Dec 20, 2008

Portability | Plan Provisions and Taxation

Some of the most significant parts of HIPAA are the provisions dealing with "portability" of medical expense coverage. These provisions are not for the purpose of allowing an employee to take specific insurance from one job to another. Rather, they put limitations on preexisting-conditions exclusions and allow an employee to use evidence of prior insurance coverage to reduce or eliminate the length of any preexisting-conditions exclusion when the employee moves to another medical expense plan. These provisions should minimize job lock for employees by eliminating the fear that medical expense coverage will be lost if an employee changes jobs.

The portability provisions apply to almost all group health insurance plans (either insured or self-funded) as long as they have at least two active participants on the first day of the plan year. Note that the same definition of group health plan mentioned in the initial discussion of HIPAA applies to the portability provisions.

Limitations on Preexisting Conditions
Restrictions for preexisting conditions are limited to a maximum of 12 months (18 months for late enrollees). In addition, the period for preexisting conditions must be reduced for prior creditable coverage as defined below. It should be noted that there is nothing in the act that prohibits an employer from imposing a probationary period before a new employee is eligible to enroll in a medical expense plan. (Note: HIPAA refers to the probationary period as a waiting period. However, the term probationary is consistent with the terminology and is therefore used in this discussion.) However, any probationary period must be applied uniformly without regard to the health status of potential plan participants or beneficiaries. In addition, the probationary period must run concurrently with any preexisting-conditions period. For example, an employee might be subject to a preexisting-conditions period of seven months because of prior coverage. If the employer's plan had a three-month probationary period for enrollment, the length of the preexisting-conditions period after enrollment could be only four months. An HMO is also permitted to have an affiliation period of up to two months (three months for late enrollees) if the HMO does not impose a preexisting-conditions provision and if the affiliation period is applied without regard to health status-related factors.

Under the act, a preexisting condition is defined as a mental or physical condition for which medical advice, diagnosis, care, or treatment was recommended or received within the six-month period ending on the enrollment date. No preexisting-conditions exclusions can apply to pregnancy or to newborn children or, if under age 18, to newly adopted children or children newly placed for adoption, as long as they become covered for creditable coverage within 30 days of birth, adoption, or placement. In addition, the use of genetic information as a preexisting condition is prohibited unless there is a diagnosis of a preexisting medical condition related to the information.

The 12-month limitation for preexisting conditions applies if an employee enrolls when he or she is initially eligible for coverage. It also applies in the case of special enrollment periods that are required by the act for employees and dependents who lose other coverage and for new dependents. Anyone who does not enroll in an employer's plan during the first period he or she is eligible or during a special enrollment period is a late enrollee and can be subject to a preexisting-conditions period of 18 months.

Creditable Coverage
The act defines creditable coverage as coverage under an individual policy, an employer-provided group plan (either insured or self-funded), an HMO, Medicare, Medicaid, or various public plans, regardless of whether the coverage is provided to a person as an individual, an employee, or a dependent. However, coverage is not creditable if there has been a break in coverage of 63 days or more.

In determining the length of a person's preexisting-conditions period, the period of prior creditable coverage must be subtracted. Assume, for example, that an employer's plan has a preexisting-conditions period of 12 months. If a new employee has 12 months or more of creditable coverage, the preexisting-conditions period is satisfied. If the period of creditable coverage is only seven months, then the preexisting-conditions period runs five more months. Note, however, that if the employee has been without coverage for at least 63 days between jobs, the full preexisting-conditions period applies.

Employers have two ways in which they can apply creditable coverage: on a blanket basis to all categories of medical expense coverage or on a benefit-specific basis. For example, if an employee had prior coverage that excluded prescription drugs, this particular coverage could be subject to the full preexisting-conditions period, while the period for other benefits would be reduced because creditable coverage had applied to them. For administrative ease, an employer usually picks the first method.

The act requires that an employer automatically give persons losing group coverage a certificate that specifies the period of creditable coverage under the plan they are leaving, including any period of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). In addition, the employer must provide the certificate to anyone who requests it within 24 months after coverage ceases. If an individual is eligible for COBRA coverage, the certificate must be provided no later than the time when a COBRA election notice must be provided. In other cases, the employer must provide the certificate within a "reasonable" time. This certificate of creditable coverage must include the following information:

  • The date the certificate was issued

  • The name of the health plan that provided the coverage

  • The name and identification number of individual(s) whose coverage has ceased

  • The name, address, and telephone number of the administrator responsible for the certificate

  • A statement that the individual(s) had at least 18 months of creditable coverage or the date any probationary period began and the date coverage began

  • The date coverage ended

    One certificate may include coverage for the employee and all dependents, or the employer may issue separate certificates for each person.

    Sample certificates of creditable coverage are readily available, including blank ones that can be downloaded from the Internet. This has led to a high incidence of fraudulent certificates. As a result, many plans contact the prior employer to verify the accuracy of any certificates they are given.

    State Options
    The act's provisions on portability generally override state laws. However, state laws that provide greater portability are not overridden. For example, a look-back period of less than six months might be required, or the maximum preexisting-conditions period could be less than 12 months.

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