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Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 9166]
RIN 1545–AX84
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
RIN 1210–AA54
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
45 CFR Parts 144 and 146
RIN 0938–AL43
Final Regulations for Health Coverage
Portability for Group Health Plans and
Group Health Insurance Issuers Under
HIPAA Titles I & IV
Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration,
Department of Labor; Centers for
Medicare & Medicaid Services,
Department of Health and Human
Services.
ACTION: Final regulation.
AGENCIES:
SUMMARY: This document contains final
regulations governing portability
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
the Internal Revenue Code, the
Employee Retirement Income Security
Act, and the Public Health Service Act
enacted as part of the Health Insurance
Portability and Accountability Act of
1996.
DATES: Effective date. These final
regulations are effective February 28,
2005.
Applicability date. These final
regulations apply for plan years
beginning on or after July 1, 2005.
FOR FURTHER INFORMATION CONTACT:
Dave Mlawsky, Centers for Medicare &
Medicaid Services (CMS), Department
of Health and Human Services, at 1–
877–267–2323 ext. 61565; Amy Turner,
Employee Benefits Security
Administration, Department of Labor, at
(202) 693–8335; or Russ Weinheimer,
Internal Revenue Service, Department of
the Treasury, at (202) 622–6080.
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Customer Service Information
To assist consumers and the regulated
community, the Departments have
issued questions and answers
concerning HIPAA. Individuals
interested in obtaining copies of
Department of Labor publications
concerning changes in health care law
may call a toll free number, 1–866–444–
EBSA (3272), or access the publications
on-line at www.dol.gov/ebsa, the
Department of Labor’s Web site. These
regulations as well as other information
on the new health care laws are also
available on the Department of Labor’s
interactive web pages, Health Elaws. In
addition, CMS’s publication entitled
‘‘Protecting Your Health Insurance
Coverage’’ is available by calling 1–800–
633–4227 or on the Department of
Health and Human Services’ Web site
(www.cms.hhs.gov/hipaa1), which
includes the interactive webpages,
HIPAA Online. Copies of the HIPAA
regulations, as well as notices and press
releases related to HIPAA and other
health care laws, are also available at
the above-referenced Web sites.
A. Background
The Health Insurance Portability and
Accountability Act of 1996 (HIPAA),
Public Law 104–191, was enacted on
August 21, 1996. HIPAA amended the
Internal Revenue Code of 1986 (Code),
the Employee Retirement Income
Security Act of 1974 (ERISA), and the
Public Health Service Act (PHS Act) to
provide for, among other things,
improved portability and continuity of
health coverage. Interim final
regulations implementing the HIPAA
provisions were first made available to
the public on April 1, 1997 (published
in the Federal Register on April 8, 1997,
62 FR 16894) (April 1997 interim rules).
On December 29, 1997, the Departments
published in the Federal Register (62
FR 67688) a clarification of the April
1997 interim rules as they relate to
excepted benefits. On October 25, 1999,
the Departments published a notice in
the Federal Register (64 FR 57520)
soliciting additional comments on the
portability requirements based on the
experience of plans and issuers
operating under the April 1997 interim
rules.
After consideration of all the
comments received on the portability
provisions, the Departments are
publishing these final regulations. These
final regulations do not significantly
modify the framework established in the
April 1997 interim rules. Instead, these
final regulations implement changes to
improve the portability of health
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coverage while seeking to minimize
burdens on group health plans and
group health insurance issuers. These
final regulations become applicable to
plans and issuers on the first day of the
plan year beginning on or after July 1,
2005. Each plan or issuer must continue
to comply with the April 1997 interim
rules until these final regulations
become applicable to that plan or issuer.
In addition, the Departments are
publishing proposed regulations
elsewhere in this issue of the Federal
Register to address additional and
discrete issues.
B. Overview of the Final Regulations
1. Definitions—26 CFR 54.9801–2, 29
CFR 2590–701–2, 45 CFR 144.103
This section of the final regulations
provides most of the definitions used in
the regulations implementing HIPAA. In
addition to some minor restructuring of
the April 1997 interim rules (i.e., some
definitions have been moved into other
sections of the regulations), some
additional terms have been added.
Among the new terms is the definition
of the term dependent. Dependent is
defined as any individual who is or may
become eligible for coverage under the
terms of a group health plan because of
a relationship to a participant. This is
intended to clarify that for purposes of
HIPAA the terms of the group health
plan determine which individuals are
eligible for coverage as a dependent
under the plan. Thus, for example, the
plan terms control the age (if any) at
which and conditions under which a
child of a participant ceases to be
eligible for coverage as a dependent.
Moreover, whether an individual is
eligible for special enrollment as a
dependent is determined in part based
on the plan’s definition of dependent.
2. Limitations on Preexisting Condition
Exclusions—26 CFR 54.9801–3, 29 CFR
2590.701–3, 45 CFR 146.111
This section of the final regulations
addresses HIPAA’s limitations on a
plan’s or issuer’s ability to impose a
preexisting condition exclusion.
Comments addressing this topic
generally approved of the approach
taken in the Departments’ April 1997
interim rules. Accordingly, these final
regulations do not modify significantly
the April 1997 interim rules but instead
add several clarifications to the general
framework already established. Also,
some comments reflect a
misunderstanding of the notice
requirements for plans and issuers that
impose a preexisting condition
exclusion. Thus, these final regulations
are restructured to clarify these notice
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obligations. In addition, an example in
the regulations contains language that
plans and issuers can use to satisfy the
notice requirements.
Definition of a Preexisting Condition
Exclusion
In these final regulations, a
preexisting condition exclusion
continues to be defined broadly. A
preexisting condition exclusion is any
limitation or exclusion of benefits
relating to a condition based on the fact
that the condition was present before
the effective date of coverage, whether
or not any medical advice, diagnosis,
care, or treatment was recommended or
received before that day. This definition
has been moved to this section on
limitations on preexisting condition
exclusions to emphasize the difference
between the broadness of the definition
and the narrowness of permissible
preexisting condition exclusions. The
definition has also been modified
slightly from the previous definition
and clarifications of its application have
been added.
If a plan exclusion satisfies the
definition of a preexisting condition
exclusion, it is subject to the rules of
this section for preexisting condition
exclusions. Under the April 1997
interim rules, whether an exclusion is a
preexisting condition exclusion is
determined by whether the plan
provision restricts benefits for a
condition because it was present before
the ‘‘first day of coverage.’’ These final
regulations have replaced the term first
day of coverage with effective date of
coverage under a group health plan or
health insurance coverage. In the case of
a plan that changes health insurance
issuers, ‘‘first day of coverage’’ can be
read to mean only the first day of
coverage under the plan and not the first
day of coverage under the new issuer’s
policy or contract (because ‘‘first day of
coverage’’ is thus defined for purposes
of determining the enrollment date).
This reading would mean that an
exclusion of benefits based on the fact
that a condition existed before the
effective date of coverage in the health
insurance of the succeeding issuer
would not be a preexisting condition
(because it would not apply based on
the fact that a condition existed before
the first day of coverage under the plan).
The phrase ‘‘effective date of coverage
under a group health plan or health
insurance coverage’’ under the final
regulations thus applies to coverage
either under a plan or health insurance
coverage. Therefore, a provision used by
a succeeding issuer to deny benefits for
a condition because it arose before the
effective date of coverage under the new
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policy would also fit the definition of a
preexisting condition exclusion.
Since the April 1997 interim rules
were published, several situations have
repeatedly arisen in which a plan
exclusion is not designated as a
preexisting condition exclusion but
nevertheless satisfies the definition of a
preexisting condition exclusion.
Examples have been added to illustrate
some of these common plan provisions.
These situations include a plan
provision that provides coverage for
accidental injury only if the injury
occurred while covered under the plan,
a plan provision that counts against a
lifetime limit benefits received under
prior health coverage, and a plan
provision that denies benefits for
pregnancy until 12 months after an
individual generally becomes eligible
for benefits under the plan.1 The
regulations also include a series of
examples relating to exclusions for
congenital conditions. These examples
illustrate that a plan that generally
provides benefits for a condition cannot
exclude benefits for the condition in
instances where it arises congenitally
without complying with these
limitations on preexisting condition
exclusions. However, these limitations
would not apply if a plan excludes
benefits for all instances of a condition,
even if all instances are likely to be
congenital. Plans and policies that
contain these types of preexisting
condition exclusions that are not
designated as such should be modified
to comply with HIPAA’s requirements
for preexisting condition exclusions, or
the exclusions should be deleted. In
addition, because a preexisting
condition exclusion discriminates
against individuals based on one or
more health factors, unless a preexisting
condition exclusion complies with
HIPAA’s limitations on preexisting
condition exclusions, the plan provision
will also violate the HIPAA
nondiscrimination provisions.2
General Rules Governing Preexisting
Condition Exclusions
In addition to modifying the
definition of a preexisting condition
exclusion, these final regulations set
1 Several comments (including those of several
State insurance commissioner’s offices) have asked
the Departments to clarify that a preexisting
condition exclusion would also include any waiting
period or other temporary benefit exclusion (other
than a waiting period on all benefits). The
Departments are publishing separately in this issue
of the Federal Register a Request for Information,
which invites further comments on this issue of
benefit-specific waiting periods.
2 See 26 CFR 54.9802–1T(b)(3), 29 CFR
2590.702(b)(3), and 45 CFR 146.121(b)(3), published
on January 8, 2001 at 66 FR 1378.
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forth HIPAA’s limitations on preexisting
condition exclusions, as follows:
Six-Month Look-Back Rule
The final regulations retain the 6month look-back rule set forth in the
April 1997 interim rules. In addition,
these regulations clarify that a plan or
issuer can use a period shorter than 6
months for purposes of applying the 6month look-back rule. Examples in
these final regulations also clarify that if
a doctor’s recommendation for
treatment occurs before the 6-month
look-back period, an individual can be
subject to a preexisting condition
exclusion only if the individual receives
the recommended treatment within the
6-month look-back period.
Maximum Length of Preexisting
Condition Exclusion
The final regulations retain the rule
set forth in the April 1997 interim rules
that a preexisting condition exclusion is
not permitted to extend for more than
12 months (18 months in the case of a
late enrollee) after the enrollment date.
Reducing a Preexisting Condition
Exclusion Period by Creditable Coverage
The final regulations retain the rule
set forth in the April 1997 interim rules.
Accordingly, under these final
regulations, the period of any
preexisting condition exclusion that
would otherwise apply to an individual
under a group health plan is reduced by
the number of days of creditable
coverage 3 the individual has as of the
enrollment date (not including any days
before a significant break in coverage).
Some comments asked how this rule
applies to individuals who currently
have coverage under another plan (that
is, the coverage has not yet ended). An
example clarifies that a plan or issuer
must count all days of creditable
coverage prior to an individual’s
enrollment date, even if that coverage is
still in effect.
Other Standards
The final regulations retain the
statement that other legal standards may
apply to group health coverage
preexisting condition exclusions. In this
connection, the Department of Labor’s
Veterans’ Employment and Training
Service (VETS) has commented that the
Uniformed Services Employment and
Reemployment Rights Act (USERRA)
provides reemployment rights for
persons who leave civilian employment
to perform service in the uniformed
3 For purposes of these regulations, the phrase
‘‘days of creditable coverage’’ has the same meaning
as the phrase ‘‘aggregate of the periods of creditable
coverage’’ as such phrase is used in the statute.
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services and prohibits employer
discrimination against any person on
the basis of the person’s military
service, obligations, intent to join or
certain other protected activities. In
general, USERRA reemployment rights
apply to persons who leave civilian
employment to serve a single enlistment
period in the active military or to
employees who are members of the
National Guard or Reserve and are
required to perform intermittent
military service or training. USERRA
provides rights regarding both
continuation of group health plan
coverage by an employee who is absent
to perform service in the uniformed
services and reinstatement of group
health plan coverage upon
reemployment if the coverage was
interrupted by the service. In response
to this comment, the final regulations
include a statement that USERRA can
affect the application of a preexisting
condition exclusion to certain
individuals who are reinstated in a
group health plan following active
military service. For more information,
a VETS directory and additional
USERRA information is available at
www.dol.gov/vets.
Enrollment Definitions
Both the 6-month look-back period
and the maximum length of preexisting
condition exclusion are measured with
respect to an individual’s enrollment
date. The final regulations generally
retain the enrollment definitions that
were set forth in the April 1997 interim
rules (including definitions of
enrollment date, waiting period, and
late enrollee). Under HIPAA, the April
1997 interim rules, and these final
regulations, the enrollment date is the
first day of coverage under the plan or,
if there is a waiting period, the first day
of the waiting period. These final
regulations clarify that if an individual
receiving benefits under a group health
plan changes benefit package options, or
if the plan changes group health
insurance issuers, the individual’s
enrollment date remains the same.
The Departments received several
comments reflecting confusion about
the relationship between the preexisting
condition exclusion rules and the
definitions of enrollment date and
waiting period. Accordingly, guidance
concerning waiting periods previously
located in the definitions section has
been moved to this section of the
regulations and expanded. In addition,
the definition of waiting period has
been modified with respect to
individuals seeking individual market
coverage. Specifically, these final rules
clarify that if an individual seeks
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coverage in the individual market, a
waiting period begins on the date the
individual submits a substantially
complete application for coverage and
ends on either the date coverage begins
(if the application results in coverage),
or the date on which the application is
denied by the issuer or the date on
which the offer of coverage lapses (if the
application does not result in coverage).
Under the statute, the April 1997
interim rules, and these final
regulations, the effect of considering
this period a waiting period is that the
period is not counted when determining
the length of any break in coverage. This
rule modifies the rule contained in the
April 1997 interim rules (which
provided a waiting period only if the
individual actually obtained coverage).
The modification addresses situations
where some individuals have been
denied individual market policies or
individuals declined coverage because,
for example, the policies had an
exorbitant premium.
Additional examples illustrate the
interaction between a waiting period
and the 6-month look-back period, the
application of the 6-month look-back
and maximum preexisting condition
exclusion period rules to plans with
more than one benefit package option at
open season, and the interaction
between these rules and other eligibility
criteria under the plan.
Individuals and Conditions That Cannot
Be Subject to a Preexisting Condition
Exclusion
Under HIPAA, the April 1997 interim
rules, and these final rules, a preexisting
condition exclusion cannot be applied
to pregnancy. Nor can a preexisting
condition exclusion be applied to a
newborn, adopted child, or child placed
for adoption if the child is covered
under a group health plan (or other
creditable coverage) within 30 days after
birth, adoption, or placement for
adoption.
One comment noted that the rule for
newborns in the April 1997 interim
rules is expressed inconsistently. Some
of those expressions are inconsistent
with the rule for adopted children.
Specifically, the rule for adopted
children and one expression of the rule
for newborns refers to eligibility being
conditioned on being covered under any
creditable coverage as of the last day of
the 30-day period after birth, adoption,
or placement for adoption. However, in
other expressions of the rule for
newborns, a reference is made to being
covered under creditable coverage
within 30 days after birth. These final
regulations use one term consistently,
referring to coverage within 30 days
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after birth, adoption, or placement for
adoption. This accords with the
conference report. H.R. Conf. Rep. No.
736, 104th Cong. 2d Session 184–185
(1996). Consequently, if, for example, a
child is covered within 30 days of birth,
the child cannot be subject to a
preexisting condition exclusion even if
the child is no longer covered under the
plan on the 30th day after birth (unless
the child has a significant break in
coverage).
Several comments noted that State
laws applicable to health insurance
issuers sometimes require that a
mother’s health coverage must provide
benefits for health care expenses
incurred for the child for a specified
period following birth and cannot be
recouped even if the child never enrolls
in the plan under which the mother is
covered. A new example clarifies that,
in this situation, the child has creditable
coverage within 30 days after birth and,
therefore, no preexisting condition
exclusion may be imposed on the child
unless the child has a subsequent
significant break in coverage.
Finally, HIPAA, the April 1997
interim rules, and these final regulations
provide that a group health plan, and a
health insurance issuer offering group
health insurance coverage, may not
impose a preexisting condition
exclusion relating to a condition based
solely on genetic information.
Comments expressed concern that the
definition of genetic information in the
April 1997 interim rules was too broad
and would prevent the application of a
preexisting condition exclusion to
conditions that would be otherwise
permitted independent of any genetic
information. Although these regulations
have not changed the definition of
genetic information, the regulations
clarify that if an individual is diagnosed
with a condition, even if the condition
relates to genetic information, the plan
may impose a preexisting condition
exclusion with respect to the condition,
subject to the other limitations of this
section. This rule was located in the
definition of medical condition in the
April 1997 interim rules. Some
comments indicated this rule was
difficult to locate. Thus, it has been
moved to this section, and an example
illustrating the rule has been added.
First Notice of Preexisting Condition
Exclusion—General Notice
Under these final regulations, as with
the April 1997 interim rules, a group
health plan imposing a preexisting
condition exclusion, and a health
insurance issuer offering group health
insurance coverage under a plan
imposing a preexisting condition
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exclusion, must provide a written
general notice of preexisting condition
exclusion before it can impose a
preexisting condition exclusion.
After publication of the April 1997
interim rules, the Departments received
questions about the operation of this
requirement. The April 1997 interim
rules provided that a plan or issuer
could not impose a preexisting
condition exclusion with respect to a
participant or dependent before
providing the general notice to the
participant. Several comments asked
whether plans and issuers could delay
providing the general notice until a
large claim was filed and then pend the
claim until the general notice was sent.
Other comments expressed concern that
if plans do not notify individuals upon
enrollment about the benefit exclusions
that apply to their coverage, individuals
will not be able to make informed
decisions about their health care
choices.
The Departments had contemplated
under the April 1997 interim rules that
individuals should be provided the
information required in the general
notice before they incurred claims that
could be denied under a preexisting
condition exclusion. These final
regulations clarify the procedural
requirements for the general notice of
preexisting condition exclusion.
Specifically, under the final regulations,
the general notice of preexisting
condition exclusion must be provided
as part of any written application
materials distributed by the plan or
issuer for enrollment. If the plan or
issuer does not distribute such
materials, the notice must be provided
by the earliest date following a request
for enrollment that the plan or issuer,
acting in a reasonable and prompt
fashion, can provide the notice.
Moreover, regarding the content of this
general notice, the final regulations
clarify precisely what is required when
disclosing the existence and terms of the
plan’s preexisting condition exclusion.
In addition, these final regulations
require the notice to include the person
to contact (including an address or
telephone number) for obtaining
additional information or assistance
regarding the preexisting condition
exclusion. An example in these final
regulations sets forth sample language
that plans and issuers can use when
developing the general notice for their
coverages.
Issuers that sell different policies to
different plans should also be aware that
when describing the existence and
terms of the maximum preexisting
condition exclusion period, the issuer
must describe to individuals the actual
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maximum exclusion period under their
policy. Therefore, if an issuer sells two
policies, one with a 6-month and one
with a 12-month maximum preexisting
condition exclusion, the issuer could
not send one notice to individuals
under both policies indicating that the
maximum preexisting condition
exclusion is 12 months. Instead, the
issuer is required to send one notice to
participants under the policy with the 6month preexisting condition exclusion
(indicating that the maximum exclusion
period is 6 months) and a different
notice to participants under the policy
with the 12-month preexisting condition
exclusion (indicating that the maximum
exclusion period is 12 months).
Determination of Creditable Coverage
These final regulations require a plan
or issuer that imposes a preexisting
condition exclusion to make a
determination of creditable coverage
within a reasonable time after receiving
information regarding prior health
coverage. This rule was included in the
section of the April 1997 interim rules
addressing certification and disclosure
of previous coverage, and it has been
moved to this section on preexisting
condition exclusions unchanged. These
final regulations clarify that a plan or
issuer may not impose any limit on the
amount of time that an individual has
to present a certificate or other evidence
of creditable coverage.4
Second Notice of Preexisting Condition
Exclusion—Individual Notice
These final regulations retain the
requirement to provide an individual a
written notice of the length of
preexisting condition exclusion that
remains after offsetting for prior
creditable coverage. These final
regulations clarify that this individual
notice is not required to identify any
medical conditions specific to the
individual that could be subject to the
exclusion. Also, a plan or issuer is not
required to provide this notice if the
plan or issuer does not impose any
preexisting condition exclusion on the
individual or if the plan’s preexisting
condition exclusion is completely offset
by the individual’s prior creditable
coverage. These final regulations add a
new example that illustrates how the
notice works and includes sample
language that may be helpful to plans
and issuers in developing this type of
notice with respect to their coverage.
4 Of course, after a claim has been denied under
a preexisting condition exclusion, other laws, such
as section 503 of ERISA, may set forth timing rules
for an individual to appeal a denied claim.
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78723
Reconsideration
Consistent with the April 1997
interim rules, these final regulations do
not prevent a plan or issuer from
modifying an initial determination of
creditable coverage if it determines that
the individual did not have the claimed
creditable coverage and if certain
procedural requirements are met. The
final regulations have been slightly
reorganized and modified to make
clearer that a plan or issuer is permitted
to modify its initial determination if a
notice of the new determination (that
meets the requirements of the second,
individual notice of preexisting
condition exclusion, described above) is
provided and, until the notice of the
new determination is provided, the plan
or issuer acts in a manner consistent
with the initial determination for
purposes of approving access to medical
services (such as pre-surgery
authorization).
3. Rules Relating to Creditable
Coverage—26 CFR 54.9801–4, 29 CFR
2590.701–4, 45 CFR 146.113
This section of the final regulations
describes the varieties of health
coverage that constitute creditable
coverage and sets forth rules for how to
count creditable coverage for purposes
of the rule requiring plans and issuers
to offset the maximum length of a
preexisting condition exclusion by prior
creditable coverage.
Creditable Coverage
The rules in the final regulations
describing the varieties of health
coverage that constitute creditable
coverage generally follow the April 1997
interim rules, with two modifications.
The April 1997 interim rules contain ten
categories of creditable coverage. After
publication of the April 1997 interim
rules, Congress created the State
Children’s Health Insurance Program
(S–CHIP), which allows states to
provide health coverage to eligible
children through Medicaid expansion or
private market mechanisms. This
coverage meets the definition of
creditable coverage as either Medicaid
coverage, group health plan coverage, or
health insurance coverage. In addition,
Congress specifically provides 5 that S–
CHIP coverage is creditable coverage
under HIPAA. Therefore, these final
regulations have added coverage under
S–CHIP as an eleventh category of
creditable coverage.
The second modification is to the
definition of public health plan. This
5 Section 2109 of the Social Security Act, enacted
by section 4901 of the Balanced Budget Act of 1997,
Pub. L. 105–33, 111 Stat. 567.
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definition has been changed in two
ways. The first change relates to the
type of health coverage provided by a
public health plan. The statute does not
define the term. The April 1997 interim
rules limit the definition of public
health plans to certain plans provided
through health insurance coverage.
Some comments suggested it was
unnecessary to restrict the definition to
insured coverage and argued that the
term public health plan should be
expanded. These final regulations delete
the word ‘‘insurance’’ from that
requirement so that any health coverage
provided by a governmental entity,
regardless of whether it has the riskshifting or risk-distributing effects of
insurance, is a public health plan.
The second change to the definition of
public health plan relates to the type of
governmental entity that can establish
or maintain a public health plan. Under
the April 1997 interim rules, only health
coverage provided under a plan
established or maintained by a State, a
county, or another political subdivision
of a State can be a public health plan.
This definition does not include a plan
established or maintained by a foreign
government or the U.S. government. The
preamble to the April 1997 interim rules
specifically solicited comments on
whether public health systems of
foreign countries should be considered
public health plans.
Many comments addressed this issue,
arguing both for and against including
public health systems of foreign
governments in the definition of public
health plan. The comments in favor of
inclusion argued that generally the
health coverage provided through
public health systems in foreign
countries is more comprehensive than
that received in this country. Some
comments argued that the exclusion of
foreign public health systems from the
definition of public health plan
arbitrarily penalizes individuals who
maintain continuous health coverage
through a foreign public health system.
The comments against inclusion
focused on the difficulty for a plan or
issuer to verify whether someone had
the coverage they claimed under a
foreign public health system.
Under these final regulations, the
definition of a public health plan
includes health coverage provided
under a plan established or maintained
by a foreign country or a political
subdivision. While this result can
inconvenience plans and issuers,
verifying this type of coverage may be
no more inconvenient than verifying
certain other types of coverage, such as
group health coverage provided through
foreign employers. In addition, this
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result is much less inequitable than
denying an individual coverage for a
preexisting condition in a case in which
the individual can provide reliable
evidence of having coverage under the
public health system of a foreign
government. Under the rules for
establishing creditable coverage in the
absence of a certificate of creditable
coverage, an individual is required to
present at a minimum some
corroborating evidence of the claimed
creditable coverage and is required to
cooperate with a plan’s or issuer’s
efforts to verify coverage. Thus, in the
case of an individual claiming coverage
under the public health system of a
foreign country, a plan or issuer could
require some evidence of residency in
the foreign country (or evidence that
some other eligibility standard had been
met) and the individual would have to
cooperate with the plan’s or issuer’s
efforts to verify that the individual had
coverage under that country’s health
system.
Under the revised definition in these
final regulations, health coverage
provided under a plan established or
maintained by the U.S. Government is
also a public health plan.
Counting Creditable Coverage
The rules in the final regulations for
how to count creditable coverage are
adopted with stylistic and conforming
changes from the April 1997 interim
rules. In addition, a technical
modification was added, as required by
a statutory change made by the Trade
Act of 2002 (‘‘the Trade Act’’, Public
Law 107–210, enacted on August 6,
2002). Under the Trade Act, workers
whose employment is adversely affected
by international trade may become
entitled to receive trade adjustment
assistance (TAA) and a 65% health
coverage tax credit (HCTC). The Trade
Act also amended COBRA continuation
coverage provisions in ERISA, the
Public Health Service Act, and the
Internal Revenue Code, to provide a
second opportunity to elect COBRA for
individuals who are eventually
determined to qualify for TAA, but who
did not elect COBRA after their original
loss of health coverage. Because this
could result in a ‘‘significant break in
coverage’’ for purposes of HIPAA, the
Trade Act specifies that the period
beginning with the loss of coverage, and
ending on the first day of the second
election period, for individuals who
elect COBRA during this second
election period, should be disregarded
for purposes of the HIPAA pre-existing
condition provisions. Accordingly, as
required by the Trade Act, under these
final rules the days between the date an
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individual lost group health plan
coverage and the first day of the second
COBRA election period are not taken
into account in determining whether a
significant break in coverage has
occurred. For more information on
TAA, contact the Department of Labor’s
Employment and Training
Administration at 877–US2–JOBS or at
www.doleta.gov/tradeact. For more
information on the HCTC, contact the
IRS toll-free at 866–628–4282.
The existing examples relating to the
tolling of the period for determining a
significant break in coverage in the case
of individuals seeking coverage in the
individual market have also been
modified to conform to the change in
the definition of waiting period, which
under these final regulations includes
the period beginning when an
individual submits a substantially
complete application for coverage in the
individual market and ends when the
application is denied or when the offer
of coverage lapses. In addition, here, as
throughout these final regulations,
references in the April 1997 interim
rules to ‘‘plan or policy’’ have been
revised so that the reference includes
health insurance coverage not offered
through a policy of insurance, such as
health insurance coverage offered
through a contract of a health
maintenance organization.
Published elsewhere in this issue of
the Federal Register is a proposed rule
that provides that the period that
determines whether a significant break
in coverage has occurred (generally 63
days) is tolled in cases in which a
certificate of creditable coverage is not
provided on or before the day coverage
ceases. In those cases, the significantbreak-in-coverage period would be
tolled until a certificate is provided or,
if earlier, until 44 days after the
coverage ceases.
These final regulations retain the
methods in the April 1997 interim rules
for counting creditable coverage, that is,
the standard method and the alternative
method. Comments requested that the
alternative method be expanded so that
a plan or issuer could elect to have it
apply to categories in addition to the
five categories prescribed in the April
1997 interim rules (mental health;
substance abuse treatment; prescription
drugs; dental care; and vision care). The
types of categories described in the
comments were significant differences
in deductibles, cost-sharing, or out-ofpocket maximums between plans. One
comment suggested that any comparison
between plans on the basis of difference
in deductibles or cost sharing was
unworkable.
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It is the view of the Departments that
a comparison between plans, and
allowing one plan not to count
creditable coverage (in whole or in part)
under another plan, based solely on
differences in deductibles or in some
other cost-sharing mechanism or in all
cost-sharing mechanisms, is an
insufficient basis for determining the
comparative value of benefits under the
plans. A plan with a low deductible or
low co-payments might also have an
annual or per-incident limit on benefits
so low as to make the plan with the
higher deductible or higher cost sharing
actually more valuable. Similarly, a plan
with a higher deductible or coinsurance
might also have a higher table of usual,
customary, and reasonable costs, might
be much more liberal in covering
treatments considered experimental,
and might provide a much broader base
of benefits than the plan with the lower
deductible or coinsurance. Because of
the numerous ways that plans or issuers
can limit the amount of benefits
available under the plan, it is very
complicated to compare the value of one
plan or coverage with another. Singling
out one or several of these features is
insufficient for making a true
comparison of the value of the benefits.
4. Evidence of Creditable Coverage—26
CFR 54.9801–5, 29 CFR 2590.701–5, 45
CFR 146.115
This section of the final regulations
sets forth guidance regarding the
certification requirements and other
requirements for disclosure of
information relating to prior creditable
coverage. The provision of a certificate
and certain other disclosures of
information provided for in the statute,
the April 1997 interim rules, and these
final regulations are intended to enable
an individual to establish prior
creditable coverage for purposes of
reducing or eliminating any preexisting
condition exclusion imposed on the
individual by any subsequent group
health plan coverage. The Departments
received generally favorable comments
on the April 1997 interim rules from
interested parties who submitted
comments with regard to the
certification requirements. For example,
several comments praised the
Departments’ promulgation of a model
certificate in the April 1997 interim
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rules as a vehicle that helped reduce
compliance burdens associated with the
statutory requirements under HIPAA.
Form of Certificate
These final regulations retain the
requirement that the certificate must
generally be provided in writing. The
April 1997 interim rules clarified that
for this purpose a writing included any
form approved by the Secretaries as a
writing. These final regulations modify
that standard to include any other
medium approved by the Secretary. As
with the April 1997 interim rules, these
final regulations provide that where an
individual requests that the certificate
be sent to another plan or issuer instead
of the individual, and the other plan or
issuer agrees, the certification
information may be provided by other
means, such as by telephone.
Information in Certificate
The information required to be
provided in a certificate under these
final regulations is the same as required
under the April 1997 interim rules with
one addition. In response to
recommendations made by the U.S.
General Accounting Office (GAO) 6 and
several comments, the Departments
have modified the April 1997 interim
rules to require that an educational
statement be provided as part of a
certificate of creditable coverage in
order to inform consumers of their
HIPAA rights. Some comments stated
that such educational language was not
necessary, but indicated that if the
Departments adopted such an approach
6 In the report entitled ‘‘PRIVATE HEALTH
INSURANCE: Progress and Challenges in
Implementing 1996 Federal Standards’’ (GAO/
HEHS–99–100, May 12, 1999) the GAO
recommended that the Departments revise the
model certificate of creditable health plan coverage
to more explicitly inform consumers of their new
rights under HIPAA. At a minimum, the GAO
recommended that the certificate of creditable
coverage should inform consumers about
appropriate contacts for additional information
about HIPAA and highlight key provisions and
restrictions, including (1) the limits on preexisting
condition exclusion periods and the guaranteed
renewability of all health coverage; (2) the
reduction or elimination of preexisting condition
exclusion periods for employees changing jobs; (3)
the prohibition against excluding an individual
from an employer health plan on the basis of health
status; and (4) the guarantee of access to insurance
products for certain individuals losing group health
coverage and the restrictions placed on that
guarantee.
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they should provide language for
compliance purposes. In response to the
GAO recommendation, the Departments
have amended the requirements for the
certificate of creditable coverage in the
final regulations to include the
provision of an educational statement
regarding certain HIPAA protections.
Model educational language is provided
in the model certificate (set forth
below). This eliminates the burden on
plans and issuers of developing
language to satisfy this requirement.
Model Certificate
The first model certificate below has
been authorized by the Secretary of each
of the Departments. The model
educational statement is set forth under
the heading ‘‘Statement of HIPAA
Portability Rights.’’ Use of the model
certificate by group health plans and
group health insurance issuers will
satisfy the requirements of paragraph
(a)(3)(ii) of the regulations. The second
model certificate below has been
authorized by the Secretary of Health
and Human Services. State Medicaid
programs may use this version. Once
these final regulations are applicable,
use of the previously-published model
certificate (published in the preamble to
the April 1997 interim rules) will no
longer satisfy paragraph (a)(3)(ii) of the
regulations.
In addition to these model certificates,
the Departments are publishing a
different model certificate for group
health plans and group health insurance
issuers in the preamble to the proposed
rules published elsewhere in this issue
of the Federal Register. That model
certificate includes in its educational
statement an additional paragraph
regarding coordination with rules under
the Family and Medical Leave Act
(FMLA). The Secretaries of the
Departments authorize plans and issuers
to use either model certificate in
fulfillment of their obligations under
paragraph (a)(3)(ii) of this section in the
final regulations. State Medicaid
programs may use either the model
certificate below that is designated for
Medicaid programs, or the model
certificate in the proposed rules that is
so designated and includes an
additional paragraph on FMLA.
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Procedure for Requesting Certificates
The April 1997 interim rules require
plans and health insurance issuers to
establish a procedure for individuals to
request and receive certificates of
creditable coverage. The Departments
have received requests to clarify
whether such procedures need to be in
writing. These final regulations clarify
that the procedures need to be in
writing, helping to ensure that
individuals are aware of their right to
request a certificate and how to make
the request.
In addition, the Departments have
become aware that some plans and
issuers believe they are not required to
provide a certificate to individuals who
request one while their coverage is still
in effect. This requirement exists under
the April 1997 interim rules. However,
due to these questions being raised, the
final regulations more explicitly state
this requirement.
Dependent Coverage Information
Under HIPAA, plans and health
insurance issuers are required to issue
certificates of creditable coverage
(automatically, and upon request) to
dependents who are or were covered
under a group health plan. In response
to comments, and in order to allow
entities responsible for issuing
certificates adequate time to modify
their data collection systems, the
Departments established a transitional
rule in the April 1997 interim rules for
providing dependent coverage
information. Under this transitional
rule, a group health plan or health
insurance issuer that, after having made
reasonable efforts, could not provide a
certificate of creditable coverage for a
dependent could satisfy the
requirements for providing a certificate
to the dependent by providing the name
of the participant covered by the group
health plan or health insurance issuer
and specifying that the type of coverage
described in the certificate was for
dependent coverage (for example,
family coverage or employee-plusspouse coverage). This transitional rule
was effective through June 30, 1998.
Under these final regulations, the
transitional rule is no longer in effect
and dependents are entitled to receive
individualized certificates of creditable
coverage under the same circumstances
as other individuals. As with the April
1997 interim rules, these final
regulations permit a single certificate of
creditable coverage to be provided with
respect to both a participant and the
participant’s dependents if the
information is identical for each
individual. In addition, these final
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regulations retain the provisions of the
April 1997 interim rules permitting the
combining of information for families.
As a result, in situations where coverage
information is not identical for a
participant and the participant’s
dependents, these final regulations
allow certificates for all individuals to
be provided on one form if the form
provides all the required information for
each individual and separately states
the information that is not identical.
Special Rules for Certain Entities
Section 2791(a)(3) of the PHS Act
provides that certain entities not
otherwise subject to HIPAA’s
requirements are to comply with the
statutory certification of coverage
requirements that apply to group health
plans, with respect to providing
certificates of creditable coverage for
Medicare, Medicaid, TRICARE, and
medical care programs provided
through the Indian Health Service or a
tribal organization. These rules further
establish that such entities are required
to comply with the general statutory
requirement to provide certificates.
However, the Departments recognize
that these programs operate in a
different manner than do private
employment-based group health plans,
nonfederal governmental group health
plans, and health insurance issuers. In
addition, the populations served by
these programs are unique. Therefore, it
may be appropriate to allow these
programs to implement the certification
process in a manner that addresses these
unique characteristics and better serves
the individuals covered by these
programs, including requiring different
information elements (for example, see
the above model certificate of creditable
coverage for use by State Medicaid
programs). HHS will coordinate with
the appropriate entities responsible for
issuing these certificates and will issue
separate guidance to these entities on
how they must comply with the
certification requirements.
5. Special Enrollment Periods—26 CFR
54.9801–6, 29 CFR 2590.701–6, 45 CFR
146.117
Under HIPAA, the April 1997 interim
rules, and these final regulations, a
group health plan and a health
insurance issuer offering group health
insurance coverage are required to
provide for special enrollment periods
during which certain individuals are
allowed to enroll (without having to
wait until a late enrollment opportunity
and regardless of whether the plan
offers late enrollment). A special
enrollment right can arise if a person
with other health coverage loses
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eligibility for that coverage or employer
contributions toward the other coverage
cease, or if a person becomes a
dependent through marriage, birth,
adoption, or placement for adoption.
In order to qualify for special
enrollment, an individual must be
otherwise eligible for coverage under
the plan. Being otherwise eligible for
coverage means having met the plan’s
substantive eligibility requirements
(such as satisfying any waiting period,
being in an eligible job classification, or
working full time), regardless of
whether the individual previously
satisfied the plan’s procedural
requirements for becoming enrolled
(such as completing written application
materials or providing them to the plan
within a specified time frame) during
any enrollment opportunity prior to
special enrollment.
The special enrollment rules have
been reorganized and clarified. As
discussed below, the special enrollment
rules have also been modified in
response to comments.
Loss of Eligibility for Other Coverage
A special enrollment right resulting
from loss of eligibility for other coverage
is available to employees and their
dependents who meet certain
requirements. As under the April 1997
interim rules, the employee or
dependent must otherwise be eligible
for coverage under the terms of the plan.
When 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.
These regulations include an example
that clarifies that the initial opportunity
for enrollment (generally provided
when employment begins) is not the
only time when an individual with
other health coverage may decline
coverage for purposes of satisfying the
prerequisites to special enrollment upon
loss of other coverage. (Other examples
discussed below also illustrate this
principle.) An individual who initially
did not enroll for coverage without
having other health coverage might later
be eligible for special enrollment. This
could occur if, after subsequently
enrolling in other coverage, the
individual had an opportunity for late
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enrollment or special enrollment under
the plan, but again chose not to enroll.
These final regulations, like the April
1997 interim rules, contain a list of
situations when an individual loses
eligibility for other coverage. While the
list is not exhaustive, it has nonetheless
been expanded in these final regulations
to address situations that have
prompted frequent questions. Thus,
these regulations clarify that a loss of
eligibility for coverage occurs, in the
case of individual coverage provided
through an HMO, when an individual
no longer resides, lives, or works in the
service area of the HMO (whether or not
within the choice of the individual) and
the HMO does not provide coverage for
that reason. In the case of group
coverage provided through an HMO, the
same rule applies, provided that there is
no other coverage under the plan
available to the individual. For purposes
of this rule, the HMO service area is
typically defined by State law. In
addition, the regulations clarify that a
loss of eligibility for coverage occurs
due to the cessation of dependent status.
For example, a child who ‘‘ages out’’ of
dependent coverage—who attains an age
in excess of the maximum age for
coverage of a dependent child—incurs a
loss of eligibility for coverage for
purposes of special enrollment.
The regulations also clarify that a loss
of eligibility for coverage occurs when a
plan no longer offers any benefits to a
class of similarly situated individuals.
Thus, if a plan terminated health
coverage for all part-time workers, the
part-time workers incur a loss of
eligibility for coverage, even if the plan
continues to provide coverage to other
employees. An example in the final
regulations also illustrates how the loss
of eligibility rule applies to a plan that
terminates a benefit package option.
Similarly, if an issuer providing one of
the options ceases to operate in the
group market, thus terminating one of
the options offered by the plan, the
individuals formerly in the terminated
option would incur a loss of eligibility
for coverage for purposes of special
enrollment, unless the plan otherwise
provided a current right to enroll in
alternative health coverage. In addition,
the final regulations clarify that an
employee who is already enrolled in a
benefit package may enroll in another
benefit package under the plan if a
dependent of that employee has a
special enrollment right in the plan
because the dependent lost eligibility
for other coverage.
These regulations clarify that a loss of
eligibility for coverage is still
considered to exist even if there are
subsequent coverage opportunities. As
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under the April 1997 interim rules, an
individual does not have to elect
COBRA continuation coverage or
exercise similar continuation rights in
order to preserve the right to special
enrollment. Moreover, a special
enrollment right exists even if an
individual who lost coverage elects
COBRA continuation coverage. In that
case, if an individual declines special
enrollment, and instead elects and
exhausts COBRA continuation coverage,
the individual has a second special
enrollment right upon exhausting the
COBRA continuation coverage.
In addition, as under the statute and
the April 1997 interim rules, even if
there is no loss of eligibility for
coverage, a special enrollment right can
result when employer contributions
towards other coverage terminate. This
is the case even if an individual
continues the other coverage by paying
the amount previously paid by the
employer.
Lifetime Benefit Limits
Comments asked how the special
enrollment rules apply when an
individual reaches a lifetime limit on all
benefits under a plan. The regulations
clarify that where an individual has a
claim denied due to the operation of a
lifetime limit on all benefits, there is a
loss of eligibility for coverage for special
enrollment purposes. In this regard, an
individual has a special enrollment
right when a claim that would exceed a
lifetime limit on all benefits is incurred,
and the right continues at least until 30
days after the earliest date that a claim
is denied due to the operation of the
lifetime limit. Accordingly, because
individuals who are keeping track of
claims in relation to a lifetime limit can
request enrollment immediately (after
the claim is incurred, but before it is
denied by the plan), the period for
requesting special enrollment can be
longer than 30 days. (Timeframes for
providing certificates of creditable
coverage and determining when COBRA
is exhausted for individuals who have
reached a lifetime limit on all benefits
are set forth elsewhere in these final
regulations, under the certificate and the
definition provisions, respectively.)
Tolling of the Special Enrollment Period
Proposed rules, published elsewhere
in this issue of the Federal Register,
would toll the beginning of the 30-day
period for requesting special enrollment
until a certificate of creditable coverage
is provided to the person losing
coverage, up to a maximum of 44 days
of tolling. This tolling rule would be in
the paragraph reserved for special
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enrollment procedures in these final
regulations.
Dependent Special Enrollment
Comments asked for clarification of
the interaction of coverage for children
under a State Children’s Health
Insurance Program (S–CHIP) and special
enrollment. In particular, it was asked
whether a child would have a right to
special enrollment in a group health
plan if the child becomes eligible for
benefits under S–CHIP and the child is
otherwise eligible for dependent
coverage under the plan. This situation
would arise if a State creates a
children’s health program that provides
payments to a parent to cover the
increased cost of enrolling a dependent
child in the parent’s employer’s group
health. However, without a special
enrollment right, the parent might not
be able to take advantage of the program
until the next late enrollment
opportunity, if the plan allows late
enrollment at all. The statutory language
of HIPAA, however, only provides
special enrollment if there is loss of
eligibility for other coverage, loss of
employer contributions, or addition of a
new dependent to the employee’s
family. Becoming eligible under a health
program such as S–CHIP does not fall
under any of these categories.7
Under these final regulations, as
under the April 1997 interim rules, the
special enrollment of dependents is
subject to the plan’s general eligibility
requirements. For example, a plan may
require an employee to remain enrolled,
or to special enroll, in order to special
enroll the employee’s dependent.
However, a plan’s general eligibility
requirements cannot prevent the
application of a special enrollment
right. For example, a plan may not deny
special enrollment to an otherwise
eligible dependent merely because the
individual became a dependent of the
participant after the participant’s first
day of coverage under the plan.
Modification of Special Enrollment
Procedures
Under proposed rules, published
elsewhere in this issue of the Federal
Register, more detailed procedures are
described for how plans and issuers
would have to enroll individuals
requesting special enrollment.
7 Nonetheless, in addition to the dependent
special enrollment rights under HIPAA, for plans
subject to ERISA, section 609 of ERISA imposes
additional requirements on group health plans to
provide benefits to certain children, including in
cases where a qualified medical child support order
applies, as well as in cases of adoption. HIPAA does
not prevent States from imposing similar
requirements on nonfederal governmental plans.
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When Coverage Begins Under Special
Enrollment
Where the special enrollment right
results from marriage or a loss of
eligibility, coverage generally begins no
later than the first day of the first
calendar month after the date the plan
or issuer receives the request for special
enrollment. Where the special
enrollment right results from a birth,
coverage must begin on the date of birth.
In the case of adoption or placement for
adoption, coverage must begin no later
than the date of such adoption or
placement for adoption.
Clarification of Special Enrollment
During a Late Enrollment Opportunity
The April 1997 interim rules provided
a definition of the term special
enrollment date. The purpose of the
definition and accompanying examples
was to illustrate that if an individual
who qualified for special enrollment
enrolled during a coinciding late
enrollment opportunity, the individual
could not be treated as a late enrollee.
The final regulations eliminate the term
special enrollment date and clarify this
issue by providing that if an individual
requests enrollment while the
individual is entitled to special
enrollment, the individual is a special
enrollee, even if the request coincides
with a late enrollment opportunity
under the plan. Thus, the individual
cannot be treated as a late enrollee.
Notice of Special Enrollment
The preamble to the April 1997
interim rules stated that a plan must
provide a description of the special
enrollment rights to anyone who
declines coverage. However, the text of
the April 1997 interim rules required
the notice to be provided to all eligible
employees. Even employees who enroll
may need to avail themselves of their
special enrollment rights in the future,
either for a spouse or other dependent,
or if they lose the present coverage.
Thus, these regulations reiterate the
requirement in the April 1997 interim
rules that a plan must provide all
employees (those who enroll as well as
those who decline enrollment) with a
notice of special enrollment at or before
the time the employee is initially
offered the opportunity to enroll in the
plan. The regulation also provides
model language that plans can use to
satisfy this requirement.
Treatment of Special Enrollees
HIPAA provides that a late enrollee
does not include an individual who
enrolls when first eligible or who
enrolls during a special enrollment
period. These regulations further clarify
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that individuals who enroll during a
special enrollment period must
generally be treated the same as
individuals who enroll when first
eligible. That is, relative to similarly
situated individuals who enroll when
first eligible, special enrollees must be
offered all the same benefit packages,
cannot be required to pay more for
coverage, and cannot be subject to a
longer preexisting condition exclusion.
6. HMO Affiliation Period as an
Alternative to a Preexisting Condition
Exclusion—29 CFR 2590.701–7, 45 CFR
146.119
Under HIPAA, the April 1997 interim
rules, and these final regulations, a
group health plan that offers health
insurance coverage through an HMO, or
an HMO that offers health insurance
coverage in connection with a group
health plan, may impose an affiliation
period under certain conditions. An
affiliation period is a period of time that
must expire before health insurance
coverage provided by an HMO becomes
effective and during which time the
HMO is not required to provide benefits.
Under these final regulations an
affiliation period can be imposed if each
of the following requirements is
satisfied:
(1) No preexisting condition exclusion
is imposed with respect to any coverage
offered by the HMO in connection with
the particular group health plan.
(2) No premium is charged to a
participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO
coverage is imposed consistent with the
requirements of the HIPAA
nondiscrimination provisions.
(4) The affiliation period does not
exceed 2 months (or 3 months for a late
enrollee).
(5) The affiliation period begins on
the enrollment date (or, in the case of a
late enrollee, the affiliation period
begins on the day that would be the first
day of coverage, but for the affiliation
period).
(6) The affiliation period for
enrollment in the HMO under a plan
runs concurrently with any waiting
period.
The requirements related to HMO
affiliation periods contained in these
final regulations clarify that 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 may impose
different affiliation periods, so long as
the affiliation period complies with the
requirements of the HIPAA
nondiscrimination provisions. To
illustrate this clarification, these final
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regulations contain an example where a
group health plan that provides benefits
through an HMO imposes an affiliation
period with respect to salaried
employees but does not impose an
affiliation period with respect to hourly
employees. This example illustrates that
it is permissible to impose an affiliation
period on salaried employees but not
hourly employees, so long as treating
these two groups differently complies
with the requirements of the HIPAA
nondiscrimination provisions.
The April 1997 interim rules and
these final regulations specify that the
affiliation period begins on the
enrollment date (which is the first day
of coverage under the plan, or if there
is a waiting period for coverage under
the plan, the first day of the waiting
period), not when coverage under a
particular benefit package option begins.
Accordingly, an example in these final
regulations illustrates that if a group
health plan offers multiple benefit
package options simultaneously, the
HMO cannot impose an affiliation
period on a plan participant who later
switches to the HMO benefit package
option, assuming the period of time that
has elapsed since the enrollment date
(during which the participant was
covered under the first benefit package
option) exceeds the duration of the
HMO affiliation period. Moreover, these
regulations clarify that, in the case of a
late enrollee, the affiliation period
begins on the day that would be the first
day of coverage, but for the affiliation
period.
The April 1997 interim rules and
these final regulations allow an HMO to
use alternative methods 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 imposed, an alternative to
an affiliation period may not encompass
an arrangement that is in the nature of
a preexisting condition exclusion.
7. Interaction With the Family and
Medical Leave Act—26 CFR 54.9801–7,
29 CFR 701–8, 45 CFR 146.120
This section has been reserved. For
proposed rules on the interaction with
the Family and Medical Leave Act, see
the Departments’ notice of proposed
rulemaking, published elsewhere in this
issue of the Federal Register.
8. Special Rules; Excepted Plans and
Excepted Benefits—26 CFR 54.9831–1,
29 2590.732, 45 CFR 146.145
This section of the final regulations
contains special rules that apply for
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Chapter 100 of the Code, Part 7 of
Subtitle B of Title I of ERISA (Part 7 of
ERISA), and Title XXVII of the PHS Act.
For ease in applying these rules, the
definition of group health plan has been
moved from the definitions section to
this section (and the reference to
employees in that definition has been
modified to clarify that the term
includes both current and former
employees). New rules have been added
for defining limited scope dental and
vision benefits and for determining the
extent to which benefits provided under
a health flexible spending arrangement
are excepted benefits. Special rules for
partnerships have also been clarified.
Determination of the Number of Plans
A paragraph has been reserved in the
final regulation for determining the
number of plans an employer or
employee organization maintains. For
proposed rules on this topic, see the
Departments’ notice of proposed
rulemaking, published elsewhere in this
issue of the Federal Register.
Coverage Provided by an Employer
Through Two or More Individual
Policies
If an employer provides coverage to
its employees through two or more
individual policies, the coverage may be
considered coverage offered in
connection with a group health plan
and, therefore, subject to the group
market provisions under HIPAA. A
determination of whether there is a
group health plan depends on the
particular facts and circumstances
surrounding the extent of the
employer’s involvement. For example,
one significant factor in establishing
whether there is a group health plan is
the extent to which the employer makes
contributions to health insurance
premiums. The fact that health
insurance coverage is provided through
a contract regulated under State law as
individual health insurance coverage
does not necessarily prevent the
coverage from being treated for HIPAA
purposes as coverage sold in the group
market. Similarly, the policy that
provides the coverage does not have to
be considered a ‘‘group’’ policy under
State law in order for the group market
requirements to apply. Further, the mere
fact that an employer forwards
employee payroll deductions to a health
insurance issuer will not, alone, cause
the coverage to become group health
plan coverage. However, the employer
need not be a party to the insurance
policy, or arrange or pay for it directly,
in order for its coverage to be
considered group health plan coverage.
For example, if an employer’s actions
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appear to endorse one or more policies
offered by a health insurance issuer (or
issuers), the coverage might be
considered group health plan coverage.
146.152(a)(3)), including instances
where such failure causes the number of
current-employee participants to drop
below two.
General Exception for Certain Small
Group Health Plans
Under HIPAA, the April 1997 interim
rules, and these final regulations, the
group market requirements 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 two
participants who are current employees.
As noted in the preamble to the April
1997 interim rules, a State may apply
some or all of the group market
provisions in the PHS Act to health
insurance issuers in connection with
group health plans with fewer than two
participants who are current employees
on the first day of the plan year. In this
case, to the extent the State applies its
group market provisions to such
insurance, the insurance would not be
subject to the individual market
requirements.
In the event a group health plan has
two or more participants who are
current employees on the first day of the
plan year but the number of participants
who are current employees drops below
two during the plan year, under these
final regulations the group market
requirements continue to apply to the
group health plan for the duration of the
plan year.
To the extent a health insurance
issuer offers group health insurance that
is subject to HIPAA’s group health
insurance requirements, HIPAA
generally prohibits the issuer from
terminating or failing to offer to renew
the insurance (see 45 CFR 146.152).
With respect to very small employers,
whether group health insurance is
subject to the requirements of 45 CFR
146.152 is generally determined by
whether the group health plan has two
or more participants who are current
employees on the first day of the plan
year. If so, the issuer generally must
provide such coverage throughout the
plan year, and is prohibited from
terminating coverage in the midst of that
plan year merely because the number of
current-employee participants drops
below two.8 However, an issuer is
permitted to terminate an employer’s
coverage in the midst of a plan year if
the employer fails to satisfy any valid
plan participation requirements in the
midst of that plan year (see 45 CFR
Excepted Benefits
Under HIPAA, the April 1997 interim
rules, and these final regulations,
certain benefits are excepted from
HIPAA in all circumstances, including
coverage only for accident (including
accidental death and dismemberment);
disability income coverage; liability
insurance, including general liability
insurance and automotive liability
insurance; coverage issued as a
supplement to liability insurance;
workers’ compensation or similar
coverage; automobile medical payment
insurance; credit-only insurance (for
example, mortgage insurance); and
coverage for on-site medical clinics.
8 See CMS Program Memorandum No. 99–03,
Group Size Issues Under Title XXVII of the Public
Health Service Act, September 1999.
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Limited Excepted Benefits
Under HIPAA, the April 1997 interim
rules, and these final regulations,
limited scope dental benefits, limited
scope vision benefits, and long-term
care benefits9 are excepted if they are
provided under a separate policy,
certificate, or contract of insurance, or
are otherwise not an integral part of a
plan that is subject to these regulations.
Benefits are not an integral part of such
a plan if participants have the right not
to elect coverage for the benefits, and if
participants who elect such coverage
must pay an additional premium or
contribution for it. These regulations
clarify that whether limited scope
dental benefits, limited scope vision
benefits, or long-term care benefits are
provided through a plan that is subject
to these regulations, or through a
separate plan, is irrelevant to
determining whether such benefits are
an integral part of a plan that is subject
to these regulations. Thus, if
participants can decline coverage for the
limited-scope benefits, and those
electing such coverage must pay an
additional premium or contribution, the
limited scope benefits could be
considered not to be an integral part of
a plan that is subject to these
regulations, even if such benefits are not
provided through that plan.
Limited Scope Vision and Dental
Benefits
These regulations define limited
scope dental benefits as benefits
9 Long term care benefits are defined as benefits
that are either subject to State long-term care
insurance laws; that meet the qualifications of
section 7702B(c)(1) or 7702B0(b) of the Internal
Revenue Code; or are based on cognitive
impairment or loss of functional capacity that is
expected to be chronic.
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substantially all of which are for
treatment of the mouth (including any
organ or structure within the mouth).
These regulations also define limited
scope vision benefits as benefits
substantially all of which are for
treatment of the eye. Thus, if benefits
meet the definition of limited scope
dental benefits or limited scope vision
benefits, they will be excepted benefits
if they satisfy the requirements set forth
in these regulations.
These definitions were added in
response to questions raised in
comments about the prior guidance. The
April 1997 interim rules did not define
these terms. The preamble to the April
1997 interim rules suggested that the
term limited scope dental benefits
typically does not include medical
services, such as those procedures
associated with oral cancer or with a
mouth injury that results in broken,
displaced, or lost teeth. Similarly, the
preamble to the April 1997 interim rules
suggested that the term limited scope
vision benefits does not include benefits
for such ophthalmological services as
treatment of an eye disease (such as
glaucoma or a bacterial eye infection) or
an eye injury. Comments indicated that
typically most independent dental and
vision coverages include benefits for
these types of medical services.
Accordingly, these regulations include
definitions of limited scope dental
benefits and limited scope vision
benefits that reflect this market reality.
Health FSAs
Some comments asked about the
extent to which health flexible spending
arrangements (FSAs) are subject to these
regulations. A health FSA generally is a
benefit program that provides
employees with coverage under which
specified, incurred expenses may be
reimbursed (subject to reimbursement
maximums and any other reasonable
conditions) and under which the
maximum amount of reimbursement
that is reasonably available to a
participant for a period of coverage is
not substantially in excess of the total
premium (including both employeepaid and employer-paid portions of the
premium) for the participant’s coverage.
Coverage and reimbursements provided
to an individual under a group health
plan that is a health FSA and that
conforms to the generally applicable
rules for accident or health plans qualify
for the same tax-favored treatment that
generally is extended to coverage and
reimbursements under employerprovided accident or health plans.
Health FSA reimbursements typically
provide coverage for medical care
expenses not otherwise covered by the
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employer’s primary group health plan.
A health FSA is permitted to operate
under a cafeteria plan described in
section 125 of the Code. Pursuant to the
rules of section 125, an employee can
elect to reduce the employee’s salary in
order to pay for health FSA coverage
without the employee having to include
that portion of the salary in gross
income. Commonly, the maximum
benefit payable under a health FSA for
any year is equal to the amount of the
employee’s salary reduction election for
the year, plus any additional employer
contribution for the year.
The April 1997 interim rules did not
address the extent to which health FSAs
qualify as excepted benefits. On
December 29, 1997, a clarification to the
April 1997 interim rules was published
that specified the circumstances under
which a health FSA qualifies as
excepted benefits. (62 FR 67688) That
clarification stated that benefits under a
health FSA are treated as excepted
benefits if the FSA meets certain
requirements. Specifically, FSA benefits
are treated as excepted benefits if the
maximum benefit payable for the
employee under the FSA for the year
does not exceed two times the
employee’s salary reduction election
under the FSA for the year (or, if greater,
the amount of the employee’s salary
reduction election under the FSA for the
year, plus $500). In addition, the
employee must have other coverage
available under a group health plan of
the employer for the year, and that other
coverage cannot be limited to benefits
that are excepted benefits.
Based on section 9832(c)(2)(C) of the
Code, section 733(c)(2)(C) of ERISA, and
section 2791(c)(2)(C) of the PHS Act,
these regulations adopt the December
29, 1997 guidance with some additional
clarifications. Specifically, these
regulations clarify that to be considered
excepted benefits, a health FSA must
meet the definition of a health FSA in
section 106(c)(2) of the Code. Also,
these regulations clarify that other group
health plan coverage not limited to
excepted benefits must be made
available for the year to the class of
participants by reason of their
employment. Similarly, the maximum
amount payable to any participant in
the class for the year is the amount to
consider when determining whether the
maximum amount payable under the
FSA for the year complies with the limit
specified in the previous paragraph.
Additionally, these regulations clarify
that an employer credit under a health
FSA that an employee can elect to
receive as taxable income is considered
an employee salary reduction election.
However, if the employee cannot
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receive the employer credit as taxable
income (that is, the credit is lost unless
the employee uses the amount for
nontaxable benefits under a cafeteria
plan), then the amount is not considered
an employee salary reduction election.
Application to HSAs and HDHPs
Section 1201 of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003, Public Law
108–173, added section 223 to the
Internal Revenue Code to permit
individuals to establish Health Savings
Accounts (HSAs). HSAs are established
to receive tax-favored contributions and
amounts in an HSA may be used to pay
or reimburse qualified medical
expenses. Questions have arisen
concerning the application of HIPAA to
HSAs.
In order to establish and contribute to
an HSA, an individual must be covered
by a High Deductible Health Plan
(HDHP). An HDHP is a health plan that
satisfies certain requirements with
respect to deductibles and out-of-pocket
expenses. An HDHP may be a group
health plan sponsored by an employer
or individual health insurance coverage
purchased in the individual market.
There is no provision in the HIPAA
rules that excludes an HDHP, by virtue
of qualifying as an HDHP, from the
respective HIPAA requirements for
group health plans or individual health
insurance coverage. Generally,
employer-sponsored HDHPs are
employee welfare benefit plans. See
Department of Labor Field Assistance
Bulletin 2004–01 (FAB 2004–01), issued
on April 7, 2004. Because an employersponsored HDHP provides medical care,
it is generally subject to the portability
requirements of HIPAA and the
applicable regulations.
FAB 2004–01 concluded that HSAs,
in contrast to HDHPs, generally will not
constitute employee welfare benefit
plans. See Department of Labor Field
Assistance Bulletin 2004–01 (FAB
2004–01), issued on April 7, 2004.
Because HSAs are generally not
employee welfare benefit plans, the
HIPAA portability requirements under
ERISA or the PHS Act generally will not
apply.
Moreover, the HIPAA portability
requirements generally are not relevant
for purposes of HSAs. Due to the rules
imposed by the Internal Revenue Code
with respect to HSAs, employers or
HSA trustees do not have discretion
with respect to the coverage provided by
an HSA, both with respect to what
expenses qualify for reimbursement as
well as which individuals’ expenses are
eligible. For example, expenses
reimbursable by an HSA cannot
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generally be restricted by the employer
or HSA trustee. Under the statute and
administrative guidance, any expense
incurred after an HSA is established is
eligible for reimbursement, without
restriction by an employer contributing
to the HSA or trustee of the HSA. Thus,
as a practical matter, whether or not an
expense relates to a preexisting
condition cannot determine the
reimbursement. As such HSAs by
design cannot impose a preexisting
condition exclusion. Similarly, due to
comparability rules requiring uniform
contributions to HSAs by employers,
employers and trustees generally cannot
use differing amounts of contributions
to impose a preexisting condition
exclusion.
The eligibility for tax-free
reimbursement from an HSA is also
determined by statute; namely, the
qualified medical expenses of the HSA
owner and the HSA owner’s dependents
incurred after the HSA is established
may be reimbursed on a tax-free basis by
the HSA. Special enrollment rules for
dependent children or spouses are not
relevant because once an HSA is
established they are eligible for tax-free
reimbursements immediately. With
respect to special enrollment upon loss
of coverage, the rules for employer
contributions generally require that all
employees who are eligible for HSA
contributions and participating in the
employer’s HDHP receive comparable
HSA contributions. Thus, the
combination of the comparability rules
and the application of the special
enrollment rules to the HDHP will
generally ensure compliance with
respect to employer HSA contributions
because once an employee is enrolled in
an employer-provided HDHP due to the
special enrollment rules, the employer
must make comparable contributions to
the employee’s HSA.
Indemnity Insurance
Under HIPAA, the April 1997 interim
rules, and these final regulations,
hospital indemnity and other fixeddollar indemnity insurance are excepted
benefits if the benefits are provided
under a separate policy, certificate, or
contract of insurance; if there is no
coordination of benefits between the
provision of the benefits and an
exclusion of benefits under any group
health plan maintained by the same
plan sponsor; and if the benefits are
paid with respect to an event regardless
of whether benefits are provided with
respect to the event under any group
health plan maintained by the same
plan sponsor. These regulations clarify
that, for hospital indemnity or other
fixed-dollar indemnity insurance to
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qualify as excepted benefits, such
insurance must pay a fixed dollar
amount per day (or other period),
regardless of the amount of expenses
incurred. An example clarifies that if a
policy provides benefits only for
hospital stays at a fixed percentage of
hospital expenses up to a maximum
amount per day, the benefits are not
excepted benefits. This is the result
even if, in practice, the policy pays the
maximum for every day of
hospitalization.
partner must be a bona fide partner in
order to be considered an employee, and
the partnership is considered the
employer of a partner only if the partner
is a bona fide partner. These final
regulations also clarify that whether an
individual is a bona fide partner is
determined based on all the relevant
facts and circumstances, including
whether the individual performs
services on behalf of the partnership.
Supplemental Insurance
Under HIPAA, the April 1997 interim
rules, and these final regulations,
Medicare supplemental health
insurance (as defined under section
1882(g)(1) of the Social Security Act);
coverage supplemental to TRICARE; and
similar coverage that is supplemental to
a group health plan are excepted
benefits if they are provided under a
separate policy, certificate, or contract
of insurance. These regulations clarify
that, for coverage supplemental to a
group health plan to qualify as excepted
benefits, the coverage must be
specifically designed to fill gaps in
primary coverage, such as coinsurance
or deductibles. Coverage that becomes
secondary or supplemental only under a
coordination-of-benefits provision in the
insurance contract or plan documents
does not qualify as excepted
supplemental benefits.
A paragraph has been reserved in the
final rules for determining the average
number of employees employed by an
employer for a year. For proposed rules
on this topic, see the Departments’
notice of proposed rulemaking,
published elsewhere in this issue of the
Federal Register.
Treatment of Partnerships
Any plan, fund, or program that is
established or maintained by a
partnership and that provides medical
care to present or former partners or
their dependents, and that otherwise
would not be an employee welfare
benefit plan, is considered an employee
welfare benefit plan that is a group
health plan under Part 7 of ERISA and
Title XXVII of the PHS Act.10 As such,
the partnership is considered the
employer with respect to any partner.
Participants in the plan include
individuals who are partners of the
partnership. Additionally, with respect
to group health plans maintained by
self-employed individuals (under which
one or more employees are
participants), the self-employed
individual is considered a participant if
this individual is or may become
eligible to receive a benefit under the
plan or if the individual’s beneficiaries
may be so eligible. These regulations
clarify that, for purposes of Part 7 of
ERISA and Title XXVII of PHS Act, a
10 Such a plan, fund, or program is also
considered a group health plan under section
5000(b)(1) and Chapter 100 of the Code.
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Counting the Average Number of
Employees
C. Economic Impact and Paperwork
Burden
Summary—Department of Labor and
Department of Health and Human
Services
HIPAA’s group market portability
provisions, which include limitations
on the scope and application of
preexisting condition exclusions, and
special enrollment rights, provide a
minimum standard of protection
designed to increase access to health
coverage. The Departments crafted these
final regulations to secure these
protections, consistent with the intent of
Congress, and to do so in a manner that
is economically efficient.
The primary economic effects of
HIPAA’s portability provisions ensue
directly from the statute. These
regulations, by clarifying and securing
HIPAA’s statutory protections, will
delineate and possibly expand HIPAA’s
effects at the margin.
Effects of the Statute
HIPAA’s statutory group market
portability provisions extend coverage
to certain individuals and preexisting
conditions not otherwise covered. This
extension of coverage entails both
benefits and costs. Individuals enjoying
expanded coverage will realize benefits.
In some instances these individuals will
gain coverage for services they
otherwise would have purchased out-ofpocket. In other instances the extension
of coverage will induce individuals to
consume more (or different) health care
services, which in some cases may
improve health outcomes. The dollar
value of the extended coverage is
estimated to be $515 million annually.
Potential additional benefits from
improved health outcomes are difficult
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to quantify (and the Departments have
not attempted to do so), but may be
large in aggregate, and will be large for
at least some individuals whose health
outcomes may be substantially
improved. Another indirect benefit of
HIPAA’s portability provisions is a
reduction in so-called ‘‘job lock’’—a
phenomenon in which individuals keep
jobs they would prefer to leave to avoid
losing coverage for preexisting
conditions. If workers move into more
productive jobs, the overall economy
will benefit.
It should be noted that the benefits of
HIPAA’s portability provisions in any
given year will be concentrated in a
relatively small population that gains
coverage under HIPAA for needed care
that would otherwise not be covered.
The number that might so benefit has
been estimated at 100,000 individuals.
The direct costs of HIPAA’s
portability provisions generally include
the cost of extending coverage to
additional services, as well as certain
attendant administrative costs. The cost
of extended coverage is estimated at
$515 million annually. The major
administrative costs include the cost of
providing certificates of creditable
coverage, and possibly the cost of
carrying out special enrollments and
offsets of preexisting condition
exclusion periods. The Departments did
not attempt to fully estimate the
administrative costs of the HIPAA
statute but in crafting this regulation did
attempt to constrain these costs.
The Departments believe that the cost
of HIPAA is borne by covered workers.
Cost can be shifted to workers through
increases in employee premium shares
or reductions (or smaller increases) in
pay or other components of
compensation, or by increases in
deductibles or other cost sharing or
other reductions in the richness of
health benefits. Whereas the benefits of
HIPAA are concentrated in a relatively
small population, the costs are
distributed broadly across plans and
enrollees.
The Departments have considered
whether the costs imposed by HIPAA’s
statutory portability provisions have
had any major indirect negative effects,
and concluded that such effects are
possible but probably small.
Any mandate to increase the richness
or availability of health insurance adds
to the cost of insurance. It is possible
that some small number of employers
and employees already at the brink of
affordability would drop coverage in
response to the implementation of
HIPAA. The Departments also note that
the estimated $515 million cost
associated with extensions of coverage
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under HIPAA amounts to a small
fraction of one percent of total
expenditures by private group health
plans. This suggests that the cost of
HIPAA is a small, possibly negligible,
factor in most employers’ decisions to
offer health coverage and workers’
decisions to enroll. The Departments
believe that the benefits of HIPAA’s
statutory group market portability
provisions justify their cost. The
Departments’ full assessment of the
costs and benefits of HIPAA’s statutory
provisions and their basis for that
assessment is detailed later in the
preamble.
Effects of the Final Regulations
By clarifying and securing HIPAA’s
statutory portability protections, these
regulations will help ensure that HIPAA
rights are fully realized. The result is
likely to be a small increase at the
margin in the direct and indirect
economic effects of HIPAA’s statutory
portability provisions. The Departments
believe that the regulation’s benefits
will justify its costs.
Additional economic benefits derive
from the regulations’ clarifications of
HIPAA’s portability requirements. By
clarifying employees’ rights and plan
sponsors’ obligations under HIPAA’s
portability provisions, the regulations
will reduce uncertainty over health
benefits, thereby fostering labor market
efficiency and the establishment and
continuation of group health plans by
employers.
Many provisions of the final
regulations closely resemble provisions
included in the interim final regulations
that the final regulations supplant. This
regulatory action, however, adds or
amends both certain provisions directed
at the scope of HIPAA’s portability
protections and certain provisions
establishing administrative
requirements intended to safeguard
those protections.
Scope of Protections
These final regulations are intended
to secure and implement HIPAA’s group
market portability provisions under
certain special circumstances. The final
regulations therefore contain a number
of provisions intended to clearly delimit
the scope of HIPAA’s portability
protections. Most of these provisions
closely resemble and will have the same
effect as provisions of the interim final
regulations. Others, however, clarify or
expand at the margin the range of
situations to which HIPAA’s portability
protections apply or in which a loss of
eligibility may trigger special
enrollment rights. These include the
requirement that health coverage under
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foreign government programs be treated
as creditable coverage for purposes of
limiting the application of preexisting
condition exclusions; the extension of
special enrollment rights to individuals
who lose eligibility for coverage in
connection with the application of
lifetime benefit limits, movement out of
an HMO’s service area, or the
termination of a health coverage option
previously offered under a group health
plan; and the establishment of a special
enrollment right for a participant to
change among available coverage
options under a group health plan when
adding one or more dependents in
connection with marriage, adoption, or
placement for adoption. Each of these
provisions is expected to result in a
small increase in the economic effects of
HIPAA’s statutory portability
protections. The Departments have no
basis to quantify these small increases.
The potential size of affected sub
populations is explored later in the
preamble.
Administrative Requirements
In order to secure and implement
HIPAA’s group market special
enrollment and portability provisions,
both the HIPAA statute and these final
regulations establish certain
administrative requirements.
As noted above, the HIPAA statute
generally requires plans and issuers to
provide certifications of prior coverage
to individuals leaving coverage. These
regulations additionally require plans
and issuers to notify individuals of their
special enrollments rights, any
preexisting condition exclusion
provisions, and the applicability of such
exclusions where individuals provide
evidence of prior coverage that is of
insufficient duration to fully offset
exclusion periods. Plans will incur cost
to comply with these administrative
requirements. The Departments estimate
the administrative cost to prepare and
distribute certifications and notices to
be $97 million per year. Nearly all of
this, or $96 million, is attributable to the
preparation and distribution of
certifications as required under HIPAA’s
statutory provisions. These final
regulations include numerous special
provisions that serve to reduce plans’
cost of providing certifications. A more
strict interpretation of the statute would
require plans to send an individual
certificate to each affected enrollee.
Such strict interpretation would result
in plans sending 80.1 million
certificates annually at cost of $157.6
million, which is $61.6 million more
than the burden imposed by the final
regulations.
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Generally all of the major
administrative requirements included in
the final regulations were also included
in the interim final regulations. The
final regulations make minor additions
to two requirements, however. They
require plans to include educational
statements in certificates of creditable
coverage and to maintain in writing
their procedures for requesting
certificates. The cost of these additional
requirements is expected to be small,
and was not estimated separately from
the overall cost of providing certificates.
Other changes included in these final
regulations are likely to slightly reduce
plans’ cost to provide certain HIPAArequired notices. Included with the final
regulation is new sample language for
general and specific notices of
preexisting condition exclusions, which
may serve to reduce some plans’ costs
of providing these notices, and revised
sample language for special enrollment
rights notices. The final regulations also
clarify the narrow scope of the
requirement to notify certain affected
participants of the specific application
of preexisting condition exclusions. The
Departments did not estimate the
impact of these provisions separately
from the overall cost of providing
general and specific notices of
preexisting condition exclusions and
notices of special enrollment rights.
The Departments’ full assessment of
the costs and benefits of this regulation
and their basis for that assessment is
detailed later in this preamble.
Executive Order 12866—Department of
Labor and Department of Health and
Human Services
Under Executive Order 12866 (58 FR
551735, Oct. 4, 1993), the Departments
must determine whether a regulatory
action is ‘‘significant’’ and therefore
subject to the requirements of the
Executive Order and subject to review
by the Office of Management and
Budget (OMB). Under section 3(f), the
order defines a ‘‘significant regulatory
action’’ as an action that is likely to
result in a rule: (1) Having an annual
effect on the economy of $100 million
or more, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
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raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
Pursuant to the terms of the Executive
Order, this action is ‘‘economically
significant’’ and subject to OMB review
under Section 3(f) of the Executive
Order. Consistent with the Executive
Order, the Departments have assessed
the costs and benefits of this action. The
Departments’ assessment, and the
analysis underlying that assessment, is
detailed below. The Departments
performed a comprehensive, unified
analysis to estimate the costs and
benefits attributable to the regulations
for purposes of compliance with
Executive Order 12866, the Regulatory
Flexibility Act, and the Paperwork
Reduction Act.
Statement of Need for Action
These final regulations are needed to
clarify and interpret the HIPAA
portability provisions (increased
portability through limitation on
preexisting condition exclusions) under
Section 701 of the Employee Retirement
Income Security Act of 1974 (ERISA),
Section 2701 of the Public Health
Service Act, and Section 9801 of the
Internal Revenue Code of 1986. The
provisions are needed to improve the
availability and portability of health
coverage by limiting preexisting
condition exclusions and their use, and
requiring that group health plans and
group health insurance issuers allow
individuals to enroll under certain
circumstances (special enrollment).
Additional guidance was required to
clarify certain definitions, such as the
definition of creditable coverage; to
clarify the method of determining the
proper length of a preexisting condition
exclusion period for an individual; to
describe the circumstances under which
an individual must be allowed a special
enrollment opportunity; and to describe
notices that group health plans and
group health insurance issuers must
provide to individuals.
Economic Effects
The Departments believe that this
regulation’s benefits will justify its
costs. This belief is grounded in the
assessment of costs and benefit that is
summarized earlier in the preamble and
detailed below.
Regulatory Flexibility Act—Department
of Labor and Department of Health and
Human Services
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
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notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) that
are likely to have a significant economic
impact on a substantial number of small
entities. Unless an agency certifies that
a rule will not have a significant
economic impact on a substantial
number of small entities, section 604 of
the RFA requires the agency to present
a final regulatory flexibility analysis at
the time of the publication of the notice
of final rulemaking describing the
impact of the rule on small entities.
Small entities include small businesses,
organizations, and governmental
jurisdictions.
Because these final rules are being
issued without prior notices of proposed
rulemaking, the RFA does not apply,
and the Departments are not required to
either certify that the rule will not have
a significant impact on a substantial
number of small entities or conduct a
regulatory flexibility analysis. The
Departments nonetheless crafted these
regulations in careful consideration of
their effects on small entities.
For purposes of this discussion, the
Departments consider a small entity to
be an employee benefit plan with fewer
than 100 participants. The basis for this
definition is found in section 104(a)(2)
of ERISA, which permits the Secretary
of Labor to prescribe simplified annual
reports for pension plans which cover
fewer than 100 participants. Under
section 104(a)(3), the Secretary may also
provide for simplified annual reporting
and disclosure if the statutory
requirements of part 1 of Title I of
ERISA would otherwise be
inappropriate for welfare benefit plans.
Pursuant to the authority of section
104(a)(3), the Department of Labor has
previously issued at 29 CFR 2520.104–
20, 2520.104–21, 2520.104–41,
2520.104–46 and 2520.104b–10, certain
simplified reporting provisions and
limited exemptions from reporting and
disclosure requirements for small plans,
including unfunded or insured welfare
plans covering fewer than 100
participants and which satisfy certain
other requirements.
Further, while some small plans are
maintained by large employers, most are
maintained by small employers. Both
small and large plans may enlist small
third party service providers to perform
administrative functions, but it is
generally understood that third party
service providers transfer their costs to
their plan clients in the form of fees.
Thus, the Departments believe that
assessing the impact of this rule on
small plans is an appropriate substitute
for evaluating the effect on small
entities. The definition of small entity
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considered appropriate for this purpose
differs, however, from a definition of
small business based on size standards
promulgated by the Small Business
Administration (SBA) (13 CFR 121.201)
pursuant to the Small Business Act (5
U.S.C. 631 et seq.). The Department of
Labor solicited comments on the use of
this standard for evaluating the effects
of the interim final on small entities. No
comments were received with respect to
the standard.
The Departments believe that the
benefits of this regulation will justify its
costs. This belief is grounded in the
assessment of costs and benefit that is
summarized earlier in the preamble and
detailed below in the ‘‘Basis for
Assessment of Economic Impact’’
section. The direct financial value of
coverage extensions pursuant to
HIPAA’s portability provisions are
estimated to be approximately $180
million for small plans, or a small
fraction of one percent of total small
plan expenditures.11
In order to secure and implement
HIPAA’s portability provisions, the
HIPAA statute and interim final
regulations established certain
administrative requirements, including
requirements to provide certifications of
creditable coverage and notices of
special enrollment rights and
preexisting condition exclusions. The
Departments estimate the cost for small
plans to prepare and distribute
certifications and notices to be $13
million per year.12 These costs will
initially be borne by issuers who supply
small group insurance products and by
third-party administrators who provide
services to small insured plans. These
two types of entities will spread the
costs across a much larger pool of small
11 Computer runs using Medical Expenditure
Survey Household Component (MEPS–HC) and the
Robert Wood Johnson Employer Healthy Benefits
Survey determined that the share of covered
private-sector job leavers at small firms average 35
percent of all covered private sector job leavers.
From this, we inferred that the financial burden
borne by small plans is approximately 35 percent
of the total expenditures by private-sector group
health plans.
12 As noted above, the total cost for certificates
and notices is estimated to be $97 million. We
estimate that 13 percent of individuals receiving
certificates and notices receive them from small
group health plans, and on that basis estimates that
13% of the total cost falls on such plans. As noted
below, we estimate that out of a total of 54 million
individuals who leave coverage under group health
plans, individual health insurance policies or
public programs, 20 million, or 44 percent, are
leaving private-sector group plans. Assuming that
the proportion of these that are leaving small plans
is equal to the proportion of covered, private-sector
job leavers who leave small firms (estimated to be
35 percent, as noted above), 13 percent of those
leaving any type of coverage are leaving coverage
under small group plans.
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plans who will in turn transfer cost
broadly to plan enrollees.
Special Analyses—Department of the
Treasury
Notwithstanding the determinations
of the Departments of Labor and of
Health and Human Services, for
purposes of the Department of the
Treasury it has been determined that
this Treasury decision is not a
significant regulatory action. Pursuant
to sections 603(a) and 605(b) of the
Regulatory Flexibility Act, it is hereby
certified that the collections of
information referenced in this Treasury
decision (see §§ 54.9801–3, 54.9801–4,
54.9801–5, and 54.9801–6) will not have
a significant economic impact on a
substantial number of small entities.
Although a substantial number of small
entities will be subject to the collection
of information requirements in these
regulations, the requirements will not
have a significant economic impact on
these entities. The average time required
to complete a certification required
under these regulations is estimated to
be 4 to 5 minutes for all employers. This
average is based on the assumption that
most employers will automate the
certification process. The paperwork
requirements other than certifications
that are contained in the regulations are
estimated to impose less than 2% of the
burden imposed by the certifications.
Many small employers that maintain
group health plans have their plans
administered by an insurance company
or third party administrators (TPAs).
Most insurers and TPAs are expected to
automate the certification process and
therefore their average time to produce
a certificate should be similar to the 4
to 5 minute average estimated for all
employers. However, even for small
employers that do not automate the
certification process, the collection of
information requirements in the
regulation will not have a significant
impact. Even if it is conservatively
assumed that their average time to
produce a certificate is 3 times as long
as the highest estimate for all employers
(i.e., 15 minutes per certificate) and that
all of their employees are covered by
their group health plan and that half of
the employees receive a certificate each
year, the average burden per employee
is less than 8 minutes per year. This can
be rounded up to 8 minutes to more
than account for the additional burden
imposed by the other paperwork
requirements of the final regulations.
Thus, for example, for an employer with
10 employees, the annual burden would
be not more than 1 hour and 20 minutes
per year. At an estimated cost of $18 per
hour, this would result in a cost of not
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more than $24 per year for the
employer, which is not a significant
economic impact. Because the
collection of information requirements
of this Treasury decision will not have
a significant economic impact on a
substantial number of small entities, a
Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Small
Business Administration for comment
on its impact on small business.
Paperwork Reduction Act
Department of Labor
These final regulations include three
separate collections of information as
that term is defined in the Paperwork
Reduction Act of 1995 (PRA 95), 44
U.S.C. 3502(3): the Notice of Enrollment
Rights, Notice of Preexisting Condition
Exclusion, and Certificate of Creditable
Coverage. Each of these disclosures is
currently approved by the Office of
Management and Budget (OMB) through
October 31, 2006 in accordance with
PRA 95 under control numbers 1210–
0101, 1210–0102, and 1210–0103.
Department of the Treasury
These final regulations include a
collection of information as that term is
defined in PRA 95: the Notice of
Enrollment Rights, Notice of Preexisting
Condition Exclusion, and Certificate of
Creditable Coverage. Each of these
disclosures is currently approved by
OMB under control number 1545–1537.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Department of Health and Human
Services
These final regulations include three
separate collections of information as
that term is defined in PRA 95: the
Notice of Enrollment Rights, Notice of
Preexisting Condition Exclusion, and
Certificate of Creditable Coverage. Each
of these disclosures is currently
approved by OMB through June 30,
2006 in accordance with PRA 95 under
control number 0938–0702.
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Small Business Regulatory Enforcement
Fairness Act
This final rule is subject to the
provisions of the Small Business
Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and is being
transmitted to Congress and the
Comptroller General for review. The
final rule, is a ‘‘major rule,’’ as that term
is defined in 5 U.S.C. 804, because it
may result in (1) an annual effect on the
economy of $100 million or more; (2) a
major increase in costs or prices for
consumers, individual industries, or
federal, State or local government
agencies, or geographic regions; or (3)
significant adverse effects on
competition, employment, investment,
productivity, innovation, or on the
ability of United States-based
enterprises to compete with foreignbased enterprises in domestic or export
markets.
Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 requires
that agencies assess anticipated costs
and benefits before issuing any rule that
may result in an expenditure in any 1
year by State, local, or tribal
governments, in the aggregate, or by the
private sector, of $100 million. These
final regulations have no such mandated
consequential effect on State, local, or
tribal governments, or on the private
sector.
Federalism Statement Under Executive
Order 13132—Department of Labor and
Department of Health and Human
Services
Executive Order 13132 outlines
fundamental principles of federalism. It
requires adherence to specific criteria by
federal agencies in formulating and
implementing policies that have
‘‘substantial direct effects’’ on the
States, the relationship between the
national government and States, or on
the distribution of power and
responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have
these federalism implications must
consult with State and local officials,
and describe the extent of their
consultation and the nature of the
concerns of State and local officials in
the preamble to the regulation.
In the Departments’ view, these final
regulations have federalism
implications because they may have
substantial direct effects on the States,
the relationship between the national
government and States, or on the
distribution of power and
responsibilities among the various
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levels of government. However, in the
Departments’ view, the federalism
implications of these final regulations
are substantially mitigated because,
with respect to health insurance issuers,
the vast majority of States have enacted
laws which meet or exceed the federal
HIPAA portability standards.
In general, through section 514,
ERISA supersedes State laws to the
extent that they relate to any covered
employee benefit plan, and preserves
State laws that regulate insurance,
banking or securities. While ERISA
prohibits States from regulating a plan
as an insurance or investment company
or bank, HIPAA added a new section to
ERISA (as well as to the PHS Act)
narrowly preempting State requirements
for issuers of group health insurance
coverage. Specifically, with respect to
seven provisions of the HIPAA
portability rules, States may impose
stricter obligations on health insurance
issuers.13 Moreover, with respect to
other requirements for health insurance
issuers, States may continue to apply
State law requirements except to the
extent that such requirements prevent
the application of HIPAA’s portability,
access, and renewability provisions.
In enacting these new preemption
provisions, Congress intended to
preempt State insurance requirements
only to the extent that they prevent the
application of the basic protections set
forth in HIPAA. HIPAA’s conference
report States that the conferees intended
the narrowest preemption of State laws
with regard to health insurance issuers.
H.R. Conf. Rep. No. 736, 104th Cong. 2d
Session 205 (1996). State insurance laws
that are more stringent than the federal
requirements are unlikely to ‘‘prevent
the application of’’ the HIPAA
portability provisions, and be
preempted. Accordingly, States have
significant latitude to impose
requirements on health insurance
insurers that are more restrictive than
the federal law.
Guidance conveying this
interpretation of HIPAA’s preemption
provisions was published in the Federal
Register on April 8, 1997. 62 FR 16904.
13 States may shorten the six-month look-back
period prior to the enrollment date; shorten the 12month and 18-month maximum preexisting
condition exclusion periods; increase the 63-day
significant break in coverage period; increase the
30-day period for newborns, adopted children, and
children placed for adoption to enroll in the plan
with no preexisting condition exclusion; further
limit the circumstances in which a preexisting
condition exclusion may be applied (beyond the
federal exceptions for certain newborns, adopted
children, children placed for adoption, pregnancy,
and genetic information in the absence of a
diagnosis; require additional special enrollment
periods; and reduced the HMO affiliation period to
less than 2 months (3 months for late enrollees).
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These final regulations clarify and
implement the statute’s minimum
standards and do not significantly
reduce the discretion given the States by
the statute. Moreover, the Departments
understand that the vast majority of
States have requirements that meet or
exceed the minimum requirements of
the HIPAA portability provisions.
HIPAA provides that the States may
enforce the provisions of HIPAA as they
pertain to issuers, but that the Secretary
of Health and Human Services must
enforce any provisions that a State fails
to substantially enforce. Currently, HHS
enforces the HIPAA portability
provisions in only one State in
accordance with that State’s specific
request to do so. When exercising its
responsibility to enforce the provisions
of HIPAA, HHS works cooperatively
with the State for the purpose of
addressing the State’s concerns and
avoiding conflicts with the exercise of
State authority. HHS has developed
procedures to implement its
enforcement responsibilities, and to
afford the States the maximum
opportunity to enforce HIPAA’s
requirements in the first instance. HHS’s
procedures address the handling of
reports that States may not be
substantially enforcing HIPAA’s
requirements, and the mechanism for
allocating responsibility between the
States and HHS. In compliance with
Executive Order 13132’s requirement
that agencies examine closely any
policies that may have federalism
implications or limit the policymaking
discretion of the States, DOL and HHS
have engaged in numerous efforts to
consult and work cooperatively with
affected State and local officials.
For example, the Departments sought
and received input from State insurance
regulators and the National Association
of Insurance Commissioners (NAIC).
The NAIC is a non-profit corporation
established by the insurance
commissioners of the 50 States, the
District of Columbia, and the four U.S.
territories. In most States the Insurance
Commissioner is appointed by the
Governor, in approximately 14 States,
the insurance commissioner is an
elected official. Among other activities,
it provides a forum for the development
of uniform policy when uniformity is
appropriate. Its members meet, discuss
and offer solutions to mutual problems.
The NAIC sponsors quarterly meetings
to provide a forum for the exchange of
ideas and in-depth consideration of
insurance issues by regulators, industry
representatives and consumers. CMS
and the Department of Labor staff have
consistently attended these quarterly
meetings to listen to the concerns of the
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State Insurance Departments regarding
HIPAA portability issues. In addition to
the general discussions, committee
meetings, and task groups, the NAIC
sponsors the standing CMS/DOL
meeting on HIPAA issues for members
during the quarterly conferences. This
meeting provides CMS and the
Department of Labor with the
opportunity to provide updates on
regulations, bulletins, enforcement
actions, and outreach efforts regarding
HIPAA.
The Departments received written
comments on the interim regulation
from the NAIC and from ten States. In
general, these comments raised
technical issues that the Departments
considered in conjunction with similar
issues raised by other commenters. In a
letter sent before issuance of the interim
regulation, the NAIC expressed
concerns that the Departments interpret
the new preemption provisions of
HIPAA narrowly so as to give the States
flexibility to impose more stringent
requirements. As discussed above, the
Departments address this concern in the
preamble to the interim regulation.
In addition, the Departments
specifically consulted with the NAIC in
developing these final regulations.
Through the NAIC, the Departments
sought and received the input of State
insurance departments regarding certain
insurance industry definitions,
enrollment procedures and standard
coverage terms. This input is generally
reflected in the discussion of comments
received and changes made in Section
B—Overview of the Regulations of the
preamble to these regulations.
The Departments have also
cooperated with the States in several
ongoing outreach initiatives, through
which information on HIPAA is shared
among federal regulators, State
regulators and the regulated community.
In particular, the Department of Labor
has established a Health Benefits
Education Campaign with more than 70
partners, including CMS, NAIC and
many business and consumer groups.
CMS has sponsored conferences with
the States—the Consumer Outreach and
Advocacy conferences in March 1999
and June 2000, and the Implementation
and Enforcement of HIPAA National
State-Federal Conferences in August
1999, 2000, 2001, 2002, and 2003.
Furthermore, both the Department of
Labor and CMS Web sites offer links to
important State Web sites and other
resources, facilitating coordination
between the State and federal regulators
and the regulated community.
Throughout the process of developing
these regulations, to the extent feasible
within the specific preemption
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provisions of HIPAA, the Departments
have attempted to balance the States’
interests in regulating health insurance
issuers, and the Congress’ intent to
provide uniform minimum protections
to consumers in every State. By doing
so, it is the Departments’ view that they
have complied with the requirements of
Executive Order 13132.
Pursuant to the requirements set forth
in Section 8(a) of Executive Order
13132, and by the signatures affixed to
these final regulations, the Departments
certify that the Employee Benefits
Security Administration and the Centers
for Medicare & Medicaid Services have
complied with the requirements of
Executive Order 13132 for the attached
final regulation, Final Regulations for
Health Coverage Portability for Group
Health Plans and Group Health
Insurance Issuers (RIN 1210–AA54 and
RIN 0938–AL43), in a meaningful and
timely manner.
Basis for Assessment of Economic
Impact—Department of Labor and
Department of Health and Human
Services
As noted above, the primary
economic effects of HIPAA’s portability
provisions ensue directly from the
statute. These regulations, by clarifying
and securing HIPAA’s statutory
protections, will delineate and possibly
expand HIPAA’s effects at the margin.
Effects of the Statute
In order to determine how many
workers could benefit from crediting
prior coverage against a new health
plan’s preexisting condition exclusion
period, we examined the 18 million
individuals who changed jobs in 2002.
Of these, approximately 1 in 3 had
health care coverage at those jobs and an
additional 8 million dependents also
received employer-sponsored health
care coverage through these job
changers. By allowing prior creditable
coverage, 4 million job changers, who
had at least 12 months of prior
creditable coverage, were able to change
jobs without the risk of a preexisting
condition exclusions for them or their 5
million dependents. An additional 2
million workers who changed jobs and
had some smaller amount of prior
coverage, faced reduced waiting periods
before receiving full coverage for them
and their 3 million dependents.14
14 We calculated these estimates using internal
runs off the MEPS–HC. These runs gave the number
of total job changers, total job changers that had
employer-sponsored insurance (ESI), and whether
this coverage had been for less than 12 months or
not. Estimates for dependents were based off the
ratio of policy-holders to total dependents from the
March 2003 Current Population Survey (March
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The most direct effect of HIPAA’s
statutory group market portability
provisions is the extension of coverage
to individuals and preexisting
conditions not otherwise covered. This
extension of coverage entails both
benefits and costs. Individuals enjoying
expanded coverage will realize benefits.
In some instances these individuals will
gain coverage for services they
otherwise would have purchased out-ofpocket, thereby reaping a simple and
direct financial benefit In other
instances the extension of coverage will
induce individuals to consume more (or
different) health care services, reaping a
benefit which has financial value, and
which in some cases will produce
additional indirect benefits both to the
individual (improved health) and
possibly to the economy at large
(increased productivity).15 The simple
financial value of the direct benefits
(essentially the dollar value of the
extended coverage) is estimated to be
$515 million.16 The indirect benefits are
CPS). This approach to the question of how many
people are impacted by increased portability
parallels that of the September 1995 U.S. General
Accounting Office (GAO), Report HEHS–95–257,
‘‘Health Insurance Portability: Reform Could Ensure
Continued Coverage for up to 25 Million
Americans,’’ September 1995.
15 For more detailed information, see Ellen
O’Brien’s article ‘‘Employer’ Benefits from Workers’
Health Insurance’’ Milbank Quarterly, Vol. 1 No. 1,
2003. She provides an extensive analysis of the
literature on benefits accruing to employers from
offering health benefits. She reports that researchers
are beginning to calculate the costs to employers of
unhealthy employees. Her work provides
information on studies that have demonstrated that
poor health may be related to lower productivity.
For example, she discusses studies that have
examined the effects on workplace productivity of
specific health conditions and show that poor
health reduces workers’ productivity at work, and
that effective health care treatments can reduce
productivity losses and may even pay for
themselves in terms of increased productivity.
16 The estimate of $515 million is the 1999
projection published in the August 1, 1996
Congressional Budget Office (CBO) report,
‘‘Estimate of Costs of Private Sector Mandates;’’ Bill
Number H.R. 3103, indexed. The index is derived
from the average annual percent change from 1999
to 2004 in aggregate private health insurance
expenditures, as reported in Table 3 of the
‘‘National Health Care Projections Tables’’ by the
Centers for Medicare & Medicaid Services, Office of
the Actuary. CBO estimated the direct cost to the
private sector would total about $300 million in
1999. The specific items included in the estimate
are: (1) Limiting the length of time employersponsored and group insurance plans could
withhold coverage for pre-existing conditions, and
(2) requiring that periods of continuous prior health
plan coverage be credited against pre-existing
condition exclusions of a new plan.
According to CBO, two-thirds of the cost reflects
the provision to limit exclusions for pre-existing
conditions. The key components of this estimate
are: (1) The number of people who would have
more of their medical expenses covered by
insurance if exclusions were limited to one year or
less, and (2) the average cost to insurers of that
newly insured medical care. The provision
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difficult to quantify (and the
Departments have not attempted to do
so), but may be large in aggregate, and
will be large for at least some
individuals whose health outcomes may
be substantially improved.
Another indirect (though intended)
benefit of HIPAA’s portability
provisions is a reduction in so-called
‘‘job lock.’’ Job lock occurs when an
individual stays in a job with health
insurance that he or she would prefer to
leave out of concern that he or she
would lose coverage for care of his or
her own or a covered dependent’s
preexisting condition17.
No attempt is made here to quantify
increases in labor force mobility
attributable to reduced job lock under
HIPAA. However, it is noted that at least
two indirect economic effects are likely
to follow such increased mobility. First,
the cost of coverage for some preexisting
conditions will be transferred from one
plan or issuer to another.18 Second, if,
crediting prior coverage against current exclusions
will account for a third of the cost. This estimate
is based on two components: (1) The number of
people who would receive some added coverage,
and (2) the additional full-year cost of coverage,
adjusted to reflect the estimated number of months
of that coverage.
17 Findings on the effect of health insurance
coverage on job mobility have been mixed. A
thorough assessment of the job lock literature in the
past 10 years concluded that the most convincing
evidence suggests that health insurance plays an
important role in job mobility decisions, but is
unclear as to its implications (see Gruber, Jonathan
and Brigitte C. Madrian, 2002, Health Insurance,
Labor Supply and Job Mobility: A Critical Review
of the Literature, NBER Working Paper Series, No.
8817). A major concern in this literature has been
to find an identification strategy able to overcome
the potential correlation between the holding of
employer-sponsored health insurance and other
factors affecting job mobility independent from
health insurance (see Anna Sanz de Galdeano,
2004. Health Insurance and Job Mobility: Evidence
from Clinton’s Second Mandate, Center for Studies
in Economics and Finance Working Paper, No. 122).
This is illustrated by the 2004 Health Confidence
Survey which finds that 27 percent of the non-aged
population reported that they or an immediate
family member had experienced some form of job
lock, but only 15 percent of those attributed the joblock to a preexisting condition (see Ruth Helman &
Paul Frostin, ‘‘Public Attitudes on the U.S. Health
Care System: Findings from the Health Confidence
Survey.’’ Employee Benefits Research Institute,
Issue Brief no. 275 (EBRI, November 2004)).
18 This transfer generally implies offsetting costs
and benefits. It is possible, however, that in some
instances individuals’ mobility will allow them to
exploit opportunities for adverse selection by
moving into a richer health plan (see Cutler, D. and
Reber, S., 1998. Paying for health insurance: the
tradeoff between competition and adverse selection.
Quarterly Journal of Economics 113, 433–466, and
Cutler, D. and Zeckhauser, R. 2000. The anatomy
of health insurance, in Culyer, A., Newhouse, J.P.
(Eds.), Handbook of Health Economics, Vol. 1A.
Elsevier, Amsterdam, pp. 564–629. For a
contrasting study see, Pauly, M.V., Mitchell, O. and
Zeng, Y. 2004 ‘‘Death Spiral Or Euthanasia? The
Demise Of Generous Group Health Insurance
Coverage’’ NBER Working Paper No. 10464, for a
discussion). Such movements would constitute
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78741
as is likely, a result is movement of
workers into more productive jobs, the
overall economy will benefit.
It should be noted that the benefits of
HIPAA’s portability provisions in any
given year will be concentrated in a
relatively small population—generally,
individuals who because of some
combination of family health status and
use of health services, job mobility, and
plan provisions related to preexisting
condition exclusions or enrollment
opportunities, gain coverage under
HIPAA for needed care that would
otherwise not be covered.
According to CBO, any point in time,
about 100,000 individuals would have a
preexisting condition exclusion reduced
for prior creditable coverage. An
additional 45,000 would gain added
coverage in the individual market.19
The direct costs of HIPAA’s
portability provisions generally include
the cost of extending coverage to
additional services, as well as certain
attendant administrative costs. The cost
of extended coverage is estimated at
$515 million annually. The major
administrative costs include the cost of
providing certificates of creditable
coverage, and possibly the cost of
carrying out special enrollments and
offsets of preexisting condition
exclusion periods. The Departments did
not attempt to fully estimate the
administrative costs of the HIPAA
statute but did, in crafting this
regulation, attempt to constrain these
costs, where possible. without
compromising HIPAA’s intent, as
discussed below.
The Departments considered the
probable incidence of these costs. The
Departments believe that by and large
the cost of HIPAA, like all of the cost
of group health benefits, are borne by
covered workers.20 The most direct
ways this cost can be shifted to workers
is through increases in employee
premium shares or reductions (or
smaller increases) in pay or other
components of compensation. Other
paths for shifting of HIPAA’s cost to
workers might include increases in
deductibles or other cost sharing, or
other reductions in the richness of
health benefits.
Whereas the benefits of HIPAA are
concentrated in a relatively small
population, the costs are distributed
broadly across plans and enrollees. The
cost for affected large, self-insured or
experience rated group plans is spread
across all enrollees in the plan. The cost
for small insured plans typically is
spread across large populations of small
plans and their enrollees, partly as a
result of State laws that compress small
group premium rates.
The Departments have considered
whether the costs imposed by HIPAA’s
statutory portability provisions have
had any major indirect negative effects,
and concluded that such effects are
possible but probably small.
Any mandate to increase the richness
or availability of health insurance adds
to the cost of insurance. It is possible
that some small number of employers
already at the brink of affordability
would drop coverage in response to the
implementation of HIPAA. The number
of employers so affected is probably
limited in part because as noted above,
employers can shift HIPAA’s cost to
workers in various ways, including
through increases in employee premium
shares or cost sharing—though such
increases might prompt some workers at
the margin to decline coverage.
Economic literature provides some
estimates of the responsiveness of
employers and workers to increases in
the price of insurance.21
extensions of coverage with costs and benefits
resembling those of direct extensions of coverage
under HIPAA.
19 Congressional Budget Office, ‘‘Estimate of Costs
of Private Sector Mandates; Bill Number H.R. 3103,
August 1, 1996.
20 The voluntary nature of the employment-based
health benefit system in conjunction with the open
and dynamic character of labor markets make
explicit as well as implicit negotiations on
compensation a key determinant of the prevalence
of employee benefits coverage. It is likely that 80%
to 100% of the cost of employee benefits is borne
by workers through reduced wages (see for example
Jonathan Gruber and Alan B. Krueger, ‘‘The
Incidence of Mandated Employer-Provided
Insurance: Lessons from Workers Compensation
Insurance,’’ Tax Policy and Economy (1991);
Jonathan Gruber, ‘‘The Incidence of Mandated
Maternity Benefits,’’ American Economic Review,
Vol. 84 (June 1994), pp. 622–641; Lawrence H.
Summers, ‘‘Some Simple Economics of Mandated
Benefits,’’ American Economic Review, Vol. 79, No.
2 (May 1989); Louise Sheiner, ‘‘Health Care Costs,
Wages, and Aging,’’ Federal Reserve Board of
Governors working paper, April 1999; and Edward
Montgomery, Kathryn Shaw, and Mary Ellen
Benedict, ‘‘Pensions and Wages: An Hedonic Price
Theory Approach,’’ International Economic Review,
Vol. 33 No. 1, Feb. 1992). The prevalence of benefits
is therefore largely dependent on the efficacy of this
exchange. If workers perceive that there is the
potential for inappropriate denial of benefits they
will discount their value to adjust for this risk. This
discount drives a wedge in the compensation
negotiation, limiting its efficiency. With workers
unwilling to bear the full cost of the benefit, fewer
benefits will be provided. To the extent which
workers perceive a federal regulation supported by
enforcement authority to improve the security and
quality of benefits, the differential between the
employers’ costs and workers’ willingness to accept
wage offsets is minimized.
21 Research shows that while the share of
employers offering insurance is generally stable and
eligibility rates have only declined slightly over
time, the overall increase in uninsured workers is
due to the decline in worker take-up rates, which
workers primarily attribute to cost. Research on
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The Departments note, however, that
cost increases attributable to HIPAA are
not price increases per se but reflect the
cost to enrich benefits, implying that
negative responses should be smaller
than would be expected in connection
with pure price increases. The
Departments also note that the
estimated $515 million cost associated
with extensions of coverage under
HIPAA amounts to a small fraction of
one percent of total expenditures by
private group health plans.22 This
compares with average annual group
premium growth of 9.4 percent for
family coverage between 1996 and
2002.23 To the extent that such increases
are small, they are likely to have a
negligible effect on employers’ decisions
to provide health insurance and in
workers’ decisions to enroll.
Various other studies to date suggest
that any negative indirect effects of
HIPAA are relatively minor. In one
study,24 large employers and health
benefit consultants reported few
ongoing problems in adopting HIPAA’s
portability provisions. Many issuers
interviewed for the report said that their
plans tended to require few changes to
comply with HIPAA. This is probably
because many large employer plans had
already incorporated portability
protections, similar to those of HIPAA.
A second study indicates that while the
share of small firms (those with fewer
than 200 workers) offering health
insurance has increased slightly from
1996 to 2004, the share has drifted
downward from its high of 68 percent
elasticity of coverage, however, has focused on
getting uninsured workers to adopt coverage (which
appears to require large subsidies) rather than
covered workers opting out of coverage. This makes
it difficult to ascertain the loss in coverage that
would result from a marginal increase in costs. (See,
for example, David M. Cutler ‘‘Employee Costs and
the Decline in Health Insurance Coverage’’ NBER
Working Paper #9036. July 2002; Gruber, Jonathon
and Ebonya Washington. ‘‘Subsidies to Employee
Health Insurance Premiums and the Health
Insurance Market’’ NBER Working Paper #9567.
March 2003; and Cooper, PF and J. Vistnes.
‘‘Workers’ Decisions to Take-up Offered Insurance
Coverage: Assessing the Importance of Out-ofPocket Costs’’ Med Care 2003, 41(7 Suppl): III35–
43.) Finally, economic discussions on elasticity of
insurance tend to view coverage as a discrete
concept and does not consider that the value of
coverage may have also changed.
22 While these costs are expected in aggregate to
be less than one percent of total expenditures by
group health plans, the statute may
disproportionately affect particular plans.
23 This is the average annual rate of increase in
total family premiums as reported in the Medical
Expenditure Panel Survey, Insurance Component
(MEPS–IC) public tables, 1996–2002.
24 U.S. General Accounting Office, Report HEH–
99–100, ‘‘Private Health Insurance: Progress and
Challenges in Implementing 1996 Federal
Standards,’’ pp. 6–7, May 1999.
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in the economic boom year of 2000.25 In
addition, in aggregate, employers
covered a larger proportion of health
care costs for family plans in 2002 than
in 1996, with a slight decrease in the
share of single plans over the same time
period.26
The data above suggest that the
HIPAA changes may have been less
significant in the decision about health
insurance coverage than overall
economic conditions and labor market
forces. In fact, there is no evidence that
any indirect economic effect, positive or
negative, can be readily attributed to the
statute. Therefore, it appears that
HIPAA has not placed an unreasonable
burden on health plans.
There has been a significant decrease
in the prevalence of preexisting
condition exclusion clauses among large
plans. A major employee benefits
survey 27 reported that in 1996, 59
percent of the employees in small firms
(less than 200 employees) were subject
to pre-existing condition limitations. In
2002, the figure had dropped to 33
percent. If preexisting condition
limitation exists for new employees, the
average number of months to wait
before coverage declined from 10.7
months in 1996 to 10.0 months in 2002.
A discussion of results from a 1998
version of the same survey noted that,
overall, 42 percent of employers
reported making changes to their plans’
preexisting condition clauses due to
HIPAA. The Departments are not aware
of any surveys that have consistently
tracked the prevalence of preexisting
condition exclusions in smaller plans
(less than 200 employees) since 1996.
Another significant trend involves the
use of waiting periods. According to a
survey of employers with 200 or more
employees, the average number of days
that new enrollees must wait before
health coverage takes effect increased
from 40 days in 1996 to 58 days in 1998.
Some attribute this increase indirectly
to HIPAA, suggesting that some plans
may be replacing the preexisting
condition exclusion period with a
longer waiting period.
Effects of the Final Regulations
By clarifying and securing HIPAA’s
statutory portability protections, these
regulations will help ensure that HIPAA
rights are fully realized. The result is
likely to be a small increase at the
25 Gabel, Jon R. et al. ‘‘Health Benefits in 2004:
Four Years of Double Digit Premium Increases Take
Their Toll on Coverage’’ Health Affairs, Volume 23,
Number 5, September/October 2004.
26 As reported in the MEPS–IC 1996–2002 public
tables.
27 Employee Health Benefits 2002 Study, Kaiser
Family Foundation.
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margin in the direct and indirect
economic effects of HIPAA’s statutory
portability provisions.
Additional economic benefits derive
from the regulations’ clarifications of
HIPAA’s portability requirements. The
regulations provide clarity through both
their provisions and their examples of
how those provisions apply in various
circumstances. By clarifying employees’
rights and plan sponsors’ obligations
under HIPAA’s portability provisions,
the regulations will reduce uncertainty
and costly disputes over these rights
and obligations. They will promote
employers’ and employees’ common
understanding of the value of group
health plan benefits and confidence in
the security and predictability of those
benefits, thereby improving labor
market efficiency and fostering the
establishment and continuation of group
health plans by employers.
Many provisions of the final
regulations closely resemble provisions
included in the interim final regulations
that the final regulations supplant. The
economic impact of this regulatory
action therefore generally will be
limited to the impact of provisions that
were not so included. These include
both provisions directed at the scope of
HIPAA’s portability protections and
provisions establishing administrative
requirements intended to safeguard
those protections.
Scope of Protections
These final regulations are intended
to secure and implement HIPAA’s group
market portability provisions under
certain special circumstances. The final
regulations therefore contain a number
of provisions intended to clearly delimit
the scope of HIPAA’s portability
protections. Most of these provisions
closely resemble and will have the same
effect as provisions of the interim final
regulations. Others, however, clarify or
expand at the margin the range of
situations to which HIPAA’s portability
protections explicitly apply. These
include the requirement that health
coverage under foreign government
programs be treated as creditable
coverage for purposes of limiting the
application of preexisting condition
exclusions; the extension of special
enrollment rights to individuals who
lose eligibility for coverage in
connection with the application of
lifetime benefit limits, movement out of
an HMO’s service area, or the
termination of a health coverage option
previously offered under a group health
plan; and the establishment of a special
enrollment right for a participant to
change among available coverage
options under a group health plan when
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adding one or more dependents in
connection with marriage, adoption, or
placement for adoption. Each of these
provisions is expected to result in a
small increase in the economic effects of
HIPAA’s statutory portability
protections.
The Departments lack any firm basis
for quantifying the number of
individuals likely to be affected by these
provisions, and therefore were unable to
quantify the resultant increase in
transfers. However, given the special
and narrow circumstances to which
these provisions apply, the number of
affected individuals, and therefore the
increase in transfers under these
regulations, is expected to be small. In
reaching this conclusion, the
Departments considered the following.
In 2002, an estimated 359,000
employer sponsored insurance enrollees
had moved from abroad in the previous
year.28 It is not known what fraction of
these had been covered under foreign
government programs, or of those, what
fraction joined group health plans that
included preexisting condition
exclusions while suffering from and
requiring additional care for preexisting
conditions. Comparing GAO’s estimate
of the number of individuals who could
potentially benefit from HIPAA’s
portability protections (20 million or
more individuals with prior creditable
coverage who join new health plans in
a given year) with CBO estimates of the
number who might actually have added
coverage for needed care (145,000)
produces a ratio of about 1 percent. If
this proportion holds for group health
plan enrollees who moved to the U.S.
from abroad, and if all such enrollees
were previously covered under a foreign
government program (an upper bound),
then about 4,000 individuals annually
might gain coverage for needed care
under the final regulation’s provision
treating coverage under such programs
as creditable coverage.29
The provision that clarifies the special
enrollment rights of individuals who
lose eligibility for coverage in
connection with the movement out of an
HMO’s service area is expected mainly
to benefit certain individuals with
COBRA continuation coverage. The
number of individuals affected in any
given year is expected to be small. It is
estimated that in 2002, fewer than
10,000 COBRA enrollees were covered
by HMOs, moved across State or county
lines, and were potentially eligible for
28 Calculation
from the 2003 March CPS.
number is 1 percent of the number of ESI
holders in 2002 who moved from abroad the
previous year.
29 This
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coverage under another family
member’s group plan.30
Lifetime benefit limits (LBL) are fairly
common in-group health plans and are
typically set at $1 million or more.31
Based on tabulations made by an
actuarial consulting firm,32 in plans
with LBLs of $1 million, annually about
27 per one million enrollees will exceed
the benefit limits. In plans with a
$500,000 LBL, the comparable figure is
181 per million enrollees; and in plans
with a $2 million LBL, 5 per million
enrollees. Combining these proportions
with a distribution of LBLs by plan
enrollment reported by a national
employer survey, yields about 8,700
plan enrollees who will annually reach
their plan’s LBL. The Departments
recognize that those individuals who do
encounter such limits by definition have
very high expenses, a large portion of
which would be transferred to the group
health plans into which they special
enroll. It is possible, however, that a
large share of such transfers would have
occurred even without the provisions of
these final regulations establishing a
right to special enroll upon
encountering lifetime limits. For
example, the same individuals might
have enrolled in these plans during
open enrollment opportunities, either
before or after encountering the limits.
Alternatively, participants who have
met their LBL might have left their jobs
in order to create a special enrollment
opportunity.
The Departments estimate that
annually about 1 million families will
be eligible for special enrollments due
to marriage, 2 million due to births.
About one-half of employees offered
coverage at work have a choice of plan
options.33 Taken together, this suggests
that the number of individuals gaining
special enrollment rights to switch
among options within group health
plans when adding dependents may be
large. However, it is unclear how many
will elect to switch, or how many who
do would have been so permitted even
absent the applicable requirement of
30 Estimates using the March 2003 CPS. It should
be noted that CPS is a weighted survey and that the
number of actual observations of individuals that
were COBRA enrollees with HMO coverage, moved
across counties and/or States and were eligible for
coverage under another family member’s group plan
was extremely small. As a result, this estimate is
extremely noisy.
31 See, for example, U.S. Bureau of Labor
Statistics, Employee Benefits in Medium and Large
Establishments, 2000 (Washington, DC: U.S.
Government Printing Office, 2003).
32 Milliman USA memorandum dated December
6, 2001.
33 Sally Trude, ‘‘Who Has A Choice of Health
Plans?’’ Center for Studying Health Systems
Change, Issue Brief: Findings from HSC, No. 27,
Feb. 2000.
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these final regulations. More important,
it is unclear whether merely switching
among options will increase or decrease
the transfer from the affected health
plans to the affected individuals. In any
event, individuals exercising this
special enrollment right to switch
options are not gaining coverage under
any particular group health plan but are
merely modifying that coverage.
Administrative Requirements
In order to secure and implement
HIPAA’s group market special
enrollment and portability provisions,
both the HIPAA statute and these final
regulations establish certain
administrative requirements. As noted
above, the HIPAA statute generally
requires plans and issuers to provide
certifications of prior coverage to
individuals leaving coverage. These
regulations additionally require plans
and issuers to notify individuals of their
special enrollments rights, any
preexisting condition exclusion
provisions, and the applicability of such
exclusions where individuals provide
evidence of prior coverage that is of
insufficient duration to fully offset
exclusion periods. Plans will incur cost
to comply with these administrative
requirements. The Departments estimate
the administrative cost to prepare and
distribute certifications and notices to
be $97 million per year.34
Nearly all of this, or $96 million, is
attributable to the preparation and
distribution of certifications as required
under HIPAA’s statutory provisions.
These final regulations include
numerous special provisions that serve
to reduce plans’ cost of providing
certifications. These provisions serve to
streamline and standardize
certifications’ content and format,
minimize the number of duplicative
certifications issued, and encourage the
use of telephone calls and other modes
of communication when they will
suffice in lieu of written certifications.
The provisions are designed to
minimize certifications’ cost while
ensuring that individuals and plans
(respectively) can efficiently and
effectively demonstrate and verify prior
coverage. Demonstration and
verification of prior coverage enable
individuals to secure and plans to
34 The Departments assumed that a clerical-level
employee at a total labor cost (wages, fringe
benefits, and overhead) of $17.24 per-hour would
generate the certificates. The Departments further
assumed that the average time required to complete
a certification is 4 to 5 minutes for all employers.
This average is based on the assumption that most
employers will automate the certification process.
The cost of printing/copying, an envelope and
postage is assumed to be $0.53 per employee.
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appropriately honor individuals’
portability rights under HIPAA.
First, an intermediate issuer will not
have to issue a certificate of creditable
coverage when an individual changes
options under the same health plan. In
lieu of the certificate, the issuer could
simply transmit to the plan information
regarding individuals’ effective date of
coverage and the last date of coverage.
An individual would retain the right to
get a certificate automatically and upon
request if he/she leaves the plan.
Second, telephonic certification will
fulfill the requirement to send a
certificate if the receiving plan, prior
plan, and the participant mutually agree
to that arrangement. The individual can
get a written certificate upon request.
Third, in situations where the issuer
and the plan contract for the issuer to
complete the certificates, the plan
would not remain liable even if the
issuer failed to send the certificates.
Fourth, the period of coverage listed
on automatic certificates will be only
the last continuous period of coverage
without any break. This is the most
efficient and simplest method of record
keeping for plans and issuers.
Fifth, the period of coverage
contained in the on-request certification
will be all periods of coverage ending
within 24 months before the date of the
request. Essentially, a plan may simply
look back two years and send copies of
any automatic certificates issued during
that period.
Sixth, a single certificate of creditable
coverage can be provided with respect
to both a participant and the
participant’s dependent if the
information is identical for each
individual. In addition, certificates may
contain combined information for
families.
Seventh, plans and issuers are not
required to furnish an individual an
automatic certificate with respect to a
dependent until they know or should
know of the dependent’s cessation of
coverage under the plan.
The above reductions in burdens on
plans and issuers may cause more
frequent circumstances in which
participants are required to demonstrate
creditable coverage. In order to help
offset some of the additional burdens
that will be shifted to the participants,
the regulations provide the following
protections:
First, if an individual is required to
demonstrate dependent status, the
group health plan or issuer is required
to treat the individual as having
furnished a certificate showing the
dependent status if the individual
attests to such dependency and the
period of dependent status, and the
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individual cooperates with the plan’s or
issuer’s efforts to verify the dependent
status.
Second, if the accuracy of a certificate
is contested or a certificate is
unavailable when needed, individuals
have the right to demonstrate creditable
coverage through the presentation of
relevant corroborating evidence of
creditable coverage during the relevant
time period and by cooperating with the
plan’s efforts to verify the individual’s
coverage.
Third, plans and issuers that impose
preexisting condition exclusion periods
must notify participants of this fact.
They must also explain that prior
creditable coverage can reduce the
length of a preexisting condition
exclusion period, and that the plan or
issuer will assist in obtaining a
certificate of creditable coverage from
any prior plan or issuer, if necessary. An
exclusion may not be imposed until this
notice is given. This is beneficial to
participants insofar as it forewarns them
of potential claim denials and enables
them to more easily exercise their right
to protection from such denials under
HIPAA’s portability provisions.
Fourth, after an individual has
presented evidence of creditable
coverage, the plan or issuer must give
the individual a written notice of the
length of any preexisting condition
exclusion that remains after offsetting
for creditable coverage.
Fifth, certificates of creditable
coverage now contain educational
language that more explicitly informs
consumers of their HIPAA rights.
As noted earlier in this preamble,
GAO and others recommended that
educational statements be added to
certifications. The Departments have
provided a suitable statement for use by
plans, thereby eliminating any need for
plans to develop their own. The cost of
providing such statements is therefore
expected to be minimal.
The administrative cost associated
with provision of certifications under
the HIPAA statute and these final
regulations was estimated as follows.
The ongoing burden associated with
the issuance of automatic certifications
by group plans is estimated as a
function of (1) the number of events that
trigger such issuances; (2) the statutory
and regulatory specifications for the
content of the certificates; and (3) the
assumed burden associated with the
preparation and distribution of each
certificate.
Certifications must be issued when an
event, defined as the loss of health
coverage by a participant or by a
dependent, occurs. Survey tabulations
indicate that there were 54.3 million
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events in 2002.35 Additionally, results
from the March 1999 CPS indicate that
about 3 percent of the events involve a
dependent who lives at a different
address than the participant. In such
cases the plan is required to send out at
least 2 separate certificates.
The model certificate illustrates how
plans may incur a lesser burden when
it is certified that prior periods of
coverage were of at least 18 months
duration; that is, in lieu of a specific
date that coverage began and waiting/
affiliation period information, such
certifications may simply indicate that
the prior period of coverage lasted at
least 18 months. In contrast,
certifications of shorter periods of prior
coverage must contain the specific dates
when coverage—and waiting/affiliation
periods, if applicable—began.
Combining the options for the
addresses with the time periods results
in four categories of certifications: (1)
One address and less than 18 months of
prior creditable coverage (12 million
annual events); (2) one address and 18
months or more of prior creditable
coverage (42.3 million); (3) more than
one address and prior creditable
coverage of less than 18 months (.4
million); and (4) more than one address
and 18 months or more of prior
creditable coverage (1.3 million).
Consistent with the interim
regulations, we assume that the percertificate preparation effort requires 5
minutes for prior creditable coverage of
less than 18 months and 4 minutes for
creditable coverage that is greater than
or equal to 18 months. The additional
cost involved in sending certificates to
multiple addresses for a given
participant is assumed to be 50 percent
of the cost of sending a certificate to one
address.
The Departments assumed that the
certificates would be generated by a
clerical-level employee who costs the
plans $17.24 per-hour in wages,
benefits, and overhead 36. The cost of
printing/copying, envelope and postage
is assumed to be $0.53 per envelope.
35 This total is based on internal estimates. The
ESI total (24.0 million or 20.4 private-sector and 3.6
public sector) was the sum of policy-holders who
left jobs, according to the 2002 MEPS–HC, and their
dependents, which were derived by multiplying
this number by the CPS ratio of dependents to
policy holders. Based on counts of the number of
people with partial year coverage off the March
2003 CPS, we estimated the SCHIP and Medicaid
total to be 14.9 million and the private individual
market to be 15.4 million.
36 The total labor cost is derived from wage and
compensation data from the Bureau of Labor
Statistics and includes an overhead componenet,
which is a multiple of compensation based on the
Government Cost Estimate.
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The resulting annual burden is $96
million.
A more strict interpretation of the
statute would require plans to send an
individual certificate to each affected
enrollee. Obviously, this requirement
would significantly increase the
administrative burden. Such strict
interpretation would result in plans
sending 80.1 million certificates
annually at cost of $157.6 million,
which is $61.6 million more than the
burden imposed by the final regulations.
The final regulations require that
plans, in response to requests made by
or on behalf of individuals, provide
certificates at any time while the
individual is covered under the plan
and for up to 24 months after coverage
ceases. Such requests are most likely to
be made by an individual who is unable
to locate the certificate of creditable
coverage from his/her prior health plan
and is seeking to enroll in a group
health plan that imposes preexisting
condition exclusions or is seeking to
reduce or eliminate any preexisting
condition exclusions that may otherwise
be applied by a source of individual
coverage.
The Departments believe that the
requested certificate burden is negligible
for several reasons. First, as reported by
a major health benefits survey 37 the
proportion of enrollees that are in plans
with preexisting condition exclusion
has not changed from the 2000 share of
30 percent, which is down from the preHIPAA level of 60 percent. In addition,
the educational statement contained
within the certificate serves to highlight
the importance of the document, thus
encouraging its retention. Furthermore,
the final rules permit individuals to
establish and verify creditable coverage
through other means. Finally, evidence
of creditable coverage may be
transmitted through means other than
documentation, such as by a telephone
call from the plan to a third party.
Apart from the provision of
certifications of prior creditable
coverage, the remaining $1 million in
administrative expenses is attributable
to notices of special enrollment rights
and of the existence and application of
preexisting condition exclusions, which
are required under these final
regulations. The Departments believe
that these notices are necessary to
ensure that individuals understand and
can effectively exercise their special
enrollment and portability rights under
HIPAA, and that the benefits of ensuring
37 Kaiser Family Foundation and Health Research
and Educational Trust, Employer Health Benefits
2002 Annual Survey.
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Jkt 205001
this outweigh the associated
administrative cost.
The regulations provide that a plan
must provide all employees with a
notice describing special enrollment
rights at or before the time the employee
is initially offered the opportunity to
enroll in the plan. The final regulations
provide model language that can be
used to satisfy the special enrollment
notice requirement.
The Departments believe that the vast
majority of plans have incorporated
special enrollment language into their
plan enrollment materials. Thus, the
cost of the special enrollment notice is
assumed to be a minor component of the
overall cost of providing plan
enrollment materials.
The number of employees who are
hired annually by firms that offer health
coverage and who are eligible for such
coverage was developed by using the
proportion of workers with less than
one year of tenure as reported by the
2002 MEPS–HC. We find that 10.8
million employees will be newly hired
and eligible for health coverage on an
annual basis. We assume that the
special enrollment notice is a
component of plan enrollment materials
and requires one-third of a sheet of
paper. Using a printing/copying cost of
$0.05 per page, we assume that the pernotice cost is $0.0167. The resulting
burden is estimated to be $180,687.
The final regulations provide that
every plan with a preexisting condition
exclusion must provide in writing a
general notice of such provisions to
individuals eligible for enrollment
under the plan. The regulations specify
what is required of the plan when it
discusses the amount and terms of its
preexisting condition exclusion,
including the person to contact for
further information regarding the
exclusions. In addition, the regulations
clarify that issuers must describe the
actual maximum exclusion period that
is applicable to a specific plan. A
regulatory example provides sample
language that the plans can use to
develop the general notice.
Based on results from the 2000
Kaiser/HRET Employer survey, we
assume that 35 percent of plans with
fewer than 100 participants, and 28
percent of plans with 100 or more
participants, apply preexisting
condition exclusions to new enrollees. If
we apply these proportions to the
number of new employees hired each
year by employers that offer health
coverage, we find that 3.1 million
employees will annually receive the
general notice.
As with the special enrollment notice,
we assume that the general notice of
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78745
preexisting condition exclusions is a
component of standard plan enrollment
materials and also requires one-third of
a sheet of paper. Assuming a printing/
copying cost of $0.05 per page, the pernotice cost is $0.0167. The annual cost
to distribute the notices is therefore
estimated to be $51,852.
The regulations provide sample notice
language, thus relieving the plans of the
burden of developing their own forms.
Plans that impose preexisting
condition exclusions must, in writing,
notify participants who have failed to
demonstrate sufficient prior coverage
that the exclusions will affect them and
indicate what the length of the
preexisting condition exclusion period
is, with respect to each individual. This
notice is required only in situations in
which the individual presents evidence
of prior creditable coverage and its
duration is less than the maximum
length of the preexisting condition
exclusion period. These final
regulations clarify that the notice does
not have to identify any medical
conditions that are specific to the
individual and subject to the exclusion.
Tabulations from the 2002 MEPS–HC
indicate that, of those individuals in the
private sector who changed jobs and
hold insurance, 16 percent have prior
creditable coverage of between 1 day
and 12 months, which is the statutory
preexisting condition exclusion
maximum for individuals who enroll
when first eligible. The comparable
proportion for State and local
governmental plans is 18 percent.
Applying these proportion to the
number of general preexisting exclusion
notices required, yields 478,569 notices
that will be prepared annually.
Because the notice must be
customized to reflect each individual’s
applicable preexisting condition
exclusion period, the per-notice time
burden will be greater than that for the
general notice of preexisting condition
exclusions. Consistent with the interim
final regulations, the Departments
assume that the preparation of each
notice will take two minutes of a
clerical-level employee’s time, plus
$0.47 for printing, envelope, and
postage, yielding a per-notice cost of
$1.05. The resulting annual burden is
estimated to be $582,497.
The estimated burden represents only
the cost of producing and distributing
the notices and does not include the
expense involved in determining the
adequacy of a participant’s prior
coverage, since such expense is
considered to be part of the regular
business practices necessary to comply
with HIPAA’s statutory portability
protections.
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Generally all of the major
administrative requirements included in
the final regulations were also included
in the interim final regulations. The
final regulations make minor additions
to two requirements, however. They
require plans to include educational
statements in certificates of creditable
coverage and to maintain in writing
their procedures for requesting
certificates. The cost of these additional
requirements is expected to be small,
and was not estimated separately from
the overall cost of providing certificates.
The requirement that certification
request procedures be in writing is
essentially a clarification of the interim
final regulations’ requirement that plans
have such procedures. The Departments
believe it is likely that most plans
already maintain written procedures,
and therefore expect the cost of this
requirement to be small. The
Departments did not estimate the cost of
this requirement separately from the
cost of providing certifications on
request.
Other changes included in these final
regulations are likely to slightly reduce
plans’ cost to provide certain HIPAArequired notices. Included with the final
regulation is new sample language for
general and specific notices of
preexisting condition exclusions, which
may serve to reduce some plans’ costs
of providing these notices, and revised
sample language for special enrollment
rights notices. The final regulations also
clarify the narrow scope of the
requirement to notify certain affected
participants of the specific application
of preexisting condition exclusions,
thereby potentially relieving some plans
of the burden associated with a more
expansive interpretation of that
requirement. The Departments did not
estimate the impact of these provisions
separately from the overall cost of
providing general and specific notices of
preexisting condition exclusions and
notices of special enrollment rights.
Statutory Authority
The Department of the Treasury final
rule is adopted pursuant to the authority
contained in sections 7805 and 9833 of
the Code (26 U.S.C. 7805, 9833).
The Department of Labor final rule is
adopted pursuant to the authority
contained in 29 U.S.C. 1027, 1059, 1135,
1161–1168, 1169, 1181–1183, 1181 note,
1185, 1185a, 1185b, 1191, 1191a, 1191b,
and 1191c, sec. 101(g), Public Law 104–
191, 101 Stat. 1936; sec. 401(b), Public
Law 105–200, 112 Stat. 645 (42 U.S.C.
651 note); Secretary of Labor’s Order 1–
2003, 68 FR 5374 (Feb. 3, 2003).
The Department of HHS final rule is
adopted pursuant to the authority
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23:18 Dec 29, 2004
Jkt 205001
contained in sections 2701 through
2763, 2791, and 2792 of the PHS Act (42
U.S.C. 300gg through 300gg–63, 300gg–
91, and 300gg–92), as added by HIPAA
(Public Law 104–191, 110 Stat. 1936),
and amended by MHPA and NMHPA
(Public Law 104–204, 110 Stat. 2935),
and WHCRA (Public Law 105–277, 112
Stat. 2681–436).
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health
insurance, Pensions, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
29 CFR Part 2590
Continuation coverage, Disclosure,
Employee benefit plans, Group health
plans, Health care, Health insurance,
Medical child support, Reporting and
recordkeeping requirements.
45 CFR Parts 144 and 146
Health care, Health insurance,
Reporting and recordkeeping
requirements, and State regulation of
health insurance.
Adoption of Amendments to the
Regulations
Internal Revenue Service
26 CFR Chapter I
Accordingly, 26 CFR parts 54 and 602
are amended as follows:
■
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by:
■ 1. Removing the citations for 54.9801–
1T, 54.9801–2T, 54.9801–3T, 54.9801–
4T, 54.9801–5T, 54.9801–6T, 54.9831–
1T, and 54.9833–1T.
■ 2. Adding entries in numerical order
for 54.9801–1, 54.9801–2, 54.9801–3,
54.9801–4, 54.9801–5, 54.9801–6,
54.9802–1, 54.9831–1, and 54.9833–1.
The additions read as follows:
■
Authority: 26 U.S.C. 7805. * * *
Section 54.9801–1 also issued under 26
U.S.C. 9833.
Section 54.9801–2 also issued under 26
U.S.C. 9833.
Section 54.9801–3 also issued under 26
U.S.C. 9801(c)(4), 9801(e)(3), and 9833.
Section 54.9801–4 also issued under 26
U.S.C. 9801(c)(1)(I) and 9833.
Section 54.9801–5 also issued under 26
U.S.C. 9801(c)(4), 9801(e)(3), and 9833.
Section 54.9801–6 also issued under 26
U.S.C. 9833.
Section 54.9802–1 also issued under 26
U.S.C. 9833. * * *
Section 54.9831–1 also issued under 26
U.S.C. 9833.
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Section 54.9833–1 also issued under 26
U.S.C. 9833.
■ Par. 2. Sections 54.9801–1T, 54.9801–
2T, 54.9801–3T, 54.9801–4T, 54.9801–
5T, 54.9801–6T, 54.9831–1T, and
54.9833–1T are removed.
■ Par. 3. Sections 54.9801–1, 54.9801–2,
54.9801–3, 54.9801–4, 54.9801–5,
54.9801–6, 54.9831–1, and 54.9833–1
are added to read as follows:
§ 54.9801–1
Basis and scope.
(a) Statutory basis. Sections 54.9801–
1 through 54.9801–6, 54.9802–1,
54.9802–1T, 54.9811–1T, 54.9812–1T,
54.9831–1, and 54.9833–1 (portability
sections) implement Chapter 100 of
Subtitle K of the Internal Revenue Code
of 1986.
(b) Scope. A group health plan may
provide greater rights to participants
and beneficiaries than those set forth in
these portability sections. These
portability sections set forth minimum
requirements for group health plans
concerning:
(1) Limitations on a preexisting
condition exclusion period.
(2) Certificates and disclosure of
previous coverage.
(3) Rules relating to creditable
coverage.
(4) Special enrollment periods.
(5) Prohibition against discrimination
on the basis of health factors.
(c) Similar requirements under the
Employee Retirement Income Security
Act and the Public Health Service Act.
Sections 701, 702, 703, 711, 712, 732,
and 733 of the Employee Retirement
Income Security Act of 1974 and
sections 2701, 2702, 2704, 2705, 2721,
and 2791 of the Public Health Service
Act impose requirements similar to
those imposed under Chapter 100 of
Subtitle K with respect to health
insurance issuers offering group health
insurance coverage. See 29 CFR part
2590 and 45 CFR parts 144, 146, and
148. See also part B of Title XXVII of the
Public Health Service Act and 45 CFR
part 148 for other rules applicable to
health insurance offered in the
individual market (defined in
§ 54.9801–2).
§ 54.9801–2
Definitions.
Unless otherwise provided, the
definitions in this section govern in
applying the provisions of §§ 54.9801–1
through 54.9801–6, 54.9802–1, 54.9802–
1T, 54.9811–1T, 54.9812–1T, 54.9831–1,
and 54.9833–1.
Affiliation period means a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
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COBRA definitions:
(1) COBRA means Title X of the
Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable COBRA
continuation provision.
(3) COBRA continuation provision
means section 4980B (other than
paragraph (f)(1) of section 4980B insofar
as it relates to pediatric vaccines),
sections 601–608 of ERISA, or Title XXII
of the PHS Act.
(4) Exhaustion of COBRA
continuation coverage means that an
individual’s COBRA continuation
coverage ceases for any reason other
than either failure of the individual to
pay premiums on a timely basis, or for
cause (such as making a fraudulent
claim or an intentional
misrepresentation of a material fact in
connection with the plan). An
individual is considered to have
exhausted COBRA continuation
coverage if such coverage ceases—
(i) Due to the failure of the employer
or other responsible entity to remit
premiums on a timely basis;
(ii) When the individual no longer
resides, lives, or works in the service
area of an HMO or similar program
(whether or not within the choice of the
individual) and there is no other
COBRA continuation coverage available
to the individual; or
(iii) When the individual incurs a
claim that would meet or exceed a
lifetime limit on all benefits and there
is no other COBRA continuation
coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable
coverage within the meaning of
§ 54.9801–4(a).
Dependent means any individual who
is or may become eligible for coverage
under the terms of a group health plan
because of a relationship to a
participant.
Employee Retirement Income Security
Act of 1974 (ERISA) means the
Employee Retirement Income Security
Act of 1974, as amended (29 U.S.C. 1001
et seq.).
Enroll means to become covered for
benefits under a group health plan (that
is, when coverage becomes effective),
without regard to when the individual
may have completed or filed any forms
that are required in order to become
covered under the plan. For this
purpose, an individual who has health
coverage under a group health plan is
enrolled in the plan regardless of
whether the individual elects coverage,
the individual is a dependent who
becomes covered as a result of an
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Jkt 205001
election by a participant, or the
individual becomes covered without an
election.
Enrollment date definitions
(enrollment date, first day of coverage,
and waiting period) are set forth in
§ 54.9801–3(a)(3)(i), (ii), and (iii).
Excepted benefits means the benefits
described as excepted in § 54.9831(c).
Genetic information means
information about genes, gene products,
and inherited characteristics that may
derive from the individual or a family
member. This includes information
regarding carrier status and information
derived from laboratory tests that
identify mutations in specific genes or
chromosomes, physical medical
examinations, family histories, and
direct analysis of genes or
chromosomes.
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Group health plan or plan means a
group health plan within the meaning of
§ 54.9831(a).
Group market means the market for
health insurance coverage offered in
connection with a group health plan.
(However, certain very small plans may
be treated as being in the individual
market, rather than the group market;
see the definition of individual market
in this section.)
Health insurance coverage means
benefits consisting of medical care
(provided directly, through insurance or
reimbursement, or otherwise) under any
hospital or medical service policy or
certificate, hospital or medical service
plan contract, or HMO contract offered
by a health insurance issuer. Health
insurance coverage includes group
health insurance coverage, individual
health insurance coverage, and shortterm, limited-duration insurance.
However, benefits described in
§ 54.9831(c)(2) are not treated as
benefits consisting of medical care.
Health insurance issuer or issuer
means an insurance company, insurance
service, or insurance organization
(including an HMO) that is required to
be licensed to engage in the business of
insurance in a State and that is subject
to State law that regulates insurance
(within the meaning of section 514(b)(2)
of ERISA). Such term does not include
a group health plan.
Health maintenance organization or
HMO means—
(1) A federally qualified health
maintenance organization (as defined in
section 1301(a) of the PHS Act);
(2) An organization recognized under
State law as a health maintenance
organization; or
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78747
(3) A similar organization regulated
under State law for solvency in the same
manner and to the same extent as such
a health maintenance organization.
Individual health insurance coverage
means health insurance coverage offered
to individuals in the individual market,
but does not include short-term,
limited-duration insurance. Individual
health insurance coverage can include
dependent coverage.
Individual market means the market
for health insurance coverage offered to
individuals other than in connection
with a group health plan. Unless a State
elects otherwise in accordance with
section 2791(e)(1)(B)(ii) of the PHS Act,
such term also includes coverage offered
in connection with a group health plan
that has fewer than two participants
who are current employees on the first
day of the plan year.
Issuer means a health insurance
issuer.
Late enrollment definitions (late
enrollee and late enrollment) are set
forth in § 54.9801–3(a)(3)(v) and (vi) .
Medical care has the meaning given
such term by section 213(d), determined
without regard to section 213(d)(1)(C)
and so much of section 213(d)(1)(D) as
relates to qualified long-term care
insurance.
Medical condition or condition means
any condition, whether physical or
mental, including, but not limited to,
any condition resulting from illness,
injury (whether or not the injury is
accidental), pregnancy, or congenital
malformation. However, genetic
information is not a condition.
Participant means participant within
the meaning of section 3(7) of ERISA.
Placement, or being placed, for
adoption means the assumption and
retention of a legal obligation for total or
partial support of a child by a person
with whom the child has been placed in
anticipation of the child’s adoption. The
child’s placement for adoption with
such person ends upon the termination
of such legal obligation.
Plan year means the year that is
designated as the plan year in the plan
document of a group health plan, except
that if the plan document does not
designate a plan year or if there is no
plan document, the plan year is—
(1) The deductible or limit year used
under the plan;
(2) If the plan does not impose
deductibles or limits on a yearly basis,
then the plan year is the policy year;
(3) If the plan does not impose
deductibles or limits on a yearly basis,
and either the plan is not insured or the
insurance policy is not renewed on an
annual basis, then the plan year is the
employer’s taxable year; or
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(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusion means
preexisting condition exclusion within
the meaning of § 54.9801–3(a)(1).
Public health plan means public
health plan within the meaning of
§ 54.9801–4(a)(1)(ix).
Public Health Service Act (PHS Act)
means the Public Health Service Act (42
U.S.C. 201, et seq.).
Short-term, limited-duration
insurance means health insurance
coverage provided pursuant to a
contract with an issuer that has an
expiration date specified in the contract
(taking into account any extensions that
may be elected by the policyholder
without the issuer’s consent) that is less
than 12 months after the original
effective date of the contract.
Significant break in coverage means a
significant break in coverage within the
meaning of § 54.9801–4(b)(2)(iii).
Special enrollment means enrollment
in a group health plan under the rights
described in § 54.9801–6 or in group
health insurance coverage under the
rights described in 29 CFR 2590.701–6
or 45 CFR 146.117.
State health benefits risk pool means
a State health benefits risk pool within
the meaning of § 54.9801–4(a)(1)(vii).
Waiting period means waiting period
within the meaning of § 54.9801–
3(a)(3)(iii).
§ 54.9801–3 Limitations on preexisting
condition exclusion period.
(a) Preexisting condition exclusion—
(1) Defined—(i) A preexisting condition
exclusion means a limitation or
exclusion of benefits relating to a
condition based on the fact that the
condition was present before the
effective date of coverage under a group
health plan or group health insurance
coverage, whether or not any medical
advice, diagnosis, care, or treatment was
recommended or received before that
day. A preexisting condition exclusion
includes any exclusion applicable to an
individual as a result of information
relating to an individual’s health status
before the individual’s effective date of
coverage under a group health plan or
group health insurance coverage, such
as a condition identified as a result of
a pre-enrollment questionnaire or
physical examination given to the
individual, or review of medical records
relating to the pre-enrollment period.
(ii) Examples. The rules of this
paragraph (a)(1) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
provides benefits solely through an insurance
policy offered by Issuer S. At the expiration
of the policy, the plan switches coverage to
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a policy offered by Issuer T. Issuer T’s policy
excludes benefits for any prosthesis if the
body part was lost before the effective date
of coverage under the policy.
(ii) Conclusion. In this Example 1, the
exclusion of benefits for any prosthesis if the
body part was lost before the effective date
of coverage is a preexisting condition
exclusion because it operates to exclude
benefits for a condition based on the fact that
the condition was present before the effective
date of coverage under the policy. (Therefore,
the exclusion of benefits is required to
comply with the limitations on preexisting
condition exclusions in this section. For an
example illustrating the application of these
limitations to a succeeding insurance policy,
see Example 3 of paragraph (a)(3)(iv) of this
section.)
Example 2. (i) Facts. A group health plan
provides coverage for cosmetic surgery in
cases of accidental injury, but only if the
injury occurred while the individual was
covered under the plan.
(ii) Conclusion. In this Example 2, the plan
provision excluding cosmetic surgery
benefits for individuals injured before
enrolling in the plan is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 3. (i) Facts. A group health plan
provides coverage for the treatment of
diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was
diagnosed with diabetes before the effective
date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of
$10,000.
(ii) Conclusion. In this Example 3, the
$10,000 lifetime limit is a preexisting
condition exclusion because it limits benefits
for a condition based on the fact that the
condition was present before the effective
date of coverage. The plan provision,
therefore, is subject to the limitations on
preexisting condition exclusions in this
section.
Example 4. (i) Facts. A group health plan
provides coverage for the treatment of acne,
subject to a lifetime limit of $2,000. The plan
counts against this $2,000 lifetime limit on
acne treatment benefits provided under prior
health coverage.
(ii) Conclusion. In this Example 4,
counting benefits for a specific condition
provided under prior health coverage against
a lifetime limit for that condition is a
preexisting condition exclusion because it
operates to limit benefits for a condition
based on the fact that the condition was
present before the effective date of coverage.
The plan provision, therefore, is subject to
the limitations on preexisting condition
exclusions in this section.
Example 5. (i) Facts. When an individual’s
coverage begins under a group health plan,
the individual generally becomes eligible for
all benefits. However, benefits for pregnancy
are not available until the individual has
been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the
requirement to be covered under the plan for
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12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting
condition exclusion because it is designed to
exclude benefits for a condition (pregnancy)
that arose before the effective date of
coverage. Because a plan is prohibited under
paragraph (b)(5) of this section from
imposing any preexisting condition
exclusion on pregnancy, the plan provision
is prohibited. However, if the plan provision
included an exception for women who were
pregnant before the effective date of coverage
under the plan (so that the provision applied
only to women who became pregnant on or
after the effective date of coverage) the plan
provision would not be a preexisting
condition exclusion (and would not be
prohibited by paragraph (b)(5) of this
section).
Example 6. (i) Facts. A group health plan
provides coverage for medically necessary
items and services, generally including
treatment of heart conditions. However, the
plan does not cover those same items and
services when used for treatment of
congenital heart conditions.
(ii) Conclusion. In this Example 6, the
exclusion of coverage for treatment of
congenital heart conditions is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan
generally provides coverage for medically
necessary items and services. However, the
plan excludes coverage for the treatment of
cleft palate.
(ii) Conclusion. In this Example 7, the
exclusion of coverage for treatment of cleft
palate is not a preexisting condition
exclusion because the exclusion applies
regardless of when the condition arose
relative to the effective date of coverage. The
plan provision, therefore, is not subject to the
limitations on preexisting condition
exclusions in this section.
Example 8. (i) Facts. A group health plan
provides coverage for treatment of cleft
palate, but only if the individual being
treated has been continuously covered under
the plan from the date of birth.
(ii) Conclusion. In this Example 8, the
exclusion of coverage for treatment of cleft
palate for individuals who have not been
covered under the plan from the date of birth
operates to exclude benefits in relation to a
condition based on the fact that the condition
was present before the effective date of
coverage. The plan provision, therefore, is
subject to the limitations on preexisting
condition exclusions in this section.
(2) General rules. Subject to paragraph
(b) of this section (prohibiting the
imposition of a preexisting condition
exclusion with respect to certain
individuals and conditions), a group
health plan may impose, with respect to
a participant or beneficiary, a
preexisting condition exclusion only if
the requirements of this paragraph (a)(2)
are satisfied. (See section 701 of ERISA
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and section 2701 of the PHS Act, under
which these requirements are also
imposed on a health insurance issuer
offering group health insurance
coverage.)
(i) 6-month look-back rule. A
preexisting condition exclusion must
relate to a condition (whether physical
or mental), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was
recommended or received within the 6month period (or such shorter period as
applies under the plan) ending on the
enrollment date.
(A) For purposes of this paragraph
(a)(2)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, 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 State
law.
(B) For purposes of this paragraph
(a)(2)(i), the 6-month period ending on
the enrollment date begins on the 6month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the
enrollment date is the period
commencing on February 1, 1998 and
continuing through July 31, 1998. As
another example, for an enrollment date
of August 30, 1998, the 6-month period
preceding the enrollment date is the
period commencing on February 28,
1998 and continuing through August 29,
1998.
(C) The rules of this paragraph (a)(2)(i)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual A is
diagnosed with a medical condition 8
months before A’s enrollment date in
Employer R’s group health plan. A’s doctor
recommends that A take a prescription drug
for 3 months, and A follows the
recommendation.
(ii) Conclusion. In this Example 1,
Employer R’s plan may impose a preexisting
condition exclusion with respect to A’s
condition because A received treatment
during the 6-month period ending on A’s
enrollment date in Employer R’s plan by
taking the prescription medication during
that period. However, if A did not take the
prescription drug during the 6-month period,
Employer R’s plan would not be able to
impose a preexisting condition exclusion
with respect to that condition.
Example 2. (i) Facts. Individual B is
treated for a medical condition 7 months
before the enrollment date in Employer S’s
group health plan. As part of such treatment,
B’s physician recommends that a follow-up
examination be given 2 months later. Despite
this recommendation, B does not receive a
follow-up examination, and no other medical
advice, diagnosis, care, or treatment for that
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condition is recommended to B or received
by B during the 6-month period ending on
B’s enrollment date in Employer S’s plan.
(ii) Conclusion. In this Example 2,
Employer S’s plan may not impose a
preexisting condition exclusion with respect
to the condition for which B received
treatment 7 months prior to the enrollment
date.
Example 3. (i) Facts. Same facts as
Example 2, except that Employer S’s plan
learns of the condition and attaches a rider
to B’s certificate of coverage excluding
coverage for the condition. Three months
after enrollment, B’s condition recurs, and
Employer S’s plan denies payment under the
rider.
(ii) Conclusion. In this Example 3, the rider
is a preexisting condition exclusion and
Employer S’s plan may not impose a
preexisting condition exclusion with respect
to the condition for which B received
treatment 7 months prior to the enrollment
date. (In addition, such a rider would violate
the provisions of § 54.9802–1, even if B had
received treatment for the condition within
the 6-month period ending on the enrollment
date.)
Example 4. (i) Facts. Individual C has
asthma and is treated for that condition
several times during the 6-month period
before C’s enrollment date in Employer T’s
plan. Three months after the enrollment date,
C begins coverage under Employer T’s plan.
Two months later, C is hospitalized for
asthma.
(ii) Conclusion. In this Example 4,
Employer T’s plan may impose a preexisting
condition exclusion with respect to C’s
asthma because care relating to C’s asthma
was received during the 6-month period
ending on C’s enrollment date (which, under
the rules of paragraph (a)(3)(i) of this section,
is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is
subject to a preexisting condition exclusion
imposed by Employer U’s plan, has diabetes,
as well as retinal degeneration, a foot
condition, and poor circulation (all of which
are conditions that may be directly attributed
to diabetes). D receives treatment for these
conditions during the 6-month period ending
on D’s enrollment date in Employer U’s plan.
After enrolling in the plan, D stumbles and
breaks a leg.
(ii) Conclusion. In this Example 5, the leg
fracture is not a condition related to D’s
diabetes, retinal degeneration, foot condition,
or poor circulation, even though they may
have contributed to the accident. Therefore,
benefits to treat the leg fracture cannot be
subject to a preexisting condition exclusion.
However, any additional medical services
that may be needed because of D’s
preexisting diabetes, poor circulation, or
retinal degeneration that would not be
needed by another patient with a broken leg
who does not have these conditions may be
subject to the preexisting condition exclusion
imposed under Employer U’s plan.
(ii) Maximum length of preexisting
condition exclusion. A preexisting
condition exclusion is not permitted to
extend for more than 12 months (18
months in the case of a late enrollee)
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78749
after the enrollment date. For example,
for an enrollment date of August 1,
1998, the 12-month period after the
enrollment date is the period
commencing on August 1, 1998 and
continuing through July 31, 1999; the
18-month period after the enrollment
date is the period commencing on
August 1, 1998 and continuing through
January 31, 2000.
(iii) Reducing a preexisting condition
exclusion period by creditable
coverage—(A) The period of any
preexisting condition exclusion that
would otherwise apply to an individual
under a group health plan is reduced by
the number of days of creditable
coverage the individual has as of the
enrollment date, as counted under
§ 54.9801–4. Creditable coverage may be
evidenced through a certificate of
creditable coverage (required under
§ 54.9801–5(a)), or through other means
in accordance with the rules of
§ 54.9801–5(c).
(B) The rules of this paragraph
(a)(2)(iii) are illustrated by the following
example:
Example. (i) Facts. Individual D works for
Employer X and has been covered
continuously under X’s group health plan.
D’s spouse works for Employer Y. Y
maintains a group health plan that imposes
a 12-month preexisting condition exclusion
(reduced by creditable coverage) on all new
enrollees. D enrolls in Y’s plan, but also stays
covered under X’s plan. D presents Y’s plan
with evidence of creditable coverage under
X’s plan.
(ii) Conclusion. In this Example, Y’s plan
must reduce the preexisting condition
exclusion period that applies to D by the
number of days of coverage that D had under
X’s plan as of D’s enrollment date in Y’s plan
(even though D’s coverage under X’s plan
was continuing as of that date).
(iv) Other standards. See § 54.9802–1
for other standards that may apply with
respect to certain benefit limitations or
restrictions under a group health plan.
Other laws may also apply, such as the
Uniformed Services Employment and
Reemployment Rights Act (USERRA),
which can affect the application of a
preexisting condition exclusion to
certain individuals who are reinstated
in a group health plan following active
military service.
(3) Enrollment definitions—(i)
Enrollment date means the first day of
coverage (as described in paragraph
(a)(3)(ii) of this section) or, if there is a
waiting period, the first day of the
waiting period. If an individual
receiving benefits under a group health
plan changes benefit packages, or if the
plan changes group health insurance
issuers, the individual’s enrollment date
does not change.
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(ii) First day of coverage means, in the
case of an individual covered for
benefits under a group health plan, the
first day of coverage under the plan and,
in the case of an individual covered by
health insurance coverage in the
individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period
that must pass before coverage for an
employee or dependent who is
otherwise eligible to enroll under the
terms of a group health plan can become
effective. If an employee or dependent
enrolls as a late enrollee or special
enrollee, any period before such late or
special enrollment is not a waiting
period. If an individual seeks coverage
in the individual market, a waiting
period begins on the date the individual
submits a substantially complete
application for coverage and ends on —
(A) If the application results in
coverage, the date coverage begins;
(B) If the application does not result
in coverage, the date on which the
application is denied by the issuer or
the date on which the offer of coverage
lapses.
(iv) The rules of paragraphs (a)(3)(i),
(ii), and (iii) of this section are
illustrated by the following examples:
Example 1. (i) Facts. Employer V’s group
health plan provides for coverage to begin on
the first day of the first payroll period
following the date an employee is hired and
completes the applicable enrollment forms,
or on any subsequent January 1 after
completion of the applicable enrollment
forms. Employer V’s plan imposes a
preexisting condition exclusion for 12
months (reduced by the individual’s
creditable coverage) following an
individual’s enrollment date. Employee E is
hired by Employer V on October 13, 1998,
and on October 14, 1998 E completes and
files all the forms necessary to enroll in the
plan. E’s coverage under the plan becomes
effective on October 25, 1998 (which is the
beginning of the first payroll period after E’s
date of hire).
(ii) Conclusion. In this Example 1, E’s
enrollment date is October 13, 1998 (which
is the first day of the waiting period for E’s
enrollment and is also E’s date of hire).
Accordingly, with respect to E, the
permissible 6-month period in paragraph
(a)(2)(i) is the period from April 13, 1998
through October 12, 1998, the maximum
permissible period during which Employer
V’s plan can apply a preexisting condition
exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through
October 12, 1999, and this period must be
reduced under paragraph (a)(2)(iii) by E’s
days of creditable coverage as of October 13,
1998.
Example 2. (i) Facts. A group health plan
has two benefit package options, Option 1
and Option 2. Under each option a 12-month
preexisting condition exclusion is imposed.
Individual B is enrolled in Option 1 on the
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first day of employment with the employer
maintaining the plan, remains enrolled in
Option 1 for more than one year, and then
decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B
cannot be subject to any preexisting
condition exclusion under Option 2 because
any preexisting condition exclusion period
would have to begin on B’s enrollment date,
which is B’s first day of coverage, rather than
the date that B enrolled in Option 2.
Therefore, the preexisting condition
exclusion period expired before B switched
to Option 2.
Example 3. (i) Facts. On May 13, 1997,
Individual E is hired by an employer and
enrolls in the employer’s group health plan.
The plan provides benefits solely through an
insurance policy offered by Issuer S. On
December 27, 1998, E’s leg is injured in an
accident and the leg is amputated. On
January 1, 1999, the plan switches coverage
to a policy offered by Issuer T. Issuer T’s
policy excludes benefits for any prosthesis if
the body part was lost before the effective
date of coverage under the policy.
(ii) Conclusion. In this Example 3, E’s
enrollment date is May 13, 1997, E’s first day
of coverage. Therefore, the permissible 6month look-back period for the preexisting
condition exclusion imposed under Issuer
T’s policy begins on November 13, 1996 and
ends on May 12, 1997. In addition, the 12month maximum permissible preexisting
condition exclusion period begins on May
13, 1997 and ends on May 12, 1998.
Accordingly, because no medical advice,
diagnosis, care, or treatment was
recommended to or received by E for the leg
during the 6-month look-back period (even
though medical care was provided within the
6-month period preceding the effective date
of E’s coverage under Issuer T’s policy), the
plan may not impose any preexisting
condition exclusion with respect to E.
Moreover, even if E had received treatment
during the 6-month look-back period, the
plan still would not be permitted to impose
a preexisting condition exclusion because the
12-month maximum permissible preexisting
condition exclusion period expired on May
12, 1998 (before the effective date of E’s
coverage under Issuer T’s policy). See 29 CFR
2590.701–3(a)(3)(iv) Example 3 and 45 CFR
146.111(a)(3)(iv) Example 3 for a conclusion
that Issuer T is similarly prohibited from
imposing a preexisting condition exclusion
with respect to E.
Example 4. (i) Facts. A group health plan
limits eligibility for coverage to full-time
employees of Employer Y. Coverage becomes
effective on the first day of the month
following the date the employee becomes
eligible. Employee C begins working full-time
for Employer Y on April 11. Prior to this
date, C worked part-time for Y. C enrolls in
the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C’s
enrollment date is April 11 and the period
from April 11 through April 30 is a waiting
period. The period while C was working parttime, and therefore not in an eligible class of
employees, is not part of the waiting period.
Example 5. (i) Facts. To be eligible for
coverage under a multiemployer group health
plan in the current calendar quarter, the plan
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requires an individual to have worked 250
hours in covered employment during the
previous quarter. If the hours requirement is
satisfied, coverage becomes effective on the
first day of the current calendar quarter.
Employee D begins work on January 28 and
does not work 250 hours in covered
employment during the first quarter (ending
March 31). D works at least 250 hours in the
second quarter (ending June 30) and is
enrolled in the plan with coverage effective
July 1 (the first day of the third quarter).
(ii) Conclusion. In this Example 5, D’s
enrollment date is the first day of the quarter
during which D satisfies the hours
requirement, which is April 1. The period
from April 1 through June 30 is a waiting
period.
(v) Late enrollee means an individual
whose enrollment in a plan is a late
enrollment.
(vi) (A) Late enrollment means
enrollment of an individual under a
group health plan other than—
(1) On the earliest date on which
coverage can become effective for the
individual under the terms of the plan;
or
(2) Through special enrollment. (For
rules relating to special enrollment, see
§ 54.9801–6.)
(B) If an individual ceases to be
eligible for coverage under the plan, and
then subsequently becomes eligible for
coverage under the plan, only the
individual’s most recent period of
eligibility is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage
following a suspension of coverage that
applied generally under the plan.
(vii) Examples. The rules of
paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following
examples:
Example 1. (i) Facts. Employee F first
becomes eligible to be covered by Employer
W’s group health plan on January 1, 1999 but
elects not to enroll in the plan until a later
annual open enrollment period, with
coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a
late enrollee with respect to F’s coverage that
became effective under the plan on January
1, 2001.
Example 2. (i) Facts. Same facts as
Example 1, except that F terminates
employment with Employer W on July 1,
1999 without having had any health
insurance coverage under the plan. F is
rehired by Employer W on January 1, 2000
and is eligible for and elects coverage under
Employer W’s plan effective on January 1,
2000.
(ii) Conclusion. In this Example 2, F would
not be a late enrollee with respect to F’s
coverage that became effective on January 1,
2000.
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(b) Exceptions pertaining to
preexisting condition exclusions—(1)
Newborns—(i) In general. Subject to
paragraph (b)(3) of this section, a group
health plan may not impose any
preexisting condition exclusion on a
child who, within 30 days after birth, is
covered under any creditable coverage.
Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after birth and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in § 54.9801–
4(b)(2)(iii)), the other plan may not
impose any preexisting condition
exclusion on the child.
(ii) Examples. The rules of this
paragraph (b)(1) are illustrated by the
following examples:
Example 1. (i) Facts. Individual E, who
has no prior creditable coverage, begins
working for Employer W and has
accumulated 210 days of creditable coverage
under Employer W’s group health plan on the
date E gives birth to a child. Within 30 days
after the birth, the child is enrolled in the
plan. Ninety days after the birth, both E and
the child terminate coverage under the plan.
Both E and the child then experience a break
in coverage of 45 days before E is hired by
Employer X and the two are enrolled in
Employer X’s group health plan.
(ii) Conclusion. In this Example 1, because
E’s child is enrolled in Employer W’s plan
within 30 days after birth, no preexisting
condition exclusion may be imposed with
respect to the child under Employer W’s
plan. Likewise, Employer X’s plan may not
impose any preexisting condition exclusion
on E’s child because the child was covered
under creditable coverage within 30 days
after birth and had no significant break in
coverage before enrolling in Employer X’s
plan. On the other hand, because E had only
300 days of creditable coverage prior to E’s
enrollment date in Employer X’s plan,
Employer X’s plan may impose a preexisting
condition exclusion on E for up to 65 days
(66 days if the 12-month period after E’s
enrollment date in X’s plan includes
February 29).
Example 2. (i) Facts. Individual F is
enrolled in a group health plan in which
coverage is provided through a health
insurance issuer. F gives birth. Under State
law applicable to the health insurance issuer,
health care expenses incurred for the child
during the 30 days following birth are
covered as part of F’s coverage. Although F
may obtain coverage for the child beyond 30
days by timely requesting special enrollment
and paying an additional premium, the issuer
is prohibited under State law from recouping
the cost of any expenses incurred for the
child within the 30-day period if the child is
not later enrolled.
(ii) Conclusion. In this Example 2, the
child is covered under creditable coverage
within 30 days after birth, regardless of
whether the child enrolls as a special
enrollee under the plan. Therefore, no
preexisting condition exclusion may be
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imposed on the child unless the child has a
significant break in coverage.
(2) Adopted children. Subject to
paragraph (b)(3) of this section, a group
health plan may not impose any
preexisting condition exclusion on a
child who is adopted or placed for
adoption before attaining 18 years of age
and who, within 30 days after the
adoption or placement for adoption, is
covered under any creditable coverage.
Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after adoption
or placement for adoption and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in § 54.9801–
4(b)(2)(iii)), the other plan may not
impose any preexisting condition
exclusion on the child. This rule does
not apply to coverage before the date of
such adoption or placement for
adoption.
(3) Significant break in coverage.
Paragraphs (b)(1) and (2) of this section
no longer apply to a child after a
significant break in coverage. (See
§ 54.9801–4(b)(2)(iii) for rules relating to
the determination of a significant break
in coverage.)
(4) Special enrollment. For special
enrollment rules relating to new
dependents, see § 54.9801–6(b).
(5) Pregnancy. A group health plan
may not impose a preexisting condition
exclusion relating to pregnancy.
(6) Genetic information—(i) A group
health plan may not impose a
preexisting condition exclusion relating
to a condition based solely on genetic
information. However, if an individual
is diagnosed with a condition, even if
the condition relates to genetic
information, the plan may impose a
preexisting condition exclusion with
respect to the condition, subject to the
other limitations of this section.
(ii) The rules of this paragraph (b)(6)
are illustrated by the following example:
Example. (i) Facts. Individual A enrolls in
a group health plan that imposes a 12-month
maximum preexisting condition exclusion.
Three months before A’s enrollment, A’s
doctor told A that, based on genetic
information, A has a predisposition towards
breast cancer. A was not diagnosed with
breast cancer at any time prior to A’s
enrollment date in the plan. Nine months
after A’s enrollment date in the plan, A is
diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan
may not impose a preexisting condition
exclusion with respect to A’s breast cancer
because, prior to A’s enrollment date, A was
not diagnosed with breast cancer.
(c) General notice of preexisting
condition exclusion. A group health
plan imposing a preexisting condition
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exclusion must provide a written
general notice of preexisting condition
exclusion to participants under the plan
and cannot impose a preexisting
condition exclusion with respect to a
participant or a dependent of the
participant until such a notice is
provided. (See 29 CFR 2590.701–3(c)
and 45 CFR 146.111(c), which also
impose this requirement on a health
insurance issuer offering group health
insurance coverage subject to a
preexisting condition exclusion.)
(1) Manner and timing. A plan must
provide the general notice of preexisting
condition exclusion as part of any
written application materials distributed
by the plan for enrollment. If the plan
does not distribute such materials, the
notice must be provided by the earliest
date following a request for enrollment
that the plan, acting in a reasonable and
prompt fashion, can provide the notice.
(2) Content. The general notice of
preexisting condition exclusion must
notify participants of the following:
(i) The existence and terms of any
preexisting condition exclusion under
the plan. This description includes the
length of the plan’s look-back period
(which is not to exceed 6 months under
paragraph (a)(2)(i) of this section); the
maximum preexisting condition
exclusion period under the plan (which
cannot exceed 12 months (or 18 months
for late enrollees) under paragraph
(a)(2)(ii) of this section); and how the
plan will reduce the maximum
preexisting condition exclusion period
by creditable coverage (described in
paragraph (a)(2)(iii) of this section).
(ii) A description of the rights of
individuals to demonstrate creditable
coverage, and any applicable waiting
periods, through a certificate of
creditable coverage (as required by
§ 54.9801–5(a)) or through other means
(as described in § 54.9801–5(c)). This
must include a description of the right
of the individual to request a certificate
from a prior plan or issuer, if necessary,
and a statement that the current plan
will assist in obtaining a certificate from
any prior plan or issuer, if necessary.
(iii) A person to contact (including an
address or telephone number) for
obtaining additional information or
assistance regarding the preexisting
condition exclusion.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (c) is provided to an
individual by another party, the plan’s
obligation to provide a general notice of
preexisting condition exclusion with
respect to that individual is satisfied.
(See 29 CFR 2590.701–3(c)(3) and 45
CFR 146.111(c)(3), which provide that
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the issuer’s obligation is similarly
satisfied.)
(4) Example with sample language.
The rules of this paragraph (c) are
illustrated by the following example,
which includes sample language that
plans can use as a basis for preparing
their own notices to satisfy the
requirements of this paragraph (c):
Example. (i) Facts. A group health plan
makes coverage effective on the first day of
the first calendar month after hire and on
each January 1 following an open season. The
plan imposes a 12-month maximum
preexisting condition exclusion (18 months
for late enrollees) and uses a 6-month lookback period. As part of the enrollment
application materials, the plan provides the
following statement:
This plan imposes a preexisting condition
exclusion. This means that if you have a
medical condition before coming to our plan,
you might have to wait a certain period of
time before the plan will provide coverage for
that condition. This exclusion applies only to
conditions for which medical advice,
diagnosis, care, or treatment was
recommended or received within a six-month
period. Generally, this six-month period ends
the day before your coverage becomes
effective. However, if you were in a waiting
period for coverage, the six-month period
ends on the day before the waiting period
begins. The preexisting condition exclusion
does not apply to pregnancy nor to a child
who is enrolled in the plan within 30 days
after birth, adoption, or placement for
adoption.
This exclusion may last up to 12 months
(18 months if you are a late enrollee) from
your first day of coverage, or, if you were in
a waiting period, from the first day of your
waiting period. However, you can reduce the
length of this exclusion period by the number
of days of your prior ‘‘creditable coverage.’’
Most prior health coverage is creditable
coverage and can be used to reduce the
preexisting condition exclusion if you have
not experienced a break in coverage of at
least 63 days. To reduce the 12-month (or 18month) exclusion period by your creditable
coverage, you should give us a copy of any
certificates of creditable coverage you have.
If you do not have a certificate, but you do
have prior health coverage, we will help you
obtain one from your prior plan or issuer.
There are also other ways that you can show
you have creditable coverage. Please contact
us if you need help demonstrating creditable
coverage.
All questions about the preexisting
condition exclusion and creditable coverage
should be directed to Individual B at Address
M or Telephone Number N.
(ii) Conclusion. In this Example, the
plan satisfies the general notice
requirement of this paragraph (c).
(d) Determination of creditable
coverage—(1) Determination within
reasonable time. If a group health plan
receives creditable coverage information
under § 54.9801–5, the plan is required,
within a reasonable time following
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receipt of the information, to make a
determination regarding the amount of
the individual’s creditable coverage and
the length of any exclusion that
remains. Whether this determination is
made within a reasonable time depends
on the relevant facts and circumstances.
Relevant facts and circumstances
include whether a plan’s application of
a preexisting condition exclusion would
prevent an individual from having
access to urgent medical care. (See 29
CFR 2590.701–3(d) and 45 CFR
146.111(d), which also impose this
requirement on a health insurance
issuer offering group health insurance
coverage.)
(2) No time limit on presenting
evidence of creditable coverage. A plan
may not impose any limit on the
amount of time that an individual has
to present a certificate or other evidence
of creditable coverage.
(3) Example. The rules of this
paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual H develops an urgent
health condition before receiving a certificate
of creditable coverage from H’s prior group
health plan. H attests to the period of prior
coverage, presents corroborating
documentation of the coverage period, and
authorizes the plan to request a certificate on
H’s behalf in accordance with the rules of
§ 54.9801–5.
(ii) Conclusion. In this Example, the plan
must review the evidence presented by H and
make a determination of creditable coverage
within a reasonable time that is consistent
with the urgency of H’s health condition.
(This determination may be modified as
permitted under paragraph (f) of this section.)
(e) Individual notice of period of
preexisting condition exclusion. After
an individual has presented evidence of
creditable coverage and after the plan
has made a determination of creditable
coverage under paragraph (d) of this
section, the plan must provide the
individual a written notice of the length
of preexisting condition exclusion that
remains after offsetting for prior
creditable coverage. This individual
notice is not required to identify any
medical conditions specific to the
individual that could be subject to the
exclusion. A plan is not required to
provide this notice if the plan does not
impose any preexisting condition
exclusion on the individual or if the
plan’s preexisting condition exclusion is
completely offset by the individual’s
prior creditable coverage. (See 29 CFR
2590.701–3(e) and 45 CFR 146.111(e),
which also impose this requirement on
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a health insurance issuer offering group
health insurance coverage.)
(1) Manner and timing. The
individual notice must be provided by
the earliest date following a
determination that the plan, acting in a
reasonable and prompt fashion, can
provide the notice.
(2) Content. A plan must disclose—
(i) Its determination of any preexisting
condition exclusion period that applies
to the individual (including the last day
on which the preexisting condition
exclusion applies);
(ii) The basis for such determination,
including the source and substance of
any information on which the plan
relied;
(iii) An explanation of the
individual’s right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable
appeal procedures established by the
plan.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (e) is provided to an
individual by another party, the plan’s
obligation to provide this individual
notice of preexisting condition
exclusion with respect to that
individual is satisfied. (See 29 CFR
2590.701–3(e)(3) and 45 CFR
146.111(e)(3), which provide that the
issuer’s obligation is similarly satisfied.)
(4) Examples. The rules of this
paragraph (e) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual G presents a certificate
of creditable coverage indicating 240 days of
creditable coverage. Within seven days of
receipt of the certificate, the plan determines
that G is subject to a preexisting condition
exclusion of 125 days, the last day of which
is March 5. Five days later, the plan notifies
G that, based on the certificate G submitted,
G is subject to a preexisting condition
exclusion period of 125 days, ending on
March 5. The notice also explains the
opportunity to submit additional evidence of
creditable coverage and the plan’s appeal
procedures. The notice does not identify any
of G’s medical conditions that could be
subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan
satisfies the requirements of this paragraph
(e).
Example 2. (i) Facts. Same facts as in
Example 1, except that the plan determines
that G has 430 days of creditable coverage
based on G’s certificate indicating 430 days
of creditable coverage under G’s prior plan.
(ii) Conclusion. In this Example 2, the plan
is not required to notify G that G will not be
subject to a preexisting condition exclusion.
(f) Reconsideration. Nothing in this
section prevents a plan from modifying
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an initial determination of creditable
coverage if it determines that the
individual did not have the claimed
creditable coverage, provided that—
(1) A notice of the new determination
(consistent with the requirements of
paragraph (e) of this section) is provided
to the individual; and
(2) Until the notice of the new
determination is provided, the plan, for
purposes of approving access to medical
services (such as a pre-surgery
authorization), acts in a manner
consistent with the initial
determination.
§ 54.9801–4
coverage.
Rules relating to creditable
(a) General rules—(1) Creditable
coverage. For purposes of this section,
except as provided in paragraph (a)(2) of
this section, the term creditable
coverage means coverage of an
individual under any of the following:
(i) A group health plan as defined in
§ 54.9831–1(a).
(ii) Health insurance coverage as
defined in § 54.9801–2 (whether or not
the entity offering the coverage is
subject to Chapter 100 of Subtitle K, and
without regard to whether the coverage
is offered in the group market, the
individual market, or otherwise).
(iii) Part A or B of Title XVIII of the
Social Security Act (Medicare).
(iv) Title XIX of the Social Security
Act (Medicaid), other than coverage
consisting solely of benefits under
section 1928 of the Social Security Act
(the program for distribution of
pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55
(medical and dental care for members
and certain former members of the
uniformed services, and for their
dependents; for purposes of Title 10
U.S.C. Chapter 55, uniformed services
means the armed forces and the
Commissioned Corps of the National
Oceanic and Atmospheric
Administration and of the Public Health
Service).
(vi) A medical care program of the
Indian Health Service or of a tribal
organization.
(vii) A State health benefits risk pool.
For purposes of this section, a State
health benefits risk pool means—
(A) An organization qualifying under
section 501(c)(26);
(B) A qualified high risk pool
described in section 2744(c)(2) of the
PHS Act; or
(C) Any other arrangement sponsored
by a State, the membership composition
of which is specified by the State and
which is established and maintained
primarily to provide health coverage for
individuals who are residents of such
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Jkt 205001
State and who, by reason of the
existence or history of a medical
condition —
(1) Are unable to acquire medical care
coverage for such condition through
insurance or from an HMO, or
(2) Are able to acquire such coverage
only at a rate which is substantially in
excess of the rate for such coverage
through the membership organization.
(viii) A health plan offered under
Title 5 U.S.C. Chapter 89 (the Federal
Employees Health Benefits Program).
(ix) A public health plan. For
purposes of this section, a public health
plan means any plan established or
maintained by a State, the U.S.
government, a foreign country, or any
political subdivision of a State, the U.S.
government, or a foreign country that
provides health coverage to individuals
who are enrolled in the plan.
(x) A health benefit plan under
section 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(xi) Title XXI of the Social Security
Act (State Children’s Health Insurance
Program).
(2) Excluded coverage. Creditable
coverage does not include coverage of
solely excepted benefits (described in
§ 54.9831–1).
(3) Methods of counting creditable
coverage. For purposes of reducing any
preexisting condition exclusion period,
as provided under § 54.9801–3(a)(2)(iii),
the amount of an individual’s creditable
coverage generally is determined by
using the standard method described in
paragraph (b) of this section. A plan
may use the alternative method under
paragraph (c) of this section with
respect to any or all of the categories of
benefits described under paragraph
(c)(3) of this section or may provide that
a health insurance issuer offering health
insurance coverage under the plan may
use the alternative method of counting
creditable coverage.
(b) Standard method—(1) Specific
benefits not considered. Under the
standard method, the amount of
creditable coverage is determined
without regard to the specific benefits
included in the coverage.
(2) Counting creditable coverage—(i)
Based on days. For purposes of reducing
the preexisting condition exclusion
period that applies to an individual, the
amount of creditable coverage is
determined by counting all the days on
which the individual has one or more
types of creditable coverage.
Accordingly, if on a particular day an
individual has creditable coverage from
more than one source, all the creditable
coverage on that day is counted as one
day. Any days in a waiting period for
coverage are not creditable coverage.
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78753
(ii) Days not counted before
significant break in coverage. Days of
creditable coverage that occur before a
significant break in coverage are not
required to be counted.
(iii) Significant break in coverage
defined—A significant break in coverage
means a period of 63 consecutive days
during each of which an individual does
not have any creditable coverage. (See
section 731(b)(2)(iii) of ERISA and
section 2723(b)(2)(iii) of the PHS Act,
which exclude from preemption State
insurance laws that require a break of
more than 63 days before an individual
has a significant break in coverage for
purposes of State law.)
(iv) Periods that toll a significant
break. Days in a waiting period and
days in an affiliation period are not
taken into account in determining
whether a significant break in coverage
has occurred. In addition, for an
individual who elects COBRA
continuation coverage during the
second election period provided under
the Trade Act of 2002, the days between
the date the individual lost group health
plan coverage and the first day of the
second COBRA election period are not
taken into account in determining
whether a significant break in coverage
has occurred.
(v) Examples. The rules of this
paragraph (b)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A has
creditable coverage under Employer P’s plan
for 18 months before coverage ceases. A is
provided a certificate of creditable coverage
on A’s last day of coverage. Sixty-four days
after the last date of coverage under P’s plan,
a is hired by Employer Q and enrolls in Q’s
group health plan. Q’s plan has a 12-month
preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has
a break in coverage of 63 days. Because A’s
break in coverage is a significant break in
coverage, Q’s plan may disregard A’s prior
coverage and a may be subject to a 12-month
preexisting condition exclusion.
Example 2. (i) Facts. Same facts as
Example 1, except that A is hired by Q and
enrolls in Q’s plan on the 63rd day after the
last date of coverage under P’s plan.
(ii) Conclusion. In this Example 2, A has
a break in coverage of 62 days. Because A’s
break in coverage is not a significant break
in coverage, Q’s plan must count A’s prior
creditable coverage for purposes of reducing
the plan’s preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as
Example 1, except that Q’s plan provides
benefits through an insurance policy that, as
required by applicable State insurance laws,
defines a significant break in coverage as 90
days.
(ii) Conclusion. In this Example 3, under
State law, the issuer that provides group
health insurance coverage to Q’s plan must
count A’s period of creditable coverage prior
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to the 63-day break. (However, if Q’s plan
was a self-insured plan, the coverage would
not be subject to State law. Therefore, the
health coverage would not be governed by
the longer break rules and A’s previous
health coverage could be disregarded.)
Example 4. [Reserved]
Example 5. (i) Facts. Individual C has
creditable coverage under Employer S’s plan
for 200 days before coverage ceases. C is
provided a certificate of creditable coverage
on C’s last day of coverage. C then does not
have any creditable coverage for 51 days
before being hired by Employer T. T’s plan
has a 3-month waiting period. C works for T
for 2 months and then terminates
employment. Eleven days after terminating
employment with T, C begins working for
Employer U. U’s plan has no waiting period,
but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does
not have a significant break in coverage
because, after disregarding the waiting period
under T’s plan, C had only a 62-day break in
coverage (51 days plus 11 days). accordingly,
C has 200 days of creditable coverage, and
U’s plan may not apply its 6-month
preexisting condition exclusion with respect
to C.
Example 6. [Reserved]
Example 7. (i) Facts. Individual E has
creditable coverage under Employer X’s plan.
E is provided a certificate of creditable
coverage on E’s last day of coverage. On the
63rd day without coverage, E submits a
substantially complete application for a
health insurance policy in the individual
market. E’s application is accepted and
coverage is made effective 10 days later.
(ii) Conclusion.
In this Example 7, because E applied for
the policy before the end of the 63rd day, the
period between the date of application and
the first day of coverage is a waiting period
and no significant break in coverage occurred
even though the actual period without
coverage was 73 days.
Example 8. (i) Facts. Same facts as
Example 7, except that E’s application for a
policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even
though E did not obtain coverage following
application, the period between the date of
application and the date the coverage was
denied is a waiting period. However, to avoid
a significant break in coverage, no later than
the day after the application for the policy is
denied E would need to do one of the
following: submit a substantially complete
application for a different individual market
policy; obtain coverage in the group market;
or be in a waiting period for coverage in the
group market.
(vi) Other permissible counting
methods—(a) Rule. Notwithstanding
any other provisions of this paragraph
(b)(2), for purposes of reducing a
preexisting condition exclusion period
(but not for purposes of issuing a
certificate under § 54.9801–5), a group
health plan may determine the amount
of creditable coverage in any other
manner that is at least as favorable to
the individual as the method set forth in
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this paragraph (b)(2), subject to the
requirements of other applicable law.
(B) Example. The rule of this
paragraph (b)(2)(vi) is illustrated by the
following example:
Example. (i) Facts. Individual F has
coverage under Group Health Plan Y from
January 3, 1997 through March 25, 1997. F
then becomes covered by Group Health Plan
Z. F’s enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting
condition exclusion.
(ii) Conclusion. In this Example, Plan Z
may determine, in accordance with the rules
prescribed in paragraphs (b)(2)(i), (ii), and
(iii) of this section, that F has 82 days of
creditable coverage (29 days in January, 28
days in February, and 25 days in March).
Thus, the preexisting condition exclusion
will no longer apply to F on February 8, 1998
(82 days before the 12-month anniversary of
F’s enrollment (May 1)). For administrative
convenience, however, Plan Z may consider
that the preexisting condition exclusion will
no longer apply to F on the first day of the
month (February 1).
(c) Alternative method—(1) Specific
benefits considered. Under the
alternative method, a group health plan
determines the amount of creditable
coverage based on coverage within any
category of benefits described in
paragraph (c)(3) of this section and not
based on coverage for any other benefits.
The plan may use the alternative
method for any or all of the categories.
The plan may apply a different
preexisting condition exclusion period
with respect to each category (and may
apply a different preexisting condition
exclusion period for benefits that are not
within any 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. An individual’s creditable
coverage for benefits that are not within
any category for which the alternative
method is being used is determined
under the standard method of paragraph
(b) of this section.
(2) Uniform application. A plan using
the alternative method is required to
apply it uniformly to all participants
and beneficiaries under the plan. A plan
that provides benefits (in part or in
whole) through one or more policies or
contracts of insurance will not fail the
uniform application requirement of this
paragraph (c)(2) if the alternative
method is used (or not used) separately
with respect to participants and
beneficiaries under any policy or
contact, provided that the alternative
method is applied uniformly with
respect to all coverage under that policy
or contract. The use of the alternative
method is required to be set forth in the
plan.
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(3) Categories of benefits. The
alternative method for counting
creditable coverage may be used for
coverage for the following categories of
benefits—
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative
method is used, the plan is required
to—
(i) State prominently that the plan is
using the alternative method of counting
creditable coverage in disclosure
statements concerning the plan, and
State this to each enrollee at the time of
enrollment under the plan; and
(ii) Include in these statements a
description of the effect of using the
alternative method, including an
identification of the categories used.
(5) Disclosure of information on
previous benefits. See § 54.9801–5(b) for
special rules concerning disclosure of
coverage to a plan (or issuer) using the
alternative method of counting
creditable coverage under this
paragraph (c).
(6) Counting creditable coverage—(i)
In general. Under the alternative
method, the group health plan counts
creditable coverage within a category if
any level of benefits is provided within
the category. Coverage under a
reimbursement account or arrangement,
such as a flexible spending arrangement
(as defined in section 106(c)(2)), does
not constitute coverage within any
category.
(ii) Special rules. In counting an
individual’s creditable coverage under
the alternative method, the group health
plan first determines the amount of the
individual’s creditable coverage that
may be counted under paragraph (b) of
this section, up to a total of 365 days of
the most recent creditable coverage (546
days for a late enrollee). The period over
which this creditable coverage is
determined is referred to as the
determination period. Then, for the
category specified under the alternative
method, the plan counts within the
category all days of coverage that
occurred during the determination
period (whether or not a significant
break in coverage for that category
occurs), and reduces the individual’s
preexisting condition exclusion period
for that category by that number of days.
The plan may determine the amount of
creditable coverage in any other
reasonable manner, uniformly applied,
that is at least as favorable to the
individual.
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(iii) Example. The rules of this
paragraph (c)(6) are illustrated by the
following example:
Example. (i) Facts. Individual D enrolls in
Employer V’s plan on January 1, 2001.
Coverage under the plan includes
prescription drug benefits. On April 1, 2001,
the plan ceases providing prescription drug
benefits. D’s employment with Employer V
ends on January 1, 2002, after D was covered
under Employer V’s group health plan for
365 days. D enrolls in Employer Y’s plan on
February 1, 2002 (D’s enrollment date).
Employer Y’s plan uses the alternative
method of counting creditable coverage and
imposes a 12-month preexisting condition
exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer
Y’s plan may impose a 275-day preexisting
condition exclusion with respect to D for
prescription drug benefits because D had 90
days of creditable coverage relating to
prescription drug benefits within D’s
determination period.
§ 54.9801–5
coverage.
Evidence of creditable
(a) Certificate of creditable coverage—
(1) Entities required to provide
certificate—(i) In general. A group
health plan is required to furnish
certificates of creditable coverage in
accordance with this paragraph (a). (See
section 701(e) of ERISA and section
2701(e) of the PHS Act, under which
this obligation is also imposed on each
health insurance issuer offering group
health insurance coverage under the
plan.)
(ii) Duplicate certificates not required.
An entity required to provide a
certificate under this paragraph (a) with
respect to an individual satisfies that
requirement if another party provides
the certificate, but only to the extent
that the certificate contains the
information required in paragraph (a)(3)
of this section. For example, a group
health plan is deemed to have satisfied
the certification requirement with
respect to a participant or beneficiary if
any other entity actually provides a
certificate that includes the information
required under paragraph (a)(3) of this
section with respect to the participant or
beneficiary.
(iii) Special rule for group health
plans. To the extent coverage under a
plan consists of group health insurance
coverage, the plan satisfies the
certification requirements under this
paragraph (a) if any issuer offering the
coverage is required to provide the
certificates pursuant to an agreement
between the plan and the issuer. For
example, if there is an agreement
between an issuer and an employer
sponsoring a plan under which the
issuer agrees to provide certificates for
individuals covered under the plan, and
the issuer fails to provide a certificate to
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an individual when the plan would
have been required to provide one
under this paragraph (a), then the plan
does not violate the certification
requirements of this paragraph (a)
(though the issuer would have violated
the certification requirements pursuant
to section 701(e) of ERISA and section
2701(e) of the PHS Act).
(iv) Special rules relating to issuers
providing coverage under a plan—(A)(1)
Responsibility of issuer for coverage
period. See 29 CFR 2590.701–5 and 45
CFR 146.115, under which an issuer is
not required to provide information
regarding coverage provided to an
individual by another party.
(2) Example. The rule referenced by
this paragraph (a)(1)(iv)(A) is illustrated
by the following example:
Example. (i) Facts. A plan offers coverage
with an HMO option from one issuer and an
indemnity option from a different issuer. The
HMO has not entered into an agreement with
the plan to provide certificates as permitted
under paragraph (a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
option to the HMO option and later ceases to
be covered under the plan, any certificate
provided by the HMO is not required to
provide information regarding the
employee’s coverage under the indemnity
option.
(B)(1) Cessation of issuer coverage
prior to cessation of coverage under a
plan. If an individual’s coverage under
an issuer’s policy or contract ceases
before the individual’s coverage under
the plan ceases, the issuer is required
(under section 701(e) of ERISA and
section 2701(e) of the PHS Act) to
provide sufficient information to the
plan (or to another party designated by
the plan) to enable the plan (or other
party), after cessation of the individual’s
coverage under the plan, to provide a
certificate that reflects the period of
coverage under the policy or contract.
By providing that information to the
plan, the issuer satisfies its obligation to
provide an automatic certificate for that
period of creditable coverage with
respect to the individual under
paragraph (a)(2)(ii) of this section. The
issuer, however, must still provide a
certificate upon request as required
under paragraph (a)(2)(iii) of this
section. In addition, the issuer is
required to cooperate with the plan in
responding to any request made under
paragraph (b)(2) of this section (relating
to the alternative method of counting
creditable coverage). Moreover, if the
individual’s coverage under the plan
ceases at the time the individual’s
coverage under the issuer’s policy or
contract ceases, the issuer must still
provide an automatic certificate under
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78755
paragraph (a)(2)(ii) of this section. If an
individual’s coverage under an issuer’s
policy or contract ceases on the effective
date for changing enrollment options
under the plan, the issuer may presume
(absent information to the contrary) that
the individual’s coverage under the plan
continues. Therefore, the issuer is
required to provide information to the
plan in accordance with this paragraph
(a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under
paragraph (a)(2)(ii) of this section).
(2) Example. The rule of this
paragraph (a)(1)(iv)(B) is illustrated by
the following example:
Example. (i) Facts. A group health plan
provides coverage under an HMO option and
an indemnity option through different
issuers, and only allows employees to switch
on each January 1. Neither the HMO nor the
indemnity issuer has entered into an
agreement with the plan to provide
certificates as permitted under paragraph
(a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
option to the HMO option on January 1, the
indemnity issuer must provide the plan (or
a person designated by the plan) with
appropriate information with respect to the
individual’s coverage with the indemnity
issuer. However, if the individual’s coverage
with the indemnity issuer ceases at a date
other than January 1, the issuer is instead
required to provide the individual with an
automatic certificate.
(2) Individuals for whom certificate
must be provided; timing of issuance—
(i) Individuals. A certificate must be
provided, without charge, for
participants or dependents who are or
were covered under a group health plan
upon the occurrence of any of the events
described in paragraph (a)(2)(ii) or (iii)
of this section.
(ii) Issuance of automatic certificates.
The certificates described in this
paragraph (a)(2)(ii) are referred to as
automatic certificates.
(A) Qualified beneficiaries upon a
qualifying event. In the case of an
individual who is a qualified
beneficiary (as defined in section
4980B(g)(3)) entitled to elect COBRA
continuation coverage, an automatic
certificate is required to be provided at
the time the individual would lose
coverage under the plan in the absence
of COBRA continuation coverage or
alternative coverage elected instead of
COBRA continuation coverage. A plan
satisfies this requirement if it provides
the automatic certificate no later than
the time a notice is required to be
furnished for a qualifying event under
section 4980B(f)(6) (relating to notices
required under COBRA).
(B) Other individuals when coverage
ceases. In the case of an individual who
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is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate must be provided
at the time the individual ceases to be
covered under the plan. A plan satisfies
the requirement to provide an automatic
certificate at the time the individual
ceases to be covered if it provides the
automatic certificate within a reasonable
time after coverage ceases (or after the
expiration of any grace period for
nonpayment of premiums).
(1) The cessation of temporary
continuation coverage (TCC) under Title
5 U.S.C. Chapter 89 (the Federal
Employees Health Benefit Program) is a
cessation of coverage upon which an
automatic certificate must be provided.
(2) In the case of an individual who
is entitled to elect to continue coverage
under a State program similar to COBRA
and who receives the automatic
certificate not later than the time a
notice is required to be furnished under
the State program, the certificate is
deemed to be provided within a
reasonable time after coverage ceases
under the plan.
(3) If an individual’s coverage ceases
due to the operation of a lifetime limit
on all benefits, coverage is considered to
cease for purposes of this paragraph
(a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of
the lifetime limit.
(C) Qualified beneficiaries when
COBRA ceases. In the case of an
individual who is a qualified
beneficiary and has elected COBRA
continuation coverage (or whose
coverage has continued after the
individual became entitled to elect
COBRA continuation coverage), an
automatic certificate is to be provided at
the time the individual’ s coverage
under the plan ceases. A plan satisfies
this requirement if it provides the
automatic certificate within a reasonable
time after coverage ceases (or after the
expiration of any grace period for
nonpayment of premiums). An
automatic certificate is required to be
provided to such an individual
regardless of whether the individual has
previously received an automatic
certificate under paragraph (a)(2)(ii)(A)
of this section.
(iii) Any individual upon request. A
certificate must be provided in response
to a request made by, or on behalf of, an
individual at any time while the
individual is covered under a plan and
up to 24 months after coverage ceases.
Thus, for example, a plan in which an
individual enrolls may, if authorized by
the individual, request a certificate of
the individual’s creditable coverage on
behalf of the individual from a plan in
which the individual was formerly
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enrolled. After the request is received, a
plan or issuer is required to provide the
certificate by the earliest date that the
plan, acting in a reasonable and prompt
fashion, can provide the certificate. A
certificate is required to be provided
under this paragraph (a)(2)(iii) even if
the individual has previously received a
certificate under this paragraph
(a)(2)(iii) or an automatic certificate
under paragraph (a)(2)(ii) of this section.
(iv) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A
terminates employment with Employer Q. A
is a qualified beneficiary entitled to elect
COBRA continuation coverage under
Employer Q’s group health plan. A notice of
the rights provided under COBRA is typically
furnished to qualified beneficiaries under the
plan within 10 days after a covered employee
terminates employment.
(ii) Conclusion. In this Example 1, the
automatic certificate may be provided at the
same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as
Example 1, except that the automatic
certificate for A is not completed by the time
the COBRA notice is furnished to A.
(ii) Conclusion. In this Example 2, the
automatic certificate may be provided after
the COBRA notice but must be provided
within the period permitted by law for the
delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains
an insured group health plan. R has never
had 20 employees and thus R’s plan is not
subject to the COBRA continuation
provisions. However, R is in a State that has
a State program similar to COBRA. B
terminates employment with R and loses
coverage under R’s plan.
(ii) Conclusion. In this Example 3, the
automatic certificate must be provided not
later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C
terminates employment with Employer S and
receives both a notice of C’s rights under
COBRA and an automatic certificate. C elects
COBRA continuation coverage under
Employer S’s group health plan. After four
months of COBRA continuation coverage and
the expiration of a 30-day grace period, S’s
group health plan determines that C’s
COBRA continuation coverage has ceased
due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan
must provide an updated automatic
certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is
currently covered under the group health
plan of Employer T. D requests a certificate,
as permitted under paragraph (a)(2)(iii) of
this section. Under the procedure for T’s
plan, certificates are mailed (by first class
mail) 7 business days following receipt of the
request. This date reflects the earliest date
that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
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(ii) Conclusion. In this Example 5, the
plan’s procedure satisfies paragraph (a)(2)(iii)
of this section.
(3) Form and content of certificate—
(i) Written certificate—(A) In general.
Except as provided in paragraph
(a)(3)(i)(B) of this section, the certificate
must be provided in writing (including
any form approved by the Secretary as
a writing).
(B) Other permissible forms. No
written certificate is required to be
provided under this paragraph (a) with
respect to a particular event described
in paragraph (a)(2)(ii) or (iii) of this
section, if —
(1) An individual who is entitled to
receive the certificate requests that the
certificate be sent to another plan or
issuer instead of to the individual;
(2) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in this
paragraph (a)(3) through means other
than a written certificate (such as by
telephone); and
(3) The receiving plan or issuer
receives the information from the
sending plan or issuer through such
means within the time required under
paragraph (a)(2) of this section.
(ii) Required information. The
certificate must include the following—
(A) The date the certificate is issued;
(B) The name of the group health plan
that provided the coverage described in
the certificate;
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other
information necessary for the plan
providing the coverage specified in the
certificate to identify the individual,
such as the individual’s identification
number under the plan and the name of
the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the
certificate;
(E) The telephone number to call for
further information regarding the
certificate (if different from paragraph
(a)(3)(ii)(D) of this section);
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began;
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate; and
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(H) An educational statement
regarding HIPAA, which explains:
(1) The restrictions on the ability of a
plan or issuer to impose a preexisting
condition exclusion (including an
individual’s ability to reduce a
preexisting condition exclusion by
creditable coverage);
(2) Special enrollment rights;
(3) The prohibitions against
discrimination based on any health
factor;
(4) The right to individual health
coverage;
(5) The fact that State law may require
issuers to provide additional protections
to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the
certificate. If an automatic certificate is
provided pursuant to paragraph (a)(2)(ii)
of this section, the period that must be
included on the certificate is the last
period of continuous coverage ending
on the date coverage ceased. If an
individual requests a certificate
pursuant to paragraph (a)(2)(iii) of this
section, the certificate provided must
include each period of continuous
coverage ending within the 24-month
period ending on the date of the request
(or continuing on the date of the
request). A separate certificate may be
provided for each such period of
continuous coverage.
(iv) Combining information for
families. A certificate may provide
information with respect to both a
participant and the participant’s
dependents if the information is
identical for each individual. If the
information is not identical, certificates
may be provided on one form if the form
provides all the required information for
each individual and separately states
the information that is not identical.
(v) Model certificate. The
requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan
provides a certificate in accordance with
a model certificate authorized by the
Secretary.
(vi) Excepted benefits; categories of
benefits. No certificate is required to be
furnished with respect to excepted
benefits described in § 54.9831–1(c). In
addition, the information in the
certificate regarding coverage is not
required to specify categories of benefits
described in § 54.9801–4(c) (relating to
the alternative method of counting
creditable coverage). However, if
excepted benefits are provided
concurrently with other creditable
coverage (so that the coverage does not
consist solely of excepted benefits),
information concerning the benefits may
be required to be disclosed under
paragraph (b) of this section.
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(4) Procedures—(i) Method of
delivery. The certificate is required to be
provided to each individual described
in paragraph (a)(2) of this section or an
entity requesting the certificate on
behalf of the individual. The certificate
may be provided by first-class mail. If
the certificate or certificates are
provided to the participant and the
participant’s spouse at the participant’s
last known address, then the
requirements of this paragraph (a)(4) are
satisfied with respect to all individuals
residing at that address. If a dependent’s
last known address is different than the
participant’s last known address, a
separate certificate is required to be
provided to the dependent at the
dependent’s last known address. If
separate certificates are being provided
by mail to individuals who reside at the
same address, separate mailings of each
certificate are not required.
(ii) Procedure for requesting
certificates. A plan or issuer must
establish a written procedure for
individuals to request and receive
certificates pursuant to paragraph
(a)(2)(iii) of this section. The written
procedure must include all contact
information necessary to request a
certificate (such as name and phone
number or address).
(iii) Designated recipients. If an
automatic certificate is required to be
provided under paragraph (a)(2)(ii) of
this section, and the individual entitled
to receive the certificate designates
another individual or entity to receive
the certificate, the plan or issuer
responsible for providing the certificate
is permitted to provide the certificate to
the designated individual or entity. If a
certificate is required to be provided
upon request under paragraph (a)(2)(iii)
of this section and the individual
entitled to receive the certificate
designates another individual or entity
to receive the certificate, the plan or
issuer responsible for providing the
certificate is required to provide the
certificate to the designated individual
or entity.
(5) Special rules concerning
dependent coverage—(i)(A) Reasonable
efforts. A plan is required to use
reasonable efforts to determine any
information needed for a certificate
relating to dependent coverage. In any
case in which an automatic certificate is
required to be furnished with respect to
a dependent under paragraph (a)(2)(ii)
of this section, no individual certificate
is required to be furnished until the
plan knows (or making reasonable
efforts should know) of the dependent’s
cessation of coverage under the plan.
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78757
(B) Example. The rules of this
paragraph (a)(5)(i) are illustrated by the
following example:
Example. (i) Facts. A group health plan
covers employees and their dependents. The
plan annually requests all employees to
provide updated information regarding
dependents, including the specific date on
which an employee has a new dependent or
on which a person ceases to be a dependent
of the employee.
(ii) Conclusion. In this Example, the plan
has satisfied the standard in this paragraph
(a)(5)(i) of this section that it make reasonable
efforts to determine the cessation of
dependents’ coverage and the related
dependent coverage information.
(ii) Special rules for demonstrating
coverage. If a certificate furnished by a
plan or issuer does not provide the
name of any dependent covered by the
certificate, the procedures described in
paragraph (c)(5) of this section may be
used to demonstrate dependent status.
In addition, these procedures may be
used to demonstrate that a child was
covered under any creditable coverage
within 30 days after birth, adoption, or
placement for adoption. See also
§ 54.9801–3(b), under which such a
child cannot be subject to a preexisting
condition exclusion.
(6) Special certification rules for
entities not subject to Chapter 100 of
Subtitle K—(i) Issuers. For rules
requiring that issuers in the group and
individual markets provide certificates
consistent with the rules in this section,
see section 701(e) of ERISA and sections
2701(e), 2721(b)(1)(B), and 2743 of the
PHS Act.
(ii) Other entities. For special rules
requiring that certain other entities not
subject to Chapter 100 of Subtitle K
provide certificates consistent with the
rules in this section, see section
2791(a)(3) of the PHS Act applicable to
entities described in sections
2701(c)(1)(C), (D), (E), and (F) of the
PHS Act (relating to Medicare,
Medicaid, TRICARE, and Indian Health
Service), section 2721(b)(1)(A) of the
PHS Act applicable to nonfederal
governmental plans generally, and
section 2721(b)(2)(C)(ii) of the PHS Act
applicable to nonfederal governmental
plans that elect to be excluded from the
requirements of Subparts 1 through 3 of
Part A of Title XXVII of the PHS Act.
(b) Disclosure of coverage to a plan or
issuer using the alternative method of
counting creditable coverage—(1) In
general. After an individual provides a
certificate of creditable coverage to a
plan (or issuer) using the alternative
method under § 54.9801–4(c), that plan
(or issuer) (requesting entity) must
request that the entity that issued the
certificate (prior entity) disclose the
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information set forth in paragraph (b)(2)
of this section. The prior entity is
required to disclose this information
promptly.
(2) Information to be disclosed. The
prior entity is required to identify to the
requesting entity the categories of
benefits with respect to which the
requesting entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to
determine the individual’s creditable
coverage with respect to any such
category.
(3) Charge for providing information.
The prior entity may charge the
requesting entity for the reasonable cost
of disclosing such information.
(c) Ability of an individual to
demonstrate creditable coverage and
waiting period information—(1)
Purpose. The rules in this paragraph (c)
implement section 9801(c)(4), which
permits individuals to demonstrate the
duration of creditable coverage through
means other than certificates, and
section 9801(e)(3), which requires the
Secretary to establish rules designed to
prevent an individual’s subsequent
coverage under a group health plan or
health insurance coverage from being
adversely affected by an entity’s failure
to provide a certificate with respect to
that individual.
(2) In general. If the accuracy of a
certificate is contested or a certificate is
unavailable when needed by an
individual, the individual has the right
to demonstrate creditable coverage (and
waiting or affiliation periods) through
the presentation of documents or other
means. For example, the individual may
make such a demonstration when—
(i) An entity has failed to provide a
certificate within the required time;
(ii) The individual has creditable
coverage provided by an entity that is
not required to provide a certificate of
the coverage pursuant to paragraph (a)
of this section;
(iii) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(iv) The individual lost a certificate
that the individual had previously
received and is unable to obtain another
certificate.
(3) Evidence of creditable coverage—
(i) Consideration of evidence—(A) A
plan is required to take into account all
information that it obtains or that is
presented on behalf of an individual to
make a determination, based on the
relevant facts and circumstances,
whether an individual has creditable
coverage. A plan shall treat the
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individual as having furnished a
certificate under paragraph (a) of this
section if—
(1) The individual attests to the
period of creditable coverage;
(2) The individual also presents
relevant corroborating evidence of some
creditable coverage during the period;
and
(3) The individual cooperates with the
plan’s efforts to verify the individual’s
coverage.
(B) For purposes of this paragraph
(c)(3)(i), cooperation includes providing
(upon the plan’s or issuer’s request) a
written authorization for the plan to
request a certificate on behalf of the
individual, and cooperating in efforts to
determine the validity of the
corroborating evidence and the dates of
creditable coverage. While a plan may
refuse to credit coverage where the
individual fails to cooperate with the
plan’s or issuer’s efforts to verify
coverage, the plan may not consider an
individual’s inability to obtain a
certificate to be evidence of the absence
of creditable coverage.
(ii) Documents. Documents that
corroborate creditable coverage (and
waiting or affiliation periods) include
explanations of benefits (EOBs) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
documents that evidence periods of
health coverage.
(iii) Other evidence. Creditable
coverage (and waiting or affiliation
periods) may also be corroborated
through means other than
documentation, such as by a telephone
call from the plan or provider to a third
party verifying creditable coverage.
(iv) Example. The rules of this
paragraph (c)(3) are illustrated by the
following example:
Example. (i) Facts. Individual F terminates
employment with Employer W and, a month
later, is hired by Employer X. X’s group
health plan imposes a preexisting condition
exclusion of 12 months on new enrollees
under the plan and uses the standard method
of determining creditable coverage. F fails to
receive a certificate of prior coverage from
the self-insured group health plan
maintained by F’s prior employer, W, and
requests a certificate. However, F (and X’s
plan, on F’s behalf and with F’s cooperation)
is unable to obtain a certificate from W’s
plan. F attests that, to the best of F’s
knowledge, F had at least 12 months of
continuous coverage under W’s plan, and
that the coverage ended no earlier than F’s
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termination of employment from W. In
addition, F presents evidence of coverage,
such as an explanation of benefits for a claim
that was made during the relevant period.
(ii) Conclusion. In this Example, based
solely on these facts, F has demonstrated
creditable coverage for the 12 months of
coverage under W’s plan in the same manner
as if F had presented a written certificate of
creditable coverage.
(4) Demonstrating categories of
creditable coverage. Procedures similar
to those described in this paragraph (c)
apply in order to determine the duration
of an individual’s creditable coverage
with respect to any category under
paragraph (b) of this section (relating to
determining creditable coverage under
the alternative method).
(5) Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the
group health plan or issuer is required
to treat the individual as having
furnished a certificate showing the
dependent status if the individual
attests to such dependency and the
period of such status and the individual
cooperates with the plan’s or issuer’s
efforts to verify the dependent status.
§ 54.9801–6
Special enrollment periods.
(a) Special enrollment for certain
individuals who lose coverage—(1) In
general. A group health plan is required
to permit current employees and
dependents (as defined in § 54.9801–2)
who are described in paragraph (a)(2) of
this section to enroll for coverage under
the terms of the plan if the conditions
in paragraph (a)(3) of this section are
satisfied. The special enrollment rights
under this paragraph (a) apply without
regard to the dates on which an
individual would otherwise be able to
enroll under the plan. (See section
701(f)(1) of ERISA and section 2701(f)(1)
of the PHS Act, under which this
obligation is also imposed on a health
insurance issuer offering group health
insurance coverage.)
(2) Individuals eligible for special
enrollment—(i) When employee loses
coverage. A current employee and any
dependents (including the employee’s
spouse) each are eligible for special
enrollment in any benefit package under
the plan (subject to plan eligibility rules
conditioning dependent enrollment on
enrollment of the employee) if—
(A) The employee and the dependents
are otherwise eligible to enroll in the
benefit package;
(B) When coverage under the plan
was previously offered, the employee
had coverage under any group health
plan or health insurance coverage; and
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(C) The employee satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(ii) When dependent loses coverage—
(A) A dependent of a current employee
(including the employee’s spouse) and
the employee each are eligible for
special enrollment in any benefit
package under the plan (subject to plan
eligibility rules conditioning dependent
enrollment on enrollment of the
employee) if—
(1) The dependent and the employee
are otherwise eligible to enroll in the
benefit package;
(2) When coverage under the plan was
previously offered, the dependent had
coverage under any group health plan or
health insurance coverage; and
(3) The dependent satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(B) However, the plan is not required
to enroll any other dependent unless
that dependent satisfies the criteria of
this paragraph (a)(2)(ii), or the employee
satisfies the criteria of paragraph (a)(2)(i)
of this section.
(iii) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A works
for Employer X. A,A’s spouse, and A’s
dependent children are eligible but not
enrolled for coverage under X’s group health
plan. A’s spouse works for Employer Y and
at the time coverage was offered under X’s
plan, A was enrolled in coverage under Y’s
plan. Then, A loses eligibility for coverage
under Y’s plan.
(ii) Conclusion. In this Example 1, because
A satisfies the conditions for special
enrollment under paragraph (a)(2)(i) of this
section, A, A’s spouse, and A’s dependent
children are eligible for special enrollment
under X’s plan.
Example 2. (i) Facts. Individual A and A’s
spouse are eligible but not enrolled for
coverage under Group Health Plan P
maintained by A’s employer. When A was
first presented with an opportunity to enroll
A and A’s spouse, they did not have other
coverage. Later, A and A’s spouse enroll in
Group Health Plan Q maintained by the
employer of A’s spouse. During a subsequent
open enrollment period in P, A and A’s
spouse did not enroll because of their
coverage under Q. They then lose eligibility
for coverage under Q.
(ii) Conclusion. In this Example 2, because
A and A’s spouse were covered under Q
when they did not enroll in P during open
enrollment, they satisfy the conditions for
special enrollment under paragraphs (a)(2)(i)
and (ii) of this section. Consequently, A and
A’s spouse are eligible for special enrollment
under P.
Example 3. (i) Facts. Individual B works
for Employer X. B and B’s spouse are eligible
but not enrolled for coverage under X’s group
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health plan. B’s spouse works for Employer
Y and at the time coverage was offered under
X’s plan, B’s spouse was enrolled in self-only
coverage under Y’s group health plan. Then,
B’s spouse loses eligibility for coverage under
Y’s plan.
(ii) Conclusion. In this Example 3, because
B’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both B and B’s spouse are eligible for
special enrollment under X’s plan.
Example 4. (i) Facts. Individual A works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. A enrolls for self-only coverage in
the HMO option. A’s spouse works for
Employer Y and was enrolled for self-only
coverage under Y’s plan at the time coverage
was offered under X’s plan. Then, A’s spouse
loses coverage under Y’s plan. A requests
special enrollment for A and A’s spouse
under the plan’s indemnity option.
(ii) Conclusion. In this Example 4, because
A’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both A and A’s spouse can enroll in
either benefit package under X’s plan.
Therefore, if A requests enrollment in
accordance with the requirements of this
section, the plan must allow A and A’s
spouse to enroll in the indemnity option.
(3) Conditions for special
enrollment—(i) Loss of eligibility for
coverage. In the case of an employee or
dependent who has coverage that is not
COBRA continuation coverage, the
conditions of this paragraph (a)(3)(i) are
satisfied at the time the coverage is
terminated as a result of loss of
eligibility (regardless of whether the
individual is eligible for or elects
COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i)
does not include a loss due to the failure
of the employee or dependent to pay
premiums on a timely basis or
termination of coverage for cause (such
as making a fraudulent claim or an
intentional misrepresentation of a
material fact in connection with the
plan). Loss of eligibility for coverage
under this paragraph (a)(3)(i) includes
(but is not limited to)—
(A) Loss of eligibility for coverage as
a result of legal separation, divorce,
cessation of dependent status (such as
attaining the maximum age to be eligible
as a dependent child under the plan),
death of an employee, termination of
employment, reduction in the number
of hours of employment, and any loss of
eligibility for coverage after a period
that is measured by reference to any of
the foregoing;
(B) In the case of coverage offered
through an HMO, or other arrangement,
in the individual market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
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78759
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual);
(C) In the case of coverage offered
through an HMO, or other arrangement,
in the group market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual),
and no other benefit package is available
to the individual;
(D) A situation in which an individual
incurs a claim that would meet or
exceed a lifetime limit on all benefits;
and
(E) A situation in which a plan no
longer offers any benefits to the class of
similarly situated individuals (as
described in § 54.9802–1(d)) that
includes the individual.
(ii) Termination of employer
contributions. In the case of an
employee or dependent who has
coverage that is not COBRA
continuation coverage, the conditions of
this paragraph (a)(3)(ii) are satisfied at
the time employer contributions
towards the employee’s or dependent’s
coverage terminate. Employer
contributions include contributions by
any current or former employer that was
contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA
continuation coverage. In the case of an
employee or dependent who has
coverage that is COBRA continuation
coverage, the conditions of this
paragraph (a)(3)(iii) are satisfied at the
time the COBRA continuation coverage
is exhausted. For purposes of this
paragraph (a)(3)(iii), an individual who
satisfies the conditions for special
enrollment of paragraph (a)(3)(i) of this
section, does not enroll, and instead
elects and exhausts COBRA
continuation coverage satisfies the
conditions of this paragraph (a)(3)(iii).
(Exhaustion of COBRA continuation
coverage is defined in § 54.9801–2.)
(iv) Written statement. A plan may
require an employee declining coverage
(for the employee or any dependent of
the employee) to State in writing
whether the coverage is being declined
due to other health coverage only if, at
or before the time the employee declines
coverage, the employee is provided with
notice of the requirement to provide the
statement (and the consequences of the
employee’s failure to provide the
statement). If a plan requires such a
statement, and an employee does not
provide it, the plan is not required to
provide special enrollment to the
employee or any dependent of the
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employee under this paragraph (a)(3). A
plan must treat an employee as having
satisfied the plan requirement permitted
under this paragraph (a)(3)(iv) if the
employee provides a written statement
that coverage was being declined
because the employee or dependent had
other coverage; a plan cannot require
anything more for the employee to
satisfy the plan’s requirement to provide
a written statement. (For example, the
plan cannot require that the statement
be notarized.)
(v) The rules of this paragraph (a)(3)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual D enrolls
in a group health plan maintained by
Employer Y. At the time D enrolls, Y pays
70 percent of the cost of employee coverage
and D pays the rest. Y announces that
beginning January 1, Y will no longer make
employer contributions towards the coverage.
Employees may maintain coverage, however,
if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1,
employer contributions towards D’s coverage
ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are
satisfied on this date (regardless of whether
D elects to pay the total cost and continue
coverage under Y’s plan).
Example 2. (i) Facts. A group health plan
provides coverage through two options—
Option 1 and Option 2. Employees can enroll
in either option only within 30 days of hire
or on January 1 of each year. Employee A is
eligible for both options and enrolls in
Option 1. Effective July 1 the plan terminates
coverage under Option 1 and the plan does
not create an immediate open enrollment
opportunity into Option 2.
(ii) Conclusion. In this Example 2, A has
experienced a loss of eligibility for coverage
that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other
conditions for special enrollment under
paragraph (a)(2)(i) of this section. Therefore,
if A satisfies the other conditions of this
paragraph (a), the plan must permit A to
enroll in Option 2 as a special enrollee. (A
may also be eligible to enroll in another
group health plan, such as a plan maintained
by the employer of A’s spouse, as a special
enrollee.) The outcome would be the same if
Option 1 was terminated by an issuer and the
plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is
covered under a group health plan
maintained by Employer X. While covered
under X’s plan, C was eligible for but did not
enroll in a plan maintained by Employer Z,
the employer of C’s spouse. C terminates
employment with X and loses eligibility for
coverage under X’s plan. C has a special
enrollment right to enroll in Z’s plan, but C
instead elects COBRA continuation coverage
under X’s plan. C exhausts COBRA
continuation coverage under X’s plan and
requests special enrollment in Z’s plan.
(ii) Conclusion. In this Example 3, C has
satisfied the conditions for special
enrollment under paragraph (a)(3)(iii) of this
section, and has satisfied the other
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conditions for special enrollment under
paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z’s plan
immediately after the loss of eligibility for
coverage under X’s plan was an offer of
coverage under Z’s plan. When C later
exhausts COBRA coverage under X’s plan, C
has a second special enrollment right in Z’s
plan.
(4) Applying for special enrollment
and effective date of coverage—(i) A
plan or issuer must allow an employee
a period of at least 30 days after an
event described in paragraph (a)(3) of
this section (other than an event
described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or
the employee’s dependent). In the case
of an event described in paragraph
(a)(3)(i)(D) of this section (relating to
loss of eligibility for coverage due to the
operation of a lifetime limit on all
benefits), a plan or issuer must allow an
employee a period of at least 30 days
after a claim is denied due to the
operation of a lifetime limit on all
benefits.
(ii) Coverage must begin no later than
the first day of the first calendar month
beginning after the date the plan or
issuer receives the request for special
enrollment.
(b) Special enrollment with respect to
certain dependent beneficiaries—(1) In
general. A group health plan that makes
coverage available with respect to
dependents is required to permit
individuals described in paragraph
(b)(2) of this section to be enrolled for
coverage in a benefit package under the
terms of the plan. Paragraph (b)(3) of
this section describes the required
special enrollment period and the date
by which coverage must begin. The
special enrollment rights under this
paragraph (b) apply without regard to
the dates on which an individual would
otherwise be able to enroll under the
plan. (See 29 CFR 2590.701–6(b) and 45
CFR 146.117(b), under which this
obligation is also imposed on a health
insurance issuer offering group health
insurance coverage.)
(2) Individuals eligible for special
enrollment. An individual is described
in this paragraph (b)(2) if the individual
is otherwise eligible for coverage in a
benefit package under the plan and if
the individual is described in paragraph
(b)(2)(i), (ii), (iii), (iv), (v), or (vi) of this
section.
(i) Current employee only. A current
employee is described in this paragraph
(b)(2)(i) if a person becomes a
dependent of the individual through
marriage, birth, adoption, or placement
for adoption.
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(ii) Spouse of a participant only. An
individual is described in this
paragraph (b)(2)(ii) if either—
(A) The individual becomes the
spouse of a participant; or
(B) The individual is a spouse of a
participant and a child becomes a
dependent of the participant through
birth, adoption, or placement for
adoption.
(iii) Current employee and spouse. A
current employee and an individual
who is or becomes a spouse of such an
employee, are described in this
paragraph (b)(2)(iii) if either—
(A) The employee and the spouse
become married; or
(B) The employee and spouse are
married and a child becomes a
dependent of the employee through
birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only.
An individual is described in this
paragraph (b)(2)(iv) if the individual is
a dependent (as defined in § 54.9801–2)
of a participant and the individual has
become a dependent of the participant
through marriage, birth, adoption, or
placement for adoption.
(v) Current employee and a new
dependent. A current employee and an
individual who is a dependent of the
employee, are described in this
paragraph (b)(2)(v) if the individual
becomes a dependent of the employee
through marriage, birth, adoption, or
placement for adoption.
(vi) Current employee, spouse, and a
new dependent. A current employee,
the employee’s spouse, and the
employee’s dependent are described in
this paragraph (b)(2)(vi) if the
dependent becomes a dependent of the
employee through marriage, birth,
adoption, or placement for adoption.
(3) Applying for special enrollment
and effective date of coverage—(i)
Request. A plan must allow an
individual a period of at least 30 days
after the date of the marriage, birth,
adoption, or placement for adoption (or,
if dependent coverage is not generally
made available at the time of the
marriage, birth, adoption, or placement
for adoption, a period of at least 30 days
after the date the plan makes dependent
coverage generally available) to request
enrollment (for the individual or the
individual’s dependent).
(ii) Reasonable procedures for special
enrollment. [Reserved]
(iii) Date coverage must begin—(A)
Marriage. In the case of marriage,
coverage must begin no later than the
first day of the first calendar month
beginning after the date the plan (or any
issuer offering health insurance
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coverage under the plan) receives the
request for special enrollment.
(B) Birth, adoption, or placement for
adoption. Coverage must begin in the
case of a dependent’s birth on the date
of birth and in the case of a dependent’s
adoption or placement for adoption no
later than the date of such adoption or
placement for adoption (or, if dependent
coverage is not made generally available
at the time of the birth, adoption, or
placement for adoption, the date the
plan makes dependent coverage
available).
(4) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. An employer
maintains a group health plan that offers all
employees employee-only coverage,
employee-plus-spouse coverage, or family
coverage. Under the terms of the plan, any
employee may elect to enroll when first hired
(with coverage beginning on the date of hire)
or during an annual open enrollment period
held each December (with coverage
beginning the following January 1). Employee
A is hired on September 3. A is married to
B, and they have no children. On March 15
in the following year a child C is born to A
and B. Before that date, A and B have not
been enrolled in the plan.
(ii) Conclusion. In this Example 1, the
conditions for special enrollment of an
employee with a spouse and new dependent
under paragraph (b)(2)(vi) of this section are
satisfied. If A satisfies the conditions of
paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this
paragraph (b) if it allows A to enroll either
with employee-only coverage, with
employee-plus-spouse coverage (for A and B),
or with family coverage (for A, B, and C). The
plan must allow whatever coverage is chosen
to begin on March 15, the date of C’s birth.
Example 2. (i) Facts. Individual D works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed
for adoption with D. Within 30 days of the
placement of E for adoption, D requests
enrollment for D and E under the plan’s
indemnity option.
(ii) Conclusion. In this Example 2, D and
E satisfy the conditions for special
enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan
must allow D and E to enroll in the
indemnity coverage, effective as of the date
of the placement for adoption.
(c) Notice of special enrollment. At or
before the time an employee is initially
offered the opportunity to enroll in a
group health plan, the plan must furnish
the employee with a notice of special
enrollment that complies with the
requirements of this paragraph (c).
(1) Description of special enrollment
rights. The notice of special enrollment
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must include a description of special
enrollment rights. The following model
language may be used to satisfy this
requirement:
If you are declining enrollment for yourself
or your dependents (including your spouse)
because of other health insurance or group
health plan coverage, you may be able to
enroll yourself and your dependents in this
plan if you or your dependents lose
eligibility for that other coverage (or if the
employer stops contributing towards your or
your dependents’ other coverage). However,
you must request enrollment within [insert
‘‘30 days’’ or any longer period that applies
under the plan] after your or your
dependents’ other coverage ends (or after the
employer stops contributing toward the other
coverage).
In addition, if you have a new dependent
as a result of marriage, birth, adoption, or
placement for adoption, you may be able to
enroll yourself and your dependents.
However, you must request enrollment
within [insert ‘‘30 days’’ or any longer period
that applies under the plan] after the
marriage, birth, adoption, or placement for
adoption.
To request special enrollment or obtain
more information, contact [insert the name,
title, telephone number, and any additional
contact information of the appropriate plan
representative].
(2) Additional information that may
be required. The notice of special
enrollment must also include, if
applicable, the notice described in
paragraph (a)(3)(iv) of this section (the
notice required to be furnished to an
individual declining coverage if the
plan requires the reason for declining
coverage to be in writing).
(d) Treatment of special enrollees—(1)
If an individual requests enrollment
while the individual is entitled to
special enrollment under either
paragraph (a) or (b) of this section, the
individual is a special enrollee, even if
the request for enrollment coincides
with a late enrollment opportunity
under the plan. Therefore, the
individual cannot be treated as a late
enrollee.
(2) Special enrollees must be offered
all the benefit packages available to
similarly situated individuals who
enroll when first eligible. For this
purpose, any difference in benefits or
cost-sharing requirements for different
individuals constitutes a different
benefit package. In addition, a special
enrollee cannot be required to pay more
for coverage than a similarly situated
individual who enrolls in the same
coverage when first eligible. The length
of any preexisting condition exclusion
that may be applied to a special enrollee
cannot exceed the length of any
preexisting condition exclusion that is
applied to similarly situated individuals
who enroll when first eligible. For rules
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78761
prohibiting the application of a
preexisting condition exclusion to
certain newborns, adopted children, and
children placed for adoption, see
§ 54.9801–3(b).
(3) The rules of this section are
illustrated by the following example:
Example 2. (i) Facts. Employer Y maintains
a group health plan that has an enrollment
period for late enrollees every November 1
through November 30 with coverage effective
the following January 1. On October 18,
Individual B loses coverage under another
group health plan and satisfies the
requirements of paragraphs (a)(2), (3), and (4)
of this section. B submits a completed
application for coverage on November 2.
(ii) Conclusion. In this Example, B is a
special enrollee. Therefore, even though B’s
request for enrollment coincides with an
open enrollment period, B’s coverage is
required to be made effective no later than
December 1 (rather than the plan’s January 1
effective date for late enrollees).
§ 54.9831–1 Special rules relating to group
health plans.
(a) Group health plan—(1) Defined. A
group health plan means a plan
(including a self-insured plan) of, or
contributed to by, an employer
(including a self-employed person) or
employee organization to provide health
care (directly or otherwise) to the
employees, former employees, the
employer, others associated or formerly
associated with the employer in a
business relationship, or their families.
(2) Determination of number of plans.
[Reserved]
(b) General exception for certain small
group health plans. The requirements of
§§ 54.9801–1 through 54.9801–6,
54.9802–1, 54.9802–1T, 54.9811–1T,
54.9812–1T, and 54.9833–1 do not
apply to any group health plan for any
plan year if, on the first day of the plan
year, the plan has fewer than two
participants who are current employees.
(c) Excepted benefits—(1) In general.
The requirements of §§ 54.9801–1
through 54.9801–6, 54.9802–1, 54.9802–
1T, 54.9811–1T, 54.9812–1T, and
54.9833–1 do not apply to any group
health plan in relation to its provision
of the benefits described in paragraph
(c)(2), (3), (4), or (5) of this section (or
any combination of these benefits).
(2) Benefits excepted in all
circumstances. The following benefits
are excepted in all circumstances—
(i) Coverage only for accident
(including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including
general liability insurance and
automobile liability insurance;
(iv) Coverage issued as a supplement
to liability insurance;
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(v) Workers’ compensation or similar
coverage;
(vi) Automobile medical payment
insurance;
(vii) Credit-only insurance (for
example, mortgage insurance); and
(viii) Coverage for on-site medical
clinics.
(3) Limited excepted benefits—(i) In
general. Limited-scope dental benefits,
limited-scope vision benefits, or longterm 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 a
group health plan as described in
paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a
health flexible spending arrangement
are excepted benefits if they satisfy the
requirements of paragraph (c)(3)(v) of
this section.
(ii) Not an integral part of a group
health plan. For purposes of this
paragraph (c)(3), benefits are not an
integral part of a group health plan
(whether the benefits are provided
through the same plan or a separate
plan) only if the following two
requirements are satisfied—
(A) Participants must have the right to
elect not to receive coverage for the
benefits; and
(B) If a participant elects to receive
coverage for the benefits, the participant
must pay an additional premium or
contribution for that coverage.
(iii) Limited scope—(A) Dental
benefits. Limited scope dental benefits
are benefits substantially all of which
are for treatment of the mouth
(including any organ or structure within
the mouth).
(B) Vision benefits. Limited scope
vision benefits are benefits substantially
of which are for treatment of the eye.
(iv) Long-term care. Long-term care
benefits are benefits that are either—
(A) Subject to State long-term care
insurance laws;
(B) For qualified long-term care
services, as defined in section
7702B(c)(1), or provided under a
qualified long-term care insurance
contract, as defined in section 7702B(b);
or
(C) Based on cognitive impairment or
a loss of functional capacity that is
expected to be chronic.
(v) Health flexible spending
arrangements. Benefits provided under
a health flexible spending arrangement
(as defined in section 106(c)(2)) are
excepted for a class of participants only
if they satisfy the following two
requirements—
(A) Other group health plan coverage,
not limited to excepted benefits, is made
available for the year to the class of
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participants by reason of their
employment; and
(B) The arrangement is structured so
that the maximum benefit payable to
any participant in the class for a year
cannot exceed two times the
participant’s salary reduction election
under the arrangement for the year (or,
if greater, cannot exceed $500 plus the
amount of the participant’s salary
reduction election). For this purpose,
any amount that an employee can elect
to receive as taxable income but elects
to apply to the health flexible spending
arrangement is considered a salary
reduction election (regardless of
whether the amount is characterized as
salary or as a credit under the
arrangement).
(4) Noncoordinated benefits—(i)
Excepted benefits that are not
coordinated. Coverage for only a
specified disease or illness (for example,
cancer-only policies) or hospital
indemnity or other fixed indemnity
insurance is excepted only if it meets
each of the conditions specified in
paragraph (c)(4)(ii) of this section. To be
hospital indemnity or other fixed
indemnity insurance, the insurance
must pay a fixed dollar amount per day
(or per other period) of hospitalization
or illness (for example, $100/day)
regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described
in paragraph (c)(4)(i) of this section only
if—
(A) The benefits are provided under a
separate policy, certificate, or contract
of insurance;
(B) There is no coordination between
the provision of the benefits and an
exclusion of benefits under any group
health plan maintained by the same
plan sponsor; and
(C) The benefits are paid with respect
to an event without regard to whether
benefits are provided with respect to the
event under any group health plan
maintained by the same plan sponsor.
(iii) Example. The rules of this
paragraph (c)(4) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
through an insurance policy. The policy
provides benefits only for hospital stays at a
fixed percentage of hospital expenses up to
a maximum of $100 a day.
(ii) Conclusion. In this Example, even
though the benefits under the policy satisfy
the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage
of expenses incurred rather than a fixed
dollar amount, the benefits under the policy
are not excepted benefits under this
paragraph (c)(4). This is the result even if, in
practice, the policy pays the maximum of
$100 for every day of hospitalization.
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(5) Supplemental benefits. (i) The
following benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of
insurance—
(A) Medicare supplemental health
insurance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance);
(B) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as TRICARE supplemental
programs); and
(C) Similar supplemental coverage
provided to coverage under a group
health plan. To be similar supplemental
coverage, the coverage must be
specifically designed to fill gaps in
primary coverage, such as coinsurance
or deductibles. Similar supplemental
coverage does not include coverage that
becomes secondary or supplemental
only under a coordination-of-benefits
provision.
(ii) The rules of this paragraph (c)(5)
are illustrated by the following example:
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
for both active employees and retirees. The
coverage for retirees supplements benefits
provided by Medicare, but does not meet the
requirements for a supplemental policy
under section 1882(g)(1) of the Social
Security Act.
(ii) Conclusion. In this Example, the
coverage provided to retirees does not meet
the definition of supplemental excepted
benefits under this paragraph (c)(5) because
the coverage is not Medicare supplemental
insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE
supplemental program, and is not
supplemental to coverage provided under a
group health plan.
(d) Treatment of partnerships. For
purposes of this part:
(1) Treatment as a group health plan.
(See 29 CFR 2590.732(d)(1) and 45 CFR
146.145(d)(1), under which a plan
providing medical care, maintained by a
partnership, and usually not treated as
an employee welfare benefit plan under
ERISA is treated as a group health plan
for purposes of Part 7 of Subtitle B of
Title I of ERISA and Title XXVII of the
PHS Act.)
(2) Employment relationship. In the
case of a group health plan, the term
employer also includes the partnership
in relation to any bona fide partner. In
addition, the term employee also
includes any bona fide partner. Whether
or not an individual is a bona fide
partner is determined based on all the
relevant facts and circumstances,
including whether the individual
performs services on behalf of the
partnership.
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(3) Participants of group health plans.
In the case of a group health plan, the
term participant also includes any
individual described in paragraph
(d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to
receive a benefit under the plan or the
individual’s beneficiaries may be
eligible to receive any such benefit.
(i) In connection with a group health
plan maintained by a partnership, the
individual is a partner in relation to the
partnership.
(ii) In connection with a group health
plan maintained by a self-employed
individual (under which one or more
employees are participants), the
individual is the self-employed
individual.
(e) Determining the average number of
employees. [Reserved]
§ 54.9833–1
Effective dates.
Federal Regulations is amended as set
forth below:
PART 2590—RULES AND
REGULATIONS FOR GROUP HEALTH
PLANS
1. The authority citation for Part 2590
is revised to read as follows:
■
Authority: 29 U.S.C. 1027, 1059, 1135,
1161–1168, 1169, 1181–1183, 1181 note,
1185, 1185a, 1185b, 1191, 1191a, 1191b, and
1191c, sec. 101(g), Public Law 104–191, 101
Stat. 1936; sec. 401(b), Public Law 105–200,
112 Stat. 645 (42 U.S.C. 651 note); Secretary
of Labor’s Order 1–2003, 68 FR 5374 (Feb. 3,
2003).
2. The heading for Subpart B is revised
to read as follows:
■
Subpart B—Health Coverage
Portability, Nondiscrimination, and
Renewability
Sections 54.9801–1 through 54.9801–
6, 54.9831–1, and this section are
applicable for plan years beginning on
or after July 1, 2005.
■ 3. Sections 2590.701–1, 2590.701–2,
2590.701–3, 2590.701–4, 2590.701–5,
2590.701–6, and 2590.701–7 are revised
to read as follows:
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
§ 2590.701–1
■ Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In § 602.101, paragraph (b) is
amended by:
■ a. Removing the entries in the table for
§§ 54.9801–3T, 54.9801–4T, 54.9801–
5T, and 54.9801–6T.
■ b. Adding the following entries in
numerical order to the table:
■
§ 602.101
*
OMB Control numbers.
*
*
(b) * * *
*
*
CFR part or section where
identified and described
*
54.9801–3
54.9801–4
54.9801–5
54.9801–6
*
Current OMB
control No.
*
*
*
*
...........................
1545–1537
...........................
1545–1537
...........................
1545–1537
...........................
1545–1537
*
*
*
*
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement, Internal Revenue Service.
Approved: July 14, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
Employee Benefits Security
Administration
29 CFR Chapter XXV
For the reasons set forth above,
Chapter XXV of Title 29 of the Code of
■
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Basis and scope.
(a) Statutory basis. This Subpart B
implements Part 7 of Subtitle B of Title
I of the Employee Retirement Income
Security Act of 1974, as amended
(hereinafter ERISA or the Act).
(b) Scope. A group health plan or
health insurance issuer offering group
health insurance coverage may provide
greater rights to participants and
beneficiaries than those set forth in this
Subpart B. This Subpart B sets forth
minimum requirements for group health
plans and health insurance issuers
offering group health insurance
coverage concerning:
(1) Limitations on a preexisting
condition exclusion period.
(2) Certificates and disclosure of
previous coverage.
(3) Rules relating to counting
creditable coverage.
(4) Special enrollment periods.
(5) Prohibition against discrimination
on the basis of health factors.
(6) Use of an affiliation period by an
HMO as an alternative to a preexisting
condition exclusion.
§ 2590.701–2
Definitions.
Unless otherwise provided, the
definitions in this section govern in
applying the provisions of §§ 2590.701
through 2590.734.
Affiliation period means a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
COBRA definitions:
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(1) COBRA means Title X of the
Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable COBRA
continuation provision.
(3) COBRA continuation provision
means sections 601–608 of the Act,
section 4980B of the Internal Revenue
Code (other than paragraph (f)(1) of such
section 4980B insofar as it relates to
pediatric vaccines), or Title XXII of the
PHS Act.
(4) Exhaustion of COBRA
continuation coverage means that an
individual’s COBRA continuation
coverage ceases for any reason other
than either failure of the individual to
pay premiums on a timely basis, or for
cause (such as making a fraudulent
claim or an intentional
misrepresentation of a material fact in
connection with the plan). An
individual is considered to have
exhausted COBRA continuation
coverage if such coverage ceases—
(i) Due to the failure of the employer
or other responsible entity to remit
premiums on a timely basis;
(ii) When the individual no longer
resides, lives, or works in the service
area of an HMO or similar program
(whether or not within the choice of the
individual) and there is no other
COBRA continuation coverage available
to the individual; or
(iii) When the individual incurs a
claim that would meet or exceed a
lifetime limit on all benefits and there
is no other COBRA continuation
coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable
coverage within the meaning of
§ 2590.701–4(a).
Dependent means any individual who
is or may become eligible for coverage
under the terms of a group health plan
because of a relationship to a
participant.
Enroll means to become covered for
benefits under a group health plan (that
is, when coverage becomes effective),
without regard to when the individual
may have completed or filed any forms
that are required in order to become
covered under the plan. For this
purpose, an individual who has health
coverage under a group health plan is
enrolled in the plan regardless of
whether the individual elects coverage,
the individual is a dependent who
becomes covered as a result of an
election by a participant, or the
individual becomes covered without an
election.
Enrollment date definitions
(enrollment date, first day of coverage,
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and waiting period) are set forth in
§ 2590.701–3(a)(3)(i), (ii), and (iii).
Excepted benefits means the benefits
described as excepted in § 2590.732(c).
Genetic information means
information about genes, gene products,
and inherited characteristics that may
derive from the individual or a family
member. This includes information
regarding carrier status and information
derived from laboratory tests that
identify mutations in specific genes or
chromosomes, physical medical
examinations, family histories, and
direct analysis of genes or
chromosomes.
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Group health plan or plan means a
group health plan within the meaning of
§ 2590.732(a).
Group market means the market for
health insurance coverage offered in
connection with a group health plan.
(However, certain very small plans may
be treated as being in the individual
market, rather than the group market;
see the definition of individual market
in this section.)
Health insurance coverage means
benefits consisting of medical care
(provided directly, through insurance or
reimbursement, or otherwise) under any
hospital or medical service policy or
certificate, hospital or medical service
plan contract, or HMO contract offered
by a health insurance issuer. Health
insurance coverage includes group
health insurance coverage, individual
health insurance coverage, and shortterm, limited-duration insurance.
Health insurance issuer or issuer
means an insurance company, insurance
service, or insurance organization
(including an HMO) that is required to
be licensed to engage in the business of
insurance in a State and that is subject
to State law that regulates insurance
(within the meaning of section 514(b)(2)
of the Act). Such term does not include
a group health plan.
Health maintenance organization or
HMO means—
(1) A federally qualified health
maintenance organization (as defined in
section 1301(a) of the PHS Act);
(2) An organization recognized under
State law as a health maintenance
organization; or
(3) A similar organization regulated
under State law for solvency in the same
manner and to the same extent as such
a health maintenance organization.
Individual health insurance coverage
means health insurance coverage offered
to individuals in the individual market,
but does not include short-term,
limited-duration insurance. Individual
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health insurance coverage can include
dependent coverage.
Individual market means the market
for health insurance coverage offered to
individuals other than in connection
with a group health plan. Unless a State
elects otherwise in accordance with
section 2791(e)(1)(B)(ii) of the PHS Act,
such term also includes coverage offered
in connection with a group health plan
that has fewer than two participants
who are current employees on the first
day of the plan year.
Internal Revenue Code means the
Internal Revenue Code of 1986, as
amended (Title 26, United States Code).
Issuer means a health insurance
issuer.
Late enrollment definitions (late
enrollee and late enrollment) are set
forth in § 2590.701–3(a)(3)(v) and (vi).
Medical care means amounts paid
for—
(1) The diagnosis, cure, mitigation,
treatment, or prevention of disease, or
amounts paid for the purpose of
affecting any structure or function of the
body;
(2) Transportation primarily for and
essential to medical care referred to in
paragraph (1) of this definition; and
(3) Insurance covering medical care
referred to in paragraphs (1) and (2) of
this definition.
Medical condition or condition means
any condition, whether physical or
mental, including, but not limited to,
any condition resulting from illness,
injury (whether or not the injury is
accidental), pregnancy, or congenital
malformation. However, genetic
information is not a condition.
Participant means participant within
the meaning of section 3(7) of the Act.
Placement, or being placed, for
adoption means the assumption and
retention of a legal obligation for total or
partial support of a child by a person
with whom the child has been placed in
anticipation of the child’s adoption. The
child’s placement for adoption with
such person ends upon the termination
of such legal obligation.
Plan year means the year that is
designated as the plan year in the plan
document of a group health plan, except
that if the plan document does not
designate a plan year or if there is no
plan document, the plan year is—
(1) The deductible or limit year used
under the plan;
(2) If the plan does not impose
deductibles or limits on a yearly basis,
then the plan year is the policy year;
(3) If the plan does not impose
deductibles or limits on a yearly basis,
and either the plan is not insured or the
insurance policy is not renewed on an
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annual basis, then the plan year is the
employer’s taxable year; or
(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusion means
preexisting condition exclusion within
the meaning of § 2590.701–3(a)(1).
Public health plan means public
health plan within the meaning of
§ 2590.701–4(a)(1)(ix).
Public Health Service Act (PHS Act)
means the Public Health Service Act (42
U.S.C. 201, et seq.).
Short-term, limited-duration
insurance means health insurance
coverage provided pursuant to a
contract with an issuer that has an
expiration date specified in the contract
(taking into account any extensions that
may be elected by the policyholder
without the issuer’s consent) that is less
than 12 months after the original
effective date of the contract.
Significant break in coverage means a
significant break in coverage within the
meaning of § 2590.701–4(b)(2)(iii).
Special enrollment means enrollment
in a group health plan or group health
insurance coverage under the rights
described in § 2590.701–6.
State means each of the several States,
the District of Columbia, Puerto Rico,
the Virgin Islands, Guam, American
Samoa, and the Northern Mariana
Islands.
State health benefits risk pool means
a State health benefits risk pool within
the meaning of § 2590.701–4(a)(1)(vii).
Waiting period means waiting period
within the meaning of § 2590.701–
3(a)(3)(iii).
§ 2590.701–3 Limitations on preexisting
condition exclusion period.
(a) Preexisting condition exclusion—
(1) Defined—(i) A preexisting condition
exclusion means a limitation or
exclusion of benefits relating to a
condition based on the fact that the
condition was present before the
effective date of coverage under a group
health plan or group health insurance
coverage, whether or not any medical
advice, diagnosis, care, or treatment was
recommended or received before that
day. A preexisting condition exclusion
includes any exclusion applicable to an
individual as a result of information
relating to an individual’s health status
before the individual’s effective date of
coverage under a group health plan or
group health insurance coverage, such
as a condition identified as a result of
a pre-enrollment questionnaire or
physical examination given to the
individual, or review of medical records
relating to the pre-enrollment period.
(ii) Examples. The rules of this
paragraph (a)(1) are illustrated by the
following examples:
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Example 1. (i) Facts. A group health plan
provides benefits solely through an insurance
policy offered by Issuer S. At the expiration
of the policy, the plan switches coverage to
a policy offered by Issuer T. Issuer T’s policy
excludes benefits for any prosthesis if the
body part was lost before the effective date
of coverage under the policy.
(ii) Conclusion. In this Example 1, the
exclusion of benefits for any prosthesis if the
body part was lost before the effective date
of coverage is a preexisting condition
exclusion because it operates to exclude
benefits for a condition based on the fact that
the condition was present before the effective
date of coverage under the policy. (Therefore,
the exclusion of benefits is required to
comply with the limitations on preexisting
condition exclusions in this section. For an
example illustrating the application of these
limitations to a succeeding insurance policy,
see Example 3 of paragraph (a)(3)(iv) of this
section.)
Example 2. (i) Facts. A group health plan
provides coverage for cosmetic surgery in
cases of accidental injury, but only if the
injury occurred while the individual was
covered under the plan.
(ii) Conclusion. In this Example 2, the plan
provision excluding cosmetic surgery
benefits for individuals injured before
enrolling in the plan is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 3. (i) Facts. A group health plan
provides coverage for the treatment of
diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was
diagnosed with diabetes before the effective
date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of
$10,000.
(ii) Conclusion. In this Example 3, the
$10,000 lifetime limit is a preexisting
condition exclusion because it limits benefits
for a condition based on the fact that the
condition was present before the effective
date of coverage. The plan provision,
therefore, is subject to the limitations on
preexisting condition exclusions in this
section.
Example 4. (i) Facts. A group health plan
provides coverage for the treatment of acne,
subject to a lifetime limit of $2,000. The plan
counts against this $2,000 lifetime limit acne
treatment benefits provided under prior
health coverage.
(ii) Conclusion. In this Example 4,
counting benefits for a specific condition
provided under prior health coverage against
a lifetime limit for that condition is a
preexisting condition exclusion because it
operates to limit benefits for a condition
based on the fact that the condition was
present before the effective date of coverage.
The plan provision, therefore, is subject to
the limitations on preexisting condition
exclusions in this section.
Example 5. (i) Facts. When an individual’s
coverage begins under a group health plan,
the individual generally becomes eligible for
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all benefits. However, benefits for pregnancy
are not available until the individual has
been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the
requirement to be covered under the plan for
12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting
condition exclusion because it is designed to
exclude benefits for a condition (pregnancy)
that arose before the effective date of
coverage. Because a plan is prohibited under
paragraph (b)(5) of this section from
imposing any preexisting condition
exclusion on pregnancy, the plan provision
is prohibited. However, if the plan provision
included an exception for women who were
pregnant before the effective date of coverage
under the plan (so that the provision applied
only to women who became pregnant on or
after the effective date of coverage) the plan
provision would not be a preexisting
condition exclusion (and would not be
prohibited by paragraph (b)(5) of this
section).
Example 6. (i) Facts. A group health plan
provides coverage for medically necessary
items and services, generally including
treatment of heart conditions. However, the
plan does not cover those same items and
services when used for treatment of
congenital heart conditions.
(ii) Conclusion. In this Example 6, the
exclusion of coverage for treatment of
congenital heart conditions is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan
generally provides coverage for medically
necessary items and services. However, the
plan excludes coverage for the treatment of
cleft palate.
(ii) Conclusion. In this Example 7, the
exclusion of coverage for treatment of cleft
palate is not a preexisting condition
exclusion because the exclusion applies
regardless of when the condition arose
relative to the effective date of coverage. The
plan provision, therefore, is not subject to the
limitations on preexisting condition
exclusions in this section.
Example 8. (i) Facts. A group health plan
provides coverage for treatment of cleft
palate, but only if the individual being
treated has been continuously covered under
the plan from the date of birth.
(ii) Conclusion. In this Example 8, the
exclusion of coverage for treatment of cleft
palate for individuals who have not been
covered under the plan from the date of birth
operates to exclude benefits in relation to a
condition based on the fact that the condition
was present before the effective date of
coverage. The plan provision, therefore, is
subject to the limitations on preexisting
condition exclusions in this section.
(2) General rules. Subject to paragraph
(b) of this section (prohibiting the
imposition of a preexisting condition
exclusion with respect to certain
individuals and conditions), a group
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health plan, and a health insurance
issuer offering group health insurance
coverage, may impose, with respect to a
participant or beneficiary, a preexisting
condition exclusion only if the
requirements of this paragraph (a)(2) are
satisfied.
(i) 6-month look-back rule. A
preexisting condition exclusion must
relate to a condition (whether physical
or mental), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was
recommended or received within the 6month period (or such shorter period as
applies under the plan) ending on the
enrollment date.
(A) For purposes of this paragraph
(a)(2)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, 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 State
law.
(B) For purposes of this paragraph
(a)(2)(i), the 6-month period ending on
the enrollment date begins on the 6month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the
enrollment date is the period
commencing on February 1, 1998 and
continuing through July 31, 1998. As
another example, for an enrollment date
of August 30, 1998, the 6-month period
preceding the enrollment date is the
period commencing on February 28,
1998 and continuing through August 29,
1998.
(C) The rules of this paragraph (a)(2)(i)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual A is
diagnosed with a medical condition 8
months before A’s enrollment date in
Employer R’s group health plan. A’s doctor
recommends that A take a prescription drug
for 3 months, and A follows the
recommendation.
(ii) Conclusion. In this Example 1,
Employer R’s plan may impose a preexisting
condition exclusion with respect to A’s
condition because A received treatment
during the 6-month period ending on A’s
enrollment date in Employer R’s plan by
taking the prescription medication during
that period. However, if A did not take the
prescription drug during the 6-month period,
Employer R’s plan would not be able to
impose a preexisting condition exclusion
with respect to that condition.
Example 2. (i) Facts. Individual B is treated
for a medical condition 7 months before the
enrollment date in Employer S’s group health
plan. As part of such treatment, B’s physician
recommends that a follow-up examination be
given 2 months later. Despite this
recommendation, B does not receive a
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follow-up examination, and no other medical
advice, diagnosis, care, or treatment for that
condition is recommended to B or received
by B during the 6-month period ending on
B’s enrollment date in Employer S’s plan.
(ii) Conclusion. In this Example 2,
Employer S’s plan may not impose a
preexisting condition exclusion with respect
to the condition for which B received
treatment 7 months prior to the enrollment
date.
Example 3. (i) Facts. Same facts as
Example 2, except that Employer S’s plan
learns of the condition and attaches a rider
to B’s certificate of coverage excluding
coverage for the condition. Three months
after enrollment, B’s condition recurs, and
Employer S’s plan denies payment under the
rider.
(ii) Conclusion. In this Example 3, the rider
is a preexisting condition exclusion and
Employer S’s plan may not impose a
preexisting condition exclusion with respect
to the condition for which B received
treatment 7 months prior to the enrollment
date. (In addition, such a rider would violate
the provisions of § 2590.702, even if B had
received treatment for the condition within
the 6-month period ending on the enrollment
date.)
Example 4. (i) Facts. Individual C has
asthma and is treated for that condition
several times during the 6-month period
before C’s enrollment date in Employer T’s
plan. Three months after the enrollment date,
C begins coverage under Employer T’s plan.
Two months later, C is hospitalized for
asthma.
(ii) Conclusion. In this Example 4,
Employer T’s plan may impose a preexisting
condition exclusion with respect to C’s
asthma because care relating to C’s asthma
was received during the 6-month period
ending on C’s enrollment date (which, under
the rules of paragraph (a)(3)(i) of this section,
is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is
subject to a preexisting condition exclusion
imposed by Employer U’s plan, has diabetes,
as well as retinal degeneration, a foot
condition, and poor circulation (all of which
are conditions that may be directly attributed
to diabetes). D receives treatment for these
conditions during the 6-month period ending
on D’s enrollment date in Employer U’s plan.
After enrolling in the plan, D stumbles and
breaks a leg.
(ii) Conclusion. In this Example 5, the leg
fracture is not a condition related to D’s
diabetes, retinal degeneration, foot condition,
or poor circulation, even though they may
have contributed to the accident. Therefore,
benefits to treat the leg fracture cannot be
subject to a preexisting condition exclusion.
However, any additional medical services
that may be needed because of D’s
preexisting diabetes, poor circulation, or
retinal degeneration that would not be
needed by another patient with a broken leg
who does not have these conditions may be
subject to the preexisting condition exclusion
imposed under Employer U’s plan.
(ii) Maximum length of preexisting
condition exclusion. A preexisting
condition exclusion is not permitted to
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extend for more than 12 months (18
months in the case of a late enrollee)
after the enrollment date. For example,
for an enrollment date of August 1,
1998, the 12-month period after the
enrollment date is the period
commencing on August 1, 1998 and
continuing through July 31, 1999; the
18-month period after the enrollment
date is the period commencing on
August 1, 1998 and continuing through
January 31, 2000.
(iii) Reducing a preexisting condition
exclusion period by creditable
coverage—(A) The period of any
preexisting condition exclusion that
would otherwise apply to an individual
under a group health plan is reduced by
the number of days of creditable
coverage the individual has as of the
enrollment date, as counted under
§ 2590.701–4. Creditable coverage may
be evidenced through a certificate of
creditable coverage (required under
§ 2590.701–5(a)), or through other
means in accordance with the rules of
§ 2590.701–5(c).
(B) The rules of this paragraph
(a)(2)(iii) are illustrated by the following
example:
Example. (i) Facts. Individual D works for
Employer X and has been covered
continuously under X’s group health plan.
D’s spouse works for Employer Y. Y
maintains a group health plan that imposes
a 12-month preexisting condition exclusion
(reduced by creditable coverage) on all new
enrollees. D enrolls in Y’s plan, but also stays
covered under X’s plan. D presents Y’s plan
with evidence of creditable coverage under
X’s plan.
(ii) Conclusion. In this Example, Y’s plan
must reduce the preexisting condition
exclusion period that applies to D by the
number of days of coverage that D had under
X’s plan as of D’s enrollment date in Y’s plan
(even though D’s coverage under X’s plan
was continuing as of that date).
(iv) Other standards. See § 2590.702
for other standards in this Subpart B
that may apply with respect to certain
benefit limitations or restrictions under
a group health plan. Other laws may
also apply, such as the Uniformed
Services Employment and
Reemployment Rights Act (USERRA),
which can affect the application of a
preexisting condition exclusion to
certain individuals who are reinstated
in a group health plan following active
military service.
(3) Enrollment definitions—(i)
Enrollment date means the first day of
coverage (as described in paragraph
(a)(3)(ii) of this section) or, if there is a
waiting period, the first day of the
waiting period. If an individual
receiving benefits under a group health
plan changes benefit packages, or if the
plan changes group health insurance
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issuers, the individual’s enrollment date
does not change.
(ii) First day of coverage means, in the
case of an individual covered for
benefits under a group health plan, the
first day of coverage under the plan and,
in the case of an individual covered by
health insurance coverage in the
individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period
that must pass before coverage for an
employee or dependent who is
otherwise eligible to enroll under the
terms of a group health plan can become
effective. If an employee or dependent
enrolls as a late enrollee or special
enrollee, any period before such late or
special enrollment is not a waiting
period. If an individual seeks coverage
in the individual market, a waiting
period begins on the date the individual
submits a substantially complete
application for coverage and ends on—
(A) If the application results in
coverage, the date coverage begins;
(B) If the application does not result
in coverage, the date on which the
application is denied by the issuer or
the date on which the offer of coverage
lapses.
(iv) The rules of paragraphs (a)(3)(i),
(ii), and (iii) of this section are
illustrated by the following examples:
Example 1. (i) Facts. Employer V’s group
health plan provides for coverage to begin on
the first day of the first payroll period
following the date an employee is hired and
completes the applicable enrollment forms,
or on any subsequent January 1 after
completion of the applicable enrollment
forms. Employer V’s plan imposes a
preexisting condition exclusion for 12
months (reduced by the individual’s
creditable coverage) following an
individual’s enrollment date. Employee E is
hired by Employer V on October 13, 1998
and on October 14, 1998 E completes and
files all the forms necessary to enroll in the
plan. E’s coverage under the plan becomes
effective on October 25, 1998 (which is the
beginning of the first payroll period after E’s
date of hire).
(ii) Conclusion. In this Example 1, E’s
enrollment date is October 13, 1998 (which
is the first day of the waiting period for E’s
enrollment and is also E’s date of hire).
Accordingly, with respect to E, the
permissible 6-month period in paragraph
(a)(2)(i) is the period from April 13, 1998
through October 12, 1998, the maximum
permissible period during which Employer
V’s plan can apply a preexisting condition
exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through
October 12, 1999, and this period must be
reduced under paragraph (a)(2)(iii) by E’s
days of creditable coverage as of October 13,
1998.
Example 2. (i) Facts. A group health plan
has two benefit package options, Option 1
and Option 2. Under each option a 12-month
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preexisting condition exclusion is imposed.
Individual B is enrolled in Option 1 on the
first day of employment with the employer
maintaining the plan, remains enrolled in
Option 1 for more than one year, and then
decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B
cannot be subject to any preexisting
condition exclusion under Option 2 because
any preexisting condition exclusion period
would have to begin on B’s enrollment date,
which is B’s first day of coverage, rather than
the date that B enrolled in Option 2.
Therefore, the preexisting condition
exclusion period expired before B switched
to Option 2.
Example 3. (i) Facts. On May 13, 1997,
Individual E is hired by an employer and
enrolls in the employer’s group health plan.
The plan provides benefits solely through an
insurance policy offered by Issuer S. On
December 27, 1998, E’s leg is injured in an
accident and the leg is amputated. On
January 1, 1999, the plan switches coverage
to a policy offered by Issuer T. Issuer T’s
policy excludes benefits for any prosthesis if
the body part was lost before the effective
date of coverage under the policy.
(ii) Conclusion. In this Example 3, E’s
enrollment date is May 13, 1997, E’s first day
of coverage. Therefore, the permissible 6month look-back period for the preexisting
condition exclusion imposed under Issuer
T’s policy begins on November 13, 1996 and
ends on May 12, 1997. In addition, the 12month maximum permissible preexisting
condition exclusion period begins on May
13, 1997 and ends on May 12, 1998.
Accordingly, because no medical advice,
diagnosis, care, or treatment was
recommended to or received by E for the leg
during the 6-month look-back period (even
though medical care was provided within the
6-month period preceding the effective date
of E’s coverage under Issuer T’s policy),
Issuer T may not impose any preexisting
condition exclusion with respect to E.
Moreover, even if E had received treatment
during the 6-month look-back period, Issuer
T still would not be permitted to impose a
preexisting condition exclusion because the
12-month maximum permissible preexisting
condition exclusion period expired on May
12, 1998 (before the effective date of E’s
coverage under Issuer T’s policy).
Example 4. (i) Facts. A group health plan
limits eligibility for coverage to full-time
employees of Employer Y. Coverage becomes
effective on the first day of the month
following the date the employee becomes
eligible. Employee C begins working full-time
for Employer Y on April 11. Prior to this
date, C worked part-time for Y. C enrolls in
the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C’s
enrollment date is April 11 and the period
from April 11 through April 30 is a waiting
period. The period while C was working parttime, and therefore not in an eligible class of
employees, is not part of the waiting period.
Example 5. (i) Facts. To be eligible for
coverage under a multiemployer group health
plan in the current calendar quarter, the plan
requires an individual to have worked 250
hours in covered employment during the
previous quarter. If the hours requirement is
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satisfied, coverage becomes effective on the
first day of the current calendar quarter.
Employee D begins work on January 28 and
does not work 250 hours in covered
employment during the first quarter (ending
March 31). D works at least 250 hours in the
second quarter (ending June 30) and is
enrolled in the plan with coverage effective
July 1 (the first day of the third quarter).
(ii) Conclusion. In this Example 5, D’s
enrollment date is the first day of the quarter
during which D satisfies the hours
requirement, which is April 1. The period
from April 1 through June 30 is a waiting
period.
(v) Late enrollee means an individual
whose enrollment in a plan is a late
enrollment.
(vi) (A) Late enrollment means
enrollment of an individual under a
group health plan other than—
(1) On the earliest date on which
coverage can become effective for the
individual under the terms of the plan;
or
(2) Through special enrollment. (For
rules relating to special enrollment, see
§ 2590.701–6.)
(B) If an individual ceases to be
eligible for coverage under the plan, and
then subsequently becomes eligible for
coverage under the plan, only the
individual’s most recent period of
eligibility is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage
following a suspension of coverage that
applied generally under the plan.
(vii) Examples. The rules of
paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following
examples:
Example 1. (i) Facts. Employee F first
becomes eligible to be covered by Employer
W’s group health plan on January 1, 1999 but
elects not to enroll in the plan until a later
annual open enrollment period, with
coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a
late enrollee with respect to F’s coverage that
became effective under the plan on January
1, 2001.
Example 2. (i) Facts. Same facts as
Example 1, except that F terminates
employment with Employer W on July 1,
1999 without having had any health
insurance coverage under the plan. F is
rehired by Employer W on January 1, 2000
and is eligible for and elects coverage under
Employer W’s plan effective on January 1,
2000.
(ii) Conclusion. In this Example 2, F would
not be a late enrollee with respect to F’s
coverage that became effective on January 1,
2000.
(b) Exceptions pertaining to
preexisting condition exclusions—(1)
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78767
Newborns—(i) In general. Subject to
paragraph (b)(3) of this section, a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose any
preexisting condition exclusion on a
child who, within 30 days after birth, is
covered under any creditable coverage.
Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after birth and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in § 2590.701–
4(b)(2)(iii)), the other plan may not
impose any preexisting condition
exclusion on the child.
(ii) Examples. The rules of this
paragraph (b)(1) are illustrated by the
following examples:
Example 1. (i) Facts. Individual E, who has
no prior creditable coverage, begins working
for Employer W and has accumulated 210
days of creditable coverage under Employer
W’s group health plan on the date E gives
birth to a child. Within 30 days after the
birth, the child is enrolled in the plan. Ninety
days after the birth, both E and the child
terminate coverage under the plan. Both E
and the child then experience a break in
coverage of 45 days before E is hired by
Employer X and the two are enrolled in
Employer X’s group health plan.
(ii) Conclusion. In this Example 1, because
E’s child is enrolled in Employer W’s plan
within 30 days after birth, no preexisting
condition exclusion may be imposed with
respect to the child under Employer W’s
plan. Likewise, Employer X’s plan may not
impose any preexisting condition exclusion
on E’s child because the child was covered
under creditable coverage within 30 days
after birth and had no significant break in
coverage before enrolling in Employer X’s
plan. On the other hand, because E had only
300 days of creditable coverage prior to E’s
enrollment date in Employer X’s plan,
Employer X’s plan may impose a preexisting
condition exclusion on E for up to 65 days
(66 days if the 12-month period after E’s
enrollment date in X’s plan includes
February 29).
Example 2. (i) Facts. Individual F is
enrolled in a group health plan in which
coverage is provided through a health
insurance issuer. F gives birth. Under State
law applicable to the health insurance issuer,
health care expenses incurred for the child
during the 30 days following birth are
covered as part of F’s coverage. Although F
may obtain coverage for the child beyond 30
days by timely requesting special enrollment
and paying an additional premium, the issuer
is prohibited under State law from recouping
the cost of any expenses incurred for the
child within the 30-day period if the child is
not later enrolled.
(ii) Conclusion. In this Example 2, the
child is covered under creditable coverage
within 30 days after birth, regardless of
whether the child enrolls as a special
enrollee under the plan. Therefore, no
preexisting condition exclusion may be
imposed on the child unless the child has a
significant break in coverage.
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(2) Adopted children. Subject to
paragraph (b)(3) of this section, a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose any
preexisting condition exclusion on a
child who is adopted or placed for
adoption before attaining 18 years of age
and who, within 30 days after the
adoption or placement for adoption, is
covered under any creditable coverage.
Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after adoption
or placement for adoption and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in § 2590.701–
4(b)(2)(iii)), the other plan may not
impose any preexisting condition
exclusion on the child. This rule does
not apply to coverage before the date of
such adoption or placement for
adoption.
(3) Significant break in coverage.
Paragraphs (b)(1) and (2) of this section
no longer apply to a child after a
significant break in coverage. (See
§ 2590.701–4(b)(2)(iii) for rules relating
to the determination of a significant
break in coverage.)
(4) Special enrollment. For special
enrollment rules relating to new
dependents, see § 2590.701–6(b).
(5) Pregnancy. A group health plan,
and a health insurance issuer offering
group health insurance coverage, may
not impose a preexisting condition
exclusion relating to pregnancy.
(6) Genetic information—(i) A group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose a preexisting
condition exclusion relating to a
condition based solely on genetic
information. However, if an individual
is diagnosed with a condition, even if
the condition relates to genetic
information, the plan may impose a
preexisting condition exclusion with
respect to the condition, subject to the
other limitations of this section.
(ii) The rules of this paragraph (b)(6)
are illustrated by the following example:
Example. (i) Facts. Individual A enrolls in
a group health plan that imposes a 12-month
maximum preexisting condition exclusion.
Three months before A’s enrollment, A’s
doctor told A that, based on genetic
information, A has a predisposition towards
breast cancer. A was not diagnosed with
breast cancer at any time prior to A’s
enrollment date in the plan. Nine months
after A’s enrollment date in the plan, A is
diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan
may not impose a preexisting condition
exclusion with respect to A’s breast cancer
because, prior to A’s enrollment date, A was
not diagnosed with breast cancer.
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(c) General notice of preexisting
condition exclusion. A group health
plan imposing a preexisting condition
exclusion, and a health insurance issuer
offering group health insurance
coverage subject to a preexisting
condition exclusion, must provide a
written general notice of preexisting
condition exclusion to participants
under the plan and cannot impose a
preexisting condition exclusion with
respect to a participant or a dependent
of the participant until such a notice is
provided.
(1) Manner and timing. A plan or
issuer must provide the general notice
of preexisting condition exclusion as
part of any written application materials
distributed by the plan or issuer for
enrollment. If the plan or issuer does
not distribute such materials, the notice
must be provided by the earliest date
following a request for enrollment that
the plan or issuer, acting in a reasonable
and prompt fashion, can provide the
notice.
(2) Content. The general notice of
preexisting condition exclusion must
notify participants of the following:
(i) The existence and terms of any
preexisting condition exclusion under
the plan. This description includes the
length of the plan’s look-back period
(which is not to exceed 6 months under
paragraph (a)(2)(i) of this section); the
maximum preexisting condition
exclusion period under the plan (which
cannot exceed 12 months (or 18-months
for late enrollees) under paragraph
(a)(2)(ii) of this section); and how the
plan will reduce the maximum
preexisting condition exclusion period
by creditable coverage (described in
paragraph (a)(2)(iii) of this section).
(ii) A description of the rights of
individuals to demonstrate creditable
coverage, and any applicable waiting
periods, through a certificate of
creditable coverage (as required by
§ 2590.701–5(a)) or through other means
(as described in § 2590.701–5(c)). This
must include a description of the right
of the individual to request a certificate
from a prior plan or issuer, if necessary,
and a statement that the current plan or
issuer will assist in obtaining a
certificate from any prior plan or issuer,
if necessary.
(iii) A person to contact (including an
address or telephone number) for
obtaining additional information or
assistance regarding the preexisting
condition exclusion.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (c) is provided to an
individual, the obligation to provide a
general notice of preexisting condition
exclusion with respect to that
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individual is satisfied for both the plan
and the issuer.
(4) Example with sample language.
The rules of this paragraph (c) are
illustrated by the following example,
which includes sample language that
plans and issuers can use as a basis for
preparing their own notices to satisfy
the requirements of this paragraph (c):
Example. (i) Facts. A group health plan
makes coverage effective on the first day of
the first calendar month after hire and on
each January 1 following an open season. The
plan imposes a 12-month maximum
preexisting condition exclusion (18 months
for late enrollees) and uses a 6-month lookback period. As part of the enrollment
application materials, the plan provides the
following statement:
This plan imposes a preexisting condition
exclusion. This means that if you have a
medical condition before coming to our plan,
you might have to wait a certain period of
time before the plan will provide coverage for
that condition. This exclusion applies only to
conditions for which medical advice,
diagnosis, care, or treatment was
recommended or received within a six-month
period. Generally, this six-month period ends
the day before your coverage becomes
effective. However, if you were in a waiting
period for coverage, the six-month period
ends on the day before the waiting period
begins. The preexisting condition exclusion
does not apply to pregnancy nor to a child
who is enrolled in the plan within 30 days
after birth, adoption, or placement for
adoption.
This exclusion may last up to 12 months
(18 months if you are a late enrollee) from
your first day of coverage, or, if you were in
a waiting period, from the first day of your
waiting period. However, you can reduce the
length of this exclusion period by the number
of days of your prior ‘‘creditable coverage.’’
Most prior health coverage is creditable
coverage and can be used to reduce the
preexisting condition exclusion if you have
not experienced a break in coverage of at
least 63 days. To reduce the 12-month (or 18month) exclusion period by your creditable
coverage, you should give us a copy of any
certificates of creditable coverage you have.
If you do not have a certificate, but you do
have prior health coverage, we will help you
obtain one from your prior plan or issuer.
There are also other ways that you can show
you have creditable coverage. Please contact
us if you need help demonstrating creditable
coverage.
All questions about the preexisting
condition exclusion and creditable coverage
should be directed to Individual B at Address
M or Telephone Number N.
(ii) Conclusion. In this Example, the plan
satisfies the general notice requirement of
this paragraph (c), and thus also satisfies this
requirement for any issuer providing the
coverage.
(d) Determination of creditable
coverage—(1) Determination within
reasonable time. If a group health plan
or health insurance issuer offering group
health insurance coverage receives
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creditable coverage information under
§ 2590.701–5, the plan or issuer is
required, within a reasonable time
following receipt of the information, to
make a determination regarding the
amount of the individual’s creditable
coverage and the length of any
exclusion that remains. Whether this
determination is made within a
reasonable time depends on the relevant
facts and circumstances. Relevant facts
and circumstances include whether a
plan’s application of a preexisting
condition exclusion would prevent an
individual from having access to urgent
medical care.
(2) No time limit on presenting
evidence of creditable coverage. A plan
or issuer may not impose any limit on
the amount of time that an individual
has to present a certificate or other
evidence of creditable coverage.
(3) Example. The rules of this
paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual H develops an urgent
health condition before receiving a certificate
of creditable coverage from H’s prior group
health plan. H attests to the period of prior
coverage, presents corroborating
documentation of the coverage period, and
authorizes the plan to request a certificate on
H’s behalf in accordance with the rules of
§ 2590.701–5.
(ii) Conclusion. In this Example, the plan
must review the evidence presented by H and
make a determination of creditable coverage
within a reasonable time that is consistent
with the urgency of H’s health condition.
(This determination may be modified as
permitted under paragraph (f) of this section.)
(e) Individual notice of period of
preexisting condition exclusion. After
an individual has presented evidence of
creditable coverage and after the plan or
issuer has made a determination of
creditable coverage under paragraph (d)
of this section, the plan or issuer must
provide the individual a written notice
of the length of preexisting condition
exclusion that remains after offsetting
for prior creditable coverage. This
individual notice is not required to
identify any medical conditions specific
to the individual that could be subject
to the exclusion. A plan or issuer is not
required to provide this notice if the
plan or issuer does not impose any
preexisting condition exclusion on the
individual or if the plan’s preexisting
condition exclusion is completely offset
by the individual’s prior creditable
coverage.
(1) Manner and timing. The
individual notice must be provided by
the earliest date following a
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determination that the plan or issuer,
acting in a reasonable and prompt
fashion, can provide the notice.
(2) Content. A plan or issuer must
disclose—
(i) Its determination of any preexisting
condition exclusion period that applies
to the individual (including the last day
on which the preexisting condition
exclusion applies);
(ii) The basis for such determination,
including the source and substance of
any information on which the plan or
issuer relied;
(iii) An explanation of the
individual’s right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable
appeal procedures established by the
plan or issuer.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (e) is provided to an
individual, the obligation to provide
this individual notice of preexisting
condition exclusion with respect to that
individual is satisfied for both the plan
and the issuer.
(4) Examples. The rules of this
paragraph (e) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual G presents a certificate
of creditable coverage indicating 240 days of
creditable coverage. Within seven days of
receipt of the certificate, the plan determines
that G is subject to a preexisting condition
exclusion of 125 days, the last day of which
is March 5. Five days later, the plan notifies
G that, based on the certificate G submitted,
G is subject to a preexisting condition
exclusion period of 125 days, ending on
March 5. The notice also explains the
opportunity to submit additional evidence of
creditable coverage and the plan’s appeal
procedures. The notice does not identify any
of G’s medical conditions that could be
subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan
satisfies the requirements of this paragraph
(e).
Example 2. (i) Facts. Same facts as in
Example 1, except that the plan determines
that G has 430 days of creditable coverage
based on G’s certificate indicating 430 days
of creditable coverage under G’s prior plan.
(ii) Conclusion. In this Example 2, the plan
is not required to notify G that G will not be
subject to a preexisting condition exclusion.
(f) Reconsideration. Nothing in this
section prevents a plan or issuer from
modifying an initial determination of
creditable coverage if it determines that
the individual did not have the claimed
creditable coverage, provided that—
(1) A notice of the new determination
(consistent with the requirements of
paragraph (e) of this section) is provided
to the individual; and
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(2) Until the notice of the new
determination is provided, the plan or
issuer, for purposes of approving access
to medical services (such as a presurgery authorization), acts in a manner
consistent with the initial
determination.
§ 2590.701–4
coverage.
Rules relating to creditable
(a) General rules—(1) Creditable
coverage. For purposes of this section,
except as provided in paragraph (a)(2) of
this section, the term creditable
coverage means coverage of an
individual under any of the following:
(i) A group health plan as defined in
§ 2590.732(a).
(ii) Health insurance coverage as
defined in § 2590.701–2 (whether or not
the entity offering the coverage is
subject to Part 7 of Subtitle B of Title I
of the Act, and without regard to
whether the coverage is offered in the
group market, the individual market, or
otherwise).
(iii) Part A or B of Title XVIII of the
Social Security Act (Medicare).
(iv) Title XIX of the Social Security
Act (Medicaid), other than coverage
consisting solely of benefits under
section 1928 of the Social Security Act
(the program for distribution of
pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55
(medical and dental care for members
and certain former members of the
uniformed services, and for their
dependents; for purposes of Title 10
U.S.C. Chapter 55, uniformed services
means the armed forces and the
Commissioned Corps of the National
Oceanic and Atmospheric
Administration and of the Public Health
Service).
(vi) A medical care program of the
Indian Health Service or of a tribal
organization.
(vii) A State health benefits risk pool.
For purposes of this section, a State
health benefits risk pool means—
(A) An organization qualifying under
section 501(c)(26) of the Internal
Revenue Code;
(B) A qualified high risk pool
described in section 2744(c)(2) of the
PHS Act; or
(C) Any other arrangement sponsored
by a State, the membership composition
of which is specified by the State and
which is established and maintained
primarily to provide health coverage for
individuals who are residents of such
State and who, by reason of the
existence or history of a medical
condition—
(1) Are unable to acquire medical care
coverage for such condition through
insurance or from an HMO, or
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(2) Are able to acquire such coverage
only at a rate which is substantially in
excess of the rate for such coverage
through the membership organization.
(viii) A health plan offered under
Title 5 U.S.C. Chapter 89 (the Federal
Employees Health Benefits Program).
(ix) A public health plan. For
purposes of this section, a public health
plan means any plan established or
maintained by a State, the U.S.
government, a foreign country, or any
political subdivision of a State, the U.S.
government, or a foreign country that
provides health coverage to individuals
who are enrolled in the plan.
(x) A health benefit plan under
section 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(xi) Title XXI of the Social Security
Act (State Children’s Health Insurance
Program).
(2) Excluded coverage. Creditable
coverage does not include coverage of
solely excepted benefits (described in
§ 2590.732).
(3) Methods of counting creditable
coverage. For purposes of reducing any
preexisting condition exclusion period,
as provided under § 2590.701–
3(a)(2)(iii), the amount of an
individual’s creditable coverage
generally is determined by using the
standard method described in paragraph
(b) of this section. A plan or issuer may
use the alternative method under
paragraph (c) of this section with
respect to any or all of the categories of
benefits described under paragraph
(c)(3) of this section.
(b) Standard method—(1) Specific
benefits not considered. Under the
standard method, the amount of
creditable coverage is determined
without regard to the specific benefits
included in the coverage.
(2) Counting creditable coverage—(i)
Based on days. For purposes of reducing
the preexisting condition exclusion
period that applies to an individual, the
amount of creditable coverage is
determined by counting all the days on
which the individual has one or more
types of creditable coverage.
Accordingly, if on a particular day an
individual has creditable coverage from
more than one source, all the creditable
coverage on that day is counted as one
day. Any days in a waiting period for
coverage are not creditable coverage.
(ii) Days not counted before
significant break in coverage. Days of
creditable coverage that occur before a
significant break in coverage are not
required to be counted.
(iii) Significant break in coverage
defined—A significant break in coverage
means a period of 63 consecutive days
during each of which an individual does
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not have any creditable coverage. (See
also § 2590.731(c)(2)(iii) regarding the
applicability to issuers of State
insurance laws that require a break of
more than 63 days before an individual
has a significant break in coverage for
purposes of State insurance law.)
(iv) Periods that toll a significant
break. Days in a waiting period and
days in an affiliation period are not
taken into account in determining
whether a significant break in coverage
has occurred. In addition, for an
individual who elects COBRA
continuation coverage during the
second election period provided under
the Trade Act of 2002, the days between
the date the individual lost group health
plan coverage and the first day of the
second COBRA election period are not
taken into account in determining
whether a significant break in coverage
has occurred.
(v) Examples. The rules of this
paragraph (b)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A has
creditable coverage under Employer P’s plan
for 18 months before coverage ceases. A is
provided a certificate of creditable coverage
on A’s last day of coverage. Sixty-four days
after the last date of coverage under P’s plan,
A is hired by Employer Q and enrolls in Q’s
group health plan. Q’s plan has a 12-month
preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has
a break in coverage of 63 days. Because A’s
break in coverage is a significant break in
coverage, Q’s plan may disregard A’s prior
coverage and A may be subject to a 12-month
preexisting condition exclusion.
Example 2. (i) Facts. Same facts as
Example 1, except that A is hired by Q and
enrolls in Q’s plan on the 63rd day after the
last date of coverage under P’s plan.
(ii) Conclusion. In this Example 2, A has
a break in coverage of 62 days. Because A’s
break in coverage is not a significant break
in coverage, Q’s plan must count A’s prior
creditable coverage for purposes of reducing
the plan’s preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as
Example 1, except that Q’s plan provides
benefits through an insurance policy that, as
required by applicable State insurance laws,
defines a significant break in coverage as 90
days.
(ii) Conclusion. In this Example 3, under
State law, the issuer that provides group
health insurance coverage to Q’s plan must
count A’s period of creditable coverage prior
to the 63-day break. (However, if Q’s plan
was a self-insured plan, the coverage would
not be subject to State law. Therefore, the
health coverage would not be governed by
the longer break rules and A’s previous
health coverage could be disregarded.)
Example 4. —[Reserved]
Example 5. (i) Facts. Individual C has
creditable coverage under Employer S’s plan
for 200 days before coverage ceases. C is
provided a certificate of creditable coverage
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on C’s last day of coverage. C then does not
have any creditable coverage for 51 days
before being hired by Employer T. T’s plan
has a 3-month waiting period. C works for T
for 2 months and then terminates
employment. Eleven days after terminating
employment with T, C begins working for
Employer U. U’s plan has no waiting period,
but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does
not have a significant break in coverage
because, after disregarding the waiting period
under T’s plan, C had only a 62-day break in
coverage (51 days plus 11 days). Accordingly,
C has 200 days of creditable coverage, and
U’s plan may not apply its 6-month
preexisting condition exclusion with respect
to C.
Example 6. —[Reserved]
Example 7. (i) Facts. Individual E has
creditable coverage under Employer X’s plan.
E is provided a certificate of creditable
coverage on E’s last day of coverage. On the
63rd day without coverage, E submits a
substantially complete application for a
health insurance policy in the individual
market. E’s application is accepted and
coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because
E applied for the policy before the end of the
63rd day, the period between the date of
application and the first day of coverage is
a waiting period and no significant break in
coverage occurred even though the actual
period without coverage was 73 days.
Example 8. (i) Facts. Same facts as
Example 7, except that E’s application for a
policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even
though E did not obtain coverage following
application, the period between the date of
application and the date the coverage was
denied is a waiting period. However, to avoid
a significant break in coverage, no later than
the day after the application for the policy is
denied E would need to do one of the
following: submit a substantially complete
application for a different individual market
policy; obtain coverage in the group market;
or be in a waiting period for coverage in the
group market.
(vi) Other permissible counting
methods—(A) Rule. Notwithstanding
any other provisions of this paragraph
(b)(2), for purposes of reducing a
preexisting condition exclusion period
(but not for purposes of issuing a
certificate under § 2590.701–5), a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may determine the amount of
creditable coverage in any other manner
that is at least as favorable to the
individual as the method set forth in
this paragraph (b)(2), subject to the
requirements of other applicable law.
(B) Example. The rule of this
paragraph (b)(2)(vi) is illustrated by the
following example:
Example. (i) Facts. Individual F has
coverage under Group Health Plan Y from
January 3, 1997 through March 25, 1997. F
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then becomes covered by Group Health Plan
Z. F’s enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting
condition exclusion.
(ii) Conclusion. In this Example, Plan Z
may determine, in accordance with the rules
prescribed in paragraphs (b)(2)(i), (ii), and
(iii) of this section, that F has 82 days of
creditable coverage (29 days in January, 28
days in February, and 25 days in March).
Thus, the preexisting condition exclusion
will no longer apply to F on February 8, 1998
(82 days before the 12-month anniversary of
F’s enrollment (May 1)). For administrative
convenience, however, Plan Z may consider
that the preexisting condition exclusion will
no longer apply to F on the first day of the
month (February 1).
(c) Alternative method—(1) Specific
benefits considered. Under the
alternative method, a group health plan,
or a health insurance issuer offering
group health insurance coverage,
determines the amount of creditable
coverage based on coverage within any
category of benefits described in
paragraph (c)(3) of this section and not
based on coverage for any other benefits.
The plan or issuer may use the
alternative method for any or all of the
categories. The plan or issuer may apply
a different preexisting condition
exclusion period with respect to each
category (and may apply a different
preexisting condition exclusion period
for benefits that are not within any
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. An
individual’s creditable coverage for
benefits that are not within any category
for which the alternative method is
being used is determined under the
standard method of paragraph (b) of this
section.
(2) Uniform application. A plan or
issuer using the alternative method is
required to apply it uniformly to all
participants and beneficiaries under the
plan or health insurance coverage. The
use of the alternative method is required
to be set forth in the plan.
(3) Categories of benefits. The
alternative method for counting
creditable coverage may be used for
coverage for the following categories of
benefits—
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative
method is used, the plan is required
to—
(i) State prominently that the plan is
using the alternative method of counting
creditable coverage in disclosure
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statements concerning the plan, and
State this to each enrollee at the time of
enrollment under the plan; and
(ii) Include in these statements a
description of the effect of using the
alternative method, including an
identification of the categories used.
(5) Disclosure of information on
previous benefits. See § 2590.701–5(b)
for special rules concerning disclosure
of coverage to a plan, or issuer, using
the alternative method of counting
creditable coverage under this
paragraph (c).
(6) Counting creditable coverage—(i)
In general. Under the alternative
method, the group health plan or issuer
counts creditable coverage within a
category if any level of benefits is
provided within the category. Coverage
under a reimbursement account or
arrangement, such as a flexible spending
arrangement (as defined in section
106(c)(2) of the Internal Revenue Code),
does not constitute coverage within any
category.
(ii) Special rules. In counting an
individual’s creditable coverage under
the alternative method, the group health
plan, or issuer, first determines the
amount of the individual’s creditable
coverage that may be counted under
paragraph (b) of this section, up to a
total of 365 days of the most recent
creditable coverage (546 days for a late
enrollee). The period over which this
creditable coverage is determined is
referred to as the determination period.
Then, for the category specified under
the alternative method, the plan or
issuer counts within the category all
days of coverage that occurred during
the determination period (whether or
not a significant break in coverage for
that category occurs), and reduces the
individual’s preexisting condition
exclusion period for that category by
that number of days. The plan or issuer
may determine the amount of creditable
coverage in any other reasonable
manner, uniformly applied, that is at
least as favorable to the individual.
(iii) Example. The rules of this
paragraph (c)(6) are illustrated by the
following example:
Example. (i) Facts. Individual D enrolls in
Employer V’s plan on January 1, 2001.
Coverage under the plan includes
prescription drug benefits. On April 1, 2001,
the plan ceases providing prescription drug
benefits. D’s employment with Employer V
ends on January 1, 2002, after D was covered
under Employer V’s group health plan for
365 days. D enrolls in Employer Y’s plan on
February 1, 2002 (D’s enrollment date).
Employer Y’s plan uses the alternative
method of counting creditable coverage and
imposes a 12-month preexisting condition
exclusion on prescription drug benefits.
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78771
(ii) Conclusion. In this Example, Employer
Y’s plan may impose a 275-day preexisting
condition exclusion with respect to D for
prescription drug benefits because D had 90
days of creditable coverage relating to
prescription drug benefits within D’s
determination period.
§ 2590.701–5
coverage.
Evidence of creditable
(a) Certificate of creditable coverage—
(1) Entities required to provide
certificate—(i) In general. A group
health plan, and each health insurance
issuer offering group health insurance
coverage under a group health plan, is
required to furnish certificates of
creditable coverage in accordance with
this paragraph (a).
(ii) Duplicate certificates not required.
An entity required to provide a
certificate under this paragraph (a) with
respect to an individual satisfies that
requirement if another party provides
the certificate, but only to the extent
that the certificate contains the
information required in paragraph (a)(3)
of this section. For example, in the case
of a group health plan funded through
an insurance policy, the issuer satisfies
the certification requirement with
respect to an individual if the plan
actually provides a certificate that
includes all the information required
under paragraph (a)(3) of this section
with respect to the individual.
(iii) Special rule for group health
plans. To the extent coverage under a
plan consists of group health insurance
coverage, the plan satisfies the
certification requirements under this
paragraph (a) if any issuer offering the
coverage is required to provide the
certificates pursuant to an agreement
between the plan and the issuer. For
example, if there is an agreement
between an issuer and a plan sponsor
under which the issuer agrees to
provide certificates for individuals
covered under the plan, and the issuer
fails to provide a certificate to an
individual when the plan would have
been required to provide one under this
paragraph (a), then the issuer, but not
the plan, violates the certification
requirements of this paragraph (a).
(iv) Special rules for issuers—(A)(1)
Responsibility of issuer for coverage
period. An issuer is not required to
provide information regarding coverage
provided to an individual by another
party.
(2) Example. The rule of this
paragraph (a)(1)(iv)(A) is illustrated by
the following example:
Example. (i) Facts. A plan offers coverage
with an HMO option from one issuer and an
indemnity option from a different issuer. The
HMO has not entered into an agreement with
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the plan to provide certificates as permitted
under paragraph (a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
option to the HMO option and later ceases to
be covered under the plan, any certificate
provided by the HMO is not required to
provide information regarding the
employee’s coverage under the indemnity
option.
option to the HMO option on January 1, the
indemnity issuer must provide the plan (or
a person designated by the plan) with
appropriate information with respect to the
individual’s coverage with the indemnity
issuer. However, if the individual’s coverage
with the indemnity issuer ceases at a date
other than January 1, the issuer is instead
required to provide the individual with an
automatic certificate.
(B)(1) Cessation of issuer coverage
prior to cessation of coverage under a
plan. If an individual’s coverage under
an issuer’s policy or contract ceases
before the individual’s coverage under
the plan ceases, the issuer is required to
provide sufficient information to the
plan (or to another party designated by
the plan) to enable the plan (or other
party), after cessation of the individual’s
coverage under the plan, to provide a
certificate that reflects the period of
coverage under the policy or contract.
By providing that information to the
plan, the issuer satisfies its obligation to
provide an automatic certificate for that
period of creditable coverage with
respect to the individual under
paragraph (a)(2)(ii) of this section. The
issuer, however, must still provide a
certificate upon request as required
under paragraph (a)(2)(iii) of this
section. In addition, the issuer is
required to cooperate with the plan in
responding to any request made under
paragraph (b)(2) of this section (relating
to the alternative method of counting
creditable coverage). Moreover, if the
individual’s coverage under the plan
ceases at the time the individual’s
coverage under the issuer’s policy or
contract ceases, the issuer must still
provide an automatic certificate under
paragraph (a)(2)(ii) of this section. If an
individual’s coverage under an issuer’s
policy or contract ceases on the effective
date for changing enrollment options
under the plan, the issuer may presume
(absent information to the contrary) that
the individual’s coverage under the plan
continues. Therefore, the issuer is
required to provide information to the
plan in accordance with this paragraph
(a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under
paragraph (a)(2)(ii) of this section).
(2) Example. The rule of this
paragraph (a)(1)(iv)(B) is illustrated by
the following example:
(2) Individuals for whom certificate
must be provided; timing of issuance—
(i) Individuals. A certificate must be
provided, without charge, for
participants or dependents who are or
were covered under a group health plan
upon the occurrence of any of the events
described in paragraph (a)(2)(ii) or (iii)
of this section.
(ii) Issuance of automatic certificates.
The certificates described in this
paragraph (a)(2)(ii) are referred to as
automatic certificates.
(A) Qualified beneficiaries upon a
qualifying event. In the case of an
individual who is a qualified
beneficiary (as defined in section 607(3)
of the Act) entitled to elect COBRA
continuation coverage, an automatic
certificate is required to be provided at
the time the individual would lose
coverage under the plan in the absence
of COBRA continuation coverage or
alternative coverage elected instead of
COBRA continuation coverage. A plan
or issuer satisfies this requirement if it
provides the automatic certificate no
later than the time a notice is required
to be furnished for a qualifying event
under section 606 of the Act (relating to
notices required under COBRA).
(B) Other individuals when coverage
ceases. In the case of an individual who
is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate must be provided
at the time the individual ceases to be
covered under the plan. A plan or issuer
satisfies the requirement to provide an
automatic certificate at the time the
individual ceases to be covered if it
provides the automatic certificate
within a reasonable time after coverage
ceases (or after the expiration of any
grace period for nonpayment of
premiums).
(1) The cessation of temporary
continuation coverage (TCC) under Title
5 U.S.C. Chapter 89 (the Federal
Employees Health Benefit Program) is a
cessation of coverage upon which an
automatic certificate must be provided.
(2) In the case of an individual who
is entitled to elect to continue coverage
under a State program similar to COBRA
and who receives the automatic
certificate not later than the time a
notice is required to be furnished under
the State program, the certificate is
Example. (i) Facts. A group health plan
provides coverage under an HMO option and
an indemnity option through different
issuers, and only allows employees to switch
on each January 1. Neither the HMO nor the
indemnity issuer has entered into an
agreement with the plan to provide
certificates as permitted under paragraph
(a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
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deemed to be provided within a
reasonable time after coverage ceases
under the plan.
(3) If an individual’s coverage ceases
due to the operation of a lifetime limit
on all benefits, coverage is considered to
cease for purposes of this paragraph
(a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of
the lifetime limit.
(C) Qualified beneficiaries when
COBRA ceases. In the case of an
individual who is a qualified
beneficiary and has elected COBRA
continuation coverage (or whose
coverage has continued after the
individual became entitled to elect
COBRA continuation coverage), an
automatic certificate is to be provided at
the time the individual’ s coverage
under the plan ceases. A plan, or issuer,
satisfies this requirement if it provides
the automatic certificate within a
reasonable time after coverage ceases (or
after the expiration of any grace period
for nonpayment of premiums). An
automatic certificate is required to be
provided to such an individual
regardless of whether the individual has
previously received an automatic
certificate under paragraph (a)(2)(ii)(A)
of this section.
(iii) Any individual upon request. A
certificate must be provided in response
to a request made by, or on behalf of, an
individual at any time while the
individual is covered under a plan and
up to 24 months after coverage ceases.
Thus, for example, a plan in which an
individual enrolls may, if authorized by
the individual, request a certificate of
the individual’s creditable coverage on
behalf of the individual from a plan in
which the individual was formerly
enrolled. After the request is received, a
plan or issuer is required to provide the
certificate by the earliest date that the
plan or issuer, acting in a reasonable
and prompt fashion, can provide the
certificate. A certificate is required to be
provided under this paragraph (a)(2)(iii)
even if the individual has previously
received a certificate under this
paragraph (a)(2)(iii) or an automatic
certificate under paragraph (a)(2)(ii) of
this section.
(iv) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A
terminates employment with Employer Q. A
is a qualified beneficiary entitled to elect
COBRA continuation coverage under
Employer Q’s group health plan. A notice of
the rights provided under COBRA is typically
furnished to qualified beneficiaries under the
plan within 10 days after a covered employee
terminates employment.
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(ii) Conclusion. In this Example 1, the
automatic certificate may be provided at the
same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as
Example 1, except that the automatic
certificate for A is not completed by the time
the COBRA notice is furnished to A.
(ii) Conclusion. In this Example 2, the
automatic certificate may be provided after
the COBRA notice but must be provided
within the period permitted by law for the
delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains
an insured group health plan. R has never
had 20 employees and thus R’s plan is not
subject to the COBRA continuation
provisions. However, R is in a State that has
a State program similar to COBRA. B
terminates employment with R and loses
coverage under R’s plan.
(ii) Conclusion. In this Example 3, the
automatic certificate must be provided not
later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C
terminates employment with Employer S and
receives both a notice of C’s rights under
COBRA and an automatic certificate. C elects
COBRA continuation coverage under
Employer S’s group health plan. After four
months of COBRA continuation coverage and
the expiration of a 30-day grace period, S’s
group health plan determines that C’s
COBRA continuation coverage has ceased
due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan
must provide an updated automatic
certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is
currently covered under the group health
plan of Employer T. D requests a certificate,
as permitted under paragraph (a)(2)(iii) of
this section. Under the procedure for T’s
plan, certificates are mailed (by first class
mail) 7 business days following receipt of the
request. This date reflects the earliest date
that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
(ii) Conclusion. In this Example 5, the
plan’s procedure satisfies paragraph (a)(2)(iii)
of this section.
(3) Form and content of certificate—
(i) Written certificate—(A) In general.
Except as provided in paragraph
(a)(3)(i)(B) of this section, the certificate
must be provided in writing (or any
other medium approved by the
Secretary).
(B) Other permissible forms. No
written certificate is required to be
provided under this paragraph (a) with
respect to a particular event described
in paragraph (a)(2)(ii) or (iii) of this
section, if—
(1) An individual who is entitled to
receive the certificate requests that the
certificate be sent to another plan or
issuer instead of to the individual;
(2) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in this
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paragraph (a)(3) through means other
than a written certificate (such as by
telephone); and
(3) The receiving plan or issuer
receives the information from the
sending plan or issuer through such
means within the time required under
paragraph (a)(2) of this section.
(ii) Required information. The
certificate must include the following—
(A) The date the certificate is issued;
(B) The name of the group health plan
that provided the coverage described in
the certificate;
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other
information necessary for the plan
providing the coverage specified in the
certificate to identify the individual,
such as the individual’s identification
number under the plan and the name of
the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the
certificate;
(E) The telephone number to call for
further information regarding the
certificate (if different from paragraph
(a)(3)(ii)(D) of this section);
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began;
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate; and
(H) An educational statement
regarding HIPAA, which explains:
(1) The restrictions on the ability of a
plan or issuer to impose a preexisting
condition exclusion (including an
individual’s ability to reduce a
preexisting condition exclusion by
creditable coverage);
(2) Special enrollment rights;
(3) The prohibitions against
discrimination based on any health
factor;
(4) The right to individual health
coverage;
(5) The fact that state law may require
issuers to provide additional protections
to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the
certificate. If an automatic certificate is
provided pursuant to paragraph (a)(2)(ii)
of this section, the period that must be
included on the certificate is the last
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78773
period of continuous coverage ending
on the date coverage ceased. If an
individual requests a certificate
pursuant to paragraph (a)(2)(iii) of this
section, the certificate provided must
include each period of continuous
coverage ending within the 24-month
period ending on the date of the request
(or continuing on the date of the
request). A separate certificate may be
provided for each such period of
continuous coverage.
(iv) Combining information for
families. A certificate may provide
information with respect to both a
participant and the participant’s
dependents if the information is
identical for each individual. If the
information is not identical, certificates
may be provided on one form if the form
provides all the required information for
each individual and separately States
the information that is not identical.
(v) Model certificate. The
requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or
issuer provides a certificate in
accordance with a model certificate
authorized by the Secretary.
(vi) Excepted benefits; categories of
benefits. No certificate is required to be
furnished with respect to excepted
benefits described in § 2590.732(c). In
addition, the information in the
certificate regarding coverage is not
required to specify categories of benefits
described in § 2590.701–4(c) (relating to
the alternative method of counting
creditable coverage). However, if
excepted benefits are provided
concurrently with other creditable
coverage (so that the coverage does not
consist solely of excepted benefits),
information concerning the benefits may
be required to be disclosed under
paragraph (b) of this section.
(4) Procedures—(i) Method of
delivery. The certificate is required to be
provided to each individual described
in paragraph (a)(2) of this section or an
entity requesting the certificate on
behalf of the individual. The certificate
may be provided by first-class mail. (See
also § 2520.104b–1, which permits
plans to make disclosures under the
Act—including the furnishing of
certificates—through electronic means if
certain standards are met.) If the
certificate or certificates are provided to
the participant and the participant’s
spouse at the participant’s last known
address, then the requirements of this
paragraph (a)(4) are satisfied with
respect to all individuals residing at that
address. If a dependent’s last known
address is different than the
participant’s last known address, a
separate certificate is required to be
provided to the dependent at the
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dependent’s last known address. If
separate certificates are being provided
by mail to individuals who reside at the
same address, separate mailings of each
certificate are not required.
(ii) Procedure for requesting
certificates. A plan or issuer must
establish a written procedure for
individuals to request and receive
certificates pursuant to paragraph
(a)(2)(iii) of this section. The written
procedure must include all contact
information necessary to request a
certificate (such as name and phone
number or address).
(iii) Designated recipients. If an
automatic certificate is required to be
provided under paragraph (a)(2)(ii) of
this section, and the individual entitled
to receive the certificate designates
another individual or entity to receive
the certificate, the plan or issuer
responsible for providing the certificate
is permitted to provide the certificate to
the designated individual or entity. If a
certificate is required to be provided
upon request under paragraph (a)(2)(iii)
of this section and the individual
entitled to receive the certificate
designates another individual or entity
to receive the certificate, the plan or
issuer responsible for providing the
certificate is required to provide the
certificate to the designated individual
or entity.
(5) Special rules concerning
dependent coverage—(i)(A) Reasonable
efforts. A plan or issuer is required to
use reasonable efforts to determine any
information needed for a certificate
relating to dependent coverage. In any
case in which an automatic certificate is
required to be furnished with respect to
a dependent under paragraph (a)(2)(ii)
of this section, no individual certificate
is required to be furnished until the
plan or issuer knows (or making
reasonable efforts should know) of the
dependent’s cessation of coverage under
the plan.
(B) Example. The rules of this
paragraph (a)(5)(i) are illustrated by the
following example:
Example. (i) Facts. A group health plan
covers employees and their dependents. The
plan annually requests all employees to
provide updated information regarding
dependents, including the specific date on
which an employee has a new dependent or
on which a person ceases to be a dependent
of the employee.
(ii) Conclusion. In this Example, the plan
has satisfied the standard in this paragraph
(a)(5)(i) of this section that it make reasonable
efforts to determine the cessation of
dependents’ coverage and the related
dependent coverage information.
(ii) Special rules for demonstrating
coverage. If a certificate furnished by a
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plan or issuer does not provide the
name of any dependent covered by the
certificate, the procedures described in
paragraph (c)(5) of this section may be
used to demonstrate dependent status.
In addition, these procedures may be
used to demonstrate that a child was
covered under any creditable coverage
within 30 days after birth, adoption, or
placement for adoption. See also
§ 2590.701–3(b), under which such a
child cannot be subject to a preexisting
condition exclusion.
(6) Special certification rules for
entities not subject to Part 7 of Subtitle
B of Title I of the Act—(i) Issuers. For
special rules requiring that issuers not
subject to Part 7 of Subtitle B of Title I
of the Act provide certificates consistent
with the rules in this section, including
issuers offering coverage with respect to
creditable coverage described in
sections 701(c)(1)(G), (I), and (J) of the
Act (coverage under a State health
benefits risk pool, a public health plan,
and a health benefit plan under section
5(e) of the Peace Corps Act), see sections
2743 and 2721(b)(1)(B) of the PHS Act
(requiring certificates by issuers in the
individual market, and issuers offering
health insurance coverage in connection
with a group health plan, including a
church plan or a governmental plan
(such as the Federal Employees Health
Benefits Program (FEHBP)). (However,
this section does not require a certificate
to be provided with respect to shortterm, limited-duration insurance, as
described in the definition of individual
health insurance coverage in
§ 2590.701–2, that is not provided by a
group health plan or issuer offering
health insurance coverage in connection
with a group health plan.)
(ii) Other entities. For special rules
requiring that certain other entities not
subject to Part 7 of Subtitle B of Title I
of the Act provide certificates consistent
with the rules in this section, see
section 2791(a)(3) of the PHS Act
applicable to entities described in
sections 2701(c)(1)(C), (D), (E), and (F)
of the PHS Act (relating to Medicare,
Medicaid, TRICARE, and Indian Health
Service), section 2721(b)(1)(A) of the
PHS Act applicable to nonfederal
governmental plans generally, section
2721(b)(2)(C)(ii) of the PHS Act
applicable to nonfederal governmental
plans that elect to be excluded from the
requirements of Subparts 1 through 3 of
Part A of Title XXVII of the PHS Act,
and section 9832(a) of the Internal
Revenue Code applicable to group
health plans, which includes church
plans (as defined in section 414(e) of the
Internal Revenue Code).
(b) Disclosure of coverage to a plan or
issuer using the alternative method of
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counting creditable coverage—(1) In
general. After an individual provides a
certificate of creditable coverage to a
plan or issuer using the alternative
method under § 2590.701–4(c), that plan
or issuer (requesting entity) must
request that the entity that issued the
certificate (prior entity) disclose the
information set forth in paragraph (b)(2)
of this section. The prior entity is
required to disclose this information
promptly.
(2) Information to be disclosed. The
prior entity is required to identify to the
requesting entity the categories of
benefits with respect to which the
requesting entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to
determine the individual’s creditable
coverage with respect to any such
category.
(3) Charge for providing information.
The prior entity may charge the
requesting entity for the reasonable cost
of disclosing such information.
(c) Ability of an individual to
demonstrate creditable coverage and
waiting period information—(1)
Purpose. The rules in this paragraph (c)
implement section 701(c)(4) of the Act,
which permits individuals to
demonstrate the duration of creditable
coverage through means other than
certificates, and section 701(e)(3) of the
Act, which requires the Secretary to
establish rules designed to prevent an
individual’s subsequent coverage under
a group health plan or health insurance
coverage from being adversely affected
by an entity’s failure to provide a
certificate with respect to that
individual.
(2) In general. If the accuracy of a
certificate is contested or a certificate is
unavailable when needed by an
individual, the individual has the right
to demonstrate creditable coverage (and
waiting or affiliation periods) through
the presentation of documents or other
means. For example, the individual may
make such a demonstration when—
(i) An entity has failed to provide a
certificate within the required time;
(ii) The individual has creditable
coverage provided by an entity that is
not required to provide a certificate of
the coverage pursuant to paragraph (a)
of this section;
(iii) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(iv) The individual lost a certificate
that the individual had previously
received and is unable to obtain another
certificate.
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(3) Evidence of creditable coverage—
(i) Consideration of evidence—(A) A
plan or issuer is required to take into
account all information that it obtains or
that is presented on behalf of an
individual to make a determination,
based on the relevant facts and
circumstances, whether an individual
has creditable coverage. A plan or issuer
shall treat the individual as having
furnished a certificate under paragraph
(a) of this section if—
(1) The individual attests to the
period of creditable coverage;
(2) The individual also presents
relevant corroborating evidence of some
creditable coverage during the period;
and
(3) The individual cooperates with the
plan’s or issuer’s efforts to verify the
individual’s coverage.
(B) For purposes of this paragraph
(c)(3)(i), cooperation includes providing
(upon the plan’s or issuer’s request) a
written authorization for the plan or
issuer to request a certificate on behalf
of the individual, and cooperating in
efforts to determine the validity of the
corroborating evidence and the dates of
creditable coverage. While a plan or
issuer may refuse to credit coverage
where the individual fails to cooperate
with the plan’s or issuer’s efforts to
verify coverage, the plan or issuer may
not consider an individual’s inability to
obtain a certificate to be evidence of the
absence of creditable coverage.
(ii) Documents. Documents that
corroborate creditable coverage (and
waiting or affiliation periods) include
explanations of benefits (EOBs) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
documents that evidence periods of
health coverage.
(iii) Other evidence. Creditable
coverage (and waiting or affiliation
periods) may also be corroborated
through means other than
documentation, such as by a telephone
call from the plan or provider to a third
party verifying creditable coverage.
(iv) Example. The rules of this
paragraph (c)(3) are illustrated by the
following example:
Example. (i) Facts. Individual F terminates
employment with Employer W and, a month
later, is hired by Employer X. X’s group
health plan imposes a preexisting condition
exclusion of 12 months on new enrollees
under the plan and uses the standard method
of determining creditable coverage. F fails to
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receive a certificate of prior coverage from
the self-insured group health plan
maintained by F’s prior employer, W, and
requests a certificate. However, F (and X’s
plan, on F’s behalf and with F’s cooperation)
is unable to obtain a certificate from W’s
plan. F attests that, to the best of F’s
knowledge, F had at least 12 months of
continuous coverage under W’s plan, and
that the coverage ended no earlier than F’s
termination of employment from W. In
addition, F presents evidence of coverage,
such as an explanation of benefits for a claim
that was made during the relevant period.
(ii) Conclusion. In this Example, based
solely on these facts, F has demonstrated
creditable coverage for the 12 months of
coverage under W’s plan in the same manner
as if F had presented a written certificate of
creditable coverage.
(4) Demonstrating categories of
creditable coverage. Procedures similar
to those described in this paragraph (c)
apply in order to determine the duration
of an individual’s creditable coverage
with respect to any category under
paragraph (b) of this section (relating to
determining creditable coverage under
the alternative method).
(5) Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the
group health plan or issuer is required
to treat the individual as having
furnished a certificate showing the
dependent status if the individual
attests to such dependency and the
period of such status and the individual
cooperates with the plan’s or issuer’s
efforts to verify the dependent status.
§ 2590.701–6
Special enrollment periods.
(a) Special enrollment for certain
individuals who lose coverage—(1) In
general. A group health plan, and a
health insurance issuer offering health
insurance coverage in connection with a
group health plan, is required to permit
current employees and dependents (as
defined in § 2590.701–2) who are
described in paragraph (a)(2) of this
section to enroll for coverage under the
terms of the plan if the conditions in
paragraph (a)(3) of this section are
satisfied. The special enrollment rights
under this paragraph (a) apply without
regard to the dates on which an
individual would otherwise be able to
enroll under the plan.
(2) Individuals eligible for special
enrollment—(i) When employee loses
coverage. A current employee and any
dependents (including the employee’s
spouse) each are eligible for special
enrollment in any benefit package under
the plan (subject to plan eligibility rules
conditioning dependent enrollment on
enrollment of the employee) if—
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78775
(A) The employee and the dependents
are otherwise eligible to enroll in the
benefit package;
(B) When coverage under the plan
was previously offered, the employee
had coverage under any group health
plan or health insurance coverage; and
(C) The employee satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(ii) When dependent loses coverage—
(A) A dependent of a current employee
(including the employee’s spouse) and
the employee each are eligible for
special enrollment in any benefit
package under the plan (subject to plan
eligibility rules conditioning dependent
enrollment on enrollment of the
employee) if—
(1) The dependent and the employee
are otherwise eligible to enroll in the
benefit package;
(2) When coverage under the plan was
previously offered, the dependent had
coverage under any group health plan or
health insurance coverage; and
(3) The dependent satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(B) However, the plan or issuer is not
required to enroll any other dependent
unless that dependent satisfies the
criteria of this paragraph (a)(2)(ii), or the
employee satisfies the criteria of
paragraph (a)(2)(i) of this section.
(iii) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A works
for Employer X. A, A’s spouse, and A’s
dependent children are eligible but not
enrolled for coverage under X’s group health
plan. A’s spouse works for Employer Y and
at the time coverage was offered under X’s
plan, A was enrolled in coverage under Y’s
plan. Then, A loses eligibility for coverage
under Y’s plan.
(ii) Conclusion. In this Example 1, because
A satisfies the conditions for special
enrollment under paragraph (a)(2)(i) of this
section, A, A’s spouse, and A’s dependent
children are eligible for special enrollment
under X’s plan.
Example 2. (i) Facts. Individual A and A’s
spouse are eligible but not enrolled for
coverage under Group Health Plan P
maintained by A’s employer. When A was
first presented with an opportunity to enroll
A and A’s spouse, they did not have other
coverage. Later, A and A’s spouse enroll in
Group Health Plan Q maintained by the
employer of A’s spouse. During a subsequent
open enrollment period in P, A and A’s
spouse did not enroll because of their
coverage under Q. They then lose eligibility
for coverage under Q.
(ii) Conclusion. In this Example 2, because
A and A’s spouse were covered under Q
when they did not enroll in P during open
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enrollment, they satisfy the conditions for
special enrollment under paragraphs (a)(2)(i)
and (ii) of this section. Consequently, A and
A’s spouse are eligible for special enrollment
under P.
Example 3. (i) Facts. Individual B works
for Employer X. B and B’s spouse are eligible
but not enrolled for coverage under X’s group
health plan. B’s spouse works for Employer
Y and at the time coverage was offered under
X’s plan, B’s spouse was enrolled in self-only
coverage under Y’s group health plan. Then,
B’s spouse loses eligibility for coverage under
Y’s plan.
(ii) Conclusion. In this Example 3, because
B’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both B and B’s spouse are eligible for
special enrollment under X’s plan.
Example 4. (i) Facts. Individual A works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. A enrolls for self-only coverage in
the HMO option. A’s spouse works for
Employer Y and was enrolled for self-only
coverage under Y’s plan at the time coverage
was offered under X’s plan. Then, A’s spouse
loses coverage under Y’s plan. A requests
special enrollment for A and A’s spouse
under the plan’s indemnity option.
(ii) Conclusion. In this Example 4, because
A’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both A and A’s spouse can enroll in
either benefit package under X’s plan.
Therefore, if A requests enrollment in
accordance with the requirements of this
section, the plan must allow A and A’s
spouse to enroll in the indemnity option.
(3) Conditions for special
enrollment—(i) Loss of eligibility for
coverage. In the case of an employee or
dependent who has coverage that is not
COBRA continuation coverage, the
conditions of this paragraph (a)(3)(i) are
satisfied at the time the coverage is
terminated as a result of loss of
eligibility (regardless of whether the
individual is eligible for or elects
COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i)
does not include a loss due to the failure
of the employee or dependent to pay
premiums on a timely basis or
termination of coverage for cause (such
as making a fraudulent claim or an
intentional misrepresentation of a
material fact in connection with the
plan). Loss of eligibility for coverage
under this paragraph (a)(3)(i) includes
(but is not limited to)—
(A) Loss of eligibility for coverage as
a result of legal separation, divorce,
cessation of dependent status (such as
attaining the maximum age to be eligible
as a dependent child under the plan),
death of an employee, termination of
employment, reduction in the number
of hours of employment, and any loss of
eligibility for coverage after a period
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that is measured by reference to any of
the foregoing;
(B) In the case of coverage offered
through an HMO, or other arrangement,
in the individual market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual);
(C) In the case of coverage offered
through an HMO, or other arrangement,
in the group market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual),
and no other benefit package is available
to the individual;
(D) A situation in which an individual
incurs a claim that would meet or
exceed a lifetime limit on all benefits;
and
(E) A situation in which a plan no
longer offers any benefits to the class of
similarly situated individuals (as
described in § 2590.702(d)) that
includes the individual.
(ii) Termination of employer
contributions. In the case of an
employee or dependent who has
coverage that is not COBRA
continuation coverage, the conditions of
this paragraph (a)(3)(ii) are satisfied at
the time employer contributions
towards the employee’s or dependent’s
coverage terminate. Employer
contributions include contributions by
any current or former employer that was
contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA
continuation coverage. In the case of an
employee or dependent who has
coverage that is COBRA continuation
coverage, the conditions of this
paragraph (a)(3)(iii) are satisfied at the
time the COBRA continuation coverage
is exhausted. For purposes of this
paragraph (a)(3)(iii), an individual who
satisfies the conditions for special
enrollment of paragraph (a)(3)(i) of this
section, does not enroll, and instead
elects and exhausts COBRA
continuation coverage satisfies the
conditions of this paragraph (a)(3)(iii).
(Exhaustion of COBRA continuation
coverage is defined in § 2590.701–2.)
(iv) Written statement. A plan may
require an employee declining coverage
(for the employee or any dependent of
the employee) to State in writing
whether the coverage is being declined
due to other health coverage only if, at
or before the time the employee declines
coverage, the employee is provided with
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notice of the requirement to provide the
statement (and the consequences of the
employee’s failure to provide the
statement). If a plan requires such a
statement, and an employee does not
provide it, the plan is not required to
provide special enrollment to the
employee or any dependent of the
employee under this paragraph (a)(3). A
plan must treat an employee as having
satisfied the plan requirement permitted
under this paragraph (a)(3)(iv) if the
employee provides a written statement
that coverage was being declined
because the employee or dependent had
other coverage; a plan cannot require
anything more for the employee to
satisfy the plan’s requirement to provide
a written statement. (For example, the
plan cannot require that the statement
be notarized.)
(v) The rules of this paragraph (a)(3)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual D enrolls
in a group health plan maintained by
Employer Y. At the time D enrolls, Y pays
70 percent of the cost of employee coverage
and D pays the rest. Y announces that
beginning January 1, Y will no longer make
employer contributions towards the coverage.
Employees may maintain coverage, however,
if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1,
employer contributions towards D’s coverage
ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are
satisfied on this date (regardless of whether
D elects to pay the total cost and continue
coverage under Y’s plan).
Example 2. (i) Facts. A group health plan
provides coverage through two options—
Option 1 and Option 2. Employees can enroll
in either option only within 30 days of hire
or on January 1 of each year. Employee A is
eligible for both options and enrolls in
Option 1. Effective July 1 the plan terminates
coverage under Option 1 and the plan does
not create an immediate open enrollment
opportunity into Option 2.
(ii) Conclusion. In this Example 2, A has
experienced a loss of eligibility for coverage
that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other
conditions for special enrollment under
paragraph (a)(2)(i) of this section. Therefore,
if A satisfies the other conditions of this
paragraph (a), the plan must permit A to
enroll in Option 2 as a special enrollee. (A
may also be eligible to enroll in another
group health plan, such as a plan maintained
by the employer of A’s spouse, as a special
enrollee.) The outcome would be the same if
Option 1 was terminated by an issuer and the
plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is
covered under a group health plan
maintained by Employer X. While covered
under X’s plan, C was eligible for but did not
enroll in a plan maintained by Employer Z,
the employer of C’s spouse. C terminates
employment with X and loses eligibility for
coverage under X’s plan. C has a special
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enrollment right to enroll in Z’s plan, but C
instead elects COBRA continuation coverage
under X’s plan. C exhausts COBRA
continuation coverage under X’s plan and
requests special enrollment in Z’s plan.
(ii) Conclusion. In this Example 3, C has
satisfied the conditions for special
enrollment under paragraph (a)(3)(iii) of this
section, and has satisfied the other
conditions for special enrollment under
paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z’s plan
immediately after the loss of eligibility for
coverage under X’s plan was an offer of
coverage under Z’s plan. When C later
exhausts COBRA coverage under X’s plan, C
has a second special enrollment right in Z’s
plan.
(4) Applying for special enrollment
and effective date of coverage—(i) A
plan or issuer must allow an employee
a period of at least 30 days after an
event described in paragraph (a)(3) of
this section (other than an event
described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or
the employee’s dependent). In the case
of an event described in paragraph
(a)(3)(i)(D) of this section (relating to
loss of eligibility for coverage due to the
operation of a lifetime limit on all
benefits), a plan or issuer must allow an
employee a period of at least 30 days
after a claim is denied due to the
operation of a lifetime limit on all
benefits.
(ii) Coverage must begin no later than
the first day of the first calendar month
beginning after the date the plan or
issuer receives the request for special
enrollment.
(b) Special enrollment with respect to
certain dependent beneficiaries—(1) In
general. A group health plan, and a
health insurance issuer offering health
insurance coverage in connection with a
group health plan, that makes coverage
available with respect to dependents is
required to permit individuals described
in paragraph (b)(2) of this section to be
enrolled for coverage in a benefit
package under the terms of the plan.
Paragraph (b)(3) of this section describes
the required special enrollment period
and the date by which coverage must
begin. The special enrollment rights
under this paragraph (b) apply without
regard to the dates on which an
individual would otherwise be able to
enroll under the plan.
(2) Individuals eligible for special
enrollment. An individual is described
in this paragraph (b)(2) if the individual
is otherwise eligible for coverage in a
benefit package under the plan and if
the individual is described in paragraph
(b)(2)(i), (ii), (iii), (iv), (v), or (vi) of this
section.
(i) Current employee only. A current
employee is described in this paragraph
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(b)(2)(i) if a person becomes a
dependent of the individual through
marriage, birth, adoption, or placement
for adoption.
(ii) Spouse of a participant only. An
individual is described in this
paragraph (b)(2)(ii) if either —
(A) The individual becomes the
spouse of a participant; or
(B) The individual is a spouse of a
participant and a child becomes a
dependent of the participant through
birth, adoption, or placement for
adoption.
(iii) Current employee and spouse. A
current employee and an individual
who is or becomes a spouse of such an
employee, are described in this
paragraph (b)(2)(iii) if either—
(A) The employee and the spouse
become married; or
(B) The employee and spouse are
married and a child becomes a
dependent of the employee through
birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only.
An individual is described in this
paragraph (b)(2)(iv) if the individual is
a dependent (as defined in § 2590.701–
2) of a participant and the individual
has become a dependent of the
participant through marriage, birth,
adoption, or placement for adoption.
(v) Current employee and a new
dependent. A current employee and an
individual who is a dependent of the
employee, are described in this
paragraph (b)(2)(v) if the individual
becomes a dependent of the employee
through marriage, birth, adoption, or
placement for adoption.
(vi) Current employee, spouse, and a
new dependent. A current employee,
the employee’s spouse, and the
employee’s dependent are described in
this paragraph (b)(2)(vi) if the
dependent becomes a dependent of the
employee through marriage, birth,
adoption, or placement for adoption.
(3) Applying for special enrollment
and effective date of coverage—(i)
Request. A plan or issuer must allow an
individual a period of at least 30 days
after the date of the marriage, birth,
adoption, or placement for adoption (or,
if dependent coverage is not generally
made available at the time of the
marriage, birth, adoption, or placement
for adoption, a period of at least 30 days
after the date the plan makes dependent
coverage generally available) to request
enrollment (for the individual or the
individual’s dependent).
(ii) Reasonable procedures for special
enrollment. [Reserved]
(iii) Date coverage must begin—(A)
Marriage. In the case of marriage,
coverage must begin no later than the
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78777
first day of the first calendar month
beginning after the date the plan or
issuer receives the request for special
enrollment.
(B) Birth, adoption, or placement for
adoption. Coverage must begin in the
case of a dependent’s birth on the date
of birth and in the case of a dependent’s
adoption or placement for adoption no
later than the date of such adoption or
placement for adoption (or, if dependent
coverage is not made generally available
at the time of the birth, adoption, or
placement for adoption, the date the
plan makes dependent coverage
available).
(4) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. An employer
maintains a group health plan that offers all
employees employee-only coverage,
employee-plus-spouse coverage, or family
coverage. Under the terms of the plan, any
employee may elect to enroll when first hired
(with coverage beginning on the date of hire)
or during an annual open enrollment period
held each December (with coverage
beginning the following January 1). Employee
A is hired on September 3. A is married to
B, and they have no children. On March 15
in the following year a child C is born to A
and B. Before that date, A and B have not
been enrolled in the plan.
(ii) Conclusion. In this Example 1, the
conditions for special enrollment of an
employee with a spouse and new dependent
under paragraph (b)(2)(vi) of this section are
satisfied. If A satisfies the conditions of
paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this
paragraph (b) if it allows A to enroll either
with employee-only coverage, with
employee-plus-spouse coverage (for A and B),
or with family coverage (for A, B, and C). The
plan must allow whatever coverage is chosen
to begin on March 15, the date of C’s birth.
Example 2. (i) Facts. Individual D works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed
for adoption with D. Within 30 days of the
placement of E for adoption, D requests
enrollment for D and E under the plan’s
indemnity option.
(ii) Conclusion. In this Example 2, D and
E satisfy the conditions for special
enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan
must allow D and E to enroll in the
indemnity coverage, effective as of the date
of the placement for adoption.
(c) Notice of special enrollment. At or
before the time an employee is initially
offered the opportunity to enroll in a
group health plan, the plan must furnish
the employee with a notice of special
enrollment that complies with the
requirements of this paragraph (c).
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(1) Description of special enrollment
rights. The notice of special enrollment
must include a description of special
enrollment rights. The following model
language may be used to satisfy this
requirement:
If you are declining enrollment for yourself
or your dependents (including your spouse)
because of other health insurance or group
health plan coverage, you may be able to
enroll yourself and your dependents in this
plan if you or your dependents lose
eligibility for that other coverage (or if the
employer stops contributing towards your or
your dependents’ other coverage). However,
you must request enrollment within [insert
‘‘30 days’’ or any longer period that applies
under the plan] after your or your
dependents’ other coverage ends (or after the
employer stops contributing toward the other
coverage).
In addition, if you have a new dependent
as a result of marriage, birth, adoption, or
placement for adoption, you may be able to
enroll yourself and your dependents.
However, you must request enrollment
within [insert ‘‘30 days’’ or any longer period
that applies under the plan] after the
marriage, birth, adoption, or placement for
adoption.
To request special enrollment or obtain
more information, contact [insert the name,
title, telephone number, and any additional
contact information of the appropriate plan
representative].
(2) Additional information that may
be required. The notice of special
enrollment must also include, if
applicable, the notice described in
paragraph (a)(3)(iv) of this section (the
notice required to be furnished to an
individual declining coverage if the
plan requires the reason for declining
coverage to be in writing).
(d) Treatment of special enrollees—(1)
If an individual requests enrollment
while the individual is entitled to
special enrollment under either
paragraph (a) or (b) of this section, the
individual is a special enrollee, even if
the request for enrollment coincides
with a late enrollment opportunity
under the plan. Therefore, the
individual cannot be treated as a late
enrollee.
(2) Special enrollees must be offered
all the benefit packages available to
similarly situated individuals who
enroll when first eligible. For this
purpose, any difference in benefits or
cost-sharing requirements for different
individuals constitutes a different
benefit package. In addition, a special
enrollee cannot be required to pay more
for coverage than a similarly situated
individual who enrolls in the same
coverage when first eligible. The length
of any preexisting condition exclusion
that may be applied to a special enrollee
cannot exceed the length of any
preexisting condition exclusion that is
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applied to similarly situated individuals
who enroll when first eligible. For rules
prohibiting the application of a
preexisting condition exclusion to
certain newborns, adopted children, and
children placed for adoption, see
§ 2590.701–3(b).
(3) The rules of this section are
illustrated by the following example:
Example. (i) Facts. Employer Y maintains
a group health plan that has an enrollment
period for late enrollees every November 1
through November 30 with coverage effective
the following January 1. On October 18,
Individual B loses coverage under another
group health plan and satisfies the
requirements of paragraphs (a)(2), (3), and (4)
of this section. B submits a completed
application for coverage on November 2.
(ii) Conclusion. In this Example, B is a
special enrollee. Therefore, even though B’s
request for enrollment coincides with an
open enrollment period, B’s coverage is
required to be made effective no later than
December 1 (rather than the plan’s January 1
effective date for late enrollees).
§ 2590.701–7 HMO affiliation period as an
alternative to a preexisting condition
exclusion.
(a) In general. A group health plan
offering health insurance coverage
through an HMO, or an HMO that offers
health insurance coverage in connection
with a group health plan, may impose
an affiliation period only if each of the
following requirements is satisfied—
(1) No preexisting condition exclusion
is imposed with respect to any coverage
offered by the HMO in connection with
the particular group health plan.
(2) No premium is charged to a
participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO
coverage is imposed consistent with the
requirements of § 2590.702 (prohibiting
discrimination based on a health factor).
(4) The affiliation period does not
exceed 2 months (or 3 months in the
case of a late enrollee).
(5) The affiliation period begins on
the enrollment date, or in the case of a
late enrollee, the affiliation period
begins on the day that would be the first
day of coverage but for the affiliation
period.
(6) The affiliation period for
enrollment in the HMO under a plan
runs concurrently with any waiting
period.
(b) Examples. The rules of paragraph
(a) of this section are illustrated by the
following examples:
Example 1. (i) Facts. An employer
sponsors a group health plan. Benefits under
the plan are provided through an HMO,
which imposes a two-month affiliation
period. In order to be eligible under the plan,
employees must have worked for the
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employer for six months. Individual A begins
working for the employer on February 1.
(ii) Conclusion. In this Example 1,
Individual A’s enrollment date is February 1
(see § 2590.701–3(a)(2)), and both the waiting
period and the affiliation period begin on this
date and run concurrently. Therefore, the
affiliation period ends on March 31, the
waiting period ends on July 31, and A is
eligible to have coverage begin on August 1.
Example 2. (i) Facts. A group health plan
has two benefit package options, a fee-forservice option and an HMO option. The
HMO imposes a 1-month affiliation period.
Individual B is enrolled in the fee-for-service
option for more than one month and then
decides to switch to the HMO option at open
season.
(ii) Conclusion. In this Example 2, the
HMO may not impose the affiliation period
with respect to B because any affiliation
period would have to begin on B’s
enrollment date in the plan rather than the
date that B enrolled in the HMO option.
Therefore, the affiliation period would have
expired before B switched to the HMO
option.
Example 3. (i) Facts. An employer
sponsors a group health plan that provides
benefits through an HMO. The plan imposes
a two-month affiliation period with respect to
salaried employees, but it does not impose an
affiliation period with respect to hourly
employees.
(ii) Conclusion. In this Example 3, the plan
may impose the affiliation period with
respect to salaried employees without
imposing any affiliation period with respect
to hourly employees (unless, under the
circumstances, treating salaried and hourly
employees differently does not comply with
the requirements of § 2590.702).
(c) Alternatives to affiliation period.
An HMO may use alternative methods
in lieu of an affiliation period to address
adverse selection, as approved by the
State insurance commissioner or other
official designated to regulate HMOs.
However, an arrangement that is in the
nature of a preexisting condition
exclusion cannot be an alternative to an
affiliation period. Nothing in this part
requires a State to receive proposals for
or approve alternatives to affiliation
periods.
■ 4. Section 2590.701–8 is added and
reserved to read as follows:
§ 2590.701–8 Interaction with the Family and
Medical Leave Act. [Reserved]
5. Revise the heading of subpart D to
read as follows:
■
Subpart D—General Provisions
Related to Subparts B and C
6. Sections 2590.731, 2590.732 and
2590.736 are revised to read as follows:
■
§ 2590.731 Preemption; State flexibility;
construction.
(a) Continued applicability of State
law with respect to health insurance
issuers. Subject to paragraph (b) of this
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section and except as provided in
paragraph (c) of this section, part 7 of
subtitle B of Title I of the Act is not to
be construed to supersede any provision
of State law which establishes,
implements, or continues in effect any
standard or requirement solely relating
to health insurance issuers in
connection with group health insurance
coverage except to the extent that such
standard or requirement prevents the
application of a requirement of this part.
(b) Continued preemption with
respect to group health plans. Nothing
in part 7 of subtitle B of Title I of the
Act affects or modifies the provisions of
section 514 of the Act with respect to
group health plans.
(c) Special rules—(1) In general.
Subject to paragraph (c)(2) of this
section, the provisions of part 7 of
subtitle B of Title I of the Act relating
to health insurance coverage offered by
a health insurance issuer supersede any
provision of State law which
establishes, implements, or continues in
effect a standard or requirement
applicable to imposition of a preexisting
condition exclusion specifically
governed by section 701 which differs
from the standards or requirements
specified in such section.
(2) Exceptions. Only in relation to
health insurance coverage offered by a
health insurance issuer, the provisions
of this part do not supersede any
provision of State law to the extent that
such provision—
(i) Shortens the period of time from
the ‘‘6-month period’’ described in
section 701(a)(1) of the Act and
§ 2590.701–3(a)(1)(i) (for purposes of
identifying a preexisting condition);
(ii) Shortens the period of time from
the ‘‘12 months’’ and ‘‘18 months’’
described in section 701(a)(2) of the Act
and § 2590.701–3(a)(1)(ii) (for purposes
of applying a preexisting condition
exclusion period);
(iii) Provides for a greater number of
days than the ‘‘63-day period’’ described
in sections 701(c)(2)(A) and (d)(4)(A) of
the Act and §§ 2590.701–3(a)(1)(iii) and
2590.701–4 (for purposes of applying
the break in coverage rules);
(iv) Provides for a greater number of
days than the ‘‘30-day period’’ described
in sections 701(b)(2) and (d)(1) of the
Act and § 2590.701–3(b) (for purposes of
the enrollment period and preexisting
condition exclusion periods for certain
newborns and children that are adopted
or placed for adoption);
(v) Prohibits the imposition of any
preexisting condition exclusion in cases
not described in section 701(d) of the
Act or expands the exceptions described
therein;
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(vi) Requires special enrollment
periods in addition to those required
under section 701(f) of the Act; or
(vii) Reduces the maximum period
permitted in an affiliation period under
section 701(g)(1)(B) of the Act.
(d) Definitions—(1) State law. For
purposes of this section the term State
law includes all laws, decisions, rules,
regulations, or other State action having
the effect of law, of any State. A law of
the United States applicable only to the
District of Columbia is treated as a State
law rather than a law of the United
States.
(2) State. For purposes of this section
the term State includes a State (as
defined in § 2590.701–2), any political
subdivisions of a State, or any agency or
instrumentality of either.
§ 2590.732 Special rules relating to group
health plans.
(a) Group health plan—(1) Defined. A
group health plan means an employee
welfare benefit plan to the extent that
the plan provides medical care
(including items and services paid for as
medical care) to employees (including
both current and former employees) or
their dependents (as defined under the
terms of the plan) directly or through
insurance, reimbursement, or otherwise.
(2) Determination of number of plans.
[Reserved]
(b) General exception for certain small
group health plans. The requirements of
this part, other than § 2590.711, do not
apply to any group health plan (and
group health insurance coverage) for
any plan year if, on the first day of the
plan year, the plan has fewer than two
participants who are current employees.
(c) Excepted benefits—(1) In general.
The requirements of this Part do not
apply to any group health plan (or any
group health insurance coverage) in
relation to its provision of the benefits
described in paragraph (c)(2), (3), (4), or
(5) of this section (or any combination
of these benefits).
(2) Benefits excepted in all
circumstances. The following benefits
are excepted in all circumstances—
(i) Coverage only for accident
(including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including
general liability insurance and
automobile liability insurance;
(iv) Coverage issued as a supplement
to liability insurance;
(v) Workers’ compensation or similar
coverage;
(vi) Automobile medical payment
insurance;
(vii) Credit-only insurance (for
example, mortgage insurance); and
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78779
(viii) Coverage for on-site medical
clinics.
(3) Limited excepted benefits—(i) In
general. Limited-scope dental benefits,
limited-scope vision benefits, or longterm 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 a
group health plan as described in
paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a
health flexible spending arrangement
are excepted benefits if they satisfy the
requirements of paragraph (c)(3)(v) of
this section.
(ii) Not an integral part of a group
health plan. For purposes of this
paragraph (c)(3), benefits are not an
integral part of a group health plan
(whether the benefits are provided
through the same plan or a separate
plan) only if the following two
requirements are satisfied—
(A) Participants must have the right to
elect not to receive coverage for the
benefits; and
(B) If a participant elects to receive
coverage for the benefits, the participant
must pay an additional premium or
contribution for that coverage.
(iii) Limited scope—(A) Dental
benefits. Limited scope dental benefits
are benefits substantially all of which
are for treatment of the mouth
(including any organ or structure within
the mouth).
(B) Vision benefits. Limited scope
vision benefits are benefits substantially
all of which are for treatment of the eye.
(iv) Long-term care. Long-term care
benefits are benefits that are either—
(A) Subject to State long-term care
insurance laws;
(B) For qualified long-term care
services, as defined in section
7702B(c)(1) of the Internal Revenue
Code, or provided under a qualified
long-term care insurance contract, as
defined in section 7702B(b) of the
Internal Revenue Code; or
(C) Based on cognitive impairment or
a loss of functional capacity that is
expected to be chronic.
(v) Health flexible spending
arrangements. Benefits provided under
a health flexible spending arrangement
(as defined in section 106(c)(2) of the
Internal Revenue Code) are excepted for
a class of participants only if they
satisfy the following two requirements—
(A) Other group health plan coverage,
not limited to excepted benefits, is made
available for the year to the class of
participants by reason of their
employment; and
(B) The arrangement is structured so
that the maximum benefit payable to
any participant in the class for a year
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cannot exceed two times the
participant’s salary reduction election
under the arrangement for the year (or,
if greater, cannot exceed $500 plus the
amount of the participant’s salary
reduction election). For this purpose,
any amount that an employee can elect
to receive as taxable income but elects
to apply to the health flexible spending
arrangement is considered a salary
reduction election (regardless of
whether the amount is characterized as
salary or as a credit under the
arrangement).
(4) Noncoordinated benefits—(i)
Excepted benefits that are not
coordinated. Coverage for only a
specified disease or illness (for example,
cancer-only policies) or hospital
indemnity or other fixed indemnity
insurance is excepted only if it meets
each of the conditions specified in
paragraph (c)(4)(ii) of this section. To be
hospital indemnity or other fixed
indemnity insurance, the insurance
must pay a fixed dollar amount per day
(or per other period) of hospitalization
or illness (for example, $100/day)
regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described
in paragraph (c)(4)(i) of this section only
if—
(A) The benefits are provided under a
separate policy, certificate, or contract
of insurance;
(B) There is no coordination between
the provision of the benefits and an
exclusion of benefits under any group
health plan maintained by the same
plan sponsor; and
(C) The benefits are paid with respect
to an event without regard to whether
benefits are provided with respect to the
event under any group health plan
maintained by the same plan sponsor.
(iii) Example. The rules of this
paragraph (c)(4) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
through an insurance policy. The policy
provides benefits only for hospital stays at a
fixed percentage of hospital expenses up to
a maximum of $100 a day.
(ii) Conclusion. In this Example, even
though the benefits under the policy satisfy
the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage
of expenses incurred rather than a fixed
dollar amount, the benefits under the policy
are not excepted benefits under this
paragraph (c)(4). This is the result even if, in
practice, the policy pays the maximum of
$100 for every day of hospitalization.
(5) Supplemental benefits. (i) The
following benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of
insurance—
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(A) Medicare supplemental health
insurance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance);
(B) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as TRICARE supplemental
programs); and
(C) Similar supplemental coverage
provided to coverage under a group
health plan. To be similar supplemental
coverage, the coverage must be
specifically designed to fill gaps in
primary coverage, such as coinsurance
or deductibles. Similar supplemental
coverage does not include coverage that
becomes secondary or supplemental
only under a coordination-of-benefits
provision.
(ii) The rules of this paragraph (c)(5)
are illustrated by the following example:
performs services on behalf of the
partnership.
(3) Participants of group health plans.
In the case of a group health plan, the
term participant also includes any
individual described in paragraph
(d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to
receive a benefit under the plan or the
individual’s beneficiaries may be
eligible to receive any such benefit.
(i) In connection with a group health
plan maintained by a partnership, the
individual is a partner in relation to the
partnership.
(ii) In connection with a group health
plan maintained by a self-employed
individual (under which one or more
employees are participants), the
individual is the self-employed
individual.
(e) Determining the average number of
employees. [Reserved]
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
for both active employees and retirees. The
coverage for retirees supplements benefits
provided by Medicare, but does not meet the
requirements for a supplemental policy
under section 1882(g)(1) of the Social
Security Act.
(ii) Conclusion. In this Example, the
coverage provided to retirees does not meet
the definition of supplemental excepted
benefits under this paragraph (c)(5) because
the coverage is not Medicare supplemental
insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE
supplemental program, and is not
supplemental to coverage provided under a
group health plan.
§ 2590.736
(d) Treatment of partnerships. For
purposes of this part:
(1) Treatment as a group health plan.
Any plan, fund, or program that would
not be (but for this paragraph (d)) an
employee welfare benefit plan and that
is established or maintained by a
partnership, to the extent that the plan,
fund, or program provides medical care
(including items and services paid for as
medical care) to present or former
partners in the partnership or to their
dependents (as defined under the terms
of the plan, fund, or program), directly
or through insurance, reimbursement, or
otherwise, is treated (subject to
paragraph (d)(2)) as an employee
welfare benefit plan that is a group
health plan.
(2) Employment relationship. In the
case of a group health plan, the term
employer also includes the partnership
in relation to any bona fide partner. In
addition, the term employee also
includes any bona fide partner. Whether
or not an individual is a bona fide
partner is determined based on all the
relevant facts and circumstances,
including whether the individual
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Applicability dates.
Sections 2590.701–1 through
2590.701–8 and 2590.731 through
2590.736 are applicable for plan years
beginning on or after July 1, 2005. Until
the applicability date for this regulation,
plans and issuers are required to
continue to comply with the
corresponding sections of 29 CFR part
2590, contained in the 29 CFR, parts
1927 to end, edition revised as of July
1, 2004.
Signed at Washington, DC, this 1st day of
December, 2004.
Ann L. Combs,
Assistant Secretary, Employee Benefits
Security Administration, U.S. Department of
Labor.
Department of Health and Human
Services
45 CFR Subtitle A
■ For the reasons set forth in the
preamble, the Department of Health and
Human Services amends 45 CFR Part 144
and Part 146 as follows:
PART 144—REQUIREMENTS
RELATING TO HEALTH INSURANCE
COVERAGE
A. Part 144 is amended as set forth
below:
■ 1. The authority citation for Part 144 is
revised to read as follows:
■
Authority: Secs. 2701 through 2763, 2791,
and 2792 of the Public Health Service Act,
42 U.S.C. 300gg through 300gg-63, 300gg-91,
30gg-92 as amended by HIPAA (Public Law
104–191, 110 Stat. 1936), MHPA (Public Law
104–204, 110 Stat. 2944, as amended by
Public Law 107–116, 115 Stat. 2177),
NMHPA (Public Law 104–204, 110 Stat.
2935), WHCRA (Public Law 105–277, 112
Stat. 2681–436), and section 103(c)(4) of
HIPAA.
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2. Section 144.103 is revised to read as
follows:
■
§ 144.103
Definitions.
For purposes of parts 146 (group
market), 148 (individual market), and
150 (enforcement) of this subchapter,
the following definitions apply unless
otherwise provided:
Affiliation period means a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
Applicable State authority means,
with respect to a health insurance issuer
in a State, the State insurance
commissioner or official or officials
designated by the State to enforce the
requirements of 45 CFR parts 146 and
148 for the State involved with respect
to the issuer.
Beneficiary has the meaning given the
term under section 3(8) of the Employee
Retirement Income Security Act of 1974
(ERISA), which States, ‘‘a person
designated by a participant, or by the
terms of an employee benefit plan, who
is or may become entitled to a benefit’’
under the plan.
Bona fide association means, with
respect to health insurance coverage
offered in a State, an association that
meets the following conditions:
(1) Has been actively in existence for
at least 5 years.
(2) Has been formed and maintained
in good faith for purposes other than
obtaining insurance.
(3) Does not condition membership in
the association on any health statusrelated factor relating to an individual
(including an employee of an employer
or a dependent of any employee).
(4) Makes health insurance coverage
offered through the association available
to all members regardless of any health
status-related factor relating to the
members (or individuals eligible for
coverage through a member).
(5) Does not make health insurance
coverage offered through the association
available other than in connection with
a member of the association.
(6) Meets any additional requirements
that may be imposed under State law.
Church plan means a Church plan
within the meaning of section 3(33) of
ERISA.
COBRA definitions:
(1) COBRA means Title X of the
Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable COBRA
continuation provision.
(3) COBRA continuation provision
means sections 601–608 of the
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Employee Retirement Income Security
Act, section 4980B of the Internal
Revenue Code of 1986 (other than
paragraph (f)(1) of such section 4980B
insofar as it relates to pediatric
vaccines), or Title XXII of the PHS Act.
(4) Continuation coverage means
coverage under a COBRA continuation
provision or a similar State program.
Coverage provided by a plan that is
subject to a COBRA continuation
provision or similar State program, but
that does not satisfy all the requirements
of that provision or program, will be
deemed to be continuation coverage if it
allows an individual to elect to continue
coverage for a period of at least 18
months. Continuation coverage does not
include coverage under a conversion
policy required to be offered to an
individual upon exhaustion of
continuation coverage, nor does it
include continuation coverage under the
Federal Employees Health Benefits
Program.
(5) Exhaustion of COBRA
continuation coverage means that an
individual’s COBRA continuation
coverage ceases for any reason other
than either failure of the individual to
pay premiums on a timely basis, or for
cause (such as making a fraudulent
claim or an intentional
misrepresentation of a material fact in
connection with the plan). An
individual is considered to have
exhausted COBRA continuation
coverage if such coverage ceases—
(i) Due to the failure of the employer
or other responsible entity to remit
premiums on a timely basis;
(ii) When the individual no longer
resides, lives, or works in the service
area of an HMO or similar program
(whether or not within the choice of the
individual) and there is no other
COBRA continuation coverage available
to the individual; or
(iii) When the individual incurs a
claim that would meet or exceed a
lifetime limit on all benefits and there
is no other COBRA continuation
coverage available to the individual.
(6) Exhaustion of continuation
coverage means that an individual’s
continuation coverage ceases for any
reason other than either failure of the
individual to pay premiums on a timely
basis, or for cause (such as making a
fraudulent claim or an intentional
misrepresentation of a material fact in
connection with the plan). An
individual is considered to have
exhausted continuation coverage if—
(i) Coverage ceases due to the failure
of the employer or other responsible
entity to remit premiums on a timely
basis;
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78781
(ii) When the individual no longer
resides, lives or works in a service area
of an HMO or similar program (whether
or not within the choice of the
individual) and there is no other
continuation coverage available to the
individual; or
(iii) When the individual incurs a
claim that would meet or exceed a
lifetime limit on all benefits and there
is no other continuation coverage
available to the individual.
Condition means a medical condition.
Creditable coverage has the meaning
given the term in 45 CFR 146.113(a).
Dependent means any individual who
is or may become eligible for coverage
under the terms of a group health plan
because of a relationship to a
participant.
Eligible individual, for purposes of—
(1) The group market provisions in 45
CFR part 146, subpart E, is defined in
45 CFR 146.150(b); and
(2) The individual market provisions
in 45 CFR part 148, is defined in 45 CFR
148.103.
Employee has the meaning given the
term under section 3(6) of ERISA, which
States, ‘‘any individual employed by an
employer.’’
Employer has the meaning given the
term under section 3(5) of ERISA, which
States, ‘‘any person acting directly as an
employer, or indirectly in the interest of
an employer, in relation to an employee
benefit plan; and includes a group or
association of employers acting for an
employer in such capacity.’’
Enroll means to become covered for
benefits under a group health plan (that
is, when coverage becomes effective),
without regard to when the individual
may have completed or filed any forms
that are required in order to become
covered under the plan. For this
purpose, an individual who has health
coverage under a group health plan is
enrolled in the plan regardless of
whether the individual elects coverage,
the individual is a dependent who
becomes covered as a result of an
election by a participant, or the
individual becomes covered without an
election.
Enrollment date definitions
(enrollment date, first day of coverage,
and waiting period) are set forth in 45
CFR 146.111(a)(3)(i) through (iii).
ERISA stands for the Employee
Retirement Income Security Act of 1974,
as amended (29 U.S.C. 1001 et seq.).
Excepted benefits, consistent for
purposes of the—
(1) Group market provisions in 45
CFR part 146 subpart D, is defined in 45
CFR 146.145(c); and
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(2) Individual market provisions in 45
CFR part 148, is defined in 45 CFR
148.220.
Federal governmental plan means a
governmental plan established or
maintained for its employees by the
Government of the United States or by
any agency or instrumentality of such
Government.
Genetic information means
information about genes, gene products,
and inherited characteristics that may
derive from the individual or a family
member. This includes information
regarding carrier status and information
derived from laboratory tests that
identify mutations in specific genes or
chromosomes, physical medical
examinations, family histories, and
direct analysis of genes or
chromosomes.
Governmental plan means a
governmental plan within the meaning
of section 3(32) of ERISA.
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Group health plan or plan means a
group health plan within the meaning of
45 CFR 146.145(a).
Group market means the market for
health insurance coverage offered in
connection with a group health plan.
(However, certain very small plans may
be treated as being in the individual
market, rather than the group market;
see the definition of individual market
in this section.)
Health insurance coverage means
benefits consisting of medical care
(provided directly, through insurance or
reimbursement, or otherwise) under any
hospital or medical service policy or
certificate, hospital or medical service
plan contract, or HMO contract offered
by a health insurance issuer. Health
insurance coverage includes group
health insurance coverage, individual
health insurance coverage, and shortterm, limited-duration insurance.
Health insurance issuer or issuer
means an insurance company, insurance
service, or insurance organization
(including an HMO) that is required to
be licensed to engage in the business of
insurance in a State and that is subject
to State law that regulates insurance
(within the meaning of section 514(b)(2)
of ERISA). This term does not include
a group health plan.
Health maintenance organization or
HMO means—
(1) A Federally qualified health
maintenance organization (as defined in
section 1301(a) of the PHS Act);
(2) An organization recognized under
State law as a health maintenance
organization; or
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(3) A similar organization regulated
under State law for solvency in the same
manner and to the same extent as such
a health maintenance organization.
Health status-related factor is any
factor identified as a health factor in 45
CFR 146.121(a).
Individual health insurance coverage
means health insurance coverage offered
to individuals in the individual market,
but does not include short-term,
limited-duration insurance. Individual
health insurance coverage can include
dependent coverage.
Individual market means the market
for health insurance coverage offered to
individuals other than in connection
with a group health plan. Unless a State
elects otherwise in accordance with
section 2791(e)(1)(B)(ii) of the PHS Act,
such term also includes coverage offered
in connection with a group health plan
that has fewer than two participants
who are current employees on the first
day of the plan year.
Internal Revenue Code means the
Internal Revenue Code of 1986, as
amended (Title 26, United States Code).
Issuer means a health insurance
issuer.
Large employer means, in connection
with a group health plan with respect to
a calendar year and a plan year, an
employer who employed an average of
at least 51 employees on business days
during the preceding calendar year and
who employs at least 2 employees on
the first day of the plan year, unless
otherwise provided under State law.
Large group market means the health
insurance market under which
individuals obtain health insurance
coverage (directly or through any
arrangement) on behalf of themselves
(and their dependents) through a group
health plan maintained by a large
employer, unless otherwise provided
under State law.
Late enrollment definitions (late
enrollee and late enrollment) are set
forth in 45 CFR 146.111(a)(3)(v) and (vi).
Medical care means amounts paid
for—
(1) The diagnosis, cure, mitigation,
treatment, or prevention of disease, or
amounts paid for the purpose of
affecting any structure or function of the
body;
(2) Transportation primarily for and
essential to medical care referred to in
paragraph (1) of this definition; and
(3) Insurance covering medical care
referred to in paragraphs (1) and (2) of
this definition.
Medical condition or condition means
any condition, whether physical or
mental, including, but not limited to,
any condition resulting from illness,
injury (whether or not the injury is
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accidental), pregnancy, or congenital
malformation. However, genetic
information is not a condition.
Network plan means health insurance
coverage of a health insurance issuer
under which the financing and delivery
of medical care (including items and
services paid for as medical care) are
provided, in whole or in part, through
a defined set of providers under contract
with the issuer.
Non-Federal governmental plan
means a governmental plan that is not
a Federal governmental plan.
Participant has the meaning given the
term under section 3(7) of ERISA, which
States, ‘‘any employee or former
employee of an employer, or any
member or former member of an
employee organization, who is or may
become eligible to receive a benefit of
any type from an employee benefit plan
which covers employees of such
employer or members of such
organization, or whose beneficiaries
may be eligible to receive any such
benefit.’’
PHS Act stands for the Public Health
Service Act (42 U.S.C. 201 et seq.).
Placement, or being placed, for
adoption means the assumption and
retention of a legal obligation for total or
partial support of a child by a person
with whom the child has been placed in
anticipation of the child’s adoption. The
child’s placement for adoption with
such person ends upon the termination
of such legal obligation.
Plan sponsor has the meaning given
the term under section 3(16)(B) of
ERISA, which states, ‘‘(i) the employer
in the case of an employee benefit plan
established or maintained by a single
employer, (ii) the employee organization
in the case of a plan established or
maintained by an employee
organization, or (iii) in the case of a plan
established or maintained by two or
more employers or jointly by one or
more employers and one or more
employee organizations, the association,
committee, joint board of trustees, or
other similar group of representatives of
the parties who establish or maintain
the plan.’’
Plan year means the year that is
designated as the plan year in the plan
document of a group health plan, except
that if the plan document does not
designate a plan year or if there is no
plan document, the plan year is—
(1) The deductible or limit year used
under the plan;
(2) If the plan does not impose
deductibles or limits on a yearly basis,
then the plan year is the policy year;
(3) If the plan does not impose
deductibles or limits on a yearly basis,
and either the plan is not insured or the
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insurance policy is not renewed on an
annual basis, then the plan year is the
employer’s taxable year; or
(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusion has
the meaning given the term in 45 CFR
146.111(a)(1), with respect to group
health plans and group health insurance
coverage. With respect to individual
market health insurance issuers or other
entities providing coverage to federally
eligible individuals pursuant to 45 CFR
part 148, preexisting condition
exclusion means a limitation or
exclusion of benefits relating to a
condition based on the fact that 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. A preexisting condition
exclusion includes any exclusion
applicable to an individual as a result of
information that is obtained relating to
an individual’s health status before the
individual’s first day of coverage, such
as a condition identified as a result of
a pre-enrollment questionnaire or
physical examination given to the
individual, or review of medical records
relating to the pre-enrollment period.
Public health plan has the meaning
given the term in 45 CFR
146.113(a)(1)(ix).
Short-term, limited-duration
insurance means health insurance
coverage provided pursuant to a
contract with an issuer that has an
expiration date specified in the contract
(taking into account any extensions that
may be elected by the policyholder
without the issuer’s consent) that is less
than 12 months after the original
effective date of the contract.
Significant break in coverage has the
meaning given the term in 45 CFR
146.113(b)(2)(iii).
Small employer means, in connection
with a group health plan with respect to
a calendar year and a plan year, an
employer who employed an average of
at least 2 but not more than 50
employees on business days during the
preceding calendar year and who
employs at least 2 employees on the first
day of the plan year, unless otherwise
provided under State law.
Small group market means the health
insurance market under which
individuals obtain health insurance
coverage (directly or through any
arrangement) on behalf of themselves
(and their dependents) through a group
health plan maintained by a small
employer.
Special enrollment means enrollment
in a group health plan or group health
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insurance coverage under the rights
described in 45 CFR 146.117.
State means each of the several States,
the District of Columbia, Puerto Rico,
the Virgin Islands, Guam, American
Samoa, and the Northern Mariana
Islands.
State health benefits risk pool has the
meaning given the term in 45 CFR
§ 146.113(a)(1)(vii).
Waiting period has the meaning given
the term in 45 CFR 146.111(a)(3)(iii).
PART 146—REQUIREMENTS FOR THE
GROUP HEALTH INSURANCE
MARKET
B. Part 146 is amended as set forth
below:
■ 1. The authority citation for Part 146 is
revised to read as follows:
■
Authority: Secs. 2701 through 2763, 2791,
and 2792 of the Public Health Service Act,
42 U.S.C. 300gg through 300gg–63, 300gg–91,
30gg–92 as amended by HIPAA (Public Law
104–191, 110 Stat. 1936), MHPA (Public Law
104–204, 110 Stat. 2944, as amended by
Public Law 107–116, 115 Stat. 2177),
NMHPA (Public Law 104–204, 110 Stat.
2935), WHCRA (Public Law 105–277, 112
Stat. 2681–436), and section 103(c)(4) of
HIPAA.
■
2. Revise § 146.111 to read as follows:
§ 146.111 Limitations on preexisting
condition exclusion period.
(a) Preexisting condition exclusion—
(1) Defined.—(i) A preexisting condition
exclusion means a limitation or
exclusion of benefits relating to a
condition based on the fact that the
condition was present before the
effective date of coverage under a group
health plan or group health insurance
coverage, whether or not any medical
advice, diagnosis, care, or treatment was
recommended or received before that
day. A preexisting condition exclusion
includes any exclusion applicable to an
individual as a result of information
relating to an individual’s health status
before the individual’s effective date of
coverage under a group health plan or
group health insurance coverage, such
as a condition identified as a result of
a pre-enrollment questionnaire or
physical examination given to the
individual, or review of medical records
relating to the pre-enrollment period.
(ii) Examples. The rules of this
paragraph (a)(1) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
provides benefits solely through an insurance
policy offered by Issuer S. At the expiration
of the policy, the plan switches coverage to
a policy offered by Issuer T. Issuer T’s policy
excludes benefits for any prosthesis if the
body part was lost before the effective date
of coverage under the policy.
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78783
(ii) Conclusion. In this Example 1, the
exclusion of benefits for any prosthesis if the
body part was lost before the effective date
of coverage is a preexisting condition
exclusion because it operates to exclude
benefits for a condition based on the fact that
the condition was present before the effective
date of coverage under the policy. (Therefore,
the exclusion of benefits is required to
comply with the limitations on preexisting
condition exclusions in this section. For an
example illustrating the application of these
limitations to a succeeding insurance policy,
see Example 3 of paragraph (a)(3)(iv) of this
section.)
Example 2. (i) Facts. A group health plan
provides coverage for cosmetic surgery in
cases of accidental injury, but only if the
injury occurred while the individual was
covered under the plan.
(ii) Conclusion. In this Example 2, the plan
provision excluding cosmetic surgery
benefits for individuals injured before
enrolling in the plan is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 3. (i) Facts. A group health plan
provides coverage for the treatment of
diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was
diagnosed with diabetes before the effective
date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of
$10,000.
(ii) Conclusion. In this Example 3, the
$10,000 lifetime limit is a preexisting
condition exclusion because it limits benefits
for a condition based on the fact that the
condition was present before the effective
date of coverage. The plan provision,
therefore, is subject to the limitations on
preexisting condition exclusions in this
section.
Example 4. (i) Facts. A group health plan
provides coverage for the treatment of acne,
subject to a lifetime limit of $2,000. The plan
counts against this $2,000 lifetime limit acne
treatment benefits provided under prior
health coverage.
(ii) Conclusion. In this Example 4,
counting benefits for a specific condition
provided under prior health coverage against
a lifetime limit for that condition is a
preexisting condition exclusion because it
operates to limit benefits for a condition
based on the fact that the condition was
present before the effective date of coverage.
The plan provision, therefore, is subject to
the limitations on preexisting condition
exclusions in this section.
Example 5. (i) Facts. When an individual’s
coverage begins under a group health plan,
the individual generally becomes eligible for
all benefits. However, benefits for pregnancy
are not available until the individual has
been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the
requirement to be covered under the plan for
12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting
condition exclusion because it is designed to
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exclude benefits for a condition (pregnancy)
that arose before the effective date of
coverage. Because a plan is prohibited under
paragraph (b)(5) of this section from
imposing any preexisting condition
exclusion on pregnancy, the plan provision
is prohibited. However, if the plan provision
included an exception for women who were
pregnant before the effective date of coverage
under the plan (so that the provision applied
only to women who became pregnant on or
after the effective date of coverage) the plan
provision would not be a preexisting
condition exclusion (and would not be
prohibited by paragraph (b)(5) of this
section).
Example 6. (i) Facts. A group health plan
provides coverage for medically necessary
items and services, generally including
treatment of heart conditions. However, the
plan does not cover those same items and
services when used for treatment of
congenital heart conditions.
(ii) Conclusion. In this Example 6, the
exclusion of coverage for treatment of
congenital heart conditions is a preexisting
condition exclusion because it operates to
exclude benefits relating to a condition based
on the fact that the condition was present
before the effective date of coverage. The
plan provision, therefore, is subject to the
limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan
generally provides coverage for medically
necessary items and services. However, the
plan excludes coverage for the treatment of
cleft palate.
(ii) Conclusion. In this Example 7, the
exclusion of coverage for treatment of cleft
palate is not a preexisting condition
exclusion because the exclusion applies
regardless of when the condition arose
relative to the effective date of coverage. The
plan provision, therefore, is not subject to the
limitations on preexisting condition
exclusions in this section.
Example 8. (i) Facts. A group health plan
provides coverage for treatment of cleft
palate, but only if the individual being
treated has been continuously covered under
the plan from the date of birth.
(ii) Conclusion. In this Example 8, the
exclusion of coverage for treatment of cleft
palate for individuals who have not been
covered under the plan from the date of birth
operates to exclude benefits in relation to a
condition based on the fact that the condition
was present before the effective date of
coverage. The plan provision, therefore, is
subject to the limitations on preexisting
condition exclusions in this section.
(2) General rules. Subject to paragraph
(b) of this section (prohibiting the
imposition of a preexisting condition
exclusion with respect to certain
individuals and conditions), a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may impose, with respect to a
participant or beneficiary, a preexisting
condition exclusion only if the
requirements of this paragraph (a)(2) are
satisfied.
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(i) 6-month look-back rule. A
preexisting condition exclusion must
relate to a condition (whether physical
or mental), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was
recommended or received within the 6month period (or such shorter period as
applies under the plan) ending on the
enrollment date.
(A) For purposes of this paragraph
(a)(2)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, 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 State
law.
(B) For purposes of this paragraph
(a)(2)(i), the 6-month period ending on
the enrollment date begins on the 6month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the
enrollment date is the period
commencing on February 1, 1998 and
continuing through July 31, 1998. As
another example, for an enrollment date
of August 30, 1998, the 6-month period
preceding the enrollment date is the
period commencing on February 28,
1998 and continuing through August 29,
1998.
(C) The rules of this paragraph (a)(2)(i)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual A is
diagnosed with a medical condition 8
months before A’s enrollment date in
Employer R’s group health plan. A’s doctor
recommends that A take a prescription drug
for 3 months, and A follows the
recommendation.
(ii) Conclusion. In this Example 1,
Employer R’s plan may impose a preexisting
condition exclusion with respect to A’s
condition because A received treatment
during the 6-month period ending on A’s
enrollment date in Employer R’s plan by
taking the prescription medication during
that period. However, if A did not take the
prescription drug during the 6-month period,
Employer R’s plan would not be able to
impose a preexisting condition exclusion
with respect to that condition.
Example 2. (i) Facts. Individual B is treated
for a medical condition 7 months before the
enrollment date in Employer S’s group health
plan. As part of such treatment, B’s physician
recommends that a follow-up examination be
given 2 months later. Despite this
recommendation, B does not receive a
follow-up examination, and no other medical
advice, diagnosis, care, or treatment for that
condition is recommended to B or received
by B during the 6-month period ending on
B’s enrollment date in Employer S’s plan.
(ii) Conclusion. In this Example 2,
Employer S’s plan may not impose a
preexisting condition exclusion with respect
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to the condition for which B received
treatment 7 months prior to the enrollment
date.
Example 3. (i) Facts. Same facts as
Example 2, except that Employer S’s plan
learns of the condition and attaches a rider
to B’s certificate of coverage excluding
coverage for the condition. Three months
after enrollment, B’s condition recurs, and
Employer S’s plan denies payment under the
rider.
(ii) Conclusion. In this Example 3, the rider
is a preexisting condition exclusion and
Employer S’s plan may not impose a
preexisting condition exclusion with respect
to the condition for which B received
treatment 7 months prior to the enrollment
date. (In addition, such a rider would violate
the provisions of § 146.121, even if B had
received treatment for the condition within
the 6-month period ending on the enrollment
date.)
Example 4. (i) Facts. Individual C has
asthma and is treated for that condition
several times during the 6-month period
before C’s enrollment date in Employer T’s
plan. Three months after the enrollment date,
C begins coverage under Employer T’s plan.
Two months later, C is hospitalized for
asthma.
(ii) Conclusion. In this Example 4,
Employer T’s plan may impose a preexisting
condition exclusion with respect to C’s
asthma because care relating to C’s asthma
was received during the 6-month period
ending on C’s enrollment date (which, under
the rules of paragraph (a)(3)(i) of this section,
is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is
subject to a preexisting condition exclusion
imposed by Employer U’s plan, has diabetes,
as well as retinal degeneration, a foot
condition, and poor circulation (all of which
are conditions that may be directly attributed
to diabetes). D receives treatment for these
conditions during the 6-month period ending
on D’s enrollment date in Employer U’s plan.
After enrolling in the plan, D stumbles and
breaks a leg.
(ii) Conclusion. In this Example 5, the leg
fracture is not a condition related to D’s
diabetes, retinal degeneration, foot condition,
or poor circulation, even though they may
have contributed to the accident. Therefore,
benefits to treat the leg fracture cannot be
subject to a preexisting condition exclusion.
However, any additional medical services
that may be needed because of D’s
preexisting diabetes, poor circulation, or
retinal degeneration that would not be
needed by another patient with a broken leg
who does not have these conditions may be
subject to the preexisting condition exclusion
imposed under Employer U’s plan.
(ii) Maximum length of preexisting
condition exclusion. A preexisting
condition exclusion is not permitted to
extend for more than 12 months (18
months in the case of a late enrollee)
after the enrollment date. For example,
for an enrollment date of August 1,
1998, the 12-month period after the
enrollment date is the period
commencing on August 1, 1998 and
continuing through July 31, 1999; the
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18-month period after the enrollment
date is the period commencing on
August 1, 1998 and continuing through
January 31, 2000.
(iii) Reducing a preexisting condition
exclusion period by creditable
coverage—(A) The period of any
preexisting condition exclusion that
would otherwise apply to an individual
under a group health plan is reduced by
the number of days of creditable
coverage the individual has as of the
enrollment date, as counted under
§ 146.113. Creditable coverage may be
evidenced through a certificate of
creditable coverage (required under
§ 146.115(a)), or through other means in
accordance with the rules of
§ 146.115(c).
(B) The rules of this paragraph
(a)(2)(iii) are illustrated by the following
example:
Example. (i) Facts. Individual D works for
Employer X and has been covered
continuously under X’s group health plan.
D’s spouse works for Employer Y. Y
maintains a group health plan that imposes
a 12-month preexisting condition exclusion
(reduced by creditable coverage) on all new
enrollees. D enrolls in Y’s plan, but also stays
covered under X’s plan. D presents Y’s plan
with evidence of creditable coverage under
X’s plan.
(ii) Conclusion. In this Example, Y’s plan
must reduce the preexisting condition
exclusion period that applies to D by the
number of days of coverage that D had under
X’s plan as of D’s enrollment date in Y’s plan
(even though D’s coverage under X’s plan
was continuing as of that date).
(iv) Other standards. See § 146.121 for
other standards in this Subpart A that
may apply with respect to certain
benefit limitations or restrictions under
a group health plan. Other laws may
also apply, such as the Uniformed
Services Employment and
Reemployment Rights Act (USERRA),
which can affect the application of a
preexisting condition exclusion to
certain individuals who are reinstated
in a group health plan following active
military service.
(3) Enrollment definitions—(i)
Enrollment date means the first day of
coverage (as described in paragraph
(a)(3)(ii) of this section) or, if there is a
waiting period, the first day of the
waiting period. If an individual
receiving benefits under a group health
plan changes benefit packages, or if the
plan changes group health insurance
issuers, the individual’s enrollment date
does not change.
(ii) First day of coverage means, in the
case of an individual covered for
benefits under a group health plan, the
first day of coverage under the plan and,
in the case of an individual covered by
health insurance coverage in the
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individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period
that must pass before coverage for an
employee or dependent who is
otherwise eligible to enroll under the
terms of a group health plan can become
effective. If an employee or dependent
enrolls as a late enrollee or special
enrollee, any period before such late or
special enrollment is not a waiting
period. If an individual seeks coverage
in the individual market, a waiting
period begins on the date the individual
submits a substantially complete
application for coverage and ends on—
(A) If the application results in
coverage, the date coverage begins;
(B) If the application does not result
in coverage, the date on which the
application is denied by the issuer or
the date on which the offer of coverage
lapses.
(iv) The rules of paragraphs (a)(3)(i),
(ii), and (iii) of this section are
illustrated by the following examples:
Example 1. (i) Facts. Employer V’s group
health plan provides for coverage to begin on
the first day of the first payroll period
following the date an employee is hired and
completes the applicable enrollment forms,
or on any subsequent January 1 after
completion of the applicable enrollment
forms. Employer V’s plan imposes a
preexisting condition exclusion for 12
months (reduced by the individual’s
creditable coverage) following an
individual’s enrollment date. Employee E is
hired by Employer V on October 13, 1998
and on October 14, 1998 E completes and
files all the forms necessary to enroll in the
plan. E’s coverage under the plan becomes
effective on October 25, 1998 (which is the
beginning of the first payroll period after E’s
date of hire).
(ii) Conclusion. In this Example 1, E’s
enrollment date is October 13, 1998 (which
is the first day of the waiting period for E’s
enrollment and is also E’s date of hire).
Accordingly, with respect to E, the
permissible 6-month period in paragraph
(a)(2)(i) is the period from April 13, 1998
through October 12, 1998, the maximum
permissible period during which Employer
V’s plan can apply a preexisting condition
exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through
October 12, 1999, and this period must be
reduced under paragraph (a)(2)(iii) by E’s
days of creditable coverage as of October 13,
1998.
Example 2. (i) Facts. A group health plan
has two benefit package options, Option 1
and Option 2. Under each option a 12-month
preexisting condition exclusion is imposed.
Individual B is enrolled in Option 1 on the
first day of employment with the employer
maintaining the plan, remains enrolled in
Option 1 for more than one year, and then
decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B
cannot be subject to any preexisting
condition exclusion under Option 2 because
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78785
any preexisting condition exclusion period
would have to begin on B’s enrollment date,
which is B’s first day of coverage, rather than
the date that B enrolled in Option 2.
Therefore, the preexisting condition
exclusion period expired before B switched
to Option 2.
Example 3. (i) Facts. On May 13, 1997,
Individual E is hired by an employer and
enrolls in the employer’s group health plan.
The plan provides benefits solely through an
insurance policy offered by Issuer S. On
December 27, 1998, E’s leg is injured in an
accident and the leg is amputated. On
January 1, 1999, the plan switches coverage
to a policy offered by Issuer T. Issuer T’s
policy excludes benefits for any prosthesis if
the body part was lost before the effective
date of coverage under the policy.
(ii) Conclusion. In this Example 3, E’s
enrollment date is May 13, 1997, E’s first day
of coverage. Therefore, the permissible 6month look-back period for the preexisting
condition exclusion imposed under Issuer
T’s policy begins on November 13, 1996 and
ends on May 12, 1997. In addition, the 12month maximum permissible preexisting
condition exclusion period begins on May
13, 1997 and ends on May 12, 1998.
Accordingly, because no medical advice,
diagnosis, care, or treatment was
recommended to or received by E for the leg
during the 6-month look-back period (even
though medical care was provided within the
6-month period preceding the effective date
of E’s coverage under Issuer T’s policy),
Issuer T may not impose any preexisting
condition exclusion with respect to E.
Moreover, even if E had received treatment
during the 6-month look-back period, Issuer
T still would not be permitted to impose a
preexisting condition exclusion because the
12-month maximum permissible preexisting
condition exclusion period expired on May
12, 1998 (before the effective date of E’s
coverage under Issuer T’s policy).
Example 4. (i) Facts. A group health plan
limits eligibility for coverage to full-time
employees of Employer Y. Coverage becomes
effective on the first day of the month
following the date the employee becomes
eligible. Employee C begins working full-time
for Employer Y on April 11. Prior to this
date, C worked part-time for Y. C enrolls in
the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C’s
enrollment date is April 11 and the period
from April 11 through April 30 is a waiting
period. The period while C was working parttime, and therefore not in an eligible class of
employees, is not part of the waiting period.
Example 5. (i) Facts. To be eligible for
coverage under a multiemployer group health
plan in the current calendar quarter, the plan
requires an individual to have worked 250
hours in covered employment during the
previous quarter. If the hours requirement is
satisfied, coverage becomes effective on the
first day of the current calendar quarter.
Employee D begins work on January 28 and
does not work 250 hours in covered
employment during the first quarter (ending
March 31). D works at least 250 hours in the
second quarter (ending June 30) and is
enrolled in the plan with coverage effective
July 1 (the first day of the third quarter).
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(ii) Conclusion. In this Example 5, D’s
enrollment date is the first day of the
quarter during which D satisfies the
hours requirement, which is April 1.
The period from April 1 through June 30
is a waiting period.
(v) Late enrollee means an individual
whose enrollment in a plan is a late
enrollment.
(vi) (A) Late enrollment means
enrollment of an individual under a
group health plan other than—
(1) On the earliest date on which
coverage can become effective for the
individual under the terms of the plan;
or
(2) Through special enrollment. (For
rules relating to special enrollment, see
§ 146.117.)
(B) If an individual ceases to be
eligible for coverage under the plan, and
then subsequently becomes eligible for
coverage under the plan, only the
individual’s most recent period of
eligibility is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage
following a suspension of coverage that
applied generally under the plan.
(vii) Examples. The rules of
paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following
examples:
Example 1. (i) Facts. Employee F first
becomes eligible to be covered by Employer
W’s group health plan on January 1, 1999 but
elects not to enroll in the plan until a later
annual open enrollment period, with
coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a
late enrollee with respect to F’s coverage that
became effective under the plan on January
1, 2001.
Example 2. (i) Facts. Same facts as
Example 1, except that F terminates
employment with Employer W on July 1,
1999 without having had any health
insurance coverage under the plan. F is
rehired by Employer W on January 1, 2000
and is eligible for and elects coverage under
Employer W’s plan effective on January 1,
2000.
(ii) Conclusion. In this Example 2, F would
not be a late enrollee with respect to F’s
coverage that became effective on January 1,
2000.
(b) Exceptions pertaining to
preexisting condition exclusions—(1)
Newborns—(i) In general. Subject to
paragraph (b)(3) of this section, a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose any
preexisting condition exclusion on a
child who, within 30 days after birth, is
covered under any creditable coverage.
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Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after birth and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in
§ 146.113(b)(2)(iii)), the other plan may
not impose any preexisting condition
exclusion on the child.
(ii) Examples. The rules of this
paragraph (b)(1) are illustrated by the
following examples:
Example 1. (i) Facts. Individual E, who has
no prior creditable coverage, begins working
for Employer W and has accumulated 210
days of creditable coverage under Employer
W’s group health plan on the date E gives
birth to a child. Within 30 days after the
birth, the child is enrolled in the plan. Ninety
days after the birth, both E and the child
terminate coverage under the plan. Both E
and the child then experience a break in
coverage of 45 days before E is hired by
Employer X and the two are enrolled in
Employer X’s group health plan.
(ii) Conclusion. In this Example 1, because
E’s child is enrolled in Employer W’s plan
within 30 days after birth, no preexisting
condition exclusion may be imposed with
respect to the child under Employer W’s
plan. Likewise, Employer X’s plan may not
impose any preexisting condition exclusion
on E’s child because the child was covered
under creditable coverage within 30 days
after birth and had no significant break in
coverage before enrolling in Employer X’s
plan. On the other hand, because E had only
300 days of creditable coverage prior to E’s
enrollment date in Employer X’s plan,
Employer X’s plan may impose a preexisting
condition exclusion on E for up to 65 days
(66 days if the 12-month period after E’s
enrollment date in X’s plan includes
February 29).
Example 2. (i) Facts. Individual F is
enrolled in a group health plan in which
coverage is provided through a health
insurance issuer. F gives birth. Under State
law applicable to the health insurance issuer,
health care expenses incurred for the child
during the 30 days following birth are
covered as part of F’s coverage. Although F
may obtain coverage for the child beyond 30
days by timely requesting special enrollment
and paying an additional premium, the issuer
is prohibited under State law from recouping
the cost of any expenses incurred for the
child within the 30-day period if the child is
not later enrolled.
(ii) Conclusion. In this Example 2, the
child is covered under creditable coverage
within 30 days after birth, regardless of
whether the child enrolls as a special
enrollee under the plan. Therefore, no
preexisting condition exclusion may be
imposed on the child unless the child has a
significant break in coverage.
(2) Adopted children. Subject to
paragraph (b)(3) of this section, a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose any
preexisting condition exclusion on a
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child who is adopted or placed for
adoption before attaining 18 years of age
and who, within 30 days after the
adoption or placement for adoption, is
covered under any creditable coverage.
Accordingly, if a child is enrolled in a
group health plan (or other creditable
coverage) within 30 days after adoption
or placement for adoption and
subsequently enrolls in another group
health plan without a significant break
in coverage (as described in
§ 146.113(b)(2)(iii)), the other plan may
not impose any preexisting condition
exclusion on the child. This rule does
not apply to coverage before the date of
such adoption or placement for
adoption.
(3) Significant break in coverage.
Paragraphs (b)(1) and (2) of this section
no longer apply to a child after a
significant break in coverage. (See
§ 146.113(b)(2)(iii) for rules relating to
the determination of a significant break
in coverage.)
(4) Special enrollment. For special
enrollment rules relating to new
dependents, see § 146.117(b).
(5) Pregnancy. A group health plan,
and a health insurance issuer offering
group health insurance coverage, may
not impose a preexisting condition
exclusion relating to pregnancy.
(6) Genetic information—(i) A group
health plan, and a health insurance
issuer offering group health insurance
coverage, may not impose a preexisting
condition exclusion relating to a
condition based solely on genetic
information. However, if an individual
is diagnosed with a condition, even if
the condition relates to genetic
information, the plan may impose a
preexisting condition exclusion with
respect to the condition, subject to the
other limitations of this section.
(ii) The rules of this paragraph (b)(6)
are illustrated by the following example:
Example. (i) Facts. Individual A enrolls in
a group health plan that imposes a 12-month
maximum preexisting condition exclusion.
Three months before A’s enrollment, A’s
doctor told A that, based on genetic
information, A has a predisposition towards
breast cancer. A was not diagnosed with
breast cancer at any time prior to A’s
enrollment date in the plan. Nine months
after A’s enrollment date in the plan, A is
diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan
may not impose a preexisting condition
exclusion with respect to A’s breast cancer
because, prior to A’s enrollment date, A was
not diagnosed with breast cancer.
(c) General notice of preexisting
condition exclusion. A group health
plan imposing a preexisting condition
exclusion, and a health insurance issuer
offering group health insurance
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coverage subject to a preexisting
condition exclusion, must provide a
written general notice of preexisting
condition exclusion to participants
under the plan and cannot impose a
preexisting condition exclusion with
respect to a participant or a dependent
of the participant until such a notice is
provided.
(1) Manner and timing. A plan or
issuer must provide the general notice
of preexisting condition exclusion as
part of any written application materials
distributed by the plan or issuer for
enrollment. If the plan or issuer does
not distribute such materials, the notice
must be provided by the earliest date
following a request for enrollment that
the plan or issuer, acting in a reasonable
and prompt fashion, can provide the
notice.
(2) Content. The general notice of
preexisting condition exclusion must
notify participants of the following:
(i) The existence and terms of any
preexisting condition exclusion under
the plan. This description includes the
length of the plan’s look-back period
(which is not to exceed 6 months under
paragraph (a)(2)(i) of this section); the
maximum preexisting condition
exclusion period under the plan (which
cannot exceed 12 months (or 18-months
for late enrollees) under paragraph
(a)(2)(ii) of this section); and how the
plan will reduce the maximum
preexisting condition exclusion period
by creditable coverage (described in
paragraph (a)(2)(iii) of this section).
(ii) A description of the rights of
individuals to demonstrate creditable
coverage, and any applicable waiting
periods, through a certificate of
creditable coverage (as required by
§ 146.115(a)) or through other means (as
described in § 146.115(c)). This must
include a description of the right of the
individual to request a certificate from
a prior plan or issuer, if necessary, and
a statement that the current plan or
issuer will assist in obtaining a
certificate from any prior plan or issuer,
if necessary.
(iii) A person to contact (including an
address or telephone number) for
obtaining additional information or
assistance regarding the preexisting
condition exclusion.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (c) is provided to an
individual, the obligation to provide a
general notice of preexisting condition
exclusion with respect to that
individual is satisfied for both the plan
and the issuer.
(4) Example with sample language.
The rules of this paragraph (c) are
illustrated by the following example,
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which includes sample language that
plans and issuers can use as a basis for
preparing their own notices to satisfy
the requirements of this paragraph (c):
Example. (i) Facts. A group health plan
makes coverage effective on the first day of
the first calendar month after hire and on
each January 1 following an open season. The
plan imposes a 12-month maximum
preexisting condition exclusion (18 months
for late enrollees) and uses a 6-month lookback period. As part of the enrollment
application materials, the plan provides the
following statement:
This plan imposes a preexisting condition
exclusion. This means that if you have a
medical condition before coming to our plan,
you might have to wait a certain period of
time before the plan will provide coverage for
that condition. This exclusion applies only to
conditions for which medical advice,
diagnosis, care, or treatment was
recommended or received within a six-month
period. Generally, this six-month period ends
the day before your coverage becomes
effective. However, if you were in a waiting
period for coverage, the six-month period
ends on the day before the waiting period
begins. The preexisting condition exclusion
does not apply to pregnancy nor to a child
who is enrolled in the plan within 30 days
after birth, adoption, or placement for
adoption.
This exclusion may last up to 12 months
(18 months if you are a late enrollee) from
your first day of coverage, or, if you were in
a waiting period, from the first day of your
waiting period. However, you can reduce the
length of this exclusion period by the number
of days of your prior ‘‘creditable coverage.’’
Most prior health coverage is creditable
coverage and can be used to reduce the
preexisting condition exclusion if you have
not experienced a break in coverage of at
least 63 days. To reduce the 12-month (or 18month) exclusion period by your creditable
coverage, you should give us a copy of any
certificates of creditable coverage you have.
If you do not have a certificate, but you do
have prior health coverage, we will help you
obtain one from your prior plan or issuer.
There are also other ways that you can show
you have creditable coverage. Please contact
us if you need help demonstrating creditable
coverage.
All questions about the preexisting
condition exclusion and creditable coverage
should be directed to Individual B at Address
M or Telephone Number N.
(ii) Conclusion. In this Example, the plan
satisfies the general notice requirement of
this paragraph (c), and thus also satisfies this
requirement for any issuer providing the
coverage.
(d) Determination of creditable
coverage—(1) Determination within
reasonable time. If a group health plan
or health insurance issuer offering group
health insurance coverage receives
creditable coverage information under
§ 146.115, the plan or issuer is required,
within a reasonable time following
receipt of the information, to make a
determination regarding the amount of
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78787
the individual’s creditable coverage and
the length of any exclusion that
remains. Whether this determination is
made within a reasonable time depends
on the relevant facts and circumstances.
Relevant facts and circumstances
include whether a plan’s application of
a preexisting condition exclusion would
prevent an individual from having
access to urgent medical care.
(2) No time limit on presenting
evidence of creditable coverage. A plan
or issuer may not impose any limit on
the amount of time that an individual
has to present a certificate or other
evidence of creditable coverage.
(3) Example. The rules of this
paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual H develops an urgent
health condition before receiving a certificate
of creditable coverage from H’s prior group
health plan. H attests to the period of prior
coverage, presents corroborating
documentation of the coverage period, and
authorizes the plan to request a certificate on
H’s behalf in accordance with the rules of
§ 146.115.
(ii) Conclusion. In this Example, the plan
must review the evidence presented by H and
make a determination of creditable coverage
within a reasonable time that is consistent
with the urgency of H’s health condition.
(This determination may be modified as
permitted under paragraph (f) of this section.)
(e) Individual notice of period of
preexisting condition exclusion. After
an individual has presented evidence of
creditable coverage and after the plan or
issuer has made a determination of
creditable coverage under paragraph (d)
of this section, the plan or issuer must
provide the individual a written notice
of the length of preexisting condition
exclusion that remains after offsetting
for prior creditable coverage. This
individual notice is not required to
identify any medical conditions specific
to the individual that could be subject
to the exclusion. A plan or issuer is not
required to provide this notice if the
plan or issuer does not impose any
preexisting condition exclusion on the
individual or if the plan’s preexisting
condition exclusion is completely offset
by the individual’s prior creditable
coverage.
(1) Manner and timing. The
individual notice must be provided by
the earliest date following a
determination that the plan or issuer,
acting in a reasonable and prompt
fashion, can provide the notice.
(2) Content. A plan or issuer must
disclose—
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(i) Its determination of any preexisting
condition exclusion period that applies
to the individual (including the last day
on which the preexisting condition
exclusion applies);
(ii) The basis for such determination,
including the source and substance of
any information on which the plan or
issuer relied;
(iii) An explanation of the
individual’s right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable
appeal procedures established by the
plan or issuer.
(3) Duplicate notices not required. If
a notice satisfying the requirements of
this paragraph (e) is provided to an
individual, the obligation to provide
this individual notice of preexisting
condition exclusion with respect to that
individual is satisfied for both the plan
and the issuer.
(4) Examples. The rules of this
paragraph (e) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
imposes a preexisting condition exclusion
period of 12 months. After receiving the
general notice of preexisting condition
exclusion, Individual G presents a certificate
of creditable coverage indicating 240 days of
creditable coverage. Within seven days of
receipt of the certificate, the plan determines
that G is subject to a preexisting condition
exclusion of 125 days, the last day of which
is March 5. Five days later, the plan notifies
G that, based on the certificate G submitted,
G is subject to a preexisting condition
exclusion period of 125 days, ending on
March 5. The notice also explains the
opportunity to submit additional evidence of
creditable coverage and the plan’s appeal
procedures. The notice does not identify any
of G’s medical conditions that could be
subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan
satisfies the requirements of this paragraph
(e).
Example 2. (i) Facts. Same facts as in
Example 1, except that the plan determines
that G has 430 days of creditable coverage
based on G’s certificate indicating 430 days
of creditable coverage under G’s prior plan.
(ii) Conclusion. In this Example 2, the plan
is not required to notify G that G will not be
subject to a preexisting condition exclusion.
(f) Reconsideration. Nothing in this
section prevents a plan or issuer from
modifying an initial determination of
creditable coverage if it determines that
the individual did not have the claimed
creditable coverage, provided that —
(1) A notice of the new determination
(consistent with the requirements of
paragraph (e) of this section) is provided
to the individual; and
(2) Until the notice of the new
determination is provided, the plan or
issuer, for purposes of approving access
to medical services (such as a pre-
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surgery authorization), acts in a manner
consistent with the initial
determination.
■ 3. Revise § 146.113 to read as follows:
§ 146.113 Rules relating to creditable
coverage.
(a) General rules—(1) Creditable
coverage. For purposes of this section,
except as provided in paragraph (a)(2) of
this section, the term creditable
coverage means coverage of an
individual under any of the following:
(i) A group health plan as defined in
§ 146.145(a).
(ii) Health insurance coverage as
defined in § 144.103 of this chapter
(whether or not the entity offering the
coverage is subject to the requirements
of this part and 45 CFR part 148 and
without regard to whether the coverage
is offered in the group market, the
individual market, or otherwise).
(iii) Part A or B of Title XVIII of the
Social Security Act (Medicare).
(iv) Title XIX of the Social Security
Act (Medicaid), other than coverage
consisting solely of benefits under
section 1928 of the Social Security Act
(the program for distribution of
pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55
(medical and dental care for members
and certain former members of the
uniformed services, and for their
dependents; for purposes of Title 10
U.S.C. Chapter 55, uniformed services
means the armed forces and the
Commissioned Corps of the National
Oceanic and Atmospheric
Administration and of the Public Health
Service).
(vi) A medical care program of the
Indian Health Service or of a tribal
organization.
(vii) A State health benefits risk pool.
For purposes of this section, a State
health benefits risk pool means—
(A) An organization qualifying under
section 501(c)(26) of the Internal
Revenue Code;
(B) A qualified high risk pool
described in section 2744(c)(2) of the
PHS Act; or
(C) Any other arrangement sponsored
by a State, the membership composition
of which is specified by the State and
which is established and maintained
primarily to provide health coverage for
individuals who are residents of such
State and who, by reason of the
existence or history of a medical
condition—
(1) Are unable to acquire medical care
coverage for such condition through
insurance or from an HMO, or
(2) Are able to acquire such coverage
only at a rate which is substantially in
excess of the rate for such coverage
through the membership organization.
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(viii) A health plan offered under
Title 5 U.S.C. Chapter 89 (the Federal
Employees Health Benefits Program).
(ix) A public health plan. For
purposes of this section, a public health
plan means any plan established or
maintained by a State, the U.S.
government, a foreign country, or any
political subdivision of a State, the U.S.
government, or a foreign country that
provides health coverage to individuals
who are enrolled in the plan.
(x) A health benefit plan under
section 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(xi) Title XXI of the Social Security
Act (State Children’s Health Insurance
Program).
(2) Excluded coverage. Creditable
coverage does not include coverage of
solely excepted benefits (described in
§ 146.145).
(3) Methods of counting creditable
coverage. For purposes of reducing any
preexisting condition exclusion period,
as provided under § 146.111(a)(2)(iii),
the amount of an individual’s creditable
coverage generally is determined by
using the standard method described in
paragraph (b) of this section. A plan or
issuer may use the alternative method
under paragraph (c) of this section with
respect to any or all of the categories of
benefits described under paragraph
(c)(3) of this section.
(b) Standard method—(1) Specific
benefits not considered. Under the
standard method, the amount of
creditable coverage is determined
without regard to the specific benefits
included in the coverage.
(2) Counting creditable coverage—(i)
Based on days. For purposes of reducing
the preexisting condition exclusion
period that applies to an individual, the
amount of creditable coverage is
determined by counting all the days on
which the individual has one or more
types of creditable coverage.
Accordingly, if on a particular day an
individual has creditable coverage from
more than one source, all the creditable
coverage on that day is counted as one
day. Any days in a waiting period for
coverage are not creditable coverage.
(ii) Days not counted before
significant break in coverage. Days of
creditable coverage that occur before a
significant break in coverage are not
required to be counted.
(iii) Significant break in coverage
defined—A significant break in coverage
means a period of 63 consecutive days
during each of which an individual does
not have any creditable coverage. (See
also § 146.143(c)(2)(iii) regarding the
applicability to issuers of State
insurance laws that require a break of
more than 63 days before an individual
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has a significant break in coverage for
purposes of State insurance law.)
(iv) Periods that toll a significant
break. Days in a waiting period and
days in an affiliation period are not
taken into account in determining
whether a significant break in coverage
has occurred. In addition, for an
individual who elects COBRA
continuation coverage during the
second election period provided under
the Trade Act of 2002, the days between
the date the individual lost group health
plan coverage and the first day of the
second COBRA election period are not
taken into account in determining
whether a significant break in coverage
has occurred.
(v) Examples. The rules of this
paragraph (b)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A has
creditable coverage under Employer P’s plan
for 18 months before coverage ceases. A is
provided a certificate of creditable coverage
on A’s last day of coverage. Sixty-four days
after the last date of coverage under P’s plan,
A is hired by Employer Q and enrolls in Q’s
group health plan. Q’s plan has a 12-month
preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has
a break in coverage of 63 days. Because A’s
break in coverage is a significant break in
coverage, Q’s plan may disregard A’s prior
coverage and A may be subject to a 12-month
preexisting condition exclusion.
Example 2. (i) Facts. Same facts as
Example 1, except that A is hired by Q and
enrolls in Q’s plan on the 63rd day after the
last date of coverage under P’s plan.
(ii) Conclusion. In this Example 2, A has
a break in coverage of 62 days. Because A’s
break in coverage is not a significant break
in coverage, Q’s plan must count A’s prior
creditable coverage for purposes of reducing
the plan’s preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as
Example 1, except that Q’s plan provides
benefits through an insurance policy that, as
required by applicable State insurance laws,
defines a significant break in coverage as 90
days.
(ii) Conclusion. In this Example 3, under
State law, the issuer that provides group
health insurance coverage to Q’s plan must
count A’s period of creditable coverage prior
to the 63-day break. (However, if Q’s plan
was a self-insured plan, the coverage would
not be subject to State law. Therefore, the
health coverage would not be governed by
the longer break rules and A’s previous
health coverage could be disregarded.)
Example 4. —[Reserved]
Example 5. (i) Facts. Individual C has
creditable coverage under Employer S’s plan
for 200 days before coverage ceases. C is
provided a certificate of creditable coverage
on C’s last day of coverage. C then does not
have any creditable coverage for 51 days
before being hired by Employer T. T’s plan
has a 3-month waiting period. C works for T
for 2 months and then terminates
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employment. Eleven days after terminating
employment with T, C begins working for
Employer U. U’s plan has no waiting period,
but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does
not have a significant break in coverage
because, after disregarding the waiting period
under T’s plan, C had only a 62-day break in
coverage (51 days plus 11 days). Accordingly,
C has 200 days of creditable coverage, and
U’s plan may not apply its 6-month
preexisting condition exclusion with respect
to C.
Example 6. —[Reserved]
Example 7. (i) Facts. Individual E has
creditable coverage under Employer X’s plan.
E is provided a certificate of creditable
coverage on E’s last day of coverage. On the
63rd day without coverage, E submits a
substantially complete application for a
health insurance policy in the individual
market. E’s application is accepted and
coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because
E applied for the policy before the end of the
63rd day, the period between the date of
application and the first day of coverage is
a waiting period and no significant break in
coverage occurred even though the actual
period without coverage was 73 days.
Example 8. (i) Facts. Same facts as
Example 7, except that E’s application for a
policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even
though E did not obtain coverage following
application, the period between the date of
application and the date the coverage was
denied is a waiting period. However, to avoid
a significant break in coverage, no later than
the day after the application for the policy is
denied E would need to do one of the
following: submit a substantially complete
application for a different individual market
policy; obtain coverage in the group market;
or be in a waiting period for coverage in the
group market.
(vi) Other permissible counting
methods—(A) Rule. Notwithstanding
any other provisions of this paragraph
(b)(2), for purposes of reducing a
preexisting condition exclusion period
(but not for purposes of issuing a
certificate under § 146.115), a group
health plan, and a health insurance
issuer offering group health insurance
coverage, may determine the amount of
creditable coverage in any other manner
that is at least as favorable to the
individual as the method set forth in
this paragraph (b)(2), subject to the
requirements of other applicable law.
(B) Example. The rule of this
paragraph (b)(2)(vi) is illustrated by the
following example:
Example. (i) Facts. Individual F has
coverage under Group Health Plan Y from
January 3, 1997 through March 25, 1997. F
then becomes covered by Group Health Plan
Z. F’s enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting
condition exclusion.
(ii) Conclusion. In this Example, Plan Z
may determine, in accordance with the rules
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78789
prescribed in paragraphs (b)(2)(i), (ii), and
(iii) of this section, that F has 82 days of
creditable coverage (29 days in January, 28
days in February, and 25 days in March).
Thus, the preexisting condition exclusion
will no longer apply to F on February 8, 1998
(82 days before the 12-month anniversary of
F’s enrollment (May 1)). For administrative
convenience, however, Plan Z may consider
that the preexisting condition exclusion will
no longer apply to F on the first day of the
month (February 1).
(c) Alternative method—(1) Specific
benefits considered. Under the
alternative method, a group health plan,
or a health insurance issuer offering
group health insurance coverage,
determines the amount of creditable
coverage based on coverage within any
category of benefits described in
paragraph (c)(3) of this section and not
based on coverage for any other benefits.
The plan or issuer may use the
alternative method for any or all of the
categories. The plan or issuer may apply
a different preexisting condition
exclusion period with respect to each
category (and may apply a different
preexisting condition exclusion period
for benefits that are not within any
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. An
individual’s creditable coverage for
benefits that are not within any category
for which the alternative method is
being used is determined under the
standard method of paragraph (b) of this
section.
(2) Uniform application. A plan or
issuer using the alternative method is
required to apply it uniformly to all
participants and beneficiaries under the
plan or health insurance coverage. The
use of the alternative method is required
to be set forth in the plan.
(3) Categories of benefits. The
alternative method for counting
creditable coverage may be used for
coverage for the following categories of
benefits—
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative
method is used, the plan is required
to—
(i) State prominently that the plan is
using the alternative method of counting
creditable coverage in disclosure
statements concerning the plan, and
state this to each enrollee at the time of
enrollment under the plan; and
(ii) Include in these statements a
description of the effect of using the
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alternative method, including an
identification of the categories used.
(5) Issuer notice. With respect to
health insurance coverage offered by an
issuer in the small or large group
market, if the insurance coverage uses
the alternative method, the issuer states
prominently in any disclosure statement
concerning the coverage, that the issuer
is using the alternative method, and
includes in such statements a
description of the effect of using the
alternative method. This applies
separately to each type of coverage
offered by the health insurance issuer.
(6) Disclosure of information on
previous benefits. See § 146.115(b) for
special rules concerning disclosure of
coverage to a plan, or issuer, using the
alternative method of counting
creditable coverage under this
paragraph (c).
(7) Counting creditable coverage—(i)
In general. Under the alternative
method, the group health plan or issuer
counts creditable coverage within a
category if any level of benefits is
provided within the category. Coverage
under a reimbursement account or
arrangement, such as a flexible spending
arrangement (as defined in section
106(c)(2) of the Internal Revenue Code),
does not constitute coverage within any
category.
(ii) Special rules. In counting an
individual’s creditable coverage under
the alternative method, the group health
plan, or issuer, first determines the
amount of the individual’s creditable
coverage that may be counted under
paragraph (b) of this section, up to a
total of 365 days of the most recent
creditable coverage (546 days for a late
enrollee). The period over which this
creditable coverage is determined is
referred to as the determination period.
Then, for the category specified under
the alternative method, the plan or
issuer counts within the category all
days of coverage that occurred during
the determination period (whether or
not a significant break in coverage for
that category occurs), and reduces the
individual’s preexisting condition
exclusion period for that category by
that number of days. The plan or issuer
may determine the amount of creditable
coverage in any other reasonable
manner, uniformly applied, that is at
least as favorable to the individual.
(iii) Example. The rules of this
paragraph (c)(7) are illustrated by the
following example:
Example. (i) Facts. Individual D enrolls in
Employer V’s plan on January 1, 2001.
Coverage under the plan includes
prescription drug benefits. On April 1, 2001,
the plan ceases providing prescription drug
benefits. D’s employment with Employer V
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ends on January 1, 2002, after D was covered
under Employer V’s group health plan for
365 days. D enrolls in Employer Y’s plan on
February 1, 2002 (D’s enrollment date).
Employer Y’s plan uses the alternative
method of counting creditable coverage and
imposes a 12-month preexisting condition
exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer
Y’s plan may impose a 275-day preexisting
condition exclusion with respect to D for
prescription drug benefits because D had 90
days of creditable coverage relating to
prescription drug benefits within D’s
determination period.
■
4. Revise § 146.115 to read as follows:
§ 146.115 Certification and disclosure of
previous coverage.
(a) Certificate of creditable coverage—
(1) Entities required to provide
certificate—(i) In General. A group
health plan, and each health insurance
issuer offering group health insurance
coverage under a group health plan, is
required to furnish certificates of
creditable coverage in accordance with
this paragraph (a).
(ii) Duplicate certificates not required.
An entity required to provide a
certificate under this paragraph (a) with
respect to an individual satisfies that
requirement if another party provides
the certificate, but only to the extent
that the certificate contains the
information required in paragraph (a)(3)
of this section. For example, in the case
of a group health plan funded through
an insurance policy, the issuer satisfies
the certification requirement with
respect to an individual if the plan
actually provides a certificate that
includes all the information required
under paragraph (a)(3) of this section
with respect to the individual.
(iii) Special rule for group health
plans. To the extent coverage under a
plan consists of group health insurance
coverage, the plan satisfies the
certification requirements under this
paragraph (a) if any issuer offering the
coverage is required to provide the
certificates pursuant to an agreement
between the plan and the issuer. For
example, if there is an agreement
between an issuer and a plan sponsor
under which the issuer agrees to
provide certificates for individuals
covered under the plan, and the issuer
fails to provide a certificate to an
individual when the plan would have
been required to provide one under this
paragraph (a), then the issuer, but not
the plan, violates the certification
requirements of this paragraph (a).
(iv) Special rules for issuers—(A)(1)
Responsibility of issuer for coverage
period. An issuer is not required to
provide information regarding coverage
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provided to an individual by another
party.
(2) Example. The rule of this
paragraph (a)(1)(iv)(A) is illustrated by
the following example:
Example. (i) Facts. A plan offers coverage
with an HMO option from one issuer and an
indemnity option from a different issuer. The
HMO has not entered into an agreement with
the plan to provide certificates as permitted
under paragraph (a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
option to the HMO option and later ceases to
be covered under the plan, any certificate
provided by the HMO is not required to
provide information regarding the
employee’s coverage under the indemnity
option.
(B)(1) Cessation of issuer coverage
prior to cessation of coverage under a
plan. If an individual’s coverage under
an issuer’s policy or contract ceases
before the individual’s coverage under
the plan ceases, the issuer is required to
provide sufficient information to the
plan (or to another party designated by
the plan) to enable the plan (or other
party), after cessation of the individual’s
coverage under the plan, to provide a
certificate that reflects the period of
coverage under the policy or contract.
By providing that information to the
plan, the issuer satisfies its obligation to
provide an automatic certificate for that
period of creditable coverage with
respect to the individual under
paragraph (a)(2)(ii) of this section. The
issuer, however, must still provide a
certificate upon request as required
under paragraph (a)(2)(iii) of this
section. In addition, the issuer is
required to cooperate with the plan in
responding to any request made under
paragraph (b)(2) of this section (relating
to the alternative method of counting
creditable coverage). Moreover, if the
individual’s coverage under the plan
ceases at the time the individual’s
coverage under the issuer’s policy or
contract ceases, the issuer must still
provide an automatic certificate under
paragraph (a)(2)(ii) of this section. If an
individual’s coverage under an issuer’s
policy or contract ceases on the effective
date for changing enrollment options
under the plan, the issuer may presume
(absent information to the contrary) that
the individual’s coverage under the plan
continues. Therefore, the issuer is
required to provide information to the
plan in accordance with this paragraph
(a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under
paragraph (a)(2)(ii) of this section).
(2) Example. The rule of this
paragraph (a)(1)(iv)(B) is illustrated by
the following example:
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Example. (i) Facts. A group health plan
provides coverage under an HMO option and
an indemnity option through different
issuers, and only allows employees to switch
on each January 1. Neither the HMO nor the
indemnity issuer has entered into an
agreement with the plan to provide
certificates as permitted under paragraph
(a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an
employee switches from the indemnity
option to the HMO option on January 1, the
indemnity issuer must provide the plan (or
a person designated by the plan) with
appropriate information with respect to the
individual’s coverage with the indemnity
issuer. However, if the individual’s coverage
with the indemnity issuer ceases at a date
other than January 1, the issuer is instead
required to provide the individual with an
automatic certificate.
(2) Individuals for whom certificate
must be provided; timing of issuance—
(i) Individuals. A certificate must be
provided, without charge, for
participants or dependents who are or
were covered under a group health plan
upon the occurrence of any of the events
described in paragraph (a)(2)(ii) or (iii)
of this section.
(ii) Issuance of automatic certificates.
The certificates described in this
paragraph (a)(2)(ii) are referred to as
automatic certificates.
(A) Qualified beneficiaries upon a
qualifying event. In the case of an
individual who is a qualified
beneficiary (as defined in section 607(3)
of ERISA, section 4980(B)(g)(1) of the
Internal Revenue Code, or section 2208
of the PHS Act) entitled to elect COBRA
continuation coverage, an automatic
certificate is required to be provided at
the time the individual would lose
coverage under the plan in the absence
of COBRA continuation coverage or
alternative coverage elected instead of
COBRA continuation coverage. A plan
or issuer satisfies this requirement if it
provides the automatic certificate no
later than the time a notice is required
to be furnished for a qualifying event
under section 606 of ERISA, section
4980(B)(f)(6) of the Internal Revenue
Code, and section 2206 of the PHS Act
(relating to notices required under
COBRA).
(B) Other individuals when coverage
ceases. In the case of an individual who
is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate must be provided
at the time the individual ceases to be
covered under the plan. A plan or issuer
satisfies the requirement to provide an
automatic certificate at the time the
individual ceases to be covered if it
provides the automatic certificate
within a reasonable time after coverage
ceases (or after the expiration of any
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grace period for nonpayment of
premiums).
(1) The cessation of temporary
continuation coverage (TCC) under Title
5 U.S.C. Chapter 89 (the Federal
Employees Health Benefit Program) is a
cessation of coverage upon which an
automatic certificate must be provided.
(2) In the case of an individual who
is entitled to elect to continue coverage
under a State program similar to COBRA
and who receives the automatic
certificate not later than the time a
notice is required to be furnished under
the State program, the certificate is
deemed to be provided within a
reasonable time after coverage ceases
under the plan.
(3) If an individual’s coverage ceases
due to the operation of a lifetime limit
on all benefits, coverage is considered to
cease for purposes of this paragraph
(a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of
the lifetime limit.
(C) Qualified beneficiaries when
COBRA ceases. In the case of an
individual who is a qualified
beneficiary and has elected COBRA
continuation coverage (or whose
coverage has continued after the
individual became entitled to elect
COBRA continuation coverage), an
automatic certificate is to be provided at
the time the individual’ s coverage
under the plan ceases. A plan, or issuer,
satisfies this requirement if it provides
the automatic certificate within a
reasonable time after coverage ceases (or
after the expiration of any grace period
for nonpayment of premiums). An
automatic certificate is required to be
provided to such an individual
regardless of whether the individual has
previously received an automatic
certificate under paragraph (a)(2)(ii)(A)
of this section.
(iii) Any individual upon request. A
certificate must be provided in response
to a request made by, or on behalf of, an
individual at any time while the
individual is covered under a plan and
up to 24 months after coverage ceases.
Thus, for example, a plan in which an
individual enrolls may, if authorized by
the individual, request a certificate of
the individual’s creditable coverage on
behalf of the individual from a plan in
which the individual was formerly
enrolled. After the request is received, a
plan or issuer is required to provide the
certificate by the earliest date that the
plan or issuer, acting in a reasonable
and prompt fashion, can provide the
certificate. A certificate is required to be
provided under this paragraph (a)(2)(iii)
even if the individual has previously
received a certificate under this
paragraph (a)(2)(iii) or an automatic
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certificate under paragraph (a)(2)(ii) of
this section.
(iv) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A
terminates employment with Employer Q. A
is a qualified beneficiary entitled to elect
COBRA continuation coverage under
Employer Q’s group health plan. A notice of
the rights provided under COBRA is typically
furnished to qualified beneficiaries under the
plan within 10 days after a covered employee
terminates employment.
(ii) Conclusion. In this Example 1, the
automatic certificate may be provided at the
same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as
Example 1, except that the automatic
certificate for A is not completed by the time
the COBRA notice is furnished to A.
(ii) Conclusion. In this Example 2, the
automatic certificate may be provided after
the COBRA notice but must be provided
within the period permitted by law for the
delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains
an insured group health plan. R has never
had 20 employees and thus R’s plan is not
subject to the COBRA continuation
provisions. However, R is in a State that has
a State program similar to COBRA. B
terminates employment with R and loses
coverage under R’s plan.
(ii) Conclusion. In this Example 3, the
automatic certificate must be provided not
later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C
terminates employment with Employer S and
receives both a notice of C’s rights under
COBRA and an automatic certificate. C elects
COBRA continuation coverage under
Employer S’s group health plan. After four
months of COBRA continuation coverage and
the expiration of a 30-day grace period, S’s
group health plan determines that C’s
COBRA continuation coverage has ceased
due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan
must provide an updated automatic
certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is
currently covered under the group health
plan of Employer T. D requests a certificate,
as permitted under paragraph (a)(2)(iii) of
this section. Under the procedure for T’s
plan, certificates are mailed (by first class
mail) 7 business days following receipt of the
request. This date reflects the earliest date
that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
(ii) Conclusion. In this Example 5, the
plan’s procedure satisfies paragraph (a)(2)(iii)
of this section.
(3) Form and content of certificate—
(i) Written certificate—(A) In General.
Except as provided in paragraph
(a)(3)(i)(B) of this section, the certificate
must be provided in writing (or any
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other medium approved by the
Secretary).
(B) Other permissible forms. No
written certificate is required to be
provided under this paragraph (a) with
respect to a particular event described
in paragraph (a)(2)(ii) or (iii) of this
section, if—
(1) An individual who is entitled to
receive the certificate requests that the
certificate be sent to another plan or
issuer instead of to the individual;
(2) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in this
paragraph (a)(3) through means other
than a written certificate (such as by
telephone); and
(3) The receiving plan or issuer
receives the information from the
sending plan or issuer through such
means within the time required under
paragraph (a)(2) of this section.
(ii) Required information. The
certificate must include the following—
(A) The date the certificate is issued;
(B) The name of the group health plan
that provided the coverage described in
the certificate;
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other
information necessary for the plan
providing the coverage specified in the
certificate to identify the individual,
such as the individual’s identification
number under the plan and the name of
the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the
certificate;
(E) The telephone number to call for
further information regarding the
certificate (if different from paragraph
(a)(3)(ii)(D) of this section);
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began;
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate; and
(H) An educational statement
regarding HIPAA, which explains:
(1) The restrictions on the ability of a
plan or issuer to impose a preexisting
condition exclusion (including an
individual’s ability to reduce a
preexisting condition exclusion by
creditable coverage);
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(2) Special enrollment rights;
(3) The prohibitions against
discrimination based on any health
factor;
(4) The right to individual health
coverage;
(5) The fact that State law may require
issuers to provide additional protections
to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the
certificate. If an automatic certificate is
provided pursuant to paragraph (a)(2)(ii)
of this section, the period that must be
included on the certificate is the last
period of continuous coverage ending
on the date coverage ceased. If an
individual requests a certificate
pursuant to paragraph (a)(2)(iii) of this
section, the certificate provided must
include each period of continuous
coverage ending within the 24-month
period ending on the date of the request
(or continuing on the date of the
request). A separate certificate may be
provided for each such period of
continuous coverage.
(iv) Combining information for
families. A certificate may provide
information with respect to both a
participant and the participant’s
dependents if the information is
identical for each individual. If the
information is not identical, certificates
may be provided on one form if the form
provides all the required information for
each individual and separately states
the information that is not identical.
(v) Model certificate. The
requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or
issuer provides a certificate in
accordance with a model certificate
authorized by the Secretary.
(vi) Excepted benefits; categories of
benefits. No certificate is required to be
furnished with respect to excepted
benefits described in § 146.145(c). In
addition, the information in the
certificate regarding coverage is not
required to specify categories of benefits
described in § 146.113(c) (relating to the
alternative method of counting
creditable coverage). However, if
excepted benefits are provided
concurrently with other creditable
coverage (so that the coverage does not
consist solely of excepted benefits),
information concerning the benefits may
be required to be disclosed under
paragraph (b) of this section.
(4) Procedures—(i) Method of
delivery. The certificate is required to be
provided to each individual described
in paragraph (a)(2) of this section or an
entity requesting the certificate on
behalf of the individual. The certificate
may be provided by first-class mail. If
the certificate or certificates are
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provided to the participant and the
participant’s spouse at the participant’s
last known address, then the
requirements of this paragraph (a)(4) are
satisfied with respect to all individuals
residing at that address. If a dependent’s
last known address is different than the
participant’s last known address, a
separate certificate is required to be
provided to the dependent at the
dependent’s last known address. If
separate certificates are being provided
by mail to individuals who reside at the
same address, separate mailings of each
certificate are not required.
(ii) Procedure for requesting
certificates. A plan or issuer must
establish a written procedure for
individuals to request and receive
certificates pursuant to paragraph
(a)(2)(iii) of this section. The written
procedure must include all contact
information necessary to request a
certificate (such as name and phone
number or address).
(iii) Designated recipients. If an
automatic certificate is required to be
provided under paragraph (a)(2)(ii) of
this section, and the individual entitled
to receive the certificate designates
another individual or entity to receive
the certificate, the plan or issuer
responsible for providing the certificate
is permitted to provide the certificate to
the designated individual or entity. If a
certificate is required to be provided
upon request under paragraph (a)(2)(iii)
of this section and the individual
entitled to receive the certificate
designates another individual or entity
to receive the certificate, the plan or
issuer responsible for providing the
certificate is required to provide the
certificate to the designated individual
or entity.
(5) Special rules concerning
dependent coverage—(i)(A) Reasonable
efforts. A plan or issuer is required to
use reasonable efforts to determine any
information needed for a certificate
relating to dependent coverage. In any
case in which an automatic certificate is
required to be furnished with respect to
a dependent under paragraph (a)(2)(ii)
of this section, no individual certificate
is required to be furnished until the
plan or issuer knows (or making
reasonable efforts should know) of the
dependent’s cessation of coverage under
the plan.
(B) Example. The rules of this
paragraph (a)(5)(i) are illustrated by the
following example:
Example. (i) Facts. A group health plan
covers employees and their dependents. The
plan annually requests all employees to
provide updated information regarding
dependents, including the specific date on
which an employee has a new dependent or
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on which a person ceases to be a dependent
of the employee.
(ii) Conclusion. In this Example, the plan
has satisfied the standard in this paragraph
(a)(5)(i) of this section that it make reasonable
efforts to determine the cessation of
dependents’ coverage and the related
dependent coverage information.
(ii) Special rules for demonstrating
coverage. If a certificate furnished by a
plan or issuer does not provide the
name of any dependent covered by the
certificate, the procedures described in
paragraph (c)(5) of this section may be
used to demonstrate dependent status.
In addition, these procedures may be
used to demonstrate that a child was
covered under any creditable coverage
within 30 days after birth, adoption, or
placement for adoption. See also
§ 146.111(b), under which such a child
cannot be subject to a preexisting
condition exclusion.
(6) Special certification rules—(i)
Issuers. Issuers of group and individual
health insurance are required to provide
certificates of any creditable coverage
they provide in the group or individual
health insurance market, even if the
coverage is provided in connection with
an entity or program that is not itself
required to provide a certificate because
it is not subject to the group market
provisions of this part, part 7 of subtitle
B of title I of ERISA, or chapter 100 of
subtitle K of the Internal Revenue Code.
This would include coverage provided
in connection with any of the following:
(A) Creditable coverage described in
sections 2701(c)(1)(G), (I) and (J) of the
PHS Act (coverage under a State health
benefits risk pool, a public health plan,
and a health benefit plan under section
5(e) of the Peace Corps Act).
(B) Coverage subject to section
2721(b)(1)(B) of the PHS Act (requiring
certificates by issuers offering health
insurance coverage in connection with
any group health plan, including a
church plan or a governmental plan
(including the Federal Employees
Health Benefits Program).
(C) Coverage subject to section 2743 of
the PHS Act applicable to health
insurance issuers in the individual
market. (However, this section does not
require a certificate to be provided with
respect to short-term limited duration
insurance, which is excluded from the
definition of ‘‘individual health
insurance coverage’’ in 45 CFR 144.103
that is not provided in connection with
a group health plan, as described in
paragraph (a)(6)(i)(B) of this section.)
(ii) Other entities. For special rules
requiring that certain other entities, not
subject to this part, provide certificates
consistent with the rules of this section,
see section 2791(a)(3) of the PHS Act
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applicable to entities described in
sections 2701(c)(1)(C), (D), (E), and (F)
of the PHS Act (relating to Medicare,
Medicaid, TRICARE, and Indian Health
Service), section 2721(b)(1)(A) of the
PHS Act applicable to non-Federal
governmental plans generally, section
2721(b)(2)(C)(ii) of the PHS Act
applicable to non-Federal governmental
plans that elect to be excluded from the
requirements of subparts 1 through 3 of
part A of title XXVII of the PHS Act, and
section 9805(a) of the Internal Revenue
Code applicable to group health plans,
which includes church plans (as
defined in section 414(e) of the Internal
Revenue Code).
(b) Disclosure of coverage to a plan or
issuer using the alternative method of
counting creditable coverage—(1) In
general. After an individual provides a
certificate of creditable coverage to a
plan or issuer using the alternative
method under § 146.113(c), that plan or
issuer (requesting entity) must request
that the entity that issued the certificate
(prior entity) disclose the information
set forth in paragraph (b)(2) of this
section. The prior entity is required to
disclose this information promptly.
(2) Information to be disclosed. The
prior entity is required to identify to the
requesting entity the categories of
benefits with respect to which the
requesting entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to
determine the individual’s creditable
coverage with respect to any such
category.
(3) Charge for providing information.
The prior entity may charge the
requesting entity for the reasonable cost
of disclosing such information.
(c) Ability of an individual to
demonstrate creditable coverage and
waiting period information—(1)
Purpose. The rules in this paragraph (c)
implement section 2701(c)(4) of the PHS
Act, which permits individuals to
demonstrate the duration of creditable
coverage through means other than
certificates, and section 2701(e)(3) of the
PHS Act, which requires the Secretary
to establish rules designed to prevent an
individual’s subsequent coverage under
a group health plan or health insurance
coverage from being adversely affected
by an entity’s failure to provide a
certificate with respect to that
individual.
(2) In general. If the accuracy of a
certificate is contested or a certificate is
unavailable when needed by an
individual, the individual has the right
to demonstrate creditable coverage (and
waiting or affiliation periods) through
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78793
the presentation of documents or other
means. For example, the individual may
make such a demonstration when—
(i) An entity has failed to provide a
certificate within the required time;
(ii) The individual has creditable
coverage provided by an entity that is
not required to provide a certificate of
the coverage pursuant to paragraph (a)
of this section;
(iii) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(iv) The individual lost a certificate
that the individual had previously
received and is unable to obtain another
certificate.
(3) Evidence of creditable coverage—
(i) Consideration of evidence—(A) A
plan or issuer is required to take into
account all information that it obtains or
that is presented on behalf of an
individual to make a determination,
based on the relevant facts and
circumstances, whether an individual
has creditable coverage. A plan or issuer
shall treat the individual as having
furnished a certificate under paragraph
(a) of this section if—
(1) The individual attests to the
period of creditable coverage;
(2) The individual also presents
relevant corroborating evidence of some
creditable coverage during the period;
and
(3) The individual cooperates with the
plan’s or issuer’s efforts to verify the
individual’s coverage.
(B) For purposes of this paragraph
(c)(3)(i), cooperation includes providing
(upon the plan’s or issuer’s request) a
written authorization for the plan or
issuer to request a certificate on behalf
of the individual, and cooperating in
efforts to determine the validity of the
corroborating evidence and the dates of
creditable coverage. While a plan or
issuer may refuse to credit coverage
where the individual fails to cooperate
with the plan’s or issuer’s efforts to
verify coverage, the plan or issuer may
not consider an individual’s inability to
obtain a certificate to be evidence of the
absence of creditable coverage.
(ii) Documents. Documents that
corroborate creditable coverage (and
waiting or affiliation periods) include
explanations of benefits (EOBs) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
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documents that evidence periods of
health coverage.
(iii) Other evidence. Creditable
coverage (and waiting or affiliation
periods) may also be corroborated
through means other than
documentation, such as by a telephone
call from the plan or provider to a third
party verifying creditable coverage.
(iv) Example. The rules of this
paragraph (c)(3) are illustrated by the
following example:
Example. (i) Facts. Individual F terminates
employment with Employer W and, a month
later, is hired by Employer X. X’s group
health plan imposes a preexisting condition
exclusion of 12 months on new enrollees
under the plan and uses the standard method
of determining creditable coverage. F fails to
receive a certificate of prior coverage from
the self-insured group health plan
maintained by F’s prior employer, W, and
requests a certificate. However, F (and X’s
plan, on F’s behalf and with F’s cooperation)
is unable to obtain a certificate from W’s
plan. F attests that, to the best of F’s
knowledge, F had at least 12 months of
continuous coverage under W’s plan, and
that the coverage ended no earlier than F’s
termination of employment from W. In
addition, F presents evidence of coverage,
such as an explanation of benefits for a claim
that was made during the relevant period.
(ii) Conclusion. In this Example, based
solely on these facts, F has demonstrated
creditable coverage for the 12 months of
coverage under W’s plan in the same manner
as if F had presented a written certificate of
creditable coverage.
(4) Demonstrating categories of
creditable coverage. Procedures similar
to those described in this paragraph (c)
apply in order to determine the duration
of an individual’s creditable coverage
with respect to any category under
paragraph (b) of this section (relating to
determining creditable coverage under
the alternative method).
(5) Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the
group health plan or issuer is required
to treat the individual as having
furnished a certificate showing the
dependent status if the individual
attests to such dependency and the
period of such status and the individual
cooperates with the plan’s or issuer’s
efforts to verify the dependent status.
■ 5. Revise § 146.117 to read as follows:
§ 146.117
Special enrollment periods.
(a) Special enrollment for certain
individuals who lose coverage—(1) In
General. A group health plan, and a
health insurance issuer offering health
insurance coverage in connection with a
group health plan, is required to permit
current employees and dependents (as
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defined in § 144.103 of this chapter)
who are described in paragraph (a)(2) of
this section to enroll for coverage under
the terms of the plan if the conditions
in paragraph (a)(3) of this section are
satisfied. The special enrollment rights
under this paragraph (a) apply without
regard to the dates on which an
individual would otherwise be able to
enroll under the plan.
(2) Individuals eligible for special
enrollment—(i) When employee loses
coverage. A current employee and any
dependents (including the employee’s
spouse) each are eligible for special
enrollment in any benefit package under
the plan (subject to plan eligibility rules
conditioning dependent enrollment on
enrollment of the employee) if—
(A) The employee and the dependents
are otherwise eligible to enroll in the
benefit package;
(B) When coverage under the plan
was previously offered, the employee
had coverage under any group health
plan or health insurance coverage; and
(C) The employee satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(ii) When dependent loses coverage—
(A) A dependent of a current employee
(including the employee’s spouse) and
the employee each are eligible for
special enrollment in any benefit
package under the plan (subject to plan
eligibility rules conditioning dependent
enrollment on enrollment of the
employee) if—
(1) The dependent and the employee
are otherwise eligible to enroll in the
benefit package;
(2) When coverage under the plan was
previously offered, the dependent had
coverage under any group health plan or
health insurance coverage; and
(3) The dependent satisfies the
conditions of paragraph (a)(3)(i), (ii), or
(iii) of this section and, if applicable,
paragraph (a)(3)(iv) of this section.
(B) However, the plan or issuer is not
required to enroll any other dependent
unless that dependent satisfies the
criteria of this paragraph (a)(2)(ii), or the
employee satisfies the criteria of
paragraph (a)(2)(i) of this section.
(iii) Examples. The rules of this
paragraph (a)(2) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A works
for Employer X. A, A’s spouse, and A’s
dependent children are eligible but not
enrolled for coverage under X’s group health
plan. A’s spouse works for Employer Y and
at the time coverage was offered under X’s
plan, A was enrolled in coverage under Y’s
plan. Then, A loses eligibility for coverage
under Y’s plan.
(ii) Conclusion. In this Example 1, because
A satisfies the conditions for special
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Sfmt 4700
enrollment under paragraph (a)(2)(i) of this
section, A, A’s spouse, and A’s dependent
children are eligible for special enrollment
under X’s plan.
Example 2. (i) Facts. Individual A and A’s
spouse are eligible but not enrolled for
coverage under Group Health Plan P
maintained by A’s employer. When A was
first presented with an opportunity to enroll
A and A’s spouse, they did not have other
coverage. Later, A and A’s spouse enroll in
Group Health Plan Q maintained by the
employer of A’s spouse. During a subsequent
open enrollment period in P, A and A’s
spouse did not enroll because of their
coverage under Q. They then lose eligibility
for coverage under Q.
(ii) Conclusion. In this Example 2, because
A and A’s spouse were covered under Q
when they did not enroll in P during open
enrollment, they satisfy the conditions for
special enrollment under paragraphs (a)(2)(i)
and (ii) of this section. Consequently, A and
A’s spouse are eligible for special enrollment
under P.
Example 3. (i) Facts. Individual B works
for Employer X. B and B’s spouse are eligible
but not enrolled for coverage under X’s group
health plan. B’s spouse works for Employer
Y and at the time coverage was offered under
X’s plan, B’s spouse was enrolled in self-only
coverage under Y’s group health plan. Then,
B’s spouse loses eligibility for coverage under
Y’s plan.
(ii) Conclusion. In this Example 3, because
B’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both B and B’s spouse are eligible for
special enrollment under X’s plan.
Example 4. (i) Facts. Individual A works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. A enrolls for self-only coverage in
the HMO option. A’s spouse works for
Employer Y and was enrolled for self-only
coverage under Y’s plan at the time coverage
was offered under X’s plan. Then, A’s spouse
loses coverage under Y’s plan. A requests
special enrollment for A and A’s spouse
under the plan’s indemnity option.
(ii) Conclusion. In this Example 4, because
A’s spouse satisfies the conditions for special
enrollment under paragraph (a)(2)(ii) of this
section, both A and A’s spouse can enroll in
either benefit package under X’s plan.
Therefore, if A requests enrollment in
accordance with the requirements of this
section, the plan must allow A and A’s
spouse to enroll in the indemnity option.
(3) Conditions for special
enrollment—(i) Loss of eligibility for
coverage. In the case of an employee or
dependent who has coverage that is not
COBRA continuation coverage, the
conditions of this paragraph (a)(3)(i) are
satisfied at the time the coverage is
terminated as a result of loss of
eligibility (regardless of whether the
individual is eligible for or elects
COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i)
does not include a loss due to the failure
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of the employee or dependent to pay
premiums on a timely basis or
termination of coverage for cause (such
as making a fraudulent claim or an
intentional misrepresentation of a
material fact in connection with the
plan). Loss of eligibility for coverage
under this paragraph (a)(3)(i) includes
(but is not limited to)—
(A) Loss of eligibility for coverage as
a result of legal separation, divorce,
cessation of dependent status (such as
attaining the maximum age to be eligible
as a dependent child under the plan),
death of an employee, termination of
employment, reduction in the number
of hours of employment, and any loss of
eligibility for coverage after a period
that is measured by reference to any of
the foregoing;
(B) In the case of coverage offered
through an HMO, or other arrangement,
in the individual market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual);
(C) In the case of coverage offered
through an HMO, or other arrangement,
in the group market that does not
provide benefits to individuals who no
longer reside, live, or work in a service
area, loss of coverage because an
individual no longer resides, lives, or
works in the service area (whether or
not within the choice of the individual),
and no other benefit package is available
to the individual;
(D) A situation in which an individual
incurs a claim that would meet or
exceed a lifetime limit on all benefits;
and
(E) A situation in which a plan no
longer offers any benefits to the class of
similarly situated individuals (as
described in § 146.121(d)) that includes
the individual.
(ii) Termination of employer
contributions. In the case of an
employee or dependent who has
coverage that is not COBRA
continuation coverage, the conditions of
this paragraph (a)(3)(ii) are satisfied at
the time employer contributions
towards the employee’s or dependent’s
coverage terminate. Employer
contributions include contributions by
any current or former employer that was
contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA
continuation coverage. In the case of an
employee or dependent who has
coverage that is COBRA continuation
coverage, the conditions of this
paragraph (a)(3)(iii) are satisfied at the
time the COBRA continuation coverage
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is exhausted. For purposes of this
paragraph (a)(3)(iii), an individual who
satisfies the conditions for special
enrollment of paragraph (a)(3)(i) of this
section, does not enroll, and instead
elects and exhausts COBRA
continuation coverage satisfies the
conditions of this paragraph (a)(3)(iii).
(Exhaustion of COBRA continuation
coverage is defined in § 144.103 of this
chapter.)
(iv) Written statement. A plan may
require an employee declining coverage
(for the employee or any dependent of
the employee) to state in writing
whether the coverage is being declined
due to other health coverage only if, at
or before the time the employee declines
coverage, the employee is provided with
notice of the requirement to provide the
statement (and the consequences of the
employee’s failure to provide the
statement). If a plan requires such a
statement, and an employee does not
provide it, the plan is not required to
provide special enrollment to the
employee or any dependent of the
employee under this paragraph (a)(3). A
plan must treat an employee as having
satisfied the plan requirement permitted
under this paragraph (a)(3)(iv) if the
employee provides a written statement
that coverage was being declined
because the employee or dependent had
other coverage; a plan cannot require
anything more for the employee to
satisfy the plan’s requirement to provide
a written statement. (For example, the
plan cannot require that the statement
be notarized.)
(v) The rules of this paragraph (a)(3)
are illustrated by the following
examples:
Example 1. (i) Facts. Individual D enrolls
in a group health plan maintained by
Employer Y. At the time D enrolls, Y pays
70 percent of the cost of employee coverage
and D pays the rest. Y announces that
beginning January 1, Y will no longer make
employer contributions towards the coverage.
Employees may maintain coverage, however,
if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1,
employer contributions towards D’s coverage
ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are
satisfied on this date (regardless of whether
D elects to pay the total cost and continue
coverage under Y’s plan).
Example 2. (i) Facts. A group health plan
provides coverage through two options—
Option 1 and Option 2. Employees can enroll
in either option only within 30 days of hire
or on January 1 of each year. Employee A is
eligible for both options and enrolls in
Option 1. Effective July 1 the plan terminates
coverage under Option 1 and the plan does
not create an immediate open enrollment
opportunity into Option 2.
(ii) Conclusion. In this Example 2, A has
experienced a loss of eligibility for coverage
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78795
that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other
conditions for special enrollment under
paragraph (a)(2)(i) of this section. Therefore,
if A satisfies the other conditions of this
paragraph (a), the plan must permit A to
enroll in Option 2 as a special enrollee. (A
may also be eligible to enroll in another
group health plan, such as a plan maintained
by the employer of A’s spouse, as a special
enrollee.) The outcome would be the same if
Option 1 was terminated by an issuer and the
plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is
covered under a group health plan
maintained by Employer X. While covered
under X’s plan, C was eligible for but did not
enroll in a plan maintained by Employer Z,
the employer of C’s spouse. C terminates
employment with X and loses eligibility for
coverage under X’s plan. C has a special
enrollment right to enroll in Z’s plan, but C
instead elects COBRA continuation coverage
under X’s plan. C exhausts COBRA
continuation coverage under X’s plan and
requests special enrollment in Z’s plan.
(ii) Conclusion. In this Example 3, C has
satisfied the conditions for special
enrollment under paragraph (a)(3)(iii) of this
section, and has satisfied the other
conditions for special enrollment under
paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z’s plan
immediately after the loss of eligibility for
coverage under X’s plan was an offer of
coverage under Z’s plan. When C later
exhausts COBRA coverage under X’s plan, C
has a second special enrollment right in Z’s
plan.
(4) Applying for special enrollment
and effective date of coverage—(i) A
plan or issuer must allow an employee
a period of at least 30 days after an
event described in paragraph (a)(3) of
this section (other than an event
described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or
the employee’s dependent). In the case
of an event described in paragraph
(a)(3)(i)(D) of this section (relating to
loss of eligibility for coverage due to the
operation of a lifetime limit on all
benefits), a plan or issuer must allow an
employee a period of at least 30 days
after a claim is denied due to the
operation of a lifetime limit on all
benefits.
(ii) Coverage must begin no later than
the first day of the first calendar month
beginning after the date the plan or
issuer receives the request for special
enrollment.
(b) Special enrollment with respect to
certain dependent beneficiaries—(1)
General. A group health plan, and a
health insurance issuer offering health
insurance coverage in connection with a
group health plan, that makes coverage
available with respect to dependents is
required to permit individuals described
in paragraph (b)(2) of this section to be
enrolled for coverage in a benefit
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package under the terms of the plan.
Paragraph (b)(3) of this section describes
the required special enrollment period
and the date by which coverage must
begin. The special enrollment rights
under this paragraph (b) apply without
regard to the dates on which an
individual would otherwise be able to
enroll under the plan.
(2) Individuals eligible for special
enrollment. An individual is described
in this paragraph (b)(2) if the individual
is otherwise eligible for coverage in a
benefit package under the plan and if
the individual is described in paragraph
(b)(2)(i), (ii), (iii), (iv), (v), or (vi) of this
section.
(i) Current employee only. A current
employee is described in this paragraph
(b)(2)(i) if a person becomes a
dependent of the individual through
marriage, birth, adoption, or placement
for adoption.
(ii) Spouse of a participant only. An
individual is described in this
paragraph (b)(2)(ii) if either—
(A) The individual becomes the
spouse of a participant; or
(B) The individual is a spouse of a
participant and a child becomes a
dependent of the participant through
birth, adoption, or placement for
adoption.
(iii) Current employee and spouse. A
current employee and an individual
who is or becomes a spouse of such an
employee, are described in this
paragraph (b)(2)(iii) if either—
(A) The employee and the spouse
become married; or
(B) The employee and spouse are
married and a child becomes a
dependent of the employee through
birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only.
An individual is described in this
paragraph (b)(2)(iv) if the individual is
a dependent (as defined in § 144.103 of
this chapter) of a participant and the
individual has become a dependent of
the participant through marriage, birth,
adoption, or placement for adoption.
(v) Current employee and a new
dependent. A current employee and an
individual who is a dependent of the
employee, are described in this
paragraph (b)(2)(v) if the individual
becomes a dependent of the employee
through marriage, birth, adoption, or
placement for adoption.
(vi) Current employee, spouse, and a
new dependent. A current employee,
the employee’s spouse, and the
employee’s dependent are described in
this paragraph (b)(2)(vi) if the
dependent becomes a dependent of the
employee through marriage, birth,
adoption, or placement for adoption.
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(3) Applying for special enrollment
and effective date of coverage—(i)
Request. A plan or issuer must allow an
individual a period of at least 30 days
after the date of the marriage, birth,
adoption, or placement for adoption (or,
if dependent coverage is not generally
made available at the time of the
marriage, birth, adoption, or placement
for adoption, a period of at least 30 days
after the date the plan makes dependent
coverage generally available) to request
enrollment (for the individual or the
individual’s dependent).
(ii) Reasonable procedures for special
enrollment. [Reserved]
(iii) Date coverage must begin—(A)
Marriage. In the case of marriage,
coverage must begin no later than the
first day of the first calendar month
beginning after the date the plan or
issuer receives the request for special
enrollment.
(B) Birth, adoption, or placement for
adoption. Coverage must begin in the
case of a dependent’s birth on the date
of birth and in the case of a dependent’s
adoption or placement for adoption no
later than the date of such adoption or
placement for adoption (or, if dependent
coverage is not made generally available
at the time of the birth, adoption, or
placement for adoption, the date the
plan makes dependent coverage
available).
(4) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. An employer
maintains a group health plan that offers all
employees employee-only coverage,
employee-plus-spouse coverage, or family
coverage. Under the terms of the plan, any
employee may elect to enroll when first hired
(with coverage beginning on the date of hire)
or during an annual open enrollment period
held each December (with coverage
beginning the following January 1). Employee
A is hired on September 3. A is married to
B, and they have no children. On March 15
in the following year a child C is born to A
and B. Before that date, A and B have not
been enrolled in the plan.
(ii) Conclusion. In this Example 1, the
conditions for special enrollment of an
employee with a spouse and new dependent
under paragraph (b)(2)(vi) of this section are
satisfied. If A satisfies the conditions of
paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this
paragraph (b) if it allows A to enroll either
with employee-only coverage, with
employee-plus-spouse coverage (for A and B),
or with family coverage (for A, B, and C). The
plan must allow whatever coverage is chosen
to begin on March 15, the date of C’s birth.
Example 2. (i) Facts. Individual D works
for Employer X. X maintains a group health
plan with two benefit packages—an HMO
option and an indemnity option. Self-only
and family coverage are available under both
options. D enrolls for self-only coverage in
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the HMO option. Then, a child, E, is placed
for adoption with D. Within 30 days of the
placement of E for adoption, D requests
enrollment for D and E under the plan’s
indemnity option.
(ii) Conclusion. In this Example 2, D and
E satisfy the conditions for special
enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan
must allow D and E to enroll in the
indemnity coverage, effective as of the date
of the placement for adoption.
(c) Notice of special enrollment. At or
before the time an employee is initially
offered the opportunity to enroll in a
group health plan, the plan must furnish
the employee with a notice of special
enrollment that complies with the
requirements of this paragraph (c).
(1) Description of special enrollment
rights. The notice of special enrollment
must include a description of special
enrollment rights. The following model
language may be used to satisfy this
requirement:
If you are declining enrollment for yourself
or your dependents (including your spouse)
because of other health insurance or group
health plan coverage, you may be able to
enroll yourself and your dependents in this
plan if you or your dependents lose
eligibility for that other coverage (or if the
employer stops contributing towards your or
your dependents’ other coverage). However,
you must request enrollment within [insert
‘‘30 days’’ or any longer period that applies
under the plan] after your or your
dependents’ other coverage ends (or after the
employer stops contributing toward the other
coverage).
In addition, if you have a new dependent
as a result of marriage, birth, adoption, or
placement for adoption, you may be able to
enroll yourself and your dependents.
However, you must request enrollment
within [insert ‘‘30 days’’ or any longer period
that applies under the plan] after the
marriage, birth, adoption, or placement for
adoption.
To request special enrollment or obtain
more information, contact [insert the name,
title, telephone number, and any additional
contact information of the appropriate plan
representative].
(2) Additional information that may
be required. The notice of special
enrollment must also include, if
applicable, the notice described in
paragraph (a)(3)(iv) of this section (the
notice required to be furnished to an
individual declining coverage if the
plan requires the reason for declining
coverage to be in writing).
(d) Treatment of special enrollees—(1)
If an individual requests enrollment
while the individual is entitled to
special enrollment under either
paragraph (a) or (b) of this section, the
individual is a special enrollee, even if
the request for enrollment coincides
with a late enrollment opportunity
under the plan. Therefore, the
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individual cannot be treated as a late
enrollee.
(2) Special enrollees must be offered
all the benefit packages available to
similarly situated individuals who
enroll when first eligible. For this
purpose, any difference in benefits or
cost-sharing requirements for different
individuals constitutes a different
benefit package. In addition, a special
enrollee cannot be required to pay more
for coverage than a similarly situated
individual who enrolls in the same
coverage when first eligible. The length
of any preexisting condition exclusion
that may be applied to a special enrollee
cannot exceed the length of any
preexisting condition exclusion that is
applied to similarly situated individuals
who enroll when first eligible. For rules
prohibiting the application of a
preexisting condition exclusion to
certain newborns, adopted children, and
children placed for adoption, see
§ 146.111(b).
(3) The rules of this section are
illustrated by the following example:
Example. (i) Facts. Employer Y maintains
a group health plan that has an enrollment
period for late enrollees every November 1
through November 30 with coverage effective
the following January 1. On October 18,
Individual B loses coverage under another
group health plan and satisfies the
requirements of paragraphs (a)(2), (3), and (4)
of this section. B submits a completed
application for coverage on November 2.
(ii) Conclusion. In this Example, B is a
special enrollee. Therefore, even though B’s
request for enrollment coincides with an
open enrollment period, B’s coverage is
required to be made effective no later than
December 1 (rather than the plan’s January 1
effective date for late enrollees).
■
6. Revise § 146.119 to read as follows:
§ 146.119 HMO affiliation period as an
alternative to a preexisting condition
exclusion.
(a) In general. A group health plan
offering health insurance coverage
through an HMO, or an HMO that offers
health insurance coverage in connection
with a group health plan, may impose
an affiliation period only if each of the
following requirements is satisfied—
(1) No preexisting condition exclusion
is imposed with respect to any coverage
offered by the HMO in connection with
the particular group health plan.
(2) No premium is charged to a
participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO
coverage is imposed consistent with the
requirements of § 146.121 (prohibiting
discrimination based on a health factor).
(4) The affiliation period does not
exceed 2 months (or 3 months in the
case of a late enrollee).
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(5) The affiliation period begins on
the enrollment date, or in the case of a
late enrollee, the affiliation period
begins on the day that would be the first
day of coverage but for the affiliation
period.
(6) The affiliation period for
enrollment in the HMO under a plan
runs concurrently with any waiting
period.
(b) Examples. The rules of paragraph
(a) of this section are illustrated by the
following examples:
Example 1. (i) Facts. An employer
sponsors a group health plan. Benefits under
the plan are provided through an HMO,
which imposes a two-month affiliation
period. In order to be eligible under the plan,
employees must have worked for the
employer for six months. Individual A begins
working for the employer on February 1.
(ii) Conclusion. In this Example 1,
Individual A’s enrollment date is February 1
(see § 146.111(a)(2)), and both the waiting
period and the affiliation period begin on this
date and run concurrently. Therefore, the
affiliation period ends on March 31, the
waiting period ends on July 31, and A is
eligible to have coverage begin on August 1.
Example 2. (i) Facts. A group health plan
has two benefit package options, a fee-forservice option and an HMO option. The
HMO imposes a 1-month affiliation period.
Individual B is enrolled in the fee-for-service
option for more than one month and then
decides to switch to the HMO option at open
season.
(ii) Conclusion. In this Example 2, the
HMO may not impose the affiliation period
with respect to B because any affiliation
period would have to begin on B’s
enrollment date in the plan rather than the
date that B enrolled in the HMO option.
Therefore, the affiliation period would have
expired before B switched to the HMO
option.
Example 3. (i) Facts. An employer sponsors
a group health plan that provides benefits
through an HMO. The plan imposes a twomonth affiliation period with respect to
salaried employees, but it does not impose an
affiliation period with respect to hourly
employees.
(ii) Conclusion. In this Example 3, the plan
may impose the affiliation period with
respect to salaried employees without
imposing any affiliation period with respect
to hourly employees (unless, under the
circumstances, treating salaried and hourly
employees differently does not comply with
the requirements of § 146.121).
(c) Alternatives to affiliation period.
An HMO may use alternative methods
in lieu of an affiliation period to address
adverse selection, as approved by the
State insurance commissioner or other
official designated to regulate HMOs.
However, an arrangement that is in the
nature of a preexisting condition
exclusion cannot be an alternative to an
affiliation period. Nothing in this part
requires a State to receive proposals for
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78797
or approve alternatives to affiliation
periods.
■ 7. Add and reserve § 146.120 to read as
follows:
§ 146.120 Interaction with the Family and
Medical Leave Act [Reserved]
■
8. Revise § 146.125 to read as follows:
§ 146.125
Applicability dates.
Sections 146.111 through 146.119,
§ 146.143, and § 146.145 are applicable
for plan years beginning on or after July
1, 2005. Until the applicability date for
this regulation, plans and issuers are
required to continue to comply with the
corresponding sections of 45 CFR parts
144 and 146, contained in the 45 CFR,
parts 1 to 199, edition revised as of
October 1, 2004.
■ 9. Revise § 146.143 to read as follows:
§ 146.143 Preemption; State flexibility;
construction.
(a) Continued applicability of State
law with respect to health insurance
issuers. Subject to paragraph (b) of this
section and except as provided in
paragraph (c) of this section, part A of
title XXVII of the PHS Act is not to be
construed to supersede any provision of
State law which establishes,
implements, or continues in effect any
standard or requirement solely relating
to health insurance issuers in
connection with group health insurance
coverage except to the extent that such
standard or requirement prevents the
application of a requirement of this part.
(b) Continued preemption with
respect to group health plans. Nothing
in part A of title XXVII of the PHS Act
affects or modifies the provisions of
section 514 of the Act with respect to
group health plans.
(c) Special rules—(1) In general.
Subject to paragraph (c)(2) of this
section, the provisions of part A of title
XXVII of the PHS Act relating to health
insurance coverage offered by a health
insurance issuer supersede any
provision of State law which
establishes, implements, or continues in
effect a standard or requirement
applicable to imposition of a preexisting
condition exclusion specifically
governed by section 2701 of the PHS
Act which differs from the standards or
requirements specified in section 2701
of the PHS Act.
(2) Exceptions. Only in relation to
health insurance coverage offered by a
health insurance issuer, the provisions
of this part do not supersede any
provision of State law to the extent that
such provision—
(i) Shortens the period of time from
the ‘‘6-month period’’ described in
section 2701(a)(1) of the PHS Act and
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§ 146.111(a)(1)(i) (for purposes of
identifying a preexisting condition);
(ii) Shortens the period of time from
the ‘‘12 months’’ and ‘‘18 months’’
described in section 2701(a)(2) of the
PHS Act and § 146.111(a)(1)(ii) (for
purposes of applying a preexisting
condition exclusion period);
(iii) Provides for a greater number of
days than the ‘‘63-day period’’ described
in sections 2701(c)(2)(A) and (d)(4)(A) of
the PHS Act and §§ 146.111(a)(1)(iii)
and 146.113 (for purposes of applying
the break in coverage rules);
(iv) Provides for a greater number of
days than the ‘‘30-day period’’ described
in sections 2701(b)(2) and (d)(1) of the
PHS Act and § 146.111(b) (for purposes
of the enrollment period and preexisting
condition exclusion periods for certain
newborns and children that are adopted
or placed for adoption);
(v) Prohibits the imposition of any
preexisting condition exclusion in cases
not described in section 2701(d) of the
PHS Act or expands the exceptions
described therein;
(vi) Requires special enrollment
periods in addition to those required
under section 2701(f) of the PHS Act; or
(vii) Reduces the maximum period
permitted in an affiliation period under
section 2701(g)(1)(B) of the PHS Act.
(d) Definitions—(1) State law. For
purposes of this section the term State
law includes all laws, decisions, rules,
regulations, or other State action having
the effect of law, of any State. A law of
the United States applicable only to the
District of Columbia is treated as a State
law rather than a law of the United
States.
(2) State. For purposes of this section
the term State includes a State (as
defined in § 144.103), any political
subdivisions of a State, or any agency or
instrumentality of either.
■ 10. Revise § 146.145 to read as follows:
§ 146.145 Special rules relating to group
health plans.
(a) Group health plan—(1) Definition.
A group health plan means an employee
welfare benefit plan to the extent that
the plan provides medical care
(including items and services paid for as
medical care) to employees (including
both current and former employees) or
their dependents (as defined under the
terms of the plan) directly or through
insurance, reimbursement, or otherwise.
(2) Determination of number of plans.
[Reserved]
(b) General exception for certain small
group health plans. The requirements of
this part, other than § 146.130, do not
apply to any group health plan (and
group health insurance coverage) for
any plan year if, on the first day of the
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Jkt 205001
plan year, the plan has fewer than two
participants who are current employees.
(c) Excepted benefits—(1) In general.
The requirements of subparts B and C of
this part do not apply to any group
health plan (or any group health
insurance coverage) in relation to its
provision of the benefits described in
paragraph (c)(2), (3), (4), or (5) of this
section (or any combination of these
benefits).
(2) Benefits excepted in all
circumstances. The following benefits
are excepted in all circumstances—
(i) Coverage only for accident
(including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including
general liability insurance and
automobile liability insurance;
(iv) Coverage issued as a supplement
to liability insurance;
(v) Workers’ compensation or similar
coverage;
(vi) Automobile medical payment
insurance;
(vii) Credit-only insurance (for
example, mortgage insurance); and
(viii) Coverage for on-site medical
clinics.
(3) Limited excepted benefits—(i) In
general. Limited-scope dental benefits,
limited-scope vision benefits, or longterm 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 a
group health plan as described in
paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a
health flexible spending arrangement
are excepted benefits if they satisfy the
requirements of paragraph (c)(3)(v) of
this section.
(ii) Not an integral part of a group
health plan. For purposes of this
paragraph (c)(3), benefits are not an
integral part of a group health plan
(whether the benefits are provided
through the same plan or a separate
plan) only if the following two
requirements are satisfied—
(A) Participants must have the right to
elect not to receive coverage for the
benefits; and
(B) If a participant elects to receive
coverage for the benefits, the participant
must pay an additional premium or
contribution for that coverage.
(iii) Limited scope—(A) Dental
benefits. Limited scope dental benefits
are benefits substantially all of which
are for treatment of the mouth
(including any organ or structure within
the mouth).
(B) Vision benefits. Limited scope
vision benefits are benefits substantially
all of which are for treatment of the eye.
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(iv) Long-term care. Long-term care
benefits are benefits that are either—
(A) Subject to State long-term care
insurance laws;
(B) For qualified long-term care
services, as defined in section
7702B(c)(1) of the Internal Revenue
Code, or provided under a qualified
long-term care insurance contract, as
defined in section 7702B(b) of the
Internal Revenue Code; or
(C) Based on cognitive impairment or
a loss of functional capacity that is
expected to be chronic.
(v) Health flexible spending
arrangements. Benefits provided under
a health flexible spending arrangement
(as defined in section 106(c)(2) of the
Internal Revenue Code) are excepted for
a class of participants only if they
satisfy the following two requirements—
(A) Other group health plan coverage,
not limited to excepted benefits, is made
available for the year to the class of
participants by reason of their
employment; and
(B) The arrangement is structured so
that the maximum benefit payable to
any participant in the class for a year
cannot exceed two times the
participant’s salary reduction election
under the arrangement for the year (or,
if greater, cannot exceed $500 plus the
amount of the participant’s salary
reduction election). For this purpose,
any amount that an employee can elect
to receive as taxable income but elects
to apply to the health flexible spending
arrangement is considered a salary
reduction election (regardless of
whether the amount is characterized as
salary or as a credit under the
arrangement).
(4) Noncoordinated benefits—(i)
Excepted benefits that are not
coordinated. Coverage for only a
specified disease or illness (for example,
cancer-only policies) or hospital
indemnity or other fixed indemnity
insurance is excepted only if it meets
each of the conditions specified in
paragraph (c)(4)(ii) of this section. To be
hospital indemnity or other fixed
indemnity insurance, the insurance
must pay a fixed dollar amount per day
(or per other period) of hospitalization
or illness (for example, $100/day)
regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described
in paragraph (c)(4)(i) of this section only
if—
(A) The benefits are provided under a
separate policy, certificate, or contract
of insurance;
(B) There is no coordination between
the provision of the benefits and an
exclusion of benefits under any group
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health plan maintained by the same
plan sponsor; and
(C) The benefits are paid with respect
to an event without regard to whether
benefits are provided with respect to the
event under any group health plan
maintained by the same plan sponsor.
(iii) Example. The rules of this
paragraph (c)(4) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
through an insurance policy. The policy
provides benefits only for hospital stays at a
fixed percentage of hospital expenses up to
a maximum of $100 a day.
(ii) Conclusion. In this Example, even
though the benefits under the policy satisfy
the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage
of expenses incurred rather than a fixed
dollar amount, the benefits under the policy
are not excepted benefits under this
paragraph (c)(4). This is the result even if, in
practice, the policy pays the maximum of
$100 for every day of hospitalization.
(5) Supplemental benefits. (i) The
following benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of
insurance—
(A) Medicare supplemental health
insurance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance);
(B) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as TRICARE supplemental
programs); and
(C) Similar supplemental coverage
provided to coverage under a group
health plan. To be similar supplemental
coverage, the coverage must be
specifically designed to fill gaps in
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primary coverage, such as coinsurance
or deductibles. Similar supplemental
coverage does not include coverage that
becomes secondary or supplemental
only under a coordination-of-benefits
provision.
(ii) The rules of this paragraph (c)(5)
are illustrated by the following example:
Example. (i) Facts. An employer sponsors
a group health plan that provides coverage
for both active employees and retirees. The
coverage for retirees supplements benefits
provided by Medicare, but does not meet the
requirements for a supplemental policy
under section 1882(g)(1) of the Social
Security Act.
(ii) Conclusion. In this Example, the
coverage provided to retirees does not meet
the definition of supplemental excepted
benefits under this paragraph (c)(5) because
the coverage is not Medicare supplemental
insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE
supplemental program, and is not
supplemental to coverage provided under a
group health plan.
(d) Treatment of partnerships. For
purposes of this part:
(1) Treatment as a group health plan.
Any plan, fund, or program that would
not be (but for this paragraph (d)) an
employee welfare benefit plan and that
is established or maintained by a
partnership, to the extent that the plan,
fund, or program provides medical care
(including items and services paid for as
medical care) to present or former
partners in the partnership or to their
dependents (as defined under the terms
of the plan, fund, or program), directly
or through insurance, reimbursement, or
otherwise, is treated (subject to
paragraph (d)(2) of this section) as an
employee welfare benefit plan that is a
group health plan.
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78799
(2) Employment relationship. In the
case of a group health plan, the term
employer also includes the partnership
in relation to any bona fide partner. In
addition, the term employee also
includes any bona fide partner. Whether
or not an individual is a bona fide
partner is determined based on all the
relevant facts and circumstances,
including whether the individual
performs services on behalf of the
partnership.
(3) Participants of group health plans.
In the case of a group health plan, the
term participant also includes any
individual described in paragraph
(d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to
receive a benefit under the plan or the
individual’s beneficiaries may be
eligible to receive any such benefit.
(i) In connection with a group health
plan maintained by a partnership, the
individual is a partner in relation to the
partnership.
(ii) In connection with a group health
plan maintained by a self-employed
individual (under which one or more
employees are participants), the
individual is the self-employed
individual.
(e) Determining the average number of
employees. [Reserved]
Dated: November 24, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare &
Medicaid Services.
Dated: December 2, 2004.
Tommy G. Thompson,
Secretary, Department of Health and Human
Services.
[FR Doc. 04–28112 Filed 12–29–04; 8:45 am]
BILLING CODE 4830–01–P; 4510–29–P; 4120–01–P
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| File Type | application/pdf |
| File Modified | 2010-07-19 |
| File Created | 2010-07-16 |