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Health Plans Under HIPAA

Summer 1998

Civil and criminal enforcement efforts to eliminate Medicare and other reimbursement fraud continue to capture the attention of health care providers and related businesses.

Publicity at the national level about the problems of Columbia HCA, ranging from indictments of individual executives to shareholder derivative lawsuits naming individual directors as defendants, as well as news locally of enforcement staff additions at the U.S. Attorney's office and the FBI in the Eastern District of Wisconsin, have contributed to the unsettled atmosphere among Wisconsin health care providers and businesses.

Limitation on Pre-existing Condition Exclusions
Under HIPAA, a group health plan or a health insurance issuer may impose a pre-existing condition exclusion only if:

- the exclusion relates to a condition for which medical advice, diagnosis, care, or treatment was actually recommended or received during the 6-month period immediately before the individual's enrollment date;
- the exclusion does not last for more than 12 months (18 months for "late enrollees") after the enrollment date; and
- the 12-month (or 18-month) exclusion period is reduced by the individual's prior "creditable coverage," excluding any coverage before any break in coverage of 63 days or more.

Some "pre-existing conditions," like pregnancy, cannot be excluded from coverage. Also, a pre-existing condition exclusion cannot be applied to a newborn baby, an adopted child under 18, or a child under 18 placed for adoption, as long as the child becomes covered within 30 days of birth, adoption, or placement for adoption, and provided the child does not subsequently incur a 63-day or longer break in coverage.

Determining the Length of an Employee's Pre-existing Condition Exclusion Period
A plan with a pre-existing condition exclusion feature can exclude coverage only for a condition that exists within the 6-month "look-back" period ending on an individual's "enrollment date," which is his first date of coverage or, if there is a waiting period, the first day of the waiting period (typically, the employee's date of hire).

The maximum length of a pre-existing condition exclusion period is 12 months after the enrollment date (18 months in the case of a "late enrollee"). A "late enrollee" is someone who enrolls in a plan other than on the earliest date he could have enrolled.

The plan must reduce an individual's 12- or 18-month exclusion period by the number of days of his creditable coverage, but it does not have to recognize coverage that existed before a break in coverage of 63 days or more (a "significant break in coverage").

Generally, an employee proves his prior creditable coverage with a certificate furnished by his prior plan. The certificate must be provided automatically to an individual when he loses plan coverage or becomes entitled to COBRA continuation coverage and again, when his COBRA continuation coverage ends. He may also receive a certificate, upon request, within 24 months of when his coverage ends. The U.S. Department of Labor (DOL) has issued a model certificate for these purposes.

Definition of "Creditable Coverage"
Most prior health coverage is creditable coverage, such as coverage under a group health plan (including COBRA continuation coverage), HMO, individual health insurance policy, Medicaid, or Medicare. However, creditable coverage does not include coverage of so-called "excepted benefits," such as dental or vision benefits.

Nondiscrimination Requirements
HIPAA also provides that individuals may not be excluded from plan coverage, or charged more for plan benefits, on account of certain "health status-related factors," i.e., the individual's health status, medical condition (physical or mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability.

However, plans may still establish limits or restrictions on benefits or coverage for similarly situated individuals, and they may change covered services or benefits if they give participants notice of such "material reductions" within 60 days after the change is adopted.

Special Enrollment
HIPAA also requires plans to give special enrollment rights to certain employees and dependents. These rights must be provided both to employees who declined to enroll in the plan when first offered because they were covered under another plan, and to individuals upon the marriage, birth, adoption, or placement for adoption of a new dependent. Individuals with special enrollment rights may enroll without having to wait until the plan's next regular enrollment period.

A plan must provide a written description of its special enrollment rights to anyone who declines coverage. The DOL has issued a model description for this purpose.

How HIPAA Affects COBRA Continuation Coverage
HIPAA also made two changes to the length of an individual's COBRA continuation coverage period.

First, qualified beneficiaries who are determined to be disabled under the Social Security Act within the first 60 days of COBRA continuation coverage can buy an additional 11 months of coverage beyond the usual 18-month period. The old rules required that a qualified beneficiary be determined to be disabled at the time of the COBRA qualifying event (for example, termination of employment). This extension of coverage is also available to nondisabled family members who are entitled to COBRA continuation coverage.

Second, HIPAA changed other COBRA rules to ensure that children who are born or adopted during the COBRA continuation coverage period are treated as "qualified beneficiaries." A model notice discussing these changes was issued by the DOL in 1996.

Disclosure Requirements
Under HIPAA rules, group health plans must revise their summary plan descriptions (SPDs) and summaries of material modifications (SMMs) to make sure they accomplish the following:

1. Notify participants and beneficiaries of "material reductions in covered services or benefits" (for example, reductions in benefits and increases in deductibles and co-payments) generally within 60 days of adoption of the change. This compares to current requirements under which other plan changes can be disclosed as late as 210 days after the end of the plan year in which a change was adopted.
2. Disclose to participants and beneficiaries information about the role of issuers (e.g., insurance companies and HMOs) with respect to their group health plan. In particular, they must identify the name and address of the issuer, whether and to what extent benefits under the plan are guaranteed under a contract or policy of insurance issued by the issuer, and the nature of any administrative services (e.g., payment of claims provided by the issuer).
3. Tell participants and beneficiaries which the DOL office they can contact for assistance or information on their rights under ERISA and HIPAA.
4. Tell participants and beneficiaries that federal law generally prohibits the plan and health insurance issuers from limiting hospital stays for childbirth to less than 48 hours for normal deliveries and 96 hours for cesarean sections.

Implementation Timetable
Group health plans must comply with all of HIPAA's requirements at the beginning of the first plan year starting after June 30, 1997. For calendar plan years, HIPAA became effective on January 1, 1998.

There is a delayed effective date for plans maintained pursuant to collective bargaining agreements that were ratified before August 21, 1996 (HIPAA's enactment date). HIPAA applies to these plans on the first day of the plan year beginning on or after the later of the date the last such collective bargaining agreement ends or July 1, 1997. These rules also apply to plans whose participants include both bargaining unit and non-bargaining unit employees, but only if a substantial percentage of the plan's participants are bargaining unit employees.

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