78720 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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

AGENCIES: 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.

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.

SUPPLEMENTARY INFORMATION: 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78721

1Several 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.

2See 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.

3For 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.

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 

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 

forth HIPAA’s limitations on preexisting 

condition exclusions, as follows: 

Six-Month Look-Back Rule 

The final regulations retain the 6-

month 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 6-

month 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 

78722 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78723

4Of 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.

5Section 2109 of the Social Security Act, enacted 

by section 4901 of the Balanced Budget Act of 1997, 

Pub. L. 105–33, 111 Stat. 567.

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 

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 6-

month 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. 

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 

78724 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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.

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78725

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.

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 

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 

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. 

BILLING CODE 4830–01–P

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ER30DE04.007</GPH>
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ER30DE04.008</GPH>
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ER30DE04.009</GPH>
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BILLING CODE 4830–01–C


ER30DE04.010</GPH>
78730 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78731

7Nonetheless, 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.

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 

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 

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. 

78732 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78733

8See CMS Program Memorandum No. 99–03, 

Group Size Issues Under Title XXVII of the Public 

Health Service Act, September 1999.

9Long 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.

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 

appear to endorse one or more policies 

offered by a health insurance issuer (or 

issuers), the coverage might be 

considered group health plan coverage. 

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 

146.152(a)(3)), including instances 

where such failure causes the number of 

current-employee participants to drop 

below two.

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. 

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 

78734 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78735

10Such a plan, fund, or program is also 

considered a group health plan under section 

5000(b)(1) and Chapter 100 of the Code.

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 

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. 

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. 

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 

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.

Counting the Average Number of 

Employees 

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. 

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 

78736 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78737

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) 

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 

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 

78738 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

11Computer 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.

12As 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.

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 

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 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78739

13States may shorten the six-month look-back 

period prior to the enrollment date; shorten the 12-

month 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).

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 

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. 

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 

78740 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

14We 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 

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.

15For 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.

16The 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 

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 

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

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78741

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.

17Findings 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)).

18This 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 

extensions of coverage with costs and benefits 

resembling those of direct extensions of coverage 

under HIPAA.

19Congressional Budget Office, ‘‘Estimate of Costs 

of Private Sector Mandates; Bill Number H.R. 3103, 

August 1, 1996.

20The 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.

21Research 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 

Continued

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, 

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

78742 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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.

22While 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.

23This 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.

24U.S. General Accounting Office, Report HEH–

99–100, ‘‘Private Health Insurance: Progress and 

Challenges in Implementing 1996 Federal 

Standards,’’ pp. 6–7, May 1999.

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.

26As reported in the MEPS–IC 1996–2002 public 

tables.

27Employee Health Benefits 2002 Study, Kaiser 

Family Foundation.

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78743

28Calculation from the 2003 March CPS.

29This number is 1 percent of the number of ESI 

holders in 2002 who moved from abroad the 

previous year.

30Estimates 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.

31See, for example, U.S. Bureau of Labor 

Statistics, Employee Benefits in Medium and Large 

Establishments, 2000 (Washington, DC: U.S. 

Government Printing Office, 2003).

32Milliman USA memorandum dated December 

6, 2001.

33Sally Trude, ‘‘Who Has A Choice of Health 

Plans?’’ Center for Studying Health Systems 

Change, Issue Brief: Findings from HSC, No. 27, 

Feb. 2000.

34The 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.

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 

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 

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 

78744 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

35This 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.

36The 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.

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 

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 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78745

37Kaiser Family Foundation and Health Research 

and Educational Trust, Employer Health Benefits 

2002 Annual Survey.

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 

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 

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. 

78746 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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. 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78747

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 

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 

(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 

78748 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78749

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 6-

month 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 6-

month 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 

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) 

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. 

78750 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

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 6-

month 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 12-

month 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 

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.

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78751

(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 

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 

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 

78752 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 18-

month) 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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78753

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 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 

§ 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 

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. 

(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 

78754 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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. 

(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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78755

(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 Evidence of creditable 

coverage. 

(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 

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 

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 

78756 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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. 

(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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78757

(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. 

(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. 

(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 

78758 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78759

(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 

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 

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 

78760 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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. 

(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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78761

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 

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 

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; 

78762 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

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.

(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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78763

(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. 

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.

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT

■ 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 

Current OMB 

control No. 

* * * * * 

54.9801–3 ........................... 1545–1537 

54.9801–4 ........................... 1545–1537 

54.9801–5 ........................... 1545–1537 

54.9801–6 ........................... 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 

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

■ 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:

§ 2590.701–1 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: 

(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,

78764 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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:

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78765

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 

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 

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 6-

month 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 6-

month 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 

78766 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78767

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 6-

month 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 12-

month 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). 

(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) 

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.

78768 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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.

(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 

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 18-

month) 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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78769

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 

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 

(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 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 

§ 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 

78770 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

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 

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

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78771

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 

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. 

(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 Evidence of creditable 

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 

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 

78772 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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:

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 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 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78773

(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 

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 

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 

78774 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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. 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78775

(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 

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—

(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 

78776 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78777

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 

(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 

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). 

78778 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78779

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; 

(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 

(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 

78780 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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—

(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.

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 

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]

§ 2590.736 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.

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78781

■ 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 

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; 

(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 

78782 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 

(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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78783

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 

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. 

(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 

78784 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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. 

(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 6-

month 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 6-

month 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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78785

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 

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 

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 6-

month 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 12-

month 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).

78786 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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. 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78787

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, 

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 18-

month) 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 

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—

78788 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

(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 presurgery 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. 

(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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78789

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 

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 

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 

78790 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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

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 

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:

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78791

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 

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 

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 

78792 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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); 

(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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78793

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 

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 

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 

78794 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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 

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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78795

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 

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 

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 

78796 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

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. 

(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 

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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78797

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). 

(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 

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 

78798 Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 

§ 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 

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. 

(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 

Federal Register / Vol. 69, No. 250 / Thursday, December 30, 2004 / Rules and Regulations 78799

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 

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. 

(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