[Federal Register Volume 62, Number 248 (Monday, December 29, 1997)]
[Rules and Regulations]
[Pages 67689-67690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33603]


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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 Status-Related 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.

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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

[[Page 67690]]

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\
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    \1\ Note, 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.
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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.
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    \2\ For 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).
    \3\ For 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).
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    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