[Federal Register Volume 66, Number 5 (Monday, January 8, 2001)]
[Proposed Rules]
[Pages 1437-1439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-109]


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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.

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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.
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    \1\ However, 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).
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    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

[[Page 1438]]

(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:


Sec. 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 
Secs. 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 Secs. 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 self-employed 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.

[[Page 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, Sec. 54.9802-1, or Sec. 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 
self-employed 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, Sec. 54.9802-1, or Sec. 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