Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16985

5. Section 2520.104b–3 is amended by

revising the second sentence of

paragraph (a), redesignating paragraphs

(d) and (e) as paragraphs (f) and (g),

respectively, and adding new

paragraphs (d) and (e) to read as follows:

§ 2520.104b–3 Summary of material

modifications to the plan and changes in

the information required to be included in

the summary plan description.

(a) * * * Except as provided in

paragraph (d) of this section, the plan

administrator shall furnish this

summary, written in a manner

calculated to be understood by the

average plan participant, not later than

210 days after the close of the plan year

in which the modification or change

was adopted. * * *

* * * * *

(d) Special rule for group health

plans. (1) General. Except as provided

in paragraph (d)(2) of this section, the

administrator of a group health plan, as

defined in section 733(a)(1) of the Act,

shall furnish to each participant covered

under the plan and each beneficiary

receiving benefits under the plan a

summary, written in a manner

calculated to be understood by the

average plan participant, of any

modification to the plan or change in

the information required to be included

in the summary plan description, within

the meaning of paragraph (a) of this

section, that is a material reduction in

covered services or benefits not later

than 60 days after the date of adoption

of the modification or change.

(2) 90-day alternative rule. The

administrator of a group health plan

shall not be required to furnish a

summary of any material reduction in

covered services or benefits within the

60-day period described in paragraph

(d)(1) of this section to any participant

covered under the plan or any

beneficiary receiving benefits who

would reasonably be expected to be

furnished such summary in connection

with a system of communication

maintained by the plan sponsor or

administrator, with respect to which

plan participants and beneficiaries are

provided information concerning their

plan, including modifications and

changes thereto, at regular intervals of

not more than 90 days and such

communication otherwise meets the

disclosure requirements of 29 CFR

2520.104b–1.

(3) ‘‘Material reduction’’. (i) For

purposes of this paragraph (d), a

‘‘material reduction in covered services

or benefits’’ means any modification to

the plan or change in the information

required to be included in the summary

plan description that, independently or

in conjunction with other

contemporaneous modifications or

changes, would be considered by the

average plan participant to be an

important reduction in covered services

or benefits under the plan.

(ii) A ‘‘reduction in covered services

or benefits’’ generally would include

any plan modification or change that:

eliminates benefits payable under the

plan; reduces benefits payable under the

plan, including a reduction that occurs

as a result of a change in formulas,

methodologies or schedules that serve

as the basis for making benefit

determinations; increases deductibles,

co-payments, or other amounts to be

paid by a participant or beneficiary;

reduces the service area covered by a

health maintenance organization;

establishes new conditions or

requirements (e.g., preauthorization

requirements) to obtaining services or

benefits under the plan.

(e) Applicability date. Paragraph (d) of

this section is applicable as of the first

day of the first plan year beginning after

June 30, 1997.

* * * * *

6. Section 2520.104b–1 is amended by

redesignating paragraph (c) as paragraph

(d) and adding a new paragraph (c) to

read as follows:

§ 2520.104b–1 Disclosure.

* * * * *

(c) Disclosure through electronic

media. (1) The administrator of a group

health plan furnishing documents

described in section 104(b)(1) of the Act

through electronic media will be

deemed to satisfy the requirements of

paragraph (b)(1) of this section with

respect to participants described in

paragraph (c)(2) of this section if:

(i) The administrator takes

appropriate and necessary measures to

ensure that the system for furnishing

documents results in actual receipt by

participants of transmitted information

and documents (e.g., uses return-receipt

electronic mail feature or conducts

periodic reviews or surveys to confirm

receipt of transmitted information);

(ii) Electronically delivered

documents are prepared and furnished

in a manner consistent with the

applicable style, format and content

requirements (See 29 CFR 2520.102–2

through 2520.102–5);

(iii) Each participant is provided

notice, through electronic means or in

writing, apprising the participant of the

document(s) to be furnished

electronically, the significance of the

document (e.g., the document describes

changes in the benefits provided by

your plan) and the participant’s right to

request and receive, free of charge, a

paper copy of each such document; and

(iv) Upon request of any participant,

the administrator furnishes, free of

charge, a paper copy of any document

delivered to the participant through

electronic media.

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

this section, the furnishing of

documents through electronic media

satisfies the requirements of paragraph

(b)(1) of this section only with respect

to participants:

(i) Who have the ability to effectively

access at their worksite documents

furnished in electronic form; and

(ii) Who have the opportunity at their

worksite location to readily convert

furnished documents from electronic

form to paper form free of charge.

(3) This paragraph (c) applies on or

after June 1, 1997.

* * * * *

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

of March, 1997.

Olena Berg,

Assistant Secretary, Pension and Welfare

Benefits Administration, U.S. Department of

Labor.

[FR Doc. 97–8173 Filed 4–1–97; 12:52 pm]

BILLING CODE 4510–29–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

45 CFR Part 148

[BPD–882–IFC]

RIN 0938–AH75

Individual Market Health Insurance

Reform: Portability From Group to

Individual Coverage; Federal Rules for

Access in the Individual Market; State

Alternative Mechanisms to Federal

Rules

AGENCY: Department of Health and

Human Services.

ACTION: Interim final rule with comment

period.

SUMMARY: This interim final rule with

comment period implements section

111 of the Health Insurance Portability

and Accountability Act of 1996, which

sets forth Federal requirements designed

to improve access to the individual

health insurance market. Certain

‘‘eligible individuals’’ who lose group

health insurance coverage are assured

availability of coverage in the individual

market, on a guaranteed issue basis,

without preexisting condition

exclusions. In addition, all individual

health insurance coverage must be

guaranteed renewable. This rule also

sets forth procedures that apply to

States that choose to implement a
16986 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

mechanism under State law, as an

alternative to the Federal requirements,

with respect to guaranteed availability

for eligible individuals. It also sets forth

the rules that apply if a State does not

substantially enforce the statutory

requirements.

DATES: Effective date: These regulations

are effective April 8, 1997.

However, affected parties do not have

to comply with the information

collection requirements in §§ 148.120,

148.122, 148.124, 148.126, 148.200, and

148.202 until the Department has

published in the Federal Register the

control numbers assigned by the Office

of Management and Budget (OMB) to

these information collection

requirements. Section 148.128 is

currently approved under emergency

OMB approval number 0938–0699,

which will expire on July 31, 1997, but

will be reapproved with the sections

referenced above. Publication of the

control numbers notifies the public that

OMB has approved these information

collection requirements under the

Paperwork Reduction Act of 1995.

Comment date: Comments will be

considered if we receive them at the

appropriate address, as provided below,

no later than 5 p.m. on July 7, 1997.

Applicability dates: The various dates

that these regulations are applicable are

set forth in the Supplementary

Information section of the preamble.

ADDRESSES: Mail written comments (1

original and 3 copies) to the following

address: Health Care Financing

Administration, Department of Health

and Human Services, Attention: BPD–

882–IFC, P.O. Box 26676, Baltimore,

MD 21207–0488.

If you prefer, you may deliver your

written comments (1 original and 3

copies) to one of the following

addresses:

Room 309–G, Hubert H. Humphrey

Building, 200 Independence Avenue,

SW., Washington, DC 20201, or

Room C5–09–26, 7500 Security

Boulevard, Baltimore, MD 21244–

1850.

Because of staffing and resource

limitations, we cannot accept comments

by facsimile (FAX) or E-mail

transmission. In commenting, please

refer to file code BPD–882–IFC.

Comments received timely will be

available for pubic inspection as they

are received, generally beginning

approximately 3 weeks after publication

of a document, in Room 309–G of the

Department’s offices at 200

Independence Avenue, SW.,

Washington, DC, on Monday through

Friday of each week from 8:30 a.m. to

5 p.m. (phone: (202) 690–7890).

Copies: To order copies of the Federal

Register containing this document, send

your request to: New Orders,

Superintendent of Documents, P.O. Box

371954, Pittsburgh, PA 15250–7954.

Specify the date of the issue requested

and enclose a check or money order

payable to the Superintendent of

Documents, or enclose your Visa or

Master Card number and expiration

date. Credit card orders can also be

placed by calling the order desk at (202)

512–1800 or by faxing to (202) 512–

2250. The cost for each copy is $8. As

an alternative, you can view and

photocopy the Federal Register

document at most libraries designated

as Federal Depository Libraries and at

many other public and academic

libraries throughout the country that

receive the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Gertrude Saunders of the Insurance

Reform Implementation Task Force

(IRITF), (410) 786–5888.

SUPPLEMENTARY INFORMATION:

I. Summary of Recent Legislation

The Health Insurance Portability and

Accountability Act of 1996 (HIPAA,

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

21, 1996. Title I of the statute enacted

reforms in both the group and

individual health insurance markets, in

part, to help many individuals maintain

insurance coverage if they lose or leave

their jobs. Sections 101 through 103 of

HIPAA amended the Employee

Retirement Income Security Act of 1974

(ERISA), the Public Health Service Act

(PHS Act), and the Internal Revenue

Code of 1986 (Code) to provide for

improved access and renewability with

respect to employment-related group

health plans (GHPs), and health

insurance coverage sold in connection

with GHPs. Section 111 of HIPAA

amends the PHS Act to improve

availability and renewability in the

individual market.

Group health plans are generally

regulated by the Department of Labor

under ERISA, and by the Internal

Revenue Service under the Code. For

health insurance coverage sold to group

health plans, and sold in the individual

market, the insurance issuers are

regulated by the States under State law.

We believe that the individual health

insurance market provisions of HIPAA

recognize that States play the primary

role in the regulation of insurance, and

afford the States great flexibility in

implementing the reforms required by

the statute. While the statute provides

enforcement authority to HHS in the

event that a State substantially fails to

enforce Federal requirements, the

primary authority clearly rests with the

States.

This rule only pertains to the

individual market changes made to

sections 2741 through 2763 and 2791 of

the PHS Act by section 111 of HIPAA.

For rules implementing the group

market provisions of HIPAA, see the

‘‘Interim Rules for Health Insurance

Portability for Group Health Plans’’

(BPD–890–IFC), which is published

elsewhere in this Federal Register.

II. Provisions of This Interim Final Rule

A. Guaranteed Availability—General

The statue requires all health

insurance issuers offering coverage in

the individual market to accept any

‘‘eligible individuals’’ who apply for

coverage, without imposing a

preexisting condition exclusion.

A health insurance issuer means an

insurance company, insurance service,

or insurance organization (including an

HMO) that is 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 ERISA. The term does

not include a group health plan. For

purposes of this rule, we will use the

term ‘‘issuer’’ to mean a health

insurance issuer.

1. Definition of an Eligible Individual

(§ 148.103)

An eligible individual must met

several criteria:

• The individual must have at least

18 months of creditable coverage

without a significant break in coverage.

The rules for determining creditable

coverage are set forth in the group

market regulations at § 146.113 and

explained in the preamble to that

regulation. In general, creditable

coverage includes almost any type of

health care coverage. A significant break

in coverage is 63 days without any

creditable coverage. This requirement is

related to the group market rules, since

an individual in the group market is

protected against preexisting condition

exclusions under any circumstances if

the individual has 18 months of

creditable coverage without a significant

break. As with the group market rules,

States may have requirements that are

more generous to individuals. For

instance, a State may require less than

18 months of creditable coverage in

order to be considered an eligible

individual in the individual market. It

may also lengthen the significant break

in coverage period from 63 days to some

longer period.

We are also including a provision in

§ 148.120(f)(2) that deems certain
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16987

children to be eligible individuals, even

if they do not have a full 18 months of

creditable coverage. These are children

who were covered under any creditable

coverage within 30 days of birth,

adoption, or placement for adoption,

and have not had a significant break in

coverage. Under §§ 146.111(b) and

146.117(b)(5), these children are entitled

to a special enrollment period under a

group health plan or group health

insurance coverage, and are fully

protected from the imposition of

preexisting condition exclusions under

the group coverage. We believe that

deeming these children to be eligible

individuals is necessary in order to

carry out clear congressional intent to

provide special protection for them.

• The individual’s most recent

coverage must have been under a group

health plan.

There is no limit on the amount of

time that must have been spent under

group coverage—one day is sufficient.

The coverage must, however, be under

a group health plan as defined in Part

146, which means it must be

employment-related. However, it does

not have to be a group health plan that

is regulated under ERISA. It may be

under governmental or church plans (or

under health insurance coverage offered

in connection with either type of group

health plan). Governmental plans are

plans for employees of government

entities, not public welfare or other

benefit plans such as Medicare,

Medicaid, or IHS.

• The individual cannot currently be

eligible for Medicare or Medicaid or

covered under any other health

insurance.

This requires that the individual

actually be covered under the health

insurance. Except for COBRA or similar

continuation coverage, the individual

who has the option of purchasing some

sort of health insurance and does not do

so may still meet the definition of an

eligible individual.

This interpretation of the law permits

an individual to choose among options.

In addition to the products that are

available to him or her as an eligible

individual, the individual may have

available a conversion policy, other

coverage sold in the individual market

on an underwritten basis, or coverage

through any associations to which the

individual may be eligible to join.

Eligible individuals cannot be required

to obtain denials of other coverage (a

common requirement of many risk

pools) because the only disqualifying

circumstance is ‘‘having’’ other

coverage, not having other options

available. Nevertheless, individuals will

want to explore other options to ensure

that they obtain the best coverage for the

lowest cost.

• The individual has both elected and

exhausted any continuation coverage

available under COBRA or a similar

State program.

This requirement means that if an

individual’s qualifying event entitles

him or her to more than 18 months of

COBRA coverage, the individual must

exhaust all the COBRA coverage that is

available to him or her before becoming

eligible under HIPAA’s individual

market rules. Many State laws, by

contrast, require less than 18 months.

Therefore, an individual would need to

aggregate prior group coverage with the

coverage under the mini-COBRA to

reach the minimum of 18 months of

creditable coverage required to be an

eligible individual. Note, however, that

the exhaustion requirement refers only

to the continuation coverage that is

mandated under Federal law (COBRA)

or a similar program under State law

(sometimes referred to as ‘‘miniCOBRA’’). An individual, however, is

not required to accept a ‘‘conversion’’

policy that may be available when

continuation coverage ends, and should

be careful about doing so. Continuation

coverage meets the criterion of coverage

for both the individual and group

markets. An individual who accepts a

conversion policy, however, maintains

eligibility only for the group market and

forfeits the right to be an ‘‘eligible

individual,’’ for the individual market.

This is so because the statute provides

no portability from one individual

policy to another. A conversion policy

is an individual policy, not a group

policy, even though prior group

coverage is a prerequisite to qualifying

for the conversion policy.

• Residency requirements. We wish

to clarify that States may not require a

specific period of residency for HIPAA

protected eligible individuals, however,

States may require that an HIPAA

eligible individual be a State resident to

be eligible for protection under

applicable State law.

2. State Flexibility

States are given the flexibility either

to enforce the Federal requirements set

forth in § 148.120, or to implement an

alternative mechanism, under State law,

that achieves the statutory mandate of

providing eligible individuals with

access to individual health insurance, or

comparable coverage, without

preexisting condition exclusions. The

statute provides that if States notify the

Secretary no later than April 1, 1997,

with supporting information, that they

intend to implement an alternative

mechanism by January 1, 1998, they

will be presumed to be implementing a

mechanism as of July 1, 1997 (the

effective date of the statute). Alternative

mechanisms are discussed in section

II.F. of this preamble.

If a State chooses to enforce the

Federal guaranteed availability

requirements (sometimes referred to as

the ‘‘Federal fallback’’ requirements),

the provisions of § 148.120 apply, and

must be enforced by the State under

State law. If the State implements

neither an alternative mechanism, nor

the Federal fallback requirements, we

will implement the Federal fallback

provisions in that State and will enforce

those requirements using the penalty

provisions specified in §§ 148.200 and

148.202.

B. Alternative Coverage Under the

Federal Fallback Provisions

In accordance with § 148.120(c), if the

Federal fallback provisions are in effect

in a State, an issuer that offers health

insurance coverage in the individual

market in that State may elect to limit

coverage by making only two policies

available to eligible individuals.

1. Limitation of Policy Forms—General

The issuer may limit the individual

market coverage it offers as long as it

offers two different policy forms. Both

policy forms must be designed for, made

generally available to, actively marketed

to, and enroll both eligible and other

individuals, and meet one of two

requirements regarding policy forms

described in § 148.120(c)(2) and (c)(3).

The statute creates an ambiguity when

it indicates that policy forms that have

different cost-sharing arrangements or

different riders must be considered

different policy forms. It is our

understanding that this is inconsistent

with State law definitions of a policy

form, which refer to a contract form that

is filed with the State, which has a

number assigned to it, and which may

have more than one cost-sharing

arrangement. Since the statute does not

define ‘‘policy form,’’ we believe the

statutory intent was to leave the

definition to State law.

However, we also believe the intent of

the statutory requirement of two

different policy forms was to ensure that

eligible individuals would have some

choice of coverage and/or cost for that

coverage. Because differences in levels

of cost sharing in out-of-pocket

spending are among the most important

determinants of price, for Federal

enforcement purposes, we would

interpret this statutory provision to

mean that significant differences in

deductibles or other significantly
16988 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

different cost-sharing arrangements

provide sufficient choice.

2. Most Popular Policies

Under § 148.120(c)(2), the health

insurance issuer may choose to offer the

policy forms for individual health

insurance coverage with the largest, and

the second largest, premium volume of

all similar policy forms offered by the

issuer in the State, or applicable

marketing or service area, for the period

involved. In the absence of applicable

State standards, ‘‘premium volume’’

means earned premiums for the last

reporting year. In the absence of

applicable State standards, the last

reporting year is the period from

October 1 through September 30 of the

preceding year. Blocks of business

closed under applicable State law are

not included in calculating premium

volume.

3. Representative Policy Forms

Under § 148.120(c)(3), the health

insurance issuer may choose, instead, to

offer a lower-level and higher-level

coverage policy form. Each of these

policy forms must meet the

requirements of § 148.120(c)(3)(ii),

which state that issuers must include

benefits substantially similar to other

individual health insurance coverage

offered by the issuer in the State; and

must be covered under a method

described in § 148.120(c)(3)(ii)(D)

pertaining to risk adjustment, risk

spreading, risk spreading mechanism, or

financial subsidization; and must meet

all applicable State requirements.

In a State that chooses to enforce the

Federal fallback provisions instead of an

alternative mechanism, the issuer must

provide the appropriate state authorities

with any documentation required by the

State (§ 148.120(c)(5)(i)). In a State

where we enforce the individual market

provisions, the issuer must provide us

with documentation that we determine

to be necessary (§ 148,120(c)(5)(ii)). The

following is an example of what we

would expect to be a minimum level of

documentation:

(A) Issuer name, address, and

explanation of corporate and company

structure.

(B) Information on all products

offered by the issuer in the individual

market.

(C) If the issuer elects the option for—

(i) The most popular policies, data on

premium volumes of all policy forms

offered by the issuer in the individual

market; or

(ii) Representative coverage, data,

assumptions, and methods used to

calculate the actuarial values of the two

representative policy forms.

(D) Explanation of how the issuer is

complying with the provisions of

HIPAA.

(E) List of all products the issuer is

making or will make available to eligible

individuals and an explanation of how

the issuer will inform eligible

individuals of these policy forms, with

copies of all marketing material.

(F) Description of risk spreading and

financial subsidization mechanism.

For policy forms already being

marketed as of July 1, 1997 (the effective

date of the Federal fallback provisions),

the issuer must submit the information

to HCFA no later than September 1,

1997. For other policy forms, the issuer

must submit the information 90 days

before the beginning of the calendar

year in which the issuer wants to market

the policy form.

4. Special Rules for Network Plans

An issuer that offers coverage in the

individual market through a network

plan may require that eligible

individuals live, reside, or work within

the service area for the plan

(§ 148.120(d)). An issuer may also deny

coverage if it has demonstrated the

following, if required, to the appropriate

State authority:

• It does not have the capacity to

deliver services adequately to additional

individual enrollees because of the

volume of current group contract

holders and enrollees, and to current

individual enrollees. In addition, the

issuer must not offer any coverage in the

individual market within that service

area for a period of 180 days after the

coverage is denied.

• It uniformly denies coverage to an

individual without regard to any health

status-related factor or whether the

individual is an eligible individual.

5. Application of Financial Capacity

Limits

A health insurance issuer may deny

coverage in the individual market to an

eligible individual if the issuer has

demonstrated the following, if required,

to the applicable State authority

(§ 148.120(e)(1)):

• It does not have the financial

reserves necessary to underwrite

additional coverage.

• It uniformly denies coverage to an

individual without regard to any health

status-related factor or whether the

individual is an eligible individual.

In those States under Federal

enforcement of the individual market

provisions, the demonstration of a lack

of capacity to provide services, or a lack

of financial capacity, must be made to

us rather than the State (§ 148.120(e)(2)).

The issuer must not deny coverage to

any eligible individual until 30 days

after we receive and do not reject the

required information. We are currently

developing reporting requirements for

this information and we request

comments regarding criteria that would

be fair to all issuers, and at the same

time promote the intent of the law to

guarantee access to health insurance

coverage for all eligible individuals.

An issuer that denies coverage in any

service area is provided in

§ 148.120(e)(1), as prohibited from

offering that coverage in the individual

market for a period of 180 days after the

later of the date coverage is denied or

the issuer demonstrates to the

applicable State authority (if required

under applicable State law) that the

issuer has sufficient financial reserves to

underwrite additional coverage. A State

may apply the 180 day suspension

described in § 148.120(e)(3) on a

service-area-specific basis.

6. Dependent Coverage

In general, if an issuer offers policies

in the individual market that provide

dependent coverage, the issuer may

apply a preexisting condition exclusion,

as allowed under applicable State law,

to dependents who are not eligible

individuals (§ 148.120(f)). However, the

issuer may not apply a preexisting

condition exclusion on certain children

who have less than 18 months

creditable coverage but are protected

from an exclusion under the group

market rules of Part 146.

These children are dependents who

were enrolled as a dependent under a

group health plan within 30 days of

birth, adoption, or placement for

adoption and have not had a significant

break in coverage. We believe that the

statute did not intend to eliminate this

protection for children who could not

have been enrolled any earlier (that is,

before birth, adoption, or placement for

adoption), and thus could not possibly

have aggregated 18 months of creditable

coverage.

7. Construction of Provisions

The regulation clarifies several areas

that are not affected by this regulation

(§ 148.120(g)). A health insurance issuer

offering health insurance coverage only

in connection with group health plans,

or only through one or more bona fide

associations, or both, is not required to

offer that type of coverage in the

individual market. Similarly, an issuer

that only offers a conversion policy in

connection with a group health plan is

not considered to be an issuer offering

individual health insurance coverage.

The premium amount that an issuer

charges for coverage in the individual
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16989

market is only restricted by applicable

State law. An issuer offering coverage in

the individual market is not prohibited

from establishing premium discounts or

rebates, or modifying applicable

copayments or deductibles, in return for

adherence to programs of health

promotion and disease prevention. Also,

issuers are not required to reopen blocks

of business that have been closed under

applicable State law, and an issuer in

the individual market is not required to

offer a family coverage option with any

policy form unless State law requires

the issuer to do so.

In addition, if an issuer elects to sell

coverage to an individual who is not an

eligible individual, the issuer may apply

a preexisting condition exclusion period

as permitted under State law. The

HIPAA group rules relating to reduction

of preexisting condition exclusion

periods do not apply in the individual

market unless a State chooses to apply

them.

8. Broad Preclusion of Preexisting

Condition Exclusions for Eligible

Individuals

The individual market provisions

(§ 148.120(a)(2)) preclude an issuer from

imposing on an eligible individual a

preexisting condition exclusion as

defined under section 2701(b)(1)(A) of

the PHS Act. That definition is very

broad, including any limitation relating

to a condition based on the fact that the

condition was present before the date of

enrollment under the coverage, whether

or not any medical advice, diagnosis,

care, or treatment was recommended or

received before that date.

9. Treatment of Coverage Under the

Federal Employee Health Benefit Plan

(FEHBP)

Federal employees are not subject to

COBRA, but they may elect Federal

Employee Temporary Continuation

Coverage (TCC). This continuation

coverage, like COBRA, is considered

group coverage. While the individual is

under the continuation coverage, the

individual is still eligible for group

coverage until that coverage has been

exhausted. Therefore, the individual

does not qualify as an eligible

individual in the individual market by

simply failing to exhaust TCC.

C. Guaranteed Renewability

Section 148.122 requires that a health

insurance issuer providing individual

health insurance coverage to an

individual, renew or ‘‘continue in force’’

the coverage at the option of the

individual. ‘‘Continue in force’’ means

that the issuer maintains the same

policy form that the individual

purchased. The requirements in this

section apply to all individuals

purchasing health insurance coverage in

the individual market, not only eligible

individuals.

A health insurance issuer may

nonrenew or discontinue health

insurance coverage of an individual in

the individual market only for the

following reasons: nonpayment of

premiums, fraud, termination of plan,

movement outside service area, and

cessation of association membership. If

coverage is terminated based on

movement outside the service area and

cessation of association membership,

coverage must be terminated uniformly

without regard to the health statusrelated factor of any covered

individuals. Health status-related factor

is defined in § 144.103 (definitions for

the group and individual health

insurance markets.)

Becoming eligible for Medicare by

reason of age or otherwise is not a basis

for nonrenewal or termination of an

individual’s health insurance coverage

in the individual market, because it is

not included in the statute’s specifically

defined list of permissible reasons for

nonrenewal. If permitted by State law,

however, policies that are sold to

individuals before they attain Medicare

eligibility may contain coordination of

benefit clauses that exclude payment

under the policy to the extent that

Medicare pays.

Issuers who decide to discontinue

offering a particular type or all coverage

in the individual market are subject to

certain requirements outlined in

§ 148.122 (d) and (e). Issuers

discontinuing all coverage in the

individual market are prohibited from

issuing coverage in the market and State

involved for 5 years following the date

of discontinuation of the last coverage

policy not renewed (§ 148.122(f)).

Issuers may modify the health

insurance coverage for a policy form

only at the time of coverage renewal, if

the modification is consistent with State

law and effective uniformly for all

individuals with that policy form

(§ 148.122(g)).

In the case of health insurance

coverage made available by a health

insurance issuer in the individual

market to individuals only through one

or more associations, the reference to an

‘‘individual’’ is deemed to include a

reference to the association

(§ 148.122(h)).

D. Certification of Coverage

Section 148.124 specifies that an

issuer in the individual market must

provide a certificate of creditable

coverage, and, if required, make certain

other disclosures regarding an

individual’s coverage under an

individual policy. In general, the

certificates and disclosure requirements

are substantially identical to the

relevant provisions of § 146.115 that

apply to health insurance coverage

offered by issuers in the group market.

The preamble accompanying the group

market regulation published elsewhere

in this Federal Register explains these

procedures in detail. The certificates

and other disclosure of information are

intended to enable individuals to avoid

or reduce preexisting condition

exclusions included under subsequent

group health insurance coverage the

individual may obtain.

The following model is different from

the model certificate in the group

market regulation. The individual

market model certificate provides for

the date that the substantially

completed application was received

from the policyholder. This date tolls

the significant break period.

Certificate of Individual Health Insurance

Coverage

* IMPORTANT—This certificate provides

evidence of your health coverage. You may

need to furnish this certificate if you become

eligible under a group health plan that

excludes coverage for medical conditions you

have before you enroll, if medical advice,

diagnosis, care, or treatment is recommended

or received for the condition during the 6

months before you enroll 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 establish your right to buy

coverage for yourself or your family, with no

exclusion for previous medical conditions, if

you are not covered under a group health

plan.

1. Date of this certificate: lllll

2. Name of policyholder: lllll

3. Identification number of policyholder:

lllll

4. Name of any dependents to whom this

certificate applies: lllll

5. Name, address, and telephone number of

issuer responsible for providing this

certificate:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

6. For further information, call: lllll

7. If all individual(s) identified in items 2

and 4 have at least 18 months of creditable

coverage (disregarding periods of coverage

before a 63-day break), check here lll and

skip items 8 and 9.

8. Date coverage began: lllll

9. Date that a substantially completed

application was received from the

policyholder: lllll

10. Date coverage ended: lllll (or

check here if coverage is continuing as of the

date of this certificate:lllll)
16990 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

Note: Separate certificates will be

furnished if information is not identical for

the policyholder and each dependent.

Individuals have the right to receive

a certificate automatically (an automatic

certificate) when they lose coverage

under an individual policy. A certificate

must also be provided upon a request

by, or on behalf of, an individual no

later than 24 months after coverage

ceases. The certificate must be provided

at the earliest time that an issuer, acting

in a reasonable and prompt fashion, can

provide the certificate. The certificate

must also be provided consistent with

State law.

An issuer of an individual policy is

required, to the same extent as an issuer

of insurance in the group market, to

prepare certificates with respect to the

coverage of any of the individual’s

dependents that are covered under the

individual policy. During a transitional

period until July 1, 1998, an issuer may

satisfy its obligation to provide a written

certificate regarding the coverage of a

dependent of a policyholder by

providing the name of the policyholder

covered by the policy and specifying the

type of coverage as family coverage. If

requested to provide a certificate related

to a dependent, however, the issuer

must make reasonable efforts to obtain

and provide the name of the dependent.

For certain types of creditable

coverage, including under a State health

benefits risk pool, a public health plan,

and section 5(e) of the Peace Corps Act,

the statute does not identify a particular

entity that is responsible for providing

a certificate. However, any issuer that

provides coverage in connection with

those programs must provide

certificates.

E. Determination of an Eligible

Individual

An issuer is potentially subject to

civil money penalties if it denies

coverage, or applies a preexisting

condition exclusion to, an eligible

individual, unless it can show that it

did not know, or exercising reasonable

diligence could not have known, of the

violation. Section 148.126 specifies that

the issuer is responsible for determining

whether an applicant is an eligible

individual, and must exercise

reasonable diligence in making this

determination. An issuer could, for

example, include questions on the

application form that would be designed

to elicit information that would indicate

that the applicant may be an eligible

individual.

An individual seeking to establish

that he or she is an eligible individual

may not have a certificate of creditable

coverage that establishes 18 months of

creditable coverage, and that the most

recent period of creditable coverage is in

a group health plan. The individual has

the same right to demonstrate periods of

creditable coverage as in the group

market. Thus the issuer must take into

account all information that the

individual presents, and must treat the

individual as having furnished a

certificate 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

issuer’s efforts to verify the individual’s

coverage.

F. State Flexibility

1. Alternative Mechanism

If a State implements an alternative

mechanism as described in § 148.128,

the State does not have to enforce the

‘‘Federal fallback’’ provisions for

guaranteed availability, although it must

still enforce the guaranteed renewability

provisions set forth in § 148.122.

Although the law recognizes diversity

among the States by allowing for an

alternative mechanism, there are

minimum requirements for an

alternative mechanism. Under

§ 148.128, an alternative mechanism

must meet the following requirements:

• Provide a choice of health

insurance coverage to all eligible

individuals.

• Not impose any preexisting

condition exclusions and affiliation

periods for coverage of an eligible

individual.

• Include at least one policy form of

coverage that is comparable to either

one of the following:

+ Comprehensive health insurance

coverage offered in the individual

market in the State.

+ A standard option of coverage

available under the group or

individual health insurance laws of

the State.

• Implement one of the following:

+ The National Association of Insurance

Commissioners (NAIC) Small

Employer and Individual Health

Insurance Availability Model Act, as

it applies to individual health

insurance coverage, and as revised in

State regulations to meet all the

requirements of Part 148 of this rule

and Part 144 published elsewhere in

this Federal Register with the group

market rules.

+ The Individual Health Insurance

Portability Model Act, as adopted on

June 3, 1996, and revised in State

regulations to meet all the

requirements of Part 148 of this rule

and Part 144 published elsewhere in

this Federal Register with the group

market rules.

+ A qualified high-risk pool that

provides for the following:

—Health insurance coverage (or

comparable coverage) to all eligible

individuals that does not impose

any preexisting condition exclusion

or affiliation periods with respect to

this coverage for all eligible

individuals.

—Premium rates and covered benefits

for that coverage consistent with

standards included in the NAIC

Model Health Plan for Uninsurable

Individuals Act in effect on August

21, 1996, and revised in State

regulations to meet all the

requirements of Part 148 of this rule

and Part 144 published elsewhere

in this Federal Register with the

group market rules.

+ Another mechanism—

—That provides for risk adjustment,

risk spreading, or a risk-spreading

mechanism (among issuers or

policies of an issuer) or otherwise

provides for some financial

subsidization for eligible

individuals, including through

assistance to participating issuers,

or

—Under which each eligible

individual is provided a choice of

all individual health insurance

coverage otherwise available.

2. Permissible Forms of Mechanisms

A private or public individual health

insurance mechanism (such as a health

insurance coverage pool or program,

mandatory group conversion policy,

guaranteed issue of one or more plans

of individual health insurance coverage,

or open enrollment by one or more

health insurance issuers), or

combination of these mechanisms, that

is designed to provide access to health

benefits for individuals in the

individual market in the State, may

constitute an acceptable alternative

mechanism.

3. Transition Rules for Establishing an

Acceptable Alternative Mechanism

We presume a State to be

implementing an acceptable alternative

mechanism as of July 1, 1997, if the

State submits a notice and required

information that meets the notice and

information requirements for an

acceptable alternative mechanism

described in § 148.128(c), no later than

April 1, 1997, and we do not make a

determination within 90 days (except as

provided in § 148.128(e)(3)(ii) for

suspensions of the review period) that

the State will not be implementing a
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16991

mechanism reasonably designed to be

an acceptable alternative mechanism as

of January 1, 1998. To assist States in

meeting the April 1, 1997, statutory

deadline for notifying HCFA and

submitting the necessary information,

HCFA will consider postmark dates,

special delivery service dates or other

such dates as the date of receipt.

4. Delay Permitted for Certain States

If a State notifies us that its legislature

is not meeting in a regular session

between August 21, 1996, and August

20, 1997, our presumption that the State

is implementing an acceptable

alternative mechanism will continue

until July 1, 1998, if the State meets the

notice and information requirements in

§ 148.128(d).

5. General Rules for Establishing an

Alternative Mechanism

A State that chooses to implement an

acceptable alternative mechanism must

submit the notice and supporting

information specified in § 148.128(e).

After receiving the information, if we do

not make a preliminary determination

as described in § 148.128(e)(2), within

90 days of receiving the State’s

information (except as provided in

§ 148.128(e)(3)(ii), that the mechanism

is not accepted, the (proposed)

alternative mechanism is presumed to

be an acceptable alternative mechanism.

If we do make a preliminary

determination, after consultation with

the chief executive officer of the State,

that an alternative mechanism is not

acceptable, we will notify the State, in

writing, of the consequences of failing to

implement an acceptable alternative

mechanism and permit the State a

reasonable opportunity to modify the

mechanism or adopt another

mechanism. In determining a reasonable

opportunity, we will take into

consideration a State’s legislative

calendar and process. If after taking all

of these actions, our final determination

is that a State’s alternative mechanism

is not an acceptable mechanism or the

State is not substantially enforcing an

acceptable mechanism, we will notify

the State, in writing, as provided in

§ 148.128(e)(4)(ii).

A State may request that we notify it,

after reviewing the material submitted,

if we did not make a preliminary

determination that the mechanism is not

an acceptable alternative mechanism

(§ 148.128(e)(4)).

6. Suspension of Review Period

If we notify a State of our need for

additional information or further

discussions on its submission, we will

suspend the review period, as described

in § 148.128(e)(3)(ii) until the State

provides the necessary information. If

the State chooses not to provide the

necessary information or our

discussions with the State cannot be

concluded satisfactorily, we may make

a preliminary determination that the

mechanism is not an acceptable

alternative mechanism.

7. Review Criteria

The law gives States substantial

flexibility in devising alternative

mechanisms. If a State chooses to

submit a proposed alternative

mechanism, the State determines what

to submit. We must, however, be able to

determine whether the mechanism is

designed to ensure that eligible

individuals are given the required

access to insurance coverage. Our

review will focus on results for eligible

individuals. Our main concern is that

the State submission show the analysis

and the reasoning behind the design of

the proposed alternative mechanism,

and a reasonable assessment of the

likelihood that the mechanism will

achieve the legislative objectives. These

requirements are described in

§ 148.128(g).

8. Continued Application and Effective

Dates

A State must provide information

necessary for us to review its

mechanism’s implementation every 3

years, or before implementing any

significant change, to continue to be

presumed to have an acceptable

alternative mechanism (§ 148.128(f)).

We suggest that a State inform us of any

significant change to its alternative

mechanism 120 days before

implementing the change.

For alternative mechanisms submitted

after April 1, 1997, if we do not make

a preliminary determination within the

review period, the alternative

mechanism is effective 90 days after the

end of the 90-day review period (except

as provided in § 148.128(e)(3)(ii).

9. Limitation on HCFA’s Authority

We do not make a preliminary or final

determination on any basis other than

that a mechanism is not considered an

acceptable alternative mechanism or is

not being implemented by the State

(§ 148.128(h)).

G. Enforcement

Sections 2741 through 2763 and 2791

of the PHS Act, as implemented by Part

148 of these regulations, impose

requirements on health insurance

issuers that offer coverage in the

individual market in a State. The statute

makes 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.

We anticipate 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, we must enforce them.

Section 148.200 sets forth the

procedures that we will follow in the

event that a question is raised about the

State’s enforcement. The procedures are

designed to give the State every

opportunity to show why Federal

enforcement is not required. The

regulation also makes clear that the

process will not be triggered unless we

are satisfied that there has been a

reasonable effort to exhaust any State

remedies. However, if, after giving the

State a reasonable opportunity to

enforce, we make a final determination

that a State is not substantially

enforcing these requirements, we will

enforce the requirements using the civil

money penalties provided for under

§ 148.202.

Section 148.202 describes the process

for imposing civil money penalties

against issuers that fail to comply with

the requirements of Part 148 requiring

them to make coverage available to

eligible individuals, to renew all

individual coverage, and to provide

certificates of creditable coverage. If we

receive a complaint or other information

that indicates that the issuer is not in

compliance with these requirements, we

will give the issuer an opportunity to

respond. If we assess the penalty, which

can consist of up to $100 for each day,

for each individual whose rights are

violated, the regulation provides appeal

rights.

H. Preemption

Section 2762 of the PHS Act specifies

that, in general, State laws regarding

health insurance issuers are not

preempted unless they ‘‘prevent the

application of’’ a requirement of the

individual market rules in Part 148 of

this rule or Part 144 published

elsewhere in this Federal Register with

the group market rules. Within these

restrictions, however, the conference

report makes clear that the conferees

intended ‘‘the narrowest preemption’’ of

State law, and indicates that State laws

that are ‘‘broader’’ than Federal

requirements would not ‘‘prevent the

application of’’ the HIPAA

requirements.

The statute, however, makes clear that

nothing in sections 2741 through 2763

and 2791 of the PHS Act can be

construed to affect or modify the
16992 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

provisions of section 514 of ERISA,

which limits State regulation of group

health plans.

I. Excepted Benefits

Section 146.145 specifies that certain

benefits are excluded from certain

requirements of the group market only

if they are provided under a separate

policy, certificate, or contract of

insurance, or are otherwise not an

integral part of the plan. Under

§ 148.220, for purposes of the individual

market, these benefits are excluded if

provided under a separate policy

certificate, or contract of insurance. The

term ‘‘integral to a plan’’ does not apply

in the individual market.

In addition, in the group market,

coverage for only a specified disease or

illness or hospital indemnity or other

fixed dollar indemnity insurance is

excepted only if the following applies:

• It is provided under a separate

policy, certificate, or contract of

insurance.

• 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. (This does not apply in

the individual market.)

• 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.

(This does not apply in the individual

market.)

The requirements of Part 148 do not

apply to ‘‘excepted benefits,’’ which are

benefits under one or more (or any

combination) of the following:

• Fully excepted benefits—

—Coverage only for accident (including

accidental death and

dismemberment);

—Disability income insurance;

—Liability insurance, including general

liability insurance and automobile

liability insurance;

—Coverage issued as a supplement to

liability insurance;

—Workers’ compensation or similar

insurance;

—Automobile medical payment

insurance;

—Credit-only insurance (for example,

mortgage insurance); and

—Coverage for onsite medical clinics.

• Other excepted benefits, which are

excepted only if they are provided

under a separate policy, certificate, or

contract of insurance—

—Limited scope dental or vision

benefits;

—Benefits for long-term care;

—Coverage only for a specified disease

or illness (for example, cancer

policies) as long as the policy does

not coordinate benefits;

—Hospital indemnity or other fixed

indemnity insurance (for example,

$100 per day) as long as the policy

does not coordinate benefits;

—Medicare supplemental health

insurance, also known as Medigap or

MedSup insurance (as defined in

section 1882(g)(1) of the Social

Security Act);

—Supplemental coverage provided

under Chapter 55 Title 10 of the

United States Code (also known as

CHAMPUS supplemental programs);

and

—Similar supplemental coverage

provided under a group health plan.

J. Associations in the Individual Market

As we discuss in the preamble to the

interim final rules for the group market

rules published elsewhere in this

Federal Register, an association policy

that is not offered in connection with an

employment-related group health plan

falls under the individual market

provisions of HIPAA, even if a State

otherwise regulates it as ‘‘association

group’’ coverage. In response to the

notice published in the Federal Register

on December 30, 1996 (61 FR 68697),

we received a large number of

comments relating to coverage under

‘‘college plans,’’ which provide

association group coverage for students

(as distinguished from employees of a

college or university).

The following discussion of college

plans, which generally applies to any

association coverage in the individual

market, addresses the commenters’

concerns.

• College plans are clearly creditable

coverage under § 146.113(a)(1) because

they meet the definition of ‘‘health

insurance coverage’’ under part 144 of

the group market rules.

• If an issuer offers student coverage

through a ‘‘bona fide association,’’ that

meets all six requirements set forth in

the definition of these entities 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. The student also benefits

because a bona fide association must

make the coverage available to all

association members regardless of any

health status-related factors. If the

college plan is not a bona fide

association, however, it does have to

guarantee coverage to all eligible

individuals in the individual market

and must renew the coverage

indefinitely at the option of former

students. In addition, State laws may be

more stringent than the Federal

definition of bona fide association.

• The commenters were concerned

that students should be able to move

from coverage under an employmentrelated group health plan (through their

own or their parents’ employment) to a

college plan, between college plans, and

from a college plan to individual

coverage, with guaranteed availability

and without preexisting condition

exclusions. These concerns cannot be

fully addressed under the current law.

Because HIPAA provides for full

portability from individual products to

group market coverage, moving from a

college plan to a employer plan presents

no problem, since the coverage under

the college plan constitutes creditable

coverage that reduces any preexisting

condition exclusion under the group

health plan. However, a student moving

from a group health plan to college or

other individual coverage will not

qualify for these protections unless he

or she qualifies as an ‘‘eligible

individual’’ as defined in § 148.103. To

gain this status, a student must exhaust

any COBRA or State ‘‘mini-COBRA’’

continuation coverage available. A child

aging out of a parent’s coverage

generally qualifies for 36 months of

COBRA. This puts the student in the

position of either paying the higher cost

of continuation coverage for the

duration of the continuation coverage,

or taking the lower-cost student

coverage subject to a preexisting

condition exclusion of any length

permitted under State law. HIPAA

places no limits on preexisting

condition exclusion in the individual

market for noneligible individuals.

Moreover, HIPPA does not provide

any guaranteed availability or protection

against preexisting condition exclusions

for students moving from one individual

policy to another. This is true even if

the student originally enrolled in a

student plan as an eligible individual,

since that status is applicable only when

the student’s most recent coverage is

under a group health plan.

III. Regulatory Impact Analysis

Ordinarily, we would include a

Regulatory Impact Statement in this

section of the document. We have

chosen, however, to address the

economic impact analysis of this

regulation in a combined impact

statement contained in the interim final

rule for the group market provisions

(BPD–890–IFC). A combined impact

analysis has been prepared because of

the close connection between the effects

of HIPAA’s group market reforms and

the reforms in the individual insurance
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16993

market, and because of the overlap of

issuers participating in both the group

and individual market. The regulatory

burdens placed on entities in the group

and individual markets are virtually

identical in many respects, notably in

the certification process. There are also

economic effects that crossover from

one market segment to the other because

of HIPPA provisions, such as the groupto-individual portability provision,

which may have an effect on premiums

in either or both market segments. We

believe a single discussion of the

economic impact is the most

appropriate means of highlighting the

similarities and discussing the

interactions between the two market

segments.

In accordance with the provisions of

Executive Order 12866, this regulation

was reviewed by the Office of

Management and Budget.

IV. Collection of Information

Requirements

Under the Paperwork Reduction Act

of 1995, we are 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.

• 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

requirements 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. This is necessary to ensure

compliance with section 111 of 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 publication, with OMB

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:

Individual Health Insurance.

Reform: Portability from Group to

Individual Coverage; Federal Rules for

Access in the Individual Market; State

Alternative Mechanisms to Federal

Rules BPD–882–IFC.

Form Number: HCFA–R–205.

Use: These rules ensure access to the

individual insurance market for certain

individuals and allows the States to

implement their own program to meet

the HIPAA requirements for access to

the individual market. The information

collection requirements outlined in this

rule document the record keeping

necessary for issuers and States to

ensure individuals receive protection

under section 111 of HIPAA.

Frequency: On occasion.

Affected Public: States, businesses or

other for profit, not-for-profit

institutions, Federal Government,

individuals or households.

Number of Respondents: 1,035.

Total Annual Responses: 3.5 million

in 1997; 3 million each in 1998 and

1999;

Total Annual Hours Requested:

335,000 to 586,000 hours in 1997;

384,000 to 882,000 in 1998; and 377,000

to 882,000 in 1999.

Total Annual Cost: $4.9 million to

$6.8 million in 1997; $5.1 million to

$8.7 million in 1998; and $5.4 million

to $8.7 million in 1999.

Sections 148.120, 148.122, 148.124,

148.126, 148.128, 148.200, and 148.202

of this document contain information

collection requirements. As required by

section 3504(h) of the Paperwork

Reduction Act of 1995, we have

submitted a copy of this document to

OMB for its review of these information

collection requirements.

We are soliciting public comment on

each of these issues for the following

sections of this document that contain

information collection requirements:

Section 148.120 Guaranteed

availability of individual health

insurance coverage to certain

individuals with prior group coverage.

States are given the flexibility either

to enforce the Federal requirements set

forth in § 148.120, or to implement an

alternative mechanism, under State law,

that achieves the statutory mandate of

providing eligible individuals with

access to individual health insurance, or

comparable coverage, without

preexisting condition exclusions.

However, a State could choose to do

nothing, resulting in Federal

enforcement of the individual market

regulations under HIPAA. Thirty States

have indicated to us an intent to

implement an alternative mechanism

under § 148.128. The information

collection requirements associated with

implementing and enforcing the

alternative mechanism are discussed

below for § 148.128.

If a State chooses to enforce the

Federal guaranteed availability

requirements (sometimes referred to as

the ‘‘Federal fall back’’ requirements),

the provisions of § 148.120 apply, and

must be enforced by the State under

State law. Since many of these

requirements are enforced under

existing State law, for these instances,

they are exempt from the Paperwork

Reduction Act (PRA) as described under

5 CFR 1320.3(b)(3). Although applicable

PRA burden will vary by State and

issuer, we anticipate that ten States will

be required to review materials

submitted by at most 325 issuers per

State on an annual basis to ensure

compliance with the requirements of all

products guaranteed or alternative

coverage, which are not currently

required under State laws and

regulations. Therefore, the PRA burden

imposed under this option is the time

required by the ten States to review the

materials submitted by the issuers. This

burden is 1,625 hours based on each of

the ten States reviewing the material for

30 minutes for each issuer on an annual

basis. We estimate the cost associated

with this burden to be $24,375.

If a State implements neither an

alternative mechanism, nor the Federal

fall back requirements, we will

implement the Federal fall back

provisions in that State and will enforce

those requirements using the penalty

provisions specified in §§ 148.200 and

148.202. We anticipate that fewer than

ten States will rely on Federal

enforcement of the statute. In particular,

the only jurisdictions that we believe
16994 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

will choose this option are the five U.S.

territories.

This section also requires an issuer

who elects the alternative coverage

option to document any actuarial

calculations necessary to satisfy State

and/or Federal oversight provisions

referenced in § 148.120. Since the

majority of issuers rely on automated

means of storing their calculations, we

estimate the annual burden for this

record keeping activity to be 25 hours.

This is based on the assumption that it

will take approximately 10 issuers per

State, in 15 States, on an annual basis,

10 minutes per issuer, to electronically

store and verify the storage of their

calculations. We estimate the cost

associated with this burden to be $375.

Section 148.122 Guaranteed

renewability of individual health

insurance coverage.

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

oversite process to make sure there is a

guarantee renewability clause in each

policy. For the 21 States that currently

require guaranteed renewability, it is

our understanding that this is normal

business practice. For the other 34

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 annual burden of 20,000

hours. We estimate the cost associated

with this burden to be $300,000. 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

renewability requirements.

Section 148.124 Certification and

disclosure of coverage.

Section 148.124 specifies that an

issuer in the individual market must

provide a written certificate of

creditable coverage, and, if required,

make other certain disclosures regarding

an individual’s coverage under an

individual policy. In general, the

certification and disclosure

requirements are substantially identical

to the relevant provisions of § 146.115

that apply to health insurance coverage

offered by issuers in the group market.

The preamble accompanying the group

market regulation explains these

procedures in detail. In general, the

certificates from issuers in the

individual market and other disclosure

of information are intended to enable

individuals to avoid or reduce

preexisting condition exclusions

included under subsequent group health

insurance coverage the individual may

obtain.

Individuals have the right to receive

a certificate automatically (an automatic

certificate) when they lose coverage

under an individual policy. A certificate

must also be provided upon a request

by, or on behalf of, an individual for the

period not later than 24 months after

coverage ceases. The certificate must be

provided at the earliest time that an

issuer, acting in a reasonable and

prompt fashion, can provide the

certificate. The certificate must also be

provided consistent with State law.

An issuer of an individual policy is

required, to the same extent as an issuer

of insurance in the group market, to

prepare certificates with respect to the

coverage of any of the individual’s

dependents that are covered under the

individual policy.

We anticipate that 3 million

individual market-based certificates will

be generated on an annual basis. We are

assuming that the majority of certificates

issued in the individual market will

require issuers to find out the

application date since many individuals

will have less than 18 months of

credible coverage with that issuer.

The range of time estimates, shown in

the table below, are 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.

Year Total

respondents

Total

responses

Average time

(in minutes)

per response

(range)

Burden

hours

(range)

Cost

(range)

1997 ...................................................................................... 1,000 3,418,052 4.63 263,548 $3,897,932

8.95 509,665 5,716,826

1998 ...................................................................................... 1,000 2,929,759 6.94 338,781 4,542,924

17.11 835,517 8,035,131

1999 ...................................................................................... 1,000 2,929,759 6.81 332,480 4,746,736

17.11 835,517 8,035,131

Section 148.126 Determination of an

eligible individual.

In this section, issuers may maintain

records for those individuals who they

determine are not HIPAA eligible

individuals. We estimate this to be on

average less than 50 individuals per the

1,000 issuers nationwide each year. At

20 minutes per record, this represents

an annual burden of 16,667 hours. We

estimate the cost associated with this

burden to be $183,000.

Section 148.128 State flexibility in

individual market reforms—alternative

mechanisms.

As explained above, 30 or more States

may implement acceptable alternative

mechanisms as allowed under this

section. It is estimated that this

reporting burden will range from 33,000

to 38,500 hours depending on the

number of States that choose to submit

the required information. We estimate

the cost associated with this burden to

be $495,000 to $577,500.

The information collection

requirements associated with submitting

the required documentation outlining a

State’s alternative mechanism is

currently approved under emergency

OMB approval number 0938–0699

which expires on 07/31/97. The

information collection requirements
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16995

currently approved in this section will

be re-approved with the remaining

information collection requirements

referenced in the HHS PRA section.

Section 148.200 Enforcement and

Section 148.202 Civil money penalties.

We anticipate identifying violations

through individual nonstandardized

consumer complaints. Therefore, the

complaints submitted and our

enforcement activities do not fall within

the requirements of the PRA, as outlined

in 5 CFR 1320.3(c) and 5 CFR 1320.4(a).

We have submitted a copy of this

notice 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

the burden or any other aspect of these

collections of information requirements.

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.

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.

V. Response to Comments

Because of the large number of items

of correspondence we normally receive

on Federal Register documents

published for comment, we are not able

to acknowledge or respond to them

individually. We will consider all

comments we receive by the date and

time specified in the DATES section of

this preamble, and, if we proceed with

a subsequent document, we will

respond to the comments in the

preamble to that document.

VI. Interim Rules and Request for

Comments

Section 2792 of the PHS Act, provides

in part, that HHS may promulgate any

interim final rules as they determine are

appropriate to carry out the provisions

of the new Part B of the PHS Act. 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, rather than as proposed

rules, because the Department has

determined that, without prompt

guidance, some members of the

regulated community will have

difficulty complying with the HIPAA’s

certification requirements and could be

in violation of the statute. The Congress

expressly intended that the certification

and prior creditable coverage provisions

serve as the mechanism for increasing

the portability of health coverage for

individuals. Without the Department’s

guidance, issuers will likely be unable

to produce the necessary amendments

to policy documents reflecting HIPAA’s

new requirements, as well as the

appropriate certifications of prior

coverage that would eliminate

preexisting condition exclusion periods

for eligible individuals. Moreover,

without the Department’s prompt

guidance, insured individuals will not

understand the benefit to them of

having a certificate of prior coverage to

present upon entering the individual

health insurance market and will likely

have greater difficulty proving that they

are entitled to health coverage.

HIPAA’s portability requirements will

affect the regulated community in the

immediate future. HIPAA’s certification

requirements are effective for all issuers

on June 1, 1997. HIPAA’s underlying

requirements concerning establishing

periods of prior creditable coverage and

eliminating pre-existing condition

exclusions in the individual market are

generally applicable July 1, 1997.

Issuers and individuals will need

guidance on how to comply with the

new statutory provisions before this

effective date. The rules have been

written in order to ensure that issuers of

individual health insurance, as well as

individuals, are provided timely

guidance concerning compliance with

these recently enacted amendments to

the PHS Act. The rules provide

guidance on these statutory changes,

and are being adopted on an interim

basis because the Department finds 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 health insurance issuers. In addition,

the rules are necessary to ensure that

issuers, as well as individuals, are

provided timely guidance concerning

compliance with new and important

disclosure obligations imposed by

HIPAA.

Section 2792 of the PHS Act

authorizes the Department to issue

regulations necessary to carry out the

amendments made by section 111 of

HIPAA by April 1, 1997. Issuance of a

notice of proposed rule making with

public comment prior to issuing a final

rule could delay significantly the

issuance of essential guidance and

prevent the Department from complying

with its statutory rulemaking deadline.

Furthermore, although these rules are

being adopted on an interim basis, the

Department is inviting interested

persons to submit written comments on

the rules for consideration in the

development of the final rules relating

to HIPAA. Development of subsequent

rules may be issued in advance of

January 1, 1998.

For the foregoing reasons, the

Department finds that the publication of

a proposed regulation, for the purpose

of notice and public comment, would be

impracticable, unnecessary, and

contrary to the public interest. However,

we are providing a 90-day period for

public comment, as indicated at the

beginning of this rule.

List of Subjects in 45 CFR Part 148

Administrative practice and

procedure, Health care, Health

insurance, Penalties, Reporting and

recordkeeping requirements.

For the reasons set forth in the

preamble, 45 CFR Subtitle A is amended

as set forth below: A new Part 148,

consisting of §§ 148.101 through

148.220, is added to Subchapter B to

read as follows:

PART 148—REQUIREMENTS FOR THE

INDIVIDUAL HEALTH INSURANCE

MARKET

Subpart A—General Provisions

Sec.

148.101 Basis and purpose.

148.102 Scope, applicability, and effective

dates.

148.103 Definitions.

Subpart B—Requirements Relating to

Access and Renewability of Coverage

148.120 Guaranteed availability of

individual health insurance coverage to

certain individuals with prior group

coverage.

148.122 Guranteed renewability of

individual health insurance coverage.

148.124 Certification and disclosure of

coverage.

148.126 Determination of an eligible

individual.

148.128 State flexibility in individual

market reforms—alternative

mechanisms.

Subpart C—[Reserved]

Subpart D—Enforcement; Penalties;

Preemption

Sec.

148.200 Enforcement by State;

determination regarding failure to

enforce.

148.202 Civil money penalties.
16996 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

148.210 Preemption.

148.220 Excepted benefits.

Authority: Secs. 2741 through 2763, 2791,

and 2792 of the Public Health Service Act (42

U.S.C. 300gg–41 through 300gg–63, 300gg–

91, and 300gg–92).

Subpart A—General Provisions

§ 148.101 Basis and purpose.

This part implements sections 2741

through 2763 and 2791 and 2792 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.

§ 148.102 Scope, applicability, and

effective dates.

(a) Scope and applicability. (1)

Individual health insurance coverage

includes all health insurance coverage

(as defined in 45 CFR 144.103) that is

neither health insurance coverage sold

in connection with an employmentrelated group health plan, nor shortterm, limited duration coverage as

defined in 45 CFR 144.103. In some

cases, coverage that may be considered

group coverage under State law (such as

coverage sold through certain

associations) is considered individual

coverage.

(2) The requirements of this part that

pertain to guaranteed availability of

individual health insurance coverage for

certain eligible individuals apply to all

issuers of individual health insurance

coverage in a State, unless the State

implements an acceptable alternative

mechanism as described in § 148.128.

The requirements that pertain to

guaranteed renewability for all

individuals apply to all issuers of

individual health insurance coverage in

the State, regardless of whether a State

implements an alternative mechanism.

(b) Effective date. Except as provided

in § 148.124 (certificate of coverage) and

§ 148.128 (alternative Statemechanisms), the requirements of this

part apply to health insurance coverage

offered, sold, issued, renewed, in effect,

or operated in the individual market

after June 30, 1997, regardless of when

a period of creditable coverage occurs.

§ 148.103 Definitions.

Unless otherwise provided, the

following definition applies:

Eligible individual means an

individual who meets the following

conditions:

(1) The individual has at least 18

months of creditable coverage (as

determined under 45 CFR 146.113) as of

the date on which the individual seeks

coverage under this part.

(2) The individual’s most recent prior

creditable coverage was under a group

health plan, governmental plan, or

church plan (or health insurance

coverage offered in connection with any

of these plans).

(3) The individual is not eligible for

coverage under any of the following:

(i) A group health plan.

(ii) Part A or Part B of Title XVIII

(Medicare) of the Social Security Act.

(iii) A State plan under Title XIX

(Medicaid) of the Social Security Act (or

any successor program).

(4) The individual does not have other

health insurance coverage.

(5) The individual’s most recent

coverage was not terminated because of

nonpayment of premiums or fraud. (For

more information about nonpayment of

premiums or fraud, see 45 CFR

146.152(b)(1) and (b)(2).)

(6) If the individual has been offered

the option of continuing coverage under

a COBRA continuation provision or a

similar State program, the individual

has both elected and exhausted the

continuation coverage.

Subpart B—Requirements Relating to

Access and Renewability of Coverage

§ 148.120 Guaranteed availability of

individual health insurance coverage to

certain individuals with prior group

coverage.

(a) General rule. Except as provided

for in paragraph (c) of this section, an

issuer that furnishes health insurance

coverage in the individual market must

meet the following requirements with

respect to any eligible individual who

requests coverage:

(1) May not decline to offer coverage

or deny enrollment under any policy

forms that it actively markets in the

individual market, except as permitted

in paragraph (c) of this section

concerning alternative coverage when

no State mechanism exists. An issuer is

deemed to meet this requirement if,

upon the request of an eligible

individual, it acts promptly to do the

following:

(i) Provide information about all

available coverage options.

(ii) Enroll the individual in any

coverage option the individual selects.

(2) May not impose any preexisting

condition exclusion on the individual.

(b) Exception. The requirements of

paragraph (a) of this section do not

apply to health insurance coverage

offered in the individual market in a

State that chooses to implement an

acceptable alternative mechanism

described in § 148.128.

(c) Alternative coverage permitted

where no State mechanism exists. (1) If

the State does not implement an

acceptable alternative mechanism under

§ 148.128, an issuer may elect to limit

the coverage required under paragraph

(a) of this section if it offers eligible

individuals at least two policy forms

that meet the following requirements:

(i) Each policy form must be designed

for, made generally available to, and

actively marketed to, and enroll, both

eligible and other individuals.

(ii) The policy forms must be either

the issuer’s two most popular policy

forms (as described in paragraph (c)(2)

of this section) or representative

samples of individual health insurance

offered by the issuer in the State (as

described in paragraph (c)(3) of this

section).

(2) Most popular policies. The two

most popular policy forms means the

policy forms with the largest, and the

second largest, premium volume for the

last reporting year, for policies offered

in that State. In the absence of

applicable State standards, premium

volume means earned premiums for the

last reporting year. In the absence of

applicable State standards, the last

reporting year is the period from

October 1 through September 30 of the

preceding year. Blocks of business

closed under applicable State law are

not included in calculating premium

volume.

(3) Representative policy forms—(i)

Definition of weighted average.

Weighted average means the average

actuarial value of the benefits provided

by all the health insurance coverage

issued by one of the following:

(A) An issuer in the individual market

in a State during the previous calendar

year, weighted by enrollment for each

policy form, but not including coverage

issued to eligible individuals.

(B) All issuers in the individual

market in a State if the data are available

for the previous calendar year, weighted

by enrollment for each policy form.

(ii) Requirements. The two

representative policy forms must meet

the following requirements:

(A) Include a lower-level coverage

policy form under which the actuarial

value of benefits under the coverage is

at least 85 percent but not greater than

100 percent of the weighted average.

(B) Include a higher-level coverage

policy form under which the actuarial

value of the benefits under the coverage

is at least 15 percent greater than the

actuarial value of the lower-level

coverage policy form offered by an

issuer in that State and at least 100

percent, but not greater than 120 percent

of the weighted average.

(C) Include benefits substantially

similar to other individual health
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16997

insurance coverage offered by the issuer

in the State.

(D) Provide for risk adjustment, risk

spreading, or a risk spreading

mechanism, or otherwise provide some

financial subsidization for eligible

individuals.

(E) Meet all applicable State

requirements.

(iii) Actuarial value of benefits. The

actuarial value of benefits provided

under individual health insurance

coverage must be calculated based on a

standardized population, and a set of

standardized utilization and cost factors

under applicable State law.

(4) Election. All issuer elections must

be applied uniformly to all eligible

individuals in the State and must be

effective for all policies offered during

a period of at least 2 years.

(5) Documentation. The issuer must

document the actuarial calculations it

makes as follows:

(i) Enforcement by State. In a State

that elects to enforce the provisions of

this section in lieu of an alternative

mechanism under § 148.128, the issuer

must provide the appropriate State

authorities with the documentation

required by the State.

(ii) Enforcement by HCFA. If HCFA

acts to enforce the provisions of this

section under § 148.200, the issuer must

provide to HCFA, within the following

time frames, any documentation HCFA

requests:

(A) For policy forms already being

marketed as of July 1, 1997—no later

than September 1, 1997.

(B) For other policy forms—90 days

before the beginning of the calendar

year in which the issuer wants to market

the policy form.

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

An issuer that offers coverage in the

individual market through a network

plan may take the following actions:

(i) Specify that an eligible individual

may only enroll if he or she lives,

resides, or works within the service area

for the network plan.

(ii) Deny coverage to an eligible

individual if the issuer has

demonstrated the following to the

applicable State authority (if required by

the State):

(A) It does not have the capacity to

deliver services adequately to additional

individual enrollees because of its

obligations to provide services to

current group contract holders and

enrollees, and to current individual

enrollees.

(B) It uniformly denies coverage to

individuals without regard to any health

status-related factor, and without regard

to whether the individuals are eligible

individuals.

(iii) Not offer any coverage in the

individual market, within the service

area identified for purposes of

paragraph (d)(1)(ii) of this section, for a

period of 180 days after the coverage is

denied.

(2) In those States in which HCFA is

enforcing the individual market

provisions of this part in accordance

with § 148.200, the issuer must make

the demonstration described in

paragraph (d)(1)(ii) of this section to

HCFA rather than to the State, and the

issuer may not deny coverage to any

eligible individual until 30 days after

HCFA receives and approves the

information.

(e) Application of financial capacity

limits. (1) An issuer may deny coverage

to an eligible individual if the issuer has

demonstrated the following to the

applicable State authority (if required by

the State):

(i) It does not have the financial

reserves necessary to underwrite

additional coverage.

(ii) It uniformly denies coverage to all

individuals in the individual market,

consistent with applicable State law,

without regard to any health statusrelated factor of the individuals, and

without regard to whether the

individuals are eligible individuals.

(2) In those States in which HCFA is

enforcing the individual market

provisions of this part in accordance

with § 148.200, the issuer must make

the demonstration described in

paragraph (e)(1) of this section to HCFA

rather than to the State, and the issuer

may not deny coverage to any eligible

individual until 30 days after HCFA

receives and approves the information.

(3) An issuer that denies coverage in

any service area according to paragraph

(e)(1) of this section is prohibited from

offering that coverage in the individual

market for a period of 180 days after the

later of the date—

(1) 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

underwrite additional coverage.

(4) A State may apply the 180-day

suspension described in paragraph (e)(3)

of this section on a service-area-specific

basis.

(f) Rules for dependents—(1) General

rule. If an eligible individual elects to

enroll in individual health insurance

coverage that provides coverage for

dependents, the issuer may apply a

preexisting condition exclusion on any

dependent who is not an eligible

individual.

(2) Exception for certain children. A

child is deemed to be an eligible

individual if the following conditions

are met:

(i) The child was covered under any

creditable coverage within 30 days of

birth, adoption, or placement for

adoption (or longer if the State provides

for a longer special enrollment period

than required under 45 CFR 146.117).

(ii) The child has not had a significant

break in coverage.

(3) Examples. The following examples

illustrate the requirements of this

paragraph (f) for certain children:

Example 1: Individual A had self-only

coverage under his employer’s group health

plan for five years. A has two children, ages

11 and 15, but never enrolled in family

coverage. A leaves his job to become selfemployed, and qualifies as an eligible

individual because he is not entitled to any

continuation coverage, Medicare or

Medicaid, and has no other health insurance

coverage. He applies to Issuer R for coverage

in the individual market under a policy with

family coverage that R makes available to

eligible individuals. R must sell A the policy,

but he may refuse coverage to A’s children,

or may apply a preexisting condition

exclusion to them if allowed under

applicable State law, because they did not

have prior creditable coverage, and therefore

do not qualify as eligible individuals.

Example 2: Individual B was also covered

under a group health plan for 5 years before

losing his job. He originally had coverage

only for himself and his wife, but 3 months

before his employment ended, his wife had

a baby. B took advantage of the special

enrollment period that applied, changed to

family coverage, and enrolled the baby in the

group health plan within 20 days.

Immediately after losing his job, B applied to

Issuer R for family converge. B and his wife

qualify as eligible individuals, and the baby

is deemed to be an eligible individual even

though she has less than three months of

creditable coverage. Therefore R must make

the policy available to all three members of

the family, and cannot impose any

preexisting condition exclusions.

(g) Clarification of applicability. (1)

An issuer in the individual market is

not required to offer a family coverage

option with any policy form.

(2) An issuer offering health insurance

coverage only in connection with group

health plans, or only through one or

more bona fide associations, or both, is

not required to offer that type of

coverage in the individual market.

(3) An issuer offering health insurance

coverage in connection with a group

health plan is not deemed to be a health

insurance issuer offering individual

health insurance coverage solely

because the issuer offers a conversion

policy.

(4) This section does not restrict the

amount of the premium rates that an

issuer may charge an individual under

State law for health insurance coverage

provided in the individual market.
16998 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

(5) This section does not prevent an

issuer offering health insurance

coverage in the individual market from

establishing premium discounts or

rebates, or modifying otherwise

applicable copayments or deductibles,

in return for adherence to programs of

health promotion and disease

prevention.

(6) This section does not require

issuers to reopen blocks of business

closed under applicable State law.

§ 148.122 Guaranteed renewability of

individual health insurance coverage.

(a) Applicability. This section applies

to all health insurance coverage in the

individual market.

(b) General rules. (1) Except as

provided in paragraph (c) of this

section, an issuer must renew or

continue in force the coverage at the

option of the individual.

(2) Medicare eligibility or entitlement

is not a basis for nonrenewal or

termination of an individual’s health

insurance coverage in the individual

market.

(c) Exceptions to renewing coverage.

An issuer may nonrenew or discontinue

health insurance coverage of an

individual in the individual market

based only on one or more of the

following:

(1) Nonpayment of premiums. The

individual has failed to pay premiums

or contributions in accordance with the

terms of health insurance coverage,

including any timeliness requirements.

(2) Fraud. The individual has

performed an act or practice that

constitutes fraud or made an intentional

misrepresentation of material fact under

the terms of the coverage.

(3) Termination of plan. The issuer is

ceasing to offer coverage in the

individual market in accordance with

paragraphs (d) and (e) of this section

and applicable State law.

(4) Movement outside the service area.

For network plans, the individual no

longer resides, lives, or works in the

service area of the issuer, or area for

which the issuer is authorized to do

business, but only if coverage is

terminated uniformly without regard to

any health status-related factor of

covered individuals.

(5) Association membership ceases.

For coverage made available in the

individual market only through one or

more bona fide associations, the

individual’s membership in the

association ceases, but only if the

coverage is terminated uniformly

without regard to any health statusrelated factor of covered individuals.

(d) Discontinuing a particular type of

coverage. An issuer may discontinue

offering a particular type of health

insurance coverage offered in the

individual market only if it meets the

following requirements:

(1) Provides notice in writing to each

individual provided coverage of that

type of health insurance at least 90 days

before the date the coverage will be

discontinued.

(2) Offers to each covered individual,

on a guaranteed issue basis, the option

to purchase any other individual health

insurance coverage currently being

offered by the issuer for individuals in

that market.

(3) Acts uniformly without regard to

any health status-related factor of

covered individuals or dependents of

covered individuals who may become

eligible for coverage.

(e) Discontinuing all coverage. An

issuer may discontinue offering all

health insurance coverage in the

individual market in a State only if it

meets the following requirements.

(1) Provides notice in writing to the

applicable State authority and to each

individual of the discontinuation at

least 180 days before the date the

coverage will expire.

(2) Discontinues and does not renew

all health insurance policies it issues or

delivers for insurance in the State in the

individual market.

(3) Acts uniformly without regard to

any health status-related factor of

covered individuals or dependents of

covered individuals who may become

eligible for coverage.

(f) Prohibition on market reentry. An

issuer who elects to discontinue offering

all health insurance coverage under

paragraph (e) of this section may not

issue coverage in the market and State

involved during the 5-year period

beginning on the date of discontinuation

of the last coverage not renewed.

(g) Exception for uniform

modification of coverage. An issuer

may, only at the time of coverage

renewal, modify the health insurance

coverage for a policy form offered in the

individual market if the modification is

consistent with State law and is

effective uniformly for all individuals

with that policy form.

(h) 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 individual market only through one

or more associations, any reference in

this section to an ‘‘individual’’ is

deemed to include a reference to the

association of which the individual is a

member.

§ 148.124 Certification and disclosure of

coverage.

(a) Applicability—(1) General rule.

Except as provided in paragraph (a)(2)

of this section, this section applies to all

issuers of health insurance coverage.

(2) Exception. The provisions of this

section do not apply to issuers of the

following types of coverage:

(i) Health insurance coverage

furnished in connection with a group

health plan defined in 45 CFR 144.103.

(These issuers are regulated under 45

CFR 146.115 to provide a certificate of

coverage.)

(ii) Excepted benefits described in

§ 148.220.

(b) General rules—(1) Individuals for

whom a certificate must be provided;

timing of issuance. A certificate must be

provided, without charge, for

individuals and dependents, who are or

were covered under an individual

health insurance policy for the

following:

(i) Issuance of automatic certificates.

An automatic certificate must be

provided within a reasonable time

period consistent with State law after

the individual ceases to be covered

under the policy.

(ii) Any individual upon request. A

request for a certificate may be made by,

or on behalf of, an individual within 24

months after coverage ends. For

example, an entity that provides

coverage to an individual in the future

may, if authorized by the individual,

request a certificate of the individual’s

creditable coverage on behalf of the

individual from the issuer of the

individual’s prior coverage. After the

request is received, an issuer must

provide the certificate promptly. A

certificate must be provided under this

paragraph even if the individual has

previously received an automatic

certificate under paragraph (a)(l)(i) of

this section.

(2) Form and content of certificate—

(i) Written certificate—(A) General rule.

Except as provided in paragraph

(b)(2)(i)(B) of this section, the issuer

must provide the certificate in writing

(including any form approved by the

HCFA) (B) Other permissible forms. No

written certificate must be provided if

the following occurs:

(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) of this section through means

other than a written certificate (for

example, by telephone).
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16999

(4) The receiving plan or issuer

receives the information from the

sending issuer in the prescribed form

within the time periods required under

paragraph (b)(1) of this section.

(ii) Required information. The

certificate must include the following:

(A) The date the certificate is issued.

(B) The name of the individual or

dependent for whom the certificate

applies, and any other information

necessary for the issuer providing the

coverage specified in the certificate to

identify the individual, such as the

individual’s identification number

under the policy and the name of the

policyholder if the certificate is for (or

includes) a dependent.

(C) The name, address, and telephone

number of the issuer required to provide

the certificate.

(D) The telephone number to call for

further information regarding the

certificate (if different from paragraph

(b)(2)(ii)(C) of this section).

(E) Either one of the following:

(1) A statement that the 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 as defined in 45 CFR

146.113(b)(2)(iii).

(2) Both the date the individual first

sought coverage, as evidenced by a

substantially complete application, and

the date creditable coverage began.

(F) 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 a

certificate. If any automatic certificate is

provided under paragraph (b)(1)(i) 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 (b)(1)(ii) 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

period of continuous coverage.

(iv) Single certificate permitted for

families. An issuer may provide a single

certificate for both an individual and the

individual’s dependents if it provides

all the required information for each

individual and dependent, and

separately states the information that is

not identical.

(v) Model certificate. The

requirements of paragraph (b)(2)(ii) of

this section are satisfied if the issuer

provides a certificate in accordance with

a model certificate as provided by

HCFA.

(vi) Excepted benefits; categories of

benefits. No certificate is required to be

furnished with respect to excepted

benefits described in § 148.220. 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 (c) of this section.

(3) Procedures—(i) Method of

delivery. The certificate is required to be

provided, without charge, to each

individual described in paragraph (b)(1)

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 individual and the individual’s

spouse at the individual’s last known

address, the requirements of this

paragraph (b)(3) are satisfied with

respect to all individuals and

dependents residing at that address. If a

dependent does not reside at the

individual’s last known address, a

separate certificate must be provided to

the dependent at the dependent’s last

known address. If separate certificates

are provided by mail to individuals and

dependents who reside at the same

address, separate mailings of each

certificate are not required.

(ii) Procedure for requesting

certificates. An issuer must establish a

procedure for individuals and

dependents to request and receive

certificates under paragraph (b)(1)(ii) of

this section.

(iii) Designated recipients. If an

automatic certificate is required to be

provided under paragraph (b)(1)(i) of

this section, and the individual or

dependent entitled to receive the

certificate designates another individual

or entity to receive the certificate, the

issuer responsible for providing the

certificate may provide the certificate to

the designated party. If a certificate

must be provided upon request under

paragraph (b)(1)(ii) of this section, and

the individual entitled to receive the

certificate designates another individual

or entity to receive the certificate, the

issuer responsible for providing the

certificates must provide the certificate

to the designated party.

(4) Special rules concerning

dependent coverage—(i) Reasonable

efforts. An issuer must use reasonable

efforts to determine any information

needed for a certificate relating to

dependent coverage. If an automatic

certificate must be furnished with

respect to a dependent under paragraph

(b)(1)(i) of this section, no individual

certificate must be furnished until the

issuer knows (or making reasonable

efforts should know) of the dependent’s

cessation of coverage under the policy.

(ii) Special rules for demonstrating

coverage. If a certificate furnished by an

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 (d)(3) of this section for

demonstrating dependent status. 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, in

which case the child would not be

subject to a preexisting condition

exclusion under § 148.120(f)(2).

(iii) Transition rule for dependent

coverage before July 1, 1998—(A)

General rule. An 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 (b)(2)(ii)(C) of

this section by providing the name of

the policyholder and specifying that the

type of coverage provided in the

certificate is for dependent coverage (for

example, family coverage or individualplus-spouse coverage).

(B) Certificates provided on request.

For purposes of certificates provided on

the request of, or on behalf of, an

individual under paragraph (b)(1)(ii) of

this section, an issuer must make

reasonable efforts to obtain and provide

the names of any dependent covered by

the certificate if the information is

requested. If an issuer responsible for

providing a certificate 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

(d)(3) of this section for submitting

documentation to establish that the

creditable coverage in the certificate

applies to the dependent.

(C) Timing. An issuer providing an

automatic certificate that does not

contain the name of a dependent must

furnish a certificate within 21 days after

the individual ceases to be covered

under the policy.

(D) Duration. The transitional rules of

this paragraph (b)(4)(iii) are effective for

certifications provided with respect to

an event occurring before July 1, 1998.

(E) Optional notice. This paragraph

applies to events described in § 148.124

(b)(4)(ii), that occur on or after October

1, 1996, but before June 1, 1997. An

issuer offering individual health

insurance coverage is deemed to satisfy

§ 148.124 (b)(1) and (b)(2) if a notice is
17000 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

provided in accordance with the

provisions of § 148.124(b)(4)(iii).

(c) Disclosure of coverage to a plan, or

issuer, electing the alternative method

of creating coverage—(1) General rule. If

an individual enrolls in a group health

plan and the plan or issuer uses the

alternative method of determining

creditable coverage described in 45 CFR

146.113(c), the individual provides a

certificate of coverage under paragraph

(b) of this section or demonstrates

creditable coverage under paragraph (d)

of this section, and the plan or coverage

in which the individual enrolls requests

from the prior entity, the prior entity

must disclose promptly to the

requesting plan or issuer (‘‘requesting

entity’’) the information set forth in

paragraph (c)(2) of this section.

(2) Information to be disclosed. The

prior entity must promptly identify for

the requesting entity the categories of

benefits and services used by the

individual for which the requesting

entity uses the alternative method of

crediting coverage, and any specific

information that the requesting entity

requests to determine the individual’s

creditable coverage. The prior entity

must promptly disclose to the

requesting entity the creditable coverage

information.

(3) Charge for providing information.

The prior entity furnishing the

information under paragraph (c)(2) of

this section may charge the requesting

entity for the reasonable cost of

disclosing the information.

(d) Ability of an individual to

demonstrate creditable coverage and

waiting period information—(1) General

rule. Individuals may establish

creditable coverage through means other

than certificates. 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 a demonstration if one of the

following occurs:

(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.

(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.

(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. An issuer

must 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 or not

an individual has 18 months of

creditable coverage. An issuer must treat

the individual as having furnished a

certificate 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

issuer’s efforts to verify the individual’s

coverage. For this purpose, cooperation

includes providing (upon the issuer’s

request) a written authorization for the

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 an issuer

may refuse to credit coverage if the

individual fails to cooperate with the

issuer’s efforts to verify coverage, the

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 be

established through means other than

documentation, such as by a telephone

call from the issuer to a third party

verifying creditable coverage.

(3) 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

issuer must treat the individual as

having furnished a certificate showing

the dependent status if the individual

attests to the dependency and the period

of the status and the individual

cooperates with the issuer’s efforts to

verify the dependent status.

§ 148.126 Determination of an eligible

individual.

(a) General rule. Each issuer offering

health insurance coverage in the

individual market is responsible for

determining whether an applicant for

coverage is an eligible individual as

defined in § 148.103.

(b) Specific requirements. (1) The

issuer must exercise reasonable

diligence in making this determination.

(2) The issuer must promptly

determine whether an applicant is an

eligible individual.

(3) If an issuer determines that an

individual is an eligible individual, the

issuer must promptly issue a policy to

that individual.

(c) Insufficient information—(1)

General rule. If the information

presented in or with an application is

substantially insufficient for the issuer

to make the determination described in

paragraph (b)(2) of this section, the

issuer may immediately request

additional information from the

individual, and must act promptly to

make its determination after receipt of

the requested information

(2) Failure to provide a certification of

creditable coverage. If an entity fails to

provide the certificate that is required

under this part or 45 CFR part 146 to the

applicant, the issuer is subject to the

procedures set forth in § 148.124(d)(1)

concerning an individual’s right to

demonstrate creditable coverage.

§ 148.128 State flexibility in individual

market reforms—alternative mechanisms.

(a) Waiver of requirements. The

requirements of § 148.120, which set

forth Federal requirements for

guaranteed availability in the individual

market, do not apply in a State that

implements an acceptable alternative

mechanism in accordance with the

following criteria:

(1) The alternative mechanism meets

the following conditions:

(i) Offers health insurance coverage to

all eligible individuals.

(ii) Prohibits imposing preexisting

condition exclusions and affiliation

periods for coverage of an eligible

individual.

(iii) Offers an eligible individual a

choice of coverage that includes at least

one policy form of coverage that is

comparable to either one of the

following:

(A) Comprehensive coverage offered

in the individual market in the State.

(B) A standard option of coverage

available under the group or individual

health insurance laws of the State.
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 17001

(2) The State is implementing one of

the following provisions relating to risk:

(i) One of the following model acts, as

adopted by the NAIC on June 3, 1996,

but only if the model has been revised

in State regulations to meet all of the

requirements of this part and part 144:

(A) The Small Employer and

Individual Health Insurance Availability

Model Act to the extent it applies to

individual health insurance coverage.

(B) The Individual Health Insurance

Portability Model Act.

(ii) A qualified high risk pool, which,

for purposes of this section, is a high

risk pool that meets the following

conditions:

(A) Provides to all eligible individuals

health insurance coverage (or

comparable coverage) that does not

impose any preexisting condition

exclusion or affiliation periods for

coverage of an eligible individual.

(B) Provides for premium rates and

covered benefits for the coverage

consistent with standards included in

the NAIC Model Health Plan for

Uninsurable Individuals Act (as in effect

as of August 21, 1996), but only if the

model has been revised in State

regulations to meet all of the

requirements of this part and part 144.

(iii) One of the following mechanisms:

(A) Any other mechanism that

provides for risk adjustment, risk

spreading, or a risk-spreading

mechanism (among issuers or policies of

an issuer) or otherwise provides for

some financial subsidization for eligible

individuals, including through

assistance to participating issuers.

(B) A mechanism that provides a

choice for each eligible individual of all

individual health insurance coverage

otherwise available.

(b) Permissible forms of mechanisms.

A private or public individual health

insurance mechanism (such as a health

insurance coverage pool or program, a

mandatory group conversion policy,

guaranteed issue of one or more plans

of individual health insurance coverage,

or open enrollment by one or more

health insurance issuers), or

combination of these mechanisms, that

is designed to provide access to health

benefits for individuals in the

individual market in the State, in

accordance with this section, may

constitute an acceptable alternative

mechanism.

(c) Establishing an acceptable

alternative mechanism—transition

rules. HCFA presumes a State to be

implementing an acceptable alternative

mechanism as of July 1, 1997 if the

following conditions are met:

(1) By not later than April 1, 1997, as

evidenced by a postmark date, or other

such date, the chief executive officer of

the State takes the following actions:

(i) Notifies HCFA that the State has

enacted or intends to enact by not later

than January 1, 1998 (unless it is a State

described in paragraph (d) of this

section), any legislation necessary to

provide for the implementation of a

mechanism reasonably designed to be

an acceptable alternative mechanism as

of January 1, 1998.

(ii) Provides HCFA with the

information necessary to review the

mechanism and its implementation (or

proposed implementation).

(2) HCFA has not made a

determination, in accordance with the

procedure in paragraph (e)(4)(1) of this

section, that the State will not be

implementing a mechanism reasonably

designed to be an acceptable alternative

mechanism as of January 1, 1998.

(d) Delay permitted for certain States.

If a State notifies HCFA that its

legislature is not meeting in a regular

session between August 21, 1996 and

August 20, 1997, HCFA continues to

presume until July 1, 1998 that the State

is implementing an acceptable

alternative mechanism, if the chief

executive officer of the State takes the

following actions:

(1) Notifies HCFA by April 1, 1997,

that the State intends to submit an

alternative mechanism and intends to

enact any necessary legislation to

provide for the implementation of an

acceptable alternative mechanism as of

July 1, 1998.

(2) Notifies HCFA by April 1, 1998,

that the State has enacted any necessary

legislation to provide for the

implementation of an acceptable

alternative mechanism as of July 1,

1998.

(3) Provides HCFA with the

information necessary to review the

mechanism and its implementation (or

proposed implementation).

(e) Submitting an alternative

mechanism after April 1, 1997—(1)

Notice with information. A State that

wishes to implement an acceptable

alternative mechanism must take the

following actions:

(i) Notify HCFA that it has enacted

legislation necessary to provide for the

implementation of a mechanism

reasonably designed to be an acceptable

alternative mechanism, and

(ii) Provide HCFA with the

information necessary for HCFA to

review the mechanism and its

implementation (or proposed

implementation).

(2) If the State takes the actions

described in paragraph (e)(1) of this

section, the mechanism is considered to

be an acceptable alternative mechanism

unless HCFA makes a preliminary

determination (under paragraph (e)(4)(i)

of this section), within the review

period (defined in paragraph (e)(3) of

this section), that the mechanism is not

an acceptable alternative mechanism.

(3) Review period—(1) General. The

review period begins on the date the

State’s notice and information are

received by HCFA, and ends 90 days

later, not counting any days during

which the review period is suspended

under paragraph (e)(3)(ii) of this section.

(ii) Suspension of review period.

During any review period, if HCFA

notifies the State of the need for

additional information or further

discussion on its submission, HCFA

suspends the review period until the

State provides the necessary

information.

(4) Determination by HCFA—(i)

Preliminary determination. If HCFA

finds after reviewing the submitted

information, and after consultation with

the chief executive officer of the State

and the chief insurance regulatory

official of the State, that the mechanism

is not an acceptable alternative

mechanism, HCFA takes the following

actions:

(A) Notifies the State, in writing, of

the preliminary determination.

(B) Informs the State that if it fails to

implement an acceptable alternative

mechanism, the Federal guaranteed

availability provisions of § 148.120 will

take effect.

(C) Permits the State a reasonable

opportunity to modify the mechanism

(or to adopt another mechanism).

(ii) Final determination. If, after

providing notice and a reasonable

opportunity for the State to modify its

mechanism, HCFA makes a final

determination that the design of the

State’s alternative mechanism is not

acceptable or that the State is not

substantially enforcing an acceptable

alternative mechanism, HCFA notifies

the State in writing of the following:

(A) HCFA’s final determination.

(B) That the requirements of § 148.120

concerning guaranteed availability

apply to health insurance coverage

offered in the individual market in the

State are effective as of a date specified

in the notice from HCFA.

(iii) State request for early notice. A

State may request that HCFA notify the

State before the end of the review period

if HCFA is not making a preliminary

determination.

(5) Effective date. If HCFA does not

make a preliminary determination

within the review period, the acceptable

alternative mechanism is effective 90

days after the end of the 90-day review
17002 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

period described in paragraph (e)(3)(i) of

this section.

(f) Continued application. A State

alternative mechanism may continue to

be presumed to be acceptable, if the

State provides information to HCFA that

meets the following requirements:

(1) If the State makes a significant

change to its alternative mechanism, it

provides the information before making

a change.

(2) Every 3 years from the later of

implementing the alternative

mechanism or implementing a

significant change, it provides HCFA

with information.

(g) Review criteria. HCFA reviews

each State’s submission to determine

whether it addresses all of the following

requirements:

(1) Is the mechanism reasonably

designed to provide all eligible

individuals with a choice of health

insurance coverage?

(2) Does the choice offered to eligible

individuals include at least one policy

form that meets one of the following

requirements?

(i) Is the policy form comparable to

comprehensive health insurance

coverage offered in the individual

market in the State?

(ii) Is the policy form comparable to

a standard option of coverage available

under the group or individual health

insurance laws of the State?

(3) Does the mechanism prohibit

preexisting condition exclusions for all

eligible individuals?

(4) Is the State implementing one of

the following:

(i) The NAIC Small Employer and

Individual Health Insurance Availability

Model Act (Availability Model),

adopted on June 3, 1996, revised to

reflect HIPAA requirements.

(ii) The Individual Health Insurance

Portability Model Act (Portability

Model), adopted on June 3, 1996,

revised to reflect HIPAA requirements.

(iii) A qualified high-risk pool that

provides eligible individuals health

insurance or comparable coverage

without a preexisting condition

exclusion, and with premiums and

benefits consistent with the NAIC

Model Health Plan for Uninsurable

Individuals Act (as in effect August 21,

1996), revised to reflect HIPAA

requirements.

(iv) A mechanism that provides for

risk spreading or provides eligible

individuals with a choice of all

available individual health insurance

coverage.

(5) Has the State enacted all

legislation necessary for implementing

the alternative mechanism?

(6) If the State has not enacted all

legislation necessary for implementing

the alternative mechanism, will the

necessary legislation be enacted by

January 1, 1998?

(h) Limitation of HCFA’s authority.

HCFA does not make a preliminary or

final determination on any basis other

than a mechanism is not considered an

acceptable alternative mechanism or is

not being implemented.

Subpart C—[Reserved]

Subpart D—Enforcement; Penalties;

Preemption

§ 148.200 Enforcement by State;

determination regarding failure to enforce.

(a) General rule—enforcement by

State. Except as provided in paragraph

(b) 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 individual

market in the State.

(b) Exception—enforcement by HCFA.

HCFA enforces the provisions of this

part with respect to health insurance

issuers, using the procedures described

in § 148.202, only in the following

circumstances:

(1) State election. The State chooses

not to enforce the Federal requirements.

(2) State failure to enforce. HCFA

determines under paragraph (c) of this

section that a State has failed to

substantially enforce the requirements

of this part.

(c) HCFA determination. If HCFA

receives information, through a

complaint or any other means, that

raises a question about whether a State

is substantially enforcing the

requirements of this part, HCFA follows

the following procedures:

(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 about whether there has been

a failure to substantially enforce the

requirements of this part, HCFA sends,

in writing, the notice described 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) If the alleged failure involves

HMOs, the official responsible for

regulating HMOs, if different than the

official listed in paragraph (c)(2)(ii) of

this section.

(3) Form and content of notice.

HCFA’s written notice to the State sets

forth the following information:

(i) Describes the facts of the specific

violations.

(ii) Explains that the consequence of

a failure to substantially enforce the

requirements of this part is that HCFA

enforces the requirements in accordance

with paragraph (d) of this section.

(iii) Advises the State that it has 45

days to respond to the notice, unless the

time is extended as described in

paragraph (c)(4) 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) Extension. HCFA may, for good

cause, grant the State an extension of

the time period described in paragraph

(c)(3)(iii) of this section. 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 for a State

to respond to HCFA’s notice (and any

extension), the State has not established

to HCFA’s satisfaction that it is

substantially enforcing the requirements

of this part, 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 requirements,

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 the requirements of this part,

HCFA finds that the failure to enforce

has not been corrected, HCFA sends the

State a written notice of that final

determination. The notice sets forth the

following:

(i) The effective date of HCFA

enforcement.

(ii) The mechanism for establishing in

the future that it has corrected the

failure, and has begun enforcement.

This mechanism includes transition

procedures for ending HCFA’s

enforcement period.

§ 148.202 Civil money penalties.

(a) General rule. If any health

insurance issuer that is subject to

HCFA’s enforcement authority under

§ 148.200 fails to comply with any
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 17003

applicable requirement of this part, it

may be subject to a civil money penalty.

(b) 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 an issuer’s failure

to comply with the requirements of this

part may file a complaint with HCFA.

(c) Notice to issuer. HCFA sends a

written notice to the issuer that a

complaint or other information has been

received alleging a violation of this part.

The notice sets forth the following:

(1) A description of the substance of

any complaint or other allegation.

(2) A time frame of 30 days for the

issuer to respond with additional

information, which can include the

following:

(i) Information refuting that there has

been a violation.

(ii) Evidence that the issuer did not

know, and exercising reasonable

diligence could not have known, of the

violation.

(iii) Evidence of a previous record of

compliance.

(d) Notice of assessment. If, based on

the information provided in the

complaint, as well as any information

submitted by the issuer or any other

parties, HCFA proposes to assess a civil

money penalty, HCFA sends written

notice of the assessment to the issuer by

certified mail, return receipt requested.

The notice contains the following

information:

(1) The name or names of the

individuals with respect to whom a

violation occurred, with relevant

identification numbers.

(2) The facts that support the finding

of a violation, and the initial date of the

violation.

(3) The amount of the proposed

penalty as of the date of the notice.

(4) The basis for calculating the

penalty, including consideration of

prior compliance.

(5) Instructions for responding to the

notice, including the following

information:

(i) A specific statement of the issuer’s

right to a hearing.

(ii) A statement that failure to request

a hearing within 30 days permits the

imposition of the proposed penalty,

without right of appeal.

(e) Amount of penalty—(1) Maximum

daily penalty. The penalty cannot

exceed $100 for each day, for each

individual with respect to whom a

failure occurs.

(2) Standard for calculating daily

penalty. In calculating the amount of the

penalty, HCFA takes into account the

issuer’s previous record of compliance

and the seriousness of the violation.

(3) Limitations on penalties. No civil

money penalty is imposed for the

following periods:

(i) A period during which a failure

existed, but the issuer did not know,

and exercising reasonable diligence

would not have known, that the failure

existed.

(ii) A period occurring immediately

after the period during which a failure

existed, but the issuer did not know,

and exercising reasonable diligence

would not have known, that the failure

existed if the failure—

(A) Was due to reasonable cause and

was not due to willful neglect; and

(B) Was corrected within 30 days of

the first day that the issuer knew, or

exercising reasonable diligence would

have known, that the failure existed.

(iii) The burden is on the issuer to

establish to the satisfaction of HCFA

that it did not know, and exercising

reasonable diligence could not have

known that the failure existed.

(f) Hearings—(1) Right to a hearing.

Any issuer 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 HCFA issues the notice of

assessment.

(2) Failure to request a hearing. If no

hearing is requested in accordance with

this paragraph (f), the notice of

assessment constitutes a final order that

is not subject to appeal.

(3) Parties to the hearing. Parties to

the hearing include the issuer and the

party who filed the complaint. HCFA

sends an informational notice to the

State.

(4) Initial agency decision. The initial

agency decision is made by an

administrative law judge. The decision

is made on the record under section 554

of Title 5, United States Code. The

decision becomes a final and appealable

order after 30 days, unless it is modified

in accordance with paragraph (g) of this

section.

(5) 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 by the administrative law

judge.

(g) Judicial review—(1) Filing of

action for review. Any issuer against

whom a final order imposing a civil

money penalty is entered 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—

(i) Filing a notice of appeal in that

court within 30 days from the date of a

final order; and

(ii) Simultaneously sending a copy of

the notice of appeal by registered mail

to HCFA.

(2) Certification of administrative

record. HCFA promptly certifies and

files with the court the record upon

which the penalty was imposed.

(3) 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.

(4) Appeal. Any final decision, order,

or judgment of the district court

concerning HCFA’s review is subject to

appeal as provided in Chapter 83 of

Title 28, United States Code.

(h) Failure to pay assessment,

maintenance of action—(1) Failure to

pay assessment. If an issuer fails to pay

an assessment after it becomes a final

order, or after the court has entered final

judgment in favor of HCFA, HCFA refers

the matter to the Attorney General, who

brings an action against the issuer in the

appropriate United States district court

to recover the amount assessed.

(2) Final order not subject to review.

In an action brought under paragraph

(h)(1) of this section, the validity and

appropriateness of the final order

described in paragraph (g)(1)(i) of

paragraph (g)(3) of this section is not

subject to review.

(i) Use of penalty funds. (1) Any funds

collected under this section are paid to

the Administrator or other office

imposing the penalty.

(2) The funds are available without

appropriation and until expended.

(3) The funds may only be used for

the purpose of enforcing the provisions

for which the penalty was imposed.

§ 148.210 Preemption.

(a) Scope. (1) This section describes

the effect of sections 2741 through 2763

and 2791 of the PHS Act on a State’s

authority to regulate health insurance

issuers in the individual market. This

section makes clear that States remain

subject to section 514 of ERISA, which

generally preempts State law that relates

to ERISA-covered plans.

(2) Sections 2741 through 2763 and

2791 of the PHS Act cannot be

construed to affect or modify the

provisions of section 514 of ERISA.

(b) Regulation of insurance issuers.

The individual market rules of this part

do not prevent a State law from

establishing, implementing, or

continuing in effect standards or

requirements unless the standards or

requirements prevent the application of

a requirement of this part.
17004 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

§ 148.220 Excepted benefits.

The requirements of this part do not

apply to individual health insurance

coverage in relation to its provision of

the benefits described in paragraphs (a)

and (b) of this section (or any

combination of the benefits).

(a) Benefits excepted in all

circumstances. The following benefits

are excepted in all circumstances:

(1) Coverage only for accident

(including accidental death and

dismemberment).

(2) Disability income insurance.

(3) Liability insurance, including

general liability insurance and

automobile liability insurance.

(4) Coverage issued as a supplement

to liability insurance.

(5) Workers’ compensation or similar

insurance.

(6) Automobile medical payment

insurance.

(7) Credit-only insurance (for

example, mortgage insurance).

(8) Coverage for on-site medical

clinics.

(b) Other excepted benefits. The

requirements of this part do not apply

to individual health insurance coverage

described in paragraph (b)(1) through

(b)(6) of this section if the benefits are

provided under a separate policy,

certificate, or contract of insurance.

These benefits include the following:

(1) Limited scope dental or vision

benefits. These benefits are dental or

vision benefits that are limited in scope

to a narrow range or type of benefits that

are generally excluded from benefit

packages that combine hospital,

medical, and surgical benefits.

(2) Long-term care benefits. These

benefits are benefits that are either—

(i) Subject to State long-term care

insurance laws;

(ii) 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 Code; or

(iii) Based on cognitive impairment or

a loss of functional capacity that is

expected to be chronic.

(3) Coverage only for a specified

disease or illness (for example, cancer

policies), or hospital indemnity or other

fixed indemnity insurance (for example,

$100/day) if the policies meet the

requirements of 45 CFR

146.145(b)(4)(ii)(B) and (b)(4)(ii)(C)

regarding noncoordination of benefits.

(4) Medicare supplemental health

insurance (as defined under section

1882(g)(1) of the Social Security Act. 42

U.S.C. 1395ss, also known as Medigap

or MedSup insurance).

(5) Coverage supplemental to the

coverage provided under Chapter 55,

Title 10 of the United States Code (also

known as CHAMPUS supplemental

programs).

(6) Similar supplemental coverage

provided to coverage under a group

health plan.

Authority: Secs. 2741 through 2763, 2791,

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

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

91.

Dated: March 25, 1997.

Bruce C. Vladeck,

Administrator, Health Care Financing

Administration.

Dated: March 25, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 97–8217 Filed 4–1–97; 12:58 pm]

BILLING CODE 4120–01–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 8716]

RIN 1545–AV05

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2590

RIN 1210–AA54

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.

ACTION: Interim rules: Correction.

SUMMARY: This document contains a

correction regarding the preamble to the

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 that were published

elsewhere in this issue of the Federal

Register. A sentence in the preamble to

the interim rules was inadvertently

dropped. This document adds this

sentence.

EFFECTIVE DATE: June 1, 1997.

FOR FURTHER INFORMATION CONTACT:

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–

4695. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION: The last

sentence of the first paragraph of the

preamble to the interim rules entitled

section ‘‘M. Paperwork Reduction Act—

Department of Labor and Department of

the Treasury’’ is inadvertently missing.

This document adds this sentence to the

preamble to the interim rules. The

sentence reads ‘‘An agency may not

conduct or sponsor, and a person is not

required to respond to, a collection of

information unless it displays a valid

control number assigned by the Office of

Management and Budget’’.

Signed at Washington, DC, this 3rd day of

April, 1997.

Olena Berg,

Assistant Secretary, Pension and Welfare

Benefits Administration, U.S. Department of

Labor.

Dale D. Goode,

Federal Register Liaison, Assistant Chief

Counsel (Corporate), U.S. Department of the

Treasury.

[FR Doc. 97–8933 Filed 4–3–97; 12:49 pm]

BILLING CODE 4830–01–P, 4510–29–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

45 CFR Subtitle A

[BPD–882–CN]

[BPD–890–CN]

Interim Rules for Health Insurance

Portability for Group Health Plans and

Individual Market Health Insurance

Reform: Portability from Group to

Individual Coverage; and Federal

Rules for Access in the Individual

Market; State Alternative Mechanisms

to Federal Rules

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Interim rule; correction.

SUMMARY: Federal Register documents

97–8217 and 97–8275 in this issue

include provisions that implement the

health insurance portability,

availability, and renewability provisions

of the Health Insurance Portability and

Accountability Act of 1996.

Those documents contain a technical

error in amendments because of

differing effective dates. The rule with

the earlier effective date establishes a

new part in a subchapter established by

the rule with the later date. This

document corrects that error.

EFFECTIVE DATE: This correction is

effective on April 8, 1997.