(a) Group health plan--(1) Defined. A group health plan means an
employee welfare benefit plan to the extent that the plan provides
medical care (including items and services paid for as medical care) to
employees (including both current and former employees) or their
dependents (as defined under the terms of the plan) directly or through
insurance, reimbursement, or otherwise.
(2) Determination of number of plans. [Reserved]
(b) General exception for certain small group health plans. The
requirements of this part, other than Sec. 2590.711, do not apply to
any group health plan (and group health insurance coverage) 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 this Part
do not apply to any group health plan (or any group health insurance
coverage) 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).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including general liability insurance and
automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
(v) Workers' compensation or similar coverage;
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(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of a group
health plan as described in paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a health flexible spending arrangement
are excepted benefits if they satisfy the requirements of paragraph
(c)(3)(v) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this paragraph (c)(3), benefits are not an integral part of a group
health plan (whether the benefits are provided through the same plan or
a separate plan) only if the following two requirements are satisfied--
(A) Participants must have the right to elect not to receive
coverage for the benefits; and
(B) If a participant elects to receive coverage for the benefits,
the participant must pay an additional premium or contribution for that
coverage.
(iii) Limited scope--(A) Dental benefits. Limited scope dental
benefits are benefits substantially all of which are for treatment of
the mouth (including any organ or structure within the mouth).
(B) Vision benefits. Limited scope vision benefits are benefits
substantially all of which are for treatment of the eye.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care services, as defined in section
7702B(c)(1) of the Internal Revenue Code, or provided under a qualified
long-term care insurance contract, as defined in section 7702B(b) of the
Internal Revenue Code; or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(v) Health flexible spending arrangements. Benefits provided under a
health flexible spending arrangement (as defined in section 106(c)(2) of
the Internal Revenue Code) are excepted for a class of participants only
if they satisfy the following two requirements--
(A) Other group health plan coverage, not limited to excepted
benefits, is made available for the year to the class of participants by
reason of their employment; and
(B) The arrangement is structured so that the maximum benefit
payable to any participant in the class for a year cannot exceed two
times the participant's salary reduction election under the arrangement
for the year (or, if greater, cannot exceed $500 plus the amount of the
participant's salary reduction election). For this purpose, any amount
that an employee can elect to receive as taxable income but elects to
apply to the health flexible spending arrangement is considered a salary
reduction election (regardless of whether the amount is characterized as
salary or as a credit under the arrangement).
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
indemnity insurance is excepted only if it meets each of the conditions
specified in paragraph (c)(4)(ii) of this section. To be hospital
indemnity or other fixed indemnity insurance, the insurance must pay a
fixed dollar amount per day (or per other period) of hospitalization or
illness (for example, $100/day) regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described in paragraph (c)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard to
whether benefits are provided with respect to the event under any group
health plan maintained by the same plan sponsor.
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(iii) Example. The rules of this paragraph (c)(4) are illustrated by
the following example:
Example. (i) Facts. An employer sponsors a group health plan that
provides coverage through an insurance policy. The policy provides
benefits only for hospital stays at a fixed percentage of hospital
expenses up to a maximum of $100 a day.
(ii) Conclusion. In this Example, even though the benefits under the
policy satisfy the conditions in paragraph (c)(4)(ii) of this section,
because the policy pays a percentage of expenses incurred rather than a
fixed dollar amount, the benefits under the policy are not excepted
benefits under this paragraph (c)(4). This is the result even if, in
practice, the policy pays the maximum of $100 for every day of
hospitalization.
(5) Supplemental benefits. (i) The following benefits are excepted
only if they are provided under a separate policy, certificate, or
contract of insurance--
(A) Medicare supplemental health insurance (as defined under section
1882(g)(1) of the Social Security Act; also known as Medigap or MedSupp
insurance);
(B) Coverage supplemental to the coverage provided under Chapter 55,
Title 10 of the United States Code (also known as TRICARE supplemental
programs); and
(C) Similar supplemental coverage provided to coverage under a group
health plan. To be similar supplemental coverage, the coverage must be
specifically designed to fill gaps in primary coverage, such as
coinsurance or deductibles. Similar supplemental coverage does not
include coverage that becomes secondary or supplemental only under a
coordination-of-benefits provision.
(ii) The rules of this paragraph (c)(5) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors a group health plan that
provides coverage for both active employees and retirees. The coverage
for retirees supplements benefits provided by Medicare, but does not
meet the requirements for a supplemental policy under section 1882(g)(1)
of the Social Security Act.
(ii) Conclusion. In this Example, the coverage provided to retirees
does not meet the definition of supplemental excepted benefits under
this paragraph (c)(5) because the coverage is not Medicare supplemental
insurance as defined under section 1882(g)(1) of the Social Security
Act, is not a TRICARE supplemental program, and is not supplemental to
coverage provided under a group health plan.
(d) Treatment of partnerships. For purposes of this part:
(1) Treatment as a group health plan. Any plan, fund, or program
that would not be (but for this paragraph (d)) an employee welfare
benefit plan and that is established or maintained by a partnership, to
the extent that the plan, fund, or program provides medical care
(including items and services paid for as medical care) to present or
former partners in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), directly or through
insurance, reimbursement, or otherwise, is treated (subject to paragraph
(d)(2)) as an employee welfare benefit plan that is a group health plan.
(2) Employment relationship. In the case of a group health plan, the
term employer also includes the partnership in relation to any bona fide
partner. In addition, the term employee also includes any bona fide
partner. Whether or not an individual is a bona fide partner is
determined based on all the relevant facts and circumstances, including
whether the individual performs services on behalf of the partnership.
(3) Participants of group health plans. In the case of a group
health plan, the term participant also includes any individual described
in paragraph (d)(3)(i) or (ii) of this section if the individual is, or
may become, eligible to receive a benefit under the plan or the
individual's beneficiaries may be eligible to receive any such benefit.
(i) In connection with a group health plan maintained by a
partnership, the individual is a partner in relation to the partnership.
(ii) In connection with a group health plan maintained by a self-
employed individual (under which one or more employees are
participants), the individual is the self-employed individual.
(e) Determining the average number of employees. [Reserved]
[69 FR 78778, Dec. 30, 2004]