April 8, 1997 federal register - CMS...Federal Register/Vol. 62, No. 67/Tuesday, April 8, 1997/Rules and Regulations16895 1 In addition to the group market regulations in this document,

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Part II

Department of theTreasuryInternal Revenue Service26 CFR Part 54

Department of LaborPension and Welfare BenefitsAdministration29 CFR Part 2590

Department ofHealth and HumanServicesHealth Care Financing Administration45 CFR Subtitle A, Parts 144 and 14645 CFR Part 148

Health Insurance Portability for GroupHealth Plans; Interim Rules and ProposedRule

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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[T.D. 8716]

RIN 1545–AV05

DEPARTMENT OF LABOR

Pension and Welfare BenefitsAdministration

29 CFR Part 2590

RIN 1210–AA54

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Health Care Financing Administration

45 CFR Subtitle A, Parts 144 and 146

RIN 0938–AI08

Interim Rules for Health InsurancePortability for Group Health Plans

AGENCIES: Internal Revenue Service,Department of the Treasury; Pensionand Welfare Benefits Administration,Department of Labor; Health CareFinancing Administration, Departmentof Health and Human Services.ACTION: Interim rules with request forcomments.

SUMMARY: This document containsinterim rules governing access,portability and renewabilityrequirements for group health plans andissuers of health insurance coverageoffered in connection with a grouphealth plan. The rules contained in thisdocument implement changes made tocertain provisions of the InternalRevenue Code of 1986 (Code), theEmployee Retirement Income SecurityAct of 1974 (ERISA), and the PublicHealth Service Act (PHS Act) enacted aspart of the Health Insurance Portabilityand Accountability Act of 1996(HIPAA). Interested persons are invitedto submit comments on the interimrules for consideration by theDepartment of Health and HumanServices, the Department of Labor, andthe Department of the Treasury(Departments) in developing final rules.The rules contained in this documentare being adopted in an interim basis toaccommodate statutorily establishedtime frames intended to ensure thatsponsors and administrators of grouphealth plans, participants andbeneficiaries, States, and issuers ofgroup health insurance coverage havetimely guidance concerning compliancewith the recently enacted requirementsof HIPAA.

DATES: Effective date: These interimrules are effective on June 7, 1997.

Comment dates: Written comments onthese interim rules are invited and mustbe received by the Departments on orbefore July 7, 1997.

Applicability dates: For group healthplans maintained pursuant to one ormore collective bargaining agreementsratified before August 21, 1996, therules (other than the certificationrequirements) do not apply to plan yearsbeginning before the later of July 1, 1997or the date on which the last collectivebargaining agreement relating to theplan terminates without regard to anyextension agreed to after August 21,1996.

The rules implementing thecertification provisions do not requireany action to be taken before June 1,1997, although certain certificationrequirements apply to periods ofcoverage and events that occur afterJune 30, 1996. The certificationrequirement for events that occurred onor after October 1, 1996 and before June1, 1997 may be satisfied using anoptional notice described in thispreamble.

Information collection: Affectedparties do not have to comply with theinformation collection requirements inthese interim rules until theDepartments publish in the FederalRegister the control numbers assignedby the Office of Management andBudget (OMB) to these informationcollection requirements. Publication ofthe control numbers notifies the publicthat OMB has approved theseinformation collection requirementsunder the Paperwork Reduction Act of1995. The Departments have asked forOMB clearance as soon as possible, andOMB approval is anticipated by theapplicable effective date.ADDRESSES: Written comments shouldbe submitted with a signed original andthree copies to any of the addressesspecified below. All comments will beavailable for public inspection andcopying in their entirety. Interestedpersons are invited to submit writtencomments on these interim rules to:Health Care Financing Administration,

Department of Health and HumanServices, Attention: [BPD–890–IFC],P.O. Box 26688, Baltimore, Maryland21207

Pension and Welfare BenefitsAdministration, U.S. Department ofLabor, Room N–5669, 200Constitution Avenue, NW.,Washington, DC 20210. Attention:Interim Portability and RenewabilityRules

CC:DOM:CORP:T:R (REG–253578–96),Room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,Washington, DC 20044Alternatively, comments may be

submitted electronically via the Internetby selecting the ‘‘Tax Regs’’ option onthe IRS Home Page, or by submittingcomments directly to the IRS Internetsite at http://www.irs.ustreas.gov/taxlregs/comments.html

In the alternative:Written comments for the Department

of Health and Human Services may behand delivered from 8:30 a.m. to 5:00p.m. to:Room 309–G, Hubert Humphrey

Building, 200 Independence Avenue,SW., Washington, DC 20201, or

Room C5–09–26, 7500 SecurityBoulevard, Baltimore, Maryland21244–1850Written comments for the Department

of Labor may be hand delivered from8:15 a.m. to 4:45 p.m. to the aboveaddress for the Pension and WelfareBenefits Administration, U.S.Department of Labor.

Written comments for the InternalRevenue Service may be hand deliveredbetween the hours of 8 a.m. and 5 p.m.to:CC:DOM:CORP:T:R(REG–253578–96),

Courier’s Desk, Internal RevenueService, room 5228, 1111 ConstitutionAvenue, NW., Washington, DC.All submissions to the Department of

Health and Human Services will beopen to public inspection as they arereceived, generally beginning threeweeks after publication, in room 309–Gof the Department of Health and HumanServices offices at 200 IndependenceAvenue, SW., Washington, DC, from8:30 a.m. to 5:00 p.m. All submissionsto the Department of Labor will be opento public inspection at the PublicDocuments Room, Pension and WelfareBenefits Administration, U.S.Department of Labor, Room N–5638,200 Constitution Avenue NW.,Washington, DC, from 8:30 a.m. to 5:30p.m. All submissions to the InternalRevenue Service will be open to publicinspection and copying in room 1621,1111 Constitution Avenue, NW.,Washington, DC, from 9:00 a.m. to 4:00p.m.FOR FURTHER INFORMATION CONTACT: JulieWalton, Health Care FinancingAdministration, at 410–786–1565; MarkConnor, Office of Regulations andInterpretations, Pension and WelfareBenefits Administration, Department ofLabor, at 202–219–4377; Diane Pedulla,Plan Benefits Security Division, Officeof the Solicitor, Department of Labor, at202–219–4377; or Russ Weinheimer,Internal Revenue Service, at 202–622–

16895Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations

1 In addition to the group market regulations inthis document, the Department of the Treasury isissuing a proposed Treasury regulation that cross-references these regulations and the Department ofLabor is issuing an interim regulation relating tocertain disclosure requirements under HIPAA. Eachof these regulations appears separately in this issueof the Federal Register.

2 The PHS Act does not include requirements onavailability of insurance for employers in the largegroup market. Under section 2711(b)(3) of the PHSAct, however, the General Accounting Office (GAO)is to report to Congress on such availability in 1998.

4695. These are not toll-free numbers.CUSTOMER SERVICE INFORMATION:Individuals interested in obtaining acopy of the Department of Labor’sbooklet entitled ‘‘Questions andAnswers: Recent Changes in Health CareLaw’’ may obtain a copy by calling thefollowing toll-free number 1–800–998–7542.

SUPPLEMENTARY INFORMATION:

A. BackgroundThe Health Insurance Portability and

Accountability Act of 1996 (HIPAA),Pub. L. 104–191, was enacted on August21, 1996. HIPAA amended the PublicHealth Service Act (PHS Act), theEmployee Retirement Income SecurityAct of 1974 (ERISA), and the InternalRevenue Code of 1986 (Code) to providefor, among other things, improvedportability and continuity of healthinsurance coverage in the group andindividual insurance markets, andgroup health plan coverage provided inconnection with employment. Sections102(c)(4), 101(g)(4), and 401(c)(4) ofHIPAA require the Secretaries of Healthand Human Services, Labor, and theTreasury, each to issue regulationsnecessary to carry out these provisions.1

B. Overview of HIPAA and the InterimRules

Area of Guidance. The access,portability, and renewability provisionsof HIPAA affect group health plans andhealth insurance issuers. Group healthplans are generally plans sponsored byemployers or employee organizations orboth. These HIPAA provisions aredesigned to improve the availability andportability of health coverage by:

• Limiting exclusions for preexistingmedical conditions;

• Providing credit for prior healthcoverage and a process for transmittingcertificates and other informationconcerning prior coverage to a newgroup health plan or issuer;

• Providing new rights that allowindividuals to enroll for health coveragewhen they lose other health coverage orhave a new dependent;

• Prohibiting discrimination inenrollment and premiums againstemployees and their dependents basedon health status;

• Guaranteeing availability of healthinsurance coverage for small employersand renewability of health insurance

coverage in both the small and largegroup markets; and

• Preserving, through narrowpreemption provisions, the States’traditional role in regulating healthinsurance, including State flexibility toprovide greater protections.

The regulations provide guidancewith respect to these provisions. Inimplementing these new rules, theregulations provide protections forindividuals seeking health coveragewhile minimizing burdens onemployers and insurers.

Reducing Burdens. The regulationsreduce burdens by:

• Providing for a simple modelcertificate that can be used by plans andissuers;

• Reducing unnecessary duplicationin the issuance of certificates;

• Including flexible rules fordependents to receive the coverageinformation they need;

• Allowing coverage information tobe provided by telephone if all partiesagree;

• Relieving plans and issuers of theneed to report the starting date ofcoverage and waiting periodinformation where a certificate shows18 months of credible coverage;

• Including a transition rulepermitting plans and issuers to giveindividuals a notice in lieu of acertificate where coverage ended beforeJune 1, 1997; and

• Providing for a model notice thatmay be used to satisfy the transition ruleand a model notice for informationrelating to categories of benefitsprovided under a plan.

Implementing Individual Protections.The regulations protect and assistparticipants and their dependents by:

• Ensuring that individuals arenotified of the length of time that apreexisting condition exclusion clausein any new health plan may apply tothem after taking into account theirprior creditable coverage;

• Ensuring that individuals arenotified of their rights to specialenrollment under a plan;

• Permitting individuals to obtain acertificate before coverage under a planceases; and

• Creating practical ways forindividuals to demonstrate creditablecoverage to a new plan (where theindividual’s prior plan fails to providethe certificate).

C. Overview of Coordination of GroupMarket Regulation Among Departments

The HIPAA portability provisionsrelating to group health plans andhealth insurance coverage offered inconnection with group health plans

(referred to below as the ‘‘group market’’provisions) are set forth under a newPart A of Title XXVII of the PHS Act, anew Part 7 of Subtitle B of Title I ofERISA, and a new Subtitle K of theInternal Revenue Code. HIPAA alsoadded provisions governing insurancein the individual market that arecontained only in the PHS Act, and thusare not within the regulatoryjurisdiction of the Department of Laboror the Department of the Treasury.(These portability provisions arereferred to below as the ‘‘individualmarket’’ provisions.)

In general, the group marketprovisions create concurrentjurisdiction for the Secretaries of Healthand Human Services, Labor, and theTreasury. The provisions includesimilar rules relating to preexistingconditions exclusions, specialenrollment rights, and prohibition ofdiscrimination against individualsbased on health status-related factors.(These group market provisions arereferred to below as the ‘‘shared groupmarket’’ provisions.) Accordingly, thethree Departments share regulatoryresponsibility for most, but not all, ofthe group market provisions.

The shared group market provisionsare substantially similar, except asfollows:

• The shared group market provisionsin the PHS Act apply generally toinsurance issuers that offer healthinsurance in connection with grouphealth plans (subject to an exceptionthat may apply for plans with fewerthan two participants who are currentemployees (‘‘very small plans’’)), andcertain State and local governmentplans. Only the PHS Act contains groupmarket provisions relating to availabilityand renewability of health insurance.2In addition, the PHS Act imposescertification requirements on certainfederal entities not otherwise subject tothe HIPAA portability provisions.Further, the States, in the first instance,will enforce the PHS Act with respect toissuers. In addition, individuals may beable to pursue claims through Statemechanisms. Only if a State does notsubstantially enforce any provisionsunder its insurance laws, will theDepartment of Health and HumanServices enforce the provisions, throughthe imposition of civil money penalties.(The group market provisions relating toguaranteed renewability formultiemployer plans and multipleemployer welfare arrangements


3 The regulations for the PHS Act also containcertain definitions relating to those provisionsadded under the PHS Act regarding the individualmarket, in order to create a single, comprehensive

reference for the definitions necessary under thePHS Act regulations.

4 References to paragraphs of a section refer toparagraphs of each regulation section identified inthe heading. For example, this reference is toparagraph (a) in each of 45 CFR 146.111, 29 CFR2590.701–3, and 26 CFR 54.9801–3.

5 The definition of genetic information in theregulations was developed taking into accounthearing testimony related to genetic informationgiven in connection with Senate Report 104–156,other legislative initiatives, and public comments(including those submitted in response to therequest for information published by theDepartments on December 30, 1996).

(MEWAs) are in ERISA and the InternalRevenue Code, but not the PHS Act.)

• The ERISA shared group marketprovisions apply generally to all grouphealth plans other than governmentalplans, church plans, very small plans,and certain other plans. The sharedgroup market provisions of ERISA alsoapply to health insurance issuers thatoffer health insurance in connectionwith such group health plans.Generally, the Secretary of Laborenforces the Provisions of HIPAA thatamend ERISA, except that noenforcement action may be taken by theSecretary against issuers relating to thenew shared group market provisions inpart 7 of ERISA. However, individualsmay generally pursue actions againstissuers under ERISA and, in somecircumstances, under State laws.

• The shared group market provisionsin the Internal Revenue Code generallyapply to all group health plans otherthan governmental plans and very smallplans, but not to health insuranceissuers. A taxpayer that fails to complywith these provisions may be subject toan excise tax under section 4980D of theCode. (The group market provisionsrelating to preemption and affiliationperiods for HMOs are in the PHS Actand ERISA, but not in the InternalRevenue Code.)

The regulation being issued today bythe Secretaries of Health and HumanServices, Labor, and the Treasury havebeen developed on a coordinated basisby the Departments. Except to the extentneeded to reflect the statutorydifferences described above, the sharedgroup market provisions in theseregulations of each Department aresubstantively identical. However, thereare certain nonsubstantive differences.The PHS Act regulations are numberedand organized differently. Also, thereare differences in the regulations thatare necessary because of statutoryprovisions that are not common to allthree Departments (in the definitionssections, for example). Further, theregulations reflect certain stylisticdifferences in language and structure toconform to conventions used by aparticular Department. Thesedifferences have been minimized andany differences in wording are notintended to create any substantivedifference, so that these regulations willhave the same effect with respect tooverlapping statutory provisions, asrequired by section 104 of HIPAA.

D. Special Information ConcerningState Insurance Law

For purposes of the PHS Act andsections 144 through 148 in the PHS Actregulations, all health insurance

coverage in a State generally is sold inone of two markets: the group market(See section 146) and the individualmarket (see section 148). The groupmarket is further divided into the largegroup market and the small groupmarket. Section 146 of the PHS Actregulations applies the group marketprovisions only to insurance sold togroup health plans (which are generallyplans sponsored by employers oremployee organizations or both),regardless of whether State law providesotherwise. State law may expand thedefinition of the small group market toinclude certain coverage that, under thefederal law, would otherwise beconsidered coverage in the large groupmarket or the individual market.

The protections provided in the PHSAct to particular individuals andemployers are different depending onwhether the coverage involved isobtained in the small group market, thelarge group market, or the individualmarket. Small employers are guaranteedavailability of insurance coverage soldin the small group market under thePHS Act. Small and large employers areguaranteed the right to renew theirgroup coverage under the PHS Act,subject to certain exceptions. Eligibleindividuals are guaranteed availabilityof coverage sold in the individualmarket under the PHS Act, and allcoverage in the individual market mustbe guaranteed renewable under the PHSAct.

Coverage that is provided toassociations, but is not related toemployment (so that the coverage is notin connection with a group health plan),is not coverage in the group marketunder HIPAA. This coverage is insteadcoverage in the individual market underthe PHS Act, regardless of whether it isconsidered group coverage under Statelaw.

E. Discussion of the Shared GroupMarket Provisions in the Regulations

The most significant items relating tothe shared group market in theseregulations are discussed in detailbelow.

Definitions—26 CFR 54.9801–2, 29 CFR2590.701–2, 45 CFR 144.103

This section provides most of thedefinitions used in the regulationsimplementing the provisions of HIPAAthat were added to the PHS Act, ERISA,and the Code, relating to the groupmarket.3 The definitions in this section

of the regulations include both statutorydefinitions provided in HIPAA, as wellas certain others used in the regulations.

Limitation on Preexisting ConditionExclusion Period—26 CFR 54.9801–3,29 CFR 2590.71–3, 45 CFR 146.111

Definition of Preexisting ConditionExclusion

A preexisting condition exclusion isdefined broadly to be any limitation orexclusion of benefits based on the factthe condition was present before thefirst day of coverage, whether or not anymedical advice, diagnosis, care, ortreatment was recommended or receivedbefore that day. HIPAA imposes certainlimitations (described below) on the useof such an exclusion in the groupmarket (and also uses this definition forpurposes of the individual market rules,under which no preexisting conditionexclusion is permitted to be imposed onan eligible individual). HIPAA’s broaddefinition of a preexisting conditionexclusion is at variance with some Statelaws and regulations because therelevant National Association ofInsurance Commissioners (NAIC)models, on which many State laws arebased, have imposed limitations oncoverage for preexisting conditionswithout use of such a definition.

New Limitations on PreexistingCondition Exclusions. Paragraph (a) ofthis section 4 of the regulationsdescribes the limitations on thepreexisting condition exclusion period.A group health plan, and a healthinsurance issuer offering group healthinsurance coverage, is permitted toimpose a preexisting conditionexclusion with respect to a participantor beneficiary only if the followingconditions are met:

1. 6-month look-back rule. Thepreexisting condition exclusion mustrelate to a condition (whether physicalor mental, and regardless of the cause ofthe condition) for which medicaladvice, diagnosis, care, or treatment wasrecommended or received within the 6-month period ending on the enrollmentdate. For these purposes, geneticinformation is not a condition.5 In order


6 The phrase ‘‘days of creditable coverage’’ is usedinstead of the statutory phrase ‘‘aggregate periods ofcreditable coverage’’ for administrative ease in thecalculation of creditable coverage. Use of days ofcreditable coverage also conforms to the practice ofmany States for crediting prior coverage under pre-HIPAA small group market reforms.

7 However, to avoid violating the Americans withDisabilities Act, Pub. L. 101–336, as amended byPub. L. 102–166, the examination should generallybe conducted only after the employer has offeredemployment to the individual.

8 However, if an individual has coverage ofexcepted benefits in addition to other forms ofcreditable coverage, coverage of excepted benefits iscreditable coverage. This would make a differenceonly if a plan or issuer uses the alternative methodof determining creditable coverage (describedbelow) with respect to a category that includesexcepted benefits. For example, coverage ofexcepted benefits such as limited vision or limiteddental benefits, when offered in combination withother creditable coverage, may be used to offset apreexisting condition exclusion period for acategory that includes those benefits under thealternative method in paragraph (c).

to be taken into account, the medicaladvice, diagnosis, care, or treatmentmust have been recommended orreceived from an individual licensed orsimilarly authorized to provide suchservices under State law and operatingwithin the scope of practice authorizedby the State law. Under the new HIPAAstandard, a plan would generallydetermine that an individual has apreexisting condition through medicalrecords (such as diagnosis codes onbills, a physician’s notes of a visit ortelephone call, pharmacy prescriptionrecords, HMO encounter data, or otherrecords indicating that medical serviceswere actually recommended or receivedduring the 6-month look-back period).The ‘‘prudent person’’ standard of someState laws (under which a condition istaken into account if a prudent personwould have sought care whether or notcare is actually received) no longer maybe used to determine a preexistingcondition.

This 6-month ‘‘look-back’’ period isbased on the 6-month ‘‘anniversarydate’’ of the enrollment date. As a result,an individual whose enrollment date isAugust 1, 1998 has a 6-month look-backperiod from February 1, 1998 throughJuly 31, 1998.

2. Length of preexisting conditionexclusion period. The exclusion periodcannot extend for more than 12 months(18 months for late enrollees) after theenrollment date. the 12- or 18-month‘‘look-forward’’ period is also based onthe anniversary date of the enrollmentdate. A late enrollee is defined as anindividual who enrolls in a plan at atime other than at the first time theindividual is eligible to enroll or duringa special enrollment period (describedbelow). If an individual loses eligibilityfor coverage as a result of terminatingemployment or a general suspension ofcoverage under the plan, then uponbecoming eligible again due toresumption of employment or due toresumption of plan coverage, only themost recent period of eligibility isconsidered for purposes of determiningwhether the individual is a late enrollee.

3. Reduction of preexisting conditionexclusion period by prior coverage. Ingeneral, the preexisting conditionexclusion period is reduced by theindividual’s days of creditablecoverage 6 as of the enrollment date.Creditable coverage is defined ascoverage of an individual from a wide

range of specified sources, includinggroup health plans, health insurancecoverage, Medicare, and Medicaid.

Definition of Enrollment Date. Thelimitations on preexisting conditionexclusions are measured from anindividual’s ‘‘enrollment date.’’ Theenrollment date is defined as the firstday of coverage or, if there is a waitingperiod, the first day of the waitingperiod (typically the date employmentbegins).

The term ‘‘first day of coverage’’ isused in the regulations in place of theterm ‘‘date of enrollment’’ in the statute,such as in the definitions of the terms‘‘preexisting condition exclusion’’ and‘‘enrollment date.’’ This is intended toclarify the difference between thestatutory terms ‘‘date of enrollment’’and ‘‘enrollment date’’ (which have nodifference in common useage).

The term ‘‘waiting period’’ generallyrefers to the period in which there is adelay between the first day ofemployment and the first day ofcoverage under the plan. Accordingly,because the preexisting conditionexclusion period runs from theenrollment date, any waiting periodwould run concurrently with anypreexisting condition exclusion period.Further:

• The enrollment date for a lateenrollee or anyone who enrolls on aspecial enrollment date (see the sectionon special enrollment periods below) isthe first date of coverage. Thus, the timebetween the date a late enrollee orspecial enrollee first becomes eligiblefor enrollment under the plan and thefirst day of coverage is not treated as awaiting period.

• Because the 6-month look-backlimitation runs from the beginning ofany applicable waiting period, thecurrent practice of some plans thatrequire physical examinations prior tocommencement of coverage for thepurpose of identifying preexistingconditions may be affected. If theexamination is conducted during thewaiting period (after employment beginsand before enrollment), rather thanbefore employment begins, a plan maynot exclude coverage for any conditionidentified in the examination (unless,independent of the examination,medical advice, diagnosis, care, ortreatment was in fact recommended orreceived for the condition during the 6-month look-back period). The use ofsuch examinations for other purposes,such as worker safety, is not affected.7

Elimination of Preexisting ConditionExclusion for Pregnancy and for CertainChildren. A preexisting conditionexclusion cannot apply to pregnancy. Inaddition, a preexisting conditionexclusion period cannot be applied to anewborn, an adopted child under age18, or a child placed for adoption underage 18, if the child becomes coveredwithin 30 days of birth, adoption, orplacement for adoption. This exceptiondoes not apply after the child has asignificant break in coverage (63 or moreconsecutive days). (An example inparagraph (b)(1) of the regulationsillustrates these rules.)

Rules Relating to Creditable Coverage—26 CFR 54.9801–4, 29 CFR 2590.701–4,45 CFR 146.113

As noted above, a plan or issuer thatimposes a preexisting conditionexclusion must reduce the length of theexclusion by an individual’s creditablecoverage. This section defines the term‘‘creditable coverage’’ and sets forth therules for how creditable coverage isapplied to reduce such an exclusionperiod.

Creditable coverage includes healthinsurance coverage and other healthcoverage, such as coverage under grouphealth plans (whether or not providedthrough an issuer), Medicaid, Medicare,and public health plans, as well as othertypes of coverage set forth in HIPAAand the regulations. Comments arerequested on whether the definition ofa public health plan should include thepublic health systems of other countries.

Under the definition of creditablecoverage, all forms of health insurancecoverage are included, whether in theindividual market or group market, andwhether the coverage is short-term,limited-duration coverage or othercoverage for benefits for medical care forwhich no certificate of creditablecoverage is required. Creditablecoverage does not include coverageconsisting solely of excepted benefits asdefined in the regulations and describedbelow.8

Under paragraph (a)(3) of this sectionof the regulation, a group health plan orhealth insurance issuer offering group


9 See also the discussion below under the heading‘‘HMO Affiliation as Alternative to PreexistingCondition Exclusion.’’

health insurance coverage maydetermine the amount of creditablecoverage of an individual for purposesof reducing the period of a preexistingcondition exclusion by using either thestandard method described in paragraph(b) or the alternative method describedin paragraph (c).

Standard Method1. Counting. Under the standard

method, the plan or issuer determinesthe amount of an individual’s creditablecoverage by determining all days duringwhich the individual had one or moretypes of creditable coverage. Thisdetermination is made without regard tothe specific benefits included in thecoverage. If creditable coverage isderived from more than one source ona particular day, all of the creditablecoverage that the individual had on thatday is counted as one day of creditablecoverage.

2. Significant break in coverage. Daysof creditable coverage that occur beforea significant break in coverage are notrequired to be counted by the plan orissuer in reducing a preexistingcondition exclusion. A significant breakin coverage means a period of 63consecutive days during all of which theindividual did not have any creditablecoverage.

a. Waiting and affiliation periods.Waiting periods and affiliation periods,as defined in the regulation, are nottaken into account in determining asignificant break in coverage. This is thecase regardless of whether the personultimately fails to obtain coverage underthe plan (such as, where termination ofemployment occurs before coveragebegins). However, days in a waitingperiod or affiliation period are notcounted as creditable coverage.

The regulations specify that theperiod between the date an individualfiles a substantially completeapplication for coverage in theindividual market and the effective dateof such coverage is a waiting period, sothat the period is not taken into accountin determining a significant break incoverage. In this way, an applicationprocessing delay or omission of detailson a form would not cause an applicantto incur a significant break in coverage,which could adversely affect anindividual who seeks coverage under agroup health plan after purchasingcoverage in the individual market.

However, the waiting period forpurchase of an individual policy tolls abreak in coverage only if the filing of theapplication for the individual marketinsurance actually results in purchase ofthe coverage by the individual. (SeeExamples 7 and 8 in paragraph

(b)(2)(iv)). By contrast, days in a waitingperiod for coverage under a grouphealth plan toll a significant break incoverage regardless of whether coverageunder the plan is ultimately obtained.(See Example 6.) The rule regarding theindividual market prevents anindividual from avoiding a significantbreak in coverage by repeatedlysubmitting applications to individualmarket issuers without ever purchasingcoverage. This rule responds tocomments sent to the Departments inresponse to the December 30, 1996request for public comments. Thecomments asked for clear rules on whena significant break is tolled in the caseof an application for individual marketinsurance.

Issuers of health insurance coveragein the individual market are subject tothe same certification requirements thatapply to plans and issuers in the groupmarket. Therefore, issuers in theindividual market must provideindividuals with certificates that reflectinformation regarding the beginning ofthe waiting period (the date ofapplication), the effective date ofcoverage, and the date coverage ends.This will assist people with coverage inthe individual market who later becomecovered by a group health plan indemonstrating their creditable coverageto the plan or issuer in the groupmarket.

b. Effect of State insurance law.HIPAA provides that the significantbreak in coverage rule does not preemptState insurance laws that provide longerperiods than 63 days for a break incoverage. (The preemption provisionsare described more fully below.)Accordingly, while federal law mayallow a plan to disregard prior coveragebefore a 63-day significant break incoverage, an issuer may be required totake such coverage into account in orderto comply with State insurance law. Asa result, application of the break rulescan vary between issuers located indifferent States. Similarly, the breakrules may vary between insured plansand self-insured plans (which are notsubject to State insurance laws) withina State, as well as between the insuredand self-insured portions of a singleplan. As illustrated by Example 3 inparagraph (b)(2)(iv), the laws of theState applicable to the insurance policythat has the preexisting conditionexclusion are determinative of whichbreak rule applies.

Alternative Method. Under thealternative method of countingcreditable coverage, the plan or issuerdetermines the amount of anindividual’s creditable coverage for anyof five identified categories of benefits.

Those categories are coverage for mentalhealth, substance abuse treatment,prescription drugs, dental care, andvision care. The plan or issuer may usethe alternative method for any or all ofthe categories and may apply a differentpreexisting condition exclusion periodwith respect to each category (as well asto coverage not within a category). Thecreditable coverage determined for acategory of benefits applies only forpurposes of reducing the preexistingcondition exclusion period with respectto that category. The standard method isused to determine an individual’screditable coverage for benefits that arenot within any category for which thealternative method is being used.Disclosure statements concerning theplan must indicate that the alternativemethod is being used, and thisdisclosure must also be given to eachenrollee at the time of enrollment. Thesestatements must include a description ofthe effect of using the alternativemethod. Any issuer in the group marketmust provide similar statements to eachemployer at the time of offer or sale ofthe coverage.

For purposes of reducing thepreexisting condition exclusion periodunder the alternative method, the planor issuer determines under the standardmethod the amount of the individual’screditable coverage that can be counted,up to a total of 365 days of the mostrecent creditable coverage of theindividual (546 days for a late enrollee).The period of this creditable coverage isreferred to as the ‘‘determinationperiod.’’ The plan or issuer counts alldays of coverage within the applicablecategory that occurred during thedetermination period (without regard toany significant breaks in that category ofcoverage). Those days reduce thepreexisting condition exclusion forcoverage within that category.

The regulations do not providedetailed definitions of the benefitcategories. Comments are invited onwhether additional guidance is needed.

The regulations under the alternativemethod of counting creditable coveragedo not include a category relating tosignificant differences in deductibleamounts. Commentators expressedconcerns about adverse selection ifindividuals can change from a highdeductible plan when they become illand obtain ‘‘first dollar’’ coverage froman HMO or other issuer that providesbroad, comprehensive care with onlylow deductibles or copayments.9However, it is unclear how such a


10 Because the ending date for a waiting oraffiliation period will always be the date coveragebegins, the ending date does not have to beseparately stated in a certificate.

11 These dates would include any period ofCOBRA continuation coverage. A COBRAcontinuation coverage period does not have to beseparately identified.

12 For example, for participation who has had anumber of interruptions in coverage, a requestedcertificate could consist of copies of all of theautomatic certificates that were previously providedto the individual for each of these periods.

category would be defined or applied.Accordingly, the Departments solicitcomments on this issue.

Certificates and Disclosure of PreviousCoverage—26 CFR 54.9801–5, 29 CFR2590.701–5, 45 CFR 146.115

This section of the regulations setsforth guidance regarding thecertification requirements and otherrequirements concerning disclosure ofinformation relating to prior creditablecoverage. The provision of a certificateand other disclosures of information areintended to enable an individual toestablish his or her prior creditablecoverage for purposes of reducing anypreexisting condition exclusionimposed on the individual by anysubsequent group health plan coverage.

Form of Certificate. In general, thecertificate must be provided in writing,including any form approved by theSecretaries as a writing. In certaincircumstances, where the individualrequests that the certificate be sent toanother plan or issuer instead of to theindividual, and the other plan or issueragrees, the certification information maybe provided by other means, such as bytelephone. In some States, issuerstransfer coverage information bytelephone. Comments are requested asto whether, and under what conditions,other methods of transmittingcertification information (includingelectronic communication) should bepermitted in future guidance.

Information in Certificate. Paragraph(a)(3) of this section of the regulationssets forth the information that must beincluded in a certificate. The regulationsallow a plan or issuer in an appropriatecase simply to state in the certificatethat the individual has at least 18months of creditable coverage that wasnot interrupted by a significant break incoverage and to indicate the datecoverage ended. (A certificate wouldnever have to reflect coverage in excessof 18 months without a 63-day breakbecause this is the maximum creditablecoverage that an individual could needunder the preexisting conditionexclusion rules and the rules for accessto the individual market.) In any othercase, the certificate must disclose (1) thedate any waiting or affiliation periodbegan,10 (2) the date coverage began,and (3) the date coverage ended (orindicate if coverage is continuing).11 For

individuals with fewer than 18 monthsof coverage without a significant breakin coverage, the information aboutspecific dates is essential in order for asubsequent plan or issuer in the groupor individual market to be able to applythe break rules, especially in light of thepossibility that an individual may haveother coverage from various sources andthe potential differences among Statebreak rules (described above).

Certification Events and Timing.Paragraph (a)(5) describes the rights ofparticipants and dependents to receivecertificates. In general, individuals havethe right to receive a certificateautomatically (an ‘‘automaticcertificate’’) when they lose coverageunder a plan and when they have a rightto elect COBRA continuation coverage.The certificate must be furnished withinthe time periods described below:

• First, for an individual who is aqualified beneficiary entitled to electCOBRA continuation coverage, thecertificate is required to be provided nolater than when a notice is required tobe provided for a qualifying event underCOBRA.

• Second, for an individual who losescoverage under a group health plan andwho is not a qualified beneficiaryentitled to elect COBRA continuationcoverage, the certificate is required to beprovided within a reasonable time afterthe coverage ceases. (Typically, thiswould apply to small employers’ plansthat are not subject to COBRA.) Thisrequirement is satisfied if the certificateis provided by the time a notice isrequired to be provided under a Stateprogram similar to COBRA.

• Third, for an individual who is aqualified beneficiary and has electedCOBRA continuation coverage, thecertificate is required to be providedwithin a reasonable time after eithercessation of COBRA continuationcoverage or, if applicable, after theexpiration of any grace period for thepayment of COBRA premiums.In each of these three events, theregulations require the certificate toreflect only the most recent period ofcontinuous coverage under the plan.

Under COBRA, multiemployer plansmay provide notices within such longerperiod of time as provided for suchnotices under the terms of the plan.Under the general certification timingrule described above, multiemployerplans may use the same extended timeperiod for providing certificates.Comments are requested on how thismay affect a multiemployer plan and itsparticipants and their families.

A certificate may be mailed by firstclass mail to the participant’s lastknown address. A certificate for a

participant’s spouse with an addressdifferent from the participant’s is to besent to the spouse’s address. Acertificate may provide informationwith respect to both a participant andthe participant’s dependents if theinformation is identical for eachindividual, or if the information is notidentical, a certificate may provideinformation sufficient to satisfy therequirements of the regulations withrespect to each individual on onedocument.

A certificate is also required to beprovided upon the request of, or onbehalf of, an individual (whether theindividual is a participant, theparticipant’s spouse, or any otherdependent) if the request is made within24 months after the individual losescoverage under the plan. The certificateis required to be provided at the earliesttime that the plan or issuer, acting in areasonable and prompt fashion, canprovide the certificate. In this case, thecertificate reflects each period ofcontinuous coverage ending within the24 months prior to the date of request.12

Responsibilities of Plans and Issuers.Paragraph (a)(1) clarifies the statutoryobligation of plans and issuers toprovide certificates. The statutoryobligation to furnish a written certificateof information regarding creditablecoverage is imposed on both the grouphealth plan and the health insuranceissuer offering group health insurancecoverage. This dual obligation was thesubject of many of the commentsreceived by the three Departments inresponse to the December 30, 1996request for public comments publishedin the Federal Register. Concerns wereraised about superfluous, duplicatecertificates being issued and thepotential responsibility of issuers forreporting on an individual’s coverageunder the plan after one issuer has beenreplaced by another.

Paragraph (a)(1) addresses theseconcerns by providing that theobligation to furnish a certificate isimposed on both the plan and eachhealth insurance issuer that providesgroup health insurance coverage underthe plan, subject to four exceptions.

First, paragraph (a)(1)(ii) provides thatan entity required to provide acertificate is deemed to have satisfiedthis requirement to the extent that anyother party provides the certificate andthe certificate discloses the creditablecoverage (including the waiting period


information) that was to be provided bythe entity.

Second, paragraph (a)(1)(iii) providesthat a plan is deemed to have satisfiedits obligation if there is an agreementbetween an issuer and a plan underwhich the issuer agrees to providecertificates for individuals coveredunder the plan.

Third, paragraph (a)(1)(iv)(A)provides that an issuer is not requiredto provide any coverage informationregarding coverage periods for which itwas not responsible.

Fourth, paragraph (a)(1)(iv)(B)provides that if an individual switchesfrom one issuer to another optionallowed under the plan, or an issuer isreplaced by another before anindividual’s coverage in the plan ceases,the first issuer is required to providesufficient information to the plan (or toanother party designated by the plan),so that when the individual leaves theplan, a certificate can be provided thatincludes the period of coverage underthe policy of the first issuer. In thissituation, no certificate is required to beprovided to the individual, but theissuer must also cooperate with the planby providing any information that maybe requested later pursuant to thealternative method. (This rule willreduce unnecessary and potentiallymisleading information from beingreceived while the individual’s coverageunder the plan is uninterrupted.) Anissuer may presume that it is the finalissuer for an individual if theindividual’s coverage under the policyends at a time other than in connectionwith the plan’s open season.

Other Entities Issuing Certificates.Paragraph (a)(6) identifies the variousstatutory authorities that createresponsibility for other entities (that arenot subject to a particular Department’sregulations) to provide certificates. Asdescribed above, there are forms ofcreditable coverage other than coverageprovided by group health plans andhealth insurance coverage offered inconnection with a group health plan.Accordingly, individuals who leavecoverage provided by any such otherentity are entitled to have that coveragecounted by a group health plan and mayin many cases receive certificates fortheir creditable coverage. Thisinformation is included in theregulations because plans that impose apreexisting condition exclusion mayfind it helpful to know when creditablecoverage will be provable throughpresentation of a certificate and whenother forms of documentation orattestation may be needed.

In cases where certifications areprovided by entities not subject to

ERISA’s requirements, such asMedicaid, the Indian Health Service,and CHAMPUS, certain adjustments inthe certification rules may beappropriate. The regulations do notaddress how the certification processapplies to these other programs.Comments are requested on how thecertification requirements may beadapted to entities responsible forproviding this coverage.

Dependent Coverage Information.Dependents are entitled to a writtencertificate of creditable coverage.Concerns were raised in commentsreceived from the public regarding thecertification of dependent coveragewhere information regardingdependents of participants in plans wasnot available. Plans and issuers, thecommenters stated, often do not knowthe existence of dependents or theircoverage periods until claims are filed.To address these concerns, theregulations have adopted two specialrules.

First, under a transition rule that laststhrough June 30, 1998, a plan or issuermay satisfy its obligation to provide awritten certificate regarding thecoverage of a dependent of a participantby providing the name of the participantcovered by the plan and specifying thetype of coverage provided in thecertificate (such as family coverage oremployee-plus-spouse coverage).However, if asked to provide acertificate relating to a dependent, theplan must make reasonable efforts toobtain and provide the name of thedependent. This rule will provide plansand issuers with a transition period toupdate their data systems to includeinformation on dependents.

Second, the regulations include aspecial rule regarding dependentcoverage that is not limited to thetransition period. Under this rule, a planor issuer must make a reasonable effortto collect the necessary information fordependents and include it on thecertificate. However, under this specialrule, an automatic certificate is notrequired to be issued until the plan orissuer knows (or, making reasonableefforts, should know) of the dependent’scessation of coverage. This informationcan be collected annually (during openenrollment).

Under the transition rule and thespecial rule, an individual may use theprovisions described below to establishcreditable coverage (and waiting andaffiliation period information).

Information for Alternative Method ofCounting Creditable Coverage.Following receipt of the certificate, anentity that uses the alternative methodof counting creditable coverage may

request that the entity that issued thecertificate disclose additionalinformation in order for the requestingentity to determine the individual’screditable coverage with respect to anycategory of benefits described inparagraph (b). The requested entity maycharge the requesting entity thereasonable cost of disclosing theinformation. The requesting entity mayask for a copy of the summary plandescription (SPD) that applied to theindividual’s coverage or may ask formore specific information. Set forthbelow is a model form that may be usedfor specific coverage information aboutthe categories of benefits:

Information on Categories of Benefits1. Date of original certificate: lllllll2. Name of group health planproviding the coverage: lllllllll3. Name of participant: llllllllll4. Identification number of participant: ll5. Name of individual(s) to whom thisinformation applies: ll6. The following information applies to thecoverage in the certificate that was providedto the individual(s) identified above:a. Mental Health: llllllllllllb. Substance Abuse Treatment: llllllc. Prescription Drugs: lllllllllld. Dental Care: llllllllllllle. Vision Care: llllllllllllll

For each category above, enter ‘‘N/A’’ if theindividual had no coverage within thecategory and either (i) enter both the date thatthe individual’s coverage within the categorybegan and the date that the individual’scoverage within the category ended (orindicate if continuing), or (ii) enter ‘‘same’’on the line if the beginning and ending datesfor coverage within the category are the sameas the beginning and ending dates for thecoverage in the certificate.

Demonstration of Coverage ifCertificate is Not Provided. UnderHIPAA, in order to prevent anindividual from being adversely affectedif the individual does not receive acertificate, the individual has a right todemonstrate creditable coverage throughthe presentation of documentation orother means. For example, an individualmay not have a certificate because: anentity failed to provide a certificatewithin the required time period; anentity was not required to provide acertificate; the coverage of theindividual was for a period before July1, 1996; or, the individual has an urgentmedical condition that necessitates animmediate determination of creditablecoverage by the plan or issuer. Underthese circumstances, an individual maypresent evidence of creditable coveragethrough documents, records, third partystatements, or other means, includingtelephone calls by the plan or issuer toa third party provider. The planadministrator is required to take into


account all information presented indetermining whether to offset any or allof a preexisting condition exclusion. Aplan or issuer is required to treat theindividual as having furnished acertificate provided by a plan or issuerif the individual attests to the period ofcreditable coverage, the individualpresents relevant corroborating evidenceof some creditable coverage during theperiod, and the individual cooperateswith the plan’s or issuer’s efforts toverify the individual’s coverage.

If an individual needs to demonstratehis or her status as a dependent of aparticipant, the plan or issuer isrequired to treat the individual ashaving furnished a certificate if anattestation to such dependency and theperiod of such status is provided, and ifthe individual cooperates with theplan’s or issuer’s efforts to verify thedependent status.

Similar rules apply relating todetermining creditable coverage underthe alternative method.

Notice to Individual of Period ofPreexisting Condition Exclusion. Withina reasonable time following the receiptof the certificate, information relating tothe alternative method, or otherevidence of coverage, a plan or issuer isrequired to make a determinationregarding the length of any preexistingcondition exclusion period that appliesto the individual and notify theindividual of its determination. Whethera determination and notification ismade within a reasonable period of timedepends upon the relevant facts andcircumstances including whether theapplication of the preexisting conditionexclusion period would prevent accessto urgent medical services. The plan orissuer is required to notify theindividual, however, only if, afterconsidering the evidence, it hasdetermined that a preexisting conditionexclusion period will still be imposedon the individual. The basis of thedetermination, including the source andsubstance of any information on whichthe plan or issuer relied, must beincluded in the notification. Thenotification must also explain the plan’sappeals procedures and the opportunityof the individual to present additionalevidence.

The plan or issuer may reconsider andmodify its initial determination if itdetermines that the individual did nothave the claimed creditable coverage. Inthis circumstance, the plan or issuermust notify the individual of suchreconsideration and, until a finaldetermination is made, must act inaccordance with its initialdetermination for purposes of approvingmedical services.

Model Certificate. The followingmodel certificate has been authorized bythe Secretary of each of theDepartments. Use of the modelcertificate will satisfy the requirementsof paragraph (a)(3)(ii) of the regulations.

Certificate of Group Health Plan Coverage* IMPORTANT—This certificate provides

evidence of your prior health coverage. Youmay need to furnish this certificate if youbecome eligible under a group health planthat excludes coverage for certain medicalconditions that you have before you enroll.This certificate may need to be provided ifmedical advice, diagnosis, care, or treatmentwas recommended or received for thecondition within the 6-month period prior toyour enrollment in the new plan. If youbecome covered under another group healthplan, check with the plan administrator tosee if you need to provide this certificate.You may also need this certificate to buy, foryourself or your family, an insurance policythat does not exclude coverage for medicalconditions that are present before you enroll.1. Date of this certificate: lllllllll2. Name of group health plan: lllllll3. Name of participant: llllllllll4. Identification number of participant: ll5. Name of any dependents to whomthis certificate applies: llllllllll6. Name, address, and telephone number ofplan administrator or issuer responsible forproviding this certificate:lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll7. For further information, call: llllll8. If the individual(s) identified in line 3 andline 5 has at least 18 months of creditablecoverage (disregarding periods of coveragebefore a 63-day break), check herelll andskip lines 9 and 10.9. Date waiting period or affiliation period(if any) began: llllllllllllll10. Date coverage began: lllllllll11. Date coverage ended: lll (or check ifcoverage is continuing as of the date of thiscertificate: lll).

Note: Separate certificates will befurnished if information is not identical forthe participant and each beneficiary.

Special Enrollment Periods—26 CFR54.9801–6, 29 CFR 2590.701–6, 45 CFR146.117

This section of the regulationsprovides guidance regarding the newenrollment rights provided toemployees and dependents underHIPAA. A group health plan and ahealth insurance issuer offering grouphealth insurance coverage are requiredto provide for special enrollmentperiods during which individuals whopreviously declined coverage areallowed to enroll (without having towait until the plan’s next regular openenrollment period). A specialenrollment period can occur if a personwith other health coverage loses thatcoverage or if a person becomes a

dependent through marriage, birth,adoption, or placement for adoption.

A plan must provide a description ofthe special enrollment rights to anyonewho declines coverage. The regulationsprovide a model of such a description.

A person who enrolls during a specialenrollment period (even if the periodalso corresponds to a regular openenrollment period) is not treated as alate enrollee. (Accordingly, the plan orissuer may not impose a preexistingcondition exclusion period longer than12 months with respect to the person.)

Special Enrollment for Loss of OtherCoverage. The special enrollment periodfor loss of other coverage is available toemployees and their dependents whomeet certain requirements. Theemployee or dependent must otherwisebe eligible for coverage under the termsof the plan. When the coverage waspreviously declined, the employee ordependent must have been coveredunder another group health plan ormust have had other health insurancecoverage. The plan can require that,when coverage in the plan waspreviously declined, the employee musthave declared in writing that the reasonwas other coverage, in which case theplan must at that time have providednotice of this requirement and theconsequences of the employee’s failureto provide the statement.

The special enrollment rights mayapply with respect to an employee, adependent of the employee, or both. Anemployee who has not previouslyenrolled can enroll under these rules ifit is the employee who loses othercoverage. An employee’s dependent canbe enrolled under these rules if it is thedependent who loses other coverage andthe employee is already enrolled. Inaddition, both the employee and adependent can be enrolled togetherunder these rules if either the employeeor the dependent loses other coverage.

If the other coverage is COBRAcontinuation coverage, the specialenrollment can only be requested afterexhausting COBRA continuationcoverage. If the other coverage is notCOBRA continuation coverage, specialenrollment can only be requested afterlosing eligibility for the other coverageor after cessation of employercontributions for the other coverage. Ineach case, the employee has 30 days torequest special enrollment. Anindividual does not have to electCOBRA continuation coverage orexercise similar continuation rights inorder to preserve the right to specialenrollment. However, an individualdoes not have a special enrollment rightif the individual loses the othercoverage as a result of the individual’s


13 These alternative that may be used in lieu ofan affiliation period to address adverse selectionshould not be confused with the use of thealternative method for counting creditable coveragediscussed in the next paragraph.

failure to pay premiums or for cause(such as making a fraudulent claim).Coverage under special enrollment mustbe effective no later than the first day ofthe month after an employee request theenrollment for himself or herself or onbehalf of a dependent.

Special Enrollment for NewDependents. A special enrollmentperiod also occurs if a person has a newdependent by birth, marriage, adoption,or placement for adoption. The electionto enroll can be made within 30 daysfollowing the birth, marriage, adoption,or placement for adoption. In the caseof a plan that does not offer anycoverage for dependents and is thenmodified to offer dependent coverage,the election to enroll can instead bemade during the 30 days beginning onthe date dependent coverage is madeavailable.

The special enrollment rules allow aneligible employee to enroll when he orshe marries or has a new child (as aresult of marriage, birth, adoption, orplacement for adoption). A spouse of aparticipant can be enrolled separately atthe time of marriage or when a child isborn, adopted or placed for adoption.The spouse can be enrolled togetherwith the employee when they marry orwhen a child is born, adopted, or placedfor adoption. A child who becomes adependent of a participant as a result ofmarriage, birth, adoption, or placementfor adoption can be enrolled when thechild becomes a dependent. Similarly, achild who becomes a dependent of aneligible employee as a result ofmarriage, birth, adoption, or placementfor adoption can be enrolled if theemployee enrolls at the same time.

In the case of a dependent specialenrollment period, HIPAA provides thatcoverage with respect to a marriage iseffective no later than the first day of themonth after the date the request forenrollment is received and coveragewith respect to a birth, adoption, orplacement for adoption is effective onthe date of the birth, adoption, orplacement for adoption.

HMO Affiliation Period as Alternative toPreexisting Condition Exclusion—29CFR 2590.701–7 and 45 CFR 146.119

This section of the regulations permitsa group health plan offering healthinsurance through an HMO, or an HMOthat offers health insurance coverage inconnection with a group health plan, toimpose an affiliation period, but only ifcertain other requirements are met. An‘‘affiliation period’’ is defined in theregulations as a period of time that mustexpire before health insurance coverageprovided by the HMO becomes

effective, and during which the HMO isnot required to provide benefits.

The regulations specify the followingrequirements for imposing an affiliationperiod:

• No preexisting condition exclusionmay be imposed with respect tocoverage through the HMO;

• No premium may be charged to aparticipant or beneficiary for theaffiliation period;

• The affiliation period must beapplied uniformly without regard to anyhealth status-related factors; and

• The affiliation period must begin onthe enrollment date, cannot exceed twomonths (three months for a lateenrollee), and must run concurrentlywith any waiting period under the plan.The regulations provide for theaffiliation period to begin on theenrollment date in the plan, not whencoverage with the HMO begins.Accordingly, if a plan offers multiplecoverage options simultaneously, theHMO cannot impose an affiliationperiod on plan participants who changeto the HMO option. Comments arerequested on this rule.

The regulations permit an HMO to usealternatives in lieu of an affiliationperiod to address adverse selection, asapproved by the State insurancecommissioner or other officialdesignated to regulate HMOs. Becausean affiliation period may be imposedonly if no preexisting conditionexclusion is used, an alternative to anaffiliation period may not encompass anarrangement that is in the nature of suchan exclusion.13

While HMOs usually do not imposepreexisting condition exclusions, theycould choose to apply a preexistingcondition exclusion period for allenrollees based on the alternativemethod of counting creditable coverageif the regulations were to add a categoryrelating to deductibles. However, asdescribed above under the heading‘‘Alternative Method,’’ the regulationscurrently do not include such acategory.

Nondiscrimination in Eligibility andPremiums in the Group Market—26 CFR54.9802–1, 29 CFR 2590.702, 45 CFR146.121

The regulations include provisionsimplementing the nondiscriminationprovisions in HIPAA. Comments arewelcomed on these provisions, and, inparticular, comments are requested onwhether guidance is needed concerning:

• The extent to which the statuteprohibits discrimination againstindividuals in eligibility for particularbenefits;

• The extent to which the statute maypermit benefit limitations based on thesource of an injury;

• The permissible standards fordefining groups of similarly situatedindividuals;

• Application of the prohibitions ondiscrimination between groups ofsimilarly situated individuals; and

• The permissible standards fordetermining bona fide wellnessprograms.

The Departments intend to issuefurther regulations on thenondiscrimination rules in the nearfuture. In no event will the period forgood faith compliance (specified inHIPAA sections 102(c)(5), 101(g)(5), and401(c)(5)) with respect to section 2702of the PHS Act, section 702 of ERISA,and section 9802 of the Code end beforethe additional guidance is provided.

A plan or issuer may not establishrules for eligibility (including continuedeligibility) of an individual to enrollunder the terms of the plan based on ahealth status-related factor. HIPAA andthe regulations provide a list of healthstatus-related factors. The Departmentsare considering interpreting thestatutory language relating to eligibilityto enroll so that a plan or issuer wouldbe prohibited from providing lowerbenefits to certain individuals based onhealth status-related factors. Commentsare welcomed on this interpretation.

Among the health status-relatedfactors listed in the statute is ‘‘evidenceof insurability (including conditionsarising out of acts of domesticviolence).’’ The Conference Reportstates that the inclusion of evidence ofinsurability in the list of health status-related factors ‘‘is intended to ensure,among other things, that individuals arenot excluded from health care coveragedue to their participation in activitiessuch as motorcycling, snowmobiling,all-terrain vehicle riding, horsebackriding, skiing and other similaractivities.’’ However, HIPAA alsoprovides that a plan or issuer is notrequired to provide particular benefitsother than those provided under theterms of the plan. Moreover, HIPAAprovides that a plan or issuer mayestablish limitations or restrictions onthe amount, level, extent, or nature ofthe benefits or coverage for similarlysituated individuals enrolled in theplan. Comments have been receivedindicating that some plans containprovisions that exclude coverage forbenefits based on the source of injury(such as benefits for injuries sustained


14 Note that a group health plan, which providesprimary coverage while an individual is an activeemployee, is often extended to retirees. When theretiree becomes eligible for Medicare, the grouphealth plan commonly coordinates with Medicareand may serve a supplemental function similar tothat of a Medigap policy. However, such employer-provided retiree ‘‘wrap around’’ benefits are notexcepted benefits (because they are expresslyexcluded from the definition of a Medicaresupplement policy in section 1882(g)(1) of theSocial Security Act).

15 In this section (‘‘Other Group MarketProvisions’’), references conform to usage in 45 CFRPart 146, which uses ‘‘HCFA’’ in place of‘‘Department of Health and Human Services’’ or‘‘Secretary of Health and Human Services’’ and

Continued

in a motorcycle accident, injuriessustained in a motorcycle accident asthe result of not wearing a helmet, orinjuries sustained in the commission ofa felony). Accordingly, comments arerequested on how future guidanceshould treat benefit limitations based onthe source of an injury.

The Conference Report also states that‘‘[t]he term ‘similarly situated’ meansthat a plan or coverage would bepermitted to vary benefits available todifferent groups of employees, such asfull-time versus part-time employees oremployees in different geographiclocations. In addition, a plan orcoverage could have different benefitschedules for different collectivebargaining units.’’ Accordingly,comments are requested concerning theappropriate standards for determining‘‘similarly situated individuals,’’including whether a plan is permitted tovary benefits based on an employee’soccupation. Because these standardscould impact on the small group market,the Department of Health and HumanServices is particularly interested inreceiving comments from States withrespect to how varying benefits based onoccupation could affect rate setting.

The Departments also requestcomments regarding how theprohibitions on discrimination shouldbe applied between groups of similarlysituated individuals. For example, isguidance needed on whether a plancovering employees in two differentlocations could have a longer waitingperiod for employees at one locationbecause the health status of thoseemployees results in higher healthcosts?

A plan or issuer may not require anyindividual (as a condition of enrollmentor continued enrollment) to pay apremium or contribution, that is greaterthan that for a similarly situatedindividual enrolled in the plan, basedon a health status-related factor.However, this limitation does notrestrict the amount that an issuer cancharge an employer for the coverage. Inaddition, this limitation does notprevent a plan or issuer fromestablishing premium discounts orrebates or otherwise modifyingapplicable copayments or deductibles inreturn for adherence to programs ofhealth promotion and diseaseprevention (bona fide wellnessprograms). Comments are requestedregarding the standards for determiningbona fide wellness programs, includingwhether such a program may provide adiscount for non-smokers.

Special Rules—Excepted Plans andExcepted Benefits—26 CFR 54.9804–1,29 CFR 2590.732, 45 CFR 146.145

This section of the regulationsprovides special rules for certain plansand certain benefits.

Very Small Plans. The group marketrequirements of HIPAA do not apply toa group health plan, or to group healthinsurance coverage offered inconnection with a group health plan, forany plan year if, on the first day of theplan year, the plan has fewer than 2participants who are current employees.However, a State may apply the groupmarket provisions in the PHS Act toplans with fewer than two participantswho are current employees. In this case,the State would apply its group marketinsurance law requirements to suchsmall group plans (and such planswould not be subject to the individualmarket requirements).

Excepted Benefits. The group marketprovisions and the related regulationsalso do not apply to any group healthplan or group health insurance issuer inrelation to its provision of exceptedbenefits. The benefits identified inparagraph (b)(2) are generally not healthinsurance coverage and are excepted inall circumstances. In contrast, thebenefits identified in paragraphs (b) (3),(4), and (5) are generally healthinsurance coverage but are excepted ifcertain conditions are met.

Limited-scope dental benefits,limited-scope vision benefits, and long-term care benefits are excepted if theyare provided under a separate policy,certificate, or contract of insurance, orare otherwise not an integral part of theplan. For this purpose, limited-scopedental coverage typically providesbenefits for non-medical services suchas routine dental cleanings, x-rays, andother preventive procedures. Suchcoverage may also provide discounts onthe cost of common dental proceduressuch as fillings, root canals, crowns, fullor partial plates, or orthodontic services.Limited-scope dental coverage typicallydoes not provide benefits for medicalservices, such as those proceduresassociated with oral cancer or with amouth injury that results in broken,displaced, or lost teeth.

Similarly, limited-scope visioncoverage provides benefits for routineeye examinations or the fitting ofeyeglasses or contact lenses. Thiscoverage does not include benefits forsuch ophthalmological services astreatment of an eye disease (e.g.,glaucoma or a bacterial eye infection) oran eye injury.

Noncoordinated benefits may beexcepted benefits. The term

‘‘noncoordinated benefits’’ refers tocoverage for a specified disease orillness (such as cancer-only coverage) orhospital indemnity or other fixed dollarindemnity insurance (such as insurancethat pays $100/day for a hospital stay asits only insurance benefit) if threeconditions are met. First, the benefitsare provided under a separate policy,certificate, or contract for insurance.Second, there is no coordinationbetween the provision of these benefitsand another exclusion of benefits undera plan maintained by the same plansponsor. Third, benefits are paidwithout regard to whether benefits areprovided with respect to the same eventunder a group health plan maintainedby the same plan sponsor.

Certain supplemental benefits areexcepted only if they are providedunder a separate policy, certificate, orcontract of insurance. This category ofexcepted benefits includes Medicaresupplemental (commonly called‘‘Medigap’’ or ‘‘MedSupp’’) policies,CHAMPUS supplements, andsupplements to certain employer grouphealth plans. Such supplementalcoverage cannot duplicate primarycoverage and must be specificallydesigned to fill gaps in primarycoverage, coinsurance, or deductibles.14

The regulations do not addresssection 2721(e) of the PHS Act orsection 705(d) of ERISA relating to thetreatment of partnerships (or theapplication of the Code’s group marketrules to partnerships). Comments arerequested on these provisions, includinghow these provisions coordinate withother provisions relating to self-employed individuals and partnerships.

F. Other Group Market Provisions15

Guaranteed Renewability inMultiemployer Plans and MultipleEmployer Welfare Arrangements—Section 703 of ERISA and Section 9803of the Code

Requirements relating to guaranteedrenewability in multiemployer plans


‘‘HCFA regulations’’ in place of ‘‘PHS Actregulations.’’

and multiple employer welfarearrangements are set forth in section 703of ERISA and section 9803 of the Code(but not in the PHS Act). Theseprovisions state that a group health planthat is a multiemployer plan or that isa multiple employer welfarearrangement may not deny an employerwhose employees are covered undersuch a plan continued access to thesame or different coverage under theterms of such plan, other than forcertain specified reasons. TheDepartments are not issuing regulationsunder section 703 of ERISA or section9803 of the Code at this time, butanticipate issuing regulations underthese sections and solicit commentsregarding these sections.

In these provisions, the terms‘‘continued access’’ and ‘‘same ordifferent coverage’’ are not defined.Comments are requested on how rulesunder these provisions might addressvariations and changes in a plan’sbenefit packages and contribution rates,differences in the characteristics ofmultiemployer plans and multipleemployer welfare arrangements, and anypossible implications for the financialintegrity of affected plans.

Preemption of State Laws; StateFlexibility—29 CFR 2590.731 and 45CFR 146.190

The McCarran-Ferguson Act of 1945(Pub. L. 79–15) exempts the business ofinsurance from federal antitrustregulation to the extent that it isregulated by the States and indicatesthat no federal law should beinterpreted as overriding Stateinsurance regulation unless it does soexplicitly. Section 514(a) of ERISApreempts State laws relating toemployee benefit plans (including grouphealth plans). However, section514(b)(2) of the ERISA saves frompreemption any State law that regulatesinsurance. Section 2723 of the PHS Actand section 731 of ERISA make clearthat Part A of Title XXVII of the PHSAct and Part 7 of Subtitle B of Title Iof ERISA do not in any way affect ormodify section 514 of ERISA.

In addition, section 2723 of the PHSAct and section 731(a) of ERISApreempt State insurance laws to theextent such laws ‘‘prevent theapplication of’’ Part A of Title XXVII ofthe PHS Act and Part 7 of Subtitle B ofTitle I of ERISA. (There is nocorresponding provision in the Code.) Inthis regard, the Conference Report statesthat the conferees intended thenarrowest preemption of State laws with

regard to health insurance issuers (notgroup health plans) with respect to allthe provisions of Part A of Title XXVIIof the PHS Act and Part 7 of Subtitle Bof Title I of ERISA (except forpreemption with respect to theprovisions of section 2701 of the PHSAct and section 701 of ERISA.)Consequently, the Conference Reportstates that State laws with regard tohealth insurance issuers that are broaderthan federal requirements in certainareas would not ‘‘prevent theapplication of’’ the provisions of Part Aof Title XXVII of the PHS Act or Part 7of Subtitle B of Title I of ERISA.

However, the preemption is broaderfor the statutory requirements of section2701 of the PHS Act and 701 of ERISAthat limit the application of preexistingcondition exclusions. State laws cannot‘‘differ’’ from the preexisting conditionexclusion requirements of section 2701of the PHS Act or section 701 of ERISA,except as specifically permitted undersection 2723(b)(2) of the PHS Act andsection 731(b)(2) of ERISA. Thesespecific exceptions permit a State toimpose on health insurance issuerscertain stricter limitations relating topreexisting condition exclusions.

Comments are also solicited on issuesrelating to the coordination of the newrequirements under HIPAA and Staterequirements for associations that maybe multiple employer welfarearrangements as defined in section 3(40)of ERISA.

Guaranteed Availability of Coverage forSmall Employers Under the PHS ActGroup Market Provisions—45 CFR146.150

Rules relating to guaranteedavailability of coverage for employers inthe small group market appear only inthe PHS Act (at section 2711). Ingeneral, this section requires healthinsurance issuers that offer coverage inthe small group market to offer to anysmall employer all of the products theyactively market in that market. This isgenerally referred to as an all-productsguarantee. However, as allowed underapplicable State law, the issuer canrequire that the employer make aminimum contribution toward thepremium charged and have a minimumlevel of participation by eligibleindividuals. The issuer must also acceptfor enrollment every eligible individualwithout regard to health status. Forpurposes of this section, an eligibleindividual is one who meets theapplicable requirements of the grouphealth plan, the issuer, and State law forcoverage under the plan.

Some States have, in recent years,made reforms in their small group

markets that only require guaranteedissue of a basic and a standard policy,rather than an all-products guarantee.They have urged that an all-productsguarantee not be adopted, arguing thatthe law does not specifically require it.However, sections 2711 and 2741 of thePHS Act, as added by HIPAA, containvirtually identical requirementsrequiring issuers that offer healthinsurance coverage in either the smallgroup or individual market to make‘‘such coverage’’ available to,respectively, small employers or eligibleindividuals. While section 2741explicitly permits issuers to limit to twopolicies the offerings they are requiredto make in the individual market, thesmall group market provisions containno similar exception. In fact, section2713(b)(1)(D) requires that an issuer thatoffers health insurance to any smallemployer must provide informationconcerning ‘‘the benefits and premiumsavailable under all health insurancecoverage for which the employer isqualified.’’ (Emphasis added.) Thisindicates that Congress intended torequire an all-products guarantee in thesmall group market. (However, a Statethat implements an ‘‘alternativemechanism’’ in the individual marketunder section 2744 of the PHS Act hasthe flexibility either to impose an all-products guarantee or to use acompletely different mechanism formaking insurance available toindividuals guaranteed coverage underthe statute.)

Various industry groups and personsresponding to the notice that the threeDepartments published on December 30,1996 asked that the term ‘‘offer’’ beinterpreted to mean ‘‘activelymarketed,’’ so that issuers would not berequired to reopen closed blocks ofbusiness. The regulations make thisclear.

Section 2711 also requires issuers toaccept for enrollment any individualswho are eligible to enroll under theterms of the plan, and who satisfy therequirements of the issuer andapplicable State law, during the periodin which the individual ‘‘first becomeseligible’’ to enroll under the terms of thegroup health plan. Thus, the issuer isnot required to accept late enrollees.The regulations make it clear that thisprotection extends to individuals if they‘‘first become eligible’’ to enroll duringa special enrollment period. The specialenrollment provisions of the statuteevidence the intent that individualswho qualify for special enrollment begiven the same protections given tonewly-hired employees and theirdependents.


An issue has also been raised as towhether the statutory definitions ofpremium contributions and groupparticipation rules, which are repeatedin the regulations, related only topercentages of employees or premiumdollars or to absolute numbers ofemployees or premium amounts. If thelatter interpretation were permitted, theeffect would be to undermine the all-products guarantee by allowing, forexample, some products to be availableto ‘‘larger’’ small employers, but not tothe smallest employers. The regulationscurrently leave interpretation of thislanguage to the States, but comments arewelcomed on this issue.

Section 146.150 also includes rulesregarding the circumstances underwhich issuers are permitted to denycoverage to employers. If the product isa network plan, under which servicesare furnished by a defined set ofproviders, the issuer can deny coverageto an employer whose eligibleindividuals do not live, work, or residein the network plan’s service area. It canalso deny coverage if it hasdemonstrated to the State that itsnetwork does not have the capacity todeliver services to additional groups,but is then barred for 180 days fromoffering coverage in that service area.An issuer may also deny coverage if itdemonstrates that it lacks sufficientfinancial reserves to underwriteadditional coverage, but is barred for180 days from offering coverage in thesmall group market in the State. Both ofthese exceptions must be applied to allemployers uniformly withoutconsideration of the health status orclaims experience of an employer’semployees or dependents. Neither ofthese exceptions relieves a network planof its responsibility to continueservicing its in-force business under theguaranteed renewability requirements ofthe regulations.

Finally, § 146.150 provides that if thecoverage is only made available tomembers of ‘‘bona fide associations’’ asthat term is defined in the regulations,it is not subject to the guaranteedavailability requirements. (Accordingly,the coverage does not have to be offeredto non-members.) However, employersthat obtain coverage through a bona fideassociation are assured of guaranteedaccess to the association’s coverageoptions as long as they remain membersof the association. This is because abona fide association cannot conditionmembership in the association on healthstatus-related factors. Moreover, it mustoffer coverage to all employers who aremembers without regard to healthstatus-related factors relating to theiremployees or dependents. Therefore, an

association cannot legally refuseenrollment to members on a selectivebasis so long as they meet theassociation’s membership criteria.

Guaranteed Renewability of Coveragefor Employers Under the PHS Act GroupMarket Provisions—45 CFR 146.152

Section 146.152 of the Health CareFinancing Administration (HCFA)regulations implements section 2712 ofthe PHS Act, which requires issuers torenew or continue in force any coveragein the large or small group market at theoption of the plan sponsor. Theexceptions to this requirement includenonpayment of premiums, fraud, andviolation of minimum participation orcontribution rules, as permitted underapplicable State law. Also, the issuercan cease to offer either a particularproduct or all coverage it offers in theparticular market, and can refuse torenew if the group health plan’sparticipants all leave the service area ofa network plan, or if the coverage isprovided through a bona fideassociation and the employer’smembership ends.

Issuers that decide to discontinueoffering a particular product or allcoverage in the small or large groupmarket are subject to certainrequirements outlined in paragraphs (c)and (d) of this section of the regulations.Issuers discontinuing only a particularproduct must give 90 days’ notice, mustoffer the plan sponsor the option topurchase other coverage the issuer offersin that market, and must discontinuethe product uniformly, without regardto claims experience or health status ofparticipants or dependents under aparticular group health plan. If theissuer terminates all coverage in amarket or markets, it must provide 180days’ notice to each plan sponsor, andit is prohibited from issuing coverage inthe market(s) or State involved for fiveyears following the date ofdiscontinuation. Plans or issuers maymodify the health insurance coverage atthe time of coverage renewal, providedthe modification is consistent with Statelaw and, for the small group market, iseffective uniformly among group healthplans with coverage under that product.

Some States have asked whether anissuer that chooses to stop sellingcomprehensive products, such as a basicor standard policy, in a particularState’s group market, must also ceaseselling policies consisting of exceptedbenefits. Because Congress permittedthese types of supplemental policiesand limited benefit plans to be exceptedfrom the requirements of HIPAA in boththe group and individual markets,HCFA intends to defer to the States’

judgment on this issue, and solicitcomments.

State law may limit the extent towhich an issuer can abandon a productor market, and under whatcircumstances. For example, a State maychoose to require an issuer vacating themarket to transfer its business to anotherissuer through assumption reinsurance,or some other means permitted underState law.

Paragraph (g) of this section of theregulations provides that, with respectto group coverage offered only throughassociations, the option of guaranteedrenewability extends to includeemployer members of an association.This provision means that all employerscovered by an issuer through anassociation have the right to renew thecoverage they received if the associationceases to serve its members, regardlessof the reason.

Disclosure of Information by Issuers toEmployers Seeking Coverage in theSmall Group Market—45 CFR 146.160

Section 146.160 of the HCFAregulations implements section 2713 ofthe PHS Act by setting forth rulesrelating to disclosure of information byissuers to employers seeking coverage inthe small group market. In itssolicitation and sales materials, theissuer must make a reasonabledisclosure that the specified informationis available on request. The informationthat must be provided includes theissuer’s right to change premium ratesand the factors that may affect changesin premium rates, renewability ofcoverage, any preexisting conditionexclusion (including use of thealternative method of countingcreditable coverage), any affiliationperiods applied by HMOs, thegeographic areas served by HMOs, andthe benefits and premiums availableunder all health insurance coverage forwhich the employer is qualified underminimum contribution andparticipation rules, as permitted byState law. The issuer is exempted fromdisclosing proprietary or trade secretinformation under applicable law.

‘‘Factors that may affect changes inpremium rates’’ and ‘‘proprietary andtrade secret information underapplicable law’’ have not been defined.Comments are requested regardingwhether they should be defined.

The information described in thissection must be provided in languagethat is understandable by the averagesmall employer and sufficient toreasonably inform small employers oftheir rights and obligations under thehealth insurance coverage. Thisrequirement can be satisfied by using as


16 In the case of a group health plan maintainedpursuant to one or more collective bargainingagreements between employee representatives andone or more employers ratified before August 21,1996, the group market provision (other than therequirements to provide certifications) do not applyto plan years beginning before the later of July 1,1997 or the date on which the last of the collectivebargaining agreements relating to the planterminates (determined without regard to anyextension agreed to after August 21, 1996).

a model the outlines of coverageprovided under Medicare Supplementinsurance. (These outlines are requiredto provide easy comparison of thecoverage and cost of all availableproducts.) Reasonable informationincludes rating schedules for eachproduct to which more than one rateapplies, and, with respect to networkplans, maps of service areas or lists ofcounties served.

Exclusion of Certain Plans From thePHS Act Group Market Requirements—45 CFR 146.180

Section 146.180 of the HCFAregulations implements section 2721 ofthe PHS Act, which permits certainnonfederal governmental plans to electto be exempted from some or all of thegroup market requirements of the HCFAregulations, although they are subject tothe certification and disclosurerequirements of § 146.115. With respectto nonfederal governmental plans thatare collectively bargained, this sectiondoes not preempt State and localcollective bargaining laws. Theregulation establishes the form andmanner of the election, and requires anonfederal governmental plan makingthis election to notify plan participants,at the time of enrollment and on anannual basis, that it has made theelection and what effect the electionhas. The participant notice andcertification and disclosure obligationsare integral parts of the election. Failureto comply with these obligationsinvalidates an election and subjects thenonfederal governmental plan to therequirements the election would havepermitted the plan to avoid.

Only nonfederal governmental plansthat are self-funded (in whole or in part)can make the election, and the electiononly applies to the self-funded portion.A health insurance issuer that sellsinsurance coverage to a nonfederal planmust comply with all the group marketrequirements.

Enforcement of PHS ActRequirements—45 CFR 146.184

Part 146 imposes requirements onhealth insurance issuers that offercoverage in the group market in a State,and on nonfederal governmental (i.e.,State and local) group health plans.With respect to issuers, the statutemakes it clear that it is solely within thediscretion of the States, in the firstinstance, whether to take on theresponsibility for enforcing thoserequirements or whether to leaveenforcement to the federal government.HCFA anticipates that the States willchoose to enforce the requirements.However, the statute also makes clear

that if a State does not substantiallyenforce the requirements, HCFA mustenforce them. The statute also requiresHCFA to enforce the requirementsapplicable to nonfederal governmentalplans.

Section 146.184(b)(2) sets forth theprocedures that HCFA will follow if aquestion is raised about the State’senforcement with respect to issuers.Under the procedures, States are givenevery opportunity to demonstrate whyfederal enforcement is not required. Theregulations also make it clear that theprocedures will not be triggered unlessHCFA is satisfied that there has firstbeen a reasonable effort to exhaust anyState remedies. However, if, after givingthe State a reasonable opportunity toenforce, HCFA makes a finaldetermination that a State is notsubstantially enforcing theserequirements, HCFA will enforce therequirements using the civil moneypenalties provided for under the statute.

Parargarph (d) describes the processfor imposing civil money penaltiesagainst issuers or nonfederal plans thatfail to comply with the group marketrequirements in the PHS Act. If HCFAreceives a complaint or otherinformation that indicates that a rightguaranteed by the group market rules isbeing denied, HCFA will first determinewhich entity is potentially responsiblefor any penalty. If the failure is by anissuer, the issuer will be responsible. Ifa nonfederal governmental plan issponsored by a single employer, theemployer will be liable, but if the planis sponsored by two or more employers,the plan will be liable. If, after givingthe entity or entities an opportunity torespond, HCFA assesses a penalty, theregulation provides appeal rights. Thepenalty can consist of up to $100 foreach day, for each individual whoserights are violated.

Effective Dates—26 CFR 54.9806–1, 29CFR 2590.736, 45 CFR 146.125

The group market provisions aregenerally effective for plan yearsbeginning after June 30, 1997.16 In manycases, no preexisting conditionexclusion may be imposed with respectto an individual on the effective datebecause any permitted preexistingcondition exclusion period is measured

from the individual’s enrollment date inthe plan (even if the enrollment date isbefore the statutory effective date). Anindividual who has not completed themaximum permitted exclusion periodunder HIPAA before the effective datefor his or her plan may use creditablecoverage to reduce the remainingpreexisting condition exclusion period.The regulations contain examplesillustrating the effect of these rules.

The requirement that a plan or issuerprovide certificates to show creditablecoverage applies to events occurring onor after July 1, 1996, except that in nocase is a certificate required to beprovided before June 1, 1997 or toreflect coverage before July 1, 1996.

For events occurring on or after July1, 1996 but before October 1, 1996, acertificate is required to be providedonly upon a written request by or onbehalf of the individual to whom thecertificate applies. For events occurringon or after October 1, 1996 and beforeJune 1, 1997, a certificate must befurnished no later than June 1, 1997 (or,if later, any date that would otherwiseapply under the standard rules).

The regulations include an optionaltransition rule for events before June 1,1997. (The transition rule applies toautomatic certificate events; it does notapply where a certificate is requested.)A group health plan or health insuranceissuer offering group health coverage isdeemed to satisfy the automaticcertificate requirements if a specialnotice is provided no later than June 1,1997. The notice must be in writing andmust include information substantiallysimilar to the information included in amodel notice authorized by theSecretaries. For this purpose, thefollowing model notice is authorized:

IMPORTANT NOTICE OF YOUR RIGHT TODOCUMENTATION OF HEALTHCOVERAGE

Recent changes in Federal law may affectyour health coverage if you are enrolled orbecome eligible to enroll in health coveragethat excludes coverage for preexistingmedical conditions.

The Health Insurance Portability andAccountability Act of 1996 (HIPAA) limitsthe circumstances under which coverage maybe excluded for medical conditions presentbefore you enroll. Under the law, apreexisting condition exclusion generallymay not be imposed for more than 12 months(18 months for a late enrollee). The 12-month(or 18-month) exclusion period is reduced byyour prior health coverage. You are entitledto a certificate that will show evidence ofyour prior health coverage. If you buy healthinsurance other than through an employergroup health plan, a certificate of priorcoverage may help you obtain coveragewithout a preexisting condition exclusion.Contact your State insurance department forfurther information.


For employer group health plans, thesechanges generally take effect at the beginningof the first plan year starting after June 30,1997. For example, if your employer’s planyear begins on January 1, 1998, the plan isnot required to give you credit for your priorcoverage until January 1, 1998.

You have the right to receive a certificateor prior health coverage since July 1, 1996.You may need to provide otherdocumentation for earlier periods of healthcare coverage. Check with your new planadministrator to see if your new planexcludes coverage for preexisting conditionsand if you need to provide a certificate orother documentation of your previouscoverage.

To get a certificate, complete the attachedform and return it to:[Insert Name of Entity:][Insert Address]:For additional information contact: [Insert

Telephone Number]The certificate must be provided to you

promptly. Keep a copy of this completedform. You may also request certificates forany of your dependents (including yourspouse) who were enrolled under your healthcoverage.

REQUEST FOR CERTIFICATE OF HEALTHCOVERAGE

Name of Participant: lllllllllllDate: llllllllllllllllllAddress: llllllllllllllllTelephone Number: lllllllllll

Name and relationship of any dependentsfor whom certificates are requested (and theiraddress if different from above):llllllllllllllllllllllllllllllllllllllllll

The provisions in the regulationsrelating to method of delivery andentities required to provide a certificateapply with respect to the provision ofthe notice. If an individual requests acertificate following receipt of thenotice, the certificate must be providedat the time of the request as set forth inthe regulations relating to certificatesprovided upon request.

HIPAA provides that no enforcementaction is to be taken against a grouphealth plan or health insurance issuerwith respect to a violation of the groupmarket rules before January 1, 1998 ifthe plan or issuer has sought to complyin good faith with such requirements.Compliance with the regulations isdeemed to be good faith compliancewith the group market rules.

G. Interim Rules and Request forComments

Section 707 of ERISA (redesignated assection 734 by section 603(a)(3) of theNMHPA), Section 2707 of the PHS Act,and Section 9806 of the Code added byHIPAA, provide, in part, that theSecretaries of Labor, Treasury and HHSmay promulgate any interim final rules

as they determine are appropriate tocarry out the portability provisions ofHIPAA.

Under Section 553(b) of theAdministrative Procedure Act (5 U.S.C.551 et seq.) a general notice of proposedrulemaking is not required when theagency, for good cause, finds that noticeand public comment thereon areimpracticable, unnecessary or contraryto the public interest.

These rules are being adopted on aninterim basis because the Secretarieshave determined that without promptguidance, some members of theregulated community will havedifficulty complying with the HIPAA’scertification requirements, and will bein violation of the statute. Congressexpressly intended that the certificationand prior creditable coverage provisionsserve as the mechanism for increasingthe portability of health coverage forplan participants and their beneficiaries.Without the Departments’ guidance,plans would likely be unable to producethe necessary amendments to plandocuments reflecting HIPAA’s newrequirements, as well as the appropriatecertifications of prior coverage thatwould help participants andbeneficiaries reduce any applicablepreexisting condition exclusion periodsimposed by a new health plan. Thus,without the Departments’ promptguidance, participants and beneficiarieswill not have the benefit of a convenientcertificate of prior coverage to presentupon changing health coverage, and willlikely have greater difficulty provingthat they are entitled to health coverageimmediately, or soon after joining a newhealth plan.

Moreover, HIPAA’s portabilityrequirements will affect the regulatedcommunity in the immediate future.HIPAA’s certification requirements areeffective for all group health plans onJune 1, 1997. HIPAA’s underlyingrequirements concerning establishingperiods of prior creditable coverage, pre-existing condition exclusion provisions,and the special enrollmentrequirements, are generally applicablefor group health plans for plan yearsbeginning on or after July 1, 1997. Planadministrators and sponsors, andparticipants and beneficiaries will needguidance on how to comply with thenew statutory provisions before theseeffective dates. These rules have beenwritten in order to ensure that plansponsors and administrators of grouphealth plans, as well as participants andbeneficiaries, are provided timelyguidance concerning compliance withthese recently enacted amendments toERISA, the PHS Act and the Code.These rules provide guidance on these

statutory changes, and are beingadopted on an interim basis because theDepartments find that issuance of suchregulations in interim final form with arequest for comments is appropriate tocarry out the new regulatory structureimposed by HIPAA on group healthplans and health insurance issuers. Inaddition, these rules are necessary toensure that plan sponsors andadministrators of group health plans, aswell as participants and beneficiaries,are provided timely guidanceconcerning compliance with new andimportant disclosure obligationsimposed by HIPAA.

Sections 101(g)(4), 102(c)(4), and401(c)(4) of HIPAA also mandate thatthe Secretaries issue regulationsnecessary to carry out the portabilityamendments by April 1, 1997. Issuanceof a notice of proposed rule making withpubic comment thereon prior to issuinga final rule could delay significantly theissuance of essential guidance andprevent the Departments fromcomplying with their statutory rulemaking deadline. Furthermore, theserules are being adopted on an interimbasis and the Departments are invitinginterested persons to submit writtencomments on the rules for considerationin the development of the final rulesrelating to HIPAA. Such final rules maybe issued in advance of January 1, 1998,after affording the public an opportunityto review and comment.

For the foregoing reasons, theDepartments find that the publication ofa proposed regulation, for the purposeof notice and public comment thereon,would be impracticable, unnecessary,and contrary to the public interest.

H. Regulatory Flexibility ActThe Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposescertain requirements with respect torules which would have significanteconomic impact on a substantialnumber of small entities. Section 603 ofthe RFA requires an agency publishinga general notice of proposed rulemaking(NPRM) under section 553 of the APAto present at the time of the publicationof its NPRM an initial regulatoryflexibility analysis, describing theimpact of the rule on small entities, andseeking public comment on suchimpact.

Small entities include small business,non-profit organizations, andgovernmental agencies. A ‘‘rule’’ underthe Regulatory Flexibility Act is one forwhich a general notice of proposedrulemaking is required under section553(b) of the APA.

Since these rules are issued as interimrules, and not as a general notice of


proposed rulemaking, for the reasonsstated above, an Initial RegulatoryFlexibility analysis has not beenprepared.

While these rules are beingpromulgated as interim final rules, theDepartments nevertheless inviteinterested persons to submit commentsfor consideration in the development ofthe final rules regulating to HIPAA.Consistent with the policy of theRegulatory Flexibility Act, the public isencouraged to submit comments thatsuggest alternative rules that accomplishthe stated purpose of the statute andminimize the impact on small entities.Specifically, the public in encouraged toaddress:

• What information relating to priorcoverage, preexisting conditionexclusion, health status, waiting periodsand similar issues do employers, plansand issuers currently rely on inmaintaining health care coveragesystems?

• What are the estimated costs ofcomplying with the statute’srequirements on certification of periodsof prior creditable coverage?

• How many small issuers offerproducts that may be subject to theregulations? Is there an anticipatedeffect on these small companies’competitiveness due to the regulations?

• To what extent do group healthplans currently use service providers tofulfill the administrative obligations,including reporting and disclosure,previously imposed by ERISA? To whatextent would group health plans alsouse service providers to comply withthis regulation’s certificationrequirements?

I. Executive Order 12866, the UnfundedMandates Reform Act and the SmallBusiness Regulatory EnforcementFairness Act of 1995

These rules have been determined tobe a significant regulatory action underSection 3(f) of Executive Order 12866.The following analysis is consistentwith Section 6(a)(3)(C) of the Order.

These rules are not subject to theUnfunded Mandates Reform Act of 1995(Pub. L. 104–4), because they areinterim final rules. However, consistentwith the policy embodied in theUnfunded Mandates Reform Act, theregulation has been designed to be theleast burdensome alternative for state,local and tribal governments and theprivate sector, while achieving theobjectives of HIPAA. In addition, thefollowing analysis provides informationconcerning the effects of the regulationon state, local, and tribal governmentsand the private sector.

Throughout the regulatory process,HHS met and consulted withrepresentatives of affected state, localand tribal governments. These groupsinclude the National Association ofInsurance Commissioners, the NationalGovernors’ Association, the NationalCouncil for State Legislatures, theIndian Health Service, and theAmerican Public Welfare Association.HHS also provided technical adviceregarding its interpretation of the statuteto state insurance commissioners andstate legislatures at their request.Generally, these groups have concernsregarding:

• The statute’s preemption of statelaws that would prevent theimplementation of statutory provisions;

• The burden on issuers and plans toimplement the statutory provisions,especially with regard to certification ofprior creditable coverage; and

• State’s desires to have considerableflexibility in complying with the statue,and continuing their traditional role asregulators of insurance.

After serious consideration of theseconcerns, HHS narrowly interpreted thepreemption of state law, taking the leastburdensome alternatives provided statesconsiderable flexibility in complyingwith the statute, and recognized thelimited authority of federal agencies inthe regulation of health insurance.

The Administrator of the Office ofInformation and Regulatory Affairs ofthe Office of Management and Budgethas determined that this is a major rulefor purposes of the Small BusinessRegulatory Enforcement Fairness Act of1996 (5 U.S.C. Section 801 et seq.).

Set forth below is a discussionregarding the impact of the statute anda discussion of the costs and benefits ofthe regulations implementing thestatute.

J. Extensions of Coverage Under theStatute

These regulations implement certainprovisions of HIPAA. The statute wasenacted to, among other things,‘‘improve portability and continuity ofhealth care coverage in the group andindividual markets,’’ as stated in theConference Report. The statuteaccomplishes these goals by institutingreforms in the group and individualinsurance markets, including provisionslimiting the use of pre-existingcondition exclusions, and requiringguaranteed access to health carecoverage and guaranteed renewabilityfor certain groups and individuals.There are also non-discriminationprovisions and special enrollment rightsin the statute.

The pre-existing condition exclusionperiods that HIPAA restricts arewidespread. According to the Bureau ofLabor Statistics (BLS), 46 percent ofparticipants in private-sector, employer-sponsored health plans are in planswith pre-existing condition exclusions(1993–1994 data). The same is true of 41percent of participants in state and localgovernment employer-sponsored plans(1994 data.)

The duration of exclusion periodsvaries from plan to plan. Based on PeatMarwick’s 1995 employer survey, anestimated 57 percent of participants inplans with exclusions are in plans withexclusions that last 12 months. Theremainder are distributed as follows: 13percent in plans with 3-monthexclusions, 22 percent in plans with 6-month exclusions, 7 percent in planswith 9-month exclusions, and 1 percentin plans with exclusions that last morethan 12 months.

HIPAA’s portability provisionsresemble provisions of many currentstate laws. Importantly, however,HIPAA extends these provisions of self-insured ERISA plans which federal lawshields from state regulation. Inaddition, it sets a minimum uniformthreshold for insured group plans andindividual markets across all states.

HIPAA’s portability provisions willresult in both direct and social costs andbenefits.

In general, direct costs and benefitsarise directly from the application ofHIPAA’s insurance portability andaccess provisions. Direct costs andbenefits are often best understood astransfers of resources among economicagents, which do not necessarilyrepresent changes in overall socialwelfare. Stated differently, theyrepresent changes in how the economicpie is divided (in this case, mainly withrespect to health care), and not changesin the size of the pie. Direct costs andbenefits are often easier to quantify thansocial costs, as they are often directlyobservable as transactions in themarketplace.

With respect to HIPAA’s portabilityand access provisions, direct costs andbenefits arise from the extension ofinsurance coverage to individuals andconditions not otherwise covered. Directbenefits to individuals include thepayment of individuals’ claims for thoseservices and conditions. Direct costs ofindividuals include the premiumsassociated with that coverage. Someavailable estimates of these direct costsand benefits are presented below.

Social costs and benefits, in contrast,do result in net changes in overall socialwelfare. Social benefits generally reflectsocial welfare gains that arise in


connection with statutory or regulatoryinterventions that remedy marketfailure. Likewise, social costs generallyreflect welfare losses arising frominterventions in otherwise efficientmarkets. Social welfare changes oftenplay out through a complex set ofbehavorial responses to interventions.They are more difficult to quantify thandirect costs and benefits.

With respect to HIPAA, social welfarechanges generally arise indirectly fromHIPAA’s portability and accessprovisions. They reflect dynamicbehavioral responses to HIPAA’sportability and access provisions.Expected social benefits, primarilyimproved access to health insuranceand also improved job mobility, cannotbe meaningfully quantified. Expectedsocial costs, which could includeerosions in coverage arising from directpremium costs, are expected to be small.Since no measures of HIPAA’s manysocial welfare effects are available, amostly qualitative discussion of majoreffects is offered below. A morequantitative discussion of direct costsand benefits follows later.

1. Social Welfare Effects of HIPAA’sPortability and Access Provisions

The primary direct benefits of the laware improved access to insurancecoverage, and more comprehensivecoverage, through employers and in theindividual insurance market. Increasedaccess and comprehensiveness helpsprotect individuals from catastrophicexpenses.

There are a number of social benefitsassociated with improved access:

• It reduces individual’s risk ofincurring large out-of-pocket costs;

• It is often more cost effective toprovide timely preventive and remedialcare than to delay care until conditionsworsen. Therefore, to the extent thatindividuals receive more timely andappropriate care as a result of HIPAA,over time, the long-term, cumulativecost of their care may be lower. This hasthe potential to reduce premiums for allindividuals within a risk pool, not justthe individuals directly affected byHIPAA. Similarly, the Medicareprogram may benefit from reducedexpenditures because more individualswho become newly entitled to Medicarewill have had insurance coverage duringthe course of their working life orthrough the individual insurancemarket.

• To the extent that more timely careresults in improved health, workerattendance and productivity mightimprove.

• HIPAA’s portability provisionslikewise help individuals transitioning

from state and federal welfare programsto paid work. Individuals with healthconditions can offset their new healthplan’s preexisting condition exclusionsagainst prior coverage from any source,including Medicaid.

• Reductions in job benefit bothindividuals and the economy at large.Increased mobility can boost individualworkers’ career opportunities. Increasedmobility also strengthens U.S. economicefficiency and competitiveness;

• HIPAA’s federal minimumstandards for small group andindividual access to insurance coveragemay improve the functioning of smallgroup and individual markets. Thestandards will alleviate disruptions thatmight otherwise arise when ‘‘riskier’’groups and individuals are denied ordropped from coverage.

• To the extent that HIPAA results,on net, in more insurance payment forotherwise uncompensated care, cost-shifting and associated inefficiencies inhealth care markets could be reduced.

HIPAA’s group-to-individualportability provisions may provide abenefit for employees who move to jobswithout health coverage. Some smallemployers that do not currently offerhealth care coverage may be able to doso more easily under HIPAA’sguaranteed issue provisions. This mayhelp level the playing for smallemployers to compete with larger onesin recruiting employees. Whilepremium increases resulting fromHIPAA may reduce the affordability ofcoverage for some employers, this effectis expected to be small, as noted below.

HIPAA also requires that issuersoffering health insurance coverage inthe individual market renew coveragefor all individuals purchasing healthinsurance coverage in the individualmarket, not only eligible individuals.However, when an eligible individualelects family coverage, the issuer mayapply a pre-existing conditionexclusion, under applicable State law,to any of the individual’s familymembers who are not eligibleindividuals under the statute.

The group-to-group portabilityregulation is likely to benefitindividuals who maintain employer-sponsored health benefit coverage andchange jobs or health plans, thedependents of such individuals, andworkers who face ‘‘job lock’’ due tohealth coverage concerns.

Under HIPAA, health insurancecoverage provided under a COBRAcontinuation policy qualifies as grouphealth coverage. This distinction isparticularly important for individualsmoving from the group to the individualmarket, or from one group health plan

to another, since electing this coveragewould enable these individuals tomaintain continuous creditablecoverage. In addition, individualsseeking coverage in the individualmarket must elect and exhaust COBRAcontinuation coverage in order toqualify as an ‘‘eligible individual’’ in theindividual market.

Thus, the statute provide anadditional incentive for thoseindividuals who lose coverage whenthey change jobs to elect COBRAcontinuation coverage in order to avoida break in coverage. The statute alsoprovides an incentive for thoseindividuals who are seeking coverage inthe individual market without apreexisting condition exclusion.Consequently, we expect moreindividuals to elect COBRAcontinuation coverage.

Absent HIPAA’s group-to-groupportability standards, individuals withemployer-sponsored health coveragewho have preexisting medicalconditions and who change health planscould be denied coverage for theirconditions. In that case, individualswould have to pay out of pocket fornecessary medial services, or forgo someservices, thereby risking adverse healthconsequences and higher future costs.Other individuals with preexistingmedical conditions who change healthplans and face preexisting conditionexclusions may pay for COBRAcontinuation coverage in addition topaying for their new health plan toensure coverage for the preexistingcondition. Other workers who areconcerned about losing health carecoverage would stay in their jobs or turndown job offers.

According to the U.S. GeneralAccounting Office, over 20 millionindividuals changed jobs in 1993(General Accounting Office, ReportHEHS–95–257, ‘‘Health InsurancePortability: Reform Could EnsureContinued Coverage for up to 25 MillionAmericans,’’ September 1995, pg. 7).Approximately 12 million of theseworkers had employer-sponsored healthcare coverage. Additionally, nearly 7million non-working dependentsreceived employer-sponsored healthcare coverage through these jobchangers. According to GAO, many ofthese 20 million could benefit from theregulation’s requirement that priorhealth care coverage be credited againsta new health plan’s preexistingcondition exclusion period. GAOconcludes that the statute will allowapproximately 9 million job changers(who have at least 12 months of priorcreditable coverage), with 5 milliondependents, to change jobs without the


risk of facing any preexisting conditionexclusions. Another 3 million workerswho change jobs (who have somesmaller amount of prior coverage), with2 million dependents, would facereduced waiting periods beforereceiving full coverage.

The number of workers anddependents actually gaining coveragefor a preexisting condition due to creditfor prior coverage following a jobchange under HIPAA will be smallerthan this, however. GAO’s estimates ofpeople who could benefit include all jobchangers with prior coverage and theirdependents, irrespective of whethertheir new employer offers a plan,whether their new plan imposed apreexisting condition exclusion period,and whether they actually suffer from apreexisting condition. Accounting forthese narrower criteria, as discussedbelow, CBO estimates that 100,000 willactually receive additional coverageunder HIPAA’s credit for prior coverageat any point in time.

In addition, employers, especiallysmaller employers, that offer health carebenefits to their employees often changehealth insurance issuers, exposingworkers or their dependents withpreexisting medical conditions to gapsin coverage. Small employers generallychange insurance issuers every 3 to 4years (Senate Committee on Labor andHuman Resources, Report 104–156, Oct.12, 1995, pg. 4). The provisions of thestatute that allow crediting of priorcoverage should reduce the likelihoodof gaps in coverage.

One of the benefits of HIPAA toindividuals is that it alleviates ‘‘joblock.’’ That is, employees who havestayed in a particular job in order tocontinue health care coverage can nowchange to a job that the person mightnot otherwise have taken because he orshe (or a dependent) would have beensubject to a pre-existing conditionexclusion; or the person can seekcoverage in the individual insurancemarket as a result of HIPAA’s provisionsrequiring guaranteed issue forindividuals coming from the groupmarket. According to the GAO, there areone to four million Americans ‘‘who atsome time have been unwilling to leavetheir jobs because of concerns aboutlosing their health care coverage’’(Health Insurance Portability: ReformCould Ensure Continued Coverage forUp to 25 Million Americans, HEHS–95–257, September 1995). The GAO notesthat ‘‘surveys have found that between11 and 30 percent of individuals reportthat they or a family member haveremained in a job at some time becausethey did not want to lose health carecoverage.’’ Among those individuals,

twenty percent stated that pre-existingconditions exclusions constituted thebasis for their reluctance to change jobs.

These figures, reflecting individualsstated intentions, may not accuratelypredict their behavior under differentcircumstances, however. Moreover,HIPAA’s portability provisions willalleviate only some causes of ‘‘joblock’’—for example, employees mightstill be somewhat impeded from takingjobs where no coverage is offered.Eligible individuals might benefit in thiscase from HIPAA’s group-to-individualportability provisions, but would haveto pay the premium themselves.Therefore, many individuals who reportjob lock will not necessarily change jobsas a result of HIPAA.

There also appears to be a differenceby age categories of the extent of joblock. The Health and Retirement Study(HRS), conducted by the University ofMichigan’s Institute for Social Research,which provides an emerging portrait ofAmericans age 51 through 61 and theirspouses, found that job flexibility is akey issue for this age group. ‘‘Almostthree-quarters of HRS respondentswould prefer to phase down from full-time work to part-time work when theyretire, in sharp contrast to actualbehavior, where most people who retireleave the workforce entirely. About one-third of the people who would not lookfor another job are victims of ‘job lock,’unable to leave because they might giveup valuable pensions or healthinsurance benefits if they switchedemployers’’ (HRS National Institute onAging Press Release, June 17, 1993).

Empirical evidence for job lock ismixed. Buchmueller and Valletta foundstrong evidence of job lock amongwomen but weak evidence among men(‘‘The Effects of Employer-providedHealth Insurance on Worker Mobility,’’Industrial and Labor Relations Review,volume 49, number 3, April 1996).Monheit and Cooper conclude that themagnitude and importance of job lock,which some studies report as causing a20 to 40 percent reduction in mobility,is not as great as generally thought(‘‘Health Insurance and Job Mobility:Theory and Evidence,’’ Industrial andLabor Relations Review, volume 48,number 1, October 1994). Kapur foundthat job lock does not have a significanteffect on job mobility (‘‘The Impact ofPre-existing Health Conditions on JobMobility: A Measure of Job Lock,’’ WP–95–25, Institute for Policy Research),while Gruber and Madrian found thatCOBRA continuation provisions, andsimilar state laws (allowing individualsto continue coverage through theiremployer group health plan for aspecified period), have led to a

significant increase in job mobility(‘‘Health Insurance and Job Mobility: theEffects of Public Policy on Job-lock,’’Industrial and Labor Relations Review,volume 48, number 1, October 1994).

CBO does not quantify potential relieffrom ‘‘job lock,’’ which is a social, ratherthan a direct, benefit of HIPAA. Becausepeople freed from job lock are goingfrom one type of insurance to another(moving to a different group health planor to an individual insurance policyunder HIPAA portability), CBO alsoviews freedom from job lock asconsisting of ‘‘insured expenses * * *transferred among different insurers* * * [that] * * * are not * * * directcosts.’’

The majority of evidence indicatesthat job lock is a concern for manyworkers. HIPAA will address thisconcern, though the number of workerswho will gain an advantage is unclearand how the value of the benefit can bemeasured is also unclear.

As the forgoing discussion illustrates,HIPAA’s social benefits are expected tobe far ranging, but they cannot bemeaningfully quantified.

HIPAA might also pose social costs.In particular, increases in premiumsunder HIPAA’s portability and accessprovisions could erode coverage. Thesecosts are expected to be small, however,particularly in the group market wherepremium increases are estimated to bevery small relative to the overall market.

In summary, HIPAA’s portability andaccess provisions are expected to resultin a number of largely unquantifiablesocial benefits. These include greatercontinuity of coverage, improved accessto health care and possible corollaryimprovements in health andproductivity, improved stability andefficiency in insurance health caremarkets, eased movement from publicassistance to work, and gains in jobmobility that are favorable to individualcareers and to U.S. competitiveness.

2. Direct Costs and Benefits of HIPAA’sPortability and Access Provisions

HIPAA’s portability and accessprovisions impose direct costs andprovide direct benefits to a broad rangeof entities, as well as to individualcitizens. Costs will be incurred byemployers, group plans, insurancecompanies and managed care plans(‘‘issuers’’); states, in their capacity asregulators, and states and localities asentities providing health care coveragefor their employees, retirees anddependents; the federal government asregulator and as the source of healthcare coverage for employees, annuitantsand dependents, and for others throughprograms such as Medicaid and


Medicare. Benefits will accrue toindividuals and to small employerswhose access to comprehensiveinsurance is improved.

A number of studies have evaluatedthe direct economic impact of the law.The CBO found that ‘‘to the extent thatstates have not already implementedsimilar rules, these changes wouldclarify the insurance situation andpossibly reduce gaps in coverage formany people.’’

The CBO notes that because HIPAAdoes not impose limits on premiumsissuers may charge, insurance coverage,though available, may be expensive.Consequently, CBO observes that thelaw would ‘‘make insurance more

portable for some people, [but] it wouldnot dramatically increase theavailability of insurance in general.’’The controversial question of the extentto which there will be increases inissuer premiums is discussed moreextensively below.

CBO prepared estimates of the directeffects of the provisions of thelegislation included in these regulations(Letter to the Honorable Bill Archer,August 1, 1996; notes are also fromearlier CBO cost estimates; see tablebelow). The direct cost estimates canreasonably be read as representingdirect benefits as well, since theygenerally reflect transfers from a pre-HIPAA payer to a post-HIPAA payer.

Certain medical expenses thatindividuals would pay out of pocketabsent HIPAA will be paid by insuranceprograms under HIPAA. In CBO’sestimates, this is reflected as a similartransfer in responsibility for paymentfrom individuals to insurance programs.However, the actual transfer would bemore complex. For example, to pay theadditional claims, insurers must collectadditional premiums, which in turn willbe paid by the individuals gaininggreater coverage and (in most cases) byother covered individuals, or by theiremployers. CBO’s estimates representgross costs to plans and gross benefits toindividuals, and do not account forthese complexities.

CBO COST ESTIMATES AND NUMBER OF PEOPLE AFFECTED

Provision Yearly cost (direct cost to privatesector) Number of people affected Other effects; comments

Group: Limiting Length of Pre-Ex-isting Condition Exclusions to12 Months.

$50 million in first year (1997);$200 million per year in subse-quent years.

300,000 people ‘‘would gain cov-erage’’ at any point in time, or0.3% of people with private em-ployment-based coverage.

Assumes ‘‘surge’’ in claims costs;state laws taken into account.

Group: Creditable Coverage Re-ducing Pre-Ex.

$25 million in first year; $100 mil-lion per year thereafter.

100,000 people ‘‘would receiveadded coverage’’ at any point intime.

Small No. of people affected re-flects ‘‘restrictive eligibility cri-teria’’.

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

Individual (group-to-individual port-ability, no pre-existing conditionexclusion, no denial because ofhealth condition, guaranteed re-newal). First year estimates.

$50 million ..................................... 45,000 people covered by end offirst year.

Provisions would apply in statesthat currently have 5.4 million ofestimated 13.4 million people inindiv. market (but see analysesbelow).

Individual: Subsequent years ........ $200 million by fifth year ............... ‘‘In about four years, the numberof people covered; would pla-teau at around 150,000’’.

Level of premiums to be chargedis unknown; states may limit al-lowable premiums, but such lim-its may impose indirect costs.

Virtually all of the insurance marketreform provisions of HIPAA that areimplemented through these regulationshave the potential to increase premiumsin the group market. Group plans mayhave to bear higher costs because of thestatutory limits on pre-existingcondition exclusions and the creditablecoverage provisions reducing theapplication of permissible pre-existingcondition exclusions. CBO hasestimated the total costs of these twoprovisions at $300 million annuallyafter full implementation, or 0.2% oftotal premiums in the group market.This reflects coverage for services whichwould have been excluded undercurrent law due to pre-existingcondition exclusions in insurancecontracts, but which would be coveredunder HIPAA due to HIPAA’s 12-months cap on exclusions and itsprovisions requiring credit for priorcoverage.

CBO’s $300 million cost figure reflectsonly the costs of the statute’s limits onpre-existing conditions exclusion, andits prior creditable coverage provisions.It does not include the administrativecosts to plans and issuers of theHIPAA’s certification requirement,which the Department of Labor hasmeasured in its Paperwork ReductionAct analysis below. Similarly, CBO’s$300 million figure does not includeany other increased premium costs thatmight be associated with the statute’shealth status nondiscrimination orguaranteed renewability provisions.CBO’s figure does try to estimate (a)how many people would benefit fromthe statute’s limits on preexistingcondition exclusions, and its priorcreditable coverage provision, and (b)the average cost to insurers of theextension of coverage to thoseindividuals.

Preexisting condition exclusionlimitation: CBO derived its $300 million

figure by estimating that approximately300,000 people with privateemployment-based coverage would gaincoverage under the statute’s preexistingcondition exclusion limitationprovision, at a direct private sector costof $200 million per year. CBO adjustedthis estimate to exclude people whoreported being limited by a preexistingcondition restriction, but who also hadsecondary health coverage to pick upthe cost of their preexisting condition.CBO reasoned that under thesecircumstances, the preexisting conditionexclusion limitation would not raise theaggregate costs imposed onemployment-based plans. CBO likewiseadjusted its estimate to reflect theexistence of state laws which limitedpreexisting condition exclusionlimitations to one year or less andrequire that previous coverage becredited against those exclusions. Thesestate laws generally apply to groupplans of 50 or fewer employees, and do


not include self-funded health benefitplans subject to ERISA rather than statelaws. Since plans covered by such statelaws would not have to change theirprovisions as a result of HIPAA, CBOlowered its initial estimate of the peopleaffected by the bill.

Crediting Prior Coverage: CBO’s $300million figure also includes an estimatethat 100,000 people, at a private sectorcost of about $100 million per year,would receive some added coverage asa result of HIPAA’s prior creditablecoverage provision.

CBO reports that these estimates aresubject to considerable uncertainty forseveral reasons. First, they are based onindividuals’ responses to surveys,which should be treated with caution.Likewise, unforeseen changes in thehealth insurance market, such aschanges in medical costs or the growthof managed care plans, could raise orlower the direct costs of the law.Increases in medical costs wouldobviously raise the costs, while theexpansion of HMO penetration in themarket would tend to reduce the law’seffect, since HMOs generally do not usepreexisting condition exclusions.

CBO also reports that in particular,distribution of the costs these provisionswould be uneven across health plans.CBO notes that ‘‘[o]nly plans thatcurrently use pre-existing conditionexclusions of more than 12 monthswould face the $200 million direct costsof the statute’s exclusion limitation.’’Data from a Peat Marwick survey usedby CBO indicate that 2.5% of employeesare in such plans. Consequently, ‘‘thecosts to health plans that use longpreexisting condition exclusions wouldbe about 4.5% of their premium costs.’’Likewise, only those plans that usepreexisting condition exclusions wouldface the $100 million direct cost of themandate to credit prior coverage againstthe preexisting conditions exclusion.CBO reports that ‘‘almost half ofemployees are in such plans—implyingthat the plans directly affected by thismandate would have direct costs equalto about one-tenth of one percent oftheir premiums’’ absent the statute.

The increased costs may be shared byinsurers, plans, and insured individuals.Additionally, costs also may be bornedirectly by plans that an issuer‘‘experience rates,’’ i.e. the insurerdetermines rates according to theutilization of the group being insured.Costs may also be borne by othersinsured through an issuer that usessome form of community rating, whichspreads risk over a greater number of‘‘insured lives’’ beyond the particulargroup that is the source of the additionalcosts. To a certain extent, a group may

have a choice in the degree of burden:if the group knows that its membersincur lower costs than the average of theissuer’s pool, the group can avoid acommunity-rated pool by becoming self-insured.

There is also the possibility that groupmarket premiums may increase as aresult of the HIPAA reforms in theindividual market if insurers spread thecosts of claims in the individual marketacross a pool that includes groupmembers. HIPAA expressly provides forthis possibility as one of the elements ofan acceptable state alternativemechanism. (Such issues relating to theindividual market are discussed in moredetail below.)

Assuming that the CBO is correct inprojecting that the premium effecttranslates into 0.2 percent of totalpremiums in the group market, aminimal premium effect is likely.

CBO did not quantify the cost ofnondiscrimination or special enrollmentprovisions.

With respect to nondiscrimination,approximately 135,000 workers reportedin 1993 that they were excluded fromtheir employer’s health plan because oftheir health, according to DOLtabulations of the April 1993 CurrentPopulation Survey. In general, HIPAAwould require plans to offer benefits tosuch individuals.

With respect to special enrollments,HIPAA provides that individuals, undercertain conditions, are permitted toenroll for health coverage on the sameterms as new participants, rather than aslate enrollees. The conditions triggeringeligibility for special enrollmentgenerally include events in which anindividual loses coverage (such as whena spouse changes jobs when coupleslegally separate or divorce) or joins afamily that is eligible for coverage(through marriage, birth, or adoption).

Special enrollment requirementsbenefit individuals. Absent thisprovision, eligible individuals could besubject to pre-existing conditionsexclusion periods of up to 18 months,and therefore would might need 18months of prior creditable coverage tofully offset a preexisting conditionexclusion period. Under the provision,eligible individuals’ exclusion periodsare limited to 12 months. This specialenrollment provision also permitseligible individuals to enrollimmediately in plans which otherwiseprohibit late enrollment, or which allowlate enrollments only during annualopen enrollment periods.

Considering some of the major groupsthat could benefit, the Departmentsestimate that 734,000 families wouldgain eligibility for special enrollments

due to marriage, as would 701,000 dueto births, and 292,000 due to jobchanges in the family. These estimates,based on the Survey of Income andProgram Participation, reflect an annualcount of such events following whichthe relevant spouse or new born wasuninsured, or covered under anindividual policy or Medicaid.

Special enrollments may result in amarginal increase in aggregatepremiums and claims paid, but nochange in average premium levels forany one individual, since eligibleindividuals are not likely to have anyhigher health care costs than the averagenew health plan participant.

In summary, HIPAA’s portability andaccess provisions will result in anumber of direct costs and benefits.These direct costs represent transfersamong parties and not changes inoverall social welfare. CBO estimatesthat HIPAA’s group portabilityprovisions will result in $300 million ofadditional annual direct costs toinsurance programs, which in turnrepresents a direct benefit of $300million in added coverage forindividuals. Additional direct costs andbenefits will arise from similarextensions of coverage under HIPAA’sgroup-to-individual portability, specialenrollment, and nondiscriminationprovisions. Various estimates of thecosts and benefits of the group-to-individual provisions are offered below.Costs and benefits of the specialenrollment and nondiscriminationprovisions have not been quantified.

3. Affected Market Segments

(1). Impact on State, Local and TribalGovernments

The statute establishes federalstandards and allows for federalenforcement in an area that hastraditionally been the domain of thestates, the regulation of insurance.However, the statute also permits statesto use alternative, state-specificmechanisms to achieve greaterportability and continuity in a mannersimilar to the federal standards. Manystates have undertaken insurancereforms similar to the HIPAA provisionsand are likely to seek approval for thecontinuation of these alternativemechanisms. The statute provides thatenforcement of the requirements of thelaw will be the responsibility of thestates (for those states implementingalternative mechanisms as well as forthose states implementing the federalstandards), unless a state is unwilling orunable to enforce the law. Only in thelatter case of unwillingness or inabilityto enforce the law will the federal


government implement and enforce thelaw in a given state. It is highly unlikelythat there will be any instance of thefederal government assuming such arole, with the exception perhaps of theterritories. There is no federal financialassistance or resources to implementthese provisions.

The CBO has generally determinedthat there will be a negligible impact onthese governmental entities, even in theevent that, in their capacity as sponsorof employee health care coverage, theychoose not to ‘‘opt out’’ of havingcertain provisions of the statute apply tothem. HIPAA provides that states andlocalities that self-insure their healthcare coverage for employees, arepermitted, under the statute, to ‘‘optout’’ of the provisions of the lawaffecting them with respect to rulesgoverning pre-existing conditionlimitations. Some entities that have theoption available will ‘‘opt out.’’However, this does not relieve them ofthe responsibility of providingcertifications of creditable coverage fortheir covered individuals. HIPAA doesnot preempt state and local governmentcollective bargaining laws. If there wereno opt-out entities, CBO projects thatstate and local governments would seean increase in health care costs of lessthan $50 million, or 0.1% of the $40billion annually in state and local totalhealth insurance expenditures.

Those who would benefit from theimposition of HIPAA requirements onstate and local governments areindividuals who are subject to a pre-existing condition exclusion that wouldhave been shortened in length byHIPAA either under the 12-month limitor the crediting or prior creditablecoverage provision. As the CBO pointsout, this benefit (for some) is coupledwith a cost to (all covered) individualsbecause it is assumed that states andlocalities would pass the cost off to theiremployees through reducedcompensation or benefits.

According to CBO, the impact of thelaw on the states in their capacity asregulators enforcing new insuranceprovision is marginal. For states thathave been enacting insurance reformmeasures in the small group andindividual markets, it could be arguedthat HIPAA provides a benefit to theextent that the introduction of federalstandards facilitates the states’ ability tocontinue insurance reforms in thesemarkets. According to theIntergovernmental Health Policy Project(IHPP), in a report dated June of 1996,all but two states had enacted some typeof small group market reform, and 35states had enacted some type ofindividual insurance market reform.

The presence of a federal standard thatmay be viewed as constituting a ‘‘floor’’of requirements imposed on issuers inthese two markets may also benefit thestates.

The individual insurance market hastraditionally been regulated by thestates, and Congress intended that, tothe maximum extent possible, the statesshould continue this regulatory role. Tothis end, the law provides states withthese options: (1) implement analternative, state-specific mechanism toensure access to individual health carecoverage; (2) adopt and administer thefederal standards of HIPAA; or (3) allowthe federal government to administerthe law.

In devising the first option, theimplementation of an alternativemechanism, Congress afforded states agood deal of flexibility in establishingan alternative mechanism. At least 30states are expected to implementalternative mechanism, each unique tothe state’s demographics and marketconditions. States are encouraged toexplore innovative options and intendto afford states as much flexibility aspossible in the design of theiralternative mechanisms. Throughout theprocess of reviewing proposedalternative mechanisms, the states’ needfor flexibility must be balanced with therights of the individuals affordedprotection under the law.

Our main concern is that the primarygoal of HIPAA be achieve: that eligibleindividuals are guaranteed coverage inthe individual market, to the extent thatpolicies are available, without apreexisting condition exclusion period.HHS intends to review states’mechanisms with this goal in mind; sothe information presented shouldpresent a clear picture of themechanism’s impact on eligibleindividuals. The information requestedin these regulations (section 148.126(h))closely parallels the statutoryprovisions. While such informationcollection requirements may impose aburden on each state that chooses toimplement an alternative mechanism,such information is necessary in orderto effectively evaluate the mechanismand ensure that the mechanism willprovide eligible individuals theprotection guaranteed by the law.

The states are unlikely to choose theoption whereby the Secretary (HCFA)implements and enforces HIPAA in thestates. Eight states, however, maychoose the ‘‘federal fall-back’’ option ofincorporating the HIPAA standards intostate law rather than developing analternative mechanism.

The statutes provides that a state ispresumed to be implementing an

acceptable alternative mechanism as ofJanuary 1, 1998, unless the Secretary ofHHS notifies a state of her disapprovalof the mechanism by July 1, 1997. Instates where the legislature does notmeet in a regular session betweenAugust 21, 1996 and August 20, 1997,the state is presumed to beimplementing an acceptable alternativemechanism as of July 1, 1998. To ourknowledge, only Kentucky qualifies forthis exception. The statute also providesan extension. Before making an initialdetermination, HHS intend to makeevery effort to consult with theappropriate state officials. Afterconsultation with appropriate stateofficials, should there still be cause fordisapproval, HHS will allow the state areasonable opportunity to revise themechanism or submit a newmechanism. Throughout this process,HHS may require further informationfrom state officials regarding particularaspects of their insurance marketreform. While such requests forinformation may also impose anadditional burden on the state, thisinformation will be necessary to insurethat the mechanism will provide theprotections guaranteed to eligibleindividuals under the law.

As required by law, the Secretary ofHHS will review each alternativemechanism every three years. In thisrespect, the regulation adheres closelyto the statutory burden and merelyclarified that resubmission is requiredon every three-year anniversary of thelast submission date. HHS has alsoprovided a process for review of futuremechanisms, should a state may wish torevise an existing mechanism orpropose a new mechanism.

In addition to implementing analternative mechanism, a state maychoose to adopt and administer thefederal statutory provisions. Ourregulations in this regard do not differfrom the statutory provisions. As notedabove, it is likely that up to eight stateswould choose this option.

Finally, a state may choose to allowthe federal government to administerthe federal statutory provisions in thestate. Although this is a possibilitycontemplated in the statute, it isunlikely that any state would choosethis option. However, the impact of theregulations that implement this optionis discussed below.

In states that have an acceptablealternative mechanism for ensuringaccess to individual insurance or healthcare coverage, the implementation oflaws and determination of compliancewith those laws is exclusively a statematter. For other states, HIPAA givesthe Secretary authority to issue


regulations to carry out theimplementation and enforcement ofHIPAA provisions for the states thatchoose the ‘‘federal fallback’’ option(using federal standards), and for statesin which the federal government willdirectly administer the HIPAAprovisions. These regulations specifythe following:

• Documentation that must besubmitted to the state (federal default)or to HCFA (direct regulation by thefederal government) demonstratingcompliance with the statute;

• The manner in which an insurermarkets individual policies;

• The procedure and time frames theissuer follows in determining whethersomeone is an eligible individual, andthe effective date of the individual’scoverage;

• The procedure to follow for arequest to limit enrollment in the caseof an HMO’s or insurer’s capacitylimitations (network capacity orfinancial capacity); and

• The procedure for determiningwhether the benefit packages offered inthe individual market are consistentwith statutory requirements.

In states electing the federal fall-backapproach, the state determines the levelof documentation required to establishcompliance with the HIPAA provisions.The Departments do not know theextent of burden states will impose onplans as a result of HIPAA. Althoughthere is not likely to be direct federalenforcement in any state, in those statesin which HCFA does administer thelaw, issuers have 90 days after July 1,1997, to provide documentationconcerning individual policy forms theissuer already markets; and 90 daysprior to the beginning of the calendaryear prior to marketing a new policyform. With regard to these time frames,the 90-day period should not beburdensome. Much of the informationrequired to be submitted regarding thepolicy forms in the individual market ismaterial the issuer will generally havefiled with a state insurancecommissioner (‘‘information on allproducts offered in the individualmarket’’; marketing material, oftensubmitted to states on a ‘‘file and use,’’or informational basis). For suchinformation the submission to thefederal government is burdensome onlyin that it is duplicative of material givento the state. The HIPAA-specificmaterials are generally not duplicativeand constitute a burden on issuers toprovide HCFA with the followinginformation:

• An explanation of how the issuer iscomplying with the provisions ofHIPAA, including how the issuer will

inform eligible individuals of availablepolicy forms;

• Premium volumes or actuarialvalues (depending on which election ismade regarding compliance with ruleson the type of policy to be offered); and

• A description of the risk spreading/financial subsidization mechanism to beused for individual policy forms.

The last two items representrequirements of the statute, while thefirst item is necessary to ensure thatthere is effective implementation of thestatute. For the first item, issuers willhave to become familiar with theprovisions of HIPAA in order to complywith the documentation requirement,which can be a considerable burden, butthe other information requirementsshould not be burdensome. One way inwhich these regulations lessen theburden for plans electing to offer‘‘representative coverage’’ rather thanthe most popular policy forms is by notprescribing the method of determiningthe actuarial value of representativecoverage. Issuers may make their owndeterminations of actuarial value andpresent them to HCFA for verification.

(2). Impact of the Law in Different StatesThe impact of the law on individuals,

employers, group plans, and issuersmay vary somewhat from state to state.Many state reforms resemble HIPAA’sportability provisions, often meeting orexceeding particular HIPAA standards.The CBO notes that it ‘‘lowered itsinitial estimate of the number of peopleaffected by the bill’’ in recognition ofsuch state reforms. Where state lawsresembling HIPAA exist, the marginalimpact of HIPAA is reduced.

The degree to which a state’s reformslessen the impact of HIPAA’s portabilityprovisions depends on the degree towhich the state’s requirements exceedthese provisions, and on whatproportion of insured individuals in thestate are covered by the state’s reforms.In general, individuals not covered bystate reforms are those enrolled inprograms for which such state reformsare preempted by federal law. Theseinclude individuals enrolled in federalprograms such as Medicare and theFederal Employees Health BenefitsProgram or in self-insured ERISA plans.Individuals enrolled in ERISA plansthat are not self insured are covered bysuch state reforms that are specificallysaved from preemption by HIPAA.

According to a study by JacobKlerman of RAND, New Estimates of theEffect of Kassebaum-Kennedy’s Group-to-Individual Conversion Provision onPremiums for Individual HealthInsurance (1996), 42 states haveguaranteed issue rules in the individual

market or a high-risk pool that couldqualify the states as meeting thealternative mechanism requirements ofHIPAA. This is consistent with otherinformation the Departments havereceived to the effect that only eightstates may adopt the federal HIPAAstandards (to be administered by thestates). (The individual market issuesare discussed in greater detail below.)

An analysis prepared by staff of thePension and Welfare BenefitsAdministration (PWBA) of theDepartment of Labor found, for thegroup market, that 41 states have smallgroup guaranteed issue; of that numberfive do not conform with (or are notmore generous than) HIPAA rules onguaranteed issue, and 21 define a smallgroup differently from HIPAA bystarting the small group category atthree individuals (rather than HIPAA’stwo)—the situation in 11 states—or byextending the provisions to groups notreaching HIPAA’s 50 (4 states define asmall group as up to 49; one as 40; andten as either 24 or 25). These states arelikely to make relatively small changesas necessary to conform their laws toHIPAA standards. The NationalAssociation of Insurance Commissionershas also engaged in extensive efforts tohelp the states conform their laws.

Thirty-one states already haveprovisions which require that grouphealth plans offer additional enrollmentopportunities to employees undercircumstances similar to HIPAA’sspecial enrollment opportunities. Thestatute expands the state baseline byadding legal separation as a grounds forspecial enrollment eligibility, andexpressly includes COBRA as priorgroup health coverage. The statutefurther requires retroactive coverage fornewborns and adopted children ifspecial enrollment is requested within30 days of birth, placement foradoption, or adoption. Current staterequirements reduce the overalleconomic impact of the specialenrollment requirements on the grouphealth market.

For pre-existing conditionslimitations in group health plans,HIPAA provides that the maximumallowable period is 12 months (‘‘look-forward’’), or 18 months for a lateenrollee (someone enrolling outside ofan initial or special enrollment period)for conditions arising within the sixmonths (‘‘look-back’’) preceding theenrollment date in a group health plan.HIPAA also provides that prior coveragefor which there was not a break incoverage of 63 days or more would becredited against the pre-existingcondition exclusion. Using the PWBAanalysis and information from the IHPP,


as of mid-1996, 30 states had time limitson pre-existing condition exclusionperiods that are the same as, or morefavorable to individuals, than theHIPAA provisions for the group market;and 14 other states have limits on pre-existing condition time limits. Amongthese 44 states, ten states allow creditingor prior coverage for which the durationof the break in coverage equals orexceeds 63 days (more generous thanHIPAA); eight states allowed breaks incoverage of 60 days; 18 states allowed30 or 31 days of a break in coverage; andfour states had no crediting of priorcoverage. State laws which exceedHIPAA standards will not be pre-emptied by HIPAA.

(3). Group PlansHIPAA sets minimum standards for

all group health plans, including self-funded plans that are shielded by ERISAfrom states’ HIPAA-like requirements.The General Accounting Office hasestimated that about 27% of theNation’s population received health carecoverage through ERISA self-fundedplans (17%).

Although the GAO report indicatedthat the number of people covered byself-insured plans is increasing, otherdata indicate that there has been adecline in such coverage because of theincreasing number of individualscovered by HMOs that operate asinsured plans. However, an HMOnetwork may constitute an exclusiveprovider organization for a self-insuredplan. Liston and Patterson (Analysis ofthe Number of Workers Covered by Self-Insured Health Plans Under theEmployee Retirement Income SecurityAct of 1974—1993 and 1995, preparedfor the Henry J. Kaiser FamilyFoundation, August 1996) found thatfrom 1993 to 1995 the number ofAmericans covered by fully or partlyself-insured plans declined from 37.6million to 32.5 million (a 14% decline).The rate of decline was greatest insmaller firms: for firms with fewer than100 workers, the number of workerscovered under fully or partially self-insured plans declined form 8.2 millionto 5.4 million (a 34% decline). For firmswith 25 or fewer employees, thenumbers declined from 2.9 million to2.2 million from 1993 to 1995 (a 24%decline).

The relevance of these numbers to ananalysis of HIPAA has to do both withthe number of people that canpotentially benefit from the HIPAAprovisions (if the employees moving toERISA-insured plans are in states thatalready have provisions similar toHIPAA, effects will be smaller), as wellas the related issue (partially a

consequence of the former) of the extentto which the small group market in agiven state may be ‘‘disrupted’’ becauseof the effects of HIPAA. (For example,will the HIPAA provisions create asituation in which either insurers willabandon markets or employers willdiscontinue health care coverage?)Although the Departments’ economicimpact analysis does not contain a state-by-state analysis of the relationshipbetween employees covered under self-insured plans (and any changes in thosenumbers) and the states that havereforms similar to HIPAA, Liston andPatterson found that the South was theonly region of the country in whichthere was an increase in the number ofemployees covered by self-insured orpartially self-insured (reflecting thelower penetration of HMOs in Southernstates). Data about individual states donot appear to be available. A recentGAO report notes that ‘‘no analysisexists on the number of individualsaffected by these state [insurance]reforms’’ (Health Insurance Portability:Reform Could Ensure ContinuedCoverage for Up to 25 MillionAmericans, HEHS–95–257, September1995).

For 1995, the South (stretching, underthe Liston-Patterson definition, from theSouth Atlantic states to the West SouthCentral states of Arkansas, Louisiana,Oklahoma and Texas) had 35% of allemployees covered by self-insured orpartially self-insured plans, while thosesame states had 30% of the private-sector employees with health carecoverage. Three of the seven states thathad no pre-existing conditionlimitations regulations in the PWBAanalysis were Southern states; of the 11states that had no guaranteed renewalprovisions for group health plans, fourwere in Southern states. It would appearthen, that to the extent that practices inthe ERISA small group market inSouthern states diverge significantlyfrom HIPAA provisions employers willhave to adhere to, there are possiblemajor impacts of HIPAA in thosemarkets.

(4). The Individual Insurance MarketIn the individual insurance market

the statute provides for guaranteed issueof a policy to ‘‘eligible individuals’’(individuals coming from the groupmarket, who have 18 months ofaggregate creditable coverage, from anyof various types of health care coverage).In addition to this guaranteed issuerequirement, insurers are not permittedto apply any per-existing conditionexclusions to this group. Individualpolicies are guaranteed renewableexcept under certain circumstances. The

statute does not place any limits on thepremiums insurers may charge for thepolicies made available to eligibleindividuals. States are permitted to havealternative mechanisms that achieve thesame ends as the HIPAA requirements,though any alternative is required tohave no pre-existing conditionexclusions.

The individual insurance marketreforms are of greatest benefit toindividuals who voluntarily orinvoluntarily leave their jobs and wishto maintain some level of healthinsurance. As discussed above, theavailability of individual insurance maydecrease ‘‘job lock’’ by allowing peopleto maintain continuous protection asthey move between jobs. Individualswho enter the individual market fromthe group market may choose to do sobecause their new employer may notoffer insurance or the employer’scoverage is limited; or they may expectto be without a job for a period of time(for example, because they are ‘‘earlyretirees’’ who do not yet have Medicareentitlement and do not haveemployment-based retiree health carecoverage). The CBO projects, in datacited above, that the number of peoplebenefiting from the HIPAA (gettingcoverage when it would have beendenied absent HIPAA) individualmarket reforms would ‘‘plateau’’ at the150,000 range by the fourth year of thelaw. The GAO (HEHS–95–257, citedabove) determined that about twomillion people each year could convertto individual insurance from groupcoverage, based on turnover rates amongsmall employers and rates of COBRAcontinuation of coverage.

Individual market premium effectsvary by state. In state regulatory activity,fewer states have provisions similar toHIPAA’s in the individual market ascompared to state reforms in the smallgroup market. HIPAA will affect theindividual insurance markets in manystates. The RAND and IHPP dataindicate that only eleven states haveguaranteed issue laws for the individualmarket. Eight additional states have aninsurer (Blue Cross-Blue Shield) offeringopen enrollment in the individualmarket. Twenty-three states have lawslimiting the period of pre-existingcondition exclusions, but only one stateallows no such exclusion period, withmost states allowing a 12-monthexclusion period with a 6- or 12-month‘‘look back.’’

One of the most contentious issues indiscussions of HIPAA’s effect on theindividual insurance market has beenthe issue of premiums in that market.HIPAA does not impose any ratingrequirements on insurers in the


individual market, meaning that theinsurers are free to price theirindividual products in any manner thatis consistent with state law. IHPP datashow that for the individual market,seven states have rating bands(premiums must be within certain upperand lower bounds in relation to a‘‘standard’’ premium), and eight statesrequire community rating of some form(a form of rating that can be roughlydescribed as rating across a larger poolof insured individuals, for example,across all of an issuer’s insuredindividuals, across defined agecategories, etc.). Rating bands andcommunity rating requirements havethe same intended effect as HIPAA, toincrease the availability of insurance,but they additionally seek to assureaffordable coverage. There will beinteractions between the HIPAAapproach to increased availability(guaranteed issue and elimination ofpre-existing condition exclusions forcertain individuals with prior coverage)and the rating approach in those statesin which guaranteed issue rules andpre-existing condition exclusion rulesdiffer from HIPAA’s provisions.

Affordability of individual coverage isa significant issue with HIPAA. TheHealth Insurance Association ofAmerica (HIAA) has projected that theindividual market reform provisions ofHIPAA will cause an eventual 22%increase in premiums in that market(‘‘The Cost of Ending ‘Job Lock’ or HowMuch Would Health Insurance Costs GoUp If ‘Portability’ of Health InsuranceWere Guaranteed?’’, February 20, 1996).HIAA projects, on that basis, thateventually 500,000 to one millionpeople would leave the individualinsurance market because of rateincreases necessitated by the HIPAAreforms. HIAA bases this estimate onthe current number of people insured inthe individual market, the number ofnew entrants in the market, their costs,and the price-sensitivity of purchasersof insurance.

Other studies have arrived atconclusions that are very different fromthe HIAA conclusions. The maindifference with other studies is thatHIAA assumes that HIPAA will causestates to impose restrictions on the levelof premiums insurers may charge in theindividual market. There are no suchrequirements in HIPAA. The HIAAassumes that people currently coveredin the individual market will beincluded in the rating pool that includesindividuals who are newly insuredunder HIPAA provisions. The AmericanAcademy of Actuaries (AAA), forexample, found that the premiumincreases in the individual market

would be in the range of two to fivepercent, and the increases would takeeffect over a longer time span that oneyear. The AAA took into accountcurrent state laws, including state lawsrelated rate restrictions in the smallgroup market.

Jacob Klerman, or RAND, examinedHIAA’s assumptions and methodologyand found that (a) using HIAA’sassumptions, but employing more up-to-date or otherwise improved data (‘‘betterestimates of the underlying figures’’),the increase in individual premiumswould be 5.7%; and (b) using differentassumptions, the premium effect wouldbe 2.3% and may be as little as 1% orless (New Estimates of the Effect ofKassebaum-Kennedy’s Group-to-Individual Conversion Provision onPremiums for Individual HealthInsurance, RAND, 1996). For the latterprojections, Klerman assumed adifferent level of claims costs for newentrants (150%, based on studies of thecosts for COBRA continuation policies,versus the HIAA’s 200%), that thepremium pricing for the new policieswould not be pooled with others in theindividual market, and that state lawswould have effects that the HIAAanalysis did not consider. Note that, aswith the GAO report quoted above,these analyses are based on an earlierversion of an insurance reform bill, S.1028, in which the guaranteed issue wasavailable only to those with 18 monthsof group coverage. This analysis doesnot measure how many more people areencompassed in the larger HIPAA‘‘eligible individual’’ group comprisingindividuals whose last type of coveragewas group coverage but who had priorcoverage during the 18-month periodfrom a different source; this will slightlyincrease the cost.

Another study, done for HHS, byActuarial Research Corporation (ARC),had results that were similar to theRAND results. ARC projects possibleincreases in individual premiumsranging from 1.4 percent to 2.8 percent.

K. Statutory Provisions AffectingAdministrative Processes

While these rules implement thestatute’s goal of expanding coverage andportability of coverage by reducing theuse of pre-existing condition exclusions,for purposes of performing thiseconomic impact analysis, it isappropriate to break the regulationsdown into the following components:certifications and notices informingindividuals of their right to request acertification; notification of theapplication of a pre-existing conditionexclusion period; alternative methods ofcrediting coverage; and guidelines for

implementing the statue’s specialenrollment requirements. The noticeand notification requirements arelargely a result of this rulemaking. Thecertification requirements are largelyprescribed by HIPAA, with certainaspects that mitigate the impact of thestatute resulting from this rulemaking.While the alternative method ofcounting compliance is authorized byHIPAA, the classes and categories ofcoverage to be measured were created atthe discretion of the three Departments.

1. Staggered Effective DatesIn general, the effective dates of

HIPAA’s group health plan provisionsare tied to plans’ fiscal years and to theexpiration of collective bargainingagreements under which some plans aremaintained. Provisions whose effectivedates are so tied included thosepertaining to pre-existing conditionexclusions, crediting prior coverage, andspecial enrollments. (The effective datesof HIPAA’s certification provisions arenot so tied.) Non-collectively bargainedplans become subject to theseprovisions of HIPAA in the first planyear beginning on or after the July 1,1997. Collectively bargained plansbecome subject the first plan yearbeginning on or after the later of July 1,1997 or the expiration of a collectivebargaining agreement that was in placeprior to HIPAA’s date of enactment,August 21, 1996.

More than one-half of plans begintheir fiscal years on January 1.Therefore, there is a large concentrationof plans and participants that becomesubject to HIPAA in January 1998.Overall, the proportions of participantsand plans (respectively) that becomesubject to HIPAA in 1997 are 15 percentand 24 percent; in 1998, 68 percent and69 percent; in 1999, 11 percent and 4percent; and in 2000, 5 percent and 2percent.

The compliance costs of theseregulations regarding certification andnotice, pre-existing condition exclusionnotification, and notice of enrollmentrights was estimated based uponinformation in the public domain anddata available to the Departments onindustry practices. To derive data onhealth coverage and employment shiftsof individuals, for the purposes of thisanalysis the Departments referred todata collected from the Census Bureau’sCurrent Population Survey and Surveyof Income and Program Participation, aswell as the National Health InterviewSurvey and the Department of Labor’sdatabase of 1993 Form 5500information, the most current available.Supplemental data on employer-sponsored health care was obtained


from the Peat Marwick Benefits Surveyand the BLS Employee Benefits Survey.

2. Initial vs. Ongoing CostsCosts may be separated into initial

costs and ongoing costs. Initial costs ofthe new certification, notice, pre-existing condition exclusionnotification, and special enrollmentrequirements have several components,including capital costs of preparationsfor collecting information such aspurchasing or upgrading computers andsoftware, and record storage facilities.Initial costs may also be expected toinclude programming or reprogrammingautomated systems to track periods ofprior creditable coverage, and to trackplan participants and the type ofcoverage they hold, e.g. individual orfamily coverage. Initial costs alsoinclude up-front expenditures forrevisions of plan documents to complywith the new statutory and regulatoryrequirements. These costs wereannualized over the estimated ‘‘life’’ ofthe regulation, 10 years, in order toshow such costs on an annual basis. Itis estimated that the 15,604 plans thatwill process certifications internally(rather than use a service provider) willincur an average cost of $5,000 per planto revise their automated recordssystems to accommodate thisinformation for a total cost of $78million over 10 years beginning in 1997.Presented here as direct costs, initialcosts are a component of overall socialcosts.

Ongoing expenditures incurredannually include the costs to grouphealth plans, health insurance issuersand self-funded plans of performing thecontinuing administrative tasks ofcalculating periods of creditablecoverage, printing forms for notices,preparing an original and a copy ofnotices and certifications forparticipants with dependants havingidentical coverage, and mailing thesedocuments to individuals. Alsoincluded in ongoing expenditures is thecost to plans which use pre-existingcondition exclusions to notifyparticipants of the plans’ provisions,and calculating periods of pre-existingcondition exclusions for newparticipants, and issuing anindividualized notification, asnecessary, to each individual whowould be subject to a pre-existingcondition exclusion of any duration.Total annualized initial costs andongoing costs were aggregated toestimate total annual costs.

3. The Certification ProcessThe statute specifies that every

individual leaving a group health plan,

ending COBRA coverage, endingindividual insurance coverage, orleaving other types of health coveragemust receive a written certification ofcreditable coverage containing specificinformation about the individual andhis or her coverage, includinginformation on the coverage ofdependents. This requirementconstitutes a burden in informationcollection and processing.

Despite recent incremental statereforms in the laws affecting the grouphealth insurance market, no states haverequired group health plans or healthinsurance issuers to provideparticipants and their dependents withcertifications or notices regarding priorhealth coverage. Therefore, the statuteimposes discrete new burdens on allgroup health plans and health insuranceissuers in connection with providingcertifications, and issuing to individualsof their right to receive a certification.

Respondents preparing certificationforms must collect the appropriateinformation about a person, prepare acertification form, and, in most cases,mail the information. One certificationcan serve to provide information aboutdependents covered under the samepolicy. The respondent may have toprepare multiple certification forms foran individual, or for dependents, in theevent that the certificate is lost ormisplaced. The process may require thedevelopment of new informationsystems or, more likely, modifications toexisting information systems, to collectand process the necessary information.

The statute makes the certificationrequirement a key implementationcomponent of the portability provisionin both the group and individualmarkets.

The cost of providing certifications forprivate group plans (absent theregulatory relief described below) isestimated to be at least $98 million for69 million certifications in 1997 and$84 million for 59 million in eachsubsequent year. Absent transition reliefprovided under the regulations, earlyyear costs could be far higher. Thedirect cost of certifications contributesto the overall social cost of the statute.

L. Impact of Regulatory DiscretionThese regulations mitigate the impact

of the statutory requirements on theregulated public, while preservingprotections, in several ways. Theseregulations will reduce implementationcosts.

The Departments exercised discretionin connection with group planprovisions, as follows:

First, intermediate issuers will nothave to issue a certification when an

individual changes options under thesame health plan. In lieu of thecertification, they could simply transferthe start and stop dates of coverage tothe plan. An individual would retainthe right to get a certification uponrequest if they leave the plan.

Second, telephonic certification willfulfill the requirement to sent acertification if the receiving plan andthe prior plan mutually agree to thatarrangement. The individual can alwaysget a written certification upon request.

Third, the requirement to sendcertifications on June 1, 1997 to thosewho have left plans between October 1,1996 and May 31, 1997 can be satisfiedby sending a notice; the Departmentshave offered a model notice in theseregulations for that purpose.

Fourth, until July 1, 1998, plans andissuers that do not collect individualinformation on dependants can complywith the requirement to send eachdependant a separate certification bysimply listing the category of coverage(e.g., individual, spouse or family).

Fifth, in situations where the issuerand the plan contract for the issuer tocomplete the certifications, the planwould not remain liable if the issuerfailed to send the certifications.

Thus, plans would not need to keepdata and files on this information.

Sixth, the period of coverage listed onautomatic certifications will only be thelast continuous period of coveragewithout any break. This is the mostefficient and simplest method of recordkeeping for plans and issuers.

Seventh, the period of coveragecontained in the on-request certificationwill be all periods of coverage endingwithin 24 months before the date of therequest. Essentially, a plan may simplylook back two years and send copies ofany automatic certifications issuedduring that period.

The above reductions in burdens onplans and issuers may cause morefrequent circumstances in whichparticipants are required to provecreditable coverage and the status oftheir dependants. In order to help offsetsome of the additional burdens that willbe shifted to the participants, theregulations provide the followingprotections:

First, if an individual is required todemonstrate dependent status, thegroup health plan or issuer is requiredto treat the individual as havingfurnished a certificate showing thedependent status if the individualattests to such dependency and theperiod of such status, and the individualcooperates with the plan’s or issuer’sefforts to verify the dependent status.


Second, a plan shall treat anindividual as having furnished acertificate if the individual attests to theperiod of creditable coverage, and theindividual also presents relevantcorroborating evidence of somecreditable coverage during the periodand the individual cooperates with theplan’s efforts to verify the individual’scoverage.

Third, plans and issuers that imposepreexisting condition exclusionsperiods must notify participants of thisfact. They must also explain that priorcreditable coverage can reduce thelength of a preexisting conditionexclusion period and offer to request acertification on the participant’s behalf.An exclusion may not be imposed untilthis notice is given. This is beneficial toparticipants insofar as it forewarns themof potential claim denials and enablesthem to more easily exercise their rightto protection from such denials underHIPAA’s portabliity provisions.

Fourth, a plan that imposes apreexisting condition exclusion mustnotify a participant if the individual’screditable coverage is not enough tocompletely offset the exclusion period,and give the individual the option toprovide additional information. Anexclusion may not be imposed until thisnotice is given. This providesparticipants an opportunity to correctany failure to establish credit for priorcoverage before a claim is denied.

Under the regulation, in the grouphealth plan enrollment materialsordinarily provided to most newparticipants, plans that contain pre-existing condition exclusion provisionsmust also provide notice that the plancontains these provisions, that theparticipant has the right to prove priorcreditable coverage, including the rightto secure a certificate from a prior planor issuer, and that the new plan willassist in obtaining the certificate. Thoseplans using the alternative method ofcrediting coverage also must disclosetheir methods to the participant,including an identification of thecategories of coverage used.

In addition, a plan seeking to imposea pre-existing condition exclusion on aparticipant or dependant must informthem in writing of the determinationthat they lack adequate prior coverage,and provide an opportunity for theindividual to submit additionalmaterials regarding prior creditablecoverage, and provide an explanation ofany appeals procedure.

The annual cost of these disclosureprocedures to private group plans isestimated to be $280,000 in 1997, $2.1million in 1998, and $1.9 million in1999 (about 20 cents per notice). The

same costs for state group plans wouldbe $25,500, $51,000, and $51,000,respectively. For local plans, theywould be $42,000, $84,000, and$84,000. The Departments believe themarginal burden of the notice will bemodest because, irrespective of thenotice requirement, under the statuteplans must make this determinationbefore imposing a preexisting conditionexclusion. Comments are encouraged asto whether this assumption isappropriate. These costs do not includeany burdens attributable to the use ofthe alternative method of creditingcoverage, since it is assumed that anyplans incorporating this method will doso only if the net cost is less than usingthe standard method. Under thealternative method of creditingcoverage, the regulation allows the priorplan to charge the receiving plan usingthe alternative method for thereasonable costs of providing evidenceof classes and categories of prior healthcoverage.

On balance, to the extent that theDepartments have exercised regulatorydiscretion, they have acted to reducecompliance costs. This is particularytrue with respect to the certificationprocess.

These regulations attempt to reducethe burden of certifications by limitingthe amount of information that needs tobe reported and offering a model formthat can be used to satisfy therequirement of the law. In the absenceof a written certification, the regulationsallow for alternative means ofestablishing creditable coverage, whichincludes having the individual presentdocumentation of coverage orconducting telephone verification withthe entity that previously covered theindividual.

During a transition period,respondents may provide individualswith a notice that they have the right toreceive a certificate of creditablecoverage, a requirement that can be metby including the information in anevidence of coverage or other genericdocument individuals receive thatcontains information about their policy.This notice may be provided in lieu ofa certificate for events that occur on orafter October 1, 1996 but before June 1,1997.

The cost to issuers of the certificationrequirement is primarily in thepaperwork production of thecertification form. All health insuranceissuers are likely to have the kinds ofsystems in place to be able to producethe information necessary for acertification, although there will bemoderate systems start-up costs, andsome systems modifications for insurers

and HMOs. Systems modifications mayalso be necessary to retain the data forthe certificates for several years, but,like the other requirements, this burdenshould also be limited. The modelcertification form of the Preamblecontains the kind of information that isroutinely used as the basis for claimsprocessing by a health insurance issueror by an HMO (for example, inadjudicating an out-of-network claim).

For example, in order to deny a claimdating from a period prior to thebeginning date of coverage of aparticular individual, the issuer’sinformation system could determinethat (1) a particular individual wascovered by the issuer; (2) the issueridentification number submitted withthe claim is correct; (3) the individualwas insured on the date the health careservice was provided; (4) the servicewas provided during a waiting period oraffiliation period before coverage wasavailable; and (5) coverage may haveended prior to the date of service. Theissuer’s information system would alsodetermine the limitations of coverage(e.g. high or low option coverage, withor without specific riders). Theremaining information of thecertification form could also beavailable to the issuer, especially forCOBRA-eligible individuals: whetherCOBRA continuation coverage isinvolved (given that the premium ischarged directly to the individual at aspecified rate); the beginning andending dates of coverage and waitingperiods; and the name, address, phonenumber and contact person (orDepartment) for information.

Respondents may need to modifytheir systems to determine whether, fora given insurer’s coverage of a particularindividual, there was a 63-day period ofinterrupted coverage for purposes ofspecifying this information on acertification form. As noted above, theDepartments have taken intoconsideration the difficulties insurershave in identifying dependents underfamily coverage, and the regulationsmake appropriate accommodations, inrecognition of the need for a transitionperiod during which information aboutdependent coverage information may beunavailable from issuers.

The cost of producing and issuingcertifications (or notices in lieu ofcertifications where permitted) forprivate group plans is estimated to be$57 million for 53 million certificationsin 1997, $64 million for 44 million in1998, and $66 million for 44 million ineach subsequent year. Medicaidprograms would provide 10 millioncertifications annually at an annual costof $600,000. Medicare would issue


92,000 annually at a cost of $115,000.(Should HHS decide to allow theMedicare award and termination lettersto suffice as certifications, then therewould be no cost to the Medicareprogram for the HIPAA certificationrequirements.) By 1999, the annual costand volume would total $500,000 and200,000 for OPM, $2.9 million and 1.9million for state plans, and $6.1 millionand 4.1 million for local plans, and $4.7million and 2.9 million for individualmarket issuers.

Relative to the cost implied by thestatute alone, regulatory provisionsdirected at the certification processreduce private group plans’ cost ofcompliance by a minimum of $41million (or 42 percent) in 1997, $20million (or 24 percent) in 1998, and $18million (or 21 percent) in 1999 and lateryears, through the creation oftransitional rules, safe harbors and goodfaith compliance periods. Theregulation acts to reduce parallelburdens on issuers and state and localgovernment group plans in similarproportion.

In another discretionary provision,these regulations require group plans tonotify eligible new employees of theirspecial enrollment rights. Thisprovision is necessary to make sureemployees are sufficiently informed toexercise their rights within the 30-daywindow provided in the statute. Thecost of this disclosure is expected to besmall, since it is a uniform disclosurethat can accompany ordinary materialsprovided to new participants. In orderto minimize the burden, the preamble tothese regulations provides modellanguage for the notice adequate formeeting the statutory obligation. Thecost, which would reach $1.72 millionin 1999 for private group plans, isdescribed in the PRA analysis. In 1999,the cost for State plans would reach$167,000; the cost for local plans wouldreach $290,000.

The direct cost of certifications andnotices contribute to the overall socialcost of the statute and regulations.

HHS has exercised regulatorydiscretion regarding two specificprovisions that will be enforcedexclusively by HHS (also referred to asthe ‘‘non-shared group market’’provisions).

These two areas are as follows:

Guaranteed Availability of Coverage forEmployers in the PHS Act Group HealthMarket Provisions

The group market provisions includerules relating to guaranteed availabilityof coverage for employers in the smallgroup market that are only in the PHSAct (not in ERISA or the Code). Section

146.150 of the HHS regulationsimplements section 2711 of the PHSAct. In general, this section requireshealth insurance issuers that offercoverage in the small group market tooffer all policy forms to any eligiblesmall employer and to accept forenrollment every eligible individualwithout regard to health status. HHS hasinterpreted this guaranteed availabilityrequirement to apply to all productsoffered in the small group market. SomeStates and issuers argue that the statutewould permit guaranteed availability ofan issuer’s basic and standard plan, asopposed to all products offered by theissuer in the small group market. HHSdoes not agree with this interpretationand have proposed our interpretation inthe regulation. Depending upon Statelaw, this decision may provide thebenefit of additional choices to smallemployers purchasing coverage in thesmall group market, while adding somepotential costs for issuers offeringcoverage in the small group market.

Exclusion of Certain Plans From thePHS Act Group Market Requirements

The group market provisions alsoinclude rules under which certain plansare excluded from the group marketprovisions that are only in the PHS Act(not in ERISA or the Code). Section146.180 of the HHS regulationsimplements section 2721 of the PHSAct. Section 146.180(b) includes rulespertaining to non-federal governmentalplans, which are permitted underHIPAA to elect to be exempted fromsome or all of HIPAA’s requirements inthe PHS Act. HHS has exercisedregulatory discretion by prescribing theform and manner of the election and thecontents of the notice. HHS has alsorequired a non-federal governmentalplan making this election to notify planparticipants, at the time of enrollmentand on an annual basis, of the fact andconsequences of the election. HHS hasexercised this regulatory authority inorder to ensure adequate documentationof a non-federal governmental plan’sproper and appropriate election withoutplacing an undue burden on the plan. Inaddition, HHS has provided a non-federal governmental plan the flexibilityto elect to opt out of specific provisionsof the statute and have allowed for thisflexibility in the contents of the notice.The cost of providing these notices fornon-federal governmental would rangefrom $79,000 to $158,000 in 1997 andfrom $158,000 to $315,000 in 1999.

HHS has also exercised regulatorydiscretion in connection withindividual market provisions byspecifying that college health plans aretreated as bona fide associations. Since,

under HIPAA, coverage offered througha bona fide association is creditablecoverage, individuals covered under acollege plan would receive credit forthis coverage. However, because thiscoverage is offered though a bona fideassociation (as defined in Part 144 of thegroup market rules), the issuer benefitsbecause it does not have to make thecoverage available in the individualmarket to eligible individuals, and doesnot have to renew coverage for a studentwho leaves the association. Thisregulatory provision is expected tominimally disrupt business practices forthose college plans.

HHS also exercised regulatorydiscretion in connection withindividual market provisions. When aneligible individual applies for coveragein the individual market, the effectivedate of such coverage is deemed, in theregulations, to be the date on which theindividual applies for such coverage,and assuming the individual’sapplication for coverage was accepted.

The impact of this regulatoryprovision is that an individual whowishes to maintain creditable coveragemay delay, for up to 63 days, anapplication for coverage in theindividual insurance market, especiallyif he or she is assured of being coveredby an issuer (e.g., if the person isguaranteed issuance of an individualproduct as an individual coming fromgroup coverage, under the Act’sguaranteed availability provisions). Theindividual may forego medicaltreatment during the 63-day period ofnon-coverage, resulting in adeterioration of health on entering thenew health plan, with a potential forgreater costs incurred by the insurer orhealth plan.

The regulation could have requiredthat the individual apply for coveragewithin a reasonable time period inadvance of the 63-day period, such as 30days after the end of prior coverage(which is similar to the statutoryrequirement for a request for enrollmentin a group health plan followingexhaustion of COBRA coverage or otherexhaustion of coverage); or, the insurercould have been required to begincoverage within some specified timeperiod after application. However, theapproach taken in the regulation isconsistent with statutory provisionsregarding the treatment of waitingperiods or HMO affiliation periods,which the statute specifically excludesfrom being considered breaks incoverage. The regulatory provision alsoaccords the same status to allindividuals in any circumstance bymaking a 63-day period the maximumduring which an individual can be


without coverage and still receive creditfor creditable coverage.

M. Paperwork Reduction Act—Department of Labor and Department ofthe Treasury

The Department of Labor and theDepartment of the Treasury havesubmitted this emergency processingpublic information collection request(ICR), consisting of three distinct ICRs,to the OBM for review and clearanceunder the Paperwork Reduction Act of1995 (Pub. L. 104–13, 44 U.S.C. Chapter35). The Departments have asked forOMB clearance as soon as possible, andOMB approval is anticipated by orbefore June, 1, 1997.

These regulations contain threedistinct ICRs. Two of them (EstablishingPrior Creditable Coverage and Notice ofEnrollment Rights) are prescribed by thestatute.

The first ICR implements statutorilyprescribed requirements necessary toestablish prior creditable coverage. Thisis accomplished primarily through theissuance of certificates of prior coverageby group health plans or by serviceproviders that the group health planscontract with in order to provide thesedocuments. In addition, this ICRpermits the use of a notice that may beused by the plans to meet theirobligations in connection with periodsof coverage ending during the transitionperiod, October 1, 1996 through May 31,1997, saving the respondents both hoursand cost during that period. This ICRalso covers the requests that certainplans will make regarding additionalinformation they require because theyare using the Alternative Method ofCrediting Coverage. Finally, this ICRalso includes the occasionalcircumstances where a participant isunable to secure a certificate and needsto provide some supplemental form ofdocumentation in order to establishprior creditable coverage.

The second ICR, Notice of SpecialEnrollment Rights, implements thestatutorily prescribed disclosureobligation of the plans to inform aparticipant, at the time of enrollment, ofthe plan’s special enrollment rules.

The third ICR, Notice of Pre-ExistingCondition Exclusion, concerns thedisclosure requirements on those plansthat contain pre-existing conditionexclusion provisions. This ICR has twocomponents: a notice to all participantsat the time of enrollment stating theterms of the plan’s pre-exisitingcondition provisions, the participant’sright to demonstrate creditable coverage,and that the plan or issuer will assist insecuring a certificate if necessary; andnotice by the plan of its determination

that an exclusion period applies to anindividual.

1. Establishing Prior CreditableCoverage

i. Department of Labor

The Department of Labor, as part of itscontinuing effort to reduce paperworkand respondent burden, conducts apreclearance consultation program toprovide the general public and federalagencies with an opportunity tocomment on proposed informationcollection requests (ICR) in accordancewith the Paperwork Reduction Act of1995 (PRA 95) (Pub. L. 104–13, 44U.S.C. chapter 35) and 5 CFR 1320.11.This program helps to ensure thatrequested data can be provided in thedesired format, reporting burden (timeand financial resources) is minimized,collection instruments are clearlyunderstood, and the impact of collectionrequirements on respondents can beproperly assessed. Currently, thePension and Welfare BenefitsAdministration is soliciting commentsconcerning the proposed new collectionof Establishing Prior CreditableCoverage.

Dates: Written comments must besubmitted to the office listed in theaddressee section below on or beforeMay 31, 1997. In light of the request forOMB clearance by June 1, 1997,submission of comments within the first30 days is encouraged to ensure theirconsideration.

The Department of Labor isparticularly interested in commentswhich:

• evaluate whether the proposedcollection is necessary for the properperformance of the functions of theagency, including whether theinformation will have practical utility;

• evaluate the accuracy of theagency’s estimate of the burden of theproposed collection of information,including the validity of themethodology and assumptions used;

• enhance the quality, utility, andclarity of the information to becollected; and

• minimize the burden of thecollection of information on those whoare to respond, including through theuse of appropriate automated,electronic, mechanical, or othertechnological collection techniques orother forms of information technology,e.g., permitting electronic submissionsof responses.

Addressee: Gerald B. Lindrew, Officeof Policy and Research, U.S. Departmentof Labor, Pension and Welfare BenefitsAdministration, 200 ConstitutionAvenue, Room N–5647, Washington, DC

20210. Telephone: 202–219–4782 (thisis not a toll-free number). Fax: 202–219–4745.

ii. Department of the Treasury

The collection of information is inSection 54.9801–5T. This information isrequired by the statute so thatparticipants will be informed abouttheir rights under HIPAA and about theamount of creditable coverage that theyhave accrued under a group health plan.The likely respondents are business orother for-profit institutions, non-profitinstitutions, small businesses ororganizations, and Taft-Hartley trusts.Responses to this collection ofinformation are mandatory.

Books or records relating to acollection of information must beretained as long as their contents may become material in the administration ofany internal revenue law. Generally, taxreturns and tax return information areconfidential, as required by 26 U.S.C.6103.

Comments on the collection ofinformation should be sent to the Officeof Management and Budget, Attn: DeskOfficer for the Department of theTreasury, Office of Information andRegulatory Affairs, Washington, DC20503, with copies to the InternalRevenue Service, Attn: IRS ReportsClearance Officer, T:FP, Washington, DC20224. Comments on the collection ofinformation should be received by May31, 1997. In light of the request for OMBclearance by June 1, 1997, submission ofcomments within the first 30 days isencouraged to ensure theirconsideration. Comments arespecifically requested concerning:

Whether the proposed collection ofinformation is necessary for the properperformance of the functions of theInternal Revenue Service, includingwhether the information will havepractical utility;

The accuracy of the estimated burdenassociated with the proposed collectionof information;

How to enhance the quality, utility,and clarity of the information to becollected;

How to minimize the burden ofcomplying with the proposed collectionof information, including theapplication of automated collectiontechniques or other forms of informationtechnology; and

Estimates of capital or start up costsand costs of operation, maintenance,and purchase of services to provideinformation.

Additonal PRA 95 Information:I. Background: In order to meet

HIPAA’s goal of improving access toand portability of health care benefits,


the statute provides that, after thesubmission of evidence establishingprior creditable coverage, a subsequenthealth insurance provider would belimited in the extent to which it coulduse pre-existing condition exclusions tolimit coverage. This ICR covers thesubmission of materials sufficient toestablish prior creditable coverage.

II. Current Actions: Under 29 CFR2590.701–5 and 26 CFR 54.9801–5T ofthe interim rule, a group health planoffering group health insurancecoverage is obligated to provide awritten certificate of informationsuitable for establishing the priorcreditable coverage of a participant orbeneficiary. To the extent that acertification is not available orinadequate to prove prior creditablecoverage, paragraph (c) provides othermethods for establishing creditable

coverage. During the transition periodfor certification (29 CFR 2590.710(e) and26 CFR 54.9806–1T(e)), plans have theoption of providing notices regardingparticipant’s rights to certification ratherthan the certification itself; plans thenprovide certificates only to thoseparticipants who request them. 29 CFR2590.701–5(a)(7) and 26 CFR 54.9801–5T(a)(7) provides special rules forestablishing prior coverage ofdefendants, and 29 CFR 2590.701–5(b)and 26 CFR 54.9801–5T(b) providesguidance on providing evidence ofcoverage to those plans that use thealternative method of creditingcoverage.

These regulations offer modelcertification and notice forms to be usedby group health plans and healthinsurance issuers, containing theminimum information mandated by the

statute. Based on past experience, thestaff believes that most of the materialsrequired to be exchanged under thecertification procedure will be preparedby contract service providers such asinsurance companies and third-partyadministrators.

Type of Review: NewAgencies: U.S. Department of Labor,

Pension and Welfare BenefitsAdministration; U.S. Department of theTreasury, Internal Revenue Service.

Title: Establishing Prior CreditableCoverage

Affected Public: Individuals orhouseholds; Business or other for-profit;Not-for-profit institutions; Group HealthPlans.

Frequency: On occasionBurden:

Year Totalrespondents

Totalresponses

Average timeper

response(range)

(minutes)

Burden hours(range) Cost (range)

1997 ...................................................................................... 2,600,000 51,799,410 3.23 502,080 $57,180,000........................ ........................ 6.12 950,710 84,590,000

1998 ...................................................................................... 2,600,000 44,431,970 5.04 672,120 64,480,000........................ ........................ 11.77 1,569,390 119,310,000

1999 ...................................................................................... 2,600,000 44,399,150 5.27 702,360 66,310,000........................ ........................ 12.01 1,599,630 121,140,000

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

Start up costs: It is estimated that the15,604 plans that will perform thesefunctions internally (rather than use aservice provider) will incur an averagecost of $5,000 per plan to revise theirautomated records systems toaccommodate this information for atotal cost of $78 million over 10 yearsbeginning in 1997.

Estimated total cost:Comments submitted in response to

this notice will be summarized and/orincluded in the request for Office ofManagement and Budget approval of theinformation collection request; they willalso become a matter of public record.

2. Notice of Enrollment Rights

i. Department of LaborThe Department of Labor, as part of its

continuing effort to reduce paperworkand respondent burden, conducts apreclearance consultation program toprovide the general public and federalagencies with an opportunity tocomment on proposed informationcollection requests (ICR) in accordancewith the Paperwork Reduction Act of1995 (PRA 95) (Pub. L. 104–13, 44U.S.C. Chapter 35) and 5 CFR 1320.11.This program helps to ensure that

requested data can be provided in thedesired format, reporting burden (timeand financial resources) is minimized,collection instruments are clearlyunderstood, and the impact of collectionrequirements on respondents can beproperly assessed. Currently, thePension and Welfare BenefitsAdministration is soliciting commentsconcerning the proposed new collectionof Notice of Enrollment Rights.




• evaluate the accuracy of theagency’s estimate of the burden of theproposed collection of information,

including the validity of themethodology and assumptions used;

• enhance the quality, utility, andclarity of the information to becollected; and


Addressee: Gerald B. Lindrew, Officeof Policy and Research, U.S. Departmentof Labor, Pension and Welfare BenefitsAdministration, 200 ConstitutionAvenue, Room N–5647, Washington,D.C. 20210. Telephone: 202–219–4782(this is not a toll-free number). Fax:202–219–4745.


The collection of information is inSection 54.9801–6T. This information isrequired by the statute so thatparticipants will be informed abouttheir rights under HIPAA and about theamount of creditable coverage that theyhave accrued under a group health plan.


The likely respondents are business orother for-profit institutions, non-profitinstitutions, small businesses ororganizations, and Taft-Hartly trusts.Responses to this collection ofinformation are mandatory.

Books or records relating to acollection of information must beretained as long as their contents maybecome material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Comments on the collection ofinformation should be sent to the Officeof Management and Budget, Attn: DeskOfficer for the Department of theTreasury, Office of Information andRegulatory Affairs, Washington, DC20503, with copies to the InternalRevenue Service, Attn: IRS ReportsClearance Officer, T:FP, Washington, DC20224. Comments on the collection ofinformation should be received by May31, 1997. In light of the request for OMBclearance by June 1, 1997, submission ofcomments within the first 30 days isencouraged to ensure theirconsideration. Comments are speciallyrequested concerning:

Whether the proposed collection ofinformation is necessary for the proper

performance of the functions of theInternal Revenue Service, includingwhether the information will havepractical utility;





Additional PRA 95 Information:I. Background: In order to improve

participants’ understanding of theirrights under an employer’s welfarebenefits plan, the statute provides that,a participant be provided with adescription of a plan’s specialenrollment rules on or before the timewhen a participant is offered theopportunity to enroll in a group healthplan.

II. Current Actions: Under 29 CFR2590.701–6 and 26 CFR 54.9801–6T of

the interim rule, a group health planoffering group health insurancecoverage is obligated to provide adescription of the plans’ specialenrollment rules. The specialenrollment rules generally apply incircumstances when the participantinitially declined to enroll in the plan,and subsequently would like to havecoverage.

These regulations offer a model formto be used by group health plans andhealth insurance issuers, containing theminimum information mandated by thestatute. Based on past experience, thestaff believes that most of the materialsrequired to be supplied under this ICRwill be prepared by contract serviceproviders such as insurance companiesand third-party administrators.

Type of Review: New.Agencies: U.S. Department of Labor,

Pension and Welfare Benefitsadministration; U.S. Department of theTreasury, Internal Revenue Service.

Title: Notice of Enrollment Rights.Affected Public: Individuals or

households; Business or other for-profit;Not-for-profit institutions; Group HealthPlans.

Frequency: On occasion.Burden:

YearTotal

respondents(000)

Totalresponses

Average timeper

response(minutes)

Burden hours Cost

1997 ........................................................................................ 2,600,000 499,080 .50 ................ 750 100,0001998 ........................................................................................ 2,600,000 7,622.010 .50 ................ 11,430 1,460,0001999 ........................................................................................ 2,000,000 8,959,380 .50 ................ 13,440 1,720,000

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

3. Notice of Pre-Existing ConditionExclusion

i. Department of LaborThe Department of Labor, as part of its

continuing effort to reduce paperworkand respondent burden, conducts apreclearance consultation program toprovide the general public and federalagencies with an opportunity tocomment on proposed informationcollection requests (ICR) in accordancewith the Paperwork Reduction Act of1995 (PRA 95) (Pub. L. 104–13, 44U.S.C. Chapter 35) and 5 CFR 1320.11.This program helps to ensure thatrequested data can be provided in thedesired format, reporting burden (timeand financial resources) is minimized,collection instruments are clearlyunderstood, and the impact of collectionrequirements on respondents can beproperly assessed. Currently, thePension and Welfare Benefits

Administration is soliciting commentsconcerning the proposed new collectionof Notice of Pre-Existing ConditionExclusion.




• evaluate the accuracy of theagency’s estimate of the burden of theproposed collection of information,

including the validity of themethodology and assumptions used;

• enhance, the quality, utility, andclarity of the information to becollected; and


Addressee: Gerald B. Lindrew, Officeof Policy and Research, U.S. Departmentof Labor, Pension and Welfare BenefitsAdministration, 200 ConstitutionAvenue, Room N–5647, Washington,D.C. 20210. Telephone: 202–219–4782(this is not a toll-free number) Fax: 202–219–4745.



The collection of information is inSections 54.9801–3T, 54.9801–4T, and54.9801–5T. This information isrequired by the statute so thatparticipants will be informed abouttheir rights under HIPAA and about theamount of creditable coverage that theyhave accrued under a group health plan.The likely respondents are business orother for-profit institutions, non-profitinstitutions, small businesses ororganizations, and Taft-Hartley trusts.Responses to this collection ofinformation are mandatory.

Books or records relating to acollection of information must beretained as long as their contents maybecome material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Comments on the collection ofinformation should be sent to the Officeof Management and Budget, Attn: DeskOfficer for the Department of theTreasury, Officer of Information andRegulatory Affairs, Washington, DC20503, with copies to the InternalRevenue Service, Attn: IRS ReportsClearance Officer, T:FP, Washington, DC20224. Comments on the collection ofinformation should be received by May31, 1997. In light of the request for OMBclearance by June 1, 1997, submission ofcomments within the first 30 days inencouraged to ensure theirconsideration. Comments arespecifically requested concerning:

Whether the proposed collection ofinformation is necessary for the properperformance of the functions of the

Internal Revenue Service, includingwhether the information will havepractical utility;





Additional PRA 95 Information:I. Background: In order to meet

HIPAA’s goal of improving portability ofhealth care coverage, participants needsto understand their rights to show priorcreditable coverage when entering agroup health plan that contain pre-existing condition exclusion provisions.In addition, participants entering plansthat use the alternative method ofcrediting coverage also need to beinformed of the plan’s provisions.Therefore, the Department hasdetermined that plans that contain theseprovisions must disclose that fact tonew participants, as well as informindividual participants of the extent towhich a pre-existing conditionexclusion applies to them.

II. Current Actions: 29 CFR 2590.701–3(c) and 26 CFR 54.9801–3T(c) requiresthat a group health plan or healthinsurance issuer offering group healthinsurance under the plan may notimpose any pre-existing condition

exclusions on a participant unless theparticipant has been notified in writingthat the plan contains per-existingcondition exclusions, that a participanthas the right to demonstrate any periodof prior creditable coverage, and that theplan or issuer will assist the participantin obtaining a certificate of priorcoverage from any prior plan or issuer,if necessary. 29 CFR 2590.701–4(c)(4)and 26 CFR 54.9801–4T(c)(4) requiresthat plans that use the alternativemethod of crediting coverage disclosetheir method at the time of enrollmentin the plan. No additional cost ofpreparing or distributing thisinformation has been included in thisanalysis because plans would onlypursue this option if it were, on net, lesscostly than the standard method.

In addition, 29 CFR 2590.701–5(d)(2)and 26 CFR 54.9801–5T(d)(2) requiresthat before a plan or issuer imposes apre-existing condition exclusion on aparticular participant, it must firstdisclose that determination in writing,including the basis for the decision, andan explanation of any appeal procedureestablished by the plan or issuer.

Type of Review: New.Agencies: U.S. Department of Labor,

Pension and Welfare BenefitsAdministration; U.S. Department of theTreasury, Internal Revenue Service.

Title: Notice of Pre-Existing ExclusionProvisions.

Afffected Public: Individuals orhouseholds; Business or other for-profit;Not-for-profit institutions; Group HealthPlans.

Frequency: On occasion.Burden:

Cite/reference Totalrespondents

Totalresponses

Average timeper

responses(minutes)

Burden hours Cost

Notice at time of enrollment:1997 ............................................................................... 1,261,450 500,800 0.70 2,470 $180,0001998 ............................................................................... 1,261,450 7,626,880 0.54 16,300 1,700,0001999 ............................................................................... 1,261,450 8,959,700 0.50 13,750 1,730,000

Notice of pre-existing condition causing lack of coverage:1997 ............................................................................... 1,261,450 57,900 2.27 1,800 100,0001998 ............................................................................... 1,261,450 862,830 0.84 6,160 410,0001999 ............................................................................... 1,261,450 1,008,810 0.52 1,830 210,000

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

Estimated Total Burden Cost:

N. Paperwork Reduction Act—Department of Health and HumanServices

Under the Paperwork Reduction Actof 1995, HHS is required to provide 60-day notice in the Federal Register and

solicit public comment before acollection of information requirement issubmitted to the Office of Managementand Budget (OMB) for review andapproval. In order to fairly evaluatewhether an information collectionshould be approved by OMB, section3506(c)(2)(A) of the Paperwork

Reduction Act of 1995 requires that wesolicit comment on the following issues:

• The need for the informationcollection and its usefulness in carryingout the proper functions of our agency.

• The accuracy of our estimate of theinformation collection burden.


• The quality, utility, and clarity ofthe information to be collected.

• Recommendations to minimize theinformation collection burden on theaffected public, including automatedcollection techniques.

We are, however, requesting anemergency review of this notice. Incompliance with the requirement ofsection 3506(c)(2)(A) of the PaperworkReduction Act of 1995, we havesubmitted to the Office of Managementand Budget (OMB) the followingrequirement for emergency review. Weare requesting an emergency reviewbecause the collection of thisinformation is needed before theexpiration of the normal time limitsunder OMB’s regulations at 5 CFR, Part1320, to ensure compliance with section111 of the HIPAA necessary toimplement congressional intent withrespect to guaranteeing availability ofindividual health insurance coverage tocertain individuals with prior groupcoverage. We cannot reasonably complywith the normal clearance proceduresbecause public harm is likely to resultbecause eligible individuals will notreceive the health insurance protectionsunder the statute.

We are requesting that OMB providea 30-day public comment period fromthe date of the publication, with OMBreview and approval by June 1, 1997,and a 180-day approval. During this180-day period, we will publish aseparate Federal Register noticeannouncing the initiation of anextensive 60-day agency review andpublic comment period on theserequirements. We will submit therequirements for OMB review and anextension of this emergency approval.

Type of Information Request: Newcollection.

Title of Information Collection:Information Requirements Referenced inHIPAA for Group Health Plans.

Form Number: HCFA–R–206.

Use: This regulation and relatedinformation collection requirementswill ensure that group health plansprovide individuals withdocumentation necessary todemonstrate prior creditable coverage,and that group health plans notifyindividuals of their special enrollmentrights in the group health insurancemarket.

Frequency: On occasion.Affected Public: State and local

governments, Business or other forprofit, not-for-profit institutions,individuals or households, Federalgovernment.

Number of Respondents: 1,430.Total Annual Responses: Due to the

rolling effective dates in the statute, thenumber of annual responses isestimated to be 32.5 million in 1997, butwill increase to 41 million in 1998 and42.5 million in 1999.

Total Annual Hours Requested: 1.8million to 3.6 million hours in 1997; 2.3million to 5.8 million hours in 1998;and 2.6 million to 5.9 million hours in1999.

Total Annual Costs: $36.8 million to$53.9 million in 1997; $42.4 million to$76.3 million in 1998; and $43.5 millionto $77.3 million in 1999. 45 CFR§§ 146.120, 146.122, 146.150, 146.152,146.160, and 146.180 of this documentcontain information collectionrequirements.

45 CFR 146.120 Certificates andDisclosure of Previous Coverage

Certificates and Disclosure of PriorCoverage. This section sets forthguidance regarding the certification andother disclosure of informationrequirements relating to prior creditablecoverage of an individual. In general,the certificate must be provided inwriting and must include the followinginformation: (1) The date any waiting oraffiliation period began, (2) the datecoverage began, and (3) the date

coverage ended (or indicate if coverageis continuing). The regulations alsoallow a plan or issuer in an appropriatecase to simply state in the certificatethat the individual has at least 18months of creditable coverage that is notinterrupted by a significant break andindicate the date coverage ended. Ingeneral, individuals have the right toreceive a certificate automatically (anautomatic certificate) when they losecoverage under a plan and when theyhave a right to elect COBRAcontinuation coverage.

We anticipate that approximately1,400 issuers will be required toproduce 30 million certifications peryear based on the model certificateprovided. Our estimate of issuers (1,400)includes commercial insurers andHMOs, but does not include some typesof issuers, such as Preferred ProviderOrganizations (PPOs); however, thesetypes of issuers are small in number.The time estimate includes the timerequired to gather the pertinentinformation, create a certificate, andmail the certificate to the planparticipant. This time estimate is basedon discussions with industryindividuals. We believe that, as aroutine business practice, the issuers’administrative staff have the necessaryinformation readily available to generatethe required certificates. In addition, wehave determined that the majority ofissuers have or will have the capabilityto automatically computer generate anddisseminate the necessary certificationwhen appropriate.

These estimates include thecertificates required by issuers acting asservice providers on behalf of grouphealth plans and state and localgovernment health plans. We anticipatethat most, if not all, state and localgovernment health plans will contractwith an issuer to develop the certificate.

ESTIMATES FOR CERTIFICATIONS

Year Total re-spondents

Total re-sponses

Average timeper response

(range)

Burden hours(range) Cost (range)

1997 ........................................................................................ 1,400 32,698,845 3.32 min ........... 1,809,119 hrs ... $36,366,106.................... 6.34min 3,456,036 hrs ... 53,434,628.

1998 ........................................................................................ 1,400 28,072,131 5.19 min ........... 2,242,866 hrs ... 40,928,939.................... .................... 12.23 min ......... 5,720,198 hrs ... 74,859,759

1999 ........................................................................................ 1,400 28,055,984 5.37 min ........... 2,510,461 hrs ... 42,124,907.................... .................... 12.41 min ......... 5,804,408 hrs ... 75,760,119

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

Notice to all participants: Under thissection, issuers are required to notify allparticipants at the time of enrollment

stating the terms of the issuer’s pre-existing condition exclusion provisions,the participant’s right to demonstrate

creditable coverage, and that the issuerwill assist in securing a certificate ifnecessary.


We have estimated the burdenassociated with this informationcollection requirement to be the timerequired for issuers to developstandardized language outlining theexistence and terms of any preexistingcondition exclusion under the plan andthe rights of individuals to demonstratecreditable coverage. In specific, weanticipate that issuers will be requiredto develop approximately 660,000

notices in 1997; 5.6 million notices in1998; and 6.2 million notices in 1999.At 30 seconds for each notice, weestimate the total hour burden to be4,400 hours in 1997; 30,000 hours in1998; and 34,000 hours in 1999. Therespective costs will be $49,000 in 1997;$330,000 in 1998; and $377,000 in 1999.These estimates and subsequentestimates are based on an hourly wageof $11 for issuers and $15 for State and

local government employees. Theseestimates include the notices requiredby issuers on behalf of state and localgovernment health plans, since weanticipate that most, if not all state andlocal government health plans willcontract with an issuer to develop thenotice. The estimates have beendisaggregated below:

Year Issuers State healthplans

Local healthplans Total notices

Total notices:1997 ........................................................................................................... 320,000 129,826 214,880 664,7061998 ........................................................................................................... 4,878,200 259,653 429,761 5,567,6141999 ........................................................................................................... 5,734,300 259,653 429,761 6,189,714

Total burden hours:1997 ........................................................................................................... 1,592 1,078 1,784 4,4541998 ........................................................................................................... 24,293 2,155 3,567 30,0151999 ........................................................................................................... 28,557 2,155 3,567 34,279

Notice to individual of period ofpreexisting condition exclusion. Withina reasonable time following the receiptof the certificate, information relating tothe alternative method, or otherevidence of coverage, a plan or issuer isrequired to make a determinationregarding the length of any preexistingcondition exclusion period that appliesto the individual and notify theindividual of its determination. Whethera determination and notification ismade within a reasonable period of timewill depend upon the relevant facts andcircumstances including whether theapplication of the preexisting conditionexclusion period would prevent access

to urgent medical services. Theindividual need only be notified,however, if, after considering theevidence, a preexisting conditionexclusion period will be imposed on theindividual. The basis of thedetermination, including the source andsubstance of any information on whichthe plan or issuer relied, must beincluded in the notice. The plan’sappeals procedures and the opportunityof the individual to present additionalevidence must also be explained in thenotification.

We estimate that issuers will berequired to develop approximately29,000 notices in 1997; 425,000 notices

in 1998; and 498,000 notices in 1999. At2 minutes for each notice, we estimatethe total hour burden to be 960 hours in1997; 14,000 hours in 1998; and 16,600hours in 1999. We estimate therespective costs associated with theseburdens to be $10,600 in 1997; $156,000in 1998; and $183,000 in 1999. Theseestimates include the notices requiredby issuers on behalf of state and localgovernment health plans, since weanticipate that most, if not all state andlocal government health plans willcontract with an issuer to develop thenotice. The estimates have beendisaggregated below:



Total notices:1997 ........................................................................................................... 27,650 588 766 29,0041998 ........................................................................................................... 422,136 1,176 1,531 425,1431999 ........................................................................................................... 496,182 1,176 1,531 498,889

Total burden hours:1997 ........................................................................................................... 921 20 25 9661998 ........................................................................................................... 14,057 40 51 14,1481999 ........................................................................................................... 16,553 40 51 16,644

45 CFR 146.122 Special EnrollmentPeriods

This section in the regulationprovides guidance regarding newenrollment rights that employees anddependents have under HIPAA. Ahealth insurance issuer offering grouphealth insurance coverage is required toprovide a description of the specialenrollment rights to anyone whodeclines coverage at the time ofenrollment. The regulations provide amodel of such a description containing

the minimum information mandated bythe statute.

The first burden associated with thisrequirement is the time required forhealth insurance issuers and state andlocal government health plans toincorporate the model notice into theplan’s standard policy information. Weestimate the burden to be 2 hoursannually per issuer, for a total burden of2,800 hours. The cost associated withthis hour burden is estimated to be$30,800 annually.

The second burden associated withthis requirement is the time required todisseminate the notice to new enrollees.We estimate that issuers will berequired to develop approximately 1million notices in 1997; 5.3 millionnotices in 1998; and 5.9 million noticesin 1999. At 30 seconds for each notice,we estimate the total hour burden to be8,300 hours in 1997; 43,000 hours in1998; and 48,000 hours in 1999. Wehave estimated the costs associated withthese hour burdens to be $91,000 in1997; $469,000 in 1998; and $527,000 in


1999. These estimates include thenotices required by issuers on behalf ofstate and local government health plans,

since we anticipate that most, if not allstate and local government health planswill contract with an issuer to develop

the notice. The estimates have beendisaggregated below:



Total notices:1997 ........................................................................................................... 245,508 287,938 500,750 1,034,1961998 ........................................................................................................... 3,750,024 575,875 1,001,500 5,327,3991999 ........................................................................................................... 4,407,828 575,875 1,001,500 5,985,203

Total burden hours:1997 ........................................................................................................... 1,964 2,304 4,006 8,2731998 ........................................................................................................... 30,000 4,607 8,012 42,6191999 ........................................................................................................... 35,263 4,607 8,012 47,881

45 CFR 146.150 GuaranteedAvailability of Coverage for Employersin the PHS Act Group Market Provisions

This section allows a health insuranceissuer to deny health insurance coveragein the small group market if the issuerhas demonstrated to the applicable Stateauthority (if required by the Stateauthority) that it does not have thefinancial reserves necessary tounderwrite additional coverage and thatit is applying this denial uniformly toall employers in the small group marketin the State consistent with applicableState law and without regard to theclaims experience of those employersand their employees (and theirdependents) or any health status-relatedfactor relating to those employees anddependents. Thus, issuers are onlyrequired to report to the applicable Stateauthority if they are discontinuingcoverage in the small group market.

This requirement exists in the absenceof this regulation because under currentinsurance practices, State insurancedepartments oversee discontinuance ofinsurance products in their State as anormal business practice. Therefore,these information collectionrequirements are exempt from the PRAunder 5 CFR 1320.3(b)(2) and 5 CFR1320.3(b)(3). However, under HIPAA,States must review policies during theiroversight process to make sure there isa guaranteed availability clause in eachpolicy. For the 37 States that currentlyrequire guaranteed availability, it is ourunderstanding that this is normalbusiness practice. For the other 18States, however, we see this Stateburden to be about 10 minutes perpolicy, since States already reviewpolicies for other requirements and thisprocess does not prescribe a timetablefor reviewing the policies. We see thisas a total burden of 10,850 hours. Wehave estimated the cost associated withthis hour burden to be $163,000. If theState identifies a violation and a Statehas to take some action, we believe thateach State will be required to initiate

fewer than 10 administrative actions onan annual basis against specificindividuals or entities who failed toimplement the Federal guaranteeavailability requirements.

45 CFR 146.152 GuaranteedRenewability of Coverage for Employersin the PHS Act Group Market Provisions

In this section issuers are onlyrequired to report if they arediscontinuing a particular type ofcoverage or discontinuing all coverage.This requirement exists in the absenceof this regulation because under currentinsurance practices, State insurancedepartments oversee discontinuance ofinsurance products in their State as anormal business practice. Therefore,these information collectionrequirements are exempt from the PRAunder 5 CFR 1320.3(b)(2) and 5 CFR1320.3(b)(3). However, under HIPAA,States must review policies during theiroversight process to make sure there isa guaranteed availability clause in eachpolicy. For the 43 States that currentlyrequire guaranteed renewability, it isour understanding that this is normalbusiness practice. For the other 12States, however, we see this Stateburden to be about 10 minutes perpolicy, since States already reviewpolicies for other requirements and thisprocess does not prescribe a timetablefor reviewing the policies. We see thisas a total burden of 6,700 hours. Wehave estimated the cost associated withthis hour burden to be $100,500. If theState identifies a violation and a Statehas to take some action, we believe thateach State will be required to initiatefewer than 10 administrative actions onan annual basis against specificindividuals or entities who failed toimplement the Federal guaranteerenewability requirements.

45 CFR 146.160 Disclosure ofInformation by Issuers to EmployersSeeking Coverage in the Small GroupMarket in the PHS Act Provisions

This section requires issuers todisclose information to employersseeking coverage in the small groupmarket. This section requiresinformation to be provided by a healthinsurance issuer offering any healthinsurance coverage to a small employer.This information includes the issuer’sright to change premium rates and thefactors that may affect changes inpremium rates, renewability ofcoverage, any preexisting conditionexclusion, any affiliation periodsapplied by HMOs, the geographic areasserved by HMOs, and the benefits andpremiums available under all healthinsurance coverage for which theemployer is qualified. The issuer isexempted from disclosing informationthat is proprietary or trade secretinformation under applicable law.

The information described in thissection must be language that isunderstandable by the average smallemployer and sufficient to reasonablyinform small employers of their rightsand obligations under the healthinsurance coverage. This requirement issatisfied if the issuer provides anoutline of coverage, the minimumcontribution and group participationrules that apply to any particular typeof coverage, and any other informationrequired by the State. An outline ofcoverage is defined as a generaldescription of benefits and premiums.This would include an outline ofcoverage similar to the manner in whichMedigap policies are presented,allowing the employer to easily compareone policy form to another to determinewhat is covered and how much thecoverage will cost.

We have estimated the total burdenassociated with this activity to be 2,400hours. We anticipate that 1,200 issuerswill be required to provide disclosure tosmall employers on an annual basis. We


estimate this time to be approximately2 hours for each issuer to develop andupdate the standard information relatedto the general description of benefitsand premiums on an annual basis andinclude this information in their policyinformation. We have estimated the costassociated with this hour burden to be$36,000.

45 CFR 146.180 Exclusion of CertainPlans From the PHS Act Group MarketRequirements

Section 145.180(b) includes rulespertaining to nonfederal governmentalplans, which are permitted underHIPAA to elect to be exempted fromsome or all of HIPAA’s requirements inthe PHS Act. The regulation establishesthe form and manner of the election. Inparticular, a nonfederal governmentalplan making this election is required tonotify plan participants, at the time ofenrollment and on an annual basis, ofthe fact and consequences of theelection. The burden imposed by this isthe requirement for plans to disseminatestandard notification languagedescribing the plans’ election and theconsequences of this election. Weanticipate that between 3,500 and 5,000nonfederal governmental plans willmake this election and will therefore berequired to disseminate notifications totheir participants on an annual basis.Since this is standard language that willbe incorporated into plans’ existingpolicy documents, we see the burden asapproximately 2 hours per plan todevelop and update this standardizeddisclosure statement on an annual basis.Thus, we estimate the total burden forthis activity to range from 7,000 to10,000 hours. We estimate the costassociated with these hourly burdens torange from $77,000 to $110,000 peryear.

The above estimate does not includethe cost of disseminating the notices toall plan participants on an annual basisand to new enrollees at the time ofenrollment. Although we do not have anaccurate estimate of the number ofnonfederal governmental plans willchoose to opt out of these provisions,we have provided for a range of 50 to100 percent. Using these ranges, weestimated 400,000 to 800,000 of thesenotices would need to be produced in1997 and 800,000 to 1.6 million in 1998and 1999. At 30 seconds per notice, weestimate the total burden hours to rangefrom 3,400 to 6,800 in 1997; and 6,800to 13,600 in 1998 and 1999. We haveestimated the costs associated withthese hour burdens to range from$37,400 to $74,800 in 1997; and from$74,800 to $149,600 in 1998 and 1999.

We have submitted a copy of this ruleto OMB for its review of theseinformation collections. A notice will bepublished in the Federal Register whenapproval is obtained. Interested personsare invited to send comments regardingthis burden or any other aspect of thesecollections of information. If youcomment on these informationcollection and record keepingrequirements, please mail copiesdirectly to the following addresses:

Health Care Financing Administration,Office of Financial and HumanResources, Management Planning andAnalysis Staff, Room C2–26–17, 7500Security Boulevard, Baltimore, MD21244–1850. Attn: John Burke

Office of Information and RegulatoryAffairs, Office of Management andBudget, Room 10235, New ExecutiveOffice Building, Washington, DC20503, Attn: Allison Herron Eydt,HCFA Desk Officer.

Statutory Authorities

The Department of Labor interim finalrule is adopted pursuant to the authoritycontained in Section 707 of ERISA (Pub.L. 93–406, 88 Stat. 894; 29 U.S.C. 1135)as amended by HIPAA, (Pub. L. 104–91;101 Stat. 1936; 29 U.S.C. 1181).

The Department of Health and HumanServices interim final rule is adoptedpursuant to the authority contained inSections 2701, 2702, 2711, 2712, 2713,and 2792 of the PHS Act, as establishedby HIPAA, (Pub. L. 104–191, 42 U.S.C.300gg–1 through 300gg–13, and 300gg–92).

The Department of the Treasurytemporary rule is adopted pursuant tothe authority contained in Section.

List of Subjects

26 CFR Part 54

Excise taxes, Health insurance,Pensions, Reporting and recordkeepingrequirements.

29 CFR Part 2590

Employee benefit plans, EmployeeRetirement Income Security Act, Healthcare, Health insurance, Reporting andrecordkeeping requirements.

45 CFR Parts 144 and 146

Health care, Health insurance,Reporting and recordkeepingrequirements, State regulation of healthinsurance.

Amendments to the Regulations

Internal Revenue Service

26 CFR Chapter 1

Accordingly, 26 CFR part 54 isamended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citationfor part 54 is amended by adding entriesin numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 54.9801–1T also issued under 26

U.S.C. 9806.Section 54.9801–2T also issued under 26




U.S.C. 9801(c)(4), 9801(e)(3), and 9806Section 54.9801–6T also issued under 26




U.S.C. 9806.

Par. 2. Sections 54.9801–1T, 54.9801–2T, 54.9801–3T, 54.9801–4T, 54.9801–5T, 54.9801–6T, 54.9802–1T, 54.9804–1T, and 54.9806–1T are added to readas follows:

§ 54.9801–1T Basis and scope(temporary).

(a) Statutory basis. Sections 54.9801–1T through 54.9801–6T, 54.9802–1T,54.9804–1T, and 54.9806–1T(portability sections) implement Chapter100 of Subtitle K of the InternalRevenue Code of 1986.

(b) Scope. A group health plan mayprovide greater rights to participantsand beneficiaries than those set forth inthese portability sections. Theseportability sections set forth minimumrequirements for group health plansconcerning:

(1) Limitations on a preexistingcondition exclusion period.

(2) Certificates and disclosure ofprevious coverage.

(3) Rules relating to creditablecoverage.

(4) Special enrollment periods.(c) Similar Requirements Under the

Public Health Service Act and EmployeeRetirement Income Security Act.Sections 2701, 2702, 2721, and 2791 ofthe Public Health Service Act andsections 701, 702, 703, 705, and 706 ofthe Employee Retirement IncomeSecurity Act of 1974 imposerequirements similar to those imposedunder Chapter 100 of Subtitle K of theCode with respect to health insuranceissuers offering group health insurancecoverage. See 45 CFR parts 144, 146 and148 and 29 CFR part 2590. See also PartB of Title XXVII of the Public HealthService Act and 45 CFR part 148 forother rules applicable to healthinsurance offered in the individualmarket (defined in § 54.9801–2T).


§ 54.9801–2T Definitions (temporary).Unless otherwise provided, the

definitions in this section govern inapplying the provisions of §§ 54.9801–1T through 54.9801–6T, 54.9802–1T,54.9804–1T, and 54.9806–1T.

Affiliation period means a period oftime that must expire before healthinsurance coverage provided by anHMO becomes effective, and duringwhich the HMO is not required toprovide benefits.

COBRA definitions:(1) COBRA means Title X of the

Consolidated Omnibus BudgetReconciliation Act of 1985, as amended.

(2) COBRA continuation coveragemeans coverage, under a group healthplan, that satisfies an applicable COBRAcontinuation provision.

(3) COBRA continuation provisionmeans sections 601–608 of the ERISA,section 4980B of the Code (other thanparagraph (f)(1) of such section 4980Binsofar as it relates to pediatricvaccines), and Title XXII of the PHSA.

(4) Exhaustion of COBRAcontinuation coverage means that anindividual’s COBRA continuationcoverage ceases for any reason otherthan either failure of the individual topay premiums on a timely basis, or forcause (such as making a fraudulentclaim or an intentionalmisrepresentation of a material fact inconnection with the plan). Anindividual is considered to haveexhausted COBRA continuationcoverage if such coverage ceases—

(i) Due to the failure of the employeror other responsible entity to remitpremiums on a timely basis; or

(ii) When the individual no longerresides, lives, or works in a service areaof an HMO or similar program (whetheror not within the choice of theindividual) and there is no otherCOBRA continuation coverage availableto the individual.

Condition means a medical condition.Creditable coverage means creditable

coverage within the meaning of§ 54.9801–4T(a).

Employee Retirement Income SecurityAct of 1974 (ERISA) means theEmployee Retirement Income SecurityAct of 1974, as amended (29 U.S.C. 1001et seq.).

Enroll means to become covered forbenefits under a group health plan (i.e.,when coverage becomes effective),without regard to when the individualmay have completed or filed any formsthat are required in order to enroll in theplan. For this purpose, an individualwho has health insurance coverageunder a group health plan is enrolled inthe plan regardless of whether theindividual elects coverage, the

individual is a dependent who becomescovered as a result of an election by aparticipant, or the individual becomescovered without an election.

Enrollment date definitions(enrollment date and first day ofcoverage) are set forth in § 54.9801–3T(a)(2) (i) and (ii).

Excepted benefits means the benefitsdescribed as excepted in § 54.9804–1T(b).

Genetic information meansinformation about genes, gene products,and inherited characteristics that mayderive from the individual or a familymember. This includes informationregarding carrier status and informationderived from laboratory tests thatidentify mutations in specific genes orchromosomes, physical medicalexaminations, family histories, anddirect analysis of genes orchromosomes.

Group health insurance coveragemeans health insurance coverage offeredin connection with a group health plan.

Group health plan means a plan(including a self-insured plan) of, orcontributed to by, an employer(including a self-employed person) oremployee organization to provide healthcare (directly or otherwise) to theemployees, former employees, theemployer, others associated or formerlyassociated with the employer in abusiness relationship, or their families.

Group market means the market forhealth insurance coverage offered inconnection with a group health plan.(However, certain very small plans maybe treated as being in the individualmarket, rather than the group market;see the definition of individual marketin this section.)

Health insurance coverage meansbenefits consisting of medical care(provided directly, through insurance orreimbursement, or otherwise) under anyhospital or medical service policy orcertificate, hospital or medical serviceplan contract, or HMO contract offeredby a health insurance issuer. However,benefits described in § 54.9804–1T(b)(2)are not treated as benefits consisting ofmedical care.

Health insurance issuer or issuermeans an insurance company, insuranceservice, or insurance organization(including an HMO) that is required tobe licensed to engage in the business ofinsurance in a State and that is subjectto State law that regulates insurance(within the meaning of section 514(b)(2)of ERISA). Such term does not includea group health plan.

Health maintenance organization orHMO means—

(1) A federally qualified healthmaintenance organization (as defined insection 1301(a) of the PHSA);

(2) An organization recognized underState law as a health maintenanceorganization; or

(3) A similar organization regulatedunder State law for solvency in the samemanner and to the same extent as sucha health maintenance organization.

Individual health insurance coveragemeans health insurance coverage offeredto individuals in the individual market,but does not include short-term, limitedduration insurance. For this purpose,short-term, limited duration insurancemeans health insurance coverageprovided pursuant to a contract with anissuer that has an expiration datespecified in the contract (taking intoaccount any extensions that may beelected by the policyholder without theissuer’s consent) that is within 12months of the date such contractbecomes effective. Individual healthinsurance coverage can includedependent coverage.

Individual market means the marketfor health insurance coverage offered toindividuals other than in connectionwith a group health plan. Unless a Stateelects otherwise in accordance withsection 2791(e)(1)(B)(ii) of the PHSA,such term also includes coverage offeredin connection with a group health planthat has fewer than two participants ascurrent employees on the first day of theplan year.

Issuer means a health insuranceissuer.

Late enrollment definitions (lateenrollee and late enrollment) are setforth in § 54.9801–3T(a)(2) (iii) and (iv).

Medical care has the meaning givensuch term by section 213(d) of theInternal Revenue Code, determinedwithout regard to section 213(d)(1)(C)and so much of section 213(d)(1)(D) asrelates to qualified long-term careinsurance.

Medical condition on conditionmeans any condition, whether physicalor mental, including, but not limited to,any condition resulting from illness,injury (whether or not the injury isaccidental), pregnancy, or congenitalmalformation. However, geneticinformation is not a condition.

Placement, or being placed, foradoption means the assumption andretention of a legal obligation for total orpartial support of a child by a personwith whom the child has been placed inanticipation of the child’s adoption. Thechild’s placement for adoption withsuch person terminates upon thetermination of such legal obligation.

Plan year means the year that isdesignated as the plan year in the plan


document of a group health plan, exceptthat if the plan document does notdesignate a plan year or if there is noplan document, the plan year is—

(1) The deductible/limit year usedunder the plan;

(2) If the plan does not imposedeductibles or limits on a yearly basis,then the plan year is the policy year;

(3) If the plan does not imposedeductibles or limits on a yearly basis,and either the plan is not insured or theinsurance policy is not renewed on anannual basis, then the plan year is theemployer’s taxable year; or

(4) In any other case, the plan year isthe calendar year.

Preexisting condition exclusion meansa limitation or exclusion of benefitsrelating to a condition based on the factthat the condition was present beforethe first day of coverage, whether or notany medical advice, diagnosis, care, ortreatment was recommended or receivedbefore that day. A preexisting conditionexclusion includes any exclusionapplicable to an individual as a result ofinformation that is obtained relating toan individual’s health status before theindividual’s first day of coverage, suchas a condition identified as a result ofa pre-enrollment questionnaire orphysical examination given to theindividual, or review of medical recordsrelating to the preenrollment period.

Public health plan means publichealth plan within the meaning of§ 54.9801–4T(a)(1)(ix).

Public Health Service Act (PHSA)means the Public Health Service Act (42U.S.C. 201, et seq.).

Significant break in coverage means asignificant break in coverage within themeaning of § 54.9801–4T(b)(2)(iii).

Special enrollment date means aspecial enrollment date within themeaning of § 54.9801–6T(d).

State health benefits risk pool meansa State health benefits risk pool withinthe meaning of § 54.9801–4T(a)(1)(vii).

Waiting period means the period thatmust pass before an employee ordependent is eligible to enroll under theterms of a group health plan. If anemployee or dependent enrolls as a lateenrollee or on a special enrollment date,any period before such late or specialenrollment is not a waiting period. If anindividual seeks and obtains coverage inthe individual market, any period afterthe date the individual files asubstantially complete application forcoverage and before the first day ofcoverage is a waiting period.

§ 54.9801–3T Limitations on preexistingcondition exclusion period (temporary).

(a) Preexisting condition exclusion—(1) In general. Subject to paragraph (b)

of this section, a group health plan mayimpose, with respect to a participant orbeneficiary, a preexisting conditionexclusion only if the requirements ofthis paragraph (a) are satisfied. (SeePHSA section 2701 and ERISA section701 under which this prohibition is alsoimposed on a health insurance issueroffering group health insurancecoverage.)

(i) 6-month look-back rule. Apreexisting condition exclusion mustrelate to a condition (whether physicalor mental), regardless of the cause of thecondition, for which medical advice,diagnosis, care, or treatment wasrecommended or received within the 6-month period ending on the enrollmentdate.

(A) For purposes of this paragraph(a)(1)(i), medical advice, diagnosis, care,or treatment is taken into account onlyif it is recommended by, or receivedfrom, an individual licensed or similarlyauthorized to provide such servicesunder State law and operating withinthe scope of practice authorized by Statelaw.

(B) For purposes of this paragraph(a)(1)(i), the 6-month period ending onthe enrollment date begins on the 6-month anniversary date preceding theenrollment date. For example, for anenrollment date of August 1, 1998, the6-month period preceding theenrollment date is the periodcommencing on February 1, 1998 andcontinuing through July 31, 1998. Asanother example, for an enrollment dateof August 30, 1998, the 6-month periodpreceding the enrollment date is theperiod commencing on February 28,1998 and continuing through August 29,1998.

(C) The rules of this paragraph (a)(1)(i)are illustrated by the followingexamples:

Example 1. (i) Individual A is treated fora medical condition 7 months before theenrollment date in Employer R’s group healthplan. As part of such treatment, A’sphysician recommends that a follow-upexamination be given 2 months later. Despitethis recommendation, A does not receive afollow-up examination and no other medicaladvice, diagnosis, care, or treatment for thatcondition is recommended to A or receivedby A during the 6-month period ending onA’s enrollment date in Employer R’s plan.

(ii) In this Example 1, Employer R’s planmay not impose a preexisting conditionexclusion period with respect to thecondition for which A received treatment 7months prior to the enrollment date.

Example 2. (i) Same facts as Example 1except that Employer R’s plan learns of thecondition and attaches a rider to A’s policyexcluding coverage for the condition. Threemonths after enrollment, A’s conditionrecurs, and Employer R’s plan deniespayment under the rider.

(ii) In this Example 2, the rider is apreexisting condition exclusion andEmployer R’s plan may not impose apreexisting condition exclusion with respectto the condition for which A receivedtreatment 7 months prior to the enrollmentdate.

Example 3. (i) Individual B has asthma andis treated for that condition several timesduring the 6-month period before B’senrollment date in Employer S’s plan. Theplan imposes a 12-month preexistingcondition exclusion. B has no priorcreditable coverage to reduce the exclusionperiod. Three months after the enrollmentdate, B begins coverage under Employer S’splan. Two months later, B is hospitalized forasthma.

(ii) In this Example 3, Employer S’s planmay exclude payment for the hospital stayand the physician services associated withthis illness because the care is related to amedical condition for which treatment wasreceived by B during the 6-month periodbefore the enrollment date.

Example 4. (i) Individual D, who is subjectto a preexisting condition exclusion imposedby Employer U’s plan, has diabetes, as wellas a foot condition caused by poor circulationand retinal degeneration (both of which areconditions that may be directly attributed todiabetes). After enrolling in the plan, Dstumbles and breaks a leg.

(ii) In this Example 4, the leg fracture is nota condition related to D’s diabetes, eventhough poor circulation in D’s extremitiesand poor vision may have contributedtowards the accident. However, anyadditional medical services that may beneeded because of D’s preexisting diabeticcondition that would not be needed byanother patient with a broken leg who doesnot have diabetes may be subject to thepreexisting condition exclusion imposedunder Employer U’s plan.

(ii) Maximum length of preexistingcondition exclusion (the look-forwardrule). A preexisting condition exclusionis not permitted to extend for more than12 months (18 months in the case of alate enrollee) after the enrollment date.For purposes of this paragraph (a)(1)(ii),the 12-month and 18-month periodsafter the enrollment date are determinedby reference to the anniversary of theenrollment date. For example, for anenrollment date of August 1, 1998, the12-month period after the enrollmentdate is the period commencing onAugust 1, 1998 and continuing throughJuly 31, 1999.

(iii) Reducing a preexisting conditionexclusion period by creditable coverage.The period of any preexisting conditionexclusion that would otherwise apply toan individual under a group health planis reduced by the number of days ofcreditable coverage the individual hasas of the enrollment date, as countedunder § 54.9801–4T. For purposes of§ 54.9801–1T through § 54.9801–6T, thephrase ‘‘days of creditable coverage’’ hasthe same meaning as the phrase


‘‘aggregate of the periods of creditablecoverage’’ as such term is used insection 9801(a)(3) of the InternalRevenue Code.

(iv) Other standards. See § 54.9802–1T for other standards that may applywith respect to certain benefitlimitations or restrictions under a grouphealth plan.

(2) Enrollment definitions—(i)Enrollment date means the first day ofcoverage or, if there is a waiting period,the first day of the waiting period.

(ii)(A) First day of coverage means, inthe case of an individual covered forbenefits under a group health plan inthe group market, the first day ofcoverage under the plan and, in the caseof an individual covered by healthinsurance coverage in the individualmarket, the first day of coverage underthe policy.

(B) The following example illustratesthe rule of paragraph (a)(2)(ii)(A) of thissection:

Example. (i) Employer V’s group healthplan provides for coverage to begin on thefirst day of the first payroll period followingthe date an employee is hired and completesthe applicable enrollment forms, or on anysubsequent January 1 after completion of theapplicable enrollment forms. Employer V’splan imposes a preexisting conditionexclusion for 12 months (reduced by theindividual’s creditable coverage) followingan individual’s enrollment date. Employee Eis hired by Employer V on October 13, 1998and then on October 14, 1998 completes andfiles all the forms necessary to enroll in theplan. E’s coverage under the plan becomeseffective on October 25, 1998 (which is thebeginning of the first payroll period after E’sdate of hire).

(ii) In this Example, E’s enrollment date isOctober 13, 1998 (which is the first day ofthe waiting period for E’s enrollment and isalso E’s date of hire). Accordingly, withrespect to E, the 6-month period in paragraph(a)(1)(i) would be the period from April 13,1998 through October 12, 1998, themaximum permissible period during whichEmployer V’s plan could apply a preexistingcondition exclusion under paragraph(a)(1)(ii) would be the period from October13, 1998 through October 12, 1999, and thisperiod would be reduced under paragraph(a)(1)(iii) by E’s days of creditable coverageas of October 13, 1998.

(iii) Late enrollee means an individualwhose enrollment in a plan is a lateenrollment.

(iv) (A) Late enrollment meansenrollment under a group health planother than on—

(1) The earliest date on whichcoverage can become effective under theterms of the plan; or

(2) A special enrollment date for theindividual.

(B) If an individual ceases to beeligible for coverage under the plan by

terminating employment, and thensubsequently becomes eligible forcoverage under the plan by resumingemployment, only eligibility during theindividual’s most recent period ofemployment is taken into account indetermining whether the individual is alate enrollee under the plan with respectto the most recent period of coverage.Similar rules apply if an individualagain becomes eligible for coveragefollowing a suspension of coverage thatapplied generally under the plan.

(v) Examples. The rules of thisparagraph (a)(2) are illustrated by thefollowing examples:

Example 1. (i) Employee F first becomeseligible to be covered by Employer W’s grouphealth plan on January 1, 1999, but elects notto enroll in the plan until April 1, 1999. April1, 1999 is not a special enrollment date forF.

(ii) In this Example 1, F would be a lateenrollee with respect to F’s coverage thatbecame effective under the plan on April 1,1999.

Example 2. (i) Same as Example 1, exceptthat F does not enroll in the plan on April1, 1999 and terminates employment withEmployer W on July 1, 1999, without havinghad any health insurance coverage under theplan. F is rehired by Employer W on January1, 2000 and is eligible for and elects coverageunder Employer W’s plan effective onJanuary 1, 2000.

(ii) In this Example 2, F would not be a lateenrollee with respect to F’s coverage thatbecame effective on January 1, 2000.

(b) Exceptions pertaining topreexisting condition exclusions—(1)Newborns—

(i) In general. Subject to paragraph(b)(3) of this section, a group health planmay not impose any preexistingcondition exclusion with regard to achild who, as of the last day of the 30-day period beginning with the date ofbirth, is covered under any creditablecoverage. Accordingly, if a newborn isenrolled in a group health plan (or othercreditable coverage) within 30 days afterbirth and subsequently enrolls inanother group health plan without asignificant break in coverage, the otherplan may not impose any preexistingcondition exclusion with regard to thechild.

(ii) Example. The rule of thisparagraph (b)(1) is illustrated by thefollowing example:

Example. (i) Seven months afterenrollment in Employer W’s group healthplan, Individual E has a child born with abirth defect. Because the child is enrolled inEmployer W’s plan with in 30 days of birth,no preexisting condition exclusion may beimposed with respect to the child underEmployer W’s plan. Three months after thechild’s birth, E commences employment withEmployer X and enrolls with the child inEmployer X’s plan 45 days after leaving

Employer W’s plan. Employer X’s planimposes a 12-month exclusion for anypreexisting condition.

(ii) In this Example, Employer X’s planmay not impose any preexisting conditionexclusion with respect to E’s child becausethe child was covered within 30 days of birthand had no significant break in coverage.This result applies regardless of whether E’schild is included in the certificate ofcreditable coverage provided to E byEmployer W indicating 300 days ofdependent coverage or receives a separatecertificate indicating 90 days of coverage.Employer X’s plan may impose a preexistingcondition exclusion with respect to E for upto 2 months for any preexisting condition ofE for which medical advice, diagnosis, care,or treatment was recommended or receivedby E within the 6-month period ending on E’senrollment date in Employer X’s plan.

(2) Adopted children. Subject toparagraph (b)(3) of this section, a grouphealth plan may not impose anypreexisting condition exclusion in thecase of a child who is adopted or placedfor adoption before attaining 18 years ofage and who, as of the last day of the30-day period beginning on the date ofthe adoption or placement for adoption,is covered under creditable coverage.This rule does not apply to coveragebefore the date of such adoption orplacement for adoption.

(3) Break in coverage. Paragraphs(b)(1) and (2) of this section no longerapply to a child after a significant breakin coverage.

(4) Pregnancy. A group health planmay not impose a preexisting conditionexclusion relating to pregnancy as apreexisting condition.

(5) Special enrollment dates. Forspecial enrollment dates relating to newdependents, see § 54.9801–6T(b).

(c) Notice of plan’s preexistingcondition exclusion. A group healthplan may not impose a preexistingcondition exclusion with respect to aparticipant or dependent of theparticipant before notifying theparticipant, in writing, of the existenceand terms of any preexisting conditionexclusion under the plan and of therights of individuals to demonstratecreditable coverage (and any applicablewaiting periods) as required by§ 54.9801–5T. The description of therights of individuals to demonstratecreditable coverage includes adescription of the right of the individualto request a certificate from a prior planor issuer, if necessary, and a statementthat the current plan or issuer will assistin obtaining a certificate from any priorplan or issuer, if necessary.

§ 54.9801–4T Rules relating to creditablecoverage (temporary).

(a) General rules—(1) Creditablecoverage. For purposes of this section,


except as provided in paragraph (a)(2) ofthis section, the term creditablecoverage means coverage of anindividual under any of the following:

(i) A group health plan as defined in§ 54.9801–2T.

(ii) Health insurance coverage asdefined in § 54.9801–2T (whether or notthe entity offering the coverage issubject to chapter 100 of Subtitle K, andwithout regard to whether the coverageis offered in the group market, theindividual market, or otherwise).

(iii) Part A or B of Title XVIII of theSocial Security Act (Medicare).

(iv) Title XIX of the Social SecurityAct (Medicaid), other than coverageconsisting solely of benefits undersection 1928 of the Social Security Act(the program for distribution ofpediatric vaccines).

(v) Title 10 U.S.C. Chapter 55(medical and dental care for membersand certain former members of theuniformed services, and for theirdependents; for purposes of Title 10U.S.C. Chapter 55, uniformed servicesmeans the armed forces and theCommissioned Corps of the NationalOceanic and AtmosphericAdministration and of the Public HealthService).

(vi) A medical care program of theIndian Health Service or of a tribalorganization.

(vii) A State health benefits risk pool.For purposes of this section, a Statehealth benefits risk pool means—

(A) An organization qualifying undersection 501(c)(26);

(B) A qualified high risk pooldescribed in section 2744(c)(2) of thePHSA; or

(C) Any other arrangement sponsoredby a State, the membership compositionof which is specified by the State andwhich is established and maintainedprimarily to provide health insurancecoverage for individuals who areresidents of such State and who, byreason of the existence or history of amedical condition—

(1) Are unable to acquire medical carecoverage for such condition throughinsurance or from an HMO; or

(2) Are able to acquire such coverageonly at a rate which is substantially inexcess of the rate for such coveragethrough the membership organization.

(viii) A health plan offered underTitle 5 U.S.C. Chapter 89 (the FederalEmployees Health Benefits Program).

(ix) A public health plan. Forpurposes of this section, a public healthplan means any plan established ormaintained by a State, county, or otherpolitical subdivision of a State thatprovides health insurance coverage to

individuals who are enrolled in theplan.

(x) A health benefit plan undersection 5(e) of the Peace Corps Act (22U.S.C. 2504(e)).

(2) Excluded coverage. Creditablecoverage does not include coverageconsisting solely of coverage of expectedbenefits (described in § 54.9804–1T).

(3) Methods of counting creditablecoverage. For purposes of reducing anypreexisting condition exclusion period,as provided under § 54.9801–3T(a)(1)(iii), a group health plandetermines the amount of anindividual’s creditable coverage byusing the standard method described inparagraph (b) of this section, except thatthe plan may use the alternative methodunder paragraph (c) of this section withrespect to any or all of the categories ofbenefits described under paragraph(c)(3) of this section or may provide thata health insurance issuer offering healthinsurance coverage under the plan mayuse the alternative method of countingcreditable coverage.

(b) Standard method—(1) Specificbenefits not considered. Under thestandard method, a group health plandetermines the amount of creditablecoverage without regard to the specificbenefits included in the coverage.

(2) Counting creditable coverage—(i)Based on days. For purposes of reducingthe preexisting condition exclusionperiod, a group health plan determinesthe amount of creditable coverage bycounting all the days that the individualhas under one or more types ofcreditable coverage. Accordingly, if on aparticular day, an individual hascreditable coverage from more than onesource, all the creditable coverage onthat day is counted as one day. Further,any days in a waiting period for a planor policy are not creditable coverageunder the plan or policy.

(ii) Days not counted beforesignificant break in coverage. Days ofcreditable coverage that occur before asignificant break in coverage are notrequired to be counted.

(iii) Definition of significant break incoverage. A significant break incoverage means a period of 63consecutive days during all of which theindividual does not have any creditablecoverage, except that neither a waitingperiod nor an affiliation period is takeninto account in determining asignificant break in coverage. (Seesection 731(b)(2)(iii) of ERISA andsection 2723(b)(2)(iii) of the PHSAwhich exclude from preemption Stateinsurance laws that require a break ofmore than 63 days before an individualhas a significant break in coverage forpurposes of State law.)

(iv) Examples. The followingexamples illustrate how creditablecoverage is counted in reducingpreexisting condition exclusion periodsunder this paragraph (b)(2):

Example 1. (i) Individual A works forEmployer P and has creditable coverageunder Employer P’s plan for 18 monthsbefore A’s employment terminates. A is hiredby Employer Q, and enrolls in Employer Q’sgroup health plan, 64 days after the last dateof coverage under Employer P’s plan.Employer Q’s plan has a 12-monthpreexisting condition exclusion period.

(ii) In this Example 1, because A had abreak in coverage of 63 days, Employer Q’splan may disregard A’s prior coverage and Amay be subject to a 12-month preexistingcondition exclusions period.

Example 2. (i) Same facts as Example 1,except that A is hired by Employer Q, andenrolls in Employer Q’s plan, on the 63rd dayafter the last date of coverage underEmployer P’s plan.

(ii) In this Example 2, A has a break incoverage of 62 days. Because A’s break incoverage is not a significant break incoverage, Employer Q’s plan must count A’sprior creditable coverage for purposes ofreducing the plan’s preexisting conditionexclusion as it applies to A.

Example 3. (i) Same facts as Example 1,except that Employer Q’s plan providesbenefits through an insurance policy that, asrequired by applicable State insurance laws,defines a significant break in coverage as 90days.

(ii) In this Example 3, the issuer thatprovides group health insurance to EmployerQ’s plan must count A’s period of creditablecoverage prior to the 63-day break.

Example 4. (i) Same facts as Example 3,except that Employer Q’s plan is a self-insured plan, and, thus is not subject to Stateinsurance laws.

(ii) In this Example 4, the plan is notgoverned by the longer break rules underState insurance law and A’s previouscoverage may be disregarded.

Example 5. (i) Individual B beginsemployment with Employer R 45 days afterterminating coverage under a prior grouphealth plan. Employer R’s plan has a 30-daywaiting period before coverage begins. Benrolls in Employer R’s plan when firsteligible.

(ii) In this Example 5, B does not have asignificant break in coverage for purposes ofdetermining whether B’s prior coverage mustbe counted by Employer R’s plan. B has onlya 44-day break in coverage because the 30-day waiting period is not taken into accountin determining a significant break incoverage.

Example 6. (i) Individual C works forEmployer S and has creditable coverageunder Employer S’s plan for 200 days beforeC’s employment is terminated and coverageceases. C is then unemployed for 51 daysbefore being hired by Employer T. EmployerT’s plan has a 3-month waiting period. Cworks for Employer T for 2 months and thenterminates employment. Eleven days afterterminating employment with Employer T, Cbegins working for Employer U. Employer


U’s plan has no waiting period, but has a 6-month preexisting condition exclusionperiod.

(ii) In this Example 6, C does not have asignificant break in coverage because, afterdisregarding the waiting period underEmployer T’s plan, C had only a 62-break incoverage (51 days plus 11 days). Accordingly,C has 200 days of creditable coverage andEmployer U’s plan may not apply its 6-monthpreexisting condition exclusion period withrespect to C.

Example 7. (i) Individual D terminatesemployment with Employer V on January 13,1998 after being covered for 24 months underEmployer V’s group health plan. On March17, the 63rd day without coverage, D appliesfor a health insurance policy in theindividual market. D’s application isaccepted and the coverage is made effectiveMay 1.

(ii) In this Example 7, because D appliedfor the policy before the end of the 63rd day,coverage under the policy ultimately becameeffective, the period between the date ofapplication and the first day of coverage isa waiting period and no significant break incoverage occurred even though the actualperiod without coverage was 107 days.

Example 8. (i) Same facts as Example 7,except that D’s application for a policy in theindividual market is denied.

(ii) In this Example 8, because D did notobtain coverage following application, Dincurred a significant break in coverage onthe 64th day.

(v) Other permissible countingmethods—(A) Rule. Notwithstandng anyother provision of this paragraph (b)(2),for purposes of reducing a preexistingcondition exclusion period (but not forpurposes of issuing a certificate under§ 54,9801–5T), a group health plan maydetermine the amount of creditablecoverage in any other manner that is atleast as favorable to the individual asthe method set forth in this paragraph(b)(2), subject to the requirements ofother applicable law.

(B) Example. The rule of thisparagraph (b)(2)(v) is illustrated by thefollowing example:

Example. (i) Individual F has coverageunder group health plan Y from January 3,1997 through March 25, 1997. F thenbecomes covered by group health plan Z. F’senrollment date in Plan Z is May 1, 1997.Plan Z has a 12-month preexisting conditionexclusion period.

(ii) In this Example, Plan Z may determine,in accordance with the rules prescribed inparagraph (b)(2) (i), (ii), and (iii), that F has82 days of creditable coverage (29 days inJanuary, 28 days in February, and 25 days inMarch). Thus, the preexisting conditionexclusion period will no longer apply to F onFebruary 8, 1998 (82 days before the 12-month anniversary of her enrollment (May1)), For administrative convenience,however, Plan Z may consider that thepreexisting condition exclusion period willno longer apply to F on the first day of themonth (February 1).

(c) Alternative method—(1) Specificbenefits considered. Under thealternative method, a group health plandetermines the amount of creditablecoverage based on coverage within anycategory of benefits described inparagraph (c)(3) of this section and notbased on coverage for any other benefits.The plan may use the alternativemethod for any or all the categories. Theplan may apply a different preexistingcondition exclusion period with respectto each category (and may apply adifferent preexisting conditionexclusion period for benefits that are notwithin any category). The creditablecoverage determined for a category ofbenefits applies only for purposes ofreducing the preexisting conditionexclusion period with respect to thatcategory. An individual’s creditablecoverage for benefits that are not withinany category for which the alternativemethod is being used is determinedunder the standard method of paragraph(b) of this section.

(2) Uniform application. A plan usingthe alternative method is required toapply it uniformly to all participantsand beneficiaries under the plan. A planthat provides benefits through one ormore insurance policies (or in partthrough one or more insurance policies)will not fail the uniform applicationrequirement of this paragraph (c)(2) ifthe alternative method is used (or notused) separately with respect toparticipants and beneficiaries under anypolicy, provided that the alternativemethod is applied uniformly withrespect to all coverage under that policy.The use of the alternative method isrequired to be set forth in the plan.

(3) Categories of benefits. Thealternative method for countingcreditable coverage may be used forcoverage for the following categories ofbenefits—

(i) Mental health;(ii) Substance abuse treatment;(iii) Prescription drugs;(iv) Dental care; or(v) Vision care.(4) Plan notice. If the alternative

method is used, the plan is requiredto—

(i) State prominently that the plan isusing the alternative method of countingcreditable coverage in disclosurestatements concerning the plan, andstate this to each enrollee at the time ofenrollment under the plan; and

(ii) Include in these statements adescription of the effect of using thealternative method, including anidentification of the categories used.

(5) Disclosure of information onprevious benefits. See § 54.9801–5T(b)for special rules concerning disclosure

of coverage to a plan (or issuer) usingthe alternative method of countingcreditable coverage under thisparagraph (c).

(6) Counting creditable coverage—(i)In general. Under the alternativemethod, the group health plan countscreditable coverage within a category ifany level of benefits is provided withinthe category. Coverage under areimbursement account or arrangementsuch as a flexible spending arrangement(as defined in section 106(c)(2) of theInternal Revenue Code) does notconstitute coverage within any category.

(ii) Special rules. In counting anindividual’s creditable coverage underthe alternative method, the group healthplan first determines the amount of theindividual’s creditable coverage thatmay be counted under paragraph (b) ofthis section, up to a total of 365 days ofthe most recent creditable coverage (546days for a late enrollee). The period overwhich this creditable coverage isdetermined is referred to as thedetermination period. Then, for thecategory specified under the alternativemethod, the plan counts within thecategory all days of coverage thatoccurred during the determinationperiod (whether or not a significantbreak in coverage for that categoryoccurs), and reduces the individual’spreexisting condition exclusion periodfor that category by that number of days.The plan may determine the amount ofcreditable coverage in any otherreasonable manner, uniformly applied,this is at least as favorable to theindividual.

(iii) Example. The rules of thisparagraph (c)(6) are illustrated by thefollowing example:

Example. (i) Individual D enrolls inEmployer V’s plan on January 1, 2001.Coverage under the plan includesprescription drug benefits. On April 1, 2001,the plan ceases providing prescription drugbenefits. D’s employment with Employer Vends on January 1, 2002, after D was coveredunder Employer V’s group health plan for365 days. D enrolls in Employer Y’s plan onFebruary 1, 2002 (D’s enrollment date).Employer Y’s plan uses the alternativemethod of counting creditable coverage andimposes a 12-month preexisting conditionexclusion on prescription drug benefits.

(ii) In this Example, Employer Y’s planmay impose a 275-day preexisting conditionexclusion with respect to D for prescriptiondrug benefits because D had 90 days ofcreditable coverage relating to prescriptiondrug benefits within D’s determinationperiod.

§ 54.9801–5T Certification and disclosureof previous coverage (temporary).

(a) Certificate of creditable coverage—(1) Entities required to providecertificate—(i) In general. A group


health plan is required to furnishcertificates of creditable coverage inaccordance with this paragraph (a) ofthis section. (See PHSA section 2701(e)and ERISA section 701(e) under whichthis obligation is also imposed on ahealth insurance issuer offering grouphealth insurance coverage.)

(ii) Duplicate certificates not required.An entity required to provide acertificate under this paragraph (a)(1) foran individual is deemed to havesatisfied the certification requirementsfor that individual if another partyprovides the certificate, but only to theextent that information relating to theindividual’s creditable coverage andwaiting or affiliation period is providedby the other party. For example, a grouphealth plan is deemed to have satisfiedthe certification requirement withrespect to a participant or beneficiary ifany other entity actually provides acertificate that includes the informationrequired under paragraph (a)(3) of thissection with respect to the participant orbeneficiary.

(iii) Special rule for group healthplans. To the extent coverage under aplan consists of group health insurancecoverage, the plan is deemed to havesatisfied the certification requirementsunder this paragraph (a)(1) if any issueroffering the coverage is required toprovide the certificates pursuant to anagreement between the plan and theissuer. For example, if there is anagreement between an issuer and theemployer sponsoring the plan underwhich the issuer agrees to providecertificates for individuals coveredunder the plan, and the issuer fails toprovide a certificate to an individualwhen the plan would have beenrequired to provide one under thisparagraph (a), then the plan does notviolate the certification requirements ofthis paragraph (a) (though the issuerwould have violated the certificationrequirements pursuant to section2701(e) of the PHSA and section 701(e)of ERISA).

(iv) Special rules relating to issuersproviding coverage under a plan—(A)(1)Responsibility of issuer for coverageperiod. See 29 CFR 2590.701–5 and 45CFR 146.115, under which an issuer isnot required to provide informationregarding coverage provided to anindividual by another party.

(2) Example. The rule referenced bythis paragraph (a)(1)(iv)(A) is illustratedby the following example:

Example. (i) A plan offers coverage with anHMO option from one issuer and anindemnity option from a different issuer. TheHMO has not entered into an agreement withthe plan to provide certificates as permittedunder paragraph (a)(1)(iii) of this section.

(ii) In this Example, if an employeeswitches from the indemnity option to theHMO option and later ceases to be coveredunder the plan, any certificate provided bythe HMO is not required to provideinformation regarding the employee’scoverage under the indemnity option.

(B) (1) Cessation of issuer coverageprior to cessation of coverage under aplan. If an individual’s coverage underan issuer’s policy ceases before theindividual’s coverage under the planceases, the issuer is required (undersection 2701(e) of the PHSA and section701(e) of ERISA) to provide sufficientinformation to the plan (or to anotherparty designated by the plan) to enablea certificate to be provided by the plan(or other party), after cessation of theindividual’s coverage under the plan,that reflects the period of coverageunder the policy. The provision of thatinformation to the plan will satisfy theissuer’s obligation to provide anautomatic certificate for that period ofcreditable coverage for the individualunder paragraph (a)(2)(ii) and (3) of thissection. In addition, an issuer providingthat information is required to cooperatewith the plan in responding to anyrequest made under paragraph (b)(2) ofthis section (relating to the alternativemethod of counting creditablecoverage). If the individual’s coverageunder the plan ceases at the time theindividual’s coverage under the issuer’spolicy ceases, the issuer must providean automatic certificate under paragraph(a)(2)(ii) of this section. An issuer maypresume that an individual whosecoverage ceases at a time other than theeffective date for changing enrollmentoptions has ceased to be covered underthe plan.

(2) Example. The rule of thisparagraph (a)(1)(iv)(B) is illustrated bythe following example:

Example. (i) A group health plan providescoverage under an HMO option and anindemnity option with a different issuer, andonly allows employees to switch on eachJanuary 1. Neither the HMO nor theindemnity issuer has entered into anagreement with the plan to provide automaticcertificates as permitted under paragraph(a)(2)(ii) of this section.

(ii) In this Example, if an employeeswitches from the indemnity option to theHMO option on January 1, the issuer mustprovide the plan (or a person designated bythe plan) with appropriate information withrespect to the individual’s coverage with theindemnity issuer. However, if theindividual’s coverage with the indemnityissuer ceases at a date other than January 1,the issuer is instead required to provide theindividual with an automatic certificate.

(2) Individuals for whom certificatemust be provided; timing of issuance—(i) Individuals. A certificate must be

provided, without charge, forparticipants or dependents who are orwere covered under a group health planupon the occurrence of any of the eventsdescribed in paragraph (a)(2)(ii) or (iii)of this section.

(ii) Issuance of automatic certificates.The certificates described in thisparagraph (a)(2)(ii) are referred to asautomatic certificates.

(A) Qualified beneficiaries upon aqualifying event. In the case of anindividual who is a qualifiedbeneficiary (as defined in section4980B(g)(1)) entitled to elect COBRAcontinuation coverage, an automaticcertificate is required to be provided atthe time the individual would losecoverage under the plan in the absenceof COBRA continuation coverage oralternative coverage elected instead ofCOBRA continuation coverage. A plansatisfies this requirement if it providesthe automatic certificate no later thanthe time a notice is required to befurnished for a qualifying event undersection 4980B(f)(6) (relating to noticesrequired under COBRA).

(B) Other individuals when coverageceases. In the case of an individual whois not a qualified beneficiary entitled toelect COBRA continuation coverage, anautomatic certificate is required to beprovided at the time the individualceases to be covered under the plan. Aplan satisfies this requirement if itprovides the automatic certificatewithin a reasonable time periodthereafter. In the case of an individualwho is entitled to elect to continuecoverage under a State program similarto COBRA and who receives theautomatic certificate not later than thetime a notice is required to be furnishedunder the State program, the certificateis deemed to be provided within areasonable time period after thecessation of coverage under the plan.

(C) Qualified beneficiaries whenCOBRA ceases. In the case of anindividual who is a qualifiedbeneficiary and has elected COBRAcontinuation coverage (or whosecoverage has continued after theindividual became entitled to electCOBRA continuation coverage), anautomatic certificate is to be provided atthe time the individual’s coverage underthe plan ceases. A plan satisfies thisrequirement if it provides the automaticcertificate within a reasonable time aftercoverage ceases (or after the expirationof any grace period for nonpayment ofpremiums). An automatic certificate isrequired to be provided to such anindividual regardless of whether theindividual has previously received anautomatic certificate under paragraph(a)(2)(ii)(A) of this section.


(iii) Any individual upon request.Requests for certificates are permitted tobe made by, or on behalf of, anindividual within 24 months aftercoverage ceases. Thus, for example, aplan in which an individual enrollsmay, if authorized by the individual,request a certificate of the individual’screditable coverage on behalf of theindividual from a plan in which theindividual was formerly enrolled. Afterthe request is received, a plan or issueris required to provide the certificate bythe earliest date that the plan, acting ina reasonable and prompt fashion, canprovide the certificate. A certificate isrequired to be provided under thisparagraph (a)(2)(iii) even if theindividual has previously received anautomatic certificate under paragraph(a)(2)(ii) of this section.

(iv) Examples. The followingexamples illustrate the rules of thisparagraph (a)(2):

Example 1. (i) Individual A terminatesemployment with Employer Q. A is aqualified beneficiary entitled to elect COBRAcontinuation coverage under Employer q’sgroup health plan. A notice of the rightsprovided under COBRA is typicallyfurnished to qualified beneficiaries under theplan within 10 days after a covered employeeterminates employment.

(ii) In this Example 1, the automaticcertificate may be provided at the same timethat A is provided the COBRA notice.

Example 2., (i) Same facts as Example 1,except that the automatic certificate for A isnot completed by the time the COBRA noticeis furnished to A.

(ii) In this Example 2, the automaticcertificate may be provided within the periodpermitted by law for the delivery of noticesunder COBRA.

Example 3. (i) Employer R maintains aninsured group health plan. R has never had20 employees and thus R’s plan is not subjectto the COBRA continuation coverageprovisions. However, R is in a State that hasa State program similar to COBRA. Bterminates employment with R and losescoverage under R’s plan.

(ii) In this Example 3, the automaticcertificate may be provided not later than thetime a notice is required to be furnishedunder the State program.

Example 4. (i) Individual C terminatesemployment with Employer S and receivesboth a notice of C’s rights under COBRA andan automatic certificate. C elects COBRAcontinuation coverage under Employer S’sgroup health plan. After four months ofCOBRA continuation coverage and theexpiration of a 30-day grace period, S’s grouphealth plan determines that C’s COBRAcontinuation coverage has ceased due tofailure to make a timely payment forcontinuation coverage.

(ii) In this Example 4, the plan mustprovide an updated automatic certificate to Cwithin a reasonable time after the end of thegrace period.

Example 5. (i) Individual D is currentlycovered under the group health plan of

Employer T. D requests a certificate, aspremitted under paragraph (a)(2)(iii). Underthe procedure for Employer T’s plan,certificates are mailed (by first class mail) 7business days following receipt of therequest. This date reflects the earliest datethat the plan, acting in a reasonable andprompt fashion, can provide certificates.

(ii) In this Example 5, the plan’s proceduresatisfies paragraph (a)(2)(iii) of this section.

(3) Form and content of certificate—(i) Written certificate—(A) In general.Except as provided in paragraph(a)(3)(i)(B) of this section, the certificatemust be provided in writing (includingany form approved by the Secretary asa writing).

(B) Other permissible forms. Nowritten certificate is required to beprovided under paragraph (a) withrespect to a particular event describedin paragraph (a)(2) (ii) or (iii) of thissection if——

(1) An individual is entitled to receivea certificate;

(2) The individual requests that thecertificate be sent to another plan orissuer instead of to the individual;

(3) The plan or issuer that wouldotherwise receive the certificate agreesto accept the information in thisparagraph (a)(3) through means otherthan a written certificate (e.g., bytelephone); and

(4) The receiving plan or issuerreceives such information from thesending plan or issuer in such formwithin the time periods required underparagraph (a)(2) of this section.

(ii) Required information. Thecertificate must include thefollowing——

(A) The date the certificate is issued;(B) The name of the group health plan

that provided the coverage described inthe certificate;

(C) The name of the participant ordependent with respect to whom thecertificate applies, and any otherinformation necessary for the planproviding the coverage specified in thecertificate to identify the individual,such as the individual’s identificationnumber under the plan and the name ofthe participant if the certificate is for (orincludes) a dependent;

(D) The name, address, and telephonenumber of the plan administrator orissuer required to provide thecertificate;

(E) The telephone number to call forfurther information regarding thecertificate (if different from paragraph(a)(3)(ii)(D) of this section);

(F) Either—(1) A statement that an individual has

at least 18 months (for this purpose, 546days is deemed to be 18 months) ofcreditable coverage, disregarding days of

creditable coverage before a significantbreak in coverage, or

(2) The date any waiting period (andaffiliation period, if applicable) beganand the date creditable coverage began;and

(G) The date creditable coverageended, unless the certificate indicatesthat creditable coverage is continuing asof the date of the certificate.

(iii) Periods of coverage undercertificate. If an automatic certificate isprovided pursuant to paragraph (a)(2)(ii)of this section, the period that must beincluded on the certificate is the lastperiod of continuous coverage endingon the date coverage ceased. If anindividual requests a certificatepursuant to paragraph (a)(2)(iii) of thissection, a certificate must be providedfor each period of continuous coverageending within the 24-month periodending on the date of the request (orcontinuing on the date of the request).A separate certificate may be providedfor each such period of continuouscoverage.

(iv) Combining information forfamilies. A certificate may provideinformation with respect to both aparticipant and the participant’sdependents if the information isidentical for each individual or, if theinformation is not identical, certificatesmay be provided on one form if the formprovides all the required information foreach individual and separately statesthe information that is not identical.

(v) Model certificate. Therequirements of paragraph (a)(3)(ii) ofthis section are satisfied if the planprovides a certificate in accordance witha model certificate authorized by theSecretary.

(vi) Excepted benefits; categories ofbenefits. No certificate is required to befurnished with respect to exceptedbenefits described in § 54.9804–1T. Inaddition, the information in thecertificate regarding coverage is notrequired to specify categories of benefitsdescribed in § 54.9801–4T(c) (relating tothe alternative method of countingcreditable coverage). However, ifexcepted benefits are providedconcurrently with other creditablecoverage (so that the coverage does notconsist solely of excepted benefits),information concerning the benefits maybe required to be disclosed underparagraph (b) of this section.

(4) Procedures—(i) Method ofdelivery. The certificate is required to beprovided to each individual describedin paragraph (a)(2) of this section or anentity requesting the certificate onbehalf of the individual. The certificate


may be provided by first-class mail. Ifthe certificate or certificates areprovided to the participant and theparticipant’s spouse at the participant’slast known address, then therequirements of this paragraph (a)(4) aresatisfied with respect to all individualsresiding at that address. If a dependent’slast known address is different than theparticipant’s last known address, aseparate certificate is required to beprovided to the dependent at thedependent’s last known address. Ifseparate certificates are being providedby mail to individuals who reside at thesame address, separate mailings of eachcertificate are not required.

(ii) Procedure for requestingcertificates. A plan or issuer mustestablish a procedure for individuals torequest and receive certificates pursuantto paragraph (a)(2)(iii) of this section.

(iii) Designated recipients. If anautomatic certificate is required to beprovided under paragraph (a)(2)(ii) ofthis section, and the individual entitledto receive the certificate designatesanother individual or entity to receivethe certificate, the plan or issuerresponsible for providing the certificateis permitted to provide the certificate tothe designated party. If a certificate isrequired to be provided upon requestunder paragraph (a)(2)(iii) of this sectionand the individual entitled to receivethe certificate designates anotherindividual or entity to receive thecertificate, the plan or issuer responsiblefor providing the certificate is requiredto provide the certificate to thedesignated party.

(5) Special rules concerningdependent coverage—(i)(A) Reasonableefforts. A plan is required to usereasonable efforts to determine anyinformation needed for a certificaterelating to the dependent coverage. Inany case in which an automaticcertificate is required to be furnishedwith respect to a dependent underparagraph (a)(2)(ii) of this section, noindividual certificate is required to befurnished until the plan knows (ormaking reasonable efforts should know)of the dependent’s cessation of coverageunder the plan.

(B) Example. The rules of thisparagraph (a)(5) are illustrated by thefollowing example:

Example. (i) A group health plan coversemployees and their dependents. The planannually requests all employees to provideupdated information regarding dependents,including the specific date on which anemployee has a new dependent or on whicha person ceases to be a dependent of theemployee.

(ii) In this Example, the plan has satisfiedthe standard in this paragraph (a)(5)(i) of this

section that it make reasonable efforts todetermine the cessation of dependents’coverage and the related dependent coverageinformation.

(ii) Special rules for demonstratingcoverage. If a certificate furnished by aplan or issuer does not provide thename of any dependent of an individualcovered by the certificate, the individualmay, if necessary, use the proceduresdescribed in paragraph (c)(4) of thissection for demonstrating dependentstatus. In addition, an individual may,if necessary, use these procedures todemonstrate that a child was enrolledwithin 30 days of birth, adoption, orplacement for adoption. See § 54.9801–3T(b), under which such a child wouldnot be subject to a preexisting conditionexclusion.

(iii) Transition rule for dependentcoverage through June 30, 1998—(A) Ingeneral. A group health plan that cannotprovide the names of dependents (orrelated coverage information) forpurposes of providing a certificate ofcoverage for a dependent may satisfy therequirements of paragraph (a)(3)(ii)(C) ofthis section by providing the name ofthe participant covered by the grouphealth plan and specifying that the typeof coverage described in the certificateis for dependent coverage (e.g., familycoverage or employee-plus-spousecoverage).

(B) Certificates provided on request.For purposes of certificates provided onthe request of, or on behalf of, anindividual pursuant to paragraph(a)(2)(iii) of this section, a plan mustmake reasonable efforts to obtain andprovide the names of any dependentcovered by the certificate where suchinformation is requested to be provided.If a certificate does not include thename of any dependent of an individualcovered by the certificate, the individualmay, if necessary, use the proceduresdescribed in paragraph (c) of thissection for submitting documentation toestablish that the credible coverage inthe certificate applies to the dependent.

(C) Demonstrating a dependent’screditable coverage. See paragraph (c)(4)of this section for special rules todemonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)is only effective for certificationsprovided with respect to eventsoccurring through June 30, 1998.

(6) Special specification rules forentities not subject to Chapter 100 ofSubtitle K of the Internal RevenueCode—(i) Issuers. For rules requiringthat issuers in the group and individualmarkets provide certificates consistentwith the rules in this section, seesection 701(e) of ERISA and sections

2701(e), 2721(b)(1)(B), and 2743 of thePHSA.

(ii) Other entities. For special rulesrequiring that certain other entities, notsubject to Chapter 100 of Subtitle K ofthe Internal Revenue Code, providecertificates consistent with the rules inthe section, see section 2791(a)(3) of thePHSA applicable to entities described insections 2701(c)(1) (C), (D), (E), and (F)(relating to Medicare, Medicaid,CHAMPUS, and Indian Health Service),section 2721(b)(1)(A) of the PHSAapplicable to nonfederal governmentalplans generally, and section2721(b)(2)(C)(ii) of the PHSA applicableto nonfederal governmental plans thatelect to be excluded from therequirements of Subparts 1 and 3 of PartA of Title XXVII of the PHSA.

(b) Disclosure of coverage to a plan,or issuer, using the alternative methodof counting creditable coverage—(1) Ingeneral. If an individual enrolls in agroup health plan with respect to whichthe plan (or issuer) uses the alternativemethod of counting creditable coveragedescribed in § 54.9801–4T(c), theindividual provides a certificate ofcoverage under paragraph (a) of thissection, and the plan (or issuer) inwhich the individual enrolls sorequests, the entity that issued thecertificate (the prior entity) is requiredto disclose promptly to a requestingplan (or issuer) (the requesting entity)the information set forth in paragraph(b)(2) of this section.

(2) Information to be disclosed. Theprior entity is required to identify to therequesting entity the categories ofbenefits with respect to which therequesting entity is using the alternativemethod of counting creditable coverage,and the requesting entity may identifyspecific information that the requestingentity reasonably needs to order todetermine the individual’s creditablecoverage with respect to any suchcategory. The prior entity is required todisclose promptly to the requestingentity the creditable coverageinformation so requested.

(3) Charge for providing information.The prior entity furnishing theinformation under paragraph (b) of thissection may charge the requesting entityfor the reasonable cost of disclosingsuch information.

(c) Ability of an individual todemonstrate creditable coverage andwaiting period information—(1) Ingeneral. The rules in this paragraph (c)implement section 9801(c)(4), whichpermits individuals to establishcreditable coverage through means otherthan certificates, and section 9801(e)(3),which requires the Secretary to establishrules designed to prevent an


individual’s subsequent coverage undera group health plan or health insurancecoverage from being adversely affectedby an entity’s failure to provide acertificate with respect to thatindividual. If the accuracy of acertificate is contested or a certificate isunavailable when needed by theindividual, the individual has the rightto demonstrate creditable coverage (andwaiting or affiliation periods) throughthe presentation of documents or othermeans. For example, the individual maymake such a demonstration when—

(i) An entity has failed to provide acertificate within the required timeperiod;

(ii) The individual has creditablecoverage but an entity may not berequired to provide a certificate of thecoverage pursuant to paragraph (a) ofthis section;

(iii) The coverage is for a periodbefore July 1, 1996;

(iv) The individual has an urgentmedical condition that necessitates adetermination before the individual candeliver a certificate to the plan; or

(v) The individual lost a certificatethat the individual had previouslyreceived and is unable to obtain anothercertificate.

(2) Evidence of creditable coverage—(i) Consideration of evidence. A plan isrequired to take into account allinformation that it obtains or that ispresented on behalf of an individual tomake a determination, based on therelevant facts and circumstances,whether an individual has creditablecoverage and is entitled to offset all ora portion of any preexisting conditionexclusion period. A plan shall treat theindividual as having furnished acertificate under paragraph (a) of thissection if the individual attests to theperiod of creditable coverage, theindividual also presents relevantcorroborating evidence of somecreditable coverage during the period,and the individual cooperates with theplan’s efforts to verify the individual’scoverage. For this purpose, cooperationincludes providing (upon the plan’s orissuer’s request) a written authorizationfor the plan to request a certificate onbehalf of the individual, andcooperating in efforts to determine thevalidity of the corroborating evidenceand the dates of creditable coverage.While a plan may refuse to creditcoverage where the individual fails tocooperate with the plan’s or issuer’sefforts to verify coverage, the plan maynot consider an individual’s inability toobtain a certificate to be evidence of theabsence of creditable coverage.

(ii) Documents. Documents that mayestablish creditable coverage (and

waiting periods or affiliation periods) inthe absence of a certificate includeexplanations of benefit claims (EOB) orother correspondence from a plan orissuer indicating coverage, pay stubsshowing a payroll deduction for healthcoverage, a health insuranceidentification card, a certificate ofcoverage under a group health policy,records from medical care providersindicating health coverage, third partystatements verifying periods ofcoverage, and any other relevantdocuments that evidence periods ofhealth coverage.

(iii) Other evidence. Creditablecoverage (and waiting period oraffiliation period information) may alsobe established through means other thandocumentation, such as by a telephonecall from the plan or provider to a thirdparty verifying creditable coverage.

(iv) Example. The rules of thisparagraph (c)(2) are illustrated by thefollowing example:

Example. (i) Individual F terminatesemployment with Employer W and, a monthlater, is hired by Employer X. Employer X’sgroup health plan imposes a preexistingcondition exclusion of 12 months on newenrollees under the plan and uses thestandard method of determining creditablecoverage. F fails to receive a certificate ofprior coverage from the self-insured grouphealth plan maintained by F’s prioremployer, Employer W, and requests acertificate. However, F (and Employer’s X’splan, on F’s behalf) is unable to obtain acertificate from Employer W’s plan. F atteststhat, to the best of F’s knowledge, F had atleast 12 months of continuous coverageunder Employer W’s plan, and that thecoverage ended no earlier than F’stermination of employment from EmployerW. In addition, F presents evidence ofcoverage, such as an explanation of benefitsfor a claim that was made during the relevantperiod.

(ii) In this Example, based solely on thesefacts, F has demonstrated creditable coveragefor the 12 months of coverage underEmployer W’s plan in the same manner as ifF had presented a written certificate ofcreditable coverage.

(3) Demonstrating categories ofcreditable coverage. Procedures similarto those described in this paragraph (c)apply in order to determine anindividual’s creditable coverage withrespect to any category under paragraph(b) of this section (relating todetermining creditable coverage underthe alternative method).

(4) Demonstrating dependent status.If, in the course of providing evidence(including a certificate) of creditablecoverage, an individual is required todemonstrate dependent status, thegroup health plan or issuer is requiredto treat the individual as havingfurnished a certificate showing the

dependent status if the individualattests to such dependency and theperiod of such status and the individualcooperates with the plan’s or issuer’sefforts to verify the dependent status.

(d) Determination and notification ofcreditable coverage—(1) Reasonabletime period. In the event that a grouphealth plan receives information underparagraph (a) of this section(certifications), paragraph (b) of thissection (disclosure of informationrelating to the alternative method), orparagraph (c) of this section (otherevidence of creditable coverage), theplan is required, within a reasonabletime period following receipt of theinformation, to make a determinationregarding the indivdiual’s period ofcreditable coverage and notify theindividual of the determination inaccordance with paragraph (d)(2) of thissection. Whether a determination andnotification regarding an individual’screditable coverage is made within areasonable time period is determinedbased on the relevant facts andcircumstances. Relevant facts andcircumstances include whether a plan’sapplication of a preexisting conditionexclusion would prevent an individualfrom having access to urgent medicalservices.

(2) Notification to individual of periodof preexisting condition exclusion. Aplan seeking to impose a preexistingcondition exclusion is required todisclose to the individual, in writing, itsdetermination of any preexistingcondition exclusion period that appliesto the individual, and the basis for suchdetermination, including the source andsubstance of any information on whichthe plan relied. In addition, the plan isrequired to provide the individual witha written explanation of any appealprocedures established by the plan, andwith a reasonable opportunity to submitadditional evidence of creditablecoverage. However, nothing in thisparagraph (d) or paragraph (c) of thissection prevents a plan from modifyingan initial determination of creditablecoverage if it determines that theindividual did not have the claimedcreditable coverage, provided that—

(i) A notice of such reconsideration,as described in this paragraph (d), isprovided to the individual; and

(ii) Until the final determination ismade, the plan, for purposes ofapproving access to medical services(such as a pre-surgery authorization),acts in a manner consistent with theinitial determination.

(3) Examples. The following examplesillustrate this paragraph (d):

Example 1. (i) Individual G is hired byEmployer Y. Employer Y’s group health plan


imposes a preexisting condition exclusion for12 months with respect to new enrollees anduses the standard method of determiningcreditable coverage. Employer Y’s plandetermines that G is subject to a 4-monthpreexisting condition exclusion, based on acertificate of creditable coverage that isprovided by G to Employer Y’s planindicating 8 months of coverage under G’sprior group health plan.

(ii) In this Example 1, Employer Y’s planmust notify G within a reasonable period oftime following receipt of the certificate thatG is subject to a 4-month preexistingcondition exclusion beginning on G’senrollment date in Y’s plan.

Example 2. (i) Same facts as in Example 1,except that Employer Y’s plan determinesthat G has 14 months of creditable coveragebased on G’s certificate indicating 14 monthsof creditable coverage under G’s prior plan.

(ii) In this Example 2. Employer Y’s planis not required to notify G that G will not besubject to a preexisting condition exclusion.

Example 3. (i) Individual H is hired byEmployer Z. Employer Z’s group health planimposes a preexisting condition exclusion for12 months with respect to new enrollees anduses the standard method of determiningcreditable coverage. H develops an urgenthealth condition before receiving a certificateof prior coverage. H attests to the period ofprior coverage, presents corroboratingdocumentation of the coverage period, andauthorizes the plan to request a certificate onH’s behalf.

(ii) In this Example 3, Employer Z’s planmust review the evidence presented by H. Inaddition, the plan must make adetermination and notify H regarding anypreexisting condition exclusion period thatapplies to H (and the basis of suchdetermination) within a reasonable timeperiod following receipt of the evidence thatis consistent with the urgency of H’s healthcondition (this determination may bemodified as permitted under paragraph (d)(2)of this section).

§ 54.9801–6T Special enrollment periods(temporary).

(a) Special enrollment for certainindividuals who lose coverage—(1) Ingeneral. A group health plan is requiredto permit employees and dependentsdescribed in paragraph (a)(2), (3) or (4)of this section to enroll for coverageunder the terms of the plan if theconditions in paragraph (a)(5) of thissection are satisfied and the enrollmentis requested within the period describedin paragraph (a)(6) of this section. Theenrollment is effective at the timedescribed in paragraph (a)(7) of thissection. The special enrollment rightsunder this paragraph (a) apply withoutregard to the dates on which anindividual would otherwise be able toenroll under the plan. (See PHSAsection 2701(f)(1) and ERISA section701(f)(1) under which this obligation isalso imposed on a health insuranceissuer offering group health insurancecoverage.)

(2) Special enrollment of an employeeonly. An employee is described in thisparagraph (a)(2) if the employee iseligible, but not enrolled, for coverageunder the terms of the plan and, whenenrollment was previously offered to theemployee under the plan and wasdeclined by the employee, the employeewas covered under another group healthplan or had other health insurancecoverage.

(3) Special enrollment of dependentsonly. A dependent is described in thisparagraph (a)(3) if the dependent is adependent of an employee participatingin the plan, the dependent is eligible,but not enrolled, for coverage under theterms of the plan, and, when enrollmentwas previously offered under the planwas declined, the dependent wascovered under another group healthplan or had other health insurancecoverage.

(4) Special enrollment of bothemployee and dependent. An employeeand any dependent of the employee aredescribed in this paragraph (a)(4) if theyare eligible, but not enrolled, forcoverage under the terms of the planand, when enrollment was previouslyoffered to the employee or dependentunder the plan and was declined, theemployee or dependent was coveredunder another group health plan or hadother health insurance coverage.

(5) Conditions for special enrollment.An employee or dependent is eligible toenroll during a special enrollmentperiod if each of the followingapplicable conditions is met:

(i) When the employee declinedenrollment for the employee or thedependent, the employee stated inwriting that coverage under anothergroup health plan or other healthinsurance coverage was the reason fordeclining enrollment. This paragraph(a)(5)(i) applies only if—

(A) The plan required such astatement when the employee declinedenrollment; and

(B) The employee is provided withnotice of the requirement to provide thestatement in this paragraph (a)(5)(i) (andthe consequences of the employee’sfailure to provide the statement) at thetime the employee declined enrollment.

(ii)(A) When the employee declinedenrollment for the employee ordependent under the plan, the employeeor dependent had CORRA continuationcoverage under another plan andCOBRA continuation coverage underthat other plan has since beenexhausted; or

(B) If the other coverage that appliedto the employee or dependent whenenrollment was declined was not undera COBRA continuation provision, either

the other coverage has been terminatedas a result of loss of eligibility for thecoverage or employer contributionstowards the other coverage have beenterminated. For this purpose, loss ofeligibility for coverage includes a loss ofcoverage as a result of legal separation,divorce, death, termination ofemployment, reduction in the numberof hours of employment, and any loss ofeligibility after a period that is measuredby reference to any of the foregoing.Thus, for example, if an employee’scoverage ceases following a terminationof employment and the employee iseligible for but fails to elect COBRAcontinuation coverage, this is treated asa loss of eligibility under this paragraph(a)(5)(ii)(B). However, loss of eligibilitydoes not include a loss due to failure ofthe individual or the participant to paypremiums on a timely basis ortermination of coverage for cause (suchas making a fraudulent claim or anintentional misrepresentation of amaterial fact in connection with theplan). In addition, for purposes of thisparagraph (a)(5)(ii)(B), employercontributions include contributions byany current or former employer (of theindividual or another person) that wascontributing to coverage for theindividual.

(6) Length of special enrollmentperiod. The employee is required torequest enrollment (for the employee orthe employee’s dependent, as describedin paragraph (a) (2), (3), or (4) of thissection) not later than 30 days after theexhaustion of the other coveragedescribed in paragraph (a)(5)(ii)(A) ofthis section or termination of the othercoverage as a result of the loss ofeligibility for the other coverage foritems described in paragraph (a)(5)(ii)(B)of this section or following thetermination of employer contributionstoward that other coverage. The planmay impose the same requirements thatapply to employees who are otherwiseeligible under the plan to immediatelyrequest enrollment for coverage (e.g.,that the request be made in writing).

(7) Effective date of enrollment.Enrollment is effective not later than thefirst day of the first calendar monthbeginning after the date the completedrequest for enrollment is received.

(b) Special enrollment with respect tocertain dependent beneficiaries—(1) Ingeneral. A group health plan that makescoverage available with respect todependents of a participant is requiredto provide a special enrollment periodto permit individuals described inparagraph (b) (2), (3), (4), (5), or (6) ofthis section to be enrolled for coverageunder the terms of the plan if theenrollment is requested within the time


period described in paragraph (b)(7) ofthis section. The enrollment is effectiveat the time described in paragraph (b)(8)of this section. The special enrollmentrights under this paragraph (b) applywithout regard to the dates on which anindividual would otherwise be able toenroll under the plan.

(2) Special enrollment of an employeewho is eligible but not enrolled. Anindividual is described in thisparagraph (b)(2) if the individual is anemployee who is eligible, but notenrolled, in the plan, the individualwould be a participant but for a priorelection by the individual not to enrollin the plan during a previousenrollment period, and a personbecomes a dependent of the individualthrough marriage, birth, or adoption orplacement for adoption.

(3) Special enrollment of a spouse ofa participant. An individual isdescribed in this paragraph (b)(3) ifeither—

(i) The individual becomes the spouseof a participant; or

(ii) The individual is a spouse of theparticipant and a child becomes adependent of the participant throughbirth, adoption or placement foradoption.

(4) Special enrollment of an employeewho is eligible but not enrolled and thespouse of such employee. An employeewho is eligible, but not enrolled, in theplan, and an individual who is adependent of such employee, aredescribed in this paragraph (b)(4) if theemployee would be a participant but fora prior election by the employee not toenroll in the plan during a previousenrollment period, and either—

(i) The employee and the individualbecome married; or

(ii) The employee and individual aremarried and a child becomes adependent of the employee throughbirth, adoption or placement foradoption.

(5) Special enrollment of a dependentof a participant. An individual isdescribed in this paragraph (b)(5) if theindividual is a dependent of aparticipant and the individual becomesa dependent of such participant throughmarriage, birth, or adoption orplacement for adoption.

(6) Special enrollment of an employeewho is eligible but not enrolled and anew dependent. An employee who iseligible, but not enrolled, in the plan,and an individual who is a dependentof the employee, are described in thisparagraph (b)(6) if the employee wouldbe a participant but for a prior electionby the employee not to enroll in theplan during a previous enrollmentperiod, and the dependent becomes a

dependent of the employee throughmarriage, birth, or adoption orplacement for adoption.

(7) Length of special enrollmentperiod. The special enrollment periodunder paragraph (b)(1) of this section isa period of not less than 30 days andbegins on the date of the marriage, birth,or adoption or placement for adoption(except that such period does not beginearlier than the date the plan makesdependent coverage generally available).

(8) Effective date of enrollment.Enrollment is effective—

(i) In the case of marriage, not laterthan the first day of the first calendarmonth beginning after the date thecompleted request for enrollment isreceived by the plan;

(ii) In the case of a dependent’s birth,the date of such birth; and

(iii) In the case of a dependent’sadoption or placement for adoption, thedate of such adoption or placement foradoption.

(9) Example. The rules of thisparagraph (b) are illustrated by thefollowing example:

Example. (i) Employee A is hired onSeptember 3, 1998 by Employer X, which hasa group health plan in which A can elect toenroll either for employee-only coverage, foremployee-plus-spouse coverage, or for familycoverage, effective on the first day of anycalendar quarter thereafter. A is married andhas no children. A does not elect to joinEmployer X’s plan (for employee-onlycoverage, employee-plus-spouse coverage, orfamily coverage) on October 1, 1998 orJanuary 1, 1999. On February 15, 1999, achild is placed for adoption with A and A’sspouse.

(ii) In this Example, the conditions forspecial enrollment of an employee with anew dependent under paragraph (b)(2) of thissection are satisfied, the conditions forspecial enrollment of an employee and aspouse with a new dependent underparagraph (b)(4) of this section are satisfied,and the conditions for special enrollment ofan employee and a new dependent underparagraph (b)(6) of this section are satisfied.Accordingly, Employer X’s plan will satisfythis paragraph (b) if and only if it allows Ato elect, by filing the required forms byMarch 16, 1999, to enroll in Employer X’splan either with employee-only coverage,with employee-plus-spouse coverage, or withfamily coverage, effective as of February 15,1999.

(c) Notice of enrollment rights. On orbefore the time an employee is offeredthe opportunity to enroll in a grouphealth plan, the plan is required toprovide the employee with a descriptionof the plan’s special enrollment rulesunder this section. For this purpose, theplan may use the following modeldescription of the special enrollmentrules under this section:

If you are declining enrollment for yourselfor your dependents (including your spouse)because of other health insurance coverage,you may in the future be able to enrollyourself or your dependents in this plan,provided that you request enrollment within30 days after your other coverage ends. Inaddition, if you have a new dependent as aresult of marriage, birth, adoption, orplacement for adoption, you may be able toenroll yourself and your dependents,provided that you request enrollment within30 days after the marriage, birth, adoption, orplacement for adoption.

(d) (1) Special enrollment datedefinition. A special enrollment date foran individual means any date inparagraph (a)(7) or (b)(8) of this sectionon which the individual has a right tohave enrollment in a group health planbecome effective under this section.

(2) Examples. The rules of this sectionare illustrated by the followingexamples:

Example 1. (i)(A) Employer Y maintains agroup health plan that allows employees toenroll in the plan either—

(1) Effective on the first day of employmentby an election filed within three daysthereafter;

(2) Effective on any subsequent January 1by an election made during the precedingmonths of November or December; or

(3) Effective as of any special enrollmentdate described in this section.

(B) Employee B is hired by Employer Y onMarch 15, 1998 and does not elect to enrollin Employer Y’s plan until January 31, 1999when B loses coverage under another plan.B elects to enroll in Employer Y’s planeffective on February 1, 1999, by filing thecompleted request form by January 31, 1999,in accordance with the special rule set forthin paragraph (a) of this section.

(ii) In this Example 1, B has enrolled ona special enrollment date because theenrollment is effective at a date described inparagraph (a)(7) of this section.

Example 2. (i) Same facts as Example 1,except that B’s loss of coverage under theother plan occurs on December 31, 1998 andB elects to enroll in Employer Y’s planeffective on January 1, 1999 by filing thecompleted request form by December 31,1998, in accordance with the special rule setforth in paragraph (a) of this section.

(ii) In this Example 2, B has enrolled ona special enrollment date because theenrollment is effective at a date described inparagraph (a)(7) of this section (even thoughthis date is also a regular enrollment dateunder the plan).

§ 54.9802–1T Prohibiting discriminationagainst participants and beneficiariesbased on a health status-related factor(temporary).

(a) In eligibility to enroll—(1) Ingeneral. Subject to paragraph (a)(2) ofthis section, a group health plan maynot establish rules for eligibility(including continued eligibility) of anyindividual to enroll under the terms ofthe plan based on any of the following


health status-related factors in relationto the individual or a dependent of theindividual:

(i) Health status.(ii) Medical condition (including both

physical and mental illnesses), asdefined in § 54.9801–2T.

(iii) Claims experience.(iv) Receipt of health care.(v) Medical history.(vi) Genetic information, as defined in

§ 54.9801–2T.(vii) Evidence of insurability

(including conditions arising out of actsof domestic violence).

(viii) Disability.(2) No application to benefits or

exclusions. To the extent consistentwith section 9801 and § 54.9801–3T,paragraph (a)(1) of this section shall notbe construed—

(i) To require a group health plan toprovide particular benefits other thanthose provided under the terms of suchplan; or

(ii) To prevent such a plan fromestablishing limitations or restrictionson the amount, level, extent, or natureof the benefits or coverage for similarlysituated individuals enrolled in the planor coverage.

(3) Construction. For purposes ofparagraph (a)(1) of this section, rules foreligibility to enroll include rulesdefining any applicable waiting (oraffiliation) periods for such enrollmentand rules relating to late and specialenrollment.

(4) Example. The following exampleillustrates the rules of this paragraph (a):

Example. (i) An employer sponsors a grouphealth plan that is available to all employeeswho enroll within the first 30 days of theiremployment. However, individuals who donot enroll in the first 30 days cannot enrolllater unless they pass a physicalexamination.

(ii) In this Example, the plan discriminateson the basis of one or more health status-related factors.

(b) In premiums or contributions—(1)In general. A group health plan may notrequire an individual (as a condition ofenrollment or continued enrollmentunder the plan) to pay a premium orcontribution that is greater than thepremium or contribution for a similarlysituated individual enrolled in the planbased on any health status-relatedfactor, in relation to the individual or adependent of the individual.

(2) Construction. Nothing inparagraph (b)(1) of this section shall beconstrued—

(i) To restrict the amount that anemployer may be charged by an issuerfor coverage under a group health plan;or

(ii) To prevent a group health planfrom establishing premium discounts or

rebates or modifying otherwiseapplicable copayments or deductibles inreturn for adherence to a bona fidewellness program. For purposes of thissection, a bona fide wellness program isa program of health promotion anddisease prevention.


Example. (i) Plan X offers a premiumdiscount to participants who adhere to acholesterol-reduction wellness program.Enrollees are expected to keep a diary of theirfood intake over 6 weeks. They periodicallysubmit the diary to the plan physician whoresponds with suggested diet modifications.Enrollees are to modify their diets inaccordance with the physician’srecommendations. At the end of the 6 weeks,enrollees are given a cholesterol test andthose who achieve a count under 200 receivea premium discount.

(ii) In this Example, because enrollees whootherwise comply with the program may beunable to achieve a cholesterol count under200 due to a health status-related factor, thisis not a bona fide wellness program and suchdiscounts would discriminate impermissiblybased on one or more health status-relatedfactors. However, if, instead, individualscovered by the plan were entitled to receivethe discount for complying with the diaryand dietary requirements and were notrequired to pass a cholesterol test, theprogram would be a bona fide wellnessprogram.

§ 54.9804–1T Special rules relating togroup health plans (temporary).

(a) General exception small grouphealth plans. The requirements ofChapter 100 of Subtitle K of the InternalRevenue Code do not apply to anygroup health plan for any plan year if,on the first day of the plan year, theplan has fewer than 2 participants whoare current employees.

(b) Excepted benefits—(1) In general.The requirements of §§ 54.9801–1Tthrough 54.9801–6T and 54.9802–1T donot apply to any group health plan inrelation to its provision of the benefitsdescribed in paragraph (b) (2), (3), (4),or (5) of this section (or anycombination of these benefits).

(2) Benefits excepted in allcircumstances. The following benefitsare excepted in all circumstances—

(i) Coverage only for accident(including accidental death anddismemberment);

(ii) Disability income insurance;(iii) Liability insurance, including

general liability insurance andautomobile liability insurance;

(iv) Coverage issued as a supplementto liability insurance;

(v) Workers’ compensation or similarinsurance;

(vi) Automobile medical paymentinsurance;

(vii) Credit-only insurance (forexample, mortgage insurance); and

(viii) Coverage for on-site medicalclinics.

(3) Limited excepted benefits—(i) In general. Limited-scope dental

benefits, limited-scope vision benefits,or long-term care benefits are exceptedif they are provided under a separatepolicy, certificate, or contract ofinsurance, or are otherwise not anintegral part of the plan, as defined inparagraph (b)(3)(ii) of this section.

(ii) Integral. For purposes ofparagraph (b)(3)(i) of this section,benefits are deemed to be an integralpart of a plan unless a participate hasthe right to elect not to receive coveragefor the benefits and, if the participantelects to receive coverage for thebenefits, the participant pays anadditional premium or contribution forthat coverage.

(iii) Limited scope. Limited scopedental or vision benefits are dental orvision benefits that are sold under aseparate policy or rider and that arelimited in scope in a narrow range ortype of benefits that are generallyexcluded from hospital/medical/surgical benefit packages.

(iv) Long-term care. Long-term carebenefits are benefits that are either—

(A) Subject to State long-term careinsurance laws;

(B) For qualified long-term careinsurance services; as defined in section7702B(c)(1) of the Internal RevenueCode, or provided under a qualifiedlong-term care insurance contract, asdefined in section 7702B(b); or

(C) Based on cognitive impairment ora loss of functional capacity that isexpected to be chronic.

(4) Noncoordinated benefits—(i)Excepted benefits that are notcoordinated. Covered for only aspecified disease or illness (for example,cancer-only policies) or hospitalindemnity or other fixed dollarindemnity insurance (for example,$100/day) is excepted only if it meetseach of the conditions specified inparagraph (b)(4)(ii) of this section.

(ii) Conditions. Benefits are describedin paragraph (b)(4)(i) of this section onlyif—

(A) The benefits are provided under aseparate policy, certificate, or contractof insurance;

(B) There is not coordination betweenthe provision of the benefits and anexclusion of benefits under any grouphealth plan maintained by the sameplan sponsor; and

(C) The benefits are paid with respectto an event without regard to whetherbenefits are provided with respect to the


event under any group health planmaintained by the same plan sponsor.

(5) Supplemental benefits. Thefollowing benefits are excepted only ifthey are provided under a separatepolicy, certificate, or contract ofinsurance—

(i) Medicare supplemental healthinsurance (as defined under section1882(g)(1) of the Social Security Act;also known as Medigap or MedSuppinsurance);

(ii) Coverage supplemental to thecoverage provided under Chapter 55,Title 10 of the United States Code (alsoknown as CHAMPUS supplementalprograms); and

(iii) Similar supplemental coverageprovided to coverage under a grouphealth plan.

(c) Treatment of partnerships.[Reserved]

§ 54.9806–1T Effective dates (temporary).(a) General effective dates—(1) Non-

collectively-bargained plans. Except asotherwise provided in this section,Chapter 100 of Subtitle K of the InternalRevenue Code and §§ 54.9801–1Tthrough 54.9804–1T apply with respectto group health plans for plan yearsbeginning after June 30, 1997.

(2) Collectively bargained plans.Except as otherwise provided in thissection (other than paragraph (a)(1) ofthis section), in the case of a grouphealth plan maintained pursuant to oneor more collective bargainingagreements between employeerepresentatives and one or moreemployers ratified before August 21,1996, Chapter 100 of Subtitle K of theInternal Revenue Code and §§ 54.9801–1T through 54.9804–1T do not apply toplan years beginning before the later ofJuly 1, 1997, or the date on which thelast of the collective bargainingagreements relating to the planterminates (determined without regardto any extension thereof agreed to afterAugust 21, 1996). For these purposes,any plan amendment made pursuant toa collective bargaining agreementrelating to the plan, that amends theplan solely to conform to anyrequirement of such part, is not treatedas a termination of the collectivebargaining agreement.

(3)(i) Preexisting condition exclusionperiods for current employees. Anypreexisting condition exclusion periodpermitted under § 54.9801–3T ismeasured from the individual’senrollment date in the plan. Suchexclusion period, as limited under§ 54.9801–3T, may be completed priorto the effective date of the HealthInsurance Portability andAccountability Act of 1996 (HIPAA) for

his or her plan. Therefore, on the datethe individual’s plan becomes subject toChapter 100 of Subtitle K of the InternalRevenue Code, no preexisting conditionexclusion may be imposed with respectto an individual beyond the limitationin § 54.9801–3T. For an individual whohas not completed the permittedexclusion period under HIPPA, uponthe effective date for his or her plan, theindividual may use creditable coveragethat the individual had prior to theenrollment date to reduce the remainingpreexisting condition exclusion periodapplicable to the individual.

(ii) Examples. The followingexamples illustrate the rules of thisparagraph (a)(3):

Example 1. (i) Individual A has beenworking for Employer X and has beencovered under Employer X’s plan sinceMarch 1, 1997. Under Employer X’s plan, asin effect before January 1, 1998, there is nocoverage for any preexisting condition.Employer X’s plan year begins on January 1,1998. A’s enrollment date in the plan isMarch 1, 1997 and A has no creditablecoverage before this date.

(ii) In this Example 1, Employer X maycontinue to impose the preexisting conditionexclusion under the plan through February28, 1998 (the end of the 12-month periodusing anniversary dates).

Example 2. (i) Same facts as in Example 1,except that A’s enrollment date was August1, 1996, instead of March 1, 1997.

(ii) In this Example 2, on January 1, 1998,Employer X’s plan may no longer excludetreatment for any preexisting condition thatA may have; however, because Employer X’splan is not subject to HIPAA until January 1,1998, A is not entitled to claimreimbursement for expenses under the planfor treatments for any preexisting conditionof A received before January 1, 1998.

(b) Effective date for certificationrequirement—(1) In general. Subject tothe transitional rule in § 54.9801–5T(a)(5)(iii), the certification rules of§ 54.9801–5T apply to events occurringon or after July 1, 1996.

(2) Period covered by certificate. Acertificate is not required to reflectcoverage before July 1, 1996.

(3) No certificate before June 1, 1997.Notwithstanding any other provision of§ 54.9801–5T, in no case is a certificaterequired to be provided before June 1,1997.

(c) Limitation on actions. Noenforcement action is to be taken,pursuant to Chapter 100 of Subtitle K ofthe Internal Revenue Code, against agroup health plan or health insuranceissuer with respect to a violation of arequirement imposed by Chapter 100 ofSubtitle K of the Internal Revenue Codebefore January 1, 1998 if the plan orissuer has sought to comply in goodfaith with such requirements.Compliance with these regulations is

deemed to be good faith compliancewith the requirements of Chapter 100 ofSubtitle K.

(d) Transition rules for countingcreditable coverage. An individual whoseeks to establish creditable coverage forperiods before July 1, 1996 is entitled toestablish such coverage through thepresentation of documents or othermeans in accordance with theprovisions of § 54.9801–5T(c). Forcoverage relating to an event occurringbefore July 1, 1996, a group health planand a health insurance issuer is notsubject to any penalty or enforcementaction with respect to the plan’s orissuer’s counting (or not counting) suchcoverage if the plan or issuer has soughtto comply in good faith with theapplicable requirements under§ 54.9801–5T(c).

(e) Transition rules for certificates ofcreditable coverage—(1) Certificatesonly upon request. For events occurringon or after July 1, 1996 but beforeOctober 1, 1996, a certificate is requiredto be provided only upon a writtenrequest by or on behalf of the individualto whom the certificate applies.

(2) Certificates before June 1, 1997.For events occurring on or after October1, 1996 and before June 1, 1997, acertificate must be furnished no laterthan June 1, 1997, or any later datepermitted under § 54.9801–5T(a)(2) (ii)and (iii).

(3) Optional notice—(i) In general.This paragraph (e)(3) applies withrespect to events described in§ 54.9801–5T(a)(5)(ii), that occur on orafter October 1, 1996 but before June 1,1997. A group health plan or healthinsurance issuer offering group healthcoverage is deemed to satisfy § 54.9801–5T(a) (2) and (3) if a notice is providedin accordance with the provisions ofparagraphs (e)(3) (i) through (iv) of thissection.

(ii) Time of notice. The notice must beprovided no later than June 1, 1997.

(iii) Form and content of notice. Anotice provided pursuant to thisparagraph (e)(3) must be in writing andmust include information substantiallysimilar to the information included in amodel notice authorized by theSecretary. Copies of the model noticeare available at the following website—http://www.irs.ustreas.gov (or call (202)622–4695).

(iv) Providing certificate after request.If an individual requests a certificatefollowing receipt of the notice, thecertificate must be provided at the timeof the request as set forth in § 54.9801–5T(a)(5)(iii).

(v) Other certification rules apply.The rules set forth in § 54.9801–5T(a)(4)(i) (method of delivery) and


54.9801–5T(a)(1) (entities required toprovide a certificate) apply with respectto the provision of the notice.

Dated: March 24, 1997.Margaret Milner Richardson,Commissioner of Internal Revenue.

Approved:Donald C. Lubick,Assistant Secretary of the Treasury.

Pension and Welfare BenefitsAdministration

29 CFR Chapter XXVFor the reasons set forth above,

Chapter XXV of Title 29 of the Code ofFederal Regulations is amended as setforth below:

1. A new Subchapter L, consisting ofPart 2590, is added to read as follows:

Subchapter L—Health Insurance Portabilityand Renewability for Group Health Plans

PART 2590—RULES ANDREGULATIONS FOR HEALTHINSURANCE PORTABILITY ANDRENEWABILITY FOR GROUP HEALTHPLANS

Subpart A—Requirements Relating toAccess and Renewability of Coverage, andLimitation on Preexisting ConditionExclusion PeriodsSec.2590.701–1 Basis and scope.2590.701–2 Definitions.2590.701–3 Limitations on preexisting

condition exclusion period.2590.701–4 Rules relating to creditable

coverage.2590.701–5 Certification and disclosure of

previous coverage.2590.701–6 Special enrollment periods.2590.701–7 HMO affiliation period as

alternative to preexisting conditionexclusion.

2590.702 Prohibiting discrimination againstparticipants and beneficiaries based on ahealth status-related factor.

2590.703 Guaranteed renewability inmultiemployer plans and multipleemployer welfare arrangements.[Reserved]

Subpart B—Other Requirements2590.711 Standards relating to benefits for

mothers and newborns. [Reserved]2590.712 Parity in the application of certain

limits to mental health benefits.[Reserved]

Subpart C—General Provisions2590.731 Preemption; State flexibility;

construction.2590.732 Special rules relating to group

health plans.2590.734 Enforcement. [Reserved]2590.736 Effective dates.

Authority: Sec. 29 U.S.C. 1027, 1059, 1135,1171, 1194; Sec. 101, Pub. L. 104–191, 101Stat. 1936 (29 U.S.C. 1181); Secretary oflabor’s Order No. 1–87, 52 FR 13139, April21, 1987.

Subpart A—Requirements Relating toAccess and Renewability of Coverage,and Limitations on PreexistingCondition Exclusion Periods

§ 2590.701–1 Basis and scope.(a) Statutory basis. This subpart

implements Part 7 of Subtitle B of TitleI of the Employee Retirement IncomeSecurity Act of 1974, as amended(hereinafter ERISA or the Act).

(b) Scope. A group health plan orhealth insurance issuer offering grouphealth insurance coverage may providegreater rights to participants andbeneficiaries than those set forth in thissubpart. This subpart A sets forthminimum requirements for group healthplans and health insurance issuersoffering group health insurancecoverage concerning:

(1) Limitations on a preexistingcondition exclusion period.

(2) Certificates and disclosure ofprevious coverage.

(3) Rules relating to countingcreditable coverage.

(4) Special enrollment periods.(5) Use of an affiliation period by an

HMO as an alternative to a preexistingcondition exclusion.

§ 2590.701–2 Definitions.Unless otherwise provided, the

definitions in this section govern inapplying the provisions of §§ 2590.701through 2590.734.





(3) COBRA continuation provisionmeans sections 601–608 of the Act,section 4980B of the Code (other thanparagraph (f)(1) of such section 4980Binsofar as it relates to pediatricvaccines), and Title XXII of the PHSA.




Condition means a medical condition.Creditable coverage means creditable

coverage within the meaning of§ 2590.701–4(a).

Enroll means to become covered forbenefits under a group health plan (i.e.,when coverage becomes effective),without regard to when the individualmay have completed or filed any formsthat are required in order to enroll in theplan. For this purpose, an individualwho has health insurance coverageunder a group health plan is enrolled inthe plan regardless of whether theindividual elects coverage, theindividual is a dependent who becomescovered as a result of an election by aparticipant, or the individual becomescovered without an election.

Enrollment date definitions(enrollment date and first day ofcoverage) are set forth in § 2590.701–3(a)(2) (i) and (ii).

Excepted benefits means the benefitsdescribed as excepted in § 2590.732(b).



Group health plan means anemployee welfare benefit plan to theextent that the plan provides medicalcare (including items and services paidfor as medical care) to employees ortheir dependents (as defined under theterms of the plan) directly or throughinsurance, reimbursement, or otherwise.

Group market means the market forhealth insurance coverage offered inconnection with a group health plan.(However, certain very small plans maybe treated as being in the individualmarket, rather than the group market;see the definition of individual marketin this section.)

Health insurance coverage meansbenefits consisting of medical care(provided directly, through insurance or


reimbursement, or otherwise) under anyhospital or medical service policy orcertificate, hospital or medical serviceplan contract, or HMO contract offeredby a health insurance issuer.

Health insurance issuer or issuermeans an insurance company, insuranceservice, or insurance organization(including an HMO) that is required tobe licensed to engage in the business ofinsurance in a State and that is subjectto State law that regulates insurance(within the meaning of section 514(b)(2)of the Act). Such term does not includea group health plan.


(1) A federally qualified healthmaintenance organization (as defined insection 1301(a) of the PHSA);


(3) A similar organization regulatedunder State law for solvency in the samemanner and to the same extent as sucha health maintenance organization.

Individual health insurance coveragemeans health insurance coverage offeredto individuals in the individual market,but does not include short-term, limitedduration insurance. For this purpose,short-term, limited-duration insurancemeans health insurance coverageprovided pursuant to a contract with anissuer that has an expiration datespecified in the contract (taking intoaccount any extensions that may beelected by the policyholder without theissuer’s consent) that is within 12months of the date such contractbecomes effective. Individual healthinsurance coverage can includedependent coverage.

Individual market means the marketfor health insurance coverage offered toindividuals other than in connectionwith a group health plan. Unless a Stateelects otherwise in accordance withsection 2791(e)(1)(B)(ii) of the PHSA,such term also includes coverage offeredin connection with a group health planthat has fewer than two participants ascurrent employees on the first day of theplan year.

Internal Revenue Code (Code) meansthe Internal Revenue Code of 1986, asamended (Title 26, United States Code).


Late enrollment definitions (lateenrollee) and late enrollment) are setforth in § 2590.701–3(a)(2) (iii) and (iv).

Medical care means amounts paidfor—

(1) The diagnosis, cure, mitigation,treatment, or prevention of disease, oramounts paid for the purpose of

affecting any structure or function of thebody;

(2) Transportation primarily for andessential to medical care referred to inparagraph (1) of this definition; and

(3) Insurance covering medical carereferred to in paragraphs (1) and (2) ofthis definition.

Medical condition or condition meansany condition, whether physical ormental, including, but not limited to,any condition resulting from illness,injury (whether or not the injury isaccidental), pregnancy, or congenitalmalformation. However, geneticinformation is not a condition.

Placement, or being placed, foradoption means the assumption andretention of a legal obligation for total orpartial support of a child by a personwith whom the child has been placed inanticipation of the child’s adoption. Thechild’s placement for adoption withsuch person terminates upon thetermination of such legal obligation.

Plan year means the year that isdesignated as the plan year in the plandocument of a group health plan, exceptthat if the plan document does notdesignate a plan year or if there is noplan document, the plan year is—

(1) The deductible/limit year usedunder the plan;

(2) If the plan does not imposedeductibles or limits on a yearly basis,then the plan year is the policy year;

(3) If the plan does not imposedeductibles or limits on a yearly basis,and either the plan is not insured or theinsurance policy is not renewed on anannual basis, then the plan year is theemployer’s taxable year; or


Preexisting condition exclusion meansa limitation or exclusion of benefitsrelating to a condition based on the factthat the condition was present beforethe first day of coverage, whether or notany medical advice, diagnosis, care, ortreatment was recommended or receivedbefore that day. A preexisting conditionexclusion includes any exclusionapplicable to an individual as a result ofinformation that is obtained relating toan individual’s health status before theindividual’s first day of coverage, suchas a condition identified as a result ofa pre-enrollment questionnaire orphysical examination given to theindividual, or review of medical recordsrelating to the pre-enrollment period.

Public health plan means publichealth plan within the meaning of§ 2590.701–4(a)(1)(ix).

Public Health Service Act (PHSA)means the Public Health Service Act (42U.S.C. 201, et seq.).

Significant break in coverage means asignificant break in coverage within themeaning of § 2590.701–4(b)(2)(iii).

Special enrollment date means aspecial enrollment date within themeaning of § 2590.701–6(d).

State means each of the several States,the District of Columbia, Puerto Rico,the Virgin Islands, Guam, AmericanSamoa, and the Northern MarianaIslands.

State health benefits risk pool meansa State health benefits risk pool withinthe meaning of § 2590.701–4(a)(1)(vii).


§ 2590.701–3 Limitations on preexistingcondition exclusion period.

(a) Preexisting condition exclusion—(1) In general. Subject to paragraph (b)of this section, a group health plan, anda health insurance issuer offering grouphealth insurance coverage, may impose,with respect to a participant orbeneficiary, a preexisting conditionexclusion only if the requirements ofthis paragraph (a) are satisfied.

(i) 6-month look-back rule. Apreexisting condition exclusion mustrelate to a condition (whether physicalor mental), regardless of the cause of thecondition, for which medical advice,diagnosis, care, or treatment wasrecommended or received within the 6-month period ending on the enrollmentdate.


(B) For purposes of this paragraph(a)(1)(i), the 6-month period ending onthe enrollment date begins on the 6-month anniversary date preceding theenrollment date. For example, for anenrollment date of August 1, 1998, the6-month period preceding theenrollment date is the periodcommencing on February 1, 1998 andcontinuing through July 31, 1998. Asanother example, for an enrollment date


of August 30, 1998, the 6-month periodpreceding the enrollment date is theperiod commencing on February 28,1998 and continuing through August 29,1998.

(C) The rules of this paragraph (a)(1)(i)are illustrated by the followingexamples:

Example 1. (i) Individual A is treated fora medical condition 7 months before theenrollment date in Employer R’s group healthplan. As part of such treatment, A’sphysician recommends that a follow-upexamination be given 2 months later. Despitethis recommendation. A does not receive afollow-up examination and no other medicaladvice, diagnosis, care, or treatment for thatcondition is recommended to A or receivedby A during the 6-month period ending onA’s enrollment date in Employer R’s plan.

(ii) In this Example 1, Employer R’s planmay not impose a preexisting conditionexclusion period with respect to thecondition for which A received treatment 7months prior to the enrollment date.

Example 2. (i) Same facts as Example 1,except that Employer R’s plan learns of thecondition and attaches a rider to A’s policyexcluding coverage for the condition. Threemonths after enrollment, A’s conditionrecurs, and Employer R’s plan deniespayment under the rider.

(ii) In this Example 2, The rider ispreexisting condition exclusion andEmployer R’s plan may not impose apreexisting condition exclusion with respectto the condition for which A receivedtreatment 7 months prior to the enrollmentdate.

Example 3. (i) Individual B has asthma andis treated for that condition several timesduring the 6-month period before B’senrollment date in Employer S’s plan. Theplan imposes a 12-month preexistingcondition exclusion. B has no priorcreditable coverage to reduce the exclusionperiod. Three months after the enrollmentdate, B begins coverage under Employer S’splan. Two months later, B is hospitalizedasthma.

(ii) In this Example 3, Employer S’s planmay exclude payment for the hospital stayand the physician services associated withthis illness because the care is related to amedical condition for which treatment wasreceived by B during the 6-month periodbefore the enrollment date.

Example 4. (i) Individual D, who is subjectto a preexisting exclusion imposed byEmployer U’s plan, has diabetes, as well asa foot condition caused by poor circulationand retinal degeneration (both of which areconditions that may be directly attributed todiabetes). After enrolling in the plan, Dstumbles and breaks a leg.

(ii) In this Example 4, the leg is fracture isnot a condition related to D’s diabetes, eventhough poor circulation in D’s extremitiesand poor vision may have contributedtowards the accident. However, anyadditional medical services that may beneeded because of D’s preexisting diabeticcondition that would not be needed byanother patient with a broken leg who doesnot have diabetes may be subject to the

preexisting condition exclusion imposedunder Employer U’s plan.


(iii) Reducing a preexisting conditionexclusion period by creditable coverage.The period of any preexisting conditionexclusion that would otherwise apply toan individual under a group health planis reduced by the number of days ofcreditable coverage the individual hasas of the enrollment date, as countedunder § 2590.701–4. For purposes ofthis subpart the phrase ‘‘days ofcreditable coverage’’ has the samemeaning as the phrase ‘‘aggregate of theperiods of creditable coverage’’ as suchterm is used in section 701(a)(3) of theAct.

(iv) Other Standards. See § 2590.702for other standards that may apply withrespect to certain benefits limitations orrestrictions under a group health plan.


(ii)(A) First day of coverage means, inthe case of an individual covered forbenefits under a group health plan inthe group market, the first day ofcoverage under the plan and, in the caseof an individual covered by healthinsurance coverage in the individualmarket, the first day of coverage underthe policy.

(B) The following example illustratesthe rule of paragraph (a)(2)(ii)(A) of thissection:

Example. (i) Employer V’s group healthplan provides for coverage to begin on thefirst day of the first payroll period followingthe date an employee is hired and completesthe applicable enrollment forms, or on anysubsequent January 1 after completion of theapplicable enrollment forms. Employer’s V’splan imposes a preexisting conditionexclusion for 12 months (reduced by theindividual’s creditable coverage) followingan individual’s enrollment date. Employee Eis hired by Employer V on October 13, 1998and then on October 14, 1998 completes andfiles all the forms necessary to enroll in theplan. E’s coverage under the plan becomeseffective on October 25, 1998 (which is the

beginning of the first payroll period after E’sdate of hire).

(ii) In this Example, E’s enrollment date isOctober 13, 1998 (which is the first day ofthe waiting period for E’s enrollment and isalso E’s date of hire). Accordingly, withrespect to E, the 6-month period in paragraph(a)(1)(i) would be the period from April 13,1998 through October 12, 1998, themaximum permissible period during whichEmployer V’s plan could apply a preexistingcondition exclusion under paragraph(a)(1)(ii) would be in the period from October13, 1998 through October 12, 1999, and thisperiod would be reduced under paragraph(a)(1)(iii) by E’s days of creditable coverageas of October 13, 1998.


(iv)(A) Late enrollment meansenrollment under a group health planother than on—

(1) The earliest date on whichcoverage can become effective under theterms of the plan; or

(2) A special enrollment date for theindividual.

(B) If an individual ceases to beeligible for coverage under the plan byterminating employment, and thensubsequently becomes eligible forcoverage under the plan by resumingemployment, only eligibility during theindividual’s most recent period ofemployment is taken into account indetermining whether the individual is alate enrollee under the plan with respectto the most recent period of coverage.Similar rules apply if an individualagain becomes eligible for coveragefollowing a suspension of coverage thatapplied generally under the plan.

(v) Examples. The rules of thisparagraph (a)(2) are illustrated by thefollowing examples:

Example 1. (i) Employee F first becomeseligible to be covered by Employer W’s grouphealth plan on January 1, 1999, but elects notto enroll in the plan until April 1, 1999. April1, 1999 is not a special enrollment date forF.

(ii) In this Example 1, F would be a lateenrollee with respect to F’s coverage thatbecame effective under the plan on April 1,1999.

Example 2. (i) Same as Example 1, exceptthat F does not enroll in the plan on April1, 1999 and terminates employment withEmployer W on July 1, 1999, without havinghad any health insurance coverage under theplan. F is rehired by Employer W on January1, 2000 and is eligible for and elects coverageunder Employer W’s plan effective onJanuary 1, 2000.

(ii) In this Example 2, F would not be a lateenrollee with respect to F’s coverage thatbecame effective on January 1, 2000.

(b) Exceptions pertaining topreexisting condition exclusions—(1)Newborns—(i) In general. Subject to


paragraph (b)(3) of this section, a grouphealth plan, and a health insuranceissuer offering group health insurancecoverage, may not impose anypreexisting condition exclusion withregard to a child who, as of the last dayof the 30-day period beginning with thedate of birth, is covered under anycreditable coverage. Accordingly, if anewborn is enrolled in a group healthplan (or other creditable coverage)within 30 days after birth andsubsequently enrolls in another grouphealth plan without a significant breakin coverage, the other plan may notimpose any preexisting conditionexclusion with regard to the child.

(ii) Example. The rule of thisparagraph (b)(1) is illustrated by thefollowing example:

Example. (i) Seven months afterenrollment in Employer W’s group healthplan, Individual E has a child born with abirth defect. Because the child is enrolled inEmployer W’s plan within 30 days of birth,no preexisting condition exclusion may beimposed with respect to the child underEmployer W’s plan. Three months after thechild’s birth, E, commences employmentwith Employer X and enrolls with the childin Employer X’s plan 45 days after leavingEmployer W’s plan. Employer X’s planimposes a 12-month exclusion for anypreexisting condition.


(2) Adopted children. Subject toparagraph (b)(3) of this section, a grouphealth plan, and a health insuranceissuer offering group health insurancecoverage, may not impose anypreexisting condition exclusion in thecase of a child who is adopted or placedfor adoption before attaining 18 years ofage and who, as of the last day of the30-day period beginning on the date ofthe adoption or placement for adoption,is covered under creditable coverage.This rule does not apply to coveragebefore the date of such adoption orplacement for adoption.

(3) Break in coverage. Paragraphs (b)(1) and (2) of this section no longerapply to a child after a significant breakin coverage.

(4) Pregnancy. A group health plan,and a health insurance issuer offeringgroup health insurance coverage, maynot impose a preexisting conditionexclusion relating to pregnancy as apreexisting condition.

(5) Special enrollment dates. Forspecial enrollment dates relating to newdependents, see § 2590.701–6(b).

(c) Notice of plan’s preexistingcondition exclusion. A group healthplan, and health insurance issueroffering group health insurance underthe plan, may not impose a preexistingcondition exclusion with respect to aparticipant or dependent of theparticipant before notifying theparticipant, in writing, of the existenceand terms of any preexisting conditionexclusion under the plan and of therights of individuals to demonstratecreditable coverage (and any applicablewaiting periods) as required by§ 2590.701–5. The description of therights of individuals to demonstratecreditable coverage includes adescription of the right of the individualto request a certificate from a prior planor issuer, if necessary, and a statementthat the current plan or issuer will assistin obtaining a certificate from any priorplan or issuer, if necessary.

§ 2590.701–4 Rules relating to creditablecoverage.

(a) General rules—(1) Creditable coverage. For purposes

of this section, except as provided inparagraph (a)(2) of this section, the termcreditable coverage means coverage ofan individual under any of thefollowing:

(i) A group health plan as defined in§ 2590.701–2.

(ii) Health insurance coverage asdefined in § 2590.701–2 (whether or notthe entity offering the coverage issubject to Part 7 of Subtitle B of Title Iof the Act, and without regard towhether the coverage is offered in thegroup market, the individual market, orotherwise).

(iii) Part A or B of Title XVIII of theSocial Security Act (Medicare).


(v) Title 10 U.S.C. Chapter 55(medical and dental care for membersand certain former members of theuniformed services, and for theirdependents; for purposes of Title 10U.S.C. Chapter 55, uniformed servicesmeans the armed forces and theCommissioned Corps of the NationalOceanic and Atmospheric

Administration and of the Public HealthService).



(A) An organization qualifying undersection 501(c)(26) of the Code;

(B) A qualified high risk pooldescribed in section 2744(c)(2) of thePHSA; or


(1) Are unable to acquire medical carecoverage for such condition throughinsurance or from an HMO, or

(2) Are able to acquire such coverageonly at a rate which is substantially inexcess of the rate for such coveragethrough the membership organization.

(viii) A health plan offered underTitle 5 U.S.C. Chapter 89 (the FederalEmployees Health Benefits Program).

(ix) A public health plan. Forpurposes of this section, a public healthplan means any plan established ormaintained by a State, county, or otherpolitical subdivision of a State thatprovides health insurance coverage toindividuals who are enrolled in theplan.


(2) Excluded coverage. Creditablecoverage does not include coverageconsisting solely of coverage of exceptedbenefits (described in § 2590.732).

(3) Methods of counting creditablecoverage. For purposes of reducing anypreexisting condition exclusion period,as provided under § 2590.701–3(a)(1)(iii), a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage, determinesthe amount of an individual’s creditablecoverage by using the standard methoddescribed in paragraph (b) of thissection, except that the plan, or issuer,may use the alternative method underparagraph (c) of this section withrespect to any or all of the categories ofbenefits described under paragraph(c)(3) of this section.

(b) Standard method—(1) Specificbenefits not considered. Under thestandard method, a group health plan,and a health insurance issuer offeringgroup health insurance coverage,determines the amount of creditable


coverage without regard to the specificbenefits included in the coverage.

(2) Counting creditable coverage—(i)Based on days. For purposes of reducingthe preexisting condition exclusionperiod, a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage, determinesthe amount of creditable coverage bycounting all the days that the individualhas under one or more types ofcreditable coverage. Accordingly, if on aparticular day, an individual hascreditable coverage from more than onesource, all the creditable coverage onthat day is counted as one day. Further,any days in a waiting period for a planor policy are not creditable coverageunder the plan or policy.


(iii) Definition of significant break incoverage. A significant break incoverage means a period of 63consecutive days during all of which theindividual does not have any creditablecoverage, except that neither a waitingperiod nor an affiliation period is takeninto account in determining asignificant break in coverage. (Seesection 731(b)(2)(iii) of the Act andsection 2723(b)(2)(iii) of the PHSAwhich exclude from preemption Stateinsurance laws that require a break ofmore than 63 days before an individualhas a significant break in coverage forpurposes of State law.)

(iv) Examples. The followingexamples illustrate how creditablecoverage is counted in reducingpreexisting condition exclusion periodsunder this paragraph (b)(2):

Example 1. (i) Individual A works forEmployer P and has creditable coverageunder Employer P’s plan for 18 monthsbefore A’s employment terminates. A is hiredby Employer Q, and enrolls in Employer Q’sgroup health plan, 64 days after the last dateof coverage under Employer P’s plan.Employer Q’s plan has a 12-monthpreexisting condition exclusion period.

(ii) In this Example 1, because A had abreak in coverage of 63 days, Employer Q’splan may disregard A’s prior coverage and Amay be subject to a 12-month preexistingcondition exclusion period.

Example 2. (i) Same facts as Example 1,except that A is hired by Employer Q, andenrolls in Employer Q’s plan, on the 63rd dayafter the last date of coverage underEmployer P’s plan.

(ii) In this Example 2, A has a break incoverage of 62 days. Because A’s break incoverage is not a significant break incoverage, Employer Q’s plan must count A’sprior creditable coverage for purposes ofreducing the plan’s preexisting conditionexclusion period as it applies to A.

Example 3. (i) Same facts as Example 1,except that Employer Q’s plan providesbenefits through an insurance policy that, asrequired by applicable State insurance laws,defines a significant break in coverage as 90days.

(ii) In this Example 3, the issuer thatprovides group health insurance to EmployerQ’s plan must count A’s period of creditablecoverage prior to the 63-day break.

Example 4. (i) Same facts as Example 3,except that Employer Q’s plan is a self-insured plan, and, thus, is not subject to Stateinsurance laws.

(ii) In this Example 4, the plan is notgoverned by the longer break rules underState insurance law and A’s previouscoverage may be disregarded.

Example 5. (i) Individual B beginsemployment with Employer R 45 days afterterminating coverage under a prior grouphealth plan. Employer R’s plan has a 30-daywaiting period before coverage begins. Benrolls in Employer R’s plan when firsteligible.

(ii) In this Example 5, B does not have asignificant break in coverage for purposes ofdetermining whether B’s prior coverage mustbe counted by Employer R’s plan. B has onlya 44-day break in coverage because the 30-day waiting period is not taken into accountin determining a significant break incoverage.

Example 6, (i) Individual C works forEmployer S and has creditable coverageunder Employer S’s plan for 200 days beforeC’s employment is terminated and coverageceases. C is then unemployed for 51 daysbefore being hired by Employer T. EmployerT’s plan has a 3-month waiting period. Cworks for Employer T for 2 months and thenterminates employment. Eleven days afterterminating employment with Employer T, Cbegins working for Employer U. EmployerU’s plan has no waiting period, but has a 6-month preexisting condition exclusionperiod.

(ii) In this Example 6, C does not have asignificant break in coverage because, afterdisregarding the waiting period underEmployer T’s plan, C had only a 62-day breakin coverage (51 days plus 11 days).Accordingly, C has 200 days of creditablecoverage and Employer U’s plan may notapply its 6-month preexisting conditionexclusion period with respect to C.

Example 7. (i) Individual D terminatesemployment with Employer V on January 13,1998 after being covered for 24 months underEmployer V’s group health plan. On March17, the 63rd day without coverage, D appliesfor a health insurance policy in theindividual market. D’s application isaccepted and the coverage is made effectiveMay 1.

(ii) In this Example 7, because D appliedfor the policy before the end of the 63rd day,and coverage under the policy ultimatelybecame effective, the period between the dateof application and the first day of coverageis a waiting period and no significant breakin coverage occurred even though the actualperiod without coverage was 107 days.

Example 8. (i) Same facts as Example 7,except that D’s application for a policy in theindividual market is denied.

(ii) In this Example 8, because D did notobtain coverage following application, Dincurred a significant break in coverage onthe 64th day.

(v) Other permissible countingmethods—(A) Rule. Notwithstandingany other provisions of this paragraph(b)(2), for purposes of reducing apreexisting condition exclusion period(but not for purposes of issuing acertificate under § 2590.701–5), a grouphealth plan, and a health insuranceissuer offering group health insurancecoverage, may determine the amount ofcreditable coverage in any other mannerthat is at least as favorable to theindividual as the method set forth inthis paragraph (b)(2), subject to therequirements of other applicable law.

(B) Example. The rule of thisparagraph (b)(2)(v) is illustrated by thefollowing example:

Example. (i) Individual F has coverageunder group health plan Y from January 3,1997 through March 25, 1997. F thenbecomes covered by group health plan Z. F’senrollment date in Plan Z is May 1, 1997.Plan Z has a 12-month preexisting conditionexclusion period.

(ii) In this Example, Plan Z may determine,in accordance with the rules prescribed inparagraph (b)(2) (i), (ii), and (iii) of thissection, that F has 82 days of creditablecoverage (29 days in January, 28 days inFebruary, and 25 days in March). Thus, thepreexisting condition exclusion period willno longer apply to F on February 8, 1998 (82days before the 12-month anniversary of F’senrollment (May 1)). For administrativeconvenience, however, Plan Z may considerthat the preexisting condition exclusionperiod will no longer apply to F on the firstday of the month (February 1).

(c) Alternative method—(1) Specificbenefits considered. Under thealternative method, a group health plan,or a health insurance issuer offeringgroup health insurance coverage,determines the amount of creditablecoverage based on coverage within anycategory of benefits described inparagraph (c)(3) of this section and notbased on coverage for any other benefits.The plan or issuer may use thealternative method for any or all of thecategories. The plan may apply adifferent preexisting conditionexclusion period with respect to eachcategory (and may apply a differentpreexisting condition exclusion periodfor benefits that are not within anycategory). The creditable coveragedetermined for a category of benefitsapplies only for purposes of reducingthe preexisting condition exclusionperiod with respect to that category. Anindividual’s creditable coverage forbenefits that are not within any categoryfor which the alternative method isbeing used is determined under the


standard method of paragraph (b) of thissection.

(2) Uniform application. A plan orissuer using the alternative method isrequired to apply it uniformly to allparticipants and beneficiaries under theplan or policy. The use of the alternativemethod is required to be set forth in theplan.

(3) Categories of benefits. Thealternative method for countingcreditable coverage may be used forcoverage for the following categories ofbenefits—

(i) Mental health;(ii) Substance abuse treatment;(iii) Prescription drugs;(iv) Dental care; or(v) Vision care.(4) Plan notice. If the alternative




(5) Disclosure of information onprevious benefits. See § 2590.701–5(b)for special rules concerning disclosureof coverage to a plan, or issuer, usingthe alternative method of countingcreditable coverage under thisparagraph (c).

(6) Counting creditable coverage—(i)In general. Under the alternativemethod, the group health plan or issuercounts creditable coverage within acategory if any level of benefits isprovided within the category. Coverageunder a reimbursement account orarrangement, such as a flexible spendingarrangement (as defined in section106(c)(2) of the Internal Revenue Code),does not constitute coverage within anycategory.

(ii) Special rules. In counting anindividual’s creditable coverage underthe alternative method, the group healthplan, or issuer, first determines theamount of the individual’s creditablecoverage that may be counted underparagraph (b) of this section, up to atotal of 365 days of the most recentcreditable coverage (546 days for a lateenrollee). The period over which thiscreditable coverage is determined isreferred to as the determination period.Then, for the category specified underthe alternative method, the plan orissuer counts within the category alldays of coverage that occurred duringthe determination period (whether ornot a significant break in coverage for

that category occurs), and reduces theindividual’s preexisting conditionexclusion period for that category bythat number of days. The plan or issuermay determine the amount of creditablecoverage in any other reasonablemanner, uniformly applied, that is atleast as favorable to the individual.

(iii) Example. The rules of thisparagraph (c)(6) are illustrated by thefollowing example:

Example. (i) Individual D enrolls inEmployer V’s plan on January 1, 2001.Coverage under the plan includesprescription drug benefits. On April 1, 2001,the plan ceases providing prescription drugbenefits. D’s employment with Employer Vends on January 1, 2002, after D was coveredunder Employer V’s group health plan for365 days. D enrolls in Employer Y’s plan onFebruary 1, 2002 (D’s enrollment date).Employer Y’s plan uses the alternativemethod of counting creditable coverage andimposes a 12-month preexisting conditionexclusion on prescription drug benefits.

(ii) In this Example, Employer Y’s planmay impose a 275-day preexisting conditionexclusion with respect to D for prescriptiondrug benefits because D had 90 days ofcreditable coverage relating to prescriptiondrug benefits within D’s determinationperiod.

§ 2590.701–5 Certification and disclosureof previous coverage.

(a) Certificate of creditable coverage—(1) Entities required to providecertificate—(i) In general. A grouphealth plan, and each health insuranceissuer offering group health insurancecoverage under a group health plan, isrequired to furnish certificates ofcreditable coverage in accordance withthis paragraph (a) of this section.

(ii) Duplicate certificates not required.An entity required to provide acertificate under this paragraph (a)(1) foran individual is deemed to havesatisfied the certification requirementsfor that individual if another partyprovides the certificate, but only to theextent that information relating to theindividual’s creditable coverage andwaiting or affiliation period is providedby the other party. For example, in thecase of a group health plan fundedthrough an insurance policy, the issueris deemed to have satisfied thecertification requirement with respect toa participant or beneficiary if the planactually provides a certificate thatincludes the information required underparagraph (a)(3) of this section withrespect to the participant or beneficiary.

(iii) Special rule for group healthplans. To the extent coverage under aplan consists of group health insurancecoverage, the plan is deemed to havesatisfied the certification requirementsunder this paragraph (a)(1) if any issueroffering the coverage is required to

provide the certificates pursuant to anagreement between the plan and theissuer. For example, if there is anagreement between an issuer and theplan sponsor under which the issueragrees to provide certificates forindividuals covered under the plan, andthe issuer fails to provide a certificate toan individual when the plan wouldhave been required to provide oneunder this paragraph (a), then the issuer,but not the plan, violates thecertification requirements of thisparagraph (a).

(iv) Special rules for issuers—(A)(1)Responsibility of issuer for coverageperiod. An issuer is not required toprovide information regarding coverageprovided to an individual by anotherparty.

(2) Example. The rule of thisparagraph (a)(1)(iv)(A) is illustrated bythe following example:



(B)(1) Cessation of issuer coverageprior to cessation of coverage under aplan. If an individual’s coverage underan issuer’s policy ceases before theindividual’s coverage under the planceases, the issuer is required to providesufficient information to the plan (or toanother party designated by the plan) toenable a certificate to be provided by theplan (or other party), after cessation ofthe individual’s coverage under theplan, that reflects the period of coverageunder the policy. The provision of thatinformation to the plan will satisfy theissuer’s obligation to provide anautomatic certificate for that period ofcreditable coverage for the individualunder paragraph (a) (2)(ii) and (3) of thissection. In addition, an issuer providingthat information is required to cooperatewith the plan in responding to anyrequest made under paragraph (b)(2) ofthis section (relating to the alternativemethod of counting creditablecoverage). If the individual’s coverageunder the plan ceases at the time theindividual’s coverage under the issuer’spolicy ceases, the issuer must providean automatic certificate under paragraph(a)(2)(ii) of this section. An issuer maypresume that an individual whosecoverage ceases at a time other than theeffective date for changing enrollment


options has ceased to be covered underthe plan.

(2) Example. The rule of thisparagraph (a)(1)(iv)(B) is illustrated bythe following example.

Example. (i) A group health plan providescoverage under an HMO option and anindemnity option with a different issuer, andonly allows employees to switch on eachJanuary 1. Neither the HMO nor theindemnity issuer has entered into anagreement with the plan to provide automaticcertificates as permitted under paragraph(a)(2)(ii) of this section.

(ii) In this Example, if an employeeswitches from the indemnity option to theHMO option on January 1, the issuer mustprovide the plan (or a person designated bythe plan) with appropriate information withrespect to the individual’s coverage with theindemnity issuer. However, if theindividual’s coverage with the indemnityissuer ceases at a date other than January 1,the issuer is instead required to provide theindividual with an automatic certificate.

(2) Individuals for whom certificatemust be provided; timing of issuance—(i) Individuals. A certificate must beprovided, without charge, forparticipants or dependents who are orwere covered under a group health planupon the occurrence of any of the eventsdescribed in paragraph (a)(2)(ii) or (iii)of this section.

(ii) Issuance of automatic certificates.The certificates described in thisparagraph (a)(2)(ii) are referred to asautomatic certificates.

(A) Qualified beneficiaries upon aqualifying event. In the case of anindividual who is a qualifiedbeneficiary (as defined in section 607(3)of the Act) entitled to elect COBRAcontinuation coverage, an automaticcertificate is required to be provided atthe time the individual would losecoverage under the plan in the absenceof COBRA continuation coverage oralternative coverage elected instead ofCOBRA continuation coverage. A planor issuer satisfies this requirement if itprovides the automatic certificate nolater than the time a notice is requiredto be furnished for a qualifying eventunder section 606 of the Act (relating tonotices required under COBRA).

(B) Other individuals when coverageceases. In the case of an individual whois not a qualified beneficiary entitled toelect COBRA continuation coverage, anautomatic certificate is required to beprovided at the time the individualceases to be covered under the plan. Aplan or issuer satisfies this requirementif it provides the automatic certificatewithin a reasonable time periodthereafter. In the case of an individualwho is entitled to elect to continuecoverage under a State program similarto COBRA and who receives the

automatic certificate not later than thetime a notice is required to be furnishedunder the State program, the certificateis deemed to be provided within areasonable time period after thecessation of coverage under the plan.

(C) Qualified beneficiaries whenCOBRA ceases. In the case of anindividual who is a qualifiedbeneficiary and has elected COBRAcontinuation coverage (or whosecoverage has continued after theindividual became entitled to electCOBRA continuation coverage), anautomatic certificate is to be provided atthe time the individual’s coverage underthe plan ceases. A plan, or issuer,satisfies this requirement if it providesthe automatic certificate within areasonable time after coverage ceases (orafter the expiration of any grace periodfor nonpayment of premiums). Anautomatic certificate is required to beprovided to such an individualregardless of whether the individual haspreviously received an automaticcertificate under paragraph (a)(2)(ii)(A)of this section.

(iii) Any individual upon request.Requests for certificates are permitted tobe made by, or on behalf of, anindividual within 24 months aftercoverage ceases. Thus, for example, aplan in which an individual enrollsmay, if authorized by the individual,request a certificate of the individual’screditable coverage on behalf of theindividual from a plan in which theindividual was formerly enrolled. Afterthe request is received, a plan or issueris required to provide the certificate bythe earliest date that the plan or issuer,acting in a reasonable and promptfashion, can provide the certificate. Acertificate is required to be providedunder this paragraph (a)(2)(iii) even ifthe individual has previously received acertificate under this paragraph(a)(2)(iii) or an automatic certificateunder paragraph (a)(2)(ii) of this section.

(iv) Examples. The followingexamples illustrate the rules of thisparagraph (a)(2):

Example 1. (i) Individual A terminatesemployment with Employer Q. A is aqualified beneficiary entitled to elect COBRAcontinuation coverage under Employer Q’sgroup health plan. A notice of the rightsprovided under COBRA is typicallyfurnished to qualified beneficiaries under theplan within 10 days after a covered employeeterminates employment.

(ii) In this Example 1, the automaticcertificate may be provided at the same timethat A is provided the COBRA notice.

Example 2. (i) Same facts as Example 1,except that the automatic certificate for A isnot completed by the time the COBRA noticeis furnished to A.

(ii) In this Example 2, the automaticcertificate may be provided within the periodpermitted by law for the delivery of noticesunder COBRA.

Example 3. (i) Employer R maintains aninsured group health plan. R has never had20 employees and thus R’s plan is not subjectto the COBRA continuation coverageprovisions. However, R is in a State that hasa State program similar to COBRA. Bterminates employment with R and losescoverage under R’s plan.

(ii) In this Example 3, the automaticcertificate may be provided not later than thetime a notice is required to be furnishedunder the State program.

Example 4. (i) Individual C terminatesemployment with Employer S and receivesboth a notice of C’s rights under COBRA andan automatic certificate. C elects COBRAcontinuation coverage under Employer S’sgroup health plan. After four months ofCOBRA continuation coverage and theexpiration of a 30-day grace period, S’s grouphealth plan determines that C’s COBRAcontinuation coverage has ceased due tofailure to make a timely payment forcontinuation coverage.

(ii) In this Example 4, the plan mustprovide an updated automatic certificate to Cwithin a reasonable time after the end of thegrace period.

Example 5. (i) Individual D is currentlycovered under the group health plan ofEmployer T. D requests a certificate, aspermitted under paragraph (a)(2)(iii) of thissection. Under the procedure for EmployerT’s plan, certificates are mailed (by first classmail) 7 business days following receipt of therequest. This date reflects the earliest datethat the plan, acting in a reasonable andprompt fashion, can provide certificates.

(ii) In this Example 5, the plan’s proceduresatisfies paragraph (a)(2)(iii) of this section.

(3) Form and content of certificate—(i) Written certificate—(A) In general.Except as provided in paragraph(a)(3)(i)(B) of this section, the certificatemust be provided in writing (includingany form approved by the Secretary asa writing).

(B) Other permissible forms. Nowritten certificate is required to beprovided under this paragraph (a) withrespect to a particular event describedin paragraph (a)(2) (ii) or (iii) of thissection, if—

(1) An individual is entitled to receivea certificate;

(2) The individual requests that thecertificate be sent to another plan orissuer instead of to the individual;

(3) The plan or issuer that wouldotherwise receive the certificate agreesto accept the information in thisparagraph (a)(3) through means otherthan a written certificate (e.g., bytelephone); and

(4) The receiving plan or issuerreceives such information from thesending plan or issuer in such formwithin the time periods required underparagraph (a)(2) of this section.


(ii) Required information. Thecertificate must include the following—

(A) The date the certificate is issued;(B) The name of the group health plan

that provided the coverage described inthe certificate;

(C) The name of the participant ordependent with respect to whom thecertificate applies, and any otherinformation necessary for the planproviding the coverage specified in thecertificate to identify the individual,such as the individual’s identificationnumber under the plan and the name ofthe participant if the certificate is for (orincludes) a dependent;

(D) The name, address, and telephonenumber of the plan administrator orissuer required to provide thecertificate;

(E) The telephone number to call forfurther information regarding thecertificate (if different from paragraph(a)(3)(ii)(D) of this section);


at least 18 months (for this purpose, 546days is deemed to be 18 months) ofcreditable coverage, disregarding days ofcreditable coverage before a significantbreak in coverage, or

(2) The date any waiting period (andaffiliation period, if applicable) beganand the date creditable coverage began;and


(iii) Periods of coverage undercertificate. If an automatic certificate isprovided pursuant to paragraph (a)(2)(ii)of this section, the period that must beincluded on the certificate is the lastperiod of continuous coverage endingon the date coverage ceased. If anindividual requests a certificatepursuant to paragraph (a)(2)(iii) of thissection, a certificate must be providedfor each period of continuous coverageending within the 24-month periodending on the date of the request (orcontinuing on the date of the request).A separate certificate may be providedfor each such period of continuouscoverage.


(v) Model certificate. Therequirements of paragraph (a)(3)(ii) of

this section are satisfied if the plan orissuer provides a certificate inaccordance with a model certificateauthorized by the Secretary.

(vi) Excepted benefits; categories ofbenefits. No certificate is required to befurnished with respect to exceptedbenefits described in § 2590.732. Inaddition, the information in thecertificate regarding coverage is notrequired to specify categories of benefitsdescribed in § 2590.701–4(c) (relating tothe alternative method of countingcreditable coverage). However, ifexcepted benefits are providedconcurrently with other creditablecoverage (so that the coverage does notconsist solely of excepted benefits),information concerning the benefits maybe required to be disclosed underparagraph (b) of this section.

(4) Procedures—(i) Method ofdelivery. The certificate is required to beprovided to each individual describedin paragraph (a)(2) of this section or anentity requesting the certificate onbehalf of the individual. The certificatemay be provided by first-class mail. Ifthe certificate or certificates areprovided to the participant and theparticipant’s spouse at the participant’slast known address, then therequirements of this paragraph (a)(4) aresatisfied with respect to all individualsresiding at that address. If a dependent’slast known address is different than theparticipant’s last known address, aseparate certificate is required to beprovided to the dependent at thedependent’s last known address. Ifseparate certificates are being providedby mail to individuals who reside at thesame address, separate mailings of eachcertificate are not required.

(ii) Procedure for requestingcertificates. A plan or issuer mustestablish a procedure for individuals torequest and receive certificates pursuantto paragraph (a)(2)(iii) of this section.


(5) Special rules concerningdependent coverage—(i)(A) Reasonableefforts. A plan or issuer is required touse reasonable efforts to determine anyinformation needed for a certificaterelating to the dependent coverage. Inany case in which an automaticcertificate is required to be furnishedwith respect to a dependent underparagraph (a)(2)(ii) of this section, noindividual certificate is required to befurnished until the plan or issuer knows(or making reasonable efforts shouldknow) of the dependent’s cessation ofcoverage under the plan.

(B) Example. The rules of thisparagraph (a)(5) are illustrated by thefollowing example:

Example. (i) A group health plan coversemployees and their dependents. The planannually requests all employees to provideupdated information regarding dependents,including the specific date on which anemployee has a new dependent or on whicha person ceases to be a dependent of theemployee.

(ii) In this Example, the plan has satisfiedthe standard in this paragraph (a)(5)(i) of thissection that it make reasonable efforts todetermine the cessation of dependents’coverage and the related dependent coverageinformation.

(ii) Special rules for demonstratingcoverage. If a certificate furnished by aplan or issuer does not provide thename of any dependent of an individualcovered by the certificate, the individualmay, if necessary, use the proceduresdescribed in paragraph (c)(4) of thissection for demonstrating dependentstatus. In addition, an individual may,if necessary, use these procedures todemonstrate that a child was enrolledwithin 30 days of birth, adoption, orplacement for adoption. See § 2590.701–3(b), under which such a child wouldnot be subject to a preexisting conditionexclusion.

(iii) Transaction rule for dependentcoverage through June 30, 1998—(A) Ingeneral. A group health plan or healthinsurance issuer that cannot provide thenames of dependents (or relatedcoverage information) for purposes ofproviding a certificate of coverage for adependent may satisfy the requirementsof paragraph (a)(3)(ii)(C) of this sectionby providing the name of the participantcovered by the group health plan orhealth insurance issuer and specifyingthat the type of coverage described inthe certificate is for dependent coverage(e.g., family coverage or employee-plus-spouse coverage).

(B) Certificates provided on request.For purposes of certificates provided onthe request of, or on behalf of, anindividual pursuant to paragraph(a)(2)(iii) of this section, a plan or issuer


must make reasonable efforts to obtainand provide the names of anydependent covered by the certificatewhere such information is requested tobe provided. If a certificate does notinclude the name of any dependent ofan individual covered by the certificate,the individual may, if necessary, use theprocedures described in paragraph (c) ofthis section for submittingdocumentation to establish that thecreditable coverage in the certificateapplies to the dependent.

(C) Demonstrating a dependent’screditable coverage. See paragraph (c)(4)of this section for special rules todemonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)is only effective for certificates providedwith respect to events occurring throughJune 30, 1998.

(6) Special certification rules forentities not subject to Part 7 of SubtitleB of Title I of the Act—(i) Issuers. Forspecial rules requiring that issuers, notsubject to part 7 of subtitle B of title Iof the Act, provide certificatesconsistent with the rules in this section,including issuers offering coverage withrespect to creditable coverage describedin sections 701(c)(1)(G) through (c)(1)(J)of the Act (coverage under a State healthbenefits risk pool, the FederalEmployees Health Benefits Program, apublic health plan, and a health benefitplan under section 5(e) of the PeaceCorps Act), see section 2721(b)(1)(B) ofthe PHSA (requiring certificates byissuers offering health insurancecovering in connection with a grouphealth plan, including a church plan ora governmental plan (including theFederal Employees Health BenefitsProgram (FEHBP)). In addition, seesection 2743 of the PHSA applicable tohealth insurance issuers in theindividual market. (However, thissection does not require a certificate tobe provided with respect to short-termlimited duration insurance, as describedin the definition of individual healthinsurance coverage in § 2590.701–2, thatis not provided by a group health planor issuer offering health insurance inconnection with a group health plan.)

(ii) Other entities. For special rulesrequiring that certain other entities, notsubject to part 7 of subtitle B of title Iof the Act, provide certificatesconsistent with the rules in this section,see section 2791(a)(3) of the PHSAapplicable to entities described insections 2701(c)(1)(C), (D), (E), and (F)of PHSA (relating to Medicare,Medicaid, CHAMPUS, and IndianHealth Service), section 2721(b)(1)(A) ofthe PHSA applicable to nonfederalgovernmental plans generally, section2721(b)(2)(C)(ii) of the PHSA applicable

to nonfederal governmental plans thatelect to be excluded from therequirements of subparts 1 and 3 of partA of Title XXVII of the PHSA, andsection 9805(a) of the Internal RevenueCode applicable to group health plans,which includes church plans (asdefined in section 414(e) of the InternalRevenue Code).

(b) Disclosure of coverage to a plan,or issuer, using the alternative methodof counting creditable coverage—(1) Ingeneral. If an individual enrolls in agroup health plan with respect to whichthe plan, or issuer, uses the alternativemethod of counting creditable coveragedescribed in § 2590.701–4(c) theindividual provides a certificate ofcoverage under paragraph (a) of thissection, and the plan or issuer in whichthe individual enrolls so requests, theentity that issued the certificate (theprior entity) is required to disclosepromptly to a requesting plan or issuer(the requesting entity) the informationset forth in paragraph (b)(2) of thissection.

(2) Information to be disclosed.Information to be disclosed. The priorentity is required to identify to therequesting entity the categories ofbenefits with respect to which therequesting entity is using the alternativemethod of counting creditable coverage,and the requesting entity may identifyspecific information that the requestingentity reasonably needs in order todetermine the individual’s creditablecoverage with respect to any suchcategory. The prior entity is required todisclose promptly to the requestingentity the creditable coverageinformation so requested.


(c) Ability of an individual todemonstrate creditable coverage andwaiting period information—(1) Ingeneral. The rules in this paragraph (c)implement section 701(c)(4) of the Act,which permits individuals to establishcreditable coverage through means otherthan certificates, and section 701(e)(3) ofthe Act, which requires the Secretary toestablish rules designed to prevent anindividual’s subsequent coverage undera group health plan or health insurancecoverage from being adversely affectedby an entity’s failure to provide acertificate with respect to thatindividual. If the accuracy of acertificate is contested or a certificate isunavailable when needed by theindividual, the individual has the rightto demonstrate creditable coverage (and

waiting or affiliation periods) throughthe presentation of documents or othermeans. For example, the individual maymake such a demonstration when—


(ii) The individual has creditablecoverage but an entity may not berequired to provide a certificate of thecoverage pursuant to paragraph (a) ofthis section;




(2) Evidence of creditable coverage—(i) Consideration of evidence. A plan orissuer is required to take into accountall information that it obtains or that ispresented on behalf of an individual tomake a determination, based on therelevant facts and circumstances,whether an individual has creditablecoverage and is entitled to offset all ora portion of any preexisting conditionexclusion period. A plan or issuer shalltreat the individual as having furnisheda certificate under paragraph (a) of thissection if the individual attests to theperiod of creditable coverage, theindividual also presents relevantcorroborating evidence of somecreditable coverage during the period,and the individual cooperates with theplan’s or issuer’s efforts to verify theindividual’s coverage. For this purpose,cooperation includes providing (uponthe plan’s or issuer’s request) a writtenauthorization for the plan or issuer torequest a certificate on behalf of theindividual, and cooperating in efforts todetermine the validity of thecorroborating evidence and the dates ofcreditable coverage. While a plan orissuer may refuse to credit coveragewhere the individual fails to cooperatewith the plan’s or issuer’s efforts toverify coverage, the plan or issuer maynot consider an individual’s inability toobtain a certificate to be evidence of theabsence of creditable coverage.

(ii) Documents. Documents that mayestablish creditable coverage (andwaiting periods or affiliation periods) inthe absence of a certificate includeexplanations of benefit claims (EOB) orother correspondence from a plan orissuer indicating coverage, pay stubsshowing a payroll deduction for healthcoverage, a health insuranceidentification card, a certificate ofcoverage under a group health policy,


records from medical care providersindicating health coverage, third partystatements verifying periods ofcoverage, and any other relevantdocuments that evidence periods ofhealth coverage.


(iv) Example. The rules of thisparagraph (c)(2) are illustrated by thefollowing example:

Example. (i) Individual F terminatesemployment with Employer W and, a monthlater, is hired by Employer X. Employer X’sgroup health plan imposes a preexistingcondition exclusion of 12 months on newenrollees under the plan and uses thestandard method of determining creditablecoverage. F fails to receive a certificate ofprior coverage from the self-insured grouphealth plan maintained by F’s prioremployer, Employer W, and requests acertificate. However, F (and Employer X’splan, on F’s behalf) is unable to obtain acertificate from Employer W’s plan. F atteststhat, to the best of F’s knowledge, F had atleast 12 months of continuous coverageunder Employer W’s plan, and that thecoverage ended no earlier than F’stermination of employment from EmployerW. In addition, F presents evidence ofcoverage, such as an explanation of benefitsfor a claim that was made during the relevantperiod.



(4) Demonstrating dependent status.If, in the course of providing evidence(including a certificate) of creditablecoverage, an individual is required todemonstrate dependent status, thegroup health plan or issuer is requiredto treat the individual as havingfurnished a certificate showing thedependent status if the individualattests to such dependency and theperiod of such status and the individualcooperates with the plan’s or issuer’sefforts to verify the dependent status.

(d) Determination and notification ofcreditable coverage—(1) Resonable timeperiod. In the event that a group healthplan or health insurance issuer offering

group health insurance coveragereceives information under paragraph(a) of this section (certifications),paragraph (b) of this section (disclosureof information relating to the alternativemethod), or paragraph (c) of this section(other evidence of creditable coverage),the entity is required, within areasonable time period following receiptof the information, to make adetermination regarding the individual’speriod of creditable coverage and notifythe individual of the determination inaccordance with paragraph (d)(2) of thissection. Whether a determination andnotification regarding an individual’screditable coverage is made within areasonable time period is determinedbased on the relevant facts andcircumstances. Relevant facts andcircumstances include whether a plan’sapplication of a preexisting conditionexclusion would prevent an individualfrom having access to urgent medicalservices.

(2) Notification to individual of periodof preexisting condition exclusion. Aplan or issuer seeking to impose apreexisting condition exclusion isrequired to disclose to the individual, inwriting, its determination of anypreexisting condition exclusion periodthat applies to the individual, and thebasis for such determination, includingthe source and substance of anyinformation on which the plan or issuerrelied. In addition, the plan or issuer isrequired to provide the individual witha written explanation of any appealprocedures established by the plan orissuer, and with a reasonableopportunity to submit additionalevidence of creditable coverage.However, nothing in this paragraph (d)or paragraph (c) of this section preventsa plan or issuer from modifying aninitial determination of creditablecoverage if it determines that theindividual did not have the claimedcreditable coverage, provided that—

(i) A notice of such reconsideration,as described in this paragraph (d), isprovided to the individual; and

(ii) Until the final determination ismade, the plan or issuer, for purposes ofapproving access to medical services(such as a pre-surgery authorization),acts in a manner consistent with theinitial determination.


Example 1. (i) Individual G is hired byEmployer Y. Employer Y’s group health planimposes a preexisting condition exclusion for12 months with respect to new enrollees anduses the standard method of determiningcreditable coverage. Employer Y’s plandetermines that G is subject to a 4-monthpreexisting condition exclusion, based on a

certificate of creditable coverage that isprovided by G to Employer Y’s planindicating 8 months of coverage under G’sprior group health plan.

(ii) In this Example 1, Employer Y’s planmust notify G within a reasonable period oftime following receipt of the certificate thatG is subject to a 4-month preexistingcondition exclusion beginning on G’senrollment date in Y’s plan.

Example 2. (i) Same facts as in Example 1,except that Employer Y’s plan determinesthat G has 14 months of creditable coveragebased on G’s certificate indicating 14 monthsof creditable coverage under G’s prior plan.

(ii) In this Example 2, Employer Y’s planis not required to notify G that G will not besubject to a preexisting condition exclusion.

Example 3. (i) Individual H is hired byEmployer Z. Employer Z’s group health planimposes a preexisting condition exclusion for12 months with respect to new enrollees anduses the standard method of determiningcreditable coverage. H develops an urgenthealth condition before receiving a certificateof prior coverage. H attests to the period ofprior coverage, presents corroboratingdocumentation of the coverage period, andauthorizes the plan to request a certificate onH’s behalf.

(ii) In this Example 3, Employer Z’s planmust review the evidence presented by H. Inaddition, the plan must make adetermination and notify H regarding anypreexisting condition exclusion period thatapplies to H (and the basis of suchdetermination) within a reasonable timeperiod following receipt of the evidence thatis consistent with the urgency of H’s healthcondition (this determination may bemodified as permitted under paragraph (d)(2)of this section).

§ 2590.701–6 Special enrollment periods.(a) Special enrollment for certain

individuals who lose coverage—(1) Ingeneral. A group health plan, and ahealth insurance issuer offering grouphealth insurance coverage in connectionwith a group health plan, is required topermit employees and dependentsdescribed in paragraph (a) (2), (3), or (4)of this section to enroll for coverageunder the terms of the plan if theconditions in paragraph (a)(5) of thissection are satisfied and the enrollmentis requested within the period describedin paragraph (a)(6) of this section. Theenrollment is effective at the timedescribed in paragraph (a)(7) of thissection. The special enrollment rightsunder this paragraph (a) apply withoutregard to the dates on which anindividual would otherwise be able toenroll under the plan.

(2) Special enrollment of an employeeonly. An employee is described in thisparagraph (a)(2) if the employee iseligible, but not enrolled, for coverageunder the terms of the plan and, whenenrollment was previously offered to theemployee under the plan and wasdeclined by the employee, the employee


was covered under another group healthplan or had other health insurancecoverage.

(3) Special enrollment of dependentsonly. A dependent is described in thisparagraph (a)(3) if the dependent is adependent of an employee participatingin the plan, the dependent is eligible,but not enrolled, for coverage under theterms of the plan, and, when enrollmentwas previously offered under the planand was declined, the dependent wascovered under another group healthplan or had other health insurancecoverage.





(B) The employee is provided withnotice of the requirement to provide thestatement in this paragraph (a)(5)(i) (andthe consequences of the employee’sfailure to provide the statement) at thetime the employee declined enrollment.

(ii)(A) When the employee declinedenrollment for the employee ordependent under the plan, the employeeor dependent had COBRA continuationcoverage under another plan andCOBRA continuation coverage underthat other plan has since beenexhausted; or

(B) If the other coverage that appliedto the employee or dependent whenenrollment was declined was not undera COBRA continuation provision, eitherthe other coverage has been terminatedas a result of loss of eligibility for thecoverage or employer contributionstowards the other coverage has beenterminated. For this purpose, loss ofeligibility for coverage includes a loss ofcoverage as a result of legal separation,divorce, death, termination of

employment, reduction in the numberof hours of employment, and any loss ofeligibility after a period that is measuredby reference to any of the foregoing.Thus, for example, if an employee’scoverage ceases following a terminationof employment and the employee iseligible for but fails to elect COBRAcontinuation coverage, this is treated asa loss of eligibility under this paragraph(a)(5)(ii)(B). However, loss of eligibilitydoes not include a loss due to failure ofthe individual or the participant to paypremiums on a timely basis ortermination of coverage for cause (suchas making a fraudulent claim or anintentional misrepresentation of amaterial fact in connection with theplan). In addition, for purposes of thisparagraph (a)(5)(ii)(B), employercontributions include contributions byany current or former employer (of theindividual or another person) that wascontributing to coverage for theindividual.

(6) Length of special enrollmentperiod. The employee is required torequest enrollment (for the employee orthe employee’s dependent, as describedin paragraph (a) (2), (3), or (4) of thissection) not later than 30 days after theexhaustion of the other coveragedescribed in paragraph (a)(5)(ii)(A) ofthis section or termination of the othercoverage as a result of the loss ofeligibility for the other coverage foritems described in paragraph (a)(5)(ii)(B)of this section or following thetermination of employer contributionstoward that other coverage. The planmay impose the same requirements thatapply to employees who are otherwiseeligible under the plan to immediatelyrequest enrollment for coverage (e.g.,that the request be made in writing).


(b) Special enrollment with respect tocertain dependent beneficiaries—(1) Ingeneral. A group health plan that makescoverage available with respect todependents of a participant is requiredto provide a special enrollment periodto permit individuals described inparagraph (b) (2), (3), (4), (5), or (6) ofthis section to be enrolled for coverageunder the terms of the plan if theenrollment is requested within the timeperiod described in paragraph (b)(7) ofthis section. The enrollment is effectiveat the time described in paragraph (b)(8)of this section. The special enrollmentrights under this paragraph (b) applywithout regard to the dates on which anindividual would otherwise be able toenroll under the plan.

(2) Special enrollment of an employeewho is eligible but not enrolled. Anindividual is described in thisparagraph (b)(2) if the individual is anemployee who is eligible, but notenrolled, in the plan, the individualwould be a participant but for a priorelection by the individual not to enrollin the plan during a previousenrollment period, and a personbecomes a dependent of the individualthrough marriage, birth, or adoption orplacement for adoption.

(3) Specil enrollment of a spouse of aparticipant. An individual is describedin this paragraph (b)(3) if either—


(ii) The individual is a spouse of theparticipant and a child becomes adependent of the participant throughbirth, adoption or placement foradoption.





(6) Sepcial enrollment of an employeewho is eligible but not enrolled and anew dependent. An employee who iseligible, but not enrolled, in the plan,and an individual who is a dependentof the employee, are described in thisparagraph (b)(6) if the employee wouldbe a participant but for a prior electionby the employee not to enroll in theplan during a previous enrollmentperiod, and the dependent becomes adependent of the employee throughmarriage, birth, or adoption orplacement for adoption.

(7) Length of special enrollmentperiod. The special enrollment periodunder paragraph (b)(1) of this section isa period of not less than 30 days andbegins on the date of the marriage, birth,or adoption or placement for adoption


(except that such period does not beginearlier than the date the plan makesdependent coverage generally available).







(ii) In this Example, the conditions forspecial enrollment of an employee with anew dependent under paragraph (b)(2) of thissection are satisfied, the conditions forspecial enrollment of an employee and aspouse with a new dependent underparagraph (b)(4) of this section are satisfied,and the conditions for special enrollment ofan employee and a new dependent underparagraph (b)(6) of this section are satisfied.Accordingly, Employer X’s plan will satisfythis paragraph (b) if and only if it allows Ato elect, by filing the required forms byMarch 16, 1999, to enroll in Employer X’splan either with employee-only coverage,with employee-plus-spouse coverage, or withfamily coverage, effective as of February 15,1999.


If you are declining enrollment for yourselfor your dependents (including your spouse)because of other health insurance coverage,you may in the future be able to enrollyourself or your dependents in this plan,provided that you request enrollment within30 days after your other coverage ends. Inaddition, if you have a new dependent as aresult of marriage, birth, adoption, orplacement for adoption, you may be able toenroll yourself and your dependents,

provided that you request enrollment within30 days after the marriage, birth, adoption, orplacement for adoption.

(d)(1) Special enrollment datedefinition. A special enrollment date foran individual means any date inparagraph (a)(7) or (b)(8) of this sectionon which the individual has a right tohave enrollment in a group health planbecome effective under this section.

(2) Examples. The rules of this sectionare illustrated by the followingexamples:

Example 1. (i)(A) Employer Y maintains agroup health plan that allows employees toenroll in the plan either—

(1) Effective on the first day of employmentby an election filed within three daysthereafter;

(2) Effective on any subsequent January 1by an election made during the precedingmonths of November or December; or

(3) Effective as of any special enrollmentdate described in this section.

(B) Employee B is hired by Employer Y onMarch 15, 1998 and does not elect to enrollin Employer Y’s plan until January 31, 1999when B loses coverage under another plan.B elects to enroll in Employer Y’s planeffective on February 1, 1999, by filing thecompleted request form by January 31, 1999,in accordance with the special rule set forthin paragraph (a) of this section.

(ii) In this Example 1, B has enrolled ona special enrollment date because theenrollment is effective at a date described inparagraph (a)(7) of this section.

Example 2. (i) Same facts as Example 1,except that B’s loss of coverage under theother plan occurs on December 31, 1998 andB elect to enroll in Employer Y’s planeffective on January 1, 1999 by filing thecompleted request form by December 31,1998, in accordance with the special rule setforth in paragraph (a) of this section.

(ii) In this Example 2, B has enrolled ona special enrollment date because theenrollment is effective at a date described inparagraph (a)(7) of this section (even thoughthis date is also a regular enrollment dateunder the plan).

§ 2590.701–7 HMO affiliation period asalternative to preexisting conditionexclusion.

(a) In general. A group health planoffering health insurance coveragethrough an HMO, or an HMO that offershealth insurance coverage in connectionwith a group health plan, may imposean affiliation period only if each of therequirements in paragraph (b) of thissection is satisfied.

(b) Requirements for affiliationperiod. (1) No preexisting conditionexclusion is imposed with respect toany coverage offered by the HMO inconnection with the particular grouphealth plan.

(2) No premium is charged to aparticipant or beneficiary for theaffiliation period.

(3) The affiliation period for the HMOcoverage is applied uniformly withoutregard to any health status-relatedfactors.

(4) The affiliation period does notexceed 2 months (or 3 months in thecase of a late enrollee).

(5) The affiliation period begins onthe enrollment date.

(6) The affiliation period forenrollment in the HMO under a planruns concurrently with any waitingperiod.

(c) Alternatives to affiliation period.An HMO may use alternative methodsin lieu of an affiliation period to addressadverse selection, as approved by theState insurance commissioner or otherofficial designated to regulate HMOs.Nothing in the part requires a State toreceive proposals for or approvealternatives to affiliation periods.

§ 2590.702 Prohibiting discriminationagainst participants and beneficiariesbased on a health status-related factor.

(a) In eligibility to enroll—(1) Ingeneral. Subject to paragraph (a)(2) ofthis section, a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage in connectionwith a group health plan, may notestablish rules for eligibility (includingcontinued eligibility) of any individualto enroll under the terms of the planbased on any of the following healthstatus-related factors in relation to theindividual or a dependent of theindividual.


physical and mental illnesses), asdefined in § 2590.701–2.


§ 2590.701–2.(vii) Evidence of insurability



exclusions. To the extent consistentwith section 701 of the Act and§ 2590.701–3, paragraph (a)(1) of thissection shall not be construed—

(i) To require a group health plan, ora health insurance issuer offering grouphealth insurance coverage, to provideparticular benefits other than thoseprovided under the terms of such planor coverage; or

(ii) To prevent such a plan or issuerfrom establishing limitation orrestrictions on the amount, level, extent,or nature of the benefits or coverage forsimilarly situated individuals enrolledin the plan or coverage.


(3) Construction. For purposes ofparagraph (a)(1) of this section, rules foreligibility to enroll include rule definingany applicable waiting (or affiliation)periods for such enrollment and rulesrelating to late and special enrollment.

(4) Example. The following exampleillustrates the rules of this paragraph (a):



(b) In premiums or contributions—(1)In general. A group health plan, and ahealth insurance issuer offering healthinsurance coverage in connection with agroup health plan, may not require anindividual (as a condition of enrollmentor continued enrollment under the plan)to pay a premium or contribution thatis greater than the premium orcontribution for a similarly situatedindividual enrolled in the plan based onany health status-related factor, inrelation to the individual or adependent of the individual.

(2) Construction. Nothing inparagraph (b)(1) of this section shall beconstrued—


(ii) To prevent a group health plan,and a health insurance issuer offeringgroup health insurance coverage, fromestablishing premium discounts orrebates or modifying otherwiseapplicable copayments or deductibles inreturn for adherence to a bona fidewellness program. For purposes of thissection, a bona fide wellness program isa program of health promotion anddisease prevention.



(ii) In this Example, because enrollees whootherwise comply with the program may beunable to achieve a cholesterol count under200 due to a health status-related factor, this

is not a bona fide wellness program and suchdiscounts would discriminate impermissiblybased on one or more health status-relatedfactors. However, if, instead, individualscovered by the plan were entitled to receivethe discount for complying with the diaryand dietary requirements and were notrequired to pass a cholesterol test, theprogram would be a bona fide wellnessprogram.

§ 2590.703 Guaranteed renewability inmultiemployer plans and multiple employerwelfare arrangements. [Reserved]

Subpart B—Other Requirements

§ 2590.711 Standard relating to benefitsfor mothers and newborns. [Reserved]

§ 2590.712 Parity in the application ofcertain limits to mental health benefits.[Reserved]

Subpart C—General Provisions

§ 2590.731 Preemption; State flexibility;construction.

(a) Continued applicability of Statelaw with respect to health insuranceissuers. Subject to paragraph (b) of thissection and except as provided inparagraph (c) of this section, part 7 ofsubtitle B of title I of the Act is not tobe construed to supersede any provisionof State law which establishes,implements, or continues in effect anystandard or requirement solely relatingto health insurance issuers inconnection with group health insurancecoverage except to the extent that suchstandard or requirement prevents theapplication of a requirements of thispart.

(b) Continued preemption withrespect to group health plans. Nothingin part 7 of subtitle B of title I of the Actaffects or modifies the provisions ofsection 514 of the Act with respect togroup health plans.

(c) Special rules—(1) In general.Subject to paragraph (c)(2) of thissection, the provisions of part 7 ofsubtitle B of title I of the Act relating tohealth insurance coverage offered by ahealth insurance issuer supersede anyprovision of State law whichestablishes, implements, or continues ineffect a standard or requirementapplicable to imposition of a preexistingcondition exclusion specificallygoverned by section 701 which differsfrom the standards or requirementsspecified in such section.

(2) Exceptions. Only in relation tohealth insurance coverage offered by ahealth insurance issuer, the provisionsof this part do not supersede anyprovision of State law to the extent thatsuch provision—

(i) Shortens the period of time fromthe ‘‘6-month period’’ described in

section 701(a)(1) of the Act and§ 2590.701–3(a)(1)(i) (for purposes ofidentifying a preexisting condition);

(ii) Shortens the period of time fromthe ‘‘12 months’’ and ‘‘18 months’’described in section 701(a)(2) of the Actand § 2590.701–3(a)(1)(ii) (for purposesof applying a preexisting conditionexclusion period);

(iii) Provides for a greater number ofdays than the ‘‘63 day period’’ describedin sections 701(c)(2)(A) and (d)(4)(A) ofthe Act and §§ 2590.701–3(a)(1)(iii) and2590.701–4 (for purposes of applyingthe break in coverage rules);

(iv) Provides for a greater number ofdays than the ‘‘30-day period’’ describedin sections 701 (b)(2) and (d)(1) of theAct and § 2590.701–3(b) (for purposes ofthe enrollment period and preexistingcondition exclusion periods for certainnewborns and children that are adoptedor placed for adoption);

(v) Prohibits the imposition of anypreexisting condition exclusion in casesnot described in section 701(d) of theAct or expands the exceptions describedtherein;

(vi) Requires special enrollmentperiods in addition to those requiredunder section 701(f) of the Act; or

(vii) Reduces the maximum periodpermitted in an affiliation period undersection 701(g)(1)(B) of the Act.

(d) Definitions—(1) State law. Forpurposes of this § 2590.736 the termState law includes all laws, decisions,rules, regulations, or other State actionhaving the effect of law, of any State. Alaw of the United States applicable onlyto the District of Columbia is treated asa State law rather an a law of the UnitedStates.

(2) State. For purposes of this sectionthe term State includes a State, theNorthern Mariana Islands, any politicalsubdivisions of a State or such Island,or any agency or instrumentality ofeither.

§ 2590.732 Special rule relating to grouphealth plans.

(a) General exception for certain smallgroup health plans. The requirements ofthis part 7 of subtitle B of title I of theAct do not apply to any group healthplan (and group health insurancecoverage offered in connection with agroup health plan) for any plan year if,on the first day of the plan year, theplan has fewer than 2 participants whoare current employees.

(b) Excepted benefits—(1) In general.The requirements of subparts A and Cof this part do not apply to any grouphealth plan (or any group healthinsurance coverage offered inconnection with a group health plan) inrelation to its provision of the benefits


described in paragraph (b)(92), (3), (4),or (5) of this section (or anycombination of these benefits).

(2) Benefits excepted in allcircumstances. The following benefitsare excepted in all circumstances—

(i) Coverage only for accident(including accidental death anddismemberment);

(ii) Disability income insurance;(iii) Liability insurance, including

general liability insurance andautomobile liability insurance;

(iv) Coverage issued as a supplementto liability insurance;

(v) Workers’ compensation or similarinsurance;

(vi) Automobile medical paymentinsurance;

(vii) Credit-only insurance (forexample, mortgage insurance); and


(3) Limited excepted benefits—(i) Ingeneral. Limited-scope dental benefits,limited-scope vision benefits, or long-term care benefits are excepted if theyare provided under a separate policy,certificate, or contract of insurance, orare otherwise not an integral part of theplan, as defined in paragraph (b)(3)(ii) ofthis section.

(ii) Integral. For purposes ofparagraph (b)(3)(i) of this section,benefits are deemed to be an integralpart of a plan unless a participant hasthe right to elect not to receive coveragefor the benefits and, if the participantelects to receive coverage for thebenefits, the participant pays anadditional premium or contribution forthat coverage.

(iii) Limited scope. Limited scopedental or vision benefits are dental orvision benefits that are sold under aseparate policy or rider and that arelimited in scope to a narrow range ortype of benefits that are generallyexcluded from hospital/medical/surgical benefit packages.



(B) For qualified long-term careinsurance services, as defined in section7702B(c)(1) of the Code, or providedunder a qualified long-term careinsurance contract, as defined in section7702B(b) of the Internal Revenue Code;or

(C) Based on cognitive impairment ora loss of functional capacity that isexpected to be chronic.

(4) Noncoordinated benefits—(i)Excepted benefits that are notcoordinated. Coverage for only aspecified disease or illness (for example,cancer-only policies) or hospital

indemnity or other fixed dollarindemnity insurance (for example,$100/day) is excepted only if it meetseach of the conditions specified inparagraph (b)(4)(ii) of this section.



(B) There is no coordination betweenthe provision of the benefits and anexclusion of benefits under any grouphealth plan maintained by the sameplan sponsor; and

(C) The benefits are paid with respectto an event without regard to whetherbenefits are provided with respect to theevent under any group health planmaintained by the same plan sponsor.

(5) Supplemental benefits. Thefollowing benefits are excepted only ifthey are provided under a separatepolicy, certificate, or contract ofinsurance:

(i) Medicare supplemental healthinsurance (as defined under section1882(g)(1) of the Social Security Act;also known as Medigap or MedSuppinsurance);

(ii) Coverage supplemental to thecoverage provided under Chapter 55,Title 10 of the United States Code (alsoknown as CHAMPUS supplementalprograms), and


(c) Treatment of partnerships.[Reserved]

§ 2590.734 Enforcement. [Reserved]

§ 2590.736 Effective dates.(a) General effective dates—(1) Non-

collectively-bargained plans. Except asotherwise provided in this section, part7 of subtitle B of title I of the Act andsubparts A and C of this part apply withrespect to group health plans, includinghealth insurance issuers offering healthinsurance coverage in connection withgroup health plans, for plan yearsbeginning after June 30, 1997.

(2) Collectively bargained plans.Except as otherwise provided in thissection (other than paragraph (a)(1) ofthis section), in the case of a grouphealth plan maintained pursuant to oneor more collective bargainingagreements between employeerepresentatives and one or moreemployers ratified before August 21,1996, Part 7 of subtitle B of title I of theAct and subparts A and C of this partdo not apply to plan years beginningbefore the later of July 1, 1997, or thedate on which the last of the collective

bargaining agreements relating to theplan terminates (determined withoutregard to any extension thereof agreed toafter August 21, 1996). For thesepurposes, any plan amendment madepursuant to a collective bargainingagreement relating to the plan, thatamends the plan solely to conform toany requirement of such part, is nottreated as a termination of the collectivebargaining agreement.

(3)(i) Preexisting condition exclusionperiods for current employees. Anypreexisting condition exclusion periodpermitted under § 2590.701–3 ismeasured from the individual’senrollment date in the plan. Suchexclusion period, as limited under§ 2590.701–3, may be completed prior tothe effective date of the HealthInsurance Portability andAccountability Act of 1996 (HIPAA) forhis or her plan. Therefore, on the datethe individual’s plan becomes subject topart 7 of subtitle B of title I of the Act,no preexisting condition exclusion maybe imposed with respect to anindividual beyond the limitation of§ 2590.701–3. For an individual whohas not completed the permittedexclusion period under HIPAA, uponthe effective date for his or her plan, theindividual may use creditable coveragethat the individual had prior to theenrollment date to reduce the remainingpreexisting condition exclusion periodapplicable to the individual.

(ii) Examples. The followingexamples illustrate the rules of thisparagraph (a)(3):

Example 1. (i) Individual A has beenworking for Employer X and has beencovered under Employer X’s plan sinceMarch 1, 1997. Under Employer X’s plan, asin effect before January 1, 1998, there is nocoverage for any preexisting condition.Employer X’s plan year begins on January 1,1998. A’s enrollment date in the plan isMarch 1, 1997 and A has no creditablecoverage before this date.

(ii) In this Example 1, Employer X maycontinue to impose the preexisting conditionexclusion under the plan through February28, 1998 (the end of the 12-month periodusing anniversary dates).

Example 2. (i) Same facts as in Example 1,except that A’s enrollment date was August1, 1996, instead of March 1, 1997.

(ii) In this Example 2, on January 1, 1998,Employer X’s plan may no longer excludetreatment for any preexisting condition thatA may have; however, because Employer X’splan is not subject to HIPAA until January 1,1998, A is not entitled to claimreimbursement for expenses under the planfor treatments for any preexisting conditionof A received before January 1, 1998.

(b) Effective date for certificationrequirement—(1) In general. Subject tothe transitional rule in § 2590.701–5(a)(5)(iii), the certification rules of


§ 2590.701–5 apply to events occurringon or after July 1, 1996.


(3) No certificate before June 1, 1997.Notwithstanding any other provision ofsubpart A or C of this part, in no caseis a certificate required to be providedbefore June 1, 1997.

(c) Limitation on actions. Noenforcement action is to be taken,pursuant to part 7 of subtitle B of titleI of the Act, against a group health planor health insurance issuer with respectto a violation of a requirement imposedby part 7 of subtitle B of title I of theAct before January 1, 1998, if the planor issuer has sought to comply in goodfaith with such requirements.Compliance with this part is deemed tobe good faith compliance with therequirements of part 7 of subtitle B oftitle I of the Act.

(d) Transition rules for countingcreditable coverage. An individual whoseeks to establish creditable coverage forperiods before July 1, 1996 is entitled toestablish such coverage through thepresentation of documents or othermeans in accordance with theprovisions of § 2590.701–5(c). Forcoverage relating to an event occurringbefore July 1, 1996, a group health planand a health insurance issuer is notsubject to any penalty or enforcementaction with respect to the plan’s orissuer’s counting (or not counting) suchcoverage if the plan or issuer has soughtto comply in good faith with theapplicable requirements under§ 2590.701–5(c).

(e) Transition rules for certificates ofcreditable coverage—(1) Certificatesonly upon request. For events occurringon or after July 1, 1996, but beforeOctober 1, 1996, a certificate is requiredto be provided only upon a writtenrequest by or on behalf of the individualto whom the certificate applies.

(2) Certificates before June 1, 1997.For events occurring on or after October1, 1996 and before June 1, 1997, acertificate must be furnished no laterthan June 1, 1997, or any later datepermitted under § 2590.701–5(a)(2) (ii)and (iii).

(3) Optional notice—(i) In general.This paragraph (e)(3) applies withrespect to events described in§ 2590.701–5(a)(5)(ii), that occur on orafter October 1, 1996 but before June 1,1997. A group health plan or healthinsurance issuer offering group healthcoverage is deemed to satisfy§ 2590.701–5(a) (2) and (3) if a notice isprovided in accordance with theprovisions of paragraphs (e)(3) (i)through (iv) of this section.


(iii) Form and content of notice. Anotice provided pursuant to thisparagraph (e)(3) must be in writing andmust include information substantiallysimilar to the information included in amodel notice authorized by theSecretary. Copies of the model noticeare available on the following website—http://www.dol.gov/dol/pwba/ (or call1–800–998–7542).

(iv) Providing certificate after request.If an individual requests a certificatefollowing receipt of the notice, thecertificate must be provided at the timeof the request as set forth in § 2590.701–5(a)(5)(iii).

(v) Other certification rules apply.The rules set forth in § 2590.701–5(a)(4)(i) (method of delivery) and§ 2590.701–5(a)(1) (entities required toprovide a certificate) apply with respectto the provision of the notice.

Signed at Washington, D.C., this 27 day ofMarch, 1997.Olena Berg,Assistant Secretary, Pension and WelfareBenefits Administration, U.S. Department ofLabor.

Department of Health and HumanServices

45 CFR Subtitle A

45 CFR is amended as set forth below:1. The heading for subtitle A is

revised to read as follows:

SUBTITLE A—DEPARTMENT OF HEALTHAND HUMAN SERVICES

2. Existing parts 1 through 100 aredesignated as subchapter A of subtitle Aand a new subchapter heading is addedto read as follows:

SUBCHAPTER A—GENERALADMINISTRATION

3. New subchapter B, consisting ofparts 140 through 199, is added to readas follows:

SUBCHAPTER B—REQUIREMENTSRELATING TO HEALTH CARE ACCESS

PARTS 140—143 [RESERVED]

PART 144—REQUIREMENTSRELATING TO HEALTH INSURANCECOVERAGE

Subpart A—General Provisions

Sec.144.101 Basis and purpose.144.102 Scope and applicability.144.103 Definitions applicable to both

group (45 CFR Part 146) and individual(45 CFR Part 148) markets.

Subpart B—[Reserved]

Authority: Secs. 2701 through 2763, 2791,and 2792 of the Public Health Service Act,

42 U.S.C. 300gg through 300gg–63, 300gg–91,and 300gg–92.

PART 144—REQUIREMENTSRELATING TO HEALTH INSURANCECOVERAGE


§ 144.101 Basis and purpose.

Part 146 of this subchapterimplements sections 2701 through 2723of the Public Health Service Act (PHSAct, 42 U.S.C. 300gg, et seq.). Itspurpose is to improve access to grouphealth insurance coverage and toguarantee the renewability of allcoverage in the group market. Part 148of this subchapter implements sections2741 through 2763 of the PHS Act. Itspurpose is to improve access toindividual health insurance coverage forcertain eligible individuals whopreviously had group coverage, and toguarantee the renewability of allcoverage in the individual market.Sections 2791 and 2792 of the PHS Actdefine terms used in the regulations inthis subchapter and provide the basisfor issuing these regulations,respectively.

§ 144.102 Scope and applicability.

(a) For purposes of 45 CFR parts 144through 148, all health insurancecoverage is generally divided into twomarkets—the group market (set forth in45 CFR part 146) and the individualmarket (set forth in 45 CFR part 148). 45CFR part 146 limits the group market toinsurance sold to employment-relatedgroup health plans and further dividesthe group market into the large groupmarket and the small group market.Federal law further defines the smallgroup market as insurance sold toemployer plans with 2 to 50 employees.State law, however, may expand thedefinition of the small group market toinclude certain coverage that wouldotherwise, under the Federal law, beconsidered coverage in the large groupmarket or the individual market.

(b) The protections afforded under 45CFR parts 144 through 148 toindividuals and employers (and othersponsors of health insurance offered inconnection with a group health plan)are determined by whether the coverageinvolved is obtained in the small groupmarket, the large group market, or theindividual market. Small employers,and individuals who are eligible toenroll under the employer’s plan, areguaranteed availability of insurancecoverage sold in the small group market.Small and large employers areguaranteed the right to renew theirgroup coverage, subject to certain


exceptions. Eligible individuals areguaranteed availability of coverage soldin the individual market, and allcoverage in the individual market mustbe guaranteed renewable.

(c) Coverage that is provided toassociations, but is not related toemployment, is not considered groupcoverage under 45 CFR parts 144through 148. The coverage is consideredcoverage in the individual market,regardless of whether it is consideredgroup coverage under State law.

§ 144.103 Definitions applicable to bothgroup (45 CFR part 146) and individual (45CFR part 148) markets.

Unless otherwise provided, thefollowing definitions apply:


Applicable State authority means,with respect to a health insurance issuerin a State, the State insurancecommissioner or official or officialsdesignated by the State to enforce therequirements of 45 CFR parts 146 and148 for the State involved with respectto the issuer.

Beneficiary has the meaning given theterm under section 3(8) of the EmployeeRetirement Income Security Act of 1974(ERISA), which states, ‘‘a persondesignated by a participant, or by theterms of an employee benefit plan, whois or may become entitled to a benefit’’under the plan.

Bona fide association means, withrespect to health insurance coverageoffered in a State, an association thatmeets the following conditions:

(1) Has been actively in existence forat least 5 years.

(2) Has been formed and maintainedin good faith for purposes other thanobtaining insurance.

(3) Does not condition membership inthe association on any health status-related factor relating to an individual(including an employee of an employeror a dependent of any employee).

(4) Makes health insurance coverageoffered through the association availableto all members regardless of any healthstatus-related factor relating to themembers (or individuals eligible forcoverage through a member).

(5) Does not make health insurancecoverage offered through the associationavailable other than in connection witha member of the association.

(6) Meets any additional requirementsthat may be imposed under State law.

Church plan means a Church planwithin the meaning of section 3(33) ofERISA.




(3) COBRA continuation provisionmeans sections 601 through 608 of theEmployee Retirement Income SecurityAct of 1974, section 4980B of theInternal Revenue Code of 1986 (otherthan paragraph (f)(1) of section 4980Binsofar as it relates to pediatricvaccines), and Title XXII of the PHSAct.

(4) Continuation coverage meanscoverage under a COBRA continuationprovision or a similar State program.Coverage provided by a plan that issubject to a COBRA continuationprovision or similar State program, butthat does not satisfy all the requirementsof that provision or program, will bedeemed to be continuation coverage if itallows an individual to elect to continuecoverage for a period of at least 18months. Continuation coverage does notinclude coverage under a conversionpolicy required to be offered to anindividual upon exhaustion ofcontinuation coverage, nor does itinclude continuation coverage under theFederal Employees Health BenefitsProgram.




(6) Exhaustion of continuationcoverage means that an individual’scontinuation coverage ceases for anyreason other than either failure of theindividual to pay premiums on a timelybasis, or for cause (such as making afraudulent claim or an intentionalmisrepresentation of a material fact inconnection with the plan). An

individual is considered to haveexhausted continuation coverage if—

(i) Coverage ceases due to the failureof the employer or other responsibleentity to remit premiums on a timelybasis, or

(ii) When the individual no longerresides, lives, or works in a service areaof an HMO or similar program (whetheror not within the choice of theindividual) and there is no othercontinuation coverage available to theindividual.

Condition means a medical condition.Creditable coverage has the meaning

of 45 CFR 146.113(a).Eligible individual, for purposes of—(1) The group market provisions in 45

CFR part 146, subpart E, the term isdefined in 45 CFR 146.150(b); and

(2) The individual market provisionsin 45 CFR part 148, the term is definedin 45 CFR 148.103.

Employee has the meaning given theterm under section 3(6) of ERISA, whichstates, ‘‘any individual employed by anemployer.’’

Employer has the meaning given theterm under section 3(5) of ERISA, whichstates, ‘‘any person acting directly as anemployer, or indirectly in the interest ofan employer, in relation to an employeebenefit plan; and includes a group orassociation of employers acting for anemployer in such capacity.’’

Enroll means to become covered forbenefits under a group health plan (thatis, when coverage becomes effective),without regard to when the individualmay have completed or filed any formsthat are required in order to enroll in theplan. For this purpose, an individualwho has health insurance coverageunder a group health plan is enrolled inthe plan regardless of whether theindividual elects coverage, theindividual is a dependent who becomescovered as a result of an election by aparticipant, or the individual becomescovered without an election.

Enrollment date definitions(enrollment date and first day ofcoverage) are set forth in 45 CFR146.11(a)(2)(i) and (a)(2)(ii).

ERISA stands for the EmployeeRetirement Income Security Act of 1974,as amended (29 U.S.C. 1001 et seq.).

Excepted benefits for purposes ofthe—

(1) Group market provisions in 45CFR part 146 subpart D, the term isdefined in 45 CFR 146.145(b); and

(2) The individual market provisionsin 45 CFR part 148, the term is definedin 45 CFR 148.220.

Federal government plan means agovernmental plan established ormaintained for its employees by theGovernment of the United States or by


any agency or instrumentality of suchGovernment.


Governmental plan means agovernmental plan within the meaningof section 3(32) of ERISA.


Group health plan means anemployee welfare benefit plan (asdefined in section 3(1) of ERISA) to theextent that the plan provides medicalcare (as defined in section 2791(a)(2) ofthe PHS Act and including items andservices paid for as medical care) toemployees or their dependents (asdefined under the terms of the plan)directly or through insurance,reimbursement, or otherwise.

Group market means the market forhealth insurance coverage offered inconnection with a group health plan.(However, unless otherwise providedunder State law, certain very smallplans may be treated as being in theindividual market, rather than the groupmarket; see the definition of ‘‘individualmarket’’ in this section.)

Health insurance coverage meansbenefits consisting of medical care(provided directly, through insurance orreimbursement, or otherwise) under anyhospital or medical service policy orcertificate, hospital or medical serviceplan contract, or HMO contract offeredby a health insurance issuer.

Health insurance issuer or issuermeans an insurance company, insuranceservice, or insurance organization(including an HMO) that is required tobe licensed to engage in the business ofinsurance in a State and that is subjectto State law that regulates insurance(within the meaning of section 514(b)(2)of ERISA). This term does not includea group health plan.


(1) A Federally qualified healthmaintenance organization (as defined insection 1301(a) of the PHS Act);


(3) A similar organization regulatedunder State law for solvency in the same

manner and to the same extent as sucha health maintenance organization.

Health status-related factor meanshealth status, medical condition(including both physical and mentalillnesses), claims experience, receipt ofhealth care, medical history, geneticinformation, evidence of insurability(including conditions arising out of actsof domestic violence) and disability.

Individual health insurance coveragemeans health insurance coverage offeredto individuals in the individual market,but does not include short-term,limited-duration insurance. Individualhealth insurance coverage can includedependent coverage.

Indiviual market means the market forhealth insurance coverage offered toindividuals other than in connectionwith a group health plan. Unless a Stateelects otherwise in accordance withsection 2791(e)(1)(B)(ii) of the PHS Act,such term also includes coverage offeredin connection with a group health planthat has fewer than two participants ascurrent employees on the first day of theplan year.

Internal Revenue Code (Code) meansthe Internal Revenue Code of 1986, asamended (Title 26, United States Code).


Large employer means, in connectionwith a group health plan with respect toa calendar year and a plan year, anemployer who employed an average ofat least 51 employees on business daysduring the preceding calendar year andwho employs at least 2 employees onthe first day of the plan year, unlessotherwise provided under State law.

Large group market means the healthinsurance market under whichindividuals obtain health insurancecoverage (directly or through anyarrangement) on behalf of themselves(and their dependents) through a grouphealth plan maintained by a largeemployer, unless otherwise providedunder State law.

Late enrollment definitions (lateenrollee and late enrollment) are setforth in 45 CFR 146.111 (a)(2)(iii) and(a)(2)(iv).

Medical care or condition meansamounts paid for any of the following:

(1) The diagnosis, cure, mitigation, orprevention of disease, or amounts paidfor the purpose of affecting anystructure or function of the body.

(2) Transportation primarily for andessential to medical care referred to inparagraph (1) of this definition.

(3) Insurance covering medical carereferred to in paragraphs (1) and (2) ofthis definition.

Medical condition means anycondition, whether physical or mental,

including, but not limited to, anycondition resulting from illness, injury(whether or not the injury is accidental),pregnancy, or congenital malformation.However, genetic information is not acondition.

NAIC stands for the NationalAssociation of InsuranceCommissioners.

Network plan means health insurancecoverage of a health insurance issuerunder which the financing and deliveryof medical care (including items andservices paid for as medical care) areprovided, in whole or in part, througha defined set of providers under contractwith the issuer.

Non-Federal governmental planmeans a governmental plan that is nota Federal government plan.

Participant has the meaning given theterm under section 3(7) of ERISA, whichstates, ‘‘any employee or formeremployee of an employer, or anymember or former member of anemployee organization, who is or maybecome eligible to receive a benefit ofany type from an employee benefit planwhich covers employees of suchemployer or members of suchorganization, or whose beneficiariesmay be eligible to receive any suchbenefit.’’

PHS Act stands for the Public HealthService Act.

Placement, or being placed, foradoption means the assumption andretention of a legal obligation for total orpartial support of a child by a personwith whom the child has been placed inanticipation of the child’s adoption. Thechild’s placement for adoption with theperson terminates upon the terminationof the legal obligation.

Plan sponsor has the meaning giventhe term under section 3(16)(B) ofERISA, which states ‘‘(i) the employer inthe case of an employee benefit planestablished or maintained by a singleemployer, (ii) the employee organizationin the case of a plan established ormaintained by an employeeorganization, or (iii) in the case of a planestablished or maintained by two ormore employers or jointly by one ormore employers and one or moreemployee organizations, the association,committee, joint board of trustees, orother similar group of representatives ofthe parties who establish or maintainthe plan.’’

Plan year means the year that isdesignated as the plan year in the plandocument of a group health plan, exceptthat if the plan document does notdesignate a plan year or if there is noplan document, the plan year is:

(1) THe deductible/limit year usedunder the plan.


(2) If the plan does not imposedeductibles or limits on a yearly basis,the plan year is the policy year.

(3) If the plan does not imposedeductibles or limits on a yearly basis,and either the plan is not insured or theinsurance policy is not renewed on anannual basis, the plan year is theemployer’s taxable year.


Preexisting condition exclusion meansa limitation or exclusion of benefitsrelating to a condition based on the factthat the condition was present beforethe first day of coverage, whether or notany medical advice, diagnosis, care, ortreatment was recommended or receivedbefore that day. A preexisting conditionexclusion includes any inclusionapplicable to an individual as a result ofinformation that is obtained relating toan individual’s health status before theindividual’s first day of coverage, suchas a condition identified as a result ofa pre-enrollment questionnaire orphysical examination given to theindividual, or review of medical recordsrelating to the pre-enrollment period.

Public health plan means ‘‘publichealth plan’’ within the meaning of 45CFR 146.113(a)(1)(ix).

Short-term limited duration insurancemeans health insurance coverageprovided under a contract with anissuer that has an expiration datespecified in the contract (taking intoaccount any extensions that may beelected by the policyholder without theissuer’s consent) that is within 12months of the date the contract becomeseffective.

Significant break in coverage has themeaning given the term in 45 CFR146.113(b)(2)(iii).

Small employer means, in connectionwith a group health plan with respect toa calendar year and a plan year, anemployer who employed an average ofat least 2 but not more than 50employees on business days during thepreceding calendar year and whoemploys at least 2 employees on the firstday of the plan year, unless otherwiseprovided under State law.

Small group market means the healthinsurance market under whichindividuals obtain health insurancecoverage (directly or through anyarrangement) on behalf of themselves(and their dependents) through a grouphealth plan maintained by a smallemployer.

Special enrollment date has themeaning given the term in 45 CFR146.117(d).

State means each of the several States,the District of Columbia, Puerto Rico,

the Virgin Islands, Guam, AmericanSamoa, and the Northern MarianaIslands.

State health benefits risk pool meansa ‘‘State health benefits risk pool’’within the meaning of 45 CFR146.113(a)(1)(vii).


Subpart B—[Reserved]

PART 145—[RESERVED]

PART 146—REQUIREMENTS FOR THEGROUP HEALTH INSURANCEMARKET

Subpart A—General ProvisionsSec.146.101 Basis and scope.

Subpart B—Requirements Relating toAccess and Renewability of Coverage, andLimitations on Preexisting ConditionExclusion PeriodsSec.146.111 Limitations on preexisting condition

exclusion period.146.113 Rules relating to creditable

coverage.146.115 Certification and disclosure of

previous coverage.146.117 Special enrollment periods.146.119 HMO affiliation period as

alternative to preexisting conditionexclusion.

146.121 Prohibiting discrimination againstparticipants and beneficiaries based onhealth status-related factors.

146.125 Effective dates.

Subpart C—[Reserved]

Subpart D—Preemption and Special RulesSec.146.143 Preemption; State flexibility;

construction.146.145 Special rules relating to group

health plans.

Subpart E—Provisions Applicable to OnlyHealth Insurance IssuersSec.146.150 Guaranteed availability of coverage

for employers in the small group market.146.152 Guaranteed renewability of coverage

for employers in the group market.146.160 Disclosure of information.

Subpart F—Exclusion of Plans andEnforcement

Sec.146.180 Treatment of non-Federal

governmental plans.146.184 Enforcement.

Authority: Secs. 2701 through 2763, 2791,and 2792 of the PHS Act, 42 U.S.C. 300ggthrough 300gg–63, 300gg–91, and 300gg–92.

PART 146—REQUIREMENTS FOR THEGROUP HEALTH INSURANCE MARKET


§ 146.101 Basis and scope.

(a) Statutory basis. This partimplements sections 2701 through 2723of the PHS Act. Its purpose is toimprove access to group healthinsurance coverage and to guarantee therenewability of all coverage in the groupmarket. Sections 2791 and 2792 of thePHS Act define terms used in theregulations in this subchapter andprovide the basis for issuing theseregulations, respectively.

(b) Scope. A group health plan orhealth insurance issuer offering grouphealth insurance coverage may providegreater rights to participants andbeneficiaries than those set forth in thispart.

(1) Subpart B. Subpart B of this partsets forth minimum requirements forgroup health plans and health insuranceissuers offering group health insurancecoverage concerning:

(i) Limitations on a preexistingcondition exclusion period.

(ii) Certificates and disclosure ofprevious coverage.

(iii) Methods of counting creditablecoverage.

(iv) Special enrollment periods.(v) Use of an affiliation period by an

HMO as an alternative to a preexistingcondition exclusion.

(2) Subpart D. Subpart D of this partsets forth exceptions to the requirementsof Subpart B for certain plans andcertain types of benefits.

(3) Subpart E. Subpart E of this partimplements sections 2711 through 2713of the PHS Act, which set forthrequirements that apply only to healthinsurance issuers offering healthinsurance coverage, in connection witha group health plan.

(4) Subpart F. Subpart F of this partaddresses the treatment of non-Federalgovernmental plans, and sets forthenforcement procedures.


Subpart B—Requirements Relating toAccess and Renewability of Coverage,and Limitations on PreexistingCondition Exclusion Periods

§ 146.111 Limitations on preexistingcondition exclusion period.

(a) Preexisting condition exclusion—(1) General. Subject to paragraph (b) ofthis section, a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage, may impose,with respect to a participant orbeneficiary, a preexisting conditionexclusion only if the requirements ofthis paragraph (a) are satisfied.

(1) 6-month look-back rule. Apreexisting condition exclusion mustrelate to a condition (whether physicalor mental), regardless of the cause of thecondition, for which medical advice,diagnosis, care, or treatment wasrecommended or received within the 6-month period ending on the enrollmentdate.


(B) For purposes of this paragraph(a)(1)(i), the 6-month period ending onthe enrollment date begins on the 6-month anniversary date preceding theenrollment date. For example, for anenrollment date of August 1, 1998, the6-month period preceding theenrollment date is the periodcommencing on February 1, 1998 andcontinuing through July 31, 1998. Asanother example, for an enrollment dateof August 30, 1998, the 6-month periodpreceding the enrollment date is theperiod commencing on February 28,1998 and continuing through August 29,1998.

(C) The following examples illustratethe requirements of this paragraph(a)(1)(i).

Example 1: (i) Individual A is treated fora medical condition 7 months before theenrollment date in Employer R’s group healthplan. As part of such treatment, A’sphysician recommends that a follow-upexamination be given 2 months later. Despitethis recommendation, A does not receive afollow-up examination and no other medicaladvice, diagnosis, care, or treatment for thatcondition is recommended to A or receivedby A during the 6-month period ending onA’s enrollment date in Employer R’s plan.

(ii) In this Example, Employer R’s planmay not impose a preexisting conditionexclusion period with respect to thecondition for which A received treatment 7months prior to the enrollment date.

Example 2: (i) Same facts as Example 1except that Employer R’s plan learns of thecondition and attaches a rider to A’s policyexcluding coverage for the condition. Threemonths after enrollment, A’s conditionrecurs, and Employer R’s plan deniespayment under the rider.

(ii) In this Example, the rider is apreexisting condition exclusion andEmployer R’s plan may not impose apreexisting condition exclusion with respectto the condition for which A receivedtreatment 7 months prior to the enrollmentdate.

Example 3: (i) Individual B has asthma andis treated for that condition several timesduring the 6-month period before B’senrollment date in Employer S’s plan. Theplan imposes a 12-month preexistingcondition exclusion. B has no priorcreditable coverage to reduce the exclusionperiod. Three months after the enrollmentdate, B begins coverage under Employer S’splan. B is hospitalized for asthma.

(ii) In this Example, Employer S’s planmay exclude payment for the hospital stayand the physician services associated withthis of illness because the care is related toa medical condition for which treatment wasreceived by B during the 6-month periodbefore the enrollment date.

Example 4: (i) Individual D, who is subjectto a preexisting condition exclusion imposedby Employer U’s plan, has diabetes, as wellas a foot condition caused by poor circulationand retinal degeneration (both of which areconditions that may be directly attributed todiabetes). After enrolling in the plan, Dstumbles and breaks a leg.

(ii) In this Example, the leg fracture is nota condition related to D’s diabetes, eventhough poor circulation in D’s extremitiesand poor vision may have contributedtowards the accident. However, anyadditional medical services that may beneeded because of D’s preexisting diabeticcondition that would not be needed byanother patient with a broken leg who doesnot have diabetes may be subject to thepreexisting condition exclusion imposedunder Employer U’s plan.


(iii) Reducing a preexisting conditionexclusion period by creditable coverage.The period of any preexisting conditionexclusion that would otherwise apply toan individual under a group health planis reduced by the number of days of

creditable coverage the individual hasas of the enrollment date, as countedunder § 146.113. For purposes of thispart, the phrase ‘‘days of creditablecoverage’’ has the same meaning as thephrase ‘‘the aggregate of the periods ofcreditable coverage’’ as such term isused in section 2701(a)(3) of the PHSAct.

(iv) Other standards. See § 146.121 forother standards that may apply withrespect to certain benefit limitations orrestrictions under a group health plan.


(ii) (A) First day of coverage means, inthe case of an individual covered forbenefits under a group health plan inthe group market, the first day ofcoverage under the plan and, in the caseof an individual covered by healthinsurance coverage in the individualmarket, the first day of coverage underthe policy.

(B) Example. The following exampleillustrates the requirements of paragraph(a)(2)(ii)(A) of this section:

Example: (i) Employer V’s group healthplan provides for coverage to begin on thefirst day of the first payroll period followingthe date an employee is hired and completesthe applicable enrollment forms, or on anysubsequent January 1 after completion of theapplicable enrollment forms. Employer V’splan imposes a preexisting conditionexclusion for 12 months (reduced by theindividual’s creditable coverage) followingan individual’s enrollment date. Employee Eis hired by Employer V on October 13, 1998and then on October 14, 1998 completes andfiles all the forms necessary to enroll in theplan. E’s coverage under the plan becomeseffective on October 25, 1998 (which is thebeginning of the first payroll period after E’sdate of hire).

(ii) In this Example, E’s enrollment date isOctober 13, 1998 (which is the first day ofthe waiting period for E’s enrollment and isalso E’s date of hire). Accordingly, withrespect to E, the 6-month period in paragraph(a)(1)(i) would be the period from April 13,1998 through October 12, 1998, themaximum permissible period during whichEmployer V’s plan could apply a preexistingcondition exclusion under paragraph(a)(1)(ii) would be the period from October13, 1998 through October 12, 1999, and thisperiod would be reduced under paragraph(a)(1)(iii) by E’s days of creditable coverageas of October 13, 1998.


(iv) Late enrollment means enrollmentunder a group health plan other thanon—

(A) The earliest date on whichcoverage can become effective under theterms of the plan; or


(B) A special enrollment date for theindividual. If an individual ceases to beeligible for coverage under the plan byterminating employment, andsubsequently becomes eligible forcoverage under the plan by resumingemployment, only eligibility during theindividual’s most recent period ofemployment is taken into account indetermining whether the individual is alate enrollee under the plan with respectto the most recent period of coverage.Similar rules apply if an individualagain becomes eligible for coveragefollowing a suspension of coverage thatapplied generally under the plan.

(v) Examples. The following examplesillustrate the requirements of thisparagraph (a)(2):

Example 1: (i) Employee F first becomeseligible to be covered by Employer W’s grouphealth plan on January 1, 1999, but elects notto enroll in the plan until April 1, 1999. April1, 1999 is not a special enrollment date forF.

(ii) In this Example, F would be a lateenrollee with respect to F’s coverage thatbecame effective under the plan on April 1,1999.

Example 2: (i) Same as Example 1, exceptthat F does not enroll in the plan on April1, 1999 and terminates employment withEmployer W on July 1, 1999, without havinghad any health insurance coverage under theplan. F is rehired by Employer W on January1, 2000 and is eligible for and elects coverageunder Employer W’s plan effective onJanuary 1, 2000.

(ii) In this Example, F would not be a lateenrollee with respect to F’s coverage thatbecame effective on January 1, 2000.

(b) Exceptions pertaining topreexisting condition exclusions—(1)Newborns—(i) General rule. Subject toparagraph (b)(3) of this section, a grouphealth plan, and a health insuranceissuer offering group health insurancecoverage, may not impose anypreexisting condition exclusion withregard to a child who, as of the last dayof the 30-day period beginning with thedate of birth, is covered under anycreditable coverage. Accordingly, if anewborn is enrolled in a group healthplan (or other creditable coverage)within 30 days after birth andsubsequently enrolls in another grouphealth plan without a significant breakin coverage, the other plan may notimpose any preexisting conditionexclusion with regard to the child.

(ii) Example. The following exampleillustrates the requirements of thisparagraph (b)(1).

Example: (i) Seven months afterenrollment in Employer W’s group healthplan, Individual E has a child born with abirth defect. Because the child is enrolled inEmployer W’s plan within 30 days of birth,no preexisting condition exclusion may be

imposed with respect to the child underEmployer W’s plan. Three months after thechild’s birth, E commences employment withEmployer X and enrolls with the child inEmployer X’s plan within 45 days of leavingEmployer W’s plan. Employer X’s planimposes a 12-month exclusion for anypreexisting condition.


(2) Adopted Children. Subject toparagraph (b)(3) of this section, a grouphealth plan, and a health insuranceissuer offering group health insurancecoverage, may not impose anypreexisting condition exclusion in thecase of a child who is adopted or placedfor adoption before attaining 18 years ofage and who, as of the last day of the30-day period beginning on the date ofthe adoption or placement for adoption,is covered under creditable coverage.This rule does not apply to coveragebefore the date of such adoption orplacement for adoption.

(3) Break in coverage. Paragraphs(b)(1) and (b)(2) of this section no longerapply to a child after a significant breakin coverage.

(4) Pregnancy. A group health plan,and a health insurance issuer offeringgroup health insurance coverage, maynot impose a preexisting conditionexclusion relating to pregnancy as apreexisting condition.

(5) Special enrollment dates. Forspecial enrollment dates relating to newdependents, see § 146.117(b).

(c) Notice of plan’s preexistingcondition exclusion. A group healthplan, and health insurance issueroffering group health insurance underthe plan, may not impose a preexistingcondition exclusion with respect to aparticipant or dependent of theparticipant before notifying theparticipant, in writing, of the existenceand terms of any preexisting conditionexclusion under the plan and of therights of individuals to demonstratecreditable coverage (and any applicablewaiting periods) as required by§ 146.115. The description of the rightsof individuals to demonstrate creditablecoverage includes a description of the

right of the individual to request acertificate from a prior plan or issuer, ifnecessary, and a statement that thecurrent plan or issuer will assist inobtaining a certificate from any priorplan or issuer, if necessary.

§ 146.113 Rules relating to creditablecoverage.

(a) General rules)—(1) Creditablecoverage. For purposes of this section,except as provided in paragraph (a)(2),the term creditable coverage meanscoverage of an individual under any ofthe following:

(i) A group health plan as defined in§ 144.103.

(ii) Health insurance coverage asdefined in § 144.103 (whether or not theentity offering the coverage is subject tothe requirements of this part and 45 CFRpart 148, and without regard to whetherthe coverage is offered in the groupmarket, the individual market, orotherwise).

(iii) Part A or part B of title XVIII ofthe Social Security Act (Medicare).


(v) Title 10 U.S.C. Chapter 55(medical and dental care for membersand certain former members of theuniformed services, and for theirdependents; for purposes of title 10U.S.C. chapter 55, ‘‘uniformed services’’means the armed forces and theCommissioned Corps of the NationalOceanic and AtmosphericAdministration and of the Public HealthService).



(A) An organization qualifying undersection 501(c)(26) of the Code;

(B) A qualified high risk pooldescribed in section 2744(c)(2) of thePHS Act; or


(1) Are unable to acquire medical carecoverage for such condition throughinsurance or from an HMO; or

(2) Are able to acquire such coverageonly at a rate which is substantially in


excess of the rate for such coveragethrough the membership organization.

(viii) A health plan offered under title5 U.S.C. chapter 89 (the FederalEmployees Health Benefits Program).

(ix) A public health plan. Forpurposes of this section, a public healthplan means any plan established ormaintained by a State, county, or otherpolitical subdivision of a State thatprovides health insurance coverage toindividuals who are enrolled in theplan.


(2) Excluded coverage. Creditablecoverage does not include coverageconsisting solely of coverage of exceptedbenefits (described in § 146.145).

(3) Methods of counting creditablecoverage. For purposes of reducing anypreexisting condition exclusion period,as provided under § 146.111(a)(1)(iii), agroup health plan, and a healthinsurance issuer offering group healthinsurance coverage, determines theamount of an individual’s creditablecoverage by using the standard methoddescribed in paragraph (b), except thatthe plan, or issuer, may use thealternative method under paragraph (c)with respect to any or all of thecategories of benefits described underparagraph (c)(3).

(b) Standard method—(1) Specificbenefits not considered. Under thestandard method, a group health plan,and a health insurance issuer offeringgroup health insurance coverage,determines the amount of creditablecoverage without regard to the specificbenefits included in the coverage.

(2) Counting creditable coverage—(i)Based on days. For purposes of reducingthe preexisting condition exclusionperiod, a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage, determinesthe amount of creditable coverage bycounting all the days that the individualhas under one or more types ofcreditable coverage. Accordingly, if on aparticular day, an individual hascreditable coverage from more than onesource, all the creditable coverage onthat day is counted as one day. Further,any days in a waiting period for a planor policy are not creditable coverageunder the plan or policy.


(iii) Definition of significant break incoverage. A significant break incoverage means a period of 63consecutive days during all of which the

individual does not have any creditablecoverage, except that neither a waitingperiod nor an affiliation period is takeninto account in determining asignificant break in coverage. (Seesection 731(b)(2)(iii) of ERISA andsection 2723(b)(2)(iii) of the PHS Act,which exclude from preemption Stateinsurance laws that require a break ofmore than 63 days before an individualhas a significant break in coverage forpurposes of State law.)

(iv) Examples. The followingexamples illustrate how creditablecoverage is counted in reducingpreexisting condition exclusion periods:

Example 1: (i) Individual A work forEmployer P and has creditable coverageunder Employer P’s plan for 18 monthsbefore A’s employment terminates. A is hiredby Employer O, and enrolls in Employer O’sgroup health plan, 64 days after the last dateof coverage under Employer P’s plan.Employer O’s plan has a 12-monthpreexisting condition exclusion period.

(ii) In this Example, because A had a breakin coverage of 63 days, Employer O’s planmay disregard A’s prior coverage and A maybe subject to a 12-month preexistingcondition exclusion period.

Example 2: (i) Same facts as Example 1,except that A is hired by Employer O, andenrolls in Employer O’s plan, on the 63rd dayafter the last date of coverage underEmployer P’s plan.

(ii) In this Example, A has a break incoverage of 62 days. Because A’s break incoverage is not a significant break incoverage, Employer O’s plan must count A’sprior creditable coverage for purposes ofreducing the plan’s preexisting conditionexclusion period as it applies to A.

Example 3: (i) Same facts as Example 1,except that Employer O’s plan providesbenefits through an insurance policy that, asrequired by applicable State insurance laws,defines a significant break in coverage as 90days.

(ii) In this Example, the issuer thatprovides group health insurance to EmployerO’s plan must count A’s period of creditablecoverage prior to the 63-day break.

Example 4: (i) Same facts as Example 3,except that Employer O’s plan is a self-insured plan, and thus is not subject to Stateinsurance laws.

(ii) In this Example, the plan is notgoverned by the longer break rules underState insurance law and A’s previouscoverage may be disregarded.

Example 5: (i) Individual B beginsemployment with Employer R 45 days afterterminating coverage under a prior grouphealth plan. Employer R’s group health planhas a 30-day waiting period before coveragebegins. B enrolls in Employer R’s plan whenfirst eligible.

(ii) In this Example, B does not have asignificant break in coverage for purposes ofdetermining whether B’s prior coverage mustbe counted by Employer R’s plan. B has onlya 44-day break in coverage because the 30-day waiting period is not taken into accountin determining a significant break incoverage.

Example 6: (i) Individual C works forEmployer S and has creditable coverageunder Employer S’s plan for 200 days beforeC’s employment is terminated and coverageceases. C is then unemployed for 51 daysbefore being hired by Employer T. EmployerT’s plan has a 3-month waiting period. Cworks for Employer T for 2 months and thenterminates employment. Eleven days afterterminating employment with Employer T, Cbegins working for Employer U. EmployerU’s plan has no waiting period, but has a 6-month preexisting condition exclusionperiod.

(ii) In this Example, C does not have asignificant break in coverage because, afterdisregarding the waiting period underEmployer T’s plan, C had only a 62-day breakin coverage (51 days plus 11 days).Accordingly, C has 200 days of creditablecoverage and Employer U’s plan may notapply its 6-month preexisting conditionexclusion period with respect to C.

Example 7: (i) Individual D terminatesemployment with Employer V on January 13,1998 after being covered for 24 months underEmployer V’s group health plan. On March17, the 63rd day without coverage, D appliesfor a health insurance policy in theindividual market. D’s application isaccepted and the coverage is made effectiveMay 1.

(ii) In this Example, because D applied forthe policy before the end of the 63rd day, andcoverage under the policy ultimately becameeffective, the period between the date ofapplication and the first day of coverage isa waiting period, and no significant break incoverage occurred even though the actualperiod without coverage was 107 days.

Example 8: (i) Same facts as Example 7,except that D’s application for a policy in theindividual market is denied.

(ii) In this Example, because D did notobtain coverage following application, Dincurred a significant break in coverage onthe 64th day.

(v) Other permissible countingmethods—(A) General rule.Notwithstanding any other provisions ofthis paragraph (b)(2), for purposes ofreducing a preexisting conditionexclusion period (but not for purposesof issuing a certificate under § 146.115),a group health plan, and a healthinsurance issuer offering group healthinsurance coverage, may determine theamount of creditable coverage in anyother manner that is at least as favorableto the individual as the method set forthin this paragraph (b)(2), subject to therequirements of other applicable law.

(B) Example. The following exampleillustrates the requirements of thisparagraph (b)(2)(v):

Example: (1) Individual F has coverageunder group health plan Y from January 3,1997 through March 25, 1997. F thenbecomes covered by group health plan Z. F’senrollment date in Plan Z is May 1, 1997.Plan Z has a 12-month preexisting conditionexclusion period.

(ii) In this Example, Plan Z may determine,in accordance with the rules prescribed in


paragraph (b)(2) (i), (ii), and (iii), that F has82 days of creditable coverage (29 days inJanuary, 28 days in February, and 25 days inMarch). Thus, the preexisting conditionexclusion period will no longer apply to F onFebruary 8, 1998 (82 days before the 12-month anniversary of F’s enrollment (May1)). For administrative convenience,however, Plan Z may consider that thepreexisting condition exclusion period willno longer apply to F on the first day of themonth (February 1).

(c) Alternative method—(1) Specificbenefits considered. Under thealternative method, a group health plan,or a health insurance issuer offeringgroup health insurance coverage,determines the amount of creditablecoverage based on coverage within anycategory of benefits described inparagraph (c)(3) and not based oncoverage for any other benefits. Theplan or issuer may use the alternativemethod for any or all of the categories.The plan may apply a differentpreexisting condition exclusion periodwith respect to each category (and mayapply a different preexisting conditionexclusion period for benefits that are notwithin any category). The creditablecoverage determined for a category ofbenefits applies only for purposes ofreducing the preexisting conditionexclusion period with respect to thatcategory. An individual’s creditablecoverage for benefits that are not withinany category for which the alternativemethod is being used is determinedunder the standard method of paragraph(b).

(2) Uniform application. A plan orissuer using the alternative method isrequired to apply it uniformly to allparticipants and beneficiaries under theplan or policy. The use of the alternativemethod is set forth in the plan.

(3) Categories of benefits. Thealternative method for countingcreditable coverage may be used forcoverage for any of the followingcategories of benefits:

(i) Mental health.(ii) Substance abuse treatment.(iii) Prescription drugs.(iv) Dental care.(v) Vision care.(4) Plan notice. If the alternative




(5) Issuer notice. With respect tohealth insurance coverage offered by anissuer in the small or large groupmarket, if the insurance coverage usesthe alternative method, the issuer statesprominently in any disclosure statementconcerning the coverage, and to eachemployer at the time of the offer or saleof the coverage, that the issuer is usingthe alternative method, and include insuch statements a description of theeffect of using the alternative method.This applies separately to each type ofcoverage offered by the health insuranceissuer.

(6) Disclosure of information onprevious benefits. See § 146.115(b) forspecial rules concerning disclosure ofcoverage to a plan, or issuer, using thealternative method of countingcreditable coverage under thisparagraph (c).

(7) Counting creditable coverage—(i)General. Under the alternative method,the group health plan or issuer countscreditable coverage within a category ifany level of benefits is provided withinthe category. Coverage under areimbursement account or arrangement,such as a flexible spending arrangement,(as defined in section 106(c)(2) of theInternal Revenue Code), does notconstitute coverage within any category.

(ii) Special rules. In counting anindividual’s creditable coverage underthe alternative method, the group healthplan, or issuer, first determines theamount of the individual’s creditablecoverage that may be counted underparagraph (b), up to a total of 365 daysof the most recent creditable coverage(546 days for a late enrollee). The periodover which this creditable coverage isdetermined is referred to as the‘‘determination period.’’ Then, for thecategory specified under the alternativemethod, the plan or issuer countswithin the category all days of coveragethat occurred during the determinationperiod (whether or not a significantbreak in coverage for that categoryoccurs), and reduces the individual’spreexisting condition exclusion periodfor that category by that number of days.The plan or issuer may determine theamount of creditable coverage in anyother reasonable manner, uniformlyapplied, that is at least as favorable tothe individual.

(iii) Example. The following exampleillustrates the requirements of thisparagraph (c)(7):

Example: (i) Individual D enrolls inEmployer V’s plan on January 1, 2001.Coverage under the plan includesprescription drug benefits. On April 1, 2001,the plan ceases providing prescription drugbenefits. D’s employment with Employer Vends on January 1, 2002, after D was covered

under Employer V’s group health plan for365 days. D enrolls in Employer Y’s plan onFebruary 1, 2001 (D’s enrollment date).Employer Y’s plan uses the alternativemethod of counting creditable coverage andimposes a 12-month preexisting conditionexclusion on prescription drug benefits.

(ii) In this Example, Employer Y’s planmay impose a 275-day preexisting conditionexclusion with respect to D for prescriptiondrug benefits because D had the equivalentof 90-days of creditable coverage relating toprescription drug benefits within D’sdetermination period.

§ 146.115 Certification and disclosure ofprevious coverage.

(a) Certificate of creditable coverage—(1) Entities required to providecertificate—(i) General. A group healthplan, and each health insurance issueroffering group health insurancecoverage under a group health plan, isrequired to certificates of creditablecoverage in accordance with thisparagraph (a).

(ii) Duplicate certificates not required.An entity required to provide acertificate under this paragraph (a)(1) foran individual is deemed to havesatisfied the certification requirementsfor that individual if another partyprovides the certificate, but only to theextent that information relating to theindividual’s creditable coverage andwaiting or affiliation period is providedby the other party. For example, in thecase of a group health plan fundedthrough an insurance policy, the issueris deemed to have satisfied thecertification requirement with respect toa participant or beneficiary if the planactually provides a certificate thatincludes the information required underparagraph (a)(3) with respect to theparticipant or beneficiary.

(iii) Special rule for group healthplan. To the extent coverage under aplan consists of group health insurancecoverage, the plan is deemed to havesatisfied the certification requirementsunder this paragraph (a)(1) if any issueroffering the coverage is required toprovide the certificates pursuant to anagreement between the plan and theissuer. For example, if there is anagreement between an issuer and theplan sponsor under which the issueragrees to provide certificates forindividuals covered under the plan, andthe issuer fails to provide a certificate toan individual when the plan wouldhave been required to provide oneunder this paragraph (a), then the issuer,but not the plan, violates thecertification requirements of thisparagraph (a).

(iv) Special rules for issuers—(A)Responsibility of issuer for coverageperiod—(1) General rule. An issuer is


not required to provide informationregarding coverage provided to anindividual by another party.

(2) Example. The following exampleillustrates the requirements of thisparagraph (a)(1)(iv)(A):



(B) Cessation of issuer coverage priorto cessation of coverage under a plan—(1) General rule. If an individual’scoverage under an issuer’s policy ceasesbefore the individual’s coverage underthe plan ceases, the issuer is required toprovide sufficient information to theplan (or to another party designated bythe plan) to enable a certificate to beprovided by the plan (or other party),after cessation of the individual’scoverage under the plan, that reflectsthe period of coverage under the policy.The provision of that information to theplan will satisfy the issuer’s obligationto provide an automatic certificate forthat period of creditable coverage for theindividual under paragraphs (a)(2)(ii)and (a)(3) of this section. In addition, anissuer providing that information isrequired to cooperate with the plan inresponding to any request made underparagraph (b)(2) of this section (relatingto the alternative method of countingcreditable coverage). If the individual’scoverage under the plan ceases at thetime the individual’s coverage under theissuer’s policy ceases, the issuer mustprovide an automatic certificate underparagraph (a)(2)(ii) of this section. Anissuer may presume that an individualwhose coverage ceases at a time otherthan the effective date for changingenrollment options has ceased to becovered under the plan.

(2) Example. The following exampleillustrates the requirements of thisparagraph (a)(1)(iv)(B):

Example: (i) A group health plan providescoverage under an HMO option and anindemnity option with a different issuer, andonly allows employees to switch on eachJanuary 1. Neither the HMO nor theindemnity issuer has entered into anagreement with the plan to provide automaticcertificates as permitted under paragraph(a)(2)(ii) of this section.

(ii) In this Example, if an employeeswitches from the indemnity option to theHMO option on January 1, the issuer mustprovide the plan (or a person designated by

the plan) with appropriate information withrespect to the individual’s coverage with theindemnity issuer. However, if theindividual’s coverage with the indemnityissuer ceases at a date other than January 1,the issuer is instead required to provide theindividual with an automatic certificate.

(2) Individuals for whom a certificatemust be provided; timing of issuance—(i) Individuals. A certificate must beprovided, without charge, forparticipants or dependents who are orwere covered under a group health planupon the occurrence of any of the eventsdescribed in paragraph (a)(2)(ii) and(a)(2)(iii) of this section.

(ii) Issuance of automatic certificates.The certificates described in thisparagraph (a)(2)(ii) of this section arereferred to as ‘‘automatic certificates.’’

(A) Qualified beneficiaries upon aqualifying event. In the case of anindividual who is a qualifiedbeneficiary (as defined in section 607(3)of ERISA, section 4980B(g)(1) of theCode, or section 2208 of the PHS Act)entitled to elect COBRA continuationcoverage, an automatic certificate isrequired to be provided at the time theindividual would lose coverage underthe plan in the absence of COBRAcontinuation coverage or alternativecoverage elected instead of COBRAcontinuation coverage. A plan or issuersatisfies this requirement if it providesthe automatic certificate no later thanthe time a notice is required to befurnished for a qualifying event undersection 606 of the Act, section4980B(f)(6) of the Code and section 2206of the PHS Act (relating to noticesrequired under COBRA).

(B) Other individuals when coverageceases. In the case of an individual whois not a qualified beneficiary entitled toelect COBRA continuation coverage, anautomatic certificate is required to beprovided at the time the individualceases to be covered under the plan. Aplan or issuer satisfies this requirementif it provides the automatic certificatewithin a reasonable time periodthereafter. In the case of an individualwho is entitled to elect to continuecoverage under a State program similarto COBRA and who receives theautomatic certificate not later than thetime a notice is required to be furnishedunder the State program, the certificateis deemed to be provided within areasonable time period after thecessation of coverage under the plan.

(C) Qualified beneficiaries whenCOBRA ceases. In the case of anindividual who is a qualifiedbeneficiary and has elected COBRAcontinuation coverage (or whosecoverage has continued after theindividual became entitled to elect

COBRA continuation coverage), anautomatic certificate is to be provided atthe time the individual’s coverage underthe plan ceases. A plan, or issuer,satisfies this requirement if it providesthe automatic certificate within areasonable time after coverage ceases (orafter the expiration of any grace periodfor nonpayment of premiums). Anautomatic certificate is required to beprovided to such an individualregardless of whether the individual haspreviously received an automaticcertificate under paragraph (a)(2)(ii)(A)of this section.

(iii) Any individual upon request.Requests for certificates are permitted tobe made by, or on behalf of, anindividual within 24 months aftercoverage ceases. Thus, for example, aplan in which an individual enrollsmay, if authorized by the individual,request a certificate of the individual’screditable coverage on behalf of theindividual from a plan in which theindividual was formerly enrolled. Afterthe request is received, a plan or issueris required to provide the certificate bythe earliest date that the plan or issuer,acting in a reasonable or prompt fashioncan provide the certificate. A certificateis to be provided under this paragraph(a)(2)(iii) even if the individual haspreviously received a certificate underthis paragraph (a)(2)(iii) or an automaticcertificate under paragraph (a)(2)(ii) ofthis section.

(iv) Examples. The followingexamples illustrate the requirements ofthis paragraph (a)(2).

Example 1: (i) Individual A terminatesemployment with Employer O. A is aqualified beneficiary entitled to elect COBRAcontinuation coverage under Employer O’sgroup health plan. A notice of the rightsprovided under COBRA is typicallyfurnished to qualified beneficiaries under theplan within 10 days after a covered employeeterminates employment.

(ii) In this Example, the automaticcertificate may be provided at the same timethat A is provided the COBRA notice.

Example 2: (i) Same facts as Example 1,except that the automatic certificate for A isnot completed by the time the COBRA noticeis furnished to A.

(ii) In this Example, the automaticcertificate may be provided within the periodpermitted by law for the delivery of noticesunder COBRA.

Example 3: (i) Employer R maintains aninsured group health plan. R has never had20 employees and thus R’s plan is not subjectto the COBRA continuation coverageprovisions. However, R is in a State that hasa State program similar to COBRA. Bterminates employment with R and losescoverage under R’s plan.

(ii) In this Example, the automaticcertificate may be provided not later than thetime a notice is required to be furnishedunder the State program.


Example 4: (i) Individual C terminatesemployment with Employer S and receivesboth a notice of C’s rights under COBRA andan automatic certificate. C elects COBRAcontinuation coverage under Employer S’sgroup health plan. After four months ofCOBRA continuation coverage and theexpiration of a 30-day grace period, S’s grouphealth plan determines that C’s COBRAcontinuation coverage has ceased due tofailure to make a timely payment forcontinuation coverage.

(ii) In this Example, the plan must providean updated automatic certificate to C withina reasonable time after the end of the graceperiod.

Example 5: (i) Individual D is currentlycovered under the group health plan ofEmployer T. D requests a certificate, aspermitted under paragraph (a)(2)(iii). Underthe procedure for Employer T’s plan,certificates are mailed (by first class mail) 7business days following receipt of therequest. This date reflects the earliest datethat the plan, acting in a reasonable andprompt fashion, can provide certificates.

(ii) In this Example, the plan’s proceduresatisfies paragraph (a)(2)(iii) of this section.

(3) Form and content of certificate—(i) Written certificate—(A) General.Except as provided in paragraph(a)(3)(i)(B) of this section, the certificatemust be provided in writing (includingany form approved by HCFA as awriting).

(B) Other permissible forms. Nowritten certificate is required to beprovided under this paragraph (a) withrespect to a particular event describedin paragraphs (a)(2)(ii) and (a)(2)(iii) ofthis section if all the followingconditions are met:

(1) An individual is entitled to receivea certificate.

(2) The individual requests that thecertificate be sent to another plan orissuer instead of to the individual.

(3) The plan or issuer that wouldotherwise receive the certificate agreesto accept the information in paragraph(a)(3) through means other than awritten certificate (for example, bytelephone).

(4) The receiving plan or issuerreceives the information from thesending plan or issuer in such formwithin the time periods required underparagraph (a)(2) of this section.

(ii) Required information. Thecertificate must include all of thefollowing:

(A) The date the certificate is issued.(B) The name of the group health plan

that provided the coverage described inthe certificate.

(C) The name of the participant ordependent with respect to whom thecertificate applies, and any otherinformation necessary for the planproviding the coverage specified in thecertificate to identify the individual,

such as the individual’s identificationnumber under the plan and the name ofthe participant if the certificate is for (orincludes) a dependent.

(D) The name, address, and telephonenumber of the plan administrator orissuer required to provide thecertificate.

(E) The telephone number to call forfurther information regarding thecertificate (if different from paragraph(a)(3)(ii)(D)).


at least 18 months (for this purpose, 546days is deemed to be 18 months) ofcreditable coverage, disregarding days ofcreditable coverage before a significantbreak in coverage, or

(2) The date any waiting period (andaffiliation period, if applicable) beganand the date creditable coverage began.


(iii) Periods of coverage undercertificate. If an automatic certificate isprovided under paragraph (a)(2)(ii) ofthis section, the period that must beincluded on the certificate is the lastperiod of continuous coverage endingon the date coverage ceased. If anindividual requests a certificate underparagraph (a)(2)(iii) of this section, acertificate must be provided for eachperiod of continuous coverage endingwithin the 24-month period ending onthe date of the request (or continuing onthe date of the request). A separatecertificate may be provided for eachsuch period of continuous coverage.


(v) Model certificate. Therequirements of paragraph (a)(3)(ii) ofthis section are satisfied if the plan orissuer provides a certificate inaccordance with a model certificateauthorized by HCFA.

(vi) Excepted benefits; categories ofbenefits. No certificate is required to befurnished with respect to exceptedbenefits described in § 146.145. Inaddition, the information in thecertificate regarding coverage is notrequired to specify categories of benefitsdescribed in § 146.113(c) (relating to thealternative method of countingcreditable coverage). However, if

excepted benefits are providedconcurrently with other creditablecoverage (so that the coverage does notconsist solely of excepted benefits),information concerning the benefits maybe required to be disclosed underparagraph (b) of this section.

(4) Procedures—(i) Method ofdelivery. The certificate is required to beprovided to each individual describedin paragraph (a)(2) of this section or anentity requesting the certificate onbehalf of the individual. The certificatemay be provided by first-class mail. Ifthe certificate or certificates areprovided to the participant and theparticipant’s spouse at the participant’slast known address, then therequirements of this paragraph (a)(4) aresatisfied with respect to all individualsresiding at that address. If a dependent’slast known address is different than theparticipant’s last known address, aseparate certificate is required to beprovided to the dependent at thedependent’s last known address. Ifseparate certificates are being providedby mail to individuals who reside at thesame address, separate mailings of eachcertificate are not required.

(ii) Procedure for requestingcertificates. A plan or issuer mustestablish a procedure for individuals torequest and receive certificates underparagraph (a)(2)(iii) of this section.


(5) Special rules concerningdependent coverage—(i) Reasonableefforts—(A) General rule. A plan orissuer is required to use reasonableefforts to determine any informationneeded for a certificate relating to thedependent coverage. In any case inwhich an automatic certificate isrequired to be furnished with respect toa dependent under paragraph (a)(2)(ii)of this section, no individual certificateis required to be furnished until theplan or issuer knows (or makingreasonable efforts should know) of the


dependent’s cessation of coverage underthe plan.

(B) Example. The following exampleillustrates the requirements of thisparagraph (a)(5)(i):

Example: (i) A group health plan coversemployees and their dependents. The planannually requests all employees to provideupdated information regarding dependents,including the specific date on which anemployee has a new dependent or on whicha person ceases to be a dependent of theemployee.

(ii) In this Example, the plan has satisfiedthe standard in this paragraph (a)(5)(i) that itmake reasonable efforts to determine thecessation of dependents’ coverage and therelated dependent coverage information.

(ii) Special rules for demonstratingcoverage. If a certificate furnished by aplan or issuer does not provide thename of any dependent of an individualcovered by the certificate, the individualmay, if necessary, use the proceduresdescribed in paragraph (c)(4) of thissection for demonstrating dependentstatus. In addition, an individual may,if necessary, use these procedures todemonstrate that a child was enrolledwithin 30 days of birth, adoption, orplacement for adoption. See§ 146.111(b), under which such a childwould not be subject to a preexistingcondition exclusion.

(iii) Transition rule for dependentcoverage through June 30, 1998—(A)General. A group health plan or healthinsurance issuer that cannot provide thenames of dependents (or relatedcoverage information) for purposes ofproviding a certificate of coverage for adependent may satisfy the requirementsof paragraph (a)(3)(ii)(C) of this sectionby providing the name of the participantcovered by the group health plan orhealth insurance issuer and specifyingthat the type of coverage described inthe certificate is for dependent coverage(for example, family coverage oremployee-plus-spouse coverage).

(B) Certificates provided on request.For purposes of certificates provided onthe request of, or on behalf of, anindividual under paragraph (a)(2)(iii) ofthis section, a plan or issuer must makereasonable efforts to obtain and providethe names of any dependent covered bythe certificate where such information isrequested to be provided. It does notinclude the name of any dependent ofan individual covered by the certificate,the individual may, if necessary, use theprocedures described in paragraph (c) ofthis section for submittingdocumentation to establish that thecreditable coverage in the certificateapplies to the dependent.

(C) Demonstrating a dependent’screditable coverage. See paragraph (c)(4)

of this section for special rules todemonstrate dependent status.

(D) Duration. This paragraph (a)(5)(iii)is only effective for certificationsprovided with respect to eventsoccurring through June 30, 1998.

(6) Special certification rules—(i)Issuers. Issuers of group and individualhealth insurance are required to providecertificates of any creditable coveragethey provide in the group or individualhealth insurance market, even if thecoverage is provided in connection withan entity or program that is not itselfrequired to provide a certificate becauseit is not subject to the group marketprovisions of this part, part 7 of subtitleB of title I of ERISA, or chapter 100 ofsubtitle K of the Internal Revenue Code.This would include coverage providedin connection with any of the following:

(A) Creditable coverage described insections 2701 (c)(1)(G) through (c)(1)(J)of the PHS Act (coverage under a Statehealth benefits risk pool, the FederalEmployees Health Benefits Program, apublic health plan, and a health benefitplan under section 5(e) of the PeaceCorps Act),

(B) Coverage subject to section2721(b)(1)(B) of the PHS Act (requiringcertificates by issuers offering healthinsurance coverage in connection withany group health plan, including achurch plan or a governmental plan(including the Federal EmployeesHealth Benefits Program (FEHBP)).

(C) Coverage subject to section 2743 ofthe PHS Act applicable to healthinsurance issuers in the individualmarket. (However, this section does notrequire a certificate to be provided withrespect to short-term limited durationinsurance, which is excluded from thedefinition of ‘‘individual healthinsurance coverage’’ in 45 CFR 144.103that is not provided in connection witha group health plan, as described inparagraph (a)(6)(i)(B) of this section.)

(ii) Other entities. For special rulesrequiring that certain other entities, notsubject to this part, provide certificatesconsistent with the rules in this section,see section 2791(a)(3) of the PHS Actapplicable to entities described insections 2701(c)(1)(C), (D), (E), and (F)of the PHS Act (relating to Medicare,Medicaid, CHAMPUS, and IndianHealth Service), section 2721(b)(1)(A) ofthe PHS Act applicable to non-Federalgovernmental plans generally, section2721(b)(2)(C)(ii) of the PHS Actapplicable to non-Federal governmentalplans that elect to be excluded from therequirements of subparts 1 and 3 of partA of title XXVII of the PHS Act, andsection 9805(a) of the Internal RevenueCode applicable to group health plans,which includes church plans (as

defined in section 414(e) of the InternalRevenue Code).

(b) Disclosure of coverage to a plan,or issuer, using the alternative methodof counting creditable coverage—(1)General. If an individual enrolls in agroup health plan with respect to whichthe plan, or issuer, uses the alternativemethod of counting creditable coveragedescribed in section 2701(c)(3)(B) of thePHS Act and § 146.113(c), theindividual provides a certificate ofcoverage under paragraph (a) of thissection, and the plan or issuer in whichthe individual enrolls so requests, theentity that issued the certificate (the‘‘prior entity’’) is required to disclosepromptly to a requesting plan or issuer(the ‘‘requesting entity’’) the informationset forth in paragraph (b)(2) of thissection.

(2) Information to be disclosed. Theprior entity is required to identify to therequesting entity the categories ofbenefits with respect to which therequesting entity is using the alternativemethod of counting creditable coverage,and the requesting entity may identifyspecific information that the requestingentity reasonably needs in order todetermine the individual’s creditablecoverage with respect to any suchcategory. The prior entity is required todisclose promptly to the requestingentity the creditable coverageinformation so requested.


(c) Ability of an individual todemonstrate creditable coverage andwaiting period information—(1)General. The rules in this paragraph (c)implement section 2701(c)(4) of the PHSAct, which permits individuals toestablish creditable coverage throughmeans other than certificates, andsection 2701(e)(3) of the PHS Act, whichrequires the Secretary to establish rulesdesigned to prevent an individual’ssubsequent coverage under a grouphealth plan or health insurance coveragefrom being adversely affected by anentity’s failure to provide a certificatewith respect to that individual. If theaccuracy of a certificate is contested ora certificate is unavailable when neededby the individual, the individual has theright to demonstrate creditable coverage(and waiting or affiliation periods)through the presentation of documentsor other means. For example, theindividual may make such ademonstration when—



(ii) The individual has creditablecoverage but an entity may not berequired to provide a certificate of thecoverage under paragraph (a) of thissection;




(2) Evidence of creditable coverage—(i) Consideration of evidence. A plan orissuer is required to take into accountall information that it obtains or that ispresented on behalf of an individual tomake a determination, based on therelevant facts and circumstances,whether an individual has creditablecoverage and is entitled to offset all ora portion of any preexisting conditionexclusion period. A plan or issuer shalltreat the individual as having furnisheda certificate under paragraph (a) of thissection if the individual attests to theperiod of creditable coverage, theindividual also presents relevantcorroborating evidence of somecreditable coverage during the period,and the individual cooperates with theplan’s or issuer’s efforts to verify theindividual’s coverage. For this purpose,cooperation includes providing (uponthe plan’s or issuer’s request) a writtenauthorization for the plan or issuer torequest a certificate on behalf of theindividual, and cooperating in efforts todetermine the validity of thecorroborating evidence and the dates ofcreditable coverage. While a plan orissuer may refuse to credit coveragewhere the individual fails to cooperatewith the plan’s or issuer’s efforts toverify coverage, the plan or issuer maynot consider an individual’s inability toobtain a certificate to be evidence of theabsence of creditable coverage.

(ii) Documents. Documents that mayestablish creditable coverage (andwaiting periods or affiliation periods) inthe absence of a certificate includeexplanations of benefit claims (EOB) orother correspondence from a plan orissuer indicating coverage, pay stubsshowing a payroll deduction for healthcoverage, a health insuranceidentification card, a certificate ofcoverage under a group health policy,records from medical care providersindicating health coverage, third partystatements verifying periods ofcoverage, and any other relevant

documents that evidence periods ofhealth coverage.


(iv) Example. The following exampleillustrates the requirements of thisparagraph (c)(2):

Example: (i) Employer X’s group healthplan imposes a preexisting conditionexclusion of 12 months on new enrolleesunder the plan and uses the standard methodof determining creditable coverage. F fails toreceive a certificate of prior coverage fromthe self-insured group health planmaintained by F’s prior employer, EmployerW, and requests a certificate. However, F(and Employer X’s plan, on F’s behalf) isunable to obtain a certificate from EmployerW’s plan. F attests that, to the best of F’sknowledge, F had at least 12 months ofcontinuous coverage under Employer W’splan, and that the coverage ended no earlierthan F’s termination of employment fromEmployer W. In addition, F presents evidenceof coverage, such as an explanation ofbenefits for a claim that was made during therelevant period.



(4) Demonstrating dependent status.If, in the course of providing evidence(including a certificate) of creditablecoverage, an individual is required todemonstrate dependent status, thegroup health plan or issuer is requiredto treat the individual as havingfurnished a certificate showing thedependent status if the individualattests to such dependency and theperiod of such status and the individualcooperates with the plan’s or issuer’sefforts to verify the dependent status.

(d) Determination and notification ofcreditable coverage—(1) Reasonabletime period. In the event that a grouphealth plan or health insurance issueroffering group health insurancecoverage receives information in thissection under paragraph (a)(certifications), paragraph (b) (disclosureof information relating to the alternativemethod), or paragraph (c) (other

evidence of creditable coverage), theentity is required, within a reasonabletime period following receipt of theinformation, to make a determinationregarding the individual’s period ofcreditable coverage and notify theindividual of the determination inaccordance with paragraph (d)(2) of thissection. Whether a determination andnotification regarding an individual’screditable coverage is made within areasonable time period is determinedbased on the relevant facts andcircumstances. Relevant facts andcircumstances include whether a plan’sapplication of a preexisting conditionexclusion would prevent an individualfrom having access to urgent medicalservices.

(2) Notification to individual of periodof preexisting condition exclusion. Aplan or issuer seeking to impose apreexisting condition exclusion isrequired to disclose to the individual, inwriting, its determination of anypreexisting condition exclusion periodthat applies to the individual, and thebasis for such determination, includingthe source and substance of anyinformation on which the plan or issuerrelied. In addition, the plan or issuer isrequired to provide the individual witha written explanation of any appealprocedures established by the plan orissuer, and with a reasonableopportunity to submit additionalevidence of creditable coverage.However, nothing in this paragraph (d)or paragraph (c) of this section preventsa plan or issuer from modifying aninitial determination of creditablecoverage if it determines that theindividual did not have the claimedcreditable coverage, provided that—

(i) A notice of the reconsideration isprovided to the individual; and

(ii) Until the final determination ismade, the plan or issuer, for purposes ofapproving access to medical services(such as a pre-surgery authorization),acts in a manner consistent with theinitial determination.


Example: (i) Individual F terminatesemployment with Employer W and, a monthlater, is hired by Employer X. Example 1:Individual G is hired by Employer Y.Employer Y’s group health plan imposes apreexisting condition exclusion for 12months with respect to new enrollees anduses the standard method of determiningcredible coverage. Employer Y’s plandetermines that G is subject to a 4-monthpreexisting condition exclusion, based on acertificate of creditable coverage that isprovided by G to Employer Y’s planindicating 8 months of coverage under G’sprior group health plan.


(ii) In this Example, Employer Y’s planmust notify G within a reasonable period oftime following receipt of the certificate thatG is subject to a 4-month preexistingcondition exclusion beginning on G’senrollment date in Y’s plan.

Example 2: (i) Same facts as in Example 1,except that Employer Y’s plan determinesthat G has 14 months of creditable coveragebased on G’s certificate indicating 14 monthsof creditable coverage under G’s prior plan.

(ii) In this Example, Employer Y’s plan isnot required to notify G that G will not besubject to a preexisting condition exclusion.

Example 3: (i) Individual H is hired byEmployer Z. Employer Z’s group health planimposes a preexisting condition exclusion for12 months with respect to new enrollees anduses the standard method of determiningcreditable coverage. H develops an urgenthealth condition before receiving a certificateof prior coverage. H attests to the period ofprior coverage, presents corroboratingdocumentation of the coverage period, andauthorizes the plan to request a certificate onH’s behalf.

(ii) In this Example, Employer Z’s planmust review the evidence presented by H. Inaddition, the plan must make adetermination and notify H regarding anypreexisting condition exclusion period thatapplies to H (and the basis of suchdetermination) within a reasonable timeperiod following receipt of the evidence thatis consistent with the urgency of H’s healthcondition (this determination may bemodified as permitted under paragraph(d)(2)).

§ 146.117 Special enrollment periods.(a) Special enrollment for certain

individuals who lose coverage—(1)General. A group health plan, and ahealth insurance issuer offering grouphealth insurance coverage in connectionwith a group health plan, is required topermit employees and dependentsdescribed in this section in paragraph(a)(2), (a)(3), or (a)(4) to enroll forcoverage under the terms of the plan ifthe conditions in paragraph (a)(5) aresatisfied and the enrollment is requestedwithin the period described inparagraph (a)(6). The enrollment iseffective at the time described inparagraph (a)(7). The special enrollmentrights under this paragraph (a) applywithout regard to the dates on which anindividual would otherwise be able toenroll under the plan.

(2) Special enrollment of an employeeonly. An employee is described in thisparagraph (a)(2) if the employee iseligible, but not enrolled, for coverageunder the terms of the plan and, whenenrollment was previously offered to theemployee under the plan and wasdeclined by the employee, the employeewas covered under another group healthplan or had other health insurancecoverage.

(3) Special enrollment of dependentsonly. A dependent is described in this

paragraph (a)(3) if the dependent is adependent of an employee participatingin the plan, the dependent is eligible,but not enrolled, for coverage under theterms of the plan, and, when enrollmentwas previously offered under the planand was declined, the dependent wascovered under another group healthplan or had other health insurancecoverage.





(B) The employee is provided withnotice of the requirement to provide thestatement in paragraph (a)(5)(i) (and theconsequences of the employee’s failureto provide the statement) at the time theemployee declined enrollment.

(ii) (A) When the employee declinedenrollment for the employee ordependent under the plan, the employeeor dependent had COBRA continuationcoverage under another plan andCOBRA continuation coverage underthat other plan has since beenexhausted; or

(B) If the other coverage that appliedto the employee or dependent whenenrollment was declined was not undera COBRA continuation provision, eitherthe other coverage has been terminatedas a result of loss of eligibility for thecoverage or employer contributionstowards the other coverage have beenterminated. For this purpose, loss ofeligibility for coverage includes a loss ofcoverage as a result of legal separation,divorce, death, termination ofemployment, reduction in the numberof hours of employment, and any loss ofeligibility after a period that is measuredby reference to any of the foregoing.Thus, for example, if an employee’s

coverage ceases following a terminationof employment and the employee iseligible for but fails to elect COBRAcontinuation coverage, this is treated asa loss of eligibility under this paragraph(a)(5)(ii)(B). However, loss of eligibilitydoes not include a loss due to failure ofthe individual or the participant to paypremiums on a timely basis ortermination of coverage for cause (suchas making a fraudulent claim or anintentional misrepresentation of amaterial fact in connection with theplan). In addition, for purposes of thisparagraph (a)(5)(ii)(B), employercontributions include contributions byany current or former employer (of theindividual or another person) that wascontributing to coverage for theindividual.

(6) Length of special enrollmentperiod. The employee is required torequest enrollment (for the employee orthe employee’s dependent, as describedin this section in paragraph (a)(2),paragraph (a)(3), or paragraph (a)(4)) notlater than 30 days after the exhaustionof the other coverage described inparagraph (a)(5)(ii)(A) or termination ofthe other coverage as a result of the lossof eligibility for the other coverage foritems described in paragraph (a)(5)(ii)(B)or following the termination ofemployer contributions toward thatother coverage. The plan may imposethe same requirements that apply toemployees who are otherwise eligibleunder the plan to immediately requestenrollment for coverage (for example,that the request be made in writing).


(b) Special enrollment with respect tocertain dependent beneficiaries—(1)General. A group health plan that makescoverage available with respect todependents of a participant is requiredto provide a special enrollment periodto permit individuals described in thissection in paragraph (b)(2), (b)(3), (b)(4),(b)(5), or (b)(6) to be enrolled forcoverage under the terms of the plan ifthe enrollment is requested within thetime period described in paragraph(b)(7). The enrollment is effective at thetime described in paragraph (b)(8). Thespecial enrollment rights under thisparagraph (b) apply without regard tothe dates on which an individual wouldotherwise be able to enroll under theplan.

(2) Special enrollment of an employeewho is eligible but not enrolled. Anindividual is described in thisparagraph (b)(2) if the individual is anemployee who is eligible, but not


enrolled, in the plan, the individualwould be a participant but for a priorelection by the individual not to enrollin the plan during a previousenrollment period, and a personbecomes a dependent of the individualthrough marriage, birth, or adoption orplacement for adoption.

(3) Special enrollment of a spouse ofa participant. An individual isdescribed in this paragraph (b)(3) ifeither—


(ii) The individual is a spouse of theparticipant and a child becomes adependent of the participant throughbirth, adoption, or placement foradoption.





(6) Special enrollment of an employeewho is eligible but not enrolled and anew dependent. An employee who iseligible, but not enrolled, in the plan,and an individual who is a dependentof the employee, are described in thisparagraph (b)(6) if the employee wouldbe a participant but for a prior electionby the employee not to enroll in theplan during a previous enrollmentperiod, and the dependent becomes adependent of the employee throughmarriage, birth, or adoption orplacement for adoption.

(7) Length of special enrollmentperiod. The special enrollment periodunder paragraph (b)(1) of this section isa period of not less than 30 days andbegins on the date of the marriage, birth,or adoption or placement for adoption(except that such period does not beginearlier than the date the plan makesdependent coverage generally available).





(9) Example. The following exampleillustrates the requirements of thisparagraph (b):


(ii) In this Example, the conditions forspecial enrollment of an employee with anew dependent under paragraph (b)(2) aresatisfied, the conditions for specialenrollment of an employee and a spouse witha new dependent under paragraph (b)(4) aresatisfied, and the conditions for specialenrollment of an employee and a newdependent under paragraph (b)(6) aresatisfied. Accordingly, Employer X’s planwill satisfy this paragraph (b) if and only ifit allows A to elect, by filing the requiredforms by March 16, 1999, to enroll inEmployer X’s plan either with employee-onlycoverage, with employee-plus-spousecoverage, or with family coverage, effectiveas of February 15, 1999.


If you are declining enrollment for yourselfor your dependents (including your spouse)because of other health insurance coverage,you may in the future be able to enrollyourself or your dependents in this plan,provided that you request enrollment within30 days after your other coverage ends. Inaddition, if you have a new dependent as aresult of marriage, birth, adoption orplacement for adoption, you may be able toenroll yourself and your dependents,provided that you request enrollment within30 days after the marriage, birth, adoption, orplacement for adoption.

(d) Special enrollment date definition.(1) General rule. A special enrollmentdate for an individual means any datein paragraph (a)(7) or paragraph (b)(8) ofthis section on which the individual hasa right to have enrollment in a grouphealth plan become effective under thissection.

(2) Examples. The following examplesillustrate the requirements of thisparagraph (d):

Example 1: (i) Employer Y maintains agroup health plan that allows employees toenroll in the plan either (a) effective on thefirst day of employment by an election filedwithin three days thereafter, (b) effective onany subsequent January 1 by an electionmade during the preceding months ofNovember or December, or (c) effective as ofany special enrollment date described in thissection. Employee B is hired by Employer Yon March 15, 1998 and does not elect toenroll in Employer Y’s plan until January 31,1999 when B loses coverage under anotherplan. B elects to enroll in Employer Y’s planeffective on February 1, 1999 by filing thecompleted request form by January 31, 1999,in accordance with the special rule set forthin paragraph (a).

(ii) In this Example, B has enrolled on aspecial enrollment date because theenrollment is effective at a date described inparagraph (a)(7).

Example 2: (i) Same facts as Example 1,except that B’s loss of coverage under theother plan occurs on December 31, 1998 andB elects to enroll in Employer Y’s planeffective on January 1, 1999 by filing thecompleted request form by December 31,1998, in accordance with the special rule setforth in paragraph (a).

(ii) In this Example, B has enrolled on aspecial enrollment date because theenrollment is effective at a date described inparagraph (a)(7) (even though this date is alsoa regular enrollment date under the plan).

§ 146.119 HMO affiliation period asalternative to preexisting conditionexclusion.

(a) General. A group health planoffering health insurance coveragethrough an HMO, or an HMO that offershealth insurance coverage in connectionwith a group health plan, may imposean affiliation period only if each of therequirements in paragraph (b) of thissection is satisfied.

(b) Requirements for affiliationperiod. (1) No preexisting conditionexclusion is imposed with respect toany coverage offered by the HMO inconnection with the particular grouphealth plan.

(2) No premium is charged to aparticipant or beneficiary for theaffiliation period.

(3) The affiliation period for the HMOcoverage is applied uniformly withoutregard to any health status-relatedfactors.


(4) The affiliation period does notexceed 2 months (or 3 months in thecase of a late enrollee).

(5) The affiliation period begins onthe enrollment date.

(6) The affiliation period forenrollment in the HMO under a planruns concurrently with any waitingperiod.

(c) Alternatives to affiliation period.An HMO may use alternative methodsin lieu of an affiliation period to addressadverse selection, as approved by theState insurance commissioner or otherofficial designated to regulate HMOs.Nothing in this section requires a Stateto receive proposals for or approvealternatives to affiliation periods.

§ 146.121 Prohibiting discriminationagainst participants and beneficiariesbased on a health status-related factor.

(a) In eligibility to enroll—(1) General.Subject to paragraph (a)(2) of thissection, a group health plan, and ahealth insurance issuer offering grouphealth insurance coverage in connectionwith a group health plan, may notestablish rules for eligibility (includingcontinued eligibility) of any individualto enroll under the terms of the planbased on any of the following healthstatus-related factors in relation to theindividual or a dependent of theindividual:


physical and mental illnesses), asdefined in § 146.102.


§ 146.102.(vii) Evidence of insurability



exclusions. To the extent consistentwith section 2701 of the Act and§ 146.111, paragraph (a)(1) of thissection shall not be construed—

(i) To require a group health plan, ora health insurance issuer offering grouphealth insurance coverage, to provideparticular benefits other than thoseprovided under the terms of such planor coverage; or

(ii) To prevent such a plan or issuerfrom establishing limitations orrestrictions on the amount, level, extent,or nature of the benefits or coverage forsimilarly situated individuals enrolledin the plan or coverage.

(3) Construction. For purposes ofparagraph (a)(1) of this section, rules foreligibility to enroll include rulesdefining any applicable waiting (or

affiliation) periods for such enrollmentand rules relating to late and specialenrollment.

4. Example. The following exampleillustrates the requirements of thisparagraph (a):



(b) In premiums or contributions—(1)General. A group health plan, and ahealth insurance issuer offering healthinsurance coverage in connection with agroup health plan, may not require anindividual (as a condition of enrollmentor continued enrollment under the plan)to pay a premium or contribution thatis greater than the premium orcontribution for a similarly situatedindividual enrolled in the plan based onany health status-related factor, inrelation to the individual or adependent of the individual.

(2) Construction. Nothing inparagraph (b)(1) of this section can beconstrued—


(ii) To prevent a group health plan,and a health insurance issuer offeringgroup health insurance coverage, fromestablishing premium discounts orrebates or modifying otherwiseapplicable copayments or deductibles inreturn for adherence to a bona fidewellness program. For purposes of thissection, a bona fide wellness program isa program of health promotion anddisease prevention.

(3) Example. The following exampleillustrates the requirements of thisparagraph (b):


(ii) In this Example, because enrollees whootherwise comply with the program may beunable to achieve a cholesterol count under200 due to a health status-related factor, thisis not a bona fide wellness program and suchdiscounts would discriminate impermissibly

based on one or more health status-relatedfactors. However, if, instead, individualscovered by the plan were entitled to receivethe discount for complying with the diaryand dietary requirements and were notrequired to pass a cholesterol test, theprogram would be a bona fide wellnessprogram.

§ 146.125 Effective dates.(a) General effective dates—(1) Non-

collectively-bargained plans. Except asotherwise provided in this section, partA of title XXVII of the PHS Act and thispart applies with respect to group healthplans, including health insuranceissuers offering health insurancecoverage in connection with grouphealth plans, for plan years beginningafter June 30, 1997.

(2) Collectively bargained plans.Except as otherwise provided in thissection (other than paragraph (a)(1)), inthe case of a group health planmaintained under one or morecollective bargaining agreementsbetween employee representatives andone or more employers ratified beforeAugust 21, 1996, part A of title XXVIIof the PHS Act and this part does notapply to plan years beginning before thelater of July 1, 1997, or the date onwhich the last of the collectivebargaining agreements relating to theplan terminates (determined withoutregard to any extension thereof agreed toafter August 21, 1996). For thesepurposes, any plan amendment madeunder a collective bargaining agreementrelating to the plan, that amends theplan solely to conform to anyrequirement of such part, is not treatedas a termination of the collectivebargaining agreement.

(3) Preexisting condition exclusionperiods for current employees. (i)General rule. Any preexisting conditionexclusion period permitted under§ 146.111 is measured from theindividual’s enrollment date in the plan.This exclusion period, as limited under§ 146.111, may be completed before theeffective date of the Health InsurancePortability and Accountability Act of1996 (HIPAA) for his or her plan.Therefore, on the date the individual’splan becomes subject to part A of titleXXVII of the PHS Act, no preexistingcondition exclusion may be imposedwith respect to an individual beyondthe limitation in § 146.111. For anindividual who has not completed thepermitted exclusion period underHIPAA, upon the effective date for hisor her plan, the individual may usecredible coverage that the person had asof the enrollment date to reduce theremaining preexisting conditionexclusion period applicable to theindividual.


(ii) Examples. The followingexamples illustrate the requirements ofthis paragraph (a)(3):

Example 1: (i) Individual A has beenworking for Employer X and has beencovered under Employer X’s plan sinceMarch 1, 1997. Under Employer X’s plan, asin effect before January 1, 1998, there is nocoverage for any preexisting condition.Employer X’s plan year begins on January 1,1998. A’s enrollment date in the plan isMarch 1, 1997, and A has no crediblecoverage before this date.

(ii) In this Example, Employer X maycontinue to impose the preexistingconditions exclusion under the plan throughFebruary 28, 1998 (the end of the 12-monthperiod using anniversary dates).

Example 2: (i) Same facts as in Example 1,except that A’s enrollment date was August1, 1996, instead of March 1, 1997.

(ii) In this Example, on January 1, 1998,Employer X’s plan may no longer excludetreatment for any preexisting condition thatA may have, however, because Employer X’splan is not subject to HIPAA until January 1,1998, A is not entitled to claimreimbursement for expenses under the planfor treatments for any preexisting conditionreceived before January 1, 1998.

(b) Effective date for certificationrequirement—(1) General. Subject to thetransitional rule in § 146.115(a)(5)(iii),the certification rules of § 146.115 applyto events occurring on or after July 1,1996.


(3) No certificate before June 1, 1997.Notwithstanding any other provision ofthis part, in no case is a certificaterequired to be provided before June 1,1997.

(c) Limitation on actions. Noenforcement action is taken, under,against a group health plan or healthinsurance issuer with respect to aviolation of a requirement imposed bypart A of title XXVII of the PHS Actbefore January 1, 1998, if the plan orissuer has sought to comply in goodfaith with such requirements.Compliance with this part is deemed tobe good faith compliance with therequirements of part A of title XXVII ofthe PHS Act.

(d) Transition rules for countingcreditable coverage. An individual whoseeks to establish creditable coverage forperiods before July 1, 1996 is entitled toestablish such coverage through thepresentation of documents or othermeans in accordance with theprovisions of § 146.115(c). For coveragerelating to an event occurring beforeJuly 1, 1996, a group health plan and ahealth insurance issuer is not subject toany penalty or enforcement action withrespect to the plan’s or issuer’s counting(or not counting) such coverage if the

plan or issuer has sought to comply ingood faith with the applicablerequirements under § 146.115(c).

(e) Transition rules for certification ofcreditable coverage—(1) Certificatesonly upon request. For events occurringon or after July 1, 1996 but beforeOctober 1, 1996, a certificate is requiredto be provided only upon a writtenrequest by or on behalf of the individualto whom the certificate applies.

(2) Certificates before June 1, 1997.For events occurring on or after October1, 1996 and before June 1, 1997, acertificate must be furnished no laterthan June 1, 1997, or any later datepermitted under § 146.115(a)(2) (ii) and(iii).

(3) Optional notice—(i) General. Thisparagraph (e)(3) applies with respect toevents described in § 146.115(a)(5)(ii),that occur on or after October 1, 1996but before June 1, 1997. A group healthplan or health insurance issuer offeringgroup health coverage is deemed tosatisfy §§ 146.115 (a)(2) and (a)(3) if anotice is provided in accordance withthe provisions of paragraphs (e)(3)(i)through (e)(3)(iv) of this section.


(iii) Form and content of notice. Anotice provided under this paragraph(e)(3) must be in writing and mustinclude information substantiallysimilar to the information included in amodel notice authorized by HCFA.Copies of the model notice are availableat the following website—www.hcfa.gov(or call (410) 786–1565).

(iv) Providing certificate after request.If an individual requests a certificatefollowing receipt of the notice, thecertificate must be provided at the timeof the request as set forth in§ 146.115(a)(5)(iii).

(v) Other certification rules apply.The rules set forth in § 146.115(a)(4)(i)(method of delivery) and (a)(1) (entitiesrequired to provide a certificate) applywith respect to the provision of thenotice.

Subpart C—[Reserved]

Subpart D—Preemption and SpecialRules

§ 146.143 Preemption; State flexibility;construction.

(a) Continued applicability of Statelaw with respect to health insuranceissuers. Subject to paragraph (b) of thissection and except as provided inparagraph (c) of this section, part A oftitle XXVII of the PHS Act is not to beconstrued to supersede any provision ofState law which establishes,implements, or continues in effect any

standard or requirement solely relatingto health insurance issuers inconnection with group health insurancecoverage except to the extent that suchstandard or requirement prevents theapplication of a requirement of part Aof title XXVII of the PHS Act.

(b) Continued preemption withrespect to group health plans. Nothingin part A of title XXVII of the PHS Actaffects or modifies the provisions ofsection 514 of ERISA with respect togroup health plans.

(c) Special rules—(1) General. Subjectto paragraph (c)(2) of this section, theprovisions of part A of title XXVII of thePHS Act relating to health insurancecoverage offered by a health insuranceissuer supersede any provision of Statelaw which establishes, implements, orcontinues in effect a standard orrequirement applicable to imposition ofa preexisting condition exclusionspecifically governed by section 2701 ofthe PHS Act, which differs from thestandards or requirements specified insuch section.

(2) Exceptions. Only in relation tohealth insurance coverage offered by ahealth insurance issuer, the provisionsof this part do not supersede anyprovision of State law to the extent thatsuch provision—

(i) Shortens the period of time fromthe ‘‘6-month period’’ described insection 2701(a)(1) of the PHS Act and§ 146.111(a)(1)(i) (for purposes ofidentifying a preexisting condition);

(ii) Shortens the period of time fromthe ‘‘12 months’’ and ‘‘18 months’’described in section 2701(a)(2) of thePHS Act and § 146.111(a)(1)(ii) (forpurposes of applying a preexistingcondition exclusion period);

(iii) Provides for a greater number ofdays than the ‘‘63-day period’’ describedin sections 2701 (c)(2)(A) and (d)(4)(A)of the PHS Act and §§ 146.111(a)(1)(iii)and 146.113 (for purposes of applyingthe break in coverage rules);

(iv) Provides for a greater number ofdays than the ‘‘30-day period’’ describedin sections 2701 (b)(2) and (d)(1) of thePHS Act and § 146.111(b) (for purposesof the enrollment period and preexistingcondition exclusion periods for certainnewborns and children that are adoptedor placed for adoption);

(v) Prohibits the imposition of anypreexisting condition exclusion in casesnot described in section 2701(d) of thePHS Act or expands the exceptionsdescribed in that section;

(vi) Requires special enrollmentperiods in addition to those requiredunder section 2701(f) of the PHS Act; or

(vii) Reduces the maximum periodpermitted in an affiliation period undersection 701(g)(1)(B).


(d) Definitions—(1) State law. Forpurposes of this section the term ‘‘Statelaw’’ includes all laws, decisions, rules,regulations, or other State action havingthe effect of law, of any State. A law ofthe United States applicable only to theDistrict of Columbia is treated as a Statelaw rather than a law of the UnitedStates.

(2) State. For purposes of this sectionthe term ‘‘State’’ includes a State, theNorthern Mariana Islands, any politicalsubdivisions of a State or such Islands,or any agency or instrumentality ofeither.

§ 146.145 Special rules relating to grouphealth plans.

(a) General exception for certain smallgroup health plans. The requirements ofthis part do not apply to any grouphealth plan (and group health insurancecoverage offered in connection with agroup health plan) for any plan year if,on the first day of the plan year, theplan has fewer than 2 participants whoare current employees.

(b) Excepted benefits—(1) General.The requirements of subpart B of thispart do not apply to any group healthplan (or any group health insurancecoverage offered in connection with agroup health plan) in relation to itsprovision of the benefits described inparagraph (b)(2), (3), (4), or (5) of thissection (or any combination of thesebenefits).

(2) Benefits excepted in allcircumstances. The following benefitsare excepted in all circumstances:

(i) Coverage only for accident(including accidental death anddismemberment).

(ii) Disability income insurance.(iii) Liability insurance, including

general liability insurance andautomobile liability insurance.

(iv) Coverage issued as a supplementto liability insurance.

(v) Workers’ compensation or similarinsurance.

(vi) Automobile medical paymentinsurance.

(vii) Credit-only insurance (forexample, mortgage insurance).


(3) Limited excepted benefits—(1)General. Limited-scope dental benefits,limited-scope vision benefits, or long-term care benefits are excepted if theyare provided under a separate policy,certificate, or contract of insurance, orare otherwise not an integral part of theplan, as defined in paragraph (b)(3)(ii) ofthis section.

(ii) Integral. For purposes ofparagraph (b)(3)(i) of this section,benefits are deemed to be an integral

part of a plan unless a participant hasthe right to elect not to receive coveragefor the benefits and, if the participantelects to receive coverage for thebenefits, the participant pays anadditional premium or contribution forthat coverage.

(iii) Limited scope. Limited scopedental or vision benefits are dental orvision benefits that are sold under aseparate policy or rider and that arelimited in scope to a narrow range ortype of benefits that are generallyexcluded from hospital/medical/surgical benefits packages.



(B) For qualified long-term careinsurance services, as defined in section7702B(c)(1) of the Internal RevenueCode, or provided under a qualifiedlong-term care insurance contract, asdefined in section 7702B(b) of theInternal Revenue Code; or

(C) based on cognitive impairment ora loss of functional capacity that isexpected to be chronic.

(4) Noncoordinated benefits—(i)Excepted benefits that are notcoordinated. Coverage for only aspecified disease or illness (for example,cancer-only policies) or hospitalindemnity or other fixed dollarindemnity insurance (for example,$100/day) is expected only if it meetseach of the conditions specified inparagraph (b)(4)(ii) of this section.



(B) There is no coordination betweenthe provision of the benefits and anexclusion of benefits under any grouphealth plan maintained by the sameplan sponsor; and

(C) The benefits are paid with respectto an event without regard to whetherbenefits are provided with respect to theevent under any group health planmaintained by the same plan sponsor.

(5) Supplemental benefits. Thefollowing benefits are excepted only ifthey are provided under a separatepolicy, certificate, or contract ofinsurance:

(i) Medicare supplemental healthinsurance (as defined under section1882(g)(1) of the Social Security Act;also known as Medigap or MedSuppinsurance),

(ii) Coverage supplemental to thecoverage provided under Chapter 55,Title 10 of the United States Code (also

known as CHAMPUS supplementalprograms), and


Subpart E—Provisions Applicable toOnly Health Insurance Issuers

§ 146.150 Guaranteed availability ofcoverage for employers in the small groupmarket.

(a) Issuance of coverage in the smallgroup market. Subject to paragraphs (c)through (f) of this section, each healthinsurance issuer that offers healthinsurance coverage in the small groupmarket in a State must—

(1) Offer, to any small employer in theState, all products that are approved forsale in the small group market and thatthe issuer is actively marketing, andmust accept any employer that appliesfor any of those products; and

(2) Accept for enrollment under thecoverage every eligible individual (asdefined in paragraph (b) of this section)who applies for enrollment during theperiod in which the individual firstbecomes eligible to enroll under theterms of the group health plan, orduring a special enrollment period, andmay not impose any restriction on aneligible individual, which isinconsistent with the nondiscriminationprovisions of § 146.121 on an eligibleindividual being a participant orbeneficiary.

(b) Eligible individual defined. Forpurposes of this section, the term‘‘eligible individual’’ means anindividual who is eligible—

(1) To enroll in group healthinsurance coverage offered to a grouphealth plan maintained by a smallemployer, in accordance with the termsof the group health plan;

(2) For coverage under the rules of thehealth insurance issuer which areuniformly applicable in the State tosmall employers in the small groupmarket, and

(3) For coverage in accordance withall applicable State laws governing theissuer and the small group market.

(c) Special rules for network plans. (1)In the case of a health insurance issuerthat offers health insurance coverage inthe small group market through anetwork plan, the issuer may—

(i) Limit the employers that mayapply for the coverage to those witheligible individuals who live, work, orreside in the service area for thenetwork plan; and

(ii) Within the service area of theplan, deny coverage to employers if theissuer has demonstrated to theapplicable State authority (if required bythe State authority) that—


(A) It will not have the capacity todeliver services adequately to enrolleesof any additional groups because of itsobligations to existing group contractholders and enrollees; and

(B) It is applying this paragraph (c)(1)uniformly to all employers withoutregard to the claims experience of thoseemployers and their employees (andtheir dependents) or any health status-related factor relating to thoseemployees and dependents.

(2) An issuer that denies healthinsurance coverage to an employer inany service area in accordance withparagraph (c)(1)(ii) of this section, maynot offer coverage in the small groupmarket within the service area to anyemployer for a period of 180 days afterthe date the coverage is denied. Thisparagraph (c)(2) does not limit theissuer’s ability to renew coveragealready in force or relieve the issuer ofthe responsibility to renew thatcoverage.

(3) Coverage offered within a servicearea after the 180-day period specifiedin paragraph (c)(2) of this section issubject to the requirements of thissection.

(d) Application of financial capacitylimits. (1) A health insurance issuer maydeny health insurance coverage in thesmall group market if the issuer hasdemonstrated to the applicable Stateauthority (if required by the Stateauthority) that it—

(i) Does not have the financialreserves necessary to underwriteadditional coverage; and

(ii) Is applying this paragraph (d)(1)uniformly to all employers in the smallgroup market in the State consistentwith applicable State law and withoutregard to the claims experience of thoseemployers and their employees (andtheir dependents) or any health status-related factor relating to thoseemployees and dependents.

(2) An issuer that denies group healthinsurance coverage to any smallemployer in a State in accordance withparagraph (d)(1) of this section may notoffer coverage in connection with grouphealth plans in the small group marketin the State for a period of 180 days afterthe later of the date—

(i) The coverage is denied; or(ii) The issuer demonstrates to the

applicable State authority, if requiredunder applicable State law, that theissuer has sufficient financial reserves tounder write additional coverage.

(3) Paragraph (d)(2) of this sectiondoes not limit the issuer’s ability torenew coverage already in force orrelieve the issuer of the responsibility torenew that coverage.

(4) Coverage offered after the 180-dayperiod specified in paragraph (d)(2) ofthis section, is subject to therequirements of this section.

(5) An applicable State authority mayprovide for the application of thisparagraph (d) of this section on aservice-area-specific basis.

(e) Exception to requirement forfailure to meet certain minimumparticipation or contribution rules.

(1) Paragraph (a) of this section doesnot preclude a health insurance issuerfrom establishing employer contributionrules or group participation rules for theoffering of health insurance coverage inconnection with a group health plan inthe small group market, as allowedunder applicable State law.

(2) For purposes of paragraph (e)(1) ofthis section—

(i) The term ‘‘employer contributionrule’’ means a requirement relating tothe minimum level or amount ofemployer contribution toward thepremium for enrollment of participantsand beneficiaries; and

(ii) The term ‘‘group participationrule’’ means a requirement relating tothe minimum number of participants orbeneficiaries that must be enrolled inrelation to a specified percentage ornumber of eligible individuals oremployees of an employer.

(f) Exception for coverage offered onlyto bona fide association members.Paragraph (a) of this section does notapply to health insurance coverageoffered by a health insurance issuer ifthat coverage is made available in thesmall group market only through one ormore bona fide associations (as definedin 45 CFR 144.103).

§ 146.152 Guaranteed renewability ofcoverage for employers in the groupmarket.

(a) General rule. Subject to paragraphs(b) through (d) of this section, a healthinsurance issuer offering healthinsurance coverage in the small or largegroup market is required to renew orcontinue in force the coverage at theoption of the plan sponsor.

(b) Exceptions. An issuer maynonrenew or discontinue group healthinsurance coverage offered in the smallor large group market based only on oneor more of the following:

(1) Nonpayment of premiums. Theplan sponsor as failed to pay premiumsor contributions in accordance with theterms of the health insurance coverage,including any timeliness requirements.

(2) Fraud. The plan sponsor hasperformed an act or practice thatconstitutes fraud or made an intentionalmisrepresentation of material fact inconnection with the coverage.

(3) Violation of participation orcontribution rules. The plan sponsor hasfailed to comply with a material planprovision relating to any employercontribution or group participation rulespermitted under § 146.150(e) in the caseof the small group market or underapplicable State law in the case of thelarge group market.

(4) Termination of plan. The issuer isceasing to offer coverage in the marketin accordance with paragraphs (c) and(d) of this section and applicable Statelaw.

(5) Enrollees’ movement outsideservice area. For network plans, there isno longer any enrollee under the grouphealth plan who lives, resides, or worksin the service area of the issuer (or inthe area for which the issuer isauthorized to do business); and in thecase of the small group market, theissuer applies the same criteria it wouldapply in denying enrollment in the planunder § 146.150(c).

(6) Association membership ceases.For coverage made available in thesmall or large group market onlythrough one or more bona fideassociations, if the employer’smembership in the association ceases,but only if the coverage is terminateduniformly without regard to any healthstatus-related factor relating to anycovered individual.

(c) Discontinuing a particularproduct. In any case in which an issuerdecides to discontinue offering aparticular product offered in the smallor large group market, that product maybe discontinued by the issuer inaccordance with applicable State law inthe particular market only if—

(1) The issuer provides notice inwriting to each plan sponsor providedthat particular product in that market(and to all participants and beneficiariescovered under such coverage) of thediscontinuation at least 90 days beforethe date the coverage will bediscontinued;

(2) The issuer offers to each plansponsor provided that particularproduct the option, on a guaranteedissue basis, to purchase all (or, in thecase of the large group market, any)other health insurance coveragecurrently being offered by the issuer toa group health plan in that market; and

(3) In exercising the option todiscontinue that product and in offeringthe option of coverage under paragraph(c)(2) of this section, the issuer actsuniformly without regard to the claimsexperience of those sponsors or anyhealth status-related factor relating toany participants or beneficiaries coveredor new participants or beneficiaries whomay become eligible for such coverage.


(d) Discontinuing all coverage. Anissuer may elect to discontinue offeringall health insurance coverage in thesmall or large group market or bothmarkets in a State in accordance withapplicable State law only if—

(1) The issuer provides notice inwriting to the applicable State authorityand to each plan sponsor (and allparticipants and beneficiaries coveredunder the coverage) of thediscontinuation at least 180 days priorto the date the coverage will bediscontinued; and

(2) All health insurance policiesissued or delivered for issuance in theState in the market (or markets) arediscontinued and not renewed.

(e) Prohibition on market reentry. Anissuer who elects to discontinue offeringall health insurance coverage in amarket (or markets) in a State asdescribed in paragraph (d) of thissection may not issue coverage in themarket (or markets) and State involvedduring the 5-year period beginning onthe date of discontinuation of the lastcoverage not renewed.

(f) Exception for uniform modificationof coverage. Only at the time of coveragerenewal may issuers modify the healthinsurance coverage for a product offeredto a group health plan in the—

(1) Large group market; and(2) Small group market if, for coverage

available in this market (other than onlythrough one or more bona fideassociations), the modification isconsistent with State law and iseffective uniformly among group healthplans with that product.

(g) Application to coverage offeredonly through associations. In the case ofhealth insurance coverage that is madeavailable by a health insurance issuer inthe small or large group market toemployers only through one or moreassociations, the reference to ‘‘plansponsor’’ is deemed, with respect tocoverage provided to an employermember of the association, to include areference to such employer.

§ 146.160 Disclosure of information.(a) General rule. In connection with

the offering of any health insurancecoverage to a small employer, a healthinsurance issuer is required to—

(1) Make a reasonable disclosure tothe employer, as part of its solicitationand sales materials, of the availability ofinformation described in paragraph (b)of this section; and

(2) Upon request of the employer,provide that information to theemployer.

(b) Information described. Subject toparagraph (d) of this section,information that must be provided

under paragraph (a)(2) of this section isinformation concerning the following:

(1) Provisions of coverage relating tothe following:

(i) The issuer’s right to changepremium rates and the factors that mayaffect changes in premium rates.

(ii) Renewability of coverage.(iii) Any preexisting condition

exclusion, including use of thealternative method of countingcreditable coverage.

(iv) Any affiliation periods applied byHMOs.

(v) The geographic areas served byHMOs.

(2) The benefits and premiumsavailable under all health insurancecoverage for which the employer isqualified, under applicable State law.See § 146.150(b) through (f) forallowable limitations on productavailability.

(c) Form of information. Theinformation must be described inlanguage that is understandable by theaverage small employer, with a level ofdetail that is sufficient to reasonablyinform small employers of their rightsand obligations under the healthinsurance coverage. This requirement issatisfied if the issuer provides each ofthe following with respect to eachproduct offered:

(1) An outline of coverage. Forpurposes of this section, outline ofcoverage means a description of benefitsin summary form.

(2) The rate or rating schedule thatapplies to the product (with andwithout the preexisting conditionexclusion or affiliation period).

(3) The minimum employercontribution and group participationrules that apply to any particular typeof coverage.

(4) In the case of a network plan, amap or listing of counties served.

(5) Any other information required bythe State.

(d) Exception. An issuer is notrequired to disclose any informationthat is proprietary and trade secretinformation under applicable law.

Subpart F—Exclusion of Plans andEnforcement

§ 146.180 Treatment on non-Federalgovernmental plans.

The plan sponsor of a non-Federalgovernmental plan may elect to beexempted from any or all of therequirements identified in paragraph (a)of this section with respect to anyportion of its plan that is not providedthrough health insurance coverage, ifthe election complies with therequirements of paragraphs (b) and (c) of

this section. The election remains ineffect for the period described inparagraph (d) of this section.

(a) Exemption from requirements. Theelection described in this paragraph (a)exempts a non-Federal governmentalplan from the following requirements:

(1) Limitations on preexistingcondition exclusion periods (§ 146.111).

(2) Special enrollment periods forindividuals (and dependents) losingother coverage (§ 146.117).

(3) Prohibitions against discriminatingagainst individual participants andbeneficiaries based on health status(§ 146.121).

(4) Standards relating to benefits formothers and newborns (section 2704 ofthe PHS Act).

(5) Parity in the application of certainlimits to mental health benefits (section2705 of the PHS Act).

(b) Form and manner of election. (1)The election must be in writing.

(2) The election document mustinclude as an attachment a copy of thenotice described in paragraphs (f) and(g) of this section.

(3) The election document must statethe name of the plan and the name andaddress of the plan administrator.

(4) The election document must eitherstate that the plan does not includehealth insurance coverage, or identifywhich portion of the plan is not fundedthrough insurance.

(5) The election must be made inconformity with all the plan sponsor’srules, including any public hearing, ifrequired, and the election documentmust certify that the person signing theelection document, including ifapplicable a third party planadministrator, is legally authorized todo so by the plan sponsor.

(6) The election document must besigned by the person described inparagraph (b)(5) of this section.

(c) Timing of election. (1) For plansnot subject to collective bargainingagreements, the election must bereceived by HCFA by the day precedingthe beginning date of the plan year.

(2) For plans provided under acollective bargaining agreement, theelection must be received by HCFA nolater than 30 days after—

(i) The date of the agreement betweenthe governmental entity and unionofficials; or

(ii) If applicable, ratification of theagreement.

(3) HCFA may extend the deadlinesspecified under paragraphs (c)(1) and(c)(2) of this section for good cause.

(4) If the plan sponsor fails to file atimely election in accordance withparagraphs (c)(1) through (c)(3) of thissection, the plan is subject to the


requirements described in paragraph (a)for the entire plan year, or, in the caseof a plan provided under a collectivebargaining agreement, for the term of theagreement.

(d) Period of election. An electionunder paragraph (a) of this sectionapplies—

(1) For a single specified plan year; or(2) In the case of a plan provided

under a collective bargaining agreement,for the term of the agreement. (Forpurposes of this section, if a collectivebargaining agreement expires during thebargaining process for a new agreement,and the parties agree that the priorbargaining agreement continues in effectuntil the new agreement takes effect, the‘‘term of the agreement’’ is deemed tocontinue until the new agreement takeseffect.)

(e) Subsequent elections. An electionunder this section may be extendedthrough subsequent elections.

(f) Notice to participants. (1) A planthat makes the election described in thissection notifies the participant of theelection, and explains the consequencesof the election. This notice must beprovided—

(i) to each participant at the time ofenrollment under the plan; and

(ii) To all participants on an annualbasis.

(2) The notice shall be in writing, andmust include the information specifiedin paragraph (g) of this section.

(3) The notice shall be provided toeach participant individually.

(4) Subject to paragraph (g) of thissection, the requirements of paragraphs(f)(1) through (f)(3) of this section areconsidered to have been met if thenotice is prominently printed in thesummary plan document, or equivalentdocument, and each participant receivesa copy of that document at the time ofenrollment and annually thereafter.

(g) Notice content. The notice mustcontain at least the followinginformation:

(1) A statement that, in general,Federal law imposes upon group healthplans the requirements described inparagraph (a) of this section (whichmust be individually described in thenotice).

(2) A statement that Federal law givesthe plan sponsor of a non-Federalgovernmental plan the right to exemptthe plan in whole or in part from therequirements described in paragraph (a)of this section, and that the plansponsor has elected to do so.

(3) A statement identifying whichparts of the plan are subject to theelection, and each of the requirementsof paragraph (a) of this section from

which the plan sponsor has elected tobe exempted.

(4) If the plan chooses to provide anyof the protections of paragraph (a) ofthis section voluntarily, or is required tounder State law, a statement identifyingwhich protections apply.

(h) Certification and disclosure ofcreditable coverage. Notwithstanding anelection under this section, a non-Federal governmental plan mustprovide for certification and disclosureof creditable coverage under the planwith respect to participants and theirdependents in accordance with§ 146.115.

(i) Effect of failure to comply withelection requirements. (1) Subject toparagraph (i)(2) of this section, a plan’sfailure to comply with the requirementsof paragraphs (f) through (h) of thissection invalidates an election madeunder this section.

(2) Upon a finding by HCFA that anon-Federal governmental plan hasfailed to comply with the requirementsof paragraphs (f) through (h), and hasfailed to correct the noncompliancewithin 30 days (as provided in§ 146.184(d) (7)(iii)(B)), HCFA notifiesthe plan that its election has beeninvalidated and that it is subject to therequirements of this part.

(3) A non-Federal governmental plandescribed in paragraph (i)(2) of thissection that fails to comply with therequirements of this part is subject toFederal enforcement by HCFA under§ 146.184, including appropriate civilmoney penalties.

§ 146.184 Enforcement.

(a) Enforcement with respect to grouphealth plans—(1) Scope. In general, therequirements of the Health InsurancePortability and Accountability Act thatapply to group health plans arecontained in part 7 of subtitle B of titleI of ERISA, and in subtitle K of theInternal Revenue Code. They areenforced by the Secretary of Laborunder part 5 of subtitle B of title I ofERISA, and the Secretary of theTreasury under 26 U.S.C. 4980D.However, the provisions that apply togroup health plans that are non-Federalgovernmental plans are contained intitle XXVII of the PHS Act, and enforcedby HCFA. The provisions of title XXVIIthat apply to health insurance issuersthat offer coverage in connection withany group health plan are enforced inthe first instance by the States. If HCFAdetermines under paragraph (b) of thissection that a State is not substantiallyenforcing the provisions, HCFA enforcesthem under paragraph (d) of thissection.

(2) Non-Federal governmental plans.Requirements of this part that apply togroup health plans that are non-Federalgovernmental plans (sponsored by aState or local governmental entity) areenforced by HCFA, as provided inparagraph (d) of this section.

(b) Enforcement with respect to healthinsurance issuers—(1) General rule—enforcement by State. Except asprovided in paragraph (b)(2) of thissection, each State enforces therequirements of this part with respect tohealth insurance issuers that issue, sell,renew or offer health insurance coveragein the small or large group markets inthe State.

(2) Enforcement by HCFA. HCFAenforces the provisions of this part withrespect to health insurance issuers,using the procedures described inparagraph (d) of this section, only in thefollowing circumstances:

(i) State election. If the State choosesnot to enforce the Federal requirements.

(ii) State failure to enforce. If HCFAmakes a determination under paragraph(c) of this section that a State has failedto substantially enforce one or moreprovisions of this part.

(c) Determination by Administrator. ifHCFA receives information, through acomplaint or any other means, thatraises a question whether a State issubstantially enforcing one or moreprovisions of this part, HCFA followsthe procedures set forth in this section.

(1) Verification of exhaustion. HCFAmakes a threshold determination ofwhether the individuals affected by thealleged failure to enforce have made areasonable effort to exhaust any Stateremedies. This may involve informalcontact with State officials about thequestions raised.

(2) Notice to the State. If HCFA issatisfied that there is a reasonablequestion whether there has been afailure to substantially enforce, HCFAprovides notice as specified inparagraph (c)(3) of this section, to thefollowing State officials:

(i) The Governor or chief executiveofficer of the State.

(ii) The insurance commissioner orchief insurance regulatory official.

(iii) The official responsible forregulating HMOs, if different thanparagraph (c)(2)(ii) of this section, butonly if the alleged failure involvesHMOs.

(3) Form and content of notice. Thenotice described in paragraph (c)(2) is inwriting, and does the following:

(i) Identifies the provision orprovisions of the statute and regulationsthat have allegedly been violated;

(ii) Describes the facts of the specificviolations.


(iii) Explains that the consequence ofa failure to substantially enforce anyprovisions(s) is that HCFA enforces theprovision(s) in accordance withparagraph (d) of this section.

(iv) Advises the State that it has 45days to respond to the notice, unless thetime is extended as described inparagraph (c)(3) of this section, and thatthe response should include anyinformation that the State wishes HCFAto consider in making the preliminarydetermination described in paragraph(c)(5) of this section.

(4) Good cause. The time forresponding can be extended for goodcause. Examples of good cause includean agreement between HCFA and theState that there should be a publichearing on the State’s enforcement, orevidence that the State is undertakingexpedited enforcement activities.

(5) Preliminary determination. If atthe end of the 45-day period, and anyextension, the State has not establishedto HCFA’s satisfaction that it issubstantially enforcing the provision orprovisions described in the notice,HCFA takes the following actions:

(i) Consults with the officialsdescribed in paragraph (c)(1) of thissection.

(ii) Notifies the State of HCFA’spreliminary determination that the Statehas failed to enforce the provisions, andthat the failure is continuing.

(iii) Permits the State a reasonableopportunity to show evidence ofsubstantial enforcement.

(6) Final determination. If, afterproviding notice and the opportunity toenforce under paragraph (c)(5) of thissection, HCFA finds that the failure toenforce has not been corrected, HCFAsends the State a written notice of thatfinal determination. The notice—

(i) Identifies the provisions withrespect to which HCFA is taking overenforcement;

(ii) States the effective date of HCFA’senforcement;

(iii) Informs the State of themechanism for establishing in the futurethat it has corrected the failure, and hasbegun enforcement. This mechanismwill include transition procedures forending HCFA’s enforcement.

(d) Civil money penalties—(1) Generalrule. If any health insurance issuer thatis subject to HCFA’s enforcementauthority under paragraph (b)(2) of thissection, or any non-Federalgovernmental plan (or employer thatsponsors a non-Federal governmentalplan) that is subject to HCFA’senforcement authority under paragraph(a)(2) of this section, fails to complywith any applicable requirement of thispart, if may be subject to a civil money

penalty as described in this paragraph(d).

(2) Complaint. Any person who isentitled to any right under this part, andwho believes that the right is beingdenied as a result of any failuredescribed in paragraph (d)(1) of thissection, may file a complaint withHCFA. Based on the complaint, HCFAidentifies which entities are potentiallyresponsible for the violation, inaccordance with paragraph (d)(3) of thissection.

(3) Determination of responsibleentity. If a failure to comply isestablished under this section, theresponsible entity, as determined underthis paragraph, is liable for the penalty.If the violation is due to a failure by—

(i) A health insurance issuer, theissuer is the responsible entity;

(ii) A group health plan that is a non-Federal governmental plan sponsoredby a single employer, the employer isthe responsible entity;

(iii) A group health plan that is a non-Federal governmental plan sponsoredby two or more employers, the plan isthe responsible entity.

(4) Notice to responsible entities.HCFA provides notice to theappropriate entity or entities identifiedunder paragraph (d)(3) of this sectionthat a complaint or other informationhas been received alleging a violation ofthis part. The notice—

(i) Describes the substance of anycomplaint or other allegation;

(ii) Provides 30 days for theresponsible entity or entities to respondwith additional information. This caninclude—

(A) Information refuting that there hasbeen a violation;

(B) Evidence that the entity did notknow, and exercising due diligencecould not have known, of the violation;

(C) Evidence of a previous record ofcompliance.

(5) Notice to other regulators. HCFAnotifies the State if the alleged violationinvolves a health insurance issuer underits jurisdiction.

(6) Notice of assessment. If, based onthe information provided in thecomplaint, as well as any informationsubmitted by the entity or any otherparties, HCFA proposes to assess a civilmoney penalty, HCFA sends writtennotice of assessment to the responsibleentity or entities by certified mail,return receipt requested. The noticecontains the following information:

(i) A reference to the provision thatwas violated.

(ii) The name or names of theindividuals with respect to whom aviolation occurred, with relevantidentification numbers.

(iii) The facts that support the findingof a violation, and the initial date of theviolation.

(iv) The amount of the proposedpenalty as of the date of the notice.

(v) The basis for calculating thepenalty, including consideration ofprior compliance.

(vi) Instructions for responding to thenotice, including—

(A) A specific statement of therespondent’s right to a hearing; and

(B) A statement that failure to requesta hearing within 30 days permits theimposition of the proposed penalty,without right of appeal.

(7) Amount of penalty—(i) Maximumdaily penalty. The penalty cannotexceed $100 for each day, for eachresponsible entity, for each individualwith respect to whom such a failureoccurs.

(ii) Standard for calculating dailypenalty. In calculating the amount of thepenalty HCFA takes into account theresponsible entity’s previous record ofcompliance and the gravity of theviolation.

(iii) Limitations on penalties. No civilmoney penalty is imposed:

(A) With respect to a period duringwhich a failure existed, but none of theresponsible entities knew, or exercisingreasonable diligence would haveknown, that the failure existed.

(B) With respect to the periodoccurring immediately after the perioddescribed in paragraph (d)(7)(iii)(A) ofthis section, if the failure—

(1) Was due to reasonable cause andwas not due to willful neglect; and

(2) Was corrected within 30 days ofthe first day that any of the entitiesagainst whom the penalty would beimposed knew, or exercising reasonablediligence would have known, that thefailure existed.

(C) The burden is on the responsibleentity or entities to establish to thesatisfaction of HCFA that none of theentities knew, or exercising reasonablediligence could have known that thefailure existed.

(8) Hearings—(i) Right to a hearing.Any entity against which a penalty isassessed may request a hearing byHCFA. The request must be in writing,and must be postmarked within 30 daysafter the date the notice of assessmentis issued.

(ii) Failure to request a hearing. If nohearing is requested under thisparagraph, the notice of assessmentconstitutes a final order that is notsubject to appeal.

(iii) Parties to the hearing. Parties tothe hearing include any responsibleentities, as well as the party who filedthe complaint. An informational notice


is also sent to the State, or to theSecretaries of Labor and the Treasury, asappropriate.

(iv) Initial agency decision. The initialagency decision is made by anadministrative law judge. The decisionis made on the record according tosection 554 of title 5, United StatesCode. The decision becomes a final,appealable order after 30 days, unless itis modified in accordance withparagraph (d)(8)(v) of this section.

(v) Review by HCFA. HCFA maymodify or vacate the initial agencydecision. Notice of intent to modify orvacate the decision is issued to theparties within 30 days after the date ofthe decision of the administrative lawjudge.

(9) Judicial review—(i) Filing of actionfor review. Any entity against whom afinal order imposing a civil moneypenalty is entered in accordance withparagraph (d)(8) of this section mayobtain review in the United StatesDistrict Court for any district in whichthe entity is located or the United StatesDistrict Court for the District ofColumbia by—

(A) Filing a notice of appeal in thatcourt within 30 days from the date of afinal order; and

(B) Simultaneously sending a copy ofthe notice of appeal by registered mailto HCFA.

(ii) Certification of administrativerecord. HCFA will promptly certify andfile with the court the record uponwhich the penalty was imposed.

(iii) Standard of review. The findingsof HCFA may not be set aside unlessthey are found to be unsupported bysubstantial evidence, as provided bySection 706(2) (E) of title 5, UnitedStates Code.

(iv) Appeal. Any final decision, orderor judgement of the district courtconcerning the Administrator’s reviewis subject to appeal as provided inChapter 83 of Title 28, United StatesCode.

(10) Failure to pay assessment,maintenance of action—(i) Failure topay assessment. If any entity fails to payan assessment after it becomes a finalorder under paragraphs (d)(7)(i)(A) or(d)(7)(iii) of this section, or after thecourt has entered final judgment infavor of HCFA, HCFA refers the matterto the Attorney General, who brings anaction in the appropriate United Statesdistrict court to recover the amountassessed.

(ii) Final order not subject to review.In an action brought under paragraph

(d)(10)(i) of this section, the validity andappropriateness of the final orderdescribed in paragraphs (d)(7)(i)(A) or(d)(7)(iii) of this section is not subject toreview.

(11) Use of penalty funds. (i) Anyfunds collected under this section willbe paid to HCFA or other officeimposing the penalty.

(ii) The funds will be availablewithout appropriation and untilexpended.

(iii) The funds may only be used forthe purpose of enforcing the provisionswith respect to which the penalty wasimposed.

PARTS 147—199 [RESERVED]

Authority: Secs. 2701 through 2723, 2791,and 2792 of the PHS Act, 42 U.S.C. 300gg–41 through 300gg–63, 300gg–91, and 300gg–92.

Dated: March 25, 1997.Bruce C. Vladeck,Administrator, Health Care FinancingAdministration.

Dated: March 25, 1997.Donna E. Shalala,Secretary.[FR Doc. 97–8275 Filed 4–1–97; 12:42 pm]BILLING CODE 4120–01–M; 4830–01–M; 4510–29–M