Dept. of Labor Clarifies HIPAA with Compliance Safe Harbor

Enactment of Titles I and IV of HIPAA and subsequent amendments improved access to and coverage by health insurance plans, addressing contentious issues such as hospital stays after childbirth and exceptions to coverage based on preexisting conditions. Intended to affect general health insurance coverage, including employer-based and open-market group or individual plans, the law did not cover certain excepted benefits. Thus, plans technically comprised entirely of “excepted benefits” could find themselves exempt from the requirements of these reforms.

The previous definition of one exception, “supplemental excepted benefits,” included Medicare Supplemental Insurance, TRICARE insurance, and “similar supplemental insurance coverage provided to coverage under a group health plan” if each was a separate policy, certificate, or contract of insurance. However, concerns over abuse of the vague language of “similar supplemental insurance coverage” has led the Department of Labor to issue clarification.

Field Assistance Bulletin No. 2007-04, issued December 7, 2007, establishes an enforcement safe harbor for supplemental health insurance that will be exempt from Part 7 of ERISA, as implemented through regulations at 29 CFR 2590.732(c)(5)(i)(C). “Similar supplemental insurance” that does not meet the Department of Labor’s following safe harbor standards can now be subject to enforcement action:

(1) Must be a separate policy, certificate, or contract of insurance..

(2) Supplemental insurance in question must be issued by someone other than the plan’s primary coverage provider. Significantly, if the coverage providers are “part of the same controlled group of corporations or part of the same group of trades or businesses under common control, within the meaning of section 52(a) or (b) of the code” they are effectively the same provider under the requirement.

(3) Supplemental insurance in question must be specifically intended to fill gaps in the primary coverage. This does not include insurance that becomes supplemental solely under a coordination-of-benefits provision.

(4) Cost of the Supplemental insurance in question must not exceed 15% of the primary coverage’s cost (cost is determined in the same way the applicable premium is determined under a COBRA continuation provision).

(5) Supplemental insurance in question must not “differentiate among individuals in eligibility, benefits, or premiums based on health factor of the individual” or his or her dependant.

This material is made available for information purposes only, and should not be relied upon to resolve specific legal questions.