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LEGAL REPORT
Winter 2007
This is one of a continuing series of updates on recent developments in the law affecting employee benefit plans.
The Health Insurance Portability and Accountability Act (HIPAA), Public Law 104-191, was enacted on August 21, 1996. HIPAA amended the Internal Revenue Code of 1986 (Code), the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act (PHS Act), to provide for, among other things, improved portability and continuity of health coverage. HIPAA also added Section 9802 of the Code, Section 702 of ERISA, and Section 2702 of the PHS Act, which
| HIPAA also has provisions governing portability in general, privacy and data transmission. These regulations do not cover those matters. |
prohibit discrimination in health coverage based on a health factor. On January 8, 2001, the Department of Labor, Department of the Treasury, and the Department of Health and Human Services (collectively the Agencies) issued extensive and comprehensive interim and proposed regulations that, if adopted, would clarify the nondiscrimination provisions under HIPAA. The interim and proposed regulations are published in the Federal Register (66 FR 1378 and 66 FR 1421). Since 2001, the Agencies have held a series of public hearings on their proposals, and solicited written comments. On December 13, 2006, the Agencies adopted final regulations. The stated goal of these regulations–in accordance with the expressed intent of Congress–is to provide increased access to affordable group health plan coverage for individuals whose health factors had previously restricted their participation in such plans.
The new regulations are generally modeled on the proposals issued in 2001; however, they have a few significant differences. Most notably, the requirements for a nondiscriminatory “wellness program” are more fully developed. (See, paragraph 9.) Additionally, although the final regulations retain the provisions of the 2001 interim rules regarding “source-of-injury” exclusions, the final regulations add an important clarification. (See, paragraph 6.)
The following is a summary of the final regulations.
1. Discrimination Based on Health Factors
Although group health plans are not required to provide benefits to any particular group of individuals, if health coverage is provided, benefits must be uniformly available to all similarly situated individuals. Thus, restrictions on coverage and benefits must apply uniformly to all similarly situated individuals and cannot be directed at specific participants or beneficiaries based on any “health factor” of the participants or beneficiaries. For example, a plan may limit or exclude benefits in relation to a specific disease or condition, limit or exclude benefits for certain types of treatments or drugs, or limit or exclude benefits based on a determination of whether the benefits are experimental or not medically necessary, but only if the benefit limitation or exclusion applies uniformly to all similarly situated individuals and is not directed at individual participants or beneficiaries based on any health factor of the participants or beneficiaries. The regulations do not, on the other hand, prevent plans from treating individuals with adverse health factors more favorably than those without.
2. Prohibited Discrimination in Premiums or Contributions
The final regulations prohibit discrimination concerning premiums or contributions. A 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 required from a similarly situated individual based on any health factor that relates to the individual or a dependent of the individual.
This rule does not, however, bar plans or insurers from basing premiums on a group rating of similarly situated individuals. For example, an employer sponsors a group health plan and buys coverage from a health insurance carrier. Among the individuals covered by the plan is individual A, who has had unusually high claims experience. In order to determine the premium for the upcoming year, the insurer reviews the claims experience of the individuals covered under the plan, including A. Based upon the group’s overall claims experience, the insurer quotes the plan a higher blended rate than it would have had A not been part of the group. This is acceptable under the regulations because the plan is being quoted a blended higher rate for all similarly situated individuals, and A is not being singled out.
The regulations define the phrase “health factor” to include health status, medical condition, claims experience, receipt of health care, medical history, genetic information and disability, as well as “evidence of insurability.” Evidence of insurability, in turn, includes whether an individual participates in dangerous activities, such as motorcycling, snowboarding, all-terrain vehicle riding, horseback riding, skiing, and similar activities. Thus, plans may not bar coverage to individuals, or even charge them higher premiums, solely because they have expensive-to-treat diseases or engage in dangerous activities.
4. Similarly Situated Individuals
The regulations explain who are “similarly situated individuals” who must be treated the same. Individuals grouped in the same classification must generally be treated in the same manner. Distinct classifications of individuals may, however, be treated differently. For instance, a university-sponsored health plan is permitted to treat faculty differently from other staff because there is a bona fide employment-based distinction.
5. Preexisting Conditions
The regulations permit exclusions based on preexisting conditions, provided that the exclusion applies uniformly to all similarly situated individuals and is not directed at individual participants or beneficiaries based on any health factor of the participants or beneficiaries. As stated above, however (see, paragraph 10), these rules do not reflect the portability requirements of HIPAA, including those that specifically govern preexisting condition exclusions. Under those rules, plans may not exclude coverage for preexisting conditions for a period exceeding one year (18 months for a late enrollee), with that maximum period reduced by any period of “creditable coverage.” (See, April 1997 Legal Report; see also, paragraph 10.)
6. Source-of-Injury Exclusions
Some plans exclude coverage for injuries resulting from specific causes or activities, which are known as “source-of-injury exclusions.” These regulations generally do not prohibit source-of-injury exclusions. Thus, although the regulations prohibit the denial of coverage to otherwise similarly situated individuals who engage in dangerous activities (such as skydiving and motorcycling–see, paragraph 3), a plan may nevertheless deny benefits for injuries resulting from such activities. Thus, the general rule has two important exceptions. First, a plan may not exclude coverage for injuries resulting from acts of domestic violence. Second, a plan may not exclude coverage for injuries that result from a medical condition. For example, a plan is barred from excluding coverage for injuries incurred during a suicide attempt where that attempt was the result of depression. In an important distinction from the 2001 interim regulations, the final regulations clarify that it is not necessary that the medical condition have been previously diagnosed.
7. Nonconfinement Provisions
The final regulations define nonconfinement clauses as provisions that deny benefits to an individual as the result of the individual’s confinement to a hospital or other health care institution at the time coverage would otherwise have become effective. The regulations generally prohibit nonconfinement clauses.
8. Actively-at-Work Rules and Employer Leave Policies
Actively-at-work provisions refer to plan rules that condition coverage on employees being actively at work on the effective date of the plan. Actively-at-work clauses are generally prohibited, unless individuals who are absent from work due to any health factor are treated, for purposes of health coverage, as if they are actively at work. A plan, however, may distinguish between groups of similarly situated individuals. For example, the regulations illustrate that a plan may condition coverage on an individual’s meeting the plan’s requirement of working full-time (such as a minimum of 250 hours in a three-month period or 30 hours per week).
Wellness programs generally include programs designed to promote health or prevent disease. Under the 2001 interim rules, the Agencies agreed not to enforce HIPAA standards against any wellness program that complied in “good faith” with the HIPAA nondiscrimination requirements. That period of non-enforcement ended with the publication of these final regulations.
Although HIPAA generally prohibits requiring similarly situated individuals to pay higher rates, deductibles or copayments, plans are permitted to establish wellness programs that provide premium discounts, rebates or other incentives in return for adherence to programs of health promotion and disease prevention. The following wellness programs are explicitly permitted without any additional conditions:
• A program that reimburses all or part of the cost for memberships in a fitness center.
• A diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes.
• A program that encourages preventative care through the waiver of the copayment or deductible requirement under a group health plan for the costs of, for example, prenatal care or well-baby visits.
• A program that reimburses employees for the costs of smoking cessation programs without regard to whether the employee quits smoking.
• A program that provides a reward to employees for attending a monthly health education seminar.
Furthermore, this list is not exclusive, but is intended to outline the range of programs that are permitted.
Wellness programs that condition rewards on the satisfaction of a standard related to a health factor must meet five (5) additional requirements:
a. Limit on Reward. The amount of the reward (e.g., any discount or rebate of a premium or contribution or a waiver of copayments ), added to the amount of any other rewards for other wellness programs under the plan requiring satisfaction of a health-related standard, must not exceed 20 percent of the cost of coverage.
b. Reasonably Designed. The program must be reasonably designed to promote health or prevent disease. A program meets this standard if it has a reasonable chance of improving the health of participants and it is not overly burdensome, is not a subterfuge for discriminating based on a health factor and is not highly suspect in the method chosen to promote health or prevent disease. This standard is deliberately broad in order to encourage innovation.
c. Eligible At Least Once Per Year. The program must give individuals eligible for the program the opportunity to qualify for the reward at least once per year.
d. Availability. The program must be reasonably available to all similarly situated individuals. In order to satisfy this standard, the plan must include a “reasonable alternative standard” applicable to individuals for whom, for medical reasons, it is unreasonable to expect them to meet the primary standard, or for whom meeting the primary standard would be medically inadvisable. It is important to note, however, that a program does not need to include the specific reasonable alternative standard before the program begins. Rather, it is enough that the program comes up with such an alternative standard after participants inform the plan of the medical problem that prevent them from satisfying the primary standard.
e. Disclosure. In communications that describe the program, the existence of a “reasonable alternative standard” for people unable to satisfy the primary standard must be disclosed. If, however, the communication does little more than disclose that there is a program without describing the primary standard, the existence of a reasonable alternative standard does not have to be described either.
The final regulations clarify the HIPAA rules prohibiting group health plans from discriminating against individual participants or beneficiaries based on “health factors.” They replace the interim regulations issued by the Agencies in 2001. These regulations do not cover any of the other matters governed by HIPAA, including privacy, data transmission standards and portability in general.
Furthermore, in applying the HIPAA nondiscrimination rules, plans must be careful not to run afoul of other laws. The regulations specifically state that compliance with them is not determinative of compliance with any other provision of ERISA or any State or other Federal law. For instance, if a plan were to exclude benefits for AIDS, such an exclusion would likely violate the Americans with Disabilities Act of 1990 (ADA), even though it would not violate these HIPAA non-discrimination regulations.
11. Effective Date
Many of the requirements of the 2001 interim regulations have previously been adopted as final or temporary regulations, and so are already effective. The remaining requirements become effective for plan years beginning on or after July 1, 2007.
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This Newsletter provides an update on current legal developments, and is not intended as legal advice. Copyright © 2006 Mooney, Green, Saindon, Murphy & Welch, P.C.