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

1438 Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Proposed Rules

(including church plans) under

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

the Code. However, section 2702 of the

PHS Act does not include an exception

for health insurance issuers offering

group health insurance coverage to

church plans comparable to the

exception for church plans in section

9802(c) of the Code. Thus, if a church

plan providing benefits through group

health insurance coverage were to

require evidence of good health of

certain individuals as permitted under

section 9802(c) of the Code, the

requirement of evidence of good health

would cause the health insurance issuer

providing the coverage to violate the

nondiscrimination requirements of the

PHS Act. In such a case, the sanctions

under the PHS Act would apply to the

issuer, but those under the Code would

not apply to the church plan. Thus,

assuming that group health insurance

coverage complies with the

nondiscrimination requirements of the

PHS Act, the rule in section 9802(c) of

the Code is, in effect, available only to

church plans that are not funded

through group health insurance because

only such church plans do not include

insurance coverage that is subject to

Title XXVII of the PHS Act.

Accordingly, the examples in the

proposed regulations illustrating

situations where section 9802(c) is

available are limited to group health

plans that are not funded through group

health insurance in order to avoid

misleading insured church plans about

the availability of the grandfather rule in

section 9802(c).

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in Executive Order 12866. Therefore, a

regulatory assessment is not required. It

also has been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and because the

regulations do not impose a collection

of information requirement on small

entities, the Regulatory Flexibility Act

(5 U.S.C. chapter 6) does not apply.

Therefore, a Regulatory Flexibility

Analysis under the Regulatory

Flexibility Act (5 U.S.C. chapter 6) is

not required. 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 that are submitted

timely (a signed original and eight (8)

copies) 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). However, other personnel

from the IRS and Treasury Department

participated in their development.

List of Subjects in 26 CFR Part 54

Excise taxes, Health care, 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 is amended in part by adding

an entry in numerical order to read as

follows:

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

Section 54.9802–2 also issued under

26 U.S.C. 9802. * * *

Par. 2. Section 54.9802–2 is added to

read as follows:

§ 54.9802–2 Special rules for certain

church plans.

(a) Exception for certain church

plans—(1) Church plans in general. A

church plan described in paragraph (b)

of this section is not treated as failing to

meet the requirements of section 9802

or §§ 54.9802–1 and 54.9802–1T solely

because the plan requires evidence of

good health for coverage of individuals

under plan provisions described in

paragraph (b)(2) or (3) of this section.

(2) Health insurance issuers. See

sections 2702 and 2721(b)(1)(B) of the

Public Health Service Act (42 U.S.C.

300gg–2 and 300gg–21(b)(1)(B)) and 45

CFR 146.121, which require health

insurance issuers providing health

insurance coverage under a church plan

that is a group health plan to comply

with nondiscrimination requirements

similar to those that church plans are

required to comply with under section

9802 and §§ 54.9802–1 and 54.9802–1T

except that those nondiscrimination

requirements do not include an

exception for health insurance issuers

comparable to the exception for church

plans under section 9802(c) and this

section.

(b) Church plans to which this section

applies—(1) Church plans with certain

coverage provisions in effect on July 15,

1997. This section applies to any church

plan (as defined in section 414(e)) for a

plan year if, on July 15, 1997 and at all

times thereafter before the beginning of

the plan year, the plan contains either

the provisions described in paragraph

(b)(2) of this section or the provisions

described in paragraph (b)(3) of this

section.

(2) Plan provisions applicable to

individuals employed by employers of

10 or fewer employees and selfemployed individuals—(i) A plan

contains the provisions described in this

paragraph (b)(2) if it requires evidence

of good health of both—

(A) Any employee of an employer of

10 or fewer employees (determined

without regard to section 414(e)(3)(C),

under which a church or convention or

association of churches is treated as the

employer); and

(B) Any self-employed individual.

(ii) A plan does not contain the

provisions described in this paragraph

(b)(2) if the plan contains only one of

the provisions described in this

paragraph (b)(2). Thus, for example, a

plan that requires evidence of good

health of any self-employed individual,

but not of any employee of an employer

with 10 or fewer employees, does not

contain the provisions described in this

paragraph (b)(2). Moreover, a plan does

not contain the provision described in

paragraph (b)(2)(i)(A) of this section if

the plan requires evidence of good

health of any employee of an employer

of fewer than 10 (or greater than 10)

employees. Thus, for example, a plan

does not contain the provision

described in paragraph (b)(2)(i)(A) of

this section if the plan requires evidence

of good health of any employee of an

employer with five or fewer employees.

(3) Plan provisions applicable to

individuals who enroll after the first 90

days of initial eligibility—(i) A plan

contains the provisions described in this

paragraph (b)(3) if it requires evidence

of good health of any individual who

enrolls after the first 90 days of initial

eligibility under the plan.

Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Proposed Rules 1439

(ii) A plan does not contain the

provisions described in this paragraph

(b)(3) if it provides for a longer (or

shorter) period than 90 days. Thus, for

example, a plan requiring evidence of

good health of any individual who

enrolls after the first 120 days of initial

eligibility under the plan does not

contain the provisions described in this

paragraph (b)(3).

(c) Examples. The rules of this section

are illustrated by the following

examples:

Example 1. (i) Facts. A church organization

maintains two church plans for entities

affiliated with the church. One plan is a

group health plan that provides health

coverage to all employees (including

ministers and lay workers) of any affiliated

church entity that has more than 10

employees. The other plan is Plan O, which

is a group health plan that is not funded

through insurance coverage and that provides

health coverage to any employee (including

ministers and lay workers) of any affiliated

church entity that has 10 or fewer employees

and any self-employed individual affiliated

with the church (including a self-employed

minister of the church). Plan O requires

evidence of good health in order for any

individual of a church entity that has 10 or

fewer employees to be covered and in order

for any self-employed individual to be

covered. On July 15, 1997 and at all times

thereafter before the beginning of the plan

year, Plan O has contained all the preceding

provisions.

(ii) Conclusion. In this Example 1, because

Plan O contains the plan provisions

described in paragraph (b)(2) of this section

and because those provisions were in the

plan on July 15, 1997 and at all times

thereafter before the beginning of the plan

year, Plan O will not be treated as failing to

meet the requirements of section 9802,

§ 54.9802–1, or § 54.9802–1T for the plan

year solely because the plan requires

evidence of good health for coverage of the

individuals described in those plan

provisions.

Example 2. (i) Facts. A church organization

maintains Plan P, which is a church plan that

is not funded through insurance coverage

and that is a group health plan providing

health coverage to individuals employed by

entities affiliated with the church and selfemployed individuals affiliated with the

church (such as ministers). On July 15, 1997

and at all times thereafter before the

beginning of the plan year, Plan P has

required evidence of good health for coverage

of any individual who enrolls after the first

90 days of initial eligibility under the plan.

(ii) Conclusion. In this Example 2, because

Plan P contains the plan provisions described

in paragraph (b)(3) of this section and

because those provisions were in the plan on

July 15, 1997 and at all times thereafter

before the beginning of the plan year, Plan P

will not be treated as failing to meet the

requirements of section 9802, § 54.9802–1, or

§ 54.9802–1T for the plan year solely because

the plan requires evidence of good health for

coverage of individuals enrolling after the

first 90 days of initial eligibility under the

plan.

(d) Effective date. [Reserved]

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–109 Filed 1–5–01; 8:45 am]

BILLING CODE 4830–01–P