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This document addresses certain issues arising under the group market
portability provisions added by the Health Insurance Portability and
Accountability Act of 1996, Public Law 104-191 (HIPAA), with respect to
employees (or their dependents) who, until the effective date of the HIPAA
nondiscrimination provisions, were denied coverage under a group health
plan, including health insurance coverage offered in connection with a group
health plan, because of a health status-related factor. Under those
provisions and the implementing regulations, neither a group health plan nor
group health insurance coverage can continue to exclude such individuals
from enrolling in the plan or coverage. This document clarifies certain
rights of these individuals.
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HIPAA contains provisions designed to improve portability and continuity
with respect to group health plan coverage provided in connection with
employment. These provisions include limitations on preexisting condition
exclusions, rules prohibiting discrimination on the basis of any health
status-related factor, and rules requiring special enrollment. These
provisions are generally effective for group health plans and group health
insurance coverage for plan years beginning on or after July 1, 1997. The
Departments of the Treasury, Labor, and Health and Human Services (the
Departments) issued interim final regulations implementing these group
market provisions at 26 CFR 54.9801-1T through 54.9801-6T, 54.9802-1T,
54.9831-1T (formerly 54.9804-1T), 54.9833-1T (formerly 54.9806-1T); 29 CFR
part 2590; and 45 CFR parts 144 and 146 (made available to the public on
April 1, 1997 and published in the Federal Register on April 8, 1997, 62 FR
16893).
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The HIPAA portability provisions in section 9801 of the Internal Revenue
Code of 1986 (Code), section 701 of the Employee Retirement Income Security
Act of 1974 (ERISA), and section 2701 of the Public Health Service Act (PHS
Act), and the implementing regulations impose limits on the maximum
preexisting condition exclusion period that may be imposed by a group health
plan or group health insurance issuer. In general, neither a group health
plan nor a group health insurance issuer may impose more than a 12-month
preexisting condition exclusion for individuals enrolling in the plan or
coverage, although the plan or issuer can impose an 18-month preexisting
condition exclusion for late enrollees. In either case, the exclusion period
must be reduced by the amount of an individual's prior "creditable
coverage." Most, but not all, types of health coverage are creditable
coverage.
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The nondiscrimination provisions in section 9802 of the Code, section 702 of
ERISA, and section 2702 of the PHS Act and the implementing regulations
provide that neither a group health plan nor a health insurance issuer
offering group health insurance coverage may establish rules for eligibility
(including continued eligibility) of any individual to enroll under the
terms of the plan based on any health status-related factor. Health
status-related factors include health status, medical condition, claims
experience, receipt of health care, medical history, genetic information,
evidence of insurability (including conditions arising out of acts of
domestic violence), and disability.
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Under these nondiscrimination provisions, an employee
(and any dependent of the employee) cannot be denied coverage under a group
health plan or group health insurance coverage based on a health
status-related factor on or after the effective date of HIPAA. The interim
final regulations clarify that an employee or dependent cannot be required
to pass a physical examination as a condition of enrollment, even if the
individual is a late enrollee.(1)
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Although the interim final regulations make clear that group health plans
and group health insurance issuers cannot continue to exclude employees (and
their dependents) from coverage based on a health status-related factor,
questions have arisen concerning the application of the HIPAA group market
portability rules to individuals who previously were denied coverage based
on a health status-related factor. This document clarifies the circumstances
under which these individuals cannot be treated as late enrollees for
purposes of applying a preexisting condition exclusion period.
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Any individual to whom coverage has not been made
available before the effective date of HIPAA because of a health
status-related factor, and who enrolls when first eligible on or after the
effective date of the HIPAA nondiscrimination provisions (which are
generally effective on the first day of the first plan year beginning on or
after July 1, 1997), may not be treated as a late enrollee for purposes of
section 9801(a) of the Code, section 701(a) of ERISA, or section 2701(a) of
the PHS Act or the implementing regulations.(2) This includes any
individual who failed to apply for coverage before the effective date of the
HIPAA nondiscrimination provisions because it was reasonable to believe that
an application for coverage would have been futile due to a plan provision
that discriminated on the basis of a health status-related factor. These
rules apply whether or not the plan offers late enrollment.(3)
These rules do not change the special enrollment rules that prohibit
treating a special enrollee as a late enrollee.
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Employee A is an active employee of Employer X. A
was hired on May 3, 1992. X maintains a group health plan with a
plan year beginning on January 1. Under the terms of the plan, employees
and their dependents are allowed to enroll when the employee is first
hired and on each January 1, but only if they can pass a physical
examination. A's application to enroll in May of 1992 was denied because A
had diabetes and could not pass a physical examination. A has not
applied since then because A has reasonably believed that the application
would be denied because A has diabetes.
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In this Example, effective January 1, 1998, X's plan
cannot deny coverage to A based on a health status-related factor. If A
enrolls effective January 1, 1998, A may not be treated as a late enrollee
for the purpose of determining the maximum period of any preexisting
condition exclusion that may be imposed by the plan with respect to A (or
for the purpose of determining A's enrollment date).
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HIPAA provides that no enforcement action can be taken
against a plan or issuer with respect to a violation of the group market
rules before January 1, 1998 if the plan or issuer has sought to comply in
good faith with such rules. The preamble to the interim final regulations
extended this good faith period with respect to the nondiscrimination
provisions until further regulations are issued by the Departments.
Compliance with the terms of this document is considered good faith for
this purpose.
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Note, however, that under section
1532 of the Taxpayer Relief Act of 1997, Pub. L.105-34 (enacted after
interim final regulations were published), certain church plans may
require evidence of good health of certain individuals without
violating the nondiscrimination requirements of HIPAA. This document
does not apply to those church plans under those circumstances.
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For related rules to determine the
individual's enrollment date, see the interim final regulations at 26
CFR 54.9806-1T(a)(3), 29 CFR 2590.736(a)(3), and 45 CFR 146.125(a)(3).
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For a definition of late enrollment,
see the interim final regulations at 26 CFR 54.9801- 3(a)(2)(iv), 29
CFR 2590.701-3(a)(2)(iv), 45 CFR 146.111(a)(2)(iv).
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