Internal Revenue Bulletin 1997-19 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

INCOME TAX
Rev. Rul. 97–20, page 4.
Medical savings accounts—high-deductible plan.
Guidance is given concerning the definition of the term
‘‘high-deductible plan’’ under section 220(c)(2)(A)(ii) of
the Code.
EXCISE TAX
T.D. 8716, page 5.
REG–253578–96, page 93.
Temporary and proposed regulations relate to group
health plan portability, access, and renewability require-
ments added to section 9801 of the Code by the Health
Insurance Portability and Accountability Act of 1996.
ADMINISTRATIVE
Announcement 97–47, page 94.
New Publication 968, Tax Benefits for Adoption, is now
available.
Finding Lists begin on page 97.
Announcement of Disbarments and Suspensions begins on page 95.
Bulletin No. 1997–19
May 12, 1997
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be relied
upon as authoritative interpretations.

Mission of the Service
The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least
cost; serve the public by continually improving the
quality of our products and services; and perform in a
manner warranting the highest degree of public
confidence in our integrity, efficiency and fairness.
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy
for raising revenue is determined by Congress.
With this in mind, it is the duty of the Service to
carry out that policy by correctly applying the laws
enacted by Congress; to determine the reasonable
meaning of various Code provisions in light of the
Congressional purpose in enacting them; and to
perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the
Service, charged with the duty of interpreting the
law, to try to find the true meaning of the statutory
provision and not to adopt a strained construction in
the belief that he or she is ‘‘protecting the revenue.’’
The revenue is properly protected only when we as-
certain and apply the true meaning of the statute.
The Service also has the responsibility of applying
and administering the law in a reasonable,
practical manner. Issues should only be raised by
examining officers when they have merit, never
arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate
to raise a meritorious issue. It is also important
that care be exercised not to raise an issue or to
ask a court to adopt a position inconsistent with
an established Service position.
Administration should be both reasonable and
vigorous. It should be conducted with as little
delay as possible and with great courtesy and
considerateness. It should never try to overreach,
and should be reasonable within the bounds of law
and sound administration. It should, however, be
vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax
devices and fraud.
2

Introduction
The Internal Revenue Bulletin is the authoritative instru-
ment of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Inter-
nal Revenue Service and for publishing Treasury Deci-
sions, Executive Orders, Tax Conventions, legislation,
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superin-
tendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semi-
annually into Cumulative Bulletins, which are sold on a
single-copy basis.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published rulings
apply retroactively unless otherwise indicated. Proce-
dures relating solely to matters of internal management
are not published; however, statements of internal
practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Ser-
vice on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on positions
taken in rulings to taxpayers or technical advice to
Service field offices, identifying details and information
of a confidential nature are deleted to prevent unwar-
ranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be consid-
ered, and Service personnel and others concerned are
cautioned against reaching the same conclusions in
other cases unless the facts and circumstances are
substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on
provisions of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, and Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Administra-
tive Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary (Enforce-
ment).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual period,
respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.
3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 220.—Medical Savings
Accounts
Definition of high-deductible health
plan.Guidance is given concerning the
definition of a ‘‘high-deductible health
plan’’ under section 220(c)(2)(A) of the
Code.
Rev. Rul. 97–20
ISSUE
In the case of family coverage, what
constitutes a ‘‘high-deductible health
plan’’ for purposes of section
220(c)(2)(A) of the Code?
FACTS
Situation 1
Plan A is a health plan that provides
for the payment of medical expenses.
Taxpayer X and her family are covered
by Plan A. Plan A provides for payment
of covered medical expenses for all
members of the family after the family’s
total covered medical expenses exceed
$3,000 for the year. Plan A does not
provide for payment of covered medical
expenses until the family’s total covered
medical expenses exceed $3,000 for the
year, regardless of which family mem-
ber or members incur those covered
expenses. Plan A limits out-of-pocket
expenses to $5,000 for any year.
Situation 2
Plan B is a health plan that provides
for the payment of medical expenses.
Taxpayer Y and his family are covered
by Plan B. Plan B provides for payment
of covered medical expenses for all
members of the family after the family
has satisfied a family deductible of
$3,000 for the year. Plan B also pro-
vides for payment of covered medical
expenses of any member of the family
after that family member has satisfied
an individual deductible by incurring
covered medical expenses for the year
of at least $1,500. Plan B limits out-of-
pocket expenses to $5,000 for any year.
Neither of the special rules regarding
the definition of a high-deductible health
plan applies to Plan A or B (see section
220(c)(2)(B)).
LAW
The Health Insurance Portability and
Accountability Act of 1996, Pub. L.
104–191, added section 220 to the Code
to permit eligible individuals to establish
medical savings accounts (MSAs) under
a pilot project beginning on January 1,
1997.
The section 220(c)(1) definition of an
‘‘eligible individual’’ includes, as one
prerequisite for eligibility, the require-
ment that an individual be covered un-
der a high-deductible health plan. Sec-
tion 220(c)(2)(A) provides that ‘‘[t]he
term ‘high-deductible health plan’ means
a health plan —
(i) in the case of self-only coverage,
which has an annual deductible which is
not less than $1,500 and not more than
$2,250,
(ii) in the case of family coverage,
which has an annual deductible which is
not less than $3,000 and not more than
$4,500, and
(iii) the annual out-of-pocket expenses
required to be paid under the plan (other
than for premiums) for covered benefits
does not exceed —
(I) $3,000 for self-only coverage, and
(II) $5,500 for family coverage.’’
Section 220(c)(5) defines family cov-
erage as coverage that is not self-only
coverage.
ANALYSIS AND HOLDING
Situation 1
Plan A provides coverage for Tax-
payer X and other members of her
family and is, therefore, family coverage
within the meaning of section 220(c)(5).
Because Plan A provides family cover-
age, Plan A is a high-deductible health
plan only if, as required by section
220(c)(2)(A)(ii), it has an annual deduct-
ible that is not less than $3,000 and not
more than $4,500. Plan A provides for
the payment of covered medical ex-
penses for Taxpayer X or her family
members only after the family has in-
curred covered medical expenses during
the year of $3,000. Accordingly,
the deductible under Plan A is $3,000.
Because Plan A has a deductible that is
not less than $3,000 and is not more
than $4,500, Plan A meets the require-
ment with respect to the minimum and
maximum deductible for a high-
deductible health plan under section
220(c)(2)(A)(ii). Because the annual out-
of-pocket expenses required to be paid
under Plan A can never exceed $5,000,
which is less than $5,500, Plan A is a
high-deductible health plan for purposes
of section 220.
Situation 2
Plan B provides coverage for Tax-
payer Y and other members of his
family and is, therefore, family coverage
within the meaning of section 220(c)(5).
Plan B provides for the payment of
covered medical expenses of any mem-
ber of Taxpayer Y’s family if the mem-
ber has incurred covered medical ex-
penses during the year in excess of
$1,500, even if the family has not
incurred covered medical expenses in
excess of $3,000. For example, if Tax-
payer Y incurred covered medical ex-
penses of $2,000 in a year, Plan B
would pay $500. Accordingly, depend-
ing on which family members incur the
covered medical expenses, benefits are
potentially available under Plan B even
if the family’s covered medical expenses
do not exceed $3,000. Because Plan B
provides family coverage with an annual
deductible of less than $3,000, Plan B is
not a high-deductible health plan as
defined in section 220(c)(2).
CONCLUSION
In the case of family coverage, except
as provided in section 220(c)(2)(B), a
plan is a ‘‘high-deductible health plan’’
under section 220(c)(2)(A) only if, un-
der the terms of the plan and without
regard to which family member or
members incur expenses:
(1) No amounts are payable until the
family has incurred annual covered
medical expenses in excess of $3,000,
(2) Amounts for covered benefits are
always payable after the family has
incurred annual covered medical ex-
penses in excess of $4,500, and
(3) The annual out-of-pocket expenses
required to be paid under the plan for
covered benefits do not exceed $5,500.
APPLICATION OF SECTION 7805(b)
Section 7805(b) of the Code provides
that the Secretary may prescribe the
extent, if any, to which any ruling
relating to the internal revenue laws
shall be applied without retroactive ef-
fect.
Pursuant to section 7805(b), a health
plan acquired before November 1, 1997
that provides family coverage that be-
comes effective before November 1,
1997 will not fail to be treated as a
high-deductible health plan merely be-
cause the health plan provides for indi-
vidual deductibles of at least $1,500 and
4

not in excess of $2,250 (the permitted
range of deductibles for a high-
deductible health plan providing self-
only coverage). The relief provided in
the preceding sentence will apply until
the first renewal date on or after De-
cember 31, 1997 (in the case of a health
plan that provides for renewal) or for
the term of the health plan (in the case
of a health plan that has a specified
term and that does not provide for
renewal). For purposes of this para-
graph, a health plan that continues in
force for an indeterminate period as
long as premiums are paid and does not
otherwise provide for renewal, will be
treated as a health plan that provides for
renewal and each premium due date
(determined without regard to any grace
period) will be treated as a renewal date.
In no event will the relief provided in
this paragraph terminate before Decem-
ber 31, 1997 or extend beyond Decem-
ber 31, 1998.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Felix Zech of the Office of the
Associate Chief Counsel (Employee
Benefits and Exempt Organizations). For
further information regarding this rev-
enue ruling contact Mr. Zech at (202)
622–4606 (not a toll-free number).
Section 9801.—Increased
Portability Through Limitations on
Preexisting Condition Exclusions
26 CFR 54.9801–5T: Certification and disclosure
of previous coverage (temporary).
T.D. 8716
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF LABOR
Pension and Welfare Benefits
Administration
29 CFR Part 2590
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Health Care Financing
Administration
45 CFR subtitle A, Parts 144 and
146
Interim Rules for Health Insurance
Portability for Group Health Plans
AGENCIES: Internal Revenue Service,
Department of the Treasury; Pension
and Welfare Benefits Administration,
Department of Labor; Health Care Fi-
nancing Administration, Department of
Health and Human Services.
ACTION: Interim rules with request for
comments.
SUMMARY: This document contains
interim rules governing access, portabil-
ity and renewability requirements for
group health plans and issuers of health
insurance coverage offered in connec-
tion with a group health plan. The rules
contained in this document implement
changes made to certain provisions of
the Internal Revenue Code of 1986
(Code), the Employee Retirement In-
come Security Act of 1974 (ERISA),
and the Public Health Service Act (PHS
Act) enacted as part of the Health
Insurance Portability and Accountability
Act of 1996 (HIPAA). Interested per-
sons are invited to submit comments on
the interim rules for consideration by
the Department of Health and Human
Services, the Department of Labor, and
the Department of the Treasury (Depart-
ments) in developing final rules. The
rules contained in this document are
being adopted on an interim basis to
accommodate statutorily established
time frames intended to ensure that
sponsors and administrators of group
health plans, participants and beneficia-
ries, States, and issuers of group health
insurance coverage have timely guid-
ance concerning compliance with the
recently enacted requirements of
HIPAA.
DATES:Effective date.These interim
rules are effective on June 1, 1997.
Comment date.Written comments on
these interim rules are invited and must
be received by the Departments on or
before July 7, 1997.
Applicability dates. For group health
plans maintained pursuant to one or
more collective bargaining agreements
ratified before August 21, 1996, the
rules (other than the certification re-
quirements) do not apply to plan years
beginning before the later of July 1,
1997 or the date on which the last
collective bargaining agreement relating
to the plan terminates without regard to
any extension agreed to after August 21,
1996.
The rules implementing the certifica-
tion provisions do not require any action
to be taken before June 1, 1997, al-
though certain certification requirements
apply to periods of coverage and events
that occur after June 30, 1996. The
certification requirement for events that
occurred on or after October 1, 1996
and before June 1, 1997 may be satis-
fied using an optional notice described
in this preamble.
Information collection. Affected parties
do not have to comply with the informa-
tion collection requirements in these
interim rules until the Departments pub-
lish in the Federal Register the control
numbers assigned by the Office of Man-
agement and Budget (OMB) to these
information collection requirements.
Publication of the control numbers noti-
fies the public that OMB has approved
these information collection require-
ments under the Paperwork Reduction
Act of 1995. The Departments have
asked for OMB clearance as soon as
possible, and OMB approval is antici-
pated by the applicable effective date.
ADDRESSES: Written comments should
be submitted with a signed original and
three copies to any of the addresses
specified below. All comments will be
available for public inspection and copy-
ing in their entirety. Interested persons
are invited to submit written comments
on these interim rules to:
Health Care Financing Administra-
tion, Department of Health and Human
Services, Attention: [BPD–890–IFC],
P.O. Box 26688, Baltimore, MD 21207
Pension and Welfare Benefits Admin-
istration, U.S. Department of Labor,
Room N–5669, 200 Constitution Av-
enue, NW, Washington, DC 20210, At-
tention: Interim Portability and Renew-
ability Rules
CC:DOM:CORP:T:R (REG–253578–
96), Room 5228, Internal Revenue Ser-
vice, POB 7604, Ben Franklin Station,
DC 20044
Alternatively, comments may be sub-
mitted electronically via the Internet by
selecting the ‘‘Tax Regs’’ option on the
IRS Home Page, or by submitting com-
ments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/
comments.html
In the alternative:
Written comments for the Department
of Health and Human Services may be
hand delivered from 8:30 a.m. to 5:00
p.m. to:
Room 309–G, Hubert Humphrey
Building, 200 Independence Avenue,
SW, Washington, DC 20201, or Room
C5–09–26, 7500 Security Boulevard,
Baltimore, MD 21244–1850
Written comments for the Department
of Labor may be hand delivered from
8:15 a.m. to 4:45 p.m. to the above
5

address for the Pension and Welfare
Benefits Administration, U.S. Depart-
ment of Labor.
Written comments for the Internal
Revenue Service may be hand delivered
between the hours of 8 a.m. and 5 p.m.
to:
CC:DOM:CORP:T:R (REG–253578–
96), Courier’s Desk, Internal Revenue
Service, room 5228, 1111 Constitution
Avenue, NW, Washington, DC
All submissions to the Department of
Health and Human Services will be
open to public inspection as they are
received, generally beginning three
weeks after publication, in room 309–G
of the Department of Health and Human
Services offices at 200 Independence
Avenue, SW, Washington, DC, from
8:30 a.m. to 5:00 p.m. All submissions
to the Department of Labor will be open
to public inspection at the Public Docu-
ments Room, Pension and Welfare Ben-
efits Administration, U.S. Department of
Labor, Room N–5638, 200 Constitution
Avenue NW, Washington, DC, from
8:30 a.m. to 5:30 p.m. All submissions
to the Internal Revenue Service will be
open to public inspection and copying in
room 1621, 1111 Constitution Avenue,
NW, Washington, DC, from 9:00 a.m. to
4:00 p.m.
FOR FURTHER INFORMATION CON-
TACT: Julie Walton, Health Care Fi-
nancing Administration, at 410–786–
1565; Mark Connor, Office of Regula-
tions and Interpretations, Pension and
Welfare Benefits Administration, Depart-
ment of Labor, at 202–219–4377; Diane
Pedulla, Plan Benefits Security Division,
Office of the Solicitor, Department of
Labor, at 202–219–4377; or Russ
Weinheimer, Internal Revenue Service,
at 202–622–4695. These are not toll-free
numbers.
CUSTOMER SERVICE INFORMA-
TION: Individuals interested in obtain-
ing a copy of the Department of Labor’s
booklet entitled ‘‘Questions and An-
swers: Recent Changes in Health Care
Law’’ may obtain a copy by calling the
following toll-free number 1–800–998–
7542.
SUPPLEMENTARY INFORMATION:
A. Background
The Health Insurance Portability and
Accountability Act of 1996 (HIPAA),
Pub. L. 104–191, was enacted on Au-
gust 21, 1996. HIPAA amended the
Public Health Service Act (PHS Act),
the Employee Retirement Income Secu-
rity Act of 1974 (ERISA), and the
Internal Revenue Code of 1986 (Code)
to provide for, among other things,
improved portability and continuity of
health insurance coverage in the group
and individual insurance markets, and
group health plan coverage provided in
connection with employment. Sections
102(c)(4), 101(g)(4), and 401(c)(4) of
HIPAA require the Secretaries of Health
and Human Services, Labor, and the
Treasury, each to issue regulations nec-
essary to carry out these provisions.
1
B. Overview of HIPAA and the Interim
Rules
Areas of Guidance. The access, port-
ability, and renewability provisions of
HIPAA affect group health plans and
health insurance issuers. Group health
plans are generally plans sponsored by
employers or employee organizations or
both. These HIPAA provisions are de-
signed to improve the availability and
portability of health coverage by:
• limiting exclusions for preexisting
medical conditions;
• providing credit for prior health
coverage and a process for transmitting
certificates and other information con-
cerning prior coverage to a new group
health plan or issuer;
• providing new rights that allow in-
dividuals to enroll for health coverage
when they lose other health coverage or
have a new dependent;
• prohibiting discrimination in enroll-
ment and premiums against employees
and their dependents based on health
status;
• guaranteeing availability of health
insurance coverage for small employers
and renewability of health insurance
coverage in both the small and large
group markets; and
• preserving, through narrow preemp-
tion provisions, the States’ traditional
role in regulating health insurance, in-
cluding State flexibility to provide
greater protections.
The regulations provide guidance with
respect to these provisions. In imple-
menting these new rules, the regulations
provide protections for individuals seek-
ing health coverage while minimizing
burdens on employers and insurers.
Reducing Burdens. The regulations
reduce burdens by:
• providing for a simple model cer-
tificate that can be used by plans and
issuers;
• reducing unnecessary duplication in
the issuance of certificates;
• including flexible rules for depen-
dents to receive the coverage informa-
tion they need;
• allowing coverage information to be
provided by telephone if all parties
agree;
• relieving plans and issuers of the
need to report the starting date of cover-
age and waiting period information
where a certificate shows 18 months of
creditable coverage;
• including a transition rule permit-
ting plans and issuers to give individuals
a notice in lieu of a certificate where
coverage ended before June 1, 1997;
and
• providing for a model notice that
may be used to satisfy the transition rule
and a model notice for information
relating to categories of benefits pro-
vided under a plan.
Implementing Individual Protections.
The regulations protect and assist par-
ticipants and their dependents by:
• ensuring that individuals are noti-
fied of the length of time that a preex-
isting condition exclusion clause in any
new health plan may apply to them after
taking into account their prior creditable
coverage;
• ensuring that individuals are noti-
fied of their rights to special enrollment
under a plan;
• permitting individuals to obtain a
certificate before coverage under a plan
ceases; and
• creating practical ways for individu-
als to demonstrate creditable coverage to
a new plan (where the individual’s prior
plan fails to provide the certificate).
C. Overview of Coordination of Group
Market Regulation Among Departments
The HIPAA portability provisions re-
lating to group health plans and health
insurance coverage offered in connec-
tion with group health plans (referred to
below as the ‘‘group market’’ provi-
sions) are set forth under a new Part A
of Title XXVII of the PHS Act, a new
Part 7 of Subtitle B of Title I of ERISA,
and a new Subtitle K of the Internal
Revenue Code. HIPAA also added pro-
visions governing insurance in the indi-
1
In addition to the group market regulations in this
document, the Department of the Treasury is
issuing a proposed Treasury regulation that cross-
references these regulations and the Department of
Labor is issuing an interim regulation relating to
certain disclosure requirements under HIPAA.
Each of these regulations appears separately in this
issue of the Federal Register.
6

vidual market that are contained only in
the PHS Act, and thus are not within the
regulatory jurisdiction of the Department
of Labor or the Department of the
Treasury. (These portability provisions
are referred to below as the ‘‘individual
market’’ provisions.)
In general, the group market provi-
sions create concurrent jurisdiction for
the Secretaries of Health and Human
Services, Labor, and the Treasury. These
provisions include similar rules relating
to preexisting conditions exclusions,
special enrollment rights, and prohibi-
tion of discrimination against individuals
based on health status-related factors.
(These group market provisions are re-
ferred to below as the ‘‘shared group
market’’ provisions.) Accordingly, the
three Departments share regulatory re-
sponsibility for most, but not all, of the
group market provisions.
The shared group market provisions
are substantially similar, except as fol-
lows:
• The shared group market provisions
in the PHS Act apply generally to
insurance issuers that offer health insur-
ance in connection with group health
plans (subject to an exception that may
apply for plans with fewer than two
participants who are current employees
(‘‘very small plans’’)), and certain State
and local government plans. Only the
PHS Act contains group market provi-
sions relating to availability and renew-
ability of health insurance.
2
In addition,
the PHS Act imposes certification re-
quirements on certain federal entities not
otherwise subject to the HIPAA portabil-
ity provisions. Further, the States, in the
first instance, will enforce the PHS Act
with respect to issuers. In addition,
individuals may be able to pursue
claims through State mechanisms. Only
if a State does not substantially enforce
any provisions under its insurance laws,
will the Department of Health and Hu-
man Services enforce the provisions,
through the imposition of civil money
penalties. (The group market provisions
relating to guaranteed renewability for
multiemployer plans and multiple em-
ployer welfare arrangements (MEWAs)
are in ERISA and the Internal Revenue
Code, but not the PHS Act.)
• The ERISA shared group market
provisions apply generally to all group
health plans other than governmental
plans, church plans, very small plans,
and certain other plans. The shared
group market provisions of ERISA also
apply to health insurance issuers that
offer health insurance in connection
with such group health plans. Generally,
the Secretary of Labor enforces the
provisions of HIPAA that amend
ERISA, except that no enforcement ac-
tion may be taken by the Secretary
against issuers relating to the new
shared group market provisions in Part 7
of ERISA. However, individuals may
generally pursue actions against issuers
under ERISA and, in some circum-
stances, under State laws.
• The shared group market provisions
in the Internal Revenue Code generally
apply to all group health plans other
than governmental plans and very small
plans, but not to health insurance issu-
ers. A taxpayer that fails to comply with
these provisions may be subject to an
excise tax under section 4980D of the
Code. (The group market provisions
relating to preemption and affiliation
periods for HMOs are in the PHS Act
and ERISA, but not in the Internal
Revenue Code.)
The regulations being issued today by
the Secretaries of Health and Human
Services, Labor, and the Treasury have
been developed on a coordinated basis
by the Departments. Except to the extent
needed to reflect the statutory differ-
ences described above, the shared group
market provisions in these regulations of
each Department are substantively iden-
tical. However, there are certain
nonsubstantive differences. The PHS Act
regulations are numbered and organized
differently. Also, there are differences in
the regulations that are necessary be-
cause of statutory provisions that are not
common to all three Departments (in the
definitions sections, for example). Fur-
ther, the regulations reflect certain sty-
listic differences in language and struc-
ture to conform to conventions used by
a particular Department. These differ-
ences have been minimized and any
differences in wording are not intended
to create any substantive difference, so
that these regulations will have the same
effect with respect to overlapping statu-
tory provisions, as required by section
104 of HIPAA.
D. Special Information Concerning
State Insurance Law
For purposes of the PHS Act and
sections 144 through 148 in the PHS
Act regulations, all health insurance
coverage in a State generally is sold in
one of two markets: the group market
(see section 146) and the individual
market (see section 148). The group
market is further divided into the large
group market and the small group mar-
ket. Section 146 of the PHS Act regula-
tions applies the group market provi-
sions only to insurance sold to group
health plans (which are generally plans
sponsored by employers or employee
organizations or both), regardless of
whether State law provides otherwise.
State law may expand the definition of
the small group market to include cer-
tain coverage that, under the federal law,
would otherwise be considered coverage
in the large group market or the indi-
vidual market.
The protections provided in the PHS
Act to particular individuals and em-
ployers are different depending on
whether the coverage involved is ob-
tained in the small group market, the
large group market, or the individual
market. Small employers are guaranteed
availability of insurance coverage sold
in the small group market under the
PHS Act. Small and large employers are
guaranteed the right to renew their
group coverage under the PHS Act,
subject to certain exceptions. Eligible
individuals are guaranteed availability of
coverage sold in the individual market
under the PHS Act, and all coverage in
the individual market must be guaran-
teed renewable under the PHS Act.
Coverage that is provided to associa-
tions, but is not related to employment
(so that the coverage is not in connec-
tion with a group health plan), is not
coverage in the group market under
HIPAA. This coverage is instead cover-
age in the individual market under the
PHS Act, regardless of whether it is
considered group coverage under State
law.
E. Discussion of the Shared Group
Market Provisions in the Regulations
The most significant items relating to
the shared group market in these regula-
tions are discussed in detail below.
Definitions- 26 CFR § 54.9801–2, 29
CFR § 2590.701–2, 45 CFR § 144.103
This section provides most of the
definitions used in the regulations
implementing the provisions of HIPAA
that were added to the PHS Act, ERISA,
and the Code, relating to the group
2
The PHS Act does not include requirements on
availability of insurance for employers in the large
group market. Under section 2711(b)(3) of the
PHS Act, however, the General Accounting Office
(GAO) is to report to Congress on such availabil-
ity in 1998.
7

market.
3
The definitions in this section
of the regulations include both statutory
definitions provided in HIPAA, as well
as certain others used in the regulations.
Limitation on Preexisting Condition
Exclusion Period- 26 CFR
§ 54.9801–3, 29 CFR § 2590.701–3, 45
CFR § 146.111
Definition of Preexisting Condition
Exclusion. A preexisting condition ex-
clusion is defined broadly to be any
limitation or exclusion of benefits based
on the fact the condition was present
before the first day of coverage, whether
or not any medical advice, diagnosis,
care, or treatment was recommended or
received before that day. HIPAA im-
poses certain limitations (described be-
low) on the use of such an exclusion in
the group market (and also uses this
definition for purposes of the individual
market rules, under which no preexisting
condition exclusion is permitted to be
imposed on an eligible individual).
HIPAA’s broad definition of a preexist-
ing condition exclusion is at variance
with some State laws and regulations
because the relevant National Associa-
tion of Insurance Commissioners
(NAIC) models, on which many State
laws are based, have imposed limitations
on coverage for preexisting conditions
without use of such a definition.
New Limitations on Preexisting Con-
dition Exclusions. Paragraph (a) of this
section
4
of the regulations describes the
limitations on the preexisting condition
exclusion period. A group health plan,
and a health insurance issuer offering
group health insurance coverage, is per-
mitted to impose a preexisting condition
exclusion with respect to a participant or
beneficiary only if the following condi-
tions are met:
1.6-month look-back rule. The pre-
existing condition exclusion must relate
to a condition (whether physical or
mental, and regardless of the cause of
the condition) for which medical advice,
diagnosis, care, or treatment was recom-
mended or received within the 6-month
period ending on the enrollment date.
For these purposes, genetic information
is not a condition.
5
In order to be taken
into account, the medical advice, diag-
nosis, care, or treatment must have been
recommended or received from an indi-
vidual licensed or similarly authorized
to provide such services under State law
and operating within the scope of prac-
tice authorized by the State law. Under
the new HIPAA standard, a plan would
generally determine that an individual
has a preexisting condition through
medical records (such as diagnosis
codes on bills, a physician’s notes of a
visit or telephone call, pharmacy pre-
scription records, HMO encounter data,
or other records indicating that medical
services were actually recommended or
received during the 6-month look-back
period). The ‘‘prudent person’’ standard
of some State laws (under which a
condition is taken into account if a
prudent person would have sought care
whether or not care is actually received)
no longer may be used to determine a
preexisting condition.
This 6-month ‘‘look-back’’ period is
based on the 6-month ‘‘anniversary
date’’ of the enrollment date. As a result,
an individual whose enrollment date is
August 1, 1998 has a 6-month look-back
period from February 1, 1998 through
July 31, 1998.
2.Length of preexisting condition ex-
clusion period. The exclusion period
cannot extend for more than 12 months
(18 months for late enrollees) after the
enrollment date. The 12- or 18-month
‘‘look-forward’’ period is also based on
the anniversary date of the enrollment
date. A late enrollee is defined as an
individual who enrolls in a plan at a
time other than at the first time the
individual is eligible to enroll or during
a special enrollment period (described
below). If an individual loses eligibility
for coverage as a result of terminating
employment or a general suspension of
coverage under the plan, then upon
becoming eligible again due to resump-
tion of employment or due to resump-
tion of plan coverage, only the most
recent period of eligibility is considered
for purposes of determining whether the
individual is a late enrollee.
3.Reduction of preexisting condition
exclusion period by prior coverage. In
general, the preexisting condition exclu-
sion period is reduced by the individu-
al’s days of creditable coverage
6
as of
the enrollment date. Creditable coverage
is defined as coverage of an individual
from a wide range of specified sources,
including group health plans, health in-
surance coverage, Medicare, and Medic-
aid.
Definition of Enrollment Date. The
limitations on preexisting condition ex-
clusions are measured from an individu-
al’s ‘‘enrollment date.’’ The enrollment
date is defined as the first day of
coverage or, if there is a waiting period,
the first day of the waiting period
(typically the date employment begins).
The term ‘‘first day of coverage’’ is
used in the regulations in place of the
term ‘‘date of enrollment’’ in the statute,
such as in the definitions of the terms
‘‘preexisting condition exclusion’’ and
‘‘enrollment date.’’ This is intended to
clarify the difference between the statu-
tory terms ‘‘date of enrollment’’ and
‘‘enrollment date’’ (which have no dif-
ference in common usage).
The term ‘‘waiting period’’ generally
refers to the period in which there is a
delay between the first day of employ-
ment and the first day of coverage under
the plan. Accordingly, because the pre-
existing condition exclusion period runs
from the enrollment date, any waiting
period would run concurrently with any
preexisting condition exclusion period.
Further:
• The enrollment date for a late en-
rollee or anyone who enrolls on a
special enrollment date (see the section
on special enrollment periods below) is
the first date of coverage. Thus, the time
between the date a late enrollee or
special enrollee first becomes eligible
for enrollment under the plan and the
first day of coverage is not treated as a
waiting period.
• Because the 6-month look-back
limitation runs from the beginning of
any applicable waiting period, the cur-
rent practice of some plans that require
physical examinations prior to com-
mencement of coverage for the purpose
of identifying preexisting conditions
may be affected. If the examination is
conducted during the waiting period
(after employment begins and before
enrollment), rather than before employ-
3
The regulations for the PHS Act also contain
certain definitions relating to those provisions
added under the PHS Act regarding the individual
market, in order to create a single, comprehensive
reference for the definitions necessary under the
PHS Act regulations.
4
References to paragraphs of a section refer to
paragraphs of each regulation section identified in
the heading. For example, this reference is to
paragraph (a) in each of 45 CFR § 146.111, 29
CFR § 2590.701–3, and 26 CFR § 54.9801–3.
5
The definition of genetic information in the
regulations was developed taking into account
hearing testimony related to genetic information
given in connection with Senate Report 104–156,
other legislative initiatives, and public comments
(including those submitted in response to the
request for information published by the Depart-
ments on December 30, 1996).
6
The phrase ‘‘days of creditable coverage’’ is used
instead of the statutory phrase ‘‘aggregate periods
of creditable coverage’’ for administrative ease in
the calculation of creditable coverage. Use of days
of creditable coverage also conforms to the prac-
tice of many States for crediting prior coverage
under pre-HIPAA small group market reforms.
8

ment begins, a plan may not exclude
coverage for any condition identified in
the examination (unless, independent of
the examination, medical advice, diag-
nosis, care, or treatment was in fact
recommended or received for the condi-
tion during the 6-month look-back pe-
riod). The use of such examinations for
other purposes, such as worker safety, is
not affected.
7
Elimination of Preexisting Condition
Exclusion for Pregnancy and for Certain
Children. A preexisting condition exclu-
sion cannot apply to pregnancy. In addi-
tion, a preexisting condition exclusion
period cannot be applied to a newborn,
an adopted child under age 18, or a
child placed for adoption under age 18,
if the child becomes covered within 30
days of birth, adoption, or placement for
adoption. This exception does not apply
after the child has a significant break in
coverage (63 or more consecutive days).
(An example in paragraph (b)(1) of the
regulations illustrates these rules.)
Rules Relating to Creditable Coverage-
26 CFR § 54.9801–4, 29 CFR
§ 2590.701–4, 45 CFR § 146.113
As noted above, a plan or issuer that
imposes a preexisting condition exclu-
sion must reduce the length of the
exclusion by an individual’s creditable
coverage. This section defines the term
‘‘creditable coverage’’ and sets forth the
rules for how creditable coverage is
applied to reduce such an exclusion
period.
Creditable coverage includes health
insurance coverage and other health
coverage, such as coverage under group
health plans (whether or not provided
through an issuer), Medicaid, Medicare,
and public health plans, as well as other
types of coverage set forth in HIPAA
and the regulations. Comments are re-
quested on whether the definition of a
public health plan should include the
public health systems of other countries.
Under the definition of creditable
coverage, all forms of health insurance
coverage are included, whether in the
individual market or group market, and
whether the coverage is short-term,
limited-duration coverage or other cov-
erage for benefits for medical care for
which no certificate of creditable cover-
age is required. Creditable coverage
does not include coverage consisting
solely of excepted benefits as defined in
the regulations and described below.
8
Under paragraph (a)(3) of this section
of the regulation, a group health plan or
health insurance issuer offering group
health insurance coverage may deter-
mine the amount of creditable coverage
of an individual for purposes of reduc-
ing the period of a preexisting condition
exclusion by using either the standard
method described in paragraph (b) or
the alternative method described in para-
graph (c).
Standard Method.
1.Counting. Under the standard
method, the plan or issuer determines
the amount of an individual’s creditable
coverage by determining all days during
which the individual had one or more
types of creditable coverage. This deter-
mination is made without regard to the
specific benefits included in the cover-
age. If creditable coverage is derived
from more than one source on a particu-
lar day, all of the creditable coverage
that the individual had on that day is
counted as one day of creditable cover-
age.
2.Significant break in coverage.
Days of creditable coverage that occur
before a significant break in coverage
are not required to be counted by the
plan or issuer in reducing a preexisting
condition exclusion. A significant break
in coverage means a period of 63 con-
secutive days during all of which the
individual did not have any creditable
coverage.
a. Waiting and affiliation periods.
Waiting periods and affiliation periods,
as defined in the regulation, are not
taken into account in determining a
significant break in coverage. This is the
case regardless of whether the person
ultimately fails to obtain coverage under
the plan (such as, where termination of
employment occurs before coverage be-
gins). However, days in a waiting period
or affiliation period are not counted as
creditable coverage.
The regulations specify that the pe-
riod between the date an individual files
a substantially complete application for
coverage in the individual market and
the effective date of such coverage is a
waiting period, so that the period is not
taken into account in determining a
significant break in coverage. In this
way, an application processing delay or
omission of details on a form would not
cause an applicant to incur a significant
break in coverage, which could ad-
versely affect an individual who seeks
coverage under a group health plan after
purchasing coverage in the individual
market.
However, the waiting period for pur-
chase of an individual policy tolls a
break in coverage only if the filing of
the application for the individual market
insurance actually results in purchase of
the coverage by the individual. (See
Examples 7 and 8 in paragraph
(b)(2)(iv).) By contrast, days in a wait-
ing period for coverage under a group
health plan toll a significant break in
coverage regardless of whether coverage
under the plan is ultimately obtained.
(See Example 6.) The rule regarding the
individual market prevents an individual
from avoiding a significant break in
coverage by repeatedly submitting appli-
cations to individual market issuers
without ever purchasing coverage. This
rule responds to comments sent to the
Departments in response to the Decem-
ber 30, 1996 request for public com-
ments. The comments asked for clear
rules on when a significant break is
tolled in the case of an application for
individual market insurance.
Issuers of health insurance coverage
in the individual market are subject to
the same certification requirements that
apply to plans and issuers in the group
market. Therefore, issuers in the indi-
vidual market must provide individuals
with certificates that reflect information
regarding the beginning of the waiting
period (the date of application), the
effective date of coverage, and the date
coverage ends. This will assist people
with coverage in the individual market
who later become covered by a group
health plan in demonstrating their credit-
able coverage to the plan or issuer in
the group market.
b. Effect of State insurance law.
HIPAA provides that the significant
break in coverage rule does not preempt
State insurance laws that provide longer
periods than 63 days for a break in
coverage. (The preemption provisions
are described more fully below.) Ac-
cordingly, while federal law may allow
a plan to disregard prior coverage before
7
However, to avoid violating the Americans with
Disabilities Act, Pub. L. 101–336, as amended by
Pub. L. 102–166, the examination should generally
be conducted only after the employer has offered
employment to the individual.
8
Howver, if an individual has coverage of ex-
cepted benefits in addition to other forms of
creditable coverage, coverage of excepted benefits
is creditable coverage. This would make a differ-
ence only if a plan or issuer uses the alternative
method of determining creditable coverage (de-
scribed below) with respect to a category that
includes excepted benefits. For example, coverage
of excepted benefits such as limited vision or
limited dental benefits, when offered in combina-
tion with other creditable coverage, may be used
to offset a preexisting condition exclusion period
for a category that includes those benefits under
the alternative method in paragraph(c).
9

a 63-day significant break in coverage,
an issuer may be required to take such
coverage into account in order to com-
ply with State insurance law. As a
result, application of the break rules can
vary between issuers located in different
States. Similarly, the break rules may
vary between insured plans and self-
insured plans (which are not subject to
State insurance laws) within a State, as
well as between the insured and self-
insured portions of a single plan. As
illustrated by Example 3 in paragraph
(b)(2)(iv), the laws of the State appli-
cable to the insurance policy that has
the preexisting condition exclusion are
determinative of which break rule ap-
plies.
Alternative Method. Under the alter-
native method of counting creditable
coverage, the plan or issuer determines
the amount of an individual’s creditable
coverage for any of five identified cat-
egories of benefits. Those categories are
coverage for mental health, substance
abuse treatment, prescription drugs, den-
tal care, and vision care. The plan or
issuer may use the alternative method
for any or all of the categories and may
apply a different preexisting condition
exclusion period with respect to each
category (as well as to coverage not
within a category). The creditable cover-
age determined for a category of ben-
efits applies only for purposes of reduc-
ing the preexisting condition exclusion
period with respect to that category. The
standard method is used to determine an
individual’s creditable coverage for ben-
efits that are not within any category for
which the alternative method is being
used. Disclosure statements concerning
the plan must indicate that the alterna-
tive method is being used, and this
disclosure must also be given to each
enrollee at the time of enrollment. These
statements must include a description of
the effect of using the alternative
method. Any issuer in the group market
must provide similar statements to each
employer at the time of offer or sale of
the coverage.
For purposes of reducing the preexist-
ing condition exclusion period under the
alternative method, the plan or issuer
determines under the standard method
the amount of the individual’s creditable
coverage that can be counted, up to a
total of 365 days of the most recent
creditable coverage of the individual
(546 days for a late enrollee). The
period of this creditable coverage is
referred to as the ‘‘determination pe-
riod.’’ The plan or issuer counts all days
of coverage within the applicable cat-
egory that occurred during the determi-
nation period (without regard to any
significant breaks in that category of
coverage). Those days reduce the preex-
isting condition exclusion for coverage
within that category.
The regulations do not provide de-
tailed definitions of the benefit catego-
ries. Comments are invited on whether
additional guidance is needed.
The regulations under the alternative
method of counting creditable coverage
do not include a category relating to
significant differences in deductible
amounts. Commentators expressed con-
cerns about adverse selection if indi-
viduals can change from a high deduct-
ible plan when they become ill and
obtain ‘‘first dollar’’ coverage from an
HMO or other issuer that provides
broad, comprehensive care with only
low deductibles or copayments.
9
How-
ever, it is unclear how such a category
would be defined or applied. Accord-
ingly, the Departments solicit comments
on this issue.
Certificates and Disclosure of Previous
Coverage- 26 CFR § 54.9801–5, 29
CFR § 2590.701–5, 45 CFR § 146.115
This section of the regulations sets
forth guidance regarding the certification
requirements and other requirements
concerning disclosure of information re-
lating to prior creditable coverage. The
provision of a certificate and other dis-
closures of information are intended to
enable an individual to establish his or
her prior creditable coverage for pur-
poses of reducing any preexisting condi-
tion exclusion imposed on the individual
by any subsequent group health plan
coverage.
Form of Certificate. In general, the
certificate must be provided in writing,
including any form approved by the
Secretaries as a writing. In certain cir-
cumstances, where the individual re-
quests that the certificate be sent to
another plan or issuer instead of to the
individual, and the other plan or issuer
agrees, the certification information may
be provided by other means, such as by
telephone. In some States, issuers trans-
fer coverage information by telephone.
Comments are requested as to whether,
and under what conditions, other meth-
ods of transmitting certification informa-
tion (including electronic communica-
tion) should be permitted in future
guidance.
Information in Certificate. Paragraph
(a)(3) of this section of the regulations
sets forth the information that must be
included in a certificate. The regulations
allow a plan or issuer in an appropriate
case simply to state in the certificate
that the individual has at least 18
months of creditable coverage that was
not interrupted by a significant break in
coverage and to indicate the date cover-
age ended. (A certificate would never
have to reflect coverage in excess of 18
months without a 63-day break because
this is the maximum creditable coverage
that an individual could need under the
preexisting condition exclusion rules and
the rules for access to the individual
market.) In any other case, the certifi-
cate must disclose (1) the date any
waiting or affiliation period began,
10
(2)
the date coverage began, and (3) the
date coverage ended (or indicate if cov-
erage is continuing).
11
For individuals
with fewer than 18 months of coverage
without a significant break in coverage,
the information about specific dates is
essential in order for a subsequent plan
or issuer in the group or individual
market to be able to apply the break
rules, especially in light of the possibil-
ity that an individual may have other
coverage from various sources and the
potential differences among State break
rules (described above).
Certification Events and Timing. Par-
agraph (a)(5) describes the rights of
participants and dependents to receive
certificates. In general, individuals have
the right to receive a certificate auto-
matically (an ‘‘automatic certificate’’)
when they lose coverage under a plan
and when they have a right to elect
COBRA continuation coverage. The cer-
tificate must be furnished within the
time periods described below:
•First, for an individual who is a
qualified beneficiary entitled to elect
COBRA continuation coverage, the cer-
tificate is required to be provided no
later than when a notice is required to
be provided for a qualifying event under
COBRA.
•Second, for an individual who loses
coverage under a group health plan and
9
See also the discussion below under the heading
‘‘HMO Affiliation as Alternative to Preexisting
Condition Exclusion.’’
10
Because the ending date for a waiting or affilia-
tion period will always be the date coverage
begins, the ending date does not have to be
separately stated in a certificate.
11
These dates would include any period of CO-
BRA continuation coverage. A COBRA continua-
tion coverage period does not have to be sepa-
rately identified.
10

who is not a qualified beneficiary en-
titled to elect COBRA continuation cov-
erage, the certificate is required to be
provided within a reasonable time after
the coverage ceases. (Typically, this
would apply to small employers’ plans
that are not subject to COBRA.) This
requirement is satisfied if the certificate
is provided by the time a notice is
required to be provided under a State
program similar to COBRA.
•Third, for an individual who is a
qualified beneficiary and has elected
COBRA continuation coverage, the cer-
tificate is required to be provided within
a reasonable time after either cessation
of COBRA continuation coverage or, if
applicable, after the expiration of any
grace period for the payment of COBRA
premiums.
In each of these three events, the regula-
tions require the certificate to reflect
only the most recent period of continu-
ous coverage under the plan.
Under COBRA, multiemployer plans
may provide notices within such longer
period of time as is provided for such
notices under the terms of the plan.
Under the general certification timing
rule described above, multiemployer
plans may use the same extended time
period for providing certificates. Com-
ments are requested on how this may
affect a multiemployer plan and its
participants and their families.
A certificate may be mailed by first
class mail to the participant’s last known
address. A certificate for a participant’s
spouse with an address different from
the participant’s is to be sent to the
spouse’s address. A certificate may pro-
vide information with respect to both a
participant and the participant’s depen-
dents if the information is identical for
each individual, or if the information is
not identical, a certificate may provide
information sufficient to satisfy the re-
quirements of the regulations with re-
spect to each individual on one docu-
ment.
A certificate is also required to be
provided upon the request of, or on
behalf of, an individual (whether the
individual is a participant, the partici-
pant’s spouse, or any other dependent) if
the request is made within 24 months
after the individual loses coverage under
the plan. The certificate is required to be
provided at the earliest time that the
plan or issuer, acting in a reasonable
and prompt fashion, can provide the
certificate. In this case, the certificate
reflects each period of continuous cover-
age ending within the 24 months prior
to the Fdate of request.
12
Responsibilities of Plans and Is-
suers. Paragraph (a)(1) clarifies the
statutory obligation of plans and issuers
to provide certificates. The statutory
obligation to furnish a written certificate
of information regarding creditable cov-
erage is imposed on both the group
health plan and the health insurance
issuer offering group health insurance
coverage. This dual obligation was the
subject of many of the comments re-
ceived by the three Departments in
response to the December 30, 1996
request for public comments published
in the Federal Register. Concerns were
raised about superfluous, duplicate cer-
tificates being issued and the potential
responsibility of issuers for reporting on
an individual’s coverage under the plan
after one issuer has been replaced by
another.
Paragraph (a)(1) addresses these con-
cerns by providing that the obligation to
furnish a certificate is imposed on both
the plan and each health insurance is-
suer that provides group health insur-
ance coverage under the plan, subject to
four exceptions.
First, paragraph (a)(1)(ii) provides
that an entity required to provide a
certificate is deemed to have satisfied
this requirement to the extent that any
other party provides the certificate and
the certificate discloses the creditable
coverage (including the waiting period
information) that was to be provided by
the entity.
Second, paragraph (a)(1)(iii) provides
that a plan is deemed to have satisfied
its obligation if there is an agreement
between an issuer and a plan under
which the issuer agrees to provide cer-
tificates for individuals covered under
the plan.
Third, paragraph (a)(1)(iv)(A) pro-
vides that an issuer is not required to
provide any coverage information re-
garding coverage periods for which it
was not responsible.
Fourth, paragraph (a)(1)(iv)(B) pro-
vides that if an individual switches from
one issuer to another option allowed
under the plan, or an issuer is replaced
by another before an individual’s cover-
age in the plan ceases, the first issuer is
required to provide sufficient informa-
tion to the plan (or to another party
designated by the plan), so that when
the individual leaves the plan, a certifi-
cate can be provided that includes the
period of coverage under the policy of
the first issuer. In this situation, no
certificate is required to be provided to
the individual, but the issuer must also
cooperate with the plan by providing
any information that may be requested
later pursuant to the alternative method.
(This rule will reduce unnecessary and
potentially misleading information from
being received while the individual’s
coverage under the plan is uninter-
rupted.) An issuer may presume that it is
the final issuer for an individual if the
individual’s coverage under the policy
ends at a time other than in connection
with the plan’s open season.
Other Entities Issuing Certificates.
Paragraph (a)(6) identifies the various
statutory authorities that create responsi-
bility for other entities (that are not
subject to a particular Department’s
regulations) to provide certificates. As
described above, there are forms of
creditable coverage other than coverage
provided by group health plans and
health insurance coverage offered in
connection with a group health plan.
Accordingly, individuals who leave cov-
erage provided by any such other entity
are entitled to have that coverage
counted by a group health plan and may
in many cases receive certificates for
their creditable coverage. This informa-
tion is included in the regulations be-
cause plans that impose a preexisting
condition exclusion may find it helpful
to know when creditable coverage will
be provable through presentation of a
certificate and when other forms of
documentation or attestation may be
needed.
In cases where certifications are pro-
vided by entities not subject to ERISA’s
requirements, such as Medicaid, the In-
dian Health Service, and CHAMPUS,
certain adjustments in the certification
rules may be appropriate. The regula-
tions do not address how the certifica-
tion process applies to these other pro-
grams. Comments are requested on how
the certification requirements may be
adapted to entities responsible for pro-
viding this coverage.
Dependent Coverage Information.
Dependents are entitled to a written
certificate of creditable coverage. Con-
cerns were raised in comments received
from the public regarding the certifica-
tion of dependent coverage where infor-
mation regarding dependents of partici-
pants in plans was not available. Plans
12
For example, for a participant who has had a
number of interruptions in coverage, a requested
certificate could consist of copies of all of the
automatic certificates that were previously pro-
vided to the individual for each of these periods.
11

and issuers, the commenters stated, of-
ten do not know the existence of depen-
dents or their coverage periods until
claims are filed. To address these con-
cerns, the regulations have adopted two
special rules.
First, under a transition rule that lasts
through June 30, 1998, a plan or issuer
may satisfy its obligation to provide a
written certificate regarding the coverage
of a dependent of a participant by pro-
viding the name of the participant cov-
ered by the plan and specifying the type
of coverage provided in the certificate
(such as family coverage or employee-
plus-spouse coverage). However, if
asked to provide a certificate relating to
a dependent, the plan must make reason-
able efforts to obtain and provide the
name of the dependent. This rule will
provide plans and issuers with a transi-
tion period to update their data systems
to include information on dependents.
Second, the regulations include a spe-
cial rule regarding dependent coverage
that is not limited to the transition
period. Under this rule, a plan or issuer
must make a reasonable effort to collect
the necessary information for dependents
and include it on the certificate. How-
ever, under this special rule, an auto-
matic certificate is not required to be
issued until the plan or issuer knows (or,
making reasonable efforts, should know)
of the dependent’s cessation of coverage.
This information can be collected annu-
ally (during open enrollment).
Under the transition rule and the
special rule, an individual may use the
provisions described below to establish
creditable coverage (and waiting and
affiliation period information).
Information for Alternative Method of
Counting Creditable Coverage. Follow-
ing receipt of the certificate, an entity
that uses the alternative method of
counting creditable coverage may re-
quest that the entity that issued the
certificate disclose additional informa-
tion in order for the requesting entity to
determine the individual’s creditable
coverage with respect to any category of
benefits described in paragraph (b). The
requested entity may charge the request-
ing entity the reasonable cost of disclos-
ing the information. The requesting en-
tity may ask for a copy of the summary
plan description (SPD) that applied to
the individual’s coverage or may ask for
more specific information. Set forth be-
low is a model form that may be used
for specific coverage information about
the categories of benefits:
INFORMATION ON CATEGORIES OF BENEFITS
1. Date of original certificate:
2. Name of group health plan providing the coverage:
3. Name of participant:
4. Identification number of participant:
5. Name of individual(s) to whom this information applies:
6. The following information applies to the coverage in the certificate that was provided to the individual(s) identified above:
a. MENTAL HEALTH:
b. SUBSTANCE ABUSE TREATMENT:
c. PRESCRIPTION DRUGS:
d. DENTAL CARE:
e. VISION CARE:
For each category above, enter ‘‘N/A’’ if the individual had no coverage within the category and either (i) enter both the date that the individual’s
coverage within the category began and the date that the individual’s coverage within the category ended (or indicate if continuing), or (ii) enter ‘‘same’’ on
the line if the beginning and ending dates for coverage within the category are the same as the beginning and ending dates for the coverage in the
certificate.
Demonstration of Coverage if Certifi-
cate is Not Provided. Under HIPAA, in
order to prevent an individual from
being adversely affected if the indi-
vidual does not receive a certificate, the
individual has a right to demonstrate
creditable coverage through the presen-
tation of documentation or other means.
For example, an individual may not
have a certificate because: an entity
failed to provide a certificate within the
required time period; an entity was not
required to provide a certificate; the
coverage of the individual was for a
period before July 1, 1996; or, the
individual has an urgent medical condi-
tion that necessitates an immediate de-
termination of creditable coverage by
the plan or issuer. Under these circum-
stances, an individual may present evi-
dence of creditable coverage through
documents, records, third party state-
ments, or other means, including tele-
phone calls by the plan or issuer to a
third party provider. The plan adminis-
trator is required to take into account all
information presented in determining
whether to offset any or all of a preex-
isting condition exclusion. A plan or
issuer is required to treat the individual
as having furnished a certificate pro-
vided by a plan or issuer if the indi-
vidual attests to the period of creditable
12

coverage, the individual presents rel-
evant corroborating evidence of some
creditable coverage during the period,
and the individual cooperates with the
plan’s or issuer’s efforts to verify the
individual’s coverage.
If an individual needs to demonstrate
his or her status as a dependent of a
participant, the plan or issuer is required
to treat the individual as having fur-
nished a certificate if an attestation to
such dependency and the period of such
status is provided, and if the individual
cooperates with the plan’s or issuer’s
efforts to verify the dependent status.
Similar rules apply relating to deter-
mining creditable coverage under the
alternative method.
Notice to Individual of Period of
Preexisting Condition Exclusion.Within
a reasonable time following the receipt
of the certificate, information relating to
the alternative method, or other evi-
dence of coverage, a plan or issuer is
required to make a determination re-
garding the length of any preexisting
condition exclusion period that applies
to the individual and notify the indi-
vidual of its determination. Whether a
determination and notification is made
within a reasonable period of time de-
pends upon the relevant facts and cir-
cumstances including whether the appli-
cation of the preexisting condition
exclusion period would prevent access
to urgent medical services. The plan or
issuer is required to notify the indi-
vidual, however, only if, after consider-
ing the evidence, it has determined that
a preexisting condition exclusion period
will still be imposed on the individual.
The basis of the determination, includ-
ing the source and substance of any
information on which the plan or issuer
relied, must be included in the notifica-
tion. The notification must also explain
the plan’s appeals procedures and the
opportunity of the individual to present
additional evidence.
The plan or issuer may reconsider and
modify its initial determination if it
determines that the individual did not
have the claimed creditable coverage. In
this circumstance, the plan or issuer
must notify the individual of such re-
consideration and, until a final determi-
nation is made, must act in accordance
with its initial determination for pur-
poses of approving medical services.
Model Certificate. The following
model certificate has been authorized by
the Secretary of each of the Depart-
ments. Use of the model certificate will
satisfy the requirements of paragraph
(a)(3)(ii) of the regulations.
CERTIFICATE OF GROUP HEALTH PLAN COVERAGE
* IMPORTANT - This certificate provides evidence of your prior health coverage. You may need to furnish this certificate if you become eligible under a
group health plan that excludes coverage for certain medical conditions that you have before you enroll. This certificate may need to be provided if medical
advice, diagnosis, care, or treatment was recommended or received for the condition within the 6-month period prior to your enrollment in the new plan. If
you become covered under another group health plan, check with the plan administrator to see if you need to provide this certificate. You may also need
this certificate to buy, for yourself or your family, an insurance policy that does not exclude coverage for medical conditions that are present before you
enroll.
1. Date of this certificate:
2. Name of group health plan:
3. Name of participant:
4. Identification number of participant:
5. Name of any dependents to whom this certificate applies:
6. Name, address, and telephone number of plan administrator or issuer responsible for providing this certificate:
7. For further information, call:
8. If the individual(s) identified in line 3 and line 5 has at least 18 months of creditable coverage (disregarding periods of coverage before a 63-day break),
check hereand skip lines 9 and 10.
9. Date waiting period or affiliation period (if any) began:
10. Date coverage began:
11. Date coverage ended:(or check if coverage is continuing as of the date of this certificate:).
Note: Separate certificates will be furnished if information is not identical for the participant and each beneficiary.
Special Enrollment Periods-26 CFR
§ 54.9801–6, 29 CFR § 2590.701–6, 45
CFR § 146.117
This section of the regulations pro-
vides guidance regarding the new enroll-
ment rights provided to employees and
dependents under HIPAA. A group
health plan and a health insurance issuer
offering group health insurance coverage
are required to provide for special en-
rollment periods during which individu-
als who previously declined coverage
are allowed to enroll (without having to
wait until the plan’s next regular open
enrollment period). A special enrollment
period can occur if a person with other
health coverage loses that coverage or if
13

a person becomes a dependent through
marriage, birth, adoption, or placement
for adoption.
A plan must provide a description of
the special enrollment rights to anyone
who declines coverage. The regulations
provide a model of such a description.
A person who enrolls during a special
enrollment period (even if the period
also corresponds to a regular open en-
rollment period) is not treated as a late
enrollee. (Accordingly, the plan or issuer
may not impose a preexisting condition
exclusion period longer than 12 months
with respect to the person.)
Special Enrollment for Loss of Other
Coverage.The special enrollment period
for loss of other coverage is available to
employees and their dependents who
meet certain requirements. The employee
or dependent must otherwise be eligible
for coverage under the terms of the plan.
When the coverage was previously de-
clined, the employee or dependent must
have been covered under another group
health plan or must have had other
health insurance coverage. The plan can
require that, when coverage in the plan
was previously declined, the employee
must have declared in writing that the
reason was other coverage, in which
case the plan must at that time have
provided notice of this requirement and
the consequences of the employee’s fail-
ure to provide the statement.
The special enrollment rights may
apply with respect to an employee, a
dependent of the employee, or both. An
employee who has not previously en-
rolled can enroll under these rules if it
is the employee who loses other cover-
age. An employee’s dependent can be
enrolled under these rules if it is the
dependent who loses other coverage and
the employee is already enrolled. In
addition, both the employee and a de-
pendent can be enrolled together under
these rules if either the employee or the
dependent loses other coverage.
If the other coverage is COBRA con-
tinuation coverage, the special enroll-
ment can only be requested after ex-
hausting COBRA continuation coverage.
If the other coverage is not COBRA
continuation coverage, special enroll-
ment can only be requested after losing
eligibility for the other coverage or after
cessation of employer contributions for
the other coverage. In each case, the
employee has 30 days to request special
enrollment. An individual does not have
to elect COBRA continuation coverage
or exercise similar continuation rights in
order to preserve the right to special
enrollment. However, an individual does
not have a special enrollment right if the
individual loses the other coverage as a
result of the individual’s failure to pay
premiums or for cause (such as making
a fraudulent claim). Coverage under spe-
cial enrollment must be effective no
later than the first day of the month
after an employee requests the enroll-
ment for himself or herself or on behalf
of a dependent.
Special Enrollment for New
Dependents. A special enrollment period
also occurs if a person has a new
dependent by birth, marriage, adoption,
or placement for adoption. The election
to enroll can be made within 30 days
following the birth, marriage, adoption,
or placement for adoption. In the case of
a plan that does not offer any coverage
for dependents and is then modified to
offer dependent coverage, the election to
enroll can instead be made during the
30 days beginning on the date depen-
dent coverage is made available.
The special enrollment rules allow an
eligible employee to enroll when he or
she marries or has a new child (as a
result of marriage, birth, adoption, or
placement for adoption). A spouse of a
participant can be enrolled separately at
the time of marriage or when a child is
born, adopted or placed for adoption.
The spouse can be enrolled together
with the employee when they marry or
when a child is born, adopted, or placed
for adoption. A child who becomes a
dependent of a participant as a result of
marriage, birth, adoption, or placement
for adoption can be enrolled when the
child becomes a dependent. Similarly, a
child who becomes a dependent of an
eligible employee as a result of mar-
riage, birth, adoption, or placement for
adoption can be enrolled if the em-
ployee enrolls at the same time.
In the case of a dependent special
enrollment period, HIPAA provides that
coverage with respect to a marriage is
effective no later than the first day of
the month after the date the request for
enrollment is received and coverage
with respect to a birth, adoption, or
placement for adoption is effective on
the date of the birth, adoption, or place-
ment for adoption.
HMO Affiliation Period as Alternative to
Preexisting Condition Exclusion- 29
CFR § 2590.701–7 and 45 CFR
§ 146.119
This section of the regulations permits
a group health plan offering health in-
surance through an HMO, or an HMO
that offers health insurance coverage in
connection with a group health plan, to
impose an affiliation period, but only if
certain other requirements are met. An
‘‘affiliation period’’ is defined in the
regulations as a period of time that must
expire before health insurance coverage
provided by the HMO becomes effec-
tive, and during which the HMO is not
required to provide benefits.
The regulations specify the following
requirements for imposing an affiliation
period:
• no preexisting condition exclusion
may be imposed with respect to cover-
age through the HMO;
• no premium may be charged to a
participant or beneficiary for the affilia-
tion period;
• the affiliation period must be ap-
plied uniformly without regard to any
health status-related factors; and
• the affiliation period must begin on
the enrollment date, cannot exceed two
months (three months for a late en-
rollee), and must run concurrently with
any waiting period under the plan.
The regulations provide for the affilia-
tion period to begin on the enrollment
date in the plan, not when coverage with
the HMO begins. Accordingly, if a plan
offers multiple coverage options simul-
taneously, the HMO cannot impose an
affiliation period on plan participants
who change to the HMO option. Com-
ments are requested on this rule.
The regulations permit an HMO to
use alternatives in lieu of an affiliation
period to address adverse selection, as
approved by the State insurance com-
missioner or other official designated to
regulate HMOs. Because an affiliation
period may be imposed only if no
preexisting condition exclusion is used,
an alternative to an affiliation period
may not encompass an arrangement that
is in the nature of such an exclusion.
13
While HMOs usually do not impose
preexisting condition exclusions, they
could choose to apply a preexisting
condition exclusion period for all enroll-
ees based on the alternative method of
counting creditable coverage if the regu-
lations were to add a category relating
to deductibles. However, as described
above under the heading ‘‘Alternative
Method,’’ the regulations currently do
not include such a category.
13
These alternatives that may be used in lieu of an
affiliation period to address adverse selection
should not be confused with the use of the
alternative method for counting creditable cover-
age discussed in the next paragraph.
14

Nondiscrimination In Eligibility and
Premiums in the Group Market- 26
CFR § 54.9802–1, 29 CFR § 2590.702,
45 CFR § 146.121
The regulations include provisions
implementing the nondiscrimination pro-
visions in HIPAA. Comments are wel-
comed on these provisions, and, in par-
ticular, comments are requested on
whether guidance is needed concerning:
• the extent to which the statute pro-
hibits discrimination against individuals
in eligibility for particular benefits;
• the extent to which the statute may
permit benefit limitations based on the
source of an injury;
• the permissible standards for defin-
ing groups of similarly situated indi-
viduals;
• application of the prohibitions on
discrimination between groups of simi-
larly situated individuals; and
• the permissible standards for deter-
mining bona fide wellness programs.
The Departments intend to issue further
regulations on the nondiscrimination
rules in the near future. In no event will
the period for good faith compliance
(specified in HIPAA sections 102(c)(5),
101(g)(5), and 401(c)(5)) with respect to
section 2702 of the PHS Act, section
702 of ERISA, and section 9802 of the
Code end before the additional guidance
is provided.
A plan or issuer may not establish
rules for eligibility (including continued
eligibility) of an individual to enroll
under the terms of the plan based on a
health status-related factor. HIPAA and
the regulations provide a list of health
status-related factors. The Departments
are considering interpreting the statutory
language relating to eligibility to enroll
so that a plan or issuer would be
prohibited from providing lower benefits
to certain individuals based on health
status-related factors. Comments are
welcomed on this interpretation.
Among the health status-related fac-
tors listed in the statute is ‘‘evidence of
insurability (including conditions arising
out of acts of domestic violence).’’ The
Conference Report states that the inclu-
sion of evidence of insurability in the
list of health status-related factors ‘‘is
intended to ensure, among other things,
that individuals are not excluded from
health care coverage due to their partici-
pation in activities such as motorcycling,
snowmobiling, all-terrain vehicle riding,
horseback riding, skiing and other simi-
lar activities.’’ However, HIPAA also
provides that a plan or issuer is not
required to provide particular benefits
other than those provided under the
terms of the plan. Moreover, HIPAA
provides that a plan or issuer may
establish limitations or restrictions on
the amount, level, extent, or nature of
the benefits or coverage for similarly
situated individuals enrolled in the plan.
Comments have been received indicat-
ing that some plans contain provisions
that exclude coverage for benefits based
on the source of injury (such as benefits
for injuries sustained in a motorcycle
accident, injuries sustained in a motor-
cycle accident as the result of not
wearing a helmet, or injuries sustained
in the commission of a felony). Accord-
ingly, comments are requested on how
future guidance should treat benefit
limitations based on the source of an
injury.
The Conference Report also states
that ‘‘[t]he term ‘similarly situated’
means that a plan or coverage would be
permitted to vary benefits available to
different groups of employees, such as
full-time versus part-time employees or
employees in different geographic loca-
tions. In addition, a plan or coverage
could have different benefit schedules
for different collective bargaining units.’’
Accordingly, comments are requested
concerning the appropriate standards for
determining ‘‘similarly situated individu-
als,’’ including whether a plan is permit-
ted to vary benefits based on an em-
ployee’s occupation. Because these
standards could impact on the small
group market, the Department of Health
and Human Services is particularly in-
terested in receiving comments from
States with respect to how varying ben-
efits based on occupation could affect
rate setting.
The Departments also request com-
ments regarding how the prohibitions on
discrimination should be applied be-
tween groups of similarly situated indi-
viduals. For example, is guidance
needed on whether a plan covering
employees in two different locations
could have a longer waiting period for
employees at one location because the
health status of those employees results
in higher health costs?
A plan or issuer may not require any
individual (as a condition of enrollment
or continued enrollment) to pay a pre-
mium or contribution, that is greater
than that for a similarly situated indi-
vidual enrolled in the plan, based on a
health status-related factor. However,
this limitation does not restrict the
amount that an issuer can charge an
employer for the coverage. In addition,
this limitation does not prevent a plan or
issuer from establishing premium dis-
counts or rebates or otherwise modify-
ing applicable copayments or
deductibles in return for adherence to
programs of health promotion and dis-
ease prevention (bona fide wellness pro-
grams). Comments are requested regard-
ing the standards for determining bona
fide wellness programs, including
whether such a program may provide a
discount for non-smokers.
Special Rules — Excepted Plans and
Excepted Benefits- 26 CFR
§ 54.9804–1, 29 CFR § 2590.732, 45
CFR § 146.145
This section of the regulations pro-
vides special rules for certain plans and
certain benefits.
Very Small Plans. The group market
requirements of HIPAA do not apply to
a group health plan, or to group health
insurance coverage offered in connec-
tion with a group health plan, for any
plan year if, on the first day of the plan
year, the plan has fewer than 2 partici-
pants who are current employees. How-
ever, a State may apply the group
market provisions in the PHS Act to
plans with fewer than two participants
who are current employees. In this case,
the State would apply its group market
insurance law requirements to such
small group plans (and such plans
would not be subject to the individual
market requirements).
Excepted Benefits. The group market
provisions and the related regulations
also do not apply to any group health
plan or group health insurance issuer in
relation to its provision of excepted
benefits. The benefits identified in para-
graph (b)(2) are generally not health
insurance coverage and are excepted in
all circumstances. In contrast, the ben-
efits identified in paragraphs (b)(3), (4),
and (5) are generally health insurance
coverage but are excepted if certain
conditions are met.
Limited-scope dental benefits, limited-
scope vision benefits, and long-term
care benefits are excepted if they are
provided under a separate policy, certifi-
cate, or contract of insurance, or are
otherwise not an integral part of the
plan. For this purpose, limited-scope
dental coverage typically provides ben-
efits for non-medical services such as
routine dental cleanings, x-rays, and
other preventive procedures. Such cover-
age may also provide discounts on the
15

cost of common dental procedures such
as fillings, root canals, crowns, full or
partial plates, or orthodontic services.
Limited-scope dental coverage typically
does not provide benefits for medical
services, such as those procedures asso-
ciated with oral cancer or with a mouth
injury that results in broken, displaced,
or lost teeth.
Similarly, limited-scope vision cover-
age provides benefits for routine eye
examinations or the fitting of eyeglasses
or contact lenses. This coverage does
not include benefits for such ophthalmo-
logical services as treatment of an eye
disease (e.g., glaucoma or a bacterial
eye infection) or an eye injury.
Noncoordinated benefits may be ex-
cepted benefits. The term ‘‘noncoor-
dinated benefits’’ refers to coverage for
a specified disease or illness (such as
cancer-only coverage) or hospital in-
demnity or other fixed dollar indemnity
insurance (such as insurance that pays
$100/day for a hospital stay as its only
insurance benefit) if three conditions are
met. First, the benefits are provided
under a separate policy, certificate, or
contract for insurance. Second, there is
no coordination between the provision
of these benefits and another exclusion
of benefits under a plan maintained by
the same plan sponsor. Third, benefits
are paid without regard to whether ben-
efits are provided with respect to the
same event under a group health plan
maintained by the same plan sponsor.
Certain supplemental benefits are ex-
cepted only if they are provided under a
separate policy, certificate, or contract of
insurance. This category of excepted
benefits includes Medicare supplemental
(commonly called ‘‘Medigap’’ or
‘‘MedSupp’’) policies, CHAMPUS
supplements, and supplements to certain
employer group health plans. Such
supplemental coverage cannot duplicate
primary coverage and must be specifi-
cally designed to fill gaps in primary
coverage, coinsurance, or deductibles.
14
The regulations do not address section
2721(e) of the PHS Act or section
705(d) of ERISA relating to the treat-
ment of partnerships (or the application
of the Code’s group market rules to
partnerships). Comments are requested
on these provisions, including how these
provisions coordinate with other provi-
sions relating to self-employed individu-
als and partnerships.
F. Other Group Market Provisions
15
Guaranteed Renewability in
Multiemployer Plans and Multiple
Employer Welfare Arrangements-
Section 703 of ERISA and Section 9803
of the Code
Requirements relating to guaranteed
renewability in multiemployer plans and
multiple employer welfare arrangements
are set forth in section 703 of ERISA
and section 9803 of the Code (but not in
the PHS Act). These provisions state
that a group health plan that is a
multiemployer plan or that is a multiple
employer welfare arrangement may not
deny an employer whose employees are
covered under such a plan continued
access to the same or different coverage
under the terms of such plan, other than
for certain specified reasons. The De-
partments are not issuing regulations
under section 703 of ERISA or section
9803 of the Code at this time, but
anticipate issuing regulations under
these sections and solicit comments re-
garding these sections.
In these provisions, the terms ‘‘con-
tinued access’’ and ‘‘same or different
coverage’’ are not defined. Comments
are requested on how rules under these
provisions might address variations and
changes in a plan’s benefit packages and
contribution rates, differences in the
characteristics of multiemployer plans
and multiple employer welfare arrange-
ments, and any possible implications for
the financial integrity of affected plans.
Preemption of State Laws; State
flexibility- 29 CFR § 2590.731 and 45
CFR § 146.190
The McCarran-Ferguson Act of 1945
(Pub. L. 79–15) exempts the business of
insurance from federal antitrust regula-
tion to the extent that it is regulated by
the States and indicates that no federal
law should be interpreted as overriding
State insurance regulation unless it
does so explicitly. Section 514(a) of
ERISA preempts State laws relating
to employee benefit plans (including
group health plans). However, section
514(b)(2) of ERISA saves from preemp-
tion any State law that regulates insur-
ance. Section 2723 of the PHS Act and
section 731 of ERISA make clear that
Part A of Title XXVII of the PHS Act
and Part 7 of Subtitle B of Title I of
ERISA do not in any way affect or
modify section 514 of ERISA.
In addition, section 2723 of the PHS
Act and section 731(a) of ERISA pre-
empt State insurance laws to the extent
such laws ‘‘prevent the application of’’
Part A of Title XXVII of the PHS Act
and Part 7 of Subtitle B of Title I of
ERISA. (There is no corresponding pro-
vision in the Code.) In this regard, the
Conference Report states that the con-
ferees intended the narrowest preemp-
tion of State laws with regard to health
insurance issuers (not group health
plans) with respect to all the provisions
of Part A of Title XXVII of the PHS
Act and Part 7 of Subtitle B of Title I of
ERISA (except for preemption with re-
spect to the provisions of section 2701
of the PHS Act and section 701 of
ERISA). Consequently, the Conference
Report states that State laws with regard
to health insurance issuers that are
broader than federal requirements in
certain areas would not ‘‘prevent the
application of’’ the provisions of Part A
of Title XXVII of the PHS Act or Part 7
of Subtitle B of Title I of ERISA.
However, the preemption is broader
for the statutory requirements of section
2701 of the PHS Act and 701 of ERISA
that limit the application of preexisting
condition exclusions. State laws cannot
‘‘differ’’ from the preexisting condition
exclusion requirements of section 2701
of the PHS Act or section 701 of
ERISA, except as specifically permitted
under section 2723(b)(2) of the PHS Act
and section 731(b)(2) of ERISA. These
specific exceptions permit a State to
impose on health insurance issuers cer-
tain stricter limitations relating to preex-
isting condition exclusions.
Comments are also solicited on issues
relating to the coordination of the new
requirements under HIPAA and State
requirements for associations that may
be multiple employer welfare arrange-
ments as defined in section 3(40) of
ERISA.
14
Note that a group health plan, which provides
primary coverage while an individual is an active
employee, is often extended to retirees. When the
retiree becomes eligible for Medicare, the group
health plan commonly coordinates with Medicare
and may serve a supplemental function similar to
that of a Medigap policy. However, such
employer-provided retiree ‘‘wrap around’’ benefits
are not excepted benefits (because they are ex-
pressly excluded from the definition of a Medicare
supplement policy in section 1882(g)(1) of the
Social Security Act).
15
In this section (‘‘Other Group Market Provi-
sions’’), references conform to usage in 45 CFR
Part 146, which uses ‘‘HCFA’’ in place of ‘‘De-
partment of Health and Human Services’’ or
‘‘Secretary of Health and Human Services’’ and
‘‘HCFA regulations’’ in place of ‘‘PHS Act regula-
tions.’’
16

Guaranteed Availability of Coverage for
Small Employers under the PHS Act
Group Market Provisions- 45 CFR
§ 146.150
Rules relating to guaranteed availabil-
ity of coverage for employers in the
small group market appear only in the
PHS Act (at section 2711). In general,
this section requires health insurance
issuers that offer coverage in the small
group market to offer to any small
employer all of the products they ac-
tively market in that market. This is
generally referred to as an all-products
guarantee. However, as allowed under
applicable State law, the issuer can
require that the employer make a mini-
mum contribution toward the premium
charged and have a minimum level of
participation by eligible individuals. The
issuer must also accept for enrollment
every eligible individual without regard
to health status. For purposes of this
section, an eligible individual is one
who meets the applicable requirements
of the group health plan, the issuer, and
State law for coverage under the plan.
Some States have, in recent years,
made reforms in their small group mar-
kets that only require guaranteed issue
of a basic and a standard policy, rather
than an all-products guarantee. They
have urged that an all-products guaran-
tee not be adopted, arguing that the law
does not specifically require it. How-
ever, sections 2711 and 2741 of the PHS
Act, as added by HIPAA, contain virtu-
ally identical requirements requiring is-
suers that offer health insurance cover-
age in either the small group or
individual market to make ‘‘such cover-
age’’ available to, respectively, small
employers or eligible individuals. While
section 2741 explicitly permits issuers to
limit to two policies the offerings they
are required to make in the individual
market, the small group market provi-
sions contain no similar exception. In
fact, section 2713(b)(1)(D) requires that
an issuer that offers health insurance to
any small employer must provide infor-
mation concerning ‘‘the benefits and
premiums available under all health in-
surance coverage for which the em-
ployer is qualified.’’ (Emphasis added.)
This indicates that Congress intended to
require an all-products guarantee in the
small group market. (However, a State
that implements an ‘‘alternative mecha-
nism’’ in the individual market under
section 2744 of the PHS Act has the
flexibility either to impose an all-
products guarantee or to use a com-
pletely different mechanism for making
insurance available to individuals guar-
anteed coverage under the statute.)
Various industry groups and persons
responding to the notice that the three
Departments published on December 30,
1996 asked that the term ‘‘offer’’ be
interpreted to mean ‘‘actively mar-
keted,’’ so that issuers would not be
required to reopen closed blocks of
business. The regulations make this
clear.
Section 2711 also requires issuers to
accept for enrollment any individuals
who are eligible to enroll under the
terms of the plan, and who satisfy the
requirements of the issuer and appli-
cable State law, during the period in
which the individual ‘‘first becomes eli-
gible’’ to enroll under the terms of the
group health plan. Thus, the issuer is
not required to accept late enrollees. The
regulations make it clear that this pro-
tection extends to individuals if they
‘‘first become eligible’’ to enroll during
a special enrollment period. The special
enrollment provisions of the statute evi-
dence the intent that individuals who
qualify for special enrollment be given
the same protections given to newly-
hired employees and their dependents.
An issue has also been raised as to
whether the statutory definitions of pre-
mium contribution and group participa-
tion rules, which are repeated in the
regulations, relate only to percentages of
employees or premium dollars or to
absolute numbers of employees or pre-
mium amounts. If the latter interpreta-
tion were permitted, the effect would be
to undermine the all-products guarantee
by allowing, for example, some products
to be available to ‘‘larger’’ small em-
ployers, but not to the smallest employ-
ers. The regulations currently leave in-
terpretation of this language to the
States, but comments are welcomed on
this issue.
Section 146.150 also includes rules
regarding the circumstances under which
issuers are permitted to deny coverage
to employers. If the product is a net-
work plan, under which services are
furnished by a defined set of providers,
the issuer can deny coverage to an
employer whose eligible individuals do
not live, work, or reside in the network
plan’s service area. It can also deny
coverage if it has demonstrated to the
State that its network does not have the
capacity to deliver services to additional
groups, but is then barred for 180 days
from offering coverage in that service
area. An issuer may also deny coverage
if it demonstrates that it lacks sufficient
financial reserves to underwrite addi-
tional coverage, but is barred for 180
days from offering coverage in the small
group market in the State. Both of these
exceptions must be applied to all em-
ployers uniformly without consideration
of the health status or claims experience
of an employer’s employees or depen-
dents. Neither of these exceptions re-
lieves a network plan of its responsibil-
ity to continue servicing its in-force
business under the guaranteed renew-
ability requirements of the regulations.
Finally, § 146.150 provides that if the
coverage is only made available to
members of ‘‘bona fide associations’’ as
that term is defined in the regulations, it
is not subject to the guaranteed avail-
ability requirements. (Accordingly, the
coverage does not have to be offered to
non-members.) However, employers that
obtain coverage through a bona fide
association are assured of guaranteed
access to the association’s coverage op-
tions as long as they remain members of
the association. This is because a bona
fide association cannot condition mem-
bership in the association on health
status-related factors. Moreover, it must
offer coverage to all employers who are
members without regard to health status-
related factors relating to their employ-
ees or dependents. Therefore, an asso-
ciation cannot legally refuse enrollment
to members on a selective basis so long
as they meet the association’s member-
ship criteria.
Guaranteed Renewability of Coverage
for Employers under the PHS Act Group
Market Provisions- 45 CFR § 146.152
Section 146.152 of the Health Care
Financing Administration (HCFA) regu-
lations implements section 2712 of the
PHS Act, which requires issuers to re-
new or continue in force any coverage
in the large or small group market at the
option of the plan sponsor. The excep-
tions to this requirement include non-
payment of premiums, fraud, and viola-
tion of minimum participation or
contribution rules, as permitted under
applicable State law. Also, the issuer can
cease to offer either a particular product
or all coverage it offers in the particular
market, and can refuse to renew if the
group health plan’s participants all leave
the service area of a network plan, or if
the coverage is provided through a bona
fide association and the employer’s
membership ends.
17

Issuers that decide to discontinue of-
fering a particular product or all cover-
age in the small or large group market
are subject to certain requirements out-
lined in paragraphs (c) and (d) of this
section of the regulations. Issuers dis-
continuing only a particular product
must give 90 days’ notice, must offer
the plan sponsor the option to purchase
other coverage the issuer offers in that
market, and must discontinue the prod-
uct uniformly, without regard to claims
experience or health status of partici-
pants or dependents under a particular
group health plan. If the issuer termi-
nates all coverage in a market or mar-
kets, it must provide 180 days’ notice to
each plan sponsor, and it is prohibited
from issuing coverage in the market(s)
or State involved for five years follow-
ing the date of discontinuation. Plans or
issuers may modify the health insurance
coverage at the time of coverage re-
newal, provided the modification is con-
sistent with State law and, for the small
group market, is effective uniformly
among group health plans with coverage
under that product.
Some States have asked whether an
issuer that chooses to stop selling com-
prehensive products, such as a basic or
standard policy, in a particular State’s
group market, must also cease selling
policies consisting of excepted benefits.
Because Congress permitted these types
of supplemental policies and limited
benefit plans to be excepted from the
requirements of HIPAA in both the
group and individual markets, HCFA
intends to defer to the States’ judgment
on this issue, and solicit comments.
State law may limit the extent to
which an issuer can abandon a product
or market, and under what circum-
stances. For example, a State may
choose to require an issuer vacating the
market to transfer its business to another
issuer through assumption reinsurance,
or some other means permitted under
State law.
Paragraph (g) of this section of the
regulations provides that, with respect to
group coverage offered only through
associations, the option of guaranteed
renewability extends to include em-
ployer members of an association. This
provision means that all employers cov-
ered by an issuer through an association
have the right to renew the coverage
they received if the association ceases to
serve its members, regardless of the
reason.
Disclosure of Information by Issuers to
Employers Seeking Coverage in the
Small Group Market- 45 CFR
§ 146.160
Section 146.160 of the HCFA regula-
tions implements section 2713 of the
PHS Act by setting forth rules relating
to disclosure of information by issuers
to employers seeking coverage in the
small group market. In its solicitation
and sales materials, the issuer must
make a reasonable disclosure that the
specified information is available on
request. The information that must be
provided includes the issuer’s right to
change premium rates and the factors
that may affect changes in premium
rates, renewability of coverage, any pre-
existing condition exclusion (including
use of the alternative method of count-
ing creditable coverage), any affiliation
periods applied by HMOs, the geo-
graphic areas served by HMOs, and the
benefits and premiums available under
all health insurance coverage for which
the employer is qualified under mini-
mum contribution and participation
rules, as permitted by State law. The
issuer is exempted from disclosing pro-
prietary or trade secret information un-
der applicable law.
‘‘Factors that may affect changes in
premium rates’’ and ‘‘proprietary and
trade secret information under applicable
law’’ have not been defined. Comments
are requested regarding whether they
should be defined.
The information described in this sec-
tion must be provided in language that
is understandable by the average small
employer and sufficient to reasonably
inform small employers of their rights
and obligations under the health insur-
ance coverage. This requirement can be
satisfied by using as a model the out-
lines of coverage provided under Medi-
care Supplement insurance. (These out-
lines are required to provide easy
comparison of the coverage and cost of
all available products.) Reasonable in-
formation includes rating schedules for
each product to which more than one
rate applies, and, with respect to net-
work plans, maps of service areas or
lists of counties served.
Exclusion of Certain Plans from the
PHS Act Group Market Requirements-
45 CFR § 146.180
Section 146.180 of the HCFA regula-
tions implements section 2721 of the
PHS Act, which permits certain
nonfederal governmental plans to elect
to be exempted from some or all of the
group market requirements of the HCFA
regulations, although they are subject to
the certification and disclosure require-
ments of § 146.115. With respect to
nonfederal governmental plans that are
collectively bargained, this section does
not preempt State and local collective
bargaining laws. The regulation estab-
lishes the form and manner of the
election, and requires a nonfederal gov-
ernmental plan making this election to
notify plan participants, at the time of
enrollment and on an annual basis, that
it has made the election and what effect
the election has. The participant notice
and certification and disclosure obliga-
tions are integral parts of the election.
Failure to comply with these obligations
invalidates an election and subjects the
nonfederal governmental plan to the
requirements the election would have
permitted the plan to avoid.
Only nonfederal governmental plans
that are self-funded (in whole or in part)
can make the election, and the election
only applies to the self-funded portion.
A health insurance issuer that sells in-
surance coverage to a nonfederal plan
must comply with all the group market
requirements.
Enforcement of PHS Act Requirements-
45 CFR § 146.184
Part 146 imposes requirements on
health insurance issuers that offer cover-
age in the group market in a State, and
on nonfederal governmental (i..e., State
and local) group health plans. With
respect to issuers, the statute makes it
clear that it is solely within the discre-
tion of the States, in the first instance,
whether to take on the responsibility for
enforcing those requirements or whether
to leave enforcement to the federal
government. HCFA anticipates that the
States will choose to enforce the re-
quirements. However, the statute also
makes clear that if a State does not
substantially enforce the requirements,
HCFA must enforce them. The statute
also requires HCFA to enforce the re-
quirements applicable to nonfederal gov-
ernmental plans.
Section 146.184(b)(2) sets forth the
procedures that HCFA will follow if a
question is raised about the State’s en-
forcement with respect to issuers. Under
the procedures, State are given every
opportunity to demonstrate why federal
enforcement is not required. The regula-
tions also make it clear that the proce-
dures will not be triggered unless HCFA
18

is satisfied that there has first been a
reasonable effort to exhaust any State
remedies. However, if, after giving the
State a reasonable opportunity to en-
force, HCFA makes a final determination
that a State is not substantially enforcing
these requirements, HCFA will enforce
the requirements using the civil money
penalties provided for under the statute.
Paragraph (d) describes the process
for imposing civil money penalties
against issuers or nonfederal plans that
fail to comply with the group market
requirements in the PHS Act. If HCFA
receives a complaint or other informa-
tion that indicates that a right guaran-
teed by the group market rules is being
denied, HCFA will first determine which
entity is potentially responsible for any
penalty. If the failure is by an issuer, the
issuer will be responsible. If a
nonfederal governmental plan is spon-
sored by a single employer, the em-
ployer will be liable, but if the plan is
sponsored by two or more employers,
the plan will be liable. If, after giving
the entity or entities an opportunity to
respond, HCFA assesses a penalty, the
regulation provides appeal rights. The
penalty can consist of up to $100 for
each day, for each individual whose
rights are violated.
Effective Dates- 26 CFR § 54.9806–1,
29 CFR § 2590.736, 45 CFR § 146.125
The group market provisions are gen-
erally effective for plan years beginning
after June 30, 1997.
16
In many cases, no
preexisting condition exclusion may be
imposed with respect to an individual on
the effective date because any permitted
preexisting condition exclusion period is
measured from the individual’s enroll-
ment date in the plan (even if the
enrollment date is before the statutory
effective date). An individual who has
not completed the maximum permitted
exclusion period under HIPAA before the
effective date for his or her plan may use
creditable coverage to reduce the remain-
ing preexisting condition exclusion pe-
riod. The regulations contain examples
illustrating the effect of these rules.
The requirement that a plan or issuer
provide certificates to show creditable
coverage applies to events occurring on
or after July 1, 1996, except that in no
case is a certificate required to be
provided before June 1, 1997 or to
reflect coverage before July 1, 1996.
For events occurring on or after July
1, 1996 but before October 1, 1996, a
certificate is required to be provided
only upon a written request by or on
behalf of the individual to whom the
certificate applies. For events occurring
on or after October 1, 1996 and before
June 1, 1997, a certificate must be
furnished no later than June 1, 1997 (or,
if later, any date that would otherwise
apply under the standard rules).
The regulations include an optional
transition rule for events before June 1,
1997. (The transition rule applies to
automatic certificate events; it does not
apply where a certificate is requested.) A
group health plan or health insurance
issuer offering group health coverage is
deemed to satisfy the automatic certifi-
cate requirements if a special notice is
provided no later than June 1, 1997. The
notice must be in writing and must
include information substantially similar
to the information included in a model
notice authorized by the Secretaries. For
this purpose, the following model notice
is authorized:
IMPORTANT NOTICE OF YOUR RIGHT TO DOCUMENTATION OF HEALTH COVERAGE
Recent changes in Federal law may affect your health coverage if you are enrolled or become eligible to enroll in health coverage that excludes coverage
for preexisting medical conditions.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) limits the circumstances under which coverage may be excluded for medical
conditions present before you enroll. Under the law, a preexisting condition exclusion generally may not be imposed for more than 12 months (18 months
for a late enrollee). The 12-month (or 18-month) exclusion period is reduced by your prior health coverage. You are entitled to a certificate that will show
evidence of your prior health coverage. If you buy health insurance other than through an employer group health plan, a certificate of prior coverage may
help you obtain coverage without a preexisting condition exclusion. Contact your State insurance department for further information.
For employer group health plans, these changes generally take effect at the beginning of the first plan year starting after June 30, 1997. For example, if
your employer’s plan year begins on January 1, 1998, the plan is not required to give you credit for your prior coverage until January 1, 1998.
You have the right to receive a certificate of prior health coverage since July 1, 1996. You may need to provide other documentation for earlier periods of
health care coverage. Check with your new plan administrator to see if your new plan excludes coverage for preexisting conditions and if you need to
provide a certificate or other documentation of your previous coverage.
To get a certificate, complete the attached form and return it to:
[Insert Name of Entity]:
[Insert Address]:
For additional information contact [Insert Telephone Number]:
The certificate must be provided to you promptly. Keep a copy of this completed form. You may also request certificates for any of your dependents
(including your spouse) who were enrolled under your health coverage.
**************************************************************************************************
REQUEST FOR CERTIFICATE OF HEALTH COVERAGE
Name of Participant:
Date:
Address:
Telephone Number:
Name and relationship of any dependents for whom certificates are requested (and their address if different from above):
16
In these case of a group health plan maintained
pursuant to one or more collective bargaining
agreements between employee representatives and
one or more employers ratified before August 21,
1996, the group market provisions (other than the
requirements to provide certifications) do not
apply to plan years beginning before the later of
July 1, 1997 or the date on which the last of the
collective bargaining agreements relating to the
plan terminates (determined without regard to any
extension agreed to after August 21, 1996).
19

The provisions in the regulations re-
lating to method of delivery and entities
required to provide a certificate apply
with respect to the provision of the
notice. If an individual requests a certifi-
cate following receipt of the notice, the
certificate must be provided at the time
of the request as set forth in the regula-
tions relating to certificates provided
upon request.
HIPAA provides that no enforcement
action is to be taken against a group
health plan or health insurance 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 requirements.
Compliance with the regulations is
deemed to be good faith compliance
with the group market rules.
G. Interim Rules and Request for
Comments
Section 707 of ERISA (redesignated
as section 734 by section 603(a)(3) of
the NMHPA), Section 2707 of the PHS
Act, and Section 9806 of the Code
added by HIPAA, provide, in part, that
the Secretaries of Labor, Treasury and
HHS may promulgate any interim final
rules as they determine are appropriate
to carry out the portability provisions of
HIPAA.
Under Section 553(b) of the Adminis-
trative Procedure Act (5 U.S.C. 551 et
seq.) a general notice of proposed
rulemaking is not required when the
agency, for good cause, finds that notice
and public comment thereon are imprac-
ticable, unnecessary or contrary to the
public interest.
These rules are being adopted on an
interim basis because the Secretaries
have determined that without prompt
guidance, some members of the regu-
lated community will have difficulty
complying with the HIPAA’s certifica-
tion requirements, and will be in viola-
tion of the statute. Congress expressly
intended that the certification and prior
creditable coverage provisions serve as
the mechanism for increasing the port-
ability of health coverage for plan par-
ticipants and their beneficiaries. Without
the Departments’ guidance, plans would
likely be unable to produce the neces-
sary amendments to plan documents
reflecting HIPAA’s new requirements, as
well as the appropriate certifications of
prior coverage that would help partici-
pants and beneficiaries reduce any appli-
cable preexisting condition exclusion pe-
riods imposed by a new health plan.
Thus, without the Departments’ prompt
guidance, participants and beneficiaries
will not have the benefit of a convenient
certificate of prior coverage to present
upon changing health coverage, and will
likely have greater difficulty proving
that they are entitled to health coverage
immediately, or soon after joining a new
health plan.
Moreover, HIPAA’s portability re-
quirements will affect the regulated
community in the immediate future.
HIPAA’s certification requirements are
effective for all group health plans on
June 1, 1997. HIPAA’s underlying re-
quirements concerning establishing peri-
ods of prior creditable coverage, pre-
existing condition exclusion provisions,
and the special enrollment requirements,
are generally applicable for group health
plans for plan years beginning on or
after July 1, 1997. Plan administrators
and sponsors, and participants and ben-
eficiaries will need guidance on how to
comply with the new statutory provi-
sions before these effective dates. These
rules have been written in order to
ensure that plan sponsors and adminis-
trators of group health plans, as well as
participants and beneficiaries, are pro-
vided timely guidance concerning com-
pliance with these recently enacted
amendments to ERISA, the PHS Act
and the Code. These rules provide guid-
ance on these statutory changes, and are
being adopted on an interim basis be-
cause the Departments find that issuance
of such regulations in interim final form
with a request for comments is appropri-
ate to carry out the new regulatory
structure imposed by HIPAA on group
health plans and health insurance issu-
ers. In addition, these rules are neces-
sary to ensure that plan sponsors and
administrators of group health plans, as
well as participants and beneficiaries,
are provided timely guidance concerning
compliance with new and important dis-
closure obligations imposed by HIPAA.
Sections 101(g)(4), 102(c)(4), AND
401(c)(4) of HIPAA also mandate that
the Secretaries issue regulations neces-
sary to carry out the portability amend-
ments by April 1, 1997. Issuance of a
notice of proposed rule making with
public comment thereon prior to issuing
a final rule could delay significantly the
issuance of essential guidance and pre-
vent the Departments from complying
with their statutory rule making dead-
line. Furthermore, these rules are being
adopted on an interim basis and the
Departments are inviting interested per-
sons to submit written comments on the
rules for consideration in the develop-
ment of the final rules relating to
HIPAA. Such final rules may be issued
in advance of January 1, 1998, after
affording the public an opportunity to
review and comment.
For the foregoing reasons, the Depart-
ments find that the publication of a
proposed regulation, for the purpose of
notice and public comment thereon,
would be impracticable, unnecessary,
and contrary to the public interest.
H. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
rules which would have significant eco-
nomic impact on a substantial number
of small entities. Section 603 of the
RFA requires an agency publishing a
general notice of proposed rulemaking
(NPRM) under section 553 of the APA
to present at the time of the publication
of its NPRM an initial regulatory flex-
ibility analysis, describing the impact of
the rule on small entities, and seeking
public comment on such impact.
Small entities include small busi-
nesses, non-profit organizations, and
governmental agencies. A ‘‘rule’’ under
the Regulatory Flexibility Act is one for
which a general notice of proposed
rulemaking is required under section
553(b) of the APA.
Since these rules are issued as interim
rules, and not as a general notice of
proposed rulemaking, for the reasons
stated above, an Initial Regulatory Flex-
ibility analysis has not been prepared.
While these rules are being promul-
gated as interim final rules, the Depart-
ments nevertheless invite interested per-
sons to submit comments for
consideration in the development of the
final rules regulating to HIPAA. Consis-
tent with the policy of the Regulatory
Flexibility Act, the public is encouraged
to submit comments that suggest alter-
native rules that accomplish the stated
purpose of the statute and minimize the
impact on small entities. Specifically,
the public is encouraged to address:
• What information relating to prior
coverage, preexisting condition exclu-
sions, health status, waiting periods and
similar issues do employers, plans and
issuers currently rely on in maintaining
health care coverage systems?
• What are the estimated costs of
complying with the statute’s require-
ments on certification of periods of prior
creditable coverage?
20

• How many small issuers offer prod-
ucts that may be subject to the regula-
tions? Is there an anticipated effect on
these small companies’ competitiveness
due to the regulations?
• To what extent do group health
plans currently use service providers to
fulfill the administrative obligations, in-
cluding reporting and disclosure, previ-
ously imposed by ERISA? To what
extent would group health plans also use
service providers to comply with this
regulation’s certification requirements?
I. Executive Order 12866, the Unfunded
Mandates Reform Act and the Small
Business Regulatory Enforcement
Fairness Act of 1995
These rules have been determined to
be a significant regulatory action under
Section 3(f) of Executive Order 12866.
The following analysis is consistent with
Section 6(a)(3)(C) of the Order.
These rules are not subject to the
Unfunded Mandates Reform Act of
1995 (Pub. L. 104–4), because they are
interim final rules. However, consistent
with the policy embodied in the Un-
funded Mandates Reform Act, the regu-
lation has been designed to be the least
burdensome alternative for state, local
and tribal governments and the private
sector, while achieving the objectives of
HIPAA. In addition, the following
analysis provides information concern-
ing the effects of the regulation on state,
local, and tribal governments and the
private sector.
Throughout the regulatory process,
HHS met and consulted with representa-
tives of affected state, local and tribal
governments. These groups include the
National Association of Insurance Com-
missioners, the National Governors’ As-
sociation, the National Council for State
Legislatures, the Indian Health Service,
and the American Public Welfare Asso-
ciation. HHS also provided technical
advice regarding its interpretation of the
statute to state insurance commissioners
and state legislatures at their request.
Generally, these groups have concerns
regarding:
• The statute’s preemption of state
laws that would prevent the implementa-
tion of statutory provisions;
• The burden on issuers and plans to
implement the statutory provisions, es-
pecially with regard to certification of
prior creditable coverage; and
• States’ desires to have considerable
flexibility in complying with the statute,
and continuing their traditional role as
regulators of insurance.
After serious consideration of these
concerns, HHS narrowly interpreted the
preemption of state law, taking the least
burdensome alternatives provided states
considerable flexibility in complying
with the statute, and recognized the
limited authority of federal agencies in
the regulation of health insurance.
The Administrator of the Office of
Information and Regulatory Affairs of
the Office of Management and Budget
has determined that this is a major rule
for purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. Section 801 et seq.).
Set forth below is a discussion re-
garding the impact of the statute and a
discussion of the costs and benefits of
the regulations implementing the statute.
J. Extensions of Coverage Under the
Statute
These regulations implement certain
provisions of HIPAA. The statute was
enacted to, among other things, ‘‘im-
prove portability and continuity of
health care coverage in the group and
individual markets,’’ as stated in the
Conference Report. The statute accom-
plishes these goals by instituting reforms
in the group and individual insurance
markets, including provisions limiting
the use of pre-existing condition exclu-
sions, and requiring guaranteed access to
health care coverage and guaranteed
renewability for certain groups and indi-
viduals. There are also non-
discrimination provisions and special en-
rollment rights in the statute.
The pre-existing condition exclusion
periods that HIPAA restricts are wide-
spread. According to the Bureau of
Labor Statistics (BLS), 46 percent of
participants in private-sector, employer-
sponsored health plans are in plans with
pre-existing condition exclusions (1993–
1994 data). The same is true of 41
percent of participants in state and local
government employer-sponsored plans
(1994 data).
The duration of exclusion periods
varies from plan to plan. Based on Peat
Marwick’s 1995 employer survey, an
estimated 57 percent of participants in
plans with exclusions are in plans with
exclusions that last 12 months. The
remainder are distributed as follows: 13
percent in plans with 3-month exclu-
sions, 22 percent in plans with 6-month
exclusions, 7 percent in plans with
9-month exclusions, and 1 percent in
plans with exclusions that last more than
12 months.
HIPAA’s portability provisions re-
semble provisions of many current state
laws. Importantly, however, HIPAA ex-
tends these provisions to self-insured
ERISA plans which federal law shields
from state regulation. In addition, it sets
a minimum uniform threshold for in-
sured group plans and individual mar-
kets across all states.
HIPAA’s portability provisions will
result in both direct and social costs and
benefits.
In general, direct costs and benefits
arise directly from the application of
HIPAA’s insurance portability and ac-
cess provisions. Direct costs and ben-
efits are often best understood as trans-
fers of resources among economic
agents, which do not necessarily repre-
sent changes in overall social welfare.
Stated differently, they represent
changes in how the economic pie is
divided (in this case, mainly with re-
spect to health care), and not changes in
the size of the pie. Direct costs and
benefits are often easier to quantify than
social costs, as they are often directly
observable as transactions in the market-
place.
With respect to HIPAA’s portability
and access provisions, direct costs and
benefits arise from the extension of
insurance coverage to individuals and
conditions not otherwise covered. Direct
benefits to individuals include the pay-
ment of individuals’ claims for those
services and conditions. Direct costs to
individuals include the premiums associ-
ated with that coverage. Some available
estimates of these direct costs and ben-
efits are presented below.
Social costs and benefits, in contrast,
do result in net changes in overall social
welfare. Social benefits generally reflect
social welfare gains that arise in connec-
tion with statutory or regulatory inter-
ventions that remedy market failures.
Likewise, social costs generally reflect
welfare losses arising from interventions
in otherwise efficient markets. Social
welfare changes often play out through
a complex set of behavioral responses to
interventions. They are more difficult to
quantify than direct costs and benefits.
With respect to HIPAA, social welfare
changes generally arise indirectly from
HIPAA’s portability and access provi-
sions. They reflect dynamic behavioral
responses to HIPAA’s portability and
access provisions. Expected social ben-
efits, primarily improved access to
21

health insurance and also improved job
mobility, cannot be meaningfully quanti-
fied. Expected social costs, which could
include erosions in coverage arising
from direct premium costs, are expected
to be small. Since no measures of
HIPAA’s many social welfare effects are
available, a mostly qualitative discussion
of major effects is offered below. A
more quantitative discussion of direct
costs and benefits follows later.
1. Social Welfare Effects of HIPAA’s
Portability and Access Provisions
The primary direct benefits of the law
are improved access to insurance cover-
age, and more comprehensive coverage,
through employers and in the individual
insurance market. Increased access and
comprehensiveness helps protect indi-
viduals from catastrophic expenses.
There are a number of social benefits
associated with improved access
• It reduces individuals’ risk of incur-
ring large out-of-pocket costs;
• It is often more cost effective to
provide timely preventive and remedial
care than to delay care until conditions
worsen. Therefore, to the extent that
individuals receive more timely and ap-
propriate care as a result of HIPAA,
over time, the long-term, cumulative
cost of their care may be lower. This
has the potential to reduce premiums for
all individuals within a risk pool, not
just the individuals directly affected by
HIPAA. Similarly, the Medicare pro-
gram may benefit from reduced expen-
ditures because more individuals who
become newly entitled to Medicare will
have had insurance coverage during the
course of their working life or through
the individual insurance market.
• To the extent that more timely care
results in improved health, worker atten-
dance and productivity might improve.
• HIPAA’s portability provisions like-
wise help individuals transitioning from
state and federal welfare programs to
paid work. Individuals with health con-
ditions can offset their new health plan’s
preexisting condition exclusions against
prior coverage from any source, includ-
ing Medicaid.
• Reductions in job lock benefit both
individuals and the economy at large.
Increased mobility can boost individual
workers’ career opportunities. Increased
mobility also strengthens U.S. economic
efficiency and competitiveness;
• HIPAA’s federal minimum stan-
dards for small group and individual
access to insurance coverage may im-
prove the functioning of small group
and individual markets. The standards
will alleviate disruptions that might oth-
erwise arise when ‘‘riskier’’ groups and
individuals are denied or dropped from
coverage.
• To the extent that HIPAA results,
on net, in more insurance payment for
otherwise uncompensated care, cost-
shifting and associated inefficiencies in
health care markets could be reduced.
HIPAA’s group-to-individual portabil-
ity provisions may provide a benefit for
employees who move to jobs without
health coverage. Some small employers
that do not currently offer health care
coverage may be able to do so more
easily under HIPAA’s guaranteed issue
provisions. This may help level the
playing for small employers to compete
with larger ones in recruiting employees.
While premium increases resulting from
HIPAA may reduce the affordability of
coverage for some employers, this effect
is expected to be small, as noted below.
HIPAA also requires that issuers of-
fering health insurance coverage in the
individual market renew coverage for all
individuals purchasing health insurance
coverage in the individual market, not
only eligible individuals. However,
when an eligible individual elects family
coverage, the issuer may apply a pre-
existing condition exclusion, under ap-
plicable State law, to any of the indi-
vidual’s family members who are not
eligible individuals under the statute.
The group-to-group portability regula-
tion is likely to benefit individuals who
maintain employer-sponsored health
benefit coverage and change jobs or
health plans, the dependents of such
individuals, and workers who face ‘‘job
lock’’ due to health coverage concerns.
Under HIPAA, health insurance cov-
erage provided under a COBRA con-
tinuation policy qualifies as group health
coverage. This distinction is particularly
important for individuals moving from
the group to the individual market, or
from one group health plan to another,
since electing this coverage would en-
able these individuals to maintain con-
tinuous creditable coverage. In addition,
individuals seeking coverage in the indi-
vidual market must elect and exhaust
COBRA continuation coverage in order
to qualify as an ‘‘eligible individual’’ in
the individual market.
Thus, the statute provides an addi-
tional incentive for those individuals
who lose coverage when they change
jobs to elect COBRA continuation cov-
erage in order to avoid a break in
coverage. The statute also provides an
incentive for those individuals who are
seeking coverage in the individual mar-
ket without a preexisting condition ex-
clusion. Consequently, we expect more
individuals to elect COBRA continua-
tion coverage.
Absent HIPAA’s group-to-group port-
ability standards, individuals with
employer-sponsored health coverage
who have preexisting medical conditions
and who change health plans could be
denied coverage for their conditions. In
that case, individuals would have to pay
out of pocket for necessary medical
services, or forgo some services, thereby
risking adverse health consequences and
higher future costs. Other individuals
with preexisting medical conditions who
change health plans and face preexisting
condition exclusions may pay for CO-
BRA continuation coverage in addition
to paying for their new health plan to
ensure coverage for the preexisting con-
dition. Other workers who are concerned
about losing health care coverage would
stay in their jobs or turn down job
offers.
According to the U.S. General Ac-
counting Office, over 20 million indi-
viduals changed jobs in 1993 (General
Accounting Office, Report HEHS–95–
257, ‘‘Health Insurance Portability: Re-
form Could Ensure Continued Coverage
for up to 25 Million Americans,’’ Sep-
tember 1995, pg. 7). Approximately 12
million of these workers had employer-
sponsored health care coverage. Addi-
tionally, nearly 7 million non-working
dependents received employer-sponsored
health care coverage through these job
changers. According to GAO, many of
these 20 million could benefit from the
regulation’s requirement that prior health
care coverage be credited against a new
health plan’s preexisting condition ex-
clusion period. GAO concludes that the
statute will allow approximately 9 mil-
lion job changers (who have at least 12
months of prior creditable coverage),
with 5 million dependents, to change
jobs without the risk of facing any
preexisting condition exclusions. An-
other 3 million workers who change
jobs (who have some smaller amount of
prior coverage), with 2 million depen-
dents, would face reduced waiting peri-
ods before receiving full coverage.
The number of workers and depen-
dents actually gaining coverage for a
preexisting condition due to credit for
prior coverage following a job change
under HIPAA will be smaller than this,
however. GAO’s estimates of people
who could benefit include all job chang-
ers with prior coverage and their depen-
22

dents, irrespective of whether their new
employer offers a plan, whether their
new plan imposed a preexisting condi-
tion exclusion period, and whether they
actually suffer from a preexisting condi-
tion. Accounting for these narrower cri-
teria, as discussed below, CBO estimates
that 100,000 will actually receive addi-
tional coverage under HIPAA’s credit for
prior coverage at any point in time.
In addition, employers, especially
smaller employers, that offer health care
benefits to their employees often change
health insurance issuers, exposing work-
ers or their dependents with preexisting
medical conditions to gaps in coverage.
Small employers generally change insur-
ance issuers every 3 to 4 years (Senate
Committee on Labor and Human Re-
sources, Report 104–156, Oct. 12, 1995,
pg. 4). The provisions of the statute that
allow crediting of prior coverage should
reduce the likelihood of gaps in cover-
age.
One of the benefits of HIPAA to
individuals is that it alleviates ‘‘job
lock.’’ That is, employees who have
stayed in a particular job in order to
continue health care coverage can now
change to a job that the person might
not otherwise have taken because he or
she (or a dependent) would have been
subject to a pre-existing condition exclu-
sion; or the person can seek coverage in
the individual insurance market as a
result of HIPAA’s provisions requiring
guaranteed issue for individuals coming
from the group market. According to the
GAO, there are one to four million
Americans ‘‘who at some time have
been unwilling to leave their jobs be-
cause of concerns about losing their
health care coverage’’ (Health Insurance
Portability: Reform Could Ensure Con-
tinued Coverage for Up to 25 Million
Americans, HEHS–95–257, September
1995). The GAO notes that ‘‘surveys
have found that between 11 and 30
percent of individuals report that they or
a family member have remained in a job
at some time because they did not want
to lose health care coverage.’’ Among
those individuals, twenty percent stated
that pre-existing conditions exclusions
constituted the basis for their reluctance
to change jobs.
These figures, reflecting individuals
stated intentions, may not accurately
predict their behavior under different
circumstances, however. Moreover,
HIPAA’s portability provisions will alle-
viate only some causes of ‘‘job lock’’—
for example, employees might still be
somewhat impeded from taking jobs
where no coverage is offered. Eligible
individuals might benefit in this case
from HIPAA’s group-to-individual port-
ability provisions, but would have to
pay the premium themselves. Therefore,
many individuals who report job lock
will not necessarily change jobs as a
result of HIPAA.
There also appears to be a difference
by age categories of the extent of job
lock. The Health and Retirement Study
(HRS), conducted by the University of
Michigan’s Institute for Social Research,
which provides an emerging portrait of
Americans age 51 through 61 and their
spouses, found that job flexibility is a
key issue for this age group. ‘‘Almost
three-quarters of HRS respondents
would prefer to phase down from full-
time work to part-time work when they
retire, in sharp contrast to actual behav-
ior, where most people who retire leave
the workforce entirely. About one-third
of the people who would not look for
another job are victims of ‘job lock,’
unable to leave because they might give
up valuable pensions or health insurance
benefits if they switched employers’’
(HRS National Institute on Aging Press
Release, June 17, 1993).
Empirical evidence for job lock is
mixed. Buchmueller and Valletta found
strong evidence of job lock among
women but weak evidence among men
(‘‘The Effects of Employer-provided
Health Insurance on Worker Mobility,’’
Industrial and Labor Relations Review,
volume 49, number 3, April 1996).
Monheit and Cooper conclude that the
magnitude and importance of job lock,
which some studies report as causing a
20 to 40 percent reduction in mobility,
is not as great as generally thought
(‘‘Health Insurance and Job Mobility:
Theory and Evidence,’’Industrial and
Labor Relations Review, volume 48,
number 1, October 1994). Kapur found
that job lock does not have a significant
effect on job mobility (‘‘The Impact of
Pre-existing Health Conditions on Job
Mobility: A Measure of Job Lock,’’
WP–95–25, Institute for Policy Re-
search), while Gruber and Madrian
found that COBRA continuation provi-
sions, and similar state laws (allowing
individuals to continue coverage through
their employer group health plan for a
specified period), have led to a signifi-
cant increase in job mobility (‘‘Health
Insurance and Job Mobility: the Effects
of Public Policy on Job-lock,’’Industrial
and Labor Relations Review, volume 48,
number 1, October 1994).
CBO does not quantify potential relief
from ‘‘job lock,’’ which is a social,
rather than a direct, benefit of HIPAA.
Because people freed from job lock are
going from one type of insurance to
another (moving to a different group
health plan or to an individual insurance
policy under HIPAA portability), CBO
also views freedom from job lock as
consisting of ‘‘insured expenses . . .
transferred among different insurers . . .
[that] . . . are not . . . direct costs.’’
The majority of evidence indicates
that job lock is a concern for many
workers. HIPAA will address this con-
cern, though the number of workers who
will gain an advantage is unclear and
how the value of the benefit can be
measured is also unclear.
As the forgoing discussion illustrates,
HIPAA’s social benefits are expected to
be far ranging, but they cannot be
meaningfully quantified.
HIPAA might also pose social costs.
In particular, increases in premiums un-
der HIPAA’s portability and access pro-
visions could erode coverage. These
costs are expected to be small, however,
particularly in the group market where
premium increases are estimated to be
very small relative to the overall market.
In summary, HIPAA’s portability and
access provisions are expected to result
in a number of largely unquantifiable
social benefits. These include greater
continuity of coverage, improved access
to health care and possible corollary
improvements in health and productivity,
improved stability and efficiency in in-
surance health care markets, eased
movement from public assistance to
work, and gains in job mobility that are
favorable to individual careers and to
U.S. competitiveness.
2. Direct Costs and Benefits of
HIPAA’s Portability and Access Provi-
sions
HIPAA’s portability and access provi-
sions impose direct costs and provide
direct benefits to a broad range of
entities, as well as to individual citizens.
Costs will be incurred by employers,
group plans, insurance companies and
managed care plans (‘‘issuers’’); states,
in their capacity as regulators, and states
and localities as entities providing health
care coverage for their employees, retir-
ees and dependents; the federal govern-
ment as regulator and as the source of
health care coverage for employees, an-
nuitants and dependents, and for others
through programs such as Medicaid and
Medicare. Benefits will accrue to indi-
23

viduals and to small employers whose
access to comprehensive insurance is
improved.
A number of studies have evaluated
the direct economic impact of the law.
The CBO found that ‘‘to the extent that
states have not already implemented
similar rules, these changes would
clarify the insurance situation and possi-
bly reduce gaps in coverage for many
people.’’
The CBO notes that because HIPAA
does not impose limits on premiums
issuers may charge, insurance coverage,
though available, may be expensive.
Consequently, CBO observes that the
law would ‘‘make insurance more por-
table for some people, [but] it would not
dramatically increase the availability of
insurance in general.’’ The controversial
question of the extent to which there
will be increases in issuer premiums is
discussed more extensively below.
CBO prepared estimates of the direct
effects of the provisions of the legisla-
tion included in these regulations (Letter
to the Honorable Bill Archer, August 1,
1996; notes are also from earlier CBO
cost estimates; see table below). The
direct cost estimates can reasonably be
read as representing direct benefits as
well, since they generally reflect trans-
fers from a pre-HIPAA payer to a
post-HIPAA payer. Certain medical ex-
penses that individuals would pay out of
pocket absent HIPAA will be paid by
insurance programs under HIPAA. In
CBO’s estimates, this is reflected as a
similar transfer in responsibility for pay-
ment from individuals to insurance pro-
grams. However, the actual transfer
would be more complex. For example,
to pay the additional claims, insurers
must collect additional premiums, which
in turn will be paid by the individuals
gaining greater coverage and (in most
cases) by other covered individuals, or
by their employers. CBO’s estimates
represent gross costs to plans and gross
benefits to individuals, and do not ac-
count for these complexities.
CBO Cost Estimates and Number of People Affected
ProvisionYearly Cost (Direct
Cost to Private
Sector)
Number of People AffectedOther Effects;
Comments
GROUP: Limiting Length of Pre-
Existing Condition Exclusions to 12
Months
$50 million in first
year (1997); $200
million per year in
subsequent years
300,000 people ‘‘would gain coverage’’
at any point in time, or 0.3% of people
with private employment-based coverage
Assumes ‘‘surge’’
in claims costs;
state laws taken
into account
GROUP: Creditable Coverage Reducing
Pre-Ex
$25 million in first
year; $100 million
per year thereafter
100,000 people ‘‘would receive added
coverage’’ at any point in time
small # of people
affected reflects
‘‘restrictive eligibil-
ity criteria’’
GROUP: ABOVE TWO COMBINED $300 millionComments: about .2% of total premiums in group and
employer-sponsored market; but may be overstated because
HMOs, now the dominant option, often do not use pre-ex ex-
clusions
INDIVIDUAL (group-to-individual port-
ability, no pre-existing condition exclu-
sion, no denial because of health condi-
tion, guaranteed renewal)
First year estimates:
$50 million45,000 people covered by end of first
year
provisions would
apply in states that
currently have 5.4
million of esti-
mated 13.4 million
people in indiv.
market (but see
analyses below)
INDIVIDUAL: subsequent years$200 million by
fifth year
‘‘in about four years, the number of
people covered . . . would plateau at
around 150,000’’
level of premiums
to be charged is
unknown; states
may limit allow-
able premiums, but
such limits may
impose indirect
costs
Virtually all of the insurance market
reform provisions of HIPAA that are
implemented through these regulations
have the potential to increase premiums
in the group market. Group plans may
have to bear higher costs because of the
statutory limits on pre-existing condition
exclusions and the creditable coverage
provisions reducing the application of
permissible pre-existing condition exclu-
sions. CBO has estimated the total costs
of these two provisions at $300 million
annually after full implementation, or
0.2% of total premiums in the group
market. This reflects coverage for ser-
vices which would have been excluded
under current law due to pre-existing
condition exclusions in insurance con-
tracts, but which would be covered
under HIPAA due to HIPAA’s 12-
months cap on exclusions and its provi-
sions requiring credit for prior coverage.
CBO’s $300 million cost figure re-
flects only the costs of the statute’s
limits on pre-existing conditions exclu-
sion, and its prior creditable coverage
provisions. It does not include the ad-
24

ministrative costs to plans and issuers of
the HIPAA’s certification requirement,
which the Department of Labor has
measured in its Paperwork Reduction
Act analysis below. Similarly, CBO’s
$300 million figure does not include any
other increased premium costs that
might be associated with the statute’s
health status nondiscrimination or guar-
anteed renewability provisions. CBO’s
figure does try to estimate (a) how
many people would benefit from the
statute’s limits on preexisting condition
exclusions, and its prior creditable cov-
erage provision, and (b) the average cost
to insurers of the extension of coverage
to those individuals.
Preexisting condition exclusion limita-
tion: CBO derived its $300 million
figure by estimating that approximately
300,000 people with private em-
ployment-based coverage would gain
coverage under the statute’s preexisting
condition exclusion limitation provision,
at a direct private sector cost of $200
million per year. CBO adjusted this
estimate to exclude people who reported
being limited by a preexisting condition
restriction, but who also had secondary
health coverage to pick up the cost of
their preexisting condition. CBO rea-
soned that under these circumstances,
the preexisting condition exclusion limi-
tation would not raise the aggregate
costs imposed on employment-based
plans. CBO likewise adjusted its esti-
mate to reflect the existence of state
laws which limited preexisting condition
exclusion limitations to one year or less
and require that previous coverage be
credited against those exclusions. These
state laws generally apply to group
plans of 50 or fewer employees, and do
not include self-funded health benefit
plans subject to ERISA rather than state
laws. Since plans covered by such state
laws would not have to change their
provisions as a result of HIPAA, CBO
lowered its initial estimate of the people
affected by the bill.
Crediting Prior Coverage: CBO’s
$300 million figure also includes an
estimate that 100,000 people, at a pri-
vate sector cost of about $100 million
per year, would receive some added
coverage as a result of HIPAA’s prior
creditable coverage provision.
CBO reports that these estimates are
subject to considerable uncertainty for
several reasons. First, they are based on
individuals’ responses to surveys, which
should be treated with caution. Like-
wise, unforeseen changes in the health
insurance market, such as changes in
medical costs or the growth of managed
care plans, could raise or lower the
direct costs of the law. Increases in
medical costs would obviously raise the
costs, while the expansion of HMO
penetration in the market would tend to
reduce the law’s effect, since HMOs
generally do not use preexisting condi-
tion exclusions.
CBO also reports that in particular,
distribution of the costs these provisions
would be uneven across health plans.
CBO notes that ‘‘[o]nly plans that cur-
rently use pre-existing condition exclu-
sions of more than 12 months would
face the $200 million direct costs of the
statute’s exclusion limitation.’’ Data
from a Peat Marwick survey used by
CBO indicate that 2.5% of employees
are in such plans. Consequently, ‘‘the
costs to health plans that use long
preexisting condition exclusions would
be about 4.5% of their premium costs.’’
Likewise, only those plans that use
preexisting condition exclusions would
face the $100 million direct cost of the
mandate to credit prior coverage against
the preexisting condition exclusion.
CBO reports that ‘‘almost half of em-
ployees are in such plans — implying
that the plans directly affected by this
mandate would have direct costs equal
to about one-tenth of one percent of
their premiums’’ absent the statute.
The increased costs may be shared by
insurers, plans, and insured individuals.
Additionally, costs also may be borne
directly by plans that an issuer ‘‘experi-
ence rates,’’ i.e. the insurer determines
rates according to the utilization of the
group being insured. Costs may also be
borne by others insured through an
issuer that uses some form of commu-
nity rating, which spreads risk over a
greater number of ‘‘insured lives’’ be-
yond the particular group that is the
source of the additional costs. To a
certain extent, a group may have a
choice in the degree of burden: if the
group knows that its members incur
lower costs than the average of the
issuer’s pool, the group can avoid a
community-rated pool by becoming self-
insured.
There is also the possibility that
group market premiums may increase as
a result of the HIPAA reforms in the
individual market if insurers spread the
costs of claims in the individual market
across a pool that includes group mem-
bers. HIPAA expressly provides for this
possibility as one of the elements of an
acceptable state alternative mechanism.
(Such issues relating to the individual
market are discussed in more detail
below.)
Assuming that the CBO is correct in
projecting that the premium effect trans-
lates into 0.2 percent of total premiums
in the group market, a minimal premium
effect is likely.
CBO did not quantify the cost of
nondiscrimination or special enrollment
provisions.
With respect to nondiscrimination, ap-
proximately 135,000 workers reported in
1993 that they were excluded from their
employer’s health plan because of their
health, according to DOL tabulations of
the April 1993 Current Population Sur-
vey. In general, HIPAA would require
plans to offer benefits to such individu-
als.
With respect to special enrollments,
HIPAA provides that individuals, under
certain conditions, are permitted to en-
roll for health coverage on the same
terms as new participants, rather than as
late enrollees. The conditions triggering
eligibility for special enrollment gener-
ally include events in which an indi-
vidual loses coverage (such as when a
spouse changes jobs when couples le-
gally separate or divorce) or joins a
family that is eligible for coverage
(through marriage, birth, or adoption).
Special enrollment requirements ben-
efit individuals. Absent this provision,
eligible individuals could be subject to
pre-existing conditions exclusion periods
of up to 18 months, and therefore would
might need 18 months of prior credit-
able coverage to fully offset a preexist-
ing condition exclusion period. Under
the provision, eligible individuals’ exclu-
sion periods are limited to 12 months.
This special enrollment provision also
permits eligible individuals to enroll
immediately in plans which otherwise
prohibit late enrollment, or which allow
late enrollments only during annual
open enrollment periods.
Considering some of the major groups
that could benefit, the Departments esti-
mate that 734,000 families would gain
eligibility for special enrollments due to
marriage, as would 701,000 due to
births, and 292,000 due to job changes
in the family. These estimates, based on
the Survey of Income and Program
Participation, reflect an annual count of
such events following which the rel-
evant spouse or new born was unin-
sured, or covered under an individual
policy or Medicaid.
Special enrollments may result in a
marginal increase in aggregate premi-
25

ums and claims paid, but no change in
average premium levels for any one
individual, since eligible individuals are
not likely to have any higher health care
costs than the average new health plan
participant.
In summary, HIPAA’s portability and
access provisions will result in a number
of direct costs and benefits. These direct
costs represent transfers among parties
and not changes in overall social wel-
fare. CBO estimates that HIPAA’s group
portability provisions will result in $300
million of additional annual direct costs
to insurance programs, which in turn
represents a direct benefit of $300 mil-
lion in added coverage for individuals.
Additional direct costs and benefits will
arise from similar extensions of cover-
age under HIPAA’s group-to-individual
portability, special enrollment, and non-
discrimination provisions. Various esti-
mates of the costs and benefits of the
group-to-individual provisions are of-
fered below. Costs and benefits of the
special enrollment and nondiscrimina-
tion provisions have not been quantified.
3. Affected Market Segments
(1). Impact on State, Local and Tribal
Governments
The statute establishes federal stan-
dards and allows for federal enforce-
ment in an area that has traditionally
been the domain of the states, the
regulation of insurance. However, the
statute also permits states to use alterna-
tive, state-specific mechanisms to
achieve greater portability and continu-
ity in a manner similar to the federal
standards. Many states have undertaken
insurance reforms similar to the HIPAA
provisions and are likely to seek ap-
proval for the continuation of these
alternative mechanisms. The statute pro-
vides that enforcement of the require-
ments of the law will be the responsibil-
ity of the states (for those states
implementing alternative mechanisms as
well as for those states implementing
the federal standards), unless a state is
unwilling or unable to enforce the law.
Only in the latter case of unwillingness
or inability to enforce the law will the
federal government implement and en-
force the law in a given state. It is
highly unlikely that there will be any
instance of the federal government as-
suming such a role, with the exception
perhaps of the territories. There is no
federal financial assistance or resources
to implement these provisions.
The CBO has generally determined
that there will be a negligible impact on
these governmental entities, even in the
event that, in their capacity as sponsors
of employee health care coverage, they
choose not to ‘‘opt out’’ of having
certain provisions of the statute apply to
them. HIPAA provides that states and
localities that self-insure their health
care coverage for employees, are permit-
ted, under the statute, to ‘‘opt out’’ of
the provisions of the law affecting them
with respect to rules governing pre-
existing condition limitations. Some en-
tities that have the option available will
‘‘opt out.’’ However, this does not re-
lieve them of the responsibility of pro-
viding certifications of creditable cover-
age for their covered individuals.
HIPAA does not preempt state and local
government collective bargaining laws.
If there were no opt-out entities, CBO
projects that state and local governments
would see an increase in health care
costs of less than $50 million, or 0.1%
of the $40 billion annually in state and
local total health insurance expenditures.
Those who would benefit from the
imposition of HIPAA requirements on
state and local governments are indi-
viduals who are subject to a pre-existing
condition exclusion that would have
been shortened in length by HIPAA
either under the 12-month limit or the
crediting of prior creditable coverage
provision. As the CBO points out, this
benefit (for some) is coupled with a cost
to (all covered) individuals because it is
assumed that states and localities would
pass the cost off to their employees
through reduced compensation or ben-
efits.
According to CBO, the impact of the
law on the states in their capacity as
regulators enforcing new insurance pro-
vision is marginal. For states that have
been enacting insurance reform mea-
sures in the small group and individual
markets, it could be argued that HIPAA
provides a benefit to the extent that the
introduction of federal standards facili-
tates the states’ ability to continue insur-
ance reforms in these markets. Accord-
ing to the Intergovernmental Health
Policy Project (IHPP), in a report dated
June of 1996, all but two states had
enacted some type of small group mar-
ket reform, and 35 states had enacted
some type of individual insurance mar-
ket reform. The presence of a federal
standard that may be viewed as consti-
tuting a ‘‘floor’’ of requirements im-
posed on issuers in these two markets
may also benefit the states.
The individual insurance market has
traditionally been regulated by the
states, and Congress intended that, to
the maximum extent possible, the states
should continue this regulatory role. To
this end, the law provides states with
three options: 1) implement an alterna-
tive, state-specific mechanism to ensure
access to individual health care cover-
age; 2) adopt and administer the federal
standards of HIPAA; or 3) allow the
federal government to administer the
law.
In devising the first option, the imple-
mentation of an alternative mechanism,
Congress afforded states’ a good deal of
flexibility in establishing an alternative
mechanism. At least 30 states are ex-
pected to implement alternative mecha-
nisms, each unique to the state’s demo-
graphics and market conditions. States
are encouraged to explore innovative
options and intend to afford states as
much flexibility as possible in the de-
sign of their alternative mechanisms.
Throughout the process of reviewing
proposed alternative mechanisms, the
states’ need for flexibility must be bal-
anced with the rights of the individuals
afforded protection under the law.
Our main concern is that the primary
goal of HIPAA be achieved: that eligible
individuals are guaranteed coverage in
the individual market, to the extent that
policies are available, without a preex-
isting condition exclusion period. HHS
intends to review states’ mechanisms
with this goal in mind; so the informa-
tion presented should present a clear
picture of the mechanism’s impact on
eligible individuals. The information re-
quested in these regulations (section
148.126(h)) closely parallels the statu-
tory provisions. While such information
collection requirements may impose a
burden on each state that chooses to
implement an alternative mechanism,
such information is necessary in order to
effectively evaluate the mechanism and
ensure that the mechanism will provide
eligible individuals the protection guar-
anteed by the law.
The states are unlikely to choose the
option whereby the Secretary (HCFA)
implements and enforces HIPAA in the
state. Eight states, however, may choose
the ‘‘federal fall-back’’ option of incor-
porating the HIPAA standards into state
law rather than developing an alternative
mechanism.
The statute provides that a state is
presumed to be implementing an accept-
able alternative mechanism as of Janu-
ary 1, 1998, unless the Secretary of
HHS notifies a state of her disapproval
of the mechanism by July 1, 1997. In
states where the legislature does not
26

meet in a regular session between Au-
gust 21, 1996 and August 20, 1997, the
state is presumed to be implementing an
acceptable alternative mechanism as of
July 1, 1998. To our knowledge, only
Kentucky qualifies for this exception.
The statute also provides an extension.
Before making any initial determination,
HHS intends to make every effort to
consult with the appropriate state offi-
cials. After consultation with appropriate
state officials, should there still be cause
for disapproval, HHS will allow the
state a reasonable opportunity to revise
the mechanism or submit a new mecha-
nism. Throughout this process, HHS
may require further information from
state officials regarding particular as-
pects of their insurance market reform.
While such requests for information
may also impose an additional burden
on the state, this information will be
necessary to ensure that the mechanism
will provide the protections guaranteed
to eligible individuals under the law.
As required by law, the Secretary of
HHS will review each alternative
mechanism every three years. In this
respect, the regulation adheres closely to
the statutory burden and merely clarified
that resubmission is required on every
three-year anniversary of the last sub-
mission date. HHS has also provided a
process for review of future mecha-
nisms, should a state may wish to revise
an existing mechanism or propose a new
mechanism.
In addition to implementing an alter-
native mechanism, a state may choose to
adopt and administer the federal statu-
tory provisions. Our regulations in this
regard do not differ from the statutory
provisions. As noted above, it is likely
that up to eight states would choose this
option.
Finally, a state may choose to allow
the federal government to administer the
federal statutory provisions in the state.
Although this is a possibility contem-
plated in the statute, it is unlikely that
any state would choose this option.
However, the impact of the regulations
that implement this option is discussed
below.
In states that have an acceptable alter-
native mechanism for ensuring access to
individual insurance or health care cov-
erage, the implementation of laws and
determination of compliance with those
laws is exclusively a state matter. For
other states, HIPAA gives the Secretary
authority to issue regulations to carry
out the implementation and enforcement
of HIPAA provisions for the states that
choose the ‘‘federal fallback’’ option
(using federal standards), and for states
in which the federal government will
directly administer the HIPAA provi-
sions. These regulations specify the fol-
lowing:
• Documentation that must be submit-
ted to the state (federal default) or to
HCFA (direct regulation by the federal
government) demonstrating compliance
with the statute;
• The manner in which an insurer
markets individual policies;
• The procedure and time frames the
issuer follows in determining whether
someone is an eligible individual, and
the effective date of the individual’s
coverage;
• The procedure to follow for a re-
quest to limit enrollment in the case of
an HMO’s or insurer’s capacity limita-
tions (network capacity or financial ca-
pacity); and
• The procedure for determining
whether the benefit packages offered in
the individual market are consistent with
statutory requirements.
In states electing the federal fall-back
approach, the state determines the level
of documentation required to establish
compliance with the HIPAA provisions.
The Departments do not know the ex-
tent of burden states will impose on
plans as a result of HIPAA. Although
there is not likely to be direct federal
enforcement in any state, in those states
in which HCFA does administer the law,
issuers have 90 days after July 1, 1997,
to provide documentation concerning in-
dividual policy forms the issuer already
markets; and 90 days prior to the begin-
ning of the calendar year prior to mar-
keting a new policy form. With regard
to these time frames, the 90-day period
should not be burdensome. Much of the
information required to be submitted
regarding the policy forms in the indi-
vidual market is material the issuer will
generally have filed with a state insur-
ance commissioner (‘‘information on all
products offered in the individual mar-
ket’’; marketing material, often submit-
ted to states on a ‘‘file and use,’’ or
informational basis). For such informa-
tion the submission to the federal gov-
ernment is burdensome only in that it is
duplicative of material given to the
state. The HIPAA-specific materials are
generally not duplicative and constitute
a burden on issuers to provide HCFA
with the following information:
• An explanation of how the issuer is
complying with the provisions of
HIPAA, including how the issuer will
inform eligible individuals of available
policy forms;
• Premium volumes or actuarial val-
ues (depending on which election is
made regarding compliance with rules
on the type of policy to be offered); and
• A description of the risk spreading/
financial subsidization mechanism to be
used for individual policy forms.
The last two items represent require-
ments of the statute, while the first item
is necessary to ensure that there is
effective implementation of the statute.
For the first item, issuers will have to
become familiar with the provisions of
HIPAA in order to comply with the
documentation requirement, which can
be a considerable burden, but the other
information requirements should not be
burdensome. One way in which these
regulations lessen the burden for plans
electing to offer ‘‘representative cover-
age’’ rather than the most popular policy
forms is by not prescribing the method
of determining the actuarial value of
representative coverage. Issuers may
make their own determinations of actu-
arial value and present them to HCFA
for verification.
(2). Impact of the Law in Different
States
The impact of the law on individuals,
employers, group plans, and issuers may
vary somewhat from state to state. Many
state reforms resemble HIPAA’s port-
ability provisions, often meeting or ex-
ceeding particular HIPAA standards. The
CBO notes that it ‘‘lowered its initial
estimate of the number of people af-
fected by the bill’’ in recognition of
such state reforms. Where state laws
resembling HIPAA exist, the marginal
impact of HIPAA is reduced.
The degree to which a state’s reforms
lessen the impact of HIPAA’s portability
provisions depends on the degree to
which the state’s requirements exceed
these provisions, and on what proportion
of insured individuals in the state are
covered by the state’s reforms. In gen-
eral, individuals not covered by state
reforms are those enrolled in programs
for which such state reforms are pre-
empted by federal law. These include
individuals enrolled in federal programs
such as Medicare and the federal Em-
ployees Health Benefits Program or in
self-insured ERISA plans. Individuals
enrolled in ERISA plans that are not self
insured are covered by such state re-
forms that are specifically saved from
preemption by HIPAA.
27

According to a study by Jacob Kler-
man of RAND,New Estimates of the
Effect of Kassebaum-Kennedy’s Group-
to-Individual Conversion Provision on
Premiums for Individual Health Insur-
ance(1996), 42 states have guaranteed
issue rules in the individual market or a
high-risk pool that could qualify the
states as meeting the alternative mecha-
nism requirements of HIPAA. This is
consistent with other information the
Departments have received to the effect
that only eight states may adopt the
federal HIPAA standards (to be adminis-
tered by the states). (The individual
market issues are discussed in greater
detail below.)
An analysis prepared by staff of the
Pension and Welfare Benefits Adminis-
tration (PWBA) of the Department of
Labor found, for the group market, that
41 states have small group guaranteed
issue; of that number five do not con-
form with (or are not more generous
than) HIPAA rules on guaranteed issue,
and 21 define a small group differently
from HIPAA by starting the small group
category at three individuals (rather than
HIPAA’s two)—the situation in 11
states—or by extending the provisions
to groups not reaching HIPAA’s 50 (4
states define a small group as up to 49;
one as 40; and ten as either 24 or 25).
These states are likely to make rela-
tively small changes as necessary to
conform their laws to HIPAA standards.
The National Association of Insurance
Commissioners has also engaged in ex-
tensive efforts to help the states conform
their laws.
Thirty-one states already have provi-
sions which require that group health
plans offer additional enrollment oppor-
tunities to employees under circum-
stances similar to HIPAA’s special en-
rollment opportunities. The statute
expands the state baseline by adding
legal separation as a grounds for special
enrollment eligibility, and expressly in-
cludes COBRA as prior group health
coverage. The statute further requires
retroactive coverage for newborns and
adopted children if special enrollment is
requested within 30 days of birth, place-
ment for adoption, or adoption. Current
state requirements reduce the overall
economic impact of the special enroll-
ment requirements on the group health
market.
For pre-existing conditions limitations
in group health plans, HIPAA provides
that the maximum allowable period
is 12 months (‘‘look-forward’’), or 18
months for a late enrollee (someone
enrolling outside of an initial or special
enrollment period) for conditions arising
within the six months (‘‘look-back’’)
preceding the enrollment date in a group
health plan. HIPAA also provides that
prior coverage for which there was not a
break in coverage of 63 days or more
would be credited against the pre-
existing condition exclusion. Using the
PWBA analysis and information from
the IHPP, as of mid-1996, 30 states had
time limits on pre-existing condition
exclusion periods that are the same as,
or more favorable to individuals, than
the HIPAA provisions for the group
market; and 14 other states have limits
on pre-existing condition time limits.
Among these 44 states, ten states allow
crediting of prior coverage for which the
duration of the break in coverage equals
or exceeds 63 days (more generous than
HIPAA); eight states allowed breaks in
coverage of 60 days; 18 states allowed
30 or 31 days of a break in coverage;
and four states had no crediting of prior
coverage. state laws which exceed
HIPAA standards will not be pre-empted
by HIPAA.
(3). Group Plans
HIPAA sets minimum standards for
all group health plans, including self-
funded plans that are shielded by ERISA
from states’ HIPAA-like requirements.
The General Accounting Office has esti-
mated that about 27% of the Nation’s
population received health care coverage
through ERISA self-funded plans (17%).
Although the GAO report indicated
that the number of people covered by
self-insured plans is increasing, other
data indicate that there has been a
decline in such coverage because of the
increasing number of individuals cov-
ered by HMOs that operate as insured
plans. However, an HMO network may
constitute an exclusive provider organi-
zation for a self-insured plan. Liston and
Patterson (Analysis of the Number of
Workers Covered by Self-Insured Health
Plans Under the Employee Retirement
Income Security Act of 1974—1993 and
1995, prepared for the Henry J. Kaiser
Family Foundation, August 1996) found
that from 1993 to 1995 the number of
Americans covered by fully or partly
self-insured plans declined from 37.6
million to 32.5 million (a 14% decline).
The rate of decline was greatest in
smaller firms: for firms with fewer than
100 workers, the number of workers
covered under fully or partially self-
insured plans declined from 8.2 million
to 5.4 million (a 34% decline). For
firms with 25 or fewer employees, the
numbers declined from 2.9 million to
2.2 million from 1993 to 1995 (a 24%
decline).
The relevance of these numbers to an
analysis of HIPAA has to do both with
the number of people that can poten-
tially benefit from the HIPAA provisions
(if the employees moving to ERISA-
insured plans are in states that already
have provisions similar to HIPAA, ef-
fects will be smaller), as well as the
related issue (partially a consequence of
the former) of the extent to which the
small group market in a given state may
be ‘‘disrupted’’ because of the effects of
HIPAA. (For example, will the HIPAA
provisions create a situation in which
either insurers will abandon markets or
employers will discontinue health care
coverage?) Although the Departments’
economic impact analysis does not con-
tain a state-by-state analysis of the rela-
tionship between employees covered un-
der self-insured plans (and any changes
in those numbers) and the states that
have reforms similar to HIPAA, Liston
and Patterson found that the South was
the only region of the country in which
there was an increase in the number of
employees covered by self-insured or
partially self-insured (reflecting the
lower penetration of HMOs in Southern
states). Data about individual states do
not appear to be available. A recent
GAO report notes that ‘‘no analysis
exists on the number of individuals
affected by these state [insurance] re-
forms’’ (Health Insurance Portability:
Reform Could Ensure Continued Cover-
age for Up to 25 Million Americans,
HEHS–95–257, September 1995).
For 1995, the South (stretching, under
the Liston-Patterson definition, from the
South Atlantic states to the West South
Central states of Arkansas, Louisiana,
Oklahoma and Texas) had 35% of all
employees covered by self-insured or
partially self-insured plans, while those
same states had 30% of the private-
sector employees with health care cover-
age. Three of the seven states that had
no pre-existing condition limitations
regulations in the PWBA analysis were
Southern states; of the 11 states that had
no guaranteed renewal provisions for
group health plans, four were in South-
ern states. It would appear then, that to
the extent that practices in the ERISA
small group market in Southern states
diverge significantly from HIPAA provi-
sions employers will have to adhere to,
there are possible major impacts of
HIPAA in those markets.
28

(4). The Individual Insurance Market
In the individual insurance market the
statute provides for guaranteed issue of
a policy to ‘‘eligible individuals’’ (indi-
viduals coming from the group market,
who have 18 months of aggregate cred-
itable coverage, from any of various
types of health care coverage). In addi-
tion to this guaranteed issue require-
ment, insurers are not permitted to apply
any pre-existing condition exclusions to
this group. Individual policies are guar-
anteed renewable except under certain
circumstances. The statute does not
place any limits on the premiums insur-
ers may charge for the policies made
available to eligible individuals. states
are permitted to have alternative mecha-
nisms that achieve the same ends as the
HIPAA requirements, though any alter-
native is required to have no pre-
existing condition exclusions.
The individual insurance market re-
forms are of greatest benefit to individu-
als who voluntarily or involuntarily
leave their jobs and wish to maintain
some level of health insurance. As dis-
cussed above, the availability of indi-
vidual insurance may decrease ‘‘job
lock’’ by allowing people to maintain
continuous protection as they move be-
tween jobs. Individuals who enter the
individual market from the group market
may choose to do so because their new
employer may not offer insurance or the
employer’s coverage is limited; or they
may expect to be without a job for a
period of time (for example, because
they are ‘‘early retirees’’ who do not yet
have Medicare entitlement and do not
have employment-based retiree health
care coverage). The CBO projects, in
data cited above, that the number of
people benefitting from the HIPAA (get-
ting coverage when it would have been
denied absent HIPAA) individual market
reforms would ‘‘plateau’’ at the 150,000
range by the fourth year of the law. The
GAO (HEHS–95–257, cited above) de-
termined that about two million people
each year could convert to individual
insurance from group coverage, based
on turnover rates among small employ-
ers and rates of COBRA continuation of
coverage.
Individual market premium effects
vary by state. In state regulatory activ-
ity, fewer states have provisions similar
to HIPAA’s in the individual market as
compared to state reforms in the small
group market. HIPAA will affect the
individual insurance markets in many
states. The RAND and IHPP data indi-
cate that only eleven states have guaran-
teed issue laws for the individual mar-
ket. Eight additional states have an
insurer (Blue Cross-Blue Shield) offer-
ing open enrollment in the individual
market. Twenty-three states have laws
limiting the period of pre-existing condi-
tion exclusions, but only one state al-
lows no such exclusion period, with
most states allowing a 12-month exclu-
sion period with a 6- or 12-month ‘‘look
back.’’
One of the most contentious issues in
discussions of HIPAA’s effect on the
individual insurance market has been the
issue of premiums in that market.
HIPAA does not impose any rating
requirements on insurers in the indi-
vidual market, meaning that the insurers
are free to price their individual prod-
ucts in any manner that is consistent
with state law. IHPP data show that for
the individual market, seven states have
rating bands (premiums must be within
certain upper and lower bounds in rela-
tion to a ‘‘standard’’ premium), and
eight states require community rating of
some form (a form of rating that can be
roughly described as rating across a
larger pool of insured individuals, for
example, across all of an issuer’s in-
sured individuals, across defined age
categories, etc.). Rating bands and com-
munity rating requirements have the
same intended effect as HIPAA, to in-
crease the availability of insurance, but
they additionally seek to assure afford-
able coverage. There will be interactions
between the HIPAA approach to in-
creased availability (guaranteed issue
and elimination of pre-existing condition
exclusions for certain individuals with
prior coverage) and the rating approach
in those states in which guaranteed issue
rules and pre-existing condition exclu-
sion rules differ from HIPAA’s provi-
sions.
Affordability of individual coverage is
a significant issue with HIPAA. The
Health Insurance Association of America
(HIAA) has projected that the individual
market reform provisions of HIPAA will
cause an eventual 22% increase in pre-
miums in that market (‘‘The Cost of
Ending ‘‘Job Lock’’ or How Much
Would Health Insurance Costs Go Up If
‘‘Portability’’ of Health Insurance Were
Guaranteed?’’, February 20, 1996).
HIAA projects, on that basis, that even-
tually 500,000 to one million people
would leave the individual insurance
market because of rate increases neces-
sitated by the HIPAA reforms. HIAA
bases this estimate on the current num-
ber of people insured in the individual
market, the number of new entrants in
the market, their costs, and the price-
sensitivity of purchasers or insurance.
Other studies have arrived at conclu-
sions that are very different from the
HIAA conclusions. The main difference
with other studies is that HIAA assumes
that HIPAA will cause states to impose
restrictions on the level of premiums
insurers may charge in the individual
market. There are no such requirements
in HIPAA. The HIAA assumes that
people currently covered in the indi-
vidual market will be included in the
rating pool that includes individuals who
are newly insured under HIPAA provi-
sions. The American Academy of Actu-
aries (AAA), for example, found that
the premium increases in the individual
market would be in the range of two to
five percent, and the increases would
take effect over a longer time span that
one year. The AAA took into account
current state laws, including state laws
related rate restrictions in the small
group market.
Jacob Klerman, of RAND, examined
HIAA’s assumptions and methodology
and found that (a) using HIAA’s assump-
tions, but employing more up-to-date or
otherwise improved data (‘‘better esti-
mates of the underlying figures’’), the
increase in individual premi-
ums would be 5.7%; and (b) using
different assumptions, the premium ef-
fect would be 2.3% and may be as little
as 1% or less (New Estimates of the
Effect of Kassebaum-Kennedy’s Group-
to-Individual Conversion Provision on
Premiums for Individual Health Insur-
ance, RAND, 1996). For the latter pro-
jections, Klerman assumed a different
level of claims costs for new entrants
(150%, based on studies of the costs for
COBRA continuation policies, versus the
HIAA’s 200%), that the premium pricing
for the new policies would not be pooled
with others in the individual market, and
that state laws would have effects that
the HIAA analysis did not consider. Note
that, as with the GAO report quoted
above, these analyses are based on an
earlier version of an insurance reform
bill, S. 1028, in which the guaranteed
issue was available only to those with 18
months of group coverage. This analysis
does not measure how many more
people are encompassed in the larger
HIPAA ‘‘eligible individual’’ group com-
prising individuals whose last type of
coverage was group coverage but who
had prior coverage during the 18-month
period from a different source; this will
slightly increase the cost.
29

Another study, done for HHS, by
Actuarial Research Corporation (ARC),
had results that were similar to the
RAND results. ARC projects possible
increases in individual premiums rang-
ing from 1.4 percent to 2.8 percent.
K. Statutory Provisions Affecting
Administrative Processes
While these rules implement the stat-
ute’s goal of expanding coverage and
portability of coverage by reducing the
use of pre-existing condition exclusions,
for purposes of performing this eco-
nomic impact analysis, it is appropriate
to break the regulations down into the
following components: certifications and
notices informing individuals of their
right to request a certification; notifica-
tion of the application of a pre-existing
condition exclusion period; alternative
methods of crediting coverage; and
guidelines for implementing the statute’s
special enrollment requirements. The no-
tice and notification requirements are
largely a result of this rulemaking. The
certification requirements are largely
prescribed by HIPAA, with certain as-
pects that mitigate the impact of the
statute resulting from this rulemaking.
While the alternative method of count-
ing compliance is authorized by HIPAA,
the classes and categories of coverage to
be measured were created at the discre-
tion of the three Departments.
1. Staggered Effective Dates
In general, the effective dates of
HIPAA’s group health plan provisions
are tied to plans’ fiscal years and to the
expiration of collective bargaining agree-
ments under which some plans are main-
tained. Provisions whose effective dates
are so tied included those pertaining to
pre-existing condition exclusions, credit-
ing prior coverage, and special enroll-
ments. (The effective dates of HIPAA’s
certification provisions are not so tied.)
Non-collectively bargained plans become
subject to these provisions of HIPAA in
the first plan year beginning on or after
the July 1, 1997. Collectively bargained
plans become subject the first plan year
beginning on or after the later of July 1,
1997 or the expiration of a collective
bargaining agreement that was in place
prior to HIPAA’s date of enactment,
August 21, 1996.
More than one-half of plans begin
their fiscal years on January 1. There-
fore, there is a large concentration of
plans and participants that become sub-
ject to HIPAA in January 1998. Overall,
the proportions of participants and plans
(respectively) that become subject to
HIPAA in 1997 are 15 percent and 24
percent; in 1998, 68 percent and 69
percent; in 1999, 11 percent and 4
percent; and in 2000, 5 percent and 2
percent.
The compliance costs of these regula-
tions regarding certification and notice,
pre-existing condition exclusion notifica-
tion, and notice of enrollment rights was
estimated based upon information in the
public domain and data available to the
Departments on industry practices. To
derive data on health coverage and
employment shifts of individuals, for the
purposes of this analysis the Depart-
ments referred to data collected from the
Census Bureau’s Current Population
Survey and Survey of Income and Pro-
gram Participation, as well as the Na-
tional Health Interview Survey and the
Department of Labor’s database of 1993
Form 5500 information, the most cur-
rent available. Supplemental data on
employer-sponsored health care was ob-
tained from the Peat Marwick Benefits
Survey and the BLS Employee Benefits
Survey.
2. Initial vs. Ongoing Costs
Costs may be separated into initial
costs and ongoing costs. Initial costs of
the new certification, notice, pre-existing
condition exclusion notification, and
special enrollment requirements have
several components, including capital
costs of preparations for collecting in-
formation such as purchasing or upgrad-
ing computers and software, and record
storage facilities. Initial costs may also
be expected to include programming or
reprogramming automated systems to
track periods of prior creditable cover-
age, and to track plan participants and
the type of coverage they hold, e.g.
individual or family coverage. Initial
costs also include up-front expenditures
for revisions of plan documents to com-
ply with the new statutory and regula-
tory requirements. These costs were an-
nualized over the estimated ‘‘life’’ of the
regulation, 10 years, in order to show
such costs on an annual basis. It is
estimated that the 15,604 plans that will
process certifications internally (rather
than use a service provider) will incur
an average cost of $5,000 per plan to
revise their automated records systems
to accommodate this information for a
total cost of $78 million over 10 years
beginning in 1997. Presented here as
direct costs, initial costs are a compo-
nent of overall social costs.
Ongoing expenditures incurred annu-
ally include the costs to group health
plans, health insurance issuers and self-
funded plans of performing the continu-
ing administrative tasks of calculating
periods of creditable coverage, printing
forms for notices, preparing an original
and a copy of notices and certifications
for participants with dependants having
identical coverage, and mailing these
documents to individuals. Also included
in ongoing expenditures is the cost to
plans which use pre-existing condition
exclusions to notify participants of the
plans’ provisions, and calculating peri-
ods of pre-existing condition exclusions
for new participants, and issuing an
individualized notification, as necessary,
to each individual who would be subject
to a pre-existing condition exclusion of
any duration. Total annualized initial
costs and ongoing costs were aggregated
to estimate total annual costs.
3. The Certification Process
The statute specifies that every indi-
vidual leaving a group health plan, end-
ing COBRA coverage, ending individual
insurance coverage, or leaving other
types of health coverage must receive a
written certification of creditable cover-
age containing specific information
about the individual and his or her
coverage, including information on the
coverage of dependents. This require-
ment constitutes a burden in information
collection and processing.
Despite recent incremental state re-
forms in the laws affecting the group
health insurance market, no states have
required group health plans or health
insurance issuers to provide participants
and their dependants with certifications
or notices regarding prior health cover-
age. Therefore, the statute imposes dis-
crete new burdens on all group health
plans and health insurance issuers in
connection with providing certifications,
and issuing notices to individuals of
their right to receive a certification.
Respondents preparing certification
forms must collect the appropriate infor-
mation about a person, prepare a certifi-
cation form, and, in most cases, mail the
information. One certification can serve
to provide information about dependents
covered under the same policy. The
respondent may have to prepare multiple
certification forms for an individual, or
for dependents, in the event that the
certificate is lost or misplaced. The
process may require the development of
new information systems or, more likely,
modifications to existing information
systems, to collect and process the nec-
essary information.
30

The statute makes the certification
requirement a key implementation com-
ponent of the portability provision in
both the group and individual markets.
The cost of providing certifications
for private group plans (absent the regu-
latory relief described below) is esti-
mated to be at least $98 million for 69
million certifications in 1997 and $84
million for 59 million in each subse-
quent year. Absent transition relief pro-
vided under the regulations, early year
costs could be far higher. The direct cost
of certifications contributes to the over-
all social cost of the statute.
L. Impact of Regulatory Discretion
These regulations mitigate the impact
of the statutory requirements on the
regulated public, while preserving pro-
tections, in several ways. These regula-
tions will reduce implementation costs.
The Departments exercised discretion
in connection with group plan provi-
sions, as follows:
First, intermediate issuers will not
have to issue a certification when an
individual changes options under the
same health plan. In lieu of the certifica-
tion, they could simply transfer the start
and stop dates of coverage to the plan.
An individual would retain the right to
get a certification upon request if they
leave the plan.
Second, telephonic certification will
fulfill the requirement to send a certifi-
cation if the receiving plan and the prior
plan mutually agree to that arrangement.
The individual can always get a written
certification upon request.
Third, the requirement to send certifi-
cations on June 1, 1997 to those who
have left plans between October 1, 1996
and May 31, 1997 can be satisfied by
sending a notice; the Departments have
offered a model notice in these regula-
tions for that purpose.
Fourth, until July 1, 1998, plans and
issuers that do not collect individual
information on dependants can comply
with the requirement to send each
dependant a separate certification by
simply listing the category of coverage
(e.g., individual, spouse or family).
Fifth, in situations where the issuer
and the plan contract for the issuer to
complete the certifications, the plan
would not remain liable if the issuer
failed to send the certifications.
Thus, plans would not need to keep
data and files on this information.
Sixth, the period of coverage listed on
automatic certifications will only be the
last continuous period of coverage with-
out any break. This is the most efficient
and simplest method of record keeping
for plans and issuers.
Seventh, the period of coverage con-
tained in the on-request certification will
be all periods of coverage ending within
24 months before the date of the re-
quest. Essentially, a plan may simply
look back two years and send copies of
any automatic certifications issued dur-
ing that period.
The above reductions in burdens on
plans and issuers may cause more fre-
quent circumstances in which partici-
pants are required to prove creditable
coverage and the status of their depen-
dents. In order to help offset some of
the additional burdens that will be
shifted to the participants, the regula-
tions provide the following protections:
First, if an individual is required to
demonstrate dependent status, the group
health plan or issuer is required to treat
the individual as having furnished a
certificate showing the dependent status
if the individual attests to such depen-
dency and the period of such status, and
the individual cooperates with the plan’s
or issuer’s efforts to verify the depen-
dent status.
Second, a plan shall treat an indi-
vidual as having furnished a certificate
if the individual attests to the period of
creditable coverage, and the individual
also presents relevant corroborating evi-
dence of some creditable coverage dur-
ing the period and the individual coop-
erates with the plan’s efforts to verify
the individual’s coverage.
Third, plans and issuers that impose
preexisting condition exclusions periods
must notify participants of this fact.
They must also explain that prior credit-
able coverage can reduce the length of a
preexisting condition exclusion period
and offer to request a certification on
the participant’s behalf. An exclusion
may not be imposed until this notice is
given. This is beneficial to participants
insofar as it forewarns them of potential
claim denials and enables then to more
easily exercise their right to protection
from such denials under HIPAA’s port-
ability provisions.
Fourth, a plan that imposes a preexist-
ing condition exclusion must notify a
participant if the individual’s creditable
coverage is not enough to completely
offset the exclusion period, and give the
individual the option to provide addi-
tional information. An exclusion may
not be imposed until this notice is given.
This provides participants an opportu-
nity to correct any failure to establish
credit for prior coverage before a claim
is denied.
Under the regulation, in the group
health plan enrollment materials ordi-
narily provided to most new partici-
pants, plans that contain pre-existing
condition exclusion provisions must also
provide notice that the plan contains
these provisions, that the participant has
the right to prove prior creditable cover-
age, including the right to secure a
certificate from a prior plan or issuer,
and that the new plan will assist in
obtaining the certificate. Those plans
using the alternative method of crediting
coverage also must disclose their meth-
ods to the participant, including an iden-
tification of the categories of coverage
used.
In addition, a plan seeking to impose
a pre-existing condition exclusion on a
participant or dependant must inform
them in writing of the determination that
they lack adequate prior coverage, and
provide an opportunity for the individual
to submit additional materials regarding
prior creditable coverage, and provide
an explanation of any appeals procedure.
The annual cost of these disclosure
procedures to private group plans is
estimated to be $280,000 in 1997, $2.1
million in 1998, and $1.9 million in
1999 (about 20 cents per notice). The
same costs for state group plans would
be $25,500, $51,000, and $51,000, re-
spectively. For local plans, they would
be $42,000, $84,000, and $84,000. The
Departments believe the marginal bur-
den of the notice will be modest be-
cause, irrespective of the notice require-
ment, under the statute plans must make
this determination before imposing a
preexisting condition exclusion. Com-
ments are encouraged as to whether this
assumption is appropriate. These costs
do not include any burdens attributable
to the use of the alternative methods of
crediting coverage, since it is assumed
that any plans incorporating this method
will do so only if the net cost is less
than using the standard method. Under
the alternative method of crediting cov-
erage, the regulation allows the prior
plan to charge the receiving plan using
the alternative method for the reasonable
costs of providing evidence of classes
and categories of prior health coverage.
On balance, to the extent that the
Departments have exercised regulatory
discretion, they have acted to reduce
compliance costs. This is particulary
true with respect to the certification
process.
31

These regulations attempt to reduce
the burden of certifications by limiting
the amount of information that needs to
be reported and offering a model form
that can be used to satisfy the require-
ment of the law. In the absence of a
written certification, the regulations al-
low for alternative means of establishing
creditable coverage, which includes hav-
ing the individual present documentation
of coverage or conducting telephone
verification with the entity that previ-
ously covered the individual.
During a transition period, respon-
dents may provide individuals with a
notice that they have the right to receive
a certificate of creditable coverage, a
requirement that can be met by includ-
ing the information in an evidence of
coverage or other generic document in-
dividuals receive that contains informa-
tion about their policy. This notice may
be provided in lieu of a certificate for
events that occur on or after October 1,
1996 but before June 1, 1997.
The cost to issuers of the certification
requirement is primarily in the paper-
work production of the certification
form. All health insurance issuers are
likely to have the kinds of systems in
place to be able to produce the informa-
tion necessary for a certification, al-
though there will be moderate systems
start-up costs, and some systems modifi-
cations for insurers and HMOs. Systems
modifications may also be necessary to
retain the data for the certificates for
several years, but, like the other require-
ments, this burden should also be lim-
ited. The model certification form of the
Preamble contains the kind of informa-
tion that is routinely used as the basis
for claims processing by a health insur-
ance issuer or by an HMO (for example,
in adjudicating an out-of-network
claim).
For example, in order to deny a claim
dating from a period prior to the begin-
ning date of coverage of a particular
individual, the issuer’s information sys-
tem could determine that 1) a particular
individual was covered by the issuer; 2)
the issuer identification number submit-
ted with the claim is correct; 3) the
individual was insured on the date the
health care service was provided; 4) the
service was provided during a waiting
period or affiliation period before cover-
age was available; and 5) coverage may
have ended prior to the date of service.
The issuer’s information system would
also determine the limitations of cover-
age (e.g. high or low option coverage,
with or without specific riders). The
remaining information of the certifica-
tion form could also be available to the
issuer, especially for COBRA-eligible
individuals: whether COBRA continua-
tion coverage is involved (given that the
premium is charged directly to the indi-
vidual at a specified rate); the beginning
and ending dates of coverage and wait-
ing periods; and the name, address,
phone number and contact person (or
Department) for information.
Respondents may need to modify
their systems to determine whether, for
a given insurer’s coverage of a particu-
lar individual, there was a 63-day period
of interrupted coverage for purposes of
specifying this information on a certifi-
cation form. As noted above, the De-
partments have taken consideration the
difficulties insurers have in identifying
dependents under family coverage, and
the regulations make appropriate accom-
modations, in recognition of the need
for a transition period during which
information about dependent coverage
information may be unavailable from
issuers.
The cost of producing and issuing
certifications (or notices in lieu of certi-
fications where permitted) for private
group plans is estimated to be $57
million for 53 million certifications in
1997, $64 million for 44 million in
1998, and $66 million for 44 million in
each subsequent year. Medicaid pro-
grams would provide 10 million certifi-
cations annually at an annual cost of
$600,000. Medicare would issue 92,000
annually at a cost of $115,000. (Should
HHS decide to allow the Medicare
award and termination letters to suffice
as certifications, then there would be no
cost to the Medicare program for the
HIPAA certification requirements.) By
1999, the annual cost and volume would
total $500,000 and 200,000 for OPM,
$2.9 million and 1.9 million for state
plans, and $6.1 million and 4.1 million
for local plans, and $4.7 million and 2.9
million for individual market issuers.
Relative to the cost implied by the
statute alone, regulatory provisions di-
rected at the certification process reduce
private group plans’ cost of compliance
by a minimum of $41 million (or 42
percent) in 1997, $20 million (or 24
percent) in 1998, and $18 million (or 21
percent) in 1999 and later years, through
the creation of transitional rules, safe
harbors and good faith compliance peri-
ods. The regulation acts to reduce paral-
lel burdens on issuers and state and
local government group plans in similar
proportion.
In another discretionary provision,
these regulations require group plans to
notify eligible new employees of their
special enrollment rights. This provision
is necessary to make sure employees are
sufficiently informed to exercise their
rights within the 30-day window pro-
vided in the statute. The cost of this
disclosure is expected to be small, since
it is a uniform disclosure that can
accompany ordinary materials provided
to new participants. In order to mini-
mize the burden, the preamble to these
regulations provides model language for
the notice adequate for meeting the
statutory obligation. The cost, which
would reach $1.72 million in 1999 for
private group plans, is described in the
PRA analysis. In 1999, the cost for State
plans would reach $167,000; the cost for
local plans would reach $290,000.
The direct cost of certifications and
notices contribute to the overall social
cost of the statute and regulations.
HHS has exercised regulatory discre-
tion regarding two specific provisions
that will be enforced exclusively by
HHS (also referred to as the ‘‘non-
shared group market’’ provisions).
These two areas are as follows:
Guaranteed Availability of Coverage
for Employers in the PHS Act Group
Health Market Provisions
The group market provisions include
rules relating to guaranteed availability
of coverage for employers in the small
group market that are only in the PHS
Act (not in ERISA or the Code). Section
146.150 of the HHS regulations imple-
ments section 2711 of the PHS Act. In
general, this section requires health in-
surance issuers that offer coverage in
the small group market to offer all
policy forms to any eligible small em-
ployer and to accept for enrollment
every eligible individual without regard
to health status. HHS has interpreted
this guaranteed availability requirement
to apply to all products offered in the
small group market. Some States and
issuers argue that the statute would
permit guaranteed availability of an is-
suer’s basic and standard plan, as op-
posed to all products offered by the
issuer in the small group market. HHS
does not agree with this interpretation
and have proposed our interpretation in
the regulation. Depending upon State
law, this decision may provide the ben-
efit of additional choices to small em-
ployers purchasing coverage in the small
group market, while adding some poten-
tial costs for issuers offering coverage in
the small group market.
32

Exclusion of Certain Plans from the
PHS Act Group Market Requirements:
The group market provisions also in-
clude rules under which certain plans
are excluded from the group market
provisions that are only in the PHS Act
(not in ERISA or the Code). Section
146.180 of the HHS regulations imple-
ments section 2721 of the PHS Act.
Section 146.180(b) includes rules per-
taining to non-federal governmental
plans, which are permitted under HIPAA
to elect to be exempted from some or
all of HIPAA’s requirements in the PHS
Act. HHS has exercised regulatory dis-
cretion by prescribing the form and
manner of the election and the contents
of the notice. HHS has also required a
non-federal governmental plan making
this election to notify plan participants,
at the time of enrollment and on an
annual basis, of the fact and conse-
quences of the election. HHS has exer-
cised this regulatory authority in order
to ensure adequate documentation of a
non-federal governmental plan’s proper
and appropriate election without placing
an undue burden on the plan. In addi-
tion, HHS has provided a non-federal
governmental plan the flexibility to elect
to opt out of specific provisions of the
statute and have allowed for this flex-
ibility in the contents of the notice. The
cost of providing these notices for
nonfederal governmental would range
from $79,000 to $158,000 in 1997 and
from $158,000 to $315,000 in 1999.
HHS has also exercised regulatory
discretion in connection with individual
market provisions by specifying that
college health plans are treated as bona
fide associations. Since, under HIPAA,
coverage offered through a bona fide
association is creditable coverage, indi-
viduals covered under a college plan
would receive credit for this coverage.
However, because this coverage is of-
fered though a bona fide association (as
defined in Part 144 of the group market
rules), the issuer benefits because it does
not have to make the coverage available
in the individual market to eligible indi-
viduals, and does not have to renew
coverage for a student who leaves the
association. This regulatory provision is
expected to minimally disrupt business
practices for those college plans.
HHS also exercised regulatory discre-
tion in connection with individual mar-
ket provisions. When an eligible indi-
vidual applies for coverage in the
individual market, the effective date of
such coverage is deemed, in the regula-
tions, to be the date on which the
individual applies for such coverage,
and assuming the individual’s applica-
tion for coverage was accepted.
The impact of this regulatory provi-
sion is that an individual who wishes to
maintain creditable coverage may delay,
for up to 63 days, an application for
coverage in the individual insurance
market, especially if he or she is assured
of being covered by an issuer (e.g., if
the person is guaranteed issuance of an
individual product as an individual com-
ing from group coverage, under the
Act’s guaranteed availability provisions).
The individual may forego medical
treatment during the 63-day period of
non-coverage, resulting in a deteriora-
tion of health on entering the new health
plan, with a potential for greater costs
incurred by the insurer or health plan.
The regulation could have required
that the individual apply for coverage
within a reasonable time period in ad-
vance of the 63-day period, such as 30
days after the end of prior coverage
(which is similar to the statutory re-
quirement for a request for enrollment
in a group health plan following exhaus-
tion of COBRA coverage or other ex-
haustion of coverage); or, the insurer
could have been required to begin cov-
erage within some specified time period
after application. However, the approach
taken in the regulation is consistent with
statutory provisions regarding the treat-
ment of waiting periods or HMO affilia-
tion periods, which the statute specifi-
cally excludes from being considered
breaks in coverage. The regulatory pro-
vision also accords the same status to all
individuals in any circumstance by mak-
ing a 63-day period the maximum dur-
ing which an individual can be without
coverage and still receive credit for
creditable coverage.
M. Paperwork Reduction Act -
Department of Labor and Department of
the Treasury
The Department of Labor and the
Department of the Treasury have sub-
mitted this emergency processing public
information collection request (ICR),
consisting of three distinct ICRs, to the
OMB for review and clearance under
the Paperwork Reduction Act of 1995
(Pub. L. 104–13, 44 U.S.C. Chapter 35).
The Departments have asked for OMB
clearance as soon as possible, and OMB
approval is anticipated by or before June
1, 1997.
These regulations contain three dis-
tinct ICRs. Two of them (Establishing
Prior Creditable Coverage and Notice of
Enrollment Rights) are prescribed by the
statute.
The first ICR implements statutorily
prescribed requirements necessary to es-
tablish prior creditable coverage. This is
accomplished primarily through the issu-
ance of certificates of prior coverage by
group health plans or by service provid-
ers that the group health plans contract
with in order to provide these docu-
ments. In addition, this ICR permits the
use of a notice that may be used by the
plans to meet their obligations in con-
nection with periods of coverage ending
during the transition period, October 1,
1996 through May 31, 1997, saving the
respondents both hours and cost during
that period. This ICR also covers the
requests that certain plans will make
regarding additional information they re-
quire because they are using the Alter-
native Method of Crediting Coverage.
Finally, this ICR also includes the occa-
sional circumstances where a participant
is unable to secure a certificate and
needs to provide some supplemental
form of documentation in order to estab-
lish prior creditable coverage.
The second ICR, Notice of Special
Enrollment Rights, implements the
statutorily prescribed disclosure obliga-
tion of the plans to inform a participant,
at the time of enrollment, of the plan’s
special enrollment rules.
The third ICR, Notice of Pre-Existing
Condition Exclusion, concerns the dis-
closure requirements on those plans that
contain pre-existing condition exclusion
provisions. This ICR has two compo-
nents: a notice to all participants at the
time of enrollment stating the terms of
the plan’s pre-existing condition provi-
sions, the participant’s right to demon-
strate creditable coverage, and that the
plan or issuer will assist in securing a
certificate if necessary; and notice by
the plan of its determination that an
exclusion period applies to an indi-
vidual.
1.Establishing Prior Creditable Cov-
erage
i. Department of Labor
The Department of Labor, as part of
its continuing effort to reduce paper-
work and respondent burden, conducts a
preclearance consultation program to
provide the general public and federal
agencies with an opportunity to com-
ment on proposed information collection
requests (ICR) in accordance with the
Paperwork Reduction Act of 1995 (PRA
95)(Pub. L. 104–13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program
33

helps to ensure that requested data can
be provided in the desired format, re-
porting burden (time and financial re-
sources) is minimized, collection instru-
ments are clearly understood, and the
impact of collection requirements on
respondents can be properly assessed.
Currently, the Pension and Welfare Ben-
efits Administration is soliciting com-
ments concerning the proposed new col-
lection of Establishing Prior Creditable
Coverage.
Dates: Written comments must be
submitted to the office listed in the
addressee section below on or before
May 31, 1997. In light of the request for
OMB clearance by June 1, 1997, sub-
mission of comments within the first 30
days is encouraged to ensure their con-
sideration.
The Department of Labor is particu-
larly interested in comments which:
• evaluate whether the proposed col-
lection is necessary for the proper
performance of the functions of the
agency, including whether the infor-
mation will have practical utility;
• evaluate the accuracy of the agen-
cy’s estimate of the burden of the
proposed collection of information,
including the validity of the meth-
odology and assumptions used;
• enhance the quality, utility, and
clarity of the information to be
collected; and
• minimize the burden of the collec-
tion of information on those who
are to respond, including through
the use of appropriate automated,
electronic, mechanical, or other
technological collection techniques
or other forms of information tech-
nology, e.g., permitting electronic
submissions of responses.
Addressee: Gerald B. Lindrew, Office
of Policy and Research, U.S. Depart-
ment of Labor, Pension and Welfare
Benefits Administration, 200 Constitu-
tion Avenue, Room N–5647, Washing-
ton, D.C. 20210. Telephone: 202–219–
4782 (this is not a toll-free number).
Fax: 202–219–4745.
ii. Department of the Treasury
The collection of information is in
Section 54.9801–5T. This information is
required by the statute so that partici-
pants will be informed about their rights
under HIPAA and about the amount of
creditable coverage that they have ac-
crued under a group health plan. The
likely respondents are business or other
for-profit institutions, non-profit institu-
tions, small businesses or organizations,
and Taft-Hartley trusts. Responses to
this collection of information are man-
datory.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally, tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224.
Comments on the collection of informa-
tion should be received by May 31,
1997. In light of the request for OMB
clearance by June 1, 1997, submission
of comments within the first 30 days is
encouraged to ensure their consideration.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have prac-
tical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information;
How to enhance the quality, utility,
and clarity of the information to be
collected;
How to minimize the burden of com-
plying with the proposed collection of
information, including the application of
automated collection techniques or other
forms of information technology; and
Estimates of capital or start up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
Additional PRA 95 Information:
I. Background: In order to meet
HIPAA’s goal of improving access to
and portability of health care benefits,
the statute provides that, after the sub-
mission of evidence establishing prior
creditable coverage, a subsequent health
insurance provider would be limited in
the extent to which it could use pre-
existing condition exclusions to limit
coverge. This ICR covers the submis-
sion of materials sufficient to establish
prior creditable coverage.
II. Current Actions: Under 29 CFR
2590.701–5 and 26 CFR 54.9801–5T of
the interim rule, a group health plan
offering group health insurance coverage
is obligated to provide a written certifi-
cate of information suitable for estab-
lishing the prior creditable coverage of a
participant or beneficiary. To the extent
that a certification is not available or
inadequate to prove prior creditable cov-
erage, paragraph (c) provides other
methods for establishing creditable cov-
erage. During the transition period for
certification (29 CFR 2590.710(e) and
26 CFR 54.9806–1T(e)), plans have the
option of providing notices regarding
participant’s rights to certification rather
than the certification itself; plans then
provide certificates only to those partici-
pants who request them. 29 CFR
2590.701–5(a)(7) and 26 CFR 54.9801–
5T(a)(7) provides special rules for estab-
lishing prior coverage of dependants,
and 29 CFR 2590.701–5(b) and 26 CFR
54.9801–5T(b) provides guidance on
providing evidence of coverage to those
plans that use the alternative method of
crediting coverage.
These regulations offer model certifi-
cation and notice forms to be used by
group health plans and health insurance
issuers, containing the minimum infor-
mation mandated by the statute. Based
on past experience, the staff believes
that most of the materials required to be
exchanged under the certification proce-
dure will be prepared by contract ser-
vice providers such as insurance compa-
nies and third-party administrators.
Type of Review: New
Agencies: U.S. Department of Labor,
Pension and Welfare Benefits Adminis-
tration; U.S. Department of the Treasury,
Internal Revenue Service
Title: Establishing Prior Creditable
Coverage
Affected Public: Individuals or
household; Business or other for-profit;
Not-for-profit institutions; Group Health
Plans.
Frequency: On occasion
Burden:
34

YearTotal Respondents Total Responses Average Time per
Response (range)
Burden Hours
(range)
Cost (range)
19972,600,00051,799,4103.23 min
6.12 min
502,080
950,710
$57,180,000
$84,590,000
19982,600,00044,431,9705.04 min
11.77 min
672,120
1,569,390
$64,480,000
$119,310,000
19992,600,00044,399,1505.27 min
12.01 min
702,360
1,599,630
$66,310,000
$121,140,000
TOTALS////////////////
Start up costs: It is estimated that the
15,604 plans that will perform these
functions internally (rather than use a
service provider) will incur an average
cost of $5,000 per plan to revise their
automated records systems to ac-
comodate this information for a total
cost of $78 million over 10 years begin-
ning in 1997.
Estimated total cost:
Comments submitted in response to
this notice will be summarized and/or
included in the request for Office of
Management and Budget approval of the
information collection request; they will
also become a matter of public record.
2.Notice of Enrollment Rights
i. Department of Labor
The Department of Labor, as part of
its continuing effort to reduce paper-
work and respondent burden, condcuts a
prelearance consultation program to pro-
vide the general public and federal
agencies with an opportunity to com-
ment on proposed information collection
requests (ICR) in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (Pub. L. 104–13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program
helps to ensure that requested data can
be provided in the desired format, re-
porting burden (time and financial re-
sources) is minimized, collection instru-
ments are clearly understood, and the
impact of collection requirements on
respondents can be properly assessed.
Currently, the Pension and Welfare Ben-
efits Administration is soliciting com-
ments concerning the proposed new col-
lection of Notice of Enrollment Rights.
Dates: Written comments must be
submitted to the office listed in the
addressee section below on or before
May 31, 1997. In light of the request for
OMB clearance by June 1, 1997, sub-
mission of comments within the first 30
days is encouraged in ensure their con-
sideration.
The Department of Labor is particu-
larly interested in comments which:
• evaluate whether the proposed col-
lection is necessary for the proper
performance of the functions of the
agency, including whether the infor-
mation will have practical utility;
• evaluate the accuracy of the agen-
cy’s estimate of the burden of the
proposed collection of information,
including the validity of the meth-
odology and assumptions used;
• enhance the quality, utility, and
clarity of the information to be
collected; and
• minimize the burden of the collec-
tion of information on those who
are to respond, including through
the use of appropriate automated,
electronic, mechanical, or other
technological collection techniques
or other forms of information tech-
nology, e.g., permitting electronic
submissions of responses.
Addressee: Gerald B. Lindrew, Office
of Policy and Research, U.S. Depart-
ment of Labor, Pension and Welfare
Benefits Administration, 200 Constitu-
tion Avenue, Room N–5647, Washing-
ton, D.C. 20210. Telephone: 202–219–
4782 (this is not a toll-free number).
Fax: 202–219–4745.
ii. Department of the Treasury
The collection of information is in
Section 54.9801–6T. This information is
required by the statute so that partici-
pants will be informed about their rights
under HIPAA and about the amount of
creditable coverage that they have ac-
crued under a group health plan. The
likely respondents are business or other
for-profit institutions, small businesses
or organizations, and Taft-Hartley trusts.
Responses to this collection of informa-
tion are mandatory.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally, tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224.
Comments on the collection of informa-
tion should be received by May 31,
1997. In light of the request for OMB
clearance by June 1, 1997, submission
of comments within the first 30 days in
encouraged to ensure their consideration.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, includig
whether the information will have prac-
tical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information;
How to enhance the quality, utility,
and clarity of the information to be
collected;
How to minimize the burden of com-
plying with the proposed collection of
information, including the applicatio of
automated collection techniques or other
forms of information technology; and
Estimates of capital or start up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
Additionally PRA 95 Information:
I. Background: In order to improve
participants’ understanding of their
rights under an employer’s welfare ben-
efits plan, the statute provides that, a
participant be provided with a descrip-
tion of a plan’s special enrollment rules
on or before the time when a participant
is offered the opportunity to enroll in a
group health plan.
II. Current Actions: Under 29 CFR
2590.701–6 and 26 CFR 54.9801–6T of
the interim rule, a group health plan
offering group health insurance coverage
is obligated to provide a description of
35

the plans’ special enrollment rules. The
special enrollment rules generally apply
in circumstances when the participant
initially declined to enroll in the plan,
and subsequently would like to have
coverage.
These regulation offer a model form
to be used by group health plans and
health insurance issuers, containing the
minimum information mandated by the
statute. Based on past experience, the
staff believes that most of the materials
required to be supplied under this ICR
will be prepared by contract service
providers such as insurance companies
and third-party administrators.
Type of Review: New
Agencies: U.S. Department of Labor,
Pension and Welfare Benefits Adminis-
tration; U.S. Department of the Treasury,
Internal Revenue Service.
Title: Notice of Enrollment Rights
Affected Public: Individuals or house-
holds; Business or other for-profit; Not-
for-profit institutions; Group Health
Plans.
Frequency: On occasion
Burden:
YearTotal Respondents
(000)
Total Responses Average Time per
Response
Burden HoursCost
19972,600,000499,080.50 min750100,000
19982,600,0007,622,010.50 min11,4301,460,000
19992,000,0008,959,380.50 min13,4401,720,000
TOTALS////////////////
3.Notice of Pre-Existing Condition
Exclusion
i. Department of Labor
The Department of Labor, as part of
its continuing effort to reduce paper-
work and respondent burden, conducts a
preclearance consultation program to
provide the general public and federal
agencies with an opportunity to com-
ment on proposed information collection
requests (ICR) in accordance with the
Paperwork Reduction Act of 1995 (PRA
95)(Pub. L. 104–13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program
helps to ensure that requested data can
be provided in the desired format, re-
porting burden (time and financial re-
sources) is minimized, collection instru-
ments are clearly understood, and the
impact of collection requirements on
respondents can be properly assessed.
Currently, the Pension and Welfare Ben-
efits Administration is soliciting com-
ments concerning the proposed new col-
lection of Notice of Pre-Existing
Condition Exclusion.
Dates: Written comments must be
submitted to the office listed in the
addressee section below on or before
May 31, 1997. In light of the request for
OMB clearance by June 1, 1997, sub-
mission of comments within the first 30
days is encouraged to ensure their con-
sideration.
The Department of Labor is particu-
larly interested in comments which:
• evaluate whether the proposed col-
lection is necessary for the proper
performance of the functions of the
agency, including whether the infor-
mation will have practical utility;
• evaluate the accuracy of the agen-
cy’s estimate of the burden of the
proposed collection of information,
including the validity of the meth-
odology and assumptions used;
• enhance the quality, utility, and
clarity of the information to be
collected; and
• minimize the burden of the collec-
tion of information on those who
are to respond, including through
the use of appropriate automated,
electronic, mechanical, or other
technological collection techniques
or other forms of information tech-
nology, e.g., permitting electronic
submissions of responses.
Addressee: Gerald B. Lindrew, Office
of Policy and Research, U.S. Depart-
ment of Labor, Pension and Welfare
Benefits Administration, 200 Constitu-
tion Avenue, Room N–5647, Washing-
ton, D.C. 20210. Telephone: 202–219–
4782 (this is not a toll-free number).
Fax: 202–219–4745.
ii. Department of the Treasury
The collection of information is in
Sections 54.9801–3T, 54.9801–4T, and
54.9801–5T. This information is re-
quired by the statute so that participants
will be informed about their rights under
HIPAA and about the amount of credit-
able coverage that they have accrued
under a group health plan. The likely
respondents are business or other for-
profit institutions, non-profit institutions,
small businesses or organizations, and
Taft-Hartley trusts. Responses to this
collection of information are mandatory.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally, tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224.
Comments on the collection of informa-
tion should be received by May 31,
1997. In light of the request for OMB
clearance by June 1, 1997, submission
of comments within the first 30 days is
encouraged to ensure their consideration.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have prac-
tical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information;
How to enhance the quality, utility,
and clarity of the information to be
collected;
How to minimize the burden of com-
plying with the proposed collection of
information, including the application of
automated collection techniques or other
forms of information technology; and
Estimates of capital or start up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
Additional PRA 95 Information:
I. Background: In order to meet
HIPAA’s goal of improving portability
36

of health care coverage, participants
need to understand their rights to show
prior creditable coverage when entering
a group health plan that contain pre-
existing condition exclusion provisions.
In addition, participants entering plans
that use the alternative method of credit-
ing coverage also need to be informed
of the plan’s provisions. Therefore, the
Department has determined that plans
that contain these provisions must dis-
close that fact to new participants, as
well as inform individual participants of
the extent to which a pre-existing condi-
tion exclusion applies to them.
II. Current Actions: 29 CFR
2590.701–3(c) and 26 CFR 54.9801–
3T(c) requires that a group health plan
or health insurance issuer offering group
health insurance under the plan may not
impose any pre-existing condition exclu-
sions on a participant unless the partici-
pant has been notified in writing that the
plan contains pre-existing condition ex-
clusions, that a participant has the right
to demonstrate any period of prior cred-
itable coverage, and that the plan or
issuer will assist the participant in ob-
taining a certificate of prior coverage
from any prior plan or issuer, if neces-
sary. 29 CFR 2590.701–4(c)(4) and 26
CFR 54.9801–4T(c)(4) requires that
plans that use the alternative method of
crediting coverage disclose their method
at the time of enrollment in the plan. No
additional cost of preparing or distribut-
ing this information has been included in
this analysis because plans would only
pursue this option if it were, on net, less
costly than the standard method.
In addition, 29 CFR 2590.701–5(d)(2)
and 26 CFR 54.9801–5T(d)(2) requires
that before a plan or issuer imposes a
pre-existing condition exclusion on a
particular participant, it must first dis-
close that determination in writing, in-
cluding the basis for the decision, and
an explanation of any appeal procedure
established by the plan or issuer.
Type of Review: New
Agencies: U.S. Department of Labor,
Pension and Welfare Benefits Adminis-
tration; U.S. Department of the Treasury,
Internal Revenue Service.
Title: Notice of Pre-Existing Exclu-
sion Provisions
Affected Public: Individuals or
households; Business or other for-profit;
Not-for-profit institutions; Group Health
Plans.
Frequency: On occasion
Burden:
Cite/ReferenceTotal Respondents Total Responses Average Time per
Response
Burden HoursCost
Notice at time of
Enrollment
19971,261,450500,8000.70 min2,470$ 180,000
19981,261,4507,626,8800.54 min16,300$1,700,000
19991,261,4508,959,7000.50 min13,750$1,730,000
Notice of Pre-
Existing Condition
causing lack of
coverage
19971,261,45057,9002.27 min1,800$ 100,000
19981,261,450862,8300.84 min6,160$ 410,000
19991,261,4501,008,8100.52 min1,830$ 210,000
TOTALS/////
N. Paperwork Reduction Act —
Department of Health and Human
Services
Under the Paperwork Reduction Act
of 1995, HHS is required to provide
60-day notice in theFederal Register
and solicit public comment before a
collection of information requirement is
submitted to the Office of Management
and Budget (OMB) for review and ap-
proval. In order to fairly evaluate
whether an information collection
should be approved by OMB, section
3506(c)(2)(A) of the Paperwork Reduc-
tion Act of 1995 requires that we solicit
comment on the following issues:
• The need for the information collec-
tion and its usefulness in carrying
out the proper functions of our
agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of
the information to be collected.
• Recommendations to minimize the
information collection burden on
the affected public, including auto-
mated collection techniques.
We are, however, requesting an emer-
gency review of this notice. In compli-
ance with the requirement of section
3506(c)(2)(A) of the Paperwork Reduc-
tion Act of 1995, we have submitted to
the Office of Management and Budget
(OMB) the following requirement for
emergency review. We are requesting an
emergency review because the collection
of this information is needed before the
expiration of the normal time limits
under OMB’s regulations at 5 CFR, Part
1320, to ensure compliance with section
111 of the HIPAA necessary to imple-
ment congressional intent with respect
to guaranteeing availability of individual
health insurance coverage to certain in-
dividuals with prior group coverage. We
cannot reasonably comply with the nor-
mal clearance procedures because public
harm is likely to result because eligible
individuals will not receive the health
insurance protections under the statute.
We are requesting that OMB pro-
vide a 30-day public comment period
from the date of the publication, with
OMB review and approval by June 1,
1997, and a 180-day approval.During
this 180-day period, we will publish a
separate Federal Register notice an-
nouncing the initiation of an extensive
60-day agency review and public com-
37

ment period on these requirements. We
will submit the requirements for OMB
review and an extension of this emer-
gency approval.
Type of Information Request:New col-
lection
Title of Information Collection:Informa-
tion Collection Requirements Refer-
enced in HIPAA for Group Health Plans
Form Number:HCFA–R–206
Use:This regulation and related infor-
mation collection requirements will en-
sure that group health plans provide
individuals with documentation necessary
to demonstrate prior creditable coverage,
and that group health plans notify indi-
viduals of their special enrollment rights
in the group health insurance market.
Frequency:On occasion
Affected Public:State and local govern-
ments, Business or other for profit,
not-for-profit institutions, individuals or
households, Federal government
Number of Respondents:1,430
Total Annual Responses:Due to the
rolling effective dates in the statute, the
number of annual responses is estimated
to be 32.5 million in 1997, but will
increase to 41 million in 1998 and 42.5
million in 1999.
Total Annual Hours Requested:1.8 mil-
lion to 3.6 million hours in 1997; 2.3
million to 5.8 million hours in 1998;
and 2.6 million to 5.9 million hours in
1999.
Total Annual Cost:$36.8 million to
$53.9 million in 1997; $42.4 million to
$76.3 million in 1998; and $43.5 million
to $77.3 million in 1999.
45 CFR §§ 146.120, 146.122, 146.150,
146.152, 146.160, and 146.180 of this
document contain information collection
requirements.
45 CFR § 146.120 Certificates and Dis-
closure of Previous Coverage
Certificates and Disclosure of Prior
Coverage.This section sets forth guid-
ance regarding the certification and
other disclosure of information require-
ments relating to prior creditable cover-
age of an individual. In general, the
certificate must be provided in writing
and must include the following informa-
tion: (1) the date any waiting or affilia-
tion period began, (2) the date coverage
began, and (3) the date coverage ended
(or indicate if coverage is continuing).
The regulations also allow a plan or
issuer in an appropriate case to simply
state in the certificate that the individual
has at least 18 months of creditable
coverage that is not interrupted by a
significant break and indicate the date
coverage ended. In general, individuals
have the right to receive a certificate
automatically (an automatic certificate)
when they lose coverage under a plan
and when they have a right to elect
COBRA continuation coverage.
We anticipate that approximately
1,400 issuers will be required to produce
30 million certifications per year based
on the model certificate provided. Our
estimate of issuers (1,400) includes
commercial insurers and HMOs, but
does not include some types of issuers,
such as Preferred Provider Organizations
(PPOs); however, these types of issuers
are small in number. The time estimate
includes the time required to gather the
pertinent information, create a certifi-
cate, and mail the certificate to the plan
participant. This time estimate is based
on discussions with industry individuals.
We believe that, as a routine business
practice, the issuers’ administrative staff
have the necessary information readily
available to generate the required certifi-
cates. In addition, we have determined
that the majority of issuers have or will
have the capability to automatically
computer generate and disseminate the
necessary certification when appropriate.
These estimates include the certifi-
cates required by issuers acting as ser-
vice providers on behalf of group health
plans and state and local government
health plans. We anticipate that most, if
not all, state and local government
health plans will contract with an issuer
to develop the certificate.
Estimates for Certifications
YearTotal RespondentsTotal ResponsesAverage Time per
Response (range)
Burden Hours (range)Cost (range)
19971,40032,698,8453.32 min.
6.34 min.
1,809,119 hrs.
3,456,036 hrs.
$36,366,106
$53,434,628
19981,40028,072,1315.19 min.
12.23 min.
2,242,866 hrs.
5,720,198 hrs.
$40,928,939
$74,859,759
19991,40028,055,9845.37 min.
12.41 min.
2,510,461 hrs.
5,804,408 hrs.
$42,124,907
$75,760,119
Note: The costs above include the costs associated with issuers acting as service providers for group health plans. The costs are also included in the
Department of Labor’s estimates.
Notice to all participants.Under this
section, issuers are required to notify all
participants at the time of enrollment
stating the terms of the issuer’s pre-
existing condition exclusion provisions,
the participant’s right to demonstrate
creditable coverage, and that the issuer
will assist in securing a certificate if
necessary.
We have estimated the burden associ-
ated with this information collection
requirement to be the time required for
issuers to develop standardized language
outlining the existence and terms of any
preexisting condition exclusion under
the plan and the rights of individuals to
demonstrate creditable coverage. In spe-
cific, we anticipate that issuers will be
required to develop approximately
660,000 notices in 1997; 5.6 million
notices in 1998; and 6.2 million notices
in 1999. At 30 seconds for each notice,
we estimate the total hour burden to be
4,400 hours in 1997; 30,000 hours in
1998; and 34,000 hours in 1999. The
respective costs will be $49,000 in
1997; $330,000 in 1998; and $377,000
in 1999. These estimates and subsequent
estimates are based on an hourly wage
of $11 for issuers and $15 for State and
local government employees. These esti-
mates include the notices required by
issuers on behalf of state and local
government health plans, since we an-
ticipate that most, if not all state and
local government health plans will con-
tract with an issuer to develop the
notice. The estimates have been disag-
gregated below:
38

Total Notices
YearIssuersState Health PlansLocal Health PlansTotal Notices
1997320,000129,826214,880664,706
19984,878,200259,653429,7615,567,614
19995,734,300259,653429,7616,189,714
Total Burden Hours
YearIssuersState Health PlansLocal Health PlansTotal Hours
19971,5921,0781,7844,454
199824,2932,1553,56730,015
199928,5572,1553,56734,279
Notice to individual of period of pre-
existing condition exclusion.Within a
reasonable time following the receipt of
the certificate, information relating to
the alternative method, or other evidence
of coverage, a plan or issuer is required
to make a determination regarding the
length of any preexisting condition ex-
clusion period that applies to the indi-
vidual and notify the individual of its
determination. Whether a determination
and notification is made within a rea-
sonable period of time will depend upon
the relevant facts and circumstances in-
cluding whether the application of the
preexisting condition exclusion period
would prevent access to urgent medical
services. The individual need only be
notified, however, if, after considering
the evidence, a preexisting condition
exclusion period will be imposed on the
individual. The basis of the determina-
tion, including the source and substance
of any information on which the plan or
issuer relied, must be included in the
notice. The plan’s appeals procedures
and the opportunity of the individual to
present additional evidence must also be
explained in the notification.
We estimate that issuers will be re-
quired to develop approximately 29,000
notices in 1997; 425,000 notices in
1998; and 498,000 notices in 1999. At 2
minutes for each notice, we estimate the
total hour burden to be 960 hours in
1997; 14,000 hours in 1998; and 16,600
hours in 1999. We estimate the respec-
tive costs associated with these burdens
to be $10,600 in 1997; $156,000 in
1998; and $183,000 in 1999. These
estimates include the notices required by
issuers on behalf of state and local
government health plans, since we an-
ticipate that most, if not all state and
local government health plans will con-
tract with an issuer to develop the
notice. The estimates have been disag-
gregated below:
Total Notices
YearIssuersState Health PlansLocal Health PlansTotal Notices
199727,65058876629,004
1998422,1361,1761,531425,143
1999496,1821,1761,531498,889
Total Burden Hours
YearIssuersState Health PlansLocal Health PlansTotal Hours
19979212025966
199814,057405114,148
199916,553405116,644
45 CFR § 146.122 Special Enrollment
Periods
This section in the regulation provides
guidance regarding new enrollment rights
that employees and dependents have un-
der HIPAA. A health insurance issuer
offering group health insurance coverage
is required to provide a description of the
special enrollment rights to anyone who
declines coverage at the time of enroll-
ment. The regulations provide a model of
such a description containing the mini-
mum information mandated by the statute.
The first burden associated with this
requirement is the time required for
health insurance issuers and state and
local government health plans to incor-
porate the model notice into the plan’s
standard policy information. We estimate
the burden to be 2 hours annually per
issuer, for a total burden of 2,800 hours.
The cost associated with this hour bur-
den is estimated to be $30,800 annually.
The second burden associated with
this requirement is the time required to
disseminate the notice to new enrollees.
We estimate that issuers will be required
to develop approximately 1 million no-
tices in 1997; 5.3 million notices in
1998; and 5.9 million notices in 1999.
At 30 seconds for each notice, we
estimate the total hour burden to be
8,300 hours in 1997; 43,000 hours in
1998; and 48,000 hours in 1999. We
have estimated the costs associated with
these hour burdens to be $91,000 in
1997; $469,000 in 1998; and $527,000
in 1999. These estimates include the
notices required by issuers on behalf of
state and local government health plans,
since we anticipate that most, if not all
state and local government health plans
will contract with an issuer to develop
the notice. The estimates have been
disaggregated below:
39

Total Notices
YearIssuerState Health PlanLocal Health PlanTotal Notices
1997245,508287,938500,7501,034,196
19983,750,024575,8751,001,5005,327,399
19994,407,828575,8751,001,5005,985,203
Total Burden Hours
YearIssuerState Health PlanLocal Health PlanTotal Hours
19971,9642,3044,0068,273
199830,0004,6078,01242,619
199935,2634,6078,01247,881
45 CFR § 146.150 Guaranteed Avail-
ability of Coverage for Employers in the
PHS Act Group Market Provisions
This section allows a health insurance
issuer to deny health insurance coverage
in the small group market if the issuer
has demonstrated to the applicable State
authority (if required by the State au-
thority) that it does not have the finan-
cial reserves necessary to underwrite
additional coverage and that it is apply-
ing this denial uniformly to all employ-
ers in the small group market in the
State consistent with applicable State
law and without regard to the claims
experience of those employers and their
employees (and their dependents) or any
health status-related factor relating to
those employees and dependents. Thus,
issuers are only required to report to the
applicable State authority if they are
discontinuing coverage in the small
group market.
This requirement exists in the absence
of this regulation because under current
insurance practices, State insurance de-
partments oversee discontinuance of in-
surance products in their State as a
normal business practice. Therefore,
these information collection require-
ments are exempt from the PRA under 5
CFR 1320.3(b)(2) and 5 CFR
1320.3(b)(3). However, under HIPAA,
States must review policies during their
oversight process to make sure there is a
guaranteed availability clause in each
policy. For the 37 States that currently
require guaranteed availability, it is our
understanding that this is normal busi-
ness practice. For the other 18 States,
however, we see this State burden to be
about 10 minutes per policy, since States
already review policies for other re-
quirements and this process does not
prescribe a timetable for reviewing the
policies. We see this as a total burden of
10,850 hours. We have estimated the
cost associated with this hour burden to
be $163,000. If the State identifies a
violation and a State has to take some
action, we believe that each State will
be required to initiate fewer than 10
administrative actions on an annual ba-
sis against specific individuals or enti-
ties who failed to implement the Federal
guarantee availability requirements.
45 CFR § 146.152 Guaranteed Renew-
ability of Coverage for Employers in the
PHS Act Group Market Provisions
In this section issuers are only re-
quired to report if they are discontinuing
a particular type of coverage or discon-
tinuing all coverage. This requirement
exists in the absence of this regulation
because under current insurance prac-
tices, State insurance departments over-
see discontinuance of insurance products
in their State as a normal business
practice. Therefore, these information
collection requirements are exempt from
the PRA under 5 CFR 1320.3(b)(2) and
5 CFR 1320.3(b)(3). However, under
HIPAA, States must review policies dur-
ing their oversight process to make sure
there is a guaranteed availability clause
in each policy. For the 43 States that
currently require guaranteed renewabil-
ity, it is our understanding that this is
normal business practice. For the other
12 States, however, we see this State
burden to be about 10 minutes per
policy, since States already review poli-
cies for other requirements and this
process does not prescribe a timetable
for reviewing the policies. We see this
as a total burden of 6,700 hours. We
have estimated the cost associated with
this hour burden to be $100,500. If the
State identifies a violation and a State
has to take some action, we believe that
each State will be required to initiate
fewer than 10 administrative actions on
an annual basis against specific indi-
viduals or entities who failed to imple-
ment the Federal guarantee renewability
requirements.
45 CFR § 146.160 Disclosure of Infor-
mation by Issuers to Employers Seeking
Coverage in the Small Group Market in
the PHS Act Provisions
This section requires issuers to dis-
close information to employers seeking
coverage in the small group market.
This section requires information to be
provided by a health insurance issuer
offering any health insurance coverage
to a small employer. This information
includes the issuer’s right to change
premium rates and the factors that may
affect changes in premium rates, renew-
ability of coverage, any preexisting con-
dition exclusion, any affiliation periods
applied by HMOs, the geographic areas
served by HMOs, and the benefits and
premiums available under all health in-
surance coverage for which the em-
ployer is qualified. The issuer is ex-
empted from disclosing information that
is proprietary or trade secret information
under applicable law.
The information described in this sec-
tion must be language that is under-
standable by the average small employer
and sufficient to reasonably inform
small employers of their rights and
obligations under the health insurance
coverage. This requirement is satisfied if
the issuer provides an outline of cover-
age, the minimum contribution and
group participation rules that apply to
any particular type of coverage, and any
other information required by the State.
An outline of coverage is defined as a
general description of benefits and pre-
miums. This would include an outline of
coverage similar to the manner in which
Medigap policies are presented, allowing
the employer to easily compare one
40

policy form to another to determine
what is covered and how much the
coverage will cost.
We have estimated the total burden
associated with this activity to be 2,400
hours. We anticipate that 1,200 issuers
will be required to provide disclosure to
small employers on an annual basis. We
estimate this time to be approximately 2
hours for each issuer to develop and
update the standard information related
to the general description of benefits
and premiums on an annual basis and
include this information in their policy
information. We have estimated the cost
associated with this hour burden to be
$36,000.
45 CFR § 146.180 Exclusion of Certain
Plans from the PHS Act Group Market
Requirements
Section 146.180(b) includes rules per-
taining to nonfederal governmental
plans, which are permitted under HIPAA
to elect to be exempted from some or
all of HIPAA’s requirements in the PHS
Act. The regulation establishes the form
and manner of the election. In particular,
a nonfederal governmental plan making
this election is required to notify plan
participants, at the time of enrollment
and on an annual basis, of the fact and
consequences of the election. The bur-
den imposed by this is the requirement
for plans to disseminate standard notifi-
cation language describing the plans’
election and the consequences of this
election. We anticipate that between
3,500 and 5,000 nonfederal governmen-
tal plans will make this election and will
therefore be required to disseminate no-
tifications to their participants on an
annual basis. Since this is standard lan-
guage that will be incorporated into
plans’ existing policy documents, we see
the burden as approximately 2 hours per
plan to develop and update this stan-
dardized disclosure statement on an an-
nual basis. Thus, we estimate the total
burden for this activity to range from
7,000 to 10,000 hours. We estimate the
cost associated with these hourly bur-
dens to range from $77,000 to 110,000
per year.
The above estimate does not include
the cost of disseminating the notices to
all plan participants on annual basis and
to new enrollees at the time of enroll-
ment. Although we do not have an
accurate estimate of the number of
nonfederal governmental plans will
choose to opt out of these provisions,
we have provided for a range of 50 to
100 percent. Using these ranges, we
estimated 400,000 to 800,000 of these
notices would need to be produced in
1997 and 800,000 to 1.6 million in 1998
and 1999. At 30 seconds per notice, we
estimate the total burden hours to range
from 3,400 to 6,800 in 1997; and 6,800
to 13,600 in 1998 and 1999. We have
estimated the costs associated with these
hour burdens to range from $37,400 to
$74,800 in 1997; and from $74,800 to
$149,600 in 1998 and 1999.
We have submitted a copy of this rule
to OMB for its review of these informa-
tion collections. A notice will be pub-
lished in theFederal Registerwhen
approval is obtained. Interested persons
are invited to send comments regarding
this burden or any other aspect of these
collections of information. If you com-
ment on these information collection
and record keeping requirements, please
mail copies directly to the following
addresses:
Health Care Financing Administra-
tion,
Office of Financial and Human Re-
sources,
Management Planning and Analysis
Staff,
Room C2–26–17, 7500 Security Bou-
levard,
Baltimore, MD 21244–1850.
Attn: John Burke
Office of Information and Regulatory
Affairs,
Office of Management and Budget,
Room 10235, New Executive Office
Building,
Washington, DC 20503,
Attn: Allison Herron Eydt, HCFA
Desk Officer.
Statutory Authorities
The Department of Labor interim fi-
nal rule is adopted pursuant to the
authority contained in Section 707 of
ERISA (Pub. L. 93–406, 88 Stat. 894;
29 U.S.C. 1135) as amended by HIPAA,
(Pub. L. 104–191; 101 Stat. 1936; 29
U.S.C. 1181).
The Department of Health and Hu-
man Services interim final rule is
adopted pursuant to the authority con-
tained in Sections 2701, 2702, 2711,
2712, 2713, and 2792 of the PHS Act,
as established by HIPAA, (Pub. L. 104–
191, 42 U.S.C. 300gg–1 through 300gg–
13, and 300gg–92).
The Department of the Treasury tem-
porary rule is adopted pursuant to the
authority contained in 26 U.S.C. 7805,
9806; Sec. 401, Pub. L. 104–191, 101
Stat. 1936.
Amendments to the Regulations
Internal Revenue Service
26 CFR Chapter I
Accordingly, 26 CFR part 54 is
amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation
for part 54 is amended by adding entries
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9801–1T also issued under
26 U.S.C. 9806.
Section 54.9801–2T also issued under
26 U.S.C. 9806.
Section 54.9801–3T also issued under
26 U.S.C. 9806.
Section 54.9801–4T also issued under
26 U.S.C. 9806.
Section 54.9801–5T also issued under
26 U.S.C. 9801(c)(4), 9801(e)(3), and
9806.
Section 54.9801–6T also issued under
26 U.S.C. 9806.
Section 54.9802–1T also issued under
26 U.S.C. 9806.
Section 54.9804–1T also issued under
26 U.S.C. 9806.
Section 54.9806–1T also issued under
26 U.S.C. 9806.
Par. 2. Sections 54.9801–1T,
54.9801–2T, 54.9801–3T, 54.9801–4T,
54.9801–5T, 54.9801–6T, 54.9802–1T,
54.9804–1T, and 54.9806–1T are added
to read as follows:
§ 54.9801–1T Basis and scope (tempo-
rary).
(a)Statutory basis.Sections
54.9801–1T through 54.9801–6T,
54.9802–1T, 54.9804–1T, and
54.9806–1T (portability sections) imple-
ment Chapter 100 of Subtitle K of the
Internal Revenue Code of 1986.
(b)Scope.A group health plan may
provide greater rights to participants and
beneficiaries than those set forth in
these portability sections. These port-
ability sections set forth minimum re-
quirements for group health plans con-
cerning:
(1) Limitations on a preexisting con-
dition exclusion period.
(2) Certificates and disclosure of pre-
vious coverage.
(3) Rules relating to creditable cover-
age.
(4) Special enrollment periods.
41

(c)Similar Requirements under the
Public Health Service Act and Employee
Retirement Income Security Act.Sec-
tions 2701, 2702, 2721, and 2791 of the
Public Health Service Act and sections
701, 702, 703, 705, and 706 of the
Employee Retirement Income Security
Act of 1974 impose requirements simi-
lar to those imposed under Chapter 100
of Subtitle K of the Internal Revenue
Code with respect to health insurance
issuers offering group health insurance
coverage. See 45 CFR Parts 144, 146,
and 148 and 29 CFR Part 2590. See
also Part B of Title XXVII of the Public
Health Service Act and 45 CFR Part
148 for other rules applicable to health
insurance offered in the individual mar-
ket (defined in § 54.9801–2T).
§ 54.9801–2T Definitions (temporary).
Unless otherwise provided, the defini-
tions in this section govern in applying
the provisions of §§ 54.9801–1T
through 54.9801–6T, 54.9802–1T,
54.9804–1T, and 54.9806–1T.
Affiliation periodmeans a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
COBRAdefinitions:
(1)COBRAmeans Title X of the
Consolidated Omnibus Budget Recon-
ciliation Act of 1985, as amended.
(2)COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable COBRA
continuation provision.
(3)COBRA continuation provision
means sections 601–608 of the ERISA,
section 4980B of the Internal Revenue
Code (other than paragraph (f)(1) of
such section 4980B insofar as it relates
to pediatric vaccines), and Title XXII of
the PHSA.
(4)Exhaustion of COBRA continua-
tion coveragemeans that an individual’s
COBRA continuation coverage ceases
for any reason other than either failure
of the individual to pay premiums on a
timely basis, or for cause (such as
making a fraudulent claim or an inten-
tional misrepresentation of a material
fact in connection with the plan). An
individual is considered to have ex-
hausted COBRA continuation coverage
if such coverage ceases—
(i) Due to the failure of the employer
or other responsible entity to remit pre-
miums on a timely basis; or
(ii) When the individual no longer
resides, lives, or works in a service area
of an HMO or similar program (whether
or not within the choice of the indi-
vidual) and there is no other COBRA
continuation coverage available to the
individual.
Conditionmeans a medical condition.
Creditable coveragemeanscreditable
coveragewithin the meaning of
§ 54.9801–4T(a).
Employee Retirement Income Security
Act of 1974 (ERISA)means the Em-
ployee Retirement Income Security Act
of 1974, as amended (29 U.S.C. 1001 et
seq.).
Enrollmeans to become covered for
benefits under a group health plan (i.e.,
when coverage becomes effective), with-
out regard to when the individual may
have completed or filed any forms that
are required in order to enroll in the
plan. For this purpose, an individual
who has health insurance coverage un-
der a group health plan is enrolled in
the plan regardless of whether the indi-
vidual elects coverage, the individual is
a dependent who becomes covered as a
result of an election by a participant, or
the individual becomes covered without
an election.
Enrollment date definitions(enroll-
ment dateandfirst day of coverage) are
set forth in § 54.9801–3T(a)(2)(i) and
(ii).
Excepted benefitsmeans the benefits
described as excepted in § 54.9804–
1T(b).
Genetic informationmeans informa-
tion about genes, gene products, and
inherited characteristics that may derive
from the individual or a family member.
This includes information regarding car-
rier status and information derived from
laboratory tests that identify mutations
in specific genes or chromosomes,
physical medical examinations, family
histories, and direct analysis of genes or
chromosomes.
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Group health planmeans a plan (in-
cluding a self-insured plan) of, or con-
tributed to by, an employer (including a
self-employed person) or employee or-
ganization to provide health care (di-
rectly or otherwise) to the employees,
former employees, the employer, others
associated or formerly associated with
the employer in a business relationship,
or their families.
Group marketmeans the market for
health insurance coverage offered in
connection with a group health plan.
(However, certain very small plans may
be treated as being in theindividual
market, rather than the group market;
see the definition of individual market
in this section.)
Health insurance coveragemeans
benefits consisting of medical care (pro-
vided directly, through insurance or re-
imbursement, or otherwise) under any
hospital or medical service policy or
certificate, hospital or medical service
plan contract, or HMO contract offered
by a health insurance issuer. However,
benefits described in § 54.9804–
1T(b)(2) are not treated as benefits
consisting of medical care.
Health insurance issuerorissuer
means an insurance company, insurance
service, or insurance organization (in-
cluding an HMO) that is required to be
licensed to engage in the business of
insurance in a State and that is subject
to State law that regulates insurance
(within the meaning of section 514(b)(2)
of ERISA). Such term does not include
a group health plan.
Health maintenance organizationor
HMOmeans—
(1) A federally qualified health main-
tenance organization (as defined in sec-
tion 1301(a) of the PHSA);
(2) An organization recognized under
State law as a health maintenance orga-
nization; or
(3) A similar organization regulated
under State law for solvency in the
same manner and to the same extent as
such a health maintenance organization.
Individual health insurance coverage
means health insurance coverage offered
to individuals in the individual market,
but does not include short-term, limited
duration insurance. For this purpose,
short-term, limited duration insurance
means health insurance coverage pro-
vided pursuant to a contract with an
issuer that has an expiration date speci-
fied in the contract (taking into account
any extensions that may be elected by
the policyholder without the issuer’s
consent) that is within 12 months of the
date such contract becomes effective.
Individual health insurance coverage can
include dependent coverage.
Individual marketmeans the market
for health insurance coverage offered to
individuals other than in connection
with a group health plan. Unless a State
elects otherwise in accordance with sec-
tion 2791(e)(1)(B)(ii) of the PHSA, such
term also includes coverage offered in
connection with a group health plan that
42

has fewer than two participants as cur-
rent employees on the first day of the
plan year.
Issuermeans a health insurance is-
suer.
Late enrollment definitions(late en-
rolleeandlate enrollment) are set forth
in § 54.9801–3T(a)(2)(iii) and (iv).
Medical carehas the meaning given
such term by section 213(d) of the
Internal Revenue Code, determined
without regard to section 213(d)(1)(C)
and so much of section 213(d)(1)(D) as
relates to qualified long-term care insur-
ance.
Medical conditionorconditionmeans
any condition, whether physical or men-
tal, including, but not limited to, any
condition resulting from illness, injury
(whether or not the injury is accidental),
pregnancy, or congenital malformation.
However, genetic information is not a
condition.
Placement, or being placed, for adop-
tionmeans the assumption and retention
of a legal obligation for total or partial
support of a child by a person with
whom the child has been placed in
anticipation of the child’s adoption. The
child’s placement for adoption with such
person terminates upon the termination
of such legal obligation.
Plan yearmeans the year that is
designated as the plan year in the plan
document of a group health plan, except
that if the plan document does not
designate a plan year or if there is no
plan document, the plan year is—
(1) The deductible/limit year used un-
der the plan;
(2) If the plan does not impose
deductibles or limits on a yearly basis,
then the plan year is the policy year;
(3) If the plan does not impose
deductibles or limits on a yearly basis,
and either the plan is not insured or the
insurance policy is not renewed on an
annual basis, then the plan year is the
employer’s taxable year; or
(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusionmeans
a limitation or exclusion of benefits
relating to a condition based on the fact
that the condition was present before the
first day of coverage, whether or not
any medical advice, diagnosis, care, or
treatment was recommended or received
before that day. A preexisting condition
exclusion includes any exclusion appli-
cable to an individual as a result of
information that is obtained relating to
an individual’s health status before the
individual’s first day of coverage, such
as a condition identified as a result of a
pre-enrollment questionnaire or physical
examination given to the individual, or
review of medical records relating to the
pre-enrollment period.
Public health planmeanspublic
health planwithin the meaning of
§ 54.9801–4T(a)(1)(ix).
Public Health Service Act (PHSA)
means the Public Health Service Act (42
U.S.C. 201, et seq.).
Significant break in coveragemeans a
significant break in coveragewithin the
meaning of § 54.9801–4T(b)(2)(iii).
Special enrollment datemeans aspe-
cial enrollment datewithin the meaning
of § 54.9801–6T(d).
State health benefits risk poolmeans
aState health benefits risk poolwithin
the meaning of § 54.9801–
4T(a)(1)(vii).
Waiting periodmeans the period that
must pass before an employee or depen-
dent is eligible to enroll under the terms
of a group health plan. If an employee
or dependent enrolls as a late enrollee or
on a special enrollment date, any period
before such late or special enrollment is
not a waiting period. If an individual
seeks and obtains coverage in the indi-
vidual market, any period after the date
the individual files a substantially com-
plete application for coverage and be-
fore the first day of coverage is a
waiting period.
§ 54.9801–3T Limitations on preexist-
ing condition exclusion period (tempo-
rary).
(a)Preexisting condition exclusion—
(1)In general. Subject to paragraph
(b) of this section, a group health plan
may impose, with respect to a partici-
pant or beneficiary, a preexisting condi-
tion exclusion only if the requirements
of this paragraph (a) are satisfied. (See
PHSA section 2701 and ERISA section
701 under which this prohibition is also
imposed on a health insurance issuer
offering group health insurance cover-
age.)
(i)6-month look-back rule. A preex-
isting condition exclusion must relate to
a condition (whether physical or men-
tal), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was recom-
mended or received within the 6-month
period ending on the enrollment date.
(A) For purposes of this paragraph
(a)(1)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, or received
from, an individual licensed or similarly
authorized to provide such services un-
der State law and operating within the
scope of practice authorized by State
law.
(B) For purposes of this paragraph
(a)(1)(i), the 6-month period ending on
the enrollment date begins on the
6-month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the enrollment
date is the period commencing on Feb-
ruary 1, 1998 and continuing through
July 31, 1998. As another example, for
an enrollment date of August 30, 1998,
the 6-month period preceding the enroll-
ment date is the period commencing on
February 28, 1998 and continuing
through August 29, 1998.
(C) The rules of this paragraph
(a)(1)(i) are illustrated by the following
examples:
Example 1.(i) IndividualAis treated for a
medical condition 7 months before the enrollment
date in EmployerR’s group health plan. As part of
such treatment,A’s physician recommends that a
follow-up examination be given 2 months later.
Despite this recommendation,Adoes not receive a
follow-up examination and no other medical ad-
vice, diagnosis, care, or treatment for that condi-
tion is recommended toAor received byAduring
the 6-month period ending onA’s enrollment date
in EmployerR’s plan.
(ii) In thisExample 1, EmployerR’s plan may
not impose a preexisting condition exclusion with
respect to the condition for whichAreceived
treatment 7 months prior to the enrollment date.
Example 2.(i) Same facts asExample 1except
that EmployerR’s plan learns of the condition and
attaches a rider toA’s policy excluding coverage
for the condition. Three months after enrollment,
A’s condition recurs, and EmployerR’s plan
denies payment under the rider.
(ii) In thisExample 2, the rider is a preexisting
condition exclusion and EmployerR’s plan may
not impose a preexisting condition exclusion with
respect to the condition for whichAreceived
treatment 7 months prior to the enrollment date.
Example 3.(i) IndividualBhas asthma and is
treated for that condition several times during the
6-month period beforeB’s enrollment date in
EmployerS’s plan. The plan imposes a 12-month
preexisting condition exclusion.Bhas no prior
creditable coverage to reduce the exclusion period.
Three months after the enrollment date,Bbegins
coverage under EmployerS’s plan. Two months
later,Bis hospitalized for asthma.
(ii) In thisExample 3, EmployerS’s plan may
exclude payment for the hospital stay and the
physician services associated with this illness
because the care is related to a medical condition
for which treatment was received byBduring the
6-month period before the enrollment date.
Example 4.(i) IndividualD, who is subject to a
preexisting condition exclusion imposed by Em-
ployerU’s plan, has diabetes, as well as a foot
condition caused by poor circulation and retinal
degeneration (both of which are conditions that
may be directly attributed to diabetes). After
enrolling in the plan,Dstumbles and breaks a leg.
(ii) In thisExample 4, the leg fracture is not a
condition related toD’s diabetes, even though
43

poor circulation inD’s extremities and poor vision
may have contributed towards the accident. How-
ever, any additional medical services that may be
needed because ofD’s preexisting diabetic condi-
tion that would not be needed by another patient
with a broken leg who does not have diabetes may
be subject to the preexisting condition exclusion
imposed under EmployerU’s plan.
(ii)Maximum length of preexisting condition
exclusion (the look-forward rule).A preexisting
condition exclusion is not permitted to extend for
more than 12 months (18 months in the case of a
late enrollee) after the enrollment date. For pur-
poses of this paragraph (a)(1)(ii), the 12-month
and 18-month periods after the enrollment date are
determined by reference to the anniversary of the
enrollment date. For example, for an enrollment
date of August 1, 1998, the 12-month period after
the enrollment date is the period commencing on
August 1, 1998 and continuing through July 31,
1999.
(iii)Reducing a preexisting condition exclusion
period by creditable coverage.The period of any
preexisting condition exclusion that would other-
wise apply to an individual under a group health
plan is reduced by the number of days of credit-
able coverage the individual has as of the enroll-
ment date, as counted under § 54.9801–4T. For
purposes of § 54.9801–1T through § 54.9801–
6T, the phrase ‘‘days of creditable coverage’’ has
the same meaning as the phrase ‘‘aggregate of the
periods of creditable coverage’’ as such phrase is
used in section 9801(a)(3) of the Internal Revenue
Code.
(iv)Other standards.See § 54.9802–1T for
other standards that may apply with respect to
certain benefit limitations or restrictions under a
group health plan.
(2)Enrollment definitions—
(i)Enrollment datemeans the first day of
coverage or, if there is a waiting period, the first
day of the waiting period.
(ii)(A)First day of coveragemeans, in the case
of an individual covered for benefits under a
group health plan in the group market, the first
day of coverage under the plan and, in the case of
an individual covered by health insurance cover-
age in the individual market, the first day of
coverage under the policy.
(B) The following example illustrates the rule
of paragraph (a)(2)(ii)(A) of this section:
Example.(i) EmployerV’s group health plan
provides for coverage to begin on the first day of
the first payroll period following the date an
employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1
after completion of the applicable enrollment
forms. EmployerV’s plan imposes a preexisting
condition exclusion for 12 months (reduced by the
individual’s creditable coverage) following an indi-
vidual’s enrollment date. EmployeeEis hired by
EmployerVon October 13, 1998 and then on
October 14, 1998 completes and files all the forms
necessary to enroll in the plan.E’s coverage under
the plan becomes effective on October 25, 1998
(which is the beginning of the first payroll period
afterE’s date of hire).
(ii) In thisExample,E’s enrollment date is
October 13, 1998 (which is the first day of the
waiting period forE’s enrollment and is alsoE’s
date of hire). Accordingly, with respect toE, the
6-month period in paragraph (a)(1)(i) would be the
period from April 13, 1998 through October 12,
1998, the maximum permissible period during
which EmployerV’s plan could apply a preexist-
ing condition exclusion under paragraph (a)(1)(ii)
would be the period from October 13, 1998
through October 12, 1999, and this period would
be reduced under paragraph (a)(1)(iii) by E’s days
of creditable coverage as of October 13, 1998.
(iii)Late enrolleemeans an indi-
vidual whose enrollment in a plan is a
late enrollment.
(iv)(A)Late enrollmentmeans enroll-
ment under a group health plan other
than on—
(1) The earliest date on which cover-
age can become effective under the
terms of the plan; or
(2) A special enrollment date for the
individual.
(B) If an individual ceases to be
eligible for coverage under the plan by
terminating employment, and then sub-
sequently becomes eligible for coverage
under the plan by resuming employ-
ment, only eligibility during the indi-
vidual’s most recent period of employ-
ment is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage fol-
lowing a suspension of coverage that
applied generally under the plan.
(v)Examples.The rules of this para-
graph (a)(2) are illustrated by the fol-
lowing examples:
Example 1.(i) EmployeeFfirst becomes eli-
gible to be covered by EmployerW’s group health
plan on January 1, 1999, but elects not to enroll in
the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date forF.
(ii) In thisExample 1,Fwould be a late
enrollee with respect toF’s coverage that became
effective under the plan on April 1, 1999.
Example 2.(i) Same asExample 1, except that
Fdoes not enroll in the plan on April 1, 1999 and
terminates employment with EmployerWon July
1, 1999, without having had any health insurance
coverage under the plan.Fis rehired by Employer
Won January 1, 2000 and is eligible for and
elects coverage under EmployerW’s plan effective
on January 1, 2000.
(ii) In thisExample 2,Fwould not be a late
enrollee with respect toF’s coverage that became
effective on January 1, 2000.
(b)Exceptions pertaining to preexist-
ing condition exclusions—
(1)Newborns—
(i)In general.Subject to paragraph
(b)(3) of this section, a group health
plan may not impose any preexisting
condition exclusion with regard to a
child who, as of the last day of the
30-day period beginning with the date
of birth, is covered under any creditable
coverage. Accordingly, if a newborn is
enrolled in a group health plan (or other
creditable coverage) within 30 days af-
ter birth and subsequently enrolls in
another group health plan without a
significant break in coverage, the other
plan may not impose any preexisting
condition exclusion with regard to the
child.
(ii)Example.The rule of this paragraph (b)(1)
is illustrated by the following example:
Example.(i) Seven months after enrollment in
EmployerW’s group health plan, IndividualEhas
a child born with a birth defect. Because the child
is enrolled in EmployerW’s plan within 30 days
of birth, no preexisting condition exclusion may
be imposed with respect to the child under
EmployerW’s plan. Three months after the child’s
birth,Ecommences employment with EmployerX
and enrolls with the child in EmployerX’s plan 45
days after leaving EmployerW’s plan. Employer
X’s plan imposes a 12-month exclusion for any
preexisting condition.
(ii) In thisExample, EmployerX’s plan may
not impose any preexisting condition exclusion
with respect toE’s child because the child was
covered within 30 days of birth and had no
significant break in coverage. This result applies
regardless of whetherE’s child is included in the
certificate of creditable coverage provided toEby
EmployerWindicating 300 days of dependent
coverage or receives a separate certificate indicat-
ing 90 days of coverage. EmployerX’s plan may
impose a preexisting condition exclusion with
respect toEfor up to 2 months for any preexisting
condition ofEfor which medical advice, diagno-
sis, care, or treatment was recommended or re-
ceived byEwithin the 6-month period ending on
E’s enrollment date in EmployerX’s plan.
(2)Adopted children.Subject to para-
graph (b)(3) of this section, a group
health plan may not impose any preex-
isting condition exclusion in the case of
a child who is adopted or placed for
adoption before attaining 18 years of
age and who, as of the last day of the
30-day period beginning on the date of
the adoption or placement for adoption,
is covered under creditable coverage.
This rule does not apply to coverage
before the date of such adoption or
placement for adoption.
(3)Break in coverage.Paragraphs
(b)(1) and (2) of this section no longer
apply to a child after a significant break
in coverage.
(4)Pregnancy.A group health plan
may not impose a preexisting condition
exclusion relating to pregnancy as a
preexisting condition.
(5)Special enrollment dates.For spe-
cial enrollment dates relating to new
dependents, see § 54.9801–6T(b).
(c)Notice of plan’s preexisting condi-
tion exclusion.A group health plan may
not impose a preexisting condition ex-
clusion with respect to a participant or
dependent of the participant before noti-
fying the participant, in writing, of the
existence and terms of any preexisting
condition exclusion under the plan and
of the rights of individuals to demon-
strate creditable coverage (and any ap-
plicable waiting periods) as required by
§ 54.9801–5T. The description of the
44

rights of individuals to demonstrate
creditable coverage includes a descrip-
tion of the right of the individual to
request a certificate from a prior plan or
issuer, if necessary, and a statement that
the current plan or issuer will assist in
obtaining a certificate from any prior
plan or issuer, if necessary.
§ 54.9801–4T Rules relating to credit-
able coverage (temporary).
(a)General rules—
(1)Creditable coverage.For purposes
of this section, except as provided in
paragraph (a)(2) of this section, the term
creditable coveragemeans coverage of
an individual under any of the follow-
ing:
(i) A group health plan as defined in
§ 54.9801–2T.
(ii) Health insurance coverage as de-
fined in § 54.9801–2T (whether or not
the entity offering the coverage is sub-
ject to Chapter 100 of Subtitle K of the
Internal Revenue Code, and without re-
gard to whether the coverage is offered
in the group market, the individual mar-
ket, 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 sec-
tion 1928 of the Social Security Act (the
program for distribution of pediatric
vaccines).
(v) Title 10 U.S.C. Chapter 55 (medi-
cal and dental care for members and
certain former members of the uni-
formed services, and for their depen-
dents; for purposes of Title 10 U.S.C.
Chapter 55,uniformed servicesmeans
the armed forces and the Commissioned
Corps of the National Oceanic and At-
mospheric 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);
(B) A qualified high risk pool de-
scribed in section 2744(c)(2) of the
PHSA; 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 pri-
marily to provide health insurance cov-
erage for individuals who are residents
of such State and who, by reason of the
existence or history of a medical condi-
tion—
(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 pur-
poses of this section, a public health
plan means any plan established or
maintained by a State, county, or other
political subdivision of a State that
provides health insurance coverage to
individuals who are enrolled in the plan.
(x) A health benefit plan under sec-
tion 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(2)Excluded coverage.Creditable
coverage does not include coverage con-
sisting solely of coverage of excepted
benefits (described in § 54.9804–1T).
(3)Methods of counting creditable
coverage.For purposes of reducing any
preexisting condition exclusion period,
as provided under § 54.9801–
3T(a)(1)(iii), a group health plan deter-
mines the amount of an individual’s
creditable coverage by using the stan-
dard method described in paragraph (b)
of this section, except that the plan may
use the alternative method under para-
graph (c) of this section with respect to
any or all of the categories of benefits
described under paragraph (c)(3) of this
section or may provide that a health
insurance issuer offering health insur-
ance coverage under the plan may use
the alternative method of counting cred-
itable coverage.
(b)Standard method—
(1)Specific benefits not considered.
Under the standard method, a group
health plan determines the amount of
creditable coverage 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 exclu-
sion period, a group health plan deter-
mines the amount of creditable coverage
by counting all the days that the indi-
vidual has under one or more types of
creditable coverage. Accordingly, if on a
particular day, an individual has credit-
able coverage from more than one
source, all the creditable coverage on
that day is counted as one day. Further,
any days in a waiting period for a plan
or policy are not creditable coverage
under the plan or policy.
(ii)Days not counted before signifi-
cant break in coverage.Days of credit-
able coverage that occur before a sig-
nificant break in coverage are not
required to be counted.
(iii)Definition of significant break in
coverage.A significant break in cover-
age means a period of 63 consecutive
days during all of which the individual
does not have any creditable coverage,
except that neither a waiting period nor
an affiliation period is taken into ac-
count in determining a significant break
in coverage. (See section 731(b)(2)(iii)
of ERISA and section 2723(b)(2)(iii) of
the PHSA which exclude from preemp-
tion 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)Examples.The following ex-
amples illustrate how creditable cover-
age is counted in reducing preexisting
condition exclusion periods under this
paragraph (b)(2):
Example 1.(i) IndividualAworks for Employer
Pand has creditable coverage under EmployerP’s
plan for 18 months beforeA’s employment termi-
nates.Ais hired by EmployerQ, and enrolls in
EmployerQ’s group health plan, 64 days after the
last date of coverage under EmployerP’s plan.
EmployerQ’s plan has a 12-month preexisting
condition exclusion period.
(ii) In thisExample 1, becauseAhad a break in
coverage of 63 days, EmployerQ’s plan may
disregardA’s prior coverage andAmay be subject
to a 12-month preexisting condition exclusion
period.
Example 2.(i) Same facts asExample 1, except
thatAis hired by EmployerQ, and enrolls in
EmployerQ’s plan, on the 63rd day after the last
date of coverage under EmployerP’s plan.
(ii) In thisExample 2,Ahas a break in
coverage of 62 days. BecauseA’s break in cover-
age is not a significant break in coverage, Em-
ployerQ’s plan must countA’s prior creditable
coverage for purposes of reducing the plan’s
preexisting condition exclusion as it applies toA.
Example 3. (i) Same facts asExample 1, except
that EmployerQ’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) In thisExample 3, the issuer that provides
group health insurance to EmployerQ’s plan must
countA’s period of creditable coverage prior to
the 63-day break.
Example 4. (i) Same facts asExample 3, except
that EmployerQ’s plan is a self-insured plan, and,
thus is not subject to State insurance laws.
(ii) In thisExample 4, the plan is not governed
by the longer break rules under State insurance
law andA’s previous coverage may be disre-
garded.
Example 5. (i) IndividualBbegins employment
with EmployerR45 days after terminating cover-
age under a prior group health plan. EmployerR’s
45

plan has a 30-day waiting period before coverage
begins.Benrolls in EmployerR’s plan when first
eligible.
(ii) In thisExample 5,Bdoes not have a
significant break in coverage for purposes of
determining whetherB’s prior coverage must be
counted by EmployerR’s plan.Bhas only a
44-day break in coverage because the 30-day
waiting period is not taken into account in deter-
mining a significant break in coverage.
Example 6. (i) IndividualCworks for Em-
ployerSand has creditable coverage under Em-
ployerS’s plan for 200 days beforeC’s employ-
ment is terminated and coverage ceases.Cis then
unemployed for 51 days before being hired by
EmployerT. EmployerT’s plan has a 3-month
waiting period.Cworks for EmployerTfor 2
months and then terminates employment. Eleven
days after terminating employment with Employer
T,Cbegins working for EmployerU. Employer
U’s plan has no waiting period, but has a 6-
month preexisting condition exclusion period.
(ii) In thisExample 6,Cdoes not have a
significant break in coverage because, after disre-
garding the waiting period under EmployerT’s
plan,Chad only a 62-day break in coverage (51
days plus 11 days). Accordingly,Chas 200 days
of creditable coverage and EmployerU’s plan may
not apply its 6-month preexisting condition exclu-
sion period with respect toC.
Example 7. (i) IndividualDterminates employ-
ment with EmployerVon January 13, 1998 after
being covered for 24 months under EmployerV’s
group health plan. On March 17, the 63rd day
without coverage,Dapplies for a health insurance
policy in the individual market.D’s application
is accepted and the coverage is made effective
May 1.
(ii) In thisExample 7, becauseDapplied for
the policy before the end of the 63rd day,
coverage under the policy ultimately became ef-
fective, 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 107
days.
Example 8. (i) Same facts asExample 7, except
thatD’s application for a policy in the individual
market is denied.
(ii) In thisExample 8, becauseDdid not obtain
coverage following application,Dincurred a sig-
nificant break in coverage on the 64th day.
(v)Other permissible counting
methods—
(A)Rule.Notwithstanding any other
provision of this paragraph (b)(2), for
purposes of reducing a preexisting con-
dition exclusion period (but not for
purposes of issuing a certificate under
§ 54.9801–5T), a group health plan may
determine the amount of creditable cov-
erage 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 para-
graph (b)(2)(v) is illustrated by the
following example:
Example. (i) IndividualFhas coverage under
group health planYfrom January 3, 1997 through
March 25, 1997.Fthen becomes covered by
group health planZ.F’s enrollment date in PlanZ
is May 1, 1997. PlanZhas a 12-month preexisting
condition exclusion period.
(ii) In thisExample, PlanZmay determine, in
accordance with the rules prescribed in paragraph
(b)(2)(i), (ii), and (iii), thatFhas 82 days of
creditable coverage (29 days in January, 28 days
in February, and 25 days in March). Thus, the
preexisting condition exclusion period will no
longer apply toFon February 8, 1998 (82 days
before the 12-month anniversary of F’s enrollment
(May 1)). For administrative convenience, how-
ever, PlanZmay consider that the preexisting
condition exclusion period will no longer apply to
Fon the first day of the month (February 1).
(c)Alternative method—
(1)Specific benefits considered. Un-
der the alternative method, a group
health plan determines the amount of
creditable coverage based on coverage
within any category of benefits de-
scribed in paragraph (c)(3) of this sec-
tion and not based on coverage for any
other benefits. The plan may use the
alternative method for any or all of the
categories. The plan may apply a differ-
ent preexisting condition exclusion pe-
riod with respect to each category (and
may apply a different preexisting condi-
tion exclusion period for benefits that
are not within any category). The credit-
able coverage determined for a category
of benefits applies only for purposes of
reducing the preexisting condition exclu-
sion 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 using
the alternative method is required to
apply it uniformly to all participants and
beneficiaries under the plan. A plan that
provides benefits through one or more
insurance policies (or in part through
one or more insurance policies) will not
fail the uniform application requirement
of this paragraph (c)(2) if the alternative
method is used (or not used) separately
with respect to participants and benefi-
ciaries under any policy, provided that
the alternative method is applied uni-
formly with respect to all coverage
under that policy. The use of the alterna-
tive method is required to be set forth in
the plan.
(3)Categories of benefits. The alter-
native 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 state-
ments concerning the plan, and state this
to each enrollee at the time of enroll-
ment under the plan; and
(ii) Include in these statements a de-
scription of the effect of using the
alternative method, including an identifi-
cation of the categories used.
(5)Disclosure of information on pre-
vious benefits.See § 54.9801–5T(b) for
special rules concerning disclosure of
coverage to a plan (or issuer) using the
alternative method of counting credit-
able coverage under this paragraph (c).
(6)Counting creditable coverage—
(i)In general.Under the alternative
method, the group health plan counts
creditable coverage within a category if
any level of benefits is provided within
the category. Coverage under a reim-
bursement account or arrangement such
as a flexible spending arrangement (as
defined in section 106(c)(2) of the Inter-
nal Revenue Code) does not constitute
coverage within any category.
(ii)Special rules.In counting an indi-
vidual’s creditable coverage under the
alternative method, the group health
plan 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 determi-
nation period. Then, for the category
specified under the alternative method,
the plan 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 indi-
vidual’s preexisting condition exclusion
period for that category by that number
of days. The plan may determine the
amount of creditable coverage in any
other reasonable manner, uniformly ap-
plied, that is at least as favorable to the
individual.
(iii)Example.The rules of this para-
graph (c)(6) are illustrated by the fol-
lowing example:
Example.(i) IndividualDenrolls 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 EmployerV
ends on January 1, 2002, afterDwas covered
under EmployerV’s group health plan for 365
days.Denrolls in EmployerY’s plan on February
46

1, 2002 (D’s enrollment date). EmployerY’s plan
uses the alternative method of counting creditable
coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In thisExample, EmployerY’s plan may
impose a 275-day preexisting condition exclusion
with respect toDfor prescription drug benefits
becauseDhad 90 days of creditable coverage
relating to prescription drug benefits withinD’s
determination period.
§ 54.9801–5T Certification and disclo-
sure of previous coverage (temporary).
(a)Certificate of creditable cover-
age—
(1)Entities required to provide cer-
tificate—
(i)In general.A group health plan is
required to furnish certificates of credit-
able coverage in accordance with this
paragraph (a) of this section. (See PHSA
section 2701(e) and ERISA section
701(e) under which this obligation is
also imposed on a health insurance
issuer offering group health insurance
coverage.)
(ii)Duplicate certificates not re-
quired.An entity required to provide a
certificate under this paragraph (a)(1)
for an individual is deemed to have
satisfied the certification requirements
for that individual if another party pro-
vides the certificate, but only to the
extent that information relating to the
individual’s creditable coverage and
waiting or affiliation period is provided
by the other party. For example, a group
health plan is deemed to have satisfied
the certification requirement with re-
spect to a participant or beneficiary if
any other entity actually provides a
certificate that includes the information
required under paragraph (a)(3) of this
section with respect to the participant or
beneficiary.
(iii)Special rule for group health
plans.To the extent coverage under a
plan consists of group health insurance
coverage, the plan is deemed to have
satisfied the certification requirements
under this paragraph (a)(1) if any issuer
offering the coverage is required to
provide the certificates pursuant to an
agreement between the plan and the
issuer. For example, if there is an agree-
ment between an issuer and the em-
ployer sponsoring the plan under which
the issuer agrees to provide certificates
for individuals covered under the plan,
and the issuer fails to provide a certifi-
cate to an individual when the plan
would have been required to provide
one under this paragraph (a), then the
plan does not violate the certification
requirements of this paragraph (a)
(though the issuer would have violated
the certification requirements pursuant
to section 2701(e) of the PHSA and
section 701(e) of ERISA).
(iv)Special rules relating to issuers
providing coverage under a plan—
(A)(1)
Responsibility of issuer for cov-
erage period.See 29 CFR 2590.701–5
and 45 CFR 146.115, under which an
issuer is not required to provide infor-
mation regarding coverage provided to
an individual by another party.
(2)Example. The rule referenced by
this paragraph (a)(1)(iv)(A) is illustrated
by the following example:
Example. (i) A plan offers coverage with an
HMO option from one issuer and an indemnity
option from a different issuer. The HMO has not
entered into an agreement with the plan to provide
certificates as permitted under paragraph (a)(1)(iii)
of this section.
(ii) In thisExample, if an employee switches
from the indemnity option to the HMO option and
later ceases to be covered under the plan, any
certificate provided by the HMO is not required to
provide information regarding the employee’s cov-
erage under the indemnity option.
(B)(1)Cessation of issuer coverage
prior to cessation of coverage under a
plan.If an individual’s coverage under
an issuer’s policy ceases before the
individual’s coverage under the plan
ceases, the issuer is required (under
section 2701(e) of the PHSA and section
701(e) of ERISA) to provide sufficient
information to the plan (or to another
party designated by the plan) to enable a
certificate to be provided by the plan (or
other party), after cessation of the indi-
vidual’s coverage under the plan, that
reflects the period of coverage under the
policy. The provision of that information
to the plan will satisfy the issuer’s
obligation to provide an automatic cer-
tificate for that period of creditable
coverage for the individual under para-
graph (a)(2)(ii) and (3) of this section.
In addition, an issuer providing that
information is required to cooperate
with the plan in responding to any
request made under paragraph (b)(2) of
this section (relating to the alternative
method of counting creditable coverage).
If the individual’s coverage under the
plan ceases at the time the individual’s
coverage under the issuer’s policy
ceases, the issuer must provide an auto-
matic certificate under paragraph
(a)(2)(ii) of this section. An issuer may
presume that an individual whose cover-
age ceases at a time other than the
effective date for changing enrollment
options has ceased to be covered under
the plan.
(2)Example. The rule of this para-
graph (a)(1)(iv)(B) is illustrated by the
following example:
Example. (i) A group health plan provides cov-
erage under an HMO option and an indemnity
option with a different issuer, and only allows
employees to switch on each January 1. Neither
the HMO nor the indemnity issuer has entered into
an agreement with the plan to provide automatic
certificates as permitted under paragraph (a)(2)(ii)
of this section.
(ii) In thisExample, if an employee switches
from the indemnity option to the HMO option on
January 1, the issuer must provide the plan (or a
person designated by the plan) with appropriate
information with respect to the individual’s cover-
age with the indemnity issuer. However, if the
individual’s coverage with the indemnity issuer
ceases at a date other than January 1, the issuer is
instead required to provide the individual with an
automatic certificate.
(2)Individuals for whom certificate
must be provided; timing of issuance—
(i)Individuals.A certificate must be
provided, without charge, for partici-
pants or dependents who are or were
covered under a group health plan upon
the occurrence of any of the events
described in paragraph (a)(2)(ii) or (iii)
of this section.
(ii)Issuance of automatic certificates.
The certificates described in this para-
graph (a)(2)(ii) are referred to as auto-
matic certificates.
(A)Qualified beneficiaries upon a
qualifying event.In the case of an
individual who is a qualified beneficiary
(as defined in section 4980B(g)(1)) en-
titled to elect COBRA continuation cov-
erage, an automatic certificate is re-
quired to be provided at the time the
individual would lose coverage under
the plan in the absence of COBRA
continuation coverage or alternative
coverage elected instead of COBRA
continuation coverage. A plan satisfies
this requirement if it provides the auto-
matic certificate no later than the time
a notice is required to be furnished
for a qualifying event under section
4980B(f)(6) (relating to notices required
under COBRA ).
(B)Other individuals when coverage
ceases.In the case of an individual who
is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate is required to be
provided at the time the individual
ceases to be covered under the plan. A
plan satisfies this requirement if it pro-
vides the automatic certificate within a
reasonable time period thereafter. In the
case of an individual who is entitled to
elect to continue coverage under a State
program similar to COBRA and who
receives the automatic certificate not
later than the time a notice is required
47

to be furnished under the State program,
the certificate is deemed to be provided
within a reasonable time period after the
cessation of coverage under the plan.
(C)Qualified beneficiaries when CO-
BRA ceases.In the case of an individual
who is a qualified beneficiary and has
elected COBRA continuation coverage
(or whose coverage has continued after
the individual became entitled to elect
COBRA continuation coverage), an au-
tomatic certificate is to be provided at
the time the individual’s coverage under
the plan ceases. A plan satisfies this
requirement if it provides the automatic
certificate within a reasonable time after
coverage ceases (or after the expiration
of any grace period for nonpayment of
premiums). An automatic certificate is
required to be provided to such an
individual regardless of whether the in-
dividual has previously received an au-
tomatic certificate under paragraph
(a)(2)(ii)(A) of this section.
(iii)Any individual upon request.Re-
quests for certificates are permitted to
be made by, or on behalf of, an indi-
vidual within 24 months after coverage
ceases. Thus, for example, a plan in
which an individual enrolls may, if
authorized by the individual, request a
certificate of the individual’s creditable
coverage on behalf of the individual
from a plan in which the individual was
formerly enrolled. After the request is
received, a plan or issuer is required to
provide the certificate by the earliest
date that the plan, acting in a reasonable
and prompt fashion, can provide the
certificate. A certificate is required to be
provided under this paragraph (a)(2)(iii)
even if the individual has previously
received an automatic certificate under
paragraph (a)(2)(ii) of this section.
(iv)Examples.The following ex-
amples illustrate the rules of this para-
graph (a)(2):
Example 1. (i) IndividualAterminates employ-
ment with EmployerQ.Ais a qualified benefi-
ciary entitled to elect COBRA continuation cover-
age under EmployerQ’s group health plan. A
notice of the rights provided under COBRA is
typically furnished to qualified beneficiaries under
the plan within 10 days after a covered employee
terminates employment.
(ii) In thisExample 1, the automatic certificate
may be provided at the same time thatAis
provided the COBRA notice.
Example 2. (i) Same facts asExample 1, except
that the automatic certificate forAis not com-
pleted by the time the COBRA notice is furnished
toA.
(ii) In thisExample 2, the automatic certificate
may be provided within the period permitted by
law for the delivery of notices under COBRA.
Example 3. (i) EmployerRmaintains an in-
sured group health plan.Rhas never had 20
employees and thusR’s plan is not subject to the
COBRA continuation coverage provisions. How-
ever,Ris in a State that has a State program
similar to COBRA.Bterminates employment with
Rand loses coverage underR’s plan.
(ii) In thisExample 3, the automatic certificate
may be provided not later than the time a notice is
required to be furnished under the State program.
Example 4. (i) IndividualCterminates employ-
ment with EmployerSand receives both a notice
ofC’s rights under COBRA and an automatic
certificate.Celects COBRA continuation coverage
under EmployerS’s group health plan. After four
months of COBRA continuation coverage and the
expiration of a 30-day grace period,S’s group
health plan determines thatC’s COBRA continua-
tion coverage has ceased due to failure to make a
timely payment for continuation coverage.
(ii) In thisExample 4, the plan must provide an
updated automatic certificate toCwithin a reason-
able time after the end of the grace period.
Example 5.(i) IndividualDis currently covered
under the group health plan of EmployerT.D
requests a certificate, as permitted under paragraph
(a)(2)(iii). Under the procedure for EmployerT’s
plan, certificates are mailed (by first class mail) 7
business days following receipt of the request.
This date reflects the earliest date that the plan,
acting in a reasonable and prompt fashion, can
provide certificates.
(ii) In thisExample 5, the plan’s procedure
satisfies paragraph (a)(2)(iii) of this section.
(3)Form and content of certificate—
(i)Written certificate—
(A)In general.Except as provided in
paragraph (a)(3)(i)(B) of this section, the
certificate must be provided in writing
(including any form approved by the
Secretary as a writing).
(B)Other permissible forms.No writ-
ten certificate is required to be provided
under paragraph (a) with respect to a
particular event described in paragraph
(a)(2)(ii) or (iii) of this section if—
(1) An individual is entitled to re-
ceive a certificate;
(2) The individual requests that the
certificate be sent to another plan or
issuer instead of to the individual;
(3) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in this para-
graph (a)(3) through means other than a
written certificate (e.g., by telephone);
and
(4) The receiving plan or issuer re-
ceives such information from the send-
ing plan or issuer in such form within
the time periods required under para-
graph (a)(2) of this section.
(ii)Required information.The certifi-
cate must include the following—
(A) The date the certificate is issued;
(B) The name of the group health
plan that provided the coverage de-
scribed in the certificate;
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other infor-
mation necessary for the plan providing
the coverage specified in the certificate
to identify the individual, such as the
individual’s identification number under
the plan and the name of the participant
if the certificate is for (or includes) a
dependent;
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the certificate;
(E) The telephone number to call for
further information regarding the certifi-
cate (if different from paragraph
(a)(3)(ii)(D) of this section);
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began;
and
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate.
(iii)Periods of coverage under cer-
tificate. If an automatic certificate is
provided pursuant to paragraph (a)(2)(ii)
of this section, the period that must be
included on the certificate is the last
period of continuous coverage ending on
the date coverage ceased. If an indi-
vidual requests a certificate pursuant to
paragraph (a)(2)(iii) of this section, a
certificate must be provided for each
period of continuous coverage ending
within the 24-month period ending on
the date of the request (or continuing on
the date of the request). A separate
certificate may be provided for each
such period of continuous coverage.
(iv)Combining information for fami-
lies. A certificate may provide informa-
tion with respect to both a participant
and the participant’s dependents if the
information is identical for each indi-
vidual or, if the information is not
identical, certificates may be provided
on one form if the form provides all the
required information for each individual
and separately states the information
that is not identical.
(v)Model certificate. The require-
ments of paragraph (a)(3)(ii) of this
section are satisfied if the plan provides
a certificate in accordance with a model
certificate authorized by the Secretary.
(vi)Excepted benefits; categories of
benefits.No certificate is required to be
furnished with respect to excepted ben-
48

efits described in § 54.9804–1T. In ad-
dition, the information in the certificate
regarding coverage is not required to
specify categories of benefits described
in § 54.9801–4T(c) (relating to the al-
ternative method of counting creditable
coverage). However, if excepted benefits
are provided concurrently with other
creditable coverage (so that the coverage
does not consist solely of excepted
benefits), information concerning the
benefits may be required to be disclosed
under paragraph (b) of this section.
(4)Procedures—
(i)Method of delivery.The certificate
is required to be provided to each
individual described in paragraph (a)(2)
of this section or an entity requesting
the certificate on behalf of the indi-
vidual. The certificate may be provided
by first-class mail. If the certificate or
certificates are provided to the partici-
pant and the participant’s spouse at the
participant’s last known address, then
the requirements of this paragraph (a)(4)
are satisfied with respect to all individu-
als residing at that address. If a depen-
dent’s last known address is different
than the participant’s last known ad-
dress, a separate certificate is required to
be provided to the dependent at the
dependent’s last known address. If sepa-
rate certificates are being provided by
mail to individuals who reside at the
same address, separate mailings of each
certificate are not required.
(ii)Procedure for requesting certifi-
cates.A plan or issuer must establish a
procedure for individuals to request and
receive certificates pursuant to para-
graph (a)(2)(iii) of this section.
(iii)Designated recipients.If an auto-
matic certificate is required to be pro-
vided under paragraph (a)(2)(ii) of this
section, and the individual entitled to
receive the certificate designates another
individual or entity to receive the certifi-
cate, the plan or issuer responsible for
providing the certificate is permitted to
provide the certificate to the designated
party. If a certificate is required to be
provided upon request under paragraph
(a)(2)(iii) of this section and the indi-
vidual entitled to receive the certificate
designates another individual or entity to
receive the certificate, the plan or issuer
responsible for providing the certificate
is required to provide the certificate to
the designated party.
(5)Special rules concerning depen-
dent coverage—
(i)(A)Reasonable efforts.A plan is
required to use reasonable efforts to
determine any information needed for a
certificate relating to the dependent cov-
erage. In any case in which an auto-
matic certificate is required to be fur-
nished with respect to a dependent
under paragraph (a)(2)(ii) of this section,
no individual certificate is required to be
furnished until the plan knows (or mak-
ing reasonable efforts should know) of
the dependent’s cessation of coverage
under the plan.
(B)Example.The rules of this para-
graph (a)(5) are illustrated by the fol-
lowing example:
Example.(i) A group health plan covers em-
ployees and their dependents. The plan annually
requests all employees to provide updated infor-
mation regarding dependents, including the spe-
cific date on which an employee has a new
dependent or on which a person ceases to be a
dependent of the employee.
(ii) In thisExample, the plan has satisfied the
standard in this paragraph (a)(5)(i) of this section
that it make reasonable efforts to determine the
cessation of dependents’ coverage and the related
dependent coverage information.
(ii)Special rules for demonstrating
coverage. If a certificate furnished by a
plan or issuer does not provide the name
of any dependent of an individual cov-
ered by the certificate, the individual
may, if necessary, use the procedures
described in paragraph (c)(4) of this
section for demonstrating dependent sta-
tus. In addition, an individual may, if
necessary, use these procedures to dem-
onstrate that a child was enrolled within
30 days of birth, adoption, or placement
for adoption. See § 54.9801–3T(b), un-
der which such a child would not be
subject to a preexisting condition exclu-
sion.
(iii)Transition rule for dependent
coverage through June 30, 1998—
(A)In general.A group health plan
that cannot provide the names of de-
pendents (or related coverage informa-
tion) for purposes of providing a certifi-
cate of coverage for a dependent may
satisfy the requirements of paragraph
(a)(3)(ii)(C) of this section by providing
the name of the participant covered by
the group health plan and specifying
that the type of coverage described in
the certificate is for dependent coverage
(e.g., family coverage or employee-plus-
spouse coverage).
(B)Certificates provided on request.
For purposes of certificates provided on
the request of, or on behalf of, an
individual pursuant to paragraph
(a)(2)(iii) of this section, a plan must
make reasonable efforts to obtain and
provide the names of any dependent
covered by the certificate where such
information is requested to be provided.
If a certificate does not include the
name of any dependent of an individual
covered by the certificate, the individual
may, if necessary, use the procedures
described in paragraph (c) of this sec-
tion for submitting documentation to
establish that the creditable coverage in
the certificate applies to the dependent.
(C)
Demonstrating a dependent’s cred-
itable coverage.See paragraph (c)(4) of
this section for special rules to demon-
strate dependent status.
(D)Duration.This paragraph (a)(5)-
(iii) is only effective for certifications
provided with respect to events occur-
ring through June 30, 1998.
(6)Special certification rules for en-
tities not subject to Chapter 100 of
Subtitle K of the Internal Revenue
Code—
(i)Issuers.For rules requiring that
issuers in the group and individual mar-
kets provide certificates consistent with
the rules in this section, see section
701(e) of ERISA and sections 2701(e),
2721(b)(1)(B), and 2743 of the PHSA.
(ii)Other entities.For special rules
requiring that certain other entities, not
subject to Chapter 100 of Subtitle K of
the Internal Revenue Code, provide cer-
tificates consistent with the rules in this
section, see section 2791(a)(3) of the
PHSA applicable to entities described in
sections 2701(c)(1)(C), (D), (E), and
(F) (relating to Medicare, Medicaid,
CHAMPUS, and Indian Health Service),
section 2721(b)(1)(A) of the PHSA ap-
plicable to nonfederal governmental
plans generally, and section 2721(b)(2)-
(C)(ii) of the PHSA applicable to non-
federal governmental plans that elect to
be excluded from the requirements of
Subparts 1 and 3 of Part A of Title
XXVII of the PHSA.
(b)Disclosure of coverage to a plan,
or issuer, using the alternative method
of counting creditable coverage—
(1)In general.If an individual en-
rolls in a group health plan with respect
to which the plan (or issuer) uses the
alternative method of counting credit-
able coverage described in § 54.9801–
4T(c), the individual provides a certifi-
cate of coverage under paragraph (a) of
this section, and the plan (or issuer) in
which the individual enrolls so requests,
the entity that issued the certificate (the
prior entity) is required to disclose
promptly to a requesting plan (or issuer)
(the requesting entity) the information
set forth in paragraph (b)(2) of this
section.
(2)Information to be disclosed.The
prior entity is required to identify to the
requesting entity the categories of ben-
49

efits with respect to which the request-
ing entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to de-
termine the individual’s creditable cov-
erage with respect to any such category.
The prior entity is required to disclose
promptly to the requesting entity the
creditable coverage information so re-
quested.
(3)Charge for providing information.
The prior entity furnishing the informa-
tion under paragraph (b) of this section
may charge the requesting entity for the
reasonable cost of disclosing such infor-
mation.
(c)Ability of an individual to demon-
strate creditable coverage and waiting
period information—
(1)In general.The rules in this para-
graph (c) implement section 9801(c)(4),
which permits individuals to establish
creditable coverage through means other
than certificates, and section 9801(e)(3),
which requires the Secretary to establish
rules designed to prevent an individual’s
subsequent coverage under a group
health plan or health insurance coverage
from being adversely affected by an
entity’s failure to provide a certificate
with respect to that individual. If the
accuracy of a certificate is contested or
a certificate is unavailable when needed
by the individual, the individual has the
right to demonstrate creditable coverage
(and waiting or affiliation periods)
through the presentation of documents
or other means. For example, the indi-
vidual may make such a demonstration
when—
(i) An entity has failed to provide a
certificate within the required time pe-
riod;
(ii) The individual has creditable cov-
erage but an entity may not be required
to provide a certificate of the coverage
pursuant to paragraph (a) of this section;
(iii) The coverage is for a period
before July 1, 1996;
(iv) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(v) The individual lost a certificate
that the individual had previously re-
ceived and is unable to obtain another
certificate.
(2)Evidence of creditable coverage—
(i)Consideration of evidence.A plan
is required to take into account all
information that it obtains or that is
presented on behalf of an individual to
make a determination, based on the
relevant facts and circumstances,
whether an individual has creditable
coverage and is entitled to offset all or a
portion of any preexisting condition ex-
clusion period. A plan shall treat the
individual as having furnished a certifi-
cate under paragraph (a) of this section
if the individual attests to the period of
creditable coverage, the individual also
presents relevant corroborating evidence
of some creditable coverage during the
period, and the individual cooperates
with the plan’s efforts to verify the
individual’s coverage. For this purpose,
cooperation includes providing (upon
the plan’s or issuer’s request) a written
authorization for the plan to request a
certificate on behalf of the individual,
and cooperating in efforts to determine
the validity of the corroborating evi-
dence and the dates of creditable cover-
age. While a plan may refuse to credit
coverage where the individual fails to
cooperate with the plan’s or issuer’s
efforts to verify coverage, the plan may
not consider an individual’s inability to
obtain a certificate to be evidence of the
absence of creditable coverage.
(ii)Documents.Documents that may
establish creditable coverage (and wait-
ing periods or affiliation periods) in the
absence of a certificate include explana-
tions of benefit claims (EOB) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
documents that evidence periods of
health coverage.
(iii)Other evidence.Creditable cover-
age (and waiting period or affiliation
period information) may also be estab-
lished through means other than docu-
mentation, such as by a telephone call
from the plan or provider to a third
party verifying creditable coverage.
(iv)Example.The rules of this para-
graph (c)(2) are illustrated by the fol-
lowing example:
Example.(i) IndividualFterminates employ-
ment with EmployerWand, a month later, is hired
by EmployerX. EmployerX’s group health plan
imposes a preexisting condition exclusion of 12
months on new enrollees under the plan and uses
the standard method of determining creditable
coverage.Ffails to receive a certificate of prior
coverage from the self-insured group health plan
maintained byF’s prior employer, EmployerW,
and requests a certificate. However,F(and Em-
ployerX’s plan, onF’s behalf) is unable to obtain
a certificate from EmployerW’s plan.Fattests
that, to the best ofF’s knowledge,Fhad at least
12 months of continuous coverage under Employer
W’s plan, and that the coverage ended no earlier
thanF’s termination of employment from Em-
ployerW. In addition,Fpresents evidence of
coverage, such as an explanation of benefits for a
claim that was made during the relevant period.
(ii) In thisExample, based solely on these facts,
Fhas demonstrated creditable coverage for the 12
months of coverage under EmployerW’s plan in
the same manner as ifFhad presented a written
certificate of creditable coverage.
(3)Demonstrating categories of cred-
itable coverage.Procedures similar to
those described in this paragraph (c)
apply in order to determine an individu-
al’s creditable coverage with respect to
any category under paragraph (b) of this
section (relating to determining credit-
able coverage under the alternative
method).
(4)Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the group
health plan or issuer is required to treat
the individual as having furnished a
certificate showing the dependent status
if the individual attests to such depen-
dency and the period of such status and
the individual cooperates with the plan’s
or issuer’s efforts to verify the depen-
dent status.
(d)Determination and notification of
creditable coverage—
(1)Reasonable time period.In the
event that a group health plan receives
information under paragraph (a) of this
section (certifications), paragraph (b) of
this section (disclosure of information
relating to the alternative method), or
paragraph (c) of this section (other evi-
dence of creditable coverage), the plan
is required, within a reasonable time
period following receipt of the informa-
tion, to make a determination regarding
the individual’s period of creditable cov-
erage and notify the individual of the
determination in accordance with para-
graph (d)(2) of this section. Whether a
determination and notification regarding
an individual’s creditable coverage is
made within a reasonable time period is
determined based on the relevant facts
and circumstances. Relevant facts and
circumstances include whether a plan’s
application of a preexisting condition
exclusion would prevent an individual
from having access to urgent medical
services.
(2)Notification to individual of pe-
riod of preexisting condition exclusion.
A plan seeking to impose a preexisting
condition exclusion is required to dis-
50

close to the individual, in writing, its
determination of any preexisting condi-
tion exclusion period that applies to the
individual, and the basis for such deter-
mination, including the source and sub-
stance of any information on which the
plan relied. In addition, the plan is
required to provide the individual with a
written explanation of any appeal proce-
dures established by the plan, and with a
reasonable opportunity to submit addi-
tional evidence of creditable coverage.
However, nothing in this paragraph (d)
or paragraph (c) of this section prevents
a plan from modifying an initial deter-
mination of creditable coverage if it
determines that the individual did not
have the claimed creditable coverage,
provided that—
(i) A notice of such reconsideration,
as described in this paragraph (d), is
provided to the individual; and
(ii) Until the final determination is
made, the plan, for purposes of approv-
ing access to medical services (such as a
pre-surgery authorization), acts in a
manner consistent with the initial deter-
mination.
(3)Examples.The following ex-
amples illustrate this paragraph (d):
Example 1.(i) IndividualGis hired by Em-
ployerY. EmployerY’s group health plan imposes
a preexisting condition exclusion for 12 months
with respect to new enrollees and uses the stan-
dard method of determining creditable coverage.
EmployerY’s plan determines thatGis subject to
a 4-month preexisting condition exclusion, based
on a certificate of creditable coverage that is
provided byGto EmployerY’s plan indicating 8
months of coverage under G’s prior group health
plan.
(ii) In thisExample 1, EmployerY’s plan must
notifyGwithin a reasonable period of time
following receipt of the certificate thatGis
subject to a 4-month preexisting condition exclu-
sion beginning onG’s enrollment date inY’s plan.
Example 2.(i) Same facts as inExample 1,
except that EmployerY’s plan determines thatG
has 14 months of creditable coverage based onG’s
certificate indicating 14 months of creditable cov-
erage underG’s prior plan.
(ii) In thisExample 2, EmployerY’s plan is not
required to notifyGthatGwill not be subject to a
preexisting condition exclusion.
Example 3. (i) IndividualHis hired by Em-
ployerZ. EmployerZ’s group health plan imposes
a preexisting condition exclusion for 12 months
with respect to new enrollees and uses the stan-
dard method of determining creditable coverage.H
develops an urgent health condition before receiv-
ing a certificate of prior coverage.Hattests to the
period of prior coverage, presents corroborating
documentation of the coverage period, and autho-
rizes the plan to request a certificate onH’s
behalf.
(ii) In thisExample 3, EmployerZ’s plan must
review the evidence presented byH. In addition,
the plan must make a determination and notifyH
regarding any preexisting condition exclusion pe-
riod that applies toH(and the basis of such
determination) within a reasonable time period
following receipt of the evidence that is consistent
with the urgency ofH’s health condition (this
determination may be modified as permitted under
paragraph (d)(2) of this section).
§ 54.9801–6T Special enrollment peri-
ods (temporary).
(a)Special enrollment for certain in-
dividuals who lose coverage—
(1)In general.A group health plan is
required to permit employees and de-
pendents described in paragraph (a)(2),
(3), or (4) of this section to enroll for
coverage under the terms of the plan if
the conditions in paragraph (a)(5) of this
section are satisfied and the enrollment
is requested within the period described
in paragraph (a)(6) of this section. The
enrollment is effective at the time de-
scribed in paragraph (a)(7) of this sec-
tion. 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 PHSA section 2701(f)(1)
and ERISA section 701(f)(1) under
which this obligation is also imposed on
a health insurance issuer offering group
health insurance coverage.)
(2)Special enrollment of an employee
only.An employee is described in this
paragraph (a)(2) if the employee is
eligible, but not enrolled, for coverage
under the terms of the plan and, when
enrollment was previously offered to the
employee under the plan and was de-
clined by the employee, the employee
was covered under another group health
plan or had other health insurance cov-
erage.
(3)Special enrollment of dependents
only.A dependent is described in this
paragraph (a)(3) if the dependent is a
dependent of an employee participating
in the plan, the dependent is eligible,
but not enrolled, for coverage under the
terms of the plan, and, when enrollment
was previously offered under the plan
and was declined, the dependent was
covered under another group health plan
or had other health insurance coverage.
(4)Special enrollment of both em-
ployee and dependent.An employee and
any dependent of the employee are
described in this paragraph (a)(4) if they
are eligible, but not enrolled, for cover-
age under the terms of the plan and,
when enrollment was previously offered
to the employee or dependent under the
plan and was declined, the employee or
dependent was covered under another
group health plan or had other health
insurance coverage.
(5)Conditions for special enrollment.
An employee or dependent is eligible to
enroll during a special enrollment period
if each of the following applicable con-
ditions is met:
(i) When the employee declined en-
rollment for the employee or the depen-
dent, the employee stated in writing that
coverage under another group health
plan or other health insurance coverage
was the reason for declining enrollment.
This paragraph (a)(5)(i) applies only
if—
(A) The plan required such a state-
ment when the employee declined en-
rollment; and
(B) The employee is provided with
notice of the requirement to provide the
statement in this paragraph (a)(5)-
(i) (and the consequences of the em-
ployee’s failure to provide the state-
ment) at the time the employee declined
enrollment.
(ii)(A) When the employee declined
enrollment for the employee or depen-
dent under the plan, the employee or
dependent had COBRA continuation
coverage under another plan and CO-
BRA continuation coverage under that
other plan has since been exhausted; or
(B) If the other coverage that applied
to the employee or dependent when
enrollment was declined was not under
a COBRA continuation provision, either
the other coverage has been terminated
as a result of loss of eligibility for the
coverage or employer contributions to-
wards the other coverage have been
terminated. For this purpose, loss of
eligibility for coverage includes a loss
of coverage as a result of legal separa-
tion, divorce, death, termination of em-
ployment, reduction in the number of
hours of employment, and any loss of
eligibility after a period that is measured
by reference to any of the foregoing.
Thus, for example, if an employee’s
coverage ceases following a termination
of employment and the employee is
eligible for but fails to elect COBRA
continuation coverage, this is treated as
a loss of eligibility under this paragraph
(a)(5)(ii)(B). However, loss of eligibility
does not include a loss due to failure of
the individual or the participant to pay
premiums on a timely basis or termina-
tion of coverage for cause (such as
making a fraudulent claim or an inten-
tional misrepresentation of a material
fact in connection with the plan). In
addition, for purposes of this paragraph
(a)(5)(ii)(B), employer contributions in-
clude contributions by any current or
former employer (of the individual or
51

another person) that was contributing to
coverage for the individual.
(6)Length of special enrollment pe-
riod.The employee is required to re-
quest enrollment (for the employee or
the employee’s dependent, as described
in paragraph (a)(2), (3), or (4) of this
section) not later than 30 days after the
exhaustion of the other coverage de-
scribed in paragraph (a)(5)(ii)(A) of this
section or termination of the other cov-
erage as a result of the loss of eligibility
for the other coverage for items de-
scribed in paragraph (a)(5)(ii)(B) of this
section or following the termination of
employer contributions toward that other
coverage. The plan may impose the
same requirements that apply to employ-
ees who are otherwise eligible under the
plan to immediately request enrollment
for coverage (e.g., that the request be
made in writing).
(7)Effective date of enrollment.En-
rollment is effective not later than the
first day of the first calendar month
beginning after the date the completed
request for enrollment is received.
(b)Special enrollment with respect to
certain dependent beneficiaries—
(1)In general.A group health plan
that makes coverage available with re-
spect to dependents of a participant is
required to provide a special enrollment
period to permit individuals described in
paragraph (b)(2), (3), (4), (5), or (6) of
this section to be enrolled for coverage
under the terms of the plan if the
enrollment is requested within the time
period described in paragraph (b)(7) of
this section. The enrollment is effective
at the time described in paragraph (b)(8)
of this section. 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.
(2)Special enrollment of an employee
who is eligible but not enrolled.An
individual is described in this paragraph
(b)(2) if the individual is an employee
who is eligible, but not enrolled, in the
plan, the individual would be a partici-
pant but for a prior election by the
individual not to enroll in the plan
during a previous enrollment period, and
a person becomes a dependent of the
individual through marriage, birth, or
adoption or placement for adoption.
(3)Special enrollment of a spouse of
a participant.An individual is described
in this paragraph (b)(3) if either—
(i) The individual becomes the
spouse of a participant; or
(ii) The individual is a spouse of the
participant and a child becomes a de-
pendent of the participant through birth,
adoption or placement for adoption.
(4)Special enrollment of an employee
who is eligible but not enrolled and the
spouse of such employee.An employee
who is eligible, but not enrolled, in the
plan, and an individual who is a depen-
dent of such employee, are described in
this paragraph (b)(4) if the employee
would be a participant but for a prior
election by the employee not to enroll in
the plan during a previous enrollment
period, and either—
(i) The employee and the individual
become married; or
(ii) The employee and individual are
married and a child becomes a depen-
dent of the employee through birth,
adoption or placement for adoption.
(5)Special enrollment of a dependent
of a participant.An individual is de-
scribed in this paragraph (b)(5) if the
individual is a dependent of a partici-
pant and the individual becomes a de-
pendent of such participant through mar-
riage, birth, or adoption or placement
for adoption.
(6)Special enrollment of an employee
who is eligible but not enrolled and a
new dependent.An employee who is
eligible, but not enrolled, in the plan,
and an individual who is a dependent of
the employee, are described in this para-
graph (b)(6) if the employee would be a
participant but for a prior election by
the employee not to enroll in the plan
during a previous enrollment period, and
the dependent becomes a dependent of
the employee through marriage, birth, or
adoption or placement for adoption.
(7)Length of special enrollment pe-
riod.The special enrollment period un-
der paragraph (b)(1) of this section is a
period of not less than 30 days and
begins on the date of the marriage,
birth, or adoption or placement for
adoption (except that such period does
not begin earlier than the date the plan
makes dependent coverage generally
available).
(8)Effective date of enrollment.En-
rollment is effective—
(i) In the case of marriage, not later
than the first day of the first calendar
month beginning after the date the com-
pleted request for enrollment is received
by the plan;
(ii) In the case of a dependent’s birth,
the date of such birth; and
(iii) In the case of a dependent’s
adoption or placement for adoption, the
date of such adoption or placement for
adoption.
(9)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example.(i) EmployeeA is hired on September
3, 1998 by Employer X, which has a group health
plan in whichAcan elect to enroll either for
employee-only coverage, for employee-plus-spouse
coverage, or for family coverage, effective on the
first day of any calendar quarter thereafter.Ais
married and has no children.Adoes not elect to
join EmployerX’s plan (for employee-only cover-
age, employee-plus-spouse coverage, or family
coverage) on October 1, 1998 or January 1, 1999.
On February 15, 1999, a child is placed for
adoption withAandA’s spouse.
(ii) In thisExample, the conditions for special
enrollment of an employee with a new dependent
under paragraph (b)(2) of this section are satisfied,
the conditions for special enrollment of an em-
ployee and a spouse with a new dependent under
paragraph (b)(4) of this section are satisfied, and
the conditions for special enrollment of an em-
ployee and a new dependent under paragraph
(b)(6) of this section are satisfied. Accordingly,
EmployerX’s plan will satisfy this paragraph (b) if
and only if it allowsAto elect, by filing the
required forms by March 16, 1999, to enroll in
EmployerX’s plan either with employee-only
coverage, with employee-plus-spouse coverage, or
with family coverage, effective as of February 15,
1999.
(c)Notice of enrollment rights.On or
before the time an employee is offered
the opportunity to enroll in a group
health plan, the plan is required to
provide the employee with a description
of the plan’s special enrollment rules
under this section. For this purpose, the
plan may use the following model de-
scription of the special enrollment rules
under this section:
If you are declining enrollment for
yourself or your dependents (includ-
ing your spouse) because of other
health insurance coverage, you may in
the future be able to enroll yourself or
your dependents in this plan, provided
that you request enrollment within 30
days after your other coverage ends.
In addition, if you have a new depen-
dent as a result of marriage, birth,
adoption, or placement for adoption,
you may be able to enroll yourself
and your dependents, provided that
you request enrollment within 30 days
after the marriage, birth, adoption, or
placement for adoption.
(d)(1)Special enrollment date defini-
tion.A special enrollment date for an
individual means any date in paragraph
(a)(7) or (b)(8) of this section on which
the individual has a right to have enroll-
ment in a group health plan become
effective under this section.
(2)Examples.The rules of this sec-
tion are illustrated by the following
examples:
52

Example 1. (i)(A) EmployerYmaintains a
group health plan that allows employees to enroll
in the plan either—
(1) Effective on the first day of employment by
an election filed within three days thereafter;
(2) Effective on any subsequent January 1 by
an election made during the preceding months of
November or December; or
(3) Effective as of any special enrollment date
described in this section.
(B) EmployeeBis hired by EmployerYon
March 15, 1998 and does not elect to enroll in
EmployerY’s plan until January 31, 1999 whenB
loses coverage under another plan.Belects to
enroll in EmployerY’s plan effective on February
1, 1999, by filing the completed request form by
January 31, 1999, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In thisExample 1, B has enrolled on a
special enrollment date because the enrollment is
effective at a date described in paragraph (a)(7) of
this section.
Example 2. (i) Same facts asExample 1, except
thatB’s loss of coverage under the other plan
occurs on December 31, 1998 andBelects to
enroll in EmployerY’s plan effective on January 1,
1999 by filing the completed request form by
December 31, 1998, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In thisExample 2, B has enrolled on a
special enrollment date because the enrollment is
effective at a date described in paragraph (a)(7) of
this section (even though this date is also a regular
enrollment date under the plan).
§ 54.9802–1T Prohibiting discrimina-
tion against participants and beneficia-
ries based on a health status-related
factor (temporary).
(a)In eligibility to enroll—
(1)In general.Subject to paragraph
(a)(2) of this section, a group health
plan may not establish rules for eligibil-
ity (including continued eligibility) of
any individual to enroll under the terms
of the plan based on any of the follow-
ing health status-related factors in rela-
tion to the individual or a dependent of
the individual:
(i) Health status.
(ii) Medical condition (including both
physical and mental illnesses), as de-
fined in § 54.9801–2T.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined
in § 54.9801–2T.
(vii) Evidence of insurability (includ-
ing conditions arising out of acts of
domestic violence).
(viii) Disability.
(2)No application to benefits or ex-
clusions.To the extent consistent with
section 9801 and § 54.9801–3T, para-
graph (a)(1) of this section shall not be
construed —
(i) To require a group health plan to
provide particular benefits other than
those provided under the terms of such
plan; or
(ii) To prevent such a plan from
establishing limitations or restrictions on
the amount, level, extent, or nature of
the benefits or coverage for similarly
situated individuals enrolled in the plan
or coverage.
(3)Construction.For purposes of
paragraph (a)(1) of this section, rules for
eligibility to enroll include rules defin-
ing any applicable waiting (or affilia-
tion) periods for such enrollment and
rules relating to late and special enroll-
ment.
(4)Example.The following example
illustrates the rules of this paragraph (a):
Example.(i) An employer sponsors a group
health plan that is available to all employees who
enroll within the first 30 days of their employ-
ment. However, individuals who do not enroll in
the first 30 days cannot enroll later unless they
pass a physical examination.
(ii) In thisExample, the plan discriminates on
the basis of one or more health status-related
factors.
(b)In premiums or contributions—
(1)In general.A group health plan
may not require an individual (as a
condition of enrollment or continued
enrollment under the plan) to pay a
premium or contribution that is greater
than the premium or contribution for a
similarly situated individual enrolled in
the plan based on any health status-
related factor, in relation to the indi-
vidual or a dependent of the individual.
(2)Construction.Nothing in para-
graph (b)(1) of this section shall be
construed—
(i) To restrict the amount that an
employer may be charged by an issuer
for coverage under a group health plan;
or
(ii) To prevent a group health plan
from establishing premium discounts or
rebates or modifying otherwise appli-
cable copayments or deductibles in re-
turn for adherence to a bona fide well-
ness program. For purposes of this
section, a bona fide wellness program is
a program of health promotion and
disease prevention.
(3)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example.(i) PlanXoffers a premium discount
to participants who adhere to a cholesterol-
reduction wellness program. Enrollees are ex-
pected to keep a diary of their food intake over 6
weeks. They periodically submit the diary to the
plan physician who responds with suggested diet
modifications. Enrollees are to modify their diets
in accordance with the physician’s recommenda-
tions. At the end of the 6 weeks, enrollees are
given a cholesterol test and those who achieve a
count under 200 receive a premium discount.
(ii) In thisExample, because enrollees who
otherwise comply with the program may be unable
to achieve a cholesterol count under 200 due to a
health status-related factor, this is not a bona fide
wellness program and such discounts would dis-
criminate impermissibly based on one or more
health status-related factors. However, if, instead,
individuals covered by the plan were entitled to
receive the discount for complying with the diary
and dietary requirements and were not required to
pass a cholesterol test, the program would be a
bona fide wellness program.
§ 54.9804–1T Special Rules Relating to
Group Health Plans (temporary).
(a)General exception for certain
small group health plans.The require-
ments of Chapter 100 of Subtitle K of
the Internal Revenue Code 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 2 participants
who are current employees.
(b)Excepted benefits—
(1)In general.The requirements of
§§ 54.9801–1T through 54.9801–6T and
54.9802–1T do not apply to any group
health plan in relation to its provision of
the benefits described in paragraph
(b)(2), (3), (4), or (5) of this section (or
any combination of these benefits).
(2)Benefits excepted in all circum-
stances.The following benefits are ex-
cepted in all circumstances—
(i) Coverage only for accident (in-
cluding accidental death and dismember-
ment);
(ii) Disability income insurance;
(iii) Liability insurance, including
general liability insurance and automo-
bile liability insurance;
(iv) Coverage issued as a supplement
to liability insurance;
(v) Workers’ compensation or similar
insurance;
(vi) Automobile medical payment in-
surance;
(vii) Credit-only insurance (for ex-
ample, 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 insur-
ance, or are otherwise not an integral
part of the plan, as defined in paragraph
(b)(3)(ii) of this section.
(ii)Integral.For purposes of para-
graph (b)(3)(i) of this section, benefits
are deemed to be an integral part of a
plan unless a participant has the right to
53

elect not to receive coverage for the
benefits and, if the participant elects to
receive coverage for the benefits, the
participant pays an additional premium
or contribution for that coverage.
(iii)Limited scope.Limited scope
dental or vision benefits are dental or
vision benefits that are sold under a
separate policy or rider and that are
limited in scope to a narrow range or
type of benefits that are generally ex-
cluded from hospital/medical/surgical
benefit packages.
(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 in-
surance 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); or
(C) Based on cognitive impairment or
a loss of functional capacity that is
expected to be chronic.
(4)Noncoordinated benefits—
(i)Excepted benefits that are not co-
ordinated.Coverage for only a specified
disease or illness (for example, cancer-
only policies) or hospital indemnity or
other fixed dollar indemnity insurance
(for example, $100/day) is excepted
only if it meets each of the conditions
specified in paragraph (b)(4)(ii) of this
section.
(ii)Conditions.Benefits are described
in paragraph (b)(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 main-
tained by the same plan sponsor.
(5)Supplemental benefits.The fol-
lowing benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of insur-
ance—
(i) Medicare supplemental health in-
surance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance);
(ii) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as CHAMPUS supplemental pro-
grams); and
(iii) Similar supplemental coverage
provided to coverage under a group
health plan.
(c)Treatment of partnerships.[Re-
served]
§ 54.9806–1T Effective Dates (tempo-
rary).
(a)General effective dates—
(1)Non-collectively-bargained plans.
Except as otherwise provided in this
section, Chapter 100 of Subtitle K of the
Internal Revenue Code and §§ 54.9801–
1T through 54.9804–1T apply with re-
spect to group health plans for plan
years beginning after June 30, 1997.
(2)Collectively bargained plans.Ex-
cept as otherwise provided in this sec-
tion (other than paragraph (a)(1) of this
section), in the case of a group health
plan maintained pursuant to one or more
collective bargaining agreements be-
tween employee representatives and one
or more employers ratified before Au-
gust 21, 1996, Chapter 100 of Subtitle
K of the Internal Revenue Code and
§§ 54.9801–1T through 54.9804–1T do
not apply to plan years beginning before
the later of July 1, 1997, or the date on
which the last of the collective bargain-
ing agreements relating to the plan ter-
minates (determined without regard to
any extension thereof agreed to after
August 21, 1996). For these purposes,
any plan amendment made pursuant to a
collective bargaining agreement relating
to the plan, that amends the plan solely
to conform to any requirement of such
Chapter, is not treated as a termination
of the collective bargaining agreement.
(3)(i)Preexisting condition exclusion
periods for current employees.Any pre-
existing condition exclusion period per-
mitted under § 54.9801–3T is measured
from the individual’s enrollment date in
the plan. Such exclusion period, as
limited under § 54.9801–3T, may be
completed prior to the effective date of
the Health Insurance Portability and Ac-
countability Act of 1996 (HIPAA) for
his or her plan. Therefore, on the date
the individual’s plan becomes subject to
Chapter 100 of Subtitle K of the Inter-
nal Revenue Code, no preexisting condi-
tion exclusion may be imposed with
respect to an individual beyond the
limitation in § 54.9801–3T. For an indi-
vidual who has not completed the per-
mitted exclusion period under HIPAA,
upon the effective date for his or her
plan, the individual may use creditable
coverage that the individual had prior to
the enrollment date to reduce the re-
maining preexisting condition exclusion
period applicable to the individual.
(ii)Examples.The following ex-
amples illustrate the rules of this para-
graph (a)(3):
Example 1. (i) IndividualAhas been working
for EmployerXand has been covered under
EmployerX’s plan since March 1, 1997. Under
EmployerX’s plan, as in effect before January 1,
1998, there is no coverage for any preexisting
condition. EmployerX’s plan year begins on
January 1, 1998.A’s enrollment date in the plan is
March 1, 1997 andAhas no creditable coverage
before this date.
(ii) In thisExample 1, EmployerXmay con-
tinue to impose the preexisting condition exclusion
under the plan through February 28, 1998 (the end
of the 12-month period using anniversary dates).
Example 2. (i) Same facts as inExample 1,
except thatA’s enrollment date was August 1,
1996, instead of March 1, 1997.
(ii) In thisExample 2, on January 1, 1998,
EmployerX’s plan may no longer exclude treat-
ment for any preexisting condition thatAmay
have; however, because EmployerX’s plan is not
subject to HIPAA until January 1, 1998,Ais not
entitled to claim reimbursement for expenses un-
der the plan for treatments for any preexisting
condition ofAreceived before January 1, 1998.
(b)Effective date for certification re-
quirement—
(1)In general.Subject to the transi-
tional rule in § 54.9801–5T(a)(5)(iii),
the certification rules of § 54.9801–5T
apply to events occurring on or after
July 1, 1996.
(2)Period covered by certificate.A
certificate is not required to reflect cov-
erage before July 1, 1996.
(3)No certificate before June 1,
1997.Notwithstanding any other provi-
sion of § 54.9801–5T, in no case is a
certificate required to be provided be-
fore June 1, 1997.
(c)Limitation on actions.No enforce-
ment action is to be taken, pursuant to
Chapter 100 of Subtitle K of the Inter-
nal Revenue Code, against a group
health plan or health insurance issuer
with respect to a violation of a require-
ment imposed by Chapter 100 of Sub-
title K of the Internal Revenue Code
before January 1, 1998 if the plan or
issuer has sought to comply in good
faith with such requirements. Compli-
ance with these regulations is deemed to
be good faith compliance with the re-
quirements of Chapter 100 of Subtitle K
of the Internal Revenue Code.
(d)Transition rules for counting
creditable coverage.An individual who
seeks to establish creditable coverage
for periods before July 1, 1996 is en-
54

titled to establish such coverage through
the presentation of documents or other
means in accordance with the provisions
of § 54.9801–5T(c). For coverage relat-
ing to an event occurring before July 1,
1996, a group health plan and a health
insurance issuer is not subject to any
penalty or enforcement action with re-
spect to the plan’s or issuer’s counting
(or not counting) such coverage if the
plan or issuer has sought to comply in
good faith with the applicable require-
ments under § 54.9801–5T(c).
(e)Transition rules for certificates of
creditable coverage—
(1)Certificates only upon request.
For events occurring on or after July 1,
1996 but before October 1, 1996, a
certificate is required to be provided
only upon a written request by or on
behalf of the individual to whom the
certificate applies.
(2)Certificates before June 1, 1997.
For events occurring on or after October
1, 1996 and before June 1, 1997, a
certificate must be furnished no later
than June 1, 1997, or any later date
permitted under § 54.9801–5T(a)(2)(ii)
and (iii).
(3)Optional notice—
(i)In general.This paragraph (e)(3)
applies with respect to events described
in § 54.9801–5T(a)(5)(ii), that occur on
or after October 1, 1996 but before June
1, 1997. A group health plan or health
insurance issuer offering group health
coverage is deemed to satisfy
§ 54.9801–5T(a)(2) and (3) if a notice
is provided in accordance with the pro-
visions of paragraphs (e)(3)(i) through
(iv) of this section.
(ii)Time of notice.The notice must
be provided no later than June 1, 1997.
(iii)Form and content of notice.A
notice provided pursuant to this para-
graph (e)(3) must be in writing and
must include information substantially
similar to the information included in a
model notice authorized by the Secre-
tary. Copies of the model notice are
available at the following website —
http://www.irs.ustreas.gov (or call (202)
622–4695).
(iv)Providing certificate after re-
quest.If an individual requests a certifi-
cate following receipt of the notice, the
certificate must be provided at the time
of the request as set forth in § 54.9801–
5T(a)(5)(iii).
(v)Other certification rules apply.
The rules set forth in § 54.9801–
5T(a)(4)(i) (method of delivery) and
54.9801–5T(a)(1) (entities required to
provide a certificate) apply with respect
to the provision of the notice.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved March 24, 1997.
Donald C. Lubrick,
Assistant Secretary of the Treasury.
Pension and Welfare Benefits
Administration
29 CFR Chapter XXV
For the reasons set forth above, Chapter
XXV of Title 29 of the Code of Federal
Regulations is amended as set forth
below:
1. A new Subchapter L, consisting of
Part 2590, is added to read as follows:
SUBCHAPTER L-HEALTH INSUR-
ANCE PORTABILITY AND RENEW-
ABILITY FOR GROUP HEALTH
PLANS
PART 2590-RULES AND REGULA-
TIONS FOR HEALTH INSURANCE
PORTABILITY AND RENEWABILITY
FOR GROUP HEALTH PLANS
Subpart A—Requirements Relating to
Access and Renewability of Coverage,
and Limitations on Preexisting Condi-
tion Exclusion Periods
Sec.
2590.701–1 Basis and scope.
2590.701–2 Definitions.
2590.701–3 Limitations on preexisting
condition exclusion pe-
riod.
2590.701–4 Rules relating to credit-
able coverage.
2590.701–5 Certification and disclo-
sure of previous coverage.
2590.701–6 Special enrollment peri-
ods.
2590.701–7 HMO affiliation period as
alternative to preexisting
condition exclusion.
2590.702 Prohibiting discrimination
against participants and
beneficiaries based on a
health status-related factor.
2590.703 Guaranteed renewability
in multiemployer plans
and multiple employer
welfare arrangements.
[Reserved]
Subpart B—Other Requirements
Sec.
2590.711 Standards relating to ben-
efits for mothers and new-
borns. [Reserved]
2590.712 Parity in the application
of certain limits to mental
health benefits. [Reserved]
Subpart C—General Provisions
Sec.
2590.731 Preemption; State flexibil-
ity; construction.
2590.732 Special rules relating to
group health plans.
2590.734 Enforcement. [Reserved]
2590.736 Effective dates.
Authority: Sec. 29 U.S.C. 1027, 1059,
1135, 1171, 1194; Sec. 101, Pub. L.
104–191, 101 Stat. 1936 (29 U.S.C.
1181); Secretary of Labor’s Order No.
1–87, 52 FR 13139, April 21, 1987.
Subpart A—Requirements Relating to
Access and Renewability of Coverage,
and Limitations on Preexisting Condi-
tion Exclusion Periods
§ 2590.701–1 Basis and scope.
(a)Statutory basis.This Subpart
implements Part 7 of Subtitle B of Title
I of the Employee Retirement Income
Security Act of 1974, as amended (here-
inafter ERISA or the Act).
(b)Scope.A group health plan or
health insurance issuer offering group
health insurance coverage may provide
greater rights to participants and benefi-
ciaries than those set forth in this Sub-
part. This Subpart A sets forth minimum
requirements for group health plans and
health insurance issuers offering group
health insurance coverage concerning:
(1) Limitations on a preexisting con-
dition exclusion period.
(2) Certificates and disclosure of pre-
vious coverage.
(3) Rules relating to counting credit-
able coverage.
(4) Special enrollment periods.
(5) Use of an affiliation period by an
HMO as an alternative to a preexisting
condition exclusion.
§ 2590.701–2 Definitions.
Unless otherwise provided, the defini-
tions in this section govern in applying
the provisions of §§ 2590.701 through
2590.734.
Affiliation periodmeans a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
COBRAdefinitions:
(1)COBRAmeans Title X of the
Consolidated Omnibus Budget Recon-
ciliation Act of 1985, as amended.
55

(2)COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable
COBRA continuation provision.
(3)COBRA continuation provision
means sections 601–608 of the Act,
section 4980B of the Code (other than
paragraph (f)(1) of such section
4980B insofar as it relates to pediatric
vaccines), and Title XXII of the
PHSA.
(4)Exhaustion of COBRA continua-
tion coveragemeans that an individu-
al’s COBRA continuation coverage
ceases for any reason other than ei-
ther failure of the individual to pay
premiums on a timely basis, or for
cause (such as making a fraudulent
claim or an intentional misrepresenta-
tion of a material fact in connection
with the plan). An individual is con-
sidered to have exhausted COBRA
continuation coverage if such cover-
age ceases—
(i) Due to the failure of the em-
ployer or other responsible entity to
remit premiums on a timely basis;
or
(ii) When the individual no longer
resides, lives, or works in a service
area of an HMO or similar program
(whether or not within the choice
of the individual) and there is no
other COBRA continuation cover-
age available to the individual.
Conditionmeans a medical condition.
Creditable coveragemeans credita-
ble coverage within the meaning of
§ 2590.701–4(a).
Enrollmeans to become covered for
benefits under a group health plan
(i.e., when coverage becomes effec-
tive), without regard to when the
individual may have completed or
filed any forms that are required in
order to enroll in the plan. For this
purpose, an individual who has health
insurance coverage under a group
health plan is enrolled in the plan
regardless of whether the individual
elects coverage, the individual is a
dependent who becomes covered as a
result of an election by a participant,
or the individual becomes covered
without an election.
Enrollment date definitions(enroll-
ment dateandfirst day of coverage)
are set forth in § 2590.701–3(a)(2)(i)
and (ii).
Excepted benefitsmeans the benefits
described as excepted in
§ 2590.732(b).
Genetic informationmeans informa-
tion about genes, gene products, and
inherited characteristics that may de-
rive from the individual or a family
member. This includes information re-
garding carrier status and information
derived from laboratory tests that
identify mutations in specific genes or
chromosomes, physical medical ex-
aminations, family histories, and di-
rect analysis of genes or chromo-
somes.
Group health insurance coverage
means health insurance coverage of-
fered in connection with a group
health plan.
Group health planmeans an em-
ployee welfare benefit plan to the
extent that the plan provides medical
care (including items and services
paid for as medical care) to employ-
ees or their dependents (as defined
under the terms of the plan) directly
or through insurance, reimbursement,
or otherwise.
Group marketmeans the market for
health insurance coverage offered in
connection with a group health plan.
(However, certain very small plans
may be treated as being in the indi-
vidual market, rather than the group
market; see the definition of indi-
vidual market in this section.)
Health insurance coveragemeans
benefits consisting of medical care
(provided directly, through insurance
or reimbursement, or otherwise) under
any hospital or medical service policy
or certificate, hospital or medical ser-
vice plan contract, or HMO contract
offered by a health insurance issuer.
Health insurance issuerorissuer
means an insurance company, insur-
ance service, or insurance organiza-
tion (including an HMO) that is re-
quired to be licensed to engage in the
business of insurance in a State and
that is subject to State law that regu-
lates insurance (within the meaning of
section 514(b)(2) of the Act). Such
term does not include a group health
plan.
Health Maintenance Organizationor
HMOmeans—
(1) A federally qualified health main-
tenance organization (as defined in
section 1301(a) of the PHSA);
(2) An organization recognized under
State law as a health maintenance
organization; or
(3) A similar organization regulated
under State law for solvency in the
same manner and to the same extent
as such a health maintenance organi-
zation.
Individual health insurance coverage
means health insurance coverage of-
fered to individuals in the individual
market, but does not include short-
term, limited duration insurance. For
this purpose, short-term, limited-
duration insurance means health in-
surance coverage provided pursuant to
a contract with an issuer that has an
expiration date specified in the con-
tract (taking into account any exten-
sions that may be elected by the
policyholder without the issuer’s con-
sent) that is within 12 months of the
date such contract becomes effective.
Individual health insurance coverage
can include dependent coverage.
Individual marketmeans the market
for health insurance coverage offered
to individuals other than in connec-
tion with a group health plan. Unless
a State elects otherwise in accordance
with section 2791(e)(1)(B)(ii) of the
PHSA, such term also includes cover-
age offered in connection with a
group health plan that has fewer than
two participants as current employees
on the first day of the plan year.
Internal Revenue Code (Code)means
the Internal Revenue Code of 1986,
as amended (Title 26, United States
Code).
Issuermeans a health insurance is-
suer.
Late enrollment definitions(late en-
rolleeandlate enrollment) are set
forth in § 2590.701–3(a)(2)(iii) and
(iv).
Medical caremeans amounts paid
for—
(1) The diagnosis, cure, mitigation,
treatment, or prevention of disease, or
amounts paid for the purpose of af-
fecting any structure or function of
the body;
(2) Transportation primarily for and
essential to medical care referred to in
paragraph (1) of this definition; and
(3) Insurance covering medical care
referred to in paragraphs (1) and (2)
of this definition.
Medical conditionorconditionmeans
any condition, whether physical or
mental, including, but not limited to,
any condition resulting from illness,
injury (whether or not the injury is
accidental), pregnancy, or congenital
malformation. However, genetic infor-
mation is not a condition.
Placement, or being placed, for adop-
tionmeans the assumption and reten-
tion of a legal obligation for total or
partial support of a child by a person
with whom the child has been placed
56

in anticipation of the child’s adoption.
The child’s placement for adoption
with such person terminates upon the
termination of such legal obligation.
Plan yearmeans the year that is
designated as the plan year in the
plan document of a group health plan,
except that if the plan document does
not designate a plan year or if there is
no plan document, the plan year is—
(1) The deductible/limit year used un-
der the plan;
(2) If the plan does not impose
deductibles or limits on a yearly ba-
sis, then the plan year is the policy
year;
(3) If the plan does not impose
deductibles or limits on a yearly ba-
sis, and either the plan is not insured
or the insurance policy is not renewed
on an annual basis, then the plan year
is the employer’s taxable year; or
(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusionmeans
a limitation or exclusion of benefits
relating to a condition based on the
fact that the condition was present
before the first day of coverage,
whether or not any medical advice,
diagnosis, care, or treatment was rec-
ommended or received before that
day. A preexisting condition exclusion
includes any exclusion applicable to
an individual as a result of informa-
tion that is obtained relating to an
individual’s health status before the
individual’s first day of coverage,
such as a condition identified as a
result of a pre-enrollment question-
naire or physical examination given to
the individual, or review of medical
records relating to the pre-enrollment
period.
Public health planmeanspublic
health planwithin the meaning of
§ 2590.701–4(a)(1)(ix).
Public Health Service Act (PHSA)
means the Public Health Service Act
(42 U.S.C. 201, et seq.).
Significant break in coveragemeans a
significant break in coverage within
the meaning of § 2590.701–
4(b)(2)(iii).
Special enrollment datemeans a spe-
cial enrollment date within the mean-
ing of § 2590.701–6(d).
Statemeans each of the several
States, the District of Columbia,
Puerto Rico, the Virgin Islands,
Guam, American Samoa, and the
Northern Mariana Islands.
State health benefits risk poolmeans
a State health benefits risk pool
within the meaning of § 2590.701–
4(a)(1)(vii).
Waiting periodmeans the period that
must pass before an employee or
dependent is eligible to enroll under
the terms of a group health plan. If an
employee or dependent enrolls as a
late enrollee or on a special enroll-
ment date, any period before such late
or special enrollment is not a waiting
period. If an individual seeks and
obtains coverage in the individual
market, any period after the date the
individual files a substantially com-
plete application for coverage and
before the first day of coverage is a
waiting period.
§ 2590.701–3 Limitations on preexisting
condition exclusion period.
(a)Preexisting condition exclusion—
(1)In general.Subject to paragraph
(b) of this section, a group health plan,
and a health insurance issuer offering
group health insurance coverage, may
impose, with respect to a participant or
beneficiary, a preexisting condition ex-
clusion only if the requirements of this
paragraph (a) are satisfied.
(i)6-month look-back rule.A preex-
isting condition exclusion must relate to
a condition (whether physical or men-
tal), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was recom-
mended or received within the 6-month
period ending on the enrollment date.
(A) For purposes of this paragraph
(a)(1)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, or received
from, an individual licensed or similarly
authorized to provide such services un-
der State law and operating within the
scope of practice authorized by State
law.
(B) For purposes of this paragraph
(a)(1)(i), the 6-month period ending on
the enrollment date begins on the
6-month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the enrollment
date is the period commencing on Feb-
ruary 1, 1998 and continuing through
July 31, 1998. As another example, for
an enrollment date of August 30, 1998,
the 6-month period preceding the enroll-
ment date is the period commencing on
February 28, 1998 and continuing
through August 29, 1998.
(C) The rules of this paragraph
(a)(1)(i) are illustrated by the following
examples:
Example 1.(i) IndividualAis treated for a
medical condition 7 months before the enrollment
date in EmployerR’s group health plan. As part of
such treatment,A’s physician recommends that a
follow-up examination be given 2 months later.
Despite this recommendation,Adoes not receive a
follow-up examination and no other medical ad-
vice, diagnosis, care, or treatment for that condi-
tion is recommended toAor received byAduring
the 6-month period ending onA’s enrollment date
in EmployerR’s plan.
(ii) In thisExample 1, EmployerR’s plan may
not impose a preexisting condition exclusion pe-
riod with respect to the condition for whichA
received treatment 7 months prior to the enroll-
ment date.
Example 2. (i) Same facts asExample 1, except
that EmployerR’s plan learns of the condition and
attaches a rider toA’s policy excluding coverage
for the condition. Three months after enrollment,
A’s condition recurs, and EmployerR’s plan
denies payment under the rider.
(ii) In thisExample 2, the rider is a preexisting
condition exclusion and EmployerR’s plan may
not impose a preexisting condition exclusion with
respect to the condition for whichAreceived
treatment 7 months prior to the enrollment date.
Example 3. (i) IndividualBhas asthma and is
treated for that condition several times during the
6-month period beforeB’s enrollment date in
EmployerS’s plan. The plan imposes a 12-month
preexisting condition exclusion.Bhas no prior
creditable coverage to reduce the exclusion period.
Three months after the enrollment date,Bbegins
coverage under Employer S’s plan. Two months
later,Bis hospitalized for asthma.
(ii) In thisExample 3, EmployerS’s plan may
exclude payment for the hospital stay and the
physician services associated with this illness
because the care is related to a medical condition
for which treatment was received byBduring the
6-month period before the enrollment date.
Example 4. (i) IndividualD, who is subject to a
preexisting condition exclusion imposed by Em-
ployerU’s plan, has diabetes, as well as a foot
condition caused by poor circulation and retinal
degeneration (both of which are conditions that
may be directly attributed to diabetes). After
enrolling in the plan,Dstumbles and breaks a leg.
(ii) In thisExample 4, the leg fracture is not a
condition related toD’s diabetes, even though
poor circulation inD’s extremities and poor vision
may have contributed towards the accident. How-
ever, any additional medical services that may be
needed because ofD’s preexisting diabetic condi-
tion that would not be needed by another patient
with a broken leg who does not have diabetes may
be subject to the preexisting condition exclusion
imposed under EmployerU’s plan.
(ii)Maximum length of preexisting
condition exclusion (the look-forward
rule). A preexisting condition exclusion
is not permitted to extend for more than
12 months (18 months in the case of a
late enrollee) after the enrollment date.
For purposes of this paragraph (a)(1)(ii),
the 12-month and 18-month periods af-
ter the enrollment date are determined
by reference to the anniversary of the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
57

12-month period after the enrollment
date is the period commencing on Au-
gust 1, 1998 and continuing through
July 31, 1999.
(iii)Reducing a preexisting condition
exclusion period by creditable coverage.
The period of any preexisting condition
exclusion that would otherwise apply to
an individual under a group health plan
is reduced by the number of days of
creditable coverage the individual has as
of the enrollment date, as counted under
§ 2590.701–4. For purposes of this sub-
part the phrase ‘‘days of creditable cov-
erage’’ has the same meaning as the
phrase ‘‘aggregate of the periods of
creditable coverage’’ as such term is
used in section 701(a)(3) of the Act.
(iv)Other standards.See § 2590.702
for other standards that may apply with
respect to certain benefit limitations or
restrictions under a group health plan.
(2)Enrollment definitions—
(i)Enrollment datemeans the first
day of coverage or, if there is a waiting
period, the first day of the waiting
period.
(ii)(A)First day of coveragemeans,
in the case of an individual covered for
benefits under a group health plan in the
group market, the first day of coverage
under the plan and, in the case of an
individual covered by health insurance
coverage in the individual market, the
first day of coverage under the policy.
(B) The following example illustrates
the rule of paragraph (a)(2)(ii)(A) of this
section:
Example.(i) EmployerV’s group health plan
provides for coverage to begin on the first day of
the first payroll period following the date an
employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1
after completion of the applicable enrollment
forms. EmployerV’s plan imposes a preexisting
condition exclusion for 12 months (reduced by the
individual’s creditable coverage) following an indi-
vidual’s enrollment date. EmployeeEis hired by
EmployerVon October 13, 1998 and then on
October 14, 1998 completes and files all the forms
necessary to enroll in the plan.E’s coverage under
the plan becomes effective on October 25, 1998
(which is the beginning of the first payroll period
afterE’s date of hire).
(ii) In thisExample,E’s enrollment date is
October 13, 1998 (which is the first day of the
waiting period forE’s enrollment and is alsoE’s
date of hire). Accordingly, with respect toE, the
6-month period in paragraph (a)(1)(i) would be the
period from April 13, 1998 through October 12,
1998, the maximum permissible period during
which EmployerV’s plan could apply a preexist-
ing condition exclusion under paragraph (a)(1)(ii)
would be the period from October 13, 1998
through October 12, 1999, and this period would
be reduced under paragraph (a)(1)(iii) byE’s days
of creditable coverage as of October 13, 1998.
(iii)Late enrolleemeans an indi-
vidual whose enrollment in a plan is a
late enrollment.
(iv)(A)Late enrollmentmeans enroll-
ment under a group health plan other
than on—
(1) The earliest date on which cover-
age can become effective under the
terms of the plan; or
(2) A special enrollment date for the
individual.
(B) If an individual ceases to be
eligible for coverage under the plan by
terminating employment, and then sub-
sequently becomes eligible for coverage
under the plan by resuming employ-
ment, only eligibility during the indi-
vidual’s most recent period of employ-
ment is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage fol-
lowing a suspension of coverage that
applied generally under the plan.
(v)Examples.The rules of this para-
graph (a)(2) are illustrated by the fol-
lowing examples:
Example 1.(i) EmployeeFfirst becomes eli-
gible to be covered by EmployerW’s group health
plan on January 1, 1999, but elects not to enroll in
the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date forF.
(ii) In thisExample 1, F would be a late
enrollee with respect to F’s coverage that became
effective under the plan on April 1, 1999.
Example 2. (i) Same asExample 1, except that
Fdoes not enroll in the plan on April 1, 1999 and
terminates employment with EmployerWon July
1, 1999, without having had any health insurance
coverage under the plan.Fis rehired by Employer
Won January 1, 2000 and is eligible for and
elects coverage under EmployerW’s plan effective
on January 1, 2000.
(ii) In thisExample 2,Fwould not be a late
enrollee with respect toF’s coverage that became
effective on January 1, 2000.
(b)Exceptions pertaining to preexist-
ing condition exclusions—
(1)Newborns—
(i)In general.Subject to paragraph
(b)(3) of this section, a group health
plan, and a health insurance issuer offer-
ing group health insurance coverage,
may not impose any preexisting condi-
tion exclusion with regard to a child
who, as of the last day of the 30-day
period beginning with the date of birth,
is covered under any creditable cover-
age. Accordingly, if a newborn is en-
rolled in a group health plan (or other
creditable coverage) within 30 days after
birth and subsequently enrolls in another
group health plan without a significant
break in coverage, the other plan may
not impose any preexisting condition
exclusion with regard to the child.
(ii)Example.The rule of this para-
graph (b)(1) is illustrated by the follow-
ing example:
Example.(i) Seven months after enrollment in
EmployerW’s group health plan, IndividualEhas
a child born with a birth defect. Because the child
is enrolled in EmployerW’s plan within 30 days
of birth, no preexisting condition exclusion may
be imposed with respect to the child under
EmployerW’s plan. Three months after the child’s
birth,Ecommences employment with EmployerX
and enrolls with the child in EmployerX’s plan 45
days after leaving EmployerW’s plan. Employer
X’s plan imposes a 12-month exclusion for any
preexisting condition.
(ii) In thisExample, EmployerX’s plan may
not impose any preexisting condition exclusion
with respect toE’s child because the child was
covered within 30 days of birth and had no
significant break in coverage. This result applies
regardless of whetherE’s child is included in the
certificate of creditable coverage provided toEby
EmployerWindicating 300 days of dependent
coverage or receives a separate certificate indicat-
ing 90 days of coverage. EmployerX’s plan may
impose a preexisting condition exclusion with
respect toEfor up to 2 months for any preexisting
condition ofEfor which medical advice, diagno-
sis, care, or treatment was recommended or re-
ceived byEwithin the 6-month period ending on
E’s enrollment date in EmployerX’s plan.
(2)Adopted children.Subject to para-
graph (b)(3) of this section, a group
health plan, and a health insurance is-
suer offering group health insurance
coverage, may not impose any preexist-
ing condition exclusion in the case of a
child who is adopted or placed for
adoption before attaining 18 years of
age and who, as of the last day of the
30-day period beginning on the date of
the adoption or placement for adoption,
is covered under creditable coverage.
This rule does not apply to coverage
before the date of such adoption or
placement for adoption.
(3)Break in coverage.Paragraphs
(b)(1) and (2) of this section no longer
apply to a child after a significant break
in coverage.
(4)Pregnancy.A group health plan,
and a health insurance issuer offering
group health insurance coverage, may
not impose a preexisting condition ex-
clusion relating to pregnancy as a preex-
isting condition.
(5)Special enrollment dates.For spe-
cial enrollment dates relating to new
dependents, see § 2590.701–6(b).
(c)Notice of plan’s preexisting condi-
tion exclusion.A group health plan, and
health insurance issuer offering group
health insurance under the plan, may not
impose a preexisting condition exclusion
with respect to a participant or depen-
dent of the participant before notifying
the participant, in writing, of the exist-
58

ence and terms of any preexisting condi-
tion exclusion under the plan and of the
rights of individuals to demonstrate
creditable coverage (and any applicable
waiting periods) as required by
§ 2590.701–5. The description of the
rights of individuals to demonstrate
creditable coverage includes a descrip-
tion of the right of the individual to
request a certificate from a prior plan or
issuer, if necessary, and a statement that
the current plan or issuer will assist in
obtaining a certificate from any prior
plan or issuer, if necessary.
§ 2590.701–4 Rules relating to credit-
able coverage.
(a)General rules—
(1)Creditable coverage.For purposes
of this section, except as provided in
paragraph (a)(2) of this section, the term
creditable coveragemeans coverage of
an individual under any of the follow-
ing:
(i) A group health plan as defined in
§ 2590.701–2.
(ii) Health insurance coverage as de-
fined in § 2590.701–2 (whether or not
the entity offering the coverage is sub-
ject 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 other-
wise).
(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 sec-
tion 1928 of the Social Security Act (the
program for distribution of pediatric
vaccines).
(v) Title 10 U.S.C. Chapter 55 (medi-
cal and dental care for members and
certain former members of the uni-
formed services, and for their depen-
dents; for purposes of Title 10 U.S.C.
Chapter 55,uniformed servicesmeans
the armed forces and the Commissioned
Corps of the National Oceanic and At-
mospheric 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 Code;
(B) A qualified high risk pool de-
scribed in section 2744(c)(2) of the
PHSA; 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 pri-
marily to provide health insurance cov-
erage for individuals who are residents
of such State and who, by reason of the
existence or history of a medical condi-
tion—
(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 pur-
poses of this section, a public health
plan means any plan established or
maintained by a State, county, or other
political subdivision of a State that
provides health insurance coverage to
individuals who are enrolled in the plan.
(x) A health benefit plan under sec-
tion 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(2)Excluded coverage.Creditable
coverage does not include coverage con-
sisting solely of coverage of excepted
benefits (described in § 2590.732).
(3)Methods of counting creditable
coverage.For purposes of reducing any
preexisting condition exclusion period,
as provided under § 2590.701–
3(a)(1)(iii), a group health plan, and a
health insurance issuer offering group
health insurance coverage, determines
the amount of an individual’s creditable
coverage by using the standard method
described in paragraph (b) of this sec-
tion, except that the plan, or issuer, may
use the alternative method under para-
graph (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 method, a group
health plan, and a health insurance is-
suer offering group health insurance
coverage, determines the amount of
creditable coverage 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 exclu-
sion period, a group health plan, and a
health insurance issuer offering group
health insurance coverage, determines
the amount of creditable coverage by
counting all the days that the individual
has under one or more types of credit-
able coverage. Accordingly, if on a
particular day, an individual has credit-
able coverage from more than one
source, all the creditable coverage on
that day is counted as one day. Further,
any days in a waiting period for a plan
or policy are not creditable coverage
under the plan or policy.
(ii)Days not counted before signifi-
cant break in coverage.Days of credit-
able coverage that occur before a sig-
nificant break in coverage are not
required to be counted.
(iii)Definition of significant break in
coverage.A significant break in cover-
age means a period of 63 consecutive
days during all of which the individual
does not have any creditable coverage,
except that neither a waiting period nor
an affiliation period is taken into ac-
count in determining a significant break
in coverage. (See section 731(b)(2)(iii)
of the Act and section 2723(b)(2)(iii) of
the PHSA which exclude from preemp-
tion 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)Examples.The following ex-
amples illustrate how creditable cover-
age is counted in reducing preexisting
condition exclusion periods under this
paragraph (b)(2):
Example 1.(i) IndividualAworks for Employer
Pand has creditable coverage under EmployerP’s
plan for 18 months beforeA’s employment termi-
nates.Ais hired by EmployerQ, and enrolls in
EmployerQ’s group health plan, 64 days after the
last date of coverage under EmployerP’s plan.
EmployerQ’s plan has a 12-month preexisting
condition exclusion period.
(ii) In thisExample 1, becauseAhad a break in
coverage of 63 days, EmployerQ’s plan may
disregardA’s prior coverage andAmay be subject
to a 12-month preexisting condition exclusion
period.
Example 2.(i) Same facts asExample 1, except
thatAis hired by EmployerQ, and enrolls in
EmployerQ’s plan, on the 63rd day after the last
date of coverage under EmployerP’s plan.
(ii) In thisExample 2, A has a break in
coverage of 62 days. BecauseA’s break in cover-
age is not a significant break in coverage, Em-
ployerQ’s plan must countA’s prior creditable
coverage for purposes of reducing the plan’s
preexisting condition exclusion period as it applies
toA.
Example 3.(i) Same facts asExample 1, except
that EmployerQ’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) In thisExample 3, the issuer that provides
group health insurance to EmployerQ’s plan must
countA’s period of creditable coverage prior to
the 63-day break.
59

Example 4. (i) Same facts asExample 3, except
that EmployerQ’s plan is a self-insured plan, and,
thus, is not subject to State insurance laws.
(ii) In thisExample 4, the plan is not governed
by the longer break rules under State insurance
law andA’s previous coverage may be disre-
garded.
Example 5. (i) IndividualBbegins employment
with EmployerR45 days after terminating cover-
age under a prior group health plan. EmployerR’s
plan has a 30-day waiting period before coverage
begins.Benrolls in EmployerR’s plan when first
eligible.
(ii) In thisExample 5, B does not have a
significant break in coverage for purposes of
determining whetherB’s prior coverage must be
counted by EmployerR’s plan.Bhas only a
44-day break in coverage because the 30-day
waiting period is not taken into account in deter-
mining a significant break in coverage.
Example 6. (i) IndividualCworks for Employer
Sand has creditable coverage under EmployerS’s
plan for 200 days beforeC’s employment is
terminated and coverage ceases.Cis then unem-
ployed for 51 days before being hired by Em-
ployerT. EmployerT’s plan has a 3-month
waiting period.Cworks for EmployerTfor 2
months and then terminates employment. Eleven
days after terminating employment with Employer
T,Cbegins working for EmployerU. Employer
U’s plan has no waiting period, but has a 6-month
preexisting condition exclusion period.
(ii) In thisExample 6,Cdoes not have a
significant break in coverage because, after disre-
garding the waiting period under EmployerT’s
plan,Chad only a 62-day break in coverage (51
days plus 11 days). Accordingly,Chas 200 days
of creditable coverage and EmployerU’s plan may
not apply its 6-month preexisting condition exclu-
sion period with respect toC.
Example 7. (i) IndividualDterminates employ-
ment with EmployerVon January 13, 1998 after
being covered for 24 months under EmployerV’s
group health plan. On March 17, the 63rd day
without coverage, D applies for a health insurance
policy in the individual market.D’s application is
accepted and the coverage is made effective May
1.
(ii) In thisExample 7, becauseDapplied for
the policy before the end of the 63rd day, and
coverage under the policy ultimately became ef-
fective, 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 107
days.
Example 8. (i) Same facts asExample 7, except
thatD’s application for a policy in the individual
market is denied.
(ii) In thisExample 8, becauseDdid not obtain
coverage following application,Dincurred a sig-
nificant break in coverage on the 64th day.
(v)Other permissible counting meth-
ods —
(A)Rule. Notwithstanding any other
provisions of this paragraph (b)(2), for
purposes of reducing a preexisting con-
dition exclusion period (but not for
purposes of issuing a certificate under
§ 2590.701–5), a group health plan, and
a health insurance issuer offering group
health insurance coverage, may deter-
mine 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 para-
graph (b)(2)(v) is illustrated by the
following example:
Example.(i) IndividualFhas coverage under
group health planYfrom January 3, 1997 through
March 25, 1997.Fthen becomes covered by
group health planZ.F’s enrollment date in PlanZ
is May 1, 1997. PlanZhas a 12-month preexisting
condition exclusion period.
(ii) In thisExample, PlanZmay determine, in
accordance with the rules prescribed in paragraph
(b)(2)(i), (ii), and (iii) of this section, thatFhas
82 days of creditable coverage (29 days in Janu-
ary, 28 days in February, and 25 days in March).
Thus, the preexisting condition exclusion period
will no longer apply toFon February 8, 1998 (82
days before the 12-month anniversary ofF’s
enrollment (May 1)). For administrative conve-
nience, however, PlanZmay consider that the
preexisting condition exclusion period will no
longer apply toFon the first day of the month
(February 1).
(c)Alternative method—
(1)Specific benefits considered.Un-
der the alternative method, a group
health plan, or a health insurance issuer
offering group health insurance cover-
age, determines the amount of creditable
coverage based on coverage within any
category of benefits described in para-
graph (c)(3) of this section and not
based on coverage for any other ben-
efits. The plan or issuer may use the
alternative method for any or all of the
categories. The plan may apply a differ-
ent preexisting condition exclusion pe-
riod with respect to each category (and
may apply a different preexisting condi-
tion exclusion period for benefits that
are not within any category). The credit-
able coverage determined for a category
of benefits applies only for purposes of
reducing the preexisting condition exclu-
sion 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 policy. The use of the alternative
method is required to be set forth in the
plan.
(3)Categories of benefits.The alter-
native 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 state-
ments concerning the plan, and state this
to each enrollee at the time of enroll-
ment under the plan; and
(ii) Include in these statements a de-
scription of the effect of using the
alternative method, including an identifi-
cation of the categories used.
(5)Disclosure of information on pre-
vious benefits.See § 2590.701–5(b) for
special rules concerning disclosure of
coverage to a plan, or issuer, using the
alternative method of counting credit-
able 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 cat-
egory if any level of benefits is pro-
vided within the category. Coverage un-
der 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 indi-
vidual’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 re-
ferred 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 deter-
mination period (whether or not a sig-
nificant break in coverage for that
category occurs), and reduces the indi-
vidual’s preexisting condition exclusion
period for that category by that number
of days. The plan or issuer may deter-
mine the amount of creditable coverage
in any other reasonable manner, uni-
formly applied, that is at least as favor-
able to the individual.
(iii)Example.The rules of this para-
graph (c)(6) are illustrated by the fol-
lowing example:
Example.(i) IndividualDenrolls in Employer
V’s plan on January 1, 2001. Coverage under the
plan includes prescription drug benefits. On April
60

1, 2001, the plan ceases providing prescription
drug benefits.D’s employment with EmployerV
ends on January 1, 2002, afterDwas covered
under EmployerV’s group health plan for 365
days.Denrolls in EmployerY’s plan on February
1, 2002 (D’s enrollment date). EmployerY’s plan
uses the alternative method of counting creditable
coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In thisExample,EmployerY’s plan may
impose a 275-day preexisting condition exclusion
with respect toDfor prescription drug benefits
becauseDhad 90 days of creditable coverage
relating to prescription drug benefits withinD’s
determination period.
§ 2590.701–5 Certification and disclo-
sure of previous coverage.
(a)Certificate of creditable cover-
age—
(1)Entities required to provide cer-
tificate—
(i)In general.A group health plan,
and each health insurance issuer offering
group health insurance coverage under a
group health plan, is required to furnish
certificates of creditable coverage in
accordance with this paragraph (a) of
this section.
(ii)Duplicate certificates not re-
quired.An entity required to provide a
certificate under this paragraph (a)(1)
for an individual is deemed to have
satisfied the certification requirements
for that individual if another party pro-
vides the certificate, but only to the
extent that information relating to the
individual’s creditable coverage and
waiting or affiliation period is provided
by the other party. For example, in the
case of a group health plan funded
through an insurance policy, the issuer is
deemed to have satisfied the certifica-
tion requirement with respect to a par-
ticipant or beneficiary if the plan actu-
ally provides a certificate that includes
the information required under para-
graph (a)(3) of this section with respect
to the participant or beneficiary.
(iii)Special rule for group health
plans.To the extent coverage under a
plan consists of group health insurance
coverage, the plan is deemed to have
satisfied the certification requirements
under this paragraph (a)(1) if any issuer
offering the coverage is required to
provide the certificates pursuant to an
agreement between the plan and the
issuer. For example, if there is an agree-
ment between an issuer and the plan
sponsor under which the issuer agrees to
provide certificates for individuals cov-
ered under the plan, and the issuer fails
to provide a certificate to an individual
when the plan would have been required
to provide one under this paragraph (a),
then the issuer, but not the plan, violates
the certification requirements of this
paragraph (a).
(iv)Special rules for issuers—
(A)(1) Responsibility of issuer for
coverage period. An issuer is not re-
quired to provide information regarding
coverage provided to an individual by
another party.
(2)Example.The rule of this para-
graph (a)(1)(iv)(A) is illustrated by the
following example:
Example.(i) A plan offers coverage with an
HMO option from one issuer and an indemnity
option from a different issuer. The HMO has not
entered into an agreement with the plan to provide
certificates as permitted under paragraph (a)(1)(iii)
of this section.
(ii) In thisExample,if an employee switches
from the indemnity option to the HMO option and
later ceases to be covered under the plan, any
certificate provided by the HMO is not required to
provide information regarding the employee’s cov-
erage under the indemnity option.
(B)(1)Cessation of issuer coverage
prior to cessation of coverage under a
plan.If an individual’s coverage under
an issuer’s policy ceases before the
individual’s coverage under the plan
ceases, the issuer is required to provide
sufficient information to the plan (or to
another party designated by the plan) to
enable a certificate to be provided by
the plan (or other party), after cessation
of the individual’s coverage under the
plan, that reflects the period of coverage
under the policy. The provision of that
information to the plan will satisfy the
issuer’s obligation to provide an auto-
matic certificate for that period of cred-
itable coverage for the individual under
paragraph (a)(2)(ii) and (3) of this sec-
tion. In addition, an issuer providing
that information is required to cooperate
with the plan in responding to any
request made under paragraph (b)(2) of
this section (relating to the alternative
method of counting creditable coverage).
If the individual’s coverage under the
plan ceases at the time the individual’s
coverage under the issuer’s policy
ceases, the issuer must provide an auto-
matic certificate under paragraph
(a)(2)(ii) of this section. An issuer may
presume that an individual whose cover-
age ceases at a time other than the
effective date for changing enrollment
options has ceased to be covered under
the plan.
(2)Example.The rule of this para-
graph (a)(1)(iv)(B) is illustrated by the
following example.
Example.(i) A group health plan provides cov-
erage under an HMO option and an indemnity
option with a different issuer, and only allows
employees to switch on each January 1. Neither
the HMO nor the indemnity issuer has entered into
an agreement with the plan to provide automatic
certificates as permitted under paragraph (a)(2)(ii)
of this section.
(ii) In thisExample,if an employee switches
from the indemnity option to the HMO option on
January 1, the issuer must provide the plan (or a
person designated by the plan) with appropriate
information with respect to the individual’s cover-
age with the indemnity issuer. However, if the
individual’s coverage with the indemnity issuer
ceases at a date other than January 1, the issuer is
instead required to provide the individual with an
automatic certificate.
(2)Individuals for whom certificate
must be provided; timing of issuance—
(i)Individuals.A certificate must be
provided, without charge, for partici-
pants or dependents who are or were
covered under a group health plan upon
the occurrence of any of the events
described in paragraph (a)(2)(ii) or (iii)
of this section.
(ii)Issuance of automatic certificates.
The certificates described in this para-
graph (a)(2)(ii) are referred to as auto-
matic certificates.
(A)Qualified beneficiaries upon a
qualifying event.In the case of an
individual who is a qualified beneficiary
(as defined in section 607(3) of the Act)
entitled to elect COBRA continuation
coverage, an automatic certificate is re-
quired to be provided at the time the
individual would lose coverage under
the plan in the absence of COBRA
continuation coverage or alternative cov-
erage elected instead of COBRA con-
tinuation coverage. A plan or issuer
satisfies this requirement if it provides
the automatic certificate no later than
the time a notice is required to be
furnished for a qualifying event under
section 606 of the Act (relating to
notices required under COBRA ).
(B)Other individuals when coverage
ceases.In the case of an individual who
is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate is required to be
provided at the time the individual
ceases to be covered under the plan. A
plan or issuer satisfies this requirement
if it provides the automatic certificate
within a reasonable time period thereaf-
ter. In the case of an individual who is
entitled to elect to continue coverage
under a State program similar to CO-
BRA and who receives the automatic
certificate not later than the time a
notice is required to be furnished under
the State program, the certificate is
deemed to be provided within a reason-
able time period after the cessation of
coverage under the plan.
(C)Qualified beneficiaries when CO-
BRA ceases.In the case of an individual
61

who is a qualified beneficiary and has
elected COBRA continuation coverage
(or whose coverage has continued after
the individual became entitled to elect
COBRA continuation coverage), an au-
tomatic certificate is to be provided at
the time the individual’s coverage under
the plan ceases. A plan, or issuer, satis-
fies this requirement if it provides the
automatic certificate within a reasonable
time after coverage ceases (or after the
expiration of any grace period for non-
payment of premiums). An automatic
certificate is required to be provided to
such an individual regardless of whether
the individual has previously received
an automatic certificate under paragraph
(a)(2)(ii)(A) of this section.
(iii)Any individual upon request.Re-
quests for certificates are permitted to
be made by, or on behalf of, an indi-
vidual within 24 months after coverage
ceases. Thus, for example, a plan in
which an individual enrolls may, if
authorized by the individual, request a
certificate of the individual’s creditable
coverage on behalf of the individual
from a plan in which the individual was
formerly enrolled. After the request is
received, a plan or issuer is required to
provide the certificate by the earliest
date that the plan or issuer, acting in a
reasonable and prompt fashion, can pro-
vide the certificate. A certificate is re-
quired to be provided under this para-
graph (a)(2)(iii) even if the individual
has previously received a certificate un-
der this paragraph (a)(2)(iii) or an auto-
matic certificate under paragraph
(a)(2)(ii) of this section.
(iv)Examples.The following ex-
amples illustrate the rules of this para-
graph (a)(2):
Example 1.(i) IndividualAterminates employ-
ment with EmployerQ.Ais a qualified benefi-
ciary entitled to elect COBRA continuation cover-
age under EmployerQ’s group health plan. A
notice of the rights provided under COBRA is
typically furnished to qualified beneficiaries under
the plan within 10 days after a covered employee
terminates employment.
(ii) In thisExample 1, the automatic certificate
may be provided at the same time that A is
provided the COBRA notice.
Example 2.(i) Same facts asExample 1,except
that the automatic certificate forAis not com-
pleted by the time the COBRA notice is furnished
toA.
(ii) In thisExample 2, the automatic certificate
may be provided within the period permitted by
law for the delivery of notices under COBRA.
Example 3.(i) EmployerRmaintains an in-
sured group health plan.Rhas never had 20
employees and thusR’s plan is not subject to the
COBRA continuation coverage provisions. How-
ever,Ris in a State that has a State program
similar to COBRA.Bterminates employment with
Rand loses coverage underR’s plan.
(ii) In thisExample 3, the automatic certificate
may be provided not later than the time a notice is
required to be furnished under the State program.
Example 4.(i) IndividualCterminates employ-
ment with EmployerSand receives both a notice
ofC’s rights under COBRA and an automatic
certificate.Celects COBRA continuation coverage
under EmployerS’s group health plan. After four
months of COBRA continuation coverage and the
expiration of a 30-day grace period,S’s group
health plan determines thatC’s COBRA continua-
tion coverage has ceased due to failure to make a
timely payment for continuation coverage.
(ii) In thisExample 4,the plan must provide an
updated automatic certificate toCwithin a reason-
able time after the end of the grace period.
Example 5.(i) IndividualDis currently covered
under the group health plan of EmployerT.D
requests a certificate, as permitted under paragraph
(a)(2)(iii) of this section. Under the procedure for
EmployerT’s plan, certificates are mailed (by first
class mail) 7 business days following receipt of
the request. This date reflects the earliest date that
the plan, acting in a reasonable and prompt
fashion, can provide certificates.
(ii) In thisExample 5, the plan’s procedure
satisfies paragraph (a)(2)(iii) of this section.
(3)Form and content of certificate—
(i)Written certificate—
(A)In general.Except as provided in
paragraph (a)(3)(i)(B) of this section, the
certificate must be provided in writing
(including any form approved by the
Secretary as a writing).
(B)Other permissible forms.No writ-
ten certificate is required to be provided
under this paragraph (a) with respect to
a particular event described in paragraph
(a)(2)(ii) or (iii) of this section, if—
(1) An individual is entitled to re-
ceive a certificate;
(2) The individual requests that the
certificate be sent to another plan or
issuer instead of to the individual;
(3) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in this para-
graph (a)(3) through means other than a
written certificate (e.g., by telephone);
and
(4) The receiving plan or issuer re-
ceives such information from the send-
ing plan or issuer in such form within
the time periods required under para-
graph (a)(2)of this section.
(ii)Required information.The certifi-
cate must include the following—
(A) The date the certificate is issued;
(B) The name of the group health
plan that provided the coverage de-
scribed in the certificate;
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other infor-
mation necessary for the plan providing
the coverage specified in the certificate
to identify the individual, such as the
individual’s identification number under
the plan and the name of the participant
if the certificate is for (or includes) a
dependent;
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the certificate;
(E) The telephone number to call for
further information regarding the certifi-
cate (if different from paragraph
(a)(3)(ii)(D) of this section);
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began;
and
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate.
(iii)Periods of coverage under cer-
tificate.If an automatic certificate is
provided pursuant to paragraph (a)(2)(ii)
of this section, the period that must be
included on the certificate is the last
period of continuous coverage ending on
the date coverage ceased. If an indi-
vidual requests a certificate pursuant to
paragraph (a)(2)(iii) of this section, a
certificate must be provided for each
period of continuous coverage ending
within the 24-month period ending on
the date of the request (or continuing on
the date of the request). A separate
certificate may be provided for each
such period of continuous coverage.
(iv)Combining information for fami-
lies.A certificate may provide informa-
tion with respect to both a participant
and the participant’s dependents if the
information is identical for each indi-
vidual or, if the information is not
identical, certificates may be provided
on one form if the form provides all the
required information for each individual
and separately states the information
that is not identical.
(v)Model certificate.The require-
ments of paragraph (a)(3)(ii) of this
62

section are satisfied if the plan or issuer
provides a certificate in accordance with
a model certificate authorized by the
Secretary.
(vi)Excepted benefits; categories of
benefits.No certificate is required to be
furnished with respect to excepted ben-
efits described in § 2590.732. In addi-
tion, the information in the certificate
regarding coverage is not required to
specify categories of benefits described
in § 2590.701–4(c) (relating to the alter-
native method of counting creditable
coverage). However, if excepted benefits
are provided concurrently with other
creditable coverage (so that the coverage
does not consist solely of excepted
benefits), information concerning the
benefits may be required to be disclosed
under paragraph (b) of this section.
(4)Procedures—
(i)Method of delivery.The certificate
is required to be provided to each
individual described in paragraph (a)(2)
of this section or an entity requesting
the certificate on behalf of the indi-
vidual. The certificate may be provided
by first-class mail. If the certificate or
certificates are provided to the partici-
pant and the participant’s spouse at the
participant’s last known address, then
the requirements of this paragraph (a)(4)
are satisfied with respect to all individu-
als residing at that address. If a depen-
dent’s last known address is different
than the participant’s last known ad-
dress, a separate certificate is required to
be provided to the dependent at the
dependent’s last known address. If sepa-
rate certificates are being provided by
mail to individuals who reside at the
same address, separate mailings of each
certificate are not required.
(ii)Procedure for requesting certifi-
cates.A plan or issuer must establish a
procedure for individuals to request and
receive certificates pursuant to para-
graph (a)(2)(iii) of this section.
(iii)Designated recipients.If an auto-
matic certificate is required to be pro-
vided under paragraph (a)(2)(ii) of this
section, and the individual entitled to
receive the certificate designates another
individual or entity to receive the certifi-
cate, the plan or issuer responsible for
providing the certificate is permitted to
provide the certificate to the designated
party. If a certificate is required to be
provided upon request under paragraph
(a)(2)(iii) of this section and the indi-
vidual entitled to receive the certificate
designates another individual or entity to
receive the certificate, the plan or issuer
responsible for providing the certificate
is required to provide the certificate to
the designated party.
(5)Special rules concerning depen-
dent coverage—
(i)(A)Reasonable efforts.A plan or
issuer is required to use reasonable
efforts to determine any information
needed for a certificate relating to the
dependent coverage. In any case in
which an automatic certificate is re-
quired to be furnished with respect to a
dependent under paragraph (a)(2)(ii) of
this section, no individual certificate is
required to be furnished until the plan or
issuer knows (or making reasonable ef-
forts should know) of the dependent’s
cessation of coverage under the plan.
(B)Example.The rules of this para-
graph (a)(5) are illustrated by the fol-
lowing example:
Example.(i) A group health plan covers em-
ployees and their dependents. The plan annually
requests all employees to provide updated infor-
mation regarding dependents, including the spe-
cific date on which an employee has a new
dependent or on which a person ceases to be a
dependent of the employee.
(ii) In thisExample, the plan has satisfied the
standard in this paragraph (a)(5)(i) of this section
that it make reasonable efforts to determine the
cessation of dependents’ coverage and the related
dependent coverage information.
(ii)Special rules for demonstrating
coverage.If a certificate furnished by a
plan or issuer does not provide the name
of any dependent of an individual cov-
ered by the certificate, the individual
may, if necessary, use the procedures
described in paragraph (c)(4) of this
section for demonstrating dependent sta-
tus. In addition, an individual may, if
necessary, use these procedures to dem-
onstrate that a child was enrolled within
30 days of birth, adoption, or placement
for adoption. See § 2590.701–3(b), un-
der which such a child would not be
subject to a preexisting condition exclu-
sion.
(iii)Transition rule for dependent
coverage through June 30, 1998—
(A)In general.A group health plan
or health insurance issuer that cannot
provide the names of dependents (or
related coverage information) for pur-
poses of providing a certificate of cover-
age for a dependent may satisfy the
requirements of paragraph (a)(3)(ii)(C)
of this section by providing the name of
the participant covered by the group
health plan or health insurance issuer
and specifying that the type of coverage
described in the certificate is for depen-
dent coverage (e.g., family coverage or
employee-plus-spouse coverage).
(B)Certificates provided on request.
For purposes of certificates provided on
the request of, or on behalf of, an
individual pursuant to paragraph
(a)(2)(iii) of this section, a plan or issuer
must make reasonable efforts to obtain
and provide the names of any dependent
covered by the certificate where such
information is requested to be provided.
If a certificate does not include the
name of any dependent of an individual
covered by the certificate, the individual
may, if necessary, use the procedures
described in paragraph (c) of this sec-
tion for submitting documentation to
establish that the creditable coverage in
the certificate applies to the dependent.
(C)Demonstrating a dependent’s
creditable coverage.See paragraph
(c)(4) of this section for special rules to
demonstrate dependent status.
(D)Duration.This paragraph
(a)(5)(iii) is only effective for certifica-
tions provided with respect to events
occurring through June 30, 1998.
(6)Special certification rules for en-
tities not subject to Part 7 of Subtitle B
of Title I of the Act—
(i)Issuers.For special rules requiring
that issuers, not subject to Part 7 of
Subtitle B of Title I of the Act, provide
certificates consistent with the rules in
this section, including issuers offering
coverage with respect to creditable cov-
erage described in sections 701(c)(1)(G)
through (c)(1)(J) of the Act (coverage
under a State health benefits risk pool,
the Federal Employees Health Benefits
Program, a public health plan, and a
health benefit plan under section 5(e) of
the Peace Corps Act), see section
2721(b)(1)(B) of the PHSA (requiring
certificates by issuers offering health
insurance coverage in connection with a
group health plan, including a church
plan or a governmental plan (including
the Federal Employees Health Benefits
Program (FEHBP)). In addition, see sec-
tion 2743 of the PHSA applicable to
health insurance issuers in the individual
market. (However, this section does not
require a certificate to be provided with
respect to short-term limited duration
insurance, as described in the definition
ofindividual health insurance coverage
in § 2590.701–2, that is not provided by
a group health plan or issuer offering
health insurance in connection with a
group health plan.)
(ii)Other entities.For special rules
requiring that certain other entities, not
63

subject to Part 7 of Subtitle B of Title I
of the Act, provide certificates consistent
with the rules in this section, see section
2791(a)(3) of the PHSA applicable to
entities described in sections
2701(c)(1)(C), (D), (E), and (F) of the
PHSA (relating to Medicare, Medicaid,
CHAMPUS, and Indian Health Service),
section 2721(b)(1)(A) of the PHSA ap-
plicable to nonfederal governmental
plans generally, section 2721(b)(2)(C)(ii)
of the PHSA applicable to nonfederal
governmental plans that elect to be
excluded from the requirements of Sub-
parts 1 and 3 of Part A of Title XXVII
of the PHSA, and section 9805(a) of the
Internal Revenue Code applicable to
group health plans, which includes
church plans (as defined in section
414(e) of the Internal Revenue Code).
(b)Disclosure of coverage to a plan,
or issuer, using the alternative method
of counting creditable coverage—
(1)In general.If an individual en-
rolls in a group health plan with respect
to which the plan, or issuer, uses the
alternative method of counting credit-
able coverage described in § 2590.701–
4(c) of this regulation, the individual
provides a certificate of coverage under
paragraph (a) of this section, and the
plan or issuer in which the individual
enrolls so requests, the entity that issued
the certificate (the prior entity) is re-
quired to disclose promptly to a request-
ing plan or issuer (the requesting entity)
the information set forth in paragraph
(b)(2) of this section.
(2)Information to be disclosed.The
prior entity is required to identify to the
requesting entity the categories of ben-
efits with respect to which the request-
ing entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to de-
termine the individual’s creditable cov-
erage with respect to any such category.
The prior entity is required to disclose
promptly to the requesting entity the
creditable coverage information so re-
quested.
(3)Charge for providing information.
The prior entity furnishing the informa-
tion under paragraph (b) of this section
may charge the requesting entity for the
reasonable cost of disclosing such infor-
mation.
(c)Ability of an individual to demon-
strate creditable coverage and waiting
period information—
(1)In general.The rules in this para-
graph (c) implement section 701(c)(4) of
the Act, which permits individuals to
establish creditable coverage through
means other than certificates, and sec-
tion 701(e)(3) of the Act, which requires
the Secretary to establish rules designed
to prevent an individual’s subsequent
coverage under a group health plan or
health insurance coverage from being
adversely affected by an entity’s failure
to provide a certificate with respect to
that individual. If the accuracy of a
certificate is contested or a certificate is
unavailable when needed by the indi-
vidual, the individual has the right to
demonstrate creditable coverage (and
waiting or affiliation periods) through
the presentation of documents or other
means. For example, the individual may
make such a demonstration when—
(i) An entity has failed to provide a
certificate within the required time pe-
riod;
(ii) The individual has creditable cov-
erage but an entity may not be required
to provide a certificate of the coverage
pursuant to paragraph (a) of this section;
(iii) The coverage is for a period
before July 1, 1996;
(iv) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(v) The individual lost a certificate
that the individual had previously re-
ceived and is unable to obtain another
certificate.
(2)Evidence of creditable coverage—
(i)Consideration of evidence.A plan
or issuer is required to take into account
all information that it obtains or that is
presented on behalf of an individual to
make a determination, based on the
relevant facts and circumstances,
whether an individual has creditable
coverage and is entitled to offset all or a
portion of any preexisting condition ex-
clusion period. A plan or issuer shall
treat the individual as having furnished
a certificate under paragraph (a) of this
section if the individual attests to the
period of creditable coverage, the indi-
vidual also presents relevant corroborat-
ing evidence of some creditable cover-
age during the period, and the individual
cooperates with the plan’s or issuer’s
efforts to verify the individual’s cover-
age. For this purpose, cooperation in-
cludes providing (upon the plan’s or
issuer’s request) a written authorization
for the plan or issuer to request a
certificate on behalf of the individual,
and cooperating in efforts to determine
the validity of the corroborating evi-
dence and the dates of creditable cover-
age. While a plan or issuer may refuse
to credit coverage where the individual
fails to cooperate with the plan’s or
issuer’s efforts to verify coverage, the
plan or issuer may not consider an
individual’s inability to obtain a certifi-
cate to be evidence of the absence of
creditable coverage.
(ii)Documents.Documents that may
establish creditable coverage (and wait-
ing periods or affiliation periods) in the
absence of a certificate include explana-
tions of benefit claims (EOB) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
documents that evidence periods of
health coverage.
(iii)Other evidence.Creditable cover-
age (and waiting period or affiliation
period information) may also be estab-
lished through means other than docu-
mentation, such as by a telephone call
from the plan or provider to a third
party verifying creditable coverage.
(iv)Example.The rules of this para-
graph (c)(2) are illustrated by the fol-
lowing example:
Example.(i) Individual F terminates employ-
ment with EmployerWand, a month later, is hired
by EmployerX. EmployerX’s group health plan
imposes a preexisting condition exclusion of 12
months on new enrollees under the plan and uses
the standard method of determining creditable
coverage.Ffails to receive a certificate of prior
coverage from the self-insured group health plan
maintained byF’s prior employer, EmployerW,
and requests a certificate. However,F(and Em-
ployerX’s plan, onF’s behalf) is unable to obtain
a certificate from EmployerW’s plan.Fattests
that, to the best ofF’s knowledge,Fhad at least
12 months of continuous coverage under Employer
W’s plan, and that the coverage ended no earlier
thanF’s termination of employment from Em-
ployerW. In addition,Fpresents evidence of
coverage, such as an explanation of benefits for a
claim that was made during the relevant period.
(ii) In thisExample, based solely on these facts,
Fhas demonstrated creditable coverage for the 12
months of coverage under EmployerW’s plan in
the same manner as ifFhad presented a written
certificate of creditable coverage.
(3)Demonstrating categories of cred-
itable coverage.Procedures similar to
those described in this paragraph (c)
apply in order to determine an individu-
al’s creditable coverage with respect to
any category under paragraph (b) of this
section (relating to determining credit-
able coverage under the alternative
method).
64

(4)Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the group
health plan or issuer is required to treat
the individual as having furnished a
certificate showing the dependent status
if the individual attests to such depen-
dency and the period of such status and
the individual cooperates with the plan’s
or issuer’s efforts to verify the depen-
dent status.
(d)Determination and notification of
creditable coverage—
(1)Reasonable time period.In the
event that a group health plan or health
insurance issuer offering group health
insurance coverage receives information
under paragraph (a) of this section (cer-
tifications), paragraph (b) of this section
(disclosure of information relating to the
alternative method), or paragraph (c) of
this section (other evidence of creditable
coverage), the entity is required, within
a reasonable time period following re-
ceipt of the information, to make a
determination regarding the individual’s
period of creditable coverage and notify
the individual of the determination in
accordance with paragraph (d)(2) of this
section. Whether a determination and
notification regarding an individual’s
creditable coverage is made within a
reasonable time period is determined
based on the relevant facts and circum-
stances. Relevant facts and circum-
stances include whether a plan’s applica-
tion of a preexisting condition exclusion
would prevent an individual from hav-
ing access to urgent medical services.
(2)Notification to individual of pe-
riod of preexisting condition exclusion.
A plan or issuer seeking to impose a
preexisting condition exclusion is re-
quired to disclose to the individual, in
writing, its determination of any preex-
isting condition exclusion period that
applies to the individual, and the basis
for such determination, including the
source and substance of any information
on which the plan or issuer relied. In
addition, the plan or issuer is required to
provide the individual with a written
explanation of any appeal procedures
established by the plan or issuer, and
with a reasonable opportunity to submit
additional evidence of creditable cover-
age. However, nothing in this paragraph
(d) or paragraph (c) of this section
prevents a plan or issuer from modify-
ing an initial determination of creditable
coverage if it determines that the indi-
vidual did not have the claimed credit-
able coverage, provided that—
(i) A notice of such reconsideration,
as described in this paragraph (d), is
provided to the individual; and
(ii) Until the final determination is
made, the plan or issuer, for purposes of
approving access to medical services
(such as a pre-surgery authorization),
acts in a manner consistent with the
initial determination.
(3)Examples.The following ex-
amples illustrate this paragraph (d):
Example 1.(i) IndividualGis hired by Em-
ployerY. EmployerY’s group health plan imposes
a preexisting condition exclusion for 12 months
with respect to new enrollees and uses the stan-
dard method of determining creditable coverage.
EmployerY’s plan determines thatGis subject to
a 4-month preexisting condition exclusion, based
on a certificate of creditable coverage that is
provided byGto EmployerY’s plan indicating 8
months of coverage underG’s prior group health
plan.
(ii) In thisExample 1, EmployerY’s plan must
notifyGwithin a reasonable period of time
following receipt of the certificate thatGis
subject to a 4-month preexisting condition exclu-
sion beginning onG’s enrollment date inY’s plan.
Example 2.(i) Same facts as inExample 1,
except that EmployerY’s plan determines thatG
has 14 months of creditable coverage based onG’s
certificate indicating 14 months of creditable cov-
erage underG’s prior plan.
(ii) In thisExample 2, EmployerY’s plan is not
required to notifyGthatGwill not be subject to a
preexisting condition exclusion.
Example 3.(i) IndividualHis hired by Em-
ployerZ. EmployerZ’s group health plan imposes
a preexisting condition exclusion for 12 months
with respect to new enrollees and uses the stan-
dard method of determining creditable coverage.H
develops an urgent health condition before receiv-
ing a certificate of prior coverage.Hattests to the
period of prior coverage, presents corroborating
documentation of the coverage period, and autho-
rizes the plan to request a certificate onH’s
behalf.
(ii) In thisExample 3, EmployerZ’s plan must
review the evidence presented byH. In addition,
the plan must make a determination and notifyH
regarding any preexisting condition exclusion pe-
riod that applies toH(and the basis of such
determination) within a reasonable time period
following receipt of the evidence that is consistent
with the urgency ofH’s health condition (this
determination may be modified as permitted under
paragraph (d)(2) of this section).
§ 2590.701–6 Special enrollment peri-
ods.
(a)Special enrollment for certain in-
dividuals who lose coverage—
(1)In general.A group health plan,
and a health insurance issuer offering
group health insurance coverage in con-
nection with a group health plan, is
required to permit employees and de-
pendents described in paragraph (a)(2),
(3), or (4) of this section to enroll for
coverage under the terms of the plan if
the conditions in paragraph (a)(5) of this
section are satisfied and the enrollment
is requested within the period described
in paragraph (a)(6) of this section. The
enrollment is effective at the time de-
scribed in paragraph (a)(7) of this sec-
tion. 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.
(2)Special enrollment of an employee
only.An employee is described in this
paragraph (a)(2) if the employee is
eligible, but not enrolled, for coverage
under the terms of the plan and, when
enrollment was previously offered to the
employee under the plan and was de-
clined by the employee, the employee
was covered under another group health
plan or had other health insurance cov-
erage.
(3)Special enrollment of dependents
only.A dependent is described in this
paragraph (a)(3) if the dependent is a
dependent of an employee participating
in the plan, the dependent is eligible,
but not enrolled, for coverage under the
terms of the plan, and, when enrollment
was previously offered under the plan
and was declined, the dependent was
covered under another group health plan
or had other health insurance coverage.
(4)Special enrollment of both em-
ployee and dependent.An employee and
any dependent of the employee are
described in this paragraph (a)(4) if they
are eligible, but not enrolled, for cover-
age under the terms of the plan and,
when enrollment was previously offered
to the employee or dependent under the
plan and was declined, the employee or
dependent was covered under another
group health plan or had other health
insurance coverage.
(5)Conditions for special enrollment.
An employee or dependent is eligible to
enroll during a special enrollment period
if each of the following applicable con-
ditions is met:
(i) When the employee declined en-
rollment for the employee or the depen-
dent, the employee stated in writing that
coverage under another group health
plan or other health insurance coverage
was the reason for declining enrollment.
This paragraph (a)(5)(i) applies only
if—
(A) The plan required such a state-
ment when the employee declined en-
rollment; and
(B) The employee is provided with
notice of the requirement to provide the
statement in this paragraph
65

(a)(5)(i) (and the consequences of the
employee’s failure to provide the state-
ment) at the time the employee declined
enrollment.
(ii)(A) When the employee declined
enrollment for the employee or depen-
dent under the plan, the employee or
dependent had COBRA continuation
coverage under another plan and CO-
BRA continuation coverage under that
other plan has since been exhausted; or
(B) If the other coverage that applied
to the employee or dependent when
enrollment was declined was not under
a COBRA continuation provision, either
the other coverage has been terminated
as a result of loss of eligibility for the
coverage or employer contributions to-
wards the other coverage have been
terminated. For this purpose, loss of
eligibility for coverage includes a loss
of coverage as a result of legal separa-
tion, divorce, death, termination of em-
ployment, reduction in the number of
hours of employment, and any loss of
eligibility after a period that is measured
by reference to any of the foregoing.
Thus, for example, if an employee’s
coverage ceases following a termination
of employment and the employee is
eligible for but fails to elect COBRA
continuation coverage, this is treated as
a loss of eligibility under this paragraph
(a)(5)(ii)(B). However, loss of eligibility
does not include a loss due to failure of
the individual or the participant to pay
premiums on a timely basis or termina-
tion of coverage for cause (such as
making a fraudulent claim or an inten-
tional misrepresentation of a material
fact in connection with the plan). In
addition, for purposes of this paragraph
(a)(5)(ii)(B), employer contributions in-
clude contributions by any current or
former employer (of the individual or
another person) that was contributing to
coverage for the individual.
(6)Length of special enrollment pe-
riod.The employee is required to re-
quest enrollment (for the employee or
the employee’s dependent, as described
in paragraph (a)(2), (3), or (4) of this
section) not later than 30 days after the
exhaustion of the other coverage de-
scribed in paragraph (a)(5)(ii)(A) of this
section or termination of the other cov-
erage as a result of the loss of eligibility
for the other coverage for items de-
scribed in paragraph (a)(5)(ii)(B) of this
section or following the termination of
employer contributions toward that other
coverage. The plan may impose the
same requirements that apply to employ-
ees who are otherwise eligible under the
plan to immediately request enrollment
for coverage (e.g., that the request be
made in writing).
(7)Effective date of enrollment.En-
rollment is effective not later than the
first day of the first calendar month
beginning after the date the completed
request for enrollment is received.
(b)Special enrollment with respect to
certain dependent beneficiaries—
(1)In general.A group health plan
that makes coverage available with re-
spect to dependents of a participant is
required to provide a special enrollment
period to permit individuals described in
paragraph (b)(2), (3), (4), (5), or (6) of
this section to be enrolled for coverage
under the terms of the plan if the
enrollment is requested within the time
period described in paragraph (b)(7) of
this section. The enrollment is effective
at the time described in paragraph (b)(8)
of this section. 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.
(2)Special enrollment of an employee
who is eligible but not enrolled.An
individual is described in this paragraph
(b)(2) if the individual is an employee
who is eligible, but not enrolled, in the
plan, the individual would be a partici-
pant but for a prior election by the
individual not to enroll in the plan
during a previous enrollment period, and
a person becomes a dependent of the
individual through marriage, birth, or
adoption or placement for adoption.
(3)Special enrollment of a spouse of
a participant.An individual is described
in this paragraph (b)(3) if either—
(i) The individual becomes the
spouse of a participant; or
(ii) The individual is a spouse of the
participant and a child becomes a de-
pendent of the participant through birth,
adoption or placement for adoption.
(4)Special enrollment of an employee
who is eligible but not enrolled and the
spouse of such employee.An employee
who is eligible, but not enrolled, in the
plan, and an individual who is a depen-
dent of such employee, are described in
this paragraph (b)(4) if the employee
would be a participant but for a prior
election by the employee not to enroll in
the plan during a previous enrollment
period, and either—
(i) The employee and the individual
become married; or
(ii) The employee and individual are
married and a child becomes a depen-
dent of the employee through birth,
adoption or placement for adoption.
(5)Special enrollment of a dependent
of a participant.An individual is de-
scribed in this paragraph (b)(5) if the
individual is a dependent of a partici-
pant and the individual becomes a de-
pendent of such participant through mar-
riage, birth, or adoption or placement
for adoption.
(6)Special enrollment of an employee
who is eligible but not enrolled and a
new dependent.An employee who is
eligible, but not enrolled, in the plan,
and an individual who is a dependent of
the employee, are described in this para-
graph (b)(6) if the employee would be a
participant but for a prior election by
the employee not to enroll in the plan
during a previous enrollment period, and
the dependent becomes a dependent of
the employee through marriage, birth, or
adoption or placement for adoption.
(7)Length of special enrollment pe-
riod.The special enrollment period un-
der paragraph (b)(1) of this section is a
period of not less than 30 days and
begins on the date of the marriage,
birth, or adoption or placement for
adoption (except that such period does
not begin earlier than the date the plan
makes dependent coverage generally
available).
(8)Effective date of enrollment.En-
rollment is effective—
(i) In the case of marriage, not later
than the first day of the first calendar
month beginning after the date the com-
pleted request for enrollment is received
by the plan;
(ii) In the case of a dependent’s birth,
the date of such birth; and
(iii) In the case of a dependent’s
adoption or placement for adoption, the
date of such adoption or placement for
adoption.
(9)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example.(i) EmployeeAis hired on September
3, 1998 by EmployerX, which has a group health
plan in whichAcan elect to enroll either for
employee-only coverage, for employee-plus-
spouse coverage, or for family coverage, effective
on the first day of any calendar quarter thereafter.
Ais married and has no children.Adoes not elect
to join EmployerX’s plan (for employee-only
coverage, employee-plus-spouse coverage, or fam-
ily coverage) on October 1, 1998 or January 1,
1999. On February 15, 1999, a child is placed for
adoption withAandA’s spouse.
(ii) In thisExample, the conditions for special
enrollment of an employee with a new dependent
under paragraph (b)(2) of this section are satisfied,
the conditions for special enrollment of an em-
ployee and a spouse with a new dependent under
paragraph (b)(4) of this section are satisfied, and
66

the conditions for special enrollment of an em-
ployee and a new dependent under paragraph
(b)(6) of this section are satisfied. Accordingly,
EmployerX’s plan will satisfy this paragraph (b) if
and only if it allowsAto elect, by filing the
required forms by March 16, 1999, to enroll in
EmployerX’s plan either with employee-only
coverage, with employee-plus-spouse coverage, or
with family coverage, effective as of February 15,
1999.
(c)Notice of enrollment rights.On or
before the time an employee is offered
the opportunity to enroll in a group
health plan, the plan is required to
provide the employee with a description
of the plan’s special enrollment rules
under this section. For this purpose, the
plan may use the following model de-
scription of the special enrollment rules
under this section:
If you are declining enrollment for
yourself or your dependents (including
your spouse) because of other health
insurance coverage, you may in the
future be able to enroll yourself or your
dependents in this plan, provided that
you request enrollment within 30 days
after your other coverage ends. In addi-
tion, if you have a new dependent as a
result of marriage, birth, adoption, or
placement for adoption, you may be
able to enroll yourself and your depen-
dents, provided that you request enroll-
ment within 30 days after the marriage,
birth, adoption, or placement for adop-
tion.
(d)(1)Special enrollment date defini-
tion.A special enrollment date for an
individual means any date in paragraph
(a)(7) or (b)(8) of this section on which
the individual has a right to have enroll-
ment in a group health plan become
effective under this section.
(2)Examples.The rules of this sec-
tion are illustrated by the following
examples:
Example 1.(i)(A) EmployerYmaintains a
group health plan that allows employees to enroll
in the plan either—
(1) Effective on the first day of employment by
an election filed within three days thereafter;
(2) Effective on any subsequent January 1 by
an election made during the preceding months of
November or December; or
(3) Effective as of any special enrollment date
described in this section.
(B) EmployeeBis hired by EmployerYon
March 15, 1998 and does not elect to enroll in
EmployerY’s plan until January 31, 1999 whenB
loses coverage under another plan.Belects to
enroll in EmployerY’s plan effective on February
1, 1999, by filing the completed request form by
January 31, 1999, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In thisExample 1,Bhas enrolled on a
special enrollment date because the enrollment is
effective at a date described in paragraph (a)(7) of
this section.
Example 2.(i) Same facts asExample 1, except
thatB’s loss of coverage under the other plan
occurs on December 31, 1998 andBelects to
enroll in EmployerY’s plan effective on January 1,
1999 by filing the completed request form by
December 31, 1998, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In thisExample 2,Bhas enrolled on a
special enrollment date because the enrollment is
effective at a date described in paragraph (a)(7) of
this section (even though this date is also a regular
enrollment date under the plan).
§ 2590.701–7 HMO affiliation period
as alternative to preexisting condition
exclusion.
(a)In general.A group health plan
offering health insurance coverage
through an HMO, or an HMO that
offers health insurance coverage in con-
nection with a group health plan, may
impose an affiliation period only if each
of the requirements in paragraph (b) of
this section is satisfied.
(b)Requirements for affiliation pe-
riod.
(1) No preexisting condition exclu-
sion is imposed with respect to any
coverage offered by the HMO in con-
nection with the particular group health
plan.
(2) No premium is charged to a par-
ticipant or beneficiary for the affiliation
period.
(3) The affiliation period for the
HMO coverage is applied uniformly
without regard to any health status-
related factors.
(4) The affiliation period does not
exceed 2 months (or 3 months in the
case of a late enrollee).
(5) The affiliation period begins on
the enrollment date.
(6) The affiliation period for enroll-
ment in the HMO under a plan runs
concurrently with any waiting period.
(c)Alternatives to affiliation period.
An HMO may use alternative methods
in lieu of an affiliation period to address
adverse selection, as approved by the
State insurance commissioner or other
official designated to regulate HMOs.
Nothing in this part requires a State to
receive proposals for or approve alterna-
tives to affiliation periods.
§ 2590.702 Prohibiting discrimination
against participants and beneficiaries
based on a health status-related factor.
(a)In eligibility to enroll—
(1)In general.Subject to paragraph
(a)(2) of this section, a group health
plan, and a health insurance issuer offer-
ing group health insurance coverage in
connection with a group health plan,
may not establish rules for eligibility
(including continued eligibility) of any
individual to enroll under the terms of
the plan based on any of the following
health status-related factors in relation to
the individual or a dependent of the
individual:
(i) Health status.
(ii) Medical condition (including both
physical and mental illnesses), as de-
fined in § 2590.701–2.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined
in § 2590.701–2.
(vii) Evidence of insurability (includ-
ing conditions arising out of acts of
domestic violence).
(viii) Disability.
(2)No application to benefits or ex-
clusions.To the extent consistent with
section 701 of the Act and § 2590.701–
3, paragraph (a)(1) of this section shall
not be construed —
(i) To require a group health plan, or
a health insurance issuer offering group
health insurance coverage, to provide
particular benefits other than those pro-
vided under the terms of such plan or
coverage; or
(ii) To prevent such a plan or issuer
from establishing limitations or restric-
tions on the amount, level, extent, or
nature of the benefits or coverage for
similarly situated individuals enrolled in
the plan or coverage.
(3)Construction.For purposes of
paragraph (a)(1) of this section, rules for
eligibility to enroll include rules defin-
ing any applicable waiting (or affilia-
tion) periods for such enrollment and
rules relating to late and special enroll-
ment.
(4)Example.The following example
illustrates the rules of this paragraph (a):
Example.(i) An employer sponsors a group
health plan that is available to all employees who
enroll within the first 30 days of their employ-
ment. However, individuals who do not enroll in
the first 30 days cannot enroll later unless they
pass a physical examination.
(ii) In thisExample, the plan discriminates on
the basis of one or more health status-related
factors.
(b)In premiums or contributions—
(1)In general.A group health plan,
and a health insurance issuer offering
health insurance coverage in connection
with a group health plan, may not
require an individual (as a condition of
enrollment or continued enrollment un-
der the plan) to pay a premium or
contribution that is greater than the
premium or contribution for a similarly
situated individual enrolled in the plan
based on any health status-related factor,
67

in relation to the individual or a depen-
dent of the individual.
(2)Construction.Nothing in para-
graph (b)(1) of this section shall be
construed—
(i) To restrict the amount that an
employer may be charged by an issuer
for coverage under a group health plan;
or
(ii) To prevent a group health plan,
and a health insurance issuer offering
group health insurance coverage, from
establishing premium discounts or re-
bates or modifying otherwise applicable
copayments or deductibles in return for
adherence to a bona fide wellness pro-
gram. For purposes of this section, a
bona fide wellness program is a pro-
gram of health promotion and disease
prevention.
(3)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example.(i) PlanXoffers a premium discount
to participants who adhere to a cholesterol-
reduction wellness program. Enrollees are ex-
pected to keep a diary of their food intake over 6
weeks. They periodically submit the diary to the
plan physician who responds with suggested diet
modifications. Enrollees are to modify their diets
in accordance with the physician’s recommenda-
tions. At the end of the 6 weeks, enrollees are
given a cholesterol test and those who achieve a
count under 200 receive a premium discount.
(ii) In thisExample, because enrollees who
otherwise comply with the program may be unable
to achieve a cholesterol count under 200 due to a
health status-related factor, this is not a bona fide
wellness program and such discounts would dis-
criminate impermissibly based on one or more
health status-related factors. However, if, instead,
individuals covered by the plan were entitled to
receive the discount for complying with the diary
and dietary requirements and were not required to
pass a cholesterol test, the program would be a
bona fide wellness program.
§ 2590.703 Guaranteed renewability in
multiemployer plans and multiple em-
ployer welfare arrangements. [Reserved]
Subpart B - Other Requirements
§ 2590.711 Standards relating to ben-
efits for mothers and newborns. [Re-
served]
§ 2590.712 Parity in the application of
certain limits to mental health benefits.
[Reserved]
Subpart C - General Provisions
§ 2590.731 Preemption; State flexibil-
ity; construction.
(a)Continued applicability of State
law with respect to health insurance
issuers.Subject to paragraph (b) of this
section and except as provided in para-
graph (c) of this section, Part 7 of
Subtitle B of Title I of the Act is not to
be construed to supersede any provision
of State law which establishes, imple-
ments, or continues in effect any stan-
dard or requirement solely relating to
health insurance issuers in connection
with group health insurance coverage
except to the extent that such standard
or requirement prevents the application
of a requirement of this part.
(b)Continued preemption with re-
spect to group health plans.Nothing in
Part 7 of Subtitle B of Title I of the Act
affects or modifies the provisions of
section 514 of the Act with respect to
group health plans.
(c)Special rules—
(1)In general.Subject to paragraph
(c)(2) of this section, the provisions of
Part 7 of Subtitle B of Title I of the Act
relating to health insurance coverage
offered by a health insurance issuer
supersede any provision of State law
which establishes, implements, or con-
tinues in effect a standard or require-
ment applicable to imposition of a pre-
existing condition exclusion specifically
governed by section 701 which differs
from the standards or requirements
specified in such section.
(2)Exceptions.Only in relation to
health insurance coverage offered by a
health insurance issuer, the provisions of
this part do not supersede any provision
of State law to the extent that such
provision—
(i) Shortens the period of time from
the ‘‘6-month period’’ described in sec-
tion 701(a)(1) of the Act and
§ 2590.701–3(a)(1)(i) (for purposes of
identifying a preexisting condition);
(ii) Shortens the period of time from
the ‘‘12 months’’ and ‘‘18 months’’
described in section 701(a)(2)of the Act
and § 2590.701–3(a)(1)(ii) (for purposes
of applying a preexisting condition ex-
clusion period);
(iii) Provides for a greater number of
days than the ‘‘63 day period’’ described
in sections 701(c)(2)(A) and (d)(4)(A)
of the Act and §§ 2590.701–3(a)(1)(iii)
and 2590.701–4 (for purposes of apply-
ing the break in coverage rules);
(iv) Provides for a greater number of
days than the ‘‘30-day period’’ described
in sections 701(b)(2) and (d)(1) of the
Act and § 2590.701–3(b) (for purposes
of the enrollment period and preexisting
condition exclusion periods for certain
newborns and children that are adopted
or placed for adoption);
(v) Prohibits the imposition of any
preexisting condition exclusion in cases
not described in section 701(d) of the
Act or expands the exceptions described
therein;
(vi) Requires special enrollment peri-
ods in addition to those required under
section 701(f) of the Act; or
(vii) Reduces the maximum period
permitted in an affiliation period under
section 701(g)(1)(B) of the Act.
(d)Definitions—
(1)State law.For purposes of this
§ 2590.736 the termState lawincludes
all laws, decisions, rules, regulations, or
other State action having the effect of
law, of any State. A law of the United
States applicable only to the District of
Columbia is treated as a State law rather
than a law of the United States.
(2)State.For purposes of this section
the termStateincludes a State, the
Northern Mariana Islands, any political
subdivisions of a State or such Islands,
or any agency or instrumentality of
either.
§ 2590.732 Special Rules Relating to
Group Health Plans.
(a)General exception for certain
small group health plans.The require-
ments of this Part 7 of Subtitle B of
Title I of the Act do not apply to any
group health plan (and group health
insurance coverage offered in connec-
tion with a group health plan) for any
plan year if, on the first day of the plan
year, the plan has fewer than 2 partici-
pants who are current employees.
(b)Excepted benefits—
(1)In general.The requirements of
Subparts A and C of this part do not
apply to any group health plan (or any
group health insurance coverage offered
in connection with a group health plan)
in relation to its provision of the ben-
efits described in paragraph(b)(2), (3),
(4), or (5) of this section (or any
combination of these benefits).
(2)Benefits excepted in all circum-
stances.The following benefits are ex-
cepted in all circumstances—
(i) Coverage only for accident (in-
cluding accidental death and dismember-
ment);
(ii) Disability income insurance;
(iii) Liability insurance, including
general liability insurance and automo-
bile liability insurance;
(iv) Coverage issued as a supplement
to liability insurance;
(v) Workers’ compensation or similar
insurance;
68

(vi) Automobile medical payment in-
surance;
(vii) Credit-only insurance (for ex-
ample, 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 the
plan, as defined in paragraph (b)(3)(ii)
of this section.
(ii)Integral.For purposes of para-
graph (b)(3)(i) of this section, benefits
are deemed to be an integral part of a
plan unless a participant has the right to
elect not to receive coverage for the
benefits and, if the participant elects to
receive coverage for the benefits, the
participant pays an additional premium
or contribution for that coverage.
(iii)Limited scope.Limited scope
dental or vision benefits are dental or
vision benefits that are sold under a
separate policy or rider and that are
limited in scope to a narrow range or
type of benefits that are generally ex-
cluded from hospital/medical/surgical
benefit packages.
(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 in-
surance services, as defined in section
7702B(c)(1) of the Code, or provided
under a qualified long-term care insur-
ance 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.
(4)Noncoordinated benefits—
(i)Excepted benefits that are not co-
ordinated.Coverage for only a specified
disease or illness (for example, cancer-
only policies) or hospital indemnity or
other fixed dollar indemnity insurance
(for example, $100/day) is excepted
only if it meets each of the conditions
specified in paragraph (b)(4)(ii) of this
section.
(ii)Conditions.Benefits are described
in paragraph (b)(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 main-
tained by the same plan sponsor.
(5)Supplemental benefits.The fol-
lowing benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of insur-
ance:
(i) Medicare supplemental health in-
surance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance);
(ii) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as CHAMPUS supplemental pro-
grams), and
(iii) Similar supplemental coverage
provided to coverage under a group
health plan.
(c)Treatment of partnerships.[Re-
served]
§ 2590.734 Enforcement. [Reserved]
§ 2590.736 Effective Dates.
(a)General effective dates—
(1)Non-collectively-bargained plans.
Except as otherwise provided in this
section, Part 7 of Subtitle B of Title I of
the Act and Subparts A and C of this
part apply with respect to group health
plans, including health insurance issuers
offering health insurance coverage in
connection with group health plans, for
plan years beginning after June 30,
1997.
(2)Collectively bargained plans.Ex-
cept as otherwise provided in this sec-
tion (other than paragraph (a)(1) of this
section), in the case of a group health
plan maintained pursuant to one or more
collective bargaining agreements be-
tween employee representatives and one
or more employers ratified before Au-
gust 21, 1996, Part 7 of Subtitle B of
Title I of the Act and Subparts A and C
of this part do not apply to plan years
beginning before the later of July 1,
1997, or the date on which the last of
the collective bargaining agreements re-
lating to the plan terminates (determined
without regard to any extension thereof
agreed to after August 21, 1996). For
these purposes, any plan amendment
made pursuant to a collective bargaining
agreement relating to the plan, that
amends the plan solely to conform to
any requirement of such part, is not
treated as a termination of the collective
bargaining agreement.
(3)(i)Preexisting condition exclusion
periods for current employees.Any pre-
existing condition exclusion period per-
mitted under § 2590.701–3 is measured
from the individual’s enrollment date in
the plan. Such exclusion period, as
limited under § 2590.701–3, may be
completed prior to the effective date of
the Health Insurance Portability and Ac-
countability Act of 1996 (HIPAA) for
his or her plan. Therefore, on the date
the individual’s plan becomes subject to
Part 7 of Subtitle B of Title I of the Act,
no preexisting condition exclusion may
be imposed with respect to an individual
beyond the limitation in § 2590.701–3.
For an individual who has not com-
pleted the permitted exclusion period
under HIPAA, upon the effective date
for his or her plan, the individual may
use creditable coverage that the indi-
vidual had prior to the enrollment date
to reduce the remaining preexisting con-
dition exclusion period applicable to the
individual.
(ii)Examples.The following ex-
amples illustrate the rules of this para-
graph (a)(3):
Example 1.(i) IndividualAhas been working
for EmployerXand has been covered under
EmployerX’s plan since March 1, 1997. Under
EmployerX’s plan, as in effect before January 1,
1998, there is no coverage for any preexisting
condition. EmployerX’s plan year begins on
January 1, 1998.A’s enrollment date in the plan is
March 1, 1997 andAhas no creditable coverage
before this date.
(ii) In thisExample 1, EmployerXmay con-
tinue to impose the preexisting condition exclusion
under the plan through February 28, 1998 (the end
of the 12-month period using anniversary dates).
Example 2.(i) Same facts as inExample 1,
except thatA’s enrollment date was August 1,
1996, instead of March 1, 1997.
(ii) In thisExample 2, on January 1, 1998,
EmployerX’s plan may no longer exclude treat-
ment for any preexisting condition thatAmay
have; however, because EmployerX’s plan is not
subject to HIPAA until January 1, 1998,Ais not
entitled to claim reimbursement for expenses un-
der the plan for treatments for any preexisting
condition ofAreceived before January 1, 1998.
(b)Effective date for certification re-
quirement—
(1)In general.Subject to the transi-
tional rule in § 2590.701–5(a)(5)(iii),
the certification rules of § 2590.701–5
apply to events occurring on or after
July 1, 1996.
(2)Period covered by certificate.A
certificate is not required to reflect cov-
erage before July 1, 1996.
(3)No certificate before June 1,
1997.Notwithstanding any other provi-
69

sion of Subpart A or C of this part, in
no case is a certificate required to be
provided before June 1, 1997.
(c)Limitation on actions.No enforce-
ment action is to be taken, pursuant to
Part 7 of Subtitle B of Title I of the Act,
against a group health plan or health
insurance issuer with respect to a viola-
tion of a requirement imposed by Part 7
of Subtitle B of Title I of the Act before
January 1, 1998, if the plan or issuer
has sought to comply in good faith with
such requirements. Compliance with this
part is deemed to be good faith compli-
ance with the requirements of Part 7 of
Subtitle B of Title I of the Act.
(d)Transition rules for counting
creditable coverage.An individual who
seeks to establish creditable coverage
for periods before July 1, 1996 is en-
titled to establish such coverage through
the presentation of documents or other
means in accordance with the provisions
of § 2590.701–5(c). For coverage relat-
ing to an event occurring before July 1,
1996, a group health plan and a health
insurance issuer is not subject to any
penalty or enforcement action with re-
spect to the plan’s or issuer’s counting
(or not counting) such coverage if the
plan or issuer has sought to comply in
good faith with the applicable require-
ments under § 2590.701–5(c).
(e)Transition rules for certificates of
creditable coverage—(1)Certificates
only upon request.For events occurring
on or after July 1, 1996, but before
October 1, 1996, a certificate is required
to be provided only upon a written
request by or on behalf of the individual
to whom the certificate applies.
(2)Certificates before June 1, 1997.
For events occurring on or after October
1, 1996 and before June 1, 1997, a
certificate must be furnished no later
than June 1, 1997, or any later date
permitted under § 2590.701–5(a)(2)(ii)
and (iii).
(3)Optional notice—(i)In general.
This paragraph (e)(3) applies with re-
spect to events described in
§ 2590.701–5(a)(5)(ii), that occur on or
after October 1, 1996 but before June 1,
1997. A group health plan or health
insurance issuer offering group health
coverage is deemed to satisfy
§ 2590.701–5(a)(2) and (3) if a notice is
provided in accordance with the provi-
sions of paragraphs (e)(3)(i) through (iv)
of this section.
(ii)Time of notice.The notice must
be provided no later than June 1, 1997.
(iii)Form and content of notice.A
notice provided pursuant to this para-
graph (e)(3) must be in writing and
must include information substantially
similar to the information included in a
model notice authorized by the Secre-
tary. Copies of the model notice are
available on the following website —
http://www.dol.gov/dol/pwba/ (or call
1–800–998–7542).
(iv)Providing certificate after re-
quest.If an individual requests a certifi-
cate following receipt of the notice, the
certificate must be provided at the time
of the request as set forth in
§ 2590.701–5(a)(5)(iii).
(v)Other certification rules apply.
The rules set forth in § 2590.701–
5(a)(4)(i) (method of delivery) and
§ 2590.701–5(a)(1) (entities required to
provide a certificate) apply with respect
to the provision of the notice.
Pension and Welfare Benefits
Administration 29 CFR Chapter XXV
Signed at Washington, DC this 27 day
of March, 1997.
Olena Berg,
Assistant Secretary, Pension and Welfare
Benefits Administration,
U.S. Department of Labor.
Department of Health and Human
Services
45 CFR Subtitle A
45 CFR is amended as set forth below:
1. The heading for Subtitle A is re-
vised to read as follows:
SUBTITLE A—DEPARTMENT OF
HEALTH AND HUMAN SERVICES
2. Existing parts 1 through 100 are
designated as Subchapter A of Subtitle A
and a new Subchapter heading is added
to read as follows:
SUBCHAPTER A—GENERAL
ADMINISTRATION
3. New Subchapter B, consisting of
Parts 140 through 199, is added to read
as follows:
SUBCHAPTER B—REQUIREMENTS
RELATING TO HEALTH CARE
ACCESS
PARTS 140—143 [RESERVED]
PART 144—REQUIREMENTS
RELATING TO HEALTH
INSURANCE COVERAGE
Subpart A—General Provisions
Sec.
144.101 Basis and purpose.
144.102 Scope and applicability.
144.103 Definitions applicable to both
group (45 CFR Part 146) and
individual (45 CFR Part 148)
markets.
Subpart B—[RESERVED]
Authority: Secs. 2701 through 2763,
2791, and 2792 of the Public Health
Service Act, 42 U.S.C. 300gg through
300gg–63, 300gg–91, and 300gg–92.
PART 144—REQUIREMENTS
RELATING TO HEALTH
INSURANCE COVERAGE
Subpart A—General Provisions
§ 144.101 Basis and purpose.
Part 146 of this subchapter imple-
ments sections 2701 through 2723 of the
Public Health Service Act (PHS Act, 42
U.S.C. 300gg, et seq.). Its purpose is to
improve access to group health insur-
ance coverage and to guarantee the
renewability of all coverage in the group
market. Part 148 of this subchapter
implements sections 2741 through 2763
of the PHS Act. Its purpose is to
improve access to individual health in-
surance coverage for certain eligible
individuals who previously had group
coverage, and to guarantee the renew-
ability of all coverage in the individual
market. Sections 2791 and 2792 of the
PHS Act define terms used in the regu-
lations in this subchapter and provide
the basis for issuing these regulations,
respectively.
§ 144.102 Scope and applicability.
(a) For purposes of 45 CFR Parts 144
through 148, all health insurance cover-
age is generally divided into two mar-
kets— the group market (set forth in 45
CFR Part 146) and the individual mar-
ket (set forth in 45 CFR Part 148). 45
CFR Part 146 limits the group market to
insurance sold to employment-related
group health plans and further divides
the group market into the large group
market and the small group market.
Federal law further defines the small
group market as insurance sold to em-
ployer plans with 2 to 50 employees.
State law, however, may expand the
definition of the small group market to
include certain coverage that would oth-
erwise, under the Federal law, be con-
70

sidered coverage in the large group
market or the individual market.
(b) The protections afforded under 45
CFR Parts 144 through 148 to individu-
als and employers (and other sponsors
of health insurance offered in connec-
tion with a group health plan) are deter-
mined by whether the coverage involved
is obtained in the small group market,
the large group market, or the individual
market. Small employers, and individu-
als who are eligible to enroll under the
employer’s plan, are guaranteed avail-
ability of insurance coverage sold in the
small group market. Small and large
employers are guaranteed the right to
renew their group coverage, subject to
certain exceptions. Eligible individuals
are guaranteed availability of coverage
sold in the individual market, and all
coverage in the individual market must
be guaranteed renewable.
(c) Coverage that is provided to asso-
ciations, but is not related to employ-
ment, is not considered group coverage
under 45 CFR Parts 144 through 148.
The coverage is considered coverage in
the individual market, regardless of
whether it is considered group coverage
under State law.
§ 144.103 Definitions applicable to
both group (45 CFR Part 146) and
individual (45 CFR Part 148) markets.
Unless otherwise provided, the follow-
ing definitions apply:
Affiliation periodmeans a period of
time that must expire before health
insurance coverage provided by an
HMO becomes effective, and during
which the HMO is not required to
provide benefits.
Applicable State authoritymeans,
with respect to a health insurance issuer
in a State, the State insurance commis-
sioner or official or officials designated
by the State to enforce the requirements
of 45 CFR Parts 146 and 148 for the
State involved with respect to the issuer.
Beneficiaryhas the meaning given the
term under section 3(8) of the Employee
Retirement Income Security Act of 1974
(ERISA), which states, ‘‘a person desig-
nated by a participant, or by the terms
of an employee benefit plan, who is or
may become entitled to a benefit’’ under
the plan.
Bona fide associationmeans, with
respect to health insurance coverage
offered in a State, an association that
meets the following conditions:
(1) Has been actively in existence for
at least 5 years.
(2) Has been formed and maintained
in good faith for purposes other than
obtaining insurance.
(3) Does not condition membership
in the association on any health status-
related factor relating to an individual
(including an employee of an employer
or a dependent of any employee).
(4) Makes health insurance coverage
offered through the association available
to all members regardless of any health
status-related factor relating to the mem-
bers (or individuals eligible for coverage
through a member).
(5) Does not make health insurance
coverage offered through the association
available other than in connection with a
member of the association.
(6) Meets any additional requirements
that may be imposed under State law.
Church planmeans a Church plan
within the meaning of section 3(33) of
ERISA.
COBRAdefinitions:
(1)COBRAmeans Title X of the
Consolidated Omnibus Budget Recon-
ciliation Act of 1985, as amended.
(2)COBRA continuation coverage
means coverage, under a group health
plan, that satisfies an applicable COBRA
continuation provision.
(3)COBRA continuation provision
means sections 601 through 608 of the
Employee Retirement Income Security
Act of 1974, section 4980B of the
Internal Revenue Code of 1986 (other
than paragraph (f)(1) of section 4980B
insofar as it relates to pediatric vac-
cines), and Title XXII of the PHS Act.
(4)Continuation coveragemeans
coverage under a COBRA continuation
provision or a similar State program.
Coverage provided by a plan that is
subject to a COBRA continuation provi-
sion or similar State program, but that
does not satisfy all the requirements of
that provision or program, will be
deemed to be continuation coverage if it
allows an individual to elect to continue
coverage for a period of at least 18
months. Continuation coverage does not
include coverage under a conversion
policy required to be offered to an
individual upon exhaustion of continua-
tion coverage, nor does it include con-
tinuation coverage under the Federal
Employees Health Benefits Program.
(5)Exhaustion of COBRA continua-
tion coveragemeans that an individual’s
COBRA continuation coverage ceases
for any reason other than either failure
of the individual to pay premiums on a
timely basis, or for cause (such as
making a fraudulent claim or an inten-
tional misrepresentation of a material
fact in connection with the plan). An
individual is considered to have ex-
hausted COBRA continuation coverage
if such coverage ceases—
(i) Due to the failure of the employer
or other responsible entity to remit pre-
miums on a timely basis; or
(ii) When the individual no longer
resides, lives, or works in a service area
of an HMO or similar program (whether
or not within the choice of the indi-
vidual) and there is no other COBRA
continuation coverage available to the
individual.
(6)Exhaustion of continuation cover-
agemeans that an individual’s continua-
tion coverage ceases for any reason
other than either failure of the individual
to pay premiums on a timely basis, or
for cause (such as making a fraudulent
claim or an intentional misrepresentation
of a material fact in connection with the
plan). An individual is considered to
have exhausted continuation coverage
if—
(i) Coverage ceases due to the failure
of the employer or other responsible
entity to remit premiums on a timely
basis, or
(ii) When the individual no longer
resides, lives, or works in a service area
of an HMO or similar program (whether
or not within the choice of the indi-
vidual) and there is no other continua-
tion coverage available to the individual.
Conditionmeans a medical condition.
Creditable coveragehas the meaning
of 45 CFR 146.113(a).
Eligible individual,for purposes of—
(1) The group market provisions in
45 CFR Part 146, Subpart E, the term is
defined in 45 CFR 146.150(b); and
(2) The individual market provisions
in 45 CFR Part 148, the term is defined
in 45 CFR 148.103.
Employeehas the meaning given the
term under section 3(6) of ERISA,
which states, ‘‘any individual employed
by an employer.’’
Employerhas the meaning given the
term under section 3(5) of ERISA,
which states, ‘‘any person acting directly
as an employer, or indirectly in the
interest of an employer, in relation to an
employee benefit plan; and includes a
group or association of employers acting
for an employer in such capacity.’’
Enrollmeans to become covered for
benefits under a group health plan (that
is, when coverage becomes effective),
without regard to when the individual
may have completed or filed any forms
that are required in order to enroll in the
71

plan. For this purpose, an individual
who has health insurance coverage un-
der a group health plan is enrolled in
the plan regardless of whether the indi-
vidual elects coverage, the individual is
a dependent who becomes covered as a
result of an election by a participant, or
the individual becomes covered without
an election.
Enrollment date definitions(enroll-
ment dateandfirst day of coverage) are
set forth in 45 CFR 146.11(a)(2)(i) and
(a)(2)(ii).
ERISAstands for the Employee Re-
tirement Income Security Act of 1974,
as amended (29 U.S.C. 1001 et. seq.).
Excepted benefitsfor purposes of
the—
(1) Group market provisions in 45
CFR Part 146 Subpart D, the term is
defined in 45 CFR 146.145(b); and
(2) The individual market provisions
in 45 CFR Part 148, the term is defined
in 45 CFR 148.220.
Federal governmental planmeans a
governmental plan established or main-
tained for its employees by the Govern-
ment of the United States or by any
agency or instrumentality of such Gov-
ernment.
Genetic informationmeans informa-
tion about genes, gene products, and
inherited characteristics that may derive
from the individual or a family member.
This includes information regarding car-
rier status and information derived from
laboratory tests that identify mutations
in specific genes or chromosomes,
physical medical examinations, family
histories, and direct analysis of genes or
chromosomes.
Governmental planmeans a govern-
mental plan within the meaning of sec-
tion 3(32) of ERISA.
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Group health planmeans an em-
ployee welfare benefit plan (as defined
in section 3(1) of ERISA) to the extent
that the plan provides medical care (as
defined in section 2791(a)(2) of the PHS
Act and including items and services
paid for as medical care) to employees
or their dependents (as defined under
the terms of the plan) directly or
through insurance, reimbursement, or
otherwise.
Group marketmeans the market for
health insurance coverage offered in
connection with a group health plan.
(However, unless otherwise provided
under State law, certain very small plans
may be treated as being in the indi-
vidual market, rather than the group
market; see the definition of ‘‘individual
market’’ in this section.)
Health insurance coveragemeans
benefits consisting of medical care (pro-
vided directly, through insurance or re-
imbursement, or otherwise) under any
hospital or medical service policy or
certificate, hospital or medical service
plan contract, or HMO contract offered
by a health insurance issuer.
Health insurance issuerorissuer
means an insurance company, insurance
service, or insurance organization (in-
cluding an HMO) that is required to be
licensed to engage in the business of
insurance in a State and that is subject
to State law that regulates insurance
(within the meaning of section 514(b)(2)
of ERISA). This term does not include a
group health plan.
Health maintenance organizationor
HMOmeans—
(1) A Federally qualified health main-
tenance organization (as defined in sec-
tion 1301(a) of the PHS Act);
(2) An organization recognized under
State law as a health maintenance orga-
nization; or
(3) A similar organization regulated
under State law for solvency in the
same manner and to the same extent as
such a health maintenance organization.
Health status-related factormeans
health status, medical condition (includ-
ing both physical and mental illnesses),
claims experience, receipt of health care,
medical history, genetic information,
evidence of insurability (including con-
ditions arising out of acts of domestic
violence) and disability.
Individual health insurance coverage
means health insurance coverage offered
to individuals in the individual market,
but does not include short-term, limited-
duration insurance. Individual health in-
surance coverage can include dependent
coverage.
Individual marketmeans the market
for health insurance coverage offered to
individuals other than in connection
with a group health plan. Unless a State
elects otherwise in accordance with sec-
tion 2791(e)(1)(B)(ii) of the PHS Act,
such term also includes coverage offered
in connection with a group health plan
that has fewer than two participants as
current employees on the first day of the
plan year.
Internal Revenue Code (Code)means
the Internal Revenue Code of 1986, as
amended (Title 26, United States Code).
Issuermeans a health insurance is-
suer.
Large employermeans, in connection
with a group health plan with respect to
a calendar year and a plan year, an
employer who employed an average of
at least 51 employees on business days
during the preceding calendar year and
who employs at least 2 employees on
the first day of the plan year, unless
otherwise provided under State law.
Large group marketmeans the health
insurance market under which individu-
als obtain health insurance coverage
(directly or through any arrangement) on
behalf of themselves (and their depen-
dents) through a group health plan
maintained by a large employer, unless
otherwise provided under State law.
Late enrollment definitions(late en-
rolleeandlate enrollment) are set forth
in 45 CFR 146.111(a)(2)(iii) and
(a)(2)(iv).
Medical careorconditionmeans
amounts paid for any of the following:
(1) The diagnosis, cure, mitigation,
treatment, or prevention of disease, or
amounts paid for the purpose of affect-
ing any structure or function of the
body.
(2) Transportation primarily for and
essential to medical care referred to in
paragraph (1) of this definition.
(3) Insurance covering medical care
referred to in paragraphs (1) and (2) of
this definition.
Medical conditionmeans any condi-
tion, whether physical or mental, includ-
ing, but not limited to, any condition
resulting from illness, injury (whether or
not the injury is accidental), pregnancy,
or congenital malformation. However,
genetic information is not a condition.
NAICstands for the National Associa-
tion of Insurance Commissioners.
Network planmeans health insurance
coverage of a health insurance issuer
under which the financing and delivery
of medical care (including items and
services paid for as medical care) are
provided, in whole or in part, through a
defined set of providers under contract
with the issuer.
Non-Federal governmental plan
means a governmental plan that is not a
Federal government plan.
Participanthas the meaning given the
term under section 3(7) of ERISA,
which states, ‘‘any employee or former
employee of an employer, or any mem-
ber or former member of an employee
organization, who is or may become
eligible to receive a benefit of any type
from an employee benefit plan which
covers employees of such employer or
72

members of such organization, or whose
beneficiaries may be eligible to receive
any such benefit.’’
PHS Actstands for the Public Health
Service Act.
Placement, or being placed, for adop-
tionmeans the assumption and retention
of a legal obligation for total or partial
support of a child by a person with
whom the child has been placed in
anticipation of the child’s adoption. The
child’s placement for adoption with the
person terminates upon the termination
of the legal obligation.
Plan sponsorhas the meaning given
the term under section 3(16)(B) of
ERISA, which states ‘‘(i) the employer
in the case of an employee benefit plan
established or maintained by a single
employer, (ii) the employee organization
in the case of a plan established or
maintained by an employee organiza-
tion, or (iii) in the case of a plan
established or maintained by two or
more employers or jointly by one or
more employers and one or more em-
ployee organizations, the association,
committee, joint board of trustees, or
other similar group of representatives of
the parties who establish or maintain the
plan.’’
Plan yearmeans the year that is
designated as the plan year in the plan
document of a group health plan, except
that if the plan document does not
designate a plan year or if there is no
plan document, the plan year is:
(1) The deductible/limit year used un-
der the plan.
(2) If the plan does not impose
deductibles or limits on a yearly basis,
the plan year is the policy year.
(3) If the plan does not impose
deductibles or limits on a yearly basis,
and either the plan is not insured or the
insurance policy is not renewed on an
annual basis, the plan year is the em-
ployer’s taxable year.
(4) In any other case, the plan year is
the calendar year.
Preexisting condition exclusionmeans
a limitation or exclusion of benefits
relating to a condition based on the fact
that the condition was present before the
first day of coverage, whether or not
any medical advice, diagnosis, care, or
treatment was recommended or received
before that day. A preexisting condition
exclusion includes any exclusion appli-
cable to an individual as a result of
information that is obtained relating to
an individual’s health status before the
individual’s first day of coverage, such
as a condition identified as a result of a
pre-enrollment questionnaire or physical
examination given to the individual, or
review of medical records relating to the
pre-enrollment period.
Public health planmeans ‘‘public
health plan’’ within the meaning of 45
CFR 146.113(a)(1)(ix).
Short-term limited duration insurance
means health insurance coverage pro-
vided under a contract with an issuer
that has an expiration date specified in
the contract (taking into account any
extensions that may be elected by the
policyholder without the issuer’s con-
sent) that is within 12 months of the
date the contract becomes effective.
Significant break in coveragehas the
meaning given the term in 45 CFR
146.113(b)(2)(iii).
Small employermeans, in connection
with a group health plan with respect to
a calendar year and a plan year, an
employer who employed an average of
at least 2 but not more than 50 employ-
ees on business days during the preced-
ing calendar year and who employs at
least 2 employees on the first day of the
plan year, unless otherwise provided
under State law.
Small group marketmeans the health
insurance market under which individu-
als obtain health insurance coverage
(directly or through any arrangement) on
behalf of themselves (and their depen-
dents) through a group health plan
maintained by a small employer.
Special enrollment datehas the mean-
ing given the term in 45 CFR
146.117(d).
Statemeans each of the several
States, the District of Columbia, Puerto
Rico, the Virgin Islands, Guam, Ameri-
can Samoa, and the Northern Mariana
Islands.
State health benefits risk poolmeans
a ‘‘State health benefits risk pool’’
within the meaning of 45 CFR
146.113(a)(1)(vii).
Waiting periodmeans the period that
must pass before an employee or depen-
dent is eligible to enroll under the terms
of a group health plan. If an employee
or dependent enrolls as a late enrollee or
on a special enrollment date, any period
before such late or special enrollment is
not a waiting period. If an individual
seeks and obtains coverage in the indi-
vidual market, any period after the date
the individual files a substantially com-
plete application for coverage and be-
fore the first day of coverage is a
waiting period.
SUBPART B—[RESERVED]
PART 145—[RESERVED]
PART 146—REQUIREMENTS FOR
THE GROUP HEALTH INSURANCE
MARKET
Subpart A—General Provisions
Sec.
146.101 Basis and scope.
Subpart B—Requirements Relating to
Access and Renewability of Coverage,
and Limitations on Preexisting
Condition Exclusion Periods
Sec.
146.111 Limitations on preexisting
condition exclusion period.
146.113 Rules relating to creditable
coverage.
146.115 Certification and disclosure of
previous coverage.
146.117 Special enrollment periods.
146.119 HMO affiliation period as
alternative to preexisting con-
dition exclusion.
146.121 Prohibiting discrimination
against participants and ben-
eficiaries based on health
status-related factors.
146.125 Effective dates.
Subpart C—[RESERVED]
Subpart D—Preemption and Special
Rules
Sec.
146.143 Preemption; State flexibility;
construction.
146.145 Special rules relating to group
health plans.
Subpart E—Provisions Applicable to
Only Health Insurance Issuers
Sec.
146.150 Guaranteed availability of
coverage for employers in the
small group market.
146.152 Guaranteed renewability of
coverage for employers in the
group market.
146.160 Disclosure of information.
Subpart F—Exclusion of Plans and
Enforcement
Sec.
146.180 Treatment of non-Federal
governmental plans.
146.184 Enforcement.
Authority: Secs. 2701 through 2763,
2791, and 2792 of the PHS Act, 42
U.S.C. 300gg through 300gg–63,
300gg–91, and 300gg–92.
73

PART 146—REQUIREMENTS FOR
THE GROUP HEALTH INSURANCE
MARKET
Subpart A—General Provisions
§ 146.101 Basis and scope.
(a)Statutory basis.This Part imple-
ments sections 2701 through 2723 of the
PHS Act. Its purpose is to improve
access to group health insurance cover-
age and to guarantee the renewability of
all coverage in the group market. Sec-
tions 2791 and 2792 of the PHS Act
define terms used in the regulations in
this subchapter and provide the basis for
issuing these regulations, respectively.
(b)Scope.A group health plan or
health insurance issuer offering group
health insurance coverage may provide
greater rights to participants and benefi-
ciaries than those set forth in this part.
(1)Subpart B.Subpart B of this part
sets forth minimum requirements for
group health plans and health insurance
issuers offering group health insurance
coverage concerning:
(i) Limitations on a preexisting con-
dition exclusion period.
(ii) Certificates and disclosure of pre-
vious coverage.
(iii) Methods of counting creditable
coverage.
(iv) Special enrollment periods.
(v) Use of an affiliation period by an
HMO as an alternative to a preexisting
condition exclusion.
(2)Subpart D.Subpart D of this part
sets forth exceptions to the requirements
of Subpart B for certain plans and
certain types of benefits.
(3)Subpart E.Subpart E of this part
implements sections 2711 through 2713
of the PHS Act, which set forth require-
ments that apply only to health insur-
ance issuers offering health insurance
coverage, in connection with a group
health plan.
(4)Subpart F.Subpart F of this part
addresses the treatment of non-Federal
governmental plans, and sets forth en-
forcement procedures.
Subpart B—Requirements Relating to
Access and Renewability of Coverage,
and Limitations on Preexisting
Condition Exclusion Periods
§ 146.111 Limitations on preexisting
condition exclusion period.
(a)Preexisting condition exclusion—
(1)General.Subject to paragraph (b) of
this section, a group health plan, and a
health insurance issuer offering group
health insurance coverage, may impose,
with respect to a participant or benefi-
ciary, a preexisting condition exclusion
only if the requirements of this para-
graph (a) are satisfied.
(i)6-month look-back rule.A preex-
isting condition exclusion must relate to
a condition (whether physical or men-
tal), regardless of the cause of the
condition, for which medical advice,
diagnosis, care, or treatment was recom-
mended or received within the 6-month
period ending on the enrollment date.
(A) For purposes of this paragraph
(a)(1)(i), medical advice, diagnosis, care,
or treatment is taken into account only
if it is recommended by, or received
from, an individual licensed or similarly
authorized to provide such services un-
der State law and operating within the
scope of practice authorized by State
law.
(B) For purposes of this paragraph
(a)(1)(i), the 6-month period ending on
the enrollment date begins on the
6-month anniversary date preceding the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
6-month period preceding the enrollment
date is the period commencing on Feb-
ruary 1, 1998 and continuing through
July 31, 1998. As another example, for
an enrollment date of August 30, 1998,
the 6-month period preceding the enroll-
ment date is the period commencing on
February 28, 1998 and continuing
through August 29, 1998.
(C) The following examples illustrate
the requirements of this paragraph
(a)(1)(i).
Example 1:(i) Individual A is treated for a
medical condition 7 months before the enrollment
date in EmployerR’s group health plan. As part of
such treatment,A’s physician recommends that a
follow-up examination be given 2 months later.
Despite this recommendation,Adoes not receive a
follow-up examination and no other medical ad-
vice, diagnosis, care, or treatment for that condi-
tion is recommended toAor received by A during
the 6-month period ending onA’s enrollment date
in Employer R’s plan.
(ii) In thisExample,EmployerR’s plan may
not impose a preexisting condition exclusion pe-
riod with respect to the condition for whichA
received treatment 7 months prior to the enroll-
ment date.
Example 2:(i) Same facts asExample 1except
that EmployerR’s plan learns of the condition and
attaches a rider toA’s policy excluding coverage
for the condition. Three months after enrollment,
A’s condition recurs, and EmployerR’s plan
denies payment under the rider.
(ii) In thisExample,the rider is a preexisting
condition exclusion and EmployerR’s plan may
not impose a preexisting condition exclusion with
respect to the condition for whichAreceived
treatment 7 months prior to the enrollment date.
Example 3:(i) Individual B has asthma and is
treated for that condition several times during the
6-month period beforeB’s enrollment date in
EmployerS’s plan. The plan imposes a 12-month
preexisting condition exclusion.Bhas no prior
creditable coverage to reduce the exclusion period.
Three months after the enrollment date,Bbegins
coverage under EmployerS’s plan.Bis hospital-
ized for asthma.
(ii) In thisExample,EmployerS’s plan may
exclude payment for the hospital stay and the
physician services associated with this of illness
because the care is related to a medical condition
for which treatment was received byBduring the
6-month period before the enrollment date.
Example 4:(i) IndividualD,who is subject to
a preexisting condition exclusion imposed by
EmployerU’s plan, has diabetes, as well as a foot
condition caused by poor circulation and retinal
degeneration (both of which are conditions that
may be directly attributed to diabetes). After
enrolling in the plan,Dstumbles and breaks a leg.
(ii) In thisExample, the leg fracture is not a
condition related to D’s diabetes, even though
poor circulation inD’s extremities and poor vision
may have contributed towards the accident. How-
ever, any additional medical services that may be
needed because ofD’s preexisting diabetic condi-
tion that would not be needed by another patient
with a broken leg who does not have diabetes may
be subject to the preexisting condition exclusion
imposed under EmployerU’s plan.
(ii)Maximum length of preexisting
condition exclusion (the look-forward
rule).A preexisting condition exclusion
is not permitted to extend for more than
12 months (18 months in the case of a
late enrollee) after the enrollment date.
For purposes of this paragraph (a)(1)(ii),
the 12-month and 18-month periods af-
ter the enrollment date are determined
by reference to the anniversary of the
enrollment date. For example, for an
enrollment date of August 1, 1998, the
12-month period after the enrollment
date is the period commencing on Au-
gust 1, 1998 and continuing through
July 31, 1999.
(iii)Reducing a preexisting condition
exclusion period by creditable coverage.
The period of any preexisting condition
exclusion that would otherwise apply to
an individual under a group health plan
is reduced by the number of days of
creditable coverage the individual has as
of the enrollment date, as counted under
§ 146.113. For purposes of this Part, the
phrase ‘‘days of creditable coverage’’
has the same meaning as the phrase
‘‘the aggregate of the periods of credit-
able coverage’’ as such term is used in
section 2701(a)(3) of the PHS Act.
(iv)Other standards.See § 146.121
for other standards that may apply with
respect to certain benefit limitations or
restrictions under a group health plan.
(2)Enrollment definitions—(i)En-
rollment datemeans the first day of
74

coverage or, if there is a waiting period,
the first day of the waiting period.
(ii)(A)First day of coveragemeans,
in the case of an individual covered for
benefits under a group health plan in the
group market, the first day of coverage
under the plan and, in the case of an
individual covered by health insurance
coverage in the individual market, the
first day of coverage under the policy.
(B)Example.The following example
illustrates the requirements of paragraph
(a)(2)(ii)(A) of this section:
Example:(i) EmployerV’s group health plan
provides for coverage to begin on the first day of
the first payroll period following the date an
employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1
after completion of the applicable enrollment
forms. EmployerV’s plan imposes a preexisting
condition exclusion for 12 months (reduced by the
individual’s creditable coverage) following an indi-
vidual’s enrollment date. EmployeeEis hired by
EmployerVon October 13, 1998 and then on
October 14, 1998 completes and files all the forms
necessary to enroll in the plan.E’s coverage under
the plan becomes effective on October 25, 1998
(which is the beginning of the first payroll period
afterE’s date of hire).
(ii) In this Example, E’s enrollment date is
October 13, 1998 (which is the first day of the
waiting period forE’s enrollment and is alsoE’s
date of hire). Accordingly, with respect toE, the
6-month period in paragraph (a)(1)(i) would be the
period from April 13, 1998 through October 12,
1998, the maximum permissible period during
which EmployerV’s plan could apply a preexist-
ing condition exclusion under paragraph (a)(1)(ii)
would be the period from October 13, 1998
through October 12, 1999, and this period would
be reduced under paragraph (a)(1)(iii) byE’s days
of creditable coverage as of October 13, 1998.
(iii)Late enrolleemeans an indi-
vidual whose enrollment in a plan is a
late enrollment.
(iv)Late enrollmentmeans enroll-
ment under a group health plan other
than on—
(A) The earliest date on which cover-
age can become effective under the
terms of the plan; or
(B) A special enrollment date for the
individual. If an individual ceases to be
eligible for coverage under the plan by
terminating employment, and subse-
quently becomes eligible for coverage
under the plan by resuming employ-
ment, only eligibility during the indi-
vidual’s most recent period of employ-
ment is taken into account in
determining whether the individual is a
late enrollee under the plan with respect
to the most recent period of coverage.
Similar rules apply if an individual
again becomes eligible for coverage fol-
lowing a suspension of coverage that
applied generally under the plan.
(v)Examples.The following ex-
amples illustrate the requirements of this
paragraph (a)(2):
Example 1:(i) EmployeeFfirst becomes eli-
gible to be covered by EmployerW’s group health
plan on January 1, 1999, but elects not to enroll in
the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date forF.
(ii) In thisExample, Fwould be a late enrollee
with respect toF’s coverage that became effective
under the plan on April 1, 1999.
Example 2:(i) Same asExample 1,except that
F does not enroll in the plan on April 1, 1999 and
terminates employment with EmployerWon July
1, 1999, without having had any health insurance
coverage under the plan.Fis rehired by Employer
Won January 1, 2000 and is eligible for and
elects coverage under EmployerW’s plan effective
on January 1, 2000.
(ii) In thisExample, Fwould not be a late
enrollee with respect toF’s coverage that became
effective on January 1, 2000.
(b)Exceptions pertaining to preexist-
ing condition exclusions—(1)New-
borns—(i)General rule.Subject to
paragraph (b)(3) of this section, a group
health plan, and a health insurance is-
suer offering group health insurance
coverage, may not impose any preexist-
ing condition exclusion with regard to a
child who, as of the last day of the
30-day period beginning with the date
of birth, is covered under any creditable
coverage. Accordingly, if a newborn is
enrolled in a group health plan (or other
creditable coverage) within 30 days after
birth and subsequently enrolls in another
group health plan without a significant
break in coverage, the other plan may
not impose any preexisting condition
exclusion with regard to the child.
(ii)Example.The following example
illustrates the requirements of this para-
graph (b)(1).
Example:(i) Seven months after enrollment in
EmployerW’s group health plan, IndividualEhas
a child born with a birth defect. Because the child
is enrolled in EmployerW’s plan within 30 days
of birth, no preexisting condition exclusion may
be imposed with respect to the child under
EmployerW’s plan. Three months after the child’s
birth,Ecommences employment with EmployerX
and enrolls with the child in EmployerX’s plan
within 45 days of leaving EmployerW’s plan.
EmployerX’s plan imposes a 12-month exclusion
for any preexisting condition.
(ii) In thisExample,EmployerX’s plan may
not impose any preexisting condition exclusion
with respect toE’s child because the child was
covered within 30 days of birth and had no
significant break in coverage. This result applies
regardless of whetherE’s child is included in the
certificate of creditable coverage provided toEby
EmployerWindicating 300 days of dependent
coverage or receives a separate certificate indicat-
ing 90 days of coverage. EmployerX’s plan may
impose a preexisting condition exclusion with
respect toEfor up to 2 months for any preexisting
condition ofEfor which medical advice, diagno-
sis, care, or treatment was recommended or re-
ceived byEwithin the 6-month period ending on
E’s enrollment date in EmployerX’s plan.
(2)Adopted children.Subject to para-
graph (b)(3) of this section, a group
health plan, and a health insurance is-
suer offering group health insurance
coverage, may not impose any preexist-
ing condition exclusion in the case of a
child who is adopted or placed for
adoption before attaining 18 years of
age and who, as of the last day of the
30-day period beginning on the date of
the adoption or placement for adoption,
is covered under creditable coverage.
This rule does not apply to coverage
before the date of such adoption or
placement for adoption.
(3)Break in coverage.Paragraphs
(b)(1) and (b)(2) of this section no
longer apply to a child after a signifi-
cant break in coverage.
(4)Pregnancy.A group health plan,
and a health insurance issuer offering
group health insurance coverage, may
not impose a preexisting condition ex-
clusion relating to pregnancy as a preex-
isting condition.
(5)Special enrollment dates.For spe-
cial enrollment dates relating to new
dependents, see § 146.117(b).
(c)Notice of plan’s preexisting condi-
tion exclusion.A group health plan, and
health insurance issuer offering group
health insurance under the plan, may not
impose a preexisting condition exclusion
with respect to a participant or depen-
dent of the participant before notifying
the participant, in writing, of the exist-
ence and terms of any preexisting condi-
tion exclusion under the plan and of the
rights of individuals to demonstrate
creditable coverage (and any applicable
waiting periods) as required by
§ 146.115. The description of the rights
of individuals to demonstrate creditable
coverage includes a description of the
right of the individual to request a
certificate from a prior plan or issuer, if
necessary, and a statement that the cur-
rent plan or issuer will assist in obtain-
ing a certificate from any prior plan or
issuer, if necessary.
§ 146.113 Rules relating to creditable
coverage.
(a)General rules—(1)Creditable
coverage.For purposes of this section,
except as provided in paragraph (a)(2),
the term creditable coverage means cov-
erage of an individual under any of the
following:
(i) A group health plan as defined in
§ 144.103.
(ii) Health insurance coverage as de-
fined in § 144.103 (whether or not the
75

entity offering the coverage is subject to
the requirements of this Part and 45
CFR Part 148, and without regard to
whether the coverage is offered in the
group market, the individual market, or
otherwise).
(iii) Part A or Part 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 sec-
tion 1928 of the Social Security Act (the
program for distribution of pediatric
vaccines).
(v) Title 10 U.S.C. Chapter 55 (medi-
cal and dental care for members and
certain former members of the uni-
formed services, and for their depen-
dents; 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 At-
mospheric 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 Code;
(B) A qualified high risk pool de-
scribed 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 pri-
marily to provide health insurance cov-
erage for individuals who are residents
of such State and who, by reason of the
existence or history of a medical condi-
tion—
(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 pur-
poses of this section, a public health
plan means any plan established or
maintained by a State, county, or other
political subdivision of a State that
provides health insurance coverage to
individuals who are enrolled in the plan.
(x) A health benefit plan under sec-
tion 5(e) of the Peace Corps Act (22
U.S.C. 2504(e)).
(2)Excluded coverage.Creditable
coverage does not include coverage con-
sisting solely of coverage of excepted
benefits (described in § 146.145).
(3)Methods of counting creditable
coverage.For purposes of reducing any
preexisting condition exclusion period,
as provided under § 146.111(a)(1)(iii), a
group health plan, and a health insur-
ance issuer offering group health insur-
ance coverage, determines the amount of
an individual’s creditable coverage by
using the standard method described in
paragraph (b), except that the plan, or
issuer, may use the alternative method
under paragraph (c) with respect to any
or all of the categories of benefits
described under paragraph (c)(3).
(b)Standard method—(1)Specific
benefits not considered.Under the stan-
dard method, a group health plan, and a
health insurance issuer offering group
health insurance coverage, determines
the amount of creditable coverage with-
out regard to the specific benefits in-
cluded in the coverage.
(2)Counting creditable coverage—
(i)Based on days.For purposes of
reducing the preexisting condition exclu-
sion period, a group health plan, and a
health insurance issuer offering group
health insurance coverage, determines
the amount of creditable coverage by
counting all the days that the individual
has under one or more types of credit-
able coverage. Accordingly, if on a
particular day, an individual has credit-
able coverage from more than one
source, all the creditable coverage on
that day is counted as one day. Further,
any days in a waiting period for a plan
or policy are not creditable coverage
under the plan or policy.
(ii)Days not counted before signifi-
cant break in coverage.Days of credit-
able coverage that occur before a sig-
nificant break in coverage are not
required to be counted.
(iii)Definition of significant break in
coverage.A significant break in cover-
age means a period of 63 consecutive
days during all of which the individual
does not have any creditable coverage,
except that neither a waiting period nor
an affiliation period is taken into ac-
count 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 pre-
emption State insurance laws that re-
quire a break of more than 63 days
before an individual has a significant
break in coverage for purposes of State
law.)
(iv)Examples.The following ex-
amples illustrate how creditable cover-
age is counted in reducing preexisting
condition exclusion periods:
Example 1:(i) IndividualAworks for Em-
ployerPand has creditable coverage under Em-
ployerP’s plan for 18 months beforeA’s employ-
ment terminates.Ais hired by EmployerQ, and
enrolls in EmployerQ’s group health plan, 64
days after the last date of coverage under Em-
ployerP’s plan. EmployerQ’s plan has a 12-
month preexisting condition exclusion period.
(ii) In thisExample,becauseAhad a break in
coverage of 63 days, EmployerQ’s plan may
disregardA’s prior coverage andAmay be subject
to a 12-month preexisting condition exclusion
period.
Example 2:(i) Same facts asExample 1,ex-
cept thatAis hired by EmployerQ, and enrolls in
EmployerQ’s plan, on the 63rd day after the last
date of coverage under EmployerP’s plan.
(ii) In thisExample, Ahas a break in coverage
of 62 days. BecauseA’s break in coverage is not a
significant break in coverage, EmployerQ’s plan
must countA’s prior creditable coverage for
purposes of reducing the plan’s preexisting condi-
tion exclusion period as it applies toA.
Example 3:(i) Same facts asExample 1,ex-
cept that EmployerQ’s plan provides benefits
through an insurance policy that, as required by
applicable State insurance laws, defines a signifi-
cant break in coverage as 90 days.
(ii) In thisExample,the issuer that provides
group health insurance to Employer Q’s plan must
count A’s period of creditable coverage prior to the
63-day break.
Example 4:(i) Same facts asExample 3,ex-
cept that EmployerQ’s plan is a self-insured plan,
and thus is not subject to State insurance laws.
(ii) In thisExample,the plan is not governed
by the longer break rules under State insurance
law andA’s previous coverage may be disre-
garded.
Example 5:(i) IndividualBbegins employment
with EmployerR45 days after terminating cover-
age under a prior group health plan. EmployerR’s
group health plan has a 30-day waiting period
before coverage begins.Benrolls in EmployerR’s
plan when first eligible.
(ii) In thisExample, Bdoes not have a signifi-
cant break in coverage for purposes of determining
whetherB’s prior coverage must be counted by
EmployerR’s plan.Bhas only a 44-day break in
coverage because the 30-day waiting period is not
taken into account in determining a significant
break in coverage.
Example 6:(i) IndividualCworks for Em-
ployerSand has creditable coverage under Em-
ployerS’s plan for 200 days beforeC’s employ-
ment is terminated and coverage ceases.Cis then
unemployed for 51 days before being hired by
EmployerT. EmployerT’s plan has a 3-month
waiting period.Cworks for EmployerTfor 2
months and then terminates employment. Eleven
days after terminating employment with Employer
T,Cbegins working for EmployerU. Employer
U’s plan has no waiting period, but has a 6-
month preexisting condition exclusion period.
(ii) In thisExample, Cdoes not have a signifi-
cant break in coverage because, after disregarding
the waiting period under EmployerT’s plan,Chad
only a 62-day break in coverage (51 days plus 11
days). Accordingly,Chas 200 days of creditable
coverage and EmployerU’s plan may not apply its
6-month preexisting condition exclusion period
with respect toC.
76

Example 7:(i) IndividualDterminates employ-
ment with EmployerVon January 13, 1998 after
being covered for 24 months under EmployerV’s
group health plan. On March 17, the 63rd day
without coverage,Dapplies for a health insurance
policy in the individual market.D’s application
is accepted and the coverage is made effective
May 1.
(ii) In thisExample,becauseDapplied for the
policy before the end of the 63rd day, and
coverage under the policy ultimately became ef-
fective, 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 107
days.
Example 8:(i) Same facts asExample 7,except
thatD’s application for a policy in the individual
market is denied.
(ii) In thisExample,becauseDdid not obtain
coverage following application,Dincurred a sig-
nificant break in coverage on the 64th day.
(v)Other permissible counting meth-
ods—(A)General rule.Notwithstanding
any other provisions of this paragraph
(b)(2), for purposes of reducing a preex-
isting condition exclusion period (but
not for purposes of issuing a certificate
under § 146.115), a group health plan,
and a health insurance issuer offering
group health insurance coverage, may
determine the amount of creditable cov-
erage 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 following example
illustrates the requirements of this para-
graph (b)(2)(v):
Example:(i) IndividualFhas coverage under
group health planYfrom January 3, 1997 through
March 25, 1997.Fthen becomes covered by
group health planZ. F’s enrollment date in PlanZ
is May 1, 1997. PlanZhas a 12-month preexisting
condition exclusion period.
(ii) In thisExample,PlanZmay determine, in
accordance with the rules prescribed in paragraph
(b)(2)(i), (ii), and (iii), thatFhas 82 days of
creditable coverage (29 days in January, 28 days
in February, and 25 days in March). Thus, the
preexisting condition exclusion period will no
longer apply toFon February 8, 1998 (82 days
before the 12-month anniversary ofF’s enrollment
(May 1)). For administrative convenience, how-
ever, PlanZmay consider that the preexisting
condition exclusion period will no longer apply to
Fon the first day of the month (February 1).
(c)Alternative method—(1)Specific
benefits considered.Under the alterna-
tive 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)
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 may apply a differ-
ent preexisting condition exclusion pe-
riod with respect to each category (and
may apply a different preexisting condi-
tion exclusion period for benefits that
are not within any category). The credit-
able coverage determined for a category
of benefits applies only for purposes of
reducing the preexisting condition exclu-
sion 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).
(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 policy. The use of the alternative
method is set forth in the plan.
(3)Categories of benefits.The alter-
native method for counting creditable
coverage may be used for coverage for
any of the following categories of ben-
efits:
(i) Mental health.
(ii) Substance abuse treatment.
(iii) Prescription drugs.
(iv) Dental care.
(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 state-
ments concerning the plan, and state this
to each enrollee at the time of enroll-
ment under the plan; and
(ii) Include in these statements a de-
scription of the effect of using the
alternative method, including an identifi-
cation of the categories used.
(5)Issuer notice.With respect to
health insurance coverage offered by an
issuer in the small or large group mar-
ket, if the insurance coverage uses the
alternative method, the issuer states
prominently in any disclosure statement
concerning the coverage, and to each
employer at the time of the offer or sale
of the coverage, that the issuer is using
the alternative method, and include in
such statements a description of the
effect of using the alternative method.
This applies separately to each type of
coverage offered by the health insurance
issuer.
(6)Disclosure of information on pre-
vious benefits.See § 146.115(b) for spe-
cial rules concerning disclosure of cov-
erage to a plan, or issuer, using the
alternative method of counting credit-
able coverage under this paragraph (c).
(7)Counting creditable coverage—(i)
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 reim-
bursement account or arrangement, such
as a flexible spending arrangement, (as
defined in section 106(c)(2) of the Inter-
nal Revenue Code), does not constitute
coverage within any category.
(ii)Special rules.In counting an indi-
vidual’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), 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 cover-
age 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 con-
dition exclusion period for that category
by that number of days. The plan or
issuer may determine the amount of
creditable coverage in any other reason-
able manner, uniformly applied, that is
at least as favorable to the individual.
(iii)Example.The following example
illustrates the requirements of this para-
graph (c)(7):
Example:(i) IndividualDenrolls 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 EmployerV
ends on January 1, 2002, afterDwas covered
under EmployerV’s group health plan for 365
days.Denrolls in EmployerY’s plan on February
1, 2002 (D’s enrollment date). EmployerY’s plan
uses the alternative method of counting creditable
coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In thisExample, EmployerY’s plan may
impose a 275-day preexisting condition exclusion
with respect to D for prescription drug benefits
becauseDhad the equivalent of 90-days of
creditable coverage relating to prescription drug
benefits withinD’s determination period.
§ 146.115 Certification and disclosure
of previous coverage.
(a)Certificate of creditable cover-
age—(1)Entities required to provide
certificate—(i)General.A group health
plan, and each health insurance issuer
offering group health insurance coverage
under a group health plan, is required to
77

certificates of creditable coverage in
accordance with this paragraph (a).
(ii)Duplicate certificates not re-
quired.An entity required to provide a
certificate under this paragraph (a)(1)
for an individual is deemed to have
satisfied the certification requirements
for that individual if another party pro-
vides the certificate, but only to the
extent that information relating to the
individual’s creditable coverage and
waiting or affiliation period is provided
by the other party. For example, in the
case of a group health plan funded
through an insurance policy, the issuer is
deemed to have satisfied the certifica-
tion requirement with respect to a par-
ticipant or beneficiary if the plan actu-
ally provides a certificate that includes
the information required under para-
graph (a)(3) with respect to the partici-
pant or beneficiary.
(iii)Special rule for group health
plans.To the extent coverage under a
plan consists of group health insurance
coverage, the plan is deemed to have
satisfied the certification requirements
under this paragraph (a)(1) if any issuer
offering the coverage is required to
provide the certificates pursuant to an
agreement between the plan and the
issuer. For example, if there is an agree-
ment between an issuer and the plan
sponsor under which the issuer agrees to
provide certificates for individuals cov-
ered under the plan, and the issuer fails
to provide a certificate to an individual
when the plan would have been required
to provide one under this paragraph (a),
then the issuer, but not the plan, violates
the certification requirements of this
paragraph (a).
(iv)Special rules for issuers—(A)
Responsibility of issuer for coverage
period—(1)General rule.An issuer is
not required to provide information re-
garding coverage provided to an indi-
vidual by another party.
(2)Example.The following example
illustrates the requirements of this
paragraph(a)(1)(iv)(A):
Example.(i) A plan offers coverage with an
HMO option from one issuer and an indemnity
option from a different issuer. The HMO has not
entered into an agreement with the plan to provide
certificates as permitted under paragraph (a)(1)(iii)
of this section.
(ii) In thisExample, if an employee switches
from the indemnity option to the HMO option and
later ceases to be covered under the plan, any
certificate provided by the HMO is not required to
provide information regarding the employee’s cov-
erage under the indemnity option.
(B)Cessation of issuer coverage
prior to cessation of coverage under a
plan—(1)General rule.If an individu-
al’s coverage under an issuer’s policy
ceases before the individual’s coverage
under the plan ceases, the issuer is
required to provide sufficient informa-
tion to the plan (or to another party
designated by the plan) to enable a
certificate to be provided by the plan (or
other party), after cessation of the indi-
vidual’s coverage under the plan, that
reflects the period of coverage under the
policy. The provision of that information
to the plan will satisfy the issuer’s
obligation to provide an automatic cer-
tificate for that period of creditable
coverage for the individual under para-
graphs (a)(2)(ii) and (a)(3) of this sec-
tion. In addition, an issuer providing
that information is required to cooperate
with the plan in responding to any
request made under paragraph (b)(2) of
this section (relating to the alternative
method of counting creditable coverage).
If the individual’s coverage under the
plan ceases at the time the individual’s
coverage under the issuer’s policy
ceases, the issuer must provide an auto-
matic certificate under paragraph
(a)(2)(ii) of this section. An issuer may
presume that an individual whose cover-
age ceases at a time other than the
effective date for changing enrollment
options has ceased to be covered under
the plan.
(2)Example.The following example
illustrates the requirements of this para-
graph (a)(1)(iv)(B):
Example:(i) A group health plan provides
coverage under an HMO option and an indemnity
option with a different issuer, and only allows
employees to switch on each January 1. Neither
the HMO nor the indemnity issuer has entered into
an agreement with the plan to provide automatic
certificates as permitted under paragraph (a)(2)(ii)
of this section.
(ii) In thisExample, if an employee switches
from the indemnity option to the HMO option on
January 1, the issuer must provide the plan (or a
person designated by the plan) with appropriate
information with respect to the individual’s cover-
age with the indemnity issuer. However, if the
individual’s coverage with the indemnity issuer
ceases at a date other than January 1, the issuer is
instead required to provide the individual with an
automatic certificate.
(2)Individuals for whom a certificate
must be provided; timing of issuance—
(i)Individuals.A certificate must be
provided, without charge, for partici-
pants or dependents who are or were
covered under a group health plan upon
the occurrence of any of the events
described in paragraph (a)(2)(ii) and
(a)(2)(iii) of this section.
(ii)Issuance of automatic certificates.
The certificates described in this para-
graph (a)(2)(ii) of this section are re-
ferred to as ‘‘automatic certificates.’’
(A)Qualified beneficiaries upon a
qualifying event.In the case of an
individual who is a qualified beneficiary
(as defined in section 607(3) of ERISA,
section 4980B(g)(1) of the Code, or
section 2208 of the PHS Act) entitled to
elect COBRA continuation coverage, an
automatic certificate is required to be
provided at the time the individual
would lose coverage under the plan in
the absence of COBRA continuation
coverage or alternative coverage elected
instead of COBRA continuation cover-
age. A plan or issuer satisfies this re-
quirement if it provides the automatic
certificate no later than the time a notice
is required to be furnished for a qualify-
ing event under section 606 of the Act,
section 4980B(f)(6) of the Code and
section 2206 of the PHS Act (relating to
notices required under COBRA).
(B)Other individuals when coverage
ceases.In the case of an individual who
is not a qualified beneficiary entitled to
elect COBRA continuation coverage, an
automatic certificate is required to be
provided at the time the individual
ceases to be covered under the plan. A
plan or issuer satisfies this requirement
if it provides the automatic certificate
within a reasonable time period thereaf-
ter. In the case of an individual who is
entitled to elect to continue coverage
under a State program similar to CO-
BRA and who receives the automatic
certificate not later than the time a
notice is required to be furnished under
the State program, the certificate is
deemed to be provided within a reason-
able time period after the cessation of
coverage under the plan.
(C)Qualified beneficiaries when CO-
BRA ceases.In the case of an individual
who is a qualified beneficiary and has
elected COBRA continuation coverage
(or whose coverage has continued after
the individual became entitled to elect
COBRA continuation coverage), an au-
tomatic certificate is to be provided at
the time the individual’s coverage under
the plan ceases. A plan, or issuer, satis-
fies this requirement if it provides the
automatic certificate within a reasonable
time after coverage ceases (or after the
expiration of any grace period for non-
payment of premiums). An automatic
certificate is required to be provided to
such an individual regardless of whether
the individual has previously received
an automatic certificate under paragraph
(a)(2)(ii)(A) of this section.
(iii)Any individual upon request.Re-
quests for certificates are permitted to
be made by, or on behalf of, an indi-
78

vidual within 24 months after coverage
ceases. Thus, for example, a plan in
which an individual enrolls may, if
authorized by the individual, request a
certificate of the individual’s creditable
coverage on behalf of the individual
from a plan in which the individual was
formerly enrolled. After the request is
received, a plan or issuer is required to
provide the certificate by the earliest
date that the plan or issuer, acting in a
reasonable or prompt fashion can pro-
vide the certificate. A certificate is to be
provided under this paragraph (a)(2)(iii)
even if the individual has previously
received a certificate under this para-
graph (a)(2)(iii) or an automatic certifi-
cate under paragraph (a)(2)(ii) of this
section.
(iv)Examples.The following ex-
amples illustrate the requirements of this
paragraph (a)(2).
Example 1: (i) IndividualAterminates employ-
ment with EmployerQ.Ais a qualified benefi-
ciary entitled to elect COBRA continuation cover-
age under EmployerQ’s group health plan. A
notice of the rights provided under COBRA is
typically furnished to qualified beneficiaries under
the plan within 10 days after a covered employee
terminates employment.
(ii) In thisExample, the automatic certificate
may be provided at the same time thatAis
provided the COBRA notice.
Example 2: (i) Same facts asExample 1, except
that the automatic certificate forAis not com-
pleted by the time the COBRA notice is furnished
toA.
(ii) In thisExample, the automatic certificate
may be provided within the period permitted by
law for the delivery of notices under COBRA.
Example 3: (i) Employer Rmaintains an insured
group health plan.Rhas never had 20 employees
and thusR’s plan is not subject to the COBRA
continuation coverage provisions. However, R is
in a State that has a State program similar to
COBRA.Bterminates employment withRand
loses coverage underR’s plan.
(ii) In thisExample, the automatic certificate
may be provided not later than the time a notice is
required to be furnished under the State program.
Example 4: (i) Individual C terminates employ-
ment with EmployerSand receives both a notice
ofC’s rights under COBRA and an automatic
certificate.Celects COBRA continuation coverage
under EmployerS’s group health plan. After four
months of COBRA continuation coverage and the
expiration of a 30-day grace period,S’s group
health plan determines thatC’s COBRA continua-
tion coverage has ceased due to failure to make a
timely payment for continuation coverage.
(ii) In thisExample, the plan must provide an
updated automatic certificate toCwithin a reason-
able time after the end of the grace period.
Example 5: (i) IndividualDis currently covered
under the group health plan of EmployerT.D
requests a certificate, as permitted under paragraph
(a)(2)(iii). Under the procedure for EmployerT’s
plan, certificates are mailed (by first class mail) 7
business days following receipt of the request.
This date reflects the earliest date that the plan,
acting in a reasonable and prompt fashion, can
provide certificates.
(ii) In thisExample, the plan’s procedure satis-
fies paragraph (a)(2)(iii) of this section.
(3)Form and content of certificate—
(i)Written certificate—(A)General.Ex-
cept as provided in paragraph
(a)(3)(i)(B) of this section, the certificate
must be provided in writing (including
any form approved by HCFA as a
writing).
(B)Other permissible forms.No writ-
ten certificate is required to be provided
under this paragraph (a) with respect to
a particular event described in para-
graphs (a)(2)(ii) and (a)(2)(iii) of this
section if all the following conditions
are met:
(1) An individual is entitled to re-
ceive a certificate.
(2) The individual requests that the
certificate be sent to another plan or
issuer instead of to the individual.
(3) The plan or issuer that would
otherwise receive the certificate agrees
to accept the information in paragraph
(a)(3) through means other than a writ-
ten certificate (for example, by tele-
phone).
(4) The receiving plan or issuer re-
ceives the information from the sending
plan or issuer in such form within the
time periods required under paragraph
(a)(2) of this section.
(ii)Required information.The certifi-
cate must include all of the following:
(A) The date the certificate is issued.
(B) The name of the group health
plan that provided the coverage de-
scribed in the certificate.
(C) The name of the participant or
dependent with respect to whom the
certificate applies, and any other infor-
mation necessary for the plan providing
the coverage specified in the certificate
to identify the individual, such as the
individual’s identification number under
the plan and the name of the participant
if the certificate is for (or includes) a
dependent.
(D) The name, address, and telephone
number of the plan administrator or
issuer required to provide the certificate.
(E) The telephone number to call for
further information regarding the certifi-
cate (if different from paragraph
(a)(3)(ii)(D)).
(F) Either—
(1) A statement that an individual has
at least 18 months (for this purpose, 546
days is deemed to be 18 months) of
creditable coverage, disregarding days of
creditable coverage before a significant
break in coverage, or
(2) The date any waiting period (and
affiliation period, if applicable) began
and the date creditable coverage began.
(G) The date creditable coverage
ended, unless the certificate indicates
that creditable coverage is continuing as
of the date of the certificate.
(iii)Periods of coverage under cer-
tificate.If an automatic certificate is
provided under paragraph (a)(2)(ii) of
this section, the period that must be
included on the certificate is the last
period of continuous coverage ending on
the date coverage ceased. If an indi-
vidual requests a certificate under para-
graph (a)(2)(iii) of this section, a certifi-
cate must be provided for each period of
continuous coverage ending within the
24-month period ending on the date of
the request (or continuing on the date of
the request). A separate certificate may
be provided for each such period of
continuous coverage.
(iv)Combining information for fami-
lies.A certificate may provide informa-
tion with respect to both a participant
and the participant’s dependents if the
information is identical for each indi-
vidual or, if the information is not
identical, certificates may be provided
on one form if the form provides all the
required information for each individual
and separately states the information
that is not identical.
(v)Model certificate.The require-
ments of paragraph (a)(3)(ii) of this
section are satisfied if the plan or issuer
provides a certificate in accordance with
a model certificate authorized by HCFA.
(vi)Excepted benefits; categories of
benefits. No certificate is required to be
furnished with respect to excepted ben-
efits described in § 146.145. In addi-
tion, the information in the certificate
regarding coverage is not required to
specify categories of benefits described
in § 146.113(c) (relating to the alterna-
tive method of counting creditable cov-
erage). However, if excepted benefits
are provided concurrently with other
creditable coverage (so that the coverage
does not consist solely of excepted
benefits), information concerning the
benefits may be required to be disclosed
under paragraph (b) of this section.
(4)Procedures—(i)Method of deliv-
ery.The certificate is required to be
provided to each individual described in
paragraph (a)(2) of this section or an
entity requesting the certificate on be-
half of the individual. The certificate
may be provided by first-class mail. If
the certificate or certificates are pro-
vided to the participant and the partici-
79

pant’s spouse at the participant’s last
known address, then the requirements of
this paragraph (a)(4) are satisfied with
respect to all individuals residing at that
address. If a dependent’s last known
address is different than the participant’s
last known address, a separate certificate
is required to be provided to the depen-
dent at the dependent’s last known ad-
dress. If separate certificates are being
provided by mail to individuals who
reside at the same address, separate
mailings of each certificate are not re-
quired.
(ii)Procedure for requesting certifi-
cates.A plan or issuer must establish a
procedure for individuals to request and
receive certificates under paragraph
(a)(2)(iii) of this section.
(iii)Designated recipients.If an auto-
matic certificate is required to be pro-
vided under paragraph (a)(2)(ii) of this
section, and the individual entitled to
receive the certificate designates another
individual or entity to receive the certifi-
cate, the plan or issuer responsible for
providing the certificate is permitted to
provide the certificate to the designated
party. If a certificate is required to be
provided upon request under paragraph
(a)(2)(iii) of this section and the indi-
vidual entitled to receive the certificate
designates another individual or entity to
receive the certificate, the plan or issuer
responsible for providing the certificate
is required to provide the certificate to
the designated party.
(5)Special rules concerning depen-
dent coverage—(i)Reasonable efforts—
(A)General rule.A plan or issuer is
required to use reasonable efforts to
determine any information needed for a
certificate relating to the dependent cov-
erage. In any case in which an auto-
matic certificate is required to be fur-
nished with respect to a dependent
under paragraph (a)(2)(ii) of this section,
no individual certificate is required to be
furnished until the plan or issuer knows
(or making reasonable efforts should
know) of the dependent’s cessation of
coverage under the plan.
(B)Example.The following example
illustrates the requirements of this para-
graph (a)(5)(i):
Example: (i) A group health plan covers em-
ployees and their dependents. The plan annually
requests all employees to provide updated infor-
mation regarding dependents, including the spe-
cific date on which an employee has a new
dependent or on which a person ceases to be a
dependent of the employee.
(ii) In thisExample, the plan has satisfied the
standard in this paragraph (a)(5)(i) that it make
reasonable efforts to determine the cessation of
dependents’ coverage and the related dependent
coverage information.
(ii)Special rules for demonstrating
coverage.If a certificate furnished by a
plan or issuer does not provide the name
of any dependent of an individual cov-
ered by the certificate, the individual
may, if necessary, use the procedures
described in paragraph (c)(4) of this
section for demonstrating dependent sta-
tus. In addition, an individual may, if
necessary, use these procedures to dem-
onstrate that a child was enrolled within
30 days of birth, adoption, or placement
for adoption. See § 146.111(b), under
which such a child would not be subject
to a preexisting condition exclusion.
(iii)Transition rule for dependent
coverage through June 30, 1998—(A)
General.A group health plan or health
insurance issuer that cannot provide the
names of dependents (or related cover-
age information) for purposes of provid-
ing a certificate of coverage for a de-
pendent may satisfy the requirements of
paragraph (a)(3)(ii)(C) of this section by
providing the name of the participant
covered by the group health plan or
health insurance issuer and specifying
that the type of coverage described in
the certificate is for dependent coverage
(for example, family coverage or
employee-plus-spouse coverage).
(B)Certificates provided on request.
For purposes of certificates provided on
the request of, or on behalf of, an
individual under paragraph (a)(2)(iii)of
this section, a plan or issuer must make
reasonable efforts to obtain and provide
the names of any dependent covered by
the certificate where such information is
requested to be provided. If does not
include the name of any dependent of
an individual covered by the certificate,
the individual may, if necessary, use the
procedures described in paragraph (c) of
this section for submitting documenta-
tion to establish that the creditable cov-
erage in the certificate applies to the
dependent.
(C)Demonstrating a dependent’s
creditable coverage.See paragraph
(c)(4) of this section for special rules to
demonstrate dependent status.
(D)Duration.This paragraph
(a)(5)(iii) is only effective for certifica-
tions provided with respect to events
occurring through June 30, 1998.
(6)Special certification rules—(i)Is-
suers.Issuers of group and individual
health insurance are required to provide
certificates of any creditable coverage
they provide in the group or individual
health insurance market, even if the
coverage is provided in connection with
an entity or program that is not itself
required to provide a certificate because
it is not subject to the group market
provisions of this Part, Part 7 of Subtitle
B of Title I of ERISA, or Chapter 100
of Subtitle K of the Internal Revenue
Code. This would include coverage pro-
vided in connection with any of the
following:
(A) Creditable coverage described in
sections 2701(c)(1)(G) through (c)(1)(J)
of the PHS Act (coverage under a State
health benefits risk pool, the Federal
Employees Health Benefits Program, a
public health plan, and a health benefit
plan under section 5(e) of the Peace
Corps Act),
(B) Coverage subject to section
2721(b)(1)(B) of the PHS Act (requiring
certificates by issuers offering health
insurance coverage in connection with
any group health plan, including a
church plan or a governmental plan
(including the Federal Employees Health
Benefits Program (FEHBP)).
(C) Coverage subject to section 2743
of the PHS Act applicable to health
insurance issuers in the individual mar-
ket. (However, this section does not
require a certificate to be provided with
respect to short-term limited duration
insurance, which is excluded from the
definition of ‘‘individual health insur-
ance coverage’’ in 45 CFR 144.103 that
is not provided in connection with a
group health plan, as described in para-
graph (a)(6)(i)(B) of this section.)
(ii)Other entities.For special rules
requiring that certain other entities, not
subject to this Part, provide certificates
consistent with the rules in this section,
see section 2791(a)(3) of the PHS Act
applicable to entities described in sec-
tions 2701(c)(1)(C), (D), (E), and (F) of
the PHS Act (relating to Medicare, Med-
icaid, CHAMPUS, and Indian Health
Service), section 2721(b)(1)(A) of the
PHS Act applicable to non-Federal gov-
ernmental plans generally, section
2721(b)(2)(C)(ii) of the PHS Act appli-
cable to non-Federal governmental plans
that elect to be excluded from the
requirements of Subparts 1 and 3 of Part
A of Title XXVII of the PHS Act, and
section 9805(a) of the Internal Revenue
Code applicable to group health plans,
which includes church plans (as defined
in section 414(e) of the Internal Rev-
enue Code).
(b)Disclosure of coverage to a plan,
or issuer, using the alternative method
of counting creditable coverage—(1)
80

General.If an individual enrolls in a
group health plan with respect to which
the plan, or issuer, uses the alternative
method of counting creditable coverage
described in section 2701(c)(3)(B) of the
PHS Act and § 146.113(c), the indi-
vidual provides a certificate of coverage
under paragraph (a) of this section, and
the plan or issuer in which the indi-
vidual enrolls so requests, the entity that
issued the certificate (the ‘‘prior entity’’)
is required to disclose promptly to a
requesting plan or issuer (the ‘‘request-
ing entity’’) the information set forth in
paragraph (b)(2) of this section.
(2)Information to be disclosed.The
prior entity is required to identify to the
requesting entity the categories of ben-
efits with respect to which the request-
ing entity is using the alternative
method of counting creditable coverage,
and the requesting entity may identify
specific information that the requesting
entity reasonably needs in order to de-
termine the individual’s creditable cov-
erage with respect to any such category.
The prior entity is required to disclose
promptly to the requesting entity the
creditable coverage information so re-
quested.
(3)Charge for providing information.
The prior entity furnishing the informa-
tion under paragraph (b) of this section
may charge the requesting entity for the
reasonable cost of disclosing such infor-
mation.
(c)Ability of an individual to demon-
strate creditable coverage and waiting
period information—(1)General.The
rules in this paragraph (c) implement
section 2701(c)(4) of the PHS Act,
which permits individuals to establish
creditable coverage through means other
than certificates, and section 2701(e)(3)
of the PHS Act, which requires the
Secretary to establish rules designed to
prevent an individual’s subsequent cov-
erage under a group health plan or
health insurance coverage from being
adversely affected by an entity’s failure
to provide a certificate with respect to
that individual. If the accuracy of a
certificate is contested or a certificate is
unavailable when needed by the indi-
vidual, the individual has the right to
demonstrate creditable coverage (and
waiting or affiliation periods) through
the presentation of documents or other
means. For example, the individual may
make such a demonstration when—
(i) An entity has failed to provide a
certificate within the required time pe-
riod;
(ii) The individual has creditable cov-
erage but an entity may not be required
to provide a certificate of the coverage
under paragraph (a) of this section;
(iii) The coverage is for a period
before July 1, 1996;
(iv) The individual has an urgent
medical condition that necessitates a
determination before the individual can
deliver a certificate to the plan; or
(v) The individual lost a certificate
that the individual had previously re-
ceived and is unable to obtain another
certificate.
(2)Evidence of creditable coverage—
(i)Consideration of evidence.A plan or
issuer is required to take into account all
information that it obtains or that is
presented on behalf of an individual to
make a determination, based on the
relevant facts and circumstances,
whether an individual has creditable
coverage and is entitled to offset all or a
portion of any preexisting condition ex-
clusion period. A plan or issuer shall
treat the individual as having furnished
a certificate under paragraph (a) of this
section if the individual attests to the
period of creditable coverage, the indi-
vidual also presents relevant corroborat-
ing evidence of some creditable cover-
age during the period, and the individual
cooperates with the plan’s or issuer’s
efforts to verify the individual’s cover-
age. For this purpose, cooperation in-
cludes providing (upon the plan’s or
issuer’s request) a written authorization
for the plan or issuer to request a
certificate on behalf of the individual,
and cooperating in efforts to determine
the validity of the corroborating evi-
dence and the dates of creditable cover-
age. While a plan or issuer may refuse
to credit coverage where the individual
fails to cooperate with the plan’s or
issuer’s efforts to verify coverage, the
plan or issuer may not consider an
individual’s inability to obtain a certifi-
cate to be evidence of the absence of
creditable coverage.
(ii)Documents.Documents that may
establish creditable coverage (and wait-
ing periods or affiliation periods) in the
absence of a certificate include explana-
tions of benefit claims (EOB) or other
correspondence from a plan or issuer
indicating coverage, pay stubs showing
a payroll deduction for health coverage,
a health insurance identification card, a
certificate of coverage under a group
health policy, records from medical care
providers indicating health coverage,
third party statements verifying periods
of coverage, and any other relevant
documents that evidence periods of
health coverage.
(iii)Other evidence.Creditable cover-
age (and waiting period or affiliation
period information) may also be estab-
lished through means other than docu-
mentation, such as by a telephone call
from the plan or provider to a third
party verifying creditable coverage.
(iv)Example.The following example
illustrates the requirements of this
paragraph(c)(2):
Example: (i) EmployerX’s group health plan
imposes a preexisting condition exclusion of 12
months on new enrollees under the plan and uses
the standard method of determining creditable
coverage.Ffails to receive a certificate of prior
coverage from the self-insured group health plan
maintained byF’s prior employer, EmployerW,
and requests a certificate. However,F(and Em-
ployerX’s plan, onF’s behalf) is unable to obtain
a certificate from EmployerW’s plan.Fattests
that, to the best ofF’s knowledge,Fhad at least
12 months of continuous coverage under Employer
W’s plan, and that the coverage ended no earlier
thanF’s termination of employment from Em-
ployerW. In addition,Fpresents evidence of
coverage, such as an explanation of benefits for a
claim that was made during the relevant period.
(ii) In thisExample, based solely on these facts,
Fhas demonstrated creditable coverage for the 12
months of coverage under EmployerW’s plan in
the same manner as ifFhad presented a written
certificate of creditable coverage.
(3)Demonstrating categories of cred-
itable coverage.Procedures similar to
those described in this paragraph (c)
apply in order to determine an individu-
al’s creditable coverage with respect to
any category under paragraph (b) (relat-
ing to determining creditable coverage
under the alternative method).
(4)Demonstrating dependent status.
If, in the course of providing evidence
(including a certificate) of creditable
coverage, an individual is required to
demonstrate dependent status, the group
health plan or issuer is required to treat
the individual as having furnished a
certificate showing the dependent status
if the individual attests to such depen-
dency and the period of such status and
the individual cooperates with the plan’s
or issuer’s efforts to verify the depen-
dent status.
(d)Determination and notification of
creditable coverage—(1)Reasonable
time period.In the event that a group
health plan or health insurance issuer
offering group health insurance coverage
receives information in this section un-
der paragraph (a) (certifications), para-
graph (b) (disclosure of information re-
lating to the alternative method), or
paragraph (c) (other evidence of credit-
able coverage), the entity is required,
within a reasonable time period follow-
81

ing receipt of the information, to make a
determination regarding the individual’s
period of creditable coverage and notify
the individual of the determination in
accordance with paragraph (d)(2) of this
section. Whether a determination and
notification regarding an individual’s
creditable coverage is made within a
reasonable time period is determined
based on the relevant facts and circum-
stances. Relevant facts and circum-
stances include whether a plan’s applica-
tion of a preexisting condition exclusion
would prevent an individual from hav-
ing access to urgent medical services.
(2)Notification to individual of pe-
riod of preexisting condition exclusion.
A plan or issuer seeking to impose a
preexisting condition exclusion is re-
quired to disclose to the individual, in
writing, its determination of any preex-
isting condition exclusion period that
applies to the individual, and the basis
for such determination, including the
source and substance of any information
on which the plan or issuer relied. In
addition, the plan or issuer is required to
provide the individual with a written
explanation of any appeal procedures
established by the plan or issuer, and
with a reasonable opportunity to submit
additional evidence of creditable cover-
age. However, nothing in this paragraph
(d) or paragraph (c) of this section
prevents a plan or issuer from modify-
ing an initial determination of creditable
coverage if it determines that the indi-
vidual did not have the claimed credit-
able coverage, provided that—
(i) A notice of the reconsideration is
provided to the individual; and
(ii) Until the final determination is
made, the plan or issuer, for purposes of
approving access to medical services
(such as a pre-surgery authorization),
acts in a manner consistent with the
initial determination.
(3)Examples.The following ex-
amples illustrate this paragraph (d):
Example: (i) IndividualFterminates employ-
ment with EmployerWand, a month later, is hired
by EmployerX.Example 1: IndividualGis hired
by EmployerY. EmployerY’s group health plan
imposes a preexisting condition exclusion for 12
months with respect to new enrollees and uses the
standard method of determining creditable cover-
age. EmployerY’s plan determines thatGis
subject to a 4-month preexisting condition exclu-
sion, based on a certificate of creditable coverage
that is provided byGto EmployerY’s plan
indicating 8 months of coverage underG’s prior
group health plan.
(ii) In thisExample, EmployerY’s plan must
notifyGwithin a reasonable period of time
following receipt of the certificate thatGis
subject to a 4-month preexisting condition exclu-
sion beginning onG’s enrollment date inY’s plan.
Example 2: (i) Same facts as inExample 1,
except that EmployerY’s plan determines thatG
has 14 months of creditable coverage based onG’s
certificate indicating 14 months of creditable cov-
erage underG’s prior plan.
(ii) In thisExample, EmployerY’s plan is not
required to notifyGthatGwill not be subject to a
preexisting condition exclusion.
Example 3: (i) Individual H is hired by Em-
ployerZ. EmployerZ’s group health plan imposes
a preexisting condition exclusion for 12 months
with respect to new enrollees and uses the stan-
dard method of determining creditable coverage.H
develops an urgent health condition before receiv-
ing a certificate of prior coverage.Hattests to the
period of prior coverage, presents corroborating
documentation of the coverage period, and autho-
rizes the plan to request a certificate onH’s
behalf.
(ii) In thisExample, EmployerZ’s plan must
review the evidence presented byH. In addition,
the plan must make a determination and notifyH
regarding any preexisting condition exclusion pe-
riod that applies toH(and the basis of such
determination) within a reasonable time period
following receipt of the evidence that is consistent
with the urgency ofH’s health condition (this
determination may be modified as permitted under
paragraph (d)(2)).
§ 146.117 Special enrollment periods.
(a)Special enrollment for certain in-
dividuals who lose coverage—(1)Gen-
eral.A group health plan, and a health
insurance issuer offering group health
insurance coverage in connection with a
group health plan, is required to permit
employees and dependents described in
this section in paragraph (a)(2), (a)(3),
or (a)(4) to enroll for coverage under
the terms of the plan if the conditions in
paragraph (a)(5) are satisfied and the
enrollment is requested within the pe-
riod described in paragraph (a)(6). The
enrollment is effective at the time de-
scribed in paragraph (a)(7). 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.
(2)Special enrollment of an employee
only.An employee is described in this
paragraph (a)(2) if the employee is
eligible, but not enrolled, for coverage
under the terms of the plan and, when
enrollment was previously offered to the
employee under the plan and was de-
clined by the employee, the employee
was covered under another group health
plan or had other health insurance cov-
erage.
(3)Special enrollment of dependents
only.A dependent is described in this
paragraph (a)(3) if the dependent is a
dependent of an employee participating
in the plan, the dependent is eligible,
but not enrolled, for coverage under the
terms of the plan, and, when enrollment
was previously offered under the plan
and was declined, the dependent was
covered under another group health plan
or had other health insurance coverage.
(4)Special enrollment of both em-
ployee and dependent.An employee and
any dependent of the employee are
described in this paragraph (a)(4) if they
are eligible, but not enrolled, for cover-
age under the terms of the plan and,
when enrollment was previously offered
to the employee or dependent under the
plan and was declined, the employee or
dependent was covered under another
group health plan or had other health
insurance coverage.
(5)Conditions for special enrollment.
An employee or dependent is eligible to
enroll during a special enrollment period
if each of the following applicable con-
ditions is met:
(i) When the employee declined en-
rollment for the employee or the depen-
dent, the employee stated in writing that
coverage under another group health
plan or other health insurance coverage
was the reason for declining enrollment.
This paragraph (a)(5)(i) applies only
if—
(A) The plan required such a state-
ment when the employee declined en-
rollment; and
(B) The employee is provided with
notice of the requirement to provide the
statement in paragraph (a)(5)(i) (and the
consequences of the employee’s failure
to provide the statement) at the time the
employee declined enrollment.
(ii)(A) When the employee declined
enrollment for the employee or depen-
dent under the plan, the employee or
dependent had COBRA continuation
coverage under another plan and CO-
BRA continuation coverage under that
other plan has since been exhausted; or
(B) If the other coverage that applied
to the employee or dependent when
enrollment was declined was not under
a COBRA continuation provision, either
the other coverage has been terminated
as a result of loss of eligibility for the
coverage or employer contributions to-
wards the other coverage have been
terminated. For this purpose, loss of
eligibility for coverage includes a loss
of coverage as a result of legal separa-
tion, divorce, death, termination of em-
ployment, reduction in the number of
hours of employment, and any loss of
eligibility after a period that is measured
by reference to any of the foregoing.
Thus, for example, if an employee’s
coverage ceases following a termination
of employment and the employee is
eligible for but fails to elect COBRA
82

continuation coverage, this is treated as
a loss of eligibility under this paragraph
(a)(5)(ii)(B). However, loss of eligibility
does not include a loss due to failure of
the individual or the participant to pay
premiums on a timely basis or termina-
tion of coverage for cause (such as
making a fraudulent claim or an inten-
tional misrepresentation of a material
fact in connection with the plan). In
addition, for purposes of this paragraph
(a)(5)(ii)(B), employer contributions in-
clude contributions by any current or
former employer (of the individual or
another person) that was contributing to
coverage for the individual.
(6)Length of special enrollment pe-
riod.The employee is required to re-
quest enrollment (for the employee or
the employee’s dependent, as described
in this section in paragraph (a)(2), para-
graph (a)(3), or paragraph (a)(4)) not
later than 30 days after the exhaustion
of the other coverage described in para-
graph (a)(5)(ii)(A) or termination of the
other coverage as a result of the loss of
eligibility for the other coverage for
items described in paragraph
(a)(5)(ii)(B) or following the termination
of employer contributions toward that
other coverage. The plan may impose
the same requirements that apply to
employees who are otherwise eligible
under the plan to immediately request
enrollment for coverage (for example,
that the request be made in writing).
(7)Effective date of enrollment.En-
rollment is effective not later than the
first day of the first calendar month
beginning after the date the completed
request for enrollment is received.
(b)Special enrollment with respect to
certain dependent beneficiaries—(1)
General.A group health plan that makes
coverage available with respect to de-
pendents of a participant is required to
provide a special enrollment period to
permit individuals described in this sec-
tion in paragraph (b)(2), (b)(3), (b)(4),
(b)(5), or (b)(6) to be enrolled for
coverage under the terms of the plan if
the enrollment is requested within the
time period described in paragraph
(b)(7). The enrollment is effective at the
time described in paragraph (b)(8). 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.
(2)Special enrollment of an employee
who is eligible but not enrolled.An
individual is described in this paragraph
(b)(2) if the individual is an employee
who is eligible, but not enrolled, in the
plan, the individual would be a partici-
pant but for a prior election by the
individual not to enroll in the plan
during a previous enrollment period, and
a person becomes a dependent of the
individual through marriage, birth, or
adoption or placement for adoption.
(3)Special enrollment of a spouse of
a participant.An individual is described
in this paragraph (b)(3) if either—
(i) The individual becomes the
spouse of a participant; or
(ii) The individual is a spouse of the
participant and a child becomes a de-
pendent of the participant through birth,
adoption, or placement for adoption.
(4)Special enrollment of an employee
who is eligible but not enrolled and the
spouse of such employee.An employee
who is eligible, but not enrolled, in the
plan, and an individual who is a depen-
dent of such employee, are described in
this paragraph (b)(4) if the employee
would be a participant but for a prior
election by the employee not to enroll in
the plan during a previous enrollment
period, and either—
(i) The employee and the individual
become married; or
(ii) The employee and individual are
married and a child becomes a depen-
dent of the employee through birth,
adoption or placement for adoption.
(5)Special enrollment of a dependent
of a participant.An individual is de-
scribed in this paragraph (b)(5) if the
individual is a dependent of a partici-
pant and the individual becomes a de-
pendent of such participant through mar-
riage, birth, or adoption or placement
for adoption.
(6)Special enrollment of an employee
who is eligible but not enrolled and a
new dependent.An employee who is
eligible, but not enrolled, in the plan,
and an individual who is a dependent of
the employee, are described in this para-
graph (b)(6) if the employee would be a
participant but for a prior election by
the employee not to enroll in the plan
during a previous enrollment period, and
the dependent becomes a dependent of
the employee through marriage, birth, or
adoption or placement for adoption.
(7)Length of special enrollment pe-
riod.The special enrollment period un-
der paragraph (b)(1) of this section is a
period of not less than 30 days and
begins on the date of the marriage,
birth, or adoption or placement for
adoption (except that such period does
not begin earlier than the date the plan
makes dependent coverage generally
available).
(8)Effective date of enrollment.En-
rollment is effective—
(i) In the case of marriage, not later
than the first day of the first calendar
month beginning after the date the com-
pleted request for enrollment is received
by the plan;
(ii) In the case of a dependent’s birth,
the date of such birth; and
(iii) In the case of a dependent’s
adoption or placement for adoption, the
date of such adoption or placement for
adoption.
(9)Example.The following example
illustrates the requirements of this para-
graph (b):
Example. (i) EmployeeAis hired on September
3, 1998 by EmployerX, which has a group health
plan in whichAcan elect to enroll either for
employee-only coverage, for employee-plus-spouse
coverage, or for family coverage, effective on the
first day of any calendar quarter thereafter. A is
married and has no children.Adoes not elect to
join EmployerX’s plan (for employee-only cover-
age, employee-plus-spouse coverage, or family
coverage) on October 1, 1998 or January 1, 1999.
On February 15, 1999, a child is placed for
adoption with A andA’s spouse.
(ii) In thisExample, the conditions for special
enrollment of an employee with a new dependent
under paragraph (b)(2) are satisfied, the conditions
for special enrollment of an employee and a
spouse with a new dependent under paragraph
(b)(4) are satisfied, and the conditions for special
enrollment of an employee and a new dependent
under paragraph (b)(6) are satisfied. Accordingly,
EmployerX’s plan will satisfy this paragraph (b) if
and only if it allowsAto elect, by filing the
required forms by March 16, 1999, to enroll in
EmployerX’s plan either with employee-only
coverage, with employee-plus-spouse coverage, or
with family coverage, effective as of February 15,
1999.
(c)Notice of enrollment rights.On or
before the time an employee is offered
the opportunity to enroll in a group
health plan, the plan is required to
provide the employee with a description
of the plan’s special enrollment rules
under this section. For this purpose, the
plan may use the following model de-
scription of the special enrollment rules
under this section:
If you are declining enrollment for
yourself or your dependents (includ-
ing your spouse) because of other
health insurance coverage, you may in
the future be able to enroll yourself or
your dependents in this plan, provided
that you request enrollment within 30
days after your other coverage ends.
In addition, if you have a new depen-
dent as a result of marriage, birth,
adoption, or placement for adoption,
you may be able to enroll yourself
83

and your dependents, provided that
you request enrollment within 30 days
after the marriage, birth, adoption, or
placement for adoption.
(d)Special enrollment date definition.
(1)General rule.A special enrollment
date for an individual means any date in
paragraph (a)(7) or paragraph (b)(8) of
this section on which the individual has
a right to have enrollment in a group
health plan become effective under this
section.
(2)Examples.The following ex-
amples illustrate the requirements of this
paragraph (d):
Example 1: (i) EmployerYmaintains a group
health plan that allows employees to enroll in the
plan either (a) effective on the first day of
employment by an election filed within three days
thereafter, (b) effective on any subsequent January
1 by an election made during the preceding
months of November or December, or (c) effective
as of any special enrollment date described in this
section. EmployeeBis hired by EmployerYon
March 15, 1998 and does not elect to enroll in
EmployerY’s plan until January 31, 1999 whenB
loses coverage under another plan.Belects to
enroll in EmployerY’s plan effective on February
1, 1999 by filing the completed request form by
January 31, 1999, in accordance with the special
rule set forth in paragraph (a).
(ii) In thisExample,Bhas enrolled on a special
enrollment date because the enrollment is effective
at a date described in paragraph (a)(7).
Example 2: (i) Same facts asExample 1, except
thatB’s loss of coverage under the other plan
occurs on December 31, 1998 andBelects to
enroll in EmployerY’s plan effective on January 1,
1999 by filing the completed request form by
December 31, 1998, in accordance with the special
rule set forth in paragraph (a).
(ii) In thisExample,Bhas enrolled on a special
enrollment date because the enrollment is effective
at a date described in paragraph (a)(7) (even
though this date is also a regular enrollment date
under the plan).
§ 146.119 HMO affiliation period as
alternative to preexisting condition
exclusion.
(a)General.A group health plan of-
fering health insurance coverage through
an HMO, or an HMO that offers health
insurance coverage in connection with a
group health plan, may impose an affili-
ation period only if each of the require-
ments in paragraph (b) of this section is
satisfied.
(b)Requirements for affiliation pe-
riod.
(1) No preexisting condition exclu-
sion is imposed with respect to any
coverage offered by the HMO in con-
nection with the particular group health
plan.
(2) No premium is charged to a par-
ticipant or beneficiary for the affiliation
period.
(3) The affiliation period for the
HMO coverage is applied uniformly
without regard to any health status-
related factors.
(4) The affiliation period does not
exceed 2 months (or 3 months in the
case of a late enrollee).
(5) The affiliation period begins on
the enrollment date.
(6) The affiliation period for enroll-
ment in the HMO under a plan runs
concurrently with any waiting period.
(c)Alternatives to affiliation period.
An HMO may use alternative methods
in lieu of an affiliation period to address
adverse selection, as approved by the
State insurance commissioner or other
official designated to regulate HMOs.
Nothing in this section requires a State
to receive proposals for or approve
alternatives to affiliation periods.
§ 146.121 Prohibiting discrimination
against participants and beneficiaries
based on a health status-related factor.
(a)In eligibility to enroll—(1)Gen-
eral.Subject to paragraph (a)(2) of this
section, a group health plan, and a
health insurance issuer offering group
health insurance coverage in connection
with a group health plan, may not
establish rules for eligibility (including
continued eligibility) of any individual
to enroll under the terms of the plan
based on any of the following health
status-related factors in relation to the
individual or a dependent of the indi-
vidual:
(i) Health status.
(ii) Medical condition (including both
physical and mental illnesses), as de-
fined in § 146.102.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined
in § 146.102.
(vii) Evidence of insurability (includ-
ing conditions arising out of acts of
domestic violence).
(viii) Disability.
(2)No application to benefits or ex-
clusions.To the extent consistent with
section 2701 of the Act and § 146.111,
paragraph (a)(1) of this section shall not
be construed —
(i) To require a group health plan, or
a health insurance issuer offering group
health insurance coverage, to provide
particular benefits other than those pro-
vided under the terms of such plan or
coverage; or
(ii) To prevent such a plan or issuer
from establishing limitations or restric-
tions on the amount, level, extent, or
nature of the benefits or coverage for
similarly situated individuals enrolled in
the plan or coverage.
(3)Construction.For purposes of
paragraph (a)(1) of this section, rules for
eligibility to enroll include rules defin-
ing any applicable waiting (or affilia-
tion) periods for such enrollment and
rules relating to late and special enroll-
ment.
(4)Example.The following example
illustrates the requirements of this para-
graph (a):
Example. (i) An employer sponsors a group
health plan that is available to all employees who
enroll within the first 30 days of their employ-
ment. However, individuals who do not enroll in
the first 30 days cannot enroll later unless they
pass a physical examination.
(ii) In thisExample, the plan discriminates on
the basis of one or more health status-related
factors.
(b)In premiums or contributions—(1)
General.A group health plan, and a
health insurance issuer offering health
insurance coverage in connection with a
group health plan, may not require an
individual (as a condition of enrollment
or continued enrollment under the plan)
to pay a premium or contribution that is
greater than the premium or contribution
for a similarly situated individual en-
rolled in the plan based on any health
status-related factor, in relation to the
individual or a dependent of the indi-
vidual.
(2)Construction.Nothing in para-
graph (b)(1) of this section can be
construed—
(i) To restrict the amount that an
employer may be charged by an issuer
for coverage under a group health plan;
or
(ii) To prevent a group health plan,
and a health insurance issuer offering
group health insurance coverage, from
establishing premium discounts or re-
bates or modifying otherwise applicable
copayments or deductibles in return for
adherence to a bona fide wellness pro-
gram. For purposes of this section, a
bona fide wellness program is a pro-
gram of health promotion and disease
prevention.
(3)Example.The following example
illustrates the requirements of this para-
graph (b):
Example. (i) PlanXoffers a premium discount
to participants who adhere to a cholesterol-
reduction wellness program. Enrollees are ex-
pected to keep a diary of their food intake over 6
weeks. They periodically submit the diary to the
plan physician who responds with suggested diet
84

modifications. Enrollees are to modify their diets
in accordance with the physician’s recommenda-
tions. At the end of the 6 weeks, enrollees are
given a cholesterol test and those who achieve a
count under 200 receive a premium discount.
(ii) In thisExample, because enrollees who
otherwise comply with the program may be unable
to achieve a cholesterol count under 200 due to a
health status-related factor, this is not a bona fide
wellness program and such discounts would dis-
criminate impermissibly based on one or more
health status-related factors. However, if, instead,
individuals covered by the plan were entitled to
receive the discount for complying with the diary
and dietary requirements and were not required to
pass a cholesterol test, the program would be a
bona fide wellness program.
§ 146.125 Effective dates.
(a)General effective dates—(1)Non-
collectively-bargained plans.Except as
otherwise provided in this section, Part
A of Title XXVII of the PHS Act and
this Part applies with respect to group
health plans, including health insurance
issuers offering health insurance cover-
age in connection with group health
plans, for plan years beginning after
June 30, 1997.
(2)Collectively bargained plans.Ex-
cept as otherwise provided in this sec-
tion (other than paragraph (a)(1)), in the
case of a group health plan maintained
under one or more collective bargaining
agreements between employee represen-
tatives and one or more employers rati-
fied before August 21, 1996, Part A of
Title XXVII of the PHS Act and this
Part does not apply to plan years begin-
ning before the later of July 1, 1997, or
the date on which the last of the
collective bargaining agreements relating
to the plan terminates (determined with-
out regard to any extension thereof
agreed to after August 21, 1996). For
these purposes, any plan amendment
made under a collective bargaining
agreement relating to the plan, that
amends the plan solely to conform to
any requirement of such part, is not
treated as a termination of the collective
bargaining agreement.
(3)Preexisting condition exclusion
periods for current employees.(i)Gen-
eral rule.Any preexisting condition ex-
clusion period permitted under
§ 146.111 is measured from the indi-
vidual’s enrollment date in the plan.
This exclusion period, as limited under
§ 146.111, may be completed before the
effective date of the Health Insurance
Portability and Accountability Act of
1996 (HIPAA) for his or her plan.
Therefore, on the date the individual’s
plan becomes subject to Part A of Title
XXVII of the PHS Act, no preexisting
condition exclusion may be imposed
with respect to an individual beyond the
limitation in § 146.111. For an indi-
vidual who has not completed the per-
mitted exclusion period under HIPAA,
upon the effective date for his or her
plan, the individual may use creditable
coverage that the person had as of the
enrollment date to reduce the remaining
preexisting condition exclusion period
applicable to the individual.
(ii)Examples.The following ex-
amples illustrate the requirements of this
paragraph (a)(3):
Example 1: (i) IndividualAhas been working
for EmployerXand has been covered under
EmployerX’s plan since March 1, 1997. Under
EmployerX’s plan, as in effect before January 1,
1998, there is no coverage for any preexisting
condition. EmployerX’s plan year begins on
January 1, 1998.A’s enrollment date in the plan is
March 1, 1997 andAhas no creditable coverage
before this date.
(ii) In thisExample, EmployerXmay continue
to impose the preexisting condition exclusion
under the plan through February 28, 1998 (the end
of the 12-month period using anniversary dates).
Example 2: (i) Same facts as inExample 1,
except thatA’s enrollment date was August 1,
1996, instead of March 1, 1997.
(ii) In thisExample, on January 1, 1998, Em-
ployerX’s plan may no longer exclude treatment
for any preexisting condition thatAmay have,
however, because EmployerX’s plan is not subject
to HIPAA until January 1, 1998,Ais not entitled
to claim reimbursement for expenses under the
plan for treatments for any preexisting condition
received before January 1, 1998.
(b)Effective date for certification re-
quirement—(1)General.Subject to the
transitional rule in § 146.115(a)(5)(iii),
the certification rules of § 146.115 ap-
ply to events occurring on or after July
1, 1996.
(2)Period covered by certificate.A
certificate is not required to reflect cov-
erage before July 1, 1996.
(3)No certificate before June 1,
1997.Notwithstanding any other provi-
sion of this Part, in no case is a
certificate required to be provided be-
fore June 1, 1997.
(c)Limitation on actions.No enforce-
ment action is taken, under, against a
group health plan or health insurance
issuer with respect to a violation of a
requirement imposed by Part A of Title
XXVII of the PHS Act before January
1, 1998, if the plan or issuer has sought
to comply in good faith with such
requirements. Compliance with this part
is deemed to be good faith compliance
with the requirements of Part A of Title
XXVII of the PHS Act.
(d)Transition rules for counting
creditable coverage.An individual who
seeks to establish creditable coverage
for periods before July 1, 1996 is en-
titled to establish such coverage through
the presentation of documents or other
means in accordance with the provisions
of § 146.115(c). For coverage relating
to an event occurring before July 1,
1996, a group health plan and a health
insurance issuer is not subject to any
penalty or enforcement action with re-
spect to the plan’s or issuer’s counting
(or not counting) such coverage if the
plan or issuer has sought to comply in
good faith with the applicable require-
ments under § 146.115(c).
(e)Transition rules for certificates of
creditable coverage—(1)Certificates
only upon request.For events occurring
on or after July 1, 1996 but before
October 1, 1996, a certificate is required
to be provided only upon a written
request by or on behalf of the individual
to whom the certificate applies.
(2)Certificates before June 1, 1997.
For events occurring on or after October
1, 1996 and before June 1, 1997, a
certificate must be furnished no later
than June 1, 1997, or any later date
permitted under § 146.115(a)(2)(ii) and
(iii).
(3)Optional notice—(i)General.
This paragraph (e)(3) applies with re-
spect to events described in
§ 146.115(a)(5)(ii), that occur on or
after October 1, 1996 but before June 1,
1997. A group health plan or health
insurance issuer offering group health
coverage is deemed to satisfy
§§ 146.115(a)(2) and (a)(3) if a notice
is provided in accordance with the pro-
visions of paragraphs (e)(3)(i) through
(e)(3)(iv) of this section.
(ii)Time of notice.The notice must
be provided no later than June 1, 1997.
(iii)Form and content of notice.A
notice provided under this
paragraph(e)(3) must be in writing and
must include information substantially
similar to the information included in a
model notice authorized by HCFA. Cop-
ies of the model notice are available at
the following website — www.hcfa.gov
(or call (410)786–1565).
(iv)Providing certificate after re-
quest.If an individual requests a certifi-
cate following receipt of the notice, the
certificate must be provided at the time
of the request as set forth in
§ 146.115(a)(5)(iii).
(v)Other certification rules apply.
The rules set forth in § 146.115(a)(4)(i)
(method of delivery) and (a)(1) (entities
required to provide a certificate) apply
with respect to the provision of the
notice.
Subpart C—[RESERVED]
85

Subpart D—Preemption and Special
Rules
§ 146.143 Preemption; State flexibility;
construction.
(a)Continued applicability of State
law with respect to health insurance
issuers.Subject to paragraph (b) of this
section and except as provided in para-
graph (c) of this section, Part A of Title
XXVII of the PHS Act is not to be
construed to supersede any provision of
State law which establishes, implements,
or continues in effect any standard or
requirement solely relating to health
insurance issuers in connection with
group health insurance coverage except
to the extent that such standard or
requirement prevents the application of
a requirement of Part A of Title XXVII
of the PHS Act.
(b)Continued preemption with re-
spect to group health plans.Nothing in
Part A of Title XXVII of the PHS Act
affects or modifies the provisions of
section 514 of ERISA with respect to
group health plans.
(c)Special rules—(1)General.Sub-
ject to paragraph (c)(2) of this section,
the provisions of Part A of Title XXVII
of the PHS Act relating to health insur-
ance coverage offered by a health insur-
ance issuer supersede any provision of
State law which establishes, implements,
or continues in effect a standard or
requirement applicable to imposition of
a preexisting condition exclusion spe-
cifically governed by section 2701 of
the PHS Act, which differs from the
standards or requirements specified in
such section.
(2)Exceptions.Only in relation to
health insurance coverage offered by a
health insurance issuer, the provisions of
this part do not supersede any provision
of State law to the extent that such
provision—
(i) Shortens the period of time from
the ‘‘6-month period’’ described in sec-
tion 2701(a)(1) of the PHS Act and
§ 146.111(a)(1)(i) (for purposes of iden-
tifying a preexisting condition);
(ii) Shortens the period of time from
the ‘‘12 months’’ and ‘‘18 months’’
described in section 2701(a)(2)of the
PHS Act and § 146.111(a)(1)(ii) (for
purposes of applying a preexisting con-
dition exclusion period);
(iii) Provides for a greater number of
days than the ‘‘63-day period’’ described
in sections 2701(c)(2)(A) and (d)(4)(A)
of the PHS Act and §§ 146.111(a)-
(1)(iii) and 146.113 (for purposes of
applying the break in coverage rules);
(iv) Provides for a greater number of
days than the ‘‘30-day period’’ described
in sections 2701(b)(2) and (d)(1) of the
PHS Act and §§ 146.111(b) (for pur-
poses of the enrollment period and pre-
existing condition exclusion periods for
certain newborns and children that are
adopted or placed for adoption);
(v) Prohibits the imposition of any
preexisting condition exclusion in cases
not described in section 2701(d) of the
PHS Act or expands the exceptions
described in that section;
(vi) Requires special enrollment peri-
ods in addition to those required under
section 2701(f) of the PHS Act; or
(vii) Reduces the maximum period
permitted in an affiliation period under
section 701(g)(1)(B).
(d)Definitions—(1)State law.For
purposes of this section the term ‘‘State
law’’ includes all laws, decisions, rules,
regulations, or other State action having
the effect of law, of any State. A law of
the United States applicable only to the
District of Columbia is treated as a State
law rather than a law of the United
States.
(2)State.For purposes of this section
the term ‘‘State’’ includes a State, the
Northern Mariana Islands, any political
subdivisions of a State or such Islands,
or any agency or instrumentality of
either.
§ 146.145 Special rules relating to
group health plans.
(a)General exception for certain
small group health plans.The require-
ments of this Part do not apply to any
group health plan (and group health
insurance coverage offered in connec-
tion with a group health plan) for any
plan year if, on the first day of the plan
year, the plan has fewer than 2 partici-
pants who are current employees.
(b)Excepted benefits—(1)General.
The requirements of subpart B of this
part do not apply to any group health
plan (or any group health insurance
coverage offered in connection with a
group health plan) in relation to its
provision of the benefits described in
paragraph (b)(2), (3), (4), or (5) of this
section (or any combination of these
benefits).
(2)Benefits excepted in all circum-
stances.The following benefits are ex-
cepted in all circumstances:
(i) Coverage only for accident (in-
cluding accidental death and dismember-
ment).
(ii) Disability income insurance.
(iii) Liability insurance, including
general liability insurance and automo-
bile liability insurance.
(iv) Coverage issued as a supplement
to liability insurance.
(v) Workers’ compensation or similar
insurance.
(vi) Automobile medical payment in-
surance.
(vii) Credit-only insurance (for ex-
ample, mortgage insurance).
(viii) Coverage for on-site medical
clinics.
(3)Limited excepted benefits—(i)
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 the
plan, as defined in paragraph (b)(3)(ii)
of this section.
(ii)Integral.For purposes of para-
graph (b)(3)(i) of this section, benefits
are deemed to be an integral part of a
plan unless a participant has the right to
elect not to receive coverage for the
benefits and, if the participant elects to
receive coverage for the benefits, the
participant pays an additional premium
or contribution for that coverage.
(iii)Limited scope.Limited scope
dental or vision benefits are dental or
vision benefits that are sold under a
separate policy or rider and that are
limited in scope to a narrow range or
type of benefits that are generally ex-
cluded from hospital/medical/surgical
benefits packages.
(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 in-
surance 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 Inter-
nal Revenue Code; or
(C) Based on cognitive impairment or
a loss of functional capacity that is
expected to be chronic.
(4)Noncoordinated benefits—(i)Ex-
cepted benefits that are not coordinated.
Coverage for only a specified disease or
illness (for example, cancer-only poli-
cies) or hospital indemnity or other
fixed dollar indemnity insurance (for
example, $100/day) is excepted only if
86

it meets each of the conditions specified
in paragraph (b)(4)(ii) of this section.
(ii)Conditions.Benefits are described
in paragraph (b)(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 main-
tained by the same plan sponsor.
(5)Supplemental benefits.The fol-
lowing benefits are excepted only if
they are provided under a separate
policy, certificate, or contract of insur-
ance:
(i) Medicare supplemental health in-
surance (as defined under section
1882(g)(1) of the Social Security Act;
also known as Medigap or MedSupp
insurance),
(ii) Coverage supplemental to the
coverage provided under Chapter 55,
Title 10 of the United States Code (also
known as CHAMPUS supplemental pro-
grams), and
(iii) Similar supplemental coverage
provided to coverage under a group
health plan.
Subpart E—Provisions Applicable to
Only Health Insurance Issuers
§ 146.150 Guaranteed availability of
coverage for employers in the small
group market.
(a)Issuance of coverage in the small
group market.Subject to paragraphs (c)
through (f) of this section, each health
insurance issuer that offers health insur-
ance coverage in the small group market
in a State must—
(1) Offer, to any small employer in
the State, all products that are approved
for sale in the small group market and
that the issuer is actively marketing, and
must accept any employer that applies
for any of those products; and
(2) Accept for enrollment under the
coverage every eligible individual (as
defined in paragraph (b) of this section)
who applies for enrollment during the
period in which the individual first
becomes eligible to enroll under the
terms of the group health plan, or during
a special enrollment period, and may not
impose any restriction on an eligible
individual, which is inconsistent with
the nondiscrimination provisions of §
146.121 on an eligible individual being
a participant or beneficiary.
(b)Eligible individual defined.For
purposes of this section, the term ‘‘eli-
gible individual’’ means an individual
who is eligible—
(1) To enroll in group health insur-
ance coverage offered to a group health
plan maintained by a small employer, in
accordance with the terms of the group
health plan;
(2) For coverage under the rules of
the health insurance issuer which are
uniformly applicable in the State to
small employers in the small group
market, and
(3) For coverage in accordance with
all applicable State laws governing the
issuer and the small group market.
(c)Special rules for network plans.
(1) In the case of a health insurance
issuer that offers health insurance cover-
age in the small group market through a
network plan, the issuer may—
(i) Limit the employers that may ap-
ply for the coverage to those with
eligible individuals who live, work, or
reside in the service area for the net-
work plan; and
(ii) Within the service area of the
plan, deny coverage to employers if the
issuer has demonstrated to the appli-
cable State authority (if required by the
State authority) that—
(A) It will not have the capacity to
deliver services adequately to enrollees
of any additional groups because of its
obligations to existing group contract
holders and enrollees; and
(B) It is applying this paragraph
(c)(1) uniformly to all employers with-
out regard to the claims experience of
those employers and their employees
(and their dependents) or any health
status-related factor relating to those
employees and dependents.
(2) An issuer that denies health insur-
ance coverage to an employer in any
service area in accordance with para-
graph (c)(1)(ii) of this section, may not
offer coverage in the small group mar-
ket within the service area to any em-
ployer for a period of 180 days after the
date the coverage is denied. This para-
graph (c)(2) does not limit the issuer’s
ability to renew coverage already in
force or relieve the issuer of the respon-
sibility to renew that coverage.
(3) Coverage offered within a service
area after the 180-day period specified
in paragraph (c)(2) of this section is
subject to the requirements of this sec-
tion.
(d)Application of financial capacity
limits.
(1) A health insurance issuer may
deny health insurance coverage in the
small group market if the issuer has
demonstrated to the applicable State
authority (if required by the State au-
thority) that it—
(i) Does not have the financial re-
serves necessary to underwrite addi-
tional coverage; and
(ii) Is applying this paragraph (d)(1)
uniformly to all employers in the small
group market in the State consistent
with applicable State law and without
regard to the claims experience of those
employers and their employees (and
their dependents) or any health status-
related factor relating to those employ-
ees and dependents.
(2) An issuer that denies group health
insurance coverage to any small em-
ployer in a State in accordance with
paragraph (d)(1) of this section may not
offer coverage in connection with group
health plans in the small group market
in the State for a period of 180 days
after the later of the date—
(i) The coverage is denied; or
(ii) The issuer demonstrates to the
applicable State authority, if required
under applicable State law, that the
issuer has sufficient financial reserves to
underwrite additional coverage.
(3) Paragraph (d)(2) of this section
does not limit the issuer’s ability to
renew coverage already in force or
relieve the issuer of the responsibility to
renew that coverage.
(4) Coverage offered after the 180-
day period specified in paragraph (d)(2)
of this section, is subject to the require-
ments of this section.
(5) An applicable State authority may
provide for the application of this para-
graph (d) of this section on a service-
area-specific basis.
(e)Exception to requirement for fail-
ure to meet certain minimum participa-
tion or contribution rules.
(1) Paragraph (a) of this section does
not preclude a health insurance issuer
from establishing employer contribution
rules or group participation rules for the
offering of health insurance coverage in
connection with a group health plan in
the small group market, as allowed
under applicable State law.
(2) For purposes of paragraph (e)(1)
of this section—
87

(i) The term ‘‘employer contribution
rule’’ means a requirement relating to
the minimum level or amount of em-
ployer contribution toward the premium
for enrollment of participants and ben-
eficiaries; and
(ii) The term ‘‘group participation
rule’’ means a requirement relating to
the minimum number of participants or
beneficiaries that must be enrolled in
relation to a specified percentage or
number of eligible individuals or em-
ployees of an employer.
(f)Exception for coverage offered
only to bona fide association members.
Paragraph (a) of this section does not
apply to health insurance coverage of-
fered by a health insurance issuer if that
coverage is made available in the small
group market only through one or more
bona fide associations (as defined in 45
CFR 144.103).
§ 146.152 Guaranteed renewability of
coverage for employers in the group
market.
(a)General rule.Subject to para-
graphs (b) through (d) of this section, a
health insurance issuer offering health
insurance coverage in the small or large
group market is required to renew or
continue in force the coverage at the
option of the plan sponsor.
(b)Exceptions.
An issuer may nonrenew or discon-
tinue group health insurance coverage
offered in the small or large group
market based only on one or more of
the following:
(1)Nonpayment of premiums.The
plan sponsor has failed to pay premiums
or contributions in accordance with the
terms of the health insurance coverage,
including any timeliness requirements.
(2)Fraud.The plan sponsor has per-
formed an act or practice that constitutes
fraud or made an intentional misrepre-
sentation of material fact in connection
with the coverage.
(3)Violation of participation or con-
tribution rules.The plan sponsor has
failed to comply with a material plan
provision relating to any employer con-
tribution or group participation rules
permitted under § 146.150(e) in the
case of the small group market or under
applicable State law in the case of the
large group market.
(4)Termination of plan.The issuer is
ceasing to offer coverage in the market
in accordance with paragraphs (c) and
(d) of this section and applicable State
law.
(5)Enrollees’ movement outside ser-
vice area.For network plans, there is no
longer any enrollee under the group
health plan who lives, resides, or works
in the service area of the issuer (or in
the area for which the issuer is autho-
rized to do business); and in the case of
the small group market, the issuer ap-
plies the same criteria it would apply in
denying enrollment in the plan under
§ 146.150(c).
(6)Association membership ceases.
For coverage made available in the
small or large group market only
through one or more bona fide associa-
tions, if the employer’s membership in
the association ceases, but only if the
coverage is terminated uniformly with-
out regard to any health status-related
factor relating to any covered individual.
(c)Discontinuing a particular prod-
uct.In any case in which an issuer
decides to discontinue offering a par-
ticular product offered in the small or
large group market, that product may be
discontinued by the issuer in accordance
with applicable State law in the particu-
lar market only if—
(1) The issuer provides notice in
writing to each plan sponsor provided
that particular product in that market
(and to all participants and beneficiaries
covered under such coverage) of the
discontinuation at least 90 days before
the date the coverage will be discontin-
ued;
(2) The issuer offers to each plan
sponsor provided that particular product
the option, on a guaranteed issue basis,
to purchase all (or, in the case of the
large group market, any) other health
insurance coverage currently being of-
fered by the issuer to a group health
plan in that market; and
(3) In exercising the option to discon-
tinue that product and in offering the
option of coverage under paragraph
(c)(2) of this section, the issuer acts
uniformly without regard to the claims
experience of those sponsors or any
health status-related factor relating to
any participants or beneficiaries covered
or new participants or beneficiaries who
may become eligible for such coverage.
(d)Discontinuing all coverage.An
issuer may elect to discontinue offering
all health insurance coverage in the
small or large group market or both
markets in a State in accordance with
applicable State law only if—
(1) The issuer provides notice in
writing to the applicable State authority
and to each plan sponsor (and all par-
ticipants and beneficiaries covered under
the coverage) of the discontinuation at
least 180 days prior to the date the
coverage will be discontinued; and
(2) All health insurance policies is-
sued or delivered for issuance in the
State in the market (or markets) are
discontinued and not renewed.
(e)Prohibition on market reentry.An
issuer who elects to discontinue offering
all health insurance coverage in a mar-
ket (or markets) in a State as described
in paragraph (d) of this section may not
issue coverage in the market (or mar-
kets) and State involved during the
5-year period beginning on the date of
discontinuation of the last coverage not
renewed.
(f)Exception for uniform modifica-
tion of coverage.Only at the time of
coverage renewal may issuers modify
the health insurance coverage for a
product offered to a group health plan in
the—
(1) Large group market; and
(2) Small group market if, for cover-
age available in this market (other than
only through one or more bona fide
associations), the modification is consis-
tent with State law and is effective
uniformly among group health plans
with that product.
(g)Application to coverage offered
only through associations.In the case of
health insurance coverage that is made
available by a health insurance issuer in
the small or large group market to
employers only through one or more
associations, the reference to ‘‘plan
sponsor’’ is deemed, with respect to
coverage provided to an employer mem-
ber of the association, to include a
reference to such employer.
§ 146.160 Disclosure of information.
(a)General rule.In connection with
the offering of any health insurance
coverage to a small employer, a health
insurance issuer is required to—
(1) Make a reasonable disclosure to
the employer, as part of its solicitation
and sales materials, of the availability of
information described in paragraph (b)
of this section; and
(2) Upon request of the employer,
provide that information to the em-
ployer.
(b) Information described. Subject to
paragraph (d) of this section, informa-
tion that must be provided under para-
graph (a)(2) of this section is informa-
tion concerning the following:
(1) Provisions of coverage relating to
the following:
88

(i) The issuer’s right to change pre-
mium rates and the factors that may
affect changes in premium rates.
(ii) Renewability of coverage.
(iii) Any preexisting condition exclu-
sion, including use of the alternative
method of counting creditable coverage.
(iv) Any affiliation periods applied
by HMOs.
(v) The geographic areas served by
HMOs.
(2) The benefits and premiums avail-
able under all health insurance coverage
for which the employer is qualified,
under applicable State law. See
§ 146.150(b) through (f) for allowable
limitations on product availability.
(c)Form of information.The infor-
mation must be described in language
that is understandable by the average
small employer, with a level of detail
that is sufficient to reasonably inform
small employers of their rights and
obligations under the health insurance
coverage. This requirement is satisfied if
the issuer provides each of the following
with respect to each product offered:
(1) An outline of coverage. For pur-
poses of this section, outline of coverage
means a description of benefits in sum-
mary form.
(2) The rate or rating schedule that
applies to the product (with and without
the preexisting condition exclusion or
affiliation period).
(3) The minimum employer contribu-
tion and group participation rules that
apply to any particular type of coverage.
(4) In the case of a network plan, a
map or listing of counties served.
(5) Any other information required
by the State.
(d)Exception.An issuer is not re-
quired to disclose any information that
is proprietary and trade secret informa-
tion under applicable law.
Subpart F—Exclusion of Plans and
Enforcement
§ 146.180 Treatment of non-Federal
governmental plans.
The plan sponsor of a non-Federal
governmental plan may elect to be ex-
empted from any or all of the require-
ments identified in paragraph (a) of this
section with respect to any portion of its
plan that is not provided through health
insurance coverage, if the election com-
plies with the requirements of para-
graphs (b) and (c) of this section. The
election remains in effect for the period
described in paragraph (d) of this sec-
tion.
(a)Exemption from requirements.The
election described in this paragraph (a)
exempts a non-Federal governmental
plan from the following requirements:
(1) Limitations on preexisting condi-
tion exclusion periods (§ 146.111).
(2) Special enrollment periods for in-
dividuals (and dependents) losing other
coverage (§ 146.117).
(3) Prohibitions against discriminat-
ing against individual participants and
beneficiaries based on health status
(§ 146.121).
(4) Standards relating to benefits for
mothers and newborns (section 2704 of
the PHS Act).
(5) Parity in the application of certain
limits to mental health benefits (section
2705 of the PHS Act).
(b)Form and manner of election—
(1) The election must be in writing.
(2) The election document must in-
clude as an attachment a copy of the
notice described in paragraphs (f) and
(g) of this section.
(3) The election document must state
the name of the plan and the name and
address of the plan administrator.
(4) The election document must ei-
ther state that the plan does not include
health insurance coverage, or identify
which portion of the plan is not funded
through insurance.
(5) The election must be made in
conformity with all the plan sponsor’s
rules, including any public hearing, if
required, and the election document
must certify that the person signing the
election document, including if appli-
cable a third party plan administrator, is
legally authorized to do so by the plan
sponsor.
(6) The election document must be
signed by the person described in para-
graph (b)(5) of this section.
(c)Timing of election—(1) For plans
not subject to collective bargaining
agreements, the election must be re-
ceived by HCFA by the day preceding
the beginning date of the plan year.
(2) For plans provided under a col-
lective bargaining agreement, the elec-
tion must be received by HCFA no later
than 30 days after—
(i) The date of the agreement be-
tween the governmental entity and union
officials; or
(ii) If applicable, ratification of the
agreement.
(3) HCFA may extend the deadlines
specified under paragraphs (c)(1) and
(c)(2) of this section for good cause.
(4) If the plan sponsor fails to file a
timely election in accordance with para-
graphs (c)(1) through (c)(3) of this sec-
tion, the plan is subject to the require-
ments described in paragraph (a) for the
entire plan year, or, in the case of a plan
provided under a collective bargaining
agreement, for the term of the agree-
ment.
(d)Period of election.An election
under paragraph (a) of this section ap-
plies—
(1) For a single specified plan year;
or
(2) In the case of a plan provided
under a collective bargaining agreement,
for the term of the agreement. (For
purposes of this section, if a collective
bargaining agreement expires during the
bargaining process for a new agreement,
and the parties agree that the prior
bargaining agreement continues in effect
until the new agreement takes effect, the
‘‘term of the agreement’’ is deemed to
continue until the new agreement takes
effect.)
(e)Subsequent elections.An election
under this section may be extended
through subsequent elections.
(f)Notice to participants—(1) A plan
that makes the election described in this
section notifies the participant of the
election, and explains the consequences
of the election. This notice must be
provided—
(i) To each participant at the time of
enrollment under the plan; and
(ii) To all participants on an annual
basis.
(2) The notice shall be in writing,
and must include the information speci-
fied in paragraph (g) of this section.
(3) The notice shall be provided to
each participant individually.
(4) Subject to paragraph (g) of this
section, the requirements of paragraphs
(f)(1) through (f)(3) of this section are
considered to have been met if the
notice is prominently printed in the
summary plan document, or equivalent
document, and each participant receives
a copy of that document at the time of
enrollment and annually thereafter.
(g)Notice content.The notice must
contain at least the following informa-
tion:
(1) A statement that, in general, Fed-
eral law imposes upon group health
plans the requirements described in
paragraph (a) of this section (which
must be individually described in the
notice).
(2) A statement that Federal law
gives the plan sponsor of a non-Federal
governmental plan the right to exempt
the plan in whole or in part from the
89

requirements described in paragraph (a)
of this section, and that the plan sponsor
has elected to do so.
(3) A statement identifying which
parts of the plan are subject to the
election, and each of the requirements of
paragraph (a) of this section from which
the plan sponsor has elected to be
exempted.
(4) If the plan chooses to provide any
of the protections of paragraph (a) of
this section voluntarily, or is required to
under State law, a statement identifying
which protections apply.
(h)Certification and disclosure of
creditable coverage.Notwithstanding an
election under this section, a non-
Federal governmental plan must provide
for certification and disclosure of credit-
able coverage under the plan with re-
spect to participants and their depen-
dents in accordance with § 146.115.
(i)Effect of failure to comply with
election requirements—(1) Subject to
paragraph (i)(2) of this section, a plan’s
failure to comply with the requirements
of paragraphs (f) through (h) of this
section invalidates an election made un-
der this section.
(2) Upon a finding by HCFA that a
non-Federal governmental plan has
failed to comply with the requirements
of paragraphs (f) through (h), and has
failed to correct the noncompliance
within 30 days (as provided in
§ 146.184(d)(7)(iii)(B)), HCFA notifies
the plan that its election has been invali-
dated and that it is subject to the
requirements of this part.
(3) A non-Federal governmental plan
described in paragraph (i)(2) of this
section that fails to comply with the
requirements of this part is subject to
Federal enforcement by HCFA under
§ 146.184, including appropriate civil
money penalties.
§ 146.184 Enforcement.
(a) Enforcement with respect to group
health plans—(1) Scope. In general, the
requirements of the Health Insurance
Portability and Accountability Act that
apply to group health plans are con-
tained in Part 7 of Subtitle B of Title I
of ERISA, and in Subtitle K of the
Internal Revenue Code. They are en-
forced by the Secretary of Labor under
Part 5 of Subtitle B of Title I of ERISA,
and the Secretary of the Treasury under
26 U.S.C. 4980D. However, the provi-
sions that apply to group health plans
that are non-Federal governmental plans
are contained in Title XXVII of the PHS
Act, and enforced by HCFA. The provi-
sions of Title XXVII that apply to
health insurance issuers that offer cover-
age in connection with any group health
plan are enforced in the first instance by
the States. If HCFA determines under
paragraph (b) of this section that a State
is not substantially enforcing the provi-
sions, HCFA enforces them under para-
graph (d) of this section.
(2)Non-Federal governmental plans.
Requirements of this part that apply to
group health plans that are non-Federal
governmental plans (sponsored by a
State or local governmental entity) are
enforced by HCFA, as provided in para-
graph (d) of this section.
(b)Enforcement with respect to
health insurance issuers—(1)General
rule—enforcement by State.Except as
provided in paragraph (b)(2) of this
section, each State enforces the require-
ments of this part with respect to health
insurance issuers that issue, sell, renew
or offer health insurance coverage in the
small or large group markets in the
State.
(2)Enforcement by HCFA.HCFA en-
forces the provisions of this part with
respect to health insurance issuers, using
the procedures described in paragraph
(d) of this section, only in the following
circumstances:
(i)State election.If the State chooses
not to enforce the Federal requirements.
(ii)State failure to enforce.If HCFA
makes a determination under paragraph
(c) of this section that a State has failed
to substantially enforce one or more
provisions of this part.
(c)Determination by Administrator.If
HCFA receives information, through a
complaint or any other means, that
raises a question whether a State is
substantially enforcing one or more pro-
visions of this part, HCFA follows the
procedures set forth in this section.
(1)Verification of exhaustion.HCFA
makes a threshold determination of
whether the individuals affected by the
alleged failure to enforce have made a
reasonable effort to exhaust any State
remedies. This may involve informal
contact with State officials about the
questions raised.
(2)Notice to the State.If HCFA is
satisfied that there is a reasonable ques-
tion whether there has been a failure to
substantially enforce, HCFA provides
notice as specified in paragraph (c)(3) of
this section, to the following State offi-
cials:
(i) The Governor or chief executive
officer of the State.
(ii) The insurance commissioner or
chief insurance regulatory official.
(iii) The official responsible for regu-
lating HMOs, if different than paragraph
(c)(2)(ii) of this section, but only if the
alleged failure involves HMOs.
(3)Form and content of notice.The
notice described in paragraph (c)(2) is in
writing, and does the following:
(i) Identifies the provision or provi-
sions of the statute and regulations that
have allegedly been violated;
(ii) Describes the facts of the specific
violations.
(iii) Explains that the consequence of
a failure to substantially enforce any
provision(s) is that HCFA enforces the
provision(s) in accordance with para-
graph (d) of this section.
(iv) Advises the State that it has 45
days to respond to the notice, unless the
time is extended as described in para-
graph (c)(3) of this section, and that the
response should include any information
that the State wishes HCFA to consider
in making the preliminary determination
described in paragraph (c)(5) of this
section.
(4)Good cause.The time for re-
sponding can be extended for good
cause. Examples of good cause include
an agreement between HCFA and the
State that there should be a public
hearing on the State’s enforcement, or
evidence that the State is undertaking
expedited enforcement activities.
(5)Preliminary determination.If at
the end of the 45-day period, and any
extension, the State has not established
to HCFA’s satisfaction that it is substan-
tially enforcing the provision or provi-
sions described in the notice, HCFA
takes the following actions:
(i) Consults with the officials de-
scribed in paragraph (c)(1) of this sec-
tion.
(ii) Notifies the State of HCFA’s pre-
liminary determination that the State has
failed to enforce the provisions, and that
the failure is continuing.
(iii) Permits the State a reasonable
opportunity to show evidence of sub-
stantial enforcement.
(6)Final determination.If, after pro-
viding notice and the opportunity to
enforce under paragraph (c)(5) of this
section, HCFA finds that the failure to
enforce has not been corrected, HCFA
sends the State a written notice of that
final determination. The notice—
(i) Identifies the provisions with re-
spect to which HCFA is taking over
enforcement;
90

(ii) States the effective date of
HCFA’s enforcement;
(iii) Informs the State of the mecha-
nism for establishing in the future that it
has corrected the failure, and has begun
enforcement. This mechanism will in-
clude transition procedures for ending
HCFA’s enforcement.
(d)Civil money penalties—(1)Gen-
eral rule.If any health insurance issuer
that is subject to HCFA’s enforcement
authority under paragraph (b)(2) of this
section, or any non-Federal governmen-
tal plan (or employer that sponsors a
non-Federal governmental plan) that is
subject to HCFA’s enforcement authority
under paragraph (a)(2) of this section,
fails to comply with any applicable
requirement of this part, it may be
subject to a civil money penalty as
described in this paragraph (d).
(2)Complaint.Any person who is
entitled to any right under this part, and
who believes that the right is being
denied as a result of any failure de-
scribed in paragraph (d)(1) of this sec-
tion, may file a complaint with HCFA.
Based on the complaint, HCFA identi-
fies which entities are potentially re-
sponsible for the violation, in accor-
dance with paragraph (d)(3) of this
section.
(3)Determination of responsible en-
tity.If a failure to comply is established
under this section, the responsible entity,
as determined under this paragraph, is
liable for the penalty. If the violation is
due to a failure by—
(i) A health insurance issuer, the is-
suer is the responsible entity;
(ii) A group health plan that is a
non-Federal governmental plan spon-
sored by a single employer, the em-
ployer is the responsible entity;
(iii) A group health plan that is a
non-Federal governmental plan spon-
sored by two or more employers, the
plan is the responsible entity.
(4)Notice to responsible entities.
HCFA provides notice to the appropriate
entity or entities identified under para-
graph (d)(3) of this section that a com-
plaint or other information has been
received alleging a violation of this part.
The notice—
(i) Describes the substance of any
complaint or other allegation;
(ii) Provides 30 days for the respon-
sible entity or entities to respond with
additional information. This can in-
clude—
(A) Information refuting that there
has been a violation;
(B) Evidence that the entity did not
know, and exercising due diligence
could not have known, of the violation;
(C) Evidence of a previous record of
compliance.
(5)Notice to other regulators.HCFA
notifies the State if the alleged violation
involves a health insurance issuer under
its jurisdiction.
(6)Notice of assessment.If, based on
the information provided in the com-
plaint, as well as any information sub-
mitted by the entity or any other parties,
HCFA proposes to assess a civil money
penalty, HCFA sends written notice of
assessment to the responsible entity or
entities by certified mail, return receipt
requested. The notice contains the fol-
lowing information:
(i) A reference to the provision that
was violated.
(ii) The name or names of the indi-
viduals with respect to whom a violation
occurred, with relevant identification
numbers.
(iii) The facts that support the finding
of a violation, and the initial date of the
violation.
(iv) The amount of the proposed pen-
alty as of the date of the notice.
(v) The basis for calculating the pen-
alty, including consideration of prior
compliance.
(vi) Instructions for responding to the
notice, including—
(A) A specific statement of the re-
spondent’s right to a hearing; and
(B) A statement that failure to request
a hearing within 30 days permits the
imposition of the proposed penalty,
without right of appeal.
(7)Amount of penalty—(i)Maximum
daily penalty.The penalty cannot exceed
$100 for each day, for each responsible
entity, for each individual with respect
to whom such a failure occurs.
(ii)Standard for calculating daily
penalty.In calculating the amount of the
penalty HCFA takes into account the
responsible entity’s previous record of
compliance and the gravity of the viola-
tion.
(iii)Limitations on penalties.No civil
money penalty is imposed:
(A) With respect to a period during
which a failure existed, but none of the
responsible entities knew, or exercising
reasonable diligence would have known,
that the failure existed.
(B) With respect to the period occur-
ring immediately after the period de-
scribed in paragraph(d)(7)(iii)(A) of this
section, if the failure—
(1) Was due to reasonable cause and
was not due to willful neglect; and
(2) Was corrected within 30 days of
the first day that any of the entities
against whom the penalty would be
imposed knew, or exercising reasonable
diligence would have known, that the
failure existed.
(C) The burden is on the responsible
entity or entities to establish to the
satisfaction of HCFA that none of the
entities knew, or exercising reasonable
diligence could have known that the
failure existed.
(8)Hearings—(i)Right to a hearing.
Any entity against which a penalty is
assessed may request a hearing by
HCFA. The request must be in writing,
and must be postmarked within 30 days
after the date the notice of assessment is
issued.
(ii)Failure to request a hearing.If
no hearing is requested under this para-
graph, the notice of assessment consti-
tutes a final order that is not subject to
appeal.
(iii)Parties to the hearing.Parties to
the hearing include any responsible enti-
ties, as well as the party who filed the
complaint. An informational notice is
also sent to the State, or to the Secretar-
ies of Labor and the Treasury, as appro-
priate.
(iv)Initial agency decision.The ini-
tial agency decision is made by an
administrative law judge. The decision
is made on the record according to
Section 554 of Title 5, United States
Code. The decision becomes a final,
appealable, order after 30 days, unless it
is modified in accordance with para-
graph (d)(8)(v) of this section.
(v)Review by HCFA.HCFA may
modify or vacate the initial agency
decision. Notice of intent to modify or
vacate the decision is issued to the
parties within 30 days after the date of
the decision of the administrative law
judge.
(9)Judicial review—(i)Filing of ac-
tion for review.Any entity against
whom a final order imposing a civil
money penalty is entered in accordance
with paragraph (d)(8) of this section
may obtain review in the United States
District Court for any district in which
the entity is located or the United States
District Court for the District of Colum-
bia by—
(A) Filing a notice of appeal in that
court within 30 days from the date of a
final order; and
91

(B) Simultaneously sending a copy of
the notice of appeal by registered mail
to HCFA.
(ii)Certification of administrative
record.HCFA will promptly certify and
file with the court the record upon
which the penalty was imposed.
(iii)Standard of review.The findings
of HCFA may not be set aside unless
they are found to be unsupported by
substantial evidence, as provided by
Section 706(2)(E) of Title 5, United
States Code.
(iv)Appeal.Any final decision, order
or judgment of the district court con-
cerning the Administrator’s review is
subject to appeal as provided in Chapter
83 of Title 28, United States Code.
(10)Failure to pay assessment, main-
tenance of action—(i)Failure to pay
assessment.If any entity fails to pay an
assessment after it becomes a final order
under paragraphs (d)(7)(i)(A) or
(d)(7)(iii) of this section, or after the
court has entered final judgment in
favor of HCFA, HCFA refers the matter
to the Attorney General, who brings an
action in the appropriate United States
district court to recover the amount
assessed.
(ii)Final order not subject to review.
In an action brought under paragraph
(d)(10)(i) of this section, the validity
and appropriateness of the final order
described in paragraphs (d)(7)(i)(A) or
(d)(7)(iii) of this section is not subject
to review.
(11)Use of penalty funds—(i) Any
funds collected under this section will
be paid to HCFA or other office impos-
ing the penalty.
(ii) The funds will be available with-
out appropriation and until expended.
(iii) The funds may only be used for
the purpose of enforcing the provisions
with respect to which the penalty was
imposed.
PARTS 147—199 [RESERVED]
Authority: Secs. 2701 through 2723,
2791, and 2792 of the PHS Act, 42
U.S.C. 300gg–41 through 300gg–63,
300gg–91, and 300gg–92.
Bruce C. Vladek,
Administrator, Health
Care Financing Administration.
Dated March 25, 1997.
Donna E. Shalala,
Secretary.
(Filed by the Office of the Federal Register on
April 1, 1997, 12:42 p.m., and published in the
issue of the Federal Register for April 8, 1997, 62
F.R. 16894)
92

Part IV. Items of General Interest
Notice of Proposed Rulemaking
Health Insurance Portability for
Group Health Plans
REG–253578–96
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary
regulations.
SUMMARY: In T.D. 8716, page 5, the
IRS is issuing temporary regulations
relating to group health plan portability,
access, and renewability requirements
added to the Internal Revenue Code by
section 401 of the Health Insurance
Portability and Accountability Act of
1996 (HIPAA). The IRS is issuing the
temporary regulations at the same time
that the Pension and Welfare Benefits
Administration of the U.S. Department
of Labor and the Health Care Financing
Administration of the U.S. Department
of Health and Human Services are issu-
ing substantially similar interim final
regulations relating to the group health
plan portability, access, and renewability
requirements added by HIPAA to the
Employee Retirement Income Security
Act of 1974 and the Public Health
Service Act. The temporary regulations
provide guidance to employers and
group health plans relating to the obliga-
tion of plans to comply with new re-
quirements relating to preexisting condi-
tion exclusions, discrimination based on
health status, access to coverage, and
other requirements. The text of those
temporary regulations also serves as the
text of these proposed regulations.
DATES: Written comments and requests
for a public hearing must be received by
July 8, 1997.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–253578–96),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered to: CC:DOM:CORP:R
(REG–253578–96), room 5226, Internal
Revenue Service, 1111 Constitution Av-
enue, NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by select-
ing the ‘‘Tax Regs’’ option on the IRS
Home Page, or by submitting comments
directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
RUSS WEINHEIMER, (202) 622–4695;
concerning submissions or to request a
hearing, CHRISTINA D. VASQUEZ,
202–622–7180. These are not toll-free
numbers.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information refer-
enced in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the Paper-
work Reduction Act of 1995 (44 U.S.C.
3507(d)).
An agency may not conduct or spon-
sor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the Office of Management
and Budget.
The collection of information is in
§§ 54.9801–3T, 54.9801–4T, 54.9801–
5T, 54.9801–6T, and 54.9806–1T (see
the temporary regulations published in
T.D. 8716). This information is required
by the statute so that participants will be
informed about their rights under
HIPAA and about the amount of credit-
able coverage that they have accrued
under a group health plan. The likely
respondents are business or other for-
profit institutions, nonprofit institutions,
small businesses or organizations, and
Taft-Hartley trusts. Responses to this
collection of information are mandatory.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
Comments on the collection of infor-
mation should be sent to theOffice of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to theInternal Revenue
Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224.
Comments on the collection of informa-
tion should be received by June 8, 1997.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have prac-
tical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information (see the preamble to T.D.
8716);
How to enhance the quality, utility,
and clarity of the information to be
collected;
How to minimize the burden of com-
plying with the proposed collection of
information, including the application of
automated collection techniques or other
forms of information technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
Background
T.D. 8716 adds §§ 54.9801–1T
through 54.9801–6T, 54.9802–1T,
54.9804–1T, and 54.9806–1T to the
Miscellaneous Excise Tax Regulations.
These regulations are being published as
part of a joint rulemaking with the
Department of Labor and the Depart-
ment of Health and Human Services
(the joint rulemaking).
The text of T.D. 8716 also serves as
the text of these proposed regulations.
The preamble to the temporary regula-
tions explains the temporary regulations.
Special Analyses
Pursuant to sections 603(a) and
605(b) of the Regulatory Flexibility Act,
it is hereby certified that the collection
of information referenced in this notice
of proposed rulemaking (see
§§ 54.9801–3T, 54.9801–4T, 54.9801–
5T, 54.9801–6T and 54.9806–1T of T.D.
8716) will not have a significant eco-
nomic impact on a substantial number
of small entities. Although a substantial
number of small entities will be subject
to the collection of information require-
ments in these regulations, the require-
ments will not have a significant eco-
nomic impact on these entities. The
average time required to complete a
certification required under these regula-
tions is estimated to be 5 to 12 minutes
for all employers. This average is based
on the assumption that most employers
will automate the certification process.
The paperwork requirements other than
certifications that are contained in the
regulations are estimated to impose less
931997–19 I.R.B.

than 10% of the burden imposed by the
certifications. Many small employers
that maintain group health plans have
their plans administered by an insurance
company or third party administrators
(TPAs). Most insurers and TPAs are
expected to automate the certification
process and therefore their average time
to produce a certificate should be simi-
lar to the 5 to 12 minute average
estimated for all employers. However,
even for small employers that do not
automate the certification process, the
collection of information requirements
in the regulation will not have a signifi-
cant impact. Even if it is conservatively
assumed that their average time to pro-
duce a certificate is 3 times as long as
the highest estimate for all employers
(i.e., 36 minutes per certificate) and that
all of their employees are covered by
their group health plan and that half of
the employees receive a certificate each
year, and this figure is then increased by
10% to account for the paperwork bur-
dens apart from the certifications, the
average burden per employee is only 20
minutes per year. Thus, for example, for
an employer with 10 employees, the
annual burden would be 3 hours and 20
minutes per year. At an estimated cost
of $11 per hour, this would result in a
cost of less than $37 per year for the
employer, which is not a significant
economic impact.
This regulation is not subject to the
Unfunded Mandates Reform Act of
1995 because the regulation is an inter-
pretive regulation. For further informa-
tion and for analyses relating to the joint
rulemaking, see the preamble to the
joint rulemaking. 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 Admin-
istration for comment on its impact on
small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested
in writing by a person that timely
submits written comments. If a public
hearing is scheduled, notice of the date,
time, and place for the hearing will be
published in theFederal Register.
Drafting Information
The principal author of these pro-
posed regulations is Russ Weinheimer,
Office of the Chief Counsel, Employee
Benefits and Exempt Organizations.
However, other personnel from the IRS
and Treasury Department participated in
their development. The proposed regula-
tions, as well as the temporary regula-
tions, have been developed in coordina-
tion with personnel from the U.S.
Department of Labor and U.S. Depart-
ment of Health and Human Services.
* * * * *
Proposed Amendments to the Regula-
tions
Accordingly, 26 CFR part 54 is pro-
posed to be amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation
for part 54 is amended by adding entries
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9801–1 is also issued un-
der 26 U.S.C. 9806.
Section 54.9801–2 is also issued un-
der 26 U.S.C. 9806.
Section 54.9801–3 is also issued un-
der 26 U.S.C. 9806.
Section 54.9801–4 is also issued un-
der 26 U.S.C. 9806.
Section 54.9801–5 is also issued un-
der 26 U.S.C. 9801(c)(4), 9801(e)(3),
and 9806.
Section 54.9801–6 is also issued un-
der 26 U.S.C. 9806.
Section 54.9802–1 is also issued un-
der 26 U.S.C. 9806.
Section 54.9804–1 is also issued un-
der 26 U.S.C. 9806.
Section 54.9806–1 is also issued un-
der 26 U.S.C. 9806. * * *
Par. 2. Sections 54.9801–1,
54.9801–2, 54.9801–3, 54.9801– 4,
54.9801–5, 54.9801–6, 54.9802–1,
54.9804–1, and 54.9806–1 are added to
read as follows:
[The text of these proposed sections
is the same as the text of §§ 54.9801–
1T, 54.9801–2T, 54.9801–3T, 54.9801–
4T, 54.9801–5T, 54.9801–6T, 54.9802–
1T, 54.9804–1T, and 54.9806–1T
published in T.D. 8716.]
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
April 1, 1997, 12:48 p.m., and published in the
issue of the Federal Register for April 8, 1997, 62
F.R. 16977)
Availability of Publication 968, Tax
Benefits for Adoption
Announcement 97–47
New Publication 968 will be available
in May, 1997. The publication explains
the new tax credit for expenses con-
nected with the adoption of a child. The
credit can be as much as $5,000 ($6,000
for a child with special needs). The
publication also covers the exclusion
from income for employer-provided
adoption benefits. The exclusion can be
as much as $5,000 ($6,000 for a child
with special needs). Taxpayers may be
able to claim both the credit and the
exclusion if the total amount of adoption
expenses are more than the amount
provided by the employer.
Adoption tax benefits are effective for
tax years beginning in 1997. New Form
8839 is being developed for taxpayers to
figure the credit and exclusion. The
form will be available in January, 1998
for taxpayers to file with their 1997 tax
return.
You can get a copy of this publication
by calling 1–800–829–3676. Or you can
write to the IRS Forms Distribution
Center nearest you. Check your income
tax package for the address. Local adop-
tion agencies also may have a copy. The
publication is also available on the IRS
Internet Web Site at www.irs.ustreas.
gov.
941997–19 I.R.B.

Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice Before the
Internal Revenue Service
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Inter-
nal Revenue Service any practitioner
who, within five years, from the date
the expedited proceeding is instituted,
(1) has had a license to practice as an
attorney, certified public accountant, or
actuary suspended or revoked for cause;
or (2) has been convicted of any crime
under title 26 of the United States Code
or, of a felony under title 18 of the
United States Code involving dishonesty
or breach of trust.
Attorneys, certified public accoun-
tants, enrolled agents and enrolled actu-
aries are prohibited in any Internal Rev-
enue Service matter from directly or
indirectly employing, accepting assis-
tance from, being employed by, or shar-
ing fees with, any practitioner disbarred
or suspended from practice before the
Internal Revenue Service.
To enable attorneys, certified public
accountants, enrolled agents, and en-
rolled actuaries to identify practitioners
under expedited suspension from prac-
tice before the Internal Revenue Service,
the Director of Practice will announce in
the Internal Revenue Bulletin the names
and addresses of practitioners who have
been suspended from such practice, their
designation as attorney, certified public
accountant, enrolled agent, or enrolled
actuary, and date or period of suspen-
sion. This announcement will appear in
the weekly Bulletin at the earliest practi-
cable date after such action and will
continue to appear in the weekly Bulle-
tins for five successive weeks or for as
many weeks as is practicable for each
attorney, certified public accountant, en-
rolled agent, or enrolled actuary so
suspended and will be consolidated and
published in the Cumulative Bulletin.
The following individuals have been
placed under suspension from practice
before the Internal Revenue Service by
virtue of the expedited proceeding pro-
visions of the applicable regulations:
NameAddressDesignationDate of Suspension
Loberg, ThomasSt. Paul, MNCPAIndefinite from November 13, 1996
Rose Ann GalatiThousand Oaks, CACPAIndefinite from November 25, 1996
Labendeira, AnthonyFresno, CACPAIndefinite from November 25, 1996
Nation, D. MarkAlbuquerque, NMCPAIndefinite from November 25, 1996
Behren, Daryl D.Visalia, CACPAIndefinite from November 25, 1996
Murphy, Virginia T.Laurinburg, NCCPAIndefinite from November 25, 1996
Best III, James M.Monroe, NCCPAIndefinite from November 25, 1996
Rehm, AyshaTulsa, OKCPAIndefinite from November 25, 1996
Dineen, Lee M.Castle Hayne, NCCPAIndefinite from December 12, 1996
Miele, Ralph J.North Babylon, NYCPAIndefinite from February 14, 1997
95

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as ‘‘rulings’’)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplifieddescribes a situation where
no change is being made in a prior
published position, but the prior position
is being extended to apply to a variation
of the fact situation set forth therein.
Thus, if an earlier ruling held that a
principle applied to A, and the new
ruling holds that the same principle also
applies to B, the earlier ruling is ampli-
fied. (Compare withmodified, below).
Clarifiedis used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an es-
sential difference between them.
Modifiedis used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered de-
terminative with respect to future trans-
actions. This term is most commonly
used in a ruling that lists previously
published rulings that are obsoleted be-
cause of changes in law or regulations.
A ruling may also be obsoleted because
the substance has been included in regu-
lations subsequently adopted.
Revokeddescribes situations where
the position in the previously published
ruling is not correct and the correct
position is being stated in the new
ruling.
Supersededdescribes a situation
where the new ruling does nothing more
than restate the substance and situation
of a previously published ruling (or
rulings). Thus, the term is used to
republish under the 1986 Code and
regulations the same position published
under the 1939 Code and regulations.
The term is also used when it is desired
to republish in a single ruling a series of
situations, names, etc., that were previ-
ously published over a period of time in
separate rulings. If the new ruling does
more than restate the substance of a
prior ruling, a combination of terms is
used. For example,modifiedandsuper-
sededdescribes a situation where the
substance of a previously published rul-
ing is being changed in part and is
continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is su-
perseded.
Supplementedis used in situations in
which a list, such as a list of the names
of countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be
published that includes the list in the
original ruling and the additions, and
supersedes all prior rulings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and
formerly used will appear in material published in
the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
96

Numerical Finding List
1
Bulletin 1997–1 through 1997–18
Announcements:
97–1, 1997–2 I.R.B.63
97–2, 1997–2 I.R.B.63
97–3, 1997–2 I.R.B.63
97–4, 1997–3 I.R.B.14
97–5, 1997–3 I.R.B.15
97–6, 1997–4 I.R.B.11
97–7, 1997–4 I.R.B.12
97–8, 1997–4 I.R.B.12
97–9, 1997–5 I.R.B.27
97–10, 1997–10 I.R.B.64
97–11, 1997–6 I.R.B.19
97–12, 1997–7 I.R.B.55
97–13, 1997–8 I.R.B.38
97–14, 1997–8 I.R.B.38
97–15, 1997–9 I.R.B.23
97–16, 1997–9 I.R.B.23
97–17, 1997–9 I.R.B.23
97–18, 1997–10 I.R.B.67
97–19, 1997–10 I.R.B.68
97–20, 1997–11 I.R.B.22
97–21, 1997–11 I.R.B.23
97–22, 1997–12 I.R.B.47
97–23, 1997–11 I.R.B.23
97–24, 1997–11 I.R.B.24
97–25, 1997–12 I.R.B.47
97–26, 1997–12 I.R.B.48
97–27, 1997–13 I.R.B.30
97–28, 1997–14 I.R.B.15
97–29, 1997–14 I.R.B.16
97–30, 1997–14 I.R.B.16
97–31, 1997–14 I.R.B.16
97–32, 1997–14 I.R.B.17
97–33, 1997–15 I.R.B.8
97–34, 1997–15 I.R.B.8
97–35, 1997–15 I.R.B.9
97–36, 1997–15 I.R.B.10
97–37, 1997–15 I.R.B.10
97–38, 1997–15 I.R.B.10
97–39, 1997–16 I.R.B.27
97–40, 1997–16 I.R.B.28
97–41, 1997–16 I.R.B.28
97–42, 1997–17 I.R.B.19
97–43, 1997–17 I.R.B.19
97–44, 1997–17 I.R.B.19
97–45, 1997–17 I.R.B.20
97–46, 1997–18 I.R.B.53
Notices:
97–1, 1997–2 I.R.B.22
97–2, 1997–2 I.R.B.22
97–3, 1997–1 I.R.B.8
97–4, 1997–2 I.R.B.24
97–5, 1997–2 I.R.B.25
97–6, 1997–2 I.R.B.26
97–7, 1997–1 I.R.B.8
97–8, 1997–4 I.R.B.7
97–9, 1997–2 I.R.B.35
97–10, 1997–2 I.R.B.41
97–11, 1997–2 I.R.B.50
97–12, 1997–3 I.R.B.11
97–13, 1997–6 I.R.B.13
97–14, 1997–8 I.R.B.23
97–15, 1997–8 I.R.B.23
97–16, 1997–9 I.R.B.15
97–17, 1997–10 I.R.B.34
Notices—Continued
97–18, 1997–10 I.R.B.35
97–19, 1997–10 I.R.B.40
97–20, 1997–10 I.R.B.52
97–21, 1997–11 I.R.B.9
97–22, 1997–13 I.R.B.9
97–23, 1997–14 I.R.B.8
97–24, 1997–16 I.R.B.6
97–25, 1997–16 I.R.B.8
97–26, 1997–17 I.R.B.6
97–27, 1997–17 I.R.B.7
97–28, 1997–18 I.R.B.45
Proposed Regulations:
REG–209332–80, 1997–14 I.R.B.9
REG–209040–88, 1997–7 I.R.B.34
REG–209121–89, 1997–11 I.R.B.15
REG–208288–90, 1997–11 I.R.B.14
REG–209494–90, 1997–8 I.R.B.24
REG–208172–91, 1997–10 I.R.B.59
REG–209672–93, 1997–6 I.R.B.15
REG–209709–94 1997–13 I.R.B.12
REG–209729–94, 1997–11 I.R.B.19
REG–209762–95, 1997–3 I.R.B.12
REG–209785–95, 1997–18 I.R.B.46
REG–209817–96, 1997–7 I.R.B.41
REG–209824–96, 1997–11 I.R.B.19
REG–254394–96, 1997–14 I.R.B.14
REG–209823–96, 1997–18 I.R.B.47
REG–209828–96, 1997–6 I.R.B.15
REG–209830–96, 1997–15 I.R.B.7
REG–209834–96, 1997–4 I.R.B.9
REG–209839–96, 1997–8 I.R.B.26
REG–242996–96, 1997–9 I.R.B.18
REG–246018–96, 1997–8 I.R.B.30
REG–247678–96, 1997–6 I.R.B.17
REG–247862–96, 1997–8 I.R.B.32
REG–248770–96, 1997–8 I.R.B.33
REG–249819–96, 1997–7 I.R.B.50
REG–252231–96, 1997–7 I.R.B.52
REG–252233–96, 1997–9 I.R.B.19
REG–252665–96, 1997–12 I.R.B.46
Public Law:
105–2, 1997–18 I.R.B.14
Revenue Procedures:
97–1, 1997–1 I.R.B.11
97–2, 1997–1 I.R.B.64
97–3, 1997–1 I.R.B.84
97–4, 1997–1 I.R.B.96
97–5, 1997–1 I.R.B.132
97–6, 1997–1 I.R.B.153
97–7, 1997–1 I.R.B.185
97–8, 1997–1 I.R.B.187
97–9, 1997–2 I.R.B.56
97–10, 1997–2 I.R.B.59
97–11, 1997–6 I.R.B.13
97–12, 1997–4 I.R.B.7
97–13, 1997–5 I.R.B.18
97–14, 1997–5 I.R.B.20
97–15, 1997–5 I.R.B.21
97–16, 1997–5 I.R.B.25
97–17, 1997–9 I.R.B.15
97–18, 1997–10 I.R.B.53
97–19, 1997–10 I.R.B.55
97–20, 1997–11 I.R.B.10
97–21, 1997–12 I.R.B.44
97–22, 1997–13 I.R.B.9
97–23, 1997–17 I.R.B.7
Revenue Procedures—Continued
97–24, 1997–16 I.R.B.10
97–25, 1997–17 I.R.B.8
97–26, 1997–17 I.R.B.17
Revenue Rulings:
97–1, 1997–2 I.R.B.10
97–2, 1997–2 I.R.B.7
97–3, 1997–2 I.R.B.5
97–4, 1997–3 I.R.B.6
97–5, 1997–4 I.R.B.5
97–6, 1997–4 I.R.B.4
97–7, 1997–5 I.R.B.14
97–8, 1997–7 I.R.B.4
97–9, 1997–9 I.R.B.4
97–10, 1997–10 I.R.B.31
97–11, 1997–10 I.R.B.5
97–12, 1997–11 I.R.B.5
97–13, 1997–16 I.R.B.4
97–14, 1997–11 I.R.B.5
97–15, 1997–12 I.R.B.42
97–16, 1997–13 I.R.B.4
97–17, 1997–14 I.R.B.5
97–18, 1997–15 I.R.B.4
97–19, 1997–18 I.R.B.11
97–21, 1997–18 I.R.B.8
Social Security Domestic Coverage Threshold
1997–9, I.R.B.17
Tax Conventions:
1997–17 I.R.B.5
Treasury Decisions:
8688, 1997–3 I.R.B.7
8689, 1997–3 I.R.B.9
8690, 1997–5 I.R.B.5
8691, 1997–5 I.R.B.16
8692, 1997–3 I.R.B.4
8693, 1997–6 I.R.B.9
8694, 1997–6 I.R.B.11
8695, 1997–4 I.R.B.5
8696, 1997–6 I.R.B.4
8697, 1997–2 I.R.B.11
8698, 1997–7 I.R.B.29
8699, 1997–6 I.R.B.4
8700, 1997–7 I.R.B.5
8701, 1997–7 I.R.B.23
8702, 1997–8 I.R.B.4
8703, 1997–8 I.R.B.18
8704, 1997–8 I.R.B.12
8705, 1997–8 I.R.B.16
8706, 1997–9 I.R.B.11
8707, 1997–7 I.R.B.17
8708, 1997–10 I.R.B.14
8709, 1997–9 I.R.B.5
8710, 1997–13 I.R.B.4
8711, 1997–12 I.R.B.35
8712, 1997–12 I.R.B.4
8713, 1997–14 I.R.B.4
8714, 1997–15 I.R.B.5
8715, 1997–18 I.R.B.5
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1996–27
through 1996–53 will be found in Internal
Revenue Bulletin 1997–1, dated January 6, 1997.
97

Finding List of Current Action on
Previously Published Items
1
Bulletin 1997–1 through 1997–18
*Denotes entry since last publication
Revenue Procedures:
66–3
Modified by
97–11, 1997–6 I.R.B.13
87–21
Modified by
97–11, 1997–6 I.R.B.13
92–20
Modified by
97–1, 1997–1 I.R.B.11
92–20
Modified by
97–10, 1997–2 I.R.B.59
92–90
Superseded by
97–1, 1997–1 I.R.B.11
94–52
Revoked by
97–11, 1997–6 I.R.B.13
96–1
Superseded by
97–1, 1997–1 I.R.B.11
96–2
Superseded by
97–2, 1997–1 I.R.B.64
96–3
Superseded by
97–3, 1997–1 I.R.B.84
96–4
Superseded by
97–4, 1997–1 I.R.B.96
96–5
Superseded by
97–5, 1997–1 I.R.B.132
96–6
Superseded by
97–6, 1997–1 I.R.B.153
96–7
Superseded by
97–7, 1997–1 I.R.B.185
96–8
Superseded by
97–8, 1997–1 I.R.B.187
96–24
96–24A
Superseded by
97–24, 1997–16 I.R.B.10
96–37
Obsoleted by
97–26, 1997–17 I.R.B.17
97–2
Amplified by
97–21, 1997–12 I.R.B.44
Revenue Procedures—Continued
97–3
Amplified by
97–23, 1997–17 I.R.B.7
Revenue Rulings:
70–480
Revoked by
97–6, 1997–4 I.R.B.4
72–527
Obsoleted by
8704, 1997–8 I.R.B.12
74–59
Revoked by
8708, 1997–10 I.R.B.14
92–19
Supplemented in part by
97–2, 1997–2 I.R.B.7
96–12
Superseded by
97–3, 1997–1 I.R.B.84
96–13
Modified by
97–1, 1997–1 I.R.B.11
96–22
Superseded by
97–3, 1997–1 I.R.B.84
96–34
Superseded by
97–3, 1997–1 I.R.B.84
96–39
Superseded by
97–3, 1997–1 I.R.B.84
96–43
Superseded by
97–3, 1997–1 I.R.B.84
96–56
Superseded by
97–3, 1997–1 I.R.B.84
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1996–27 through 1996–53 will be found in Inter-
nal Revenue Bulletin 1997–1, dated January 6,
1997.
98