[Federal Register Volume 78, Number 55 (Thursday, March 21, 2013)]
[Proposed Rules]
[Pages 17313-17336]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06454]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-122706-12]
RIN 1545-BL50

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB56

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, and 147

[CMS-9952-P]
RIN 0938-AR77


Ninety-Day Waiting Period Limitation and Technical Amendments to 
Certain Health Coverage Requirements Under the Affordable Care Act

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Proposed rules.

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[[Page 17314]]

SUMMARY: These proposed rules implement the 90-day waiting period 
limitation under section 2708 of the Public Health Service Act, as 
added by the Patient Protection and Affordable Care Act (Affordable 
Care Act), as amended, and incorporated into the Employee Retirement 
Income Security Act of 1974 and the Internal Revenue Code. They also 
propose amendments to regulations to conform to Affordable Care Act 
provisions already in effect as well as those that will become 
effective beginning 2014. The proposed conforming amendments make 
changes to existing requirements such as preexisting condition 
limitations and other portability provisions added by the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA) and 
implementing regulations because they have become moot or need 
amendment due to new market reform protections under the Affordable 
Care Act.

DATES: Comments are due on or before May 20, 2013.

ADDRESSES: Written comments may be submitted to the Department of Labor 
as specified below. Any comment that is submitted will be shared with 
the other Departments and will also be made available to the public. 
Warning: Do not include any personally identifiable information (such 
as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines. No deletions, modifications, or redactions 
will be made to the comments received, as they are public records. 
Comments may be submitted anonymously.
    Comments, identified by ``Waiting Periods'', may be submitted by 
one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210, Attention: Waiting Periods.
    Comments received will be posted without change to 
www.regulations.gov and available for public inspection at the Public 
Disclosure Room, N-1513, Employee Benefits Security Administration, 200 
Constitution Avenue NW., Washington, DC 20210, including any personal 
information provided.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Elizabeth Schumacher, 
Employee Benefits Security Administration, Department of Labor, at 
(202) 693-8335; Karen Levin or Kathryn Johnson, Internal Revenue 
Service, Department of the Treasury, at (202) 927-9639; or Cam Moultrie 
Clemmons, Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, at (410) 786-1565. Customer service 
information: Individuals interested in obtaining information from the 
Department of Labor concerning employment-based health coverage laws 
may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or visit 
the Department of Labor's Web site (www.dol.gov/ebsa). In addition, 
information from HHS on private health insurance for consumers can be 
found on the Centers for Medicare & Medicaid Services (CMS) Web site 
(www.cciio.cms.gov/) and information on health reform can be found at 
www.HealthCare.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Patient Protection and Affordable Care Act, Public Law 111-148, 
was enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010. 
(They are collectively known as the ``Affordable Care Act''.) The 
Affordable Care Act reorganizes, amends, and adds to the provisions of 
part A of title XXVII of the Public Health Service Act (PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets. The term ``group health plan'' includes 
both insured and self-insured group health plans.\1\ The Affordable 
Care Act adds section 715(a)(1) to the Employee Retirement Income 
Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue 
Code (the Code) to incorporate the provisions of part A of title XXVII 
of the PHS Act into ERISA and the Code, and to make them applicable to 
group health plans and health insurance issuers providing health 
insurance coverage in connection with group health plans. The PHS Act 
sections incorporated by these references are sections 2701 through 
2728.
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    \1\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is 
distinct from the term ``health plan,'' as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' does 
not include self-insured group health plans.
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    PHS Act section 2708, as added by the Affordable Care Act and 
incorporated into ERISA and the Code, provides that a group health plan 
or health insurance issuer offering group health insurance coverage 
shall not apply any waiting period (as defined in PHS Act section 
2704(b)(4)) that exceeds 90 days. PHS Act section 2704(b)(4), ERISA 
section 701(b)(4), and Code section 9801(b)(4) define a waiting period 
to be the period that must pass with respect to an individual before 
the individual is eligible to be covered for benefits under the terms 
of the plan. In 2004 regulations implementing the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) portability 
provisions (2004 HIPAA regulations), the Departments of Labor, Health 
and Human Services, and the Treasury (the Departments) defined a 
waiting period to mean the period that must pass before coverage for an 
employee or dependent who is otherwise eligible to enroll under the 
terms of a group health plan can become effective.\2\ PHS Act section 
2708 applies to both grandfathered and non-grandfathered group health 
plans and group health insurance coverage for plan years beginning on 
or after January 1, 2014.
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    \2\ 26 CFR 54.9801-3(a)(3)(iii), 29 CFR 2590.701-3(a)(3)(iii), 
and 45 CFR 146.111(a)(3)(iii).
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    PHS Act section 2708 does not require an employer to offer coverage 
to any particular employee or class of employees, including part-time 
employees. PHS Act section 2708 merely prevents an otherwise eligible 
employee (or dependent) from being required to wait more than 90 days 
before coverage becomes effective. Furthermore, nothing in the 
Affordable Care Act penalizes small employers for choosing not to offer 
coverage, or applicable large employers, as defined in the employer 
shared responsibility provisions under Code section 4980H, for choosing 
to limit their offer of coverage to full-time employees (and their 
dependents), as defined in the employer shared responsibility 
provisions under Code section 4980H.
    On February 9, 2012, the Departments issued guidance \3\ outlining 
various approaches under consideration with respect to both the 90-day 
waiting period limitation and the employer shared responsibility 
provisions under Code section 4980H (February 2012 guidance). Public 
comments were invited generally, as well as specifically, regarding how 
rules relating to the potential look-back/stability period safe harbor 
method for determining the number of full-time employees under Code 
section 4980H should be coordinated with the 90-day waiting period 
limitation.
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    \3\ Department of Labor Technical Release 2012-01, IRS Notice 
2012-17, and HHS FAQs issued February 9, 2012.

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[[Page 17315]]

    On August 31, 2012, following their review of the comments on the 
February 2012 guidance, the Departments provided temporary guidance,\4\ 
to remain in effect at least through the end of 2014, regarding the 90-
day waiting period limitation, and described the approach they intended 
to propose in rulemaking in the future (August 2012 guidance). The 
August 2012 guidance provides that employers, plans, and issuers may 
rely on the compliance guidance at least through the end of 2014 and 
that, for purposes of enforcement by the Departments, compliance with 
the approach set forth in the August 2012 guidance will be considered 
compliance with the provisions of PHS Act section 2708 at least through 
the end of 2014.
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    \4\ Department of Labor Technical Release 2012-02, IRS Notice 
2012-59, and HHS FAQs issued August 31, 2012.
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    In general, the August 2012 guidance provides, among other things, 
that eligibility conditions based solely on the lapse of a time period 
are permissible for no more than 90 days. Other conditions for 
eligibility under the terms of a group health plan are generally 
permissible under PHS Act section 2708, unless the condition is 
designed to avoid compliance with the 90-day waiting period limitation. 
The August 2012 guidance further clarifies that if, under the terms of 
a plan, an employee may elect coverage that would begin on a date that 
does not exceed the 90-day waiting period limitation, the 90-day 
waiting period limitation is considered satisfied and, accordingly, a 
plan or issuer will not be considered to have violated PHS Act section 
2708 solely because employees may take additional time to elect 
coverage.
    The August 2012 guidance also addresses the application of PHS Act 
section 2708 to variable-hour employees in cases in which a specified 
number of hours of service per period is a plan eligibility condition. 
Specifically, the guidance provides that if a group health plan 
conditions eligibility on an employee regularly working a specified 
number of hours per period (or working full-time), and it cannot be 
determined that a newly-hired employee is reasonably expected to 
regularly work that number of hours per period (or work full-time), the 
plan may take a reasonable period of time to determine whether the 
employee meets the plan's eligibility condition, which may include a 
measurement period that is consistent with the timeframe permitted for 
such determinations under Code section 4980H.\5\ Except in cases in 
which a waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether such an 
employee meets the plan's eligibility condition will not be considered 
to be designed to avoid compliance with the 90-day waiting period 
limitation if coverage is made effective no later than 13 months from 
the employee's start date, plus if the employee's start date is not the 
first day of a calendar month, the time remaining until the first day 
of the next calendar month.
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    \5\ The August 2012 guidance provides that an employer may use a 
measurement period that is consistent with Code section 4980H, 
whether or not it is an applicable large employer subject to Code 
section 4980H.
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    The August 2012 guidance also addresses application of the rules to 
plans with cumulative hours-of-service requirements. The August 2012 
guidance includes an example stating that, if a plan's cumulative 
hours-of-service requirement is more than 1,200 hours, the Departments 
would consider the requirement to be designed to avoid compliance with 
the 90-day waiting period limitation.
    After consideration of all of the comments received in response to 
the February 2012 guidance and in response to the August 2012 guidance, 
the Departments are proposing these regulations. Public comments on 
these proposed regulations are invited.

II. Overview of the Proposed Regulations

A. Prohibition on Waiting Periods That Exceed 90 Days

    These regulations propose that a group health plan, and a health 
insurance issuer offering group health insurance coverage, not apply 
any waiting period that exceeds 90 days. (Neither a plan nor an issuer 
offering coverage is required to have any waiting period.) If, under 
the terms of the plan, an employee can elect coverage that becomes 
effective on a date that does not exceed the 90-day waiting period 
limitation, the coverage complies with the waiting period rules, and 
the plan or issuer will not be considered to violate the waiting period 
rules merely because individuals choose to elect coverage beyond the 
end of the 90-day waiting period.
    In these proposed regulations, the definition of waiting period is 
the same as that used in the 2004 HIPAA regulations. (However, the 
definition is proposed to be moved from the section on preexisting 
condition exclusions to this section. See below for an explanation of 
other technical and conforming changes proposed to be made to the 2004 
HIPAA regulations.) Accordingly, under these proposed regulations, 
waiting period would continue to be defined as the period that must 
pass before coverage for an employee or dependent who is otherwise 
eligible to enroll under the terms of a group health plan can become 
effective. These proposed regulations would also continue to include 
the clarification that, if an employee or dependent enrolls as a late 
enrollee or special enrollee, any period before such late or special 
enrollment is not a waiting period. The effective date of coverage for 
special enrollees continues to be that set forth in the Departments' 
2004 HIPAA regulations governing special enrollment.\6\
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    \6\ 26 CFR 54.9801-6, 29 CFR 2590.701-6, and 45 CFR 146.117.
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    Paragraph (c) of the proposed regulations sets forth rules 
governing the relationship between a plan's eligibility criteria and 
the 90-day waiting period limitation. Specifically, this paragraph 
provides that being otherwise eligible to enroll in a plan means having 
met the plan's substantive eligibility conditions (such as being in an 
eligible job classification or achieving job-related licensure 
requirements specified in the plan's terms). However, the 90-day 
waiting period limitation generally does not require the plan sponsor 
to offer coverage to any particular employee or class of employees 
(including, for example, part-time employees). Instead, these proposed 
regulations would prohibit requiring otherwise eligible participants 
and beneficiaries to wait more than 90 days before coverage is 
effective.\7\
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    \7\ While a substantive eligibility condition that denies 
coverage for employees may be permissible under PHS Act section 
2708, an applicable large employer's denial of coverage to a full-
time employee may, nonetheless, give rise to an assessable payment 
under section 4980H of the Code and its implementing regulations.
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    Under these proposed regulations, eligibility conditions that are 
based solely on the lapse of a time period would be permissible for no 
more than 90 days. Other conditions for eligibility under the terms of 
a group health plan (i.e., those that are not based solely on the lapse 
of a time period) are generally permissible under PHS Act section 2708 
and these proposed regulations unless the condition is designed to 
avoid compliance with the 90-day waiting period limitation.
    These regulations propose an approach when applying waiting periods 
to variable-hour employees in

[[Page 17316]]

cases in which a specified number of hours of service per period (such 
as 30 hours per week or 250 hours per quarter) is a plan eligibility 
condition. Under these proposed regulations, if a group health plan 
conditions eligibility on an employee regularly having a specified 
number of hours of service per period (or working full-time), and it 
cannot be determined that a newly-hired employee is reasonably expected 
to regularly work that number of hours per period (or work full-time), 
the plan may take a reasonable period of time to determine whether the 
employee meets the plan's eligibility condition, which may include a 
measurement period of no more than 12 months that begins on any date 
between the employee's start date and the first day of the first 
calendar month following the employee's start date. (This is consistent 
with the timeframe permitted for such determinations under Code section 
4980H and its implementing regulations.) Except for cases in which a 
waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether a variable-
hour employee meets the plan's hours of service per period eligibility 
condition will not be considered to be designed to avoid compliance 
with the 90-day waiting period limitation if coverage is made effective 
no later than 13 months from the employee's start date, plus if the 
employee's start date is not the first day of a calendar month, the 
time remaining until the first day of the next calendar month.
    Some commenters requested clarification regarding employees with 
specific or unique work schedules, and whether they would be treated as 
variable-hour employees. In this regard, unlike the rules under Code 
section 4980H, whether an employee has been appropriately classified as 
part-time, full-time, or variable-hour is of limited application under 
PHS Act section 2708. That is, conditions for eligibility under the 
terms of a group health plan are generally permissible under PHS Act 
section 2708, unless based solely on the lapse of time or designed to 
avoid compliance with the 90-day waiting period limitation. 
Accordingly, plan provisions that base eligibility on whether an 
employee is, for example, meeting certain sales goals or earning a 
certain level of commission, are generally substantive eligibility 
provisions that do not trigger the 90-day waiting period limitation. 
Some plan eligibility provisions, such as whether an employee has a 
specified number of hours of service per period (such as 30 hours per 
week or 250 hours per quarter) necessarily require the passage of time 
in order to determine whether the plan's substantive eligibility 
provision has been met. These proposed regulations set forth an 
approach under which such plan provisions will not be considered to be 
designed to avoid compliance with the 90-day waiting period limitation. 
However, whether a particular employee is classified appropriately as 
part-time, full-time, or variable-hour is generally not an issue under 
PHS Act section 2708, although other provisions of law (such as Code 
section 4980H, the HIPAA nondiscrimination provisions, and other 
provisions of ERISA) may be applicable.
    Another type of plan eligibility provision addressed in the August 
2012 guidance was cumulative hours-of-service requirements, which use 
more than solely the passage of a time period in determining whether 
employees are eligible for coverage. Specifically, the August 2012 
guidance included an example stating that if a plan's cumulative hours-
of-service requirement were more than 1,200 hours, the Departments 
would consider the requirement to be designed to avoid compliance with 
the 90-day waiting period limitation. Under these proposed regulations, 
if a group health plan or health insurance issuer conditions 
eligibility on any employee's (part-time or full-time) having completed 
a number of cumulative hours of service, the eligibility condition is 
not considered to be designed to avoid compliance with the 90-day 
waiting period limitation if the cumulative hours-of-service 
requirement does not exceed 1,200 hours.\8\ Under the proposed rules, 
the plan's waiting period must begin once the new employee satisfies 
the plan's cumulative hours-of-service requirement and may not exceed 
90 days. Furthermore, this provision is designed to be a one-time 
eligibility requirement only; these proposed regulations do not permit, 
for example, re-application of such a requirement to the same 
individual each year.
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    \8\ While a cumulative hours-of-service eligibility condition up 
to 1,200 hours may be permissible under PHS Act section 2708, an 
applicable large employer's denial of coverage to a full-time 
employee may, nonetheless, give rise to an assessable payment under 
section 4980H of the Code and its implementing regulations.
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    In response to the August 2012 guidance, some commenters requested 
clarification regarding application of the rule to plan provisions that 
require employees to work sufficient number of hours per measurement 
period but permit employees, if they do not have a sufficient number of 
hours, to make a self-payment (or buy-in) equal to the amount which 
would allow them to have a sufficient number of hours within the 
measurement period. PHS Act section 2708 and these proposed regulations 
do not prohibit plan procedures permitting self-payment (or buy-in) to 
satisfy any otherwise permissible hours-of-service requirement.
    Some commenters raised concerns about communication between a plan 
and issuer regarding the 90-day limitation on waiting periods. 
Commenters stated that many issuers rely on the plan sponsor for 
information about an individual's eligibility for coverage and that 
issuers may not have knowledge of certain plan terms, such as 
eligibility conditions and waiting periods. These commenters expressed 
concern that health insurance issuers are required to comply with the 
requirements of PHS Act section 2708, but must rely on the information 
plan sponsors and employers report to them regarding eligibility 
information such as an employee's start date. At the same time, small 
employers purchasing insurance coverage often rely on their issuers for 
compliance assistance. Therefore, while the requirements of PHS Act 
section 2708 and these proposed regulations would be applicable to both 
the plan and issuer, to the extent coverage under a group health plan 
is insured by a health insurance issuer, paragraph (f) of the proposed 
regulations would provide that the issuer can rely on the eligibility 
information reported to it by an employer (or other plan sponsor) and 
will not be considered to violate the requirements of these proposed 
regulations in administering the 90-day waiting period limitation if 
the issuer requires the plan sponsor to make a representation regarding 
the terms of any eligibility conditions or waiting periods imposed by 
the plan sponsor before an individual is eligible to become covered 
under the terms of the employer's plan (and requires the plan sponsor 
to update this representation with any changes), and the issuer has no 
specific knowledge of the imposition of a waiting period that would 
exceed the permitted 90-day period.
    Paragraph (d) of the proposed regulations clarifies the method for 
counting days when applying a 90-day waiting period. Some commenters 
stated that it is common practice to have a 90-day waiting period with 
coverage effective the first day of the month after the 90-day waiting 
period and requested flexibility for administrative ease. Others 
requested the Departments to create a de minimis exception for the

[[Page 17317]]

difference between 90 days and 3 months. Under these proposed 
regulations, due to the clear text of the statute, the waiting period 
may not extend beyond 90 days and all calendar days are counted 
beginning on the enrollment date, including weekends and holidays. For 
a plan with a waiting period, ``enrollment date'' is defined as the 
first day of the waiting period.\9\ If, with respect to a plan or 
issuer imposing a 90-day waiting period, the 91st day is a weekend or 
holiday, the plan or issuer may choose to permit coverage to be 
effective earlier than the 91st day, for administrative convenience. 
However, a plan or issuer may not make the effective date of coverage 
later than the 91st day.
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    \9\ See 26 CFR 54.9801-3(a)(3)(i); 29 CFR 2590.701-3(a)(3)(i); 
and 45 CFR 146(a)(3)(i), which would be moved under these proposed 
rules to 26 CFR 54.9801-2; 29 CFR 2590.701-2; and 45 CFR 144.103.
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    The Departments recognize that multiemployer plans maintained 
pursuant to collective bargaining agreements have unique operating 
structures and may include different eligibility conditions based on 
the participating employer's industry or the employee's occupation. For 
example, some comments received on the August 2012 guidance gave 
examples of plan eligibility provisions based on complex formulas for 
earnings and residuals. As discussed earlier, the Departments view 
eligibility provisions that are based on compensation as substantive 
eligibility provisions that are not designed to avoid compliance with 
the 90-day waiting period limitation. In addition, hours banks, which 
are common multiemployer plan provisions that allow workers to bank 
excess hours from one measurement period and then draw down on them to 
compensate for any shortage in a succeeding measurement period and 
prevent lapses in coverage, function as buy-in provisions, which were 
discussed earlier as permissible. It is the Departments' view that the 
proposed rules provide flexibility to both multiemployer and single-
employer health plans to meet their needs in defining eligibility 
criteria, while also ensuring that employees are protected from 
excessive waiting periods. Comments are invited on these proposed rules 
and on whether any additional examples or provisions are needed to 
address multiemployer plans.
    These proposed regulations generally would apply for plan years 
beginning on or after January 1, 2014, consistent with the statutory 
effective date of PHS Act section 2708. The rules would apply to both 
grandfathered and non-grandfathered group health plans and health 
insurance issuers offering group health insurance coverage. As with the 
applicability of the 2004 HIPAA regulations, with respect to 
individuals who are in a waiting period for coverage before the 
applicability date, beginning on the first day these rules apply to the 
plan, any waiting period can no longer apply in a manner that exceeds 
90 days. However, as discussed below, the proposed amendment to 
eliminate the requirement to issue a certificate of creditable coverage 
is proposed to apply December 31, 2014, so that individuals needing to 
offset a preexisting condition exclusion under a plan that operates 
with a plan year beginning later than January 1 would still have access 
to the certificate for proof of coverage. Comments are invited on these 
proposed applicability dates.
    The August 2012 guidance provided that group health plans and 
health insurance issuers may rely on the compliance guidance through at 
least the end of 2014. In the Departments' view, these proposed 
regulations are consistent with, and no more restrictive on employers 
than, the August 2012 guidance. Therefore, the Departments will 
consider compliance with these proposed regulations as compliance with 
PHS Act section 2708 at least through the end of 2014. (However, for 
changes outside of PHS Act section 2708 made to existing HIPAA 
regulations, such as the elimination of the requirement to provide a 
certificate of creditable coverage, the existing HIPAA regulations 
continue to apply until amended in new final regulations.) To the 
extent final regulations or other guidance with respect to the 90-day 
waiting period limitation is more restrictive on plans and issuers than 
these proposed regulations, the final regulations or other guidance 
will not be effective prior to January 1, 2015.

B. Conforming Changes to Existing Regulations

    Sections 9801 of the Code and 701 of ERISA, and section 2701 of the 
PHS Act as originally added by HIPAA included requirements pertaining 
to the application of preexisting condition exclusions and waiting 
periods, as well as methods of crediting coverage. Final regulations 
implementing Code section 9801, ERISA section 701, and PHS Act section 
2701 (as originally added by HIPAA) were adopted in 2004. The 2004 
HIPAA regulations permit limited exclusions of coverage based on a 
preexisting condition under certain circumstances. PHS Act section 
2704, added by the Affordable Care Act and incorporated into ERISA and 
the Code, amends the HIPAA requirements relating to preexisting 
conditions to provide that a group health plan and a health insurance 
issuer offering group or individual health insurance coverage may not 
impose any preexisting condition exclusion.\10\ PHS Act section 2704 
and the interim final regulations implementing that section are 
generally effective with respect to plan years (in the individual 
market, policy years) beginning on or after January 1, 2014, but for 
enrollees who are under 19 years of age, this prohibition became 
effective for plan years (in the individual market, policy years) 
beginning on or after September 23, 2010.\11\ Therefore, these proposed 
regulations would amend the 2004 HIPAA regulations implementing Code 
sections 9801, ERISA section 701, and PHS Act section 2701 (as 
originally added by HIPAA), to remove provisions superseded by the 
prohibition on preexisting conditions under PHS Act section 2704 and 
the implementing regulations. Additionally, these regulations propose 
to amend examples in 26 CFR Part 54, 29 CFR Part 2590, and 45 CFR Parts 
144 and 146 to conform to other changes made by the Affordable Care 
Act, such as the elimination of lifetime and annual limits under PHS 
Act section 2711 and its implementing regulations,\12\ as well as the 
provisions governing dependent coverage of children to age 26 under PHS 
Act section 2714 and its implementing regulations.\13\
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    \10\ Affordable Care Act section 1201 also moved those 
provisions from PHS Act section 2701 to PHS Act section 2704.
    \11\ 75 FR 37188 (June 28, 2010).
    \12\ 75 FR 37188 (June 28, 2010).
    \13\ 75 FR 27122 (May 13, 2010).
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C. Technical Amendment Relating to OPM Multi-State Plan Program and 
External Review

    Section 1334 of the Affordable Care Act creates the Multi-State 
Plan Program (MSPP) to foster competition in the Affordable Insurance 
Exchanges (Exchanges) and directs the U.S. Office of Personnel 
Management (OPM) to contract with private health insurance issuers to 
offer at least two multi-state plans (MSPs) on each of the Exchanges in 
the 50 states and the District of Columbia. Under Affordable Care Act 
section 1334(a)(4), OPM is to administer this program ``in a manner 
similar to the manner in which'' it implements the contracting 
provisions of the Federal Employee Health Benefits Program (FEHBP). OPM 
has interpreted Affordable Care Act section 1334(a)(4) to require 
implementation of a uniform, nationally applicable external review

[[Page 17318]]

process consistent with the requirements of PHS Act section 2719 for 
MSPs similar to that administered by OPM under FEHBP,\14\ to ensure 
that the MSPP contract is administered consistently throughout all 51 
jurisdictions that would be served by an MSP (as FEHBP currently does).
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    \14\ OPM published a final rule on establishment of the MSPP on 
March 11, 2013 at 78 FR 15559.
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    The ``level playing field'' requirement in section 1324 of the 
Affordable Care Act provides that ``[n]otwithstanding any other 
provision of law,'' requirements under State or Federal law in 13 
categories (including appeals) ``shall not'' apply to ``health 
insurance offered by a private health insurance issuer'' if the 
requirement does not apply to MSPs established under the Affordable 
Care Act. Non-grandfathered health insurance coverage is generally 
required to comply with PHS Act section 2719 and its implementing 
regulations regarding internal claims and appeals and external review 
processes.\15\ As a result, MSPP plans must also so comply, or other 
non-grandfathered insurance coverage would have to be similarly 
exempted.\16\
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    \15\ The interim final regulations relating to internal claims 
and appeals and external review processes are codified at 26 CFR 
54.9815-2719T, 29 CFR 2590.715-2719, and 45 CFR 147.136. These 
requirements do not apply to grandfathered health plans. The interim 
final regulations relating to status as a grandfathered health plan 
are codified at 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 
CFR 147.140.
    \16\ The amendments in these proposed regulations only seek to 
address the differences that exist between the proposed MSPP 
external review process and the external review requirements for 
group health plans and health insurance issuers. While MSPP is also 
required to comply with the requirements related to internal claims 
and appeals, OPM's proposed process does not differ from the 
internal claims and appeals requirements for group health plans and 
health insurance issuers.
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    PHS Act section 2719 and its implementing regulations provide that 
group health plans and health insurance issuers must comply with either 
a State external review process or the Federal external review process. 
Generally, if a State has an external review process that meets, at a 
minimum, the consumer protections set forth in the interim final 
regulations, then the issuer (or a plan) subject to the State process 
must comply with the State process.\17\ For plans and issuers not 
subject to an existing State external review process (including self-
insured plans), a Federal external review process applies.\18\ The 
statute requires the Departments to establish standards, ``through 
guidance,'' governing a Federal external review process. Among such 
guidance that has been issued by the Departments, HHS has established a 
Federal external review process for self-insured nonfederal 
governmental health plans, as well as for plans and issuers in States 
that do not meet the minimum consumer protections in the regulations.
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    \17\ More information on the regulatory requirements for State 
external review processes, including the regulations, Uniform Health 
Carrier External Review Model Act promulgated by the National 
Association of Insurance Commissioners, technical releases, and 
other guidance, is available at http://www.dol.gov/ebsa and http://cciio.cms.gov.
    \18\ More information on the regulatory requirements for the 
Federal external review process, including the regulations, 
technical releases, and other guidance, is available at http://www.dol.gov/ebsa and http://cciio.cms.gov.
---------------------------------------------------------------------------

    In this rule, the Departments propose to clarify that MSPs will be 
subject to the Federal external review process under PHS section 
2719(b)(2) and paragraph (d) of the internal claims and appeals and 
external review regulations. In doing so, the Departments interpret 
section 2719(b)(2) to apply to all plans not subject to a State's 
external review process (emphasis added).\19\ OPM's final rule on the 
establishment of the multi-State plan program \20\ requires the MSPP 
external review process to meet the requirements of PHS Act section 
2719 and its implementing regulations.
---------------------------------------------------------------------------

    \19\ We note that this interpretation of section 2719(b)(2) as 
applicable to MSPs is supported by the fact that Congress directed 
that the MSPP be implemented by OPM, and OPM is not a state.
    \20\ See 45 CFR 800.115(k) and 45 CFR part 800.
---------------------------------------------------------------------------

    Additionally, the Departments propose to clarify that the scope of 
the Federal external review process, as described in paragraph 
(d)(1)(ii) of the regulations, is the minimum required scope of claims 
eligible for external review for plans using a Federal external review 
process, and that Federal external review processes developed in 
accordance with paragraph (d) may have a scope that exceeds the minimum 
requirements. For example, OPM stated that the scope of the MSP 
external review process would allow for appeals of all disputed 
claims.\21\ This clarification would reiterate that the proposed 
external review process would meet the minimum requirement for the 
scope of a Federal external review process under the regulations.
---------------------------------------------------------------------------

    \21\ 45 CFR 800.504(a). See also 78 FR 15559, 15582-15584 (March 
11, 2013), the Preamble to the Patient Protection and Affordable 
Care Act; Establishment of the Multi-State Plan Program for the 
Affordable Insurance Exchanges; Final Rule.
---------------------------------------------------------------------------

III. Economic Impact and Paperwork Burden

A. Executive Order 12866 and 13563--Department of Labor and Department 
of Health and Human Services

    Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing and streamlining 
rules, and of promoting flexibility. It also requires federal agencies 
to develop a plan under which the agencies will periodically review 
their existing significant regulations to make the agencies' regulatory 
programs more effective or less burdensome in achieving their 
regulatory objectives.
    Under Executive Order 12866, a regulatory action deemed 
``significant'' is subject to the requirements of the Executive Order 
and review by the Office of Management and Budget (OMB). Section 3(f) 
of the Executive Order defines a ``significant regulatory action'' as 
an action that is likely to result in a rule (1) having an annual 
effect on the economy of $100 million or more, or adversely and 
materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order.
    These proposed regulations are not economically significant within 
the meaning of section 3(f)(1) of the Executive Order. However, OMB has 
determined that the actions are significant within the meaning of 
section 3(f)(4) of the Executive Order. Therefore, OMB has reviewed 
these proposed regulations, and the Departments have provided the 
following assessment of their impact.
1. Summary
    As stated earlier in this preamble, these proposed regulations 
would implement PHS Act section 2708, which provides that a group 
health plan, and a health insurance issuer offering group health 
insurance coverage, may not apply any waiting period that exceeds 90 
days. The proposed regulations define ``waiting period'' as the period 
that must pass before coverage for an

[[Page 17319]]

employee or dependent who is otherwise eligible to enroll under the 
terms of a group health plan can become effective, which is the same 
definition used in the 2004 HIPAA regulations. The proposed regulations 
would generally apply to plan years beginning on or after January 1, 
2014, consistent with the statutory effective date of PHS Act section 
2708.\22\
---------------------------------------------------------------------------

    \22\ As stated earlier, the Departments' August 2012 guidance 
provided that group health plans and health insurance issuers may 
rely on the compliance guidance through at least the end of 2014. In 
the Departments' view, these proposed regulations are consistent 
with, and no more restrictive on employers than, the August 2012 
guidance. Therefore, the Departments will consider compliance with 
these proposed regulations as compliance with PHS Act section 2708 
at least through the end of 2014.
---------------------------------------------------------------------------

    The Departments have crafted these proposed regulations to secure 
the protections intended by Congress in an economically efficient 
manner. The Departments do not have sufficient data to quantify the 
regulations' economic cost or benefits; therefore, they have provided a 
qualitative discussion of their economic impacts and request detailed 
comment and data that would allow for quantification of the costs, 
benefits, and transfers that would be brought about by the proposed 
rule.
2. Estimated Number of Affected Entities
    The Departments estimate that 4.1 million new employees receive 
group health insurance coverage through private sector employers and 
1.0 million new employees receive group health insurance coverage 
through public sector employers annually.\23\ The 2012 Kaiser Family 
Foundation and Health Research and Education Trust Employer Health 
Benefits Annual Survey (the ``2012 Kaiser Survey'') finds that only 
eight percent of covered workers were subject to waiting periods of 
four months or more.\24\ If eight percent of new employees receiving 
health care from their employers are subject to a waiting period of 
four months or more, then 408,000 new employees (5.1 million x 0.08) 
would be affected by this rule.\25\ However, the Departments would note 
that it is unlikely that the survey defines the term ``waiting period'' 
in the same manner as these proposed regulations. For example, waiting 
period may have been defined by reference to an employee's start date, 
and it seems unlikely that the 2012 Kaiser Survey would have included 
the clarifications included in these proposed regulations regarding the 
measurement period for variable-hour employees or the clarification 
regarding cumulative hours-of-service requirements.
---------------------------------------------------------------------------

    \23\ This estimate is based upon internal Department of Labor 
calculations derived from the 2009 Medical Expenditure Panel Survey.
    \24\ See e.g., Kaiser Family Foundation and Health Research and 
Education Trust, Employer Health Benefits 2012 Annual Survey (2012) 
available at http://ehbs.kff.org/pdf/2012/8345.pdf.
    \25\ Approximately 331,000 private sector employees and 77,000 
state and local public sector employees.
---------------------------------------------------------------------------

3. Benefits
    Before Congress enacted PHS Act section 2708, federal law did not 
prescribe any limits on waiting periods for group health insurance 
coverage.
    If employees delay health care treatment until the expiration of a 
prolonged waiting period, detrimental health effects can result, 
especially for employees and their dependents requiring higher levels 
of health care, such as older Americans, pregnant women, young 
children, and those with chronic conditions. This could lead to lower 
work productivity and missed school days. Low-wage workers also are 
vulnerable, because they have less income to spend out-of-pocket to 
cover medical expenses. The Departments anticipate that these proposed 
regulations can help reduce these effects, although the overall benefit 
may be limited because--as discussed in greater detail below--a small 
fraction of employers are expected to offer earlier health insurance 
coverage as a result of these proposed regulations.
    As discussed earlier in this preamble, these proposed regulations 
would amend the 2004 HIPAA regulations implementing Code sections 9801, 
ERISA section 701, and PHS Act section 2701 (as originally added by 
HIPAA) to remove provisions superseded by the prohibition on 
preexisting conditions under PHS Act section 2704 and the implementing 
regulations. These amendments would provide a benefit to plans by 
reducing the burden associated with complying with the several 
Paperwork Reduction Act information collections that are associated 
with the superseded regulations. For a discussion of the affected 
information collections and the estimated cost and burden hour 
reduction, please see the Paperwork Reduction Act section, below.
4. Transfers Associated with the Rule
    The possible transfers associated with this proposed rule would 
arise if employers begin to pay their portion of health insurance 
premiums or contributions sooner than they did before the enactment of 
PHS Act section 2708 and issuance of these proposed regulations. 
Recipients of the transfers would be covered employees and their 
dependents who would, if these proposed regulations are finalized, not 
be subject to excessive waiting periods during which they must forgo 
health coverage, purchase COBRA continuation coverage, or obtain an 
individual health insurance policy--all of which are options that could 
lead to higher out-of-pocket costs for employees to cover their 
healthcare expenditures. As discussed above, federal law did not limit 
the duration of waiting periods in the group health plans market before 
the enactment of PHS Act section 2708.
    The Departments do not believe that this rule, on its own, will 
cause more than a marginal number of employers to offer coverage 
earlier to their employees because this provision on its own does not 
require employers to offer coverage and there is significant 
flexibility afforded to employers in these proposed regulations to 
maintain or revise their current group health plan eligibility 
conditions. For example, paragraph (c)(3)(ii) of the proposed 
regulations provides that if a group health plan or health insurance 
issuer conditions eligibility on any employee's (part-time or full-
time) having completed a number of cumulative hours of service, the 
eligibility condition is not considered to be designed to avoid 
compliance with the 90-day waiting period limitation if the cumulative 
hours-of-service requirement does not exceed 1,200 hours. This is 
intended to provide plan sponsors with flexibility to continue the 
common practice of utilizing a probationary or trial period to 
determine whether a new employee will be able to handle the duties and 
challenges of the job, while providing protections against excessive 
waiting periods for such employees. Under these proposed regulations, 
the plan's waiting period must begin once the new employee satisfies 
the plan's cumulative hours-of-service requirement and may not exceed 
90 days.
    Therefore, an employee who must meet a cumulative hours-of-service 
requirement of 1,200 hours could be employed for ten months \26\ before 
their health coverage becomes effective and only employers that had a 
waiting period longer than ten months before the enactment of PHS Act 
section 2708 and these proposed regulations would necessarily incur a 
transfer for additional coverage. Because the 2012 Kaiser Survey 
reports that just eight percent of covered workers are in plans with 
waiting periods of four months or more and the overall average waiting 
period is just 2.3 months, the

[[Page 17320]]

Departments are confident that such long waiting periods are rare.
---------------------------------------------------------------------------

    \26\ 1,200 hours/40 hours per week = 30 weeks; 30 weeks *7 days/
week = 210 days; 210 days eligibility requirement + 90 day wait 
period = 300 days.
---------------------------------------------------------------------------

B. Paperwork Reduction Act

1. Department of Labor and Department of the Treasury
    As stated above, Sections 9801 of the Code and 701 of ERISA, and 
2701 of the PHS Act as originally added by Health Insurance Portability 
and Accountability Act of 1996, included requirements pertaining to the 
application of preexisting conditions exclusions and waiting periods as 
well as methods of crediting coverage. The 2004 HIPAA regulations (in 
effect prior to the effective date of these amendments) permit limited 
exclusions of coverage based on a preexisting condition under certain 
circumstances.
    PHS Act section 2704, added by the Affordable Care Act and 
incorporated into ERISA and the Code, amends the 2004 HIPAA regulations 
relating to preexisting conditions to provide that a group health plan 
and a health insurance issuer offering group or individual health 
insurance coverage may not impose any preexisting condition exclusion. 
PHS Act section 2704 and the interim final regulations implementing 
that section are generally effective with respect to plan years (in the 
individual market, policy years) beginning on or after January 1, 2014, 
but for enrollees who are under 19 years of age, this prohibition 
became effective for plan years (in the individual market, policy 
years) beginning on or after September 23, 2010. Therefore, these 
regulations propose to amend the 2004 HIPAA regulations implementing 
Code sections 9801, ERISA section 701, and PHS Act section 2701 (as 
originally added by HIPAA), to remove provisions superseded by the 
prohibition on preexisting conditions under PHS Act section 2704 and 
the implementing regulations.
    The Departments are proposing to discontinue the following 
Information Collection Requests (ICRs) that are associated with the 
superseded regulation: The Notice of Preexisting Condition Exclusion 
under Group Health Plans, which is approved under OMB Control Number 
1210-0102 through January 31, 2016, and Establishing Creditable 
Coverage under Group Health Plans, which is approved under OMB Control 
Number 1210-0103 through January 31, 2016.
    Additionally, the Departments are proposing to revise Final 
Regulations for Health Coverage Portability for Group Health Plans and 
Group Health Insurance Issuers under HIPAA Titles I & IV, which is 
approved under OMB Control Number 1545-1537 through January 31, 2014, 
to remove the Health Plans Imposing Pre-existing Condition Notification 
Requirements, Certification Requirements, and Exclusion Period 
Notification Information Collections within this ICR because they are 
associated with the superseded regulation.
    Discontinuing and revising these ICRs would result in a total 
burden reduction of approximately 341,000 hours (5,000 hours 
attributable to OMB Control Number 1210-0102, 74,000 hours attributable 
to OMB Control Number 1210-0103, and 262,000 hours attributable to OMB 
Control Number 1545-1537) and a total cost burden reduction of 
approximately $32.7 million ($1.1 million attributable to OMB Control 
Number 1210-0102, $12.4 million attributable to OMB Control Number 
1210-0103, and $19.2 million attributable to OMB Control Number 1545-
1537).

C. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) applies 
to most Federal rules that are subject to the notice and comment 
requirements of section 553(b) of the Administrative Procedure Act (5 
U.S.C. 551 et seq.). Unless an agency certifies that such a rule will 
not have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities. Small entities include small businesses, 
organizations and governmental jurisdictions.
    For purposes of analysis under the RFA, the Departments propose to 
continue to consider a small entity to be an employee benefit plan with 
fewer than 100 participants. The basis of this definition is found in 
section 104(a)(3) of ERISA, which permits the Secretary of Labor to 
prescribe simplified annual reports for welfare benefit plans that 
cover fewer than 100 participants.\27\
---------------------------------------------------------------------------

    \27\ Under ERISA section 104(a)(2), the Secretary may also 
provide exemptions or simplified reporting and disclosure 
requirements for pension plans. Pursuant to the authority of ERISA 
section 104(a)(3), the Department of Labor has previously issued at 
29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 
2520.104b-10 certain simplified reporting provisions and limited 
exemptions from reporting and disclosure requirements for small 
plans, including unfunded or insured welfare plans, that cover fewer 
than 100 participants and satisfy certain other requirements.
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, in 
general, small employers maintain most small plans. Thus, the 
Departments believe that assessing the impact of these proposed 
regulations on small plans is an appropriate substitute for evaluating 
the effect on small entities.
    The definition of small entity considered appropriate for this 
purpose differs, however, from a definition of small business that is 
based on size standards promulgated by the Small Business 
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business 
Act (15 U.S.C. 631 et seq.). The Departments therefore request comments 
on the appropriateness of the size standard used in evaluating the 
impact of these proposed regulations on small entities.
    The Departments carefully considered the likely impact of the rule 
on small entities in connection with their assessment under Executive 
Order 12866. The Departments lack data to focus only on the impacts on 
small business. However, the Departments believe that the proposed rule 
includes flexibility that would allow small employers to minimize the 
transfers in health insurance premiums that they would have to pay to 
employees.
    The Departments hereby certify that these proposed regulations will 
not have a significant economic impact on a substantial number of small 
entities. Consistent with the policy of the RFA, the Departments 
encourage the public to submit comments that would allow the 
Departments to assess the impacts specifically on small plans or 
suggest alternative rules that accomplish the stated purpose of PHS Act 
section 2708 and minimize the impact on small entities.

D. Special Analyses--Department of the Treasury

    For purposes of the Department of the Treasury, it has been 
determined that this notice of proposed rulemaking is not a significant 
regulatory action as defined in Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these proposed regulations, and, because these proposed regulations do 
not impose a collection of information requirement on small entities, a 
regulatory flexibility analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. Pursuant to Code section 7805(f), 
this notice of proposed rulemaking has been

[[Page 17321]]

submitted to the Small Business Administration for comment on its 
impact on small business.

E. Congressional Review Act

    These proposed regulations are subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be 
transmitted to the Congress and the Comptroller General for review.

F. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, these proposed rules do not 
include any proposed federal mandate that may result in expenditures by 
state, local, or tribal governments, or by the private sector, of $100 
million or more adjusted for inflation ($141 million in 2013).

G. Federalism Statement--Department of Labor and Department of Health 
and Human Services

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by Federal 
agencies in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the States, the 
relationship between the national government and States, or on the 
distribution of power and responsibilities among the various levels of 
government. Federal agencies promulgating regulations that have these 
federalism implications must consult with State and local officials, 
and describe the extent of their consultation and the nature of the 
concerns of State and local officials in the preamble to the 
regulation.
    In the Departments' view, these proposed regulations have 
federalism implications, because they have direct effects on the 
States, the relationship between the national government and States, or 
on the distribution of power and responsibilities among various levels 
of government. In general, through section 514, ERISA supersedes State 
laws to the extent that they relate to any covered employee benefit 
plan, and preserves State laws that regulate insurance, banking, or 
securities. While ERISA prohibits States from regulating a plan as an 
insurance or investment company or bank, the preemption provisions of 
ERISA section 731 and PHS Act section 2724 (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the HIPAA requirements 
(including those of the Affordable Care Act) are 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 a federal standard. The 
conference report accompanying HIPAA indicates that this is intended to 
be the ``narrowest'' preemption of State laws. (See House Conf. Rep. 
No. 104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 
2018.)
    States may continue to apply State law requirements except to the 
extent that such requirements prevent the application of the Affordable 
Care Act requirements that are the subject of this rulemaking. State 
insurance laws that are more stringent than the Federal requirements 
are unlikely to ``prevent the application of'' the Affordable Care Act, 
and be preempted. Accordingly, States have significant latitude to 
impose requirements on health insurance issuers that are more 
restrictive than the Federal law.
    Guidance conveying this interpretation was published in the Federal 
Register on April 8, 1997 (62 FR 16904), and December 30, 2004 (69 FR 
78720), and these proposed rules would clarify and implement the 
statute's minimum standards and would not significantly reduce the 
discretion given the states by the statute.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, the 
Departments have engaged in efforts to consult with and work 
cooperatively with affected State and local officials, including 
attending conferences of the National Association of Insurance 
Commissioners and consulting with State insurance officials on an 
individual basis.
    Throughout the process of developing these proposed regulations, to 
the extent feasible within the specific preemption provisions of HIPAA 
as it applies to the Affordable Care Act, the Departments have 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform minimum 
protections to consumers in every State. By doing so, it is the 
Departments' view that they have complied with the requirements of 
Executive Order 13132.

IV. Statutory Authority

    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed to be adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1185d, 1191, 
1191a, 1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 
1936; sec. 401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 
note); sec. 512(d), Public Law 110-343, 122 Stat. 3881; sec. 1001, 
1201, and 1562(e), Public Law 111-148, 124 Stat. 119, as amended by 
Public Law 111-152, 124 Stat. 1029; Secretary of Labor's Order 3-2010, 
75 FR 55354 (September 10, 2010).
    The Department of Health and Human Services regulations are 
proposed to be adopted, with respect to 45 CFR Part 146, pursuant to 
the authority contained in sections 2702 through 2705, 2711 through 
2723, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 
300gg-11 through 300gg-23, 300gg-91, and 300gg-92), and, with respect 
to 45 CFR Part 147, pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Part 144

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Parts 146 and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed this 14th day of March, 2013.

[[Page 17322]]


Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: March 13, 2013.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: March 14, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

    Accordingly, 26 CFR part 54 is proposed to be amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for Part 54 is amended by adding an 
entry for Sec.  54.9815-2708 in numerical order to read in part as 
follows:

    Authority: 26 U.S.C. 7805. * * *

    Section 54.9815-2708 is also issued under 26 U.S.C. 9833.

0
Par. 2. Section 54.9801-1 is amended by revising paragraph (b) to read 
as follows:


Sec.  54.9801-1  Basis and scope.

* * * * *
    (b) Scope. A group health plan or health insurance issuer offering 
group health insurance coverage may provide greater rights to 
participants and beneficiaries than those set forth in the portability 
and market reform sections of this part 54. This part 54 sets forth 
minimum requirements for group health plans and group health insurance 
issuers offering group health insurance coverage concerning certain 
consumer protections of the Health Insurance Portability and 
Accountability Act (HIPAA), including special enrollment periods and 
the prohibition against discrimination based on a health factor, as 
amended by the Patient Protection and Affordable Care Act (Affordable 
Care Act). Other consumer protection provisions, including other 
protections provided by the Affordable Care Act and the Mental Health 
Parity and Addiction Equity Act are set forth in this part 54.
* * * * *
0
Par. 3. Section 54.9801-2 is amended by revising the definitions of 
``enrollment date'', ``late enrollment'', and ``waiting period'', and 
by adding definitions of ``first day of coverage'' and ``late 
enrollee'' in alphabetical order, to read as follows:


Sec.  54.9801-2  Definitions.

* * * * *
    Enrollment date means the first day of coverage or, if there is a 
waiting period, the first day of the waiting period. If an individual 
receiving benefits under a group health plan changes benefit packages, 
or if the plan changes group health insurance issuers, the individual's 
enrollment date does not change.
* * * * *
    First day of coverage means, in the case of an individual covered 
for benefits under a group health plan, 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 or contract.
* * * * *
    Late enrollee means an individual whose enrollment in a plan is a 
late enrollment.
    Late enrollment means enrollment of an individual under a group 
health plan other than the earliest date on which coverage can become 
effective for the individual under the terms of the plan, or through 
special enrollment. (For rules relating to special enrollment, see 
Sec.  54.9801-6.) If an individual ceases to be eligible for coverage 
under a plan, and then subsequently becomes eligible for coverage under 
the plan, only the individual's most recent period of eligibility 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 following a suspension of coverage that applied generally 
under the plan.
* * * * *
    Waiting period means waiting period within the meaning of Sec.  
54.9815-2708(b).
* * * * *
0
Par. 4. Section 54.9801-3 is amended by:
0
A. Removing paragraphs (a)(2), (a)(3), (c), (d), (e) and (f).
0
B. Revising the heading to paragraph (a).
0
C. Removing paragraph (a)(1) introductory text, and redesignating 
paragraphs (a)(1)(i) and (a)(1)(ii) as paragraphs (a)(1) and (a)(2).
0
D. Amending paragraph (a)(2) by revising paragraph (ii) of Examples 1 
and 2, by revising Example 3 and Example 4, and by revising paragraph 
(ii) of Examples 5, 6, 7 and 8.
0
E. Revising paragraph (b).
    The revisions read as follows:


Sec.  54.9801-3  Limitations on preexisting condition exclusion period.

    (a) Preexisting condition exclusion defined--
* * * * *
    (2) * * *

    Example 1. * * *
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for any prosthesis if the body part was lost before the effective 
date of coverage is a preexisting condition exclusion because it 
operates to exclude benefits for a condition based on the fact that 
the condition was present before the effective date of coverage 
under the policy. The exclusion of benefits, therefore, is 
prohibited.
    Example 2. * * *
    (ii) Conclusion. In this Example 2, the plan provision excluding 
cosmetic surgery benefits for individuals injured before enrolling 
in the plan is a preexisting condition exclusion because it operates 
to exclude benefits relating to a condition based on the fact that 
the condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 3. (i) Facts. A group health plan provides coverage for 
the treatment of diabetes, generally not subject to any requirement 
to obtain an approval for a treatment plan. However, if an 
individual was diagnosed with diabetes before the effective date of 
coverage under the plan, diabetes coverage is subject to a 
requirement to obtain approval of a treatment plan in advance.
    (ii) Conclusion. In this Example 3, the requirement to obtain 
advance approval of a treatment plan is a preexisting condition 
exclusion because it limits benefits for a condition based on the 
fact that the condition was present before the effective date of 
coverage. The plan provision, therefore, is prohibited.
    Example 4.  (i) Facts. A group health plan provides coverage for 
three infertility treatments. The plan counts against the three-
treatment limit benefits provided under prior health coverage.
    (ii) Conclusion. In this Example 4, counting benefits for a 
specific condition provided under prior health coverage against a 
treatment limit for that condition is a preexisting condition 
exclusion because it operates to limit benefits for a condition 
based on the fact that the condition was present before the 
effective date of coverage. The plan provision, therefore, is 
prohibited.
    Example 5. * * *
    (ii) Conclusion. In this Example 5, the requirement to be 
covered under the plan for 12 months to be eligible for pregnancy 
benefits is a subterfuge for a preexisting condition exclusion 
because it is designed to exclude benefits for a condition 
(pregnancy) that arose before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 6. * * *
    (ii) Conclusion. In this Example 6, the exclusion of coverage 
for treatment of congenital heart conditions is a preexisting

[[Page 17323]]

condition exclusion because it operates to exclude benefits relating 
to a condition based on the fact that the condition was present 
before the effective date of coverage. The plan provision, 
therefore, is prohibited.
    Example 7. * * *
    (ii) Conclusion. In this Example 7, the exclusion of coverage 
for treatment of cleft palate is not a preexisting condition 
exclusion because the exclusion applies regardless of when the 
condition arose relative to the effective date of coverage. The plan 
provision, therefore, is not prohibited. (But see 45 CFR 147.150, 
which may require coverage of cleft palate as an essential health 
benefit for health insurance coverage in the individual or small 
group market).
    Example 8. * * *
    (ii) Conclusion. In this Example 8, the exclusion of coverage 
for treatment of cleft palate for individuals who have not been 
covered under the plan from the date of birth operates to exclude 
benefits in relation to a condition based on the fact that the 
condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
* * * * *
    (b) General rules. See Sec.  54.9815-2704T for rules prohibiting 
the imposition of a preexisting condition exclusion.
0
Par. 5. Section 54.9801-4 is amended by removing paragraphs (a)(3) and 
(c), and revising paragraph (b) to read as follows:


Sec.  54.9801-4  Rules relating to creditable coverage.

* * * * *
    (b) Counting creditable coverage rules superseded by prohibition on 
preexisting condition exclusion. See Sec.  54.9815-2704T for rules 
prohibiting the imposition of a preexisting condition exclusion.
0
Par. 6. Section 54.9801-5 is revised to read as follows:


Sec.  54.9801-5  Evidence of creditable coverage.

    (a) In general. The rules for providing certificates of creditable 
coverage and demonstrating creditable coverage have been superseded by 
the prohibition on preexisting condition exclusions. See Sec.  54.9815-
2704T for rules prohibiting the imposition of a preexisting condition 
exclusion.
    (b) Applicability. The amendments made under this section apply 
beginning December 31, 2014.
0
Par. 7. Section 54.9801-6 is amended by removing paragraph (a)(3)(i)(E) 
and revising paragraphs (a)(3)(i)(C), (a)(3)(i)(D), (a)(4)(i) and 
(d)(2) to read as follows:


Sec.  54.9801-6  Special enrollment periods.

* * * * *
    (a) * * *
    (3) * * *
    (i) * * *
    (C) In the case of coverage offered through an HMO, or other 
arrangement, in the group market that does not provide benefits to 
individuals who no longer reside, live, or work in a service area, loss 
of coverage because an individual no longer resides, lives, or works in 
the service area (whether or not within the choice of the individual), 
and no other benefit package is available to the individual; and
    (D) A situation in which a plan no longer offers any benefits to 
the class of similarly situated individuals (as described in Sec.  
54.9802-1(d)) that includes the individual.
* * * * *
    (4) * * *
    (i) A plan or issuer must allow an employee a period of at least 30 
days after an event described in paragraph (a)(3) of this section to 
request enrollment (for the employee or the employee's dependent).
* * * * *
    (d) * * *
    (2) Special enrollees must be offered all the benefit packages 
available to similarly situated individuals who enroll when first 
eligible. For this purpose, any difference in benefits or cost-sharing 
requirements for different individuals constitutes a different benefit 
package. In addition, a special enrollee cannot be required to pay more 
for coverage than a similarly situated individual who enrolls in the 
same coverage when first eligible.
* * * * *
0
Par. 8. Section 54.9802-1 is amended by:
0
A. Removing paragraph (b)(3) and revising paragraphs (b)(1)(i) and 
(b)(2)(i)(B).
0
B. Revising Example 1, paragraph (i) of Example 2, paragraph (ii) of 
Example 4, paragraph (ii) of Example 5, and removing Example 8 in 
paragraph (b)(2)(i)(D).
0
C. Revising Example 2, and paragraph (i) of Example 5, in paragraph 
(d)(4).
0
D. Revising paragraph (ii) of Example 2 in paragraph (e)(2)(i)(B).
0
E. Revising Example 1 in paragraph (g)(1)(ii).
    The revisions read as follows:


Sec.  54.9802-1  Prohibiting discrimination against participants and 
beneficiaries based on a health factor.

* * * * *
    (b) * * *
    (1) * * *
    (i) A group health plan may not establish any rule for eligibility 
(including continued eligibility) of any individual to enroll for 
benefits under the terms of the plan that discriminates based on any 
health factor that relates to that individual or a dependent of that 
individual. This rule is subject to the provisions of paragraph (b)(2) 
of this section (explaining how this rule applies to benefits), 
paragraph (d) of this section (containing rules for establishing groups 
of similarly situated individuals), paragraph (e) of this section 
(relating to nonconfinement, actively-at-work, and other service 
requirements), paragraph (f) of this section (relating to wellness 
programs), and paragraph (g) of this section (permitting favorable 
treatment of individuals with adverse health factors).
* * * * *
    (2) * * *
    (i) * * *
    (B) However, benefits provided under a plan must be uniformly 
available to all similarly situated individuals (as described in 
paragraph (d) of this section). Likewise, any restriction on a benefit 
or benefits must apply uniformly to all similarly situated individuals 
and must not be directed at individual participants or beneficiaries 
based on any health factor of the participants or beneficiaries 
(determined based on all the relevant facts and circumstances). Thus, 
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. In addition, a plan may require the 
satisfaction of a deductible, copayment, coinsurance, or other cost-
sharing requirement in order to obtain a benefit if the limit or cost-
sharing requirement 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. In the case of a cost-sharing requirement, see also 
paragraph (b)(2)(ii) of this section, which permits variances in the 
application of a cost-sharing mechanism made available under a wellness 
program. (Whether any plan provision or practice with respect to 
benefits complies with this paragraph (b)(2)(i) does not affect whether 
the provision or practice is permitted under ERISA, the Affordable Care 
Act (including the requirements related to essential health

[[Page 17324]]

benefits), the Americans with Disabilities Act, or any other law, 
whether State or Federal.)
* * * * *
    (D) * * *

    Example 1. (i) Facts. A group health plan applies a $10,000 
annual limit on a specific covered benefit that is not an essential 
health benefit to each participant or beneficiary covered under the 
plan. The limit is not directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 1, the limit does not violate 
this paragraph (b)(2)(i) because coverage of the specific, non-
essential health benefit up to $10,000 is available uniformly to 
each participant and beneficiary under the plan and because the 
limit is applied uniformly to all participants and beneficiaries and 
is not directed at individual participants or beneficiaries.
    Example 2. (i) Facts. A group health plan has a $500 deductible 
on all benefits for participants covered under the plan. Participant 
B files a claim for the treatment of AIDS. At the next corporate 
board meeting of the plan sponsor, the claim is discussed. Shortly 
thereafter, the plan is modified to impose a $2,000 deductible on 
benefits for the treatment of AIDS, effective before the beginning 
of the next plan year.
* * * * *
    Example 4. * * *
    (ii) Conclusion. In this Example 4, the limit does not violate 
this paragraph (b)(2)(i) because $2,000 of benefits for the 
treatment of TMJ are available uniformly to all similarly situated 
individuals and a plan may limit benefits covered in relation to a 
specific disease or condition if the limit applies uniformly to all 
similarly situated individuals and is not directed at individual 
participants or beneficiaries. (However, applying a lifetime limit 
on TMJ may violate Sec.  54.9815-2711, if TMJ coverage is an 
essential health benefit. This example does not address whether the 
plan provision is permissible under any other applicable law, 
including PHS Act section 2711 or the Americans with Disabilities 
Act.)
    Example 5. * * *
    (ii) Conclusion. In this Example 5, the lower lifetime limit for 
participants and beneficiaries with a congenital heart defect 
violates this paragraph (b)(2)(i) because benefits under the plan 
are not uniformly available to all similarly situated individuals 
and the plan's lifetime limit on benefits does not apply uniformly 
to all similarly situated individuals. Additionally, this plan 
provision is prohibited under Sec.  54.9815-2711 because it imposes 
a lifetime limit on essential health benefits.
* * * * *
    (d) * * *
    (4) * * *

    Example 2. (i) Facts. Under a group health plan, coverage is 
made available to employees, their spouses, and their children. 
However, coverage is made available to a child only if the child is 
under age 26 (or under age 29 if the child is continuously enrolled 
full-time in an institution of higher learning (full-time 
students)). There is no evidence to suggest that these 
classifications are directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 2, treating spouses and 
children differently by imposing an age limitation on children, but 
not on spouses, is permitted under this paragraph (d). Specifically, 
the distinction between spouses and children is permitted under 
paragraph (d)(2) of this section and is not prohibited under 
paragraph (d)(3) of this section because it is not directed at 
individual participants or beneficiaries. It is also permissible to 
treat children who are under age 26 (or full-time students under age 
29) as a group of similarly situated individuals separate from those 
who are age 26 or older (or age 29 or older if they are not full-
time students) because the classification is permitted under 
paragraph (d)(2) of this section and is not directed at individual 
participants or beneficiaries.
* * * * *
    Example 5. (i) Facts. An employer sponsors a group health plan 
that provides the same benefit package to all seven employees of the 
employer. Six of the seven employees have the same job title and 
responsibilities, but Employee G has a different job title and 
different responsibilities. After G files an expensive claim for 
benefits under the plan, coverage under the plan is modified so that 
employees with G's job title receive a different benefit package 
that includes a higher deductible than in the benefit package made 
available to the other six employees.
* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (B) * * *
    Example 2.  * * *
    (ii) Conclusion. In this Example 2, the plan violates this 
paragraph (e)(2) (and thus also paragraph (b) of this section) 
because the 90-day continuous service requirement is a rule for 
eligibility based on whether an individual is actively at work. 
However, the plan would not violate this paragraph (e)(2) or 
paragraph (b) of this section if, under the plan, an absence due to 
any health factor is not considered an absence for purposes of 
measuring 90 days of continuous service. (In addition, any 
eligibility provision that is time-based must comply with the 
requirements of PHS Act section 2708 and its implementing 
regulations.)
* * * * *
    (g) * * *
    (1) * * *
    (ii) * * *
    Example 1.  (i) Facts. An employer sponsors a group health plan 
that generally is available to employees, spouses of employees, and 
dependent children until age 26. However, dependent children who are 
disabled are eligible for coverage beyond age 26.
    (ii) Conclusion. In this Example 1, the plan provision allowing 
coverage for disabled dependent children beyond age 26 satisfies 
this paragraph (g)(1) (and thus does not violate this section).
* * * * *
0
Par. 9. Section 54.9815-2708 is added to read as follows:


Sec.  54.9815-2708  Prohibition on waiting periods that exceed 90 days.

    (a) General rule. A group health plan, and a health insurance 
issuer offering group health insurance coverage, must not apply any 
waiting period that exceeds 90 days, in accordance with the rules of 
this section. If, under the terms of a plan, an employee can elect 
coverage that would begin on a date that is not later than the end of 
the 90-day waiting period, this paragraph (a) is considered satisfied. 
Accordingly, a plan or issuer in that case will not be considered to 
have violated this paragraph (a) solely because employees (or other 
classes of participants) may take additional time (beyond the end of 
the 90-day waiting period) to elect coverage.
    (b) Waiting period defined. For purposes of this part, a waiting 
period is the period that must pass before coverage for an employee or 
dependent who is otherwise eligible to enroll under the terms of a 
group health plan can become effective. If an employee or dependent 
enrolls as a late enrollee (as defined under Sec.  54.9801-2) or 
special enrollee (as described in Sec.  54.9801-6), any period before 
such late or special enrollment is not a waiting period.
    (c) Relation to a plan's eligibility criteria--(1) Except as 
provided in paragraphs (c)(2) and (c)(3) of this section, being 
otherwise eligible to enroll under the terms of a group health plan 
means having met the plan's substantive eligibility conditions (such 
as, for example, being in an eligible job classification or achieving 
job-related licensure requirements specified in the plan's terms). 
Moreover, except as provided in paragraphs (c)(2) and (c)(3) of this 
section, nothing in this section requires a plan sponsor to offer 
coverage to any particular employee or class of employees (including, 
for example, part-time employees). Instead, this section prohibits 
requiring otherwise eligible participants and beneficiaries to wait 
more than 90 days before coverage is effective. (While a substantive 
eligibility condition that denies coverage to employees may be 
permissible under this section, a failure by an applicable large 
employer (as defined in section 4980H) to offer coverage to a full-time 
employee might, for example, nonetheless give rise to an assessable 
payment under section 4980H and its implementing regulations.)
    (2) Eligibility conditions based solely on the lapse of time. 
Eligibility conditions that are based solely on the

[[Page 17325]]

lapse of a time period are permissible for no more than 90 days.
    (3) Other conditions for eligibility. Other conditions for 
eligibility under the terms of a group health plan are generally 
permissible under PHS Act section 2708, unless the condition is 
designed to avoid compliance with the 90-day waiting period limitation, 
determined in accordance with the rules of this paragraph (c)(3).
    (i) Application to variable-hour employees in cases in which a 
specified number of hours of service per period is a plan eligibility 
condition. If a group health plan conditions eligibility on an employee 
regularly having a specified number of hours of service per period (or 
working full-time), and it cannot be determined that a newly-hired 
employee is reasonably expected to regularly work that number of hours 
per period (or work full-time), the plan may take a reasonable period 
of time, not to exceed 12 months and beginning on any date between the 
employee's start day and the first day of the first calendar month 
following the employee's start date, to determine whether the employee 
meets the plan's eligibility condition. Except in cases in which a 
waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether such an 
employee meets the plan's eligibility condition will not be considered 
to be designed to avoid compliance with the 90-day waiting period 
limitation if coverage is made effective no later than 13 months from 
the employee's start date, plus if the employee's start date is not the 
first day of a calendar month, the time remaining until the first day 
of the next calendar month.
    (ii) Cumulative service requirements. If a group health plan or 
health insurance issuer conditions eligibility on an employee's having 
completed a number of cumulative hours of service, the eligibility 
condition is not considered to be designed to avoid compliance with the 
90-day waiting period limitation if the cumulative hours-of-service 
requirement does not exceed 1,200 hours.
    (d) Counting days. Under this section, all calendar days are 
counted beginning on the enrollment date (as defined in Sec.  54.9801-
2), including weekends and holidays. If, in the case of a plan or 
issuer imposing a 90-day waiting period, the 91st day is a weekend or 
holiday, the plan or issuer may choose to permit coverage to become 
effective earlier than the 91st day, for administrative convenience. 
Similarly, plans and issuers that do not want to start coverage in the 
middle of a month (or pay period) may choose to permit coverage to 
become effective earlier than the 91st day, for administrative 
convenience. For example, a plan may impose a waiting period of 60 days 
plus a fraction of a month (or pay period) until the first day of the 
next month (or pay period). However, a plan or issuer that extends the 
effective date of coverage beyond the 91st day fails to comply with the 
90-day waiting period limitation.
    (e) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1.  (i) Facts. A group health plan provides that full-
time employees are eligible for coverage under the plan. Employee A 
begins employment as a full-time employee on January 19.
    (ii) Conclusion. In this Example 1, any waiting period for A 
would begin on January 19 and may not exceed 90 days. Coverage under 
the plan must become effective no later than April 19 (assuming 
February lasts 28 days).
    Example 2.  (i) Facts. A group health plan provides that only 
employees with job title M are eligible for coverage under the plan. 
Employee B begins employment in job title L on January 30.
    (ii) Conclusion. In this Example 2, B is not eligible for 
coverage under the plan, and the period while B is working in job 
title L and therefore not in an eligible class of employees is not 
part of a waiting period under this section.
    Example 3. (i) Facts. Same facts as Example 2, except that B 
transfers to a new position with job title M on April 11.
    (ii) Conclusion. In this Example 3, B becomes eligible for 
coverage on April 11, but for the waiting period. Any waiting period 
for B begins on April 11 and may not exceed 90 days. Coverage under 
the plan must become effective no later than July 10.
    Example 4.  (i) Facts. A group health plan provides that only 
employees who have completed specified training and achieved 
specified certifications are eligible for coverage under the plan. 
Employee C is hired on May 3 and meets the plan's eligibility 
criteria on September 22.
    (ii) Conclusion. In this Example 4, C becomes eligible for 
coverage on September 22, but for the waiting period. Any waiting 
period for C would begin on September 22 and may not exceed 90 days. 
Coverage under the plan must become effective no later than December 
21.
    Example 5.  (i) Facts. A group health plan provides that 
employees are eligible for coverage after one year of service.
    (ii) Conclusion. In this Example 5, the plan's eligibility 
condition is based solely on the lapse of time and, therefore, is 
impermissible under paragraph (c)(2) of this section because it 
exceeds 90 days.
    Example 6.  (i) Facts. Employer W's group health plan provides 
for coverage to begin on the first day of the first payroll period 
on or after the date an employee is hired and completes the 
applicable enrollment forms. Enrollment forms are distributed on an 
employee's start date and may be completed within 90 days. Employee 
D is hired and starts on October 31, which is the first day of a pay 
period. D completes the enrollment forms and submits them on the 
90th day after D's start date. Coverage is made effective 7 days 
later, which is the first day of the next pay period.
    (ii) Conclusion. In this Example 6, under the terms of W's plan, 
coverage may become effective as early as October 31, depending on 
when D completes the applicable enrollment forms. Under the terms of 
the plan, when coverage becomes effective is dependent solely on the 
length of time taken by D to complete the enrollment materials. 
Therefore, under the terms of the plan, D may elect coverage that 
would begin on a date that does not exceed the 90-day waiting period 
limitation, and the plan complies with this section.
    Example 7.  (i) Facts. Under Employer Y's group health plan, 
only employees who are full-time (defined under the plan as 
regularly averaging 30 hours of service per week) are eligible for 
coverage. Employee E begins employment for Employer Y on November 26 
of Year 1. E's hours are reasonably expected to vary, with an 
opportunity to work between 20 and 45 hours per week, depending on 
shift availability and E's availability. Therefore, it cannot be 
determined at E's start date that E is reasonably expected to work 
full-time. Under the terms of the plan, variable-hour employees, 
such as E, are eligible to enroll in the plan if they are determined 
to be a full-time employee after a measurement period of 12 months 
that begins on the employee's start date. Coverage is made effective 
no later than the first day of the first calendar month after the 
applicable enrollment forms are received. E's 12-month measurement 
period ends November 25 of Year 2. E is determined to be a full-time 
employee and is notified of E's plan eligibility. If E then elects 
coverage, E's first day of coverage will be January 1 of Year 3.
    (ii) Conclusion. In this Example 7, the measurement period is 
permissible because it is not considered to be designed to avoid 
compliance with the 90-day waiting period limitation. The plan may 
use a reasonable period of time to determine whether a variable-hour 
employee is a full-time employee, provided the period of time is no 
longer than 12 months and begins on a date between the employee's 
start date and the first day of the next calendar month, provided 
coverage is made effective no later than 13 months from E's start 
date (plus if the employee's start date is not the first day of a 
calendar month, the time remaining until the first day of the next 
calendar month) and provided that, in addition to the measurement 
period, no more than 90 days elapse prior to the employee's 
eligibility for coverage.
    Example 8.  (i) Facts. Employee F begins working 25 hours per 
week for Employer Z on January 6 and is considered a part-time 
employee for purposes of Z's group health plan. Z sponsors a group 
health plan that provides coverage to part-time employees after they 
have completed a cumulative 1,200 hours of service. F satisfies the 
plan's

[[Page 17326]]

cumulative hours of service condition on December 15.
    (ii) Conclusion. In this Example 8, the cumulative hours of 
service condition with respect to part-time employees is not 
considered to be designed to avoid compliance with the 90-day 
waiting period limitation. Accordingly, coverage for F under the 
plan must begin no later than the 91st day after F completes 1,200 
hours. (If the plan's cumulative hours-of-service requirement was 
more than 1,200 hours, the requirement would be considered to be 
designed to avoid compliance with the 90-day waiting period 
limitation.)

    (f) Special rule for health insurance issuers. To the extent 
coverage under a group health plan is insured by a health insurance 
issuer, the issuer is permitted to rely on the eligibility information 
reported to it by the employer (or other plan sponsor) and will not be 
considered to violate the requirements of this section with respect to 
its administration of any waiting period, if both of the following 
conditions are satisfied:
    (1) The issuer requires the plan sponsor to make a representation 
regarding the terms of any eligibility conditions or waiting periods 
imposed by the plan sponsor before an individual is eligible to become 
covered under the terms of the employer's plan (and requires the plan 
sponsor to update this representation with any changes); and
    (2) The issuer has no specific knowledge of the imposition of a 
waiting period that would exceed the permitted 90-day period.
    (g) No effect on other laws. Compliance with this section is not 
determinative of compliance with any other provision of State or 
Federal law (including ERISA, the Code, or other provisions of the 
Patient Protection and Affordable Care Act). See e.g., Sec.  54.9802-1, 
which prohibits discrimination in eligibility for coverage based on a 
health factor, and section 4980H, which generally requires applicable 
large employers to offer coverage to full-time employees and their 
dependents or make an assessable payment.
    (h) Applicability date--(1) In general. The provisions of this 
section apply for plan years beginning on or after January 1, 2014. See 
Sec.  54.9815-1251T providing that the prohibition on waiting periods 
exceeding 90 days applies to all group health plans and health 
insurance issuers, including grandfathered health plans.
    (2) Application to individuals in a waiting period prior to the 
applicability date--(i) With respect to individuals who are in a 
waiting period for coverage before the applicability date of this 
section, beginning on the first day the section applies, the waiting 
period can no longer apply to the individual if it would exceed 90 days 
with respect to the individual.
    (ii) This paragraph (h)(2) is illustrated by the following example:

    Example.  (i) Facts. A group health plan is a calendar year 
plan. Prior to January 1, 2014, the plan provides that full-time 
employees are eligible for coverage after a 6-month waiting period. 
Employee A begins work as a full-time employee on October 1, 2013.
    (ii) Conclusion. In this Example 1, the first day of A's waiting 
period is October 1, 2013 because that is the first day A is 
otherwise eligible to enroll under the plan's substantive 
eligibility provisions, but for the waiting period. Beginning 
January 1, 2014, the plan may not apply a waiting period that 
exceeds 90 days. Accordingly, A must be given the opportunity to 
elect coverage that begins no later than January 1, 2014 (which is 
93 days after A's start date) because otherwise, on January 1, 2014, 
the plan would be applying a waiting period that exceeds 90 days. 
The plan is not required to make coverage effective before January 
1, 2014 under the rules of this section.
    Par. 10. Section 54.9815-2719T is amended by adding a sentence to 
the end of the introductory text of paragraph (d) and revising 
paragraph (d)(1)(i) to read as follows:


Sec.  54.9815-2719T  Internal claims and appeals and external review 
processes.

* * * * *
    (d) * * * A Multi State Plan or MSP, as defined by 45 CFR 800.20, 
must provide an effective Federal external review process in accordance 
with this paragraph (d).
    (1) * * *
    (i) In general. Subject to the suspension provision in paragraph 
(d)(1)(ii) of this section and except to the extent provided otherwise 
by the Secretary in guidance, the Federal external review process 
established pursuant to this paragraph (d) applies, at a minimum, to 
any adverse benefit determination or final adverse benefit 
determination (as defined in paragraphs (a)(2)(i) and (a)(2)(v) of this 
section), except that a denial, reduction, termination, or a failure to 
provide payment for a benefit based on a determination that a 
participant or beneficiary fails to meet the requirements for 
eligibility under the terms of a group health plan is not eligible for 
the Federal external review process under this paragraph (d).
* * * * *
    Par. 11. Section 54.9831-1 is amended by removing paragraph 
(b)(2)(i), and redesignating paragraphs (b)(2)(ii) through (b)(2)(viii) 
as (b)(2)(i) through (b)(2)(vii).

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons stated in the preamble, the Department of Labor 
proposes to amend 29 CFR part 2590 as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
12. The authority citation for Part 2590 continues to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1185c, 1185d, 1191, 1191a, 
1191b, and 1191c; sec. 101(g), Pub. L.104-191, 110 Stat. 1936; sec. 
401(b), Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 
512(d), Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 
1562(e), Pub. L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-
152, 124 Stat. 1029; Secretary of Labor's Order 3-2010, 75 FR 55354 
(September 10, 2010).

0
13. Section 2590.701-1 is amended by revising paragraph (b) to read as 
follows:


Sec.  2590.701-1  Basis and scope.

* * * * *
0
(b) Scope. A group health plan or health insurance issuer offering 
group health insurance coverage may provide greater rights to 
participants and beneficiaries than those set forth in this Subpart B. 
This Subpart B sets forth minimum requirements for group health plans 
and group health insurance issuers offering group health insurance 
coverage concerning certain consumer protections of the Health 
Insurance Portability and Accountability Act (HIPAA), including special 
enrollment periods and the prohibition against discrimination based on 
a health factor, as amended by the Patient Protection and Affordable 
Care Act (Affordable Care Act). Other consumer protection provisions, 
including other protections provided by the Affordable Care Act and the 
Mental Health Parity and Addiction Equity Act are set forth in Subpart 
C of this part.
0
14. Section 2590.701-2 is amended by revising the definitions of 
``enrollment date'', ``late enrollment'', and ``waiting period'', and 
by adding definitions of ``first day of coverage'' and ``late 
enrollee'' in alphabetical order, to read as follows:


Sec.  2590.701-2  Definitions.

* * * * *
    Enrollment date means the first day of coverage or, if there is a 
waiting period, the first day of the waiting period. If an individual 
receiving benefits under a

[[Page 17327]]

group health plan changes benefit packages, or if the plan changes 
group health insurance issuers, the individual's enrollment date does 
not change.
* * * * *
    First day of coverage means, in the case of an individual covered 
for benefits under a group health plan, 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 or contract.
* * * * *
    Late enrollee means an individual whose enrollment in a plan is a 
late enrollment.
    Late enrollment means enrollment of an individual under a group 
health plan other than on the earliest date on which coverage can 
become effective for the individual under the terms of the plan; or 
through special enrollment. (For rules relating to special enrollment, 
see Sec.  2590.701-6.) If an individual ceases to be eligible for 
coverage under a plan, and then subsequently becomes eligible for 
coverage under the plan, only the individual's most recent period of 
eligibility 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 following a suspension of coverage that applied 
generally under the plan.
* * * * *
    Waiting period means waiting period within the meaning of Sec.  
2590.715-2708(b).
0
15. Section 2590.701-3 is amended by:
0
A. Removing paragraphs (a)(2), (a)(3), (c), (d), (e), and (f).
0
B. Revising the heading to paragraph (a).
0
C. Removing paragraph (a)(1) introductory text, and redesignating 
paragraphs (a)(1)(i) and (a)(1)(ii) as paragraphs (a)(1) and (a)(2).
0
D. Amending paragraph (a)(2) by revising paragraph (ii) of Examples 1 
and 2, by revising Example 3 and Example 4, by revising paragraph (ii) 
of Examples 5, 6, 7 and 8.
0
E. Revising paragraph (b).
    The revisions read as follows:


Sec.  2590.701-3  Limitations on preexisting condition exclusion 
period.

    (a) Preexisting condition exclusion defined--
* * * * *
    (2) * * *
    Example 1. * * *
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for any prosthesis if the body part was lost before the effective 
date of coverage is a preexisting condition exclusion because it 
operates to exclude benefits for a condition based on the fact that 
the condition was present before the effective date of coverage 
under the policy. The exclusion of benefits, therefore, is 
prohibited.
    Example 2.  * * *
    (ii) Conclusion. In this Example 2, the plan provision excluding 
cosmetic surgery benefits for individuals injured before enrolling 
in the plan is a preexisting condition exclusion because it operates 
to exclude benefits relating to a condition based on the fact that 
the condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 3.  (i) Facts. A group health plan provides coverage for 
the treatment of diabetes, generally not subject to any requirement 
to obtain an approval for a treatment plan. However, if an 
individual was diagnosed with diabetes before the effective date of 
coverage under the plan, diabetes coverage is subject to a 
requirement to obtain approval of a treatment plan in advance.
    (ii) Conclusion. In this Example 3, the requirement to obtain 
advance approval of a treatment plan is a preexisting condition 
exclusion because it limits benefits for a condition based on the 
fact that the condition was present before the effective date of 
coverage. The plan provision, therefore, is prohibited.
    Example 4.  (i) Facts. A group health plan provides coverage for 
three infertility treatments. The plan counts against the three-
treatment limit benefits provided under prior health coverage.
    (ii) Conclusion. In this Example 4, counting benefits for a 
specific condition provided under prior health coverage against a 
treatment limit for that condition is a preexisting condition 
exclusion because it operates to limit benefits for a condition 
based on the fact that the condition was present before the 
effective date of coverage. The plan provision, therefore, is 
prohibited.
    Example 5. * * *
    (ii) Conclusion. In this Example 5, the requirement to be 
covered under the plan for 12 months to be eligible for pregnancy 
benefits is a subterfuge for a preexisting condition exclusion 
because it is designed to exclude benefits for a condition 
(pregnancy) that arose before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 6. * * *
    (ii) Conclusion. In this Example 6, the exclusion of coverage 
for treatment of congenital heart conditions is a preexisting 
condition exclusion because it operates to exclude benefits relating 
to a condition based on the fact that the condition was present 
before the effective date of coverage. The plan provision, 
therefore, is prohibited.
    Example 7.  * * *
    (ii) Conclusion. In this Example 7, the exclusion of coverage 
for treatment of cleft palate is not a preexisting condition 
exclusion because the exclusion applies regardless of when the 
condition arose relative to the effective date of coverage. The plan 
provision, therefore, is not prohibited. (But see 45 CFR 147.150, 
which may require coverage of cleft palate as an essential health 
benefit for health insurance coverage in the individual or small 
group market).
    Example 8.  * * *
    (ii) Conclusion. In this Example 8, the exclusion of coverage 
for treatment of cleft palate for individuals who have not been 
covered under the plan from the date of birth operates to exclude 
benefits in relation to a condition based on the fact that the 
condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
* * * * *
    (b) General rules. See Sec.  2590.715-2704 for rules prohibiting 
the imposition of a preexisting condition exclusion.
0
16. Section 2590.701-4 is amended by removing paragraphs (a)(3) and 
(c), and revising paragraph (b) to read as follows:


Sec.  2590.701-4  Rules relating to creditable coverage.

* * * * *
    (b) Counting creditable coverage rules superseded by prohibition on 
preexisting condition exclusion. See Sec.  2590.715-2704 for rules 
prohibiting the imposition of a preexisting condition exclusion.
0
17. Section 2590.701-5 is revised to read as follows:


Sec.  2590.701-5  Evidence of creditable coverage.

    (a) In general. The rules for providing certificates of creditable 
coverage and demonstrating creditable coverage have been superseded by 
the prohibition on preexisting condition exclusions. See Sec.  
2590.715-2704 for rules prohibiting the imposition of a preexisting 
condition exclusion.
    (b) Applicability. The amendments made under this section apply 
beginning December 31, 2014.
0
18. Section 2590.701-6 is amended by removing paragraph (a)(3)(i)(E) 
and revising paragraphs (a)(3)(i)(C), (a)(3)(i)(D), (a)(4)(i), and 
(d)(2) to read as follows:


Sec.  2590.701-6  Special enrollment periods.

* * * * *
    (a) * * *
    (3) * * *
    (i) * * *
    (C) In the case of coverage offered through an HMO, or other 
arrangement, in the group market that does not provide benefits to 
individuals who no longer reside, live, or work in a service area, loss 
of coverage because an individual no longer resides, lives, or works in 
the service area (whether or not within the choice of the individual), 
and no other benefit package is available to the individual; and

[[Page 17328]]

    (D) A situation in which a plan no longer offers any benefits to 
the class of similarly situated individuals (as described in Sec.  
2590.702(d)) that includes the individual.
* * * * *
    (4) * * *
    (i) A plan or issuer must allow an employee a period of at least 30 
days after an event described in paragraph (a)(3) of this section to 
request enrollment (for the employee or the employee's dependent).
* * * * *
    (d) * * *
    (2) Special enrollees must be offered all the benefit packages 
available to similarly situated individuals who enroll when first 
eligible. For this purpose, any difference in benefits or cost-sharing 
requirements for different individuals constitutes a different benefit 
package. In addition, a special enrollee cannot be required to pay more 
for coverage than a similarly situated individual who enrolls in the 
same coverage when first eligible.
* * * * *
0
19. Section 2590.701-7 is revised to read as follows:


Sec.  2590.701-7  HMO affiliation period as an alternative to a 
preexisting condition exclusion.

    The rules for HMO affiliation periods have been superseded by the 
prohibition on preexisting condition exclusions. See Sec.  2590.715-
2704 for rules prohibiting the imposition of a preexisting condition 
exclusion.
0
20. Section 2590.702 is amended by:
0
A. Removing paragraph (b)(3) and revising paragraphs (b)(1)(i) and 
(b)(2)(i)(B).
0
B. Revising Example 1, paragraph (i) of Example 2, paragraph (ii) of 
Example 4, paragraph (ii) of Example 5, and removing Example 8, in 
paragraph (b)(2)(i)(D).
0
C. Revising Example 2, and paragraph (i) of Example 5, in paragraph 
(d)(4).
0
D. Revising paragraph (ii) of Example 2 in paragraph (e)(2)(i)(B).
0
E. Revising Example 1 in paragraph (g)(1)(ii).
    The revisions read as follows:


Sec.  2590.702  Prohibiting discrimination against participants and 
beneficiaries based on a health factor.

* * * * *
    (b) * * *
    (1) * * *
    (i) A group health plan, and a health insurance issuer offering 
health insurance coverage in connection with a group health plan, may 
not establish any rule for eligibility (including continued 
eligibility) of any individual to enroll for benefits under the terms 
of the plan or group health insurance coverage that discriminates based 
on any health factor that relates to that individual or a dependent of 
that individual. This rule is subject to the provisions of paragraph 
(b)(2) of this section (explaining how this rule applies to benefits), 
paragraph (d) of this section (containing rules for establishing groups 
of similarly situated individuals), paragraph (e) of this section 
(relating to nonconfinement, actively-at-work, and other service 
requirements), paragraph (f) of this section (relating to wellness 
programs), and paragraph (g) of this section (permitting favorable 
treatment of individuals with adverse health factors).
* * * * *
    (2) * * *
    (i) * * *
    (B) However, benefits provided under a plan must be uniformly 
available to all similarly situated individuals (as described in 
paragraph (d) of this section). Likewise, any restriction on a benefit 
or benefits must apply uniformly to all similarly situated individuals 
and must not be directed at individual participants or beneficiaries 
based on any health factor of the participants or beneficiaries 
(determined based on all the relevant facts and circumstances). Thus, 
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. In addition, a plan or issuer may 
require the satisfaction of a deductible, copayment, coinsurance, or 
other cost-sharing requirement in order to obtain a benefit if the 
limit or cost-sharing requirement 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. In the case of a cost-sharing requirement, see also 
paragraph (b)(2)(ii) of this section, which permits variances in the 
application of a cost-sharing mechanism made available under a wellness 
program. (Whether any plan provision or practice with respect to 
benefits complies with this paragraph (b)(2)(i) does not affect whether 
the provision or practice is permitted under ERISA, the Affordable Care 
Act (including the requirements related to essential health benefits), 
the Americans with Disabilities Act, or any other law, whether State or 
Federal.)
* * * * *
    (D) * * *

    Example 1.  (i) Facts. A group health plan applies a $10,000 
annual limit on a specific covered benefit that is not an essential 
health benefit to each participant or beneficiary covered under the 
plan. The limit is not directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 1, the limit does not violate 
this paragraph (b)(2)(i) because coverage of the specific, non-
essential health benefit up to $10,000 is available uniformly to 
each participant and beneficiary under the plan and because the 
limit is applied uniformly to all participants and beneficiaries and 
is not directed at individual participants or beneficiaries.
    Example 2.  (i) Facts. A group health plan has a $500 deductible 
on all benefits for participants covered under the plan. Participant 
B files a claim for the treatment of AIDS. At the next corporate 
board meeting of the plan sponsor, the claim is discussed. Shortly 
thereafter, the plan is modified to impose a $2,000 deductible on 
benefits for the treatment of AIDS, effective before the beginning 
of the next plan year.
* * * * *
    Example 4.  * * *
    (ii) Conclusion. In this Example 4, the limit does not violate 
this paragraph (b)(2)(i) because $2,000 of benefits for the 
treatment of TMJ are available uniformly to all similarly situated 
individuals and a plan may limit benefits covered in relation to a 
specific disease or condition if the limit applies uniformly to all 
similarly situated individuals and is not directed at individual 
participants or beneficiaries. (However, applying a lifetime limit 
on TMJ may violate Sec.  2590.715-2711, if TMJ coverage is an 
essential health benefit. This example does not address whether the 
plan provision is permissible under any other applicable law, 
including PHS Act section 2711 or the Americans with Disabilities 
Act.)
    Example 5. * * *
    (ii) Conclusion. In this Example 5, the lower lifetime limit for 
participants and beneficiaries with a congenital heart defect 
violates this paragraph (b)(2)(i) because benefits under the plan 
are not uniformly available to all similarly situated individuals 
and the plan's lifetime limit on benefits does not apply uniformly 
to all similarly situated individuals. Additionally, this plan 
provision is prohibited under Sec.  2590.715-2711 because it imposes 
a lifetime limit on essential health benefits.
* * * * *
    (d) * * *
    (4) * * *
    Example 2.  (i) Facts. Under a group health plan, coverage is 
made available to employees, their spouses, and their children. 
However, coverage is made available to a child only if the child is 
under age 26 (or under age 29 if the child is continuously

[[Page 17329]]

enrolled full-time in an institution of higher learning (full-time 
students)). There is no evidence to suggest that these 
classifications are directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 2, treating spouses and 
children differently by imposing an age limitation on children, but 
not on spouses, is permitted under this paragraph (d). Specifically, 
the distinction between spouses and children is permitted under 
paragraph (d)(2) of this section and is not prohibited under 
paragraph (d)(3) of this section because it is not directed at 
individual participants or beneficiaries. It is also permissible to 
treat children who are under age 26 (or full-time students under age 
29) as a group of similarly situated individuals separate from those 
who are age 26 or older (or age 29 or older if they are not full-
time students) because the classification is permitted under 
paragraph (d)(2) of this section and is not directed at individual 
participants or beneficiaries.
* * * * *
    Example 5.  (i) Facts. An employer sponsors a group health plan 
that provides the same benefit package to all seven employees of the 
employer. Six of the seven employees have the same job title and 
responsibilities, but Employee G has a different job title and 
different responsibilities. After G files an expensive claim for 
benefits under the plan, coverage under the plan is modified so that 
employees with G's job title receive a different benefit package 
that includes a higher deductible than in the benefit package made 
available to the other six employees.
* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (B) * * *
    Example 2.  * * *
    (ii) Conclusion. In this Example 2, the plan violates this 
paragraph (e)(2) (and thus also paragraph (b) of this section) 
because the 90-day continuous service requirement is a rule for 
eligibility based on whether an individual is actively at work. 
However, the plan would not violate this paragraph (e)(2) or 
paragraph (b) of this section if, under the plan, an absence due to 
any health factor is not considered an absence for purposes of 
measuring 90 days of continuous service. (In addition, any 
eligibility provision that is time-based must comply with the 
requirements of PHS Act section 2708 and its implementing 
regulations.)
* * * * *
    (g) * * *
    (1) * * *
    (ii) * * *
    Example 1.  (i) Facts. An employer sponsors a group health plan 
that generally is available to employees, spouses of employees, and 
dependent children until age 26. However, dependent children who are 
disabled are eligible for coverage beyond age 26.
    (ii) Conclusion. In this Example 1, the plan provision allowing 
coverage for disabled dependent children beyond age 26 satisfies 
this paragraph (g)(1) (and thus does not violate this section).
* * * * *
    21. Section 2590.715-2708 is added to read as follows:


Sec.  2590.715-2708  Prohibition on waiting periods that exceed 90 
days.

    (a) General rule. A group health plan, and a health insurance 
issuer offering group health insurance coverage, must not apply any 
waiting period that exceeds 90 days, in accordance with the rules of 
this section. If, under the terms of a plan, an employee can elect 
coverage that would begin on a date that is not later than the end of 
the 90-day waiting period, this paragraph (a) is considered satisfied. 
Accordingly, a plan or issuer in that case will not be considered to 
have violated this paragraph (a) solely because employees (or other 
classes of participants) may take additional time (beyond the end of 
the 90-day waiting period) to elect coverage.
    (b) Waiting period defined. For purposes of this part, a waiting 
period is the period that must pass before coverage for an employee or 
dependent who is otherwise eligible to enroll under the terms of a 
group health plan can become effective. If an employee or dependent 
enrolls as a late enrollee (as defined under Sec.  2590.701-2) or 
special enrollee (as described in Sec.  2590.701-6), any period before 
such late or special enrollment is not a waiting period.
    (c) Relation to a plan's eligibility criteria--(1) Except as 
provided in paragraphs (c)(2) and (c)(3) of this section, being 
otherwise eligible to enroll under the terms of a group health plan 
means having met the plan's substantive eligibility conditions (such 
as, for example, being in an eligible job classification or achieving 
job-related licensure requirements specified in the plan's terms). 
Moreover, except as provided in paragraphs (c)(2) and (c)(3) of this 
section, nothing in this section requires a plan sponsor to offer 
coverage to any particular employee or class of employees (including, 
for example, part-time employees). Instead, this section prohibits 
requiring otherwise eligible participants and beneficiaries to wait 
more than 90 days before coverage is effective. (While a substantive 
eligibility condition that denies coverage to employees may be 
permissible under this section, a failure by an applicable large 
employer (as defined in section 4980H of the Code) to offer coverage to 
a full-time employee might, for example, nonetheless give rise to an 
assessable payment under Code section 4980H and its implementing 
regulations.)
    (2) Eligibility conditions based solely on the lapse of time. 
Eligibility conditions that are based solely on the lapse of a time 
period are permissible for no more than 90 days.
    (3) Other conditions for eligibility. Other conditions for 
eligibility under the terms of a group health plan are generally 
permissible under PHS Act section 2708, unless the condition is 
designed to avoid compliance with the 90-day waiting period limitation, 
determined in accordance with the rules of this paragraph (c)(3).
    (i) Application to variable-hour employees in cases in which a 
specified number of hours of service per period is a plan eligibility 
condition. If a group health plan conditions eligibility on an employee 
regularly having a specified number of hours of service per period (or 
working full-time), and it cannot be determined that a newly-hired 
employee is reasonably expected to regularly work that number of hours 
per period (or work full-time), the plan may take a reasonable period 
of time, not to exceed 12 months and beginning on any date between the 
employee's start day and the first day of the first calendar month 
following the employee's start date, to determine whether the employee 
meets the plan's eligibility condition. Except in cases in which a 
waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether such an 
employee meets the plan's eligibility condition will not be considered 
to be designed to avoid compliance with the 90-day waiting period 
limitation if coverage is made effective no later than 13 months from 
the employee's start date, plus if the employee's start date is not the 
first day of a calendar month, the time remaining until the first day 
of the next calendar month.
    (ii) Cumulative service requirements. If a group health plan or 
health insurance issuer conditions eligibility on an employee's having 
completed a number of cumulative hours of service, the eligibility 
condition is not considered to be designed to avoid compliance with the 
90-day waiting period limitation if the cumulative hours-of-service 
requirement does not exceed 1,200 hours.
    (d) Counting days. Under this section, all calendar days are 
counted beginning on the enrollment date (as defined in Sec.  2590.701-
2), including weekends and holidays. If, in the case of a plan or 
issuer imposing a 90-day waiting period, the 91st day is a weekend or 
holiday, the plan or issuer may choose to permit coverage to become 
effective earlier than the 91st day, for

[[Page 17330]]

administrative convenience. Similarly, plans and issuers that do not 
want to start coverage in the middle of a month (or pay period) may 
choose to permit coverage to become effective earlier than the 91st 
day, for administrative convenience. For example, a plan may impose a 
waiting period of 60 days plus a fraction of a month (or pay period) 
until the first day of the next month (or pay period). However, a plan 
or issuer that extends the effective date of coverage beyond the 91st 
day fails to comply with the 90-day waiting period limitation.
    (e) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1.  (i) Facts. A group health plan provides that full-
time employees are eligible for coverage under the plan. Employee A 
begins employment as a full-time employee on January 19.
    (ii) Conclusion. In this Example 1, any waiting period for A 
would begin on January 19 and may not exceed 90 days. Coverage under 
the plan must become effective no later than April 19 (assuming 
February lasts 28 days).
    Example 2.  (i) Facts. A group health plan provides that only 
employees with job title M are eligible for coverage under the plan. 
Employee B begins employment in job title L on January 30.
    (ii) Conclusion. In this Example 2, B is not eligible for 
coverage under the plan, and the period while B is working in job 
title L and therefore not in an eligible class of employees is not 
part of a waiting period under this section.
    Example 3.  (i) Facts. Same facts as Example 2, except that B 
transfers to a new position with job title M on April 11.
    (ii) Conclusion. In this Example 3, B becomes eligible for 
coverage on April 11, but for the waiting period. Any waiting period 
for B begins on April 11 and may not exceed 90 days. Coverage under 
the plan must become effective no later than July 10.
    Example 4.  (i) Facts. A group health plan provides that only 
employees who have completed specified training and achieved 
specified certifications are eligible for coverage under the plan. 
Employee C is hired on May 3 and meets the plan's eligibility 
criteria on September 22.
    (ii) Conclusion. In this Example 4, C becomes eligible for 
coverage on September 22, but for the waiting period. Any waiting 
period for C would begin on September 22 and may not exceed 90 days. 
Coverage under the plan must become effective no later than December 
21.
    Example 5. (i) Facts. A group health plan provides that 
employees are eligible for coverage after one year of service.
    (ii) Conclusion. In this Example 5, the plan's eligibility 
condition is based solely on the lapse of time and, therefore, is 
impermissible under paragraph (c)(2) of this section because it 
exceeds 90 days.
    Example 6.  (i) Facts. Employer W's group health plan provides 
for coverage to begin on the first day of the first payroll period 
on or after the date an employee is hired and completes the 
applicable enrollment forms. Enrollment forms are distributed on an 
employee's start date and may be completed within 90 days. Employee 
D is hired and starts on October 31, which is the first day of a pay 
period. D completes the enrollment forms and submits them on the 
90th day after D's start date. Coverage is made effective 7 days 
later, which is the first day of the next pay period.
    (ii) Conclusion. In this Example 6, under the terms of W's plan, 
coverage may become effective as early as October 31, depending on 
when D completes the applicable enrollment forms. Under the terms of 
the plan, when coverage becomes effective is dependent solely on the 
length of time taken by D to complete the enrollment materials. 
Therefore, under the terms of the plan, D may elect coverage that 
would begin on a date that does not exceed the 90-day waiting period 
limitation, and the plan complies with this section.
    Example 7.  (i) Facts. Under Employer Y's group health plan, 
only employees who are full-time (defined under the plan as 
regularly averaging 30 hours of service per week) are eligible for 
coverage. Employee E begins employment for Employer Y on November 26 
of Year 1. E's hours are reasonably expected to vary, with an 
opportunity to work between 20 and 45 hours per week, depending on 
shift availability and E's availability. Therefore, it cannot be 
determined at E's start date that E is reasonably expected to work 
full-time. Under the terms of the plan, variable-hour employees, 
such as E, are eligible to enroll in the plan if they are determined 
to be a full-time employee after a measurement period of 12 months 
that begins on the employee's start date. Coverage is made effective 
no later than the first day of the first calendar month after the 
applicable enrollment forms are received. E's 12-month measurement 
period ends November 25 of Year 2. E is determined to be a full-time 
employee and is notified of E's plan eligibility. If E then elects 
coverage, E's first day of coverage will be January 1 of Year 3.
    (ii) Conclusion. In this Example 7, the measurement period is 
permissible because it is not considered to be designed to avoid 
compliance with the 90-day waiting period limitation. The plan may 
use a reasonable period of time to determine whether a variable-hour 
employee is a full-time employee, provided the period of time is no 
longer than 12 months and begins on a date between the employee's 
start date and the first day of the next calendar month, provided 
coverage is made effective no later than 13 months from E's start 
date (plus if the employee's start date is not the first day of a 
calendar month, the time remaining until the first day of the next 
calendar month) and provided that, in addition to the measurement 
period, no more than 90 days elapse prior to the employee's 
eligibility for coverage.
    Example 8.  (i) Facts. Employee F begins working 25 hours per 
week for Employer Z on January 6 and is considered a part-time 
employee for purposes of Z's group health plan. Z sponsors a group 
health plan that provides coverage to part-time employees after they 
have completed a cumulative 1,200 hours of service. F satisfies the 
plan's cumulative hours of service condition on December 15.
    (ii) Conclusion. In this Example 8, the cumulative hours of 
service condition with respect to part-time employees is not 
considered to be designed to avoid compliance with the 90-day 
waiting period limitation. Accordingly, coverage for F under the 
plan must begin no later than the 91st day after F completes 1,200 
hours. (If the plan's cumulative hours-of-service requirement was 
more than 1,200 hours, the requirement would be considered to be 
designed to avoid compliance with the 90-day waiting period 
limitation.)

    (f) Special rule for health insurance issuers. To the extent 
coverage under a group health plan is insured by a health insurance 
issuer, the issuer is permitted to rely on the eligibility information 
reported to it by the employer (or other plan sponsor) and will not be 
considered to violate the requirements of this section with respect to 
its administration of any waiting period, if both of the following 
conditions are satisfied:
    (1) The issuer requires the plan sponsor to make a representation 
regarding the terms of any eligibility conditions or waiting periods 
imposed by the plan sponsor before an individual is eligible to become 
covered under the terms of the employer's plan (and requires the plan 
sponsor to update this representation with any changes), and
    (2) The issuer has no specific knowledge of the imposition of a 
waiting period that would exceed the permitted 90-day period.
    (g) No effect on other laws. Compliance with this section is not 
determinative of compliance with any other provision of State or 
Federal law (including ERISA, the Code, or other provisions of the 
Patient Protection and Affordable Care Act). See e.g., Sec.  2590.702, 
which prohibits discrimination in eligibility for coverage based on a 
health factor and Code section 4980H, which generally requires 
applicable large employers to offer coverage to full-time employees and 
their dependents or make an assessable payment.
    (h) Applicability date--(1) In general. The provisions of this 
section apply for plan years beginning on or after January 1, 2014. See 
Sec.  2590.715-1251 providing that the prohibition on waiting periods 
exceeding 90 days applies to all group health plans and health 
insurance issuers, including grandfathered health plans.
    (2) Application to individuals in a waiting period prior to the 
applicability date--(i) With respect to individuals

[[Page 17331]]

who are in a waiting period for coverage before the applicability date 
of this section, beginning on the first day the section applies, the 
waiting period can no longer apply to the individual if it would exceed 
90 days with respect to the individual.
    (ii) This paragraph (h)(2) is illustrated by the following example:

    Example.  (i) Facts. A group health plan is a calendar year 
plan. Prior to January 1, 2014, the plan provides that full-time 
employees are eligible for coverage after a 6-month waiting period. 
Employee A begins work as a full-time employee on October 1, 2013.
    (ii) Conclusion. In this Example 1, the first day of A's waiting 
period is October 1, 2013 because that is the first day A is 
otherwise eligible to enroll under the plan's substantive 
eligibility provisions, but for the waiting period. Beginning 
January 1, 2014, the plan may not apply a waiting period that 
exceeds 90 days. Accordingly, A must be given the opportunity to 
elect coverage that begins no later than January 1, 2014 (which is 
93 days after A's start date) because otherwise, on January 1, 2014, 
the plan would be applying a waiting period that exceeds 90 days. 
The plan is not required to make coverage effective before January 
1, 2014 under the rules of this section.
0
22. Section 2590.715-2719 is amended by adding a sentence to the end of 
the introductory text of paragraph (d) and revising paragraph (d)(1)(i) 
to read as follows:


Sec.  2590.715-2719  Internal claims and appeals and external review 
processes.

* * * * *
    (d) * * * A Multi State Plan or MSP, as defined by 45 CFR 800.20, 
must provide an effective Federal external review process in accordance 
with this paragraph (d).
    (1) * * *
    (i) In general. Subject to the suspension provision in paragraph 
(d)(1)(ii) of this section and except to the extent provided otherwise 
by the Secretary in guidance, the Federal external review process 
established pursuant to this paragraph (d) applies, at a minimum, to 
any adverse benefit determination or final adverse benefit 
determination (as defined in paragraphs (a)(2)(i) and (a)(2)(v) of this 
section), except that a denial, reduction, termination, or a failure to 
provide payment for a benefit based on a determination that a 
participant or beneficiary fails to meet the requirements for 
eligibility under the terms of a group health plan is not eligible for 
the Federal external review process under this paragraph (d).
* * * * *
0
23. Section 2590.731 is amended by revising paragraph (c)(2) to read as 
follows:


Sec.  2590.731  Preemption; State flexibility; construction.

* * * * *
    (c) * * *
    (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 requires special enrollment periods in addition to those 
required under section 701(f) of the Act.
* * * * *
0
24. Section 2590.732 is amended by removing paragraph (b)(2)(i), and 
redesignating paragraphs (b)(2)(ii) through (b)(2)(ix) as (b)(2)(i) 
through (b)(2)(viii).

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Subtitle A

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR parts 144, 146, and 147 as 
set forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
25. The authority citation for part 144 continues to read as follows:

    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).

0
26. Section 144.103 is amended by revising the definitions of 
``enrollment date'', ``late enrollment'', and ``waiting period'', and 
by adding definitions of ``first day of coverage'' and ``late 
enrollee'' in alphabetical order, to read as follows:


Sec.  144.103  Definitions.

* * * * *
    Enrollment date means the first day of coverage or, if there is a 
waiting period, the first day of the waiting period. If an individual 
receiving benefits under a group health plan changes benefit packages, 
or if the plan changes group health insurance issuers, the individual's 
enrollment date does not change.
* * * * *
    First day of coverage means, in the case of an individual covered 
for benefits under a group health plan, 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 or contract.
* * * * *
    Late enrollee means an individual whose enrollment in a plan is a 
late enrollment.
    Late enrollment means enrollment of an individual under a group 
health plan other than on the earliest date on which coverage can 
become effective for the individual under the terms of the plan; or 
other than through special or limited open enrollment. (For rules 
relating to special enrollment and limited open enrollment, see Sec.  
146.117 and Sec.  147.104.) If an individual ceases to be eligible for 
coverage under a plan, and then subsequently becomes eligible for 
coverage under the plan, only the individual's most recent period of 
eligibility 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 following a suspension of coverage that applied 
generally under the plan.
* * * * *
    Waiting period has the meaning given the term in 45 CFR 147.116(b).

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
27. The authority citation for part 146 continues to read as follows:

    Authority:  Secs. 2702 through 2705, 2711 through 2723, 2791, 
and 2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92).

0
28. Section 146.101 is amended by revising paragraph (b)(1) to read as 
follows:


Sec.  146.101  Basis and scope.

* * * * *
    (b) * * *
    (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 under the Health Insurance 
Portability and Accountability Act (HIPAA), as amended by the Patient 
Protection and Affordable Care Act (Affordable Care Act), including 
special enrollment periods, prohibiting discrimination against 
participants and beneficiaries based on a health factor, and additional 
requirements prohibiting discrimination against participants and 
beneficiaries based on genetic information.
* * * * *
0
29. Section 146.111 is amended by:
0
A. Removing paragraphs (a)(2), (a)(3), (c), (d), (e), and (f).
0
B. Revising the heading to paragraph (a).

[[Page 17332]]

0
C. Removing paragraph (a)(1) introductory text, and redesignating 
paragraphs (a)(1)(i) and (a)(1)(ii) as paragraphs (a)(1) and (a)(2).
0
D. Amending paragraph (a)(2) by revising paragraph (ii) of Examples 1 
and 2, by revising Example 3 and Example 4, and by revising paragraph 
(ii) of Examples 5, 6, 7, and 8.
0
E. Revising paragraph (b).
    The revisions read as follows:


Sec.  146.111  Prohibition of preexisting condition exclusion period.

    (a) Preexisting condition exclusion defined--
* * * * *
    (2) * * *

    Example 1. * * *
    (ii) Conclusion. In this Example 1, the exclusion of benefits 
for any prosthesis if the body part was lost before the effective 
date of coverage is a preexisting condition exclusion because it 
operates to exclude benefits for a condition based on the fact that 
the condition was present before the effective date of coverage 
under the policy. The exclusion of benefits, therefore, is 
prohibited.
    Example 2.  * * *
    (ii) Conclusion. In this Example 2, the plan provision excluding 
cosmetic surgery benefits for individuals injured before enrolling 
in the plan is a preexisting condition exclusion because it operates 
to exclude benefits relating to a condition based on the fact that 
the condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 3. (i) Facts. A group health plan provides coverage for 
the treatment of diabetes, generally not subject to any requirement 
to obtain an approval for a treatment plan. However, if an 
individual was diagnosed with diabetes before the effective date of 
coverage under the plan, diabetes coverage is subject to a 
requirement to obtain approval of a treatment plan in advance.
    (ii) Conclusion. In this Example 3, the requirement to obtain 
advance approval of a treatment plan is a preexisting condition 
exclusion because it limits benefits for a condition based on the 
fact that the condition was present before the effective date of 
coverage. The plan provision, therefore, is prohibited.
    Example 4. (i) Facts. A group health plan provides coverage for 
three infertility treatments. The plan counts against the three-
treatment limit benefits provided under prior health coverage.
    (ii) Conclusion. In this Example 4, counting benefits for a 
specific condition provided under prior health coverage against a 
treatment limit for that condition is a preexisting condition 
exclusion because it operates to limit benefits for a condition 
based on the fact that the condition was present before the 
effective date of coverage. The plan provision, therefore, is 
prohibited.
    Example 5.  * * *
    (ii) Conclusion. In this Example 5, the requirement to be 
covered under the plan for 12 months to be eligible for pregnancy 
benefits is a subterfuge for a preexisting condition exclusion 
because it is designed to exclude benefits for a condition 
(pregnancy) that arose before the effective date of coverage. The 
plan provision, therefore, is prohibited.
    Example 6.  * * *
    (ii) Conclusion. In this Example 6, the exclusion of coverage 
for treatment of congenital heart conditions is a preexisting 
condition exclusion because it operates to exclude benefits relating 
to a condition based on the fact that the condition was present 
before the effective date of coverage. The plan provision, 
therefore, is prohibited.
    Example 7. * * *
    (ii) Conclusion. In this Example 7, the exclusion of coverage 
for treatment of cleft palate is not a preexisting condition 
exclusion because the exclusion applies regardless of when the 
condition arose relative to the effective date of coverage. The plan 
provision, therefore, is not prohibited. (But see 45 CFR 147.150, 
which may require coverage of cleft palate as an essential health 
benefit for health insurance coverage in the individual or small 
group market).
    Example 8. * * *
    (ii) Conclusion. In this Example 8, the exclusion of coverage 
for treatment of cleft palate for individuals who have not been 
covered under the plan from the date of birth operates to exclude 
benefits in relation to a condition based on the fact that the 
condition was present before the effective date of coverage. The 
plan provision, therefore, is prohibited.
* * * * *
    (b) General rules. See Sec.  147.108 for rules prohibiting the 
imposition of a preexisting condition exclusion.
0
30. Section 146.113 is amended by removing paragraphs (a)(3) and (c), 
and revising paragraph (b) to read as follows:


Sec.  146.113  Rules relating to creditable coverage.

* * * * *
    (b) Counting creditable coverage rules superseded by prohibition on 
preexisting condition exclusion. See Sec.  147.108 of this subchapter 
for rules prohibiting the imposition of a preexisting condition 
exclusion.
0
31. Section 146.115 is revised to read as follows:


Sec.  146.115  Certification and disclosure of previous coverage.

    (a) In general. The rules for providing certificates of creditable 
coverage and demonstrating creditable coverage have been superseded by 
the prohibition on preexisting condition exclusions. See Sec.  147.108 
of this subchapter for rules prohibiting the imposition of a 
preexisting condition exclusion.
    (b) Applicability. The amendments made under this section apply 
beginning December 31, 2014.
0
32. Section 146.117 is amended by removing paragraph (a)(3)(i)(E) and 
revising paragraph (a)(3)(i)(C), (a)(3)(i)(D), (a)(4)(i), and (d)(2) to 
read as follows:


Sec.  146.117  Special enrollment periods.

* * * * *
    (a) * * *
    (3) * * *
    (i) * * *
    (C) In the case of coverage offered through an HMO, or other 
arrangement, in the group market that does not provide benefits to 
individuals who no longer reside, live, or work in a service area, loss 
of coverage because an individual no longer resides, lives, or works in 
the service area (whether or not within the choice of the individual), 
and no other benefit package is available to the individual; and
    (D) A situation in which a plan no longer offers any benefits to 
the class of similarly situated individuals (as described in Sec.  
146.121(d)) that includes the individual.
* * * * *
    (4) * * *
    (i) A plan or issuer must allow an employee a period of at least 30 
days after an event described in paragraph (a)(3) of this section to 
request enrollment (for the employee or the employee's dependent).
* * * * *
    (d) * * *
    (2) Special enrollees must be offered all the benefit packages 
available to similarly situated individuals who enroll when first 
eligible. For this purpose, any difference in benefits or cost-sharing 
requirements for different individuals constitutes a different benefit 
package. In addition, a special enrollee cannot be required to pay more 
for coverage than a similarly situated individual who enrolls in the 
same coverage when first eligible.
* * * * *
0
33. Section 146.119 is revised to read as follows:


Sec.  146.119  HMO affiliation period as an alternative to a 
preexisting condition exclusion.

    The rules for HMO affiliation periods have been superseded by the 
prohibition on preexisting condition exclusions. See Sec.  147.108 of 
this subchapter for rules prohibiting the imposition of a preexisting 
condition exclusion.
0
34. Section 146.121 is amended by:
0
A. Removing paragraph (b)(3) and revising paragraphs (b)(1)(i) and 
(b)(2)(i)(B).
0
B. Revising Example 1, paragraph (i) of Example 2, paragraph (ii) of 
Example 4, and paragraph (ii) of Example 5, and removing Example 8 in 
paragraph (b)(2)(i)(D).

[[Page 17333]]

0
C. Revising Example 2, and paragraph (i) of Example 5, in paragraph 
(d)(4).
0
D. Revising paragraph (ii) of Example 2 in paragraph (e)(2)(i)(B).
0
E. Revising Example 1 in paragraph (g)(1)(ii).
    The revisions read as follows:


Sec.  146.121  Prohibiting discrimination against participants and 
beneficiaries based on a health factor.

* * * * *
    (b) * * *
    (1) * * *
    (i) A group health plan, and a health insurance issuer offering 
health insurance coverage in connection with a group health plan, may 
not establish any rule for eligibility (including continued 
eligibility) of any individual to enroll for benefits under the terms 
of the plan or group health insurance coverage that discriminates based 
on any health factor that relates to that individual or a dependent of 
that individual. This rule is subject to the provisions of paragraph 
(b)(2) of this section (explaining how this rule applies to benefits), 
paragraph (d) of this section (containing rules for establishing groups 
of similarly situated individuals), paragraph (e) of this section 
(relating to nonconfinement, actively-at-work, and other service 
requirements), paragraph (f) of this section (relating to wellness 
programs), and paragraph (g) of this section (permitting favorable 
treatment of individuals with adverse health factors).
* * * * *
    (2) * * *
    (i) * * *
    (B) However, benefits provided under a plan must be uniformly 
available to all similarly situated individuals (as described in 
paragraph (d) of this section). Likewise, any restriction on a benefit 
or benefits must apply uniformly to all similarly situated individuals 
and must not be directed at individual participants or beneficiaries 
based on any health factor of the participants or beneficiaries 
(determined based on all the relevant facts and circumstances). Thus, 
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. In addition, a plan or issuer may 
require the satisfaction of a deductible, copayment, coinsurance, or 
other cost-sharing requirement in order to obtain a benefit if the 
limit or cost-sharing requirement 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. In the case of a cost-sharing requirement, see also 
paragraph (b)(2)(ii) of this section, which permits variances in the 
application of a cost-sharing mechanism made available under a wellness 
program. (Whether any plan provision or practice with respect to 
benefits complies with this paragraph (b)(2)(i) does not affect whether 
the provision or practice is permitted under ERISA, the Affordable Care 
Act (including the requirements related to essential health benefits), 
the Americans with Disabilities Act, or any other law, whether State or 
Federal.)
* * * * *
    (D) * * *

    Example 1.  (i) Facts. A group health plan applies a $10,000 
annual limit on a specific covered benefit that is not an essential 
health benefit to each participant or beneficiary covered under the 
plan. The limit is not directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 1, the limit does not violate 
this paragraph (b)(2)(i) because coverage of the specific, non-
essential health benefit up to $10,000 is available uniformly to 
each participant and beneficiary under the plan and because the 
limit is applied uniformly to all participants and beneficiaries and 
is not directed at individual participants or beneficiaries.
    Example 2. (i) Facts. A group health plan has a $500 deductible 
on all benefits for participants covered under the plan. Participant 
B files a claim for the treatment of AIDS. At the next corporate 
board meeting of the plan sponsor, the claim is discussed. Shortly 
thereafter, the plan is modified to impose a $2,000 deductible on 
benefits for the treatment of AIDS, effective before the beginning 
of the next plan year.
* * * * *
    Example 4. * * *
    (ii) Conclusion. In this Example 4, the limit does not violate 
this paragraph (b)(2)(i) because $2,000 of benefits for the 
treatment of TMJ are available uniformly to all similarly situated 
individuals and a plan may limit benefits covered in relation to a 
specific disease or condition if the limit applies uniformly to all 
similarly situated individuals and is not directed at individual 
participants or beneficiaries. (However, applying a lifetime limit 
on TMJ may violate Sec.  147.126, if TMJ coverage is an essential 
health benefit. This example does not address whether the plan 
provision is permissible under any other applicable law, including 
PHS Act section 2711 or the Americans with Disabilities Act.)
    Example 5. * * *
    (ii) Conclusion. In this Example 5, the lower lifetime limit for 
participants and beneficiaries with a congenital heart defect 
violates this paragraph (b)(2)(i) because benefits under the plan 
are not uniformly available to all similarly situated individuals 
and the plan's lifetime limit on benefits does not apply uniformly 
to all similarly situated individuals. Additionally, this plan 
provision is prohibited under Sec.  147.126 because it imposes a 
lifetime limit on essential health benefits.
* * * * *
    (d) * * *
    (4) * * *

    Example 2. (i) Facts. Under a group health plan, coverage is 
made available to employees, their spouses, and their children. 
However, coverage is made available to a child only if the child is 
under age 26 (or under age 29 if the child is continuously enrolled 
full-time in an institution of higher learning (full-time 
students)). There is no evidence to suggest that these 
classifications are directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 2, treating spouses and 
children differently by imposing an age limitation on children, but 
not on spouses, is permitted under this paragraph (d). Specifically, 
the distinction between spouses and children is permitted under 
paragraph (d)(2) of this section and is not prohibited under 
paragraph (d)(3) of this section because it is not directed at 
individual participants or beneficiaries. It is also permissible to 
treat children who are under age 26 (or full-time students under age 
29) as a group of similarly situated individuals separate from those 
who are age 26 or older (or age 29 or older if they are not full-
time students) because the classification is permitted under 
paragraph (d)(2) of this section and is not directed at individual 
participants or beneficiaries.
* * * * *
    Example 5. (i) Facts. An employer sponsors a group health plan 
that provides the same benefit package to all seven employees of the 
employer. Six of the seven employees have the same job title and 
responsibilities, but Employee G has a different job title and 
different responsibilities. After G files an expensive claim for 
benefits under the plan, coverage under the plan is modified so that 
employees with G's job title receive a different benefit package 
that includes a higher deductible than in the benefit package made 
available to the other six employees.
* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (B) * * *

    Example 2. * * *
    (ii) Conclusion. In this Example 2, the plan violates this 
paragraph (e)(2) (and thus also paragraph (b) of this section) 
because the 90-day continuous service requirement is a rule for 
eligibility based on whether an individual is actively at work. 
However, the plan would not violate this paragraph (e)(2) or 
paragraph (b) of this section if, under the plan, an absence due to 
any health factor is not

[[Page 17334]]

considered an absence for purposes of measuring 90 days of 
continuous service. (In addition, any eligibility provision that is 
time-based must comply with the requirements of PHS Act section 2708 
and its implementing regulations.)
* * * * *
    (g) * * *
    (1) * * *
    (ii) * * *

    Example 1. (i) Facts. An employer sponsors a group health plan 
that generally is available to employees, spouses of employees, and 
dependent children until age 26. However, dependent children who are 
disabled are eligible for coverage beyond age 26.
    (ii) Conclusion. In this Example 1, the plan provision allowing 
coverage for disabled dependent children beyond age 26 satisfies 
this paragraph (g)(1) (and thus does not violate this section).
* * * * *
0
35. Section 146.143 is amended by revising paragraph (c)(2) to read as 
follows:


Sec.  146.143  Preemption; State flexibility; construction.

* * * * *
    (c) * * *
    (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 requires special enrollment periods in addition to those 
required under section 2702 of the Act.
* * * * *
0
36. Amend Sec.  146.145 by revising paragraph (b) to read as follows:


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (b) General exception for certain small group health plans. The 
requirements of this part, other than Sec.  146.130 and the provisions 
with respect to genetic nondiscrimination (found in Sec.  146.121(b), 
Sec.  146.121(c), Sec.  146.121(e), Sec.  146.122(b), Sec.  146.122(c), 
Sec.  146.122(d), and Sec.  146.122(e)) do not apply to any group 
health plan (and group health insurance coverage) for any plan year, if 
on the first day of the plan year, the plan has fewer than two 
participants who are current employees.
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
37. The authority citation for part 147 continues to read as follows:

    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), as amended.

0
38. Section 147.116 is added to read as follows:


Sec.  147.116  Prohibition on waiting periods that exceed 90 days.

    (a) General rule. A group health plan, and a health insurance 
issuer offering group health insurance coverage, must not apply any 
waiting period that exceeds 90 days, in accordance with the rules of 
this section. If, under the terms of a plan, an employee can elect 
coverage that would begin on a date that is not later than the end of 
the 90-day waiting period, this paragraph (a) is considered satisfied. 
Accordingly, a plan or issuer in that case will not be considered to 
have violated this paragraph (a) solely because employees (or other 
classes of participants) may take additional time (beyond the end of 
the 90-day waiting period) to elect coverage.
    (b) Waiting period defined. For purposes of this part, a waiting 
period is the period that must pass before coverage for an employee or 
dependent who is otherwise eligible to enroll under the terms of a 
group health plan can become effective. If an employee or dependent 
enrolls as a late enrollee (as defined under Sec.  144.103 of this 
subchapter) or special enrollee (as described in Sec.  146.117 of this 
subchapter), any period before such late or special enrollment is not a 
waiting period.
    (c) Relation to a plan's eligibility criteria--(1) Except as 
provided in paragraphs (c)(2) and (c)(3) of this section, being 
otherwise eligible to enroll under the terms of a group health plan 
means having met the plan's substantive eligibility conditions (such 
as, for example, being in an eligible job classification or achieving 
job-related licensure requirements specified in the plan's terms). 
Moreover, except as provided in paragraphs (c)(2) and (c)(3) of this 
section, nothing in this section requires a plan sponsor to offer 
coverage to any particular employee or class of employees (including, 
for example, part-time employees). Instead, this section prohibits 
requiring otherwise eligible participants and beneficiaries to wait 
more than 90 days before coverage is effective. (While a substantive 
eligibility condition that denies coverage to employees may be 
permissible under this section, a failure by an applicable large 
employer (as defined in section 4980H of the Code) to offer coverage to 
a full-time employee might, for example, nonetheless give rise to an 
assessable payment under section 4980H and its implementing 
regulations.)
    (2) Eligibility conditions based solely on the lapse of time. 
Eligibility conditions that are based solely on the lapse of a time 
period are permissible for no more than 90 days.
    (3) Other conditions for eligibility. Other conditions for 
eligibility under the terms of a group health plan are generally 
permissible under PHS Act section 2708, unless the condition is 
designed to avoid compliance with the 90-day waiting period limitation, 
determined in accordance with the rules of this paragraph (c)(3).
    (i) Application to variable-hour employees in cases in which a 
specified number of hours of service per period is a plan eligibility 
condition. If a group health plan conditions eligibility on an employee 
regularly having a specified number of hours of service per period (or 
working full-time), and it cannot be determined that a newly-hired 
employee is reasonably expected to regularly work that number of hours 
per period (or work full-time), the plan may take a reasonable period 
of time, not to exceed 12 months and beginning on any date between the 
employee's start day and the first day of the first calendar month 
following the employee's start date, to determine whether the employee 
meets the plan's eligibility condition. Except in cases in which a 
waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether such an 
employee meets the plan's eligibility condition will not be considered 
to be designed to avoid compliance with the 90-day waiting period 
limitation if coverage is made effective no later than 13 months from 
the employee's start date, plus if the employee's start date is not the 
first day of a calendar month, the time remaining until the first day 
of the next calendar month.
    (ii) Cumulative service requirements. If a group health plan or 
health insurance issuer conditions eligibility on an employee's having 
completed a number of cumulative hours of service, the eligibility 
condition is not considered to be designed to avoid compliance with the 
90-day waiting period limitation if the cumulative hours-of-service 
requirement does not exceed 1,200 hours.
    (d) Counting days. Under this section, all calendar days are 
counted beginning on the enrollment date (as defined in Sec.  144.103 
of this subchapter), including weekends and holidays. If, in the case 
of a plan or issuer imposing a 90-day waiting period, the 91st day is a 
weekend or holiday, the plan or issuer may choose to permit coverage to 
become effective earlier than the 91st

[[Page 17335]]

day, for administrative convenience. Similarly, plans and issuers that 
do not want to start coverage in the middle of a month (or pay period) 
may choose to permit coverage to become effective earlier than the 91st 
day, for administrative convenience. For example, a plan may impose a 
waiting period of 60 days plus a fraction of a month (or pay period) 
until the first day of the next month (or pay period). However, a plan 
or issuer that extends the effective date of coverage beyond the 91st 
day fails to comply with the 90-day waiting period limitation.
    (e) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan provides that full-
time employees are eligible for coverage under the plan. Employee A 
begins employment as a full-time employee on January 19.
    (ii) Conclusion. In this Example 1, any waiting period for A 
would begin on January 19 and may not exceed 90 days. Coverage under 
the plan must become effective no later than April 19 (assuming 
February lasts 28 days).
    Example 2. (i) Facts. A group health plan provides that only 
employees with job title M are eligible for coverage under the plan. 
Employee B begins employment in job title L on January 30.
    (ii) Conclusion. In this Example 2, B is not eligible for 
coverage under the plan, and the period while B is working in job 
title L and therefore not in an eligible class of employees is not 
part of a waiting period under this section.
    Example 3. (i) Facts. Same facts as Example 2, except that B 
transfers to a new position with job title M on April 11.
    (ii) Conclusion. In this Example 3, B becomes eligible for 
coverage on April 11, but for the waiting period. Any waiting period 
for B begins on April 11 and may not exceed 90 days. Coverage under 
the plan must become effective no later than July 10.
    Example 4. (i) Facts. A group health plan provides that only 
employees who have completed specified training and achieved 
specified certifications are eligible for coverage under the plan. 
Employee C is hired on May 3 and meets the plan's eligibility 
criteria on September 22.
    (ii) Conclusion. In this Example 4, C becomes eligible for 
coverage on September 22, but for the waiting period. Any waiting 
period for C would begin on September 22 and may not exceed 90 days. 
Coverage under the plan must become effective no later than December 
21.
    Example 5. (i) Facts. A group health plan provides that 
employees are eligible for coverage after one year of service.
    (ii) Conclusion. In this Example 5, the plan's eligibility 
condition is based solely on the lapse of time and, therefore, is 
impermissible under paragraph (c)(2) of this section because it 
exceeds 90 days.
    Example 6. (i) Facts. Employer W's group health plan provides 
for coverage to begin on the first day of the first payroll period 
on or after the date an employee is hired and completes the 
applicable enrollment forms. Enrollment forms are distributed on an 
employee's start date and may be completed within 90 days. Employee 
D is hired and starts on October 31, which is the first day of a pay 
period. D completes the enrollment forms and submits them on the 
90th day after D's start date. Coverage is made effective 7 days 
later, which is the first day of the next pay period.
    (ii) Conclusion. In this Example 6, under the terms of W's plan, 
coverage may become effective as early as October 31, depending on 
when D completes the applicable enrollment forms. Under the terms of 
the plan, when coverage becomes effective is dependent solely on the 
length of time taken by D to complete the enrollment materials. 
Therefore, under the terms of the plan, D may elect coverage that 
would begin on a date that does not exceed the 90-day waiting period 
limitation, and the plan complies with this section.
    Example 7. (i) Facts. Under Employer Y's group health plan, only 
employees who are full-time (defined under the plan as regularly 
averaging 30 hours of service per week) are eligible for coverage. 
Employee E begins employment for Employer Y on November 26 of Year 
1. E's hours are reasonably expected to vary, with an opportunity to 
work between 20 and 45 hours per week, depending on shift 
availability and E's availability. Therefore, it cannot be 
determined at E's start date that E is reasonably expected to work 
full-time. Under the terms of the plan, variable-hour employees, 
such as E, are eligible to enroll in the plan if they are determined 
to be a full-time employee after a measurement period of 12 months 
that begins on the employee's start date. Coverage is made effective 
no later than the first day of the first calendar month after the 
applicable enrollment forms are received. E's 12-month measurement 
period ends November 25 of Year 2. E is determined to be a full-time 
employee and is notified of E's plan eligibility. If E then elects 
coverage, E's first day of coverage will be January 1 of Year 3.
    (ii) Conclusion. In this Example 7, the measurement period is 
permissible because it is not considered to be designed to avoid 
compliance with the 90-day waiting period limitation. The plan may 
use a reasonable period of time to determine whether a variable-hour 
employee is a full-time employee, provided the period of time is no 
longer than 12 months and begins on a date between the employee's 
start date and the first day of the next calendar month, provided 
coverage is made effective no later than 13 months from E's start 
date (plus if the employee's start date is not the first day of a 
calendar month, the time remaining until the first day of the next 
calendar month) and provided that, in addition to the measurement 
period, no more than 90 days elapse prior to the employee's 
eligibility for coverage.
    Example 8. (i) Facts. Employee F begins working 25 hours per 
week for Employer Z on January 6 and is considered a part-time 
employee for purposes of Z's group health plan. Z sponsors a group 
health plan that provides coverage to part-time employees after they 
have completed a cumulative 1,200 hours of service. F satisfies the 
plan's cumulative hours of service condition on December 15.
    (ii) Conclusion. In this Example 8, the cumulative hours of 
service condition with respect to part-time employees is not 
considered to be designed to avoid compliance with the 90-day 
waiting period limitation. Accordingly, coverage for F under the 
plan must begin no later than the 91st day after F completes 1,200 
hours. (If the plan's cumulative hours-of-service requirement was 
more than 1,200 hours, the requirement would be considered to be 
designed to avoid compliance with the 90-day waiting period 
limitation.)

    (f) Special rule for health insurance issuers. To the extent 
coverage under a group health plan is insured by a health insurance 
issuer, the issuer is permitted to rely on the eligibility information 
reported to it by the employer (or other plan sponsor) and will not be 
considered to violate the requirements of this section with respect to 
its administration of any waiting period, if both of the following 
conditions are satisfied:
    (1) The issuer requires the plan sponsor to make a representation 
regarding the terms of any eligibility conditions or waiting periods 
imposed by the plan sponsor before an individual is eligible to become 
covered under the terms of the employer's plan (and requires the plan 
sponsor to update this representation with any changes), and
    (2) The issuer has no specific knowledge of the imposition of a 
waiting period that would exceed the permitted 90-day period.
    (g) No effect on other laws. Compliance with this section is not 
determinative of compliance with any other provision of State or 
Federal law (including ERISA, the Code, or other provisions of the 
Affordable Care Act). See e.g., Sec.  146.121 of this subchapter, which 
prohibits discrimination in eligibility for coverage based on a health 
factor and Code section 4980H, which generally requires applicable 
large employers to offer coverage to full-time employees and their 
dependents or make an assessable payment.
    (h) Applicability date--(1) In general. The provisions of this 
section apply for plan years beginning on or after January 1, 2014. See 
Sec.  147.140 providing that the prohibition on waiting periods 
exceeding 90 days applies to all group health plans and health 
insurance issuers, including grandfathered health plans.
    (2) Application to individuals in a waiting period prior to the 
applicability date--(i) With respect to individuals who are in a 
waiting period for coverage

[[Page 17336]]

before the applicability date of this section, beginning on the first 
day the section applies, the waiting period can no longer apply to the 
individual if it would exceed 90 days with respect to the individual.
    (ii) This paragraph (h)(2) is illustrated by the following example:

    Example. (i) Facts. A group health plan is a calendar year plan. 
Prior to January 1, 2014, the plan provides that full-time employees 
are eligible for coverage after a 6-month waiting period. Employee A 
begins work as a full-time employee on October 1, 2013.
    (ii) Conclusion. In this Example 1, the first day of A's waiting 
period is October 1, 2013 because that is the first day A is 
otherwise eligible to enroll under the plan's substantive 
eligibility provisions, but for the waiting period. Beginning 
January 1, 2014, the plan may not apply a waiting period that 
exceeds 90 days. Accordingly, A must be given the opportunity to 
elect coverage that begins no later than January 1, 2014 (which is 
93 days after A's start date) because otherwise, on January 1, 2014, 
the plan would be applying a waiting period that exceeds 90 days. 
The plan is not required to make coverage effective before January 
1, 2014 under the rules of this section.

0
39. Section 147.136 is amended by adding a sentence to the end of the 
introductory text of paragraph (d) and revising paragraph (d)(1)(i) to 
read as follows:


Sec.  147.136  Internal claims and appeals and external review 
processes.

* * * * *
    (d) * * * A Multi State Plan or MSP, as defined by 45 CFR 800.20, 
must provide an effective Federal external review process in accordance 
with this paragraph (d).
    (1) * * *
    (i) In general. Subject to the suspension provision in paragraph 
(d)(1)(ii) of this section and except to the extent provided otherwise 
by the Secretary in guidance, the Federal external review process 
established pursuant to this paragraph (d) applies, at a minimum, to 
any adverse benefit determination or final adverse benefit 
determination (as defined in paragraphs (a)(2)(i) and (a)(2)(v) of this 
section), except that a denial, reduction, termination, or a failure to 
provide payment for a benefit based on a determination that a 
participant or beneficiary fails to meet the requirements for 
eligibility under the terms of a group health plan is not eligible for 
the Federal external review process under this paragraph (d).
[FR Doc. 2013-06454 Filed 3-18-13; 4:15 pm]
BILLING CODE 4830-01-P; 4510-029-P; 4120-01-P; 6325-64