16894 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[T.D. 8716]

RIN 1545–AV05

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2590

RIN 1210–AA54

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

45 CFR Subtitle A, Parts 144 and 146

RIN 0938–AI08

Interim Rules for Health Insurance

Portability for Group Health Plans

AGENCIES: Internal Revenue Service,

Department of the Treasury; Pension

and Welfare Benefits Administration,

Department of Labor; Health Care

Financing Administration, Department

of Health and Human Services.

ACTION: Interim rules with request for

comments.

SUMMARY: This document contains

interim rules governing access,

portability and renewability

requirements for group health plans and

issuers of health insurance coverage

offered in connection with a group

health plan. The rules contained in this

document implement changes made to

certain provisions of the Internal

Revenue Code of 1986 (Code), the

Employee Retirement Income Security

Act of 1974 (ERISA), and the Public

Health Service Act (PHS Act) enacted as

part of the Health Insurance Portability

and Accountability Act of 1996

(HIPAA). Interested persons are invited

to submit comments on the interim

rules for consideration by the

Department of Health and Human

Services, the Department of Labor, and

the Department of the Treasury

(Departments) in developing final rules.

The rules contained in this document

are being adopted in an interim basis to

accommodate statutorily established

time frames intended to ensure that

sponsors and administrators of group

health plans, participants and

beneficiaries, States, and issuers of

group health insurance coverage have

timely guidance concerning compliance

with the recently enacted requirements

of HIPAA.

DATES: Effective date: These interim

rules are effective on June 7, 1997.

Comment dates: Written comments on

these interim rules are invited and must

be received by the Departments on or

before July 7, 1997.

Applicability dates: For group health

plans maintained pursuant to one or

more collective bargaining agreements

ratified before August 21, 1996, the

rules (other than the certification

requirements) do not apply to plan years

beginning before the later of July 1, 1997

or the date on which the last collective

bargaining agreement relating to the

plan terminates without regard to any

extension agreed to after August 21,

1996.

The rules implementing the

certification provisions do not require

any action to be taken before June 1,

1997, although certain certification

requirements apply to periods of

coverage and events that occur after

June 30, 1996. The certification

requirement for events that occurred on

or after October 1, 1996 and before June

1, 1997 may be satisfied using an

optional notice described in this

preamble.

Information collection: Affected

parties do not have to comply with the

information collection requirements in

these interim rules until the

Departments publish in the Federal

Register the control numbers assigned

by the Office of Management and

Budget (OMB) to these information

collection requirements. Publication of

the control numbers notifies the public

that OMB has approved these

information collection requirements

under the Paperwork Reduction Act of

1995. The Departments have asked for

OMB clearance as soon as possible, and

OMB approval is anticipated by the

applicable effective date.

ADDRESSES: Written comments should

be submitted with a signed original and

three copies to any of the addresses

specified below. All comments will be

available for public inspection and

copying in their entirety. Interested

persons are invited to submit written

comments on these interim rules to:

Health Care Financing Administration,

Department of Health and Human

Services, Attention: [BPD–890–IFC],

P.O. Box 26688, Baltimore, Maryland

21207

Pension and Welfare Benefits

Administration, U.S. Department of

Labor, Room N–5669, 200

Constitution Avenue, NW.,

Washington, DC 20210. Attention:

Interim Portability and Renewability

Rules

CC:DOM:CORP:T:R (REG–253578–96),

Room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,

Washington, DC 20044

Alternatively, comments may be

submitted electronically via the Internet

by selecting the ‘‘Tax Regs’’ option on

the IRS Home Page, or by submitting

comments directly to the IRS Internet

site at http://www.irs.ustreas.gov/

taxlregs/comments.html

In the alternative:

Written comments for the Department

of Health and Human Services may be

hand delivered from 8:30 a.m. to 5:00

p.m. to:

Room 309–G, Hubert Humphrey

Building, 200 Independence Avenue,

SW., Washington, DC 20201, or

Room C5–09–26, 7500 Security

Boulevard, Baltimore, Maryland

21244–1850

Written comments for the Department

of Labor may be hand delivered from

8:15 a.m. to 4:45 p.m. to the above

address for the Pension and Welfare

Benefits Administration, U.S.

Department of Labor.

Written comments for the Internal

Revenue Service may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to:

CC:DOM:CORP:T:R(REG–253578–96),

Courier’s Desk, Internal Revenue

Service, room 5228, 1111 Constitution

Avenue, NW., Washington, DC.

All submissions to the Department of

Health and Human Services will be

open to public inspection as they are

received, generally beginning three

weeks after publication, in room 309–G

of the Department of Health and Human

Services offices at 200 Independence

Avenue, SW., Washington, DC, from

8:30 a.m. to 5:00 p.m. All submissions

to the Department of Labor will be open

to public inspection at the Public

Documents Room, Pension and Welfare

Benefits Administration, U.S.

Department of Labor, Room N–5638,

200 Constitution Avenue NW.,

Washington, DC, from 8:30 a.m. to 5:30

p.m. All submissions to the Internal

Revenue Service will be open to public

inspection and copying in room 1621,

1111 Constitution Avenue, NW.,

Washington, DC, from 9:00 a.m. to 4:00

p.m.

FOR FURTHER INFORMATION CONTACT: Julie

Walton, Health Care Financing

Administration, at 410–786–1565; Mark

Connor, Office of Regulations and

Interpretations, Pension and Welfare

Benefits Administration, Department of

Labor, at 202–219–4377; Diane Pedulla,

Plan Benefits Security Division, Office

of the Solicitor, Department of Labor, at

202–219–4377; or Russ Weinheimer,

Internal Revenue Service, at 202–622–
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16895

1 In addition to the group market regulations in

this document, the Department of the Treasury is

issuing a proposed Treasury regulation that crossreferences these regulations and the Department of

Labor is issuing an interim regulation relating to

certain disclosure requirements under HIPAA. Each

of these regulations appears separately in this issue

of the Federal Register.

2The PHS Act does not include requirements on

availability of insurance for employers in the large

group market. Under section 2711(b)(3) of the PHS

Act, however, the General Accounting Office (GAO)

is to report to Congress on such availability in 1998.

4695. These are not toll-free numbers.

CUSTOMER SERVICE INFORMATION:

Individuals interested in obtaining a

copy of the Department of Labor’s

booklet entitled ‘‘Questions and

Answers: Recent Changes in Health Care

Law’’ may obtain a copy by calling the

following toll-free number 1–800–998–

7542.

SUPPLEMENTARY INFORMATION:

A. Background

The Health Insurance Portability and

Accountability Act of 1996 (HIPAA),

Pub. L. 104–191, was enacted on August

21, 1996. HIPAA amended the Public

Health Service Act (PHS Act), the

Employee Retirement Income Security

Act of 1974 (ERISA), and the Internal

Revenue Code of 1986 (Code) to provide

for, among other things, improved

portability and continuity of health

insurance coverage in the group and

individual insurance markets, and

group health plan coverage provided in

connection with employment. Sections

102(c)(4), 101(g)(4), and 401(c)(4) of

HIPAA require the Secretaries of Health

and Human Services, Labor, and the

Treasury, each to issue regulations

necessary to carry out these provisions.1

B. Overview of HIPAA and the Interim

Rules

Area of Guidance. The access,

portability, and renewability provisions

of HIPAA affect group health plans and

health insurance issuers. Group health

plans are generally plans sponsored by

employers or employee organizations or

both. These HIPAA provisions are

designed to improve the availability and

portability of health coverage by:

• Limiting exclusions for preexisting

medical conditions;

• Providing credit for prior health

coverage and a process for transmitting

certificates and other information

concerning prior coverage to a new

group health plan or issuer;

• Providing new rights that allow

individuals to enroll for health coverage

when they lose other health coverage or

have a new dependent;

• Prohibiting discrimination in

enrollment and premiums against

employees and their dependents based

on health status;

• Guaranteeing availability of health

insurance coverage for small employers

and renewability of health insurance

coverage in both the small and large

group markets; and

• Preserving, through narrow

preemption provisions, the States’

traditional role in regulating health

insurance, including State flexibility to

provide greater protections.

The regulations provide guidance

with respect to these provisions. In

implementing these new rules, the

regulations provide protections for

individuals seeking health coverage

while minimizing burdens on

employers and insurers.

Reducing Burdens. The regulations

reduce burdens by:

• Providing for a simple model

certificate that can be used by plans and

issuers;

• Reducing unnecessary duplication

in the issuance of certificates;

• Including flexible rules for

dependents to receive the coverage

information they need;

• Allowing coverage information to

be provided by telephone if all parties

agree;

• Relieving plans and issuers of the

need to report the starting date of

coverage and waiting period

information where a certificate shows

18 months of credible coverage;

• Including a transition rule

permitting plans and issuers to give

individuals a notice in lieu of a

certificate where coverage ended before

June 1, 1997; and

• Providing for a model notice that

may be used to satisfy the transition rule

and a model notice for information

relating to categories of benefits

provided under a plan.

Implementing Individual Protections.

The regulations protect and assist

participants and their dependents by:

• Ensuring that individuals are

notified of the length of time that a

preexisting condition exclusion clause

in any new health plan may apply to

them after taking into account their

prior creditable coverage;

• Ensuring that individuals are

notified of their rights to special

enrollment under a plan;

• Permitting individuals to obtain a

certificate before coverage under a plan

ceases; and

• Creating practical ways for

individuals to demonstrate creditable

coverage to a new plan (where the

individual’s prior plan fails to provide

the certificate).

C. Overview of Coordination of Group

Market Regulation Among Departments

The HIPAA portability provisions

relating to group health plans and

health insurance coverage offered in

connection with group health plans

(referred to below as the ‘‘group market’’

provisions) are set forth under a new

Part A of Title XXVII of the PHS Act, a

new Part 7 of Subtitle B of Title I of

ERISA, and a new Subtitle K of the

Internal Revenue Code. HIPAA also

added provisions governing insurance

in the individual market that are

contained only in the PHS Act, and thus

are not within the regulatory

jurisdiction of the Department of Labor

or the Department of the Treasury.

(These portability provisions are

referred to below as the ‘‘individual

market’’ provisions.)

In general, the group market

provisions create concurrent

jurisdiction for the Secretaries of Health

and Human Services, Labor, and the

Treasury. The provisions include

similar rules relating to preexisting

conditions exclusions, special

enrollment rights, and prohibition of

discrimination against individuals

based on health status-related factors.

(These group market provisions are

referred to below as the ‘‘shared group

market’’ provisions.) Accordingly, the

three Departments share regulatory

responsibility for most, but not all, of

the group market provisions.

The shared group market provisions

are substantially similar, except as

follows:

• The shared group market provisions

in the PHS Act apply generally to

insurance issuers that offer health

insurance in connection with group

health plans (subject to an exception

that may apply for plans with fewer

than two participants who are current

employees (‘‘very small plans’’)), and

certain State and local government

plans. Only the PHS Act contains group

market provisions relating to availability

and renewability of health insurance.2

In addition, the PHS Act imposes

certification requirements on certain

federal entities not otherwise subject to

the HIPAA portability provisions.

Further, the States, in the first instance,

will enforce the PHS Act with respect to

issuers. In addition, individuals may be

able to pursue claims through State

mechanisms. Only if a State does not

substantially enforce any provisions

under its insurance laws, will the

Department of Health and Human

Services enforce the provisions, through

the imposition of civil money penalties.

(The group market provisions relating to

guaranteed renewability for

multiemployer plans and multiple

employer welfare arrangements
16896 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

3The regulations for the PHS Act also contain

certain definitions relating to those provisions

added under the PHS Act regarding the individual

market, in order to create a single, comprehensive

reference for the definitions necessary under the

PHS Act regulations.

4References to paragraphs of a section refer to

paragraphs of each regulation section identified in

the heading. For example, this reference is to

paragraph (a) in each of 45 CFR 146.111, 29 CFR

2590.701–3, and 26 CFR 54.9801–3.

5The definition of genetic information in the

regulations was developed taking into account

hearing testimony related to genetic information

given in connection with Senate Report 104–156,

other legislative initiatives, and public comments

(including those submitted in response to the

request for information published by the

Departments on December 30, 1996).

(MEWAs) are in ERISA and the Internal

Revenue Code, but not the PHS Act.)

• The ERISA shared group market

provisions apply generally to all group

health plans other than governmental

plans, church plans, very small plans,

and certain other plans. The shared

group market provisions of ERISA also

apply to health insurance issuers that

offer health insurance in connection

with such group health plans.

Generally, the Secretary of Labor

enforces the Provisions of HIPAA that

amend ERISA, except that no

enforcement action may be taken by the

Secretary against issuers relating to the

new shared group market provisions in

part 7 of ERISA. However, individuals

may generally pursue actions against

issuers under ERISA and, in some

circumstances, under State laws.

• The shared group market provisions

in the Internal Revenue Code generally

apply to all group health plans other

than governmental plans and very small

plans, but not to health insurance

issuers. A taxpayer that fails to comply

with these provisions may be subject to

an excise tax under section 4980D of the

Code. (The group market provisions

relating to preemption and affiliation

periods for HMOs are in the PHS Act

and ERISA, but not in the Internal

Revenue Code.)

The regulation being issued today by

the Secretaries of Health and Human

Services, Labor, and the Treasury have

been developed on a coordinated basis

by the Departments. Except to the extent

needed to reflect the statutory

differences described above, the shared

group market provisions in these

regulations of each Department are

substantively identical. However, there

are certain nonsubstantive differences.

The PHS Act regulations are numbered

and organized differently. Also, there

are differences in the regulations that

are necessary because of statutory

provisions that are not common to all

three Departments (in the definitions

sections, for example). Further, the

regulations reflect certain stylistic

differences in language and structure to

conform to conventions used by a

particular Department. These

differences have been minimized and

any differences in wording are not

intended to create any substantive

difference, so that these regulations will

have the same effect with respect to

overlapping statutory provisions, as

required by section 104 of HIPAA.

D. Special Information Concerning

State Insurance Law

For purposes of the PHS Act and

sections 144 through 148 in the PHS Act

regulations, all health insurance

coverage in a State generally is sold in

one of two markets: the group market

(See section 146) and the individual

market (see section 148). The group

market is further divided into the large

group market and the small group

market. Section 146 of the PHS Act

regulations applies the group market

provisions only to insurance sold to

group health plans (which are generally

plans sponsored by employers or

employee organizations or both),

regardless of whether State law provides

otherwise. State law may expand the

definition of the small group market to

include certain coverage that, under the

federal law, would otherwise be

considered coverage in the large group

market or the individual market.

The protections provided in the PHS

Act to particular individuals and

employers are different depending on

whether the coverage involved is

obtained in the small group market, the

large group market, or the individual

market. Small employers are guaranteed

availability of insurance coverage sold

in the small group market under the

PHS Act. Small and large employers are

guaranteed the right to renew their

group coverage under the PHS Act,

subject to certain exceptions. Eligible

individuals are guaranteed availability

of coverage sold in the individual

market under the PHS Act, and all

coverage in the individual market must

be guaranteed renewable under the PHS

Act.

Coverage that is provided to

associations, but is not related to

employment (so that the coverage is not

in connection with a group health plan),

is not coverage in the group market

under HIPAA. This coverage is instead

coverage in the individual market under

the PHS Act, regardless of whether it is

considered group coverage under State

law.

E. Discussion of the Shared Group

Market Provisions in the Regulations

The most significant items relating to

the shared group market in these

regulations are discussed in detail

below.

Definitions—26 CFR 54.9801–2, 29 CFR

2590.701–2, 45 CFR 144.103

This section provides most of the

definitions used in the regulations

implementing the provisions of HIPAA

that were added to the PHS Act, ERISA,

and the Code, relating to the group

market.3 The definitions in this section

of the regulations include both statutory

definitions provided in HIPAA, as well

as certain others used in the regulations.

Limitation on Preexisting Condition

Exclusion Period—26 CFR 54.9801–3,

29 CFR 2590.71–3, 45 CFR 146.111

Definition of Preexisting Condition

Exclusion

A preexisting condition exclusion is

defined broadly to be any limitation or

exclusion of benefits based on the fact

the condition was present before the

first day of coverage, whether or not any

medical advice, diagnosis, care, or

treatment was recommended or received

before that day. HIPAA imposes certain

limitations (described below) on the use

of such an exclusion in the group

market (and also uses this definition for

purposes of the individual market rules,

under which no preexisting condition

exclusion is permitted to be imposed on

an eligible individual). HIPAA’s broad

definition of a preexisting condition

exclusion is at variance with some State

laws and regulations because the

relevant National Association of

Insurance Commissioners (NAIC)

models, on which many State laws are

based, have imposed limitations on

coverage for preexisting conditions

without use of such a definition.

New Limitations on Preexisting

Condition Exclusions. Paragraph (a) of

this section 4 of the regulations

describes the limitations on the

preexisting condition exclusion period.

A group health plan, and a health

insurance issuer offering group health

insurance coverage, is permitted to

impose a preexisting condition

exclusion with respect to a participant

or beneficiary only if the following

conditions are met:

1. 6-month look-back rule. The

preexisting condition exclusion must

relate to a condition (whether physical

or mental, and regardless of the cause of

the condition) for which medical

advice, diagnosis, care, or treatment was

recommended or received within the 6-

month period ending on the enrollment

date. For these purposes, genetic

information is not a condition.5 In order
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16897

6The phrase ‘‘days of creditable coverage’’ is used

instead of the statutory phrase ‘‘aggregate periods of

creditable coverage’’ for administrative ease in the

calculation of creditable coverage. Use of days of

creditable coverage also conforms to the practice of

many States for crediting prior coverage under preHIPAA small group market reforms.

7However, to avoid violating the Americans with

Disabilities Act, Pub. L. 101–336, as amended by

Pub. L. 102–166, the examination should generally

be conducted only after the employer has offered

employment to the individual.

8However, if an individual has coverage of

excepted benefits in addition to other forms of

creditable coverage, coverage of excepted benefits is

creditable coverage. This would make a difference

only if a plan or issuer uses the alternative method

of determining creditable coverage (described

below) with respect to a category that includes

excepted benefits. For example, coverage of

excepted benefits such as limited vision or limited

dental benefits, when offered in combination with

other creditable coverage, may be used to offset a

preexisting condition exclusion period for a

category that includes those benefits under the

alternative method in paragraph (c).

to be taken into account, the medical

advice, diagnosis, care, or treatment

must have been recommended or

received from an individual licensed or

similarly authorized to provide such

services under State law and operating

within the scope of practice authorized

by the State law. Under the new HIPAA

standard, a plan would generally

determine that an individual has a

preexisting condition through medical

records (such as diagnosis codes on

bills, a physician’s notes of a visit or

telephone call, pharmacy prescription

records, HMO encounter data, or other

records indicating that medical services

were actually recommended or received

during the 6-month look-back period).

The ‘‘prudent person’’ standard of some

State laws (under which a condition is

taken into account if a prudent person

would have sought care whether or not

care is actually received) no longer may

be used to determine a preexisting

condition.

This 6-month ‘‘look-back’’ period is

based on the 6-month ‘‘anniversary

date’’ of the enrollment date. As a result,

an individual whose enrollment date is

August 1, 1998 has a 6-month look-back

period from February 1, 1998 through

July 31, 1998.

2. Length of preexisting condition

exclusion period. The exclusion period

cannot extend for more than 12 months

(18 months for late enrollees) after the

enrollment date. the 12- or 18-month

‘‘look-forward’’ period is also based on

the anniversary date of the enrollment

date. A late enrollee is defined as an

individual who enrolls in a plan at a

time other than at the first time the

individual is eligible to enroll or during

a special enrollment period (described

below). If an individual loses eligibility

for coverage as a result of terminating

employment or a general suspension of

coverage under the plan, then upon

becoming eligible again due to

resumption of employment or due to

resumption of plan coverage, only the

most recent period of eligibility is

considered for purposes of determining

whether the individual is a late enrollee.

3. Reduction of preexisting condition

exclusion period by prior coverage. In

general, the preexisting condition

exclusion period is reduced by the

individual’s days of creditable

coverage 6 as of the enrollment date.

Creditable coverage is defined as

coverage of an individual from a wide

range of specified sources, including

group health plans, health insurance

coverage, Medicare, and Medicaid.

Definition of Enrollment Date. The

limitations on preexisting condition

exclusions are measured from an

individual’s ‘‘enrollment date.’’ The

enrollment date is defined as the first

day of coverage or, if there is a waiting

period, the first day of the waiting

period (typically the date employment

begins).

The term ‘‘first day of coverage’’ is

used in the regulations in place of the

term ‘‘date of enrollment’’ in the statute,

such as in the definitions of the terms

‘‘preexisting condition exclusion’’ and

‘‘enrollment date.’’ This is intended to

clarify the difference between the

statutory terms ‘‘date of enrollment’’

and ‘‘enrollment date’’ (which have no

difference in common useage).

The term ‘‘waiting period’’ generally

refers to the period in which there is a

delay between the first day of

employment and the first day of

coverage under the plan. Accordingly,

because the preexisting condition

exclusion period runs from the

enrollment date, any waiting period

would run concurrently with any

preexisting condition exclusion period.

Further:

• The enrollment date for a late

enrollee or anyone who enrolls on a

special enrollment date (see the section

on special enrollment periods below) is

the first date of coverage. Thus, the time

between the date a late enrollee or

special enrollee first becomes eligible

for enrollment under the plan and the

first day of coverage is not treated as a

waiting period.

• Because the 6-month look-back

limitation runs from the beginning of

any applicable waiting period, the

current practice of some plans that

require physical examinations prior to

commencement of coverage for the

purpose of identifying preexisting

conditions may be affected. If the

examination is conducted during the

waiting period (after employment begins

and before enrollment), rather than

before employment begins, a plan may

not exclude coverage for any condition

identified in the examination (unless,

independent of the examination,

medical advice, diagnosis, care, or

treatment was in fact recommended or

received for the condition during the 6-

month look-back period). The use of

such examinations for other purposes,

such as worker safety, is not affected.7

Elimination of Preexisting Condition

Exclusion for Pregnancy and for Certain

Children. A preexisting condition

exclusion cannot apply to pregnancy. In

addition, a preexisting condition

exclusion period cannot be applied to a

newborn, an adopted child under age

18, or a child placed for adoption under

age 18, if the child becomes covered

within 30 days of birth, adoption, or

placement for adoption. This exception

does not apply after the child has a

significant break in coverage (63 or more

consecutive days). (An example in

paragraph (b)(1) of the regulations

illustrates these rules.)

Rules Relating to Creditable Coverage—

26 CFR 54.9801–4, 29 CFR 2590.701–4,

45 CFR 146.113

As noted above, a plan or issuer that

imposes a preexisting condition

exclusion must reduce the length of the

exclusion by an individual’s creditable

coverage. This section defines the term

‘‘creditable coverage’’ and sets forth the

rules for how creditable coverage is

applied to reduce such an exclusion

period.

Creditable coverage includes health

insurance coverage and other health

coverage, such as coverage under group

health plans (whether or not provided

through an issuer), Medicaid, Medicare,

and public health plans, as well as other

types of coverage set forth in HIPAA

and the regulations. Comments are

requested on whether the definition of

a public health plan should include the

public health systems of other countries.

Under the definition of creditable

coverage, all forms of health insurance

coverage are included, whether in the

individual market or group market, and

whether the coverage is short-term,

limited-duration coverage or other

coverage for benefits for medical care for

which no certificate of creditable

coverage is required. Creditable

coverage does not include coverage

consisting solely of excepted benefits as

defined in the regulations and described

below.8

Under paragraph (a)(3) of this section

of the regulation, a group health plan or

health insurance issuer offering group
16898 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

9See also the discussion below under the heading

‘‘HMO Affiliation as Alternative to Preexisting

Condition Exclusion.’’

health insurance coverage may

determine the amount of creditable

coverage of an individual for purposes

of reducing the period of a preexisting

condition exclusion by using either the

standard method described in paragraph

(b) or the alternative method described

in paragraph (c).

Standard Method

1. Counting. Under the standard

method, the plan or issuer determines

the amount of an individual’s creditable

coverage by determining all days during

which the individual had one or more

types of creditable coverage. This

determination is made without regard to

the specific benefits included in the

coverage. If creditable coverage is

derived from more than one source on

a particular day, all of the creditable

coverage that the individual had on that

day is counted as one day of creditable

coverage.

2. Significant break in coverage. Days

of creditable coverage that occur before

a significant break in coverage are not

required to be counted by the plan or

issuer in reducing a preexisting

condition exclusion. A significant break

in coverage means a period of 63

consecutive days during all of which the

individual did not have any creditable

coverage.

a. Waiting and affiliation periods.

Waiting periods and affiliation periods,

as defined in the regulation, are not

taken into account in determining a

significant break in coverage. This is the

case regardless of whether the person

ultimately fails to obtain coverage under

the plan (such as, where termination of

employment occurs before coverage

begins). However, days in a waiting

period or affiliation period are not

counted as creditable coverage.

The regulations specify that the

period between the date an individual

files a substantially complete

application for coverage in the

individual market and the effective date

of such coverage is a waiting period, so

that the period is not taken into account

in determining a significant break in

coverage. In this way, an application

processing delay or omission of details

on a form would not cause an applicant

to incur a significant break in coverage,

which could adversely affect an

individual who seeks coverage under a

group health plan after purchasing

coverage in the individual market.

However, the waiting period for

purchase of an individual policy tolls a

break in coverage only if the filing of the

application for the individual market

insurance actually results in purchase of

the coverage by the individual. (See

Examples 7 and 8 in paragraph

(b)(2)(iv)). By contrast, days in a waiting

period for coverage under a group

health plan toll a significant break in

coverage regardless of whether coverage

under the plan is ultimately obtained.

(See Example 6.) The rule regarding the

individual market prevents an

individual from avoiding a significant

break in coverage by repeatedly

submitting applications to individual

market issuers without ever purchasing

coverage. This rule responds to

comments sent to the Departments in

response to the December 30, 1996

request for public comments. The

comments asked for clear rules on when

a significant break is tolled in the case

of an application for individual market

insurance.

Issuers of health insurance coverage

in the individual market are subject to

the same certification requirements that

apply to plans and issuers in the group

market. Therefore, issuers in the

individual market must provide

individuals with certificates that reflect

information regarding the beginning of

the waiting period (the date of

application), the effective date of

coverage, and the date coverage ends.

This will assist people with coverage in

the individual market who later become

covered by a group health plan in

demonstrating their creditable coverage

to the plan or issuer in the group

market.

b. Effect of State insurance law.

HIPAA provides that the significant

break in coverage rule does not preempt

State insurance laws that provide longer

periods than 63 days for a break in

coverage. (The preemption provisions

are described more fully below.)

Accordingly, while federal law may

allow a plan to disregard prior coverage

before a 63-day significant break in

coverage, an issuer may be required to

take such coverage into account in order

to comply with State insurance law. As

a result, application of the break rules

can vary between issuers located in

different States. Similarly, the break

rules may vary between insured plans

and self-insured plans (which are not

subject to State insurance laws) within

a State, as well as between the insured

and self-insured portions of a single

plan. As illustrated by Example 3 in

paragraph (b)(2)(iv), the laws of the

State applicable to the insurance policy

that has the preexisting condition

exclusion are determinative of which

break rule applies.

Alternative Method. Under the

alternative method of counting

creditable coverage, the plan or issuer

determines the amount of an

individual’s creditable coverage for any

of five identified categories of benefits.

Those categories are coverage for mental

health, substance abuse treatment,

prescription drugs, dental care, and

vision care. The plan or issuer may use

the alternative method for any or all of

the categories and may apply a different

preexisting condition exclusion period

with respect to each category (as well as

to coverage not within a category). The

creditable coverage determined for a

category of benefits applies only for

purposes of reducing the preexisting

condition exclusion period with respect

to that category. The standard method is

used to determine an individual’s

creditable coverage for benefits that are

not within any category for which the

alternative method is being used.

Disclosure statements concerning the

plan must indicate that the alternative

method is being used, and this

disclosure must also be given to each

enrollee at the time of enrollment. These

statements must include a description of

the effect of using the alternative

method. Any issuer in the group market

must provide similar statements to each

employer at the time of offer or sale of

the coverage.

For purposes of reducing the

preexisting condition exclusion period

under the alternative method, the plan

or issuer determines under the standard

method the amount of the individual’s

creditable coverage that can be counted,

up to a total of 365 days of the most

recent creditable coverage of the

individual (546 days for a late enrollee).

The period of this creditable coverage is

referred to as the ‘‘determination

period.’’ The plan or issuer counts all

days of coverage within the applicable

category that occurred during the

determination period (without regard to

any significant breaks in that category of

coverage). Those days reduce the

preexisting condition exclusion for

coverage within that category.

The regulations do not provide

detailed definitions of the benefit

categories. Comments are invited on

whether additional guidance is needed.

The regulations under the alternative

method of counting creditable coverage

do not include a category relating to

significant differences in deductible

amounts. Commentators expressed

concerns about adverse selection if

individuals can change from a high

deductible plan when they become ill

and obtain ‘‘first dollar’’ coverage from

an HMO or other issuer that provides

broad, comprehensive care with only

low deductibles or copayments.9

However, it is unclear how such a
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16899

10Because the ending date for a waiting or

affiliation period will always be the date coverage

begins, the ending date does not have to be

separately stated in a certificate.

11These dates would include any period of

COBRA continuation coverage. A COBRA

continuation coverage period does not have to be

separately identified.

12For example, for participation who has had a

number of interruptions in coverage, a requested

certificate could consist of copies of all of the

automatic certificates that were previously provided

to the individual for each of these periods.

category would be defined or applied.

Accordingly, the Departments solicit

comments on this issue.

Certificates and Disclosure of Previous

Coverage—26 CFR 54.9801–5, 29 CFR

2590.701–5, 45 CFR 146.115

This section of the regulations sets

forth guidance regarding the

certification requirements and other

requirements concerning disclosure of

information relating to prior creditable

coverage. The provision of a certificate

and other disclosures of information are

intended to enable an individual to

establish his or her prior creditable

coverage for purposes of reducing any

preexisting condition exclusion

imposed on the individual by any

subsequent group health plan coverage.

Form of Certificate. In general, the

certificate must be provided in writing,

including any form approved by the

Secretaries as a writing. In certain

circumstances, where the individual

requests that the certificate be sent to

another plan or issuer instead of to the

individual, and the other plan or issuer

agrees, the certification information may

be provided by other means, such as by

telephone. In some States, issuers

transfer coverage information by

telephone. Comments are requested as

to whether, and under what conditions,

other methods of transmitting

certification information (including

electronic communication) should be

permitted in future guidance.

Information in Certificate. Paragraph

(a)(3) of this section of the regulations

sets forth the information that must be

included in a certificate. The regulations

allow a plan or issuer in an appropriate

case simply to state in the certificate

that the individual has at least 18

months of creditable coverage that was

not interrupted by a significant break in

coverage and to indicate the date

coverage ended. (A certificate would

never have to reflect coverage in excess

of 18 months without a 63-day break

because this is the maximum creditable

coverage that an individual could need

under the preexisting condition

exclusion rules and the rules for access

to the individual market.) In any other

case, the certificate must disclose (1) the

date any waiting or affiliation period

began,10 (2) the date coverage began,

and (3) the date coverage ended (or

indicate if coverage is continuing).11 For

individuals with fewer than 18 months

of coverage without a significant break

in coverage, the information about

specific dates is essential in order for a

subsequent plan or issuer in the group

or individual market to be able to apply

the break rules, especially in light of the

possibility that an individual may have

other coverage from various sources and

the potential differences among State

break rules (described above).

Certification Events and Timing.

Paragraph (a)(5) describes the rights of

participants and dependents to receive

certificates. In general, individuals have

the right to receive a certificate

automatically (an ‘‘automatic

certificate’’) when they lose coverage

under a plan and when they have a right

to elect COBRA continuation coverage.

The certificate must be furnished within

the time periods described below:

• First, for an individual who is a

qualified beneficiary entitled to elect

COBRA continuation coverage, the

certificate is required to be provided no

later than when a notice is required to

be provided for a qualifying event under

COBRA.

• Second, for an individual who loses

coverage under a group health plan and

who is not a qualified beneficiary

entitled to elect COBRA continuation

coverage, the certificate is required to be

provided within a reasonable time after

the coverage ceases. (Typically, this

would apply to small employers’ plans

that are not subject to COBRA.) This

requirement is satisfied if the certificate

is provided by the time a notice is

required to be provided under a State

program similar to COBRA.

• Third, for an individual who is a

qualified beneficiary and has elected

COBRA continuation coverage, the

certificate is required to be provided

within a reasonable time after either

cessation of COBRA continuation

coverage or, if applicable, after the

expiration of any grace period for the

payment of COBRA premiums.

In each of these three events, the

regulations require the certificate to

reflect only the most recent period of

continuous coverage under the plan.

Under COBRA, multiemployer plans

may provide notices within such longer

period of time as provided for such

notices under the terms of the plan.

Under the general certification timing

rule described above, multiemployer

plans may use the same extended time

period for providing certificates.

Comments are requested on how this

may affect a multiemployer plan and its

participants and their families.

A certificate may be mailed by first

class mail to the participant’s last

known address. A certificate for a

participant’s spouse with an address

different from the participant’s is to be

sent to the spouse’s address. A

certificate may provide information

with respect to both a participant and

the participant’s dependents if the

information is identical for each

individual, or if the information is not

identical, a certificate may provide

information sufficient to satisfy the

requirements of the regulations with

respect to each individual on one

document.

A certificate is also required to be

provided upon the request of, or on

behalf of, an individual (whether the

individual is a participant, the

participant’s spouse, or any other

dependent) if the request is made within

24 months after the individual loses

coverage under the plan. The certificate

is required to be provided at the earliest

time that the plan or issuer, acting in a

reasonable and prompt fashion, can

provide the certificate. In this case, the

certificate reflects each period of

continuous coverage ending within the

24 months prior to the date of request.12

Responsibilities of Plans and Issuers.

Paragraph (a)(1) clarifies the statutory

obligation of plans and issuers to

provide certificates. The statutory

obligation to furnish a written certificate

of information regarding creditable

coverage is imposed on both the group

health plan and the health insurance

issuer offering group health insurance

coverage. This dual obligation was the

subject of many of the comments

received by the three Departments in

response to the December 30, 1996

request for public comments published

in the Federal Register. Concerns were

raised about superfluous, duplicate

certificates being issued and the

potential responsibility of issuers for

reporting on an individual’s coverage

under the plan after one issuer has been

replaced by another.

Paragraph (a)(1) addresses these

concerns by providing that the

obligation to furnish a certificate is

imposed on both the plan and each

health insurance issuer that provides

group health insurance coverage under

the plan, subject to four exceptions.

First, paragraph (a)(1)(ii) provides that

an entity required to provide a

certificate is deemed to have satisfied

this requirement to the extent that any

other party provides the certificate and

the certificate discloses the creditable

coverage (including the waiting period
16900 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

information) that was to be provided by

the entity.

Second, paragraph (a)(1)(iii) provides

that a plan is deemed to have satisfied

its obligation if there is an agreement

between an issuer and a plan under

which the issuer agrees to provide

certificates for individuals covered

under the plan.

Third, paragraph (a)(1)(iv)(A)

provides that an issuer is not required

to provide any coverage information

regarding coverage periods for which it

was not responsible.

Fourth, paragraph (a)(1)(iv)(B)

provides that if an individual switches

from one issuer to another option

allowed under the plan, or an issuer is

replaced by another before an

individual’s coverage in the plan ceases,

the first issuer is required to provide

sufficient information to the plan (or to

another party designated by the plan),

so that when the individual leaves the

plan, a certificate can be provided that

includes the period of coverage under

the policy of the first issuer. In this

situation, no certificate is required to be

provided to the individual, but the

issuer must also cooperate with the plan

by providing any information that may

be requested later pursuant to the

alternative method. (This rule will

reduce unnecessary and potentially

misleading information from being

received while the individual’s coverage

under the plan is uninterrupted.) An

issuer may presume that it is the final

issuer for an individual if the

individual’s coverage under the policy

ends at a time other than in connection

with the plan’s open season.

Other Entities Issuing Certificates.

Paragraph (a)(6) identifies the various

statutory authorities that create

responsibility for other entities (that are

not subject to a particular Department’s

regulations) to provide certificates. As

described above, there are forms of

creditable coverage other than coverage

provided by group health plans and

health insurance coverage offered in

connection with a group health plan.

Accordingly, individuals who leave

coverage provided by any such other

entity are entitled to have that coverage

counted by a group health plan and may

in many cases receive certificates for

their creditable coverage. This

information is included in the

regulations because plans that impose a

preexisting condition exclusion may

find it helpful to know when creditable

coverage will be provable through

presentation of a certificate and when

other forms of documentation or

attestation may be needed.

In cases where certifications are

provided by entities not subject to

ERISA’s requirements, such as

Medicaid, the Indian Health Service,

and CHAMPUS, certain adjustments in

the certification rules may be

appropriate. The regulations do not

address how the certification process

applies to these other programs.

Comments are requested on how the

certification requirements may be

adapted to entities responsible for

providing this coverage.

Dependent Coverage Information.

Dependents are entitled to a written

certificate of creditable coverage.

Concerns were raised in comments

received from the public regarding the

certification of dependent coverage

where information regarding

dependents of participants in plans was

not available. Plans and issuers, the

commenters stated, often do not know

the existence of dependents or their

coverage periods until claims are filed.

To address these concerns, the

regulations have adopted two special

rules.

First, under a transition rule that lasts

through June 30, 1998, a plan or issuer

may satisfy its obligation to provide a

written certificate regarding the

coverage of a dependent of a participant

by providing the name of the participant

covered by the plan and specifying the

type of coverage provided in the

certificate (such as family coverage or

employee-plus-spouse coverage).

However, if asked to provide a

certificate relating to a dependent, the

plan must make reasonable efforts to

obtain and provide the name of the

dependent. This rule will provide plans

and issuers with a transition period to

update their data systems to include

information on dependents.

Second, the regulations include a

special rule regarding dependent

coverage that is not limited to the

transition period. Under this rule, a plan

or issuer must make a reasonable effort

to collect the necessary information for

dependents and include it on the

certificate. However, under this special

rule, an automatic certificate is not

required to be issued until the plan or

issuer knows (or, making reasonable

efforts, should know) of the dependent’s

cessation of coverage. This information

can be collected annually (during open

enrollment).

Under the transition rule and the

special rule, an individual may use the

provisions described below to establish

creditable coverage (and waiting and

affiliation period information).

Information for Alternative Method of

Counting Creditable Coverage.

Following receipt of the certificate, an

entity that uses the alternative method

of counting creditable coverage may

request that the entity that issued the

certificate disclose additional

information in order for the requesting

entity to determine the individual’s

creditable coverage with respect to any

category of benefits described in

paragraph (b). The requested entity may

charge the requesting entity the

reasonable cost of disclosing the

information. The requesting entity may

ask for a copy of the summary plan

description (SPD) that applied to the

individual’s coverage or may ask for

more specific information. Set forth

below is a model form that may be used

for specific coverage information about

the categories of benefits:

Information on Categories of Benefits

1. Date of original certificate: lllllll

2. Name of group health plan

providing the coverage: lllllllll

3. Name of participant: llllllllll

4. Identification number of participant: ll

5. Name of individual(s) to whom this

information applies: ll

6. The following information applies to the

coverage in the certificate that was provided

to the individual(s) identified above:

a. Mental Health: llllllllllll

b. Substance Abuse Treatment: llllll

c. Prescription Drugs: llllllllll

d. Dental Care: lllllllllllll

e. Vision Care: llllllllllllll

For each category above, enter ‘‘N/A’’ if the

individual had no coverage within the

category and either (i) enter both the date that

the individual’s coverage within the category

began and the date that the individual’s

coverage within the category ended (or

indicate if continuing), or (ii) enter ‘‘same’’

on the line if the beginning and ending dates

for coverage within the category are the same

as the beginning and ending dates for the

coverage in the certificate.

Demonstration of Coverage if

Certificate is Not Provided. Under

HIPAA, in order to prevent an

individual from being adversely affected

if the individual does not receive a

certificate, the individual has a right to

demonstrate creditable coverage through

the presentation of documentation or

other means. For example, an individual

may not have a certificate because: an

entity failed to provide a certificate

within the required time period; an

entity was not required to provide a

certificate; the coverage of the

individual was for a period before July

1, 1996; or, the individual has an urgent

medical condition that necessitates an

immediate determination of creditable

coverage by the plan or issuer. Under

these circumstances, an individual may

present evidence of creditable coverage

through documents, records, third party

statements, or other means, including

telephone calls by the plan or issuer to

a third party provider. The plan

administrator is required to take into
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16901

account all information presented in

determining whether to offset any or all

of a preexisting condition exclusion. A

plan or issuer is required to treat the

individual as having furnished a

certificate provided by a plan or issuer

if the individual attests to the period of

creditable coverage, the individual

presents relevant corroborating evidence

of some creditable coverage during the

period, and the individual cooperates

with the plan’s or issuer’s efforts to

verify the individual’s coverage.

If an individual needs to demonstrate

his or her status as a dependent of a

participant, the plan or issuer is

required to treat the individual as

having furnished a certificate if an

attestation to such dependency and the

period of such status is provided, and if

the individual cooperates with the

plan’s or issuer’s efforts to verify the

dependent status.

Similar rules apply relating to

determining creditable coverage under

the alternative method.

Notice to Individual of Period of

Preexisting Condition Exclusion. Within

a reasonable time following the receipt

of the certificate, information relating to

the alternative method, or other

evidence of coverage, a plan or issuer is

required to make a determination

regarding the length of any preexisting

condition exclusion period that applies

to the individual and notify the

individual of its determination. Whether

a determination and notification is

made within a reasonable period of time

depends upon the relevant facts and

circumstances including whether the

application of the preexisting condition

exclusion period would prevent access

to urgent medical services. The plan or

issuer is required to notify the

individual, however, only if, after

considering the evidence, it has

determined that a preexisting condition

exclusion period will still be imposed

on the individual. The basis of the

determination, including the source and

substance of any information on which

the plan or issuer relied, must be

included in the notification. The

notification must also explain the plan’s

appeals procedures and the opportunity

of the individual to present additional

evidence.

The plan or issuer may reconsider and

modify its initial determination if it

determines that the individual did not

have the claimed creditable coverage. In

this circumstance, the plan or issuer

must notify the individual of such

reconsideration and, until a final

determination is made, must act in

accordance with its initial

determination for purposes of approving

medical services.

Model Certificate. The following

model certificate has been authorized by

the Secretary of each of the

Departments. Use of the model

certificate will satisfy the requirements

of paragraph (a)(3)(ii) of the regulations.

Certificate of Group Health Plan Coverage

* IMPORTANT—This certificate provides

evidence of your prior health coverage. You

may need to furnish this certificate if you

become eligible under a group health plan

that excludes coverage for certain medical

conditions that you have before you enroll.

This certificate may need to be provided if

medical advice, diagnosis, care, or treatment

was recommended or received for the

condition within the 6-month period prior to

your enrollment in the new plan. If you

become covered under another group health

plan, check with the plan administrator to

see if you need to provide this certificate.

You may also need this certificate to buy, for

yourself or your family, an insurance policy

that does not exclude coverage for medical

conditions that are present before you enroll.

1. Date of this certificate: lllllllll

2. Name of group health plan: lllllll

3. Name of participant: llllllllll

4. Identification number of participant: ll

5. Name of any dependents to whom

this certificate applies: llllllllll

6. Name, address, and telephone number of

plan administrator or issuer responsible for

providing this certificate:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

7. For further information, call: llllll

8. If the individual(s) identified in line 3 and

line 5 has at least 18 months of creditable

coverage (disregarding periods of coverage

before a 63-day break), check herelll and

skip lines 9 and 10.

9. Date waiting period or affiliation period

(if any) began: llllllllllllll

10. Date coverage began: lllllllll

11. Date coverage ended: lll (or check if

coverage is continuing as of the date of this

certificate: lll).

Note: Separate certificates will be

furnished if information is not identical for

the participant and each beneficiary.

Special Enrollment Periods—26 CFR

54.9801–6, 29 CFR 2590.701–6, 45 CFR

146.117

This section of the regulations

provides guidance regarding the new

enrollment rights provided to

employees and dependents under

HIPAA. A group health plan and a

health insurance issuer offering group

health insurance coverage are required

to provide for special enrollment

periods during which individuals who

previously declined coverage are

allowed to enroll (without having to

wait until the plan’s next regular open

enrollment period). A special

enrollment period can occur if a person

with other health coverage loses that

coverage or if a person becomes a

dependent through marriage, birth,

adoption, or placement for adoption.

A plan must provide a description of

the special enrollment rights to anyone

who declines coverage. The regulations

provide a model of such a description.

A person who enrolls during a special

enrollment period (even if the period

also corresponds to a regular open

enrollment period) is not treated as a

late enrollee. (Accordingly, the plan or

issuer may not impose a preexisting

condition exclusion period longer than

12 months with respect to the person.)

Special Enrollment for Loss of Other

Coverage. The special enrollment period

for loss of other coverage is available to

employees and their dependents who

meet certain requirements. The

employee or dependent must otherwise

be eligible for coverage under the terms

of the plan. When the coverage was

previously declined, the employee or

dependent must have been covered

under another group health plan or

must have had other health insurance

coverage. The plan can require that,

when coverage in the plan was

previously declined, the employee must

have declared in writing that the reason

was other coverage, in which case the

plan must at that time have provided

notice of this requirement and the

consequences of the employee’s failure

to provide the statement.

The special enrollment rights may

apply with respect to an employee, a

dependent of the employee, or both. An

employee who has not previously

enrolled can enroll under these rules if

it is the employee who loses other

coverage. An employee’s dependent can

be enrolled under these rules if it is the

dependent who loses other coverage and

the employee is already enrolled. In

addition, both the employee and a

dependent can be enrolled together

under these rules if either the employee

or the dependent loses other coverage.

If the other coverage is COBRA

continuation coverage, the special

enrollment can only be requested after

exhausting COBRA continuation

coverage. If the other coverage is not

COBRA continuation coverage, special

enrollment can only be requested after

losing eligibility for the other coverage

or after cessation of employer

contributions for the other coverage. In

each case, the employee has 30 days to

request special enrollment. An

individual does not have to elect

COBRA continuation coverage or

exercise similar continuation rights in

order to preserve the right to special

enrollment. However, an individual

does not have a special enrollment right

if the individual loses the other

coverage as a result of the individual’s
16902 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

13These alternative that may be used in lieu of

an affiliation period to address adverse selection

should not be confused with the use of the

alternative method for counting creditable coverage

discussed in the next paragraph.

failure to pay premiums or for cause

(such as making a fraudulent claim).

Coverage under special enrollment must

be effective no later than the first day of

the month after an employee request the

enrollment for himself or herself or on

behalf of a dependent.

Special Enrollment for New

Dependents. A special enrollment

period also occurs if a person has a new

dependent by birth, marriage, adoption,

or placement for adoption. The election

to enroll can be made within 30 days

following the birth, marriage, adoption,

or placement for adoption. In the case

of a plan that does not offer any

coverage for dependents and is then

modified to offer dependent coverage,

the election to enroll can instead be

made during the 30 days beginning on

the date dependent coverage is made

available.

The special enrollment rules allow an

eligible employee to enroll when he or

she marries or has a new child (as a

result of marriage, birth, adoption, or

placement for adoption). A spouse of a

participant can be enrolled separately at

the time of marriage or when a child is

born, adopted or placed for adoption.

The spouse can be enrolled together

with the employee when they marry or

when a child is born, adopted, or placed

for adoption. A child who becomes a

dependent of a participant as a result of

marriage, birth, adoption, or placement

for adoption can be enrolled when the

child becomes a dependent. Similarly, a

child who becomes a dependent of an

eligible employee as a result of

marriage, birth, adoption, or placement

for adoption can be enrolled if the

employee enrolls at the same time.

In the case of a dependent special

enrollment period, HIPAA provides that

coverage with respect to a marriage is

effective no later than the first day of the

month after the date the request for

enrollment is received and coverage

with respect to a birth, adoption, or

placement for adoption is effective on

the date of the birth, adoption, or

placement for adoption.

HMO Affiliation Period as Alternative to

Preexisting Condition Exclusion—29

CFR 2590.701–7 and 45 CFR 146.119

This section of the regulations permits

a group health plan offering health

insurance through an HMO, or an HMO

that offers health insurance coverage in

connection with a group health plan, to

impose an affiliation period, but only if

certain other requirements are met. An

‘‘affiliation period’’ is defined in the

regulations as a period of time that must

expire before health insurance coverage

provided by the HMO becomes

effective, and during which the HMO is

not required to provide benefits.

The regulations specify the following

requirements for imposing an affiliation

period:

• No preexisting condition exclusion

may be imposed with respect to

coverage through the HMO;

• No premium may be charged to a

participant or beneficiary for the

affiliation period;

• The affiliation period must be

applied uniformly without regard to any

health status-related factors; and

• The affiliation period must begin on

the enrollment date, cannot exceed two

months (three months for a late

enrollee), and must run concurrently

with any waiting period under the plan.

The regulations provide for the

affiliation period to begin on the

enrollment date in the plan, not when

coverage with the HMO begins.

Accordingly, if a plan offers multiple

coverage options simultaneously, the

HMO cannot impose an affiliation

period on plan participants who change

to the HMO option. Comments are

requested on this rule.

The regulations permit an HMO to use

alternatives in lieu of an affiliation

period to address adverse selection, as

approved by the State insurance

commissioner or other official

designated to regulate HMOs. Because

an affiliation period may be imposed

only if no preexisting condition

exclusion is used, an alternative to an

affiliation period may not encompass an

arrangement that is in the nature of such

an exclusion.13

While HMOs usually do not impose

preexisting condition exclusions, they

could choose to apply a preexisting

condition exclusion period for all

enrollees based on the alternative

method of counting creditable coverage

if the regulations were to add a category

relating to deductibles. However, as

described above under the heading

‘‘Alternative Method,’’ the regulations

currently do not include such a

category.

Nondiscrimination in Eligibility and

Premiums in the Group Market—26 CFR

54.9802–1, 29 CFR 2590.702, 45 CFR

146.121

The regulations include provisions

implementing the nondiscrimination

provisions in HIPAA. Comments are

welcomed on these provisions, and, in

particular, comments are requested on

whether guidance is needed concerning:

• The extent to which the statute

prohibits discrimination against

individuals in eligibility for particular

benefits;

• The extent to which the statute may

permit benefit limitations based on the

source of an injury;

• The permissible standards for

defining groups of similarly situated

individuals;

• Application of the prohibitions on

discrimination between groups of

similarly situated individuals; and

• The permissible standards for

determining bona fide wellness

programs.

The Departments intend to issue

further regulations on the

nondiscrimination rules in the near

future. In no event will the period for

good faith compliance (specified in

HIPAA sections 102(c)(5), 101(g)(5), and

401(c)(5)) with respect to section 2702

of the PHS Act, section 702 of ERISA,

and section 9802 of the Code end before

the additional guidance is provided.

A plan or issuer may not establish

rules for eligibility (including continued

eligibility) of an individual to enroll

under the terms of the plan based on a

health status-related factor. HIPAA and

the regulations provide a list of health

status-related factors. The Departments

are considering interpreting the

statutory language relating to eligibility

to enroll so that a plan or issuer would

be prohibited from providing lower

benefits to certain individuals based on

health status-related factors. Comments

are welcomed on this interpretation.

Among the health status-related

factors listed in the statute is ‘‘evidence

of insurability (including conditions

arising out of acts of domestic

violence).’’ The Conference Report

states that the inclusion of evidence of

insurability in the list of health statusrelated factors ‘‘is intended to ensure,

among other things, that individuals are

not excluded from health care coverage

due to their participation in activities

such as motorcycling, snowmobiling,

all-terrain vehicle riding, horseback

riding, skiing and other similar

activities.’’ However, HIPAA also

provides that a plan or issuer is not

required to provide particular benefits

other than those provided under the

terms of the plan. Moreover, HIPAA

provides that a plan or issuer may

establish limitations or restrictions on

the amount, level, extent, or nature of

the benefits or coverage for similarly

situated individuals enrolled in the

plan. Comments have been received

indicating that some plans contain

provisions that exclude coverage for

benefits based on the source of injury

(such as benefits for injuries sustained
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16903

14Note that a group health plan, which provides

primary coverage while an individual is an active

employee, is often extended to retirees. When the

retiree becomes eligible for Medicare, the group

health plan commonly coordinates with Medicare

and may serve a supplemental function similar to

that of a Medigap policy. However, such employerprovided retiree ‘‘wrap around’’ benefits are not

excepted benefits (because they are expressly

excluded from the definition of a Medicare

supplement policy in section 1882(g)(1) of the

Social Security Act).

15 In this section (‘‘Other Group Market

Provisions’’), references conform to usage in 45 CFR

Part 146, which uses ‘‘HCFA’’ in place of

‘‘Department of Health and Human Services’’ or

‘‘Secretary of Health and Human Services’’ and

Continued

in a motorcycle accident, injuries

sustained in a motorcycle accident as

the result of not wearing a helmet, or

injuries sustained in the commission of

a felony). Accordingly, comments are

requested on how future guidance

should treat benefit limitations based on

the source of an injury.

The Conference Report also states that

‘‘[t]he term ‘similarly situated’ means

that a plan or coverage would be

permitted to vary benefits available to

different groups of employees, such as

full-time versus part-time employees or

employees in different geographic

locations. In addition, a plan or

coverage could have different benefit

schedules for different collective

bargaining units.’’ Accordingly,

comments are requested concerning the

appropriate standards for determining

‘‘similarly situated individuals,’’

including whether a plan is permitted to

vary benefits based on an employee’s

occupation. Because these standards

could impact on the small group market,

the Department of Health and Human

Services is particularly interested in

receiving comments from States with

respect to how varying benefits based on

occupation could affect rate setting.

The Departments also request

comments regarding how the

prohibitions on discrimination should

be applied between groups of similarly

situated individuals. For example, is

guidance needed on whether a plan

covering employees in two different

locations could have a longer waiting

period for employees at one location

because the health status of those

employees results in higher health

costs?

A plan or issuer may not require any

individual (as a condition of enrollment

or continued enrollment) to pay a

premium or contribution, that is greater

than that for a similarly situated

individual enrolled in the plan, based

on a health status-related factor.

However, this limitation does not

restrict the amount that an issuer can

charge an employer for the coverage. In

addition, this limitation does not

prevent a plan or issuer from

establishing premium discounts or

rebates or otherwise modifying

applicable copayments or deductibles in

return for adherence to programs of

health promotion and disease

prevention (bona fide wellness

programs). Comments are requested

regarding the standards for determining

bona fide wellness programs, including

whether such a program may provide a

discount for non-smokers.

Special Rules—Excepted Plans and

Excepted Benefits—26 CFR 54.9804–1,

29 CFR 2590.732, 45 CFR 146.145

This section of the regulations

provides special rules for certain plans

and certain benefits.

Very Small Plans. The group market

requirements of HIPAA do not apply to

a group health plan, or to group health

insurance coverage offered in

connection with a group health plan, for

any plan year if, on the first day of the

plan year, the plan has fewer than 2

participants who are current employees.

However, a State may apply the group

market provisions in the PHS Act to

plans with fewer than two participants

who are current employees. In this case,

the State would apply its group market

insurance law requirements to such

small group plans (and such plans

would not be subject to the individual

market requirements).

Excepted Benefits. The group market

provisions and the related regulations

also do not apply to any group health

plan or group health insurance issuer in

relation to its provision of excepted

benefits. The benefits identified in

paragraph (b)(2) are generally not health

insurance coverage and are excepted in

all circumstances. In contrast, the

benefits identified in paragraphs (b) (3),

(4), and (5) are generally health

insurance coverage but are excepted if

certain conditions are met.

Limited-scope dental benefits,

limited-scope vision benefits, and 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 the

plan. For this purpose, limited-scope

dental coverage typically provides

benefits for non-medical services such

as routine dental cleanings, x-rays, and

other preventive procedures. Such

coverage may also provide discounts on

the cost of common dental procedures

such as fillings, root canals, crowns, full

or partial plates, or orthodontic services.

Limited-scope dental coverage typically

does not provide benefits for medical

services, such as those procedures

associated with oral cancer or with a

mouth injury that results in broken,

displaced, or lost teeth.

Similarly, limited-scope vision

coverage provides benefits for routine

eye examinations or the fitting of

eyeglasses or contact lenses. This

coverage does not include benefits for

such ophthalmological services as

treatment of an eye disease (e.g.,

glaucoma or a bacterial eye infection) or

an eye injury.

Noncoordinated benefits may be

excepted benefits. The term

‘‘noncoordinated benefits’’ refers to

coverage for a specified disease or

illness (such as cancer-only coverage) or

hospital indemnity or other fixed dollar

indemnity insurance (such as insurance

that pays $100/day for a hospital stay as

its only insurance benefit) if three

conditions are met. First, the benefits

are provided under a separate policy,

certificate, or contract for insurance.

Second, there is no coordination

between the provision of these benefits

and another exclusion of benefits under

a plan maintained by the same plan

sponsor. Third, benefits are paid

without regard to whether benefits are

provided with respect to the same event

under a group health plan maintained

by the same plan sponsor.

Certain supplemental benefits are

excepted only if they are provided

under a separate policy, certificate, or

contract of insurance. This category of

excepted benefits includes Medicare

supplemental (commonly called

‘‘Medigap’’ or ‘‘MedSupp’’) policies,

CHAMPUS supplements, and

supplements to certain employer group

health plans. Such supplemental

coverage cannot duplicate primary

coverage and must be specifically

designed to fill gaps in primary

coverage, coinsurance, or deductibles.14

The regulations do not address

section 2721(e) of the PHS Act or

section 705(d) of ERISA relating to the

treatment of partnerships (or the

application of the Code’s group market

rules to partnerships). Comments are

requested on these provisions, including

how these provisions coordinate with

other provisions relating to selfemployed individuals and partnerships.

F. Other Group Market Provisions15

Guaranteed Renewability in

Multiemployer Plans and Multiple

Employer Welfare Arrangements—

Section 703 of ERISA and Section 9803

of the Code

Requirements relating to guaranteed

renewability in multiemployer plans
16904 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

‘‘HCFA regulations’’ in place of ‘‘PHS Act

regulations.’’

and multiple employer welfare

arrangements are set forth in section 703

of ERISA and section 9803 of the Code

(but not in the PHS Act). These

provisions state that a group health plan

that is a multiemployer plan or that is

a multiple employer welfare

arrangement may not deny an employer

whose employees are covered under

such a plan continued access to the

same or different coverage under the

terms of such plan, other than for

certain specified reasons. The

Departments are not issuing regulations

under section 703 of ERISA or section

9803 of the Code at this time, but

anticipate issuing regulations under

these sections and solicit comments

regarding these sections.

In these provisions, the terms

‘‘continued access’’ and ‘‘same or

different coverage’’ are not defined.

Comments are requested on how rules

under these provisions might address

variations and changes in a plan’s

benefit packages and contribution rates,

differences in the characteristics of

multiemployer plans and multiple

employer welfare arrangements, and any

possible implications for the financial

integrity of affected plans.

Preemption of State Laws; State

Flexibility—29 CFR 2590.731 and 45

CFR 146.190

The McCarran-Ferguson Act of 1945

(Pub. L. 79–15) exempts the business of

insurance from federal antitrust

regulation to the extent that it is

regulated by the States and indicates

that no federal law should be

interpreted as overriding State

insurance regulation unless it does so

explicitly. Section 514(a) of ERISA

preempts State laws relating to

employee benefit plans (including group

health plans). However, section

514(b)(2) of the ERISA saves from

preemption any State law that regulates

insurance. Section 2723 of the PHS Act

and section 731 of ERISA make clear

that Part A of Title XXVII of the PHS

Act and Part 7 of Subtitle B of Title I

of ERISA do not in any way affect or

modify section 514 of ERISA.

In addition, section 2723 of the PHS

Act and section 731(a) of ERISA

preempt State insurance laws to the

extent such laws ‘‘prevent the

application of’’ Part A of Title XXVII of

the PHS Act and Part 7 of Subtitle B of

Title I of ERISA. (There is no

corresponding provision in the Code.) In

this regard, the Conference Report states

that the conferees intended the

narrowest preemption of State laws with

regard to health insurance issuers (not

group health plans) with respect to all

the provisions of Part A of Title XXVII

of the PHS Act and Part 7 of Subtitle B

of Title I of ERISA (except for

preemption with respect to the

provisions of section 2701 of the PHS

Act and section 701 of ERISA.)

Consequently, the Conference Report

states that State laws with regard to

health insurance issuers that are broader

than federal requirements in certain

areas would not ‘‘prevent the

application of’’ the provisions of Part A

of Title XXVII of the PHS Act or Part 7

of Subtitle B of Title I of ERISA.

However, the preemption is broader

for the statutory requirements of section

2701 of the PHS Act and 701 of ERISA

that limit the application of preexisting

condition exclusions. State laws cannot

‘‘differ’’ from the preexisting condition

exclusion requirements of section 2701

of the PHS Act or section 701 of ERISA,

except as specifically permitted under

section 2723(b)(2) of the PHS Act and

section 731(b)(2) of ERISA. These

specific exceptions permit a State to

impose on health insurance issuers

certain stricter limitations relating to

preexisting condition exclusions.

Comments are also solicited on issues

relating to the coordination of the new

requirements under HIPAA and State

requirements for associations that may

be multiple employer welfare

arrangements as defined in section 3(40)

of ERISA.

Guaranteed Availability of Coverage for

Small Employers Under the PHS Act

Group Market Provisions—45 CFR

146.150

Rules relating to guaranteed

availability of coverage for employers in

the small group market appear only in

the PHS Act (at section 2711). In

general, this section requires health

insurance issuers that offer coverage in

the small group market to offer to any

small employer all of the products they

actively market in that market. This is

generally referred to as an all-products

guarantee. However, as allowed under

applicable State law, the issuer can

require that the employer make a

minimum contribution toward the

premium charged and have a minimum

level of participation by eligible

individuals. The issuer must also accept

for enrollment every eligible individual

without regard to health status. For

purposes of this section, an eligible

individual is one who meets the

applicable requirements of the group

health plan, the issuer, and State law for

coverage under the plan.

Some States have, in recent years,

made reforms in their small group

markets that only require guaranteed

issue of a basic and a standard policy,

rather than an all-products guarantee.

They have urged that an all-products

guarantee not be adopted, arguing that

the law does not specifically require it.

However, sections 2711 and 2741 of the

PHS Act, as added by HIPAA, contain

virtually identical requirements

requiring issuers that offer health

insurance coverage in either the small

group or individual market to make

‘‘such coverage’’ available to,

respectively, small employers or eligible

individuals. While section 2741

explicitly permits issuers to limit to two

policies the offerings they are required

to make in the individual market, the

small group market provisions contain

no similar exception. In fact, section

2713(b)(1)(D) requires that an issuer that

offers health insurance to any small

employer must provide information

concerning ‘‘the benefits and premiums

available under all health insurance

coverage for which the employer is

qualified.’’ (Emphasis added.) This

indicates that Congress intended to

require an all-products guarantee in the

small group market. (However, a State

that implements an ‘‘alternative

mechanism’’ in the individual market

under section 2744 of the PHS Act has

the flexibility either to impose an allproducts guarantee or to use a

completely different mechanism for

making insurance available to

individuals guaranteed coverage under

the statute.)

Various industry groups and persons

responding to the notice that the three

Departments published on December 30,

1996 asked that the term ‘‘offer’’ be

interpreted to mean ‘‘actively

marketed,’’ so that issuers would not be

required to reopen closed blocks of

business. The regulations make this

clear.

Section 2711 also requires issuers to

accept for enrollment any individuals

who are eligible to enroll under the

terms of the plan, and who satisfy the

requirements of the issuer and

applicable State law, during the period

in which the individual ‘‘first becomes

eligible’’ to enroll under the terms of the

group health plan. Thus, the issuer is

not required to accept late enrollees.

The regulations make it clear that this

protection extends to individuals if they

‘‘first become eligible’’ to enroll during

a special enrollment period. The special

enrollment provisions of the statute

evidence the intent that individuals

who qualify for special enrollment be

given the same protections given to

newly-hired employees and their

dependents.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16905

An issue has also been raised as to

whether the statutory definitions of

premium contributions and group

participation rules, which are repeated

in the regulations, related only to

percentages of employees or premium

dollars or to absolute numbers of

employees or premium amounts. If the

latter interpretation were permitted, the

effect would be to undermine the allproducts guarantee by allowing, for

example, some products to be available

to ‘‘larger’’ small employers, but not to

the smallest employers. The regulations

currently leave interpretation of this

language to the States, but comments are

welcomed on this issue.

Section 146.150 also includes rules

regarding the circumstances under

which issuers are permitted to deny

coverage to employers. If the product is

a network plan, under which services

are furnished by a defined set of

providers, the issuer can deny coverage

to an employer whose eligible

individuals do not live, work, or reside

in the network plan’s service area. It can

also deny coverage if it has

demonstrated to the State that its

network does not have the capacity to

deliver services to additional groups,

but is then barred for 180 days from

offering coverage in that service area.

An issuer may also deny coverage if it

demonstrates that it lacks sufficient

financial reserves to underwrite

additional coverage, but is barred for

180 days from offering coverage in the

small group market in the State. Both of

these exceptions must be applied to all

employers uniformly without

consideration of the health status or

claims experience of an employer’s

employees or dependents. Neither of

these exceptions relieves a network plan

of its responsibility to continue

servicing its in-force business under the

guaranteed renewability requirements of

the regulations.

Finally, § 146.150 provides that if the

coverage is only made available to

members of ‘‘bona fide associations’’ as

that term is defined in the regulations,

it is not subject to the guaranteed

availability requirements. (Accordingly,

the coverage does not have to be offered

to non-members.) However, employers

that obtain coverage through a bona fide

association are assured of guaranteed

access to the association’s coverage

options as long as they remain members

of the association. This is because a

bona fide association cannot condition

membership in the association on health

status-related factors. Moreover, it must

offer coverage to all employers who are

members without regard to health

status-related factors relating to their

employees or dependents. Therefore, an

association cannot legally refuse

enrollment to members on a selective

basis so long as they meet the

association’s membership criteria.

Guaranteed Renewability of Coverage

for Employers Under the PHS Act Group

Market Provisions—45 CFR 146.152

Section 146.152 of the Health Care

Financing Administration (HCFA)

regulations implements section 2712 of

the PHS Act, which requires issuers to

renew or continue in force any coverage

in the large or small group market at the

option of the plan sponsor. The

exceptions to this requirement include

nonpayment of premiums, fraud, and

violation of minimum participation or

contribution rules, as permitted under

applicable State law. Also, the issuer

can cease to offer either a particular

product or all coverage it offers in the

particular market, and can refuse to

renew if the group health plan’s

participants all leave the service area of

a network plan, or if the coverage is

provided through a bona fide

association and the employer’s

membership ends.

Issuers that decide to discontinue

offering a particular product or all

coverage in the small or large group

market are subject to certain

requirements outlined in paragraphs (c)

and (d) of this section of the regulations.

Issuers discontinuing only a particular

product must give 90 days’ notice, must

offer the plan sponsor the option to

purchase other coverage the issuer offers

in that market, and must discontinue

the product uniformly, without regard

to claims experience or health status of

participants or dependents under a

particular group health plan. If the

issuer terminates all coverage in a

market or markets, it must provide 180

days’ notice to each plan sponsor, and

it is prohibited from issuing coverage in

the market(s) or State involved for five

years following the date of

discontinuation. Plans or issuers may

modify the health insurance coverage at

the time of coverage renewal, provided

the modification is consistent with State

law and, for the small group market, is

effective uniformly among group health

plans with coverage under that product.

Some States have asked whether an

issuer that chooses to stop selling

comprehensive products, such as a basic

or standard policy, in a particular

State’s group market, must also cease

selling policies consisting of excepted

benefits. Because Congress permitted

these types of supplemental policies

and limited benefit plans to be excepted

from the requirements of HIPAA in both

the group and individual markets,

HCFA intends to defer to the States’

judgment on this issue, and solicit

comments.

State law may limit the extent to

which an issuer can abandon a product

or market, and under what

circumstances. For example, a State may

choose to require an issuer vacating the

market to transfer its business to another

issuer through assumption reinsurance,

or some other means permitted under

State law.

Paragraph (g) of this section of the

regulations provides that, with respect

to group coverage offered only through

associations, the option of guaranteed

renewability extends to include

employer members of an association.

This provision means that all employers

covered by an issuer through an

association have the right to renew the

coverage they received if the association

ceases to serve its members, regardless

of the reason.

Disclosure of Information by Issuers to

Employers Seeking Coverage in the

Small Group Market—45 CFR 146.160

Section 146.160 of the HCFA

regulations implements section 2713 of

the PHS Act by setting forth rules

relating to disclosure of information by

issuers to employers seeking coverage in

the small group market. In its

solicitation and sales materials, the

issuer must make a reasonable

disclosure that the specified information

is available on request. The information

that must be provided includes the

issuer’s right to change premium rates

and the factors that may affect changes

in premium rates, renewability of

coverage, any preexisting condition

exclusion (including use of the

alternative method of counting

creditable coverage), any affiliation

periods applied by HMOs, the

geographic areas served by HMOs, and

the benefits and premiums available

under all health insurance coverage for

which the employer is qualified under

minimum contribution and

participation rules, as permitted by

State law. The issuer is exempted from

disclosing proprietary or trade secret

information under applicable law.

‘‘Factors that may affect changes in

premium rates’’ and ‘‘proprietary and

trade secret information under

applicable law’’ have not been defined.

Comments are requested regarding

whether they should be defined.

The information described in this

section must be provided in language

that is understandable by the average

small employer and sufficient to

reasonably inform small employers of

their rights and obligations under the

health insurance coverage. This

requirement can be satisfied by using as
16906 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

16 In the case of a group health plan maintained

pursuant to one or more collective bargaining

agreements between employee representatives and

one or more employers ratified before August 21,

1996, the group market provision (other than the

requirements to provide certifications) do not apply

to plan years beginning before the later of July 1,

1997 or the date on which the last of the collective

bargaining agreements relating to the plan

terminates (determined without regard to any

extension agreed to after August 21, 1996).

a model the outlines of coverage

provided under Medicare Supplement

insurance. (These outlines are required

to provide easy comparison of the

coverage and cost of all available

products.) Reasonable information

includes rating schedules for each

product to which more than one rate

applies, and, with respect to network

plans, maps of service areas or lists of

counties served.

Exclusion of Certain Plans From the

PHS Act Group Market Requirements—

45 CFR 146.180

Section 146.180 of the HCFA

regulations implements section 2721 of

the PHS Act, which permits certain

nonfederal governmental plans to elect

to be exempted from some or all of the

group market requirements of the HCFA

regulations, although they are subject to

the certification and disclosure

requirements of § 146.115. With respect

to nonfederal governmental plans that

are collectively bargained, this section

does not preempt State and local

collective bargaining laws. The

regulation establishes the form and

manner of the election, and requires a

nonfederal governmental plan making

this election to notify plan participants,

at the time of enrollment and on an

annual basis, that it has made the

election and what effect the election

has. The participant notice and

certification and disclosure obligations

are integral parts of the election. Failure

to comply with these obligations

invalidates an election and subjects the

nonfederal governmental plan to the

requirements the election would have

permitted the plan to avoid.

Only nonfederal governmental plans

that are self-funded (in whole or in part)

can make the election, and the election

only applies to the self-funded portion.

A health insurance issuer that sells

insurance coverage to a nonfederal plan

must comply with all the group market

requirements.

Enforcement of PHS Act

Requirements—45 CFR 146.184

Part 146 imposes requirements on

health insurance issuers that offer

coverage in the group market in a State,

and on nonfederal governmental (i.e.,

State and local) group health plans.

With respect to issuers, the statute

makes it clear that it is solely within the

discretion of the States, in the first

instance, whether to take on the

responsibility for enforcing those

requirements or whether to leave

enforcement to the federal government.

HCFA anticipates that the States will

choose to enforce the requirements.

However, the statute also makes clear

that if a State does not substantially

enforce the requirements, HCFA must

enforce them. The statute also requires

HCFA to enforce the requirements

applicable to nonfederal governmental

plans.

Section 146.184(b)(2) sets forth the

procedures that HCFA will follow if a

question is raised about the State’s

enforcement with respect to issuers.

Under the procedures, States are given

every opportunity to demonstrate why

federal enforcement is not required. The

regulations also make it clear that the

procedures will not be triggered unless

HCFA is satisfied that there has first

been a reasonable effort to exhaust any

State remedies. However, if, after giving

the State a reasonable opportunity to

enforce, HCFA makes a final

determination that a State is not

substantially enforcing these

requirements, HCFA will enforce the

requirements using the civil money

penalties provided for under the statute.

Parargarph (d) describes the process

for imposing civil money penalties

against issuers or nonfederal plans that

fail to comply with the group market

requirements in the PHS Act. If HCFA

receives a complaint or other

information that indicates that a right

guaranteed by the group market rules is

being denied, HCFA will first determine

which entity is potentially responsible

for any penalty. If the failure is by an

issuer, the issuer will be responsible. If

a nonfederal governmental plan is

sponsored by a single employer, the

employer will be liable, but if the plan

is sponsored by two or more employers,

the plan will be liable. If, after giving

the entity or entities an opportunity to

respond, HCFA assesses a penalty, the

regulation provides appeal rights. The

penalty can consist of up to $100 for

each day, for each individual whose

rights are violated.

Effective Dates—26 CFR 54.9806–1, 29

CFR 2590.736, 45 CFR 146.125

The group market provisions are

generally effective for plan years

beginning after June 30, 1997.16 In many

cases, no preexisting condition

exclusion may be imposed with respect

to an individual on the effective date

because any permitted preexisting

condition exclusion period is measured

from the individual’s enrollment date in

the plan (even if the enrollment date is

before the statutory effective date). An

individual who has not completed the

maximum permitted exclusion period

under HIPAA before the effective date

for his or her plan may use creditable

coverage to reduce the remaining

preexisting condition exclusion period.

The regulations contain examples

illustrating the effect of these rules.

The requirement that a plan or issuer

provide certificates to show creditable

coverage applies to events occurring on

or after July 1, 1996, except that in no

case is a certificate required to be

provided before June 1, 1997 or to

reflect coverage before July 1, 1996.

For events occurring on or after July

1, 1996 but before October 1, 1996, a

certificate is required to be provided

only upon a written request by or on

behalf of the individual to whom the

certificate applies. For events occurring

on or after October 1, 1996 and before

June 1, 1997, a certificate must be

furnished no later than June 1, 1997 (or,

if later, any date that would otherwise

apply under the standard rules).

The regulations include an optional

transition rule for events before June 1,

1997. (The transition rule applies to

automatic certificate events; it does not

apply where a certificate is requested.)

A group health plan or health insurance

issuer offering group health coverage is

deemed to satisfy the automatic

certificate requirements if a special

notice is provided no later than June 1,

1997. The notice must be in writing and

must include information substantially

similar to the information included in a

model notice authorized by the

Secretaries. For this purpose, the

following model notice is authorized:

IMPORTANT NOTICE OF YOUR RIGHT TO

DOCUMENTATION OF HEALTH

COVERAGE

Recent changes in Federal law may affect

your health coverage if you are enrolled or

become eligible to enroll in health coverage

that excludes coverage for preexisting

medical conditions.

The Health Insurance Portability and

Accountability Act of 1996 (HIPAA) limits

the circumstances under which coverage may

be excluded for medical conditions present

before you enroll. Under the law, a

preexisting condition exclusion generally

may not be imposed for more than 12 months

(18 months for a late enrollee). The 12-month

(or 18-month) exclusion period is reduced by

your prior health coverage. You are entitled

to a certificate that will show evidence of

your prior health coverage. If you buy health

insurance other than through an employer

group health plan, a certificate of prior

coverage may help you obtain coverage

without a preexisting condition exclusion.

Contact your State insurance department for

further information.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16907

For employer group health plans, these

changes generally take effect at the beginning

of the first plan year starting after June 30,

1997. For example, if your employer’s plan

year begins on January 1, 1998, the plan is

not required to give you credit for your prior

coverage until January 1, 1998.

You have the right to receive a certificate

or prior health coverage since July 1, 1996.

You may need to provide other

documentation for earlier periods of health

care coverage. Check with your new plan

administrator to see if your new plan

excludes coverage for preexisting conditions

and if you need to provide a certificate or

other documentation of your previous

coverage.

To get a certificate, complete the attached

form and return it to:

[Insert Name of Entity:]

[Insert Address]:

For additional information contact: [Insert

Telephone Number]

The certificate must be provided to you

promptly. Keep a copy of this completed

form. You may also request certificates for

any of your dependents (including your

spouse) who were enrolled under your health

coverage.

REQUEST FOR CERTIFICATE OF HEALTH

COVERAGE

Name of Participant: lllllllllll

Date: llllllllllllllllll

Address: llllllllllllllll

Telephone Number: lllllllllll

Name and relationship of any dependents

for whom certificates are requested (and their

address if different from above):

lllllllllllllllllllll

lllllllllllllllllllll

The provisions in the regulations

relating to method of delivery and

entities required to provide a certificate

apply with respect to the provision of

the notice. If an individual requests a

certificate following receipt of the

notice, the certificate must be provided

at the time of the request as set forth in

the regulations relating to certificates

provided upon request.

HIPAA provides that no enforcement

action is to be taken against a group

health plan or health insurance issuer

with respect to a violation of the group

market rules before January 1, 1998 if

the plan or issuer has sought to comply

in good faith with such requirements.

Compliance with the regulations is

deemed to be good faith compliance

with the group market rules.

G. Interim Rules and Request for

Comments

Section 707 of ERISA (redesignated as

section 734 by section 603(a)(3) of the

NMHPA), Section 2707 of the PHS Act,

and Section 9806 of the Code added by

HIPAA, provide, in part, that the

Secretaries of Labor, Treasury and HHS

may promulgate any interim final rules

as they determine are appropriate to

carry out the portability provisions of

HIPAA.

Under Section 553(b) of the

Administrative Procedure Act (5 U.S.C.

551 et seq.) a general notice of proposed

rulemaking is not required when the

agency, for good cause, finds that notice

and public comment thereon are

impracticable, unnecessary or contrary

to the public interest.

These rules are being adopted on an

interim basis because the Secretaries

have determined that without prompt

guidance, some members of the

regulated community will have

difficulty complying with the HIPAA’s

certification requirements, and will be

in violation of the statute. Congress

expressly intended that the certification

and prior creditable coverage provisions

serve as the mechanism for increasing

the portability of health coverage for

plan participants and their beneficiaries.

Without the Departments’ guidance,

plans would likely be unable to produce

the necessary amendments to plan

documents reflecting HIPAA’s new

requirements, as well as the appropriate

certifications of prior coverage that

would help participants and

beneficiaries reduce any applicable

preexisting condition exclusion periods

imposed by a new health plan. Thus,

without the Departments’ prompt

guidance, participants and beneficiaries

will not have the benefit of a convenient

certificate of prior coverage to present

upon changing health coverage, and will

likely have greater difficulty proving

that they are entitled to health coverage

immediately, or soon after joining a new

health plan.

Moreover, HIPAA’s portability

requirements will affect the regulated

community in the immediate future.

HIPAA’s certification requirements are

effective for all group health plans on

June 1, 1997. HIPAA’s underlying

requirements concerning establishing

periods of prior creditable coverage, preexisting condition exclusion provisions,

and the special enrollment

requirements, are generally applicable

for group health plans for plan years

beginning on or after July 1, 1997. Plan

administrators and sponsors, and

participants and beneficiaries will need

guidance on how to comply with the

new statutory provisions before these

effective dates. These rules have been

written in order to ensure that plan

sponsors and administrators of group

health plans, as well as participants and

beneficiaries, are provided timely

guidance concerning compliance with

these recently enacted amendments to

ERISA, the PHS Act and the Code.

These rules provide guidance on these

statutory changes, and are being

adopted on an interim basis because the

Departments find that issuance of such

regulations in interim final form with a

request for comments is appropriate to

carry out the new regulatory structure

imposed by HIPAA on group health

plans and health insurance issuers. In

addition, these rules are necessary to

ensure that plan sponsors and

administrators of group health plans, as

well as participants and beneficiaries,

are provided timely guidance

concerning compliance with new and

important disclosure obligations

imposed by HIPAA.

Sections 101(g)(4), 102(c)(4), and

401(c)(4) of HIPAA also mandate that

the Secretaries issue regulations

necessary to carry out the portability

amendments by April 1, 1997. Issuance

of a notice of proposed rule making with

pubic comment thereon prior to issuing

a final rule could delay significantly the

issuance of essential guidance and

prevent the Departments from

complying with their statutory rule

making deadline. Furthermore, these

rules are being adopted on an interim

basis and the Departments are inviting

interested persons to submit written

comments on the rules for consideration

in the development of the final rules

relating to HIPAA. Such final rules may

be issued in advance of January 1, 1998,

after affording the public an opportunity

to review and comment.

For the foregoing reasons, the

Departments find that the publication of

a proposed regulation, for the purpose

of notice and public comment thereon,

would be impracticable, unnecessary,

and contrary to the public interest.

H. Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposes

certain requirements with respect to

rules which would have significant

economic impact on a substantial

number of small entities. Section 603 of

the RFA requires an agency publishing

a general notice of proposed rulemaking

(NPRM) under section 553 of the APA

to present at the time of the publication

of its NPRM an initial regulatory

flexibility analysis, describing the

impact of the rule on small entities, and

seeking public comment on such

impact.

Small entities include small business,

non-profit organizations, and

governmental agencies. A ‘‘rule’’ under

the Regulatory Flexibility Act is one for

which a general notice of proposed

rulemaking is required under section

553(b) of the APA.

Since these rules are issued as interim

rules, and not as a general notice of
16908 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

proposed rulemaking, for the reasons

stated above, an Initial Regulatory

Flexibility analysis has not been

prepared.

While these rules are being

promulgated as interim final rules, the

Departments nevertheless invite

interested persons to submit comments

for consideration in the development of

the final rules regulating to HIPAA.

Consistent with the policy of the

Regulatory Flexibility Act, the public is

encouraged to submit comments that

suggest alternative rules that accomplish

the stated purpose of the statute and

minimize the impact on small entities.

Specifically, the public in encouraged to

address:

• What information relating to prior

coverage, preexisting condition

exclusion, health status, waiting periods

and similar issues do employers, plans

and issuers currently rely on in

maintaining health care coverage

systems?

• What are the estimated costs of

complying with the statute’s

requirements on certification of periods

of prior creditable coverage?

• How many small issuers offer

products that may be subject to the

regulations? Is there an anticipated

effect on these small companies’

competitiveness due to the regulations?

• To what extent do group health

plans currently use service providers to

fulfill the administrative obligations,

including reporting and disclosure,

previously imposed by ERISA? To what

extent would group health plans also

use service providers to comply with

this regulation’s certification

requirements?

I. Executive Order 12866, the Unfunded

Mandates Reform Act and the Small

Business Regulatory Enforcement

Fairness Act of 1995

These rules have been determined to

be a significant regulatory action under

Section 3(f) of Executive Order 12866.

The following analysis is consistent

with Section 6(a)(3)(C) of the Order.

These rules are not subject to the

Unfunded Mandates Reform Act of 1995

(Pub. L. 104–4), because they are

interim final rules. However, consistent

with the policy embodied in the

Unfunded Mandates Reform Act, the

regulation has been designed to be the

least burdensome alternative for state,

local and tribal governments and the

private sector, while achieving the

objectives of HIPAA. In addition, the

following analysis provides information

concerning the effects of the regulation

on state, local, and tribal governments

and the private sector.

Throughout the regulatory process,

HHS met and consulted with

representatives of affected state, local

and tribal governments. These groups

include the National Association of

Insurance Commissioners, the National

Governors’ Association, the National

Council for State Legislatures, the

Indian Health Service, and the

American Public Welfare Association.

HHS also provided technical advice

regarding its interpretation of the statute

to state insurance commissioners and

state legislatures at their request.

Generally, these groups have concerns

regarding:

• The statute’s preemption of state

laws that would prevent the

implementation of statutory provisions;

• The burden on issuers and plans to

implement the statutory provisions,

especially with regard to certification of

prior creditable coverage; and

• State’s desires to have considerable

flexibility in complying with the statue,

and continuing their traditional role as

regulators of insurance.

After serious consideration of these

concerns, HHS narrowly interpreted the

preemption of state law, taking the least

burdensome alternatives provided states

considerable flexibility in complying

with the statute, and recognized the

limited authority of federal agencies in

the regulation of health insurance.

The Administrator of the Office of

Information and Regulatory Affairs of

the Office of Management and Budget

has determined that this is a major rule

for purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996 (5 U.S.C. Section 801 et seq.).

Set forth below is a discussion

regarding the impact of the statute and

a discussion of the costs and benefits of

the regulations implementing the

statute.

J. Extensions of Coverage Under the

Statute

These regulations implement certain

provisions of HIPAA. The statute was

enacted to, among other things,

‘‘improve portability and continuity of

health care coverage in the group and

individual markets,’’ as stated in the

Conference Report. The statute

accomplishes these goals by instituting

reforms in the group and individual

insurance markets, including provisions

limiting the use of pre-existing

condition exclusions, and requiring

guaranteed access to health care

coverage and guaranteed renewability

for certain groups and individuals.

There are also non-discrimination

provisions and special enrollment rights

in the statute.

The pre-existing condition exclusion

periods that HIPAA restricts are

widespread. According to the Bureau of

Labor Statistics (BLS), 46 percent of

participants in private-sector, employersponsored health plans are in plans

with pre-existing condition exclusions

(1993–1994 data). The same is true of 41

percent of participants in state and local

government employer-sponsored plans

(1994 data.)

The duration of exclusion periods

varies from plan to plan. Based on Peat

Marwick’s 1995 employer survey, an

estimated 57 percent of participants in

plans with exclusions are in plans with

exclusions that last 12 months. The

remainder are distributed as follows: 13

percent in plans with 3-month

exclusions, 22 percent in plans with 6-

month exclusions, 7 percent in plans

with 9-month exclusions, and 1 percent

in plans with exclusions that last more

than 12 months.

HIPAA’s portability provisions

resemble provisions of many current

state laws. Importantly, however,

HIPAA extends these provisions of selfinsured ERISA plans which federal law

shields from state regulation. In

addition, it sets a minimum uniform

threshold for insured group plans and

individual markets across all states.

HIPAA’s portability provisions will

result in both direct and social costs and

benefits.

In general, direct costs and benefits

arise directly from the application of

HIPAA’s insurance portability and

access provisions. Direct costs and

benefits are often best understood as

transfers of resources among economic

agents, which do not necessarily

represent changes in overall social

welfare. Stated differently, they

represent changes in how the economic

pie is divided (in this case, mainly with

respect to health care), and not changes

in the size of the pie. Direct costs and

benefits are often easier to quantify than

social costs, as they are often directly

observable as transactions in the

marketplace.

With respect to HIPAA’s portability

and access provisions, direct costs and

benefits arise from the extension of

insurance coverage to individuals and

conditions not otherwise covered. Direct

benefits to individuals include the

payment of individuals’ claims for those

services and conditions. Direct costs of

individuals include the premiums

associated with that coverage. Some

available estimates of these direct costs

and benefits are presented below.

Social costs and benefits, in contrast,

do result in net changes in overall social

welfare. Social benefits generally reflect

social welfare gains that arise in
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16909

connection with statutory or regulatory

interventions that remedy market

failure. Likewise, social costs generally

reflect welfare losses arising from

interventions in otherwise efficient

markets. Social welfare changes often

play out through a complex set of

behavorial responses to interventions.

They are more difficult to quantify than

direct costs and benefits.

With respect to HIPAA, social welfare

changes generally arise indirectly from

HIPAA’s portability and access

provisions. They reflect dynamic

behavioral responses to HIPAA’s

portability and access provisions.

Expected social benefits, primarily

improved access to health insurance

and also improved job mobility, cannot

be meaningfully quantified. Expected

social costs, which could include

erosions in coverage arising from direct

premium costs, are expected to be small.

Since no measures of HIPAA’s many

social welfare effects are available, a

mostly qualitative discussion of major

effects is offered below. A more

quantitative discussion of direct costs

and benefits follows later.

1. Social Welfare Effects of HIPAA’s

Portability and Access Provisions

The primary direct benefits of the law

are improved access to insurance

coverage, and more comprehensive

coverage, through employers and in the

individual insurance market. Increased

access and comprehensiveness helps

protect individuals from catastrophic

expenses.

There are a number of social benefits

associated with improved access:

• It reduces individual’s risk of

incurring large out-of-pocket costs;

• It is often more cost effective to

provide timely preventive and remedial

care than to delay care until conditions

worsen. Therefore, to the extent that

individuals receive more timely and

appropriate care as a result of HIPAA,

over time, the long-term, cumulative

cost of their care may be lower. This has

the potential to reduce premiums for all

individuals within a risk pool, not just

the individuals directly affected by

HIPAA. Similarly, the Medicare

program may benefit from reduced

expenditures because more individuals

who become newly entitled to Medicare

will have had insurance coverage during

the course of their working life or

through the individual insurance

market.

• To the extent that more timely care

results in improved health, worker

attendance and productivity might

improve.

• HIPAA’s portability provisions

likewise help individuals transitioning

from state and federal welfare programs

to paid work. Individuals with health

conditions can offset their new health

plan’s preexisting condition exclusions

against prior coverage from any source,

including Medicaid.

• Reductions in job benefit both

individuals and the economy at large.

Increased mobility can boost individual

workers’ career opportunities. Increased

mobility also strengthens U.S. economic

efficiency and competitiveness;

• HIPAA’s federal minimum

standards for small group and

individual access to insurance coverage

may improve the functioning of small

group and individual markets. The

standards will alleviate disruptions that

might otherwise arise when ‘‘riskier’’

groups and individuals are denied or

dropped from coverage.

• To the extent that HIPAA results,

on net, in more insurance payment for

otherwise uncompensated care, costshifting and associated inefficiencies in

health care markets could be reduced.

HIPAA’s group-to-individual

portability provisions may provide a

benefit for employees who move to jobs

without health coverage. Some small

employers that do not currently offer

health care coverage may be able to do

so more easily under HIPAA’s

guaranteed issue provisions. This may

help level the playing for small

employers to compete with larger ones

in recruiting employees. While

premium increases resulting from

HIPAA may reduce the affordability of

coverage for some employers, this effect

is expected to be small, as noted below.

HIPAA also requires that issuers

offering health insurance coverage in

the individual market renew coverage

for all individuals purchasing health

insurance coverage in the individual

market, not only eligible individuals.

However, when an eligible individual

elects family coverage, the issuer may

apply a pre-existing condition

exclusion, under applicable State law,

to any of the individual’s family

members who are not eligible

individuals under the statute.

The group-to-group portability

regulation is likely to benefit

individuals who maintain employersponsored health benefit coverage and

change jobs or health plans, the

dependents of such individuals, and

workers who face ‘‘job lock’’ due to

health coverage concerns.

Under HIPAA, health insurance

coverage provided under a COBRA

continuation policy qualifies as group

health coverage. This distinction is

particularly important for individuals

moving from the group to the individual

market, or from one group health plan

to another, since electing this coverage

would enable these individuals to

maintain continuous creditable

coverage. In addition, individuals

seeking coverage in the individual

market must elect and exhaust COBRA

continuation coverage in order to

qualify as an ‘‘eligible individual’’ in the

individual market.

Thus, the statute provide an

additional incentive for those

individuals who lose coverage when

they change jobs to elect COBRA

continuation coverage in order to avoid

a break in coverage. The statute also

provides an incentive for those

individuals who are seeking coverage in

the individual market without a

preexisting condition exclusion.

Consequently, we expect more

individuals to elect COBRA

continuation coverage.

Absent HIPAA’s group-to-group

portability standards, individuals with

employer-sponsored health coverage

who have preexisting medical

conditions and who change health plans

could be denied coverage for their

conditions. In that case, individuals

would have to pay out of pocket for

necessary medial services, or forgo some

services, thereby risking adverse health

consequences and higher future costs.

Other individuals with preexisting

medical conditions who change health

plans and face preexisting condition

exclusions may pay for COBRA

continuation coverage in addition to

paying for their new health plan to

ensure coverage for the preexisting

condition. Other workers who are

concerned about losing health care

coverage would stay in their jobs or turn

down job offers.

According to the U.S. General

Accounting Office, over 20 million

individuals changed jobs in 1993

(General Accounting Office, Report

HEHS–95–257, ‘‘Health Insurance

Portability: Reform Could Ensure

Continued Coverage for up to 25 Million

Americans,’’ September 1995, pg. 7).

Approximately 12 million of these

workers had employer-sponsored health

care coverage. Additionally, nearly 7

million non-working dependents

received employer-sponsored health

care coverage through these job

changers. According to GAO, many of

these 20 million could benefit from the

regulation’s requirement that prior

health care coverage be credited against

a new health plan’s preexisting

condition exclusion period. GAO

concludes that the statute will allow

approximately 9 million job changers

(who have at least 12 months of prior

creditable coverage), with 5 million

dependents, to change jobs without the
16910 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

risk of facing any preexisting condition

exclusions. Another 3 million workers

who change jobs (who have some

smaller amount of prior coverage), with

2 million dependents, would face

reduced waiting periods before

receiving full coverage.

The number of workers and

dependents actually gaining coverage

for a preexisting condition due to credit

for prior coverage following a job

change under HIPAA will be smaller

than this, however. GAO’s estimates of

people who could benefit include all job

changers with prior coverage and their

dependents, irrespective of whether

their new employer offers a plan,

whether their new plan imposed a

preexisting condition exclusion period,

and whether they actually suffer from a

preexisting condition. Accounting for

these narrower criteria, as discussed

below, CBO estimates that 100,000 will

actually receive additional coverage

under HIPAA’s credit for prior coverage

at any point in time.

In addition, employers, especially

smaller employers, that offer health care

benefits to their employees often change

health insurance issuers, exposing

workers or their dependents with

preexisting medical conditions to gaps

in coverage. Small employers generally

change insurance issuers every 3 to 4

years (Senate Committee on Labor and

Human Resources, Report 104–156, Oct.

12, 1995, pg. 4). The provisions of the

statute that allow crediting of prior

coverage should reduce the likelihood

of gaps in coverage.

One of the benefits of HIPAA to

individuals is that it alleviates ‘‘job

lock.’’ That is, employees who have

stayed in a particular job in order to

continue health care coverage can now

change to a job that the person might

not otherwise have taken because he or

she (or a dependent) would have been

subject to a pre-existing condition

exclusion; or the person can seek

coverage in the individual insurance

market as a result of HIPAA’s provisions

requiring guaranteed issue for

individuals coming from the group

market. According to the GAO, there are

one to four million Americans ‘‘who at

some time have been unwilling to leave

their jobs because of concerns about

losing their health care coverage’’

(Health Insurance Portability: Reform

Could Ensure Continued Coverage for

Up to 25 Million Americans, HEHS–95–

257, September 1995). The GAO notes

that ‘‘surveys have found that between

11 and 30 percent of individuals report

that they or a family member have

remained in a job at some time because

they did not want to lose health care

coverage.’’ Among those individuals,

twenty percent stated that pre-existing

conditions exclusions constituted the

basis for their reluctance to change jobs.

These figures, reflecting individuals

stated intentions, may not accurately

predict their behavior under different

circumstances, however. Moreover,

HIPAA’s portability provisions will

alleviate only some causes of ‘‘job

lock’’—for example, employees might

still be somewhat impeded from taking

jobs where no coverage is offered.

Eligible individuals might benefit in this

case from HIPAA’s group-to-individual

portability provisions, but would have

to pay the premium themselves.

Therefore, many individuals who report

job lock will not necessarily change jobs

as a result of HIPAA.

There also appears to be a difference

by age categories of the extent of job

lock. The Health and Retirement Study

(HRS), conducted by the University of

Michigan’s Institute for Social Research,

which provides an emerging portrait of

Americans age 51 through 61 and their

spouses, found that job flexibility is a

key issue for this age group. ‘‘Almost

three-quarters of HRS respondents

would prefer to phase down from fulltime work to part-time work when they

retire, in sharp contrast to actual

behavior, where most people who retire

leave the workforce entirely. About onethird of the people who would not look

for another job are victims of ‘job lock,’

unable to leave because they might give

up valuable pensions or health

insurance benefits if they switched

employers’’ (HRS National Institute on

Aging Press Release, June 17, 1993).

Empirical evidence for job lock is

mixed. Buchmueller and Valletta found

strong evidence of job lock among

women but weak evidence among men

(‘‘The Effects of Employer-provided

Health Insurance on Worker Mobility,’’

Industrial and Labor Relations Review,

volume 49, number 3, April 1996).

Monheit and Cooper conclude that the

magnitude and importance of job lock,

which some studies report as causing a

20 to 40 percent reduction in mobility,

is not as great as generally thought

(‘‘Health Insurance and Job Mobility:

Theory and Evidence,’’ Industrial and

Labor Relations Review, volume 48,

number 1, October 1994). Kapur found

that job lock does not have a significant

effect on job mobility (‘‘The Impact of

Pre-existing Health Conditions on Job

Mobility: A Measure of Job Lock,’’ WP–

95–25, Institute for Policy Research),

while Gruber and Madrian found that

COBRA continuation provisions, and

similar state laws (allowing individuals

to continue coverage through their

employer group health plan for a

specified period), have led to a

significant increase in job mobility

(‘‘Health Insurance and Job Mobility: the

Effects of Public Policy on Job-lock,’’

Industrial and Labor Relations Review,

volume 48, number 1, October 1994).

CBO does not quantify potential relief

from ‘‘job lock,’’ which is a social, rather

than a direct, benefit of HIPAA. Because

people freed from job lock are going

from one type of insurance to another

(moving to a different group health plan

or to an individual insurance policy

under HIPAA portability), CBO also

views freedom from job lock as

consisting of ‘‘insured expenses * * *

transferred among different insurers

* * * [that] * * * are not * * * direct

costs.’’

The majority of evidence indicates

that job lock is a concern for many

workers. HIPAA will address this

concern, though the number of workers

who will gain an advantage is unclear

and how the value of the benefit can be

measured is also unclear.

As the forgoing discussion illustrates,

HIPAA’s social benefits are expected to

be far ranging, but they cannot be

meaningfully quantified.

HIPAA might also pose social costs.

In particular, increases in premiums

under HIPAA’s portability and access

provisions could erode coverage. These

costs are expected to be small, however,

particularly in the group market where

premium increases are estimated to be

very small relative to the overall market.

In summary, HIPAA’s portability and

access provisions are expected to result

in a number of largely unquantifiable

social benefits. These include greater

continuity of coverage, improved access

to health care and possible corollary

improvements in health and

productivity, improved stability and

efficiency in insurance health care

markets, eased movement from public

assistance to work, and gains in job

mobility that are favorable to individual

careers and to U.S. competitiveness.

2. Direct Costs and Benefits of HIPAA’s

Portability and Access Provisions

HIPAA’s portability and access

provisions impose direct costs and

provide direct benefits to a broad range

of entities, as well as to individual

citizens. Costs will be incurred by

employers, group plans, insurance

companies and managed care plans

(‘‘issuers’’); states, in their capacity as

regulators, and states and localities as

entities providing health care coverage

for their employees, retirees and

dependents; the federal government as

regulator and as the source of health

care coverage for employees, annuitants

and dependents, and for others through

programs such as Medicaid and
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16911

Medicare. Benefits will accrue to

individuals and to small employers

whose access to comprehensive

insurance is improved.

A number of studies have evaluated

the direct economic impact of the law.

The CBO found that ‘‘to the extent that

states have not already implemented

similar rules, these changes would

clarify the insurance situation and

possibly reduce gaps in coverage for

many people.’’

The CBO notes that because HIPAA

does not impose limits on premiums

issuers may charge, insurance coverage,

though available, may be expensive.

Consequently, CBO observes that the

law would ‘‘make insurance more

portable for some people, [but] it would

not dramatically increase the

availability of insurance in general.’’

The controversial question of the extent

to which there will be increases in

issuer premiums is discussed more

extensively below.

CBO prepared estimates of the direct

effects of the provisions of the

legislation included in these regulations

(Letter to the Honorable Bill Archer,

August 1, 1996; notes are also from

earlier CBO cost estimates; see table

below). The direct cost estimates can

reasonably be read as representing

direct benefits as well, since they

generally reflect transfers from a preHIPAA payer to a post-HIPAA payer.

Certain medical expenses that

individuals would pay out of pocket

absent HIPAA will be paid by insurance

programs under HIPAA. In CBO’s

estimates, this is reflected as a similar

transfer in responsibility for payment

from individuals to insurance programs.

However, the actual transfer would be

more complex. For example, to pay the

additional claims, insurers must collect

additional premiums, which in turn will

be paid by the individuals gaining

greater coverage and (in most cases) by

other covered individuals, or by their

employers. CBO’s estimates represent

gross costs to plans and gross benefits to

individuals, and do not account for

these complexities.

CBO COST ESTIMATES AND NUMBER OF PEOPLE AFFECTED

Provision Yearly cost (direct cost to private

sector) Number of people affected Other effects; comments

Group: Limiting Length of Pre-Existing Condition Exclusions to

12 Months.

$50 million in first year (1997);

$200 million per year in subsequent years.

300,000 people ‘‘would gain coverage’’ at any point in time, or

0.3% of people with private employment-based coverage.

Assumes ‘‘surge’’ in claims costs;

state laws taken into account.

Group: Creditable Coverage Reducing Pre-Ex.$25 million in first year; $100 million per year thereafter.100,000 people ‘‘would receive

added coverage’’ at any point in

time.

Small No. of people affected reflects ‘‘restrictive eligibility criteria’’.

Group: Above two combined ........ $300 million ................................... Comments: about .2% of total premiums in group and employer-sponsored market; but may be overstated because HMOs, now the dominant option, often do not use pre-ex exclusions.

Individual (group-to-individual portability, no pre-existing condition

exclusion, no denial because of

health condition, guaranteed renewal). First year estimates.

$50 million ..................................... 45,000 people covered by end of

first year.

Provisions would apply in states

that currently have 5.4 million of

estimated 13.4 million people in

indiv. market (but see analyses

below).

Individual: Subsequent years ........ $200 million by fifth year ............... ‘‘In about four years, the number

of people covered; would plateau at around 150,000’’.

Level of premiums to be charged

is unknown; states may limit allowable premiums, but such limits may impose indirect costs.

Virtually all of the insurance market

reform provisions of HIPAA that are

implemented through these regulations

have the potential to increase premiums

in the group market. Group plans may

have to bear higher costs because of the

statutory limits on pre-existing

condition exclusions and the creditable

coverage provisions reducing the

application of permissible pre-existing

condition exclusions. CBO has

estimated the total costs of these two

provisions at $300 million annually

after full implementation, or 0.2% of

total premiums in the group market.

This reflects coverage for services which

would have been excluded under

current law due to pre-existing

condition exclusions in insurance

contracts, but which would be covered

under HIPAA due to HIPAA’s 12-

months cap on exclusions and its

provisions requiring credit for prior

coverage.

CBO’s $300 million cost figure reflects

only the costs of the statute’s limits on

pre-existing conditions exclusion, and

its prior creditable coverage provisions.

It does not include the administrative

costs to plans and issuers of the

HIPAA’s certification requirement,

which the Department of Labor has

measured in its Paperwork Reduction

Act analysis below. Similarly, CBO’s

$300 million figure does not include

any other increased premium costs that

might be associated with the statute’s

health status nondiscrimination or

guaranteed renewability provisions.

CBO’s figure does try to estimate (a)

how many people would benefit from

the statute’s limits on preexisting

condition exclusions, and its prior

creditable coverage provision, and (b)

the average cost to insurers of the

extension of coverage to those

individuals.

Preexisting condition exclusion

limitation: CBO derived its $300 million

figure by estimating that approximately

300,000 people with private

employment-based coverage would gain

coverage under the statute’s preexisting

condition exclusion limitation

provision, at a direct private sector cost

of $200 million per year. CBO adjusted

this estimate to exclude people who

reported being limited by a preexisting

condition restriction, but who also had

secondary health coverage to pick up

the cost of their preexisting condition.

CBO reasoned that under these

circumstances, the preexisting condition

exclusion limitation would not raise the

aggregate costs imposed on

employment-based plans. CBO likewise

adjusted its estimate to reflect the

existence of state laws which limited

preexisting condition exclusion

limitations to one year or less and

require that previous coverage be

credited against those exclusions. These

state laws generally apply to group

plans of 50 or fewer employees, and do
16912 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

not include self-funded health benefit

plans subject to ERISA rather than state

laws. Since plans covered by such state

laws would not have to change their

provisions as a result of HIPAA, CBO

lowered its initial estimate of the people

affected by the bill.

Crediting Prior Coverage: CBO’s $300

million figure also includes an estimate

that 100,000 people, at a private sector

cost of about $100 million per year,

would receive some added coverage as

a result of HIPAA’s prior creditable

coverage provision.

CBO reports that these estimates are

subject to considerable uncertainty for

several reasons. First, they are based on

individuals’ responses to surveys,

which should be treated with caution.

Likewise, unforeseen changes in the

health insurance market, such as

changes in medical costs or the growth

of managed care plans, could raise or

lower the direct costs of the law.

Increases in medical costs would

obviously raise the costs, while the

expansion of HMO penetration in the

market would tend to reduce the law’s

effect, since HMOs generally do not use

preexisting condition exclusions.

CBO also reports that in particular,

distribution of the costs these provisions

would be uneven across health plans.

CBO notes that ‘‘[o]nly plans that

currently use pre-existing condition

exclusions of more than 12 months

would face the $200 million direct costs

of the statute’s exclusion limitation.’’

Data from a Peat Marwick survey used

by CBO indicate that 2.5% of employees

are in such plans. Consequently, ‘‘the

costs to health plans that use long

preexisting condition exclusions would

be about 4.5% of their premium costs.’’

Likewise, only those plans that use

preexisting condition exclusions would

face the $100 million direct cost of the

mandate to credit prior coverage against

the preexisting conditions exclusion.

CBO reports that ‘‘almost half of

employees are in such plans—implying

that the plans directly affected by this

mandate would have direct costs equal

to about one-tenth of one percent of

their premiums’’ absent the statute.

The increased costs may be shared by

insurers, plans, and insured individuals.

Additionally, costs also may be borne

directly by plans that an issuer

‘‘experience rates,’’ i.e. the insurer

determines rates according to the

utilization of the group being insured.

Costs may also be borne by others

insured through an issuer that uses

some form of community rating, which

spreads risk over a greater number of

‘‘insured lives’’ beyond the particular

group that is the source of the additional

costs. To a certain extent, a group may

have a choice in the degree of burden:

if the group knows that its members

incur lower costs than the average of the

issuer’s pool, the group can avoid a

community-rated pool by becoming selfinsured.

There is also the possibility that group

market premiums may increase as a

result of the HIPAA reforms in the

individual market if insurers spread the

costs of claims in the individual market

across a pool that includes group

members. HIPAA expressly provides for

this possibility as one of the elements of

an acceptable state alternative

mechanism. (Such issues relating to the

individual market are discussed in more

detail below.)

Assuming that the CBO is correct in

projecting that the premium effect

translates into 0.2 percent of total

premiums in the group market, a

minimal premium effect is likely.

CBO did not quantify the cost of

nondiscrimination or special enrollment

provisions.

With respect to nondiscrimination,

approximately 135,000 workers reported

in 1993 that they were excluded from

their employer’s health plan because of

their health, according to DOL

tabulations of the April 1993 Current

Population Survey. In general, HIPAA

would require plans to offer benefits to

such individuals.

With respect to special enrollments,

HIPAA provides that individuals, under

certain conditions, are permitted to

enroll for health coverage on the same

terms as new participants, rather than as

late enrollees. The conditions triggering

eligibility for special enrollment

generally include events in which an

individual loses coverage (such as when

a spouse changes jobs when couples

legally separate or divorce) or joins a

family that is eligible for coverage

(through marriage, birth, or adoption).

Special enrollment requirements

benefit individuals. Absent this

provision, eligible individuals could be

subject to pre-existing conditions

exclusion periods of up to 18 months,

and therefore would might need 18

months of prior creditable coverage to

fully offset a preexisting condition

exclusion period. Under the provision,

eligible individuals’ exclusion periods

are limited to 12 months. This special

enrollment provision also permits

eligible individuals to enroll

immediately in plans which otherwise

prohibit late enrollment, or which allow

late enrollments only during annual

open enrollment periods.

Considering some of the major groups

that could benefit, the Departments

estimate that 734,000 families would

gain eligibility for special enrollments

due to marriage, as would 701,000 due

to births, and 292,000 due to job

changes in the family. These estimates,

based on the Survey of Income and

Program Participation, reflect an annual

count of such events following which

the relevant spouse or new born was

uninsured, or covered under an

individual policy or Medicaid.

Special enrollments may result in a

marginal increase in aggregate

premiums and claims paid, but no

change in average premium levels for

any one individual, since eligible

individuals are not likely to have any

higher health care costs than the average

new health plan participant.

In summary, HIPAA’s portability and

access provisions will result in a

number of direct costs and benefits.

These direct costs represent transfers

among parties and not changes in

overall social welfare. CBO estimates

that HIPAA’s group portability

provisions will result in $300 million of

additional annual direct costs to

insurance programs, which in turn

represents a direct benefit of $300

million in added coverage for

individuals. Additional direct costs and

benefits will arise from similar

extensions of coverage under HIPAA’s

group-to-individual portability, special

enrollment, and nondiscrimination

provisions. Various estimates of the

costs and benefits of the group-toindividual provisions are offered below.

Costs and benefits of the special

enrollment and nondiscrimination

provisions have not been quantified.

3. Affected Market Segments

(1). Impact on State, Local and Tribal

Governments

The statute establishes federal

standards and allows for federal

enforcement in an area that has

traditionally been the domain of the

states, the regulation of insurance.

However, the statute also permits states

to use alternative, state-specific

mechanisms to achieve greater

portability and continuity in a manner

similar to the federal standards. Many

states have undertaken insurance

reforms similar to the HIPAA provisions

and are likely to seek approval for the

continuation of these alternative

mechanisms. The statute provides that

enforcement of the requirements of the

law will be the responsibility of the

states (for those states implementing

alternative mechanisms as well as for

those states implementing the federal

standards), unless a state is unwilling or

unable to enforce the law. Only in the

latter case of unwillingness or inability

to enforce the law will the federal
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16913

government implement and enforce the

law in a given state. It is highly unlikely

that there will be any instance of the

federal government assuming such a

role, with the exception perhaps of the

territories. There is no federal financial

assistance or resources to implement

these provisions.

The CBO has generally determined

that there will be a negligible impact on

these governmental entities, even in the

event that, in their capacity as sponsor

of employee health care coverage, they

choose not to ‘‘opt out’’ of having

certain provisions of the statute apply to

them. HIPAA provides that states and

localities that self-insure their health

care coverage for employees, are

permitted, under the statute, to ‘‘opt

out’’ of the provisions of the law

affecting them with respect to rules

governing pre-existing condition

limitations. Some entities that have the

option available will ‘‘opt out.’’

However, this does not relieve them of

the responsibility of providing

certifications of creditable coverage for

their covered individuals. HIPAA does

not preempt state and local government

collective bargaining laws. If there were

no opt-out entities, CBO projects that

state and local governments would see

an increase in health care costs of less

than $50 million, or 0.1% of the $40

billion annually in state and local total

health insurance expenditures.

Those who would benefit from the

imposition of HIPAA requirements on

state and local governments are

individuals who are subject to a preexisting condition exclusion that would

have been shortened in length by

HIPAA either under the 12-month limit

or the crediting or prior creditable

coverage provision. As the CBO points

out, this benefit (for some) is coupled

with a cost to (all covered) individuals

because it is assumed that states and

localities would pass the cost off to their

employees through reduced

compensation or benefits.

According to CBO, the impact of the

law on the states in their capacity as

regulators enforcing new insurance

provision is marginal. For states that

have been enacting insurance reform

measures in the small group and

individual markets, it could be argued

that HIPAA provides a benefit to the

extent that the introduction of federal

standards facilitates the states’ ability to

continue insurance reforms in these

markets. According to the

Intergovernmental Health Policy Project

(IHPP), in a report dated June of 1996,

all but two states had enacted some type

of small group market reform, and 35

states had enacted some type of

individual insurance market reform.

The presence of a federal standard that

may be viewed as constituting a ‘‘floor’’

of requirements imposed on issuers in

these two markets may also benefit the

states.

The individual insurance market has

traditionally been regulated by the

states, and Congress intended that, to

the maximum extent possible, the states

should continue this regulatory role. To

this end, the law provides states with

these options: (1) implement an

alternative, state-specific mechanism to

ensure access to individual health care

coverage; (2) adopt and administer the

federal standards of HIPAA; or (3) allow

the federal government to administer

the law.

In devising the first option, the

implementation of an alternative

mechanism, Congress afforded states a

good deal of flexibility in establishing

an alternative mechanism. At least 30

states are expected to implement

alternative mechanism, each unique to

the state’s demographics and market

conditions. States are encouraged to

explore innovative options and intend

to afford states as much flexibility as

possible in the design of their

alternative mechanisms. Throughout the

process of reviewing proposed

alternative mechanisms, the states’ need

for flexibility must be balanced with the

rights of the individuals afforded

protection under the law.

Our main concern is that the primary

goal of HIPAA be achieve: that eligible

individuals are guaranteed coverage in

the individual market, to the extent that

policies are available, without a

preexisting condition exclusion period.

HHS intends to review states’

mechanisms with this goal in mind; so

the information presented should

present a clear picture of the

mechanism’s impact on eligible

individuals. The information requested

in these regulations (section 148.126(h))

closely parallels the statutory

provisions. While such information

collection requirements may impose a

burden on each state that chooses to

implement an alternative mechanism,

such information is necessary in order

to effectively evaluate the mechanism

and ensure that the mechanism will

provide eligible individuals the

protection guaranteed by the law.

The states are unlikely to choose the

option whereby the Secretary (HCFA)

implements and enforces HIPAA in the

states. Eight states, however, may

choose the ‘‘federal fall-back’’ option of

incorporating the HIPAA standards into

state law rather than developing an

alternative mechanism.

The statutes provides that a state is

presumed to be implementing an

acceptable alternative mechanism as of

January 1, 1998, unless the Secretary of

HHS notifies a state of her disapproval

of the mechanism by July 1, 1997. In

states where the legislature does not

meet in a regular session between

August 21, 1996 and August 20, 1997,

the state is presumed to be

implementing an acceptable alternative

mechanism as of July 1, 1998. To our

knowledge, only Kentucky qualifies for

this exception. The statute also provides

an extension. Before making an initial

determination, HHS intend to make

every effort to consult with the

appropriate state officials. After

consultation with appropriate state

officials, should there still be cause for

disapproval, HHS will allow the state a

reasonable opportunity to revise the

mechanism or submit a new

mechanism. Throughout this process,

HHS may require further information

from state officials regarding particular

aspects of their insurance market

reform. While such requests for

information may also impose an

additional burden on the state, this

information will be necessary to insure

that the mechanism will provide the

protections guaranteed to eligible

individuals under the law.

As required by law, the Secretary of

HHS will review each alternative

mechanism every three years. In this

respect, the regulation adheres closely

to the statutory burden and merely

clarified that resubmission is required

on every three-year anniversary of the

last submission date. HHS has also

provided a process for review of future

mechanisms, should a state may wish to

revise an existing mechanism or

propose a new mechanism.

In addition to implementing an

alternative mechanism, a state may

choose to adopt and administer the

federal statutory provisions. Our

regulations in this regard do not differ

from the statutory provisions. As noted

above, it is likely that up to eight states

would choose this option.

Finally, a state may choose to allow

the federal government to administer

the federal statutory provisions in the

state. Although this is a possibility

contemplated in the statute, it is

unlikely that any state would choose

this option. However, the impact of the

regulations that implement this option

is discussed below.

In states that have an acceptable

alternative mechanism for ensuring

access to individual insurance or health

care coverage, the implementation of

laws and determination of compliance

with those laws is exclusively a state

matter. For other states, HIPAA gives

the Secretary authority to issue
16914 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

regulations to carry out the

implementation and enforcement of

HIPAA provisions for the states that

choose the ‘‘federal fallback’’ option

(using federal standards), and for states

in which the federal government will

directly administer the HIPAA

provisions. These regulations specify

the following:

• Documentation that must be

submitted to the state (federal default)

or to HCFA (direct regulation by the

federal government) demonstrating

compliance with the statute;

• The manner in which an insurer

markets individual policies;

• The procedure and time frames the

issuer follows in determining whether

someone is an eligible individual, and

the effective date of the individual’s

coverage;

• The procedure to follow for a

request to limit enrollment in the case

of an HMO’s or insurer’s capacity

limitations (network capacity or

financial capacity); and

• The procedure for determining

whether the benefit packages offered in

the individual market are consistent

with statutory requirements.

In states electing the federal fall-back

approach, the state determines the level

of documentation required to establish

compliance with the HIPAA provisions.

The Departments do not know the

extent of burden states will impose on

plans as a result of HIPAA. Although

there is not likely to be direct federal

enforcement in any state, in those states

in which HCFA does administer the

law, issuers have 90 days after July 1,

1997, to provide documentation

concerning individual policy forms the

issuer already markets; and 90 days

prior to the beginning of the calendar

year prior to marketing a new policy

form. With regard to these time frames,

the 90-day period should not be

burdensome. Much of the information

required to be submitted regarding the

policy forms in the individual market is

material the issuer will generally have

filed with a state insurance

commissioner (‘‘information on all

products offered in the individual

market’’; marketing material, often

submitted to states on a ‘‘file and use,’’

or informational basis). For such

information the submission to the

federal government is burdensome only

in that it is duplicative of material given

to the state. The HIPAA-specific

materials are generally not duplicative

and constitute a burden on issuers to

provide HCFA with the following

information:

• An explanation of how the issuer is

complying with the provisions of

HIPAA, including how the issuer will

inform eligible individuals of available

policy forms;

• Premium volumes or actuarial

values (depending on which election is

made regarding compliance with rules

on the type of policy to be offered); and

• A description of the risk spreading/

financial subsidization mechanism to be

used for individual policy forms.

The last two items represent

requirements of the statute, while the

first item is necessary to ensure that

there is effective implementation of the

statute. For the first item, issuers will

have to become familiar with the

provisions of HIPAA in order to comply

with the documentation requirement,

which can be a considerable burden, but

the other information requirements

should not be burdensome. One way in

which these regulations lessen the

burden for plans electing to offer

‘‘representative coverage’’ rather than

the most popular policy forms is by not

prescribing the method of determining

the actuarial value of representative

coverage. Issuers may make their own

determinations of actuarial value and

present them to HCFA for verification.

(2). Impact of the Law in Different States

The impact of the law on individuals,

employers, group plans, and issuers

may vary somewhat from state to state.

Many state reforms resemble HIPAA’s

portability provisions, often meeting or

exceeding particular HIPAA standards.

The CBO notes that it ‘‘lowered its

initial estimate of the number of people

affected by the bill’’ in recognition of

such state reforms. Where state laws

resembling HIPAA exist, the marginal

impact of HIPAA is reduced.

The degree to which a state’s reforms

lessen the impact of HIPAA’s portability

provisions depends on the degree to

which the state’s requirements exceed

these provisions, and on what

proportion of insured individuals in the

state are covered by the state’s reforms.

In general, individuals not covered by

state reforms are those enrolled in

programs for which such state reforms

are preempted by federal law. These

include individuals enrolled in federal

programs such as Medicare and the

Federal Employees Health Benefits

Program or in self-insured ERISA plans.

Individuals enrolled in ERISA plans

that are not self insured are covered by

such state reforms that are specifically

saved from preemption by HIPAA.

According to a study by Jacob

Klerman of RAND, New Estimates of the

Effect of Kassebaum-Kennedy’s Groupto-Individual Conversion Provision on

Premiums for Individual Health

Insurance (1996), 42 states have

guaranteed issue rules in the individual

market or a high-risk pool that could

qualify the states as meeting the

alternative mechanism requirements of

HIPAA. This is consistent with other

information the Departments have

received to the effect that only eight

states may adopt the federal HIPAA

standards (to be administered by the

states). (The individual market issues

are discussed in greater detail below.)

An analysis prepared by staff of the

Pension and Welfare Benefits

Administration (PWBA) of the

Department of Labor found, for the

group market, that 41 states have small

group guaranteed issue; of that number

five do not conform with (or are not

more generous than) HIPAA rules on

guaranteed issue, and 21 define a small

group differently from HIPAA by

starting the small group category at

three individuals (rather than HIPAA’s

two)—the situation in 11 states—or by

extending the provisions to groups not

reaching HIPAA’s 50 (4 states define a

small group as up to 49; one as 40; and

ten as either 24 or 25). These states are

likely to make relatively small changes

as necessary to conform their laws to

HIPAA standards. The National

Association of Insurance Commissioners

has also engaged in extensive efforts to

help the states conform their laws.

Thirty-one states already have

provisions which require that group

health plans offer additional enrollment

opportunities to employees under

circumstances similar to HIPAA’s

special enrollment opportunities. The

statute expands the state baseline by

adding legal separation as a grounds for

special enrollment eligibility, and

expressly includes COBRA as prior

group health coverage. The statute

further requires retroactive coverage for

newborns and adopted children if

special enrollment is requested within

30 days of birth, placement for

adoption, or adoption. Current state

requirements reduce the overall

economic impact of the special

enrollment requirements on the group

health market.

For pre-existing conditions

limitations in group health plans,

HIPAA provides that the maximum

allowable period is 12 months (‘‘lookforward’’), or 18 months for a late

enrollee (someone enrolling outside of

an initial or special enrollment period)

for conditions arising within the six

months (‘‘look-back’’) preceding the

enrollment date in a group health plan.

HIPAA also provides that prior coverage

for which there was not a break in

coverage of 63 days or more would be

credited against the pre-existing

condition exclusion. Using the PWBA

analysis and information from the IHPP,
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16915

as of mid-1996, 30 states had time limits

on pre-existing condition exclusion

periods that are the same as, or more

favorable to individuals, than the

HIPAA provisions for the group market;

and 14 other states have limits on preexisting condition time limits. Among

these 44 states, ten states allow crediting

or prior coverage for which the duration

of the break in coverage equals or

exceeds 63 days (more generous than

HIPAA); eight states allowed breaks in

coverage of 60 days; 18 states allowed

30 or 31 days of a break in coverage; and

four states had no crediting of prior

coverage. State laws which exceed

HIPAA standards will not be preemptied by HIPAA.

(3). Group Plans

HIPAA sets minimum standards for

all group health plans, including selffunded plans that are shielded by ERISA

from states’ HIPAA-like requirements.

The General Accounting Office has

estimated that about 27% of the

Nation’s population received health care

coverage through ERISA self-funded

plans (17%).

Although the GAO report indicated

that the number of people covered by

self-insured plans is increasing, other

data indicate that there has been a

decline in such coverage because of the

increasing number of individuals

covered by HMOs that operate as

insured plans. However, an HMO

network may constitute an exclusive

provider organization for a self-insured

plan. Liston and Patterson (Analysis of

the Number of Workers Covered by SelfInsured Health Plans Under the

Employee Retirement Income Security

Act of 1974—1993 and 1995, prepared

for the Henry J. Kaiser Family

Foundation, August 1996) found that

from 1993 to 1995 the number of

Americans covered by fully or partly

self-insured plans declined from 37.6

million to 32.5 million (a 14% decline).

The rate of decline was greatest in

smaller firms: for firms with fewer than

100 workers, the number of workers

covered under fully or partially selfinsured plans declined form 8.2 million

to 5.4 million (a 34% decline). For firms

with 25 or fewer employees, the

numbers declined from 2.9 million to

2.2 million from 1993 to 1995 (a 24%

decline).

The relevance of these numbers to an

analysis of HIPAA has to do both with

the number of people that can

potentially benefit from the HIPAA

provisions (if the employees moving to

ERISA-insured plans are in states that

already have provisions similar to

HIPAA, effects will be smaller), as well

as the related issue (partially a

consequence of the former) of the extent

to which the small group market in a

given state may be ‘‘disrupted’’ because

of the effects of HIPAA. (For example,

will the HIPAA provisions create a

situation in which either insurers will

abandon markets or employers will

discontinue health care coverage?)

Although the Departments’ economic

impact analysis does not contain a stateby-state analysis of the relationship

between employees covered under selfinsured plans (and any changes in those

numbers) and the states that have

reforms similar to HIPAA, Liston and

Patterson found that the South was the

only region of the country in which

there was an increase in the number of

employees covered by self-insured or

partially self-insured (reflecting the

lower penetration of HMOs in Southern

states). Data about individual states do

not appear to be available. A recent

GAO report notes that ‘‘no analysis

exists on the number of individuals

affected by these state [insurance]

reforms’’ (Health Insurance Portability:

Reform Could Ensure Continued

Coverage for Up to 25 Million

Americans, HEHS–95–257, September

1995).

For 1995, the South (stretching, under

the Liston-Patterson definition, from the

South Atlantic states to the West South

Central states of Arkansas, Louisiana,

Oklahoma and Texas) had 35% of all

employees covered by self-insured or

partially self-insured plans, while those

same states had 30% of the privatesector employees with health care

coverage. Three of the seven states that

had no pre-existing condition

limitations regulations in the PWBA

analysis were Southern states; of the 11

states that had no guaranteed renewal

provisions for group health plans, four

were in Southern states. It would appear

then, that to the extent that practices in

the ERISA small group market in

Southern states diverge significantly

from HIPAA provisions employers will

have to adhere to, there are possible

major impacts of HIPAA in those

markets.

(4). The Individual Insurance Market

In the individual insurance market

the statute provides for guaranteed issue

of a policy to ‘‘eligible individuals’’

(individuals coming from the group

market, who have 18 months of

aggregate creditable coverage, from any

of various types of health care coverage).

In addition to this guaranteed issue

requirement, insurers are not permitted

to apply any per-existing condition

exclusions to this group. Individual

policies are guaranteed renewable

except under certain circumstances. The

statute does not place any limits on the

premiums insurers may charge for the

policies made available to eligible

individuals. States are permitted to have

alternative mechanisms that achieve the

same ends as the HIPAA requirements,

though any alternative is required to

have no pre-existing condition

exclusions.

The individual insurance market

reforms are of greatest benefit to

individuals who voluntarily or

involuntarily leave their jobs and wish

to maintain some level of health

insurance. As discussed above, the

availability of individual insurance may

decrease ‘‘job lock’’ by allowing people

to maintain continuous protection as

they move between jobs. Individuals

who enter the individual market from

the group market may choose to do so

because their new employer may not

offer insurance or the employer’s

coverage is limited; or they may expect

to be without a job for a period of time

(for example, because they are ‘‘early

retirees’’ who do not yet have Medicare

entitlement and do not have

employment-based retiree health care

coverage). The CBO projects, in data

cited above, that the number of people

benefiting from the HIPAA (getting

coverage when it would have been

denied absent HIPAA) individual

market reforms would ‘‘plateau’’ at the

150,000 range by the fourth year of the

law. The GAO (HEHS–95–257, cited

above) determined that about two

million people each year could convert

to individual insurance from group

coverage, based on turnover rates among

small employers and rates of COBRA

continuation of coverage.

Individual market premium effects

vary by state. In state regulatory activity,

fewer states have provisions similar to

HIPAA’s in the individual market as

compared to state reforms in the small

group market. HIPAA will affect the

individual insurance markets in many

states. The RAND and IHPP data

indicate that only eleven states have

guaranteed issue laws for the individual

market. Eight additional states have an

insurer (Blue Cross-Blue Shield) offering

open enrollment in the individual

market. Twenty-three states have laws

limiting the period of pre-existing

condition exclusions, but only one state

allows no such exclusion period, with

most states allowing a 12-month

exclusion period with a 6- or 12-month

‘‘look back.’’

One of the most contentious issues in

discussions of HIPAA’s effect on the

individual insurance market has been

the issue of premiums in that market.

HIPAA does not impose any rating

requirements on insurers in the
16916 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

individual market, meaning that the

insurers are free to price their

individual products in any manner that

is consistent with state law. IHPP data

show that for the individual market,

seven states have rating bands

(premiums must be within certain upper

and lower bounds in relation to a

‘‘standard’’ premium), and eight states

require community rating of some form

(a form of rating that can be roughly

described as rating across a larger pool

of insured individuals, for example,

across all of an issuer’s insured

individuals, across defined age

categories, etc.). Rating bands and

community rating requirements have

the same intended effect as HIPAA, to

increase the availability of insurance,

but they additionally seek to assure

affordable coverage. There will be

interactions between the HIPAA

approach to increased availability

(guaranteed issue and elimination of

pre-existing condition exclusions for

certain individuals with prior coverage)

and the rating approach in those states

in which guaranteed issue rules and

pre-existing condition exclusion rules

differ from HIPAA’s provisions.

Affordability of individual coverage is

a significant issue with HIPAA. The

Health Insurance Association of

America (HIAA) has projected that the

individual market reform provisions of

HIPAA will cause an eventual 22%

increase in premiums in that market

(‘‘The Cost of Ending ‘Job Lock’ or How

Much Would Health Insurance Costs Go

Up If ‘Portability’ of Health Insurance

Were Guaranteed?’’, February 20, 1996).

HIAA projects, on that basis, that

eventually 500,000 to one million

people would leave the individual

insurance market because of rate

increases necessitated by the HIPAA

reforms. HIAA bases this estimate on

the current number of people insured in

the individual market, the number of

new entrants in the market, their costs,

and the price-sensitivity of purchasers

of insurance.

Other studies have arrived at

conclusions that are very different from

the HIAA conclusions. The main

difference with other studies is that

HIAA assumes that HIPAA will cause

states to impose restrictions on the level

of premiums insurers may charge in the

individual market. There are no such

requirements in HIPAA. The HIAA

assumes that people currently covered

in the individual market will be

included in the rating pool that includes

individuals who are newly insured

under HIPAA provisions. The American

Academy of Actuaries (AAA), for

example, found that the premium

increases in the individual market

would be in the range of two to five

percent, and the increases would take

effect over a longer time span that one

year. The AAA took into account

current state laws, including state laws

related rate restrictions in the small

group market.

Jacob Klerman, or RAND, examined

HIAA’s assumptions and methodology

and found that (a) using HIAA’s

assumptions, but employing more up-todate or otherwise improved data (‘‘better

estimates of the underlying figures’’),

the increase in individual premiums

would be 5.7%; and (b) using different

assumptions, the premium effect would

be 2.3% and may be as little as 1% or

less (New Estimates of the Effect of

Kassebaum-Kennedy’s Group-toIndividual Conversion Provision on

Premiums for Individual Health

Insurance, RAND, 1996). For the latter

projections, Klerman assumed a

different level of claims costs for new

entrants (150%, based on studies of the

costs for COBRA continuation policies,

versus the HIAA’s 200%), that the

premium pricing for the new policies

would not be pooled with others in the

individual market, and that state laws

would have effects that the HIAA

analysis did not consider. Note that, as

with the GAO report quoted above,

these analyses are based on an earlier

version of an insurance reform bill, S.

1028, in which the guaranteed issue was

available only to those with 18 months

of group coverage. This analysis does

not measure how many more people are

encompassed in the larger HIPAA

‘‘eligible individual’’ group comprising

individuals whose last type of coverage

was group coverage but who had prior

coverage during the 18-month period

from a different source; this will slightly

increase the cost.

Another study, done for HHS, by

Actuarial Research Corporation (ARC),

had results that were similar to the

RAND results. ARC projects possible

increases in individual premiums

ranging from 1.4 percent to 2.8 percent.

K. Statutory Provisions Affecting

Administrative Processes

While these rules implement the

statute’s goal of expanding coverage and

portability of coverage by reducing the

use of pre-existing condition exclusions,

for purposes of performing this

economic impact analysis, it is

appropriate to break the regulations

down into the following components:

certifications and notices informing

individuals of their right to request a

certification; notification of the

application of a pre-existing condition

exclusion period; alternative methods of

crediting coverage; and guidelines for

implementing the statue’s special

enrollment requirements. The notice

and notification requirements are

largely a result of this rulemaking. The

certification requirements are largely

prescribed by HIPAA, with certain

aspects that mitigate the impact of the

statute resulting from this rulemaking.

While the alternative method of

counting compliance is authorized by

HIPAA, the classes and categories of

coverage to be measured were created at

the discretion of the three Departments.

1. Staggered Effective Dates

In general, the effective dates of

HIPAA’s group health plan provisions

are tied to plans’ fiscal years and to the

expiration of collective bargaining

agreements under which some plans are

maintained. Provisions whose effective

dates are so tied included those

pertaining to pre-existing condition

exclusions, crediting prior coverage, and

special enrollments. (The effective dates

of HIPAA’s certification provisions are

not so tied.) Non-collectively bargained

plans become subject to these

provisions of HIPAA in the first plan

year beginning on or after the July 1,

1997. Collectively bargained plans

become subject the first plan year

beginning on or after the later of July 1,

1997 or the expiration of a collective

bargaining agreement that was in place

prior to HIPAA’s date of enactment,

August 21, 1996.

More than one-half of plans begin

their fiscal years on January 1.

Therefore, there is a large concentration

of plans and participants that become

subject to HIPAA in January 1998.

Overall, the proportions of participants

and plans (respectively) that become

subject to HIPAA in 1997 are 15 percent

and 24 percent; in 1998, 68 percent and

69 percent; in 1999, 11 percent and 4

percent; and in 2000, 5 percent and 2

percent.

The compliance costs of these

regulations regarding certification and

notice, pre-existing condition exclusion

notification, and notice of enrollment

rights was estimated based upon

information in the public domain and

data available to the Departments on

industry practices. To derive data on

health coverage and employment shifts

of individuals, for the purposes of this

analysis the Departments referred to

data collected from the Census Bureau’s

Current Population Survey and Survey

of Income and Program Participation, as

well as the National Health Interview

Survey and the Department of Labor’s

database of 1993 Form 5500

information, the most current available.

Supplemental data on employersponsored health care was obtained
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16917

from the Peat Marwick Benefits Survey

and the BLS Employee Benefits Survey.

2. Initial vs. Ongoing Costs

Costs may be separated into initial

costs and ongoing costs. Initial costs of

the new certification, notice, preexisting condition exclusion

notification, and special enrollment

requirements have several components,

including capital costs of preparations

for collecting information such as

purchasing or upgrading computers and

software, and record storage facilities.

Initial costs may also be expected to

include programming or reprogramming

automated systems to track periods of

prior creditable coverage, and to track

plan participants and the type of

coverage they hold, e.g. individual or

family coverage. Initial costs also

include up-front expenditures for

revisions of plan documents to comply

with the new statutory and regulatory

requirements. These costs were

annualized over the estimated ‘‘life’’ of

the regulation, 10 years, in order to

show such costs on an annual basis. It

is estimated that the 15,604 plans that

will process certifications internally

(rather than use a service provider) will

incur an average cost of $5,000 per plan

to revise their automated records

systems to accommodate this

information for a total cost of $78

million over 10 years beginning in 1997.

Presented here as direct costs, initial

costs are a component of overall social

costs.

Ongoing expenditures incurred

annually include the costs to group

health plans, health insurance issuers

and self-funded plans of performing the

continuing administrative tasks of

calculating periods of creditable

coverage, printing forms for notices,

preparing an original and a copy of

notices and certifications for

participants with dependants having

identical coverage, and mailing these

documents to individuals. Also

included in ongoing expenditures is the

cost to plans which use pre-existing

condition exclusions to notify

participants of the plans’ provisions,

and calculating periods of pre-existing

condition exclusions for new

participants, and issuing an

individualized notification, as

necessary, to each individual who

would be subject to a pre-existing

condition exclusion of any duration.

Total annualized initial costs and

ongoing costs were aggregated to

estimate total annual costs.

3. The Certification Process

The statute specifies that every

individual leaving a group health plan,

ending COBRA coverage, ending

individual insurance coverage, or

leaving other types of health coverage

must receive a written certification of

creditable coverage containing specific

information about the individual and

his or her coverage, including

information on the coverage of

dependents. This requirement

constitutes a burden in information

collection and processing.

Despite recent incremental state

reforms in the laws affecting the group

health insurance market, no states have

required group health plans or health

insurance issuers to provide

participants and their dependents with

certifications or notices regarding prior

health coverage. Therefore, the statute

imposes discrete new burdens on all

group health plans and health insurance

issuers in connection with providing

certifications, and issuing to individuals

of their right to receive a certification.

Respondents preparing certification

forms must collect the appropriate

information about a person, prepare a

certification form, and, in most cases,

mail the information. One certification

can serve to provide information about

dependents covered under the same

policy. The respondent may have to

prepare multiple certification forms for

an individual, or for dependents, in the

event that the certificate is lost or

misplaced. The process may require the

development of new information

systems or, more likely, modifications to

existing information systems, to collect

and process the necessary information.

The statute makes the certification

requirement a key implementation

component of the portability provision

in both the group and individual

markets.

The cost of providing certifications for

private group plans (absent the

regulatory relief described below) is

estimated to be at least $98 million for

69 million certifications in 1997 and

$84 million for 59 million in each

subsequent year. Absent transition relief

provided under the regulations, early

year costs could be far higher. The

direct cost of certifications contributes

to the overall social cost of the statute.

L. Impact of Regulatory Discretion

These regulations mitigate the impact

of the statutory requirements on the

regulated public, while preserving

protections, in several ways. These

regulations will reduce implementation

costs.

The Departments exercised discretion

in connection with group plan

provisions, as follows:

First, intermediate issuers will not

have to issue a certification when an

individual changes options under the

same health plan. In lieu of the

certification, they could simply transfer

the start and stop dates of coverage to

the plan. An individual would retain

the right to get a certification upon

request if they leave the plan.

Second, telephonic certification will

fulfill the requirement to sent a

certification if the receiving plan and

the prior plan mutually agree to that

arrangement. The individual can always

get a written certification upon request.

Third, the requirement to send

certifications on June 1, 1997 to those

who have left plans between October 1,

1996 and May 31, 1997 can be satisfied

by sending a notice; the Departments

have offered a model notice in these

regulations for that purpose.

Fourth, until July 1, 1998, plans and

issuers that do not collect individual

information on dependants can comply

with the requirement to send each

dependant a separate certification by

simply listing the category of coverage

(e.g., individual, spouse or family).

Fifth, in situations where the issuer

and the plan contract for the issuer to

complete the certifications, the plan

would not remain liable if the issuer

failed to send the certifications.

Thus, plans would not need to keep

data and files on this information.

Sixth, the period of coverage listed on

automatic certifications will only be the

last continuous period of coverage

without any break. This is the most

efficient and simplest method of record

keeping for plans and issuers.

Seventh, 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 certifications issued

during that period.

The above reductions in burdens on

plans and issuers may cause more

frequent circumstances in which

participants are required to prove

creditable coverage and the status of

their dependants. 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 such status, and the individual

cooperates with the plan’s or issuer’s

efforts to verify the dependent status.
16918 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

Second, a plan shall treat an

individual as having furnished a

certificate if the individual attests to the

period of creditable coverage, and the

individual also presents relevant

corroborating evidence of some

creditable coverage during the period

and the individual cooperates with the

plan’s efforts to verify the individual’s

coverage.

Third, plans and issuers that impose

preexisting condition exclusions

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 offer to request a

certification on the participant’s behalf.

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 portabliity provisions.

Fourth, a plan that imposes a

preexisting condition exclusion must

notify a participant if the individual’s

creditable coverage is not enough to

completely offset the exclusion period,

and give the individual the option to

provide additional information. An

exclusion may not be imposed until this

notice is given. This provides

participants an opportunity to correct

any failure to establish credit for prior

coverage before a claim is denied.

Under the regulation, in the group

health plan enrollment materials

ordinarily provided to most new

participants, plans that contain preexisting condition exclusion provisions

must also provide notice that the plan

contains these provisions, that the

participant has the right to prove prior

creditable coverage, including the right

to secure a certificate from a prior plan

or issuer, and that the new plan will

assist in obtaining the certificate. Those

plans using the alternative method of

crediting coverage also must disclose

their methods to the participant,

including an identification of the

categories of coverage used.

In addition, a plan seeking to impose

a pre-existing condition exclusion on a

participant or dependant must inform

them in writing of the determination

that they lack adequate prior coverage,

and provide an opportunity for the

individual to submit additional

materials regarding prior creditable

coverage, and provide an explanation of

any appeals procedure.

The annual cost of these disclosure

procedures to private group plans is

estimated to be $280,000 in 1997, $2.1

million in 1998, and $1.9 million in

1999 (about 20 cents per notice). The

same costs for state group plans would

be $25,500, $51,000, and $51,000,

respectively. For local plans, they

would be $42,000, $84,000, and

$84,000. The Departments believe the

marginal burden of the notice will be

modest because, irrespective of the

notice requirement, under the statute

plans must make this determination

before imposing a preexisting condition

exclusion. Comments are encouraged as

to whether this assumption is

appropriate. These costs do not include

any burdens attributable to the use of

the alternative method of crediting

coverage, since it is assumed that any

plans incorporating this method will do

so only if the net cost is less than using

the standard method. Under the

alternative method of crediting

coverage, the regulation allows the prior

plan to charge the receiving plan using

the alternative method for the

reasonable costs of providing evidence

of classes and categories of prior health

coverage.

On balance, to the extent that the

Departments have exercised regulatory

discretion, they have acted to reduce

compliance costs. This is particulary

true with respect to the certification

process.

These regulations attempt to reduce

the burden of certifications by limiting

the amount of information that needs to

be reported and offering a model form

that can be used to satisfy the

requirement of the law. In the absence

of a written certification, the regulations

allow for alternative means of

establishing creditable coverage, which

includes having the individual present

documentation of coverage or

conducting telephone verification with

the entity that previously covered the

individual.

During a transition period,

respondents may provide individuals

with a notice that they have the right to

receive a certificate of creditable

coverage, a requirement that can be met

by including the information in an

evidence of coverage or other generic

document individuals receive that

contains information about their policy.

This notice may be provided in lieu of

a certificate for events that occur on or

after October 1, 1996 but before June 1,

1997.

The cost to issuers of the certification

requirement is primarily in the

paperwork production of the

certification form. All health insurance

issuers are likely to have the kinds of

systems in place to be able to produce

the information necessary for a

certification, although there will be

moderate systems start-up costs, and

some systems modifications for insurers

and HMOs. Systems modifications may

also be necessary to retain the data for

the certificates for several years, but,

like the other requirements, this burden

should also be limited. The model

certification form of the Preamble

contains the kind of information that is

routinely used as the basis for claims

processing by a health insurance issuer

or by an HMO (for example, in

adjudicating an out-of-network claim).

For example, in order to deny a claim

dating from a period prior to the

beginning date of coverage of a

particular individual, the issuer’s

information system could determine

that (1) a particular individual was

covered by the issuer; (2) the issuer

identification number submitted with

the claim is correct; (3) the individual

was insured on the date the health care

service was provided; (4) the service

was provided during a waiting period or

affiliation period before coverage was

available; and (5) coverage may have

ended prior to the date of service. The

issuer’s information system would also

determine the limitations of coverage

(e.g. high or low option coverage, with

or without specific riders). The

remaining information of the

certification form could also be

available to the issuer, especially for

COBRA-eligible individuals: whether

COBRA continuation coverage is

involved (given that the premium is

charged directly to the individual at a

specified rate); the beginning and

ending dates of coverage and waiting

periods; and the name, address, phone

number and contact person (or

Department) for information.

Respondents may need to modify

their systems to determine whether, for

a given insurer’s coverage of a particular

individual, there was a 63-day period of

interrupted coverage for purposes of

specifying this information on a

certification form. As noted above, the

Departments have taken into

consideration the difficulties insurers

have in identifying dependents under

family coverage, and the regulations

make appropriate accommodations, in

recognition of the need for a transition

period during which information about

dependent coverage information may be

unavailable from issuers.

The cost of producing and issuing

certifications (or notices in lieu of

certifications where permitted) for

private group plans is estimated to be

$57 million for 53 million certifications

in 1997, $64 million for 44 million in

1998, and $66 million for 44 million in

each subsequent year. Medicaid

programs would provide 10 million

certifications annually at an annual cost

of $600,000. Medicare would issue
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16919

92,000 annually at a cost of $115,000.

(Should HHS decide to allow the

Medicare award and termination letters

to suffice as certifications, then there

would be no cost to the Medicare

program for the HIPAA certification

requirements.) By 1999, the annual cost

and volume would total $500,000 and

200,000 for OPM, $2.9 million and 1.9

million for state plans, and $6.1 million

and 4.1 million for local plans, and $4.7

million and 2.9 million for individual

market issuers.

Relative to the cost implied by the

statute alone, regulatory provisions

directed at the certification process

reduce private group plans’ cost of

compliance by a minimum of $41

million (or 42 percent) in 1997, $20

million (or 24 percent) in 1998, and $18

million (or 21 percent) in 1999 and later

years, through the creation of

transitional rules, safe harbors and good

faith compliance periods. The

regulation acts to reduce parallel

burdens on issuers and state and local

government group plans in similar

proportion.

In another discretionary provision,

these regulations require group plans to

notify eligible new employees of their

special enrollment rights. This

provision is necessary to make sure

employees are sufficiently informed to

exercise their rights within the 30-day

window provided in the statute. The

cost of this disclosure is expected to be

small, since it is a uniform disclosure

that can accompany ordinary materials

provided to new participants. In order

to minimize the burden, the preamble to

these regulations provides model

language for the notice adequate for

meeting the statutory obligation. The

cost, which would reach $1.72 million

in 1999 for private group plans, is

described in the PRA analysis. In 1999,

the cost for State plans would reach

$167,000; the cost for local plans would

reach $290,000.

The direct cost of certifications and

notices contribute to the overall social

cost of the statute and regulations.

HHS has exercised regulatory

discretion regarding two specific

provisions that will be enforced

exclusively by HHS (also referred to as

the ‘‘non-shared group market’’

provisions).

These two areas are as follows:

Guaranteed Availability of Coverage for

Employers in the PHS Act Group Health

Market Provisions

The group market provisions include

rules relating to guaranteed availability

of coverage for employers in the small

group market that are only in the PHS

Act (not in ERISA or the Code). Section

146.150 of the HHS regulations

implements section 2711 of the PHS

Act. In general, this section requires

health insurance issuers that offer

coverage in the small group market to

offer all policy forms to any eligible

small employer and to accept for

enrollment every eligible individual

without regard to health status. HHS has

interpreted this guaranteed availability

requirement to apply to all products

offered in the small group market. Some

States and issuers argue that the statute

would permit guaranteed availability of

an issuer’s basic and standard plan, as

opposed to all products offered by the

issuer in the small group market. HHS

does not agree with this interpretation

and have proposed our interpretation in

the regulation. Depending upon State

law, this decision may provide the

benefit of additional choices to small

employers purchasing coverage in the

small group market, while adding some

potential costs for issuers offering

coverage in the small group market.

Exclusion of Certain Plans From the

PHS Act Group Market Requirements

The group market provisions also

include rules under which certain plans

are excluded from the group market

provisions that are only in the PHS Act

(not in ERISA or the Code). Section

146.180 of the HHS regulations

implements section 2721 of the PHS

Act. Section 146.180(b) includes rules

pertaining to non-federal governmental

plans, which are permitted under

HIPAA to elect to be exempted from

some or all of HIPAA’s requirements in

the PHS Act. HHS has exercised

regulatory discretion by prescribing the

form and manner of the election and the

contents of the notice. HHS has also

required a non-federal governmental

plan making this election to notify plan

participants, at the time of enrollment

and on an annual basis, of the fact and

consequences of the election. HHS has

exercised this regulatory authority in

order to ensure adequate documentation

of a non-federal governmental plan’s

proper and appropriate election without

placing an undue burden on the plan. In

addition, HHS has provided a nonfederal governmental plan the flexibility

to elect to opt out of specific provisions

of the statute and have allowed for this

flexibility in the contents of the notice.

The cost of providing these notices for

non-federal governmental would range

from $79,000 to $158,000 in 1997 and

from $158,000 to $315,000 in 1999.

HHS has also exercised regulatory

discretion in connection with

individual market provisions by

specifying that college health plans are

treated as bona fide associations. Since,

under HIPAA, coverage offered through

a bona fide association is creditable

coverage, individuals covered under a

college plan would receive credit for

this coverage. However, because this

coverage is offered though a bona fide

association (as defined in Part 144 of the

group market rules), the issuer benefits

because it does not have to make the

coverage available in the individual

market to eligible individuals, and does

not have to renew coverage for a student

who leaves the association. This

regulatory provision is expected to

minimally disrupt business practices for

those college plans.

HHS also exercised regulatory

discretion in connection with

individual market provisions. When an

eligible individual applies for coverage

in the individual market, the effective

date of such coverage is deemed, in the

regulations, to be the date on which the

individual applies for such coverage,

and assuming the individual’s

application for coverage was accepted.

The impact of this regulatory

provision is that an individual who

wishes to maintain creditable coverage

may delay, for up to 63 days, an

application for coverage in the

individual insurance market, especially

if he or she is assured of being covered

by an issuer (e.g., if the person is

guaranteed issuance of an individual

product as an individual coming from

group coverage, under the Act’s

guaranteed availability provisions). The

individual may forego medical

treatment during the 63-day period of

non-coverage, resulting in a

deterioration of health on entering the

new health plan, with a potential for

greater costs incurred by the insurer or

health plan.

The regulation could have required

that the individual apply for coverage

within a reasonable time period in

advance of the 63-day period, such as 30

days after the end of prior coverage

(which is similar to the statutory

requirement for a request for enrollment

in a group health plan following

exhaustion of COBRA coverage or other

exhaustion of coverage); or, the insurer

could have been required to begin

coverage within some specified time

period after application. However, the

approach taken in the regulation is

consistent with statutory provisions

regarding the treatment of waiting

periods or HMO affiliation periods,

which the statute specifically excludes

from being considered breaks in

coverage. The regulatory provision also

accords the same status to all

individuals in any circumstance by

making a 63-day period the maximum

during which an individual can be
16920 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

without coverage and still receive credit

for creditable coverage.

M. Paperwork Reduction Act—

Department of Labor and Department of

the Treasury

The Department of Labor and the

Department of the Treasury have

submitted this emergency processing

public information collection request

(ICR), consisting of three distinct ICRs,

to the OBM for review and clearance

under the Paperwork Reduction Act of

1995 (Pub. L. 104–13, 44 U.S.C. Chapter

35). The Departments have asked for

OMB clearance as soon as possible, and

OMB approval is anticipated by or

before June, 1, 1997.

These regulations contain three

distinct ICRs. Two of them (Establishing

Prior Creditable Coverage and Notice of

Enrollment Rights) are prescribed by the

statute.

The first ICR implements statutorily

prescribed requirements necessary to

establish prior creditable coverage. This

is accomplished primarily through the

issuance of certificates of prior coverage

by group health plans or by service

providers that the group health plans

contract with in order to provide these

documents. In addition, this ICR

permits the use of a notice that may be

used by the plans to meet their

obligations in connection with periods

of coverage ending during the transition

period, October 1, 1996 through May 31,

1997, saving the respondents both hours

and cost during that period. This ICR

also covers the requests that certain

plans will make regarding additional

information they require because they

are using the Alternative Method of

Crediting Coverage. Finally, this ICR

also includes the occasional

circumstances where a participant is

unable to secure a certificate and needs

to provide some supplemental form of

documentation in order to establish

prior creditable coverage.

The second ICR, Notice of Special

Enrollment Rights, implements the

statutorily prescribed disclosure

obligation of the plans to inform a

participant, at the time of enrollment, of

the plan’s special enrollment rules.

The third ICR, Notice of Pre-Existing

Condition Exclusion, concerns the

disclosure requirements on those plans

that contain pre-existing condition

exclusion provisions. This ICR has two

components: a notice to all participants

at the time of enrollment stating the

terms of the plan’s pre-exisiting

condition provisions, the participant’s

right to demonstrate creditable coverage,

and that the plan or issuer will assist in

securing a certificate if necessary; and

notice by the plan of its determination

that an exclusion period applies to an

individual.

1. Establishing Prior Creditable

Coverage

i. Department of Labor

The Department of Labor, as part of its

continuing effort to reduce paperwork

and respondent burden, conducts a

preclearance consultation program to

provide the general public and federal

agencies with an opportunity to

comment on proposed information

collection requests (ICR) in accordance

with the Paperwork Reduction Act of

1995 (PRA 95) (Pub. L. 104–13, 44

U.S.C. chapter 35) and 5 CFR 1320.11.

This program helps to ensure that

requested data can be provided in the

desired format, reporting burden (time

and financial resources) is minimized,

collection instruments are clearly

understood, and the impact of collection

requirements on respondents can be

properly assessed. Currently, the

Pension and Welfare Benefits

Administration is soliciting comments

concerning the proposed new collection

of Establishing Prior Creditable

Coverage.

Dates: Written comments must be

submitted to the office listed in the

addressee section below on or before

May 31, 1997. In light of the request for

OMB clearance by June 1, 1997,

submission of comments within the first

30 days is encouraged to ensure their

consideration.

The Department of Labor is

particularly interested in comments

which:

• evaluate whether the proposed

collection is necessary for the proper

performance of the functions of the

agency, including whether the

information will have practical utility;

• evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information,

including the validity of the

methodology and assumptions used;

• enhance the quality, utility, and

clarity of the information to be

collected; and

• minimize the burden of the

collection of information on those who

are to respond, including through the

use of appropriate automated,

electronic, mechanical, or other

technological collection techniques or

other forms of information technology,

e.g., permitting electronic submissions

of responses.

Addressee: Gerald B. Lindrew, Office

of Policy and Research, U.S. Department

of Labor, Pension and Welfare Benefits

Administration, 200 Constitution

Avenue, Room N–5647, Washington, DC

20210. Telephone: 202–219–4782 (this

is not a toll-free number). Fax: 202–219–

4745.

ii. Department of the Treasury

The collection of information is in

Section 54.9801–5T. This information is

required by the statute so that

participants will be informed about

their rights under HIPAA and about the

amount of creditable coverage that they

have accrued under a group health plan.

The likely respondents are business or

other for-profit institutions, non-profit

institutions, small businesses or

organizations, and Taft-Hartley trusts.

Responses to this collection of

information are mandatory.

Books or records relating to a

collection of information must be

retained as long as their contents may be

come 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.

Comments on the collection of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, T:FP, Washington, DC

20224. Comments on the collection of

information should be received by May

31, 1997. In light of the request for OMB

clearance by June 1, 1997, submission of

comments within the first 30 days is

encouraged to ensure their

consideration. Comments are

specifically requested concerning:

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

Internal Revenue Service, including

whether the information will have

practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information;

How to enhance the quality, utility,

and clarity of the information to be

collected;

How to minimize the burden of

complying with the proposed collection

of information, including the

application of automated collection

techniques or other forms of information

technology; and

Estimates of capital or start up costs

and costs of operation, maintenance,

and purchase of services to provide

information.

Additonal PRA 95 Information:

I. Background: In order to meet

HIPAA’s goal of improving access to

and portability of health care benefits,
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16921

the statute provides that, after the

submission of evidence establishing

prior creditable coverage, a subsequent

health insurance provider would be

limited in the extent to which it could

use pre-existing condition exclusions to

limit coverage. This ICR covers the

submission of materials sufficient to

establish prior creditable coverage.

II. Current Actions: Under 29 CFR

2590.701–5 and 26 CFR 54.9801–5T of

the interim rule, a group health plan

offering group health insurance

coverage is obligated to provide a

written certificate of information

suitable for establishing the prior

creditable coverage of a participant or

beneficiary. To the extent that a

certification is not available or

inadequate to prove prior creditable

coverage, paragraph (c) provides other

methods for establishing creditable

coverage. During the transition period

for certification (29 CFR 2590.710(e) and

26 CFR 54.9806–1T(e)), plans have the

option of providing notices regarding

participant’s rights to certification rather

than the certification itself; plans then

provide certificates only to those

participants who request them. 29 CFR

2590.701–5(a)(7) and 26 CFR 54.9801–

5T(a)(7) provides special rules for

establishing prior coverage of

defendants, and 29 CFR 2590.701–5(b)

and 26 CFR 54.9801–5T(b) provides

guidance on providing evidence of

coverage to those plans that use the

alternative method of crediting

coverage.

These regulations offer model

certification and notice forms to be used

by group health plans and health

insurance issuers, containing the

minimum information mandated by the

statute. Based on past experience, the

staff believes that most of the materials

required to be exchanged under the

certification procedure will be prepared

by contract service providers such as

insurance companies and third-party

administrators.

Type of Review: New

Agencies: U.S. Department of Labor,

Pension and Welfare Benefits

Administration; U.S. Department of the

Treasury, Internal Revenue Service.

Title: Establishing Prior Creditable

Coverage

Affected Public: Individuals or

households; Business or other for-profit;

Not-for-profit institutions; Group Health

Plans.

Frequency: On occasion

Burden:

Year Total

respondents

Total

responses

Average time

per

response

(range)

(minutes)

Burden hours

(range) Cost (range)

1997 ...................................................................................... 2,600,000 51,799,410 3.23 502,080 $57,180,000

........................ ........................ 6.12 950,710 84,590,000

1998 ...................................................................................... 2,600,000 44,431,970 5.04 672,120 64,480,000

........................ ........................ 11.77 1,569,390 119,310,000

1999 ...................................................................................... 2,600,000 44,399,150 5.27 702,360 66,310,000

........................ ........................ 12.01 1,599,630 121,140,000

Totals ......................................................................... ........................ ........................ ........................ ........................ ........................

Start up costs: It is estimated that the

15,604 plans that will perform these

functions internally (rather than use a

service provider) will incur an average

cost of $5,000 per plan to revise their

automated records systems to

accommodate this information for a

total cost of $78 million over 10 years

beginning in 1997.

Estimated total cost:

Comments submitted in response to

this notice will be summarized and/or

included in the request for Office of

Management and Budget approval of the

information collection request; they will

also become a matter of public record.

2. Notice of Enrollment Rights

i. Department of Labor

The Department of Labor, as part of its

continuing effort to reduce paperwork

and respondent burden, conducts a

preclearance consultation program to

provide the general public and federal

agencies with an opportunity to

comment on proposed information

collection requests (ICR) in accordance

with the Paperwork Reduction Act of

1995 (PRA 95) (Pub. L. 104–13, 44

U.S.C. Chapter 35) and 5 CFR 1320.11.

This program helps to ensure that

requested data can be provided in the

desired format, reporting burden (time

and financial resources) is minimized,

collection instruments are clearly

understood, and the impact of collection

requirements on respondents can be

properly assessed. Currently, the

Pension and Welfare Benefits

Administration is soliciting comments

concerning the proposed new collection

of Notice of Enrollment Rights.

Dates: Written comments must be

submitted to the office listed in the

addressee section below on or before

May 31, 1997. In light of the request for

OMB clearance by June 1, 1997,

submission of comments within the first

30 days is encouraged to ensure their

consideration.

The Department of Labor is

particularly interested in comments

which:

• evaluate whether the proposed

collection is necessary for the proper

performance of the functions of the

agency, including whether the

information will have practical utility;

• evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information,

including the validity of the

methodology and assumptions used;

• enhance the quality, utility, and

clarity of the information to be

collected; and

• minimize the burden of the

collection of information on those who

are to respond, including through the

use of appropriate automated,

electronic, mechanical, or other

technological collection techniques or

other forms of information technology,

e.g., permitting electronic submissions

of responses.

Addressee: Gerald B. Lindrew, Office

of Policy and Research, U.S. Department

of Labor, Pension and Welfare Benefits

Administration, 200 Constitution

Avenue, Room N–5647, Washington,

D.C. 20210. Telephone: 202–219–4782

(this is not a toll-free number). Fax:

202–219–4745.

ii. Department of the Treasury

The collection of information is in

Section 54.9801–6T. This information is

required by the statute so that

participants will be informed about

their rights under HIPAA and about the

amount of creditable coverage that they

have accrued under a group health plan.
16922 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

The likely respondents are business or

other for-profit institutions, non-profit

institutions, small businesses or

organizations, and Taft-Hartly trusts.

Responses to this collection of

information are mandatory.

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.

Comments on the collection of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, T:FP, Washington, DC

20224. Comments on the collection of

information should be received by May

31, 1997. In light of the request for OMB

clearance by June 1, 1997, submission of

comments within the first 30 days is

encouraged to ensure their

consideration. Comments are specially

requested concerning:

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

Internal Revenue Service, including

whether the information will have

practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information;

How to enhance the quality, utility,

and clarity of the information to be

collected;

How to minimize the burden of

complying with the proposed collection

of information, including the

application of automated collection

techniques or other forms of information

technology; and

Estimates of capital or start up costs

and costs of operation, maintenance,

and purchase of services to provide

information.

Additional PRA 95 Information:

I. Background: In order to improve

participants’ understanding of their

rights under an employer’s welfare

benefits plan, the statute provides that,

a participant be provided with a

description of a plan’s special

enrollment rules on or before the time

when a participant is offered the

opportunity to enroll in a group health

plan.

II. Current Actions: Under 29 CFR

2590.701–6 and 26 CFR 54.9801–6T of

the interim rule, a group health plan

offering group health insurance

coverage is obligated to provide a

description of the plans’ special

enrollment rules. The special

enrollment rules generally apply in

circumstances when the participant

initially declined to enroll in the plan,

and subsequently would like to have

coverage.

These regulations offer a model form

to be used by group health plans and

health insurance issuers, containing the

minimum information mandated by the

statute. Based on past experience, the

staff believes that most of the materials

required to be supplied under this ICR

will be prepared by contract service

providers such as insurance companies

and third-party administrators.

Type of Review: New.

Agencies: U.S. Department of Labor,

Pension and Welfare Benefits

administration; U.S. Department of the

Treasury, Internal Revenue Service.

Title: Notice of Enrollment Rights.

Affected Public: Individuals or

households; Business or other for-profit;

Not-for-profit institutions; Group Health

Plans.

Frequency: On occasion.

Burden:

Year

Total

respondents

(000)

Total

responses

Average time

per

response

(minutes)

Burden hours Cost

1997 ........................................................................................ 2,600,000 499,080 .50 ................ 750 100,000

1998 ........................................................................................ 2,600,000 7,622.010 .50 ................ 11,430 1,460,000

1999 ........................................................................................ 2,000,000 8,959,380 .50 ................ 13,440 1,720,000

Totals ........................................................................... ........................ ........................ ...................... ........................ ........................

3. Notice of Pre-Existing Condition

Exclusion

i. Department of Labor

The Department of Labor, as part of its

continuing effort to reduce paperwork

and respondent burden, conducts a

preclearance consultation program to

provide the general public and federal

agencies with an opportunity to

comment on proposed information

collection requests (ICR) in accordance

with the Paperwork Reduction Act of

1995 (PRA 95) (Pub. L. 104–13, 44

U.S.C. Chapter 35) and 5 CFR 1320.11.

This program helps to ensure that

requested data can be provided in the

desired format, reporting burden (time

and financial resources) is minimized,

collection instruments are clearly

understood, and the impact of collection

requirements on respondents can be

properly assessed. Currently, the

Pension and Welfare Benefits

Administration is soliciting comments

concerning the proposed new collection

of Notice of Pre-Existing Condition

Exclusion.

Dates: Written comments must be

submitted to the office listed in the

addressee section below on or before

May 31, 1997. In light of the request for

OMB clearance by June 1, 1997,

submission of comments within the first

30 days is encouraged to ensure their

consideration.

The Department of Labor is

particularly interested in comments

which:

• evaluate whether the proposed

collection is necessary for the proper

performance of the functions of the

agency, including whether the

information will have practical utility;

• evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information,

including the validity of the

methodology and assumptions used;

• enhance, the quality, utility, and

clarity of the information to be

collected; and

• minimize the burden of the

collection of information on those who

are to respond, including through the

use of appropriate automated,

electronic, mechanical, or other

technological collection techniques or

other forms of information technology,

e.g., permitting electronic submissions

of responses.

Addressee: Gerald B. Lindrew, Office

of Policy and Research, U.S. Department

of Labor, Pension and Welfare Benefits

Administration, 200 Constitution

Avenue, Room N–5647, Washington,

D.C. 20210. Telephone: 202–219–4782

(this is not a toll-free number) Fax: 202–

219–4745.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16923

ii. Department of the Treasury

The collection of information is in

Sections 54.9801–3T, 54.9801–4T, and

54.9801–5T. This information is

required by the statute so that

participants will be informed about

their rights under HIPAA and about the

amount of creditable coverage that they

have accrued under a group health plan.

The likely respondents are business or

other for-profit institutions, non-profit

institutions, small businesses or

organizations, and Taft-Hartley trusts.

Responses to this collection of

information are mandatory.

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.

Comments on the collection of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the

Treasury, Officer of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, T:FP, Washington, DC

20224. Comments on the collection of

information should be received by May

31, 1997. In light of the request for OMB

clearance by June 1, 1997, submission of

comments within the first 30 days in

encouraged to ensure their

consideration. Comments are

specifically requested concerning:

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

Internal Revenue Service, including

whether the information will have

practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information;

How to enhance the quality, utility,

and clarity of the information to be

collected;

How to minimize the burden of

complying with the proposed collection

of information, including the

application of automated collection

techniques or other forms of information

technology; and

Estimates of capital or start up costs

and costs of operation, maintenance,

and purchase of services to provide

information.

Additional PRA 95 Information:

I. Background: In order to meet

HIPAA’s goal of improving portability of

health care coverage, participants needs

to understand their rights to show prior

creditable coverage when entering a

group health plan that contain preexisting condition exclusion provisions.

In addition, participants entering plans

that use the alternative method of

crediting coverage also need to be

informed of the plan’s provisions.

Therefore, the Department has

determined that plans that contain these

provisions must disclose that fact to

new participants, as well as inform

individual participants of the extent to

which a pre-existing condition

exclusion applies to them.

II. Current Actions: 29 CFR 2590.701–

3(c) and 26 CFR 54.9801–3T(c) requires

that a group health plan or health

insurance issuer offering group health

insurance under the plan may not

impose any pre-existing condition

exclusions on a participant unless the

participant has been notified in writing

that the plan contains per-existing

condition exclusions, that a participant

has the right to demonstrate any period

of prior creditable coverage, and that the

plan or issuer will assist the participant

in obtaining a certificate of prior

coverage from any prior plan or issuer,

if necessary. 29 CFR 2590.701–4(c)(4)

and 26 CFR 54.9801–4T(c)(4) requires

that plans that use the alternative

method of crediting coverage disclose

their method at the time of enrollment

in the plan. No additional cost of

preparing or distributing this

information has been included in this

analysis because plans would only

pursue this option if it were, on net, less

costly than the standard method.

In addition, 29 CFR 2590.701–5(d)(2)

and 26 CFR 54.9801–5T(d)(2) requires

that before a plan or issuer imposes a

pre-existing condition exclusion on a

particular participant, it must first

disclose that determination in writing,

including the basis for the decision, and

an explanation of any appeal procedure

established by the plan or issuer.

Type of Review: New.

Agencies: U.S. Department of Labor,

Pension and Welfare Benefits

Administration; U.S. Department of the

Treasury, Internal Revenue Service.

Title: Notice of Pre-Existing Exclusion

Provisions.

Afffected Public: Individuals or

households; Business or other for-profit;

Not-for-profit institutions; Group Health

Plans.

Frequency: On occasion.

Burden:

Cite/reference Total

respondents

Total

responses

Average time

per

responses

(minutes)

Burden hours Cost

Notice at time of enrollment:

1997 ............................................................................... 1,261,450 500,800 0.70 2,470 $180,000

1998 ............................................................................... 1,261,450 7,626,880 0.54 16,300 1,700,000

1999 ............................................................................... 1,261,450 8,959,700 0.50 13,750 1,730,000

Notice of pre-existing condition causing lack of coverage:

1997 ............................................................................... 1,261,450 57,900 2.27 1,800 100,000

1998 ............................................................................... 1,261,450 862,830 0.84 6,160 410,000

1999 ............................................................................... 1,261,450 1,008,810 0.52 1,830 210,000

Totals ......................................................................... ........................ ........................ ........................ ........................ ........................

Estimated Total Burden Cost:

N. Paperwork Reduction Act—

Department of Health and Human

Services

Under the Paperwork Reduction Act

of 1995, HHS is required to provide 60-

day notice in the Federal Register and

solicit public comment before a

collection of information requirement is

submitted to the Office of Management

and Budget (OMB) for review and

approval. In order to fairly evaluate

whether an information collection

should be approved by OMB, section

3506(c)(2)(A) of the Paperwork

Reduction Act of 1995 requires that we

solicit comment on the following issues:

• The need for the information

collection and its usefulness in carrying

out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.
16924 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

We are, however, requesting an

emergency review of this notice. In

compliance with the requirement of

section 3506(c)(2)(A) of the Paperwork

Reduction Act of 1995, we have

submitted to the Office of Management

and Budget (OMB) the following

requirement for emergency review. We

are requesting an emergency review

because the collection of this

information is needed before the

expiration of the normal time limits

under OMB’s regulations at 5 CFR, Part

1320, to ensure compliance with section

111 of the HIPAA necessary to

implement congressional intent with

respect to guaranteeing availability of

individual health insurance coverage to

certain individuals with prior group

coverage. We cannot reasonably comply

with the normal clearance procedures

because public harm is likely to result

because eligible individuals will not

receive the health insurance protections

under the statute.

We are requesting that OMB provide

a 30-day public comment period from

the date of the publication, with OMB

review and approval by June 1, 1997,

and a 180-day approval. During this

180-day period, we will publish a

separate Federal Register notice

announcing the initiation of an

extensive 60-day agency review and

public comment period on these

requirements. We will submit the

requirements for OMB review and an

extension of this emergency approval.

Type of Information Request: New

collection.

Title of Information Collection:

Information Requirements Referenced in

HIPAA for Group Health Plans.

Form Number: HCFA–R–206.

Use: This regulation and related

information collection requirements

will ensure that group health plans

provide individuals with

documentation necessary to

demonstrate prior creditable coverage,

and that group health plans notify

individuals of their special enrollment

rights in the group health insurance

market.

Frequency: On occasion.

Affected Public: State and local

governments, Business or other for

profit, not-for-profit institutions,

individuals or households, Federal

government.

Number of Respondents: 1,430.

Total Annual Responses: Due to the

rolling effective dates in the statute, the

number of annual responses is

estimated to be 32.5 million in 1997, but

will increase to 41 million in 1998 and

42.5 million in 1999.

Total Annual Hours Requested: 1.8

million to 3.6 million hours in 1997; 2.3

million to 5.8 million hours in 1998;

and 2.6 million to 5.9 million hours in

1999.

Total Annual Costs: $36.8 million to

$53.9 million in 1997; $42.4 million to

$76.3 million in 1998; and $43.5 million

to $77.3 million in 1999. 45 CFR

§§ 146.120, 146.122, 146.150, 146.152,

146.160, and 146.180 of this document

contain information collection

requirements.

45 CFR 146.120 Certificates and

Disclosure of Previous Coverage

Certificates and Disclosure of Prior

Coverage. This section sets forth

guidance regarding the certification and

other disclosure of information

requirements relating to prior creditable

coverage of an individual. In general,

the certificate must be provided in

writing and must include the following

information: (1) The date any waiting or

affiliation period began, (2) the date

coverage began, and (3) the date

coverage ended (or indicate if coverage

is continuing). The regulations also

allow a plan or issuer in an appropriate

case to simply state in the certificate

that the individual has at least 18

months of creditable coverage that is not

interrupted by a significant break and

indicate the date coverage ended. In

general, individuals have the right to

receive a certificate automatically (an

automatic certificate) when they lose

coverage under a plan and when they

have a right to elect COBRA

continuation coverage.

We anticipate that approximately

1,400 issuers will be required to

produce 30 million certifications per

year based on the model certificate

provided. Our estimate of issuers (1,400)

includes commercial insurers and

HMOs, but does not include some types

of issuers, such as Preferred Provider

Organizations (PPOs); however, these

types of issuers are small in number.

The time estimate includes the time

required to gather the pertinent

information, create a certificate, and

mail the certificate to the plan

participant. This time estimate is based

on discussions with industry

individuals. We believe that, as a

routine business practice, the issuers’

administrative staff have the necessary

information readily available to generate

the required certificates. In addition, we

have determined that the majority of

issuers have or will have the capability

to automatically computer generate and

disseminate the necessary certification

when appropriate.

These estimates include the

certificates required by issuers acting as

service providers on behalf of group

health plans and state and local

government health plans. We anticipate

that most, if not all, state and local

government health plans will contract

with an issuer to develop the certificate.

ESTIMATES FOR CERTIFICATIONS

Year Total respondents

Total responses

Average time

per response

(range)

Burden hours

(range) Cost (range)

1997 ........................................................................................ 1,400 32,698,845 3.32 min ........... 1,809,119 hrs ... $36,366,106

.................... 6.34min 3,456,036 hrs ... 53,434,628.

1998 ........................................................................................ 1,400 28,072,131 5.19 min ........... 2,242,866 hrs ... 40,928,939

.................... .................... 12.23 min ......... 5,720,198 hrs ... 74,859,759

1999 ........................................................................................ 1,400 28,055,984 5.37 min ........... 2,510,461 hrs ... 42,124,907

.................... .................... 12.41 min ......... 5,804,408 hrs ... 75,760,119

NOTE: The costs above include the costs associated with issuers acting as service providers for group health plans. The costs are also included in the Department of Labor’s estimates.

Notice to all participants: Under this

section, issuers are required to notify all

participants at the time of enrollment

stating the terms of the issuer’s preexisting condition exclusion provisions,

the participant’s right to demonstrate

creditable coverage, and that the issuer

will assist in securing a certificate if

necessary.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16925

We have estimated the burden

associated with this information

collection requirement to be the time

required for issuers to develop

standardized language outlining the

existence and terms of any preexisting

condition exclusion under the plan and

the rights of individuals to demonstrate

creditable coverage. In specific, we

anticipate that issuers will be required

to develop approximately 660,000

notices in 1997; 5.6 million notices in

1998; and 6.2 million notices in 1999.

At 30 seconds for each notice, we

estimate the total hour burden to be

4,400 hours in 1997; 30,000 hours in

1998; and 34,000 hours in 1999. The

respective costs will be $49,000 in 1997;

$330,000 in 1998; and $377,000 in 1999.

These estimates and subsequent

estimates are based on an hourly wage

of $11 for issuers and $15 for State and

local government employees. These

estimates include the notices required

by issuers on behalf of state and local

government health plans, since we

anticipate that most, if not all state and

local government health plans will

contract with an issuer to develop the

notice. The estimates have been

disaggregated below:

Year Issuers State health

plans

Local health

plans Total notices

Total notices:

1997 ........................................................................................................... 320,000 129,826 214,880 664,706

1998 ........................................................................................................... 4,878,200 259,653 429,761 5,567,614

1999 ........................................................................................................... 5,734,300 259,653 429,761 6,189,714

Total burden hours:

1997 ........................................................................................................... 1,592 1,078 1,784 4,454

1998 ........................................................................................................... 24,293 2,155 3,567 30,015

1999 ........................................................................................................... 28,557 2,155 3,567 34,279

Notice to individual of period of

preexisting condition exclusion. Within

a reasonable time following the receipt

of the certificate, information relating to

the alternative method, or other

evidence of coverage, a plan or issuer is

required to make a determination

regarding the length of any preexisting

condition exclusion period that applies

to the individual and notify the

individual of its determination. Whether

a determination and notification is

made within a reasonable period of time

will depend upon the relevant facts and

circumstances including whether the

application of the preexisting condition

exclusion period would prevent access

to urgent medical services. The

individual need only be notified,

however, if, after considering the

evidence, a preexisting condition

exclusion period will be imposed on the

individual. The basis of the

determination, including the source and

substance of any information on which

the plan or issuer relied, must be

included in the notice. The plan’s

appeals procedures and the opportunity

of the individual to present additional

evidence must also be explained in the

notification.

We estimate that issuers will be

required to develop approximately

29,000 notices in 1997; 425,000 notices

in 1998; and 498,000 notices in 1999. At

2 minutes for each notice, we estimate

the total hour burden to be 960 hours in

1997; 14,000 hours in 1998; and 16,600

hours in 1999. We estimate the

respective costs associated with these

burdens to be $10,600 in 1997; $156,000

in 1998; and $183,000 in 1999. These

estimates include the notices required

by issuers on behalf of state and local

government health plans, since we

anticipate that most, if not all state and

local government health plans will

contract with an issuer to develop the

notice. The estimates have been

disaggregated below:

Year Issuers State health

plans

Local health

plans Total notices

Total notices:

1997 ........................................................................................................... 27,650 588 766 29,004

1998 ........................................................................................................... 422,136 1,176 1,531 425,143

1999 ........................................................................................................... 496,182 1,176 1,531 498,889

Total burden hours:

1997 ........................................................................................................... 921 20 25 966

1998 ........................................................................................................... 14,057 40 51 14,148

1999 ........................................................................................................... 16,553 40 51 16,644

45 CFR 146.122 Special Enrollment

Periods

This section in the regulation

provides guidance regarding new

enrollment rights that employees and

dependents have under HIPAA. A

health insurance issuer offering group

health insurance coverage is required to

provide a description of the special

enrollment rights to anyone who

declines coverage at the time of

enrollment. The regulations provide a

model of such a description containing

the minimum information mandated by

the statute.

The first burden associated with this

requirement is the time required for

health insurance issuers and state and

local government health plans to

incorporate the model notice into the

plan’s standard policy information. We

estimate the burden to be 2 hours

annually per issuer, for a total burden of

2,800 hours. The cost associated with

this hour burden is estimated to be

$30,800 annually.

The second burden associated with

this requirement is the time required to

disseminate the notice to new enrollees.

We estimate that issuers will be

required to develop approximately 1

million notices in 1997; 5.3 million

notices in 1998; and 5.9 million notices

in 1999. At 30 seconds for each notice,

we estimate the total hour burden to be

8,300 hours in 1997; 43,000 hours in

1998; and 48,000 hours in 1999. We

have estimated the costs associated with

these hour burdens to be $91,000 in

1997; $469,000 in 1998; and $527,000 in
16926 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

1999. These estimates include the

notices required by issuers on behalf of

state and local government health plans,

since we anticipate that most, if not all

state and local government health plans

will contract with an issuer to develop

the notice. The estimates have been

disaggregated below:

Year Issuers State health

plans

Local health

plans Total notices

Total notices:

1997 ........................................................................................................... 245,508 287,938 500,750 1,034,196

1998 ........................................................................................................... 3,750,024 575,875 1,001,500 5,327,399

1999 ........................................................................................................... 4,407,828 575,875 1,001,500 5,985,203

Total burden hours:

1997 ........................................................................................................... 1,964 2,304 4,006 8,273

1998 ........................................................................................................... 30,000 4,607 8,012 42,619

1999 ........................................................................................................... 35,263 4,607 8,012 47,881

45 CFR 146.150 Guaranteed

Availability of Coverage for Employers

in the PHS Act Group Market Provisions

This section allows a health insurance

issuer to deny health insurance coverage

in the small group market if the issuer

has demonstrated to the applicable State

authority (if required by the State

authority) that it does not have the

financial reserves necessary to

underwrite additional coverage and that

it is applying this denial uniformly to

all employers in the small group market

in the State consistent with applicable

State law and without regard to the

claims experience of those employers

and their employees (and their

dependents) or any health status-related

factor relating to those employees and

dependents. Thus, issuers are only

required to report to the applicable State

authority if they are discontinuing

coverage in the small group market.

This requirement exists in the absence

of this regulation because under current

insurance practices, State insurance

departments oversee discontinuance of

insurance products in their State as a

normal business practice. Therefore,

these information collection

requirements are exempt from the PRA

under 5 CFR 1320.3(b)(2) and 5 CFR

1320.3(b)(3). However, under HIPAA,

States must review policies during their

oversight process to make sure there is

a guaranteed availability clause in each

policy. For the 37 States that currently

require guaranteed availability, it is our

understanding that this is normal

business practice. For the other 18

States, however, we see this State

burden to be about 10 minutes per

policy, since States already review

policies for other requirements and this

process does not prescribe a timetable

for reviewing the policies. We see this

as a total burden of 10,850 hours. We

have estimated the cost associated with

this hour burden to be $163,000. If the

State identifies a violation and a State

has to take some action, we believe that

each State will be required to initiate

fewer than 10 administrative actions on

an annual basis against specific

individuals or entities who failed to

implement the Federal guarantee

availability requirements.

45 CFR 146.152 Guaranteed

Renewability of Coverage for Employers

in the PHS Act Group Market Provisions

In this section issuers are only

required to report if they are

discontinuing a particular type of

coverage or discontinuing all coverage.

This requirement exists in the absence

of this regulation because under current

insurance practices, State insurance

departments oversee discontinuance of

insurance products in their State as a

normal business practice. Therefore,

these information collection

requirements are exempt from the PRA

under 5 CFR 1320.3(b)(2) and 5 CFR

1320.3(b)(3). However, under HIPAA,

States must review policies during their

oversight process to make sure there is

a guaranteed availability clause in each

policy. For the 43 States that currently

require guaranteed renewability, it is

our understanding that this is normal

business practice. For the other 12

States, however, we see this State

burden to be about 10 minutes per

policy, since States already review

policies for other requirements and this

process does not prescribe a timetable

for reviewing the policies. We see this

as a total burden of 6,700 hours. We

have estimated the cost associated with

this hour burden to be $100,500. If the

State identifies a violation and a State

has to take some action, we believe that

each State will be required to initiate

fewer than 10 administrative actions on

an annual basis against specific

individuals or entities who failed to

implement the Federal guarantee

renewability requirements.

45 CFR 146.160 Disclosure of

Information by Issuers to Employers

Seeking Coverage in the Small Group

Market in the PHS Act Provisions

This section requires issuers to

disclose information to employers

seeking coverage in the small group

market. This section requires

information to be provided by a health

insurance issuer offering any health

insurance coverage to a small employer.

This information includes the issuer’s

right to change premium rates and the

factors that may affect changes in

premium rates, renewability of

coverage, any preexisting condition

exclusion, any affiliation periods

applied by HMOs, the geographic areas

served by HMOs, and the benefits and

premiums available under all health

insurance coverage for which the

employer is qualified. The issuer is

exempted from disclosing information

that is proprietary or trade secret

information under applicable law.

The information described in this

section must be language that is

understandable by the average small

employer and sufficient to reasonably

inform small employers of their rights

and obligations under the health

insurance coverage. This requirement is

satisfied if the issuer provides an

outline of coverage, the minimum

contribution and group participation

rules that apply to any particular type

of coverage, and any other information

required by the State. An outline of

coverage is defined as a general

description of benefits and premiums.

This would include an outline of

coverage similar to the manner in which

Medigap policies are presented,

allowing the employer to easily compare

one policy form to another to determine

what is covered and how much the

coverage will cost.

We have estimated the total burden

associated with this activity to be 2,400

hours. We anticipate that 1,200 issuers

will be required to provide disclosure to

small employers on an annual basis. We
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16927

estimate this time to be approximately

2 hours for each issuer to develop and

update the standard information related

to the general description of benefits

and premiums on an annual basis and

include this information in their policy

information. We have estimated the cost

associated with this hour burden to be

$36,000.

45 CFR 146.180 Exclusion of Certain

Plans From the PHS Act Group Market

Requirements

Section 145.180(b) includes rules

pertaining to nonfederal governmental

plans, which are permitted under

HIPAA to elect to be exempted from

some or all of HIPAA’s requirements in

the PHS Act. The regulation establishes

the form and manner of the election. In

particular, a nonfederal governmental

plan making this election is required to

notify plan participants, at the time of

enrollment and on an annual basis, of

the fact and consequences of the

election. The burden imposed by this is

the requirement for plans to disseminate

standard notification language

describing the plans’ election and the

consequences of this election. We

anticipate that between 3,500 and 5,000

nonfederal governmental plans will

make this election and will therefore be

required to disseminate notifications to

their participants on an annual basis.

Since this is standard language that will

be incorporated into plans’ existing

policy documents, we see the burden as

approximately 2 hours per plan to

develop and update this standardized

disclosure statement on an annual basis.

Thus, we estimate the total burden for

this activity to range from 7,000 to

10,000 hours. We estimate the cost

associated with these hourly burdens to

range from $77,000 to $110,000 per

year.

The above estimate does not include

the cost of disseminating the notices to

all plan participants on an annual basis

and to new enrollees at the time of

enrollment. Although we do not have an

accurate estimate of the number of

nonfederal governmental plans will

choose to opt out of these provisions,

we have provided for a range of 50 to

100 percent. Using these ranges, we

estimated 400,000 to 800,000 of these

notices would need to be produced in

1997 and 800,000 to 1.6 million in 1998

and 1999. At 30 seconds per notice, we

estimate the total burden hours to range

from 3,400 to 6,800 in 1997; and 6,800

to 13,600 in 1998 and 1999. We have

estimated the costs associated with

these hour burdens to range from

$37,400 to $74,800 in 1997; and from

$74,800 to $149,600 in 1998 and 1999.

We have submitted a copy of this rule

to OMB for its review of these

information collections. A notice will be

published in the Federal Register when

approval is obtained. Interested persons

are invited to send comments regarding

this burden or any other aspect of these

collections of information. If you

comment on these information

collection and record keeping

requirements, please mail copies

directly to the following addresses:

Health Care Financing Administration,

Office of Financial and Human

Resources, Management Planning and

Analysis Staff, Room C2–26–17, 7500

Security Boulevard, Baltimore, MD

21244–1850. Attn: John Burke

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 10235, New Executive

Office Building, Washington, DC

20503, Attn: Allison Herron Eydt,

HCFA Desk Officer.

Statutory Authorities

The Department of Labor interim final

rule is adopted pursuant to the authority

contained in Section 707 of ERISA (Pub.

L. 93–406, 88 Stat. 894; 29 U.S.C. 1135)

as amended by HIPAA, (Pub. L. 104–91;

101 Stat. 1936; 29 U.S.C. 1181).

The Department of Health and Human

Services interim final rule is adopted

pursuant to the authority contained in

Sections 2701, 2702, 2711, 2712, 2713,

and 2792 of the PHS Act, as established

by HIPAA, (Pub. L. 104–191, 42 U.S.C.

300gg–1 through 300gg–13, and 300gg–

92).

The Department of the Treasury

temporary rule is adopted pursuant to

the authority contained in Section.

List of Subjects

26 CFR Part 54

Excise taxes, Health insurance,

Pensions, Reporting and recordkeeping

requirements.

29 CFR Part 2590

Employee benefit plans, Employee

Retirement Income Security Act, Health

care, Health insurance, Reporting and

recordkeeping requirements.

45 CFR Parts 144 and 146

Health care, Health insurance,

Reporting and recordkeeping

requirements, State regulation of health

insurance.

Amendments to the Regulations

Internal Revenue Service

26 CFR Chapter 1

Accordingly, 26 CFR part 54 is

amended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citation

for part 54 is amended by adding entries

in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 54.9801–1T also issued under 26

U.S.C. 9806.

Section 54.9801–2T also issued under 26

U.S.C. 9806.

Section 54.9801–3T also issued under 26

U.S.C. 9806.

Section 54.9801–4T also issued under 26

U.S.C. 9806.

Section 54.9801–5T also issued under 26

U.S.C. 9801(c)(4), 9801(e)(3), and 9806

Section 54.9801–6T also issued under 26

U.S.C. 9806.

Section 54.9802–1T also issued under 26

U.S.C. 9806.

Section 54.9804–1T also issued under 26

U.S.C. 9806.

Section 54.9806–1T also issued under 26

U.S.C. 9806.

Par. 2. Sections 54.9801–1T, 54.9801–

2T, 54.9801–3T, 54.9801–4T, 54.9801–

5T, 54.9801–6T, 54.9802–1T, 54.9804–

1T, and 54.9806–1T are added to read

as follows:

§ 54.9801–1T Basis and scope

(temporary).

(a) Statutory basis. Sections 54.9801–

1T through 54.9801–6T, 54.9802–1T,

54.9804–1T, and 54.9806–1T

(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.

(c) Similar Requirements Under the

Public Health Service Act and Employee

Retirement Income Security Act.

Sections 2701, 2702, 2721, and 2791 of

the Public Health Service Act and

sections 701, 702, 703, 705, and 706 of

the Employee Retirement Income

Security Act of 1974 impose

requirements similar to those imposed

under Chapter 100 of Subtitle K of the

Code with respect to health insurance

issuers offering group health insurance

coverage. See 45 CFR parts 144, 146 and

148 and 29 CFR part 2590. 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 § 54.9801–2T).
16928 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

§ 54.9801–2T Definitions (temporary).

Unless otherwise provided, the

definitions in this section govern in

applying the provisions of §§ 54.9801–

1T through 54.9801–6T, 54.9802–1T,

54.9804–1T, and 54.9806–1T.

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 ERISA,

section 4980B of the Code (other than

paragraph (f)(1) of such section 4980B

insofar as it relates to pediatric

vaccines), and Title XXII of the PHSA.

(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; or

(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

COBRA continuation coverage available

to the individual.

Condition means a medical condition.

Creditable coverage means creditable

coverage within the meaning of

§ 54.9801–4T(a).

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 (i.e.,

when coverage becomes effective),

without regard to when the individual

may have completed or filed any forms

that are required in order to enroll in the

plan. For this purpose, an individual

who has health insurance 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 and first day of

coverage) are set forth in § 54.9801–

3T(a)(2) (i) and (ii).

Excepted benefits means the benefits

described as excepted in § 54.9804–

1T(b).

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 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.

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. However,

benefits described in § 54.9804–1T(b)(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 PHSA);

(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. For this purpose,

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 within 12

months of the date such contract

becomes effective. 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 PHSA,

such term also includes coverage offered

in connection with a group health plan

that has fewer than two participants as

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 § 54.9801–3T(a)(2) (iii) and (iv).

Medical care has the meaning given

such term by section 213(d) of the

Internal Revenue Code, 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 on 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.

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 terminates upon the

termination of such legal obligation.

Plan year means the year that is

designated as the plan year in the plan
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16929

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/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

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 preenrollment period.

Public health plan means public

health plan within the meaning of

§ 54.9801–4T(a)(1)(ix).

Public Health Service Act (PHSA)

means the Public Health Service Act (42

U.S.C. 201, et seq.).

Significant break in coverage means a

significant break in coverage within the

meaning of § 54.9801–4T(b)(2)(iii).

Special enrollment date means a

special enrollment date within the

meaning of § 54.9801–6T(d).

State health benefits risk pool means

a State health benefits risk pool within

the meaning of § 54.9801–4T(a)(1)(vii).

Waiting period means the period that

must pass before an employee or

dependent is eligible to enroll under the

terms of a group health plan. If an

employee or dependent enrolls as a late

enrollee or on a special enrollment date,

any period before such late or special

enrollment is not a waiting period. If an

individual seeks and obtains coverage in

the individual market, any period after

the date the individual files a

substantially complete application for

coverage and before the first day of

coverage is a waiting period.

§ 54.9801–3T Limitations on preexisting

condition exclusion period (temporary).

(a) Preexisting condition exclusion—

(1) In general. Subject to paragraph (b)

of this section, 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) are satisfied. (See

PHSA section 2701 and ERISA section

701 under which this prohibition is 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 ending on the enrollment

date.

(A) For purposes of this paragraph

(a)(1)(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)(1)(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)(1)(i)

are illustrated by the following

examples:

Example 1. (i) Individual A is treated for

a medical condition 7 months before the

enrollment date in Employer R’s group health

plan. As part of such treatment, A’s

physician recommends that a follow-up

examination be given 2 months later. Despite

this recommendation, A does not receive a

follow-up examination and no other medical

advice, diagnosis, care, or treatment for that

condition is recommended to A or received

by A during the 6-month period ending on

A’s enrollment date in Employer R’s plan.

(ii) In this Example 1, Employer R’s plan

may not impose a preexisting condition

exclusion period with respect to the

condition for which A received treatment 7

months prior to the enrollment date.

Example 2. (i) Same facts as Example 1

except that Employer R’s plan learns of the

condition and attaches a rider to A’s policy

excluding coverage for the condition. Three

months after enrollment, A’s condition

recurs, and Employer R’s plan denies

payment under the rider.

(ii) In this Example 2, the rider is a

preexisting condition exclusion and

Employer R’s plan may not impose a

preexisting condition exclusion with respect

to the condition for which A received

treatment 7 months prior to the enrollment

date.

Example 3. (i) Individual B has asthma and

is treated for that condition several times

during the 6-month period before B’s

enrollment date in Employer S’s plan. The

plan imposes a 12-month preexisting

condition exclusion. B has no prior

creditable coverage to reduce the exclusion

period. Three months after the enrollment

date, B begins coverage under Employer S’s

plan. Two months later, B is hospitalized for

asthma.

(ii) In this Example 3, Employer S’s plan

may exclude payment for the hospital stay

and the physician services associated with

this illness because the care is related to a

medical condition for which treatment was

received by B during the 6-month period

before the enrollment date.

Example 4. (i) Individual D, who is subject

to a preexisting condition exclusion imposed

by Employer U’s plan, has diabetes, as well

as a foot condition caused by poor circulation

and retinal degeneration (both of which are

conditions that may be directly attributed to

diabetes). After enrolling in the plan, D

stumbles and breaks a leg.

(ii) In this Example 4, the leg fracture is not

a condition related to D’s diabetes, even

though poor circulation in D’s extremities

and poor vision may have contributed

towards the accident. However, any

additional medical services that may be

needed because of D’s preexisting diabetic

condition that would not be needed by

another patient with a broken leg who does

not have diabetes may be subject to the

preexisting condition exclusion imposed

under Employer U’s plan.

(ii) Maximum length of preexisting

condition exclusion (the look-forward

rule). 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 purposes of this paragraph (a)(1)(ii),

the 12-month and 18-month periods

after the enrollment date are determined

by reference to the anniversary of 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.

(iii) Reducing a preexisting condition

exclusion period by creditable coverage.

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 § 54.9801–4T. For purposes of

§ 54.9801–1T through § 54.9801–6T, the

phrase ‘‘days of creditable coverage’’ has

the same meaning as the phrase
16930 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

‘‘aggregate of the periods of creditable

coverage’’ as such term is used in

section 9801(a)(3) of the Internal

Revenue Code.

(iv) Other standards. See § 54.9802–

1T for other standards that may apply

with respect to certain benefit

limitations or restrictions under a group

health plan.

(2) Enrollment definitions—(i)

Enrollment date means the first day of

coverage or, if there is a waiting period,

the first day of the waiting period.

(ii)(A) First day of coverage means, in

the case of an individual covered for

benefits under a group health plan in

the group market, 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.

(B) The following example illustrates

the rule of paragraph (a)(2)(ii)(A) of this

section:

Example. (i) 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 then on October 14, 1998 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) In this Example, 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 6-month period in paragraph

(a)(1)(i) would be the period from April 13,

1998 through October 12, 1998, the

maximum permissible period during which

Employer V’s plan could apply a preexisting

condition exclusion under paragraph

(a)(1)(ii) would be the period from October

13, 1998 through October 12, 1999, and this

period would be reduced under paragraph

(a)(1)(iii) by E’s days of creditable coverage

as of October 13, 1998.

(iii) Late enrollee means an individual

whose enrollment in a plan is a late

enrollment.

(iv) (A) Late enrollment means

enrollment under a group health plan

other than on—

(1) The earliest date on which

coverage can become effective under the

terms of the plan; or

(2) A special enrollment date for the

individual.

(B) If an individual ceases to be

eligible for coverage under the plan by

terminating employment, and then

subsequently becomes eligible for

coverage under the plan by resuming

employment, only eligibility during the

individual’s most recent period of

employment 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.

(v) Examples. The rules of this

paragraph (a)(2) are illustrated by the

following examples:

Example 1. (i) 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 April 1, 1999. April

1, 1999 is not a special enrollment date for

F.

(ii) In this Example 1, F would be a late

enrollee with respect to F’s coverage that

became effective under the plan on April 1,

1999.

Example 2. (i) Same as Example 1, except

that F does not enroll in the plan on April

1, 1999 and 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) 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

may not impose any preexisting

condition exclusion with regard to a

child who, as of the last day of the 30-

day period beginning with the date of

birth, is covered under any creditable

coverage. Accordingly, if a newborn 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, the other

plan may not impose any preexisting

condition exclusion with regard to the

child.

(ii) Example. The rule of this

paragraph (b)(1) is illustrated by the

following example:

Example. (i) Seven months after

enrollment in Employer W’s group health

plan, Individual E has a child born with a

birth defect. Because the child is enrolled in

Employer W’s plan with in 30 days of birth,

no preexisting condition exclusion may be

imposed with respect to the child under

Employer W’s plan. Three months after the

child’s birth, E commences employment with

Employer X and enrolls with the child in

Employer X’s plan 45 days after leaving

Employer W’s plan. Employer X’s plan

imposes a 12-month exclusion for any

preexisting condition.

(ii) In this Example, Employer X’s plan

may not impose any preexisting condition

exclusion with respect to E’s child because

the child was covered within 30 days of birth

and had no significant break in coverage.

This result applies regardless of whether E’s

child is included in the certificate of

creditable coverage provided to E by

Employer W indicating 300 days of

dependent coverage or receives a separate

certificate indicating 90 days of coverage.

Employer X’s plan may impose a preexisting

condition exclusion with respect to E for up

to 2 months for any preexisting condition of

E for which medical advice, diagnosis, care,

or treatment was recommended or received

by E within the 6-month period ending on E’s

enrollment date in Employer X’s plan.

(2) Adopted children. Subject to

paragraph (b)(3) of this section, a group

health plan may not impose any

preexisting condition exclusion in the

case of a child who is adopted or placed

for adoption before attaining 18 years of

age and who, as of the last day of the

30-day period beginning on the date of

the adoption or placement for adoption,

is covered under creditable coverage.

This rule does not apply to coverage

before the date of such adoption or

placement for adoption.

(3) Break in coverage. Paragraphs

(b)(1) and (2) of this section no longer

apply to a child after a significant break

in coverage.

(4) Pregnancy. A group health plan

may not impose a preexisting condition

exclusion relating to pregnancy as a

preexisting condition.

(5) Special enrollment dates. For

special enrollment dates relating to new

dependents, see § 54.9801–6T(b).

(c) Notice of plan’s preexisting

condition exclusion. A group health

plan may not impose a preexisting

condition exclusion with respect to a

participant or dependent of the

participant before notifying the

participant, in writing, of the existence

and terms of any preexisting condition

exclusion under the plan and of the

rights of individuals to demonstrate

creditable coverage (and any applicable

waiting periods) as required by

§ 54.9801–5T. The description of the

rights of individuals to demonstrate

creditable coverage includes 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.

§ 54.9801–4T Rules relating to creditable

coverage (temporary).

(a) General rules—(1) Creditable

coverage. For purposes of this section,
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16931

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

§ 54.9801–2T.

(ii) Health insurance coverage as

defined in § 54.9801–2T (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

PHSA; 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 insurance

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, county, or other

political subdivision of a State that

provides health insurance 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)).

(2) Excluded coverage. Creditable

coverage does not include coverage

consisting solely of coverage of expected

benefits (described in § 54.9804–1T).

(3) Methods of counting creditable

coverage. For purposes of reducing any

preexisting condition exclusion period,

as provided under § 54.9801–

3T(a)(1)(iii), a group health plan

determines the amount of an

individual’s creditable coverage by

using the standard method described in

paragraph (b) of this section, except that

the 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, a group health plan

determines the amount of creditable

coverage 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, a group health plan determines

the amount of creditable coverage by

counting all the days that the individual

has under 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. Further,

any days in a waiting period for a plan

or policy are not creditable coverage

under the plan or policy.

(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) Definition of significant break in

coverage. A significant break in

coverage means a period of 63

consecutive days during all of which the

individual does not have any creditable

coverage, except that neither a waiting

period nor an affiliation period is taken

into account in determining a

significant break in coverage. (See

section 731(b)(2)(iii) of ERISA and

section 2723(b)(2)(iii) of the PHSA

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) Examples. The following

examples illustrate how creditable

coverage is counted in reducing

preexisting condition exclusion periods

under this paragraph (b)(2):

Example 1. (i) Individual A works for

Employer P and has creditable coverage

under Employer P’s plan for 18 months

before A’s employment terminates. A is hired

by Employer Q, and enrolls in Employer Q’s

group health plan, 64 days after the last date

of coverage under Employer P’s plan.

Employer Q’s plan has a 12-month

preexisting condition exclusion period.

(ii) In this Example 1, because A had a

break in coverage of 63 days, Employer Q’s

plan may disregard A’s prior coverage and A

may be subject to a 12-month preexisting

condition exclusions period.

Example 2. (i) Same facts as Example 1,

except that A is hired by Employer Q, and

enrolls in Employer Q’s plan, on the 63rd day

after the last date of coverage under

Employer P’s plan.

(ii) 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, Employer Q’s plan must count A’s

prior creditable coverage for purposes of

reducing the plan’s preexisting condition

exclusion as it applies to A.

Example 3. (i) Same facts as Example 1,

except that Employer 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) In this Example 3, the issuer that

provides group health insurance to Employer

Q’s plan must count A’s period of creditable

coverage prior to the 63-day break.

Example 4. (i) Same facts as Example 3,

except that Employer Q’s plan is a selfinsured plan, and, thus is not subject to State

insurance laws.

(ii) In this Example 4, the plan is not

governed by the longer break rules under

State insurance law and A’s previous

coverage may be disregarded.

Example 5. (i) Individual B begins

employment with Employer R 45 days after

terminating coverage under a prior group

health plan. Employer R’s plan has a 30-day

waiting period before coverage begins. B

enrolls in Employer R’s plan when first

eligible.

(ii) In this Example 5, B does not have a

significant break in coverage for purposes of

determining whether B’s prior coverage must

be counted by Employer R’s plan. B has only

a 44-day break in coverage because the 30-

day waiting period is not taken into account

in determining a significant break in

coverage.

Example 6. (i) Individual C works for

Employer S and has creditable coverage

under Employer S’s plan for 200 days before

C’s employment is terminated and coverage

ceases. C is then unemployed for 51 days

before being hired by Employer T. Employer

T’s plan has a 3-month waiting period. C

works for Employer T for 2 months and then

terminates employment. Eleven days after

terminating employment with Employer T, C

begins working for Employer U. Employer
16932 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

U’s plan has no waiting period, but has a 6-

month preexisting condition exclusion

period.

(ii) In this Example 6, C does not have a

significant break in coverage because, after

disregarding the waiting period under

Employer T’s plan, C had only a 62-break in

coverage (51 days plus 11 days). Accordingly,

C has 200 days of creditable coverage and

Employer U’s plan may not apply its 6-month

preexisting condition exclusion period with

respect to C.

Example 7. (i) Individual D terminates

employment with Employer V on January 13,

1998 after being covered for 24 months under

Employer V’s group health plan. On March

17, the 63rd day without coverage, D applies

for a health insurance policy in the

individual market. D’s application is

accepted and the coverage is made effective

May 1.

(ii) In this Example 7, because D applied

for the policy before the end of the 63rd day,

coverage under the policy ultimately became

effective, 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 107 days.

Example 8. (i) Same facts as Example 7,

except that D’s application for a policy in the

individual market is denied.

(ii) In this Example 8, because D did not

obtain coverage following application, D

incurred a significant break in coverage on

the 64th day.

(v) Other permissible counting

methods—(A) Rule. Notwithstandng any

other provision of this paragraph (b)(2),

for purposes of reducing a preexisting

condition exclusion period (but not for

purposes of issuing a certificate under

§ 54,9801–5T), 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)(v) is illustrated by the

following example:

Example. (i) 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 period.

(ii) In this Example, Plan Z may determine,

in accordance with the rules prescribed in

paragraph (b)(2) (i), (ii), and (iii), 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 period will no longer apply to F on

February 8, 1998 (82 days before the 12-

month anniversary of her enrollment (May

1)), For administrative convenience,

however, Plan Z may consider that the

preexisting condition exclusion period 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 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 through one or

more insurance policies (or in part

through one or more insurance policies)

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, provided that the alternative

method is applied uniformly with

respect to all coverage under that policy.

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 § 54.9801–5T(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) 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 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,

this 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) 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) 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.

§ 54.9801–5T Certification and disclosure

of previous coverage (temporary).

(a) Certificate of creditable coverage—

(1) Entities required to provide

certificate—(i) In general. A group
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16933

health plan is required to furnish

certificates of creditable coverage in

accordance with this paragraph (a) of

this section. (See PHSA section 2701(e)

and ERISA section 701(e) under which

this obligation is also imposed on a

health insurance issuer offering group

health insurance coverage.)

(ii) Duplicate certificates not required.

An entity required to provide a

certificate under this paragraph (a)(1) for

an individual is deemed to have

satisfied the certification requirements

for that individual if another party

provides the certificate, but only to the

extent that information relating to the

individual’s creditable coverage and

waiting or affiliation period is provided

by the other party. 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 is deemed to have

satisfied the certification requirements

under this paragraph (a)(1) 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 the

employer sponsoring the 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

2701(e) of the PHSA and section 701(e)

of ERISA).

(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) 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) 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 ceases before the

individual’s coverage under the plan

ceases, the issuer is required (under

section 2701(e) of the PHSA and section

701(e) of ERISA) to provide sufficient

information to the plan (or to another

party designated by the plan) to enable

a certificate to be provided by the plan

(or other party), after cessation of the

individual’s coverage under the plan,

that reflects the period of coverage

under the policy. The provision of that

information to the plan will satisfy the

issuer’s obligation to provide an

automatic certificate for that period of

creditable coverage for the individual

under paragraph (a)(2)(ii) and (3) of this

section. In addition, an issuer providing

that information 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). If the individual’s coverage

under the plan ceases at the time the

individual’s coverage under the issuer’s

policy ceases, the issuer must provide

an automatic certificate under paragraph

(a)(2)(ii) of this section. An issuer may

presume that an individual whose

coverage ceases at a time other than the

effective date for changing enrollment

options has ceased to be covered under

the plan.

(2) Example. The rule of this

paragraph (a)(1)(iv)(B) is illustrated by

the following example:

Example. (i) A group health plan provides

coverage under an HMO option and an

indemnity option with a different issuer, 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 automatic

certificates as permitted under paragraph

(a)(2)(ii) of this section.

(ii) In this Example, if an employee

switches from the indemnity option to the

HMO option on January 1, the 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)(1)) 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

is not a qualified beneficiary entitled to

elect COBRA continuation coverage, an

automatic certificate is required to be

provided at the time the individual

ceases to be covered under the plan. A

plan satisfies this requirement if it

provides the automatic certificate

within a reasonable time period

thereafter. 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 period after the

cessation of coverage under the plan.

(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.
16934 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(iii) Any individual upon request.

Requests for certificates are permitted to

be made by, or on behalf of, an

individual within 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 an

automatic certificate under paragraph

(a)(2)(ii) of this section.

(iv) Examples. The following

examples illustrate the rules of this

paragraph (a)(2):

Example 1. (i) 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) In this Example 1, the automatic

certificate may be provided at the same time

that A is provided the COBRA notice.

Example 2., (i) 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) In this Example 2, the automatic

certificate may be provided within the period

permitted by law for the delivery of notices

under COBRA.

Example 3. (i) 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 coverage

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) In this Example 3, the automatic

certificate may be provided not later than the

time a notice is required to be furnished

under the State program.

Example 4. (i) 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

failure to make a timely payment for

continuation coverage.

(ii) 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) Individual D is currently

covered under the group health plan of

Employer T. D requests a certificate, as

premitted under paragraph (a)(2)(iii). Under

the procedure for Employer 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) 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 paragraph (a) with

respect to a particular event described

in paragraph (a)(2) (ii) or (iii) of this

section if——

(1) An individual is entitled to receive

a certificate;

(2) The individual requests that the

certificate be sent to another plan or

issuer instead of to the individual;

(3) 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 (e.g., by

telephone); and

(4) The receiving plan or issuer

receives such information from the

sending plan or issuer in such form

within the time periods 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;

and

(G) The date creditable coverage

ended, unless the certificate indicates

that creditable coverage is continuing as

of the date of the certificate.

(iii) Periods of coverage under

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, a certificate must be provided

for 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 or, 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 § 54.9804–1T. In

addition, the information in the

certificate regarding coverage is not

required to specify categories of benefits

described in § 54.9801–4T(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
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16935

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 procedure for individuals to

request and receive certificates pursuant

to paragraph (a)(2)(iii) of this section.

(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 party. 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 party.

(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 the 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) are illustrated by the

following example:

Example. (i) 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) 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 of an individual

covered by the certificate, the individual

may, if necessary, use the procedures

described in paragraph (c)(4) of this

section for demonstrating dependent

status. In addition, an individual may,

if necessary, use these procedures to

demonstrate that a child was enrolled

within 30 days of birth, adoption, or

placement for adoption. See § 54.9801–

3T(b), under which such a child would

not be subject to a preexisting condition

exclusion.

(iii) Transition rule for dependent

coverage through June 30, 1998—(A) In

general. A group health plan that cannot

provide the names of dependents (or

related coverage information) for

purposes of providing a certificate of

coverage for a dependent may satisfy the

requirements of paragraph (a)(3)(ii)(C) of

this section by providing the name of

the participant covered by the group

health plan and specifying that the type

of coverage described in the certificate

is for dependent coverage (e.g., family

coverage or employee-plus-spouse

coverage).

(B) Certificates provided on request.

For purposes of certificates provided on

the request of, or on behalf of, an

individual pursuant to paragraph

(a)(2)(iii) of this section, a plan must

make reasonable efforts to obtain and

provide the names of any dependent

covered by the certificate where such

information is requested to be provided.

If a certificate does not include the

name of any dependent of an individual

covered by the certificate, the individual

may, if necessary, use the procedures

described in paragraph (c) of this

section for submitting documentation to

establish that the credible coverage in

the certificate applies to the dependent.

(C) Demonstrating a dependent’s

creditable coverage. See paragraph (c)(4)

of this section for special rules to

demonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)

is only effective for certifications

provided with respect to events

occurring through June 30, 1998.

(6) Special specification rules for

entities not subject to Chapter 100 of

Subtitle K of the Internal Revenue

Code—(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

PHSA.

(ii) Other entities. For special rules

requiring that certain other entities, not

subject to Chapter 100 of Subtitle K of

the Internal Revenue Code, provide

certificates consistent with the rules in

the section, see section 2791(a)(3) of the

PHSA applicable to entities described in

sections 2701(c)(1) (C), (D), (E), and (F)

(relating to Medicare, Medicaid,

CHAMPUS, and Indian Health Service),

section 2721(b)(1)(A) of the PHSA

applicable to nonfederal governmental

plans generally, and section

2721(b)(2)(C)(ii) of the PHSA applicable

to nonfederal governmental plans that

elect to be excluded from the

requirements of Subparts 1 and 3 of Part

A of Title XXVII of the PHSA.

(b) Disclosure of coverage to a plan,

or issuer, using the alternative method

of counting creditable coverage—(1) In

general. If an individual enrolls in a

group health plan with respect to which

the plan (or issuer) uses the alternative

method of counting creditable coverage

described in § 54.9801–4T(c), the

individual provides a certificate of

coverage under paragraph (a) of this

section, and the plan (or issuer) in

which the individual enrolls so

requests, the entity that issued the

certificate (the prior entity) is required

to disclose promptly to a requesting

plan (or issuer) (the requesting entity)

the information set forth in paragraph

(b)(2) of this section.

(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 to order to

determine the individual’s creditable

coverage with respect to any such

category. The prior entity is required to

disclose promptly to the requesting

entity the creditable coverage

information so requested.

(3) Charge for providing information.

The prior entity furnishing the

information under paragraph (b) of this

section 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) In

general. The rules in this paragraph (c)

implement section 9801(c)(4), which

permits individuals to establish

creditable coverage through means other

than certificates, and section 9801(e)(3),

which requires the Secretary to establish

rules designed to prevent an
16936 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

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. If the accuracy of a

certificate is contested or a certificate is

unavailable when needed by the

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

period;

(ii) The individual has creditable

coverage but an entity may not be

required to provide a certificate of the

coverage pursuant to paragraph (a) of

this section;

(iii) The coverage is for a period

before July 1, 1996;

(iv) The individual has an urgent

medical condition that necessitates a

determination before the individual can

deliver a certificate to the plan; or

(v) The individual lost a certificate

that the individual had previously

received and is unable to obtain another

certificate.

(2) Evidence of creditable coverage—

(i) Consideration of evidence. 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 and is entitled to offset all or

a portion of any preexisting condition

exclusion period. A plan shall treat the

individual as having furnished a

certificate under paragraph (a) of this

section if the individual attests to the

period of creditable coverage, the

individual also presents relevant

corroborating evidence of some

creditable coverage during the period,

and the individual cooperates with the

plan’s efforts to verify the individual’s

coverage. For this purpose, 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 may

establish creditable coverage (and

waiting periods or affiliation periods) in

the absence of a certificate include

explanations of benefit claims (EOB) 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 period or

affiliation period information) may also

be established 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)(2) are illustrated by the

following example:

Example. (i) Individual F terminates

employment with Employer W and, a month

later, is hired by Employer X. Employer 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, Employer W, and requests a

certificate. However, F (and Employer’s X’s

plan, on F’s behalf) is unable to obtain a

certificate from Employer W’s plan. F attests

that, to the best of F’s knowledge, F had at

least 12 months of continuous coverage

under Employer W’s plan, and that the

coverage ended no earlier than F’s

termination of employment from Employer

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) In this Example, based solely on these

facts, F has demonstrated creditable coverage

for the 12 months of coverage under

Employer W’s plan in the same manner as if

F had presented a written certificate of

creditable coverage.

(3) Demonstrating categories of

creditable coverage. Procedures similar

to those described in this paragraph (c)

apply in order to determine 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).

(4) 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.

(d) Determination and notification of

creditable coverage—(1) Reasonable

time period. In the event that a group

health plan receives information under

paragraph (a) of this section

(certifications), paragraph (b) of this

section (disclosure of information

relating to the alternative method), or

paragraph (c) of this section (other

evidence of creditable coverage), the

plan is required, within a reasonable

time period following receipt of the

information, to make a determination

regarding the indivdiual’s period of

creditable coverage and notify the

individual of the determination in

accordance with paragraph (d)(2) of this

section. Whether a determination and

notification regarding an individual’s

creditable coverage is made within a

reasonable time period is determined

based 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

services.

(2) Notification to individual of period

of preexisting condition exclusion. A

plan seeking to impose a preexisting

condition exclusion is required to

disclose to the individual, in writing, its

determination of any preexisting

condition exclusion period that applies

to the individual, and the basis for such

determination, including the source and

substance of any information on which

the plan relied. In addition, the plan is

required to provide the individual with

a written explanation of any appeal

procedures established by the plan, and

with a reasonable opportunity to submit

additional evidence of creditable

coverage. However, nothing in this

paragraph (d) or paragraph (c) of this

section prevents a plan from modifying

an initial determination of creditable

coverage if it determines that the

individual did not have the claimed

creditable coverage, provided that—

(i) A notice of such reconsideration,

as described in this paragraph (d), is

provided to the individual; and

(ii) Until the final determination is

made, 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.

(3) Examples. The following examples

illustrate this paragraph (d):

Example 1. (i) Individual G is hired by

Employer Y. Employer Y’s group health plan
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16937

imposes a preexisting condition exclusion for

12 months with respect to new enrollees and

uses the standard method of determining

creditable coverage. Employer Y’s plan

determines that G is subject to a 4-month

preexisting condition exclusion, based on a

certificate of creditable coverage that is

provided by G to Employer Y’s plan

indicating 8 months of coverage under G’s

prior group health plan.

(ii) In this Example 1, Employer Y’s plan

must notify G within a reasonable period of

time following receipt of the certificate that

G is subject to a 4-month preexisting

condition exclusion beginning on G’s

enrollment date in Y’s plan.

Example 2. (i) Same facts as in Example 1,

except that Employer Y’s plan determines

that G has 14 months of creditable coverage

based on G’s certificate indicating 14 months

of creditable coverage under G’s prior plan.

(ii) In this Example 2. Employer Y’s plan

is not required to notify G that G will not be

subject to a preexisting condition exclusion.

Example 3. (i) Individual H is hired by

Employer Z. Employer Z’s group health plan

imposes a preexisting condition exclusion for

12 months with respect to new enrollees and

uses the standard method of determining

creditable coverage. H develops an urgent

health condition before receiving a certificate

of prior coverage. 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.

(ii) In this Example 3, Employer Z’s plan

must review the evidence presented by H. In

addition, the plan must make a

determination and notify H regarding any

preexisting condition exclusion period that

applies to H (and the basis of such

determination) within a reasonable time

period following receipt of the evidence that

is consistent with the urgency of H’s health

condition (this determination may be

modified as permitted under paragraph (d)(2)

of this section).

§ 54.9801–6T Special enrollment periods

(temporary).

(a) Special enrollment for certain

individuals who lose coverage—(1) In

general. A group health plan is required

to permit employees and dependents

described in paragraph (a)(2), (3) or (4)

of this section to enroll for coverage

under the terms of the plan if the

conditions in paragraph (a)(5) of this

section are satisfied and the enrollment

is requested within the period described

in paragraph (a)(6) of this section. The

enrollment is effective at the time

described in paragraph (a)(7) of this

section. 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 PHSA

section 2701(f)(1) and ERISA section

701(f)(1) under which this obligation is

also imposed on a health insurance

issuer offering group health insurance

coverage.)

(2) Special enrollment of an employee

only. An employee is described in this

paragraph (a)(2) if the employee is

eligible, but not enrolled, for coverage

under the terms of the plan and, when

enrollment was previously offered to the

employee under the plan and was

declined by the employee, the employee

was covered under another group health

plan or had other health insurance

coverage.

(3) Special enrollment of dependents

only. A dependent is described in this

paragraph (a)(3) if the dependent is a

dependent of an employee participating

in the plan, the dependent is eligible,

but not enrolled, for coverage under the

terms of the plan, and, when enrollment

was previously offered under the plan

was declined, the dependent was

covered under another group health

plan or had other health insurance

coverage.

(4) Special enrollment of both

employee and dependent. An employee

and any dependent of the employee are

described in this paragraph (a)(4) if they

are eligible, but not enrolled, for

coverage under the terms of the plan

and, when enrollment was previously

offered to the employee or dependent

under the plan and was declined, the

employee or dependent was covered

under another group health plan or had

other health insurance coverage.

(5) Conditions for special enrollment.

An employee or dependent is eligible to

enroll during a special enrollment

period if each of the following

applicable conditions is met:

(i) When the employee declined

enrollment for the employee or the

dependent, the employee stated in

writing that coverage under another

group health plan or other health

insurance coverage was the reason for

declining enrollment. This paragraph

(a)(5)(i) applies only if—

(A) The plan required such a

statement when the employee declined

enrollment; and

(B) The employee is provided with

notice of the requirement to provide the

statement in this paragraph (a)(5)(i) (and

the consequences of the employee’s

failure to provide the statement) at the

time the employee declined enrollment.

(ii)(A) When the employee declined

enrollment for the employee or

dependent under the plan, the employee

or dependent had CORRA continuation

coverage under another plan and

COBRA continuation coverage under

that other plan has since been

exhausted; or

(B) If the other coverage that applied

to the employee or dependent when

enrollment was declined was not under

a COBRA continuation provision, either

the other coverage has been terminated

as a result of loss of eligibility for the

coverage or employer contributions

towards the other coverage have been

terminated. For this purpose, loss of

eligibility for coverage includes a loss of

coverage as a result of legal separation,

divorce, death, termination of

employment, reduction in the number

of hours of employment, and any loss of

eligibility after a period that is measured

by reference to any of the foregoing.

Thus, for example, if an employee’s

coverage ceases following a termination

of employment and the employee is

eligible for but fails to elect COBRA

continuation coverage, this is treated as

a loss of eligibility under this paragraph

(a)(5)(ii)(B). However, loss of eligibility

does not include a loss due to failure of

the individual or the participant 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). In addition, for purposes of this

paragraph (a)(5)(ii)(B), employer

contributions include contributions by

any current or former employer (of the

individual or another person) that was

contributing to coverage for the

individual.

(6) Length of special enrollment

period. The employee is required to

request enrollment (for the employee or

the employee’s dependent, as described

in paragraph (a) (2), (3), or (4) of this

section) not later than 30 days after the

exhaustion of the other coverage

described in paragraph (a)(5)(ii)(A) of

this section or termination of the other

coverage as a result of the loss of

eligibility for the other coverage for

items described in paragraph (a)(5)(ii)(B)

of this section or following the

termination of employer contributions

toward that other coverage. The plan

may impose the same requirements that

apply to employees who are otherwise

eligible under the plan to immediately

request enrollment for coverage (e.g.,

that the request be made in writing).

(7) Effective date of enrollment.

Enrollment is effective not later than the

first day of the first calendar month

beginning after the date the completed

request for enrollment is received.

(b) Special enrollment with respect to

certain dependent beneficiaries—(1) In

general. A group health plan that makes

coverage available with respect to

dependents of a participant is required

to provide a special enrollment period

to permit individuals described in

paragraph (b) (2), (3), (4), (5), or (6) of

this section to be enrolled for coverage

under the terms of the plan if the

enrollment is requested within the time
16938 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

period described in paragraph (b)(7) of

this section. The enrollment is effective

at the time described in paragraph (b)(8)

of this section. 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) Special enrollment of an employee

who is eligible but not enrolled. An

individual is described in this

paragraph (b)(2) if the individual is an

employee who is eligible, but not

enrolled, in the plan, the individual

would be a participant but for a prior

election by the individual not to enroll

in the plan during a previous

enrollment period, and a person

becomes a dependent of the individual

through marriage, birth, or adoption or

placement for adoption.

(3) Special enrollment of a spouse of

a participant. An individual is

described in this paragraph (b)(3) if

either—

(i) The individual becomes the spouse

of a participant; or

(ii) The individual is a spouse of the

participant and a child becomes a

dependent of the participant through

birth, adoption or placement for

adoption.

(4) Special enrollment of an employee

who is eligible but not enrolled and the

spouse of such employee. An employee

who is eligible, but not enrolled, in the

plan, and an individual who is a

dependent of such employee, are

described in this paragraph (b)(4) if the

employee would be a participant but for

a prior election by the employee not to

enroll in the plan during a previous

enrollment period, and either—

(i) The employee and the individual

become married; or

(ii) The employee and individual are

married and a child becomes a

dependent of the employee through

birth, adoption or placement for

adoption.

(5) Special enrollment of a dependent

of a participant. An individual is

described in this paragraph (b)(5) if the

individual is a dependent of a

participant and the individual becomes

a dependent of such participant through

marriage, birth, or adoption or

placement for adoption.

(6) Special enrollment of an employee

who is eligible but not enrolled and a

new dependent. An employee who is

eligible, but not enrolled, in the plan,

and an individual who is a dependent

of the employee, are described in this

paragraph (b)(6) if the employee would

be a participant but for a prior election

by the employee not to enroll in the

plan during a previous enrollment

period, and the dependent becomes a

dependent of the employee through

marriage, birth, or adoption or

placement for adoption.

(7) Length of special enrollment

period. The special enrollment period

under paragraph (b)(1) of this section is

a period of not less than 30 days and

begins on the date of the marriage, birth,

or adoption or placement for adoption

(except that such period does not begin

earlier than the date the plan makes

dependent coverage generally available).

(8) Effective date of enrollment.

Enrollment is effective—

(i) In the case of marriage, not later

than the first day of the first calendar

month beginning after the date the

completed request for enrollment is

received by the plan;

(ii) In the case of a dependent’s birth,

the date of such birth; and

(iii) In the case of a dependent’s

adoption or placement for adoption, the

date of such adoption or placement for

adoption.

(9) Example. The rules of this

paragraph (b) are illustrated by the

following example:

Example. (i) Employee A is hired on

September 3, 1998 by Employer X, which has

a group health plan in which A can elect to

enroll either for employee-only coverage, for

employee-plus-spouse coverage, or for family

coverage, effective on the first day of any

calendar quarter thereafter. A is married and

has no children. A does not elect to join

Employer X’s plan (for employee-only

coverage, employee-plus-spouse coverage, or

family coverage) on October 1, 1998 or

January 1, 1999. On February 15, 1999, a

child is placed for adoption with A and A’s

spouse.

(ii) In this Example, the conditions for

special enrollment of an employee with a

new dependent under paragraph (b)(2) of this

section are satisfied, the conditions for

special enrollment of an employee and a

spouse with a new dependent under

paragraph (b)(4) of this section are satisfied,

and the conditions for special enrollment of

an employee and a new dependent under

paragraph (b)(6) of this section are satisfied.

Accordingly, Employer X’s plan will satisfy

this paragraph (b) if and only if it allows A

to elect, by filing the required forms by

March 16, 1999, to enroll in Employer X’s

plan either with employee-only coverage,

with employee-plus-spouse coverage, or with

family coverage, effective as of February 15,

1999.

(c) Notice of enrollment rights. On or

before the time an employee is offered

the opportunity to enroll in a group

health plan, the plan is required to

provide the employee with a description

of the plan’s special enrollment rules

under this section. For this purpose, the

plan may use the following model

description of the special enrollment

rules under this section:

If you are declining enrollment for yourself

or your dependents (including your spouse)

because of other health insurance coverage,

you may in the future be able to enroll

yourself or your dependents in this plan,

provided that you request enrollment within

30 days after your other coverage ends. 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,

provided that you request enrollment within

30 days after the marriage, birth, adoption, or

placement for adoption.

(d) (1) Special enrollment date

definition. A special enrollment date for

an individual means any date in

paragraph (a)(7) or (b)(8) of this section

on which the individual has a right to

have enrollment in a group health plan

become effective under this section.

(2) Examples. The rules of this section

are illustrated by the following

examples:

Example 1. (i)(A) Employer Y maintains a

group health plan that allows employees to

enroll in the plan either—

(1) Effective on the first day of employment

by an election filed within three days

thereafter;

(2) Effective on any subsequent January 1

by an election made during the preceding

months of November or December; or

(3) Effective as of any special enrollment

date described in this section.

(B) Employee B is hired by Employer Y on

March 15, 1998 and does not elect to enroll

in Employer Y’s plan until January 31, 1999

when B loses coverage under another plan.

B elects to enroll in Employer Y’s plan

effective on February 1, 1999, by filing the

completed request form by January 31, 1999,

in accordance with the special rule set forth

in paragraph (a) of this section.

(ii) In this Example 1, B has enrolled on

a special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7) of this section.

Example 2. (i) Same facts as Example 1,

except that B’s loss of coverage under the

other plan occurs on December 31, 1998 and

B elects to enroll in Employer Y’s plan

effective on January 1, 1999 by filing the

completed request form by December 31,

1998, in accordance with the special rule set

forth in paragraph (a) of this section.

(ii) In this Example 2, B has enrolled on

a special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7) of this section (even though

this date is also a regular enrollment date

under the plan).

§ 54.9802–1T Prohibiting discrimination

against participants and beneficiaries

based on a health status-related factor

(temporary).

(a) In eligibility to enroll—(1) In

general. Subject to paragraph (a)(2) of

this section, a group health plan may

not establish rules for eligibility

(including continued eligibility) of any

individual to enroll under the terms of

the plan based on any of the following
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16939

health status-related factors in relation

to the individual or a dependent of the

individual:

(i) Health status.

(ii) Medical condition (including both

physical and mental illnesses), as

defined in § 54.9801–2T.

(iii) Claims experience.

(iv) Receipt of health care.

(v) Medical history.

(vi) Genetic information, as defined in

§ 54.9801–2T.

(vii) Evidence of insurability

(including conditions arising out of acts

of domestic violence).

(viii) Disability.

(2) No application to benefits or

exclusions. To the extent consistent

with section 9801 and § 54.9801–3T,

paragraph (a)(1) of this section shall not

be construed—

(i) To require a group health plan to

provide particular benefits other than

those provided under the terms of such

plan; or

(ii) To prevent such a plan from

establishing limitations or restrictions

on the amount, level, extent, or nature

of the benefits or coverage for similarly

situated individuals enrolled in the plan

or coverage.

(3) Construction. For purposes of

paragraph (a)(1) of this section, rules for

eligibility to enroll include rules

defining any applicable waiting (or

affiliation) periods for such enrollment

and rules relating to late and special

enrollment.

(4) Example. The following example

illustrates the rules of this paragraph (a):

Example. (i) An employer sponsors a group

health plan that is available to all employees

who enroll within the first 30 days of their

employment. However, individuals who do

not enroll in the first 30 days cannot enroll

later unless they pass a physical

examination.

(ii) In this Example, the plan discriminates

on the basis of one or more health statusrelated factors.

(b) In premiums or contributions—(1)

In general. A group health plan may not

require an individual (as a condition of

enrollment or continued enrollment

under the plan) to pay a premium or

contribution that is greater than the

premium or contribution for a similarly

situated individual enrolled in the plan

based on any health status-related

factor, in relation to the individual or a

dependent of the individual.

(2) Construction. Nothing in

paragraph (b)(1) of this section shall be

construed—

(i) To restrict the amount that an

employer may be charged by an issuer

for coverage under a group health plan;

or

(ii) To prevent a group health plan

from establishing premium discounts or

rebates or modifying otherwise

applicable copayments or deductibles in

return for adherence to a bona fide

wellness program. For purposes of this

section, a bona fide wellness program is

a program of health promotion and

disease prevention.

(3) Example. The rules of this

paragraph (b) are illustrated by the

following example:

Example. (i) Plan X offers a premium

discount to participants who adhere to a

cholesterol-reduction wellness program.

Enrollees are expected to keep a diary of their

food intake over 6 weeks. They periodically

submit the diary to the plan physician who

responds with suggested diet modifications.

Enrollees are to modify their diets in

accordance with the physician’s

recommendations. At the end of the 6 weeks,

enrollees are given a cholesterol test and

those who achieve a count under 200 receive

a premium discount.

(ii) In this Example, because enrollees who

otherwise comply with the program may be

unable to achieve a cholesterol count under

200 due to a health status-related factor, this

is not a bona fide wellness program and such

discounts would discriminate impermissibly

based on one or more health status-related

factors. However, if, instead, individuals

covered by the plan were entitled to receive

the discount for complying with the diary

and dietary requirements and were not

required to pass a cholesterol test, the

program would be a bona fide wellness

program.

§ 54.9804–1T Special rules relating to

group health plans (temporary).

(a) General exception small group

health plans. The requirements of

Chapter 100 of Subtitle K of the Internal

Revenue Code 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 2 participants who

are current employees.

(b) Excepted benefits—(1) In general.

The requirements of §§ 54.9801–1T

through 54.9801–6T and 54.9802–1T do

not apply to any group health plan in

relation to its provision of the benefits

described in paragraph (b) (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 insurance;

(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

insurance;

(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 long-term care benefits are excepted

if they are provided under a separate

policy, certificate, or contract of

insurance, or are otherwise not an

integral part of the plan, as defined in

paragraph (b)(3)(ii) of this section.

(ii) Integral. For purposes of

paragraph (b)(3)(i) of this section,

benefits are deemed to be an integral

part of a plan unless a participate has

the right to elect not to receive coverage

for the benefits and, if the participant

elects to receive coverage for the

benefits, the participant pays an

additional premium or contribution for

that coverage.

(iii) Limited scope. Limited scope

dental or vision benefits are dental or

vision benefits that are sold under a

separate policy or rider and that are

limited in scope in a narrow range or

type of benefits that are generally

excluded from hospital/medical/

surgical benefit packages.

(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

insurance 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); or

(C) Based on cognitive impairment or

a loss of functional capacity that is

expected to be chronic.

(4) Noncoordinated benefits—(i)

Excepted benefits that are not

coordinated. Covered for only a

specified disease or illness (for example,

cancer-only policies) or hospital

indemnity or other fixed dollar

indemnity insurance (for example,

$100/day) is excepted only if it meets

each of the conditions specified in

paragraph (b)(4)(ii) of this section.

(ii) Conditions. Benefits are described

in paragraph (b)(4)(i) of this section only

if—

(A) The benefits are provided under a

separate policy, certificate, or contract

of insurance;

(B) There is not 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
16940 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

event under any group health plan

maintained by the same plan sponsor.

(5) Supplemental benefits. The

following benefits are excepted only if

they are provided under a separate

policy, certificate, or contract of

insurance—

(i) Medicare supplemental health

insurance (as defined under section

1882(g)(1) of the Social Security Act;

also known as Medigap or MedSupp

insurance);

(ii) Coverage supplemental to the

coverage provided under Chapter 55,

Title 10 of the United States Code (also

known as CHAMPUS supplemental

programs); and

(iii) Similar supplemental coverage

provided to coverage under a group

health plan.

(c) Treatment of partnerships.

[Reserved]

§ 54.9806–1T Effective dates (temporary).

(a) General effective dates—(1) Noncollectively-bargained plans. Except as

otherwise provided in this section,

Chapter 100 of Subtitle K of the Internal

Revenue Code and §§ 54.9801–1T

through 54.9804–1T apply with respect

to group health plans for plan years

beginning after June 30, 1997.

(2) Collectively bargained plans.

Except as otherwise provided in this

section (other than paragraph (a)(1) of

this section), in the case of a group

health plan maintained pursuant to one

or more collective bargaining

agreements between employee

representatives and one or more

employers ratified before August 21,

1996, Chapter 100 of Subtitle K of the

Internal Revenue Code and §§ 54.9801–

1T through 54.9804–1T do not apply to

plan years beginning before the later of

July 1, 1997, or the date on which the

last of the collective bargaining

agreements relating to the plan

terminates (determined without regard

to any extension thereof agreed to after

August 21, 1996). For these purposes,

any plan amendment made pursuant to

a collective bargaining agreement

relating to the plan, that amends the

plan solely to conform to any

requirement of such part, is not treated

as a termination of the collective

bargaining agreement.

(3)(i) Preexisting condition exclusion

periods for current employees. Any

preexisting condition exclusion period

permitted under § 54.9801–3T is

measured from the individual’s

enrollment date in the plan. Such

exclusion period, as limited under

§ 54.9801–3T, may be completed prior

to the effective date of the Health

Insurance Portability and

Accountability Act of 1996 (HIPAA) for

his or her plan. Therefore, on the date

the individual’s plan becomes subject to

Chapter 100 of Subtitle K of the Internal

Revenue Code, no preexisting condition

exclusion may be imposed with respect

to an individual beyond the limitation

in § 54.9801–3T. For an individual who

has not completed the permitted

exclusion period under HIPPA, upon

the effective date for his or her plan, the

individual may use creditable coverage

that the individual had prior to the

enrollment date to reduce the remaining

preexisting condition exclusion period

applicable to the individual.

(ii) Examples. The following

examples illustrate the rules of this

paragraph (a)(3):

Example 1. (i) Individual A has been

working for Employer X and has been

covered under Employer X’s plan since

March 1, 1997. Under Employer X’s plan, as

in effect before January 1, 1998, there is no

coverage for any preexisting condition.

Employer X’s plan year begins on January 1,

1998. A’s enrollment date in the plan is

March 1, 1997 and A has no creditable

coverage before this date.

(ii) In this Example 1, Employer X may

continue to impose the preexisting condition

exclusion under the plan through February

28, 1998 (the end of the 12-month period

using anniversary dates).

Example 2. (i) Same facts as in Example 1,

except that A’s enrollment date was August

1, 1996, instead of March 1, 1997.

(ii) In this Example 2, on January 1, 1998,

Employer X’s plan may no longer exclude

treatment for any preexisting condition that

A may have; however, because Employer X’s

plan is not subject to HIPAA until January 1,

1998, A is not entitled to claim

reimbursement for expenses under the plan

for treatments for any preexisting condition

of A received before January 1, 1998.

(b) Effective date for certification

requirement—(1) In general. Subject to

the transitional rule in § 54.9801–

5T(a)(5)(iii), the certification rules of

§ 54.9801–5T apply to events occurring

on or after July 1, 1996.

(2) Period covered by certificate. A

certificate is not required to reflect

coverage before July 1, 1996.

(3) No certificate before June 1, 1997.

Notwithstanding any other provision of

§ 54.9801–5T, in no case is a certificate

required to be provided before June 1,

1997.

(c) Limitation on actions. No

enforcement action is to be taken,

pursuant to Chapter 100 of Subtitle K of

the Internal Revenue Code, against a

group health plan or health insurance

issuer with respect to a violation of a

requirement imposed by Chapter 100 of

Subtitle K of the Internal Revenue Code

before January 1, 1998 if the plan or

issuer has sought to comply in good

faith with such requirements.

Compliance with these regulations is

deemed to be good faith compliance

with the requirements of Chapter 100 of

Subtitle K.

(d) Transition rules for counting

creditable coverage. An individual who

seeks to establish creditable coverage for

periods before July 1, 1996 is entitled to

establish such coverage through the

presentation of documents or other

means in accordance with the

provisions of § 54.9801–5T(c). For

coverage relating to an event occurring

before July 1, 1996, a group health plan

and a health insurance issuer is not

subject to any penalty or enforcement

action with respect to the plan’s or

issuer’s counting (or not counting) such

coverage if the plan or issuer has sought

to comply in good faith with the

applicable requirements under

§ 54.9801–5T(c).

(e) Transition rules for certificates of

creditable coverage—(1) Certificates

only upon request. For events occurring

on or after July 1, 1996 but before

October 1, 1996, a certificate is required

to be provided only upon a written

request by or on behalf of the individual

to whom the certificate applies.

(2) Certificates before June 1, 1997.

For events occurring on or after October

1, 1996 and before June 1, 1997, a

certificate must be furnished no later

than June 1, 1997, or any later date

permitted under § 54.9801–5T(a)(2) (ii)

and (iii).

(3) Optional notice—(i) In general.

This paragraph (e)(3) applies with

respect to events described in

§ 54.9801–5T(a)(5)(ii), that occur on or

after October 1, 1996 but before June 1,

1997. A group health plan or health

insurance issuer offering group health

coverage is deemed to satisfy § 54.9801–

5T(a) (2) and (3) if a notice is provided

in accordance with the provisions of

paragraphs (e)(3) (i) through (iv) of this

section.

(ii) Time of notice. The notice must be

provided no later than June 1, 1997.

(iii) Form and content of notice. A

notice provided pursuant to this

paragraph (e)(3) must be in writing and

must include information substantially

similar to the information included in a

model notice authorized by the

Secretary. Copies of the model notice

are available at the following website—

http://www.irs.ustreas.gov (or call (202)

622–4695).

(iv) Providing certificate after request.

If an individual requests a certificate

following receipt of the notice, the

certificate must be provided at the time

of the request as set forth in § 54.9801–

5T(a)(5)(iii).

(v) Other certification rules apply.

The rules set forth in § 54.9801–

5T(a)(4)(i) (method of delivery) and
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16941

54.9801–5T(a)(1) (entities required to

provide a certificate) apply with respect

to the provision of the notice.

Dated: March 24, 1997.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved:

Donald C. Lubick,

Assistant Secretary of the Treasury.

Pension and Welfare Benefits

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:

1. A new Subchapter L, consisting of

Part 2590, is added to read as follows:

Subchapter L—Health Insurance Portability

and Renewability for Group Health Plans

PART 2590—RULES AND

REGULATIONS FOR HEALTH

INSURANCE PORTABILITY AND

RENEWABILITY FOR GROUP HEALTH

PLANS

Subpart A—Requirements Relating to

Access and Renewability of Coverage, and

Limitation on Preexisting Condition

Exclusion Periods

Sec.

2590.701–1 Basis and scope.

2590.701–2 Definitions.

2590.701–3 Limitations on preexisting

condition exclusion period.

2590.701–4 Rules relating to creditable

coverage.

2590.701–5 Certification and disclosure of

previous coverage.

2590.701–6 Special enrollment periods.

2590.701–7 HMO affiliation period as

alternative to preexisting condition

exclusion.

2590.702 Prohibiting discrimination against

participants and beneficiaries based on a

health status-related factor.

2590.703 Guaranteed renewability in

multiemployer plans and multiple

employer welfare arrangements.

[Reserved]

Subpart B—Other Requirements

2590.711 Standards relating to benefits for

mothers and newborns. [Reserved]

2590.712 Parity in the application of certain

limits to mental health benefits.

[Reserved]

Subpart C—General Provisions

2590.731 Preemption; State flexibility;

construction.

2590.732 Special rules relating to group

health plans.

2590.734 Enforcement. [Reserved]

2590.736 Effective dates.

Authority: Sec. 29 U.S.C. 1027, 1059, 1135,

1171, 1194; Sec. 101, Pub. L. 104–191, 101

Stat. 1936 (29 U.S.C. 1181); Secretary of

labor’s Order No. 1–87, 52 FR 13139, April

21, 1987.

Subpart A—Requirements Relating to

Access and Renewability of Coverage,

and Limitations on Preexisting

Condition Exclusion Periods

§ 2590.701–1 Basis and scope.

(a) Statutory basis. This subpart

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. This subpart A 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) 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 Code (other than

paragraph (f)(1) of such section 4980B

insofar as it relates to pediatric

vaccines), and Title XXII of the PHSA.

(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; or

(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

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).

Enroll means to become covered for

benefits under a group health plan (i.e.,

when coverage becomes effective),

without regard to when the individual

may have completed or filed any forms

that are required in order to enroll in the

plan. For this purpose, an individual

who has health insurance 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 and first day of

coverage) are set forth in § 2590.701–

3(a)(2) (i) and (ii).

Excepted benefits means the benefits

described as excepted in § 2590.732(b).

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 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 or

their dependents (as defined under the

terms of the plan) directly or through

insurance, reimbursement, or otherwise.

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
16942 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

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 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 PHSA);

(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. For this purpose,

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 within 12

months of the date such contract

becomes effective. 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 PHSA,

such term also includes coverage offered

in connection with a group health plan

that has fewer than two participants as

current employees on the first day of the

plan year.

Internal Revenue Code (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)(2) (iii) and (iv).

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.

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 terminates 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/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

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 means public

health plan within the meaning of

§ 2590.701–4(a)(1)(ix).

Public Health Service Act (PHSA)

means the Public Health Service Act (42

U.S.C. 201, et seq.).

Significant break in coverage means a

significant break in coverage within the

meaning of § 2590.701–4(b)(2)(iii).

Special enrollment date means a

special enrollment date within the

meaning of § 2590.701–6(d).

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 the period that

must pass before an employee or

dependent is eligible to enroll under the

terms of a group health plan. If an

employee or dependent enrolls as a late

enrollee or on a special enrollment date,

any period before such late or special

enrollment is not a waiting period. If an

individual seeks and obtains coverage in

the individual market, any period after

the date the individual files a

substantially complete application for

coverage and before the first day of

coverage is a waiting period.

§ 2590.701–3 Limitations on preexisting

condition exclusion period.

(a) Preexisting condition exclusion—

(1) In general. Subject to paragraph (b)

of this section, 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) 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 ending on the enrollment

date.

(A) For purposes of this paragraph

(a)(1)(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)(1)(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
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16943

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)(1)(i)

are illustrated by the following

examples:

Example 1. (i) Individual A is treated for

a medical condition 7 months before the

enrollment date in Employer R’s group health

plan. As part of such treatment, A’s

physician recommends that a follow-up

examination be given 2 months later. Despite

this recommendation. A does not receive a

follow-up examination and no other medical

advice, diagnosis, care, or treatment for that

condition is recommended to A or received

by A during the 6-month period ending on

A’s enrollment date in Employer R’s plan.

(ii) In this Example 1, Employer R’s plan

may not impose a preexisting condition

exclusion period with respect to the

condition for which A received treatment 7

months prior to the enrollment date.

Example 2. (i) Same facts as Example 1,

except that Employer R’s plan learns of the

condition and attaches a rider to A’s policy

excluding coverage for the condition. Three

months after enrollment, A’s condition

recurs, and Employer R’s plan denies

payment under the rider.

(ii) In this Example 2, The rider is

preexisting condition exclusion and

Employer R’s plan may not impose a

preexisting condition exclusion with respect

to the condition for which A received

treatment 7 months prior to the enrollment

date.

Example 3. (i) Individual B has asthma and

is treated for that condition several times

during the 6-month period before B’s

enrollment date in Employer S’s plan. The

plan imposes a 12-month preexisting

condition exclusion. B has no prior

creditable coverage to reduce the exclusion

period. Three months after the enrollment

date, B begins coverage under Employer S’s

plan. Two months later, B is hospitalized

asthma.

(ii) In this Example 3, Employer S’s plan

may exclude payment for the hospital stay

and the physician services associated with

this illness because the care is related to a

medical condition for which treatment was

received by B during the 6-month period

before the enrollment date.

Example 4. (i) Individual D, who is subject

to a preexisting exclusion imposed by

Employer U’s plan, has diabetes, as well as

a foot condition caused by poor circulation

and retinal degeneration (both of which are

conditions that may be directly attributed to

diabetes). After enrolling in the plan, D

stumbles and breaks a leg.

(ii) In this Example 4, the leg is fracture is

not a condition related to D’s diabetes, even

though poor circulation in D’s extremities

and poor vision may have contributed

towards the accident. However, any

additional medical services that may be

needed because of D’s preexisting diabetic

condition that would not be needed by

another patient with a broken leg who does

not have diabetes may be subject to the

preexisting condition exclusion imposed

under Employer U’s plan.

(ii) Maximum length of preexisting

condition exclusion (the look-forward

rule). 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 purposes of this paragraph (a)(1)(ii),

the 12-month and 18-month periods

after the enrollment date are determined

by reference to the anniversary of 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.

(iii) Reducing a preexisting condition

exclusion period by creditable coverage.

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. For purposes of

this subpart the phrase ‘‘days of

creditable coverage’’ has the same

meaning as the phrase ‘‘aggregate of the

periods of creditable coverage’’ as such

term is used in section 701(a)(3) of the

Act.

(iv) Other Standards. See § 2590.702

for other standards that may apply with

respect to certain benefits limitations or

restrictions under a group health plan.

(2) Enrollment definitions—(i)

Enrollment date means the first day of

coverage or, if there is a waiting period,

the first day of the waiting period.

(ii)(A) First day of coverage means, in

the case of an individual covered for

benefits under a group health plan in

the group market, 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.

(B) The following example illustrates

the rule of paragraph (a)(2)(ii)(A) of this

section:

Example. (i) 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’s 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 then on October 14, 1998 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) In this Example, 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 6-month period in paragraph

(a)(1)(i) would be the period from April 13,

1998 through October 12, 1998, the

maximum permissible period during which

Employer V’s plan could apply a preexisting

condition exclusion under paragraph

(a)(1)(ii) would be in the period from October

13, 1998 through October 12, 1999, and this

period would be reduced under paragraph

(a)(1)(iii) by E’s days of creditable coverage

as of October 13, 1998.

(iii) Late enrollee means an individual

whose enrollment in a plan is a late

enrollment.

(iv)(A) Late enrollment means

enrollment under a group health plan

other than on—

(1) The earliest date on which

coverage can become effective under the

terms of the plan; or

(2) A special enrollment date for the

individual.

(B) If an individual ceases to be

eligible for coverage under the plan by

terminating employment, and then

subsequently becomes eligible for

coverage under the plan by resuming

employment, only eligibility during the

individual’s most recent period of

employment 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.

(v) Examples. The rules of this

paragraph (a)(2) are illustrated by the

following examples:

Example 1. (i) 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 April 1, 1999. April

1, 1999 is not a special enrollment date for

F.

(ii) In this Example 1, F would be a late

enrollee with respect to F’s coverage that

became effective under the plan on April 1,

1999.

Example 2. (i) Same as Example 1, except

that F does not enroll in the plan on April

1, 1999 and 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) 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
16944 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

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 with

regard to a child who, as of the last day

of the 30-day period beginning with the

date of birth, is covered under any

creditable coverage. Accordingly, if a

newborn 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, the other plan may not

impose any preexisting condition

exclusion with regard to the child.

(ii) Example. The rule of this

paragraph (b)(1) is illustrated by the

following example:

Example. (i) Seven months after

enrollment in Employer W’s group health

plan, Individual E has a child born with a

birth defect. Because the child is enrolled in

Employer W’s plan within 30 days of birth,

no preexisting condition exclusion may be

imposed with respect to the child under

Employer W’s plan. Three months after the

child’s birth, E, commences employment

with Employer X and enrolls with the child

in Employer X’s plan 45 days after leaving

Employer W’s plan. Employer X’s plan

imposes a 12-month exclusion for any

preexisting condition.

(ii) In this Example, Employer X’s plan

may not impose any preexisting condition

exclusion with respect to E’s child because

the child was covered within 30 days of birth

and had no significant break in coverage.

This result applies regardless of whether E’s

child is included in the certificate of

creditable coverage provided to E by

Employer W indicating 300 days of

dependent coverage or receives a separate

certificate indicating 90 days of coverage.

Employer X’s plan may impose a preexisting

condition exclusion with respect to E for up

to 2 months for any preexisting condition of

E for which medical advice, diagnosis, care,

or treatment was recommended or received

by E within the 6-month period ending on E’s

enrollment date in Employer X’s plan.

(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 in the

case of a child who is adopted or placed

for adoption before attaining 18 years of

age and who, as of the last day of the

30-day period beginning on the date of

the adoption or placement for adoption,

is covered under creditable coverage.

This rule does not apply to coverage

before the date of such adoption or

placement for adoption.

(3) Break in coverage. Paragraphs (b)

(1) and (2) of this section no longer

apply to a child after a significant break

in coverage.

(4) 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 as a

preexisting condition.

(5) Special enrollment dates. For

special enrollment dates relating to new

dependents, see § 2590.701–6(b).

(c) Notice of plan’s preexisting

condition exclusion. A group health

plan, and health insurance issuer

offering group health insurance under

the plan, may not impose a preexisting

condition exclusion with respect to a

participant or dependent of the

participant before notifying the

participant, in writing, of the existence

and terms of any preexisting condition

exclusion under the plan and of the

rights of individuals to demonstrate

creditable coverage (and any applicable

waiting periods) as required by

§ 2590.701–5. The description of the

rights of individuals to demonstrate

creditable coverage includes 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.

§ 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

§ 2590.701–2.

(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 Code;

(B) A qualified high risk pool

described in section 2744(c)(2) of the

PHSA; 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 insurance

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, county, or other

political subdivision of a State that

provides health insurance 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)).

(2) Excluded coverage. Creditable

coverage does not include coverage

consisting solely of coverage of 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)(1)(iii), a group health plan, and a

health insurance issuer offering group

health insurance coverage, determines

the amount of an individual’s creditable

coverage by using the standard method

described in paragraph (b) of this

section, except that the 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, a group health plan,

and a health insurance issuer offering

group health insurance coverage,

determines the amount of creditable
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16945

coverage 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, a group health plan, and a

health insurance issuer offering group

health insurance coverage, determines

the amount of creditable coverage by

counting all the days that the individual

has under 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. Further,

any days in a waiting period for a plan

or policy are not creditable coverage

under the plan or policy.

(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) Definition of significant break in

coverage. A significant break in

coverage means a period of 63

consecutive days during all of which the

individual does not have any creditable

coverage, except that neither a waiting

period nor an affiliation period is taken

into account in determining a

significant break in coverage. (See

section 731(b)(2)(iii) of the Act and

section 2723(b)(2)(iii) of the PHSA

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) Examples. The following

examples illustrate how creditable

coverage is counted in reducing

preexisting condition exclusion periods

under this paragraph (b)(2):

Example 1. (i) Individual A works for

Employer P and has creditable coverage

under Employer P’s plan for 18 months

before A’s employment terminates. A is hired

by Employer Q, and enrolls in Employer Q’s

group health plan, 64 days after the last date

of coverage under Employer P’s plan.

Employer Q’s plan has a 12-month

preexisting condition exclusion period.

(ii) In this Example 1, because A had a

break in coverage of 63 days, Employer Q’s

plan may disregard A’s prior coverage and A

may be subject to a 12-month preexisting

condition exclusion period.

Example 2. (i) Same facts as Example 1,

except that A is hired by Employer Q, and

enrolls in Employer Q’s plan, on the 63rd day

after the last date of coverage under

Employer P’s plan.

(ii) 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, Employer Q’s plan must count A’s

prior creditable coverage for purposes of

reducing the plan’s preexisting condition

exclusion period as it applies to A.

Example 3. (i) Same facts as Example 1,

except that Employer 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) In this Example 3, the issuer that

provides group health insurance to Employer

Q’s plan must count A’s period of creditable

coverage prior to the 63-day break.

Example 4. (i) Same facts as Example 3,

except that Employer Q’s plan is a selfinsured plan, and, thus, is not subject to State

insurance laws.

(ii) In this Example 4, the plan is not

governed by the longer break rules under

State insurance law and A’s previous

coverage may be disregarded.

Example 5. (i) Individual B begins

employment with Employer R 45 days after

terminating coverage under a prior group

health plan. Employer R’s plan has a 30-day

waiting period before coverage begins. B

enrolls in Employer R’s plan when first

eligible.

(ii) In this Example 5, B does not have a

significant break in coverage for purposes of

determining whether B’s prior coverage must

be counted by Employer R’s plan. B has only

a 44-day break in coverage because the 30-

day waiting period is not taken into account

in determining a significant break in

coverage.

Example 6, (i) Individual C works for

Employer S and has creditable coverage

under Employer S’s plan for 200 days before

C’s employment is terminated and coverage

ceases. C is then unemployed for 51 days

before being hired by Employer T. Employer

T’s plan has a 3-month waiting period. C

works for Employer T for 2 months and then

terminates employment. Eleven days after

terminating employment with Employer T, C

begins working for Employer U. Employer

U’s plan has no waiting period, but has a 6-

month preexisting condition exclusion

period.

(ii) In this Example 6, C does not have a

significant break in coverage because, after

disregarding the waiting period under

Employer 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 Employer U’s plan may not

apply its 6-month preexisting condition

exclusion period with respect to C.

Example 7. (i) Individual D terminates

employment with Employer V on January 13,

1998 after being covered for 24 months under

Employer V’s group health plan. On March

17, the 63rd day without coverage, D applies

for a health insurance policy in the

individual market. D’s application is

accepted and the coverage is made effective

May 1.

(ii) In this Example 7, because D applied

for the policy before the end of the 63rd day,

and coverage under the policy ultimately

became effective, 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 107 days.

Example 8. (i) Same facts as Example 7,

except that D’s application for a policy in the

individual market is denied.

(ii) In this Example 8, because D did not

obtain coverage following application, D

incurred a significant break in coverage on

the 64th day.

(v) 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)(v) is illustrated by the

following example:

Example. (i) 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 period.

(ii) In this Example, Plan Z may determine,

in accordance with the rules prescribed in

paragraph (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 period 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

period 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 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
16946 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

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 policy. 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) 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) 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 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) of this section.

(ii) Duplicate certificates not required.

An entity required to provide a

certificate under this paragraph (a)(1) for

an individual is deemed to have

satisfied the certification requirements

for that individual if another party

provides the certificate, but only to the

extent that information relating to the

individual’s creditable coverage and

waiting or affiliation period is provided

by the other party. For example, in the

case of a group health plan funded

through an insurance policy, the issuer

is deemed to have satisfied the

certification requirement with respect to

a participant or beneficiary if the plan

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 is deemed to have

satisfied the certification requirements

under this paragraph (a)(1) 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 the

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) 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) 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 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 a certificate to be provided by the

plan (or other party), after cessation of

the individual’s coverage under the

plan, that reflects the period of coverage

under the policy. The provision of that

information to the plan will satisfy the

issuer’s obligation to provide an

automatic certificate for that period of

creditable coverage for the individual

under paragraph (a) (2)(ii) and (3) of this

section. In addition, an issuer providing

that information 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). If the individual’s coverage

under the plan ceases at the time the

individual’s coverage under the issuer’s

policy ceases, the issuer must provide

an automatic certificate under paragraph

(a)(2)(ii) of this section. An issuer may

presume that an individual whose

coverage ceases at a time other than the

effective date for changing enrollment
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16947

options has ceased to be covered under

the plan.

(2) Example. The rule of this

paragraph (a)(1)(iv)(B) is illustrated by

the following example.

Example. (i) A group health plan provides

coverage under an HMO option and an

indemnity option with a different issuer, 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 automatic

certificates as permitted under paragraph

(a)(2)(ii) of this section.

(ii) In this Example, if an employee

switches from the indemnity option to the

HMO option on January 1, the 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 is required to be

provided at the time the individual

ceases to be covered under the plan. A

plan or issuer satisfies this requirement

if it provides the automatic certificate

within a reasonable time period

thereafter. 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 period after the

cessation of coverage under the plan.

(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.

Requests for certificates are permitted to

be made by, or on behalf of, an

individual within 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 following

examples illustrate the rules of this

paragraph (a)(2):

Example 1. (i) 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) In this Example 1, the automatic

certificate may be provided at the same time

that A is provided the COBRA notice.

Example 2. (i) 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) In this Example 2, the automatic

certificate may be provided within the period

permitted by law for the delivery of notices

under COBRA.

Example 3. (i) 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 coverage

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) In this Example 3, the automatic

certificate may be provided not later than the

time a notice is required to be furnished

under the State program.

Example 4. (i) 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

failure to make a timely payment for

continuation coverage.

(ii) 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) 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 Employer

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) 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 is entitled to receive

a certificate;

(2) The individual requests that the

certificate be sent to another plan or

issuer instead of to the individual;

(3) 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 (e.g., by

telephone); and

(4) The receiving plan or issuer

receives such information from the

sending plan or issuer in such form

within the time periods required under

paragraph (a)(2) of this section.
16948 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(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;

and

(G) The date creditable coverage

ended, unless the certificate indicates

that creditable coverage is continuing as

of the date of the certificate.

(iii) Periods of coverage under

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, a certificate must be provided

for 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 or, 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. 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. 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 procedure for individuals to

request and receive certificates pursuant

to paragraph (a)(2)(iii) of this section.

(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 party. 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 party.

(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 the 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) are illustrated by the

following example:

Example. (i) 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) 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 of an individual

covered by the certificate, the individual

may, if necessary, use the procedures

described in paragraph (c)(4) of this

section for demonstrating dependent

status. In addition, an individual may,

if necessary, use these procedures to

demonstrate that a child was enrolled

within 30 days of birth, adoption, or

placement for adoption. See § 2590.701–

3(b), under which such a child would

not be subject to a preexisting condition

exclusion.

(iii) Transaction rule for dependent

coverage through June 30, 1998—(A) In

general. A group health plan or health

insurance issuer that cannot provide the

names of dependents (or related

coverage information) for purposes of

providing a certificate of coverage for a

dependent may satisfy the requirements

of paragraph (a)(3)(ii)(C) of this section

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 is for dependent coverage

(e.g., family coverage or employee-plusspouse coverage).

(B) Certificates provided on request.

For purposes of certificates provided on

the request of, or on behalf of, an

individual pursuant to paragraph

(a)(2)(iii) of this section, a plan or issuer
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16949

must make reasonable efforts to obtain

and provide the names of any

dependent covered by the certificate

where such information is requested to

be provided. If a certificate does not

include the name of any dependent of

an individual covered by the certificate,

the individual may, if necessary, use the

procedures described in paragraph (c) of

this section for submitting

documentation to establish that the

creditable coverage in the certificate

applies to the dependent.

(C) Demonstrating a dependent’s

creditable coverage. See paragraph (c)(4)

of this section for special rules to

demonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)

is only effective for certificates provided

with respect to events occurring through

June 30, 1998.

(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) through (c)(1)(J)

of the Act (coverage under a State health

benefits risk pool, the Federal

Employees Health Benefits Program, a

public health plan, and a health benefit

plan under section 5(e) of the Peace

Corps Act), see section 2721(b)(1)(B) of

the PHSA (requiring certificates by

issuers offering health insurance

covering in connection with a group

health plan, including a church plan or

a governmental plan (including the

Federal Employees Health Benefits

Program (FEHBP)). In addition, see

section 2743 of the PHSA 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, 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 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 PHSA

applicable to entities described in

sections 2701(c)(1)(C), (D), (E), and (F)

of PHSA (relating to Medicare,

Medicaid, CHAMPUS, and Indian

Health Service), section 2721(b)(1)(A) of

the PHSA applicable to nonfederal

governmental plans generally, section

2721(b)(2)(C)(ii) of the PHSA applicable

to nonfederal governmental plans that

elect to be excluded from the

requirements of subparts 1 and 3 of part

A of Title XXVII of the PHSA, 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. If an individual enrolls in a

group health plan with respect to which

the plan, or issuer, uses the alternative

method of counting creditable coverage

described in § 2590.701–4(c) the

individual provides a certificate of

coverage under paragraph (a) of this

section, and the plan or issuer in which

the individual enrolls so requests, the

entity that issued the certificate (the

prior entity) is required to disclose

promptly to a requesting plan or issuer

(the requesting entity) the information

set forth in paragraph (b)(2) of this

section.

(2) Information to be disclosed.

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. The prior entity is required to

disclose promptly to the requesting

entity the creditable coverage

information so requested.

(3) Charge for providing information.

The prior entity furnishing the

information under paragraph (b) of this

section 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) In

general. The rules in this paragraph (c)

implement section 701(c)(4) of the Act,

which permits individuals to establish

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. If the accuracy of a

certificate is contested or a certificate is

unavailable when needed by the

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

period;

(ii) The individual has creditable

coverage but an entity may not be

required to provide a certificate of the

coverage pursuant to paragraph (a) of

this section;

(iii) The coverage is for a period

before July 1, 1996;

(iv) The individual has an urgent

medical condition that necessitates a

determination before the individual can

deliver a certificate to the plan; or

(v) The individual lost a certificate

that the individual had previously

received and is unable to obtain another

certificate.

(2) Evidence of creditable coverage—

(i) Consideration of evidence. 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 and is entitled to offset all or

a portion of any preexisting condition

exclusion period. A plan or issuer shall

treat the individual as having furnished

a certificate under paragraph (a) of this

section if the individual attests to the

period of creditable coverage, the

individual also presents relevant

corroborating evidence of some

creditable coverage during the period,

and the individual cooperates with the

plan’s or issuer’s efforts to verify the

individual’s coverage. For this purpose,

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 may

establish creditable coverage (and

waiting periods or affiliation periods) in

the absence of a certificate include

explanations of benefit claims (EOB) 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,
16950 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

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 period or

affiliation period information) may also

be established 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)(2) are illustrated by the

following example:

Example. (i) Individual F terminates

employment with Employer W and, a month

later, is hired by Employer X. Employer 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, Employer W, and requests a

certificate. However, F (and Employer X’s

plan, on F’s behalf) is unable to obtain a

certificate from Employer W’s plan. F attests

that, to the best of F’s knowledge, F had at

least 12 months of continuous coverage

under Employer W’s plan, and that the

coverage ended no earlier than F’s

termination of employment from Employer

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) In this Example, based solely on these

facts, F has demonstrated creditable coverage

for the 12 months of coverage under

Employer W’s plan in the same manner as if

F had presented a written certificate of

creditable coverage.

(3) Demonstrating categories of

creditable coverage. Procedures similar

to those described in this paragraph (c)

apply in order to determine 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).

(4) 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.

(d) Determination and notification of

creditable coverage—(1) Resonable time

period. In the event that a group health

plan or health insurance issuer offering

group health insurance coverage

receives information under paragraph

(a) of this section (certifications),

paragraph (b) of this section (disclosure

of information relating to the alternative

method), or paragraph (c) of this section

(other evidence of creditable coverage),

the entity is required, within a

reasonable time period following receipt

of the information, to make a

determination regarding the individual’s

period of creditable coverage and notify

the individual of the determination in

accordance with paragraph (d)(2) of this

section. Whether a determination and

notification regarding an individual’s

creditable coverage is made within a

reasonable time period is determined

based 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

services.

(2) Notification to individual of period

of preexisting condition exclusion. A

plan or issuer seeking to impose a

preexisting condition exclusion is

required to disclose to the individual, in

writing, its determination of any

preexisting condition exclusion period

that applies to the individual, and the

basis for such determination, including

the source and substance of any

information on which the plan or issuer

relied. In addition, the plan or issuer is

required to provide the individual with

a written explanation of any appeal

procedures established by the plan or

issuer, and with a reasonable

opportunity to submit additional

evidence of creditable coverage.

However, nothing in this paragraph (d)

or paragraph (c) of 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—

(i) A notice of such reconsideration,

as described in this paragraph (d), is

provided to the individual; and

(ii) Until the final determination is

made, the plan or issuer, for purposes of

approving access to medical services

(such as a pre-surgery authorization),

acts in a manner consistent with the

initial determination.

(3) Examples. The following examples

illustrate this paragraph (d):

Example 1. (i) Individual G is hired by

Employer Y. Employer Y’s group health plan

imposes a preexisting condition exclusion for

12 months with respect to new enrollees and

uses the standard method of determining

creditable coverage. Employer Y’s plan

determines that G is subject to a 4-month

preexisting condition exclusion, based on a

certificate of creditable coverage that is

provided by G to Employer Y’s plan

indicating 8 months of coverage under G’s

prior group health plan.

(ii) In this Example 1, Employer Y’s plan

must notify G within a reasonable period of

time following receipt of the certificate that

G is subject to a 4-month preexisting

condition exclusion beginning on G’s

enrollment date in Y’s plan.

Example 2. (i) Same facts as in Example 1,

except that Employer Y’s plan determines

that G has 14 months of creditable coverage

based on G’s certificate indicating 14 months

of creditable coverage under G’s prior plan.

(ii) In this Example 2, Employer Y’s plan

is not required to notify G that G will not be

subject to a preexisting condition exclusion.

Example 3. (i) Individual H is hired by

Employer Z. Employer Z’s group health plan

imposes a preexisting condition exclusion for

12 months with respect to new enrollees and

uses the standard method of determining

creditable coverage. H develops an urgent

health condition before receiving a certificate

of prior coverage. 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.

(ii) In this Example 3, Employer Z’s plan

must review the evidence presented by H. In

addition, the plan must make a

determination and notify H regarding any

preexisting condition exclusion period that

applies to H (and the basis of such

determination) within a reasonable time

period following receipt of the evidence that

is consistent with the urgency of H’s health

condition (this determination may be

modified as permitted under paragraph (d)(2)

of this section).

§ 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 group

health insurance coverage in connection

with a group health plan, is required to

permit employees and dependents

described in paragraph (a) (2), (3), or (4)

of this section to enroll for coverage

under the terms of the plan if the

conditions in paragraph (a)(5) of this

section are satisfied and the enrollment

is requested within the period described

in paragraph (a)(6) of this section. The

enrollment is effective at the time

described in paragraph (a)(7) of this

section. 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) Special enrollment of an employee

only. An employee is described in this

paragraph (a)(2) if the employee is

eligible, but not enrolled, for coverage

under the terms of the plan and, when

enrollment was previously offered to the

employee under the plan and was

declined by the employee, the employee
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16951

was covered under another group health

plan or had other health insurance

coverage.

(3) Special enrollment of dependents

only. A dependent is described in this

paragraph (a)(3) if the dependent is a

dependent of an employee participating

in the plan, the dependent is eligible,

but not enrolled, for coverage under the

terms of the plan, and, when enrollment

was previously offered under the plan

and was declined, the dependent was

covered under another group health

plan or had other health insurance

coverage.

(4) Special enrollment of both

employee and dependent. An employee

and any dependent of the employee are

described in this paragraph (a)(4) if they

are eligible, but not enrolled, for

coverage under the terms of the plan

and, when enrollment was previously

offered to the employee or dependent

under the plan and was declined, the

employee or dependent was covered

under another group health plan or had

other health insurance coverage.

(5) Conditions for special enrollment.

An employee or dependent is eligible to

enroll during a special enrollment

period if each of the following

applicable conditions is met:

(i) When the employee declined

enrollment for the employee or the

dependent, the employee stated in

writing that coverage under another

group health plan or other health

insurance coverage was the reason for

declining enrollment. This paragraph

(a)(5)(i) applies only if—

(A) The plan required such a

statement when the employee declined

enrollment; and

(B) The employee is provided with

notice of the requirement to provide the

statement in this paragraph (a)(5)(i) (and

the consequences of the employee’s

failure to provide the statement) at the

time the employee declined enrollment.

(ii)(A) When the employee declined

enrollment for the employee or

dependent under the plan, the employee

or dependent had COBRA continuation

coverage under another plan and

COBRA continuation coverage under

that other plan has since been

exhausted; or

(B) If the other coverage that applied

to the employee or dependent when

enrollment was declined was not under

a COBRA continuation provision, either

the other coverage has been terminated

as a result of loss of eligibility for the

coverage or employer contributions

towards the other coverage has been

terminated. For this purpose, loss of

eligibility for coverage includes a loss of

coverage as a result of legal separation,

divorce, death, termination of

employment, reduction in the number

of hours of employment, and any loss of

eligibility after a period that is measured

by reference to any of the foregoing.

Thus, for example, if an employee’s

coverage ceases following a termination

of employment and the employee is

eligible for but fails to elect COBRA

continuation coverage, this is treated as

a loss of eligibility under this paragraph

(a)(5)(ii)(B). However, loss of eligibility

does not include a loss due to failure of

the individual or the participant 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). In addition, for purposes of this

paragraph (a)(5)(ii)(B), employer

contributions include contributions by

any current or former employer (of the

individual or another person) that was

contributing to coverage for the

individual.

(6) Length of special enrollment

period. The employee is required to

request enrollment (for the employee or

the employee’s dependent, as described

in paragraph (a) (2), (3), or (4) of this

section) not later than 30 days after the

exhaustion of the other coverage

described in paragraph (a)(5)(ii)(A) of

this section or termination of the other

coverage as a result of the loss of

eligibility for the other coverage for

items described in paragraph (a)(5)(ii)(B)

of this section or following the

termination of employer contributions

toward that other coverage. The plan

may impose the same requirements that

apply to employees who are otherwise

eligible under the plan to immediately

request enrollment for coverage (e.g.,

that the request be made in writing).

(7) Effective date of enrollment.

Enrollment is effective not later than the

first day of the first calendar month

beginning after the date the completed

request for enrollment is received.

(b) Special enrollment with respect to

certain dependent beneficiaries—(1) In

general. A group health plan that makes

coverage available with respect to

dependents of a participant is required

to provide a special enrollment period

to permit individuals described in

paragraph (b) (2), (3), (4), (5), or (6) of

this section to be enrolled for coverage

under the terms of the plan if the

enrollment is requested within the time

period described in paragraph (b)(7) of

this section. The enrollment is effective

at the time described in paragraph (b)(8)

of this section. 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) Special enrollment of an employee

who is eligible but not enrolled. An

individual is described in this

paragraph (b)(2) if the individual is an

employee who is eligible, but not

enrolled, in the plan, the individual

would be a participant but for a prior

election by the individual not to enroll

in the plan during a previous

enrollment period, and a person

becomes a dependent of the individual

through marriage, birth, or adoption or

placement for adoption.

(3) Specil enrollment of a spouse of a

participant. An individual is described

in this paragraph (b)(3) if either—

(i) The individual becomes the spouse

of a participant; or

(ii) The individual is a spouse of the

participant and a child becomes a

dependent of the participant through

birth, adoption or placement for

adoption.

(4) Special enrollment of an employee

who is eligible but not enrolled and the

spouse of such employee. An employee

who is eligible, but not enrolled, in the

plan, and an individual who is a

dependent of such employee, are

described in this paragraph (b)(4) if the

employee would be a participant but for

a prior election by the employee not to

enroll in the plan during a previous

enrollment period, and either—

(i) The employee and the individual

become married; or

(ii) The employee and individual are

married and a child becomes a

dependent of the employee through

birth, adoption or placement for

adoption.

(5) Special enrollment of a dependent

of a participant. An individual is

described in this paragraph (b)(5) if the

individual is a dependent of a

participant and the individual becomes

a dependent of such participant through

marriage, birth, or adoption or

placement for adoption.

(6) Sepcial enrollment of an employee

who is eligible but not enrolled and a

new dependent. An employee who is

eligible, but not enrolled, in the plan,

and an individual who is a dependent

of the employee, are described in this

paragraph (b)(6) if the employee would

be a participant but for a prior election

by the employee not to enroll in the

plan during a previous enrollment

period, and the dependent becomes a

dependent of the employee through

marriage, birth, or adoption or

placement for adoption.

(7) Length of special enrollment

period. The special enrollment period

under paragraph (b)(1) of this section is

a period of not less than 30 days and

begins on the date of the marriage, birth,

or adoption or placement for adoption
16952 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(except that such period does not begin

earlier than the date the plan makes

dependent coverage generally available).

(8) Effective date of enrollment.

Enrollment is effective—

(i) In the case of marriage, not later

than the first day of the first calendar

month beginning after the date the

completed request for enrollment is

received by the plan;

(ii) In the case of a dependent’s birth,

the date of such birth; and

(iii) In the case of a dependent’s

adoption or placement for adoption, the

date of such adoption or placement for

adoption.

(9) Example. The rules of this

paragraph (b) are illustrated by the

following example:

Example. (i) Employee A is hired on

September 3, 1998 by Employer X, which has

a group health plan in which A can elect to

enroll either for employee-only coverage, for

employee-plus-spouse coverage, or for family

coverage, effective on the first day of any

calendar quarter thereafter. A is married and

has no children. A does not elect to join

Employer X’s plan (for employee-only

coverage, employee-plus-spouse coverage, or

family coverage) on October 1, 1998 or

January 1, 1999. On February 15, 1999, a

child is placed for adoption with A and A’s

spouse.

(ii) In this Example, the conditions for

special enrollment of an employee with a

new dependent under paragraph (b)(2) of this

section are satisfied, the conditions for

special enrollment of an employee and a

spouse with a new dependent under

paragraph (b)(4) of this section are satisfied,

and the conditions for special enrollment of

an employee and a new dependent under

paragraph (b)(6) of this section are satisfied.

Accordingly, Employer X’s plan will satisfy

this paragraph (b) if and only if it allows A

to elect, by filing the required forms by

March 16, 1999, to enroll in Employer X’s

plan either with employee-only coverage,

with employee-plus-spouse coverage, or with

family coverage, effective as of February 15,

1999.

(c) Notice of enrollment rights. On or

before the time an employee is offered

the opportunity to enroll in a group

health plan, the plan is required to

provide the employee with a description

of the plan’s special enrollment rules

under this section. For this purpose, the

plan may use the following model

description of the special enrollment

rules under this section:

If you are declining enrollment for yourself

or your dependents (including your spouse)

because of other health insurance coverage,

you may in the future be able to enroll

yourself or your dependents in this plan,

provided that you request enrollment within

30 days after your other coverage ends. 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,

provided that you request enrollment within

30 days after the marriage, birth, adoption, or

placement for adoption.

(d)(1) Special enrollment date

definition. A special enrollment date for

an individual means any date in

paragraph (a)(7) or (b)(8) of this section

on which the individual has a right to

have enrollment in a group health plan

become effective under this section.

(2) Examples. The rules of this section

are illustrated by the following

examples:

Example 1. (i)(A) Employer Y maintains a

group health plan that allows employees to

enroll in the plan either—

(1) Effective on the first day of employment

by an election filed within three days

thereafter;

(2) Effective on any subsequent January 1

by an election made during the preceding

months of November or December; or

(3) Effective as of any special enrollment

date described in this section.

(B) Employee B is hired by Employer Y on

March 15, 1998 and does not elect to enroll

in Employer Y’s plan until January 31, 1999

when B loses coverage under another plan.

B elects to enroll in Employer Y’s plan

effective on February 1, 1999, by filing the

completed request form by January 31, 1999,

in accordance with the special rule set forth

in paragraph (a) of this section.

(ii) In this Example 1, B has enrolled on

a special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7) of this section.

Example 2. (i) Same facts as Example 1,

except that B’s loss of coverage under the

other plan occurs on December 31, 1998 and

B elect to enroll in Employer Y’s plan

effective on January 1, 1999 by filing the

completed request form by December 31,

1998, in accordance with the special rule set

forth in paragraph (a) of this section.

(ii) In this Example 2, B has enrolled on

a special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7) of this section (even though

this date is also a regular enrollment date

under the plan).

§ 2590.701–7 HMO affiliation period as

alternative to 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

requirements in paragraph (b) of this

section is satisfied.

(b) Requirements for affiliation

period. (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 applied uniformly without

regard to any health status-related

factors.

(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.

(6) The affiliation period for

enrollment in the HMO under a plan

runs concurrently with any waiting

period.

(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.

Nothing in the part requires a State to

receive proposals for or approve

alternatives to affiliation periods.

§ 2590.702 Prohibiting discrimination

against participants and beneficiaries

based on a health status-related factor.

(a) In eligibility to enroll—(1) In

general. Subject to paragraph (a)(2) of

this section, a group health plan, and a

health insurance issuer offering group

health insurance coverage in connection

with a group health plan, may not

establish rules for eligibility (including

continued eligibility) of any individual

to enroll under the terms of the plan

based on any of the following health

status-related factors in relation to the

individual or a dependent of the

individual.

(i) Health status.

(ii) Medical condition (including both

physical and mental illnesses), as

defined in § 2590.701–2.

(iii) Claims experience.

(iv) Receipt of health care.

(v) Medical history.

(vi) Genetic information, as defined in

§ 2590.701–2.

(vii) Evidence of insurability

(including conditions arising out of acts

of domestic violence).

(viii) Disability.

(2) No application to benefits or

exclusions. To the extent consistent

with section 701 of the Act and

§ 2590.701–3, paragraph (a)(1) of this

section shall not be construed—

(i) To require a group health plan, or

a health insurance issuer offering group

health insurance coverage, to provide

particular benefits other than those

provided under the terms of such plan

or coverage; or

(ii) To prevent such a plan or issuer

from establishing limitation or

restrictions on the amount, level, extent,

or nature of the benefits or coverage for

similarly situated individuals enrolled

in the plan or coverage.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16953

(3) Construction. For purposes of

paragraph (a)(1) of this section, rules for

eligibility to enroll include rule defining

any applicable waiting (or affiliation)

periods for such enrollment and rules

relating to late and special enrollment.

(4) Example. The following example

illustrates the rules of this paragraph (a):

Example. (i) An employer sponsors a group

health plan that is available to all employees

who enroll within the first 30 days of their

employment. However, individuals who do

not enroll in the first 30 days cannot enroll

later unless they pass a physical

examination.

(ii) In this Example, the plan discriminates

on the basis of one or more health statusrelated factors.

(b) In premiums or contributions—(1)

In general. A group health plan, and a

health insurance issuer offering health

insurance coverage in connection with a

group health plan, may not require an

individual (as a condition of enrollment

or continued enrollment under the plan)

to pay a premium or contribution that

is greater than the premium or

contribution for a similarly situated

individual enrolled in the plan based on

any health status-related factor, in

relation to the individual or a

dependent of the individual.

(2) Construction. Nothing in

paragraph (b)(1) of this section shall be

construed—

(i) To restrict the amount that an

employer may be charged by an issuer

for coverage under a group health plan;

or

(ii) To prevent a group health plan,

and a health insurance issuer offering

group health insurance coverage, from

establishing premium discounts or

rebates or modifying otherwise

applicable copayments or deductibles in

return for adherence to a bona fide

wellness program. For purposes of this

section, a bona fide wellness program is

a program of health promotion and

disease prevention.

(3) Example. The rules of this

paragraph (b) are illustrated by the

following example:

Example. (i) Plan X offers a premium

discount to participants who adhere to a

cholesterol-reduction wellness program.

Enrollees are expected to keep a diary of their

food intake over 6 weeks. They periodically

submit the diary to the plan physician who

responds with suggested diet modifications.

Enrollees are to modify their diets in

accordance with the physician’s

recommendations. At the end of the 6 weeks,

enrollees are given a cholesterol test and

those who achieve a count under 200 receive

a premium discount.

(ii) In this Example, because enrollees who

otherwise comply with the program may be

unable to achieve a cholesterol count under

200 due to a health status-related factor, this

is not a bona fide wellness program and such

discounts would discriminate impermissibly

based on one or more health status-related

factors. However, if, instead, individuals

covered by the plan were entitled to receive

the discount for complying with the diary

and dietary requirements and were not

required to pass a cholesterol test, the

program would be a bona fide wellness

program.

§ 2590.703 Guaranteed renewability in

multiemployer plans and multiple employer

welfare arrangements. [Reserved]

Subpart B—Other Requirements

§ 2590.711 Standard relating to benefits

for mothers and newborns. [Reserved]

§ 2590.712 Parity in the application of

certain limits to mental health benefits.

[Reserved]

Subpart C—General Provisions

§ 2590.731 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 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 requirements 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 § 2590.736 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 an a law of the United

States.

(2) State. For purposes of this section

the term State includes a State, the

Northern Mariana Islands, any political

subdivisions of a State or such Island,

or any agency or instrumentality of

either.

§ 2590.732 Special rule relating to group

health plans.

(a) General exception for certain small

group health plans. The requirements of

this part 7 of subtitle B of title I of the

Act do not apply to any group health

plan (and group health insurance

coverage offered in connection with a

group health plan) for any plan year if,

on the first day of the plan year, the

plan has fewer than 2 participants who

are current employees.

(b) Excepted benefits—(1) In general.

The requirements of subparts A and C

of this part do not apply to any group

health plan (or any group health

insurance coverage offered in

connection with a group health plan) in

relation to its provision of the benefits
16954 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

described in paragraph (b)(92), (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 insurance;

(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

insurance;

(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 the

plan, as defined in paragraph (b)(3)(ii) of

this section.

(ii) Integral. For purposes of

paragraph (b)(3)(i) of this section,

benefits are deemed to be an integral

part of a plan unless a participant has

the right to elect not to receive coverage

for the benefits and, if the participant

elects to receive coverage for the

benefits, the participant pays an

additional premium or contribution for

that coverage.

(iii) Limited scope. Limited scope

dental or vision benefits are dental or

vision benefits that are sold under a

separate policy or rider and that are

limited in scope to a narrow range or

type of benefits that are generally

excluded from hospital/medical/

surgical benefit packages.

(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

insurance services, as defined in section

7702B(c)(1) of the 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.

(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 dollar

indemnity insurance (for example,

$100/day) is excepted only if it meets

each of the conditions specified in

paragraph (b)(4)(ii) of this section.

(ii) Conditions. Benefits are described

in paragraph (b)(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.

(5) Supplemental benefits. The

following benefits are excepted only if

they are provided under a separate

policy, certificate, or contract of

insurance:

(i) Medicare supplemental health

insurance (as defined under section

1882(g)(1) of the Social Security Act;

also known as Medigap or MedSupp

insurance);

(ii) Coverage supplemental to the

coverage provided under Chapter 55,

Title 10 of the United States Code (also

known as CHAMPUS supplemental

programs), and

(iii) Similar supplemental coverage

provided to coverage under a group

health plan.

(c) Treatment of partnerships.

[Reserved]

§ 2590.734 Enforcement. [Reserved]

§ 2590.736 Effective dates.

(a) General effective dates—(1) Noncollectively-bargained plans. Except as

otherwise provided in this section, part

7 of subtitle B of title I of the Act and

subparts A and C of this part apply with

respect to group health plans, including

health insurance issuers offering health

insurance coverage in connection with

group health plans, for plan years

beginning after June 30, 1997.

(2) Collectively bargained plans.

Except as otherwise provided in this

section (other than paragraph (a)(1) of

this section), in the case of a group

health plan maintained pursuant to one

or more collective bargaining

agreements between employee

representatives and one or more

employers ratified before August 21,

1996, Part 7 of subtitle B of title I of the

Act and subparts A and C of this part

do not apply to plan years beginning

before the later of July 1, 1997, or the

date on which the last of the collective

bargaining agreements relating to the

plan terminates (determined without

regard to any extension thereof agreed to

after August 21, 1996). For these

purposes, any plan amendment made

pursuant to a collective bargaining

agreement relating to the plan, that

amends the plan solely to conform to

any requirement of such part, is not

treated as a termination of the collective

bargaining agreement.

(3)(i) Preexisting condition exclusion

periods for current employees. Any

preexisting condition exclusion period

permitted under § 2590.701–3 is

measured from the individual’s

enrollment date in the plan. Such

exclusion period, as limited under

§ 2590.701–3, may be completed prior to

the effective date of the Health

Insurance Portability and

Accountability Act of 1996 (HIPAA) for

his or her plan. Therefore, on the date

the individual’s plan becomes subject to

part 7 of subtitle B of title I of the Act,

no preexisting condition exclusion may

be imposed with respect to an

individual beyond the limitation of

§ 2590.701–3. For an individual who

has not completed the permitted

exclusion period under HIPAA, upon

the effective date for his or her plan, the

individual may use creditable coverage

that the individual had prior to the

enrollment date to reduce the remaining

preexisting condition exclusion period

applicable to the individual.

(ii) Examples. The following

examples illustrate the rules of this

paragraph (a)(3):

Example 1. (i) Individual A has been

working for Employer X and has been

covered under Employer X’s plan since

March 1, 1997. Under Employer X’s plan, as

in effect before January 1, 1998, there is no

coverage for any preexisting condition.

Employer X’s plan year begins on January 1,

1998. A’s enrollment date in the plan is

March 1, 1997 and A has no creditable

coverage before this date.

(ii) In this Example 1, Employer X may

continue to impose the preexisting condition

exclusion under the plan through February

28, 1998 (the end of the 12-month period

using anniversary dates).

Example 2. (i) Same facts as in Example 1,

except that A’s enrollment date was August

1, 1996, instead of March 1, 1997.

(ii) In this Example 2, on January 1, 1998,

Employer X’s plan may no longer exclude

treatment for any preexisting condition that

A may have; however, because Employer X’s

plan is not subject to HIPAA until January 1,

1998, A is not entitled to claim

reimbursement for expenses under the plan

for treatments for any preexisting condition

of A received before January 1, 1998.

(b) Effective date for certification

requirement—(1) In general. Subject to

the transitional rule in § 2590.701–

5(a)(5)(iii), the certification rules of
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16955

§ 2590.701–5 apply to events occurring

on or after July 1, 1996.

(2) Period covered by certificate. A

certificate is not required to reflect

coverage before July 1, 1996.

(3) No certificate before June 1, 1997.

Notwithstanding any other provision of

subpart A or C of this part, in no case

is a certificate required to be provided

before June 1, 1997.

(c) Limitation on actions. No

enforcement action is to be taken,

pursuant to part 7 of subtitle B of title

I of the Act, against a group health plan

or health insurance issuer with respect

to a violation of a requirement imposed

by part 7 of subtitle B of title I of the

Act before January 1, 1998, if the plan

or issuer has sought to comply in good

faith with such requirements.

Compliance with this part is deemed to

be good faith compliance with the

requirements of part 7 of subtitle B of

title I of the Act.

(d) Transition rules for counting

creditable coverage. An individual who

seeks to establish creditable coverage for

periods before July 1, 1996 is entitled to

establish such coverage through the

presentation of documents or other

means in accordance with the

provisions of § 2590.701–5(c). For

coverage relating to an event occurring

before July 1, 1996, a group health plan

and a health insurance issuer is not

subject to any penalty or enforcement

action with respect to the plan’s or

issuer’s counting (or not counting) such

coverage if the plan or issuer has sought

to comply in good faith with the

applicable requirements under

§ 2590.701–5(c).

(e) Transition rules for certificates of

creditable coverage—(1) Certificates

only upon request. For events occurring

on or after July 1, 1996, but before

October 1, 1996, a certificate is required

to be provided only upon a written

request by or on behalf of the individual

to whom the certificate applies.

(2) Certificates before June 1, 1997.

For events occurring on or after October

1, 1996 and before June 1, 1997, a

certificate must be furnished no later

than June 1, 1997, or any later date

permitted under § 2590.701–5(a)(2) (ii)

and (iii).

(3) Optional notice—(i) In general.

This paragraph (e)(3) applies with

respect to events described in

§ 2590.701–5(a)(5)(ii), that occur on or

after October 1, 1996 but before June 1,

1997. A group health plan or health

insurance issuer offering group health

coverage is deemed to satisfy

§ 2590.701–5(a) (2) and (3) if a notice is

provided in accordance with the

provisions of paragraphs (e)(3) (i)

through (iv) of this section.

(ii) Time of notice. The notice must be

provided no later than June 1, 1997.

(iii) Form and content of notice. A

notice provided pursuant to this

paragraph (e)(3) must be in writing and

must include information substantially

similar to the information included in a

model notice authorized by the

Secretary. Copies of the model notice

are available on the following website—

http://www.dol.gov/dol/pwba/ (or call

1–800–998–7542).

(iv) Providing certificate after request.

If an individual requests a certificate

following receipt of the notice, the

certificate must be provided at the time

of the request as set forth in § 2590.701–

5(a)(5)(iii).

(v) Other certification rules apply.

The rules set forth in § 2590.701–

5(a)(4)(i) (method of delivery) and

§ 2590.701–5(a)(1) (entities required to

provide a certificate) apply with respect

to the provision of the notice.

Signed at Washington, D.C., this 27 day of

March, 1997.

Olena Berg,

Assistant Secretary, Pension and Welfare

Benefits Administration, U.S. Department of

Labor.

Department of Health and Human

Services

45 CFR Subtitle A

45 CFR is amended as set forth below:

1. The heading for subtitle A is

revised to read as follows:

SUBTITLE A—DEPARTMENT OF HEALTH

AND HUMAN SERVICES

2. Existing parts 1 through 100 are

designated as subchapter A of subtitle A

and a new subchapter heading is added

to read as follows:

SUBCHAPTER A—GENERAL

ADMINISTRATION

3. New subchapter B, consisting of

parts 140 through 199, is added to read

as follows:

SUBCHAPTER B—REQUIREMENTS

RELATING TO HEALTH CARE ACCESS

PARTS 140—143 [RESERVED]

PART 144—REQUIREMENTS

RELATING TO HEALTH INSURANCE

COVERAGE

Subpart A—General Provisions

Sec.

144.101 Basis and purpose.

144.102 Scope and applicability.

144.103 Definitions applicable to both

group (45 CFR Part 146) and individual

(45 CFR Part 148) markets.

Subpart B—[Reserved]

Authority: Secs. 2701 through 2763, 2791,

and 2792 of the Public Health Service Act,

42 U.S.C. 300gg through 300gg–63, 300gg–91,

and 300gg–92.

PART 144—REQUIREMENTS

RELATING TO HEALTH INSURANCE

COVERAGE

Subpart A—General Provisions

§ 144.101 Basis and purpose.

Part 146 of this subchapter

implements sections 2701 through 2723

of the Public Health Service Act (PHS

Act, 42 U.S.C. 300gg, et seq.). Its

purpose is to improve access to group

health insurance coverage and to

guarantee the renewability of all

coverage in the group market. Part 148

of this subchapter implements sections

2741 through 2763 of the PHS Act. Its

purpose is to improve access to

individual health insurance coverage for

certain eligible individuals who

previously had group coverage, and to

guarantee the renewability of all

coverage in the individual market.

Sections 2791 and 2792 of the PHS Act

define terms used in the regulations in

this subchapter and provide the basis

for issuing these regulations,

respectively.

§ 144.102 Scope and applicability.

(a) For purposes of 45 CFR parts 144

through 148, all health insurance

coverage is generally divided into two

markets—the group market (set forth in

45 CFR part 146) and the individual

market (set forth in 45 CFR part 148). 45

CFR part 146 limits the group market to

insurance sold to employment-related

group health plans and further divides

the group market into the large group

market and the small group market.

Federal law further defines the small

group market as insurance sold to

employer plans with 2 to 50 employees.

State law, however, may expand the

definition of the small group market to

include certain coverage that would

otherwise, under the Federal law, be

considered coverage in the large group

market or the individual market.

(b) The protections afforded under 45

CFR parts 144 through 148 to

individuals and employers (and other

sponsors of health insurance offered in

connection with a group health plan)

are determined by whether the coverage

involved is obtained in the small group

market, the large group market, or the

individual market. Small employers,

and individuals who are eligible to

enroll under the employer’s plan, are

guaranteed availability of insurance

coverage sold in the small group market.

Small and large employers are

guaranteed the right to renew their

group coverage, subject to certain
16956 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

exceptions. Eligible individuals are

guaranteed availability of coverage sold

in the individual market, and all

coverage in the individual market must

be guaranteed renewable.

(c) Coverage that is provided to

associations, but is not related to

employment, is not considered group

coverage under 45 CFR parts 144

through 148. The coverage is considered

coverage in the individual market,

regardless of whether it is considered

group coverage under State law.

§ 144.103 Definitions applicable to both

group (45 CFR part 146) and individual (45

CFR part 148) markets.

Unless otherwise provided, the

following definitions apply:

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 through 608 of the

Employee Retirement Income Security

Act of 1974, section 4980B of the

Internal Revenue Code of 1986 (other

than paragraph (f)(1) of section 4980B

insofar as it relates to pediatric

vaccines), and 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; or

(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

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, or

(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.

Condition means a medical condition.

Creditable coverage has the meaning

of 45 CFR 146.113(a).

Eligible individual, for purposes of—

(1) The group market provisions in 45

CFR part 146, subpart E, the term is

defined in 45 CFR 146.150(b); and

(2) The individual market provisions

in 45 CFR part 148, the term 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 enroll in the

plan. For this purpose, an individual

who has health insurance 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 and first day of

coverage) are set forth in 45 CFR

146.11(a)(2)(i) and (a)(2)(ii).

ERISA stands for the Employee

Retirement Income Security Act of 1974,

as amended (29 U.S.C. 1001 et seq.).

Excepted benefits for purposes of

the—

(1) Group market provisions in 45

CFR part 146 subpart D, the term is

defined in 45 CFR 146.145(b); and

(2) The individual market provisions

in 45 CFR part 148, the term is defined

in 45 CFR 148.220.

Federal government plan means a

governmental plan established or

maintained for its employees by the

Government of the United States or by
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16957

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 means an

employee welfare benefit plan (as

defined in section 3(1) of ERISA) to the

extent that the plan provides medical

care (as defined in section 2791(a)(2) of

the PHS Act and including items and

services paid for as medical care) to

employees or their dependents (as

defined under the terms of the plan)

directly or through insurance,

reimbursement, or otherwise.

Group market means the market for

health insurance coverage offered in

connection with a group health plan.

(However, unless otherwise provided

under State law, 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 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 means

health status, medical condition

(including both physical and mental

illnesses), claims experience, receipt of

health care, medical history, genetic

information, evidence of insurability

(including conditions arising out of acts

of domestic violence) and disability.

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.

Indiviual 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 as

current employees on the first day of the

plan year.

Internal Revenue Code (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)(2)(iii) and

(a)(2)(iv).

Medical care or condition means

amounts paid for any of the following:

(1) The diagnosis, cure, mitigation, 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.

(3) Insurance covering medical care

referred to in paragraphs (1) and (2) of

this definition.

Medical 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.

NAIC stands for the National

Association of Insurance

Commissioners.

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 government 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.

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 the

person terminates upon the termination

of the 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/limit year used

under the plan.
16958 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(2) If the plan does not impose

deductibles or limits on a yearly basis,

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, the plan year is the

employer’s taxable year. (4) In any other case, the plan year is

the calendar year. 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 inclusion

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 means ‘‘public

health plan’’ within the meaning of 45

CFR 146.113(a)(1)(ix).

Short-term limited duration insurance

means health insurance coverage

provided under 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 within 12

months of the date the contract becomes

effective.

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 date has the

meaning given the term in 45 CFR

146.117(d).

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 45 CFR

146.113(a)(1)(vii).

Waiting period means the period that

must pass before an employee or

dependent is eligible to enroll under the

terms of a group health plan. If an

employee or dependent enrolls as a late

enrollee or on a special enrollment date,

any period before such late or special

enrollment is not a waiting period. If an

individual seeks and obtains coverage in

the individual market, any period after

the date the individual files a

substantially complete application for

coverage and before the first day of

coverage is a waiting period.

Subpart B—[Reserved]

PART 145—[RESERVED]

PART 146—REQUIREMENTS FOR THE

GROUP HEALTH INSURANCE

MARKET

Subpart A—General Provisions

Sec.

146.101 Basis and scope.

Subpart B—Requirements Relating to

Access and Renewability of Coverage, and

Limitations on Preexisting Condition

Exclusion Periods

Sec.

146.111 Limitations on preexisting condition

exclusion period.

146.113 Rules relating to creditable

coverage.

146.115 Certification and disclosure of

previous coverage.

146.117 Special enrollment periods.

146.119 HMO affiliation period as

alternative to preexisting condition

exclusion.

146.121 Prohibiting discrimination against

participants and beneficiaries based on

health status-related factors.

146.125 Effective dates.

Subpart C—[Reserved]

Subpart D—Preemption and Special Rules

Sec.

146.143 Preemption; State flexibility;

construction.

146.145 Special rules relating to group

health plans.

Subpart E—Provisions Applicable to Only

Health Insurance Issuers

Sec.

146.150 Guaranteed availability of coverage

for employers in the small group market.

146.152 Guaranteed renewability of coverage

for employers in the group market.

146.160 Disclosure of information.

Subpart F—Exclusion of Plans and

Enforcement

Sec.

146.180 Treatment of non-Federal

governmental plans.

146.184 Enforcement.

Authority: Secs. 2701 through 2763, 2791,

and 2792 of the PHS Act, 42 U.S.C. 300gg

through 300gg–63, 300gg–91, and 300gg–92.

PART 146—REQUIREMENTS FOR THE

GROUP HEALTH INSURANCE MARKET

Subpart A—General Provisions

§ 146.101 Basis and scope.

(a) Statutory basis. This part

implements sections 2701 through 2723

of the PHS Act. Its purpose is to

improve access to group health

insurance coverage and to guarantee the

renewability of all coverage in the group

market. Sections 2791 and 2792 of the

PHS Act define terms used in the

regulations in this subchapter and

provide the basis for issuing these

regulations, respectively.

(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

part.

(1) Subpart B. Subpart B of this part

sets forth minimum requirements for

group health plans and health insurance

issuers offering group health insurance

coverage concerning:

(i) Limitations on a preexisting

condition exclusion period.

(ii) Certificates and disclosure of

previous coverage.

(iii) Methods of counting creditable

coverage.

(iv) Special enrollment periods.

(v) Use of an affiliation period by an

HMO as an alternative to a preexisting

condition exclusion.

(2) Subpart D. Subpart D of this part

sets forth exceptions to the requirements

of Subpart B for certain plans and

certain types of benefits.

(3) Subpart E. Subpart E of this part

implements sections 2711 through 2713

of the PHS Act, which set forth

requirements that apply only to health

insurance issuers offering health

insurance coverage, in connection with

a group health plan.

(4) Subpart F. Subpart F of this part

addresses the treatment of non-Federal

governmental plans, and sets forth

enforcement procedures.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16959

Subpart B—Requirements Relating to

Access and Renewability of Coverage,

and Limitations on Preexisting

Condition Exclusion Periods

§ 146.111 Limitations on preexisting

condition exclusion period.

(a) Preexisting condition exclusion—

(1) General. Subject to paragraph (b) of

this section, 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) are satisfied.

(1) 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 ending on the enrollment

date.

(A) For purposes of this paragraph

(a)(1)(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)(1)(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 following examples illustrate

the requirements of this paragraph

(a)(1)(i).

Example 1: (i) Individual A is treated for

a medical condition 7 months before the

enrollment date in Employer R’s group health

plan. As part of such treatment, A’s

physician recommends that a follow-up

examination be given 2 months later. Despite

this recommendation, A does not receive a

follow-up examination and no other medical

advice, diagnosis, care, or treatment for that

condition is recommended to A or received

by A during the 6-month period ending on

A’s enrollment date in Employer R’s plan.

(ii) In this Example, Employer R’s plan

may not impose a preexisting condition

exclusion period with respect to the

condition for which A received treatment 7

months prior to the enrollment date.

Example 2: (i) Same facts as Example 1

except that Employer R’s plan learns of the

condition and attaches a rider to A’s policy

excluding coverage for the condition. Three

months after enrollment, A’s condition

recurs, and Employer R’s plan denies

payment under the rider.

(ii) In this Example, the rider is a

preexisting condition exclusion and

Employer R’s plan may not impose a

preexisting condition exclusion with respect

to the condition for which A received

treatment 7 months prior to the enrollment

date.

Example 3: (i) Individual B has asthma and

is treated for that condition several times

during the 6-month period before B’s

enrollment date in Employer S’s plan. The

plan imposes a 12-month preexisting

condition exclusion. B has no prior

creditable coverage to reduce the exclusion

period. Three months after the enrollment

date, B begins coverage under Employer S’s

plan. B is hospitalized for asthma.

(ii) In this Example, Employer S’s plan

may exclude payment for the hospital stay

and the physician services associated with

this of illness because the care is related to

a medical condition for which treatment was

received by B during the 6-month period

before the enrollment date.

Example 4: (i) Individual D, who is subject

to a preexisting condition exclusion imposed

by Employer U’s plan, has diabetes, as well

as a foot condition caused by poor circulation

and retinal degeneration (both of which are

conditions that may be directly attributed to

diabetes). After enrolling in the plan, D

stumbles and breaks a leg.

(ii) In this Example, the leg fracture is not

a condition related to D’s diabetes, even

though poor circulation in D’s extremities

and poor vision may have contributed

towards the accident. However, any

additional medical services that may be

needed because of D’s preexisting diabetic

condition that would not be needed by

another patient with a broken leg who does

not have diabetes may be subject to the

preexisting condition exclusion imposed

under Employer U’s plan.

(ii) Maximum length of preexisting

condition exclusion (the look-forward

rule). 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 purposes of this paragraph (a)(1)(ii),

the 12-month and 18-month periods

after the enrollment date are determined

by reference to the anniversary of 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.

(iii) Reducing a preexisting condition

exclusion period by creditable coverage.

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. For purposes of this

part, the phrase ‘‘days of creditable

coverage’’ has the same meaning as the

phrase ‘‘the aggregate of the periods of

creditable coverage’’ as such term is

used in section 2701(a)(3) of the PHS

Act.

(iv) Other standards. See § 146.121 for

other standards that may apply with

respect to certain benefit limitations or

restrictions under a group health plan.

(2) Enrollment definitions—(i)

Enrollment date means the first day of

coverage or, if there is a waiting period,

the first day of the waiting period.

(ii) (A) First day of coverage means, in

the case of an individual covered for

benefits under a group health plan in

the group market, 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.

(B) Example. The following example

illustrates the requirements of paragraph

(a)(2)(ii)(A) of this section:

Example: (i) 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 then on October 14, 1998 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) In this Example, 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 6-month period in paragraph

(a)(1)(i) would be the period from April 13,

1998 through October 12, 1998, the

maximum permissible period during which

Employer V’s plan could apply a preexisting

condition exclusion under paragraph

(a)(1)(ii) would be the period from October

13, 1998 through October 12, 1999, and this

period would be reduced under paragraph

(a)(1)(iii) by E’s days of creditable coverage

as of October 13, 1998.

(iii) Late enrollee means an individual

whose enrollment in a plan is a late

enrollment.

(iv) Late enrollment means enrollment

under a group health plan other than

on—

(A) The earliest date on which

coverage can become effective under the

terms of the plan; or
16960 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(B) A special enrollment date for the

individual. If an individual ceases to be

eligible for coverage under the plan by

terminating employment, and

subsequently becomes eligible for

coverage under the plan by resuming

employment, only eligibility during the

individual’s most recent period of

employment 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.

(v) Examples. The following examples

illustrate the requirements of this

paragraph (a)(2):

Example 1: (i) 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 April 1, 1999. April

1, 1999 is not a special enrollment date for

F.

(ii) In this Example, F would be a late

enrollee with respect to F’s coverage that

became effective under the plan on April 1,

1999.

Example 2: (i) Same as Example 1, except

that F does not enroll in the plan on April

1, 1999 and 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) In this Example, 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) General rule. 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 with

regard to a child who, as of the last day

of the 30-day period beginning with the

date of birth, is covered under any

creditable coverage. Accordingly, if a

newborn 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, the other plan may not

impose any preexisting condition

exclusion with regard to the child.

(ii) Example. The following example

illustrates the requirements of this

paragraph (b)(1).

Example: (i) Seven months after

enrollment in Employer W’s group health

plan, Individual E has a child born with a

birth defect. Because the child is enrolled in

Employer W’s plan within 30 days of birth,

no preexisting condition exclusion may be

imposed with respect to the child under

Employer W’s plan. Three months after the

child’s birth, E commences employment with

Employer X and enrolls with the child in

Employer X’s plan within 45 days of leaving

Employer W’s plan. Employer X’s plan

imposes a 12-month exclusion for any

preexisting condition.

(ii) In this Example, Employer X’s plan

may not impose any preexisting condition

exclusion with respect to E’s child because

the child was covered within 30 days of birth

and had no significant break in coverage.

This result applies regardless of whether E’s

child is included in the certificate of

creditable coverage provided to E by

Employer W indicating 300 days of

dependent coverage or receives a separate

certificate indicating 90 days of coverage.

Employer X’s plan may impose a preexisting

condition exclusion with respect to E for up

to 2 months for any preexisting condition of

E for which medical advice, diagnosis, care,

or treatment was recommended or received

by E within the 6-month period ending on E’s

enrollment date in Employer X’s plan.

(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 in the

case of a child who is adopted or placed

for adoption before attaining 18 years of

age and who, as of the last day of the

30-day period beginning on the date of

the adoption or placement for adoption,

is covered under creditable coverage.

This rule does not apply to coverage

before the date of such adoption or

placement for adoption.

(3) Break in coverage. Paragraphs

(b)(1) and (b)(2) of this section no longer

apply to a child after a significant break

in coverage.

(4) 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 as a

preexisting condition.

(5) Special enrollment dates. For

special enrollment dates relating to new

dependents, see § 146.117(b).

(c) Notice of plan’s preexisting

condition exclusion. A group health

plan, and health insurance issuer

offering group health insurance under

the plan, may not impose a preexisting

condition exclusion with respect to a

participant or dependent of the

participant before notifying the

participant, in writing, of the existence

and terms of any preexisting condition

exclusion under the plan and of the

rights of individuals to demonstrate

creditable coverage (and any applicable

waiting periods) as required by

§ 146.115. The description of the rights

of individuals to demonstrate creditable

coverage includes 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.

§ 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),

the term creditable coverage means

coverage of an individual under any of

the following:

(i) A group health plan as defined in

§ 144.103.

(ii) Health insurance coverage as

defined in § 144.103 (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 part 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 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 insurance

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
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16961

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, county, or other

political subdivision of a State that

provides health insurance 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)).

(2) Excluded coverage. Creditable

coverage does not include coverage

consisting solely of coverage of 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)(1)(iii), a

group health plan, and a health

insurance issuer offering group health

insurance coverage, determines the

amount of an individual’s creditable

coverage by using the standard method

described in paragraph (b), except that

the plan, or issuer, may use the

alternative method under paragraph (c)

with respect to any or all of the

categories of benefits described under

paragraph (c)(3).

(b) Standard method—(1) Specific

benefits not considered. Under the

standard method, a group health plan,

and a health insurance issuer offering

group health insurance coverage,

determines the amount of creditable

coverage 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, a group health plan, and a

health insurance issuer offering group

health insurance coverage, determines

the amount of creditable coverage by

counting all the days that the individual

has under 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. Further,

any days in a waiting period for a plan

or policy are not creditable coverage

under the plan or policy.

(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) Definition of significant break in

coverage. A significant break in

coverage means a period of 63

consecutive days during all of which the

individual does not have any creditable

coverage, except that neither a waiting

period nor an affiliation period is taken

into account in determining a

significant break in 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) Examples. The following

examples illustrate how creditable

coverage is counted in reducing

preexisting condition exclusion periods:

Example 1: (i) Individual A work for

Employer P and has creditable coverage

under Employer P’s plan for 18 months

before A’s employment terminates. A is hired

by Employer O, and enrolls in Employer O’s

group health plan, 64 days after the last date

of coverage under Employer P’s plan.

Employer O’s plan has a 12-month

preexisting condition exclusion period.

(ii) In this Example, because A had a break

in coverage of 63 days, Employer O’s plan

may disregard A’s prior coverage and A may

be subject to a 12-month preexisting

condition exclusion period.

Example 2: (i) Same facts as Example 1,

except that A is hired by Employer O, and

enrolls in Employer O’s plan, on the 63rd day

after the last date of coverage under

Employer P’s plan.

(ii) In this Example, A has a break in

coverage of 62 days. Because A’s break in

coverage is not a significant break in

coverage, Employer O’s plan must count A’s

prior creditable coverage for purposes of

reducing the plan’s preexisting condition

exclusion period as it applies to A.

Example 3: (i) Same facts as Example 1,

except that Employer O’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) In this Example, the issuer that

provides group health insurance to Employer

O’s plan must count A’s period of creditable

coverage prior to the 63-day break.

Example 4: (i) Same facts as Example 3,

except that Employer O’s plan is a selfinsured plan, and thus is not subject to State

insurance laws.

(ii) In this Example, the plan is not

governed by the longer break rules under

State insurance law and A’s previous

coverage may be disregarded.

Example 5: (i) Individual B begins

employment with Employer R 45 days after

terminating coverage under a prior group

health plan. Employer R’s group health plan

has a 30-day waiting period before coverage

begins. B enrolls in Employer R’s plan when

first eligible.

(ii) In this Example, B does not have a

significant break in coverage for purposes of

determining whether B’s prior coverage must

be counted by Employer R’s plan. B has only

a 44-day break in coverage because the 30-

day waiting period is not taken into account

in determining a significant break in

coverage.

Example 6: (i) Individual C works for

Employer S and has creditable coverage

under Employer S’s plan for 200 days before

C’s employment is terminated and coverage

ceases. C is then unemployed for 51 days

before being hired by Employer T. Employer

T’s plan has a 3-month waiting period. C

works for Employer T for 2 months and then

terminates employment. Eleven days after

terminating employment with Employer T, C

begins working for Employer U. Employer

U’s plan has no waiting period, but has a 6-

month preexisting condition exclusion

period.

(ii) In this Example, C does not have a

significant break in coverage because, after

disregarding the waiting period under

Employer 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 Employer U’s plan may not

apply its 6-month preexisting condition

exclusion period with respect to C.

Example 7: (i) Individual D terminates

employment with Employer V on January 13,

1998 after being covered for 24 months under

Employer V’s group health plan. On March

17, the 63rd day without coverage, D applies

for a health insurance policy in the

individual market. D’s application is

accepted and the coverage is made effective

May 1.

(ii) In this Example, because D applied for

the policy before the end of the 63rd day, and

coverage under the policy ultimately became

effective, 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 107 days.

Example 8: (i) Same facts as Example 7,

except that D’s application for a policy in the

individual market is denied.

(ii) In this Example, because D did not

obtain coverage following application, D

incurred a significant break in coverage on

the 64th day.

(v) Other permissible counting

methods—(A) General 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 following example

illustrates the requirements of this

paragraph (b)(2)(v):

Example: (1) 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 period.

(ii) In this Example, Plan Z may determine,

in accordance with the rules prescribed in
16962 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

paragraph (b)(2) (i), (ii), and (iii), 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 period 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 period 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) 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 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).

(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 policy. The use of the alternative

method is set forth in the plan.

(3) Categories of benefits. The

alternative method for counting

creditable coverage may be used for

coverage for any of the following

categories of benefits:

(i) Mental health.

(ii) Substance abuse treatment.

(iii) Prescription drugs.

(iv) Dental care.

(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) 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, and to each

employer at the time of the offer or sale

of the coverage, that the issuer is using

the alternative method, and include 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)

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), 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 following example

illustrates the requirements of this

paragraph (c)(7):

Example: (i) 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, 2001 (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) 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 the equivalent

of 90-days of creditable coverage relating to

prescription drug benefits within D’s

determination period.

§ 146.115 Certification and disclosure of

previous coverage.

(a) Certificate of creditable coverage—

(1) Entities required to provide

certificate—(i) General. A group health

plan, and each health insurance issuer

offering group health insurance

coverage under a group health plan, is

required to 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)(1) for

an individual is deemed to have

satisfied the certification requirements

for that individual if another party

provides the certificate, but only to the

extent that information relating to the

individual’s creditable coverage and

waiting or affiliation period is provided

by the other party. For example, in the

case of a group health plan funded

through an insurance policy, the issuer

is deemed to have satisfied the

certification requirement with respect to

a participant or beneficiary if the plan

actually provides a certificate that

includes the information required under

paragraph (a)(3) with respect to the

participant or beneficiary.

(iii) Special rule for group health

plan. To the extent coverage under a

plan consists of group health insurance

coverage, the plan is deemed to have

satisfied the certification requirements

under this paragraph (a)(1) 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 the

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)

Responsibility of issuer for coverage

period—(1) General rule. An issuer is
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16963

not required to provide information

regarding coverage provided to an

individual by another party.

(2) Example. The following example

illustrates the requirements of this

paragraph (a)(1)(iv)(A):

Example. (i) 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) 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) Cessation of issuer coverage prior

to cessation of coverage under a plan—

(1) General rule. If an individual’s

coverage under an issuer’s policy 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 a certificate to be

provided by the plan (or other party),

after cessation of the individual’s

coverage under the plan, that reflects

the period of coverage under the policy.

The provision of that information to the

plan will satisfy the issuer’s obligation

to provide an automatic certificate for

that period of creditable coverage for the

individual under paragraphs (a)(2)(ii)

and (a)(3) of this section. In addition, an

issuer providing that information 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). If the individual’s

coverage under the plan ceases at the

time the individual’s coverage under the

issuer’s policy ceases, the issuer must

provide an automatic certificate under

paragraph (a)(2)(ii) of this section. An

issuer may presume that an individual

whose coverage ceases at a time other

than the effective date for changing

enrollment options has ceased to be

covered under the plan.

(2) Example. The following example

illustrates the requirements of this

paragraph (a)(1)(iv)(B):

Example: (i) A group health plan provides

coverage under an HMO option and an

indemnity option with a different issuer, 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 automatic

certificates as permitted under paragraph

(a)(2)(ii) of this section.

(ii) In this Example, if an employee

switches from the indemnity option to the

HMO option on January 1, the 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 a 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) and

(a)(2)(iii) of this section.

(ii) Issuance of automatic certificates.

The certificates described in this

paragraph (a)(2)(ii) of this section 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 4980B(g)(1) of the

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 the Act, section

4980B(f)(6) of the 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 is required to be

provided at the time the individual

ceases to be covered under the plan. A

plan or issuer satisfies this requirement

if it provides the automatic certificate

within a reasonable time period

thereafter. 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 period after the

cessation of coverage under the plan.

(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.

Requests for certificates are permitted to

be made by, or on behalf of, an

individual within 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 or prompt fashion

can provide the certificate. A certificate

is 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 following

examples illustrate the requirements of

this paragraph (a)(2).

Example 1: (i) Individual A terminates

employment with Employer O. A is a

qualified beneficiary entitled to elect COBRA

continuation coverage under Employer O’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) In this Example, the automatic

certificate may be provided at the same time

that A is provided the COBRA notice.

Example 2: (i) 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) In this Example, the automatic

certificate may be provided within the period

permitted by law for the delivery of notices

under COBRA.

Example 3: (i) 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 coverage

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) In this Example, the automatic

certificate may be provided not later than the

time a notice is required to be furnished

under the State program.
16964 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

Example 4: (i) 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

failure to make a timely payment for

continuation coverage.

(ii) In this Example, the plan must provide

an updated automatic certificate to C within

a reasonable time after the end of the grace

period.

Example 5: (i) Individual D is currently

covered under the group health plan of

Employer T. D requests a certificate, as

permitted under paragraph (a)(2)(iii). Under

the procedure for Employer 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) In this Example, the plan’s procedure

satisfies paragraph (a)(2)(iii) of this section.

(3) Form and content of certificate—

(i) Written certificate—(A) 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 HCFA 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 paragraphs (a)(2)(ii) and (a)(2)(iii) of

this section if all the following

conditions are met:

(1) An individual is entitled to receive

a certificate.

(2) The individual requests that the

certificate be sent to another plan or

issuer instead of to the individual.

(3) The plan or issuer that would

otherwise receive the certificate agrees

to accept the information in paragraph

(a)(3) through means other than a

written certificate (for example, by

telephone).

(4) The receiving plan or issuer

receives the information from the

sending plan or issuer in such form

within the time periods required under

paragraph (a)(2) of this section.

(ii) Required information. The

certificate must include all of 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)).

(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.

(iii) Periods of coverage under

certificate. If an automatic certificate is

provided under 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 under

paragraph (a)(2)(iii) of this section, a

certificate must be provided for 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 or, 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 HCFA.

(vi) Excepted benefits; categories of

benefits. No certificate is required to be

furnished with respect to excepted

benefits described in § 146.145. 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 procedure for individuals to

request and receive certificates under

paragraph (a)(2)(iii) of this section.

(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 party. 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 party.

(5) Special rules concerning

dependent coverage—(i) Reasonable

efforts—(A) General rule. A plan or

issuer is required to use reasonable

efforts to determine any information

needed for a certificate relating to the

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
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16965

dependent’s cessation of coverage under

the plan.

(B) Example. The following example

illustrates the requirements of this

paragraph (a)(5)(i):

Example: (i) 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) In this Example, the plan has satisfied

the standard in this paragraph (a)(5)(i) 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 of an individual

covered by the certificate, the individual

may, if necessary, use the procedures

described in paragraph (c)(4) of this

section for demonstrating dependent

status. In addition, an individual may,

if necessary, use these procedures to

demonstrate that a child was enrolled

within 30 days of birth, adoption, or

placement for adoption. See

§ 146.111(b), under which such a child

would not be subject to a preexisting

condition exclusion.

(iii) Transition rule for dependent

coverage through June 30, 1998—(A)

General. A group health plan or health

insurance issuer that cannot provide the

names of dependents (or related

coverage information) for purposes of

providing a certificate of coverage for a

dependent may satisfy the requirements

of paragraph (a)(3)(ii)(C) of this section

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 is for dependent coverage

(for example, family coverage or

employee-plus-spouse coverage).

(B) Certificates provided on request.

For purposes of certificates provided on

the request of, or on behalf of, an

individual under paragraph (a)(2)(iii) of

this section, a plan or issuer must make

reasonable efforts to obtain and provide

the names of any dependent covered by

the certificate where such information is

requested to be provided. It does not

include the name of any dependent of

an individual covered by the certificate,

the individual may, if necessary, use the

procedures described in paragraph (c) of

this section for submitting

documentation to establish that the

creditable coverage in the certificate

applies to the dependent.

(C) Demonstrating a dependent’s

creditable coverage. See paragraph (c)(4)

of this section for special rules to

demonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)

is only effective for certifications

provided with respect to events

occurring through June 30, 1998.

(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) through (c)(1)(J)

of the PHS Act (coverage under a State

health benefits risk pool, the Federal

Employees Health Benefits Program, 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 (FEHBP)).

(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 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, CHAMPUS, 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 and 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)

General. If an individual enrolls in a

group health plan with respect to which

the plan, or issuer, uses the alternative

method of counting creditable coverage

described in section 2701(c)(3)(B) of the

PHS Act and § 146.113(c), the

individual provides a certificate of

coverage under paragraph (a) of this

section, and the plan or issuer in which

the individual enrolls so requests, the

entity that issued the certificate (the

‘‘prior entity’’) is required to disclose

promptly to a requesting plan or issuer

(the ‘‘requesting entity’’) the information

set forth in paragraph (b)(2) of this

section.

(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. The prior entity is required to

disclose promptly to the requesting

entity the creditable coverage

information so requested.

(3) Charge for providing information.

The prior entity furnishing the

information under paragraph (b) of this

section 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)

General. The rules in this paragraph (c)

implement section 2701(c)(4) of the PHS

Act, which permits individuals to

establish 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. If the

accuracy of a certificate is contested or

a certificate is unavailable when needed

by the 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—
16966 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(i) An entity has failed to provide a

certificate within the required time

period;

(ii) The individual has creditable

coverage but an entity may not be

required to provide a certificate of the

coverage under paragraph (a) of this

section;

(iii) The coverage is for a period

before July 1, 1996;

(iv) The individual has an urgent

medical condition that necessitates a

determination before the individual can

deliver a certificate to the plan; or

(v) The individual lost a certificate

that the individual had previously

received and is unable to obtain another

certificate.

(2) Evidence of creditable coverage—

(i) Consideration of evidence. 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 and is entitled to offset all or

a portion of any preexisting condition

exclusion period. A plan or issuer shall

treat the individual as having furnished

a certificate under paragraph (a) of this

section if the individual attests to the

period of creditable coverage, the

individual also presents relevant

corroborating evidence of some

creditable coverage during the period,

and the individual cooperates with the

plan’s or issuer’s efforts to verify the

individual’s coverage. For this purpose,

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 may

establish creditable coverage (and

waiting periods or affiliation periods) in

the absence of a certificate include

explanations of benefit claims (EOB) 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 period or

affiliation period information) may also

be established 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 following example

illustrates the requirements of this

paragraph (c)(2):

Example: (i) Employer 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, Employer

W, and requests a certificate. However, F

(and Employer X’s plan, on F’s behalf) is

unable to obtain a certificate from Employer

W’s plan. F attests that, to the best of F’s

knowledge, F had at least 12 months of

continuous coverage under Employer W’s

plan, and that the coverage ended no earlier

than F’s termination of employment from

Employer 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) In this Example, based solely on these

facts, F has demonstrated creditable coverage

for the 12 months of coverage under

Employer W’s plan in the same manner as if

F had presented a written certificate of

creditable coverage.

(3) Demonstrating categories of

creditable coverage. Procedures similar

to those described in this paragraph (c)

apply in order to determine 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).

(4) 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.

(d) Determination and notification of

creditable coverage—(1) Reasonable

time period. In the event that a group

health plan or health insurance issuer

offering group health insurance

coverage receives information in this

section under paragraph (a)

(certifications), paragraph (b) (disclosure

of information relating to the alternative

method), or paragraph (c) (other

evidence of creditable coverage), the

entity is required, within a reasonable

time period following receipt of the

information, to make a determination

regarding the individual’s period of

creditable coverage and notify the

individual of the determination in

accordance with paragraph (d)(2) of this

section. Whether a determination and

notification regarding an individual’s

creditable coverage is made within a

reasonable time period is determined

based 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

services.

(2) Notification to individual of period

of preexisting condition exclusion. A

plan or issuer seeking to impose a

preexisting condition exclusion is

required to disclose to the individual, in

writing, its determination of any

preexisting condition exclusion period

that applies to the individual, and the

basis for such determination, including

the source and substance of any

information on which the plan or issuer

relied. In addition, the plan or issuer is

required to provide the individual with

a written explanation of any appeal

procedures established by the plan or

issuer, and with a reasonable

opportunity to submit additional

evidence of creditable coverage.

However, nothing in this paragraph (d)

or paragraph (c) of 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—

(i) A notice of the reconsideration is

provided to the individual; and

(ii) Until the final determination is

made, the plan or issuer, for purposes of

approving access to medical services

(such as a pre-surgery authorization),

acts in a manner consistent with the

initial determination.

(3) Examples. The following examples

illustrate this paragraph (d):

Example: (i) Individual F terminates

employment with Employer W and, a month

later, is hired by Employer X. Example 1:

Individual G is hired by Employer Y.

Employer Y’s group health plan imposes a

preexisting condition exclusion for 12

months with respect to new enrollees and

uses the standard method of determining

credible coverage. Employer Y’s plan

determines that G is subject to a 4-month

preexisting condition exclusion, based on a

certificate of creditable coverage that is

provided by G to Employer Y’s plan

indicating 8 months of coverage under G’s

prior group health plan.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16967

(ii) In this Example, Employer Y’s plan

must notify G within a reasonable period of

time following receipt of the certificate that

G is subject to a 4-month preexisting

condition exclusion beginning on G’s

enrollment date in Y’s plan.

Example 2: (i) Same facts as in Example 1,

except that Employer Y’s plan determines

that G has 14 months of creditable coverage

based on G’s certificate indicating 14 months

of creditable coverage under G’s prior plan.

(ii) In this Example, Employer Y’s plan is

not required to notify G that G will not be

subject to a preexisting condition exclusion.

Example 3: (i) Individual H is hired by

Employer Z. Employer Z’s group health plan

imposes a preexisting condition exclusion for

12 months with respect to new enrollees and

uses the standard method of determining

creditable coverage. H develops an urgent

health condition before receiving a certificate

of prior coverage. 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.

(ii) In this Example, Employer Z’s plan

must review the evidence presented by H. In

addition, the plan must make a

determination and notify H regarding any

preexisting condition exclusion period that

applies to H (and the basis of such

determination) within a reasonable time

period following receipt of the evidence that

is consistent with the urgency of H’s health

condition (this determination may be

modified as permitted under paragraph

(d)(2)).

§ 146.117 Special enrollment periods.

(a) Special enrollment for certain

individuals who lose coverage—(1)

General. A group health plan, and a

health insurance issuer offering group

health insurance coverage in connection

with a group health plan, is required to

permit employees and dependents

described in this section in paragraph

(a)(2), (a)(3), or (a)(4) to enroll for

coverage under the terms of the plan if

the conditions in paragraph (a)(5) are

satisfied and the enrollment is requested

within the period described in

paragraph (a)(6). The enrollment is

effective at the time described in

paragraph (a)(7). 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) Special enrollment of an employee

only. An employee is described in this

paragraph (a)(2) if the employee is

eligible, but not enrolled, for coverage

under the terms of the plan and, when

enrollment was previously offered to the

employee under the plan and was

declined by the employee, the employee

was covered under another group health

plan or had other health insurance

coverage.

(3) Special enrollment of dependents

only. A dependent is described in this

paragraph (a)(3) if the dependent is a

dependent of an employee participating

in the plan, the dependent is eligible,

but not enrolled, for coverage under the

terms of the plan, and, when enrollment

was previously offered under the plan

and was declined, the dependent was

covered under another group health

plan or had other health insurance

coverage.

(4) Special enrollment of both

employee and dependent. An employee

and any dependent of the employee are

described in this paragraph (a)(4) if they

are eligible, but not enrolled, for

coverage under the terms of the plan

and, when enrollment was previously

offered to the employee or dependent

under the plan and was declined, the

employee or dependent was covered

under another group health plan or had

other health insurance coverage.

(5) Conditions for special enrollment.

An employee or dependent is eligible to

enroll during a special enrollment

period if each of the following

applicable conditions is met:

(i) When the employee declined

enrollment for the employee or the

dependent, the employee stated in

writing that coverage under another

group health plan or other health

insurance coverage was the reason for

declining enrollment. This paragraph

(a)(5)(i) applies only if—

(A) The plan required such a

statement when the employee declined

enrollment; and

(B) The employee is provided with

notice of the requirement to provide the

statement in paragraph (a)(5)(i) (and the

consequences of the employee’s failure

to provide the statement) at the time the

employee declined enrollment.

(ii) (A) When the employee declined

enrollment for the employee or

dependent under the plan, the employee

or dependent had COBRA continuation

coverage under another plan and

COBRA continuation coverage under

that other plan has since been

exhausted; or

(B) If the other coverage that applied

to the employee or dependent when

enrollment was declined was not under

a COBRA continuation provision, either

the other coverage has been terminated

as a result of loss of eligibility for the

coverage or employer contributions

towards the other coverage have been

terminated. For this purpose, loss of

eligibility for coverage includes a loss of

coverage as a result of legal separation,

divorce, death, termination of

employment, reduction in the number

of hours of employment, and any loss of

eligibility after a period that is measured

by reference to any of the foregoing.

Thus, for example, if an employee’s

coverage ceases following a termination

of employment and the employee is

eligible for but fails to elect COBRA

continuation coverage, this is treated as

a loss of eligibility under this paragraph

(a)(5)(ii)(B). However, loss of eligibility

does not include a loss due to failure of

the individual or the participant 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). In addition, for purposes of this

paragraph (a)(5)(ii)(B), employer

contributions include contributions by

any current or former employer (of the

individual or another person) that was

contributing to coverage for the

individual.

(6) Length of special enrollment

period. The employee is required to

request enrollment (for the employee or

the employee’s dependent, as described

in this section in paragraph (a)(2),

paragraph (a)(3), or paragraph (a)(4)) not

later than 30 days after the exhaustion

of the other coverage described in

paragraph (a)(5)(ii)(A) or termination of

the other coverage as a result of the loss

of eligibility for the other coverage for

items described in paragraph (a)(5)(ii)(B)

or following the termination of

employer contributions toward that

other coverage. The plan may impose

the same requirements that apply to

employees who are otherwise eligible

under the plan to immediately request

enrollment for coverage (for example,

that the request be made in writing).

(7) Effective date of enrollment.

Enrollment is effective not later than the

first day of the first calendar month

beginning after the date the completed

request for enrollment is received.

(b) Special enrollment with respect to

certain dependent beneficiaries—(1)

General. A group health plan that makes

coverage available with respect to

dependents of a participant is required

to provide a special enrollment period

to permit individuals described in this

section in paragraph (b)(2), (b)(3), (b)(4),

(b)(5), or (b)(6) to be enrolled for

coverage under the terms of the plan if

the enrollment is requested within the

time period described in paragraph

(b)(7). The enrollment is effective at the

time described in paragraph (b)(8). 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) Special enrollment of an employee

who is eligible but not enrolled. An

individual is described in this

paragraph (b)(2) if the individual is an

employee who is eligible, but not
16968 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

enrolled, in the plan, the individual

would be a participant but for a prior

election by the individual not to enroll

in the plan during a previous

enrollment period, and a person

becomes a dependent of the individual

through marriage, birth, or adoption or

placement for adoption.

(3) Special enrollment of a spouse of

a participant. An individual is

described in this paragraph (b)(3) if

either—

(i) The individual becomes the spouse

of a participant; or

(ii) The individual is a spouse of the

participant and a child becomes a

dependent of the participant through

birth, adoption, or placement for

adoption.

(4) Special enrollment of an employee

who is eligible but not enrolled and the

spouse of such employee. An employee

who is eligible, but not enrolled, in the

plan, and an individual who is a

dependent of such employee, are

described in this paragraph (b)(4) if the

employee would be a participant but for

a prior election by the employee not to

enroll in the plan during a previous

enrollment period, and either—

(i) The employee and the individual

become married; or

(ii) The employee and individual are

married and a child becomes a

dependent of the employee through

birth, adoption or placement for

adoption.

(5) Special enrollment of a dependent

of a participant. An individual is

described in this paragraph (b)(5) if the

individual is a dependent of a

participant and the individual becomes

a dependent of such participant through

marriage, birth, or adoption or

placement for adoption.

(6) Special enrollment of an employee

who is eligible but not enrolled and a

new dependent. An employee who is

eligible, but not enrolled, in the plan,

and an individual who is a dependent

of the employee, are described in this

paragraph (b)(6) if the employee would

be a participant but for a prior election

by the employee not to enroll in the

plan during a previous enrollment

period, and the dependent becomes a

dependent of the employee through

marriage, birth, or adoption or

placement for adoption.

(7) Length of special enrollment

period. The special enrollment period

under paragraph (b)(1) of this section is

a period of not less than 30 days and

begins on the date of the marriage, birth,

or adoption or placement for adoption

(except that such period does not begin

earlier than the date the plan makes

dependent coverage generally available).

(8) Effective date of enrollment.

Enrollment is effective—

(i) In the case of marriage, not later

than the first day of the first calendar

month beginning after the date the

completed request for enrollment is

received by the plan;

(ii) In the case of a dependent’s birth,

the date of such birth; and

(iii) In the case of a dependent’s

adoption or placement for adoption, the

date of such adoption or placement for

adoption.

(9) Example. The following example

illustrates the requirements of this

paragraph (b):

Example. (i) Employee A is hired on

September 3, 1998 by Employer X, which has

a group health plan in which A can elect to

enroll either for employee-only coverage, for

employee-plus-spouse coverage, or for family

coverage, effective on the first day of any

calendar quarter thereafter. A is married and

has no children. A does not elect to join

Employer X’s plan (for employee-only

coverage, employee-plus-spouse coverage, or

family coverage) on October 1, 1998 or

January 1, 1999. On February 15, 1999, a

child is placed for adoption with A and A’s

spouse.

(ii) In this Example, the conditions for

special enrollment of an employee with a

new dependent under paragraph (b)(2) are

satisfied, the conditions for special

enrollment of an employee and a spouse with

a new dependent under paragraph (b)(4) are

satisfied, and the conditions for special

enrollment of an employee and a new

dependent under paragraph (b)(6) are

satisfied. Accordingly, Employer X’s plan

will satisfy this paragraph (b) if and only if

it allows A to elect, by filing the required

forms by March 16, 1999, to enroll in

Employer X’s plan either with employee-only

coverage, with employee-plus-spouse

coverage, or with family coverage, effective

as of February 15, 1999.

(c) Notice of enrollment rights. On or

before the time an employee is offered

the opportunity to enroll in a group

health plan, the plan is required to

provide the employee with a description

of the plan’s special enrollment rules

under this section. For this purpose, the

plan may use the following model

description of the special enrollment

rules under this section:

If you are declining enrollment for yourself

or your dependents (including your spouse)

because of other health insurance coverage,

you may in the future be able to enroll

yourself or your dependents in this plan,

provided that you request enrollment within

30 days after your other coverage ends. 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,

provided that you request enrollment within

30 days after the marriage, birth, adoption, or

placement for adoption.

(d) Special enrollment date definition.

(1) General rule. A special enrollment

date for an individual means any date

in paragraph (a)(7) or paragraph (b)(8) of

this section on which the individual has

a right to have enrollment in a group

health plan become effective under this

section.

(2) Examples. The following examples

illustrate the requirements of this

paragraph (d):

Example 1: (i) Employer Y maintains a

group health plan that allows employees to

enroll in the plan either (a) effective on the

first day of employment by an election filed

within three days thereafter, (b) effective on

any subsequent January 1 by an election

made during the preceding months of

November or December, or (c) effective as of

any special enrollment date described in this

section. Employee B is hired by Employer Y

on March 15, 1998 and does not elect to

enroll in Employer Y’s plan until January 31,

1999 when B loses coverage under another

plan. B elects to enroll in Employer Y’s plan

effective on February 1, 1999 by filing the

completed request form by January 31, 1999,

in accordance with the special rule set forth

in paragraph (a).

(ii) In this Example, B has enrolled on a

special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7).

Example 2: (i) Same facts as Example 1,

except that B’s loss of coverage under the

other plan occurs on December 31, 1998 and

B elects to enroll in Employer Y’s plan

effective on January 1, 1999 by filing the

completed request form by December 31,

1998, in accordance with the special rule set

forth in paragraph (a).

(ii) In this Example, B has enrolled on a

special enrollment date because the

enrollment is effective at a date described in

paragraph (a)(7) (even though this date is also

a regular enrollment date under the plan).

§ 146.119 HMO affiliation period as

alternative to preexisting condition

exclusion.

(a) 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

requirements in paragraph (b) of this

section is satisfied.

(b) Requirements for affiliation

period. (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 applied uniformly without

regard to any health status-related

factors.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16969

(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.

(6) The affiliation period for

enrollment in the HMO under a plan

runs concurrently with any waiting

period.

(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.

Nothing in this section requires a State

to receive proposals for or approve

alternatives to affiliation periods.

§ 146.121 Prohibiting discrimination

against participants and beneficiaries

based on a health status-related factor.

(a) In eligibility to enroll—(1) General.

Subject to paragraph (a)(2) of this

section, a group health plan, and a

health insurance issuer offering group

health insurance coverage in connection

with a group health plan, may not

establish rules for eligibility (including

continued eligibility) of any individual

to enroll under the terms of the plan

based on any of the following health

status-related factors in relation to the

individual or a dependent of the

individual:

(i) Health status.

(ii) Medical condition (including both

physical and mental illnesses), as

defined in § 146.102.

(iii) Claims experience.

(iv) Receipt of health care.

(v) Medical history.

(vi) Genetic information, as defined in

§ 146.102.

(vii) Evidence of insurability

(including conditions arising out of acts

of domestic violence).

(viii) Disability.

(2) No application to benefits or

exclusions. To the extent consistent

with section 2701 of the Act and

§ 146.111, paragraph (a)(1) of this

section shall not be construed—

(i) To require a group health plan, or

a health insurance issuer offering group

health insurance coverage, to provide

particular benefits other than those

provided under the terms of such plan

or coverage; or

(ii) To prevent such a plan or issuer

from establishing limitations or

restrictions on the amount, level, extent,

or nature of the benefits or coverage for

similarly situated individuals enrolled

in the plan or coverage.

(3) Construction. For purposes of

paragraph (a)(1) of this section, rules for

eligibility to enroll include rules

defining any applicable waiting (or

affiliation) periods for such enrollment

and rules relating to late and special

enrollment.

4. Example. The following example

illustrates the requirements of this

paragraph (a):

Example. (i) An employer sponsors a group

health plan that is available to all employees

who enroll within the first 30 days of their

employment. However, individuals who do

not enroll in the first 30 days cannot enroll

later unless they pass a physical

examination.

(ii) In this Example, the plan discriminates

on the basis of one or more health statusrelated factors.

(b) In premiums or contributions—(1)

General. A group health plan, and a

health insurance issuer offering health

insurance coverage in connection with a

group health plan, may not require an

individual (as a condition of enrollment

or continued enrollment under the plan)

to pay a premium or contribution that

is greater than the premium or

contribution for a similarly situated

individual enrolled in the plan based on

any health status-related factor, in

relation to the individual or a

dependent of the individual.

(2) Construction. Nothing in

paragraph (b)(1) of this section can be

construed—

(i) To restrict the amount that an

employer may be charged by an issuer

for coverage under a group health plan;

or

(ii) To prevent a group health plan,

and a health insurance issuer offering

group health insurance coverage, from

establishing premium discounts or

rebates or modifying otherwise

applicable copayments or deductibles in

return for adherence to a bona fide

wellness program. For purposes of this

section, a bona fide wellness program is

a program of health promotion and

disease prevention.

(3) Example. The following example

illustrates the requirements of this

paragraph (b):

Example. (i) Plan X offers a premium

discount to participants who adhere to a

cholesterol-reduction wellness program.

Enrollees are expected to keep a diary of their

food intake over 6 weeks. They periodically

submit the diary to the plan physician who

responds with suggested diet modifications.

Enrollees are to modify their diets in

accordance with the physician’s

recommendations. At the end of the 6 weeks,

enrollees are given a cholesterol test and

those who achieve a count under 200 receive

a premium discount.

(ii) In this Example, because enrollees who

otherwise comply with the program may be

unable to achieve a cholesterol count under

200 due to a health status-related factor, this

is not a bona fide wellness program and such

discounts would discriminate impermissibly

based on one or more health status-related

factors. However, if, instead, individuals

covered by the plan were entitled to receive

the discount for complying with the diary

and dietary requirements and were not

required to pass a cholesterol test, the

program would be a bona fide wellness

program.

§ 146.125 Effective dates.

(a) General effective dates—(1) Noncollectively-bargained plans. Except as

otherwise provided in this section, part

A of title XXVII of the PHS Act and this

part applies with respect to group health

plans, including health insurance

issuers offering health insurance

coverage in connection with group

health plans, for plan years beginning

after June 30, 1997.

(2) Collectively bargained plans.

Except as otherwise provided in this

section (other than paragraph (a)(1)), in

the case of a group health plan

maintained under one or more

collective bargaining agreements

between employee representatives and

one or more employers ratified before

August 21, 1996, part A of title XXVII

of the PHS Act and this part does not

apply to plan years beginning before the

later of July 1, 1997, or the date on

which the last of the collective

bargaining agreements relating to the

plan terminates (determined without

regard to any extension thereof agreed to

after August 21, 1996). For these

purposes, any plan amendment made

under a collective bargaining agreement

relating to the plan, that amends the

plan solely to conform to any

requirement of such part, is not treated

as a termination of the collective

bargaining agreement.

(3) Preexisting condition exclusion

periods for current employees. (i)

General rule. Any preexisting condition

exclusion period permitted under

§ 146.111 is measured from the

individual’s enrollment date in the plan.

This exclusion period, as limited under

§ 146.111, may be completed before the

effective date of the Health Insurance

Portability and Accountability Act of

1996 (HIPAA) for his or her plan.

Therefore, on the date the individual’s

plan becomes subject to part A of title

XXVII of the PHS Act, no preexisting

condition exclusion may be imposed

with respect to an individual beyond

the limitation in § 146.111. For an

individual who has not completed the

permitted exclusion period under

HIPAA, upon the effective date for his

or her plan, the individual may use

credible coverage that the person had as

of the enrollment date to reduce the

remaining preexisting condition

exclusion period applicable to the

individual.
16970 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(ii) Examples. The following

examples illustrate the requirements of

this paragraph (a)(3):

Example 1: (i) Individual A has been

working for Employer X and has been

covered under Employer X’s plan since

March 1, 1997. Under Employer X’s plan, as

in effect before January 1, 1998, there is no

coverage for any preexisting condition.

Employer X’s plan year begins on January 1,

1998. A’s enrollment date in the plan is

March 1, 1997, and A has no credible

coverage before this date.

(ii) In this Example, Employer X may

continue to impose the preexisting

conditions exclusion under the plan through

February 28, 1998 (the end of the 12-month

period using anniversary dates).

Example 2: (i) Same facts as in Example 1,

except that A’s enrollment date was August

1, 1996, instead of March 1, 1997.

(ii) In this Example, on January 1, 1998,

Employer X’s plan may no longer exclude

treatment for any preexisting condition that

A may have, however, because Employer X’s

plan is not subject to HIPAA until January 1,

1998, A is not entitled to claim

reimbursement for expenses under the plan

for treatments for any preexisting condition

received before January 1, 1998.

(b) Effective date for certification

requirement—(1) General. Subject to the

transitional rule in § 146.115(a)(5)(iii),

the certification rules of § 146.115 apply

to events occurring on or after July 1,

1996.

(2) Period covered by certificate. A

certificate is not required to reflect

coverage before July 1, 1996.

(3) No certificate before June 1, 1997.

Notwithstanding any other provision of

this part, in no case is a certificate

required to be provided before June 1,

1997.

(c) Limitation on actions. No

enforcement action is taken, under,

against a group health plan or health

insurance issuer with respect to a

violation of a requirement imposed by

part A of title XXVII of the PHS Act

before January 1, 1998, if the plan or

issuer has sought to comply in good

faith with such requirements.

Compliance with this part is deemed to

be good faith compliance with the

requirements of part A of title XXVII of

the PHS Act.

(d) Transition rules for counting

creditable coverage. An individual who

seeks to establish creditable coverage for

periods before July 1, 1996 is entitled to

establish such coverage through the

presentation of documents or other

means in accordance with the

provisions of § 146.115(c). For coverage

relating to an event occurring before

July 1, 1996, a group health plan and a

health insurance issuer is not subject to

any penalty or enforcement action with

respect to the plan’s or issuer’s counting

(or not counting) such coverage if the

plan or issuer has sought to comply in

good faith with the applicable

requirements under § 146.115(c).

(e) Transition rules for certification of

creditable coverage—(1) Certificates

only upon request. For events occurring

on or after July 1, 1996 but before

October 1, 1996, a certificate is required

to be provided only upon a written

request by or on behalf of the individual

to whom the certificate applies.

(2) Certificates before June 1, 1997.

For events occurring on or after October

1, 1996 and before June 1, 1997, a

certificate must be furnished no later

than June 1, 1997, or any later date

permitted under § 146.115(a)(2) (ii) and

(iii).

(3) Optional notice—(i) General. This

paragraph (e)(3) applies with respect to

events described in § 146.115(a)(5)(ii),

that occur on or after October 1, 1996

but before June 1, 1997. A group health

plan or health insurance issuer offering

group health coverage is deemed to

satisfy §§ 146.115 (a)(2) and (a)(3) if a

notice is provided in accordance with

the provisions of paragraphs (e)(3)(i)

through (e)(3)(iv) of this section.

(ii) Time of notice. The notice must be

provided no later than June 1, 1997.

(iii) Form and content of notice. A

notice provided under this paragraph

(e)(3) must be in writing and must

include information substantially

similar to the information included in a

model notice authorized by HCFA.

Copies of the model notice are available

at the following website—www.hcfa.gov

(or call (410) 786–1565).

(iv) Providing certificate after request.

If an individual requests a certificate

following receipt of the notice, the

certificate must be provided at the time

of the request as set forth in

§ 146.115(a)(5)(iii).

(v) Other certification rules apply.

The rules set forth in § 146.115(a)(4)(i)

(method of delivery) and (a)(1) (entities

required to provide a certificate) apply

with respect to the provision of the

notice.

Subpart C—[Reserved]

Subpart D—Preemption and Special

Rules

§ 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 part A

of title XXVII of the PHS Act.

(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 ERISA with respect to

group health plans.

(c) Special rules—(1) 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

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 2701(a)(1) of the PHS Act and

§ 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 in that section;

(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 701(g)(1)(B).
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16971

(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, the

Northern Mariana Islands, any political

subdivisions of a State or such Islands,

or any agency or instrumentality of

either.

§ 146.145 Special rules relating to group

health plans.

(a) General exception for certain small

group health plans. The requirements of

this part do not apply to any group

health plan (and group health insurance

coverage offered in connection with a

group health plan) for any plan year if,

on the first day of the plan year, the

plan has fewer than 2 participants who

are current employees.

(b) Excepted benefits—(1) General.

The requirements of subpart B of this

part do not apply to any group health

plan (or any group health insurance

coverage offered in connection with a

group health plan) in relation to its

provision of the benefits described in

paragraph (b)(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 insurance.

(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

insurance.

(vi) Automobile medical payment

insurance.

(vii) Credit-only insurance (for

example, mortgage insurance).

(viii) Coverage for on-site medical

clinics.

(3) Limited excepted benefits—(1)

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 the

plan, as defined in paragraph (b)(3)(ii) of

this section.

(ii) Integral. For purposes of

paragraph (b)(3)(i) of this section,

benefits are deemed to be an integral

part of a plan unless a participant has

the right to elect not to receive coverage

for the benefits and, if the participant

elects to receive coverage for the

benefits, the participant pays an

additional premium or contribution for

that coverage.

(iii) Limited scope. Limited scope

dental or vision benefits are dental or

vision benefits that are sold under a

separate policy or rider and that are

limited in scope to a narrow range or

type of benefits that are generally

excluded from hospital/medical/

surgical benefits packages.

(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

insurance 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.

(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 dollar

indemnity insurance (for example,

$100/day) is expected only if it meets

each of the conditions specified in

paragraph (b)(4)(ii) of this section.

(ii) Conditions. Benefits are described

in paragraph (b)(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.

(5) Supplemental benefits. The

following benefits are excepted only if

they are provided under a separate

policy, certificate, or contract of

insurance:

(i) Medicare supplemental health

insurance (as defined under section

1882(g)(1) of the Social Security Act;

also known as Medigap or MedSupp

insurance),

(ii) Coverage supplemental to the

coverage provided under Chapter 55,

Title 10 of the United States Code (also

known as CHAMPUS supplemental

programs), and

(iii) Similar supplemental coverage

provided to coverage under a group

health plan.

Subpart E—Provisions Applicable to

Only Health Insurance Issuers

§ 146.150 Guaranteed availability of

coverage for employers in the small group

market.

(a) Issuance of coverage in the small

group market. Subject to paragraphs (c)

through (f) of this section, each health

insurance issuer that offers health

insurance coverage in the small group

market in a State must—

(1) Offer, to any small employer in the

State, all products that are approved for

sale in the small group market and that

the issuer is actively marketing, and

must accept any employer that applies

for any of those products; and

(2) Accept for enrollment under the

coverage every eligible individual (as

defined in paragraph (b) of this section)

who applies for enrollment during the

period in which the individual first

becomes eligible to enroll under the

terms of the group health plan, or

during a special enrollment period, and

may not impose any restriction on an

eligible individual, which is

inconsistent with the nondiscrimination

provisions of § 146.121 on an eligible

individual being a participant or

beneficiary.

(b) Eligible individual defined. For

purposes of this section, the term

‘‘eligible individual’’ means an

individual who is eligible—

(1) To enroll in group health

insurance coverage offered to a group

health plan maintained by a small

employer, in accordance with the terms

of the group health plan;

(2) For coverage under the rules of the

health insurance issuer which are

uniformly applicable in the State to

small employers in the small group

market, and

(3) For coverage in accordance with

all applicable State laws governing the

issuer and the small group market.

(c) Special rules for network plans. (1)

In the case of a health insurance issuer

that offers health insurance coverage in

the small group market through a

network plan, the issuer may—

(i) Limit the employers that may

apply for the coverage to those with

eligible individuals who live, work, or

reside in the service area for the

network plan; and

(ii) Within the service area of the

plan, deny coverage to employers if the

issuer has demonstrated to the

applicable State authority (if required by

the State authority) that—
16972 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(A) It will not have the capacity to

deliver services adequately to enrollees

of any additional groups because of its

obligations to existing group contract

holders and enrollees; and

(B) It is applying this paragraph (c)(1)

uniformly to all employers without

regard to the claims experience of those

employers and their employees (and

their dependents) or any health statusrelated factor relating to those

employees and dependents.

(2) An issuer that denies health

insurance coverage to an employer in

any service area in accordance with

paragraph (c)(1)(ii) of this section, may

not offer coverage in the small group

market within the service area to any

employer for a period of 180 days after

the date the coverage is denied. This

paragraph (c)(2) does not limit the

issuer’s ability to renew coverage

already in force or relieve the issuer of

the responsibility to renew that

coverage.

(3) Coverage offered within a service

area after the 180-day period specified

in paragraph (c)(2) of this section is

subject to the requirements of this

section.

(d) Application of financial capacity

limits. (1) A health insurance issuer may

deny health insurance coverage in the

small group market if the issuer has

demonstrated to the applicable State

authority (if required by the State

authority) that it—

(i) Does not have the financial

reserves necessary to underwrite

additional coverage; and

(ii) Is applying this paragraph (d)(1)

uniformly to all employers in the small

group market in the State consistent

with applicable State law and without

regard to the claims experience of those

employers and their employees (and

their dependents) or any health statusrelated factor relating to those

employees and dependents.

(2) An issuer that denies group health

insurance coverage to any small

employer in a State in accordance with

paragraph (d)(1) of this section may not

offer coverage in connection with group

health plans in the small group market

in the State for a period of 180 days after

the later of the date—

(i) The coverage is denied; or

(ii) The issuer demonstrates to the

applicable State authority, if required

under applicable State law, that the

issuer has sufficient financial reserves to

under write additional coverage.

(3) Paragraph (d)(2) of this section

does not limit the issuer’s ability to

renew coverage already in force or

relieve the issuer of the responsibility to

renew that coverage.

(4) Coverage offered after the 180-day

period specified in paragraph (d)(2) of

this section, is subject to the

requirements of this section.

(5) An applicable State authority may

provide for the application of this

paragraph (d) of this section on a

service-area-specific basis.

(e) Exception to requirement for

failure to meet certain minimum

participation or contribution rules.

(1) Paragraph (a) of this section does

not preclude a health insurance issuer

from establishing employer contribution

rules or group participation rules for the

offering of health insurance coverage in

connection with a group health plan in

the small group market, as allowed

under applicable State law.

(2) For purposes of paragraph (e)(1) of

this section—

(i) The term ‘‘employer contribution

rule’’ means a requirement relating to

the minimum level or amount of

employer contribution toward the

premium for enrollment of participants

and beneficiaries; and

(ii) The term ‘‘group participation

rule’’ means a requirement relating to

the minimum number of participants or

beneficiaries that must be enrolled in

relation to a specified percentage or

number of eligible individuals or

employees of an employer.

(f) Exception for coverage offered only

to bona fide association members.

Paragraph (a) of this section does not

apply to health insurance coverage

offered by a health insurance issuer if

that coverage is made available in the

small group market only through one or

more bona fide associations (as defined

in 45 CFR 144.103).

§ 146.152 Guaranteed renewability of

coverage for employers in the group

market.

(a) General rule. Subject to paragraphs

(b) through (d) of this section, a health

insurance issuer offering health

insurance coverage in the small or large

group market is required to renew or

continue in force the coverage at the

option of the plan sponsor.

(b) Exceptions. An issuer may

nonrenew or discontinue group health

insurance coverage offered in the small

or large group market based only on one

or more of the following:

(1) Nonpayment of premiums. The

plan sponsor as failed to pay premiums

or contributions in accordance with the

terms of the health insurance coverage,

including any timeliness requirements.

(2) Fraud. The plan sponsor has

performed an act or practice that

constitutes fraud or made an intentional

misrepresentation of material fact in

connection with the coverage.

(3) Violation of participation or

contribution rules. The plan sponsor has

failed to comply with a material plan

provision relating to any employer

contribution or group participation rules

permitted under § 146.150(e) in the case

of the small group market or under

applicable State law in the case of the

large group market.

(4) Termination of plan. The issuer is

ceasing to offer coverage in the market

in accordance with paragraphs (c) and

(d) of this section and applicable State

law.

(5) Enrollees’ movement outside

service area. For network plans, there is

no longer any enrollee under the group

health plan who lives, resides, or works

in the service area of the issuer (or in

the area for which the issuer is

authorized to do business); and in the

case of the small group market, the

issuer applies the same criteria it would

apply in denying enrollment in the plan

under § 146.150(c).

(6) Association membership ceases.

For coverage made available in the

small or large group market only

through one or more bona fide

associations, if the employer’s

membership in the association ceases,

but only if the coverage is terminated

uniformly without regard to any health

status-related factor relating to any

covered individual.

(c) Discontinuing a particular

product. In any case in which an issuer

decides to discontinue offering a

particular product offered in the small

or large group market, that product may

be discontinued by the issuer in

accordance with applicable State law in

the particular market only if—

(1) The issuer provides notice in

writing to each plan sponsor provided

that particular product in that market

(and to all participants and beneficiaries

covered under such coverage) of the

discontinuation at least 90 days before

the date the coverage will be

discontinued;

(2) The issuer offers to each plan

sponsor provided that particular

product the option, on a guaranteed

issue basis, to purchase all (or, in the

case of the large group market, any)

other health insurance coverage

currently being offered by the issuer to

a group health plan in that market; and

(3) In exercising the option to

discontinue that product and in offering

the option of coverage under paragraph

(c)(2) of this section, the issuer acts

uniformly without regard to the claims

experience of those sponsors or any

health status-related factor relating to

any participants or beneficiaries covered

or new participants or beneficiaries who

may become eligible for such coverage.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16973

(d) Discontinuing all coverage. An

issuer may elect to discontinue offering

all health insurance coverage in the

small or large group market or both

markets in a State in accordance with

applicable State law only if—

(1) The issuer provides notice in

writing to the applicable State authority

and to each plan sponsor (and all

participants and beneficiaries covered

under the coverage) of the

discontinuation at least 180 days prior

to the date the coverage will be

discontinued; and

(2) All health insurance policies

issued or delivered for issuance in the

State in the market (or markets) are

discontinued and not renewed.

(e) Prohibition on market reentry. An

issuer who elects to discontinue offering

all health insurance coverage in a

market (or markets) in a State as

described in paragraph (d) of this

section may not issue coverage in the

market (or markets) and State involved

during the 5-year period beginning on

the date of discontinuation of the last

coverage not renewed.

(f) Exception for uniform modification

of coverage. Only at the time of coverage

renewal may issuers modify the health

insurance coverage for a product offered

to a group health plan in the—

(1) Large group market; and

(2) Small group market if, for coverage

available in this market (other than only

through one or more bona fide

associations), the modification is

consistent with State law and is

effective uniformly among group health

plans with that product.

(g) Application to coverage offered

only through associations. In the case of

health insurance coverage that is made

available by a health insurance issuer in

the small or large group market to

employers only through one or more

associations, the reference to ‘‘plan

sponsor’’ is deemed, with respect to

coverage provided to an employer

member of the association, to include a

reference to such employer.

§ 146.160 Disclosure of information.

(a) General rule. In connection with

the offering of any health insurance

coverage to a small employer, a health

insurance issuer is required to—

(1) Make a reasonable disclosure to

the employer, as part of its solicitation

and sales materials, of the availability of

information described in paragraph (b)

of this section; and

(2) Upon request of the employer,

provide that information to the

employer.

(b) Information described. Subject to

paragraph (d) of this section,

information that must be provided

under paragraph (a)(2) of this section is

information concerning the following:

(1) Provisions of coverage relating to

the following:

(i) The issuer’s right to change

premium rates and the factors that may

affect changes in premium rates.

(ii) Renewability of coverage.

(iii) Any preexisting condition

exclusion, including use of the

alternative method of counting

creditable coverage.

(iv) Any affiliation periods applied by

HMOs.

(v) The geographic areas served by

HMOs.

(2) The benefits and premiums

available under all health insurance

coverage for which the employer is

qualified, under applicable State law.

See § 146.150(b) through (f) for

allowable limitations on product

availability.

(c) Form of information. The

information must be described in

language that is understandable by the

average small employer, with a level of

detail that is sufficient to reasonably

inform small employers of their rights

and obligations under the health

insurance coverage. This requirement is

satisfied if the issuer provides each of

the following with respect to each

product offered:

(1) An outline of coverage. For

purposes of this section, outline of

coverage means a description of benefits

in summary form.

(2) The rate or rating schedule that

applies to the product (with and

without the preexisting condition

exclusion or affiliation period).

(3) The minimum employer

contribution and group participation

rules that apply to any particular type

of coverage.

(4) In the case of a network plan, a

map or listing of counties served.

(5) Any other information required by

the State.

(d) Exception. An issuer is not

required to disclose any information

that is proprietary and trade secret

information under applicable law.

Subpart F—Exclusion of Plans and

Enforcement

§ 146.180 Treatment on non-Federal

governmental plans.

The plan sponsor of a non-Federal

governmental plan may elect to be

exempted from any or all of the

requirements identified in paragraph (a)

of this section with respect to any

portion of its plan that is not provided

through health insurance coverage, if

the election complies with the

requirements of paragraphs (b) and (c) of

this section. The election remains in

effect for the period described in

paragraph (d) of this section.

(a) Exemption from requirements. The

election described in this paragraph (a)

exempts a non-Federal governmental

plan from the following requirements:

(1) Limitations on preexisting

condition exclusion periods (§ 146.111).

(2) Special enrollment periods for

individuals (and dependents) losing

other coverage (§ 146.117).

(3) Prohibitions against discriminating

against individual participants and

beneficiaries based on health status

(§ 146.121).

(4) Standards relating to benefits for

mothers and newborns (section 2704 of

the PHS Act).

(5) Parity in the application of certain

limits to mental health benefits (section

2705 of the PHS Act).

(b) Form and manner of election. (1)

The election must be in writing.

(2) The election document must

include as an attachment a copy of the

notice described in paragraphs (f) and

(g) of this section.

(3) The election document must state

the name of the plan and the name and

address of the plan administrator.

(4) The election document must either

state that the plan does not include

health insurance coverage, or identify

which portion of the plan is not funded

through insurance.

(5) The election must be made in

conformity with all the plan sponsor’s

rules, including any public hearing, if

required, and the election document

must certify that the person signing the

election document, including if

applicable a third party plan

administrator, is legally authorized to

do so by the plan sponsor.

(6) The election document must be

signed by the person described in

paragraph (b)(5) of this section.

(c) Timing of election. (1) For plans

not subject to collective bargaining

agreements, the election must be

received by HCFA by the day preceding

the beginning date of the plan year.

(2) For plans provided under a

collective bargaining agreement, the

election must be received by HCFA no

later than 30 days after—

(i) The date of the agreement between

the governmental entity and union

officials; or

(ii) If applicable, ratification of the

agreement.

(3) HCFA may extend the deadlines

specified under paragraphs (c)(1) and

(c)(2) of this section for good cause.

(4) If the plan sponsor fails to file a

timely election in accordance with

paragraphs (c)(1) through (c)(3) of this

section, the plan is subject to the
16974 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

requirements described in paragraph (a)

for the entire plan year, or, in the case

of a plan provided under a collective

bargaining agreement, for the term of the

agreement.

(d) Period of election. An election

under paragraph (a) of this section

applies—

(1) For a single specified plan year; or

(2) In the case of a plan provided

under a collective bargaining agreement,

for the term of the agreement. (For

purposes of this section, if a collective

bargaining agreement expires during the

bargaining process for a new agreement,

and the parties agree that the prior

bargaining agreement continues in effect

until the new agreement takes effect, the

‘‘term of the agreement’’ is deemed to

continue until the new agreement takes

effect.)

(e) Subsequent elections. An election

under this section may be extended

through subsequent elections.

(f) Notice to participants. (1) A plan

that makes the election described in this

section notifies the participant of the

election, and explains the consequences

of the election. This notice must be

provided—

(i) to each participant at the time of

enrollment under the plan; and

(ii) To all participants on an annual

basis.

(2) The notice shall be in writing, and

must include the information specified

in paragraph (g) of this section.

(3) The notice shall be provided to

each participant individually.

(4) Subject to paragraph (g) of this

section, the requirements of paragraphs

(f)(1) through (f)(3) of this section are

considered to have been met if the

notice is prominently printed in the

summary plan document, or equivalent

document, and each participant receives

a copy of that document at the time of

enrollment and annually thereafter.

(g) Notice content. The notice must

contain at least the following

information:

(1) A statement that, in general,

Federal law imposes upon group health

plans the requirements described in

paragraph (a) of this section (which

must be individually described in the

notice).

(2) A statement that Federal law gives

the plan sponsor of a non-Federal

governmental plan the right to exempt

the plan in whole or in part from the

requirements described in paragraph (a)

of this section, and that the plan

sponsor has elected to do so.

(3) A statement identifying which

parts of the plan are subject to the

election, and each of the requirements

of paragraph (a) of this section from

which the plan sponsor has elected to

be exempted.

(4) If the plan chooses to provide any

of the protections of paragraph (a) of

this section voluntarily, or is required to

under State law, a statement identifying

which protections apply.

(h) Certification and disclosure of

creditable coverage. Notwithstanding an

election under this section, a nonFederal governmental plan must

provide for certification and disclosure

of creditable coverage under the plan

with respect to participants and their

dependents in accordance with

§ 146.115.

(i) Effect of failure to comply with

election requirements. (1) Subject to

paragraph (i)(2) of this section, a plan’s

failure to comply with the requirements

of paragraphs (f) through (h) of this

section invalidates an election made

under this section.

(2) Upon a finding by HCFA that a

non-Federal governmental plan has

failed to comply with the requirements

of paragraphs (f) through (h), and has

failed to correct the noncompliance

within 30 days (as provided in

§ 146.184(d) (7)(iii)(B)), HCFA notifies

the plan that its election has been

invalidated and that it is subject to the

requirements of this part.

(3) A non-Federal governmental plan

described in paragraph (i)(2) of this

section that fails to comply with the

requirements of this part is subject to

Federal enforcement by HCFA under

§ 146.184, including appropriate civil

money penalties.

§ 146.184 Enforcement.

(a) Enforcement with respect to group

health plans—(1) Scope. In general, the

requirements of the Health Insurance

Portability and Accountability Act that

apply to group health plans are

contained in part 7 of subtitle B of title

I of ERISA, and in subtitle K of the

Internal Revenue Code. They are

enforced by the Secretary of Labor

under part 5 of subtitle B of title I of

ERISA, and the Secretary of the

Treasury under 26 U.S.C. 4980D.

However, the provisions that apply to

group health plans that are non-Federal

governmental plans are contained in

title XXVII of the PHS Act, and enforced

by HCFA. The provisions of title XXVII

that apply to health insurance issuers

that offer coverage in connection with

any group health plan are enforced in

the first instance by the States. If HCFA

determines under paragraph (b) of this

section that a State is not substantially

enforcing the provisions, HCFA enforces

them under paragraph (d) of this

section.

(2) Non-Federal governmental plans.

Requirements of this part that apply to

group health plans that are non-Federal

governmental plans (sponsored by a

State or local governmental entity) are

enforced by HCFA, as provided in

paragraph (d) of this section.

(b) Enforcement with respect to health

insurance issuers—(1) General rule—

enforcement by State. Except as

provided in paragraph (b)(2) of this

section, each State enforces the

requirements of this part with respect to

health insurance issuers that issue, sell,

renew or offer health insurance coverage

in the small or large group markets in

the State.

(2) Enforcement by HCFA. HCFA

enforces the provisions of this part with

respect to health insurance issuers,

using the procedures described in

paragraph (d) of this section, only in the

following circumstances:

(i) State election. If the State chooses

not to enforce the Federal requirements.

(ii) State failure to enforce. If HCFA

makes a determination under paragraph

(c) of this section that a State has failed

to substantially enforce one or more

provisions of this part.

(c) Determination by Administrator. if

HCFA receives information, through a

complaint or any other means, that

raises a question whether a State is

substantially enforcing one or more

provisions of this part, HCFA follows

the procedures set forth in this section.

(1) Verification of exhaustion. HCFA

makes a threshold determination of

whether the individuals affected by the

alleged failure to enforce have made a

reasonable effort to exhaust any State

remedies. This may involve informal

contact with State officials about the

questions raised.

(2) Notice to the State. If HCFA is

satisfied that there is a reasonable

question whether there has been a

failure to substantially enforce, HCFA

provides notice as specified in

paragraph (c)(3) of this section, to the

following State officials:

(i) The Governor or chief executive

officer of the State.

(ii) The insurance commissioner or

chief insurance regulatory official.

(iii) The official responsible for

regulating HMOs, if different than

paragraph (c)(2)(ii) of this section, but

only if the alleged failure involves

HMOs.

(3) Form and content of notice. The

notice described in paragraph (c)(2) is in

writing, and does the following:

(i) Identifies the provision or

provisions of the statute and regulations

that have allegedly been violated;

(ii) Describes the facts of the specific

violations.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16975

(iii) Explains that the consequence of

a failure to substantially enforce any

provisions(s) is that HCFA enforces the

provision(s) in accordance with

paragraph (d) of this section.

(iv) Advises the State that it has 45

days to respond to the notice, unless the

time is extended as described in

paragraph (c)(3) of this section, and that

the response should include any

information that the State wishes HCFA

to consider in making the preliminary

determination described in paragraph

(c)(5) of this section.

(4) Good cause. The time for

responding can be extended for good

cause. Examples of good cause include

an agreement between HCFA and the

State that there should be a public

hearing on the State’s enforcement, or

evidence that the State is undertaking

expedited enforcement activities.

(5) Preliminary determination. If at

the end of the 45-day period, and any

extension, the State has not established

to HCFA’s satisfaction that it is

substantially enforcing the provision or

provisions described in the notice,

HCFA takes the following actions:

(i) Consults with the officials

described in paragraph (c)(1) of this

section.

(ii) Notifies the State of HCFA’s

preliminary determination that the State

has failed to enforce the provisions, and

that the failure is continuing.

(iii) Permits the State a reasonable

opportunity to show evidence of

substantial enforcement.

(6) Final determination. If, after

providing notice and the opportunity to

enforce under paragraph (c)(5) of this

section, HCFA finds that the failure to

enforce has not been corrected, HCFA

sends the State a written notice of that

final determination. The notice—

(i) Identifies the provisions with

respect to which HCFA is taking over

enforcement;

(ii) States the effective date of HCFA’s

enforcement;

(iii) Informs the State of the

mechanism for establishing in the future

that it has corrected the failure, and has

begun enforcement. This mechanism

will include transition procedures for

ending HCFA’s enforcement.

(d) Civil money penalties—(1) General

rule. If any health insurance issuer that

is subject to HCFA’s enforcement

authority under paragraph (b)(2) of this

section, or any non-Federal

governmental plan (or employer that

sponsors a non-Federal governmental

plan) that is subject to HCFA’s

enforcement authority under paragraph

(a)(2) of this section, fails to comply

with any applicable requirement of this

part, if may be subject to a civil money

penalty as described in this paragraph

(d).

(2) Complaint. Any person who is

entitled to any right under this part, and

who believes that the right is being

denied as a result of any failure

described in paragraph (d)(1) of this

section, may file a complaint with

HCFA. Based on the complaint, HCFA

identifies which entities are potentially

responsible for the violation, in

accordance with paragraph (d)(3) of this

section.

(3) Determination of responsible

entity. If a failure to comply is

established under this section, the

responsible entity, as determined under

this paragraph, is liable for the penalty.

If the violation is due to a failure by—

(i) A health insurance issuer, the

issuer is the responsible entity;

(ii) A group health plan that is a nonFederal governmental plan sponsored

by a single employer, the employer is

the responsible entity;

(iii) A group health plan that is a nonFederal governmental plan sponsored

by two or more employers, the plan is

the responsible entity.

(4) Notice to responsible entities.

HCFA provides notice to the

appropriate entity or entities identified

under paragraph (d)(3) of this section

that a complaint or other information

has been received alleging a violation of

this part. The notice—

(i) Describes the substance of any

complaint or other allegation;

(ii) Provides 30 days for the

responsible entity or entities to respond

with additional information. This can

include—

(A) Information refuting that there has

been a violation;

(B) Evidence that the entity did not

know, and exercising due diligence

could not have known, of the violation;

(C) Evidence of a previous record of

compliance.

(5) Notice to other regulators. HCFA

notifies the State if the alleged violation

involves a health insurance issuer under

its jurisdiction.

(6) Notice of assessment. If, based on

the information provided in the

complaint, as well as any information

submitted by the entity or any other

parties, HCFA proposes to assess a civil

money penalty, HCFA sends written

notice of assessment to the responsible

entity or entities by certified mail,

return receipt requested. The notice

contains the following information:

(i) A reference to the provision that

was violated.

(ii) The name or names of the

individuals with respect to whom a

violation occurred, with relevant

identification numbers.

(iii) The facts that support the finding

of a violation, and the initial date of the

violation.

(iv) The amount of the proposed

penalty as of the date of the notice.

(v) The basis for calculating the

penalty, including consideration of

prior compliance.

(vi) Instructions for responding to the

notice, including—

(A) A specific statement of the

respondent’s right to a hearing; and

(B) A statement that failure to request

a hearing within 30 days permits the

imposition of the proposed penalty,

without right of appeal.

(7) Amount of penalty—(i) Maximum

daily penalty. The penalty cannot

exceed $100 for each day, for each

responsible entity, for each individual

with respect to whom such a failure

occurs.

(ii) Standard for calculating daily

penalty. In calculating the amount of the

penalty HCFA takes into account the

responsible entity’s previous record of

compliance and the gravity of the

violation.

(iii) Limitations on penalties. No civil

money penalty is imposed:

(A) With respect to a period during

which a failure existed, but none of the

responsible entities knew, or exercising

reasonable diligence would have

known, that the failure existed.

(B) With respect to the period

occurring immediately after the period

described in paragraph (d)(7)(iii)(A) of

this section, if the failure—

(1) Was due to reasonable cause and

was not due to willful neglect; and

(2) Was corrected within 30 days of

the first day that any of the entities

against whom the penalty would be

imposed knew, or exercising reasonable

diligence would have known, that the

failure existed.

(C) The burden is on the responsible

entity or entities to establish to the

satisfaction of HCFA that none of the

entities knew, or exercising reasonable

diligence could have known that the

failure existed.

(8) Hearings—(i) Right to a hearing.

Any entity against which a penalty is

assessed may request a hearing by

HCFA. The request must be in writing,

and must be postmarked within 30 days

after the date the notice of assessment

is issued.

(ii) Failure to request a hearing. If no

hearing is requested under this

paragraph, the notice of assessment

constitutes a final order that is not

subject to appeal.

(iii) Parties to the hearing. Parties to

the hearing include any responsible

entities, as well as the party who filed

the complaint. An informational notice
16976 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

is also sent to the State, or to the

Secretaries of Labor and the Treasury, as

appropriate.

(iv) Initial agency decision. The initial

agency decision is made by an

administrative law judge. The decision

is made on the record according to

section 554 of title 5, United States

Code. The decision becomes a final,

appealable order after 30 days, unless it

is modified in accordance with

paragraph (d)(8)(v) of this section.

(v) Review by HCFA. HCFA may

modify or vacate the initial agency

decision. Notice of intent to modify or

vacate the decision is issued to the

parties within 30 days after the date of

the decision of the administrative law

judge.

(9) Judicial review—(i) Filing of action

for review. Any entity against whom a

final order imposing a civil money

penalty is entered in accordance with

paragraph (d)(8) of this section may

obtain review in the United States

District Court for any district in which

the entity is located or the United States

District Court for the District of

Columbia by—

(A) Filing a notice of appeal in that

court within 30 days from the date of a

final order; and

(B) Simultaneously sending a copy of

the notice of appeal by registered mail

to HCFA.

(ii) Certification of administrative

record. HCFA will promptly certify and

file with the court the record upon

which the penalty was imposed.

(iii) Standard of review. The findings

of HCFA may not be set aside unless

they are found to be unsupported by

substantial evidence, as provided by

Section 706(2) (E) of title 5, United

States Code.

(iv) Appeal. Any final decision, order

or judgement of the district court

concerning the Administrator’s review

is subject to appeal as provided in

Chapter 83 of Title 28, United States

Code.

(10) Failure to pay assessment,

maintenance of action—(i) Failure to

pay assessment. If any entity fails to pay

an assessment after it becomes a final

order under paragraphs (d)(7)(i)(A) or

(d)(7)(iii) of this section, or after the

court has entered final judgment in

favor of HCFA, HCFA refers the matter

to the Attorney General, who brings an

action in the appropriate United States

district court to recover the amount

assessed.

(ii) Final order not subject to review.

In an action brought under paragraph

(d)(10)(i) of this section, the validity and

appropriateness of the final order

described in paragraphs (d)(7)(i)(A) or

(d)(7)(iii) of this section is not subject to

review.

(11) Use of penalty funds. (i) Any

funds collected under this section will

be paid to HCFA or other office

imposing the penalty.

(ii) The funds will be available

without appropriation and until

expended.

(iii) The funds may only be used for

the purpose of enforcing the provisions

with respect to which the penalty was

imposed.

PARTS 147—199 [RESERVED]

Authority: Secs. 2701 through 2723, 2791,

and 2792 of the PHS Act, 42 U.S.C. 300gg–

41 through 300gg–63, 300gg–91, and 300gg–

92.

Dated: March 25, 1997.

Bruce C. Vladeck,

Administrator, Health Care Financing

Administration.

Dated: March 25, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 97–8275 Filed 4–1–97; 12:42 pm]

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