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Insurance and Employee Benefits

An Act..

"…to amend the Internal Revenue Code of 1986 to improve portability and continuity of health insurance coverage in the group and individual markets, to combat waste, fraud, and abuse in health insurance and health care delivery, to promote the use of medical savings accounts, to improve access to long-term care services and coverage, to simplify the administration of health insurance, and for other purposes." Public Law 104-191 - 104th Congress

NOTE:  For the latest HIPAA regulations, Internal Revenue Bulletin 2005-8, TD 9166, provides the "Final Regulations for Health Coverage Portability for Group Health Plans and Group Health Insurance Issuers Under HIPAA Titles I and IV" which can be accessed at

HIPAA is usually considered as the most important piece of legislation of recent origin in respect to health insurance and employee benefits, as it was specifically designed to address these issues as evidenced by the preamble (above) of this law.


The two principal areas of insurance reform addressed by the HIPAA are group health insurance and Long Term Care Insurance (covered in another Chapter).  The stated principal raison d’étre of the Act was the portability problem of an employee moving from one group plan to another situation where there either is no insurance or the employee does not qualify for the health plan at the new employer because of health reasons, or the employee is unable to get individual insurance after the COBRA period with his former employer.


Under HIPAA’s “portability” protection, once a person obtained creditable health plan coverage (defined later), he can use evidence of that coverage to reduce or eliminate any preexisting medical condition exclusion period that might otherwise be imposed when the person moved from one job to another.  This applies whether the person moves from one health plan to another, from a group plan to an individual plan, or from an individual plan to a group plan.  Portability is simply being able to maintain coverage and being given credit for having been insured when changing health plans.  It does not, of course, mean that a person can take his insurance policy with him from one job to another.


The Consolidated Omnibus Budget Reconciliation Act of 1985, known as COBRA, requires that businesses with 20 or more employees that offer group insurance to their employees, to offer continued group health insurance coverage to employees and their dependents after certain events, which includes a 12 month extension of coverage. 

Creditable Coverage

Any insured or self-funded group health plan maintained by an employer to provide health care, directly or otherwise, to the employer's employees, former employees, or their family must generally offer COBRA continuation coverage.66 Insured plans are not only those providing coverage under group policies, but include any arrangement to provide health care to two or more employees under individual policies.67  These regulations do not apply to plans that are primarily qualified long-term care to two or more employees under individual policies. COBRA does not require plan sponsors to offer continuation coverage for disability income.  Amounts contributed by an Archer MSA plan are not considered part of a group health plan and are not subject to COBRA continuation requirements.

Creditable coverage applies when an individual is given credit for previous insurance when applying for a new health insurance plan.  Creditable coverage is coverage under any of the following:

  1. Group health plan;
  2. Health insurance coverage including individual health insurance;
  3. Medicare or Medicaid;
  4. Military health care;
  5. Medical care program of the Indian Health Service or a tribal organization;
  6. A state health benefits program;
  7. The Federal Employee Health Benefits Program;
  8. A public health plan (defined in the regulations); or
  9. A health benefit plan as part of the Peace Corps Act.


COBRA continuation coverage must provide coverage identical to that provided under the plan, to similarly situated beneficiaries in respect to whom qualifying events have not occurred.  If the coverage is modified for some beneficiaries, it must be modified for all beneficiaries of similar status.  Regulations have been "tough," as for example, a court ruled that an employer did not meet the COBRA requirements for continuation coverage where the only health plan available was an HMO that did not operate in the service area of the qualified beneficiary—even though the plan was no longer available because the self-insured trust under which she had been insured and to which she had elected coverage, was insolvent.68

Qualified beneficiaries that elect COBRA coverage are generally subject to the same deductibles as similarly situated non-COBRA beneficiaries.  Any amount that is accumulated towards deductibles, plan benefits, and plan cost limits prior to a qualifying event, are carried over into the COBRA continuation coverage period.69 

Usually, a qualified beneficiary who is electing COBRA coverage does not need to have the chance to change coverage that he had prior to his qualifying for COBRA, even if the COBRA coverage is not of as much value (or even no value) to the person, except for two situations.

If the beneficiary was participating in a plan that is "region-specific" but does not provide coverage in the area where the person is relocating, the beneficiary must be able to elect alternative coverage offered by the employer or employee organization that is made available to active employees.  However, the employer or employee organization is not required to provide the beneficiary with coverage if the coverage is not available to active employees in the area to which the beneficiary is relocating.

Also, if the employer or employee organization makes an open enrollment period available to similar active employees, the same open enrollment period rights must be made available to each qualified person that has COBRA coverage.70

Qualified Beneficiary

A qualified beneficiary is a covered employee's spouse or dependent child and who has been such on the day prior to the covered employee's covered event, under a group health plan.  A child born or placed for adoption with the covered employee during the period of continuation of coverage is also a qualified beneficiary.71

If the qualified event is a bankruptcy proceeding, then a qualified beneficiary is any covered employee who retired on or prior to the date of the elimination of coverage because of bankruptcy, and also includes individuals who were covered under the plan as the covered employee's spouse or dependent children.

If the qualifying event is an employment change of the covered employee, then the covered employee and his spouse and dependent children covered under the plan on the day before the event, are covered beneficiaries.

If a person marries a qualified beneficiary other than the covered employee, he does not automatically become a qualified beneficiary because of the marriage, nor does a child born to or placed for adoption with such a qualified beneficiary, does not, themselves, become a qualified beneficiary—even if they are covered under the group health plan.

Obviously, a person who does not elect COBRA continuation coverage is automatically no longer considered a qualified beneficiary at the end of the COBRA election period.72

Domestic Partners

Domestic partners that are not dependents are not covered by HIPAA.  However, employers providing health insurance to domestic partners may voluntarily include them in HIPAA certification procedures.

Cost of COBRA Continuation Coverage

The plan may require the qualified beneficiary to pay a premium for continuation of coverage.  Generally, the premium cannot exceed a percentage of the "applicable premium."

The applicable premium is the cost of the plan for similarly situated beneficiaries with respect to whom a qualifying even has not occurred.  This premium must be fixed by the plan before the determination period begins (determination period is any 12-month period selected by the plan, consisted from one year to the next).  Since this determination period is the same for any benefit package, each qualified beneficiary will not have a separate, individual, determination period.73 


The percentage of premium charged is usually 102%.74 If the qualified beneficiary is disabled, then the premium can be as high as 150% of the applicable premium for any month after the 18th month of continuation coverage, and the same amount can be charged if the disabled beneficiary experiences a second qualifying even during the disability extension—after the 18th month period, and it may be charged until the end of the 36th month.

F Coverage cannot be conditioned upon evidence of insurability or contingent upon the employee's reimbursement of his employer for group health plan premiums paid during a leave taken under the Family and Medical Leave Act of 1993.

During the determination period, the plan may increase the cost of COBRA only if the plan previously charges less than the maximum amount permitted and even after the increase in the maximum amount will not be exceeded, or if a qualified beneficiary changes his coverage.

The qualified beneficiary must be allowed to make premium payments on a monthly basis, at least and any person or entity can make the required premium payment on behalf of the beneficiary.  However, COBRA premiums must be paid in a timely fashion—defined as 45 days from the election for the period between the qualifying event and the election, and 30 days after the first date of the period for all other periods.  An employer has the right to retroactively terminate COBRA continuation if the initial premium is not paid in a timely fashion.  The employer is not allowed to set off the premium against the amount of any claim incurred during the 60-day election period.  

A plan must treat a timely payment that is less than the required amount, as full payment, unless the qualified beneficiary is notified on a timely basis and grants a reasonable time for payment—usually 30 days after the notice is provided.  The amount of the premium is considered as "not significantly less" if the amount not paid is no greater than the lesser of $50 or 10% of the required amount.75

Employers Subject to COBRA Continuation Coverage

As stated previously, church organizations and governmental plans are not subject to COBRA requirements.  In addition, "small-employer" plans are not subject to the COBRA continuation coverage requirements.76

A small-employer for purposes of these regulations, is defined as an employer who usually employed less than 20 employees during the previous calendar year on a typical business day.  An employer is considered to have less than 20 employees during a calendar year if it had fewer than 20 employees on at least 50% of its typical business days during that year.  Only common-law employees are taken into account for the purpose of this exclusion and self-employed individuals, independent contractors and directors are not counted.77

If the plan is a multiemployer plan, a small employer plan is a group health plan under which each of the employers that contribute to the plan for a calendar year, normally employed less than 20 employees during the previous calendar year.78



HIPAA requires that group health plans offered to an employment-based group—including both employers and employee organizations—that are covered by the Act meet certain portability requirements.

FWhen a person with prior creditable coverage, first enrolls in a group health plan, the plan cannot impose a limitation period on a preexisting condition that is longer than 12 months (or 18 months for late enrollees).

 The length of the allowed preexisting condition limitation is based upon any creditable coverage that the person may have.  The plan cannot apply any preexisting condition waiting period on pregnancy, a covered newborn, or any covered child under age 18 who is adopted (whether or not the adoption has been finalized).  The employer is allowed to require individuals to work for a period of time (waiting period, not preexisting condition period) before they may participate in the health plan.

All employers who sponsor group health plans are required to provide enrollees with a certificate that states the amount of creditable coverage accumulated and whether or not the enrollee was subject to a waiting period under the employer’s plan.  This certificate can be used to demonstrate creditable coverage when moving to another group or to an individual health insurance plan. 

The Act does not require an employer to continue offering coverage to enrollees who have left their jobs, except under COBRA continuation provisions.

Continuous Coverage

In order to benefit from HIPAA, it is important for individuals to maintain health insurance coverage without experiencing significant lapses in coverage.  The portability protection only applies to people with “continuous coverage,” defined as coverage with no lapses of 63 or more days, so individuals should not allow their insurance coverage to lapse for more than 62 days.

If a person moves from one group plan to another group plan, or from individual to group coverage, the new plan must reduce any preexisting condition limitation period for 1 month for every month that the individual had creditable coverage under a previous plan, provided they enroll when they are first eligible and with no break in coverage over 62 days.  As an example, if an individual had creditable coverage for 6 months they could have 6 months of a preexisting condition limitation period.  If they had 11 months of creditable coverage, they could face one month preexisting coverage limitation coverage.  The good news is that once a 12 month limitation is met, no new limitation may ever be imposed provided that continuous coverage is maintained and there is no break in coverage lasting longer than 62 days.  This would apply even if there is a change in jobs or in health plans. 

Text Box: F If there is a period of 63 consecutive days during which individuals have no   creditable coverage, they may be subject to as much as a 12-month preexisting condition exclusion period—or 18 months to late enrollees.


Persons may be eligible for a waiver of preexisting condition limitations by presenting certifications that document prior creditable coverage.  Health insurers and other health plans must provide the individual with written certifications of the period of creditable coverage under the plan, coverage (if applicable) under COBRA provisions, and any waiting or affiliation period imposed.  The certification must be provided at any of three times:

  1. When the person is no longer covered under the plan or otherwise becomes covered under a COBRA continuation provision;
  2. After the termination of the COBRA coverage; or
  3. Upon a request which is made not later than 24 months after coverage ends.

Creditable Coverage

"Creditable coverage" is coverage of an individual under several types of health plans, including a group health plan, health insurance coverage, Part A or Part B of Medicare, a state health benefits risk pool, or a public health plan.79

Certificate of Coverage

A certificate of coverage must be provided to participants or dependents who are or were covered under a group health plan upon the occurrence of any of several events and must be provided automatically to COBRA qualified beneficiaries upon the occurrence of a "qualified event," plus a certificate must be provided automatically to any qualified beneficiary who would otherwise lose coverage under the plan in the absence of COBRA continuation coverage and issued automatically to other individuals when coverage stops, and in several other situations as set forth by the regulations.80

Late Enrollment

“Late enrollment” occurs when an individual enrolls in a group health plan other than the first period in which the person is eligible to enroll, or a special enrollment period.  They should be aware that a later enrollee could make the person wait for as long as 18 months before a preexisting condition is covered.

Waiting Period

The waiting period is the time that an employee must wait before he is eligible to enroll in a health plan.  A typical waiting period is 6 months before health insurance benefits are available and the Act does not prescribe the waiting period—it is up to the insurer and the employer.  However, the Act does require that the waiting period be applied uniformly without regard as to the health status of potential plan participants or beneficiaries.  Waiting period days are not taken into account in determining the length of a break in coverage.

The waiting period is different than the preexisting condition exclusion limitation period which allows the plans to exclude coverage for certain health conditions for periods up to 12 or 18 months. 

F The waiting period that an employee or his family member must endure to become covered under a health plan, must run concurrently with any preexisting condition limitation period.


As an example, if an employer hires a person with no creditable coverage and requires such person to wait for 5 months before becoming eligible for the group health plan, then the preexisting condition limitation period imposed on the coverage of that individual could not exceed 7 months from the date of actual enrollment of the plan.  If the individual had 7 or more months of creditable coverage, then no preexisting condition limitation period could be imposed on the coverage under the new plan.

Crediting Prior Coverage

When a person change plans, sometimes the new benefit package may cover some benefits that the most recent prior plan did not cover.  The Act allows the new plan or issuer some discretion in applying prior creditable coverage to those new benefits.  Plans and issuers may choose between two alternatives when crediting coverage:

  1. They can choose to include all periods of coverage from qualified sources and ignore specific benefits, or
  2. They can examine prior coverage on a benefit-specific basis and are allowed to exclude any categories or classes of benefits not covered under the most recent plan, from creditable coverage.

Under a later (interim) rule, the categories of benefits that may be treated separately, are

  1. Mental health;
  2. Substance abuse treatment;
  3. Prescription drugs;
  4. Dental care; or
  5. Vision care.

Example:  If a prior plan did not cover prescription drugs and the new plan includes prescription drug coverage, the new plan may exclude prescription drug coverage for up to 12 months under this (2d) method—and, if this method is chosen, plans or issuers must disclose its use at the time or enrollment or sale of the plan, and apply it uniformly, i.e., an insurer must not allow other employees to obtain prescription drug coverage under the same circumstances for a shorter period of time.

Spouse and Children Coverage

An employer is not required to offer coverage to an individual’s spouse or family.  If the employer does offer family coverage, the same protection applies to a spouse and dependents and, for instance, coverage may not be denied because a family member is sick, and preexisting condition restrictions are limited.


HIPAA “guarantees” the availability of a plan and it prohibits preexisting condition exclusions for certain eligible individuals who are moving from group insurance to individual insurance.  States are given the right to either accept or enforce HIPAA individual guarantees, (called the “federal fallback”) or they may establish an acceptable alternative state mechanism.  For those using the federal fallback approach, HIPAA requires that all insurers who operate in the individual health insurance field to offer coverages to all eligible individuals and prohibits the insurers from placing any limitations of coverage on any preexisting medical condition.

The issuers (usually insurers) can comply in three ways:

  1. Offer eligible individuals access to coverage to every individual insurance policy that they sell in the state; or
  2. Offer eligible individuals access to coverage to their two most-popular insurance policies (popularity based upon premium volume); or
  3. Offer eligible individuals access to a lower-level and higher-level coverage.  These two policies must include benefits that are (substantially) similar to other coverage offered by the issuer in the state, and must include risk adjustment, risk spreading or financial subsidization,

Issuers do have the right to refuse coverage for those individuals seeking portability from the group market if financial or provider capacity would be impaired.  For example, an HMO can show that it is filled to capacity, health providers cannot accept new patients because of the number of patients they already have, health care within the area in which the individual resides and works cannot be provided at reasonable cost, etc., all could be advanced as a reasons not to cover a person, but the exception would have to be applied uniformly without regard to the health condition of the applicants—for instance they could not accept an individual from the same geographical area and who would be using health care providers that had been represented as being overwhelmed by the number of patients.


The COBRA coverage is considered creditable coverage for individuals who move from one group policy to another group policy or move from a group policy to an individual policy.  This would then allow an individual to move from COBRA to a new health plan without having to wait for coverage of any preexisting medical condition under the new plan, providing the individual does not have a lapse in coverage of 63 or more days. 

For individual coverage, this is a little more complex.  In order to be eligible for guaranteed availability and portability with individual plans, an individual must first have elected and exhausted any available COBRA or other continuation coverage.  Eligible persons who do not qualify for COBRA or other continuation coverage may go directly to the individual plans.  It should be noted, however,


F the insurer who accepts the eligible individual for coverage can charge whatever rate is allowed under state law as the Act does not limit the premiums that insurers can charge.


This is not to say, however, that the Act ignored COBRA, actually they made several changes to the COBRA continuation of coverage provisions.

  1. A disabled qualified beneficiary and all other qualified family members of the beneficiary are also eligible for the additional months of COBRA.
  2. The qualifying event of disability applies in the case of a qualified beneficiary that is determined under the Social Security Act to be disabled during the first 60 days of COBRA coverage,
  3. A qualified beneficiary for COBRA coverage includes a child who is born to, or placed for adoption with, the covered employee during the period of COBRA coverage; and
  4. COBRA can be terminated if a qualified beneficiary becomes covered under a group health plan which does not contain any exclusion or limitation affecting a participant or his or her beneficiaries because of the requirements of the Act.
  5. Under the Medical Savings Account provisions (discussed later) individuals can withdraw funds from their MSA to pay their COBRA premiums, without penalty.

Eligibility for Group to Individual Coverage

For an individual formerly insured under a group plan to be eligible for individual coverage the individual must have

  1. creditable health insurance coverage for 18 months or longer, at least the last day of which was under a group health plan;
  2. most recent coverage under a traditional employer group, governmental, or church plan;
  3. exhausted any COBRA or other continuation coverage;
  4. no eligibility for coverage under any employment-based plan, Medicare or Medicaid; and
  5. no breaks in coverage of 63 or more days.

Persons who purchase insurance coverage on their own, and who do not meet these eligibility requirements, are not protected by HIPAA’s portability and guaranteed availability options.  However, they may be protected under state laws.

Limitations of Group-to-Individual Portability

The portability provisions of group-to-individual coverage applies only to individuals whose most recent coverage was provided through traditional employer-based group arrangements, governmental plans or church-sponsored plans.  HIPAA defined group plans as those plans that meet the ERISA definition and which is limited to those sponsored through employer-employee relationship or an employment-based association.  Governmental plans are defined in ERISA as plans established or maintained for its employees by the federal, state or political subdivision.  This means that persons whose most recent coverage was sponsored by the military (CHAMPUS and TRICARE), many college sponsored student plans, the Peace Corps, the Veteran’s Administration, the Indian Health Service, Medicare, Medicaid and SCHIP are NOT eligible for the federal group-to-individual portability and guaranteed availability protections.  Again, however, states may offer these individuals such protections.

States may (a) provide an acceptable state mechanism for coverage of eligible individuals, (b) must allow a choice of health insurance coverage to all eligible individuals, (c) not impose any preexisting condition restrictions, and (d) include at least one policy form of coverage that is comparable to either comprehensive health insurance coverage offered in the individual market in the state, or a standard option of coverage available under the group or individual health insurance laws in the state.

In addition, a state may implement certain National Association of Insurance Commissioners (NAIC) Model Acts; a qualified high-risk pool that meets certain specified requirements, other risk-spreading or risk-adjustment approach or financial subsidies for participating insurers or eligible individuals, or any other mechanism under which eligible individuals are provided a choice of all individual health insurance coverage otherwise available.

Some states have provided for health insurance coverage pools, mandatory group conversion policies, guaranteed issue of one or more plans or individual health insurance coverage, open enrollment by one or more health insurance issuers, or a combination of such mechanisms.

Currently, 10 states (AZ, DE, HI, MD, MO, NV, NC, RI, TN, WV) have adopted the federal fall-back position, another 24 states adopted an alternative mechanism of a high-risk insurance pool.  The remaining 16 states have various alternative mechanisms, including two that use Blue Cross/Blue Shield as the guaranteed issue carriers.  Florida, for instance, has guaranteed issue to HIPAA persons, and health plans must offer a choice of conversion plans, one of which must be the state approved” standard policy” offered in the small group market.  Some states change the preexisting coverage limit time, adjustments in premium for various risks, retaining pregnancy as a preexisting condition, separate open enrollment period for HIPAA-eligibles, etc.

Special Enrollment Periods

The Act provides for two special enrollment periods to make sure that people who lose group health insurance coverage can have an easier time of obtaining coverage when available.  The two special enrollment periods are for individuals losing coverage and dependent beneficiaries.

Individual Losing Coverage

Any group health plan or issuer who offers coverage in connection with a group health plan, must allow an eligible employee (but not enrolled) to become covered under the health plan under the following conditions:

    1. The employee or dependent had coverage under a group health plan at the time coverage was previously offered to the employee or dependent (which can include coverage by a spouse’s health plan) and he had therefore declined coverage under his own employer’s plan.
    2. The employee must have stated (in writing) when they declined enrollment that the reason for declining the enrollment was that he was covered under another health plan.   This condition applies only if the plan sponsor or issuer requires such a written statement.
    3. The employee’s or dependent’s previous coverage was under COBRA continuation provision that had become exhausted or was under some other coverage that had been terminated as a result of loss of eligibility for the coverage for a variety of reasons, including divorce, death, termination of employment, reduction in number of hours of employment, or because the employer discontinued contributing to such coverage.
    4. To use the special enrollment period, the employee would have to request enrollment no later than 30 days after the date in which his prior coverage was terminated, or in the case of COBRA, exhausted.

Dependent Beneficiaries

The other special enrollment period applies to those who became dependents because of marriage, birth, adoption or placement of adoption.  This provision would apply if the group health plan makes dependent coverage available, and the new dependent’s spouse or parent is a participant, or eligible and the waiting period has been satisfied, to participate in the plan.  The new dependent must be allowed to enroll as a beneficiary under the plan provided that enrollment has been sought within 30 days of the “qualifying event” (marriage, adoption, etc.) 

Employees or their spouses who are eligible but who have not previously enrolled in the plan, may enroll during this special enrollment period and coverage would be effective on the date of the birth, adoption, or placement for adoption.  For marriage situations, coverage is effective on the first day of the month beginning after the date the request for enrollment is received. 


Under HIPAA, a group health plan (and an issuer) cannot offer group health coverage with rules for eligibility for any individual to enroll in the plan, based on health status of the person.  These are considered as discrimination factors, and include health, medical and mental illnesses, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability.  A rather interesting point is that evidence of insurability includes conditions arising out of domestic violence.  Also, a group health plan may not fail to re-enroll a participant or beneficiary on the basis of these health status factors.  Further, plans may not charge different premiums for enrollees within a group plan based upon these health related factors.

An employer cannot require rules of eligibility to enroll when such rules discriminate based on one or more health-status related factors.

Further, individuals that engage in “high-risk” recreational activities cannot be denied enrollment or charged different rates than those that do not engage in such activities.  However, HIPAA only addresses enrollment policies and premiums, and does not address benefits under the plans.  Therefore, there is no federal requirement to cover treatments for injuries associated with high risk activities even if the treatments are covered under the plan.  As an example, a plan may exclude coverage for a broken leg or arm, etc., if such occurs as a result of a high risk activity.  Further, under a group health plan, while an employer is not required to offer coverage to a spouse or children, if they do offer family coverage, then the same non-discrimination provisions apply to the wife and children. 

Premium Amounts

HIPAA does not restrict the premium amounts that an employer or insurer can charge and it expressly permits an employer or group health insurer to offer premium discounts or rebates or to modify applicable copayments or deductibles for participation in health promotion and disease prevention programs.  Having said that, HIPAA does prohibit a health plan from charging a higher premium than the premium charged for another similarly situated individual enrolled in the plan on the basis of a health-related factor, particularly a preexisting condition.

Guaranteed Issue

Insurers, Health Maintenance Organizations, and other issuers of health insurance that market in the small group market must accept any small employer that applies for coverage, regardless of the health status or claims history of the employer’s group.  “Small employer” is defined by the Act as one with two to 50 employees, however many states have reforms where groups of 2 to 25, 35 or 50 persons are considered as small groups, with a few states provide for guaranteed issue for groups of one.   

On the first day of the plan year, the plan has fewer than 2 employees (when two is the minimum) who are current employees, then the plan would not be considered as “guaranteed issue.”  “Guaranteed issue” means that the issuer must accept every eligible individual in the employers’ group who is eligible for participation in the plan and applies for it on a timely basis.  The interim rules consider the guaranteed issue requirement as applying to all products actively marketed by an insurer in the small group market.

There are exceptions noted in the Act for network plans that might otherwise exceed capacity limits or in the event that the employer’s employees do not live, work, or reside in the network plan’s area.

Employer groups who have more than 50 employees are not protected by this requirement (unless required under state law), primarily because traditionally issues of health insurance did not, as a rule, examine the health status of employees in large groups during the underwriting phase.  HIPAA does require the Secretary of Health and Human Services and the General Accounting Office to report every three years, starting in December 2002, on access to health insurance in the large group market.

Guaranteed Renewability

If the group requests renewal from the group health issuer, the issuer must renew the group regardless of the health conditions of the participants or the amount of use of the services.  An issuer has the right to discontinue coverage for non-payment of premium, fraud, or similar reasons not related to health conditions, such as violation of participation or contribution rules. 


Regulations are quite specific as to how long the coverage must be provided.  It must be provided from the date of the qualifying event (termination of employment, etc.) until the earliest date when any of the following events occur:

  1. The maximum required period of coverage has been exhausted.
  2. When the employer ceases to provide any group health plan to any employee.
  3. The date when the coverage is terminated because timely payment of the premium was not made.
  4. The date when the qualified beneficiary first becomes covered (whether as an employee or otherwise) under any other plan that provides health care that does not contain any exclusion or limitation because of a pre-existing condition, except in certain specific situation.
  5. The date when the qualified beneficiary—who is other than a retired covered employee or spouse, surviving spouse, or dependent child of the employee—first becomes entitled to Medicare benefits.
  6. When a qualified benefits who has been disabled at any time during the first 60 days of continuation coverage, the month that begins more than 30 days after the date when Social Security has determined that he is no longer disabled.

The maximum required period of COBRA coverage is 36 months from the date of the qualifying event.81

When the qualifying event is the employment termination—other than for gross misconduct—of the reduction of the hours of employment, the maximum required period of coverage is usually 18 months from the date of termination or reduction of hours.  But, if another qualifying event (except for bankruptcy proceedings) following the termination/reduction occurs, the maximum required period is extended to 36 months from the date of termination/reduction.82


If a qualified beneficiary is determined to have been disabled under the Social Security Act, at any time during the first 60 days of continuation coverage, the 18-month coverage period is extended to 29 months, provided the beneficiary has provided the plan administrator with proper notice of the determination of disability within 60 days of such determination.  The beneficiary must provides the plan administrator with notice within 30 days of determination that he is no longer disabled.83

Employer Bankruptcy

The bankruptcy of the employer is the only qualifying event that may extend the maximum required period to more than 36 months.  If the qualifying event is a bankruptcy proceeding and the covered employee is alive when the proceedings started, then the maximum required period is extended until the death of the covered employee, and for the spouse, 36 months after his death.  If the covered employee dies before the bankruptcy proceeding, the maximum required period is extended until the surviving spouse's death.84



During this 6-month period, a plan may exclude or restrict coverage of a participant’s or beneficiary’s preexisting medical condition, but under the Act a group health plan is prohibited from imposing more than a 12-month preexisting condition limitation period—18 months for late enrollees—on an eligible participant or beneficiary (see below). (Note:  Under HIPAA those individuals who have individual coverage also have portability protection, but the conditions and requirement are more complex.)

HIPAA defines a preexisting condition exclusion as a "limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before such date."85

A group health plan may impose a pre-existing condition exclusion on a participant or beneficiary only under three situations:86

  1. the "six-month look-back" rule, where the exclusion relates to a physical or mental condition and regardless of the cause, and for which medial advice, diagnosis, care or treatment was either recommended or received within the six months prior to the enrollment date;
  2. the pre-existing exclusion extends for no more than12 months after the enrollment date or 18 months for a late enrollee (the look-forward rule); or
  3. the exclusion period is reduced by the length of the aggregate of the periods of creditable coverage applicable to the participant or beneficiary as of the enrollment date.

A group health plan is prohibited from imposing a pre-existing condition exclusion relating to pregnancy.87

Hurricane Katrina Exceptions

The Dept. of Labor and the IRS have directed employers and employees to waive the deadlines under HIPAA for employers and employees in the disaster area, and plan and participants must disregard the period between Aug. 29, 2005 and Feb. 28, 2006 in calculating any deadlines under HIPAA.

Pre-existing Exclusions for New Dependants

A preexisting medical condition limit or exclusion may not be imposed on covered benefits for newborns that are covered under creditable coverage, within 30 days of birth.

A preexisting medial condition limit or exclusion may not be imposed on covered benefits for newly adopted children, or children newly placed for adoption if the child becomes covered under creditable coverage within 30 day of the adoption or placement.


If a covered employee is terminated from his employment because of "gross misconduct," no COBRA continuation coverage is available to him or his qualified beneficiaries.88If the employer fails to notify the employee that he is being terminated because of gross misconduct, the employer may be in a situation where it cannot deny COBRA coverage to the terminated employee.

Just because an employer may have grounds to terminate an employee for gross misconduct does not, in itself, allow a denial of COBRA coverage if the employee voluntarily resigns in order to keep from being fired.  Also, an allegation of gross misconduct after a voluntary termination, cannot be used to evade liability where the employer has not properly processed a COBRA election and the insurer refuses, therefore, to extend coverage.  Interestingly, courts have ruled that it is not sufficient just for the employer to believe that the employee had engaged in gross misconduct, but COBRA requires more than a good faith belief by the employer, and the employee should have been given the right to demonstrate that the employer was mistaken and therefore, obtain her COBRA rights.89

Gross misconduct is not defined in the statute or in regulations, and the IRS will not issue rulings on whether an action constitutes gross misconduct for COBRA purpose, effectively leaving it up to the courts to determine through case law.

As a matter of interest, some of the court decisions indicate the leanings of the courts in this matter:

  1. A breach of a company confidence did not constitute "gross misconduct."90
  2. Mere incompetence is not gross misconduct.91
  3. An employee did not engage is gross misconduct by falsifying mileage reports, failing to attend mandatory meetings, and receiving an unsolicited offer of employment.92
  4. An employee who admitted stealing the employer's merchandise was considered to have been terminated for gross misconduct and was therefore, not entitle to COBRA benefits.93
  5. Cash handling irregularities, invoice irregularities, and failure to improve the performance of one of defendant's stores was held to be gross misconduct.94
  6. In a case where the court concluded that Congress had left the definition of gross misconduct up to the individual employer (?) two employees who had been terminated for refusing to comply with the directions of a supervisor were considered to have been terminated for gross misconduct.95
  7. A bank employee who cashed a fellow employee's check, knowing there were insufficient funds to satisfy it, and held the check in her cash drawer until the check could be covered, was held to have been terminated for gross misconduct.96
  8. Sometimes the conduct was obviously egregious.  Where a security guard deserted his post and was found asleep at his residence and he falsified records, creating a fictional guard in order to collect another paycheck, was terminated for gross misconduct.97 Also, throwing an apple at a co-worker and uttering racial slurs was found to be gross misconduct.98
  9. It is also interesting to note that gross misconduct does not need to occur on the job as off-duty behavior can also eliminate an employee's right to COBRA coverage.  Gross misconduct was found when an employee assaulted a subordinate—with whom he had a romantic relationship—while at the workplace.  Having an accident while driving a vehicle under the influence of alcohol and while on company business constituted gross misconduct for COBRA purposes—although this was only a misdemeanor under the state law.99



In the original Act, HIPAA did not require an employer or issuer of group health insurance to offer specific benefits, however on two occasions since HIPAA was passed, Congress added mandated specific benefits, but only for plans that cover certain coverages.  (Discussion of State vs. Federal regulation of insurance is beyond the scope of this text, however does the mandating of two benefits remind one of the adage of the camel getting its nose under the tent?)

Health plans may limit the treatment of mental illnesses by covering fewer hospital days and outpatient office visits, and they can increase cost sharing for mental health care by raising deductibles and copayments.  At least 23 (at last count) states have since passed laws that require health plans to impose the same treatment limitations and financial requirements on their mental coverage, as they do on medical and surgical coverage.  Other states have enacted laws that require health plans to provide some specified mental health benefits, but not fully the same as for medical and surgical coverage.  Self-insured employers are exempt from state regulation under ERISA and are, therefore, immune from these state laws.

Congress in 1996, passed the Mental Health Parity Act (MHPA) which amends ERISA and the Public Health Service Act by establishing new federal standards for mental health coverage offered by employer-sponsored plans, and shortly thereafter, the IRS established identical provisions.  The MHPA is rather limited and does not require insurers to provide full-parity coverage.

For group plans that elect to provide mental health benefits, MHPA requires parity only for annual and lifetime dollar limits of coverage, but the plans are allowed to have more restrictive treatment limitations and cost-sharing requirements on their mental health coverage.  Employers with 50 or fewer employers are exempt from the law.  Also, employers that can show an increase in claims costs of at least 1% as a result of MHPA, can claim an exemption.

In 2003, Congress attempted to pass legislation that would amend and expand MHPA by requiring plans that choose to offer mental health benefits to provide full-parity coverage, however,  lawmakers only reauthorized MHPA through Dec. 31, 2002.  There have been attempts by the Bush administration (S.543) that would provide for full parity, but it has been opposed by employers and health insurance organizations because of concerns that it would drive up health costs.

Newborns’ and Mothers’ Health Protection Act

The Newborns’ and Mothers’ Health Protection Act was also passed which prohibits group health plans and issuers offering group coverage from restricting the hospital length of stay for childbirth for either the mother or newborn child to less than 48 hours for normal deliveries and to less than 96 hours for caesarian deliveries.

Women’s Health and Cancer Rights Act of 1998

This Act was enacted in 1998 and requires group plans and health insurance issuers providing coverage in connection with a group plan that provides medical and surgical benefits related to mastectomy to cover breast reconstruction procedures.  It contains a requirement requiring beneficiaries to be notified of available coverage for prostheses and treatment of physical complications of reconstructive procedures.

Excluding Coverage for Specific Risks

Interestingly, federal law does not prohibit employers from excluding treatment of specific illnesses or conditions from their health benefit plan.  However, there are a number of things that restrict an employer from excluding specific illnesses from coverage.  Most states have laws that require that specific benefits or coverages must be included in insured plans.  Also, employers that purchase insurance products have little or no discretion in choosing or excluding specific types of services or procedures.  The reason for this is that many insurance companies and HMOs have certain standard plans available that do not various much from one employer to another.  Self-funded plans are under the umbrella of ERISA that prevents state laws from applying and benefits are crafted by each individual employer plan.  Therefore only the few requirements of HIPAA and subsequent amendments require specific coverage on these self-funded plans.

Association-Sponsored Group Health Plans

Association plans must also comply with the requirements of HIPAA that relate to group health coverage.  As an example, a sponsor of an association plan cannot drop a group from coverage because of the use or overuse of medical services by its members.  The preexisting condition limitations, creditable coverage and renewability requirements apply except in a few limited situations.  However, HIPAA does not require an association plan to accept for coverage individuals who are NOT members of the association.

State Requirements

States are allowed to impose their own requirements but HIPAA requires that state laws do not prevent the application of its consumer protection provisions.  On the other hand, state laws that regulate rating of risks are exempt from HIPAA.  The Act’s provisions relating to portability override state laws.  Exceptions are specific types of state laws that provide for greater portability such as state laws that

    1. define a preexisting medical condition to be one that existed for less than six months prior to becoming covered (instead of the 6 months required under the Act),
    2. provide for preexisting medical condition limitation periods shorter than 12 (or 18) months in the Act, and
    3. allow for breaks in continuous coverage longer than the 62-day period specified under the Act.

An example of a state law overriding HIPAA would be where the state mandates a 6-month preexisting condition limitation on enrollees, instead of the 12-month HIPAA limit.  Conversely, if the state mandated a 14 month (or period more than 12 months) preexisting condition limitation, this would be overridden by the requirement of the Act.




1.  The two principal areas of insurance reform addresses by HIPAA are

      A.  life and health insurance.

      B.  life and accident insurance.

      C.  group health insurance and long-term care insurance.

      D.  life and property/casualty insurance.


2.  COBRA requires businesses to offer continued group health insurance coverage to employees and their dependents after certain events, and this pertains to

      A.  only eleemosynary institutions.

      B.  any size of business.

      C.  businesses with 20 or more employees.

      D.  businesses with 100 or more employees.



3.  Under COBRA, any insured or self-funded group health plan maintained by an employer to provide health care to the employer's employees, former employees or their family, must offer

      A.  COBRA continuation coverage.

      B.  coverage that approximates some of the better features of the original group health plan.

      C.  coverage that costs as much or less than the original group health plan.

      D.  an equivalent plan but the employer must pay the full premium.


4.  COBRA continuation coverage may require the qualified beneficiary to pay a premium for the coverage, but

      A.  the premium can be any amount that the insurance company wants to charge.

      B.  premiums must be paid by certified check or by bank draft.

      C.  the premium must be no more than 50% of the employee's contributions under the

            employer's plan.

      D.  the premium cannot exceed a percentage of the applicable premium.


5.  COBRA continuation coverage

      A.  must be contingent upon the good health of the employee.

      B.  cannot be conditioned upon evidence of insurability.

      C.  premiums must be paid on an annual basis.

      D.  must be written by another insurer if the original plan is an insured plan.


6.  HIPAA requires that group health plans offered to an employment-based group that are covered by the Act

      A.  meet certain portability requirements.

      B.  have ample termination provisions so that an ex-employee may not extend the health plan

            after they have terminated from the employer.

      C.  be self-funded.

      D.  must be 100% funded by the employer.


7.  If there is a period of 63 consecutive days during which individuals have no creditable coverage, they may be subject to

      A.  an additional 50% of the deductible amount.

      B.  they cannot participate in continuation of coverage under any circumstances.

      C.  paying the back premium at 10% interest to continue total coverage from date of


      D.  as much as a 12 month preexisting condition exclusion period (18 month to late



8.  The waiting period that an employee or his family member must endure to become covered under a health plan,

      A.  must run concurrently with any preexisting condition limitation period.

      B.  has no relationship to the preexisting condition limitation.

      C.  is no more than 63 days.

      D.  is a uniform 6 months in all states.


9.  Under HIPAA, a group health plan cannot offer group health coverage with rules for eligibility for any individual to enroll in the plan

      A.  based upon the health status of the person.

      B.  based upon their geographical location, including being in foreign countries.

      C.  unless the individual is paying the entire premium.

      D.  but those engaged in high-risk recreational activities must cover the same identical risks

            as those who do not so engage.


10.  "…a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before such date" is

      A.  a definition of preexisting condition under HIPAA COBRA reuirements.

      B.  medical qualifications for an employer-provided medical reimbursement plan.

      C.  the provision that disqualifies a plan for a defined benefit employee benefit plan.

      D.  required wording in all group health plans marketed in the United States.



1 C     2C     3A     4D     5B     6A     7D     8A     9A     10A

Insurance and Employee Benefits