Last month, the U.S. Departments of Labor, Treasury, and Health and Human Services
issued final and proposed regulations on the portability provisions of the Health
Insurance Portability and Accountability Act (HIPAA). HIPAA's portability provisions
generally apply to group health plans and issuers of group health plan coverage. The final
regulations make modest modifications to the 1997 interim regulations, including the
provisions on preexisting condition exclusions, certificates of creditable coverage, special
enrollments and excepted benefits. The proposed regulations, in part, address how HIPAA's
portability requirements apply to gaps in coverage during FMLA leave. Highlights of the
final and proposed regulations follow.
Although the final regulations on HIPAA's portability requirements do not significantly
modify the 1997 interim rules, there are some new definitions, clarifications and rules.
- Dependent defined. The final regulations define a "dependent" as "any individual who
is or may become eligible for coverage under the terms of a group health plan because
of a relationship to the participant." This allows group health plans to determine which
individuals are eligible for coverage as dependents under the plan by imposing requirements
such as age limits.
- Preexisting condition exclusions. The final regulations make several clarifications to
- Definition of preexisting condition. An exclusion is considered to be a preexisting
condition exclusion if the plan restricts benefits for a condition because it existed before
the "effective date of coverage under a group health plan or health insurance coverage."
(The wording in interim regulations was if the condition was present before "the first
day of coverage.") A provision used by a succeeding issuer to deny benefits for a
condition because it arose before the effective date of the new coverage would be a
preexisting condition exclusion. Such exclusions are limited under the regulations.
- Hidden preexisting condition provisions. Some plans have "hidden" preexisting
condition exclusions, such as those that provide coverage for accidental injuries only if
they occur while the individual is covered. The interim regulations imposed restrictions
on these provisions. The final regulations retain these restrictions and clarify that health
plans and issuers should eliminate these provisions or modify them to comply with
- Six-month look-back rule. Under the interim regulations, a health plan could not
impose a preexisting condition exclusion on a participant who had neither sought nor
received treatment for six months. The final regulations retain this rule, noting that
plans or issuers may specify a period of less than six months. The regulations also
clarify that, if a doctor's recommendation for treatment occurs before the six-month
look-back period, the health plan or issuer can subject a participant to a preexisting condition exclusion only if he or she receives the recommended treatment within the
- Uniformed Services Employment and Reemployment Rights Act (USERRA).
The regulations provide that USERRA can affect how a preexisting condition exclusion
applies to certain individuals who are reinstated in a group health plan following
active military service.
- Enrollment date. The "enrollment date" is the first day of coverage under the plan
(or, if there is a waiting period, the first day of the waiting period). The regulations
clarify that the enrollment date would not change simply because a group health plan
participant changes benefit package options or the health plan changes group health
- General notice. A plan or issuer must give written general notice of preexisting condition
exclusions before imposing the exclusion. The final regulations provide details
on the content, timing and delivery of required notices, such as special enrollment,
initial preexisting condition exclusion and preexisting condition exclusion notices.
The initial preexisting condition exclusion notice must be provided along with any
written application materials distributed by the plan or issuer. The rules also provide
model language for the special enrollment notice and sample language for the initial
preexisting condition exclusion notice.
- Individual notice. Plans and issuers must provide written notice of the duration of
the preexisting condition exclusion that remains after offsetting for creditable coverage.
The regulations clarify that the notice need not identify any medical condition specific
to the individual that could be subject to the exclusion. The regulations also provide
sample language for this notice.
- State Children's Health Insurance Program (S-CHIP). S-CHIP allows states to provide
health coverage to eligible children through Medicaid expansion or a private market
mechanism. This coverage meets the definition of creditable coverage as either Medicaid
coverage, group health plan coverage or health insurance coverage. The final regulations
add this as a category of creditable coverage.
- Trade Adjustment Assistance (TAA). The Trade Act of 2002 allows TAA-qualified
individuals who turned down COBRA coverage when they first lost their health coverage
to reapply for COBRA coverage. For individuals who elect COBRA during this second
election period, the period beginning with the loss of coverage and ending on the first day
of the second election period must be disregarded for purposes of HIPAA's preexisting
condition provisions. The regulations do not take these days into account in determining
whether there is a significant break in coverage (i.e., 63 days).
- Certificate of creditable coverage. Plans and issuers must provide certificates of creditable
coverage upon request and automatically when an individual's coverage ends.
The certificate must be in writing or in any form or medium that the agencies approve.
The regulations also add an educational statement on HIPAA rights to the certificate and
provide two new model certificates (one for group health plans and one for Medicaid programs). In addition, the final rules require plans and issuers to have written procedures
in place for individuals to request certificates of creditable coverage.
- Special enrollment periods. The special enrollment provisions of the interim regulations
have been reorganized and rewritten but not substantively changed. Under the special
enrollment rules, a group health plan must allow employees and dependents to enroll in
coverage when there is a mid-year loss of other health coverage and when there is a
mid-year adoption, placement for adoption, birth or marriage.
- Generally, for special enrollment due to the loss of eligibility for other coverage, the
individual has to decline coverage under the employer's plan. The regulations clarify
that the initial opportunity for enrollment (generally provided when employment
begins) is not the only time when an individual with other health coverage may decline
coverage for purposes of the special enrollment rules. Examples of other situations
that allow for special enrollment due to loss of eligibility for coverage include losing
HMO coverage due to moving out of the HMO's service area, losing dependent status
under the plan, and the plan no longer offering any benefits to a class of similarly
situated individuals, such as part-time workers.
- An employee who is already enrolled in a benefit package may enroll in another benefit
package under the plan if a dependent gains a special enrollment right in the plan by
losing eligibility for other coverage.
- An individual does not have to elect COBRA coverage to preserve the right to special
enrollment, but the special enrollment right exists even if an individual who lost coverage
elects COBRA continuation coverage.
- An individual who has a claim denied because of a lifetime limit on all benefits under
the plan incurs a loss of eligibility for coverage for special enrollment purposes.
- Becoming eligible under a health program such as S-CHIP does not fall under any of
- HMOs can use affiliation periods in place of preexisting condition rules if they meet
each of the following requirements: (a) HMOs may not impose a preexisting condition
exclusion in addition to the affiliation period, (b) HMOs may not charge a premium
for the affiliation period, (c) the period must meet the HIPAA nondiscrimination provisions,
(d) the period may not exceed two months (three months for late enrollees),
(e) the period must begin on the enrollment date and (f) the period must run concurrently
with any waiting period.
- "Excepted benefits." Certain health benefits, such as accident and liability insurance,
are exempt from the HIPAA portability rules. Benefits that are provided under a separate
insurance arrangement or are not otherwise an integral part of a health plan, such as
limited-scope vision and dental benefits, are also "excepted benefits" under HIPAA. The
final regulations define these "limited excepted benefits" and clarify these rules as they
apply to health flexible spending accounts (FSAs). Many health FSAs are considered
excepted benefits, and thus HIPAA's portability requirements will not apply to them.
The final regulations discuss when a benefit is considered "integral" to the health plan and
define limited-scope dental (substantially all the benefits are for treatment of the mouth) and vision (substantially all the benefits are for treatment of the eye). The definitions clarify
that, even if certain medical services are included in the dental and vision coverage, such as
treatment for oral cancer or glaucoma, the coverage can still be considered limited in scope.
- High-deductible health plans (HDHPs). The regulations provide that HIPAA's portability
provisions generally apply to HDHPs.
- Health savings accounts (HSAs). Because HSAs are generally not employee welfare
benefit plans, the HIPAA portability requirements under ERISA or the Public Health
Services Act generally will not apply.
The proposed regulations address five primary areas: tolling of the 63-day break-in-coverage
rule, the educational statement in the certificate of creditable coverage, special enrollment,
interaction with the Family Medical Leave Act (FMLA), and special rules for excepted plans
and excepted benefits.
- Tolling of significant break period. HIPAA requires health plans and issuers to provide
a certificate of creditable coverage when an individual's coverage ends, or later if it is
provided within the COBRA notice time periods. Under the proposed rules, the beginning
of the period used to identify a significant break in coverage (generally 63 days) would
be suspended if the plan does not provide a certificate of creditable coverage on or
before coverage ends. In those cases, the significant break-in-coverage period would not
begin until a certificate is provided, up to 44 days after the coverage ends.
- Educational statement in certificate of creditable coverage. The educational statement
added to the certificate by the final regulations (as discussed above) would be amended
to disclose the effects of the FMLA on the break-in-coverage rules and special enrollments.
- Special enrollment
- Tolling of special enrollment period. Tolling rules similar to those above for significant
breaks in coverage also would apply to special enrollment periods under the
proposed rules. Also, the rules would clarify the effective date of coverage for special
enrollments. These rules are generally the same as those in the interim regulations
(and adopted in the final regulations), but conform to the clarifications with respect
to the tolling of the special enrollment period.
- Request not application. Special enrollment would have to occur within 30 days of
eligibility. The individual would have to request special enrollment (either orally or
in writing) within 30 days, but could take longer to file an application. The plan or
issuer could require the application to be submitted within a reasonable time after the
end of the special enrollment period. Such time period would have to be extended
for information that an individual making reasonable efforts cannot obtain within
the deadline (e.g., a Social Security number for a newborn).
- Interaction with FMLA
- The proposed regulations clarify the interaction between HIPAA and FMLA when
coverage of an employee or dependent ends in connection with an employee taking
FMLA leave. In this case, the period of FMLA leave without coverage would not be taken into account in determining whether a significant break in coverage has
occurred for the employee or dependent.
- Also clarified is that there would be no exception to the general rule requiring automatic
certificates when coverage ends. The proposed regulations provide that, if an
individual covered under a group health plan takes FMLA leave and stops coverage
under the plan, an automatic certificate must be provided.
- An individual (or dependent) who is covered under a group health plan and takes
FMLA leave would have a loss of eligibility resulting in a special enrollment period
if the individual's group health coverage is terminated at any time during FMLA leave
and the individual does not return to work at the end of the leave period. This special
enrollment period would begin at the end of the FMLA period or upon the receipt of
a certificate of creditable coverage, whichever is later.
- Special rules. When an individual ceases to be covered under a group health plan,
HIPAA requires that a certificate of creditable coverage be issued. When an employee
switches health coverage options offered by an employer, such as from HMO to PPO
coverage or to an HDHP, is that considered a loss of coverage under the group health
plan? Under the interim rules, it was not always clear whether an individual changing
benefit elections was merely switching between benefit packages under a single plan or
was switching from one plan to another. Under the proposed default, all medical care
benefits offered by an employer generally constitute one group health plan, unless the
plan documents specifically indicate otherwise.
Employers should communicate with their vendors or administrators to ensure that their
procedures, notices and certificates conform to the final regulations. For the most part, plans
should not experience any major procedural changes in implementing the final regulations.
Employers also should discuss with vendors or administrators whether to implement the
clarifications suggested in the proposed regulations. It may be worthwhile to update procedures
and incorporate the model certificates from the proposed regulations.
Specifically, employers/plan administrators should:
- Review group health plan procedures and notices to ensure compliance with HIPAA's
preexisting condition requirements, including "hidden" preexisting condition provisions.
- Review procedures for special enrollment and creditable coverage.
- Review and revise certificates of creditable coverage as necessary to meet the requirements
of the model in the final or proposed regulations.
- Review health plan definitions and incorporate clarifications in the regulations, such as
the definition of dependent and limited-scope benefits.
The regulations finalizing the HIPAA interim rules become effective February 28, 2005,
and apply for plan years beginning on or after July 1, 2005. Comments on the proposed
rules are due by March 30, 2005.