The Health Insurance Portability and Accountability Act (HIPAA), enacted in August of 1996, amends the Employee Retirement Income Security Act (administered by PWBA), the Internal Revenue Code (administered by the Department of the Treasury), and the Public Health Service Act (administered by the Department of Health and Human Services). Under the HIPAA nondiscrimination provisions, individuals may not be denied eligibility or continued eligibility to enroll for benefits under the terms of a group health plan based on any health factors. In addition, an individual may not be charged more for coverage than other similarly situated individuals are being charged based on any health factor.
The three departments jointly issued initial interim final regulations in April of 1997 which addressed some frequently asked questions and solicited comments on other issues. Subsequently, in January of 2001, the departments jointly issued two separate regulations. These regulations are discussed in detail below.
I understand that I cannot be denied eligibility for benefits or charged a higher premium based on a health factor. What are the health factors?
The health factors are: health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability.
The term “evidence of insurability” includes conditions arising out of acts of domestic violence, as well as participation in activities such as motorcycling, snowmobiling, all- terrain vehicle riding, horseback riding, skiing, and other similar activities.
Prohibited Discrimination in Rules for Eligibility
Can a group health plan or group health insurance issuer require me to pass a physical examination in order for me to be eligible to enroll in the plan?
No. A group health plan or group health insurance issuer may not require you to pass a physical examination for enrollment. Even if you are a late enrollee, you may not be required to pass a physical examination in order to be eligible for coverage.
My group health plan requires me to complete a detailed health history questionnaire and subtracts “Health Points” for prior or current health conditions. In order to enroll in the plan, an individual must score 70 out of 100 total points. I scored only 50 points and was denied eligibility in the plan. Is this permissible?
No. The HIPAA nondiscrimination provisions do not automatically prohibit health care questionnaires. It depends on how the information that is obtained is used. In this case, the plan requires individuals to score a certain number of “Health Points” that are related to prior or current medical conditions in order to enroll in the plan, which is impermissible discrimination in rules for eligibility based on a health factor.
I am an avid skier. Can I be excluded from enrolling in my employer’s health plan because I ski?
No. Participation in activities such as skiing is evidence of insurability, a health factor. Therefore, you may not be denied eligibility to enroll in your employer’s plan because you ski.
Application to Benefits
My group health plan excludes coverage for preexisting health conditions, which existed prior to enrolling in the plan. Is this permissible?
HIPAA sets forth specific limitations on a plan’s use of preexisting condition exclusions. If a plan complies with these limitations and applies the preexisting condition exclusion uniformly to all similarly situated individuals and does not direct the exclusion at individual participants and beneficiaries, the plan is considered to be in compliance with the nondiscrimination provisions. (For a question and answer discussing standards for defining similarly situated individuals, see below under the heading “Similarly Situated Individuals.”)
For questions and answers that explain HIPAA’s limits on preexisting condition exclusions, see pages 3-12 of the U.S. Department of Labor, Pension and Welfare Benefits Administration’s publication “Questions and Answers: Recent Changes in Health Care Law.”
My group health plan imposes a twelve month preexisting condition exclusion period but, after the first six months, the exclusion period is waived for individuals who have not had any claims since enrollment. Is this permissible?
No. A group health plan may impose a preexisting condition exclusion period, but the exclusion must be applied uniformly to all similarly situated individuals. Here, the plan’s provisions do not apply uniformly because individuals who have medical claims for the first six months following enrollment are not treated the same as similarly situated individuals with no claims during that period. Therefore, the plan provision violates the HIPAA nondiscrimination provisions.
My group health plan excludes coverage for benefits for a health condition that I have (without regard to whether it was preexisting in nature). Is my plan violating HIPAA’s nondiscrimination provisions by imposing this exclusion?
Group health plans may exclude coverage for a specific disease, 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 medically necessary, if the benefit restriction is applied uniformly to all similarly situated individuals and is not directed at any individual participants or beneficiaries based on a health factor. (Plan amendments applicable to all individuals in a group of similarly situated individuals and made effective no earlier than the first day of the next plan year after the amendment is adopted are not considered to be directed at individual participants and beneficiaries.)
Therefore, as long as your plan’s condition-specific benefit exclusion is applied uniformly to all similarly situated individuals, and is not directed at individual participants or beneficiaries based on a health factor, the benefit exclusion is permissible under the HIPAA nondiscrimination provisions.
My health plan has a $500,000 lifetime limit on all benefits covered under the plan. In addition, the plan has a $2,000 lifetime limit on all benefits provided for one of my health conditions. Are these limits permissible?
A group health plan may apply lifetime limits generally or with respect to benefits for a specific disease or treatment, provided the limits are applied uniformly to all similarly situated individuals and are not directed at individual participants or beneficiaries based on a health factor.
Therefore, both the $500,000 lifetime limit and the $2,000 condition-specific lifetime limit are permissible if applied uniformly to all similarly situated individuals and not directed at any individual participants or beneficiaries based on a health factor.
Can my health plan or issuer deny benefits for an injury based on the source of that injury?
If the injury results from a medical condition or an act of domestic violence, the health plan or issuer may not deny benefits for the injury, if it is an injury the plan would otherwise cover.
For example, a plan may not exclude coverage for self-inflicted injuries (or injuries resulting from attempted suicide) with respect to an individual if the injuries are otherwise covered by the plan and if the individual’s injuries are the result of a medical condition, such as depression.
However, a plan or issuer may exclude coverage for injuries that do not result from a medical condition or domestic violence, such as injuries sustained in high risk activities, such as bungee jumping. (Nonetheless, as discussed above under the heading “Prohibited Discrimination in Rules for Eligibility,” the plan could not exclude an individual from enrollment for coverage because the individual participated in bungee jumping.)
Prohibited Discrimination in Premiums
I have a history of high claims. Can I be charged more than similarly situated individuals based on my claims experience?
No. Group health plans and group health insurance issuers cannot charge an individual more for coverage than a similarly situated individual based on any health factor.
Is it permissible for a health insurance issuer to charge a higher premium to one group health plan that covers individuals some of whom have adverse health factors than it charges another group health plan comprised of fewer individuals with adverse health factors?
Yes. HIPAA does not restrict a health insurance issuer from charging a higher rate to one group health plan (or employer) over another. An issuer may take health factors of individuals into account when establishing blended, aggregate rates for group health plans (or employers). This may result in one health plan (or employer) being charged a higher premium than another for the same coverage through the same issuer.
I am an employer. My health insurance issuer charges me a different premium for each individual within a group of similarly situated individuals based on each individual’s health status. Is this permissible?
No. Issuers may not charge or quote an employer (or group health plan) separate rates for individuals based on health factors. This does not prevent issuers from taking the health factors of all individuals into account in establishing a blended, aggregate rate for providing coverage to the employment-based group overall. The issuer may then charge the employer (or plan) a higher overall rate, or a higher, blended per-participant rate. This prohibition against “list-billing” based on health factors does not, however, restrict communications between issuers and employers (or plans) regarding rate calculations.
Similarly Situated Individuals
Do the new rules provide guidance on defining groups of similarly situated individuals?
Yes. The new rules provide that distinctions among groups of similarly situated individuals may not be based on a health factor. Instead, if distinguishing among participants, plans and issuers must base distinctions on bona-fide employment based classifications consistent with the employer’s usual business practice.
For example, part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service could be treated as distinct groups of similarly situated individuals, provided the distinction is consistent with the employer’s usual business practice. In addition, a plan or issuer generally may treat participants and beneficiaries as two separate groups of similarly situated individuals. The plan may also distinguish between beneficiaries based, for example, on their relationship to the participant (such as spouse or dependent child), or based on the age or student status of dependent children.
Nonetheless, in any case, the creation or modification of a classification cannot be directed at individual participants or beneficiaries based on one or more of their health factors.
Bona Fide Wellness Programs
What guidance is provided with respect to wellness programs?
In January 2001, proposed regulations were issued with respect to bona fide wellness programs and comments were invited. Until further guidance is issued, the Departments will not take any enforcement action against a plan or issuer that complies with a good faith interpretation of the statutory provisions relating to wellness program provisions. Of course, compliance with the proposed regulations constitutes good faith compliance with the statutory wellness programs provisions.
I am an employer that provides voluntary testing to group health plan enrollees to help detect early health problems. Under the program, no reward is given based on the outcome of the assessment. How do the bona fide wellness program provisions relate to my wellness program?
The requirements for bona fide wellness programs apply only to a wellness program that provides a reward based on the ability of an individual to meet a standard that is related to a health factor, such as a reward conditioned on the outcome of a cholesterol test. Therefore, because your wellness program does not base any reward on the outcome of the testing, it is not subject to the requirements for bona fide wellness programs.
I am an employer that offers a premium differential between smokers and nonsmokers. That is, smokers pay more for coverage than nonsmokers. How do the bona fide wellness program provisions relate to my plan?
The plan is offering a reward based on an individual’s ability to stop smoking. Medical evidence seems to suggest that smoking may be related to a health factor. (Under the Diagnostic and Statistical Manual of Mental Disorders, nicotine addiction is a medical condition, and a report of the Surgeon General stated that scientists in the field of drug addiction agree that nicotine, a substance common to all forms of tobacco, is a powerfully addictive drug.) Therefore, for the plan to maintain the premium differential and not be considered to discriminate based on a health factor, such a program would be required to meet the requirements for a bona fide wellness program.
Under the proposed rules, there are four requirements to be a bona fide wellness program:
Accordingly, under the proposed rules, the wellness program would be a bona fide wellness program if the premium differential is not more than 10-20 percent of the total cost of employee-only coverage; the program accommodates individuals for whom it is unreasonably difficult to quit using tobacco products due to addiction by providing a reasonable alternative standard (such as a discount in return for attending educational classes or for trying a nicotine patch); and plan materials that describe the premium differential describe the availability of a reasonable alternative standard to qualify for the lower premium.
Nonconfinement and Actively-at-Work Provisions
My group health plan has a nonconfinement provision which states that if an individual is confined to a hospital at the time enrollment eligibility begins, such eligibility is postponed until that individual is no longer confined. Is this permissible?
No. A group health plan may not restrict an individual’s eligibility, benefits, or the effective date of coverage based on the individual’s confinement in a hospital or other health care facility. Additionally, a health plan may not set an individual’s premium rate based on the individual’s confinement.
My group health plan has a 90-day waiting period for enrollment. Under the terms of the plan, if an individual is actively at work on the 91st day, health coverage becomes effective on that day. If an individual is not actively at work on the 91st day, the effective date of coverage is delayed until the first day the individual is actively at work. I missed work on the 91st day due to illness. Can I be excluded from coverage under the plan’s actively-at-work provision?
No. A group health plan or issuer generally may not refuse to provide benefits because an individual is not actively at work on the day the individual would otherwise become eligible for benefits. However, these actively-at-work clauses are permitted if the plan treats individuals who are absent from work due to a health factor (for example, individuals taking sick leave) as if they are actively at work for purposes of health coverage.
Nonetheless, a plan may require an individual to begin work before coverage may become effective. Additionally, plans may distinguish among groups of similarly situated individuals (for example, a plan may require an individual to work full time, such as 250 hours per quarter or 30 hours per week) in their eligibility provisions.
More Favorable Treatment of Individuals with Adverse Health Factors Permitted
I am an employer. Under the health plan I provide to my employees, dependents are generally eligible for coverage only until age 25. This age restriction does not, however, apply to disabled dependents who may continue health coverage past age 25. Is this plan provisions favoring disabled dependents permissible?
Yes. It is permissible for a plan or issuer to treat an individual with an adverse health factor more favorably by offering extended coverage.
When do these requirements become effective?
HIPAA’s statutory provisions and the Department’s April 1997 regulations, including the nondiscrimination provisions, generally were effective on the first day of the first plan year beginning on or after July 1, 1997. In January 2001, the Departments published more comprehensive guidance on the nondiscrimination provisions. Portions of this guidance that repeat the old regulations remain effective. Portions of the regulations that provide new guidance are generally effective on the first day of the first plan year beginning on or after July 1, 2001. If you have questions as to which provisions are effective when, there is a helpful chart in the preamble to the Departments’ January 2001 regulations. You also can call the PWBA office nearest you for more information.
Note: Compliance with the HIPAA nondiscrimination provisions is not in any way determinative of compliance with any other provision of ERISA (including COBRA and ERISA’s fiduciary provisions). Nor is it determinative of compliance with other State or federal laws (such as the Americans with Disabilities Act).