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DEPARTMENT OF THE TREASURY

Western Area Power Administration

CFR Citation: 26 CFR Parts 54 and 602

RIN ID: RIN 1545-AX84

TD ID: [TD 9166]

NOTICE: Part III

DOCUMENT ACTION: Final regulation.

SUBJECT CATEGORY: DEPARTMENT OF LABOR

DATES: Effective date. These final regulations are effective February 28, 2005.

Applicability date. These final regulations apply for plan years beginning on or after July 1, 2005.

DOCUMENT SUMMARY: This document contains final regulations governing portability requirements for group health plans and issuers of health insurance coverage offered in connection with a group health plan. The rules contained in this document implement changes made to the Internal Revenue Code, the Employee Retirement Income Security Act, and the Public Health Service Act enacted as part of the Health Insurance Portability and Accountability Act of 1996.

SUMMARY: Health and Human Services Department, Centers for Medicare & Medicaid Services; Labor Department, Employee Benefits Security Administration; Treasury Department, Internal Revenue Service,

DOCUMENT BODY 2: Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210AA54
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
45 CFR Parts 144 and 146
RIN 0938AL43

Final Regulations for Health Coverage Portability for Group Health Plans and Group Health Insurance Issuers Under HIPAA Titles I & IV

SUPPLEMENTAL INFORMATION

Customer Service Information

To assist consumers and the regulated community, the Departments have issued questions and answers concerning HIPAA. Individuals interested in obtaining copies of Department of Labor publications concerning changes in health care law may call a toll free number, 1 866444EBSA (3272), or access the publications online at http://www.dol.gov/ebsa , the Department of Labor's Web site. These regulations as well as other information on the new health care laws are also available on the Department of Labor's interactive web pages, Health Elaws. In addition, CMS's publication entitled ``Protecting Your Health Insurance Coverage'' is available by calling 18006334227 or on the Department of Health and Human Services' Web site (http://www.cms.hhs.gov/hipaa1), which includes the interactive webpages, HIPAA Online. Copies of the HIPAA regulations, as well as notices and press releases related to HIPAA and other health care laws, are also available at the abovereferenced Web sites.

A. Background

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104191, was enacted on August 21, 1996. HIPAA amended the Internal Revenue Code of 1986 (Code), the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act (PHS Act) to provide for, among other things, improved portability and continuity of health coverage. Interim final regulations implementing the HIPAA provisions were first made available to the public on April 1, 1997 (published in the Federal Register on April 8, 1997, 62 FR 16894) (April 1997 interim rules). On December 29, 1997, the Departments published in the Federal Register (62 FR 67688) a clarification of the April 1997 interim rules as they relate to excepted benefits. On October 25, 1999, the Departments published a notice in the Federal Register (64 FR 57520) soliciting additional comments on the portability requirements based on the experience of plans and issuers operating under the April 1997 interim rules.

After consideration of all the comments received on the portability provisions, the Departments are publishing these final regulations. These final regulations do not significantly modify the framework established in the April 1997 interim rules. Instead, these final regulations implement changes to improve the portability of health coverage while seeking to minimize burdens on group health plans and group health insurance issuers. These final regulations become applicable to plans and issuers on the first day of the plan year beginning on or after July 1, 2005. Each plan or issuer must continue to comply with the April 1997 interim rules until these final regulations become applicable to that plan or issuer. In addition, the Departments are publishing proposed regulations elsewhere in this issue of the Federal Register to address additional and discrete issues. B. Overview of the Final Regulations
1. Definitions26 CFR 54.98012, 29 CFR 25907012, 45 CFR 144.103

This section of the final regulations provides most of the definitions used in the regulations implementing HIPAA. In addition to some minor restructuring of the April 1997 interim rules (i.e., some definitions have been moved into other sections of the regulations), some additional terms have been added. Among the new terms is the definition of the term dependent. Dependent is defined as any individual who is or may become eligible for coverage under the terms of a group health plan because of a relationship to a participant. This is intended to clarify that for purposes of HIPAA the terms of the group health plan determine which individuals are eligible for coverage as a dependent under the plan. Thus, for example, the plan terms control the age (if any) at which and conditions under which a child of a participant ceases to be eligible for coverage as a dependent. Moreover, whether an individual is eligible for special enrollment as a dependent is determined in part based on the plan's definition of dependent.
2. Limitations on Preexisting Condition Exclusions26 CFR 54.98013, 29 CFR 2590.7013, 45 CFR 146.111

This section of the final regulations addresses HIPAA's limitations on a plan's or issuer's ability to impose a preexisting condition exclusion. Comments addressing this topic generally approved of the approach taken in the Departments' April 1997 interim rules. Accordingly, these final regulations do not modify significantly the April 1997 interim rules but instead add several clarifications to the general framework already established. Also, some comments reflect a misunderstanding of the notice requirements for plans and issuers that impose a preexisting condition exclusion. Thus, these final regulations are restructured to clarify these notice
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obligations. In addition, an example in the regulations contains language that plans and issuers can use to satisfy the notice requirements.

Definition of a Preexisting Condition Exclusion

In these final regulations, a preexisting condition exclusion continues to be defined broadly. A preexisting condition exclusion is any limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the effective date of coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before that day. This definition has been moved to this section on limitations on preexisting condition exclusions to emphasize the difference between the broadness of the definition and the narrowness of permissible preexisting condition exclusions. The definition has also been modified slightly from the previous definition and clarifications of its application have been added.

If a plan exclusion satisfies the definition of a preexisting condition exclusion, it is subject to the rules of this section for preexisting condition exclusions. Under the April 1997 interim rules, whether an exclusion is a preexisting condition exclusion is determined by whether the plan provision restricts benefits for a condition because it was present before the ``first day of coverage.'' These final regulations have replaced the term first day of coverage with effective date of coverage under a group health plan or health insurance coverage. In the case of a plan that changes health insurance issuers, ``first day of coverage'' can be read to mean only the first day of coverage under the plan and not the first day of coverage under the new issuer's policy or contract (because ``first day of coverage'' is thus defined for purposes of determining the enrollment date). This reading would mean that an exclusion of benefits based on the fact that a condition existed before the effective date of coverage in the health insurance of the succeeding issuer would not be a preexisting condition (because it would not apply based on the fact that a condition existed before the first day of coverage under the plan). The phrase ``effective date of coverage under a group health plan or health insurance coverage'' under the final regulations thus applies to coverage either under a plan or health insurance coverage. Therefore, a provision used by a succeeding issuer to deny benefits for a condition because it arose before the effective date of coverage under the new policy would also fit the definition of a preexisting condition exclusion.

Since the April 1997 interim rules were published, several situations have repeatedly arisen in which a plan exclusion is not designated as a preexisting condition exclusion but nevertheless satisfies the definition of a preexisting condition exclusion. Examples have been added to illustrate some of these common plan provisions. These situations include a plan provision that provides coverage for accidental injury only if the injury occurred while covered under the plan, a plan provision that counts against a lifetime limit benefits received under prior health coverage, and a plan provision that denies benefits for pregnancy until 12 months after an individual generally becomes eligible for benefits under the plan.\1\ The regulations also include a series of examples relating to exclusions for congenital conditions. These examples illustrate that a plan that generally provides benefits for a condition cannot exclude benefits for the condition in instances where it arises congenitally without complying with these limitations on preexisting condition exclusions. However, these limitations would not apply if a plan excludes benefits for all instances of a condition, even if all instances are likely to be congenital. Plans and policies that contain these types of preexisting condition exclusions that are not designated as such should be modified to comply with HIPAA's requirements for preexisting condition exclusions, or the exclusions should be deleted. In addition, because a preexisting condition exclusion discriminates against individuals based on one or more health factors, unless a preexisting condition exclusion complies with HIPAA's limitations on preexisting condition exclusions, the plan provision will also violate the HIPAA nondiscrimination provisions.\2\
\1\ Several comments (including those of several State insurance commissioner's offices) have asked the Departments to clarify that a preexisting condition exclusion would also include any waiting period or other temporary benefit exclusion (other than a waiting period on all benefits). The Departments are publishing separately in this issue of the Federal Register a Request for Information, which invites further comments on this issue of benefitspecific waiting periods.
\2\ See 26 CFR 54.98021T(b)(3), 29 CFR 2590.702(b)(3), and 45 CFR 146.121(b)(3), published on January 8, 2001 at 66 FR 1378. General Rules Governing Preexisting Condition Exclusions

In addition to modifying the definition of a preexisting condition exclusion, these final regulations set forth HIPAA's limitations on preexisting condition exclusions, as follows:

SixMonth LookBack Rule

The final regulations retain the 6month lookback rule set forth in the April 1997 interim rules. In addition, these regulations clarify that a plan or issuer can use a period shorter than 6 months for purposes of applying the 6month lookback rule. Examples in these final regulations also clarify that if a doctor's recommendation for treatment occurs before the 6month lookback period, an individual can be subject to a preexisting condition exclusion only if the individual receives the recommended treatment within the 6month lookback period. Maximum Length of Preexisting Condition Exclusion

The final regulations retain the rule set forth in the April 1997 interim rules that a preexisting condition exclusion is not permitted to extend for more than 12 months (18 months in the case of a late enrollee) after the enrollment date.
Reducing a Preexisting Condition Exclusion Period by Creditable Coverage

The final regulations retain the rule set forth in the April 1997 interim rules. Accordingly, under these final regulations, the period of any preexisting condition exclusion that would otherwise apply to an individual under a group health plan is reduced by the number of days of creditable coverage \3\ the individual has as of the enrollment date (not including any days before a significant break in coverage). Some comments asked how this rule applies to individuals who currently have coverage under another plan (that is, the coverage has not yet ended). An example clarifies that a plan or issuer must count all days of creditable coverage prior to an individual's enrollment date, even if that coverage is still in effect.
\3\ For purposes of these regulations, the phrase ``days of creditable coverage'' has the same meaning as the phrase ``aggregate of the periods of creditable coverage'' as such phrase is used in the statute.

Other Standards

The final regulations retain the statement that other legal standards may apply to group health coverage preexisting condition exclusions. In this connection, the Department of Labor's Veterans' Employment and Training Service (VETS) has commented that the Uniformed Services Employment and Reemployment Rights Act (USERRA) provides reemployment rights for persons who leave civilian employment to perform service in the uniformed
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services and prohibits employer discrimination against any person on the basis of the person's military service, obligations, intent to join or certain other protected activities. In general, USERRA reemployment rights apply to persons who leave civilian employment to serve a single enlistment period in the active military or to employees who are members of the National Guard or Reserve and are required to perform intermittent military service or training. USERRA provides rights regarding both continuation of group health plan coverage by an employee who is absent to perform service in the uniformed services and reinstatement of group health plan coverage upon reemployment if the coverage was interrupted by the service. In response to this comment, the final regulations include a statement that USERRA can affect the application of a preexisting condition exclusion to certain individuals who are reinstated in a group health plan following active military service. For more information, a VETS directory and additional USERRA information is available at http://www.dol.gov/vets. Enrollment Definitions

Both the 6month lookback period and the maximum length of preexisting condition exclusion are measured with respect to an individual's enrollment date. The final regulations generally retain the enrollment definitions that were set forth in the April 1997 interim rules (including definitions of enrollment date, waiting period, and late enrollee). Under HIPAA, the April 1997 interim rules, and these final regulations, 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. These final regulations clarify that if an individual receiving benefits under a group health plan changes benefit package options, or if the plan changes group health insurance issuers, the individual's enrollment date remains the same.

The Departments received several comments reflecting confusion about the relationship between the preexisting condition exclusion rules and the definitions of enrollment date and waiting period. Accordingly, guidance concerning waiting periods previously located in the definitions section has been moved to this section of the regulations and expanded. In addition, the definition of waiting period has been modified with respect to individuals seeking individual market coverage. Specifically, these final rules clarify that if an individual seeks coverage in the individual market, a waiting period begins on the date the individual submits a substantially complete application for coverage and ends on either the date coverage begins (if the application results in coverage), or the date on which the application is denied by the issuer or the date on which the offer of coverage lapses (if the application does not result in coverage). Under the statute, the April 1997 interim rules, and these final regulations, the effect of considering this period a waiting period is that the period is not counted when determining the length of any break in coverage. This rule modifies the rule contained in the April 1997 interim rules (which provided a waiting period only if the individual actually obtained coverage). The modification addresses situations where some individuals have been denied individual market policies or individuals declined coverage because, for example, the policies had an exorbitant premium.

Additional examples illustrate the interaction between a waiting period and the 6month lookback period, the application of the 6month lookback and maximum preexisting condition exclusion period rules to plans with more than one benefit package option at open season, and the interaction between these rules and other eligibility criteria under the plan.
Individuals and Conditions That Cannot Be Subject to a Preexisting Condition Exclusion

Under HIPAA, the April 1997 interim rules, and these final rules, a preexisting condition exclusion cannot be applied to pregnancy. Nor can a preexisting condition exclusion be applied to a newborn, adopted child, or child placed for adoption if the child is covered under a group health plan (or other creditable coverage) within 30 days after birth, adoption, or placement for adoption.

One comment noted that the rule for newborns in the April 1997 interim rules is expressed inconsistently. Some of those expressions are inconsistent with the rule for adopted children. Specifically, the rule for adopted children and one expression of the rule for newborns refers to eligibility being conditioned on being covered under any creditable coverage as of the last day of the 30day period after birth, adoption, or placement for adoption. However, in other expressions of the rule for newborns, a reference is made to being covered under creditable coverage within 30 days after birth. These final regulations use one term consistently, referring to coverage within 30 days after birth, adoption, or placement for adoption. This accords with the conference report. H.R. Conf. Rep. No. 736, 104th Cong. 2d Session 184185 (1996). Consequently, if, for example, a child is covered within 30 days of birth, the child cannot be subject to a preexisting condition exclusion even if the child is no longer covered under the plan on the 30th day after birth (unless the child has a significant break in coverage).

Several comments noted that State laws applicable to health insurance issuers sometimes require that a mother's health coverage must provide benefits for health care expenses incurred for the child for a specified period following birth and cannot be recouped even if the child never enrolls in the plan under which the mother is covered. A new example clarifies that, in this situation, the child has creditable coverage within 30 days after birth and, therefore, no preexisting condition exclusion may be imposed on the child unless the child has a subsequent significant break in coverage.

Finally, HIPAA, the April 1997 interim rules, and these final regulations provide that a group health plan, and a health insurance issuer offering group health insurance coverage, may not impose a preexisting condition exclusion relating to a condition based solely on genetic information. Comments expressed concern that the definition of genetic information in the April 1997 interim rules was too broad and would prevent the application of a preexisting condition exclusion to conditions that would be otherwise permitted independent of any genetic information. Although these regulations have not changed the definition of genetic information, the regulations clarify that if an individual is diagnosed with a condition, even if the condition relates to genetic information, the plan may impose a preexisting condition exclusion with respect to the condition, subject to the other limitations of this section. This rule was located in the definition of medical condition in the April 1997 interim rules. Some comments indicated this rule was difficult to locate. Thus, it has been moved to this section, and an example illustrating the rule has been added.
First Notice of Preexisting Condition ExclusionGeneral Notice

Under these final regulations, as with the April 1997 interim rules, a group health plan imposing a preexisting condition exclusion, and a health insurance issuer offering group health insurance coverage under a plan imposing a preexisting condition
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exclusion, must provide a written general notice of preexisting condition exclusion before it can impose a preexisting condition exclusion.

After publication of the April 1997 interim rules, the Departments received questions about the operation of this requirement. The April 1997 interim rules provided that a plan or issuer could not impose a preexisting condition exclusion with respect to a participant or dependent before providing the general notice to the participant. Several comments asked whether plans and issuers could delay providing the general notice until a large claim was filed and then pend the claim until the general notice was sent. Other comments expressed concern that if plans do not notify individuals upon enrollment about the benefit exclusions that apply to their coverage, individuals will not be able to make informed decisions about their health care choices.

The Departments had contemplated under the April 1997 interim rules that individuals should be provided the information required in the general notice before they incurred claims that could be denied under a preexisting condition exclusion. These final regulations clarify the procedural requirements for the general notice of preexisting condition exclusion. Specifically, under the final regulations, the general notice of preexisting condition exclusion must be provided as part of any written application materials distributed by the plan or issuer for enrollment. If the plan or issuer does not distribute such materials, the notice must be provided by the earliest date following a request for enrollment that the plan or issuer, acting in a reasonable and prompt fashion, can provide the notice. Moreover, regarding the content of this general notice, the final regulations clarify precisely what is required when disclosing the existence and terms of the plan's preexisting condition exclusion. In addition, these final regulations require the notice to include the person to contact (including an address or telephone number) for obtaining additional information or assistance regarding the preexisting condition exclusion. An example in these final regulations sets forth sample language that plans and issuers can use when developing the general notice for their coverages.

Issuers that sell different policies to different plans should also be aware that when describing the existence and terms of the maximum preexisting condition exclusion period, the issuer must describe to individuals the actual maximum exclusion period under their policy. Therefore, if an issuer sells two policies, one with a 6month and one with a 12month maximum preexisting condition exclusion, the issuer could not send one notice to individuals under both policies indicating that the maximum preexisting condition exclusion is 12 months. Instead, the issuer is required to send one notice to participants under the policy with the 6month preexisting condition exclusion (indicating that the maximum exclusion period is 6 months) and a different notice to participants under the policy with the 12month preexisting condition exclusion (indicating that the maximum exclusion period is 12 months).

Determination of Creditable Coverage

These final regulations require a plan or issuer that imposes a preexisting condition exclusion to make a determination of creditable coverage within a reasonable time after receiving information regarding prior health coverage. This rule was included in the section of the April 1997 interim rules addressing certification and disclosure of previous coverage, and it has been moved to this section on preexisting condition exclusions unchanged. These final regulations clarify that a plan or issuer may not impose any limit on the amount of time that an individual has to present a certificate or other evidence of creditable coverage.\4\
\4\ Of course, after a claim has been denied under a preexisting condition exclusion, other laws, such as section 503 of ERISA, may set forth timing rules for an individual to appeal a denied claim. Second Notice of Preexisting Condition ExclusionIndividual Notice

These final regulations retain the requirement to provide an individual a written notice of the length of preexisting condition exclusion that remains after offsetting for prior creditable coverage. These final regulations clarify that this individual notice is not required to identify any medical conditions specific to the individual that could be subject to the exclusion. Also, a plan or issuer is not required to provide this notice if the plan or issuer does not impose any preexisting condition exclusion on the individual or if the plan's preexisting condition exclusion is completely offset by the individual's prior creditable coverage. These final regulations add a new example that illustrates how the notice works and includes sample language that may be helpful to plans and issuers in developing this type of notice with respect to their coverage.

Reconsideration

Consistent with the April 1997 interim rules, these final regulations do not prevent a plan or issuer from modifying an initial determination of creditable coverage if it determines that the individual did not have the claimed creditable coverage and if certain procedural requirements are met. The final regulations have been slightly reorganized and modified to make clearer that a plan or issuer is permitted to modify its initial determination if a notice of the new determination (that meets the requirements of the second, individual notice of preexisting condition exclusion, described above) is provided and, until the notice of the new determination is provided, the plan or issuer acts in a manner consistent with the initial determination for purposes of approving access to medical services (such as presurgery authorization).
3. Rules Relating to Creditable Coverage26 CFR 54.98014, 29 CFR 2590.7014, 45 CFR 146.113

This section of the final regulations describes the varieties of health coverage that constitute creditable coverage and sets forth rules for how to count creditable coverage for purposes of the rule requiring plans and issuers to offset the maximum length of a preexisting condition exclusion by prior creditable coverage. Creditable Coverage

The rules in the final regulations describing the varieties of health coverage that constitute creditable coverage generally follow the April 1997 interim rules, with two modifications. The April 1997 interim rules contain ten categories of creditable coverage. After publication of the April 1997 interim rules, Congress created the State Children's Health Insurance Program (SCHIP), which allows states to provide health coverage to eligible children through Medicaid expansion or private market mechanisms. This coverage meets the definition of creditable coverage as either Medicaid coverage, group health plan coverage, or health insurance coverage. In addition, Congress specifically provides \5\ that SCHIP coverage is creditable coverage under HIPAA. Therefore, these final regulations have added coverage under SCHIP as an eleventh category of creditable coverage. \5\ Section 2109 of the Social Security Act, enacted by section 4901 of the Balanced Budget Act of 1997, Pub. L. 10533, 111 Stat. 567.

The second modification is to the definition of public health plan. This
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definition has been changed in two ways. The first change relates to the type of health coverage provided by a public health plan. The statute does not define the term. The April 1997 interim rules limit the definition of public health plans to certain plans provided through health insurance coverage. Some comments suggested it was unnecessary to restrict the definition to insured coverage and argued that the term public health plan should be expanded. These final regulations delete the word ``insurance'' from that requirement so that any health coverage provided by a governmental entity, regardless of whether it has the riskshifting or riskdistributing effects of insurance, is a public health plan.

The second change to the definition of public health plan relates to the type of governmental entity that can establish or maintain a public health plan. Under the April 1997 interim rules, only health coverage provided under a plan established or maintained by a State, a county, or another political subdivision of a State can be a public health plan. This definition does not include a plan established or maintained by a foreign government or the U.S. government. The preamble to the April 1997 interim rules specifically solicited comments on whether public health systems of foreign countries should be considered public health plans.

Many comments addressed this issue, arguing both for and against including public health systems of foreign governments in the definition of public health plan. The comments in favor of inclusion argued that generally the health coverage provided through public health systems in foreign countries is more comprehensive than that received in this country. Some comments argued that the exclusion of foreign public health systems from the definition of public health plan arbitrarily penalizes individuals who maintain continuous health coverage through a foreign public health system. The comments against inclusion focused on the difficulty for a plan or issuer to verify whether someone had the coverage they claimed under a foreign public health system.

Under these final regulations, the definition of a public health plan includes health coverage provided under a plan established or maintained by a foreign country or a political subdivision. While this result can inconvenience plans and issuers, verifying this type of coverage may be no more inconvenient than verifying certain other types of coverage, such as group health coverage provided through foreign employers. In addition, this result is much less inequitable than denying an individual coverage for a preexisting condition in a case in which the individual can provide reliable evidence of having coverage under the public health system of a foreign government. Under the rules for establishing creditable coverage in the absence of a certificate of creditable coverage, an individual is required to present at a minimum some corroborating evidence of the claimed creditable coverage and is required to cooperate with a plan's or issuer's efforts to verify coverage. Thus, in the case of an individual claiming coverage under the public health system of a foreign country, a plan or issuer could require some evidence of residency in the foreign country (or evidence that some other eligibility standard had been met) and the individual would have to cooperate with the plan's or issuer's efforts to verify that the individual had coverage under that country's health system.

Under the revised definition in these final regulations, health coverage provided under a plan established or maintained by the U.S. Government is also a public health plan.

Counting Creditable Coverage

The rules in the final regulations for how to count creditable coverage are adopted with stylistic and conforming changes from the April 1997 interim rules. In addition, a technical modification was added, as required by a statutory change made by the Trade Act of 2002 (``the Trade Act'', Public Law 107210, enacted on August 6, 2002). Under the Trade Act, workers whose employment is adversely affected by international trade may become entitled to receive trade adjustment assistance (TAA) and a 65% health coverage tax credit (HCTC). The Trade Act also amended COBRA continuation coverage provisions in ERISA, the Public Health Service Act, and the Internal Revenue Code, to provide a second opportunity to elect COBRA for individuals who are eventually determined to qualify for TAA, but who did not elect COBRA after their original loss of health coverage. Because this could result in a ``significant break in coverage'' for purposes of HIPAA, the Trade Act specifies that the period beginning with the loss of coverage, and ending on the first day of the second election period, for individuals who elect COBRA during this second election period, should be disregarded for purposes of the HIPAA preexisting condition provisions. Accordingly, as required by the Trade Act, under these final rules the days between the date an individual lost group health plan coverage and the first day of the second COBRA election period are not taken into account in determining whether a significant break in coverage has occurred. For more information on TAA, contact the Department of Labor's Employment and Training Administration at 877 US2JOBS or at http://www.doleta.gov/tradeact. For more information on the HCTC, contact the IRS tollfree at 8666284282.

The existing examples relating to the tolling of the period for determining a significant break in coverage in the case of individuals seeking coverage in the individual market have also been modified to conform to the change in the definition of waiting period, which under these final regulations includes the period beginning when an individual submits a substantially complete application for coverage in the individual market and ends when the application is denied or when the offer of coverage lapses. In addition, here, as throughout these final regulations, references in the April 1997 interim rules to ``plan or policy'' have been revised so that the reference includes health insurance coverage not offered through a policy of insurance, such as health insurance coverage offered through a contract of a health maintenance organization.

Published elsewhere in this issue of the Federal Register is a proposed rule that provides that the period that determines whether a significant break in coverage has occurred (generally 63 days) is tolled in cases in which a certificate of creditable coverage is not provided on or before the day coverage ceases. In those cases, the significantbreakincoverage period would be tolled until a
certificate is provided or, if earlier, until 44 days after the coverage ceases.

These final regulations retain the methods in the April 1997 interim rules for counting creditable coverage, that is, the standard method and the alternative method. Comments requested that the alternative method be expanded so that a plan or issuer could elect to have it apply to categories in addition to the five categories prescribed in the April 1997 interim rules (mental health; substance abuse treatment; prescription drugs; dental care; and vision care). The types of categories described in the comments were significant differences in deductibles, costsharing, or outofpocket maximums between plans. One comment suggested that any comparison between plans on the basis of difference in deductibles or cost sharing was unworkable.

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It is the view of the Departments that a comparison between plans, and allowing one plan not to count creditable coverage (in whole or in part) under another plan, based solely on differences in deductibles or in some other costsharing mechanism or in all costsharing mechanisms, is an insufficient basis for determining the comparative value of benefits under the plans. A plan with a low deductible or low co payments might also have an annual or perincident limit on benefits so low as to make the plan with the higher deductible or higher cost sharing actually more valuable. Similarly, a plan with a higher deductible or coinsurance might also have a higher table of usual, customary, and reasonable costs, might be much more liberal in covering treatments considered experimental, and might provide a much broader base of benefits than the plan with the lower deductible or coinsurance. Because of the numerous ways that plans or issuers can limit the amount of benefits available under the plan, it is very complicated to compare the value of one plan or coverage with another. Singling out one or several of these features is insufficient for making a true comparison of the value of the benefits.
4. Evidence of Creditable Coverage26 CFR 54.98015, 29 CFR 2590.701 5, 45 CFR 146.115

This section of the final regulations sets forth guidance regarding the certification requirements and other requirements for disclosure of information relating to prior creditable coverage. The provision of a certificate and certain other disclosures of information provided for in the statute, the April 1997 interim rules, and these final regulations are intended to enable an individual to establish prior creditable coverage for purposes of reducing or eliminating any preexisting condition exclusion imposed on the individual by any subsequent group health plan coverage. The Departments received generally favorable comments on the April 1997 interim rules from interested parties who submitted comments with regard to the certification requirements. For example, several comments praised the Departments' promulgation of a model certificate in the April 1997 interim rules as a vehicle that helped reduce compliance burdens associated with the statutory requirements under HIPAA.

Form of Certificate

These final regulations retain the requirement that the certificate must generally be provided in writing. The April 1997 interim rules clarified that for this purpose a writing included any form approved by the Secretaries as a writing. These final regulations modify that standard to include any other medium approved by the Secretary. As with the April 1997 interim rules, these final regulations provide that where an individual requests that the certificate be sent to another plan or issuer instead of the individual, and the other plan or issuer agrees, the certification information may be provided by other means, such as by telephone.

Information in Certificate

The information required to be provided in a certificate under these final regulations is the same as required under the April 1997 interim rules with one addition. In response to recommendations made by the U.S. General Accounting Office (GAO) \6\ and several comments, the Departments have modified the April 1997 interim rules to require that an educational statement be provided as part of a certificate of creditable coverage in order to inform consumers of their HIPAA rights. Some comments stated that such educational language was not necessary, but indicated that if the Departments adopted such an approach they should provide language for compliance purposes. In response to the GAO recommendation, the Departments have amended the requirements for the certificate of creditable coverage in the final regulations to include the provision of an educational statement regarding certain HIPAA protections. Model educational language is provided in the model certificate (set forth below). This eliminates the burden on plans and issuers of developing language to satisfy this requirement. \6\ In the report entitled ``PRIVATE HEALTH INSURANCE: Progress and Challenges in Implementing 1996 Federal Standards'' (GAO/HEHS 99100, May 12, 1999) the GAO recommended that the Departments revise the model certificate of creditable health plan coverage to more explicitly inform consumers of their new rights under HIPAA. At a minimum, the GAO recommended that the certificate of creditable coverage should inform consumers about appropriate contacts for additional information about HIPAA and highlight key provisions and restrictions, including (1) the limits on preexisting condition exclusion periods and the guaranteed renewability of all health coverage; (2) the reduction or elimination of preexisting condition exclusion periods for employees changing jobs; (3) the prohibition against excluding an individual from an employer health plan on the basis of health status; and (4) the guarantee of access to insurance products for certain individuals losing group health coverage and the restrictions placed on that guarantee.

Model Certificate

The first model certificate below has been authorized by the Secretary of each of the Departments. The model educational statement is set forth under the heading ``Statement of HIPAA Portability Rights.'' Use of the model certificate by group health plans and group health insurance issuers will satisfy the requirements of paragraph (a)(3)(ii) of the regulations. The second model certificate below has been authorized by the Secretary of Health and Human Services. State Medicaid programs may use this version. Once these final regulations are applicable, use of the previouslypublished model certificate (published in the preamble to the April 1997 interim rules) will no longer satisfy paragraph (a)(3)(ii) of the regulations.

In addition to these model certificates, the Departments are publishing a different model certificate for group health plans and group health insurance issuers in the preamble to the proposed rules published elsewhere in this issue of the Federal Register. That model certificate includes in its educational statement an additional paragraph regarding coordination with rules under the Family and Medical Leave Act (FMLA). The Secretaries of the Departments authorize plans and issuers to use either model certificate in fulfillment of their obligations under paragraph (a)(3)(ii) of this section in the final regulations. State Medicaid programs may use either the model certificate below that is designated for Medicaid programs, or the model certificate in the proposed rules that is so designated and includes an additional paragraph on FMLA.
BILLING CODE 483001P
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BILLING CODE 483001C
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Procedure for Requesting Certificates

The April 1997 interim rules require plans and health insurance issuers to establish a procedure for individuals to request and receive certificates of creditable coverage. The Departments have received requests to clarify whether such procedures need to be in writing. These final regulations clarify that the procedures need to be in writing, helping to ensure that individuals are aware of their right to request a certificate and how to make the request.

In addition, the Departments have become aware that some plans and issuers believe they are not required to provide a certificate to individuals who request one while their coverage is still in effect. This requirement exists under the April 1997 interim rules. However, due to these questions being raised, the final regulations more explicitly state this requirement.

Dependent Coverage Information

Under HIPAA, plans and health insurance issuers are required to issue certificates of creditable coverage (automatically, and upon request) to dependents who are or were covered under a group health plan. In response to comments, and in order to allow entities responsible for issuing certificates adequate time to modify their data collection systems, the Departments established a transitional rule in the April 1997 interim rules for providing dependent coverage information. Under this transitional rule, a group health plan or health insurance issuer that, after having made reasonable efforts, could not provide a certificate of creditable coverage for a dependent could satisfy the requirements for providing a certificate to the dependent by providing the name of the participant covered by the group health plan or health insurance issuer and specifying that the type of coverage described in the certificate was for dependent coverage (for example, family coverage or employeeplusspouse coverage). This transitional rule was effective through June 30, 1998.

Under these final regulations, the transitional rule is no longer in effect and dependents are entitled to receive individualized certificates of creditable coverage under the same circumstances as other individuals. As with the April 1997 interim rules, these final regulations permit a single certificate of creditable coverage to be provided with respect to both a participant and the participant's dependents if the information is identical for each individual. In addition, these final regulations retain the provisions of the April 1997 interim rules permitting the combining of information for families. As a result, in situations where coverage information is not identical for a participant and the participant's dependents, these final regulations allow certificates for all individuals to be provided on one form if the form provides all the required information for each individual and separately states the information that is not identical. Special Rules for Certain Entities

Section 2791(a)(3) of the PHS Act provides that certain entities not otherwise subject to HIPAA's requirements are to comply with the statutory certification of coverage requirements that apply to group health plans, with respect to providing certificates of creditable coverage for Medicare, Medicaid, TRICARE, and medical care programs provided through the Indian Health Service or a tribal organization. These rules further establish that such entities are required to comply with the general statutory requirement to provide certificates. However, the Departments recognize that these programs operate in a different manner than do private employmentbased group health plans, nonfederal governmental group health plans, and health insurance issuers. In addition, the populations served by these programs are unique. Therefore, it may be appropriate to allow these programs to implement the certification process in a manner that addresses these unique characteristics and better serves the individuals covered by these programs, including requiring different information elements (for example, see the above model certificate of creditable coverage for use by State Medicaid programs). HHS will coordinate with the appropriate entities responsible for issuing these certificates and will issue separate guidance to these entities on how they must comply with the certification requirements.
5. Special Enrollment Periods26 CFR 54.98016, 29 CFR 2590.7016, 45 CFR 146.117

Under HIPAA, the April 1997 interim rules, and these final regulations, a group health plan and a health insurance issuer offering group health insurance coverage are required to provide for special enrollment periods during which certain individuals are allowed to enroll (without having to wait until a late enrollment opportunity and regardless of whether the plan offers late enrollment). A special enrollment right can arise if a person with other health coverage loses eligibility for that coverage or employer contributions toward the other coverage cease, or if a person becomes a dependent through marriage, birth, adoption, or placement for adoption.

In order to qualify for special enrollment, an individual must be otherwise eligible for coverage under the plan. Being otherwise eligible for coverage means having met the plan's substantive eligibility requirements (such as satisfying any waiting period, being in an eligible job classification, or working full time), regardless of whether the individual previously satisfied the plan's procedural requirements for becoming enrolled (such as completing written application materials or providing them to the plan within a specified time frame) during any enrollment opportunity prior to special enrollment.

The special enrollment rules have been reorganized and clarified. As discussed below, the special enrollment rules have also been modified in response to comments.

Loss of Eligibility for Other Coverage

A special enrollment right resulting from loss of eligibility for other coverage is available to employees and their dependents who meet certain requirements. As under the April 1997 interim rules, the employee or dependent must otherwise be eligible for coverage under the terms of the plan. When coverage was previously declined, the employee or dependent must have been covered under another group health plan or must have had other health insurance coverage. The plan can require that, when coverage in the plan was previously declined, the employee must have declared in writing that the reason was other coverage, in which case the plan must at that time have provided notice of this requirement and the consequences of the employee's failure to provide the statement.

These regulations include an example that clarifies 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 satisfying the prerequisites to special enrollment upon loss of other coverage. (Other examples discussed below also illustrate this principle.) An individual who initially did not enroll for coverage without having other health coverage might later be eligible for special enrollment. This could occur if, after subsequently enrolling in other coverage, the individual had an opportunity for late
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enrollment or special enrollment under the plan, but again chose not to enroll.

These final regulations, like the April 1997 interim rules, contain a list of situations when an individual loses eligibility for other coverage. While the list is not exhaustive, it has nonetheless been expanded in these final regulations to address situations that have prompted frequent questions. Thus, these regulations clarify that a loss of eligibility for coverage occurs, in the case of individual coverage provided through an HMO, when an individual no longer resides, lives, or works in the service area of the HMO (whether or not within the choice of the individual) and the HMO does not provide coverage for that reason. In the case of group coverage provided through an HMO, the same rule applies, provided that there is no other coverage under the plan available to the individual. For purposes of this rule, the HMO service area is typically defined by State law. In addition, the regulations clarify that a loss of eligibility for coverage occurs due to the cessation of dependent status. For example, a child who ``ages out'' of dependent coveragewho attains an age in excess of the maximum age for coverage of a dependent childincurs a loss of eligibility for coverage for purposes of special enrollment.

The regulations also clarify that a loss of eligibility for coverage occurs when a plan no longer offers any benefits to a class of similarly situated individuals. Thus, if a plan terminated health coverage for all parttime workers, the parttime workers incur a loss of eligibility for coverage, even if the plan continues to provide coverage to other employees. An example in the final regulations also illustrates how the loss of eligibility rule applies to a plan that terminates a benefit package option. Similarly, if an issuer providing one of the options ceases to operate in the group market, thus terminating one of the options offered by the plan, the individuals formerly in the terminated option would incur a loss of eligibility for coverage for purposes of special enrollment, unless the plan otherwise provided a current right to enroll in alternative health coverage. In addition, the final regulations clarify that an employee who is already enrolled in a benefit package may enroll in another benefit package under the plan if a dependent of that employee has a special enrollment right in the plan because the dependent lost eligibility for other coverage.

These regulations clarify that a loss of eligibility for coverage is still considered to exist even if there are subsequent coverage opportunities. As under the April 1997 interim rules, an individual does not have to elect COBRA continuation coverage or exercise similar continuation rights in order to preserve the right to special enrollment. Moreover, a special enrollment right exists even if an individual who lost coverage elects COBRA continuation coverage. In that case, if an individual declines special enrollment, and instead elects and exhausts COBRA continuation coverage, the individual has a second special enrollment right upon exhausting the COBRA continuation coverage.

In addition, as under the statute and the April 1997 interim rules, even if there is no loss of eligibility for coverage, a special enrollment right can result when employer contributions towards other coverage terminate. This is the case even if an individual continues the other coverage by paying the amount previously paid by the employer.

Lifetime Benefit Limits

Comments asked how the special enrollment rules apply when an individual reaches a lifetime limit on all benefits under a plan. The regulations clarify that where an individual has a claim denied due to the operation of a lifetime limit on all benefits, there is a loss of eligibility for coverage for special enrollment purposes. In this regard, an individual has a special enrollment right when a claim that would exceed a lifetime limit on all benefits is incurred, and the right continues at least until 30 days after the earliest date that a claim is denied due to the operation of the lifetime limit. Accordingly, because individuals who are keeping track of claims in relation to a lifetime limit can request enrollment immediately (after the claim is incurred, but before it is denied by the plan), the period for requesting special enrollment can be longer than 30 days. (Timeframes for providing certificates of creditable coverage and determining when COBRA is exhausted for individuals who have reached a lifetime limit on all benefits are set forth elsewhere in these final regulations, under the certificate and the definition provisions, respectively.)

Tolling of the Special Enrollment Period

Proposed rules, published elsewhere in this issue of the Federal Register, would toll the beginning of the 30day period for requesting special enrollment until a certificate of creditable coverage is provided to the person losing coverage, up to a maximum of 44 days of tolling. This tolling rule would be in the paragraph reserved for special enrollment procedures in these final regulations.

Dependent Special Enrollment

Comments asked for clarification of the interaction of coverage for children under a State Children's Health Insurance Program (SCHIP) and special enrollment. In particular, it was asked whether a child would have a right to special enrollment in a group health plan if the child becomes eligible for benefits under SCHIP and the child is otherwise eligible for dependent coverage under the plan. This situation would arise if a State creates a children's health program that provides payments to a parent to cover the increased cost of enrolling a dependent child in the parent's employer's group health. However, without a special enrollment right, the parent might not be able to take advantage of the program until the next late enrollment opportunity, if the plan allows late enrollment at all. The statutory language of HIPAA, however, only provides special enrollment if there is loss of eligibility for other coverage, loss of employer contributions, or addition of a new dependent to the employee's family. Becoming eligible under a health program such as SCHIP does not fall under any of these categories.\7\
\7\ Nonetheless, in addition to the dependent special enrollment rights under HIPAA, for plans subject to ERISA, section 609 of ERISA imposes additional requirements on group health plans to provide benefits to certain children, including in cases where a qualified medical child support order applies, as well as in cases of adoption. HIPAA does not prevent States from imposing similar requirements on nonfederal governmental plans.

Under these final regulations, as under the April 1997 interim rules, the special enrollment of dependents is subject to the plan's general eligibility requirements. For example, a plan may require an employee to remain enrolled, or to special enroll, in order to special enroll the employee's dependent. However, a plan's general eligibility requirements cannot prevent the application of a special enrollment right. For example, a plan may not deny special enrollment to an otherwise eligible dependent merely because the individual became a dependent of the participant after the participant's first day of coverage under the plan.

Modification of Special Enrollment Procedures

Under proposed rules, published elsewhere in this issue of the Federal Register, more detailed procedures are described for how plans and issuers would have to enroll individuals requesting special enrollment.
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When Coverage Begins Under Special Enrollment

Where the special enrollment right results from marriage or a loss of eligibility, coverage generally begins no later than the first day of the first calendar month after the date the plan or issuer receives the request for special enrollment. Where the special enrollment right results from a birth, coverage must begin on the date of birth. In the case of adoption or placement for adoption, coverage must begin no later than the date of such adoption or placement for adoption. Clarification of Special Enrollment During a Late Enrollment Opportunity

The April 1997 interim rules provided a definition of the term special enrollment date. The purpose of the definition and accompanying examples was to illustrate that if an individual who qualified for special enrollment enrolled during a coinciding late enrollment opportunity, the individual could not be treated as a late enrollee. The final regulations eliminate the term special enrollment date and clarify this issue by providing that if an individual requests enrollment while the individual is entitled to special enrollment, the individual is a special enrollee, even if the request coincides with a late enrollment opportunity under the plan. Thus, the individual cannot be treated as a late enrollee.

Notice of Special Enrollment

The preamble to the April 1997 interim rules stated that a plan must provide a description of the special enrollment rights to anyone who declines coverage. However, the text of the April 1997 interim rules required the notice to be provided to all eligible employees. Even employees who enroll may need to avail themselves of their special enrollment rights in the future, either for a spouse or other dependent, or if they lose the present coverage. Thus, these regulations reiterate the requirement in the April 1997 interim rules that a plan must provide all employees (those who enroll as well as those who decline enrollment) with a notice of special enrollment at or before the time the employee is initially offered the opportunity to enroll in the plan. The regulation also provides model language that plans can use to satisfy this requirement.

Treatment of Special Enrollees

HIPAA provides that a late enrollee does not include an individual who enrolls when first eligible or who enrolls during a special enrollment period. These regulations further clarify that individuals who enroll during a special enrollment period must generally be treated the same as individuals who enroll when first eligible. That is, relative to similarly situated individuals who enroll when first eligible, special enrollees must be offered all the same benefit packages, cannot be required to pay more for coverage, and cannot be subject to a longer preexisting condition exclusion.
6. HMO Affiliation Period as an Alternative to a Preexisting Condition Exclusion29 CFR 2590.7017, 45 CFR 146.119

Under HIPAA, the April 1997 interim rules, and these final regulations, a group health plan that offers health insurance coverage through an HMO, or an HMO that offers health insurance coverage in connection with a group health plan, may impose an affiliation period under certain conditions. An affiliation period is a period of time that must expire before health insurance coverage provided by an HMO becomes effective and during which time the HMO is not required to provide benefits. Under these final regulations an affiliation period can be imposed if each of the following requirements is satisfied: (1) No preexisting condition exclusion is imposed with respect to any coverage offered by the HMO in connection with the particular group health plan.
(2) No premium is charged to a participant or beneficiary for the affiliation period.
(3) The affiliation period for the HMO coverage is imposed consistent with the requirements of the HIPAA nondiscrimination provisions.
(4) The affiliation period does not exceed 2 months (or 3 months for a late enrollee).
(5) The affiliation period begins on the enrollment date (or, in the case of a late enrollee, the affiliation period begins on the day that would be the first day of coverage, but for the affiliation period).
(6) The affiliation period for enrollment in the HMO under a plan runs concurrently with any waiting period.

The requirements related to HMO affiliation periods contained in these final regulations clarify that a group health plan offering health insurance through an HMO or an HMO that offers health insurance coverage in connection with a group health plan may impose different affiliation periods, so long as the affiliation period complies with the requirements of the HIPAA nondiscrimination provisions. To illustrate this clarification, these final regulations contain an example where a group health plan that provides benefits through an HMO imposes an affiliation period with respect to salaried employees but does not impose an affiliation period with respect to hourly employees. This example illustrates that it is permissible to impose an affiliation period on salaried employees but not hourly employees, so long as treating these two groups differently complies with the requirements of the HIPAA nondiscrimination provisions.

The April 1997 interim rules and these final regulations specify that the affiliation period begins on the enrollment date (which is the first day of coverage under the plan, or if there is a waiting period for coverage under the plan, the first day of the waiting period), not when coverage under a particular benefit package option begins. Accordingly, an example in these final regulations illustrates that if a group health plan offers multiple benefit package options simultaneously, the HMO cannot impose an affiliation period on a plan participant who later switches to the HMO benefit package option, assuming the period of time that has elapsed since the enrollment date (during which the participant was covered under the first benefit package option) exceeds the duration of the HMO affiliation period. Moreover, these regulations clarify that, in the case of a late enrollee, the affiliation period begins on the day that would be the first day of coverage, but for the affiliation period.

The April 1997 interim rules and these final regulations allow an HMO to use alternative methods in lieu of an affiliation period to address adverse selection, as approved by the State insurance commissioner or other official designated to regulate HMOs. Because an affiliation period may be imposed only if no preexisting condition exclusion is imposed, an alternative to an affiliation period may not encompass an arrangement that is in the nature of a preexisting condition exclusion.
7. Interaction With the Family and Medical Leave Act26 CFR 54.98017, 29 CFR 7018, 45 CFR 146.120

This section has been reserved. For proposed rules on the interaction with the Family and Medical Leave Act, see the Departments' notice of proposed rulemaking, published elsewhere in this issue of the Federal Register.
8. Special Rules; Excepted Plans and Excepted Benefits26 CFR 54.9831 1, 29 2590.732, 45 CFR 146.145

FOR FURTHER INFORMATION CONTACT Dave Mlawsky, Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services, at 1 8772672323 ext. 61565; Amy Turner, Employee Benefits Security Administration, Department of Labor, at (202) 6938335; or Russ Weinheimer, Internal Revenue Service, Department of the Treasury, at (202) 6226080.