(a) General rules--(1) Creditable coverage. For purposes of this
section, except as provided in paragraph (a)(2) of this section, the
term creditable coverage means coverage of an individual under any of
the following:
(i) A group health plan as defined in Sec. 2590.732(a).
(ii) Health insurance coverage as defined in Sec. 2590.701-2
(whether or not the entity offering the coverage is subject to Part 7 of
Subtitle B of Title I of the Act, and without regard to whether the
coverage is offered in the group market, the individual market, or
otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public Health
Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26) of the
Internal Revenue Code;
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHS Act; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health coverage for individuals who
are residents of such State and who, by reason of the existence or
history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO, or
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State, the
U.S. government, a foreign country, or any political subdivision of a
State, the U.S. government, or a foreign country that provides health
coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(xi) Title XXI of the Social Security Act (State Children's Health
Insurance Program).
(2) Excluded coverage. Creditable coverage does not include coverage
of solely excepted benefits (described in Sec. 2590.732).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 2590.701-3(a)(2)(iii), the amount of an individual's creditable
coverage generally is determined by using the standard method described
in paragraph (b) of this section. A plan or issuer may use the
alternative method under paragraph (c) of this section with respect to
any or all of the categories of benefits described under paragraph
(c)(3) of this section.
(b) Standard method--(1) Specific benefits not considered. Under the
standard
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method, the amount of creditable coverage is determined without regard
to the specific benefits included in the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes of
reducing the preexisting condition exclusion period that applies to an
individual, the amount of creditable coverage is determined by counting
all the days on which the individual has one or more types of creditable
coverage. Accordingly, if on a particular day an individual has
creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Any days in a waiting period
for coverage are not creditable coverage.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(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. (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.
(v) Examples. The rules of this paragraph (b)(2) are illustrated by
the following examples:
Example 1. (i) Facts. Individual A has creditable coverage under
Employer P's plan for 18 months before coverage ceases. A is provided a
certificate of creditable coverage on A's last day of coverage. Sixty-
four days after the last date of coverage under P's plan, A is hired by
Employer Q and enrolls in Q's group health plan. Q's plan has a 12-month
preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has a break in coverage of 63
days. Because A's break in coverage is a significant break in coverage,
Q's plan may disregard A's prior coverage and A may be subject to a 12-
month preexisting condition exclusion.
Example 2. (i) Facts. Same facts as Example 1, except that A is
hired by Q and enrolls in Q's plan on the 63rd day after the last date
of coverage under P's plan.
(ii) Conclusion. In this Example 2, A has a break in coverage of 62
days. Because A's break in coverage is not a significant break in
coverage, Q's plan must count A's prior creditable coverage for purposes
of reducing the plan's preexisting condition exclusion period that
applies to A.
Example 3. (i) Facts. Same facts as Example 1, except that Q's plan
provides benefits through an insurance policy that, as required by
applicable State insurance laws, defines a significant break in coverage
as 90 days.
(ii) Conclusion. In this Example 3, under State law, the issuer that
provides group health insurance coverage to Q's plan must count A's
period of creditable coverage prior to the 63-day break. (However, if
Q's plan was a self-insured plan, the coverage would not be subject to
State law. Therefore, the health coverage would not be governed by the
longer break rules and A's previous health coverage could be
disregarded.)
Example 4. [Reserved]
Example 5. (i) Facts. Individual C has creditable coverage under
Employer S's plan for 200 days before coverage ceases. C is provided a
certificate of creditable coverage on C's last day of coverage. C then
does not have any creditable coverage for 51 days before being hired by
Employer T. T's plan has a 3-month waiting period. C works for T for 2
months and then terminates employment. Eleven days after terminating
employment with T, C begins working for Employer U. U's plan has no
waiting period, but has a 6-month preexisting condition exclusion.
(ii) Conclusion. In this Example 5, C does not have a significant
break in coverage because, after disregarding the waiting period under
T's plan, C had only a 62-day break in coverage (51 days plus 11 days).
Accordingly, C has 200 days of creditable coverage, and U's plan may not
apply its 6-month preexisting condition exclusion with respect to C.
Example 6. [Reserved]
Example 7. (i) Facts. Individual E has creditable coverage under
Employer X's plan. E is provided a certificate of creditable coverage on
E's last day of coverage. On the 63rd day without coverage, E submits a
substantially complete application for a health insurance policy in the
individual market. E's
[[Page 648]]
application is accepted and coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because E applied for the policy
before the end of the 63rd day, the period between the date of
application and the first day of coverage is a waiting period and no
significant break in coverage occurred even though the actual period
without coverage was 73 days.
Example 8. (i) Facts. Same facts as Example 7, except that E's
application for a policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even though E did not obtain
coverage following application, the period between the date of
application and the date the coverage was denied is a waiting period.
However, to avoid a significant break in coverage, no later than the day
after the application for the policy is denied E would need to do one of
the following: submit a substantially complete application for a
different individual market policy; obtain coverage in the group market;
or be in a waiting period for coverage in the group market.
(vi) Other permissible counting methods--(A) Rule. Notwithstanding
any other provisions of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 2590.701-5), a group health plan, and
a health insurance issuer offering group health insurance coverage, may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(vi) is illustrated by
the following example:
Example. (i) Facts. Individual F has coverage under Group Health
Plan Y from January 3, 1997 through March 25, 1997. F then becomes
covered by Group Health Plan Z. F's enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example, Plan Z may determine, in
accordance with the rules prescribed in paragraphs (b)(2)(i), (ii), and
(iii) of this section, that F has 82 days of creditable coverage (29
days in January, 28 days in February, and 25 days in March). Thus, the
preexisting condition exclusion will no longer apply to F on February 8,
1998 (82 days before the 12-month anniversary of F's enrollment (May
1)). For administrative convenience, however, Plan Z may consider that
the preexisting condition exclusion will no longer apply to F on the
first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan, or a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan or issuer may use the alternative
method for any or all of the categories. The plan or issuer may apply a
different preexisting condition exclusion period with respect to each
category (and may apply a different preexisting condition exclusion
period for benefits that are not within any category). The creditable
coverage determined for a category of benefits applies only for purposes
of reducing the preexisting condition exclusion period with respect to
that category. An individual's creditable coverage for benefits that are
not within any category for which the alternative method is being used
is determined under the standard method of paragraph (b) of this
section.
(2) Uniform application. A plan or issuer using the alternative
method is required to apply it uniformly to all participants and
beneficiaries under the plan or health insurance coverage. The use of
the alternative method is required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and state this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
[[Page 649]]
(5) Disclosure of information on previous benefits. See Sec.
2590.701-5(b) for special rules concerning disclosure of coverage to a
plan, or issuer, using the alternative method of counting creditable
coverage under this paragraph (c).
(6) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan or issuer counts creditable
coverage within a category if any level of benefits is provided within
the category. Coverage under a reimbursement account or arrangement,
such as a flexible spending arrangement (as defined in section 106(c)(2)
of the Internal Revenue Code), does not constitute coverage within any
category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan, or issuer, first
determines the amount of the individual's creditable coverage that may
be counted under paragraph (b) of this section, up to a total of 365
days of the most recent creditable coverage (546 days for a late
enrollee). The period over which this creditable coverage is determined
is referred to as the determination period. Then, for the category
specified under the alternative method, the plan or issuer counts within
the category all days of coverage that occurred during the determination
period (whether or not a significant break in coverage for that category
occurs), and reduces the individual's preexisting condition exclusion
period for that category by that number of days. The plan or issuer may
determine the amount of creditable coverage in any other reasonable
manner, uniformly applied, that is at least as favorable to the
individual.
(iii) Example. The rules of this paragraph (c)(6) are illustrated by
the following example:
Example. (i) Facts. Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription drug
benefits. D's employment with Employer V ends on January 1, 2002, after
D was covered under Employer V's group health plan for 365 days. D
enrolls in Employer Y's plan on February 1, 2002 (D's enrollment date).
Employer Y's plan uses the alternative method of counting creditable
coverage and imposes a 12-month preexisting condition exclusion on
prescription drug benefits.
(ii) Conclusion. In this Example, Employer Y's plan may impose a
275-day preexisting condition exclusion with respect to D for
prescription drug benefits because D had 90 days of creditable coverage
relating to prescription drug benefits within D's determination period.
[69 FR 78763, Dec. 30, 2004] 
