§ 54.9801-4T - Rules relating to creditable coverage (temporary).

(a) General rules—(1) Creditable coverage. For purposes of this section, except as provided in paragraph (a)(2) of this section, the term creditable coverage means coverage of an individual under any of the following:

(i) A group health plan as defined in § 54.9801-2T.

(ii) Health insurance coverage as defined in § 54.9801-2T (whether or not the entity offering the coverage is subject to Chapter 100 of Subtitle K, and without regard to whether the coverage is offered in the group market, the individual market, or otherwise).

(iii) Part A or B of Title XVIII of the Social Security Act (Medicare).

(iv) Title XIX of the Social Security Act (Medicaid), other than coverage consisting solely of benefits under section 1928 of the Social Security Act (the program for distribution of pediatric vaccines).

(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members and certain former members of the uniformed services, and for their dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed services means the armed forces and the Commissioned Corps of the National Oceanic and Atmospheric Administration and of the Public Health Service).

(vi) A medical care program of the Indian Health Service or of a tribal organization.

(vii) A State health benefits risk pool. For purposes of this section, a State health benefits risk pool means—

(A) An organization qualifying under section 501(c)(26);

(B) A qualified high risk pool described in section 2744(c)(2) of the PHSA; or

(C) Any other arrangement sponsored by a State, the membership composition of which is specified by the State and which is established and maintained primarily to provide health insurance coverage for individuals who are residents of such State and who, by reason of the existence or history of a medical condition—

(1) Are unable to acquire medical care coverage for such condition through insurance or from an HMO; or

(2) Are able to acquire such coverage only at a rate which is substantially in excess of the rate for such coverage through the membership organization.

(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the Federal Employees Health Benefits Program).

(ix) A public health plan. For purposes of this section, a public health plan means any plan established or maintained by a State, county, or other political subdivision of a State that provides health insurance coverage to individuals who are enrolled in the plan.

(x) A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)).

(2) Excluded coverage. Creditable coverage does not include coverage consisting solely of coverage of excepted benefits (described in § 54.9831-1T).

(3) Methods of counting creditable coverage. For purposes of reducing any preexisting condition exclusion period, as provided under § 54.9801-3T(a)(1)(iii), a group health plan determines the amount of an individual's creditable coverage by using the standard method described in paragraph (b) of this section, except that the plan may use the alternative method under paragraph (c) of this section with respect to any or all of the categories of benefits described under paragraph (c)(3) of this section or may provide that a health insurance issuer offering health insurance coverage under the plan may use the alternative method of counting creditable coverage.

(b) Standard method—(1) Specific benefits not considered. Under the standard method, a group health plan determines the amount of creditable coverage without regard to the specific benefits included in the coverage.

(2) Counting creditable coverage—(i) Based on days. For purposes of reducing the preexisting condition exclusion period, a group health plan determines the amount of creditable coverage by counting all the days that the individual has under one or more types of creditable coverage. Accordingly, if on a particular day, an individual has creditable coverage from more than one source, all the creditable coverage on that day is counted as one day. Further, any days in a waiting period for a plan or policy are not creditable coverage under the plan or policy.

(ii) Days not counted before significant break in coverage. Days of creditable coverage that occur before a significant break in coverage are not required to be counted.

(iii) Definition of significant break in coverage. A significant break in coverage means a period of 63 consecutive days during all of which the individual does not have any creditable coverage, except that neither a waiting period nor an affiliation period is taken into account in determining a significant break in coverage. (See section 731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHSA which exclude from preemption State insurance laws that require a break of more than 63 days before an individual has a significant break in coverage for purposes of State law.)

(iv) Examples. The following examples illustrate how creditable coverage is counted in reducing preexisting condition exclusion periods under this paragraph (b)(2):

Example 1.

(i) Individual A works for Employer P and has creditable coverage under Employer P's plan for 18 months before A's employment terminates. A is hired by Employer Q, and enrolls in Employer Q's group health plan, 64 days after the last date of coverage under Employer P's plan. Employer Q's plan has a 12-month preexisting condition exclusion period.

(ii) In this Example 1, because A had a break in coverage of 63 days, Employer Q's plan may disregard A's prior coverage and A may be subject to a 12-month preexisting condition exclusion period.

Example 2.

(i) Same facts as Example 1, except that A is hired by Employer Q, and enrolls in Employer Q's plan, on the 63rd day after the last date of coverage under Employer P's plan.

(ii) In this Example 2, A has a break in coverage of 62 days. Because A's break in coverage is not a significant break in coverage, Employer Q's plan must count A's prior creditable coverage for purposes of reducing the plan's preexisting condition exclusion as it applies to A.

Example 3.

(i) Same facts as Example 1, except that Employer Q's plan provides benefits through an insurance policy that, as required by applicable State insurance laws, defines a significant break in coverage as 90 days.

(ii) In this Example 3, the issuer that provides group health insurance to Employer Q's plan must count A's period of creditable coverage prior to the 63-day break.

Example 4.

(i) Same facts as Example 3, except that Employer Q's plan is a self-insured plan, and, thus is not subject to State insurance laws.

(ii) In this Example 4, the plan is not governed by the longer break rules under State insurance law and A's previous coverage may be disregarded.

Example 5.

(i) Individual B begins employment with Employer R 45 days after terminating coverage under a prior group health plan. Employer R's plan has a 30-day waiting period before coverage begins. B enrolls in Employer R's plan when first eligible.

(ii) In this Example 5, B does not have a significant break in coverage for purposes of determining whether B's prior coverage must be counted by Employer R's plan. B has only a 44-day break in coverage because the 30-day waiting period is not taken into account in determining a significant break in coverage.

Example 6.

(i) Individual C works for Employer S and has creditable coverage under Employer S's plan for 200 days before C's employment is terminated and coverage ceases. C is then unemployed and does not have any creditable coverage for 51 days before being hired by Employer T. Employer T's plan has a 3-month waiting period. C works for Employer T for 2 months and then terminates employment. Eleven days after terminating employment with Employer T, C begins working for Employer U. Employer U's plan has no waiting period, but has a 6-month preexisting condition exclusion period.

(ii) In this Example 6, C does not have a significant break in coverage because, after disregarding the waiting period under Employer T's plan, C had only a 62-day break in coverage (51 days plus 11 days). Accordingly, C has 200 days of creditable coverage and Employer U's plan may not apply its 6-month preexisting condition exclusion period with respect to C.

Example 7.

(i) Individual D terminates employment with Employer V on January 13, 1998 after being covered for 24 months under Employer V's group health plan. On March 17, the 63rd day without coverage, D applies for a health insurance policy in the individual market. D's application is accepted and the coverage is made effective May 1.

(ii) In this Example 7, because D applied for the policy before the end of the 63rd day, and coverage under the policy ultimately became effective, the period between the date of application and the first day of coverage is a waiting period and no significant break in coverage occurred even though the actual period without coverage was 107 days.

Example 8. (i) Same facts as Example 7, except that D's application for a policy in the individual market is denied.

(ii) In this Example 8, because D did not obtain coverage following application, D incurred a significant break in coverage on the 64th day.

(v) Other permissible counting methods—(A) Rule. Notwithstanding any other provision of this paragraph (b)(2), for purposes of reducing a preexisting condition exclusion period (but not for purposes of issuing a certificate under § 54.9801-5T), a group health plan may determine the amount of creditable coverage in any other manner that is at least as favorable to the individual as the method set forth in this paragraph (b)(2), subject to the requirements of other applicable law.

(B) Example. The rule of this paragraph (b)(2)(v) is illustrated by the following example:

Example.

(i) Individual F has coverage under Group Health Plan Y from January 3, 1997 through March 25, 1997. F then becomes covered by Group Health Plan Z. F's enrollment date in Plan Z is May 1, 1997. Plan Z has a 12-month preexisting condition exclusion period.

(ii) In this Example, Plan Z may determine, in accordance with the rules prescribed in paragraph (b)(2) (i), (ii), and (iii), that F has 82 days of creditable coverage (29 days in January, 28 days in February, and 25 days in March). Thus, the preexisting condition exclusion period will no longer apply to F on February 8, 1998 (82 days before the 12-month anniversary of F's enrollment (May 1)), For administrative convenience, however, Plan Z may consider that the preexisting condition exclusion period will no longer apply to F on the first day of the month (February 1).

(c) Alternative method—(1) Specific benefits considered. Under the alternative method, a group health plan determines the amount of creditable coverage based on coverage within any category of benefits described in paragraph (c)(3) of this section and not based on coverage for any other benefits. The plan may use the alternative method for any or all the categories. The plan may apply a different preexisting condition exclusion period with respect to each category (and may apply a different preexisting condition exclusion period for benefits that are not within any category). The creditable coverage determined for a category of benefits applies only for purposes of reducing the preexisting condition exclusion period with respect to that category. An individual's creditable coverage for benefits that are not within any category for which the alternative method is being used is determined under the standard method of paragraph (b) of this section.

(2) Uniform application. A plan using the alternative method is required to apply it uniformly to all participants and beneficiaries under the plan. A plan that provides benefits through one or more insurance policies (or in part through one or more insurance policies) will not fail the uniform application requirement of this paragraph (c)(2) if the alternative method is used (or not used) separately with respect to participants and beneficiaries under any policy, provided that the alternative method is applied uniformly with respect to all coverage under that policy. The use of the alternative method is required to be set forth in the plan.

(3) Categories of benefits. The alternative method for counting creditable coverage may be used for coverage for the following categories of benefits—

(i) Mental health;

(ii) Substance abuse treatment;

(iii) Prescription drugs;

(iv) Dental care; or

(v) Vision care.

(4) Plan notice. If the alternative method is used, the plan is required to—

(i) State prominently that the plan is using the alternative method of counting creditable coverage in disclosure statements concerning the plan, and state this to each enrollee at the time of enrollment under the plan; and

(ii) Include in these statements a description of the effect of using the alternative method, including an identification of the categories used.

(5) Disclosure of information on previous benefits. See § 54.9801-5T(b) for special rules concerning disclosure of coverage to a plan (or issuer) using the alternative method of counting creditable coverage under this paragraph (c).

(6) Counting creditable coverage—(i) In general. Under the alternative method, the group health plan counts creditable coverage within a category if any level of benefits is provided within the category. Coverage under a reimbursement account or arrangement such as a flexible spending arrangement (as defined in section 106(c)(2) of the Internal Revenue Code) does not constitute coverage within any category.

(ii) Special rules. In counting an individual's creditable coverage under the alternative method, the group health plan first determines the amount of the individual's creditable coverage that may be counted under paragraph (b) of this section, up to a total of 365 days of the most recent creditable coverage (546 days for a late enrollee). The period over which this creditable coverage is determined is referred to as the determination period. Then, for the category specified under the alternative method, the plan counts within the category all days of coverage that occurred during the determination period (whether or not a significant break in coverage for that category occurs), and reduces the individual's preexisting condition exclusion period for that category by that number of days. The plan may determine the amount of creditable coverage in any other reasonable manner, uniformly applied, this is at least as favorable to the individual.

(iii) Example. The rules of this paragraph (c)(6) are illustrated by the following example:

Example.

(i) Individual D enrolls in Employer V's plan on January 1, 2001. Coverage under the plan includes prescription drug benefits. On April 1, 2001, the plan ceases providing prescription drug benefits. D's employment with Employer V ends on January 1, 2002, after D was covered under Employer V's group health plan for 365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's enrollment date). Employer Y's plan uses the alternative method of counting creditable coverage and imposes a 12-month preexisting condition exclusion on prescription drug benefits.

(ii) In this Example, Employer Y's plan may impose a 275-day preexisting condition exclusion with respect to D for prescription drug benefits because D had 90 days of creditable coverage relating to prescription drug benefits within D's determination period.