HIPAA Nondiscrimination Rules Clarified, Compliance Now Mandatory

The IRS, Department of Labor, and DSHS have gotten together again to issue more HIPAA nondiscrimination rules, fleshing out rules issued in April 1997. The rules implement HIPAA's mandate that group health care eligibility, benefits, and premiums cannot discriminate on the basis of any health factor, except in connection with a "bona fide wellness program." The new rules answer questions left open by the 1997 regulations. Some of these areas a re summarized below.

Source of Injury. The legislative history was clear that an individual cannot be denied coverage by a plan because he engages in high-risk activities like skydiving. The new rules confirm that a plan can exclude coverage for injuries caused by high-risk activities or by other behaviors like failure to wear a seatbelt or committing a crime. However, a plan cannot exclude injuries caused by domestic violence or by a health factor (such as a self-inflicted injury caused by depression).

Coordination with Pre-existing Condition Exclusion. The regulations clarify that while plans cannot generally deny benefits based on health factors, plans can have pre-existing condition exclusions that comply with other HIPAA regulations and are uniformly applied to similarly situated individuals.

Changes in Plan Design or Limits. A plan can impose dollar limits or exclude certain conditions or treatments, if they apply uniformly to similarly situated individuals. However, a change in limits, exclusions or other plan features may be discriminatory if it is directed at particular individuals due to health factors (for example, excluding transplants after an individual is diagnosed with a condition requiring one). An amendment made effective no earlier than the first day of the next plan year will not be considered discriminatory.

Similarly Situated Individuals. A plan cannot discriminate within a group of "similarly situated individuals," but can differ between groups. The new regulations clarify that a plan can distinguish between groups based on a bona fide job classification such as full or part time, geographic location, length of service, and different occupations. Such classification cannot be directed at individuals based on health factors (such as different limits for a particular person's job title). This is a facts and circumstances test.

Nonconfinement and Actively at Work. The new rules confirm, as expected, that plan rules requiring that an individual not be confined to a hospital when coverage starts is illegal. Likewise, a plan cannot require an employee to be "actively at work" when he completes a waiting period and becomes eligible, unless an employee absent due to health factors is treated as actively at work. However, if general plan rules require working a certain number of hours per week or month to remain eligible, they are enforceable even if the employee's inability to work the required hours is due to illness.

Bona Fide Wellness Programs. A plan can offer lower premiums, discounts, refunds, or other rewards for employees who participate in a bona fide wellness program. The new regulations impose four requirements on such programs:

1. The reward must be limited to no more than a portion of the single employee premium. (The regulations have not decided whether this will be 10%, 15%, or 20% of the premium.)
2. The program must be open at least once a year.
3. The program must allow a participant who cannot achieve the program's goal due to a health factor to meet an alternate standard and receive the program's award. For example, if a participant cannot meet a cholesterol limit, he must be allowed to meet another standard (such as abiding by a diet) and get the same reward.
4. Plan materials must disclose that an alternate standard is available (but need not specify what it is). These requirements do not apply to a program that does not involve a health plan reward, such as the employer paying for a smoking cessation program or waiving co-payments for preventive care.

More Favorable Treatment. The new rules do not prevent plans from treating individuals with a health factor more favorably (for example, by waiving premiums for employees who are totally disabled).

Effective Dates. The regulations are issued in three interleaved packages, some parts of which are effective March 9, 2001, some on the first plan year after July 1, 2001. The most pressing date for plans to be aware of concerns any individual who was excluded from the plan without a good faith interpretation of the nondiscrimination rule (for example, because of a nonconfinement clause). Such an individual must be offered retroactive coverage by March 9, 2001. Once effective, compliance with the regulations is required. This means that a good faith interpretation of the statute will no longer suffice, expect for the bona fide wellness rules, which are still only proposed.

ACTION NEEDED: The most immediate action item is to determine whether you have excluded any individuals from a plan because you did not comply with the nondiscrimination rule, as described above. If you did, you must offer retroactive coverage to the individual by March 9, 2001. You should also review the other new regulations and make sure your current practices, insurance contracts, and Summary Plan Descriptions are in compliance by the effective date.