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December 7, 2007
Memorandum For: |
Virginia C. Smith, Director of Enforcement Regional Directors |
From: |
Daniel J. Maguire Director of Health Plan
Standards and Compliance Assistance |
Subject: |
Supplemental health insurance coverage as excepted benefits
under HIPAA and related legislation
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What are the circumstances under which supplemental health insurance
coverage satisfies the requirements for excepted benefits under sections
732(c)(3) and 733(c)(4) of ERISA?
HIPAA Health Reform and Related Legislation
Titles I and IV of the Health Insurance Portability and Accountability
Act of 1996, Pub. L. 104-191, 110 Stat. 1936 (HIPAA) amended the Employee
Retirement Income Security Act (ERISA), the Internal Revenue Code (Code),
and the Public Health Service Act (PHS Act) to improve portability,
access, and continuity with respect to group health plan coverage provided
in connection with employment. These laws include limitations on
preexisting condition exclusions, require issuance of certificates of
creditable coverage, provide special enrollment rights, and prohibit
discrimination on the basis of any health factor. Later amendments to
these laws provide protections relating to mental health parity, hospital
lengths of stay following childbirth, and post-mastectomy coverage.
Regulations issued by the Departments of Labor, the Treasury, and Health
and Human Services (the Departments) on these group market provisions are
contained in 29 CFR Part 2590, 26 CFR Part 54, and 45 CFR Parts 144 and
146. Additional reforms were provided in the PHS Act for health coverage
in the individual market and are contained in 45 CFR Parts 144 and 148.
In general, these health reform provisions apply to group health plans
(generally plans established or maintained by employers or employee
organizations, or both) and health insurance issuers in the group or
individual market. However, these provisions do not apply to certain
excepted benefits. In general, if all benefits under a plan or coverage
are excepted benefits, then the plan and any health insurance coverage
under the plan does not have to comply with the health reform
requirements, and the coverage may not qualify as creditable coverage.
Supplemental Health Insurance Coverage
One category of excepted benefits is supplemental excepted benefits.
Benefits are supplemental excepted benefits only if they are provided
under a separate policy, certificate, or contract of insurance and are
either Medicare supplemental health insurance, TRICARE supplemental
programs, or similar supplemental coverage provided to coverage under a
group health plan. The phrase “similar supplemental coverage provided to
coverage under a group health plan” is not defined in the statute or
regulations. However, the regulations clarify that one requirement to be
similar supplemental coverage is that the coverage must be specifically
designed to fill gaps in primary coverage, such as coinsurance or
deductibles (but similar supplemental coverage does not include coverage
that becomes secondary or supplemental only under a
coordination-of-benefits provision). 29 CFR 2590.732 (c)(5)(i)(C), 26 CFR
54.9831-1(c)(5)(i)(C), and 45 CFR 146.145(c)(5)(i)(C).
Coordination of Administration
Various situations have come to the attention of the Departments that
raise concerns about whether all of the coverage that is being marketed as
similar supplemental coverage actually qualifies as such.
Section 104 of HIPAA requires the Secretaries of Labor, the Treasury,
and Health and Human Services to ensure that guidance under HIPAA issued
by the Departments that relates to the same matter be administered so as
to have the same effect at all times. In accordance with section 104 of
HIPAA, each of the Departments is issuing guidance concerning the
requirements for “similar supplemental coverage” that qualifies as
benefits excepted from the requirements of HIPAA. The guidance being
issued has been developed on a coordinated basis by the Departments. HHS
is also issuing guidance on similar supplemental coverage for the
individual market.
In order to prevent issuers from avoiding compliance with ERISA’s
health reform provisions by issuing multiple insurance contracts in
connection with a plan, this bulletin establishes an enforcement safe
harbor under which supplemental health insurance will be considered
excepted benefits for purposes of Part 7 of ERISA. Similar supplemental
coverage that does not meet the standards for this safe harbor may be
subject to enforcement actions by the Department.
To fall within the safe harbor, a policy, certificate, or contract of
insurance must be issued by an entity that does not provide the primary
coverage under the plan and must be specifically designed to fill gaps in
primary coverage.
In addition, the Department believes that the value of the supplemental
coverage must be significantly less than the value of the primary coverage
that it supplements. To fall within the enforcement safe harbor, the cost
of supplemental coverage may not exceed 15 percent of the cost of the plan’s
primary coverage. The Department will determine cost in the same manner as
the “applicable premium” is calculated under a COBRA continuation
provision.(1) Some plans subject to HIPAA titles I or IV are not subject to
the COBRA continuation coverage requirements, such as plans maintained by
an employer with 20 or fewer employees. For these plans, the Department
will compute cost as if they were subject to COBRA. (For insured coverage –
all supplemental coverage and primary coverage to the extent insured –
the COBRA cost is, for purposes of this bulletin, the cost of the
insurance coverage.)
Issuers of Medicare supplemental health insurance (commonly referred to
as “Medigap”) generally are subject to prohibitions against
discrimination based on enrollees’ or potential enrollees’ health
status. Accordingly, to fall within the enforcement safe harbor, the
coverage may not differentiate among individuals in eligibility, benefits,
or premiums based upon any health factor of the individual.
For purposes of enforcing ERISA’s health reform provisions, the
Department will treat coverage as “similar supplemental coverage
provided to coverage under a group health plan” under 29 CFR
2590.732(c)(5)(i)(C), within the enforcement safe harbor, if it is a
separate policy, certificate, or contract of insurance and if it satisfies
all of the following requirements:
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Independent of Primary Coverage. The supplemental policy,
certificate, or contract of insurance must be issued by an entity that
does not provide the primary coverage under the plan. For this purpose,
entities that are part of the same controlled group of corporations or
part of the same group of trades or businesses under common control,
within the meaning of section 52(a) or (b) of the Code, are considered a
single entity.
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Supplemental for Gaps in Primary Coverage. The supplemental policy,
certificate, or contract of insurance must be specifically designed to
fill gaps in primary coverage, such as coinsurance or deductibles, but
does not include a policy, certificate, or contract of insurance that
becomes secondary or supplemental only under a coordination-of-benefits
provision.
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Supplemental in Value of Coverage. The cost of coverage under the
supplemental policy, certificate, or contract of insurance must not exceed
15 percent of the cost of primary coverage. Cost is determined in the same
manner as the applicable premium is calculated under a COBRA continuation
provision.
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Similar to Medicare Supplemental Coverage. The supplemental policy,
certificate, or contract of insurance that is group health insurance
coverage must not differentiate among individuals in eligibility,
benefits, or premiums based on any health factor of an individual (or any
dependent of the individual).
Questions concerning the information contained in this Bulletin may be
directed to the Office of Health Plan Standards and Compliance Assistance
at 202.693.8335.
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Under the COBRA rules, plans are
generally permitted to charge up to 102 percent of the applicable
premium. Thus, COBRA cost for purposes of this bulletin is 100 percent
of the applicable premium, not 102 percent of the applicable premium
that the plan is generally permitted to charge under the COBRA rules.
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