On December 30, 2004, the Internal Revenue Service, Department of Labor and Department of Health and Human Services jointly issued final and proposed regulations governing the group health plan portability provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Applicable to plan years beginning on or after July 1, 2005 (i.e., January 1, 2006 for calendar year plans), the final regulations, for the most part, adopt the interim rules previously published in April 1997. The following highlights some of the changes and clarifications made by the new regulations.
Preexisting Condition Exclusions
Under the interim regulations, a plan provision qualifies as a preexisting condition exclusion if it rfestricts benefits for a condition because it was present before a participant’s “first day of coverage”. The final regulations modify this definition by replacing the phrase “first day of coverage” with “effective date of coverage under a group health plan or health insurance coverage.” Consequently, when a group health plan changes health insurance issuers, the succeeding issuer may not deny benefits for a condition because it arose prior to the effective date of coverage under the successor’s policy.
The final regulations also provide additional examples of “hidden preexisting condition exclusions”. They include:
- a plan provision that limits coverage for accidental injury to injuries that occur while the participant is covered under the plan;
- a plan provision that denies coverage for pregnancy until 12 months after an individual becomes generally eligible for benefits under the plan; and
- a plan provision that counts benefits received under prior health coverage against a lifetime limit.
The regulations also include examples relating to congenital conditions. These examples clarify that a plan may not deny benefits for a congenital condition without complying with HIPAA’s limitations on preexisting condition exclusions.
The final regulations also clarify the six-month look-back rule. Under the regulations, a plan may not subject an individual whose physician recommended treatment for a condition prior to the six month look-back period to a preexisting condition exclusion if the individual did not receive the recommended treatment during the six month look-back period. In addition, a plan may choose to use a period shorter than six months when applying this rule. With respect to instances when a plan changes group health insurance issuers or when an individual changes benefit package options, the rules clarify that, when applying the six-month look-back period and the maximum length of a preexisting condition exclusion, the individual’s enrollment date continues to be:
- the individual’s first day of coverage under the plan; or,
- if there is a waiting period, the first day of the waiting period.
Thus, a preexisting condition exclusion may not be applied when an individual changes benefit options (e.g., switches from HMO to PPO) or when an insured plan changes carriers.
Notice of Preexisting Condition Exclusion
Under the interim regulations, a plan could not impose a preexisting condition exclusion unless it first provided a general notice of preexisting condition exclusion. The final regulations clarify that this notice must be provided as part of any written enrollment materials provided by the plan. Sample language for this general notice is included in the final regulations. The final regulations also provide sample language for the notice required to be provided to individuals regarding the length of preexisting condition exclusion which remains after offsetting for prior creditable coverage.
When applying a preexisting condition exclusion, a plan must offset the exclusion by the individual’s creditable coverage. The interim regulations included a list of ten categories of creditable coverage. The final regulations add coverage under the State Children’s Health Insurance Program (“S–CHIP”) as an eleventh category of creditable coverage. They also modify the definition of public health plan by deleting the reference to “insurance” so that any health coverage provided by a governmental entity qualifies as a “public health plan” regardless of whether it exhibits risk-shifting or risk-distributing. The final regulations also add health coverage provided under a plan established or maintained by a foreign country or political subdivision to the definition of public health plan.
To address the gap in coverage that results when an individual exercises his or her right to elect COBRA during a second election period under the COBRA provisions of the Trade Act of 2002, the final regulations provide that the days between an individual’s loss of coverage and the first day of the second election period will not count in determining whether a significant break in coverage has occurred.
Under the proposed regulations, the agencies have modified the 63-day break-in-coverage rules by requiring tolling if the certificate of creditable coverage has not been provided on or before the day coverage terminated. Under this proposed rule, the significant break-in-coverage period would be tolled for up to 44 days until the certificate of creditable coverage is provided. To coordinate this proposed rule with HIPAA’s special enrollment right resulting from a loss of eligibility for coverage, the proposed regulations also provide for a delay of the start of the 30-day special enrollment period until the day after the certificate of creditable coverage is provided or the date 44 days after coverage ceases.
Evidence of Creditable Coverage
HIPAA requires plans to provide certificates of creditable coverage upon request and automatically when an individual’s coverage terminates. To inform individuals of their HIPAA portability rights, the final regulations require that an educational statement be added to the certificate of creditable coverage. The final regulations add a model educational statement to the model certificate of creditable coverage previously published in the interim regulations. The proposed regulations include an additional provision explaining the coordination of HIPAA’s portability rules and the Family and Medical Leave Act (“FMLA”) to the model certificate. The provision states that coverage gaps that occur during an FMLA leave will not be taken into account in determining whether a significant break in coverage has occurred.
To help ensure that individuals are aware of their right to request a certificate of creditable coverage, the final regulations require plans to have written procedures for requesting a certificate.
The proposed regulations clarify that if an individual ceases coverage during an FMLA leave, the individual is entitled to receive an automatic certificate of creditable coverage.
Special Enrollment Periods
HIPAA’s special enrollment period provisions require plans to allow eligible individuals to enroll in coverage without having to wait until open enrollment. A special enrollment period arises when an eligible individual who previously declined coverage because of other health coverage loses eligibility for the other coverage and when an eligible employee acquires a new dependent. The final regulations expand the list of situations that would constitute a loss of eligibility for coverage to include:
- When an individual no longer resides, lives or works in the service area of an HMO, if there is no other coverage available under the plan;
- When an individual ceases to be a dependent under the plan;
- When a plan ceases to offer any benefits to a class of similarly situated individuals (e.g., part-time employees);
- When a plan terminates a benefit package option; and
- When an individual reaches a lifetime limit on all benefits. In this case, the 30 day special enrollment period commences when the claim is denied due to the operation of the lifetime limit.
The regulations also clarify that the right to special enrollment exists even if the individual has other coverage opportunities available to him or her, such as COBRA.
With respect to the special enrollment right that arises when an employee acquires a new dependent, the right to receive a certificate of creditable coverage and other HIPAA portability provisions that reference dependents, the final regulations add a definition for “dependent” which references the provisions of the plan. Thus, the terms of the plan determine whether an individual has a special enrollment right.
To apprise individuals of their special enrollment rights, the final regulations adopt the interim regulations’ notice requirement and include model language to help plans meet this requirement.
When an individual exercises his or her special enrollment right, the final regulations clarify that the individual must generally be treated the same as individuals who enroll when first eligible. Consequently, special enrollees must be offered all of the same benefit packages, cannot be required to pay more for coverage, and cannot be subject to a longer preexisting condition exclusion.
The proposed regulations clarify that an individual may exercise his or her special enrollment rights by making an oral or written request for enrollment. After receiving a timely request for special enrollment, the proposed regulations permit plans to impose a deadline for submitting completed enrollment materials; this deadline must be extended if an individual cannot obtain required information after undertaking reasonable efforts. Moreover, under the proposed regulations, a plan’s enrollment procedure may only require the same kinds of information required from individuals who enroll when initially eligible and information about the event giving rise to the special enrollment right.
Excepted Plans and Excepted Benefits
Under the interim and final regulations, limited scope dental benefits, limited scope vision benefits, and long term care benefits are excepted from HIPAA’s portability requirements if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a plan that is subject to HIPAA’s portability requirements. The final regulations define limited scope dental benefits as benefits substantially all of which are for treatment of the mouth (including any structure or organ within the mouth) and limited scope vision benefits as benefits substantially all of which are for treatment of the eye.
The final regulations also clarify that Health Savings Accounts (“HSAs”) which were introduced by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, are not subject to HIPAA’s portability requirements as they are generally not considered employee welfare benefit plans for purposes of ERISA. The regulations, however, note that the high deductible health plans that are required for participation in HSAs are subject to HIPAA’s portability rules if they are sponsored by an employer.
To address uncertainty regarding whether an individual who changed benefit elections was switching between benefit package options or plans, the proposed regulations clarify that all medical care benefits made available by an employer or employee organization are generally considered to be one plan. An employer or employee organization can establish more than one group health plan if the instruments governing the arrangements clearly state that the benefits are being provided under separate plans and if the arrangements are operated pursuant to the instruments as separate plans.
Generally, the final regulations do not change the provisions of the interim regulations issued in April 1997 and, therefore, will not require plans to significantly change how they operate. However, the final regulations will necessitate some analysis of administrative practices to ensure compliance, especially with respect to the plan’s certificate of creditable coverage, which must be revised to include the required educational statement.