Notice of Proposed Rulemaking for Health Coverage Portability:
Tolling Certain Time Periods and Interaction With the Family and
Medical Leave Act Under HIPAA Titles I and IV
[12/30/2004]
Volume 69, Number 250, Page 78800-78825
[[Page 78800]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[REG-130370-04]
RIN 1545-BD51
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AA54
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
45 CFR Part 146
RIN 0938-AL88
Notice of Proposed Rulemaking for Health Coverage Portability:
Tolling Certain Time Periods and Interaction With the Family and
Medical Leave Act Under HIPAA Titles I and IV
AGENCIES: Internal Revenue Service, Department of the Treasury;
Employee Benefits Security Administration, Department of Labor; Centers
for Medicare & Medicaid Services, Department of Health and Human
Services.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: These proposed rules would clarify certain portability
requirements for group health plans and issuers of health insurance
coverage offered in connection with a group health plan. These rules
propose to 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.
DATES: Written comments on this notice of proposed rulemaking are
invited and must be received by the Departments on or before March 30,
2005.
ADDRESSES: Written comments should be submitted with a signed original
and three copies (except for electronic submissions) to any of the
addresses specified below. Any comment that is submitted to any
Department will be shared with the other Departments.
Comments to the IRS can be addressed to: CC:PA:LPD:PR (REG-130370-
04), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
In the alternative, comments may be hand-delivered between the
hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-130370-04), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW.,
Washington, DC 20224.
Alternatively, comments may be transmitted electronically via the
IRS Internet site at: http://www.irs.gov/regs or via the Federal eRulemaking
Portal at http://www.regulations.gov (IRS-REG-130370-04).
Comments to the Department of Labor can be addressed to: U.S.
Department of Labor, Employee Benefits Security Administration, 200
Constitution Avenue NW., Room C-5331, Washington, DC 20210, Attention:
Proposed Portability Requirements.
Alternatively, comments may be hand-delivered between the hours of
9 a.m. and 5 p.m. to the same address. Comments may also be transmitted
by e-mail to: e-ohpsca.ebsa@dol.gov.
Comments to HHS can be submitted as described below: In commenting,
please refer to file code CMS-2158-P. Because of staff and resource
limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments.
(Attachments should be in Microsoft Word, WordPerfect, or
Excel; however, we prefer Microsoft Word.)
2. By mail. You may mail written comments (one original and two
copies) to the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-2158-P, P.O. Box 8017, Baltimore, MD
21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop
slots located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by
stamping in and retaining an extra copy of the comments being
filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
All submissions to the IRS will be open to public inspection and
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC
from 9 a.m. to 4 p.m.
All submissions to the Department of Labor will be open to public
inspection and copying in the Public Disclosure Room, Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1513, 200
Constitution Avenue, NW., Washington, DC from 8:30 a.m. to 4:30 p.m.
All submissions timely submitted to HHS will be available for
public inspection as they are received, generally beginning
approximately three weeks after publication of a document, at the
headquarters for the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, MD 21244, Monday through Friday of each
week from 8:30 a.m. to 4:00 p.m. To schedule an appointment to view
public comments, phone 410-786-7195.
FOR FURTHER INFORMATION CONTACT: Dave Mlawsky, Centers for Medicare &
Medicaid Services (CMS), Department of Health and Human Services, at 1-
877-267-2323 ext. 61565; Amy Turner, Employee Benefits Security
Administration, Department of Labor, at (202) 693-8335; or Russ
Weinheimer, Internal Revenue Service, Department of the Treasury, at
(202) 622-6080.
SUPPLEMENTARY 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-
866-444-EBSA (3272), or access the publications
[[Page 78801]]
on-line 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 1-800-633-4227 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 above-referenced Web sites.
A. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, 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 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 final regulations elsewhere
in this issue of the Federal Register. These proposed rules address
additional and discrete issues for which the Departments are soliciting
further comment before promulgating final regulations.
B. Overview of the Proposed Regulations
1. Rules Relating to Creditable Coverage--26 CFR 54.9801-4, 29 CFR
2590.701-4, 45 CFR 146.113
Tolling of the 63-Day Break-in-Coverage Rule
These proposed rules would modify the 63-day break-in-coverage
rules with one significant substantive change. Under the proposed
rules, the beginning of the period that is used for determining 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
significant-break-in-coverage period is tolled until a certificate is
provided but not beyond 44 days after the coverage ceases.
The Departments have fashioned this tolling rule (and a similar
tolling rule for the 30-day period for requesting special enrollment)
in an effort to address the inequity of individuals' losing coverage
without being aware that the coverage has ended while minimizing the
burdens on subsequent plans and issuers that are not responsible for
providing the missing or untimely certificates. Numerous situations
have come to the attention of the Departments in which an individual's
health coverage is terminated but in which the individual does not
learn of the termination of coverage until well after it occurs. The
statute generally requires that a certificate of creditable coverage be
provided at the time an individual ceases to be covered under a plan.
The statute, the April 1997 interim rules, and the final regulations
(published elsewhere in this issue of the Federal Register) all permit
a plan or issuer to provide the certificate at a later date if it is
provided at a time consistent with notices required under a COBRA
continuation provision. The statute also directs the Secretaries to
establish rules to prevent a plan or issuer's failure to provide a
certificate timely from adversely affecting the individual's subsequent
coverage. If a plan or issuer chooses to provide a certificate later
than the date an individual loses coverage, as the regulations permit
in certain circumstances, these proposed rules provide that an
individual should not suffer from this rule of convenience for the plan
or issuer. However, to prevent the abuse that might result from an
open-ended tolling rule, an outside limit of 44 days is placed on this
relief. This reflects the fact that, in most cases, plans and issuers
are required to provide certificates within 44 days (although some
plans and issuers may be required to provide certificates sooner than
44 days after coverage ceases and some entities are not required to
provide certificates at all). The Departments have adopted this uniform
limit on the tolling rule for purposes of consistency. New examples
have been added to illustrate the tolling rule.
2. Evidence of Creditable Coverage--26 CFR 54.9801-5, 29 CFR 2590.701-
5, 45 CFR 146.115
Information in Certificate and Model Certificate
These proposed rules would modify the required elements for the
educational statement in certificates of creditable coverage to require
a disclosure about the Family and Medical Leave Act. Use of the first
model certificate below by group health plans and group health
insurance issuers, or use of the appropriate model certificate that
appears in the preamble to the related final regulations published
elsewhere in this issue of the Federal Register, will satisfy the
requirements of paragraph (a)(3)(ii) in this section of the final
regulations. Similarly, for purposes of complying with those final
regulations, State Medicaid programs may use the second version below,
or may use the appropriate model certificate that appears in the
preamble to those final regulations. Thus, until this proposed
regulation is published as a final regulation, entities may use either
the model certificates published below, or those published elsewhere in
this issue of the Federal Register. For entities that choose not to use
the model certificates below until this proposed regulation is
published as a final regulation, we welcome comments as to the
applicability date for using them.
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3. Special Enrollment Periods--26 CFR 54.9801-6, 29 CFR 2590.701-6, 45
CFR 146.117
Tolling of the Special Enrollment Period
Under HIPAA, the April 1997 interim rules, and the final
regulations, an individual wishing to special enroll following a loss
of coverage is generally required to request enrollment not later than
30 days after the loss of eligibility, termination of employer
contributions, or exhaustion of COBRA continuation
[[Page 78806]]
coverage. For individuals whose coverage ceases and a certificate of
creditable coverage is not provided on or before the date coverage
ceases, this regulation provides for proposed tolling rules similar to
those described above for determining a significant break. That is, the
special enrollment period terminates at the end of the 30-day period
that begins on the first day after the earlier of the date that a
certificate of creditable coverage is provided or the date 44 days
after coverage ceases.
Modification of Special Enrollment Procedures and When Coverage Begins
Under Special Enrollment
The April 1997 interim rules did not establish procedures for
processing requests for special enrollment beyond affirming the
statutory requirement that requests be made not later than 30 days
after the event giving rise to the special enrollment right and
providing that the same requirements could be imposed on special
enrollees that were imposed on other enrollees (e.g., that the request
be made in writing). Some examples in the April 1997 interim rules
could be read to suggest that plans and issuers could require
individuals requesting special enrollment to file completed
applications for health coverage by the end of the special enrollment
period.
It has been brought to the Departments' attention that some plans
and issuers were imposing application requirements that could not
reasonably be completed within the special enrollment period (for
example, requiring the social security number of a newborn within 30
days of the birth), effectively denying individuals their right to
special enroll their dependents. In this regard, the statute merely
requires an employee to request special enrollment, or an individual to
seek to enroll, during the special enrollment period. These proposed
regulations preserve individuals' access to special enrollment by
clarifying that during the special enrollment period individuals are
only required to make an oral or written request for special
enrollment.
The proposed regulations provide further that after a timely
request, the plan or issuer may require the individual to complete all
enrollment materials within a reasonable time after the end of the
special enrollment period. However, the enrollment procedure may only
require information required from individuals who enroll when first
eligible and information about the event giving rise to the special
enrollment right. While a plan can impose a deadline for submitting the
completed enrollment materials, the deadline must be extended for
information that an individual making reasonable efforts cannot obtain
within that deadline.
Thus, even where a plan requires social security numbers from
individuals who enroll when first eligible, the plan must provide an
extended deadline for receiving the social security number in the case
of a newborn. In no event could a plan deny special enrollment for
newborns because an employee could not provide a social security number
for the newborn within the special enrollment period.
As regards the effective date of coverage for special enrollments,
the proposed rules generally follow the statute, the April 1997 interim
final rules, and the final regulations being published elsewhere in
this issue of the Federal Register. However clarifications of the
effective date of coverage are added to conform to the clarification of
the special enrollment procedures. Where the special enrollment right
results from a loss of eligibility for coverage or marriage, coverage
generally must begin no later than the first day of the first calendar
month after the date the plan or issuer receives the request for
special enrollment. However, if the plan or issuer requires completion
of additional enrollment materials, coverage must begin no later than
the first day of the first calendar month after the plan or issuer
receives enrollment materials that are substantially complete.
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. If a plan or issuer requires
completion of additional enrollment materials, the plan or issuer must
provide benefits once the plan or issuer receives substantially
complete enrollment materials. However, the benefits provided at that
time must be retroactive to the date of birth, adoption, or placement
for adoption.
The Departments welcome comments on these aspects of the proposed
rule.
4. Interaction With the Family and Medical Leave Act--26 CFR 54.9801-7,
29 CFR 701-8, 45 CFR 146.120
The proposed rules address how the HIPAA portability requirements
apply in situations where a person is on leave under the Family and
Medical Leave Act of 1993 (FMLA). A general principle of FMLA is that
an employee returning from leave under FMLA should generally be in the
same position the employee was in before taking leave. At issue is how
to reconcile that principle of FMLA with the HIPAA rights and
requirements that are triggered by an individual ending coverage under
a group health plan. These proposed regulations provide specific rules
that clarify how HIPAA and FMLA interact when the coverage of an
employee or an employee's dependent ends in connection with an employee
taking leave under FMLA.
With respect to the rules concerning a significant break in
coverage, if an employee takes FMLA leave and does not continue group
health coverage for any part of the leave, the period of FMLA leave
without coverage is not taken into account in determining whether a
significant break in coverage has occurred for the employee or any
dependents. To the extent an individual needs to demonstrate that
coverage ceased in connection with FMLA leave (which would toll any
significant break with respect to another plan or issuer), these
regulations provide that a plan or issuer must take into account all
information that it obtains about an employee's FMLA leave. Further, if
an individual attests to the period of FMLA leave and the individual
cooperates with a plan's or issuer's efforts to verify the individual's
FMLA leave, the plan or issuer must treat the individual as having been
on FMLA leave for the period attested to for purposes of determining if
the individual had a significant break in coverage. Nonetheless, a plan
or issuer is not prevented from modifying its initial determination of
FMLA leave if it determines that the individual did not have the
claimed FMLA leave, provided that the plan or issuer follows procedures
for reconsideration similar to those set forth in the final rules
governing determinations of creditable coverage.
The question has arisen whether it would be appropriate to waive
the general requirement to provide automatic certificates of creditable
coverage in the case of an individual who declines coverage when
electing FMLA leave if the individual will be reinstated at the end of
FMLA leave. At the time an employee elects FMLA leave, the employer (as
well as the employee) may not know if the employee will later return
from FMLA leave and elect to be reinstated. Requiring plans and issuers
to provide certificates when individuals cease health coverage in
connection with FMLA leave may result in some certificates being issued
when individuals ceasing coverage will not need the certificates as
evidence of coverage (because of later
[[Page 78807]]
reinstatement). However, automatic issuance likely imposes less burden
because the plan or issuer does not need to determine whether a
certificate is required. Moreover, automatic issuance eliminates the
need for remedial measures if an individual expected to be reinstated
in fact is not later reinstated. Thus, these proposed regulations
clarify there is no exception to the general rule requiring automatic
certificates when coverage ends and provide that if an individual
covered under a group health plan takes FMLA leave and ceases coverage
under the plan, an automatic certificate must be provided.
With respect to the special enrollment rules, an individual (or a
dependent of the individual) who is covered under a group health plan
and who takes FMLA leave has a loss of eligibility that results 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 for the employer at the end of FMLA leave. This special
enrollment period begins when the period of FMLA leave ends. Moreover,
the rules that delay the start of the special enrollment period until
the receipt of a certificate of creditable coverage continue to
operate.
5. Special Rules--Excepted Plans and Excepted Benefits--26 CFR 54.9831-
1, 29 CFR 2590.732, 45 CFR 146.145
Determination of Number of Plans
Various provisions in Chapter 100 of the Code, Part 7 of Subtitle B
of Title I of ERISA, and Title XXVII of the PHS Act apply when an
individual commences coverage or terminates coverage under a group
health plan. For example, a certificate of creditable coverage must be
provided when an individual ceases to be covered under a group health
plan. Under the April 1997 interim rules, it was not always clear
whether an individual changing benefit elections among those offered by
an employer or employee organization was merely switching between
benefit packages under a single plan or was switching from one plan to
another. These proposed regulations add rules to remove this
uncertainty.
Under these proposed regulations, all medical care benefits made
available by an employer or employee organization (including a board of
trustees of a multiemployer trust) are generally considered to
constitute one group health plan (the default rule). However, the
employer or employee organization can establish more than one group
health plan if it is clear from the instruments governing the
arrangements to provide medical care benefits that the benefits are
being provided under separate plans and if the arrangements are
operated pursuant to the instruments as separate plans. A multiemployer
plan and a nonmultiemployer plan are always separate plans. Under an
anti-abuse rule, separate plans are aggregated to the extent necessary
to prevent the evasion of any legal requirement.
These rules provide plan sponsors great flexibility while
minimizing the burden of making decisions about how many plans to
maintain. For example, many employers may wish to minimize the number
of certificates of creditable coverage required to be furnished to
continuing employees. Under the default rule, because all health
benefits provided by an employer are considered a single group health
plan, there is no need to furnish a certificate of creditable coverage
when an employee merely switches coverage among the options made
available by the employer. This need would arise only if the employer
designated separate benefit packages as separate plans in the plan
documents and only if the benefit packages were also operated pursuant
to the plan documents as separate plans.
The anti-abuse rule limits the flexibility of these rules to
prevent evasions. For example, a plan sponsor might design an
arrangement under which the participation of each of many employees in
the arrangement would be considered a separate plan. On the face of it,
such an arrangement might appear to satisfy the requirement for a plan
being exempt from the requirements of Chapter 100 of the Code, Part 7
of ERISA, and Title XXVII of the PHS Act because on the first day of
the plan year each plan would have fewer than two participants who are
current employees. This would give the impression that the plans would
not have to comply with the prohibitions against discriminating based
on one or more health factors, with the restrictions on preexisting
condition exclusions, nor with any of the other requirements of Chapter
100 of the Code, Part 7 of ERISA, and Title XXVII of the PHS Act. The
anti-abuse rule would require the aggregation of plans under such an
arrangement to the extent necessary to make the plans subject to the
requirements of Chapter 100 of the Code, Part 7 of ERISA, and Title
XXVII of the PHS Act. The anti-abuse rule would apply in similar
fashion to prevent the evasion of any other law that applies to group
health plans or to the parties administering them or providing benefits
under them.
Counting the Average Number of Employees
These proposed regulations add rules for counting the average
number of employees employed by an employer during a year.\1\ Various
rules in Chapter 100 of the Code, Part 7 of ERISA, and Title XXVII of
the PHS Act require the determination of such an average number,
including the Mental Health Parity Act provisions, the guaranteed
access provisions under the PHS Act for small employers, and the
exemption from the excise tax under the Code for certain small
employers.
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\1\ The rules for determining the average number of employees
employed by an employer during a year are not used for counting the
number employed by the employer on a given day, such as the first
day of a plan year.
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Under these proposed regulations, the average number of employees
employed by an employer is determined by using a full-time equivalents
method. Each full-time employee employed for the entire previous
calendar year counts as one employee. Full-time employees employed less
than the entire previous calendar year and part-time employees are
counted by totaling their employment hours in the previous calendar
year (but not to exceed 40 hours for any week) and dividing that number
by the annual full-time hours under the employer's general employment
practices (but not exceeding 40 hours per week). Any resulting fraction
is disregarded. For example, if these calculations produce a result of
50.9, the average number of employees is considered to be 50. If an
employer existed for less than the entire previous calendar year
(including not being in existence at all), then the determination of
the average number of employees is made by estimating the average
number of employees that it is reasonably expected that the employer
will employ on business days in the current calendar year. For a
multiemployer plan, the number of employees employed by the employer
with the most employees is attributed to each employer with at least
one employee participating in the plan.
C. Economic Impact and Paperwork Burden
Summary--Department of Labor and Department of Health and Human
Services
HIPAA's group market portability provisions, which limit the scope
and application of preexisting condition exclusions and establish
special enrollment rights, provide a minimum standard of protection
designed to increase access to health coverage. The
[[Page 78808]]
Departments crafted these proposed regulations to secure these
protections under certain special circumstances, consistent with the
intent of Congress, and to do so in a manner that is economically
efficient. The Departments are unable to quantify the regulations'
economic benefits and costs, but believe that their benefits will
justify their costs.
HIPAA's primary economic effects ensue directly from its statutory
provisions. HIPAA's statutory group market portability provisions
extend coverage to certain individuals and preexisting conditions not
otherwise covered. This extension of coverage entails both benefits and
costs. Individuals enjoying expanded coverage will realize benefits,
sometimes including improvements in health and relief from so-called
``job lock.'' The costs of HIPAA's portability provisions generally
include the cost of extending coverage, as well as certain attendant
administrative costs. The Departments believe that the benefits of
HIPAA are concentrated in a relatively small population, while the
costs are distributed broadly across group plan enrollees. The economic
effects of HIPAA's statutory portability provisions are discussed in
detail in the preamble to the final regulation under the ``Effects of
the Statute'' of the ``Basis for Assessment of Economic Impact''
section, published elsewhere in this issue of the Federal Register.
By clarifying and securing HIPAA's statutory portability
protections, these proposed regulations will help ensure that HIPAA
rights are fully realized. The result is likely to be a small increase
at the margin in the economic effects of HIPAA's statutory portability
provisions.
These proposed regulations are intended to secure and implement
HIPAA's group market portability and special enrollment provisions
under certain special circumstances. The regulations will secure
HIPAA's portability rights for individuals who are not timely notified
that their coverage has ended and for individuals whose coverage ends
in connection with the taking of leave that is guaranteed under FMLA.
The regulations also will clarify and thereby secure individuals'
special enrollment rights under HIPAA, and clarify the methodologies to
be used by employers to determine the number of plans offered and the
average number of individuals employed during a given year.
Additional economic benefits derive from the regulations'
clarifications of HIPAA requirements. The regulations will reduce
uncertainty and costly disputes between employees, employers and
issuers, and promote confidence among employees in health benefits'
value, thereby promoting labor market efficiency and fostering the
establishment and continuation by employers of group health plans.
Benefits under these regulations will be concentrated among a small
number of affected individuals while costs will be spread thinly across
group plan enrollees.
Affected individuals will generally include those who would have
lost access to coverage for needed medical care after being denied
HIPAA portability and/or special enrollment rights due to time spent
without coverage prior to receiving a certificate or while on FMLA-
guaranteed leave. The benefits of these regulations for any particular
affected individual may be significant. As noted above and under
``Effects of the Statute'' in the ``Basis for Assessment of Economic
Impact'' section of the preamble to the final regulation, published
elsewhere in this issue of the Federal Register, access to coverage for
needed medical care is important to individuals' health and
productivity. However, the number of affected individuals, and
therefore the aggregate cost of extended access to coverage under these
regulations, is expected to be small, for several reasons. First, these
regulations extend HIPAA rights only in instances where individuals are
not timely notified that their coverage has ended or their coverage
ends in connection with the taking of FMLA-guaranteed leave. Second,
the period over which this regulation extends rights will often be
short, insofar as certificates are often provided promptly after
coverage ends and many family leave periods are far shorter than the
guaranteed 12 weeks. Third, it is generally in individuals' interest to
minimize periods of uninsurance. Individuals are likely to exercise
their portability and special enrollment rights as soon as possible
after coverage ends, which will often be before any extension of such
rights under these regulations becomes effective. Fourth, only a
portion of individuals who enroll in health plans in circumstances
where these regulations alone guarantee their special enrollment or
portability rights would otherwise have been denied such rights. Fifth,
only a small minority of individuals who avoid a significant break in
coverage as a direct result of these regulations would otherwise have
lost coverage for needed medical care. (The affected minority would be
those who suffer from preexisting conditions, join health plans that
exclude coverage for such conditions, and require treatment of such
conditions during the exclusion periods.)
Affected individuals may also include some who would have been
denied special enrollment rights if plans or issuers failed to
recognize their requests for special enrollment or imposed unreasonable
deadlines or requirements for completion of enrollment materials.
As noted above, the Departments expect that these regulations will
increase at the margin the economic effects of HIPAA's statutory
portability provisions. For the reasons stated immediately above, the
Departments believe that these increases will be small on aggregate,
adding only a small increment to the costs attributable to HIPAA's
statutory portability provisions, which themselves amount to a small
fraction of one percent of health plan expenditures. Additionally, as
with the cost of HIPAA's statutory portability provisions, the majority
of these costs will be borne by group plan enrollees. The Departments
expect these regulations to have little or no perceptible negative
impact on employers' propensity to offer health benefit plans or on the
generosity of those plans. In sum, the Departments expect that the
benefits of these regulations, which can be very large for a particular
affected individual, will justify their costs. The basis for the
Departments' conclusions is detailed below.
The Departments solicit comments on their conclusions and their
basis for them, and empirical data or other information that would
support a fuller or more accurate analysis.
Executive Order 12866--Department of Labor and Department of Health and
Human Services
Under Executive Order 12866 (58 FR 551735, Oct. 4, 1993), the
Departments must determine whether a regulatory action is
``significant'' and therefore subject to the requirements of the
Executive Order and subject to review by the Office of Management and
Budget (OMB). Under section 3(f), the order defines a ``significant
regulatory action'' as an action that is likely to result in a rule:
(1) Having an annual effect on the economy of $100 million or more, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary
[[Page 78809]]
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, the Departments have
determined that this action raises novel policy issues arising out of
legal mandates. Therefore, this notice is ``significant'' and subject
to OMB review under Section 3(f)(4) of the Executive Order. Consistent
with the Executive Order, the Departments have assessed the costs and
benefits of this regulatory action. The Departments' assessment, and
the analysis underlying that assessment, is detailed below. The
Departments performed a comprehensive, unified analysis to estimate the
costs and benefits attributable to the regulations for purposes of
compliance with Executive Order 12866, the Regulatory Flexibility Act,
and the Paperwork Reduction Act.
Statement of Need for Proposed Action
These proposed regulations clarify and interpret the HIPAA
portability provisions under Section 701 of the Employee Retirement
Income Security Act of 1974 (ERISA), Section 2701 of the Public Health
Service Act, and Section 9801 of the Internal Revenue Code of 1986. The
regulations are needed to secure and implement HIPAA's portability
rights for individuals who are not timely notified that their coverage
has ended and for individuals whose coverage ends in connection with
the taking of leave that is guaranteed under FMLA, and to clarify and
secure individuals' special enrollment rights under HIPAA.
Economic Effects
As noted above, HIPAA's primary economic effects ensue directly
from its statutory provisions. HIPAA's statutory group market
portability provisions extend coverage to certain individuals and
preexisting conditions not otherwise covered. This extension of
coverage entails both benefits and costs. The economic effects of
HIPAA's statutory portability provisions is summarized above and
discussed in detail under the ``Basis for Assessment of Economic
Impact'' section of the preamble to the final regulation, published
elsewhere in this issue of the Federal Register.
Also as noted above, by clarifying and securing HIPAA's statutory
portability protections, these regulations will help ensure that HIPAA
rights are fully realized. The result is likely to be a small increase
at the margin in the economic effects of HIPAA's statutory portability
provisions. The benefits of these regulations will be concentrated
among a small number of affected individuals, while their costs will be
spread thinly across plans and issuers. The regulations also will
reduce uncertainty about health benefits' scope and value, thereby
promoting employee health benefit coverage and labor market efficiency.
The Departments believe that the regulations' benefits will justify
their cost. The Departments assessment of the expected economic effects
of the regulation are summarized above and discussed in detail below.
Regulatory Flexibility Act--The Department of Labor and Department of
Health and Human Services
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA),
imposes certain requirements with respect to Federal rules that are
subject to the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Section 603 of the RFA stipulates that an agency,
unless it certifies that a proposed rule will not have a significant
economic impact on a substantial number of small entities, must present
an initial regulatory flexibility analysis at the time of publication
of the notice of proposed rulemaking that describes the impact of the
rule on small entities and seeks public comment on such impact. Small
entities include small businesses, organizations, and governmental
jurisdictions.
For purposes of analysis under the RFA, the Departments consider a
small entity to be an employee benefit plan with fewer than 100
participants. The basis for this definition is found in section
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe
simplified annual reports for pension plans which cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for simplified annual reporting and disclosure if the statutory
requirements of part 1 of Title I of ERISA would otherwise be
inappropriate for welfare benefit plans. Pursuant to the authority of
section 104(a)(3), the Department of Labor has previously issued at 29
CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10
certain simplified reporting provisions and limited exemptions from
reporting and disclosure requirements for small plans, including
unfunded or insured welfare plans covering fewer than 100 participants
and which satisfy certain other requirements.
Further, while some small plans are maintained by large employers,
most are maintained by small employers. Both small and large plans may
enlist small third party service providers to perform administrative
functions, but it is generally understood that third party service
providers transfer their costs to their plan clients in the form of
fees. Thus, the Departments believe that assessing the impact of this
rule on small plans is an appropriate substitute for evaluating the
effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business based on size standards promulgated by the Small
Business Administration (SBA) (13 CFR 121.201) pursuant to the Small
Business Act (5 U.S.C. 631 et seq.). The Department of Labor solicited
comments on the use of this standard for evaluating the effects of the
proposal on small entities. No comments were received with respect to
the standard. Therefore, a summary of the initial regulatory
flexibility analysis based on the 100 participant size standard is
presented below.
The economic effects of HIPAA's statutory provisions on small plans
are discussed extensively under the ``Regulatory Flexibility Act--
Department of Labor and Department of Health and Human Services''
section of the preamble to the final regulation, published elsewhere in
this issue of the Federal Register.
By clarifying and securing HIPAA's statutory portability
protections, these regulations will help ensure that these benefits are
fully realized. The result is likely to be a small increase in the
economic effects of HIPAA's statutory provisions. The Departments were
unable to estimate the amount of this increase. However, the direct
financial value of coverage extensions pursuant to HIPAA's statutory
portability provisions are estimated to be approximately $180 million
for small plans, or a small fraction of one percent of total small plan
expenditures.\2\
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\2\ Computer runs using Medical Expenditure Survey Household
Component (MEPS-HC) and the Robert Wood Johnson Employer Health
Benefits Survey determined that the share of covered private-sector
job leavers at small firms average 35 percent of all covered private
sector job leavers. From this, we inferred that the financial burden
borne by small plans is approximately 35 percent of the total
expenditures by private-sector group health plans which was
estimated to be $515 million.
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The regulations also will reduce uncertainty about health benefits'
scope and value, thereby promoting employee
[[Page 78810]]
health benefit coverage, including coverage under small plans, and
labor market efficiency.
The benefits of these regulations will be concentrated among a
small number of affected small group plan enrollees, while their costs
will be spread thinly across small group plans enrollees. The benefits
of these regulations for any particular affected individual, which may
include improved health and productivity, may be significant. However,
as previously noted, the number of affected individuals, and therefore
the aggregate cost of these regulations, is expected to be small. The
Departments believe that the benefits to affected individuals of the
application of these regulations to small plans justify the cost to
small plans of such application. The basis for the Departments'
conclusions is detailed below.
The Departments generally expect the impact of the regulations on
any particular small plan to be small. A very large majority of small
plans are fully insured, so the cost will fall nominally on issuers
rather than from plans. Issuers are expected to pass this cost back to
plans and enrollees, but will spread much of it across a large number
of plans, thereby minimizing the impact on any particular plan.
However, it is possible that small plans that self-insure, or fully
insured small plans whose premiums are tied closely to their particular
claims experience, might bear all or most of the cost associated with
extensions of coverage attributable directly to these regulations. The
Departments have no way to quantify the incidence or magnitude of such
costs, and solicit comments on such incidence and magnitude, and on
whether these regulations would have a significant impact on a
substantial number of small plans.
Special Analyses--Department of the Treasury
Notwithstanding the determinations of the Departments of Labor and
of Health and Human Services, for purposes of the Department of the
Treasury this notice of proposed rulemaking is not a significant
regulatory action. Because this notice of proposed rulemaking does not
impose a collection of information on small entities and is not subject
to section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter
5), the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply
pursuant to 5 U.S.C. 603(a), which exempts from the Regulatory
Flexibility Act's requirements certain rules involving the internal
revenue laws. Pursuant to section 7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Paperwork Reduction Act
Department of Labor
These proposed regulations include three separate collections of
information as that term is defined in the Paperwork Reduction Act of
1995 (PRA 95), 44 U.S.C. 3502(3): the Notice of Enrollment Rights,
Notice of Preexisting Condition Exclusion, and Certificate of
Creditable Coverage. Each of these disclosures is currently approved by
the Office of Management and Budget (OMB) through October 31, 2006 in
accordance with PRA 95 under control numbers 1210-0101, 1210-0102, and
1210-0103.
Department of the Treasury
These proposed regulations include a collection of information as
that term is defined in PRA 95: the Notice of Enrollment Rights, Notice
of Preexisting Condition Exclusion, and Certificate of Creditable
Coverage. Each of these disclosures is currently approved by OMB under
control number 1545-1537.
Department of Health and Human Services
These proposed regulations include three separate collections of
information as that term is defined in PRA 95: the Notice of Enrollment
Rights, Notice of Preexisting Condition Exclusion, and Certificate of
Creditable Coverage. Each of these disclosures is currently approved by
OMB through June 30, 2006 in accordance with PRA 95 under control
number 0938-0702.
Small Business Regulatory Enforcement Fairness Act
The rule being issued here is subject to the provisions of the
Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C.
801 et seq.) and, if finalized, will be transmitted to Congress and the
Comptroller General for review. The rule is not a ``major rule'' as
that term is defined in 5 U.S.C. 804, because it is not likely to
result in (1) an annual effect on the economy of $100 million or more;
(2) a major increase in costs or prices for consumers, individual
industries, or federal, state, or local government agencies, or
geographic regions; or (3) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the ability of
United States-based enterprises to compete with foreign-based
enterprises in domestic or export markets.
Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits before issuing any
rule that may result in an expenditure in any 1 year by state, local,
or tribal governments, in the aggregate, or by the private sector, of
$100 million. These proposed regulations have no such mandated
consequential effect on state, local, or tribal governments, or on the
private sector.
Federalism Statement Under Executive Order 13132--Department of Labor
and Department of Health and Human Services
Executive Order 13132 outlines fundamental principles of
federalism. It requires adherence to specific criteria by federal
agencies in formulating and implementing policies that have
``substantial direct effects'' on the States, the relationship between
the national government and States, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials, and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the regulation.
In the Departments' view, these proposed regulations have
federalism implications because they may have substantial direct
effects on the States, the relationship between the national government
and States, or on the distribution of power and responsibilities among
the various levels of government. However, in the Departments' view,
the federalism implications of these proposed regulations are
substantially mitigated because, with respect to health insurance
issuers, the vast majority of States have enacted laws which meet or
exceed the federal HIPAA portability standards.
In general, through section 514, ERISA supersedes State laws to the
extent that they relate to any covered employee benefit plan, and
preserves State laws that regulate insurance, banking or securities.
While ERISA prohibits States from regulating a plan as an insurance or
investment company or bank, HIPAA added a new section to ERISA (as well
as to the PHS Act) narrowly preempting State requirements for issuers
of group health insurance coverage. Specifically, with respect to
[[Page 78811]]
seven provisions of the HIPAA portability rules, states may impose
stricter obligations on health insurance issuers.\3\ Moreover, with
respect to other requirements for health insurance issuers, states may
continue to apply state law requirements except to the extent that such
requirements prevent the application of HIPAA's portability, access,
and renewability provisions.
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\3\ States may shorten the six-month look-back period prior to
the enrollment date; shorten the 12-month and 18-month maximum
preexisting condition exclusion periods; increase the 63-day
significant break in coverage period; increase the 30-day period for
newborns, adopted children, and children placed for adoption to
enroll in the plan with no preexisting condition exclusion; further
limit the circumstances in which a preexisting condition exclusion
may be applied (beyond the federal exceptions for certain newborns,
adopted children, children placed for adoption, pregnancy, and
genetic information in the absence of a diagnosis; require
additional special enrollment periods; and reduce the HMO
affiliation period to less than 2 months (3 months for late
enrollees).
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In enacting these new preemption provisions, Congress intended to
preempt State insurance requirements only to the extent that they
prevent the application of the basic protections set forth in HIPAA.
HIPAA's conference report states that the conferees intended the
narrowest preemption of State laws with regard to health insurance
issuers. H.R. Conf. Rep. No. 736, 104th Cong. 2d Session 205 (1996).
State insurance laws that are more stringent than the federal
requirements are unlikely to ``prevent the application of'' the HIPAA
portability provisions, and be preempted. Accordingly, States have
significant latitude to impose requirements on health insurance
insurers that are more restrictive than the federal law.
Guidance conveying this interpretation of HIPAA's preemption
provisions was published in the Federal Register on April 8, 1997, 62
FR 16904. These proposed regulations clarify and implement the
statute's minimum standards and do not significantly reduce the
discretion given the States by the statute. Moreover, the Departments
understand that the vast majority of States have requirements that meet
or exceed the minimum requirements of the HIPAA portability provisions.
HIPAA provides that the States may enforce the provisions of HIPAA
as they pertain to issuers, but that the Secretary of Health and Human
Services must enforce any provisions that a State fails to
substantially enforce. To date, CMS enforces the HIPAA portability
provisions in only one State in accordance with that State's specific
request to do so. When exercising its responsibility to enforce the
provisions of HIPAA, CMS works cooperatively with the State for the
purpose of addressing the State's concerns and avoiding conflicts with
the exercise of State authority. CMS has developed procedures to
implement its enforcement responsibilities, and to afford the States
the maximum opportunity to enforce HIPAA's requirements in the first
instance. CMS's procedures address the handling of reports that States
may not be enforcing HIPAA's requirements, and the mechanism for
allocating responsibility between the States and CMS. In compliance
with Executive Order 13132's requirement that agencies examine closely
any policies that may have federalism implications or limit the
policymaking discretion of the States, the Department of Labor and CMS
have engaged in numerous efforts to consult and work cooperatively with
affected State and local officials.
For example, the Departments sought and received input from State
insurance regulators and the National Association of Insurance
Commissioners (NAIC). The NAIC is a non-profit corporation established
by the insurance commissioners of the 50 States, the District of
Columbia, and the four U.S. territories. In most States the Insurance
Commissioner is appointed by the Governor, in approximately 14 States,
the insurance commissioner is an elected official. Among other
activities, it provides a forum for the development of uniform policy
when uniformity is appropriate. Its members meet, discuss and offer
solutions to mutual problems. The NAIC sponsors quarterly meetings to
provide a forum for the exchange of ideas and in-depth consideration of
insurance issues by regulators, industry representatives and consumers.
CMS and the Department of Labor staff have consistently attended these
quarterly meetings to listen to the concerns of the State Insurance
Departments regarding HIPAA portability issues. In addition to the
general discussions, committee meetings, and task groups, the NAIC
sponsors the standing CMS/DOL meeting on HIPAA issues for members
during the quarterly conferences. This meeting provides CMS and the
Department of Labor with the opportunity to provide updates on
regulations, bulletins, enforcement actions, and outreach efforts
regarding HIPAA.
The Departments received written comments on the interim regulation
from the NAIC and from ten States. In general, these comments raised
technical issues that the Departments considered in conjunction with
similar issues raised by other commenters. In a letter sent before
issuance of the interim regulation, the NAIC expressed concerns that
the Departments interpret the new preemption provisions of HIPAA
narrowly so as to give the States flexibility to impose more stringent
requirements. As discussed above, the Departments address this concern
in the preamble to the interim regulation.
In addition, the Departments specifically consulted with the NAIC
in developing these proposed regulations. Through the NAIC, the
Departments sought and received the input of State insurance
departments regarding certain insurance industry definitions,
enrollment procedures and standard coverage terms. This input is
generally reflected in the discussion of comments received and changes
made in Section B--Overview of the Regulations of the preamble to the
final regulations published elsewhere in this issue of the Federal
Register.
The Departments have also cooperated with the States in several
ongoing outreach initiatives, through which information on HIPAA is
shared among federal regulators, State regulators and the regulated
community. In particular, the Department of Labor has established a
Health Benefits Education Campaign with more than 70 partners,
including CMS, NAIC and many business and consumer groups. CMS has
sponsored conferences with the States--the Consumer Outreach and
Advocacy conferences in March 1999 and June 2000, and the
Implementation and Enforcement of HIPAA National State-Federal
Conferences in August 1999, 2000, 2001, 2002, and 2003. Furthermore,
both the Department of Labor and CMS Web sites offer links to important
State web sites and other resources, facilitating coordination between
the State and federal regulators and the regulated community.
Throughout the process of developing these regulations, to the
extent feasible within the specific preemption provisions of HIPAA, the
Departments have attempted to balance the States' interests in
regulating health insurance issuers, and the Congress' intent to
provide uniform minimum protections to consumers in every State. By
doing so, it is the Departments' view that they have complied with the
requirements of Executive Order 13132.
Pursuant to the requirements set forth in Section 8(a) of Executive
Order 13132, and by the signatures affixed to proposed final
regulations, the Departments certify that the Employee Benefits
Security Administration and the Centers for Medicare & Medicaid
Services have complied with the requirements of Executive Order 13132
for the attached proposed regulation,
[[Page 78812]]
Notice of Proposed Rulemaking for Health Coverage Portability: Tolling
and Certain Time Periods and Interaction with the Family and Medical
Leave Act under HIPAA Titles I & IV (RIN 1210-AA54 and RIN 0938-AL88),
in a meaningful and timely manner.
Basis for Assessment of Economic Impact--Department of Labor and
Department of Health and Human Services
As noted above, the primary economic effects of HIPAA's portability
provisions ensue directly from the statute. The Department's assessment
of the economic effects of HIPAA's statutory portability provisions and
the basis for the assessment is presented in detail under the ``Basis
for Assessment of Economic Impact'' section of the preamble to the
final regulation, published elsewhere in this issue of the Federal
Register. By clarifying and securing HIPAA's statutory portability
protections, these regulations will help ensure that HIPAA rights are
fully realized. The result is likely to be a small increase in the
economic effects of HIPAA's statutory portability provisions.
Additional economic benefits derive from the regulations'
clarifications of HIPAA's portability requirements. The regulations
provide clarity through both their provisions and their examples of how
those provisions apply in various circumstances. By clarifying
employees' rights and plan sponsors' obligations under HIPAA's
portability provisions, the regulations will reduce uncertainty and
costly disputes over these rights and obligations. They will promote
employers' and employees' common understanding of the value of group
health plan benefits and confidence in the security and predictability
of those benefits, thereby improving labor market efficiency and
fostering the establishment and continuation of group health plans by
employers.\4\
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\4\ The voluntary nature of the employment-based health benefit
system in conjunction with the open and dynamic character of labor
markets make explicit as well as implicit negotiations on
compensation a key determinant of the prevalence of employee
benefits coverage. It is likely that 80% to 100% of the cost of
employee benefits is borne by workers through reduced wages (see for
example Jonathan Gruber and Alan B. Krueger, ``The Incidence of
Mandated Employer-Provided Insurance: Lessons from Workers
Compensation Insurance,'' in, David Bradford, ed., Tax Policy and
Economy, pp:111-143 (Cambridge, MA: MIT Press, 1991); Jonathan
Gruber, ``The Incidence of Mandated Maternity Benefits,'' American
Economic Review, Vol. 84 no. 3 (June 1994), pp. 622-641; Lawrence H.
Summers, ``Some Simple Economics of Mandated Benefits,'' American
Economic Review, Vol. 79, No. 2 (May 1989), pp:177-183; Louise
Sheiner, ``Health Care Costs, Wages, and Aging,'' Federal Reserve
Board of Governors working paper, April 1999; Mark Pauly and Brad
Herring, Pooling Health Insurance Risks (Washington, DC: AEI Press,
1999), Gail A. Jensen and Michael A. Morrisey, ``Endogenous Fringe
Benefits, Compensating Wage Differentials and Older Workers,''
International Journal of Health Care Finance and Economics Vol 1,
No. 3-4 (forthcoming), and Edward Montgomery, Kathryn Shaw, and Mary
Ellen Benedict, ``Pensions and Wages: An Hedonic Price Theory
Approach,'' International Economic Review, Vol. 33 No. 1 (Feb.
1992.), pp:111-128.) The prevalence of benefits is therefore largely
dependent on the efficacy of this exchange. If workers perceive that
there is the potential for inappropriate denial of benefits they
will discount their value to adjust for this risk. This discount
drives a wedge in the compensation negotiation, limiting its
efficiency. With workers unwilling to bear the full cost of the
benefit, fewer benefits will be provided. The extent to which
workers perceive a federal regulation supported by enforcement
authority to improve the security and quality of benefits, the
differential between the employers costs and workers willingness to
accept wage offsets is minimized.
---------------------------------------------------------------------------
These proposed regulations are intended to secure and implement
HIPAA's group market portability provisions under certain special
circumstances. The regulations will secure HIPAA's portability rights
for individuals who are not timely notified that their coverage has
ended and for individuals whose coverage ends in connection with the
taking of leave that is guaranteed under FMLA. The regulations also
will clarify and thereby secure individuals' special enrollment rights
under HIPAA, and clarify the methodologies to be used by employers to
determine the number of plans offered and the average number of
individuals employed during a given year.
The benefits of these regulations will be concentrated among a
small number of affected individuals.
Affected individuals will generally include those who would have
lost access to coverage for needed medical care after forfeiting HIPAA
portability and/or special enrollment rights due to time spent without
coverage prior to receiving a certificate or while on FMLA-guaranteed
leave. Affected individuals may also include some who would have been
denied special enrollment rights if plans or issuers failed to
recognize their requests for special enrollment or imposed unreasonable
deadlines or requirements for completion of enrollment materials. The
benefits of these regulations for any particular affected individual
may be large. As noted above, access to coverage for needed medical
care is important to individuals' health and productivity. However, the
number of affected individuals, and therefore the aggregate cost of
extended access to coverage under these regulations, is expected to be
small, for several reasons.
First, these regulations extend HIPAA rights only in instances
where individuals do not receive certificates immediately when coverage
ends or their coverage ends in connection with the taking of FMLA-
guaranteed leave. The Departments know of no source of data on the
timeliness with which certificates are typically provided. The final
regulations that accompany these proposed regulations permit plans to
provide certificates with COBRA notices, up to 44 days after coverage
ends. Plans, however, often do have the option of providing
certificates immediately when coverage ends or even in advance, for
example as part of exit packages given to terminating employees or in
mailings to covered dependents in advance of birthdays that will end
their eligibility for coverage. With respect to FMLA-protected leave,
data provided in a 1996 report to Congress suggests that the number of
employees who lose coverage in connection with FMLA-protected leave is
likely to be small. The report notes that over an 18-month period just
1.2 percent of surveyed employees took what they reported to be FMLA
leave. A similar survey of employers found that 3.6 percent of
employees took such leave. Nearly all of those taking leave continued
their health coverage. (This is not surprising, given that FMLA
requires covered employers to extend eligibility for health insurance
to employees on FMLA-protected leave on the same terms that applied
when the employees were not on leave.) Just 9 percent of leave-takers
reported that they lost some kind of employee benefit, with one-third
of these reporting that they lost health insurance.\5\ Putting these
numbers together and converting to an annual basis, in a given year
between 0.02 percent and 0.07 percent of employees, or well under one
in one thousand, might lose health coverage in connection with FMLA-
protected leave. Many of these will ultimately exercise their right to
be reinstated in the job from which they took leave and to exercise
their FMLA-guaranteed right to resume their previous health coverage.
Therefore, the number of employees who will lose coverage and then,
later and at the conclusion of FMLA-protected leave, enjoy extended
portability rights under HIPAA as a result of these regulations, is
likely to be very small.
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\5\ Commission on Family and Medical Leave and U.S. Department
of Labor, A Workable Balance: Report to Congress on Family and
Medical Leave Policies, transmitted April 30, 1996.
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Second, the period over which this regulation extends rights will
often be
[[Page 78813]]
short, insofar as certificates are often provided promptly after
coverage ends and many family leave periods are far shorter than the
guaranteed 12 weeks. As noted above, plans generally are required to
provide certificates no later than 44 days after coverage ends and may
provide them sooner. According to the aforementioned report to Congress
on FMLA-protected leave, 41 percent of employees taking FMLA-protected
leave did so for less than 8 days. Fifty-eight percent were on leave
for less than 15 days, and two-thirds were on leave for less than 29
days. (FMLA protects leaves of up to 12 weeks, or 84 days.)
Third, it is generally in individuals' interest to minimize periods
of uninsurance. Individuals are likely to exercise their portability
and special enrollment rights as soon as possible after coverage ends,
which will often be before any extension of such rights under these
regulations becomes effective. Over one 36-month period prior to HIPAA,
71 percent of Americans had continuous coverage--that is, incurred not
even a single, one-month break in coverage. Just 4 percent were
uninsured for the entire period. About one-half of observed spells
without insurance lasted less than 5 months. As noted above, few
employees taking FMLA-protected leave had a lapse in health coverage.
Fourth, only a portion of individuals who enroll in health plans in
circumstances where these regulations alone guarantee their special
enrollment or portability rights would otherwise have been denied such
rights. HIPAA special enrollment and portability requirements, both as
specified under the final regulations and as modified under these
proposed regulations, are minimum standards. Plans are free to provide
additional enrollment opportunities.
Fifth, only a small minority of individuals who avoid a significant
break in coverage solely as a direct result of these regulations would
otherwise have lost coverage for needed medical care. The affected
minority would be those who suffer from preexisting conditions, join
health plans that exclude coverage for such conditions, and require
treatment of such conditions during the exclusion periods. GAO
estimated that HIPAA could ensure continued coverage for up to 25
million Americans.\6\ More recent estimates suggest that the number of
individual policy holders and their dependents which could be helped by
HIPAA's portability provisions are more in the 14 million range.\7\ As
noted above, however, the number of workers and dependents actually
gaining coverage for a preexisting condition due to credit for prior
coverage following a job change under HIPAA will be smaller than this.
Both GAO's and our estimates of people who could benefit include all
job changers with prior coverage and their dependents, irrespective of
whether their new employer offers a plan, whether their new plan
imposed a preexisting condition exclusion period, and whether they
actually suffer from a preexisting condition. Accounting for these
narrower criteria, CBO estimated that, at any point in time, about
100,000 individuals would have a preexisting condition exclusion
reduced for prior creditable coverage. An additional 45,000 would gain
added coverage in the individual market. The CBO estimate demonstrates
that the number of individuals actually gaining coverage for needed
medical services will be a small fraction of all those whose right to
such coverage HIPAA's portability provisions guarantee. Accordingly,
the Departments expect that the number gaining coverage for needed
services as a direct result of these regulations will be a small
fraction of the already small number whose right to such coverage these
regulations would establish.
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\6\ U.S. General Accounting Office, Report HEHS-95-257, ``Health
Insurance Portability: Reform Could Ensure Continued Coverage for up
to 25 Million Americans,'' September 1995.
\7\ We calculated these estimates using internal runs off the
MEPS-HC. These runs gave the number of total job changers, total job
changers that had employer-sponsored insurance (ESI), and whether
this coverage had been for less than 12 months or not. Estimates for
dependents were based off the ratio of policy-holders to total
dependents from the March 2003 Current Population Survey (March
CPS). It should be noted, however, that the EBSA estimate of 14
million does not include estimate of individuals no longer eligible
for COBRA continuation coverage or individuals facing job lock,
while the GAO numbers do.
---------------------------------------------------------------------------
The Departments attempted to estimate the number of individuals who
might avoid a break in coverage because of the provision of these
proposed regulations that tolls the break until the individual receives
a certification but not more than 44 days. The Departments examined
coverage patterns evident in the Survey of Income and Program
Participation (SIPP), a longitudinal household survey that tracks
transitions in coverage. SIPP interviews households once every four
months. The Departments estimate that, in a given year, about 7 million
individuals have breaks in coverage lasting 4 months or less. The
survey data suffer from so-called ``seam bias''--respondents tend to
report that status as unchanged over 4-month increments. Of the 7
million reporting breaks of 4 months or less, 6.5 million report breaks
of exactly 4 months. This finding is consistent with the more general
finding that breaks of 4 months or less are far more common than longer
breaks. It seems likely that the 7 million breaks of 4 months or less
actually included proportionate or disproportionately large shares of
breaks of 1 or 2 months. Assuming the breaks are actually distributed
evenly by length between 1 day and 4 months, then about one-half of the
breaks, or 3.5 million breaks, would have lasted less than 63 days and
therefore would not have constituted breaks for purposes of HIPAA's
portability protections even without reference to the provision of this
proposed regulation that tolls the break until the individual receives
a certification but not more than 44 days. Approximately three-fourths
of the remaining breaks or about 2.6 million breaks, would have lasted
between 1 and 44 additional days and thereby potentially have been
tolled until the individuals received their certifications but not more
than 44 days. Thus 2.6 million provides a reasonable upper bound on the
number of individuals who might avoid a break in coverage in a given
year because of this tolling provision. It is not known what fraction
of these would subsequently join group health plans that include
preexisting condition exclusions while suffering from and requiring
additional care for preexisting conditions. Comparing GAO's (20 million
or more) and our (14 million) estimates of the number of individuals
who could potentially benefit from HIPAA's portability protections
(individuals with prior creditable coverage who join new health plans
in a given year) with the CBO estimate of the number who might actually
have added group coverage for needed care (100,000) produces a ratio of
about 1 percent. If this proportion holds for group health plan
enrollees who avoid breaks because of this tolling provision, then an
upper bound of about 26,000 individuals annually might gain coverage
for needed care under the proposed regulation's provision treating
coverage under such programs as creditable coverage.
The Departments considered whether certain individuals whose HIPAA
portability rights these proposed regulations would extend may be
disproportionately likely to be in (or have dependents who are in) poor
health. Specifically, individuals taking FMLA-protected leave,
especially those who elect not to be reinstated in their prior jobs
following FMLA-protected leave, may be so likely. On the other
[[Page 78814]]
hand, individuals in such circumstances are also particularly unlikely
to allow their health insurance from their prior job to lapse while
they are on leave. Accordingly, most such individuals' special
enrollment periods and countable breaks in coverage (if any) would
probably have begun at the conclusion of the FMLA-protected leave even
in absence of these proposed regulations. The Departments are therefore
uncertain whether individuals who would exercise HIPAA portability
rights extended solely by these regulations would be more costly to
insure than others exercising HIPAA portability rights, and solicit
comments on this question.
Affected individuals may also include some who would have been
denied special enrollment rights if plans or issuers failed to
recognize their requests for special enrollment or imposed unreasonable
deadlines or requirements for completion of enrollment materials.
As noted above, the Departments expect that these regulations will
result in a small increase in the economic effects of HIPAA's statutory
provisions. For the reasons stated immediately above, the Departments
believe that this increase will be small on aggregate, adding only a
small increment to the cost attributable to HIPAA's statutory
portability provisions, which themselves amount to a small fraction of
one percent of health plan expenditures. Thus the increase will be
negligible relative to typical year-to-year increases in premiums
charged by issuers, which can amount to several percentage points or
more. Therefore, the Departments expect these regulations to have
little or no perceptible negative impact on employers' propensity to
offer health benefit plans or on the generosity of those plans. In sum,
the Departments expect that the benefits of these regulations, which
can be very large for a particular affected individual, will justify
their costs.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
29 CFR Part 2590
Continuation coverage, Disclosure, Employee benefit plans, Group
health plans, Health care, Health insurance, Medical child support,
Reporting and recordkeeping requirements.
45 CFR Part 146
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
Proposed Amendments to the Regulations
Internal Revenue Service
26 CFR Chapter I
Accordingly, 26 CFR part 54 is proposed to be amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority citation for part 54 is amended by:
a. Revising the entries for Sec. Sec. 54.9801-4 and 54.9801-6.
b. Adding an entry in numerical order for Sec. 54.9801-7.
The addition and revisions read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 54.9801-4 also issued under 26 U.S.C. 9801(e)(3) and
9833.* * *
Section 54.9801-6 also issued under 26 U.S.C. 9801(e)(3) and
9833.
Section 54.9801-7 also issued under 26 U.S.C. 9833.* * *
Sec. 54.9801-1 [Amended]
Par. 2. Section 54.9801-1 is amended in paragraph (a)(1) by
removing the language ``54.9801-6'' and adding ``54.9801-7'' in its
place.
Sec. 54.9801-2 [Amended]
Par. 3. Section 54.9801-2 is amended in the first sentence by
removing the language ``54.9801-6'' and adding ``54.9801-7'' in its
place.
Par. 4. Section 54.9801-4 is amended by:
a. Revising paragraphs (b)(2)(iii) and (b)(2)(iv).
b. Adding Examples 4 and 6 in paragraph (b)(2)(v).
The revisions and additions read as follows:
Sec. 54.9801-4 Rules relating to creditable coverage.
* * * * *
(b) Standard method. * * *
(2) Counting creditable coverage. * * *
(iii) Significant break in coverage defined. A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage, except that periods
described in paragraph (b)(2)(iv) of this section are not taken into
account in determining a significant break in coverage. (See section
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHS Act,
which exclude from preemption state insurance laws that require a break
of more than 63 days before an individual has a significant break in
coverage for purposes of state law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA continuation coverage
during the second election period provided under the Trade Act of 2002,
the days between the date the 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. Moreover, in the case of an individual whose
coverage ceases, if a certificate of creditable coverage with respect
to that cessation is not provided on or before the date coverage
ceases, then the period that begins on the first date that an
individual has no creditable coverage and that continues through the
earlier of the following two dates is not taken into account in
determining whether a significant break in coverage has occurred:
(A) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(B) The date 44 days after coverage ceases.
(v) Examples. * * *
Example 4. (i) Facts. Individual B terminates coverage under a
group health plan, and a certificate of creditable coverage is
provided 10 days later. B begins employment with Employer R and
begins enrollment in R's plan 60 days after the certificate is
provided.
(ii) Conclusion. In this Example 4, even though B had no
coverage for 69 days, the 10 days before the certificate of
creditable coverage is provided are not taken into account in
determining a significant break in coverage. Therefore, B's break in
coverage is only 59 days and is not a significant break in coverage.
Accordingly, B's prior coverage must be counted by R's plan.
* * * * *
Example 6. (i) Facts. Employer V sponsors a group health plan.
Under the terms of the plan, the only benefits provided are those
provided under an insurance policy. Individual D works for V and has
creditable coverage under V's plan. V fails to pay the issuer the
premiums for the coverage period beginning March 1. Consistent with
applicable state law, the issuer terminates the policy so that the
last day of coverage is April 30. V goes out of business on July 31.
On August 15 D begins employment with Employer W and enrolls in W's
group health plan. W's plan imposes a 12-month preexisting condition
exclusion on all enrollees. D never receives a certificate of
creditable coverage for coverage under V's plan.
(ii) Conclusion. In this Example 6, the period from May 1 (the
first day without coverage) through June 13 (the date 44 days after
coverage under V's plan ceases) is not
[[Page 78815]]
taken into account in determining a 63-day break in coverage. This
is because, in cases in which a certificate of creditable coverage
is not provided by the date coverage is lost, the break begins on
the date the certificate is provided, or the date 44 days after
coverage ceases, if earlier. Therefore, even though D's actual
period without coverage was 106 days (May 1 through August 14),
because the period from May 1 through June 13 is not taken into
account, D's break in coverage is only 62 days (June 14 through
August 14). Thus, D has not experienced a significant break in
coverage, and D's prior coverage must be counted by W's plan.
* * * * *
Par. 5. Section 54.9801-5 is amended by:
a. Redesignating paragraphs (a)(3)(ii)(H)(5) and (6) as paragraphs
(a)(3)(ii)(H)(6) and (7), respectively.
b. Adding a new paragraph (a)(3)(ii)(H)(5).
The addition reads as follows:
Sec. 54.9801-5 Evidence of creditable coverage.
(a) Certificate of creditable coverage. * * *
(3) Form and content of certificate. * * *
(ii) Required information. * * *
(H) * * *
(5) The interaction with the Family and Medical Leave Act;
* * * * *
Par. 6. Section 54.9801-6 is amended by:
a. Revising paragraph (a)(1).
b. Revising paragraph (a)(4).
c. Revising paragraph (b)(1).
d. Revising paragraph (b)(3).
e. Revising Example 2 in paragraph (b)(4).
f. Adding Examples 3, 4, and 5 in paragraph (b)(4).
The additions and revisions read as follows:
Sec. 54.9801-6 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan is required to permit current
employees and dependents (as defined in Sec. 54.9801-2) who are
described in paragraph (a)(2) of this section to enroll for coverage
under the terms of the plan if the conditions in paragraph (a)(3) of
this section are satisfied. Paragraph (a)(4) of this section describes
procedures that a plan may require an employee to follow and describes
the date by which coverage must begin. The special enrollment rights
under this paragraph (a) apply without regard to the dates on which an
individual would otherwise be able to enroll under the plan. (See
section 701(f)(1) of ERISA and section 2701(f)(1) of the PHS Act, under
which this obligation is also imposed on a health insurance issuer
offering group health insurance coverage.)
* * * * *
(4) Applying for special enrollment and effective date of
coverage--(i) Request. A plan must allow an employee a period of at
least 30 days after an event described in paragraph (a)(3) of this
section (loss of eligibility for coverage, termination of employer
contributions, or exhaustion of COBRA continuation coverage) to request
enrollment (for the employee or the employee's dependent). For this
purpose, any written or oral request made to any of the following
constitutes a request for enrollment --
(A) The plan administrator;
(B) An issuer offering health insurance coverage under the plan;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Tolling of period for requesting special enrollment. (A) In
the case of an individual whose coverage ceases, if a certificate of
creditable coverage with respect to that cessation is not provided on
or before the date coverage ceases, then the period for requesting
special enrollment described in paragraph (a)(4)(i) of this section
does not end until 30 days after the earlier of --
(1) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(2) The date 44 days after coverage ceases.
(B) For purposes of this paragraph (a)(4), if an individual's
coverage ceases due to the operation of a lifetime limit on all
benefits, coverage is considered to cease on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(Nonetheless, the date of a loss of eligibility for coverage is
determined under the rules of paragraph (a)(3) of this section, which
provides that a loss of eligibility occurs when a claim that would meet
or exceed a lifetime limit on all benefits is incurred, not when it is
denied.)
(C) The rules of this paragraph (a)(4)(ii) are illustrated by the
following examples:
Example 1. (i) Facts. Employer V provides group health coverage
through a policy provided by Issuer M. Individual D works for V and
is covered under V's plan. V fails to pay M the premiums for the
coverage period beginning March 1. Consistent with applicable state
law, M terminates the policy so that the last day of coverage is
April 30. On May 15, M provides D with a certificate of creditable
coverage with respect to D's cessation of coverage under V's plan.
(ii) Conclusion. In this Example 1, the period to request
special enrollment ends no earlier than June 14 (which is 30 days
after May 15, the day a certificate of creditable coverage is
provided with respect to D).
Example 2. (i) Facts. Same facts as Example 1, except D is never
provided with a certificate of creditable coverage.
(ii) Conclusion. In this Example 2, the period to request
special enrollment ends no earlier than July 13. (July 13 is 74 days
after April 30, the date coverage ceases. That is, July 13 is 30
days after the end of the 44-day maximum tolling period.)
Example 3. (i) Facts. Individual E works for Employer W and has
coverage under W's plan. W's plan has a lifetime limit of $1 million
on all benefits under the plan. On September 13, E incurs a claim
that would exceed the plan's lifetime limit. On September 28, W
denies the claim due to the operation of the lifetime limit and a
certificate of creditable coverage is provided on October 3. E is
otherwise eligible to enroll in the group health plan of the
employer of E's spouse.
(ii) Conclusion. In this Example 3, the period to request
special enrollment in the plan of the employer of E's spouse ends no
earlier than November 2 (30 days after the date the certificate is
provided) and begins not later than September 13, the date E lost
eligibility for coverage.
(iii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (a)(4)(i) of this
section, a plan may require the individual to complete enrollment
materials within a reasonable time after the end of the 30-day period
described in paragraph (a)(4)(i) of this section. In these enrollment
materials, the plan may require the individual only to provide
information required of individuals who enroll when first eligible and
information about the event giving rise to the special enrollment
right. A plan may establish a deadline for receiving completed
enrollment materials, but such a deadline must be extended for
information that an individual making reasonable efforts does not
obtain by that deadline.
(iv) Date coverage must begin. If the plan requires completion of
additional enrollment materials in accordance with paragraph
(a)(4)(iii) of this section, coverage must begin no later than the
first day of the first calendar month beginning after the date the plan
receives enrollment materials that are substantially complete. If the
plan does not require completion of additional enrollment materials,
coverage must begin no later than the first day of the first calendar
month beginning after the date the plan receives the request for
special enrollment under paragraph (a)(4)(i) of this section.
[[Page 78816]]
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan that makes coverage
available with respect to dependents is required to permit individuals
described in paragraph (b)(2) of this section to be enrolled for
coverage in a benefit package under the terms of the plan. Paragraph
(b)(3) of this section describes procedures that a plan may require an
individual to follow and describes the date by which coverage must
begin. The special enrollment rights under this paragraph (b) apply
without regard to the dates on which an individual would otherwise be
able to enroll under the plan. (See 29 CFR 2590.701-6(b) and 45 CFR
146.117(b), under which this obligation is also imposed on a health
insurance issuer offering group health insurance coverage.)
* * * * *
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan must allow an individual a period of at
least 30 days after the date of the marriage, birth, adoption, or
placement for adoption (or, if dependent coverage is not generally made
available at the time of the marriage, birth, adoption, or placement
for adoption, a period of at least 30 days after the date the plan
makes dependent coverage generally available) to request enrollment
(for the individual or the individual's dependent). For this purpose,
any written or oral request made to any of the following constitutes a
request for enrollment--
(A) The plan administrator;
(B) An issuer offering health insurance coverage under the plan;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (b)(3)(i) of this
section, a plan may require the individual to complete enrollment
materials within a reasonable time after the end of the 30-day period
described in paragraph (b)(3)(i) of this section. In these enrollment
materials, the plan may require the individual only to provide
information required of individuals who enroll when first eligible and
information about the event giving rise to the special enrollment
right. A plan may establish a deadline for receiving completed
enrollment materials, but such a deadline must be extended for
information that an individual making reasonable efforts does not
obtain by that deadline.
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, if the plan requires completion of additional enrollment
materials in accordance with paragraph (b)(3)(ii) of this section,
coverage must begin no later than the first day of the first calendar
month beginning after the date the plan receives enrollment materials
that are substantially complete. If the plan does not require such
additional enrollment materials, coverage must begin no later than the
first day of the first calendar month beginning after the date the plan
receives the request for special enrollment under paragraph (b)(3)(i)
of this section.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available). If the plan requires completion of additional
enrollment materials in accordance with paragraph (b)(3)(ii) of this
section, the plan must provide benefits (including benefits
retroactively to the date of birth, adoption, or placement for
adoption) once the plan receives enrollment materials that are
substantially complete.
(4) Examples. * * *
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option and submits
completed enrollment materials timely.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
Example 3. (i) Facts. Same facts as Example 1. On March 17 (two
days after the birth of C), A telephones the plan administrator and
requests special enrollment of A, B, and C. The plan administrator
sends A an enrollment form. Under the terms of the plan, enrollment
is denied unless a completed form is submitted within 30 days of the
event giving rise to the special enrollment right (in this case, C's
birth).
(ii) Conclusion. In this Example 3, the plan does not satisfy
paragraph (b)(3) of this section. The plan may require only that A
request enrollment during the 30-day period after C's birth. A did
so by telephoning the plan administrator. The plan may not condition
special enrollment on filing additional enrollment materials during
the 30-day period. To comply with paragraph (b)(3) of this section,
the plan must allow A a reasonable time after the end of the 30-day
period to submit any additional enrollment materials. Once these
enrollment materials are received, the plan must allow whatever
coverage is chosen to begin on March 15, the date of C's birth.
Example 4. (i) Facts. Same facts as Example 3, except that A
telephones the plan administrator to request enrollment on April 13
(29 days after C's birth). Also, under the terms of the plan, the
deadline for submitting the enrollment form is 14 days after the end
of the 30-day period for requesting special enrollment (thus, in
this case, April 28, which is 44 days after C's birth). The form
requests the same information for A, B, and C (name, date of birth,
and place of birth) as well as a copy of C's birth certificate. A
fills out the enrollment form and delivers it to the plan
administrator on April 28. At that time A does not have a birth
certificate for C but applies on that day for one from the
appropriate government office. A receives the birth certificate on
June 1 and furnishes a copy of the birth certificate to the plan
administrator shortly thereafter.
(ii) Conclusion. In this Example 4, A, B, and C are entitled to
special enrollment under the plan even though A did not satisfy the
plan's requirement of providing a copy of C's birth certificate by
the plan's 14-day deadline. While a plan may establish such a
deadline, the plan must extend the deadline for information that an
individual making reasonable efforts does not obtain by that
deadline. A delivered the enrollment form to the plan administrator
by the deadline and made reasonable efforts to furnish the birth
certificate that the plan requires.
Example 5. (i) Facts. Same facts as Example 4. On May 3 (after A
has delivered the enrollment form to the plan administrator but
before A provides the birth certificate) A submits claims for all
medical expenses incurred for B and C from the date of C's birth.
(ii) Conclusion. In this Example 5, the plan must pay all of the
claims submitted by A. Because the plan requires that individuals
seeking special enrollment complete additional enrollment materials,
it is required to provide benefits once it receives enrollment
materials that are substantially complete. The form that A submitted
on April 28 was substantially complete. Because C's birth is the
event giving rise to the special enrollment right, on April 28 A, B,
and C become entitled to benefits under the plan retroactive to the
date of C's birth.
* * * * *
Par. 7. A new Sec. 54.9801-7 is added to read as follows:
Sec. 54.9801-7 Interaction with the Family and Medical Leave Act.
(a) In general. The rules of Sec. Sec. 54.9801-1 through 54.9801-6
apply
[[Page 78817]]
with respect to an individual on leave under the Family and Medical
Leave Act of 1993 (29 U.S.C. 2601) (FMLA), and apply with respect to a
dependent of such an individual, except to the extent otherwise
provided in this section.
(b) Tolling of significant break in coverage during FMLA leave. In
the case of an individual (or a dependent of the individual) who is
covered under a group health plan, if the individual takes FMLA leave
and does not continue group health coverage for any period of FMLA
leave, that period is not taken into account in determining whether a
significant break in coverage has occurred under Sec. 54.9801-
4(b)(2)(iii).
(c) Application of certification provisions--(1) Timing of issuance
of certificate--(i) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and the individual's group health coverage is
terminated during FMLA leave, an automatic certificate must be provided
in accordance with the timing rules set forth in Sec. 54.9801-
5(a)(2)(ii)(B) (which generally require plans to provide certificates
within a reasonable time after coverage ceases).
(ii) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and continues group health coverage for the period of
FMLA leave, but then ceases coverage under the plan at the end of FMLA
leave, an automatic certificate must be provided in accordance with the
timing rules set forth in Sec. 54.9801-5(a)(2)(ii)(A) (which generally
require plans to provide a certificate no later than the time a notice
is required to be furnished for a qualifying event under a COBRA
continuation provision).
(2) Demonstrating FMLA leave. (i) A plan is required to take into
account all information about FMLA leave that it obtains or that is
presented on behalf of an individual. A plan must treat the individual
as having been on FMLA leave for a period if --
(A) The individual attests to the period of FMLA leave; and
(B) The individual cooperates with the plan's efforts to verify the
individual's FMLA leave.
(ii) Nothing in this section prevents a plan from modifying its
initial determination of FMLA leave if it determines that the
individual did not have the claimed FMLA leave, provided that the plan
follows procedures for reconsideration similar to those set forth in
Sec. 54.9801-3(f).
(d) Relationship to loss of eligibility special enrollment rules.
In the case of an individual (or a dependent of the individual) who is
covered under a group health plan and who takes FMLA leave, a loss of
eligibility for coverage under Sec. 54.9801-6(a) occurs when the
period of FMLA leave ends if--
(1) The individual's group health coverage is terminated at any
time during FMLA leave; and
(2) The individual does not return to work for the employer at the
end of FMLA leave.
Par. 8. Section 54.9831-1 is amended by:
a. Adding paragraph (a)(2).
b. Revising paragraph (b).
c. Revising paragraph (c)(1).
d. By adding paragraph (e).
The additions and revisions read as follows:
Sec. 54.9831-1 Special rules relating to group health plans.
(a) Group health plan. * * *
(2) Determination of number of plans. The number of group health
plans that an employer or employee organization (including for this
purpose a joint board of trustees of a multiemployer trust affiliated
with one or more multiemployer plans) maintains is determined under the
rules of this paragraph (a)(2).
(i) Except as provided in paragraph (a)(2)(ii) or (iii) of this
section, health care benefits provided by a corporation, partnership,
or other entity or trade or business, or by an employee organization,
constitute one group health plan, unless--
(A) It is clear from the instruments governing the arrangement or
arrangements to provide health care benefits that the benefits are
being provided under separate plans; and
(B) The arrangement or arrangements are operated pursuant to such
instruments as separate plans.
(ii) A multiemployer plan and a nonmultiemployer plan are always
separate plans.
(iii) If a principal purpose of establishing separate plans is to
evade any requirement of law, then the separate plans will be
considered a single plan to the extent necessary to prevent the
evasion.
(b) General exception for certain small group health plans. The
requirements of Sec. Sec. 54.9801-1 through 54.9801-7, 54.9802-1,
54.9802-2, 54.9811-1T, 54.9812-1T, and 54.9833-1 do not apply to any
group health plan for any plan year if, on the first day of the plan
year, the plan has fewer than two participants who are current
employees.
(c) Excepted benefits--(1) In general. The requirements of
Sec. Sec. 54.9801-1 through 54.9801-7, 54.9802-1, 54.9802-2, 54.9811-
1T, 54.9812-1T, and 54.9833-1 do not apply to any group health plan in
relation to its provision of the benefits described in paragraph
(c)(2), (3), (4), or (5) of this section (or any combination of these
benefits).
* * * * *
(e) Determining the average number of employees--(1) Scope.
Whenever the application of a rule in this part depends upon the
average number of employees employed by an employer, the determination
of that number is made in accordance with the rules of this paragraph
(e).
(2) Full-time equivalents. The average number of employees is
determined by calculating the average number of full-time equivalents
on business days during the preceding calendar year.
(3) Methodology. For the preceding calendar year, the average
number of full-time equivalents is determined by--
(i) Determining the number of employees who were employed full-time
by the employer throughout the entire calendar year;
(ii) Totaling all employment hours (not to exceed 40 hours per
week) for each part-time employee, and for each full-time employee who
was not employed full-time with the employer throughout the entire
calendar year;
(iii) Dividing the total determined under paragraph (e)(3)(ii) of
this section by a figure that represents the annual full-time hours
under the employer's general employment practices, such as 2,080 hours
(although for this purpose not more than 40 hours per week may be
used); and
(iv) Adding the quotient determined under paragraph (e)(3)(iii) of
this section to the number determined under paragraph (e)(3)(i).
(4) Rounding. For purposes of paragraph (e)(3)(iv) of this section,
all fractions are disregarded. For instance, a figure of 50.9 is deemed
to be 50.
(5) Employers not in existence in the preceding year. In the case
of an employer that was in existence for less than the entire preceding
calendar year (including an employer that was not in existence at all),
a determination of the average number of employees that the employer
employs is based on the average number of employees that it is
reasonably expected the employer will employ on business days in the
current calendar year.
(6) Scope of the term ``employer.'' For purposes of this paragraph
(e), employer includes any predecessor of the employer. In addition,
all persons treated as a single employer under section 414(b), (c),
(m), or (o) are treated as one employer.
[[Page 78818]]
(7) Special rule for multiemployer plans. (i) With respect to the
application of a rule in this part to a multiemployer plan (as defined
in section 3(37) of ERISA), each employer with at least one employee
participating in the plan is considered to employ the same average
number of employees. That number is the highest number that results by
applying the rules of paragraphs (e)(1) through (6) of this section
separately to each of the employers.
(ii) The rules of this paragraph (e)(7) are illustrated by the
following example:
Example. (i) Facts. Twenty five employers have at least one
employee who participates in Multiemployer Plan M. Among these 25
employers, Employer K has 51 employees, determined under the rules
of paragraphs (e)(1) through (6) of this section. Each of the other
24 employers has fewer than 50 employees.
(ii) Conclusion. With respect to the application of a rule in
this part to M, each of the 25 employers is considered to employ 51
employees.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Employee Benefits Security Administration
29 CFR Chapter XXV
For the reasons set forth above, 29 CFR Part 2590 is proposed to be
amended as follows:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS
1. The authority citation for Part 2590 continues to read as
follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c,
sec. 101(g), Pub. L. 104-191, 101 Stat. 1936; sec. 401(b), Pub. L.
105-200, 112 Stat. 645 (42 U.S.C. 651 note); Secretary of Labor's
Order 1-2003, 68 FR 5374 (Feb. 3, 2003).
2. Section 2590.701-4 is amended by revising paragraphs (b)(2)(iii)
and (b)(2)(iv) and adding Examples 4 and 6 in paragraph (b)(2)(v) as
follows:
Sec. 2590.701-4 Rules relating to creditable coverage.
* * * * *
(b) Standard method. * * *
(2) Counting creditable coverage. * * *
(iii) Significant break in coverage defined. A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage, except that periods
described in paragraph (b)(2)(iv) of this section are not taken into
account in determining a significant break in coverage. (See also Sec.
2590.731(c)(2)(iii) regarding the applicability to issuers of state
insurance laws that require a break of more than 63 days before an
individual has a significant break in coverage for purposes of state
insurance law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA continuation coverage
during the second election period provided under the Trade Act of 2002,
the days between the date the 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. Moreover, in the case of an individual whose
coverage ceases, if a certificate of creditable coverage with respect
to that cessation is not provided on or before the date coverage
ceases, then the period that begins on the first date that an
individual has no creditable coverage and that continues through the
earlier of the following two dates is not taken into account in
determining whether a significant break in coverage has occurred:
(A) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(B) The date 44 days after coverage ceases.
(v) Examples. The rules of this paragraph (b)(2) are illustrated by
the following examples:
* * * * *
Example 4. (i) Facts. Individual B terminates coverage under a
group health plan, and a certificate of creditable coverage is
provided 10 days later. B begins employment with Employer R and
begins enrollment in R's plan 60 days after the certificate is
provided.
(ii) Conclusion. In this Example 4, even though B had no
coverage for 69 days, the 10 days before the certificate of
creditable coverage is provided are not taken into account in
determining a significant break in coverage. Therefore, B's break in
coverage is only 59 days and is not a significant break in coverage.
Accordingly, B's prior coverage must be counted by R's plan.
* * * * *
Example 6. (i) Facts. Employer V sponsors a group health plan.
Under the terms of the plan, the only benefits provided are those
provided under an insurance policy. Individual D works for V and has
creditable coverage under V's plan. V fails to pay the issuer the
premiums for the coverage period beginning March 1. Consistent with
applicable state law, the issuer terminates the policy so that the
last day of coverage is April 30. V goes out of business on July 31.
On August 15 D begins employment with Employer W and enrolls in W's
group health plan. W's plan imposes a 12-month preexisting condition
exclusion on all enrollees. D never receives a certificate of
creditable coverage for coverage under V's plan.
(ii) Conclusion. In this Example 6, the period from May 1 (the
first day without coverage) through June 13 (the date 44 days after
coverage under V's plan ceases) is not taken into account in
determining a 63-day break in coverage. This is because, in cases in
which a certificate of creditable coverage is not provided by the
date coverage is lost, the break begins on the date the certificate
is provided, or the date 44 days after coverage ceases, if earlier.
Therefore, even though D's actual period without coverage was 106
days (May 1 through August 14), because the period from May 1
through June 13 is not taken into account, D's break in coverage is
only 62 days (June 14 through August 14). Thus, D has not
experienced a significant break in coverage, and D's prior coverage
must be counted by W's plan.
* * * * *
3. Section 2590.701-5 is amended by redesignating paragraphs
(a)(3)(ii)(H)(5) and (6) as paragraphs (a)(3)(ii)(H)(6) and (7),
respectively, and by adding a new paragraph (a)(3)(ii)(H)(5) as
follows:
Sec. 2590.701-5 Evidence of creditable coverage.
(a) Certificate of creditable coverage. * * *
(3) Form and content of certificate. * * *
(ii) Required information. * * *
(H) * * *
(5) The interaction with the Family and Medical Leave Act;
* * * * *
4. Section 2590.701-6 is amended by revising paragraphs (a)(1),
(a)(4), (b)(1), (b)(3), and Example 2 in paragraph (b)(4), and adding
Examples 3, 4, and 5 in paragraph (b)(4) as follows:
Sec. 2590.701-6 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan, and a health insurance issuer
offering health insurance coverage in connection with a group health
plan, is required to permit current employees and dependents (as
defined in Sec. 2590.701-2) who are described in paragraph (a)(2) of
this section to enroll for coverage under the terms of the plan if the
conditions in paragraph (a)(3) of this section are satisfied. Paragraph
(a)(4) of this section describes procedures that a plan or issuer may
require an employee to follow and describes the date by which coverage
must begin. The special enrollment rights under this paragraph (a)
apply without regard to the dates on
[[Page 78819]]
which an individual would otherwise be able to enroll under the plan.
* * * * *
(4) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an employee a period
of at least 30 days after an event described in paragraph (a)(3) of
this section (loss of eligibility for coverage, termination of employer
contributions, or exhaustion of COBRA continuation coverage) to request
enrollment (for the employee or the employee's dependent). For this
purpose, any written or oral request made to any of the following
constitutes a request for enrollment--
(A) The plan administrator;
(B) The issuer;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Tolling of period for requesting special enrollment. (A) In
the case of an individual whose coverage ceases, if a certificate of
creditable coverage with respect to that cessation is not provided on
or before the date coverage ceases, then the period for requesting
special enrollment described in paragraph (a)(4)(i) of this section
does not end until 30 days after the earlier of --
(1) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(2) The date 44 days after coverage ceases.
(B) For purposes of this paragraph (a)(4), if an individual's
coverage ceases due to the operation of a lifetime limit on all
benefits, coverage is considered to cease on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(Nonetheless, the date of a loss of eligibility for coverage is
determined under the rules of paragraph (a)(3) of this section, which
provides that a loss of eligibility occurs when a claim that would meet
or exceed a lifetime limit on all benefits is incurred, not when it is
denied.)
(C) The rules of this paragraph (a)(4)(ii) are illustrated by the
following examples:
Example 1. (i) Facts. Employer V provides group health coverage
through a policy provided by Issuer M. Individual D works for V and
is covered under V's plan. V fails to pay M the premiums for the
coverage period beginning March 1. Consistent with applicable state
law, M terminates the policy so that the last day of coverage is
April 30. On May 15, M provides D with a certificate of creditable
coverage with respect to D's cessation of coverage under V's plan.
(ii) Conclusion. In this Example 1, the period to request
special enrollment ends no earlier than June 14 (which is 30 days
after May 15, the day a certificate of creditable coverage is
provided with respect to D).
Example 2. (i) Facts. Same facts as Example 1, except D is never
provided with a certificate of creditable coverage.
(ii) Conclusion. In this Example 2, the period to request
special enrollment ends no earlier than July 13. (July 13 is 74 days
after April 30, the date coverage ceases. That is, July 13 is 30
days after the end of the 44-day maximum tolling period.)
Example 3. (i) Facts. Individual E works for Employer W and has
coverage under W's plan. W's plan has a lifetime limit of $1 million
on all benefits under the plan. On September 13, E incurs a claim
that would exceed the plan's lifetime limit. On September 28, W
denies the claim due to the operation of the lifetime limit and a
certificate of creditable coverage is provided on October 3. E is
otherwise eligible to enroll in the group health plan of the
employer of E's spouse.
(ii) Conclusion. In this Example 3, the period to request
special enrollment in the plan of the employer of E's spouse ends no
earlier than November 2 (30 days after the date the certificate is
provided) and begins not later than September 13, the date E lost
eligibility for coverage.
(iii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (a)(4)(i) of this
section, a plan or issuer may require the individual to complete
enrollment materials within a reasonable time after the end of the 30-
day period described in paragraph (a)(4)(i) of this section. In these
enrollment materials, the plan or issuer may require the individual
only to provide information required of individuals who enroll when
first eligible and information about the event giving rise to the
special enrollment right. A plan or issuer may establish a deadline for
receiving completed enrollment materials, but such a deadline must be
extended for information that an individual making reasonable efforts
does not obtain by that deadline.
(iv) Date coverage must begin. If the plan or issuer requires
completion of additional enrollment materials in accordance with
paragraph (a)(4)(iii) of this section, coverage must begin no later
than the first day of the first calendar month beginning after the date
the plan or issuer receives enrollment materials that are substantially
complete. If the plan or issuer does not require completion of
additional enrollment materials, coverage must begin no later than the
first day of the first calendar month beginning after the date the plan
or issuer receives the request for special enrollment under paragraph
(a)(4)(i) of this section.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan, and a health
insurance issuer offering health insurance coverage in connection with
a group health plan, that makes coverage available with respect to
dependents is required to permit individuals described in paragraph
(b)(2) of this section to be enrolled for coverage in a benefit package
under the terms of the plan. Paragraph (b)(3) of this section describes
procedures that a plan or issuer may require an individual to follow
and describes the date by which coverage must begin. The special
enrollment rights under this paragraph (b) apply without regard to the
dates on which an individual would otherwise be able to enroll under
the plan.
* * * * *
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an individual a
period of at least 30 days after the date of the marriage, birth,
adoption, or placement for adoption (or, if dependent coverage is not
generally made available at the time of the marriage, birth, adoption,
or placement for adoption, a period of at least 30 days after the date
the plan makes dependent coverage generally available) to request
enrollment (for the individual or the individual's dependent). For this
purpose, any written or oral request made to any of the following
constitutes a request for enrollment--
(A) The plan administrator;
(B) The issuer;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (b)(3)(i) of this
section, a plan or issuer may require the individual to complete
enrollment materials within a reasonable time after the end of the 30-
day period described in paragraph (b)(3)(i) of this section. In these
enrollment materials, the plan or issuer may require the individual
only to provide information required of individuals who enroll when
first eligible and information about the event giving rise to the
special enrollment right. A plan or issuer may establish a deadline for
receiving completed enrollment materials, but such a deadline must be
extended for information that an individual making reasonable efforts
does not obtain by that deadline.
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, if the plan or issuer requires completion of
[[Page 78820]]
additional enrollment materials in accordance with paragraph (b)(3)(ii)
of this section, coverage must begin no later than the first day of the
first calendar month beginning after the date the plan or issuer
receives enrollment materials that are substantially complete. If the
plan or issuer does not require such additional enrollment materials,
coverage must begin no later than the first day of the first calendar
month beginning after the date the plan or issuer receives the request
for special enrollment under paragraph (b)(3)(i) of this section.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available). If the plan or issuer requires completion of
additional enrollment materials in accordance with paragraph (b)(3)(ii)
of this section, the plan or issuer must provide benefits (including
benefits retroactively to the date of birth, adoption, or placement for
adoption) once the plan or issuer receives enrollment materials that
are substantially complete.
(4) Examples. * * *
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option and submits
completed enrollment materials timely.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
Example 3. (i) Facts. Same facts as Example 1. On March 17 (two
days after the birth of C), A telephones the plan administrator and
requests special enrollment of A, B, and C. The plan administrator
sends A an enrollment form. Under the terms of the plan, enrollment
is denied unless a completed form is submitted within 30 days of the
event giving rise to the special enrollment right (in this case, C's
birth).
(ii) Conclusion. In this Example 3, the plan does not satisfy
paragraph (b)(3) of this section. The plan may require only that A
request enrollment during the 30-day period after C's birth. A did
so by telephoning the plan administrator. The plan may not condition
special enrollment on filing additional enrollment materials during
the 30-day period. To comply with paragraph (b)(3) of this section,
the plan must allow A a reasonable time after the end of the 30-day
period to submit any additional enrollment materials. Once these
enrollment materials are received, the plan must allow whatever
coverage is chosen to begin on March 15, the date of C's birth.
Example 4. (i) Facts. Same facts as Example 3, except that A
telephones the plan administrator to request enrollment on April 13
(29 days after C's birth). Also, under the terms of the plan, the
deadline for submitting the enrollment form is 14 days after the end
of the 30-day period for requesting special enrollment (thus, in
this case, April 28, which is 44 days after C's birth). The form
requests the same information for A, B, and C (name, date of birth,
and place of birth) as well as a copy of C's birth certificate. A
fills out the enrollment form and delivers it to the plan
administrator on April 28. At that time A does not have a birth
certificate for C but applies on that day for one from the
appropriate government office. A receives the birth certificate on
June 1 and furnishes a copy of the birth certificate to the plan
administrator shortly thereafter.
(ii) Conclusion. In this Example 4, A, B, and C are entitled to
special enrollment under the plan even though A did not satisfy the
plan's requirement of providing a copy of C's birth certificate by
the plan's 14-day deadline. While a plan may establish such a
deadline, the plan must extend the deadline for information that an
individual making reasonable efforts does not obtain by that
deadline. A delivered the enrollment form to the plan administrator
by the deadline and made reasonable efforts to furnish the birth
certificate that the plan requires.
Example 5. (i) Facts. Same facts as Example 4. On May 3 (after A
has delivered the enrollment form to the plan administrator but
before A provides the birth certificate), A submits claims for all
medical expenses incurred for B and C from the date of C's birth.
(ii) Conclusion. In this Example 5, the plan must pay all of the
claims submitted by A. Because the plan requires that individuals
seeking special enrollment complete additional enrollment materials,
it is required to provide benefits once it receives enrollment
materials that are substantially complete. The form that A submitted
on April 28 was substantially complete. Because C's birth is the
event giving rise to the special enrollment right, on April 28 A, B,
and C become entitled to benefits under the plan retroactive to the
date of C's birth.
* * * * *
5. Section 2590.701-8 is added to read as follows:
Sec. 2590.701-8 Interaction with the Family and Medical Leave Act.
(a) In general. The rules of Sec. Sec. 2590.701-1 through
2590.701-7 apply with respect to an individual on leave under the
Family and Medical Leave Act of 1993 (29 U.S.C. 2601) (FMLA), and apply
with respect to a dependent of such an individual, except to the extent
otherwise provided in this section.
(b) Tolling of significant break in coverage during FMLA leave. In
the case of an individual (or a dependent of the individual) who is
covered under a group health plan, if the individual takes FMLA leave
and does not continue group health coverage for any period of FMLA
leave, that period is not taken into account in determining whether a
significant break in coverage has occurred under Sec. 2590.701-
4(b)(2)(iii).
(c) Application of certification provisions--(1) Timing of issuance
of certificate--(i) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and the individual's group health coverage is
terminated during FMLA leave, an automatic certificate must be provided
in accordance with the timing rules set forth in Sec. 2590.701-
5(a)(2)(ii)(B) (which generally require plans and issuers to provide
certificates within a reasonable time after coverage ceases).
(ii) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and continues group health coverage for the period of
FMLA leave, but then ceases coverage under the plan at the end of FMLA
leave, an automatic certificate must be provided in accordance with the
timing rules set forth in Sec. 2590.701-5(a)(2)(ii)(A) (which
generally require plans and issuers to provide a certificate no later
than the time a notice is required to be furnished for a qualifying
event under a COBRA continuation provision).
(2) Demonstrating FMLA leave. (i) A plan or issuer is required to
take into account all information about FMLA leave that it obtains or
that is presented on behalf of an individual. A plan or issuer must
treat the individual as having been on FMLA leave for a period if--
(A) The individual attests to the period of FMLA leave; and
(B) The individual cooperates with the plan's or issuer's efforts
to verify the individual's FMLA leave.
(ii) Nothing in this section prevents a plan or issuer from
modifying its initial determination of FMLA leave if it determines that
the individual did not have the claimed FMLA leave, provided that the
plan or issuer follows procedures for reconsideration similar to those
set forth in Sec. 2590.701-3(f).
[[Page 78821]]
(d) Relationship to loss of eligibility special enrollment rules.
In the case of an individual (or a dependent of the individual) who is
covered under a group health plan and who takes FMLA leave, a loss of
eligibility for coverage under Sec. 2590.701-6(a) occurs when the
period of FMLA leave ends if --
(1) The individual's group health coverage is terminated at any
time during FMLA leave; and
(2) The individual does not return to work for the employer at the
end of FMLA leave.
6. Section 2590.732 is amended by adding paragraphs (a)(2) and (e)
to read as follows:
Sec. 2590.732 Special rules relating to group health plans.
(a) Group health plan. * * *
(2) Determination of number of plans. The number of group health
plans that an employer or employee organization (including for this
purpose a joint board of trustees of a multiemployer trust affiliated
with one or more multiemployer plans) maintains is determined under the
rules of this paragraph (a)(2).
(i) Except as provided in paragraph (a)(2)(ii) or (iii) of this
section, medical care benefits provided by a corporation, partnership,
or other entity or trade or business, or by an employee organization,
constitute one group health plan, unless--
(A) It is clear from the instruments governing the arrangement or
arrangements to provide medical care benefits that the benefits are
being provided under separate plans; and
(B) The arrangement or arrangements are operated pursuant to such
instruments as separate plans.
(ii) A multiemployer plan and a nonmultiemployer plan are always
separate plans.
(iii) If a principal purpose of establishing separate plans is to
evade any requirement of law, then the separate plans will be
considered a single plan to the extent necessary to prevent the
evasion.
* * * * *
(e) Determining the average number of employees--(1) Scope.
Whenever the application of a rule in this part depends upon the
average number of employees employed by an employer, the determination
of that number is made in accordance with the rules of this paragraph
(e).
(2) Full-time equivalents. The average number of employees is
determined by calculating the average number of full-time equivalents
on business days during the preceding calendar year.
(3) Methodology. For the preceding calendar year, the average
number of full-time equivalents is determined by--
(i) Determining the number of employees who were employed full-time
by the employer throughout the entire calendar year;
(ii) Totaling all employment hours (not to exceed 40 hours per
week) for each part-time employee, and for each full-time employee who
was not employed full-time with the employer throughout the entire
calendar year;
(iii) Dividing the total determined under paragraph (e)(3)(ii) of
this section by a figure that represents the annual full-time hours
under the employer's general employment practices, such as 2,080 hours
(although for this purpose not more than 40 hours per week may be
used); and
(iv) Adding the quotient determined under paragraph (e)(3)(iii) of
this section to the number determined under paragraph (e)(3)(i).
(4) Rounding. For purposes of paragraph (e)(3)(iv) of this section,
all fractions are disregarded. For instance, a figure of 50.9 is deemed
to be 50.
(5) Employers not in existence in the preceding year. In the case
of an employer that was in existence for less than the entire preceding
calendar year (including an employer that was not in existence at all),
a determination of the average number of employees that the employer
employs is based on the average number of employees that it is
reasonably expected the employer will employ on business days in the
current calendar year.
(6) Scope of the term ``employer''. For purposes of this paragraph
(e), employer includes any predecessor of the employer. In addition,
all persons treated as a single employer under section 414(b), (c),
(m), or (o) of the Internal Revenue Code are treated as one employer.
(7) Special rule for multiemployer plans. (i) With respect to the
application of a rule in this part to a multiemployer plan (as defined
in section 3(37) of the Act), each employer with at least one employee
participating in the plan is considered to employ the same average
number of employees. That number is the highest number that results by
applying the rules of paragraphs (e)(1) through (6) of this section
separately to each of the employers.
(ii) The rules of this paragraph (e)(7) are illustrated by the
following example:
Example. (i) Facts. Twenty five employers have at least one
employee who participates in Multiemployer Plan M. Among these 25
employers, Employer K has 51 employees, determined under the rules
of paragraphs (e)(1) through (6) of this section. Each of the other
24 employers has fewer than 50 employees.
(ii) Conclusion. With respect to the application of a rule in
this part to M, each of the 25 employers is considered to employ 51
employees.
Signed at Washington, DC, this 1st day of December, 2004.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
Department of Health and Human Services
45 CFR Subtitle A
For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR Part 146 follows:
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
1. The authority citation for Part 146 is revised to read as
follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91,
300gg-92 as amended by HIPAA (Pub. L. 104-191, 110 Stat. 1936), MHPA
(Pub. L. 104-204, 110 Stat. 2944, as amended by Pub. L. 107-116, 115
Stat. 2177), NMHPA (Pub. L. 104-204, 110 Stat. 2935), WHCRA (Pub. L.
105-277, 112 Stat. 2681-436), and section 103(c)(4) of HIPAA.
2. In Sec. 146.113, revise paragraphs (b)(2)(iii) and (b)(2)(iv),
and Examples 4 and 6 in paragraph (b)(2)(v) to read as follows:
Sec. 146.113 Rules relating to creditable coverage.
* * * * *
(b) Standard method. * * *
(2) Counting creditable coverage. * * *
(iii) Significant break in coverage defined. A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage, except that periods
described in paragraph (b)(2)(iv) of this section are not taken into
account in determining a significant break in coverage. (See also Sec.
146.143(c)(2)(iii) regarding the applicability to issuers of State
insurance laws that require a break of more than 63 days before an
individual has a significant break in coverage for purposes of State
insurance law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA
[[Page 78822]]
continuation coverage during the second election period provided under
the Trade Act of 2002, the days between the date the 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. Moreover, in the case of an
individual whose coverage ceases, if a certificate of creditable
coverage with respect to that cessation is not provided on or before
the date coverage ceases, then the period that begins on the first date
that an individual has no creditable coverage and that continues
through the earlier of the following two dates is not taken into
account in determining whether a significant break in coverage has
occurred:
(A) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(B) The date 44 days after coverage ceases.
(v) Examples. * * *
Example 4. (i) Facts. Individual B terminates coverage under a
group health plan, and a certificate of creditable coverage is
provided 10 days later. B begins employment with Employer R and
begins enrollment in R's plan 60 days after the certificate is
provided.
(ii) Conclusion. In this Example 4, even though B had no
coverage for 69 days, the 10 days before the certificate of
creditable coverage is provided are not taken into account in
determining a significant break in coverage. Therefore, B's break in
coverage is only 59 days and is not a significant break in coverage.
Accordingly, B's prior coverage must be counted by R's plan.
* * * * *
Example 6. (i) Facts. Employer V sponsors a group health plan.
Under the terms of the plan, the only benefits provided are those
provided under an insurance policy. Individual D works for V and has
creditable coverage under V's plan. V fails to pay the issuer the
premiums for the coverage period beginning March 1. Consistent with
applicable State law, the issuer terminates the policy so that the
last day of coverage is April 30. V goes out of business on July 31.
On August 15 D begins employment with Employer W and enrolls in W's
group health plan. W's plan imposes a 12-month preexisting condition
exclusion on all enrollees. D never receives a certificate of
creditable coverage for coverage under V's plan.
(ii) Conclusion. In this Example 6, the period from May 1 (the
first day without coverage) through June 13 (the date 44 days after
coverage under V's plan ceases) is not taken into account in
determining a 63-day break in coverage. This is because, in cases in
which a certificate of creditable coverage is not provided by the
date coverage is lost, the break begins on the date the certificate
is provided, or the date 44 days after coverage ceases, if earlier.
Therefore, even though D's actual period without coverage was 106
days (May 1 through August 14), because the period from May 1
through June 13 is not taken into account, D's break in coverage is
only 62 days (June 14 through August 14). Thus, D has not
experienced a significant break in coverage, and D's prior coverage
must be counted by W's plan.
* * * * *
3. In Sec. 146.115, revise paragraphs (a)(3)(ii)(H)(5) and (6) and
add paragraph (a)(3)(ii)(H)(7) to read as follows:
Sec. 146.115 Certification and disclosure of previous coverage.
(a) Certificate of creditable coverage. * * *
(3) Form and content of certificate. * * *
(ii) Required information. * * *
(H) * * *
(5) The interaction with the Family and Medical Leave Act;
(6) The fact that State law may require issuers to provide
additional protections to individuals in that State; and
(7) Where to get more information.
* * * * *
4. In Sec. 146.117, revise paragraphs (a)(1), (a)(4), (b)(1),
(b)(3), and example 2 in paragraph (b)(4), and add examples 3, 4, and 5
in paragraph (b)(4), to read as follows:
Sec. 146.117 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan, and a health insurance issuer
offering health insurance coverage in connection with a group health
plan, is required to permit current employees and dependents (as
defined in Sec. 144.103 of this chapter) who are described in
paragraph (a)(2) of this section to enroll for coverage under the terms
of the plan if the conditions in paragraph (a)(3) of this section are
satisfied. Paragraph (a)(4) of this section describes procedures that a
plan or issuer may require an employee to follow and describes the date
by which coverage must begin. The special enrollment rights under this
paragraph (a) apply without regard to the dates on which an individual
would otherwise be able to enroll under the plan.
* * * * *
(4) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an employee a period
of at least 30 days after an event described in paragraph (a)(3) of
this section (loss of eligibility for coverage, termination of employer
contributions, or exhaustion of COBRA continuation coverage) to request
enrollment (for the employee or the employee's dependent). For this
purpose, any written or oral request made to any of the following
constitutes a request for enrollment --
(A) The plan administrator;
(B) The issuer;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Tolling of period for requesting special enrollment. (A) In
the case of an individual whose coverage ceases, if a certificate of
creditable coverage with respect to that cessation is not provided on
or before the date coverage ceases, then the period for requesting
special enrollment described in paragraph (a)(4)(i) of this section
does not end until 30 days after the earlier of--
(1) The date that a certificate of creditable coverage with respect
to that cessation is provided; or
(2) The date 44 days after coverage ceases.
(B) For purposes of this paragraph (a)(4), if an individual's
coverage ceases due to the operation of a lifetime limit on all
benefits, coverage is considered to cease on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(Nonetheless, the date of a loss of eligibility for coverage is
determined under the rules of paragraph (a)(3) of this section, which
provides that a loss of eligibility occurs when a claim that would meet
or exceed a lifetime limit on all benefits is incurred, not when it is
denied.)
(C) The rules of this paragraph (a)(4)(ii) are illustrated by the
following examples:
Example 1. (i) Facts. Employer V provides group health coverage
through a policy provided by Issuer M. Individual D works for V and
is covered under V's plan. V fails to pay M the premiums for the
coverage period beginning March 1. Consistent with applicable state
law, M terminates the policy so that the last day of coverage is
April 30. On May 15, M provides D with a certificate of creditable
coverage with respect to D's cessation of coverage under V's plan.
(ii) Conclusion. In this Example 1, the period to request
special enrollment ends no earlier than June 14 (which is 30 days
after May 15, the day a certificate of creditable coverage is
provided with respect to D).
Example 2. (i) Facts. Same facts as Example 1, except D is never
provided with a certificate of creditable coverage.
(ii) Conclusion. In this Example 2, the period to request
special enrollment ends no earlier than July 13. (July 13 is 74 days
after April 30, the date coverage ceases. That is, July 13 is 30
days after the end of the 44-day maximum tolling period.)
Example 3. (i) Facts. Individual E works for Employer W and has
coverage under W's plan. W's plan has a lifetime limit of $1 million
on all benefits under the plan. On
[[Page 78823]]
September 13, E incurs a claim that would exceed the plan's lifetime
limit. On September 28, W denies the claim due to the operation of
the lifetime limit and a certificate of creditable coverage is
provided on October 3. E is otherwise eligible to enroll in the
group health plan of the employer of E's spouse.
(ii) Conclusion. In this Example 3, the period to request
special enrollment in the plan of the employer of E's spouse ends no
earlier than November 2 (30 days after the date the certificate is
provided) and begins not later than September 13, the date E lost
eligibility for coverage.
(iii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (a)(4)(i) of this
section, a plan or issuer may require the individual to complete
enrollment materials within a reasonable time after the end of the 30-
day period described in paragraph (a)(4)(i) of this section. In these
enrollment materials, the plan or issuer may require the individual
only to provide information required of individuals who enroll when
first eligible and information about the event giving rise to the
special enrollment right. A plan or issuer may establish a deadline for
receiving completed enrollment materials, but such a deadline must be
extended for information that an individual making reasonable efforts
does not obtain by that deadline.
(iv) Date coverage must begin. If the plan or issuer requires
completion of additional enrollment materials in accordance with
paragraph (a)(4)(iii) of this section, coverage must begin no later
than the first day of the first calendar month beginning after the date
the plan or issuer receives enrollment materials that are substantially
complete. If the plan or issuer does not require completion of
additional enrollment materials, coverage must begin no later than the
first day of the first calendar month beginning after the date the plan
or issuer receives the request for special enrollment under paragraph
(a)(4)(i) of this section.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan, and a health
insurance issuer offering health insurance coverage in connection with
a group health plan, that makes coverage available with respect to
dependents is required to permit individuals described in paragraph
(b)(2) of this section to be enrolled for coverage in a benefit package
under the terms of the plan. Paragraph (b)(3) of this section describes
procedures that a plan or issuer may require an individual to follow
and describes the date by which coverage must begin. The special
enrollment rights under this paragraph (b) apply without regard to the
dates on which an individual would otherwise be able to enroll under
the plan.
* * * * *
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an individual a
period of at least 30 days after the date of the marriage, birth,
adoption, or placement for adoption (or, if dependent coverage is not
generally made available at the time of the marriage, birth, adoption,
or placement for adoption, a period of at least 30 days after the date
the plan makes dependent coverage generally available) to request
enrollment (for the individual or the individual's dependent). For this
purpose, any written or oral request made to any of the following
constitutes a request for enrollment--
(A) The plan administrator;
(B) The issuer;
(C) A person who customarily handles claims for the plan (such as a
third party administrator); or
(D) Any other designated representative.
(ii) Reasonable procedures for special enrollment. After an
individual has requested enrollment under paragraph (b)(3)(i) of this
section, a plan or issuer may require the individual to complete
enrollment materials within a reasonable time after the end of the 30-
day period described in paragraph (b)(3)(i) of this section. In these
enrollment materials, the plan or issuer may require the individual
only to provide information required of individuals who enroll when
first eligible and information about the event giving rise to the
special enrollment right. A plan or issuer may establish a deadline for
receiving completed enrollment materials, but such a deadline must be
extended for information that an individual making reasonable efforts
does not obtain by that deadline.
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, if the plan or issuer requires completion of additional
enrollment materials in accordance with paragraph (b)(3)(ii) of this
section, coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives
enrollment materials that are substantially complete. If the plan or
issuer does not require such additional enrollment materials, coverage
must begin no later than the first day of the first calendar month
beginning after the date the plan or issuer receives the request for
special enrollment under paragraph (b)(3)(i) of this section.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available). If the plan or issuer requires completion of
additional enrollment materials in accordance with paragraph (b)(3)(ii)
of this section, the plan or issuer must provide benefits (including
benefits retroactively to the date of birth, adoption, or placement for
adoption) once the plan or issuer receives enrollment materials that
are substantially complete.
(4) Examples. * * *
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option and submits
completed enrollment materials timely.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
Example 3. (i) Facts. Same facts as Example 1. On March 17 (two
days after the birth of C), A telephones the plan administrator and
requests special enrollment of A, B, and C. The plan administrator
sends A an enrollment form. Under the terms of the plan, enrollment
is denied unless a completed form is submitted within 30 days of the
event giving rise to the special enrollment right (in this case, C's
birth).
(ii) Conclusion. In this Example 3, the plan does not satisfy
paragraph (b)(3) of this section. The plan may require only that A
request enrollment during the 30-day period after C's birth. A did
so by telephoning the plan administrator. The plan may not condition
special enrollment on filing additional enrollment materials during
the 30-day period. To comply with paragraph (b)(3) of this section,
the plan must allow A a reasonable time after the end of the 30-day
period to submit any additional enrollment materials. Once these
enrollment materials are received, the plan must allow whatever
coverage is chosen to begin on March 15, the date of C's birth.
Example 4. (i) Facts. Same facts as Example 3, except that A
telephones the plan administrator to request enrollment on April 13
(29 days after C's birth). Also, under the terms of the plan, the
deadline for submitting
[[Page 78824]]
the enrollment form is 14 days after the end of the 30-day period
for requesting special enrollment (thus, in this case, April 28,
which is 44 days after C's birth). The form requests the same
information for A, B, and C (name, date of birth, and place of
birth) as well as a copy of C's birth certificate. A fills out the
enrollment form and delivers it to the plan administrator on April
28. At that time A does not have a birth certificate for C but
applies on that day for one from the appropriate government office.
A receives the birth certificate on June 1 and furnishes a copy of
the birth certificate to the plan administrator shortly thereafter.
(ii) Conclusion. In this Example 4, A, B, and C are entitled to
special enrollment under the plan even though A did not satisfy the
plan's requirement of providing a copy of C's birth certificate by
the plan's 14-day deadline. While a plan may establish such a
deadline, the plan must extend the deadline for information that an
individual making reasonable efforts does not obtain by that
deadline. A delivered the enrollment form to the plan administrator
by the deadline and made reasonable efforts to furnish the birth
certificate that the plan requires.
Example 5. (i) Facts. Same facts as Example 4. On May 3 (after A
has delivered the enrollment form to the plan administrator but
before A provides the birth certificate) A submits claims for all
medical expenses incurred for B and C from the date of C's birth.
(ii) Conclusion. In this Example 5, the plan must pay all of the
claims submitted by A. Because the plan requires that individuals
seeking special enrollment complete additional enrollment materials,
it is required to provide benefits once it receives enrollment
materials that are substantially complete. The form that A submitted
on April 28 was substantially complete. Because C's birth is the
event giving rise to the special enrollment right, on April 28 A, B,
and C become entitled to benefits under the plan retroactive to the
date of C's birth.
* * * * *
5. Add new Sec. 146.120 to read as follows:
Sec. 146.120 Interaction with the Family and Medical Leave Act.
(a) In general. The rules of this part apply with respect to an
individual on leave under the Family and Medical Leave Act of 1993 (29
U.S.C. 2601) (FMLA), and apply with respect to a dependent of such an
individual, except to the extent otherwise provided in this section.
(b) Tolling of significant break in coverage during FMLA leave. In
the case of an individual (or a dependent of the individual) who is
covered under a group health plan, if the individual takes FMLA leave
and does not continue group health coverage for any period of FMLA
leave, that period is not taken into account in determining whether a
significant break in coverage has occurred under Sec.
146.113(b)(2)(iii).
(c) Application of certification provisions--(1) Timing of issuance
of certificate--(i) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and the individual's group health coverage is
terminated during FMLA leave, an automatic certificate must be provided
in accordance with the timing rules set forth in Sec.
146.115(a)(2)(ii)(B) (which generally require plans and issuers to
provide certificates within a reasonable time after coverage ceases).
(ii) In the case of an individual (or a dependent of the
individual) who is covered under a group health plan, if the individual
takes FMLA leave and continues group health coverage for the period of
FMLA leave, but then ceases coverage under the plan at the end of FMLA
leave, an automatic certificate must be provided in accordance with the
timing rules set forth in Sec. 146.115(a)(2)(ii)(A) (which generally
require plans and issuers to provide a certificate no later than the
time a notice is required to be furnished for a qualifying event under
a COBRA continuation provision).
(2) Demonstrating FMLA leave. (i) A plan or issuer is required to
take into account all information about FMLA leave that it obtains or
that is presented on behalf of an individual. A plan or issuer must
treat the individual as having been on FMLA leave for a period if--
(A) The individual attests to the period of FMLA leave; and
(B) The individual cooperates with the plan's or issuer's efforts
to verify the individual's FMLA leave.
(ii) Nothing in this section prevents a plan or issuer from
modifying its initial determination of FMLA leave if it determines that
the individual did not have the claimed FMLA leave, provided that the
plan or issuer follows procedures for reconsideration similar to those
set forth in Sec. 146.111(f).
(d) Relationship to loss of eligibility special enrollment rules.
In the case of an individual (or a dependent of the individual) who is
covered under a group health plan and who takes FMLA leave, a loss of
eligibility for coverage under Sec. 146.117(a) occurs when the period
of FMLA leave ends if--
(1) The individual's group health coverage is terminated at any
time during FMLA leave; and
(2) The individual does not return to work for the employer at the
end of FMLA leave.
6. In Sec. 146.145, add paragraphs (a)(2) and (e) to read as
follows:
Sec. 146.145 Special rules relating to group health plans.
(a) Group health plan. * * *
(2) Determination of number of plans. The number of group health
plans that an employer or employee organization (including for this
purpose a joint board of trustees of a multiemployer trust affiliated
with one or more multiemployer plans) maintains is determined under the
rules of this paragraph (a)(2).
(i) Except as provided in paragraph (a)(2)(ii) or (iii) of this
section, medical care benefits provided by a corporation, partnership,
or other entity or trade or business, or by an employee organization,
constitute one group health plan, unless--
(A) It is clear from the instruments governing the arrangement or
arrangements to provide medical care benefits that the benefits are
being provided under separate plans; and
(B) The arrangement or arrangements are operated pursuant to such
instruments as separate plans.
(ii) A multiemployer plan and a nonmultiemployer plan are always
separate plans.
(iii) If a principal purpose of establishing separate plans is to
evade any requirement of law, then the separate plans will be
considered a single plan to the extent necessary to prevent the
evasion.
* * * * *
(e) Determining the average number of employees--(1) Scope.
Whenever the application of a rule in this part depends upon the
average number of employees employed by an employer, the determination
of that number is made in accordance with the rules of this paragraph
(e).
(2) Full-time equivalents. The average number of employees is
determined by calculating the average number of full-time equivalents
on business days during the preceding calendar year.
(3) Methodology. For the preceding calendar year, the average
number of full-time equivalents is determined by--
(i) Determining the number of employees who were employed full-time
by the employer throughout the entire calendar year;
(ii) Totaling all employment hours (not to exceed 40 hours per
week) for each part-time employee, and for each full-time employee who
was not employed full-time with the employer throughout the entire
calendar year;
(iii) Dividing the total determined under paragraph (e)(3)(ii) of
this section by a figure that represents the annual full-time hours
under the employer's general employment practices, such as
[[Page 78825]]
2,080 hours (although for this purpose not more than 40 hours per week
may be used); and
(iv) Adding the quotient determined under paragraph (e)(3)(iii) of
this section to the number determined under paragraph (e)(3)(i).
(4) Rounding. For purposes of paragraph (e)(3)(iv) of this section,
all fractions are disregarded. For instance, a figure of 50.9 is deemed
to be 50.
(5) Employers not in existence in the preceding year. In the case
of an employer that was in existence for less than the entire preceding
calendar year (including an employer that was not in existence at all),
a determination of the average number of employees that the employer
employs is based on the average number of employees that it is
reasonably expected the employer will employ on business days in the
current calendar year.
(6) Scope of the term ``employer''. For purposes of this paragraph
(e), employer includes any predecessor of the employer. In addition,
all persons treated as a single employer under section 414(b), (c),
(m), or (o) of the Internal Revenue Code are treated as one employer.
(7) Special rule for multiemployer plans. (i) With respect to the
application of a rule in this part to a multiemployer plan (as defined
in section 3(37) of ERISA), each employer with at least one employee
participating in the plan is considered to employ the same average
number of employees. That number is the highest number that results by
applying the rules of paragraphs (e)(1) through (6) of this section
separately to each of the employers.
(ii) The rules of this paragraph (e)(7) are illustrated by the
following example:
Example. (i) Facts. Twenty five employers have at least one
employee who participates in Multiemployer Plan M. Among these 25
employers, Employer K has 51 employees, determined under the rules
of paragraphs (e)(1) through (6) of this section. Each of the other
24 employers has fewer than 50 employees.
(ii) Conclusion. With respect to the application of a rule in
this part to M, each of the 25 employers is considered to employ 51
employees.
Dated: November 24, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: December 2, 2004.
Tommy G. Thompson,
Secretary, Department of Health and Human Services.
[FR Doc. 04-28113 Filed 12-29-04; 8:45 am]
BILLING CODE 4830-01-P
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