Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Proposed Rules 1435

discount.) Thus, the premium discount

violates paragraph (c) of this section because

it may require an individual to pay a higher

premium based on a health factor of the

individual than is required of a similarly

situated individual under the plan.

Example 4. (i) Facts. Same facts as

Example 3, except that if it is unreasonably

difficult due to a medical condition for a

participant to achieve the targeted cholesterol

count (or if it is medically inadvisable for a

participant to attempt to achieve the targeted

cholesterol count), the plan will make

available a reasonable alternative standard

that takes the relevant medical condition into

account. In addition, all plan materials

describing the terms of the program include

the following statement: ‘‘If it is

unreasonably difficult due to a medical

condition for you to achieve a cholesterol

count under 200, or if it is medically

inadvisable for you to attempt to achieve a

count under 200, call us at the number below

and we will work with you to develop

another way to get the discount.’’ Individual

D is unable to achieve a cholesterol count

under 200. The plan accommodates D by

making the discount available to D, but only

if D complies with a low-cholesterol diet.

(ii) Conclusion. In this Example 4, the

program is a bona fide wellness program

because it satisfies the four requirements of

this paragraph (f). First, the program

complies with the limits on rewards under a

program. Second, it is reasonably designed to

promote good health or prevent disease.

Third, the reward under the program is

available to all similarly situated individuals

because it accommodates individuals for

whom it is unreasonably difficult due to a

medical condition to achieve the targeted

count (or for whom it is medically

inadvisable to attempt to achieve the targeted

count) in the prescribed period by providing

a reasonable alternative standard. Fourth, the

plan discloses in all materials describing the

terms of the program the availability of a

reasonable alternative standard. Thus, the

premium discount does not violate this

section.

Example 5. (i) Facts. A group health plan

will waive the $250 annual deductible

(which is less than [10/15/20] percent of the

annual cost of employee-only coverage under

the plan) for the following year for

participants who have a body mass index

between 19 and 26, determined shortly

before the beginning of the year. However,

any participant for whom it is unreasonably

difficult due to a medical condition to attain

this standard (and any participant for whom

it is medically inadvisable to attempt to

achieve this standard) during the plan year

is given the same discount if the participant

walks for 20 minutes three days a week. Any

participant for whom it is unreasonably

difficult due to a medical condition to attain

either standard (and any participant for

whom it is medically inadvisable to attempt

to achieve either standard during the year) is

given the same discount if the individual

satisfies a reasonable alternative standard

that is tailored to the individual’s situation.

All plan materials describing the terms of the

wellness program include the following

statement: ‘‘If it is unreasonably difficult due

to a medical condition for you to achieve a

body mass index between 19 and 26 (or if it

is medically inadvisable for you to attempt to

achieve this body mass index) this year, your

deductible will be waived if you walk for 20

minutes three days a week. If you cannot

follow the walking program, call us at the

number above and we will work with you to

develop another way to have your deductible

waived, such as a dietary regimen.’’

(ii) Conclusion. In this Example 5, the

program is a bona fide wellness program

because it satisfies the four requirements of

this paragraph (f). First, the program

complies with the limits on rewards under a

program. Second, it is reasonably designed to

promote good health or prevent disease.

Third, the reward under the program is

available to all similarly situated individuals

because it generally accommodates

individuals for whom it is unreasonably

difficult due to a medical condition to

achieve (or for whom it is medically

inadvisable to attempt to achieve) the

targeted body mass index by providing a

reasonable alternative standard (walking) and

it accommodates individuals for whom it is

unreasonably difficult due to a medical

condition (or for whom it is medically

inadvisable to attempt) to walk by providing

an alternative standard that is reasonable for

the individual. Fourth, the plan discloses in

all materials describing the terms of the

program the availability of a reasonable

alternative standard for every individual.

Thus, the waiver of the deductible does not

violate this section.

Example 6. (i) Facts. In conjunction with

an annual open enrollment period, a group

health plan provides a form for participants

to certify that they have not used tobacco

products in the preceding twelve months.

Participants who do not provide the

certification are assessed a surcharge that is

[10/15/20] percent of the cost of employeeonly coverage. However, all plan materials

describing the terms of the wellness program

include the following statement: ‘‘If it is

unreasonably difficult due to a health factor

for you to meet the requirements under this

program (or if it is medically inadvisable for

you to attempt to meet the requirements of

this program), we will make available a

reasonable alternative standard for you to

avoid this surcharge.’’ It is unreasonably

difficult for Individual E to stop smoking

cigarettes due to an addiction to nicotine (a

medical condition). The plan accommodates

E by requiring E to participate in a smoking

cessation program to avoid the surcharge. E

can avoid the surcharge for as long as E

participates in the program, regardless of

whether E stops smoking (as long as E

continues to be addicted to nicotine).

(ii) Conclusion. In this Example 6, the

premium surcharge is permissible as a bona

fide wellness program because it satisfies the

four requirements of this paragraph (f). First,

the program complies with the limits on

rewards under a program. Second, it is

reasonably designed to promote good health

or prevent disease. Third, the reward under

the program is available to all similarly

situated individuals because it

accommodates individuals for whom it is

unreasonably difficult due to a medical

condition (or for whom it is medically

inadvisable to attempt) to quit using tobacco

products by providing a reasonable

alternative standard. Fourth, the plan

discloses in all materials describing the terms

of the program the availability of a reasonable

alternative standard. Thus, the premium

surcharge does not violate this section.

* * * * *

Dated: June 22, 2000.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

Approved: August 29, 2000.

Donna E. Shalala,

Secretary.

[FR Doc. 01–107 Filed 1–5–01; 8:45 am]

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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG–114082–00]

RIN 1545–AY32

HIPAA Nondiscrimination

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

by cross-reference to temporary

regulations.

SUMMARY: Elsewhere in this issue of the

Federal Register, the IRS is issuing

temporary and final regulations

governing the provisions prohibiting

discrimination based on a health factor

for group health plans. The IRS is

issuing the temporary and final

regulations at the same time that the

Pension and Welfare Benefits

Administration of the U.S. Department

of Labor and the Health Care Financing

Administration of the U.S. Department

of Health and Human Services are

issuing substantially similar interim

final regulations governing the

provisions prohibiting discrimination

based on a health factor for group health

plans and issuers of health insurance

coverage offered in connection with a

group health plan under the Employee

Retirement Income Security Act of 1974

and the Public Health Service Act. The

temporary regulations provide guidance

to employers and group health plans

relating to the group health plan

nondiscrimination requirements. The

text of those temporary regulations also

serves as the text of these proposed

regulations.

DATES: Written comments and requests

for a public hearing must be received by

April 9, 2001.

1436 Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Proposed Rules

1A previous § 54.9802–1T was published in the

Federal Register on April 8, 1997. By operation of

section 7805(e) of the Internal Revenue Code, the

previous § 54.9802–1T expired on April 8, 2000.

Proposed regulations containing the same text as

previous § 54.9802–1T were also published on

April 8, 1997, and final regulations based on those

proposed regulations are being published elsewhere

in this issue of the Federal Register as § 54.9802–

1. The new § 54.9802–1T being published

elsewhere in this issue of the Federal Register

consists almost entirely of new guidance not

contained in the previous § 54.9802–1T.

ADDRESSES: Send submissions to:

CC:M&SP:RU (REG–114082–00), room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. Submissions may be handdelivered to: CC:M&SP:RU (REG–

114082–00), room 5226, Internal

Revenue Service, 1111 Constitution

Avenue, NW., Washington, DC.

Alternatively, taxpayers may submit

comments electronically via the Internet

by selecting the ‘‘Tax Regs’’ option on

the IRS Home Page, or by submitting

comments directly to the IRS Internet

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

regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Russ

Weinheimer at 202–622–6080;

concerning submissions of comments or

requests for a hearing, Sonya Cruse at

202–622–7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

referenced in this notice of proposed

rulemaking has been submitted to the

Office of Management and Budget for

review in accordance with the

Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)).

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.

The collections of information are in

§ 54.9802–1T (see the temporary

regulations published elsewhere in this

issue of the Federal Register). The

collections of information are required

so that individuals denied enrollment in

a group health plan based on one or

more health factors will be apprised of

their right to enroll in the plan without

regard to their health. The likely

respondents are business or other forprofit institutions, nonprofit

institutions, small businesses or

organizations, and Taft-Hartley trusts.

Responses to this collection of

information are required of plans that

have denied enrollment to individuals

based on one or more health factors.

Books or records relating to a

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Comments on the collection of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, W:CAR:MP:FP:S:O,

Washington, DC 20224. Comments on

the collection of information should be

received by April 9, 2001. Comments

are specifically requested concerning:

• Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

Internal Revenue Service, including

whether the information will have

practical utility;

• The accuracy of the estimated

burden associated with the proposed

collection of information (see the

preamble to the temporary regulations

published elsewhere in this issue of the

Federal Register);

• How to enhance the quality, utility,

and clarity of the information to be

collected;

• How to minimize the burden of

complying with the proposed collection

of information, including the

application of automated collection

techniques or other forms of information

technology; and

• Estimates of capital or start-up costs

and costs of operation, maintenance,

and purchase of services to provide

information.

Background

The temporary regulations published

elsewhere in this issue of the Federal

Register add a new § 54.9802–1T to the

Miscellaneous Excise Tax Regulations.1

When these proposed regulations are

published as final regulations, they will

supplement the final regulations in

§ 54.9802–1 being published elsewhere

in this issue of the Federal Register. The

proposed, temporary, and final

regulations are being published as part

of a joint rulemaking with the

Department of Labor and the

Department of Health and Human

Services (the joint rulemaking).

Special Analyses

This regulation is not subject to the

Unfunded Mandates Reform Act of 1995

because the regulation is an interpretive

regulation. It has also been determined

that section 553(b) of the Administrative

Procedure Act (5 U.S.C. chapter 5) does

not apply to this regulation. For further

information and for analyses relating to

the joint rulemaking, see the preamble

to the joint rulemaking. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Requests for a Public

Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments (a signed original and

eight (8) copies) that are submitted

timely to the IRS. Comments are

specifically requested on the clarity of

the proposed regulations and how they

may be made easier to understand. All

comments will be available for public

inspection and copying. A public

hearing may be scheduled if requested

in writing by a person that timely

submits written comments. If a public

hearing is scheduled, notice of the date,

time, and place for the hearing will be

published in the Federal Register.

Drafting Information

The principal author of these

proposed regulations is Russ

Weinheimer, Office of the Operating

Division Counsel/Associate Chief

Counsel (Tax Exempt and Government

Entities), IRS. However, other personnel

from the IRS and Treasury Department

participated in their development. The

proposed regulations, as well as the

temporary regulations, have been

developed in coordination with

personnel from the U.S. Department of

Labor and the U.S. Department of

Health and Human Services.

List of Subjects in 26 CFR Part 54

Excise taxes, Health insurance,

Pensions, Reporting and recordkeeping

requirements.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 54 is

proposed to be amended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citation for

part 54 continues to read in part as

follows:

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

Par. 2. Section 54.9802–1 is amended

to read as follows:

Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Proposed Rules 1437

1However, church plans are not subject to the

similar requirements in Part 7 of Subtitle B of Title

I of ERISA or to the similar requirements in Title

XXVII of the PHS Act (except for health insurance

coverage in connection with a church plan, as

discussed below).

§ 54.9802–1 Prohibiting discrimination

against participants and beneficiaries

based on a health factor.

[The text of this proposed

amendments to this section is the same

as the text of § 54.9802–1T published

elsewhere in this issue of the Federal

Register].

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–108 Filed 1–5–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG–114083–00]

RIN 1545–AY33

Exception to the HIPAA

Nondiscrimination Requirements for

Certain Grandfathered Church Plans

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations that provide

guidance under section 9802(c) of the

Internal Revenue Code relating to the

exception for certain grandfathered

church plans from the

nondiscrimination requirements

applicable to group health plans under

section 9802(a) and (b). Final,

temporary, and proposed regulations

relating to the nondiscrimination

requirements under section 9802(a) and

(b) are being published elsewhere in this

issue of the Federal Register. The

regulations will generally affect

sponsors of and participants in certain

self-funded church plans that are group

health plans, and the regulations

provide plan sponsors and plan

administrators with guidance necessary

to comply with the law.

DATES: Written or electronic comments

and requests for a public hearing must

be received by April 9, 2001.

ADDRESSES: Send Submissions to:

CC:M&SP:RU (REG–114083–00), room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. Submissions may be hand

delivered between the hours of 8 a.m.

and 5 p.m. to: CC:M&SP:RU (REG–

114083–00), Courier’s Desk, Internal

Revenue Service, 1111 Constitution

Avenue NW., Washington, DC.

Alternatively, taxpayers may submit

comments electronically via the Internet

by selecting the ‘‘Tax Regs’’ option on

the IRS Home Page, or by submitting

comments directly to the IRS Internet

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

regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Russ

Weinheimer at 202–622–6080;

concerning submissions of comments or

requests for a hearing, Sonya Cruse at

202–622–7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Miscellaneous

Excise Tax Regulations (26 CFR part 54)

relating to the exception for certain

grandfathered church plans from the

nondiscrimination requirements

applicable to group health plans. The

nondiscrimination requirements

applicable to group health plans were

added to the Internal Revenue Code

(Code), in section 9802, by the Health

Insurance Portability and

Accountability Act of 1996 (HIPAA),

Public Law 104–191. HIPAA also added

similar nondiscrimination provisions

applicable to group health plans and

health insurance issuers (such as health

insurance companies and health

maintenance organizations) under the

Employee Retirement Income Security

Act of 1974 (ERISA), administered by

the U.S. Department of Labor, and the

Public Health Service Act (PHS Act),

administered by the U.S. Department of

Health and Human Services.

Final and temporary regulations

relating to the HIPAA

nondiscrimination requirements in

paragraphs (a) and (b) of section 9802 of

the Code are being published elsewhere

in this issue of the Federal Register.

Those regulations are similar to, and

have been developed in coordination

with, interim final regulations also

being published today by the

Departments of Labor and Health and

Human Services. Guidance under the

HIPAA nondiscrimination requirements

is summarized in a joint preamble to the

final, interim final, and temporary

regulations.

The exception for certain

grandfathered church plans was added

to section 9802, in a new subsection (c),

by section 1532 of the Taxpayer Relief

Act of 1997, Public Law 105–34. These

proposed regulations would provide

guidance for this exception. The

guidance is summarized in the

explanation below.

Explanation of Provisions

Church plans that are group health

plans are generally subject to the Code

provisions in Chapter 100 relating to

access, portability, and renewability.1

However, under section 9802(c), church

plans satisfying certain requirements

continuously since July 15, 1997 are not

treated as failing to meet the section

9802 prohibitions against

discrimination based on any health

factor solely because the plan requires

evidence of good health for the coverage

of certain individuals.

The grandfather rule in section

9802(c) applies to a church plan for a

plan year only if, on July 15, 1997 and

at all times after that date before the

beginning of the plan year, the church

plan had provisions satisfying one of

two alternative conditions. The first

alternative condition is that the plan

contain provisions requiring evidence of

good health of two sets of individuals,

that is, both (1) any employee of an

employer with 10 or fewer employees

and (2) any self-employed individual.

The proposed regulations specify that

this condition is not satisfied if the plan

requires evidence of good health of only

one of these sets of individuals. The

proposed regulations also clarify that

the plan provision for the first set of

individuals must be exactly 10 or fewer.

Thus, a plan provision requiring

evidence of good health for employees

of an employer of fewer than 10, or of

greater than 10, employees does not

satisfy this condition. For example, a

plan provision requiring evidence of

good health of any employee of an

employer of five or fewer employees

does not satisfy this condition.

The second alternative condition is

that the plan contain provisions

requiring evidence of good health of any

individual who enrolls after the first 90

days of initial eligibility. The proposed

regulations clarify that the period for

these plan provisions must be exactly 90

days. Thus, a plan provision requiring

evidence of good health of any

individual who enrolls after the first 120

days of initial eligibility does not satisfy

this condition.

The grandfather rule in section

9802(c) of the Code is not by its terms

limited in its application to self-funded

church plans. Section 2702 of the Public

Health Service Act (PHS Act) imposes

nondiscrimination requirements on

health insurance issuers offering group

health insurance coverage, and those

nondiscrimination requirements are

generally similar to the

nondiscrimination requirements

imposed on group health plans