Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / Rules and Regulations 67689

employee’s salary reduction election for

the year, plus any additional employer

contribution for the year.

III. Clarification

This document clarifies the

conditions under which it is appropriate

to treat benefits under a health FSA as

excepted benefits. Specifically, benefits

under a health FSA are excepted

benefits if the maximum benefit payable

for the employee under the health FSA

for the year does not exceed two times

the employee’s salary reduction election

under the health FSA for the year (or,

if greater, the amount of the employee’s

salary reduction election under the

health FSA for the year, plus $500), the

employee has other coverage available

under a group health plan of the

employer for the year, and the other

coverage is not limited to benefits that

are excepted benefits.

The effect of treating benefits under a

health FSA as excepted benefits is that

the health FSA is not subject to the

group market portability provisions.

Accordingly, there would be no

requirement under section 9801 of the

Code, section 701 of ERISA, or section

2701 of the PHS Act and the

implementing regulations to issue a

certificate of creditable coverage for

such a health FSA. In addition, coverage

that consists solely of coverage under

such a health FSA does not constitute

creditable coverage.

Group health plans, issuers, and other

entities subject to the group market

portability provisions of HIPAA may

rely on this document in treating

benefits under health FSAs described in

the first paragraph of this section III as

excepted benefits.

Dated: December 18, 1997.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Signed at Washington, DC, this 19th day of

December, 1997.

Olena Berg,

Assistant Secretary, Pension and Welfare

Benefits Administration, U.S. Department of

Labor.

Dated: December 18, 1997.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

[FR Doc. 97–33602 Filed 12–24–97; 8:45 am]

BILLING CODE 4830–01–P; 4510–29–P; 4120–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2590

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

45 CFR Subtitle A, Parts 144 and 146

Application of HIPAA Group Market

Rules to Individuals Who Were Denied

Coverage Due to a Health StatusRelated Factor

AGENCIES: Internal Revenue Service,

Department of the Treasury; Pension

and Welfare Benefits Administration,

Department of Labor; Health Care

Financing Administration, Department

of Health and Human Services.

ACTION: Clarification of regulations.

SUMMARY: This document addresses

certain issues arising under the group

market portability provisions added by

the Health Insurance Portability and

Accountability Act of 1996 (HIPAA)

with respect to employees (or their

dependents) who, until the effective

date of the HIPAA nondiscrimination

provisions, were denied coverage under

a group health plan, including group

health insurance coverage, because of a

health status-related factor.

FOR FURTHER INFORMATION CONTACT: Russ

Weinheimer, Internal Revenue Service,

Department of the Treasury, at (202)

622–4695; Amy Scheingold, Pension

and Welfare Benefits Administration,

Department of Labor, at (202) 219–4377;

or Joan Kral, Health Care Financing

Administration, Department of Health

and Human Services, at (410) 786–9539.

Customer service information.

Individuals interested in obtaining a

copy of the Department of Labor’s

booklet entitled ‘‘Questions and

Answers: Recent Changes in Health Care

Law,’’ which includes information on

the nondiscrimination provisions of

HIPAA, may call the following toll-free

number: 1–800–998–7542. This

information is also available on the

Department’s website at: http://

www.dol.gov/dol/pwba.

SUPPLEMENTARY INFORMATION:

I. Purpose

This document addresses certain

issues arising under the group market

portability provisions added by the

Health Insurance Portability and

Accountability Act of 1996, Public Law

104–191 (HIPAA), with respect to

employees (or their dependents) who,

until the effective date of the HIPAA

nondiscrimination provisions, were

denied coverage under a group health

plan, including health insurance

coverage offered in connection with a

group health plan, because of a health

status-related factor. Under those

provisions and the implementing

regulations, neither a group health plan

nor group health insurance coverage can

continue to exclude such individuals

from enrolling in the plan or coverage.

This document clarifies certain rights of

these individuals.

II. Background

HIPAA contains provisions designed

to improve portability and continuity

with respect to group health plan

coverage provided in connection with

employment. These provisions include

limitations on preexisting condition

exclusions, rules prohibiting

discrimination on the basis of any

health status-related factor, and rules

requiring special enrollment. These

provisions are generally effective for

group health plans and group health

insurance coverage for plan years

beginning on or after July 1, 1997. The

Departments of the Treasury, Labor, and

Health and Human Services (the

Departments) issued interim final

regulations implementing these group

market provisions at 26 CFR 54.9801–1T

through 54.9801–6T, 54.9802–1T,

54.9831–1T (formerly 54.9804–1T),

54.9833–1T (formerly 54.9806–1T); 29

CFR part 2590; and 45 CFR parts 144

and 146 (made available to the public

on April 1, 1997 and published in the

Federal Register on April 8, 1997, 62 FR

16893).

The HIPAA portability provisions in

section 9801 of the Internal Revenue

Code of 1986 (Code), section 701 of the

Employee Retirement Income Security

Act of 1974 (ERISA), and section 2701

of the Public Health Service Act (PHS

Act), and the implementing regulations

impose limits on the maximum

preexisting condition exclusion period

that may be imposed by a group health

plan or group health insurance issuer. In

general, neither a group health plan nor

a group health insurance issuer may

impose more than a 12-month

preexisting condition exclusion for

individuals enrolling in the plan or
67690 Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / Rules and Regulations

1Note, however, that under section 1532 of the

Taxpayer Relief Act of 1997, Pub. L. 105–34

(enacted after interim final regulations were

published), certain church plans may require

evidence of good health of certain individuals

without violating the nondiscrimination

requirements of HIPAA. This document does not

apply to those church plans under those

circumstances.

2For related rules to determine the individual’s

enrollment date, see the interim final regulations at

26 CFR 54.9806–1T(a)(3), 29 CFR 2590.736(a)(3),

and 45 CFR 146.125(a)(3).

3For a definition of late enrollment, see the

interim final regulations at 26 CFR 54.9801–

3(a)(2)(iv), 29 CFR 2590.701–3(a)(2)(iv), 45 CFR

146.111(a)(2)(iv).

coverage, although the plan or issuer

can impose an 18-month preexisting

condition exclusion for late enrollees. In

either case, the exclusion period must

be reduced by the amount of an

individual’s prior ‘‘creditable coverage.’’

Most, but not all, types of health

coverage are creditable coverage.

The nondiscrimination provisions in

section 9802 of the Code, section 702 of

ERISA, and section 2702 of the PHS Act

and the implementing regulations

provide that neither a group health plan

nor a health insurance issuer offering

group health insurance coverage may

establish rules for eligibility (including

continued eligibility) of any individual

to enroll under the terms of the plan

based on any health status-related

factor. Health status-related factors

include health status, medical

condition, claims experience, receipt of

health care, medical history, genetic

information, evidence of insurability

(including conditions arising out of acts

of domestic violence), and disability.

Under these nondiscrimination

provisions, an employee (and any

dependent of the employee) cannot be

denied coverage under a group health

plan or group health insurance coverage

based on a health status-related factor

on or after the effective date of HIPAA.

The interim final regulations clarify that

an employee or dependent cannot be

required to pass a physical examination

as a condition of enrollment, even if the

individual is a late enrollee.1

III. Clarification

Although the interim final regulations

make clear that group health plans and

group health insurance issuers cannot

continue to exclude employees (and

their dependents) from coverage based

on a health status-related factor,

questions have arisen concerning the

application of the HIPAA group market

portability rules to individuals who

previously were denied coverage based

on a health status-related factor. This

document clarifies the circumstances

under which these individuals cannot

be treated as late enrollees for purposes

of applying a preexisting condition

exclusion period.

Any individual to whom coverage has

not been made available before the

effective date of HIPAA because of a

health status-related factor, and who

enrolls when first eligible on or after the

effective date of the HIPAA

nondiscrimination provisions (which

are generally effective on the first day of

the first plan year beginning on or after

July 1, 1997), may not be treated as a

late enrollee for purposes of section

9801(a) of the Code, section 701(a) of

ERISA, or section 2701(a) of the PHS

Act or the implementing regulations.2

This includes any individual who failed

to apply for coverage before the effective

date of the HIPAA nondiscrimination

provisions because it was reasonable to

believe that an application for coverage

would have been futile due to a plan

provision that discriminated on the

basis of a health status-related factor.

These rules apply whether or not the

plan offers late enrollment.3 These rules

do not change the special enrollment

rules that prohibit treating a special

enrollee as a late enrollee.

These rules are illustrated by the

following example:

Example: (i) Employee A is an active

employee of Employer X. A was hired on

May 3, 1992. X maintains a group health plan

with a plan year beginning on January 1.

Under the terms of the plan, employees and

their dependents are allowed to enroll when

the employee is first hired and on each

January 1, but only if they can pass a

physical examination. A’s application to

enroll in May of 1992 was denied because A

had diabetes and could not pass a physical

examination. A has not applied since then

because A has reasonably believed that the

application would be denied because A has

diabetes.

(ii) In this Example, effective January 1,

1998, X’s plan cannot deny coverage to A

based on a health status-related factor. If A

enrolls effective January 1, 1998, A may not

be treated as a late enrollee for the purpose

of determining the maximum period of any

preexisting condition exclusion that may be

imposed by the plan with respect to A (or for

the purpose of determining A’s enrollment

date).

HIPAA provides that no enforcement

action can be taken against a plan or

issuer with respect to a violation of the

group market rules before January 1,

1998 if the plan or issuer has sought to

comply in good faith with such rules.

The preamble to the interim final

regulations extended this good faith

period with respect to the

nondiscrimination provisions until

further regulations are issued by the

Departments. Compliance with the

terms of this document is considered

good faith for this purpose.

Dated: December 18, 1997.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Signed at Washington, DC, this 19th day of

December 1997.

Olena Berg,

Assistant Secretary, Pension and Welfare

Benefits Administration, U.S. Department of

Labor.

Dated: December 18, 1997.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

[FR Doc. 97–33603 Filed 12–24–97; 8:45 am]

BILLING CODE 4830–01–P; 4510–29–P; 4120–01–P