Insider

The IRS, the Department of Labor (DOL) and the Health Care Financing Administration (HCFA) are responsible for providing guidance on the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These agencies recently issued clarifications to the interim regulations that came out in April 1997. The clarifications pertain to two areas: (1) flexible spending accounts (FSAs), and (2) the nondiscrimination rules relating to health status.

Flexible Spending Accounts

Generally, HIPAA applies to all group health plans. Since health care FSAs appear to meet the definition of a "group health plan" under HIPAA's interim regulations, it also appears that all of HIPAA's portability provisions (including the preexisting condition limitation, creditable coverage, certification, etc.) would apply to health care FSAs.

According to the agencies' clarification, however, benefits provided under most health care FSAs will be exempt from HIPAA's group market portability provisions. Health care FSAs will be treated as excepted benefits if they meet three conditions:

• The maximum annual benefit payable for the employee under the health care FSA does not exceed twice the employee's salary reduction election under the FSA for the year (or, if greater, the amount of the employee's salary reduction under the health care FSA for the year, plus $500);
   
• The employee has other coverage available under the employer's group health plan; and
   
• The other coverage is not limited to excepted benefits.

A health care FSA that meets these requirements is not subject to HIPAA's group market portability provisions and does not constitute creditable coverage.

Health Care Status Discrimination

As of the effective date of HIPAA (generally, the first plan year beginning on or after July 1, 1997), neither a group health plan nor a health insurance issuer offering group health insurance coverage may base eligibility (including continued eligibility) on health status-related factors (e.g., health status, medical condition, claims experience, etc.).

Anyone who could not get coverage before HIPAA's effective date due to a health status-related factor and who enrolls at the first opportunity on or after the effective date of the nondiscrimination provisions may not be treated as a late enrollee for purposes of the preexisting condition provisions. This includes those who did not apply for coverage sooner because of a plan provision that discriminated based on a health status-related factor.

These rules apply regardless of whether the plan offers late enrollment, and they do not change the special enrollment rules that prohibit treating a special enrollee as a late enrollee.

The clarification provides the following example. Employee A is an active employee of employer X. A was hired on May 3, 1992. X maintains a group health plan with a plan year beginning on January 1. Under the terms of the plan, employees and their dependents may enroll when the employee is first hired and on each January 1, but enrollees must pass a physical examination. A's application to enroll in May 1992 was denied because he has diabetes and could not pass a physical examination. A has not applied since then because he reasonably believed that the application would be denied.

Effective January 1, 1998, X's plan cannot deny coverage to A based on a health status-related factor. If A enrolls effective January 1, 1998, the plan may not treat him as a late enrollee for the purpose of determining the maximum period of any preexisting condition exclusion that may be imposed (or for the purpose of determining A's enrollment date).

The agencies stated that compliance with this nondiscrimination provision will be considered good-faith compliance with the interim regulations issued in April 1997.