National Association of Insurance Commissioners, the
National Governors' Association, the National Council for State
Legislatures, the Indian Health Service, and the American Public
Welfare Association. HHS also provided technical advice regarding its
interpretation of the statute to state insurance commissioners and
state legislatures at their request. Generally, these groups have
concerns regarding:
<bullet> The statute's preemption of state laws that would prevent
the implementation of statutory provisions;
<bullet> The burden on issuers and plans to implement the statutory
provisions, especially with regard to certification of prior creditable
coverage; and
<bullet> State's desires to have considerable flexibility in
complying with the statue, and continuing their traditional role as
regulators of insurance.
After serious consideration of these concerns, HHS narrowly
interpreted the preemption of state law, taking the least burdensome
alternatives provided states considerable flexibility in complying with
the statute, and recognized the limited authority of federal agencies
in the regulation of health insurance.
The Administrator of the Office of Information and Regulatory
Affairs of the Office of Management and Budget has determined that this
is a major rule for purposes of the Small Business Regulatory
Enforcement Fairness Act of 1996 (5 U.S.C. Section 801 et seq.).
Set forth below is a discussion regarding the impact of the statute
and a discussion of the costs and benefits of the regulations
implementing the statute.
J. Extensions of Coverage Under the Statute
These regulations implement certain provisions of HIPAA. The
statute was enacted to, among other things, ``improve portability and
continuity of health care coverage in the group and individual
markets,'' as stated in the Conference Report. The statute accomplishes
these goals by instituting reforms in the group and individual
insurance markets, including provisions limiting the use of pre-
existing condition exclusions, and requiring guaranteed access to
health care coverage and guaranteed renewability for certain groups and
individuals. There are also non-discrimination provisions and special
enrollment rights in the statute.
The pre-existing condition exclusion periods that HIPAA restricts
are widespread. According to the Bureau of Labor Statistics (BLS), 46
percent of participants in private-sector, employer-sponsored health
plans are in plans with pre-existing condition exclusions (1993-1994
data). The same is true of 41 percent of participants in state and
local government employer-sponsored plans (1994 data.)
The duration of exclusion periods varies from plan to plan. Based
on Peat Marwick's 1995 employer survey, an estimated 57 percent of
participants in plans with exclusions are in plans with exclusions that
last 12 months. The remainder are distributed as follows: 13 percent in
plans with 3-month exclusions, 22 percent in plans with 6-month
exclusions, 7 percent in plans with 9-month exclusions, and 1 percent
in plans with exclusions that last more than 12 months.
HIPAA's portability provisions resemble provisions of many current
state laws. Importantly, however, HIPAA extends these provisions of
self-insured ERISA plans which federal law shields from state
regulation. In addition, it sets a minimum uniform threshold for
insured group plans and individual markets across all states.
HIPAA's portability provisions will result in both direct and
social costs and benefits.
In general, direct costs and benefits arise directly from the
application of HIPAA's insurance portability and access provisions.
Direct costs and benefits are often best understood as transfers of
resources among economic agents, which do not necessarily represent
changes in overall social welfare. Stated differently, they represent
changes in how the economic pie is divided (in this case, mainly with
respect to health care), and not changes in the size of the pie. Direct
costs and benefits are often easier to quantify than social costs, as
they are often directly observable as transactions in the marketplace.
With respect to HIPAA's portability and access provisions, direct
costs and benefits arise from the extension of insurance coverage to
individuals and conditions not otherwise covered. Direct benefits to
individuals include the payment of individuals' claims for those
services and conditions. Direct costs of individuals include the
premiums associated with that coverage. Some available estimates of
these direct costs and benefits are presented below.
Social costs and benefits, in contrast, do result in net changes in
overall social welfare. Social benefits generally reflect social
welfare gains that arise in
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connection with statutory or regulatory interventions that remedy
market failure. Likewise, social costs generally reflect welfare losses
arising from interventions in otherwise efficient markets. Social
welfare changes often play out through a complex set of behavorial
responses to interventions. They are more difficult to quantify than
direct costs and benefits.
With respect to HIPAA, social welfare changes generally arise
indirectly from HIPAA's portability and access provisions. They reflect
dynamic behavioral responses to HIPAA's portability and access
provisions. Expected social benefits, primarily improved access to
health insurance and also improved job mobility, cannot be meaningfully
quantified. Expected social costs, which could include erosions in
coverage arising from direct premium costs, are expected to be small.
Since no measures of HIPAA's many social welfare effects are available,
a mostly qualitative discussion of major effects is offered below. A
more quantitative discussion of direct costs and benefits follows
later.
1. Social Welfare Effects of HIPAA's Portability and Access Provisions
The primary direct benefits of the law are improved access to
insurance coverage, and more comprehensive coverage, through employers
and in the individual insurance market. Increased access and
comprehensiveness helps protect individuals from catastrophic expenses.
There are a number of social benefits associated with improved
access:
<bullet> It reduces individual's risk of incurring large out-of-
pocket costs;
<bullet> It is often more cost effective to provide timely
preventive and remedial care than to delay care until conditions
worsen. Therefore, to the extent that individuals receive more timely
and appropriate care as a result of HIPAA, over time, the long-term,
cumulative cost of their care may be lower. This has the potential to
reduce premiums for all individuals within a risk pool, not just the
individuals directly affected by HIPAA. Similarly, the Medicare program
may benefit from reduced expenditures because more individuals who
become newly entitled to Medicare will have had insurance coverage
during the course of their working life or through the individual
insurance market.
<bullet> To the extent that more timely care results in improved
health, worker attendance and productivity might improve.
<bullet> HIPAA's portability provisions likewise help individuals
transitioning from state and federal welfare programs to paid work.
Individuals with health conditions can offset their new health plan's
preexisting condition exclusions against prior coverage from any
source, including Medicaid.
<bullet> Reductions in job benefit both individuals and the economy
at large. Increased mobility can boost individual workers' career
opportunities. Increased mobility also strengthens U.S. economic
efficiency and competitiveness;
<bullet> HIPAA's federal minimum standards for small group and
individual access to insurance coverage may improve the functioning of
small group and individual markets. The standards will alleviate
disruptions that might otherwise arise when ``riskier'' groups and
individuals are denied or dropped from coverage.
<bullet> To the extent that HIPAA results, on net, in more
insurance payment for otherwise uncompensated care, cost-shifting and
associated inefficiencies in health care markets could be reduced.
HIPAA's group-to-individual portability provisions may provide a
benefit for employees who move to jobs without health coverage. Some
small employers that do not currently offer health care coverage may be
able to do so more easily under HIPAA's guaranteed issue provisions.
This may help level the playing for small employers to compete with
larger ones in recruiting employees. While premium increases resulting
from HIPAA may reduce the affordability of coverage for some employers,
this effect is expected to be small, as noted below.
HIPAA also requires that issuers offering health insurance coverage
in the individual market renew coverage for all individuals purchasing
health insurance coverage in the individual market, not only eligible
individuals. However, when an eligible individual elects family
coverage, the |
