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November 2, 2004    DOL > EBSA > Publications > HDCI Report   

Health Disclosure and Claims Issues:
Fiscal Year 2001 Compliance Project Report

January 2003

Health Care Compliance Assistance Plan Overview

In 1996 and 1998 Congress amended the Employee Retirement Income Security Act (ERISA) with new provisions governing health care benefits. This presented a new challenge for the Department of Labor’s Pension and Welfare Benefits Administration (EBSA), which is charged with administration of ERISA. To implement these health care provisions and to provide broad-based compliance assistance to the regulated community, EBSA developed comprehensive interpretive guidance at the earliest stages of implementation. In addition, EBSA did extensive compliance assistance outreach to group health plan sponsors, health insurance issuers, and other affected parties.

In fiscal years (FY)(1) 1997 and 1998, EBSA published regulations implementing the health care provisions, initiated an education outreach campaign, and developed compliance assistance publications.

Compliance assistance outreach continued through FY 1999 with the development of a pilot program, under which more than 200 health plans were reviewed for compliance with the new health care provisions.  In FY 2000, EBSA assessed the results of the pilot program and made adjustments to expand its existing outreach and compliance assistance efforts, as well as to develop internal quality control for completing health plan reviews. Then, in FY 2001, EBSA undertook its Health Disclosure and Claims Issues (HDCI) FY 2001 Compliance project (project), during which the Agency reviewed a large number of plans to assess the level of compliance with the new health care provisions. It was anticipated that this project would give the Agency a baseline for assessing compliance on a specific provision-by-provision basis.

The project was undertaken very early in the implementation period of the new health care laws; compliance reviews were begun only 2 years after the new health laws became applicable. However, early reviews were important to enable the plan community and the Agency to identify areas of misunderstanding and to enable the Agency to focus its efforts on clarifying those requirements. Specifically, based on the results of the project (which are presented in detail in this report), EBSA is announcing its HIPAA Compliance Assistance Program (H-CAP), which is comprised of three strategies, each with an action plan. After identifying problem areas through the project and introducing H-CAP to target these problems, EBSA anticipates that compliance rates will rise.

H-CAP’s first strategy is to develop and distribute additional publications and other educational materials. EBSA is publishing three new publications to assist group health plans and health insurance issuers in complying with the new health laws. These materials will be distributed through the Agency’s toll-free publications line, at all workshops and compliance assistance activities, through industry groups and industry newsletters, through the trade press and other interested media, and via the Agency’s Web site.

The first is a Self-Audit Checklist. This checklist, similar to the HIPAA checksheet used by EBSA investigators to determine compliance, will be a useful tool for plans and issuers to assess their compliance line-by-line with the health laws. In addition, Compliance Assistance for Group Health Plans, EBSA’s current publication highlighting the top 10 most common errors made by health plans, has been updated with 5 additional tips for group health plans, based on common mistakes found in the project. It also includes advice on how to avoid these mistakes. Finally, a New Health Laws Notice Guide has been developed summarizing all of the new health law notice requirements, including sample language that can be used by plans.

H-CAP’s second strategy is to dedicate a section of the compliance assistance page on EBSA’s Web site to the new health care laws, making it easier for plans, issuers, and other service providers to find, in one location, all of the regulations, publications, frequently asked questions, and other guidance. The new, dedicated section will supplement compliance assistance efforts EBSA has already made, including making its benefits advisors available through EBSA's Toll-Free Employee & Employer Hotline number, 1.866.444.3272, and electronically at www.askpwba.dol.gov to answer questions about the new health law requirements.

The third strategy will be to participate in new, live workshops around the country where trained staff will meet with plan administrators, plan sponsors, attorneys, consultants, and other service providers to apply the Self-Audit Checklist to various sample plan provisions and documents. These live workshops will supplement the Health Benefits Education Campaign Compliance Assistance Seminars already conducted by the Agency, which address a wider variety of health plan topics, including the new health laws.

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Executive Summary of the FY 2001 Compliance Project Results

In October 2000, EBSA initiated the project, during which 1,267 investigations were conducted of group health plans and their compliance with the new health care laws in Part 7 of Title I of ERISA. The new health laws are the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Mental Health Parity Act of 1996 (MHPA), the Newborns’ and Mothers’ Health Protection Act of 1996 (Newborns’ Act), and the Women’s Health and Cancer Rights Act of 1998 (WHCRA). Each law provides new Federal protections to individuals in employment-based group health plans.

Because these laws generally became effective only about 2 years before the project began, implementation by group health plans seems to have progressed steadily. Most group health plans made changes to comply with the new health care laws. However, some plans experienced start-up, implementation issues, particularly with respect to certain notice provisions and certain discrete substantive provisions that are technical in nature. In such cases, correction of these problems was obtained through voluntary compliance by the plans and their service providers.

The FY 2001 Compliance project was a review of group health plans for compliance with 42 specific requirements of the new laws. Generally, EBSA found that group health plans are in compliance with the substantive provisions of the new health care laws—that is, the provisions other than the notice requirements. However, implementation problems exist, particularly with respect to certain notice provisions, as well as regarding certain discrete substantive provisions that are technical in nature. To address these problems, EBSA has developed the HIPAA Compliance Assistance Program (H-CAP). H-CAP, which is discussed in more detail below, should improve compliance by partnering with the regulated community to address problem areas identified in the project.

Data from the project revealed that only 8 percent of plans were cited with a violation of MHPA.(2)  This rate shows a sustained improvement from the 14 percent noncompliance rate found by the General Accounting Office (GAO) using survey data reported as of December 1999. (See Mental Health Parity Act: Despite New Federal Standards, Mental Health Benefits Remain Limited (GAO/HEHS-00-95, May 10, 2000.)

With respect to WHCRA, only 4.5 percent of plans were cited with a violation of WHCRA’s substantive provisions (that is, the provisions other than the notice requirements). This number increased, however, when taking into account WHCRA’s notice requirements; the investigations resulted in 21.8 percent of plans being cited with a violation of WHCRA. Some of the WHCRA violations may have resulted from a lack of formal guidance or a communication gap with health insurance issuers about the required elements and timing for notices.

Similarly, regarding the Newborns’ Act, only 5.2 percent of plans were cited with a violation of the substantive provisions. Again, the number increased, however, when taking into account the notice requirements; 35.0 percent of plans were cited with a violation. In this regard, there may have been some confusion among plan administrators and health insurance issuers regarding the applicability of the Newborns’ Act notice requirements, which may account for the high rate of noncompliance.

Data from the project also revealed that 28.1 percent of plans were cited with at least one violation of HIPAA’s substantive portability (including the certificate of creditable coverage requirements) or nondiscrimination provisions. Many of the violations involved discrete plan provisions, such as “hidden” preexisting condition exclusions or non-confinement clauses. In these instances, EBSA found that one plan provision caused multiple HIPAA violations. Moreover, notice problems played a role again; 35.9 percent of plans in the sample were cited with at least one violation of HIPAA when taking into account the notice provisions.

After reviewing all of the data, EBSA also observed certain trends. Plans were reviewed for compliance with 42 health care provisions, 6 of which were notice provisions. Most of the violations cited involved these notice requirements. In addition, small and large single-employer plans had the lowest noncompliance rates (as opposed to mid-sized, single-employer plans). Among multiemployer plans, violation rates, which were generally higher than among single-employer plans, also peaked in the mid-sized range.

Combining the data, 30.7 percent of plans were not in compliance with at least one of the 36 substantive provisions of the four health care laws. After factoring in noncompliance rates with the six notice provisions, the data reveal that 45.3 percent of group health plans were cited with a violation of at least one provision of the four laws. In many cases, noncompliance may have been the result of a mistake in understanding and complying with the laws. Given the fact that the project was initiated in the very early stages of the laws’ implementation process, and taking into account the size of the ERISA health plan universe (approximately 2.5 million plans), this confusion in implementation is not unexpected. To address these implementation issues, EBSA is initiating H-CAP to launch a partnership effort with the regulated community to provide targeted compliance assistance and to rapidly improve compliance rates.

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Introduction

Because, traditionally, Federal law did not regulate the provision of specific health benefits, the enactment of these new health care laws presented a challenge for EBSA. As mentioned earlier, before it undertook the broader FY 2001 Compliance project, EBSA launched a 1999 pilot project. This pilot project involved the review of approximately 225 group health plans to determine initial levels of compliance with these newly enacted laws. The Office of Enforcement (OE) and investigators from regional offices worked with group health plans, group health insurance issuers (issuers),(3) and other service providers regarding their responsibilities under the new health care provisions. To assist investigators with their reviews of plans and to establish uniform standards for review, the Office of Health Plan Standards and Compliance Assistance (OHPSCA) developed a HIPAA checksheet. This checksheet summarized the various requirements of each law line by line and established standardized questions for group health plan reviews. An updated, self-audit version of this checksheet is being made publicly available simultaneously with the publication of this report.

The FY 1999 pilot project succeeded in introducing investigators to Part 7 compliance work and informed EBSA as to what additional measures would be needed before investigations could be conducted by regional investigators on a broader scale. Accordingly, in FY 2000, EBSA expanded its internal education program and developed a variety of quality control measures to make health plan investigations more efficient and effective. These efforts included making new use of technology to develop printed and electronic materials as well as new, faster methods of communication, as described below. Also in FY 2000, and drawing from its growing experience with health plan investigations, EBSA implemented HDCI, a national project reflecting the Agency’s increased commitment to reviewing health plans. Later, in March 2000, EBSA published its Strategic Enforcement Plan that identified health plan issues as one of the Agency’s national priorities. EBSA’s primary focus in this area is to ensure that health plans with trusts are financially sound and plan operators run the health plan prudently and in the participants’ sole interests. Regional offices were directed to perform a detailed Part 7 review in cases opened under the project.

Although historically EBSA had a presence in civil and criminal health care enforcement, prior efforts targeted issues such as delinquent participant contributions to health plans, fraudulent multiple employer welfare arrangements, and the failure to transmit to plans fee reductions and discounts received from doctors and hospitals negotiated by administrative service providers. HDCI represented a major shift in emphasis in enforcing all the provisions of ERISA affecting group health plans, including Part 1 (relating to reporting and disclosure), Part 4 (relating to fiduciary responsibility), Part 6 (relating to continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)), and Part 7.

OE also recognized the need for specialized training for investigators and, thus, prepared and presented to each region during its annual field training session modules on the health care industry, health care contracts, health plan criminal investigations, claims processing, remedies, and the COBRA health coverage continuation provisions.

The project evolved as an outgrowth of HDCI and was designed specifically to ascertain the level of compliance with the new Part 7 health care laws throughout the employee health benefit plan universe. Data derived from the project and presented in this report reflect, among other outcomes, a baseline of overall compliance by group health plans with the Part 7 statutes and regulations. The report includes an overview of the statutory and regulatory provisions of Part 7; a discussion of regional office investigator training; an explanation of the sampling methodology and field implementation of the project; a presentation and interpretation of data; and a discussion of the impact the investigations had on issuers and third-party administrators (TPAs).

The data presented in this report illustrate compliance with Part 7 overall and with each of the individual laws that are the framework of Part 7. Additionally, the data show violation rates by plan size (large or small) and plan type (single or multiemployer). Analysis of these results assisted EBSA in the development of H-CAP, and will influence how EBSA will implement additional, future interpretive and compliance assistance activities.

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Overview of the Part 7 Statutes

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

Legislative History - HIPAA was enacted on August 21, 1996, to provide for, among other things, improved portability and continuity of health care coverage.(4)  First, HIPAA places limitations on a plan’s or issuer’s ability to impose a preexisting condition exclusion. Specifically, a preexisting condition exclusion must relate to a condition for which medical advice, diagnosis, care, or treatment was recommended or received within the 6-month period ending on an individual’s enrollment date. The exclusion period cannot extend for more than a maximum of 12 months (18 months for late enrollees) after the enrollment date, offset by the days of an individual’s prior health coverage. The primary way that individuals provide evidence of their prior health coverage is through a certificate of creditable coverage provided to them by their prior health plan or issuer when coverage ends. Accordingly, HIPAA also sets forth a process for transmitting certificates and other health coverage information to a new group health plan or issuer. In addition, HIPAA creates special enrollment rights, which allow an individual to enroll in a group health plan for which he or she is otherwise eligible when he or she loses eligibility for other health coverage or has a new dependent. HIPAA also prohibits discrimination based on health factors against individuals and their dependents in enrollment and premiums. Finally, HIPAA preserves, through narrow preemption provisions, the States’ traditional role in regulating health insurance, including State flexibility to provide greater protections.

Regulatory History - After inviting comments from the regulated community and other interested parties,(5) interim final regulations implementing HIPAA were published on April 8, 1997 (62 Fed. Reg. 16894). The regulations clarify the statutory provisions and provide protections for individuals seeking health coverage while minimizing burdens on plans and issuers. The regulations reduce burdens by providing model language for HIPAA disclosures (including a model certificate of creditable coverage), reducing unnecessary duplication in the issuance of certificates, including flexible rules for dependents to receive the coverage information they need, and allowing coverage information to be provided by telephone if all parties agree. The regulations protect and assist participants and their dependents by ensuring that individuals are notified of the length of time that a preexisting condition exclusion clause in any new health plan may apply to them after taking into account their prior creditable coverage, ensuring that individuals are notified of their rights to special enrollment under a plan, permitting individuals to obtain a certificate before coverage under a plan ceases, and creating practical ways for individuals to demonstrate creditable coverage to a new plan (if, for example, the individual does not receive a certificate for the individual’s prior health coverage). Additional regulations implementing HIPAA’s nondiscrimination provisions were published on January 8, 2001 (66 Fed. Reg. 1378). The Departments of Labor, the Treasury, and Health and Human Services (HHS) are presently drafting final rules on HIPAA’s portability provisions. These rules will reflect further comments received from interested parties representing the experience they have had with the interim regulations.(6)

Effective Dates - The HIPAA provisions first became applicable to group health plans and issuers under two separate time lines. One was a general time line for the majority of the provisions, which were generally effective for plan years beginning on or after July 1, 1997, representing a staggered effective date for the provisions. For collectively bargained plans, there is a special effective date under HIPAA. For plans maintained pursuant to collective bargaining agreements (CBAs) ratified before August 21, 1996, the majority of the provisions apply to plan years beginning on the later of July 1, 1997, or the date on which the last of the CBAs relating to the plan terminates (determined without regard to any extension agreed to after August 21, 1996). The effective date for HIPAA’s certification provisions for all group health plans and health insurance issuers is July 1, 1996, to give individuals evidence of creditable coverage prior to the July 1, 1997, effective date for the other provisions.

The effective dates for the 1997 interim regulations regarding HIPAA’s portability and nondiscrimination provisions mirror the statutory effective dates. The 2001 regulations on HIPAA’s nondiscrimination provisions are generally effective for plan years beginning on or after July 1, 2001, and therefore were generally not considered when determining group health plan compliance during the project.

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Newborns’ and Mothers’ Health Protection Act of 1996 (Newborns’ Act)

Legislative History - The Newborns’ Act was enacted on September 26, 1996.(7)  The law provides new protection for mothers and their newborn children with regard to the length of hospital stays following the birth of a child. Specifically, the Newborns’ Act provides a general rule under which a group health plan and an issuer may not restrict a mother’s or newborn’s benefits for a hospital stay in connection with childbirth to less than 48 hours following a vaginal delivery or 96 hours following a cesarean section. The Newborns’ Act permits an exception to the 48-hour (or 96-hour) general rule if the attending provider decides, in consultation with the mother, to discharge the mother or her newborn earlier.

Regulatory History - On October 27, 1998, the Departments of Labor, the Treasury, and HHS published interim final regulations for group health plans and issuers under the Newborns’ Act, after inviting comments from the regulated community and other interested parties.(8)  Among other things, the regulations clarify when the 48-hour (or 96-hour) period begins, provide that the determination as to whether a hospital admission is in connection with childbirth is a medical decision to be made by the attending provider, define who may be an attending provider, and clarify the applicability of State law to insured arrangements.

Effective Dates - The statutory provisions apply to group health plans and issuers for plan years beginning on or after January 1, 1998. Clarifications contained in the interim final rules apply for plan years beginning on or after January 1, 1999.

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Mental Health Parity Act of 1996 (MHPA)

Legislative History - MHPA was enacted on September 26, 1996.(9)  MHPA provides for parity in the application of aggregate lifetime dollar limits, and annual dollar limits, between mental health benefits and medical/surgical benefits. MHPA’s requirements apply regardless of whether the mental health benefits are administered separately under the plan. Nevertheless, MHPA does not require a group health plan or health insurance coverage offered in connection with a group health plan to provide mental health benefits.

Regulatory History - The Departments of Labor, the Treasury, and HHS published interim final regulations implementing the MHPA provisions on December 22, 1997, after inviting comments from the regulated community and other interested parties.(10)  Among other things, the regulations clarify the application of the MHPA provisions to group health plans with varying types of dollar limitations (including inpatient/outpatient limits and in-network/out-of-network limits) and the procedures a plan would undertake to elect the 1 percent increased cost exception permitted under the statute.

Effective Date - In general, MHPA and the interim final rules apply to group health plans and issuers for plan years beginning on or after January 1, 1998.(11)

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Women’s Health and Cancer Rights Act of 1998 (WHCRA)

Legislative History - WHCRA was enacted on October 21, 1998.(12)  WHCRA requires group health plans and issuers that offer medical and surgical benefits with respect to a mastectomy to provide reconstructive breast surgery if a participant or beneficiary is receiving benefits in connection with a mastectomy, elects reconstruction, and the reconstruction is in connection with such mastectomy. In particular, WHCRA requires coverage of the following reconstructive surgery benefits: 1) all stages of reconstruction of the breast on which the mastectomy was performed; 2) surgery and reconstruction of the other breast to produce a symmetrical appearance; and 3) prostheses and physical complications of the mastectomy, including lymphedemas.

The Departments published a Solicitation of Comments on issues arising under WHCRA on May 28, 1999 (64 Fed. Reg. 29186). Question-and-answer guidance (Q&As), including model language that may be used to satisfy WHCRA’s disclosure requirements, was issued in May 1999 and updated in October 1999. Additional guidance is currently under development.

Effective Date - WHCRA applies to group health plans and issuers for plan years beginning on or after October 21, 1998.

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FY 2001 Compliance Project Summary

Collection and Coordination of Data

Identification of Plans to Review - The project involved 1,267 investigations of large and small single-employer group health plans and multiemployer plans. (See Table 1 and Chart 1.) The Office of Policy and Research (OPR) prepared a Sample Design, which describes in depth the sampling methodology. (See Appendix.) The project encompassed three distinct samples: multiemployer, small single-employer (<100 employees), and large single-employer (≥100 employees) plans. The multiemployer and single-employer samples were selected from distinct data sources because no central source identifies whether a given private-sector single employer offers a group health plan covered by Title I of ERISA. However, EBSA already possessed enough information from Annual Report Form 5500 filings to select the multiemployer sample.

HDCI Chart 1 - Investigations Conducted By SampleThe referrals to regional offices involved three distinct steps: (1) randomly selecting a pool of entities suitable for investigation, (2) transmitting referrals and opening cases, and (3) replacing entities found to be out-of-scope with more entities. These steps were intended to preserve a minimum of 399 multiemployer plans, 444 large-employer plans, and 448 small-employer plans.

Referral of Multiemployer Plans - The Office of Information Management had available certain data on multiemployer plans, such as the plan sponsor and the plan administrator, address and telephone number of both parties, total plan assets, and plan sponsor’s Employer Identification Number (EIN). These plan data are derived from Annual Report Form 5500 filings.

As an initial step, OPR provided OE with the basic information described above for 398 multiemployer plans. OE referred these plans to EBSA regional offices in August 2000 with instructions to open cases on or after October 1, 2000. Regional offices determined some plans to be out-of-scope or otherwise ineligible for case opening. The most common reason was that the selected multiemployer plan had merged with another plan, effectively terminating the plan selected for investigation. Plans that were already under investigation or had been investigated within the preceding 12 months were also withdrawn because ERISA section 504(b) prohibits a EBSA investigation under these circumstances absent “reasonable cause.” Plans offering only excepted benefits such as certain dental and vision benefit plans, as defined in regulation 29 CFR § 2590.732(b), were also considered out-of-scope and were withdrawn from the potential referrals.

Replacement of out-of-scope multiemployer plans occurred in two batches. OE made the first set of replacements on March 30, 2001, and the second set was disseminated on June 26, 2001. These replacements restored the number of in-scope multiemployer plans to 409.

Referral of Single-Employer Plans - The task of assembling enough single-employer firms with group health plans to maintain the goals of 444 (large firms) and 448 (small firms) was much more complicated and resource intensive. EBSA obtained from Dun and Bradstreet (D & B) basic information on 2,226 randomly selected large and small firms in the 50 States and the District of Columbia. The information included the name of the company, address, EIN, telephone number, number of employees, and whether the company was a subsidiary. EBSA requested that certain known church or government organizations be excluded from the records because Title I of ERISA does not cover plans sponsored by such entities.(13)  OPR divided the large and small samples by EBSA region and provided individual contact sheets for the single employers. National office staff (primarily OE coordinators and OHPSCA staff) then attempted to contact each firm directly by telephone to verify coverage. In a few instances – particularly for large firms – staff could verify through an Internet search that a firm offered a group health plan. When staff determined that a firm was unreachable or out of scope, the next firm in sequence was contacted so that each contact had a disposition. Staff entered each disposition, along with other information gleaned from the contact, on the standard contact sheet. OE then consolidated the dispositions on a master spreadsheet. Once a sufficient number of referrals was amassed, they were batched together by region and referred to regional offices on spreadsheets. The spreadsheets (tracking files) were used throughout the project to match project referrals with the corresponding cases in the Enforcement Management System (EMS) in order to link with data on Part 7 violations. (See Table 10 for the list of EMS codes used.) Ultimately, each of the firms and multiemployer plans had a case number in the tracking file or a coded disposition (e.g., U-unreachable, C-church plan) entered on a master tracking file.

After OE made each set of referrals, regional coordinators typically distributed the potential cases throughout their region. Regional managers determined which investigators were assigned project investigations. The regional coordinators reported back to the national coordinator when specific referrals could not be investigated, for tracking and replacement purposes. The regional coordinators also raised interpretive and procedural issues encountered during the investigations.

OE made the initial assignment of 476 large-firm referrals to the field on October 25, 2000. Along with the referrals, OE issued a guidance memorandum. Among other items, the guidance provided a dedicated EMS National project code to be used exclusively for these and subsequent project referrals. OE referred a set of large-firm replacements on September 4, 2001. The entire allotment of large-firm records selected by D & B was exhausted by this date.

OE made the initial batched referral of 151 small firms with plans on January 26, 2001. Staff attempting to contact companies had found many small firms either did not offer a covered plan, or were unreachable.(14)  It was not possible at that date to refer a greater number, because more time and resources were needed to reach the target of 448 small firms with plans. By January 26, 2001, 485 contacts had identified 151 small firms with plans. The second batch of 310 referrals was made on March 27, 2001. Staff had contacted over 1,300 small firms by this date. OE sent small-firm replacements to regional offices on November 1, 2001. By this date, staff had attempted to contact 1,604 small firms.

OE directed regional offices to enter Part 7 violations data in EMS by the end of calendar year 2001. After January 1, 2002, OPR and OE verified the accuracy of tracking files and EMS data fields. OPR then produced statistical tables for comment and analysis.

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Investigative Procedures

The project was part of the Program Operating Plan (POP) Guidance for 2001. The POP Guidance instructed regional offices to use the HIPAA checksheet and other compliance materials created by OHPSCA. The guidance also requested that in these project cases regions should take the opportunity to undertake any other reasonable investigative steps to ensure that no other problems exist in the plan regarding claims payments, financial soundness, reporting, disclosure, or fidelity bond issues.

To reinforce these points, the October 25, 2000, transmittal of the partial large-firm sample included an “Investigative Guidance” section. This section reiterated that the primary goal of the project was to gauge Part 7 compliance, but it also stated the need to perform a sufficient review of compliance with Parts 1, 4, and 6 of ERISA.

To increase efficiency, some regions developed standard opening letters for multiemployer and single-employer plans. Generally, these document request letters evolved from those used for general health plan investigations. Another efficiency strategy was to group referrals by geographic location or by third-party administrator.

Regions used the HIPAA checksheet in the project as a guide in investigations. The checksheet also served as a training tool and as a means for managers to monitor progress. Certain regions also created their own investigative guides tailored to the project. For example, one region’s guide prompted the investigator to address parent/subsidiary relationships, EMS reporting requirements, and contact information.

Once the investigations were underway, investigators could draw from various sources of expertise. Some regions held periodic meetings to discuss compliance issues. Regional offices raised novel voluntary compliance issues with OE and OHPSCA. OE presented a module on the project to all regional office staff during its summer 2001 training. This module addressed technical and procedural issues such as remedies, subpoenas, and coordination with State insurance commissions. National office and regional managers continuously discussed the project in routine conference calls and meetings. OE and OHPSCA also held several organized teleconferences with all regional coordinators, in addition to informal teleconferences with individual regions. These discussions covered technical and procedural issues and offered the opportunity for regional office staff to raise questions.

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Education Program and Quality Control

Internal Education and Support Regarding Group Health Plan Compliance Assistance

New Training Tools - The national office worked closely with the regions to modify the HIPAA checksheet and to develop additional materials to assist the regional offices with investigations. EBSA’s benefit advisors, who receive public inquiries and participate in compliance assistance outreach regarding the provisions of Part 7 of ERISA, would also use these tools. Examples of the various materials developed include:

  • HIPAA Checksheet — OHPSCA retooled the HIPAA checksheet, which was designed for investigators to determine whether health plans are in compliance with the law. Updates were made and modifications were added in accordance with suggestions made by the regional offices following the FY 1999 pilot project.

  • The HIPAA Binder — This binder contains: (a) Q&As on recent changes in health care law, (b) outlines explaining each new statute that was enacted, (c) the Federal regulations, (d) information regarding comparable State laws, (e) EBSA health publications, and (f) EBSA regional office and State insurance department contacts. OHPSCA regularly updates this binder to include new developments and publications related to health care law.

  • Lessons Learned Charts — These charts, generated by OHPSCA, contain dozens of examples of commonly used plan provisions and practices that investigators should be aware of when conducting compliance reviews of health plans.

New Delivery Mechanisms - EBSA also made effective use of computer technology to provide the regional offices with the most up-to-date materials in real time and to communicate quickly with investigators on specific cases. Examples of the information delivery mechanisms used by EBSA include:

  • Easy-access Intranet — This EBSA internal-only Web site was created to provide investigators and benefit advisors with direct access in real time to the most recent Part 7 compliance materials, such as: (a) the HIPAA Binder materials (including the regulations and outlines), (b) the Lessons Learned Charts, (c) HHS and Treasury Department publications, and (d) additional State law and contact information.

  • Rapid Response Phone and Email Team — Through creation of a HIPAA contact network, staff from OHPSCA and OE are available to provide immediate technical assistance to investigators and benefit advisors with respect to compliance-related inquiries.

  • Training Seminars and Teleconferences — Throughout the year, staff from OHPSCA and OE travel to regional offices to provide training seminars for investigators and benefit advisors. In addition, OHPSCA and OE conduct periodic teleconferences to discuss their experiences and any substantive and procedural issues that may arise.

  • Data Codes — To facilitate the tracking of Part 7 violations, EBSA created new data codes (each representing a particular Part 7 violation) for EMS. Four new codes allowed plans to be identified as not subject to each of the Part 7 statutes.

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Compliance Assistance Activities for the Regulated Community

Compliance Assistance Materials - In addition to the quality control materials created for EBSA staff, compliance materials were also developed to increase the public’s awareness and understanding of HIPAA, the Newborns’ Act, MHPA, and WHCRA. The following are examples of such materials:

  • Q&As Regarding Changes in Health Care Laws — EBSA published Q&As: Recent Changes in Health Care Laws, which provides employers and employees with information regarding their rights and obligations under the health care laws. The information in this booklet is currently being updated and converted into two new publications — one for employers and one for employees.

  • Frequently Asked Questions/Tips — Drawing from its experience in the FY 1999 pilot project, EBSA published Compliance Assistance for Group Health Plans, which provides 10 key compliance considerations for group health plans and tips on how to bring plans into compliance with Part 7 of ERISA. Simultaneously with the release of this report, this publication was also updated to a list of 15 key compliance considerations.

  • Posters and Information Cards — EBSA developed several posters and information cards to increase the public’s awareness of health care laws. One poster, which provided information on the Newborns’ Act, was distributed in FY 2001 to doctors’ offices (particularly obstetricians’ offices), drug stores, and hospitals. Another poster provided information to help workers and their families when their health benefits claims were denied. A card was also developed to explain key protections under MHPA.

  • Form M-1 Worksheets — Worksheets were included with the Form M-1 Annual Report for multiple employer welfare arrangements for administrators to use as a self-audit tool for the provisions of Part 7 of ERISA. The worksheets were updated in 2001 to include compliance tips.

Compliance Assistance Outreach Programs - EBSA also expanded its outreach programs to deliver these materials to the public efficiently. These programs include:

  • Internet — All of EBSA’s publications and regulations are available on its Internet site at www.dol.gov/pwba.

  • Public Outreach — Throughout the year, representatives from the Agency’s national office and regional offices participate in seminars and presentations to educate and familiarize employees, employers, plan administrators, issuers, third-party administrators (TPAs), and State insurance department staff with Part 7 of ERISA.

  • Expanded Participant and Compliance Assistance Program — EBSA increased the number of benefit advisors in response to the significant rise in health care inquiries. These benefit advisors handle written and telephone inquiries from the public and conduct public outreach. They also participate in rapid response programs following events such as plant closings and employer bankruptcies to inform dislocated workers and their families about their rights to private-sector health care.

  • Health Benefits Education Campaign — This campaign, which was launched in FY 1999, is comprised of over 70 partners, representing a wide range of interests from employees to employers to health care providers. Through the campaign, EBSA distributes information on Federal health care laws to employees, employers, plan administrators, issuers, TPAs, and State insurance department staff. EBSA also participates in the campaign’s compliance assistance seminars that take place across the country to help increase awareness regarding Part 7’s provisions and to answer questions from the regulated community on its requirements.

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Presentation and Interpretation of Data

The following summary addresses noncompliance with the new health care laws individually and overall. It also examines noncompliance with these laws by sample (small single-employer plans, large single-employer plans, and multiemployer plans). In doing this, it is important to realize that the goal of the project was to measure the presence, rather than the extent, of violations in sample plans. Therefore, if a plan is cited with any violation, the plan is treated as being out of compliance. Thus, the weighted violation rates(15) found in the tables include plans that may have been cited with one or numerous violations. Moreover, the rates do not take into account the number of participants and beneficiaries affected by a violation, which varies by individual provision and individual plan.

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Noncompliance Rates

Based on the data, it appears implementation of the requirements of Part 7 by group health plans has progressed steadily. Only 8 percent of plans were cited with a violation of MHPA. This low violation rate may have resulted from the narrow scope of MHPA’s provisions and the relatively simple changes that plans made in order to come into compliance.

The investigations showed that 4.5 percent and 5.2 percent of plans were cited with a violation of the substantive provisions of WHCRA and the Newborns’ Act, respectively (that is, the provisions of these laws other than the notice requirements). Most violations of these two laws involved problems with adequate or timely notices. Specifically, after taking into account the notice requirements, 35.0 percent and 21.8 percent of plans were cited with a violation of the Newborns’ Act and WHCRA, respectively.

Regarding HIPAA, the data reveal that 28.1 percent of plans were cited with at least one violation of HIPAA’s substantive portability or nondiscrimination provisions. Many of the violations involved discrete plan provisions. In these instances, EBSA found that a single plan provision could violate multiple HIPAA requirements. After factoring in the notice requirements, 35.9 percent of plans in the sample were cited with at least one violation.

Accordingly, after taking into account all of the violations cited, the data reveal that 30.7 percent of plans were cited with at least one violation of the 36 substantive requirements under the four laws. After factoring in the six additional notice provisions, 45.3 percent of group health plans were cited with at least one violation. In many cases, noncompliance may have been the result of a mistake in understanding and complying with the laws. Given the short implementation period since the provisions of Part 7 and the regulations became effective, and taking into account the size of the ERISA health plan universe (approximately 2.5 million plans), this confusion in implementation is not unexpected.

HDCI Chart 2 - MHPA Violations MHPA Noncompliance Rates - Among the four health care laws, MHPA was found to have the lowest noncompliance rate, 8.0 percent. (See Table 6 and Chart 2.)(16)  One explanation of the low violation rate could be that the GAO published its May 2000 report involving MHPA compliance(17) before EBSA initiated the project, which may have caused a decrease in the number of MHPA violations. Thus, GAO’s focus on MHPA compliance may have contributed to additional MHPA compliance among other plan sponsors and administrators throughout the country. This may also explain why noncompliance rates fell from 14 percent when the GAO did its 1999 survey to 8 percent in this FY 2001 project.

Further, because MHPA is very narrowly focused on annual and lifetime dollar limits and some plans never included these limits, these plans were automatically in compliance with the law. Finally, another reason for the high compliance rate could be that compliance with MHPA is fairly easy and inexpensive — plans can merely delete annual and lifetime dollar limits on mental health benefits while retaining other restrictions such as visit and network limits.

Nonetheless, annual dollar limits and constructive annual dollar limits comprised the majority of the violations cited. Examining all of the plans cited with MHPA violations, 58 percent included annual dollar limits and 53 percent included constructive annual dollar limits that were out of compliance with MHPA. (Derived from violation rates in Table 6.) This may be because annual limits are more prevalent than lifetime limits and, therefore, are more likely to be out of parity.

EBSA investigators cited constructive dollar limits when a plan had a combination of a fixed limit on the number of visits per year and a fixed limit on the payment per visit that effectively imposed a ceiling on annual mental health benefits that was lower than for medical/surgical benefits. For example, suppose a plan has no dollar limit or visit limit on medical/surgical benefits, but has a 30-visit limit per year on mental health benefits coupled with a $100 maximum payment by the plan per visit. The plan, in effect, has a $3,000 annual limit on mental health benefits while having no such limit on medical/surgical benefits.(18)  In situations such as these, violations of MHPA’s annual dollar limit provisions were cited.

To help increase compliance with MHPA’s annual dollar limit provisions, EBSA’s publication Compliance Assistance for Group Health Plans warns plans and issuers about constructive dollar limits and provides tips on how to bring plans into compliance.

HDCI Chart 3 - WHCRA Violations WHCRA Noncompliance Rates - Regarding WHCRA, noncompliance with the substantive provisions (that is, the provisions other than the notice requirements) was generally low; only 4.5 percent of plans were cited with a substantive violation. (See Table 7.) However, taking into account the notice requirements, noncompliance was higher. As Table 6 and Chart 3 show, EBSA cited 21.8 percent of plans for a violation of WHCRA. The effect of the notice violations is more prominent when examining the percentage of all plans that were cited with failing to provide WHCRA’s annual and/or enrollment notice (17.7 percent). (See Table 6.)(19)  Moreover, 8.8 percent of plans were cited for failing to provide WHCRA’s one-time, January 1999 notice.(20)  Small plans were responsible for most of the violations. (With respect to small plans, 18.0 percent were cited for failure to provide the annual and/or enrollment notice and 8.9 percent were cited for failure to provide the one-time notice.)

The reason for this high rate of noncompliance may be that WHCRA regulations are still under development. EBSA did publish guidance on the WHCRA notice requirements and provided model notices in 1999. However, some plans may not have found this guidance, which is available on EBSA’s Web site, but was not published in the Federal Register because it is informal guidance rather than a regulation. Issuers in particular may not be accustomed to contacting EBSA for compliance assistance, which may have impacted the small plan noncompliance rate especially because small plans are more likely to be insured. (21)

To coordinate more closely with issuers and to help them use EBSA as a resource, the Agency began to sponsor compliance assistance seminars targeted towards issuers, TPAs, and other service providers. EBSA held five of these seminars in calendar year 2001 and held four seminars in calendar year 2002. These seminars are jointly sponsored with State insurance departments and take place across the country.

HDCI Chart 4 - Newborns' Act Violations Newborns’ Act Noncompliance Rates - Noncompliance with the substantive provisions of the Newborns’ Act was also low; only 5.2 percent of plans were cited with a substantive violation (See Table 7.) However, similar to WHCRA, notice requirements were problematic. Among all of the plans investigated, 32.5 percent were cited with a violation of the notice requirements and, overall, 35 percent of plans were cited with a violation. (See Table 6 and Chart 4.) Accordingly, of the plans that were cited with Newborns’ Act violations, 93 percent involved notice violations. Moreover, small plans were much more likely to have violated the Newborns’ Act notice provisions than large or multiemployer plans. (As Table 6 and Chart 5 show, 34.2 percent of small plans were cited with Newborns’ Act notice violations.) One reason for this high incidence of violations may be confusion as to the applicability of the Newborns’ Act.

All self-insured plans are required to comply with the Newborns’ Act, including its notice provisions. In contrast, insured plans in States that have a State law applicable to insurance and that meets certain requirements are not subject to the substantive provisions of the Newborns’ Act.(22)  Nonetheless, these insured plans are still required to make certain disclosures with respect to hospital stays in connection with childbirth.(23)

HDCI Chart 5 - Newborns' Act Notice ViolationsPerhaps, because small plans are more likely to be insured and because there may have been some confusion among the issuers as to whether ERISA requires disclosures by insured plans regarding hospital stays in connection with childbirth, a high number of these violations were cited. Even though the error might have originated with the issuer, the plan administrator is ultimately responsible for compliance with ERISA and, thus, was cited in these instances.

In addition, because the original regulation addressing the Newborns’ Act notice required plans to describe the provisions of the Federal law and most insured plans are subject to State law requirements rather than the Federal law,(24) there may have been some resistance by issuers for insured plans to make such disclosures. In an attempt to address legitimate concerns by some issuers and insured plans, EBSA worked with these entities to develop language that could be used to meet their obligations under ERISA while also summarizing accurately the rights of participants and beneficiaries to hospital stays in connection with childbirth under State law. The Newborns’ Act notice regulation was revised in November 2000 to decrease confusion and uncertainty regarding this requirement.(25)

HDCI Chart 6 - HIPAA Violations HIPAA Noncompliance Rates - Among the four health care laws, HIPAA had the highest rate of noncompliance; 28.1 percent of plans were cited with a substantive violation. (See Table 7.) After taking into account the effect of notice violations, the noncompliance rate was 35.9 percent. (See Table 6 and Chart 6.) The HIPAA violations may be divided into four categories: 1) impermissible preexisting condition exclusions; 2) nondiscrimination violations; 3) failure to provide complete certificates of creditable coverage; and 4) special enrollment violations. With regard to impermissible preexisting condition exclusions, 23.8 percent of plans were cited with a violation. (See Table 6.) This relatively high rate of noncompliance may be due to the presence of violations for three discrete issues. First, EBSA investigators identified “hidden preexisting condition exclusions” in a number of plans. Second, EBSA identified nonconfinement clauses in 4.9 percent of plans, which resulted in violations of both the preexisting condition exclusion provisions and the nondiscrimination provisions. (See Table 6.) Third, some plans and issuers improperly calculated the beginning of the 12-month (or 18-month) look-forward period and the end of the 6-month look-back period. (EBSA cited 9.5 percent of plans for violating the 12-month (or 18-month) look-forward provision and 11.7 percent of plans for violating the 6-month look-back provision, some of which is attributable to a miscalculation as to the start or end of the period. (See Table 6.)) All of these problems are explained below.

Hidden preexisting condition exclusions may not have been apparent to some plan administrators, issuers, and TPAs although EBSA investigators were specifically trained to identify these types of violations. As explained earlier, a plan seeking to impose a preexisting condition exclusion is required to comply with HIPAA’s limitations on preexisting condition exclusions, including the 6-month look-back limitation, 12-month look-forward limitation offset by creditable coverage, general notice, and individual notice. Rather than make all of these changes, some plan sponsors chose to eliminate their plan’s overall preexisting condition exclusion. However, remaining plan exclusions may have had some form of timing provision that made the exclusion preexisting in nature. Because these plans may not have realized that these exclusions are considered preexisting condition exclusions, they did not comply with HIPAA’s limitations on such plan provisions and multiple violations of HIPAA were cited.

An example of a hidden preexisting condition exclusion is a plan provision that covers treatment for injuries in connection with an accident only if the accident occurred while the individual was covered under the plan. Another example is a plan provision that excludes coverage for cosmetic surgery unless it is required by reason of a congenital defect and the individual has been continuously covered under the plan since birth.

When these hidden preexisting condition exclusions were detected, violations of HIPAA’s 6-month look-back period, 12-month look-forward period, offset by creditable coverage, general notice, and individual notice provisions were cited. (See Table 9 regarding high correlations among these violations.) Accordingly, a single mistake by a plan caused multiple citations for HIPAA violations in these instances.

To raise awareness regarding hidden preexisting condition exclusions, EBSA published Compliance Assistance for Group Health Plans, which sets forth ten key compliance considerations and tips on how to bring the plan into compliance. Hidden preexisting condition exclusions are highlighted as the number one compliance consideration.

Another violation cited by some EBSA investigators involved a plan’s imposition of a non-confinement clause. (See Table 6, which identifies 4.9 percent of plans being cited with non-confinement clause violations.) An example of a non-confinement clause is a plan provision stating that if a dependent is in a hospital or other health care facility on the date coverage is otherwise to become effective, the effective date of coverage is delayed until the dependent is released from the hospital or health care facility. Because these plan provisions deny benefits for a condition based on the fact that the condition was present before the effective date of coverage, they are preexisting condition exclusions. As with hidden preexisting condition exclusions, when non-confinement clauses were found, multiple violations of the preexisting condition exclusion provisions were cited by EBSA investigators. In addition, because these plan provisions deny eligibility based on a health factor, they are also violations of HIPAA’s nondiscrimination provisions and were cited as such.

To help raise awareness as to the impermissibility of non-confinement provisions, EBSA collaborated with the Centers for Medicare & Medicaid Services (formerly the Health Care Financing Administration) to publish Insurance Standards Bulletins 00-01 and 00-04, which describe different types of non-confinement provisions and explain the multiple HIPAA provisions they violate.

The third reason some plans were cited with violations for an impermissible preexisting condition exclusion is that the plan improperly calculated the beginning of the 12-month (or 18-month) look-forward period and the end of the 6-month look-back period. Under HIPAA, these periods are measured from an individual’s enrollment date. The enrollment date is defined as the first day of coverage under the plan, or if there is a waiting period for coverage, the first day of the waiting period.(26)  Therefore, if an individual begins work on January 15 and coverage does not begin until the first day of the next calendar month (February 1), the individual has a 17-day waiting period for coverage. Moreover, the individual’s enrollment date is January 15, the first day of the waiting period, and the 12-month look-forward and 6-month look-back periods should be measured from this date. EBSA found that some plans that included a waiting period calculated these periods from the first day of coverage (February 1 in this example), rather than the first day of the waiting period. This was apparent particularly when health coverage was offered through an issuer or through a multiemployer plan, where these parties may be further removed from the employer and less likely to know an individual’s date of hire.

Because these miscalculations result in longer preexisting condition exclusions for individuals than is permissible and to increase awareness among the regulated community regarding this issue, EBSA included in its publication Compliance Assistance for Group Health Plans information on enrollment dates and tips on how to bring the health plan into compliance. At seminars with issuers and multiemployer plans, EBSA representatives also encouraged these entities to coordinate with employers to get information on individuals’ dates of hire to avoid this problem.

With respect to HIPAA’s certificate provisions, 7.3 percent of plans were cited with a violation. (See Table 6.) This rate of noncompliance initially caused concern because the certificate provisions are so important – certificates provide individuals with evidence of their creditable coverage, which may be used to reduce a future preexisting condition exclusion and to gain guaranteed access to health coverage in the individual insurance market.(27)  However, after closer inspection, in many of the plans it was not that plans were failing to issue certificates of creditable coverage. Rather, certificates were being provided, but they were incomplete. Two pieces of information that some plans were missing were waiting period information and dependent information.

Specifically, under HIPAA, there are seven data elements required to be included on a certificate of creditable coverage: the date of the certificate; the name of the group health plan; the name of the participant (or dependent) and his or her identification number; certain identifying information regarding the plan administrator or issuer who is required to provide the certificate; the telephone number to call for further information regarding the certificate; the individual’s creditable coverage information (which includes, if the individual has less than 18 months of creditable coverage, the date any waiting period began and the date coverage began); and the date coverage ended (if it ended). Participants and their dependents each have an independent right to certificates of creditable coverage, although plans can combine creditable coverage information for families on a single certificate, which may be copied, if the information is the same.

Based on EBSA’s experience, it seems that some plans were neither providing certificates to dependents, nor identifying dependents on the certificate of creditable coverage provided to participants. In these cases, the certificates were incomplete because they did not provide dependents with any evidence of creditable coverage, as required by HIPAA, and were cited accordingly. Other plans were not including waiting period information on certificates of creditable coverage. This information is important because, under HIPAA, time spent in a waiting period for coverage tolls any significant break in coverage that might otherwise occur with respect to the individual.(28)  As such, it is required to be reported on the certificate of creditable coverage for individuals with less than 18 months of creditable coverage.

To increase compliance assistance and awareness as to the importance of including this information on certificates of creditable coverage, EBSA’s publication Compliance Assistance for Group Health Plans discusses the inclusion of dependent and waiting period information on certificates of creditable coverage.

Regarding special enrollment rights, 15.9 percent of plans were cited with a violation, which occurred most often with respect to the notice of special enrollment rights. (See Table 6, which shows that 12.1 percent of plans were cited with a violation of the special enrollment notice provision while only 5.2 percent of plans were cited for failing to provide substantive special enrollment rights to individuals upon loss of coverage and only 3.0 percent of plans were cited for failing to provide special enrollment after gaining a new dependent.) Of the plans cited for a special enrollment violation, 76 percent involved a special enrollment notice violation.

EBSA was concerned that 12.1 percent of plans were cited for violations of the special enrollment notice provisions, especially in light of the fact that the regulations provide a model notice.(29)  (See Table 6.) Some of the noncompliance may be attributed to the fact that a number of plans provided special enrollment under their own terms before the passage of HIPAA. These plans likely assumed that no additional changes were required in order to comply with the special enrollment provisions – overlooking the special enrollment notice requirement. For some violations, EBSA found that plans did provide the special enrollment notice, but did not provide the notice within required time frames. The special enrollment notice must be provided to an employee on or before the time the employee is offered the opportunity to enroll in the plan.(30)  Some plans that were cited included the special enrollment notice in the plan’s summary plan description (SPD), which is a permissible form of disclosure, but which has separate timing requirements. If a plan provided employees with the SPD after enrollment, a violation of the special enrollment notice provisions was cited.

Overall Part 7 Noncompliance Rate - After taking into account all of the violations cited under the four health care laws, the data reveal that 30.7 percent of group health plans were cited with a violation of at least one substantive provision of the new health care laws. After taking into account violations of notice requirements, 45.3 percent of group health plans were cited with a violation of at least one provision of Part 7. While this may initially seem relatively high to some, several mitigating factors should be considered when interpreting this number. As explained earlier, EBSA investigators were highly trained in identifying violations of discrete and sometimes technical areas of the law. Their expertise, combined with the large number of Part 7 requirements, may help explain the relatively high rate of noncompliance found. Moreover, when violations were detected, EBSA investigators were generally able to secure voluntary compliance with the law.

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Trends Within the Numbers

High Compliance Rates Observed for Certain Part 7 Provisions - The attached tables show that a majority of group health plans are in compliance with certain Part 7 provisions. One of HIPAA’s most important provisions relates to group health plans providing certificates of creditable coverage. As Table 6 shows, most plans (92.7 percent) complied with this requirement. In addition, after excluding violations cited for non-confinement clauses, compliance with HIPAA’s nondiscrimination requirements was also very high (96 percent).(31)  Compliance with MHPA (92 percent) and the substantive provisions (excluding the notice requirements) of the Newborns’ Act (94.8 percent) and WHCRA (95.5 percent) was also high. (See Table 7.)

Many Violations Involved Part 7 Notice Requirements - Many of the violations cited in the project involved noncompliance with one or more of Part 7’s notice requirements. Excluding certificates of creditable coverage, plans are required to make six disclosures under Part 7, many of which are often made in the SPD. These six disclosures are: (a) a general notice of preexisting condition exclusions (for plans imposing a preexisting condition exclusion); (b) individual notices of preexisting condition exclusions (for plans imposing a preexisting condition exclusion); (c) a notice of special enrollment rights; (d) a Newborns’ Act notice; (e) WHCRA annual and enrollment notices; and (f) a WHCRA one-time notice. Of those plans that were required to provide these notices, 14.5 percent of plans were cited for failure to provide an adequate general notice of preexisting condition exclusion (so that 40 percent of plans cited with a HIPAA violation failed to provide the general notice) and 10.5 percent of plans were cited for failure to provide an adequate individual notice of preexisting condition exclusion (so that 29 percent of plans cited with a HIPAA violation failed to provide the individual notice). With respect to the special enrollment notice, violations were cited in 12.1 percent of plans (so that 34 percent of plans cited with a HIPAA violation failed to provide the special enrollment notice). As mentioned earlier, violations of the notice requirements accounted for most of the overall noncompliance rates for the Newborns’ Act (32.5 percent) (so that 93 percent of plans cited with a Newborns’ Act violation failed to provide this notice) and WHCRA (17.7 percent and 8.8 percent) (so that 81 percent of plans cited with a WHCRA violation failed to provide the annual and/or enrollment notice and 40 percent of plans cited with a WHCRA violation failed to provide the one-time notice). Interestingly, MHPA, which has no notice requirement, had the lowest noncompliance rate of the four health care laws.

In some cases, noncompliance was cited because the plan failed to provide any notice. In other cases, notice was provided but was found to be inadequate. In either case, the development and distribution of model notices by EBSA should lead to increased future compliance. EBSA intends to issue model language for the two notices of preexisting condition exclusion when it publishes its final HIPAA portability regulations. As described earlier, EBSA has made changes to the Newborns’ Act notice requirement and is developing regulations for distribution of the model language for WHCRA disclosures to a wider audience.

HDCI Chart 7 - Effect of Notice ViolationsAs illustrated in Table 7 and Chart 7, by not taking into account violations with respect to the Part 7 notices, the overall noncompliance rate decreases from 45.3 percent to 30.7 percent. HIPAA noncompliance in particular decreases from 35.9 percent to 28.1 percent and noncompliance with the Newborns’ Act and WHCRA decrease dramatically from 35.0 percent and 21.8 percent to 5.2 percent and 4.5 percent, respectively. As such, EBSA hopes that taking the relatively simple steps outlined above regarding compliance assistance with the notice provisions will lead to greatly increased overall Part 7 compliance rates in the future.

Effect of Issuers - As noted above, one survey found that most small companies do not self-insure their health benefits.(32)  Instead, most small firms obtain group health coverage through a health insurance issuer. Among the findings in a recent GAO survey of the small group health insurance market is that the median market share of each State’s largest insurance carrier was approximately 33 percent in the States surveyed.(33)  Plan sponsors of any size may purchase coverage (including model plan documents) from issuers and contract for provision of certificates and notices by issuers. The tendency of small firms to contract with issuers and the dominant market share of certain issuers in some markets suggests a potential multiplier effect. For example, a fully compliant prototype plan document benefits each group health plan that follows the provisions. Conversely, confusion concerning one issuer’s notice and disclosure obligations would generally affect multiple plans. For the reasons discussed in Section V below, EBSA intends to explore this possible effect.

HDCI Chart 8 - Relationship Between Noncompliance Rates and Plan Size Small and Large Plans Have Lowest Overall Noncompliance Rates - The project was designed, in part, to measure compliance among large and small single-employer plan sponsors, determined by taking into account the number of employees reported. In contrast, Table 5A and Chart 8 indicate violation rates by single-employer plans broken down by the number of participants reported in the plan. This table shows that mid-sized plans experienced higher noncompliance rates than small and large plans. Very small plans (those with 2-9 participants) and small plans (those with 10-24 participants) had overall Part 7 noncompliance rates of 43.2 percent and 48.8 percent, respectively. Part 7 noncompliance peaked for mid-sized plans (those with 25-99 participants) at 52.3 percent. Then, noncompliance fell again for large plans (those with 100-500 participants) and very large plans (those with 500 participants or more), which had noncompliance rates of 46.0 percent and 37.0 percent, respectively.

EBSA observed a similar trend among small and large multiemployer plans. Very small multiemployer plans (those with 2-99 participants) and small multiemployer plans (those with 100-499 participants) had overall Part 7 noncompliance rates of 50.0 percent and 52.3 percent, respectively. With respect to mid-sized multiemployer plans (those with 500-999 participants), Part 7 noncompliance peaked at 68.0 percent. For large multiemployer plans (those with 1,000-4,999 participants) and very large multiemployer plans (those with 5,000 or more participants), the noncompliance rates were 67.9 percent and 51.3 percent, respectively. (See Table 5B and Chart 8.)

One reason that compliance among very small and small plans may have been higher is the effect of issuers in the small group health plan market.(34)  Issuers’ policies may be more likely to comply with Part 7 for several reasons. First, many State insurance departments review insurance policies for compliance with health care laws before they are approved for marketing to employers. Second, many issuers tend to hire general counsel specializing in health care laws. Moreover, large and very large plan sponsors may also have human resource departments and general counsel specializing in health care laws.

Conversely, mid-sized plan sponsors may lack the expertise of an issuer and the resources of larger plans. Some of these mid-sized employers, when deciding the terms of the plans they sponsor, may mirror provisions in their stop-loss insurance policies(35) without taking additional steps to comply with applicable law. Because stop-loss insurers are not separately subject to Part 7, these policies may contain provisions that violate Part 7. Therefore, unless the plan sponsor takes steps to ensure compliance, violations may exist.

Multiemployer Plans Have Highest Overall Noncompliance Rate - Multiemployer plans are established through collective bargaining between one or more labor unions and two or more employers. In contrast to the single-employer plans reviewed, multiemployer plans have a board of trustees comprised of an equal number of representatives from labor and management. The governance and service provider relationships unique to multiemployer plans may account for the relatively high noncompliance rate of 60.1 percent. (See Table 2 and Chart 9.)

Experience has shown that some multiemployer plan documents were drafted decades earlier and are rewritten over the years. Accordingly, piecemeal compliance may result. In addition, the effective date for some multiemployer plans may have been more recent than the effective date for single-employer plans. Some multiemployer plans may have had a shorter time frame within which to understand and implement HIPAA’s provisions. Finally, EBSA found that a multitude of plans could be impacted as a result of misunderstandings by TPAs regarding the implementation of the new health care laws. As a result of these misunderstandings, a multiplier effect could have occurred among plans in the nation and the sample. To the extent that TPAs can have such a large impact on compliance, EBSA may be able to work with these entities in the future and leverage its enforcement resources to obtain broad-based compliance from many multiemployer plans. (In this regard, see also the discussion of Supplemental Benefits under Section V, below.)

HDCI Chart 9 - Part 7 Violations Other Correlations Between Violations - Table 9 sets forth the highest correlations between violations that were cited for all three samples pooled. Having a correlation coefficient(36) closer to 1.0 indicates that if one of the violations occurs, there is a very high probability the other violation will also occur. As Table 9 shows, a plan that was cited for a violation of one of the preexisting condition exclusion period provisions was likely to have been cited for a violation of other preexisting condition exclusion period provisions. Of the top 10 pairs of violations having the highest correlations, 7 pairs involved correlations of HIPAA preexisting condition exclusion periods. (EBSA found correlations ranging from 0.796 to 0.504 for these 7 pairs.)(37)  These correlations are consistent with EBSA’s finding of hidden preexisting condition exclusions and non-confinement clauses in some plans, which resulted in citations for multiple preexisting condition exclusion period violations by those plans. In addition, a plan that was cited for a violation of one of the substantive special enrollment provisions was likely to have been cited for a violation of the other substantive special enrollment provisions. (EBSA found a 0.478 correlation between violations of provisions governing special enrollment triggered by a new dependent and those triggered by loss of other coverage.) Violations of MHPA’s annual and lifetime provisions were also closely correlated. (EBSA found a 0.601 correlation between these violations.)

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Supplemental Benefits of the FY 2001 Compliance Project: Increased Issuer and Third Party Administrator Compliance

During the project, EBSA focused its investigative efforts primarily on compliance with respect to specific group health plans. Although most of these plans agreed to amend their plan documents to comply with Part 7, a more global effect emerged as a result of the investigations. EBSA determined that noncompliance for some plans originated with their service providers (that is, their issuers or TPAs). Specifically, some plan provisions that were cited for a violation of Part 7 were derived from policies or model plan documents generated by issuers or TPAs with standard provisions. In these cases, the simple amendment of an issuer’s policy or TPA’s document results in a one-time correction for a much larger universe, particularly if the issuer or TPA operates nationwide.

Some investigators pursued this broad-based compliance assistance effort in the project and other cases by attempting to work with issuers and TPAs on standard provisions that were in violation of a Part 7 provision. EBSA determined that when the issuers and TPAs agreed to amend policy terms or model documents, thousands of plans and millions of participants were affected by the corrections. At the close of the first quarter of FY 2002, four regional offices were able to estimate the number of participants and plans affected by this type of compliance. Those estimates reflected that amendments made to nine different standard insurance policies or model documents resulted in corrections for over 2.7 million participants and nearly 14,000 insured plans.(38)

The primary challenge to pursuing this type of blanket correction is that, under ERISA, EBSA does not have direct enforcement authority over issuers for the provisions of Part 7.(39)  Therefore, these compliance gains were generally the result of voluntary compliance work. In some cases, issuers and TPAs agreed to correct standard provisions to ensure that all ERISA-covered group health plans they serviced were in compliance with Part 7. In other cases, EBSA worked with State insurance departments, who retain direct enforcement authority against issuers, to raise Part 7 awareness and increase broad-based compliance for standard policies and model documents. Using both compliance methods, EBSA was able to help bring about additional, far-reaching compliance assistance by working directly with issuers and TPAs.

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Conclusion: Introducing H-CAP

The project was a review of group health plans for compliance with 42 specific requirements of the new laws. Generally, EBSA found that group health plans are in compliance with the substantive provisions of the new health care laws (that is the provisions other than the notice requirements). Given the very large and complex universe of ERISA-covered health plans, it was not unexpected that confusion would arise with respect to implementing the various, sometimes technical requirements of the new health care laws. In this regard, the project was initiated in the early stages of the implementation process - generally only 2 years after the law became effective for most plans.

However, implementation problems exist, particularly with respect to certain notice provisions, as well as regarding certain discrete substantive provisions that are technical in nature. To address these problems, EBSA is initiating H-CAP, which is comprised of three strategies, each with an action plan.

H-CAP’s first strategy is to develop and distribute additional publications and other educational materials. EBSA will publish three new publications to assist group health plans and health insurance issuers in complying with new health laws. These materials will be distributed through EBSA’s toll free publications line, at all workshops and compliance assistance activities, through industry groups and industry newsletters, through the trade press and other interested media, and via EBSA’s Web site.

Specifically, a Self-Audit Checklist has been developed. This checklist, similar to the HIPAA checksheet used by EBSA investigators to determine compliance, will be a useful tool for plans and issuers to assess their compliance line-by-line with the health laws. In addition, Compliance Assistance for Group Health Plans, EBSA’s current publication highlighting the top ten most common errors made by health plans, has been updated with five additional tips for group health plans, based on common mistakes found in the project. It also includes advice on how to avoid these mistakes. Finally a New Health Laws Notice Guide has been developed summarizing all of the new health law notice requirements, including sample language that can be used by plans.

H-CAP’s second strategy is to dedicate a section of EBSA’s compliance assistance page on EBSA’s Web site to the new health care laws, making it easier for plans, issuers, and other service providers to find in one location all of the regulations, publications, frequently asked questions, and other guidance. The new, dedicated section will supplement compliance assistance efforts EBSA has already made, including making our Benefits Advisors available, through EBSA's Toll-Free Employee & Employer Hotline number, 1.866.444.3272, and electronically at www.askpwba.dol.gov to answer questions about the new health law requirements.

The third strategy is to participate in new, live workshops around the country where trained staff will meet with plan administrators, plan sponsors, attorneys, consultants, and other service providers to apply the Self-Audit Checklist to various sample plan provisions and documents. These live workshops will supplement the Health Benefits Education Campaign Compliance Assistance Seminars already conducted by the Agency, which address a wider variety of health plan topics, including the new health laws.

In addition to H-CAP, EBSA intends to implement several changes to its interpretive program. Specifically, EBSA would like to provide additional clarity and model notices in future interpretive guidance. EBSA intends to amend its regulations to include sample language that could be used by plans and issuers providing the general and individual notices of preexisting condition exclusions. In addition, EBSA intends to amend its regulations to include model educational information about the HIPAA provisions to be included in the certificate of creditable coverage. This model language was suggested by the GAO(40) and EBSA hopes this type of education will increase awareness about and compliance with HIPAA’s provisions. EBSA also intends to provide additional regulatory guidance on issues such as hidden preexisting condition exclusions.

EBSA is optimistic that these partnership efforts with plans, issuers, and other service providers will lead to increased understanding about the new health care laws and increased compliance rates as well.

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Footnotes

  1. EBSA's fiscal year runs from October 1 through September 30.

  2. For simplicity, this report references the percentage of plans cited with a violation.  However, these percentages are actually weighted violation rates, which are explained in footnote 15 of this report.

  3. An issuer is generally an insurance company or health maintenance organization that is required to be licensed and that is subject to State law that regulates insurance. See 29 CFR § 2590.701-2.

  4.  HIPAA amended ERISA, the Internal Revenue Code (Code), and the Public Health Service Act (PHS Act) with parallel provisions. Generally, ERISA covers private-sector group health plans and health insurance issuers. However, the Department of Labor does not enforce the provisions of Part 7 directly against issuers, which are under the jurisdiction of the States or the Department of Health and Human Services (HHS).

  5. See Solicitation of Comments published on December 30, 1996 (61 Fed. Reg. 68697).

  6. See Solicitation of Comments published on October 25, 1999 (64 Fed. Reg. 57520).

  7. Initially, the Newborns’ Act amended only ERISA and the PHS Act. The Taxpayer Relief Act of 1997 was enacted on August 5, 1997, and added provisions substantially similar to those in the Newborns’ Act to the Code.

  8. See Solicitation of Comments published on June 26, 1997 (62 Fed. Reg. 34604).

  9. Initially, MHPA amended only ERISA and the PHS Act. The Taxpayer Relief Act of 1997 was enacted on August 5, 1997, and added provisions substantially similar to those in MHPA to the Code.

  10. See Solicitation of Comments published on June 26, 1997 (62 Fed. Reg. 34604).

  11. Initially, MHPA included a sunset provision under which the requirements did not apply to benefits for services furnished on or after September 30, 2001. Through a series of legislative enactments, the sunset date has been extended to December 31, 2003. See Pub. L. 107-116, Pub. L. 107-147, and Pub. L. 107-313.

  12. The statute amended ERISA and the PHS Act and is administered by the Departments of Labor and HHS.

  13. ERISA section 4(b).

  14. See Table 1, which indicates that of 1,604 small firms, 1,045 such companies were either unreachable (298) or did not offer a covered group health plan (747).

  15. Probabilities of selection vary widely between samples, being highest for multiemployer plans, and lowest for plans of small firms. (See Appendix.) Statistical weights correct for these intended differences in probabilities of selection. Statistical weights also correct for the anticipated, but unintentional, differences in probabilities of selection that arise from plans that cover workers at multiple subsidiaries of the same firm. Such plans had multiple chances of selection, because all subsidiaries are listed in the D & B database used as the sampling frame. The same plan would have been investigated if any of its subsidiaries had been selected, leading to a higher probability of selection, and a lower weight for such plans. The very low probability of selection for plans of small firms translates into a very high statistical weight for these plans. As a result, violation rates from the small firm sample dominate the overall weighted violation rates for all plans, which are nudged only slightly in the direction of the large firm and multiemployer rates. In simple terms, the violation rate for all plans resembles the violation rate for small plans, because most plans are small.

  16. Because MHPA has no notice requirements, the noncompliance rate is the same in Table 7, which excludes the effect of the notice provisions and cites noncompliance with only the substantive provisions of the new health care laws.

  17. See Mental Health Parity Act: Despite New Federal Standards, Mental Health Benefits Remain Limited (GAO/HEHS-00-95, May 10, 2000).

  18. For purposes of its enforcement, EBSA did not attempt to construct a maximum payment in cases where a plan limited payments by a certain percentage of usual, customary, and reasonable rates for providers in that area.

  19. Under ERISA section 713(a), plans must deliver to the participant written notice of the availability of WHCRA coverage upon enrollment and annually thereafter. Under ERISA section 713(b), plans are required to provide a one-time notice to each participant and beneficiary regarding the coverage required by WHCRA. This notice is required to be transmitted — (1) in the next mailing to the participant or beneficiary; (2) as part of any yearly informational packet sent to the participant or beneficiary; or (3) not later than January 1, 1999; whichever is earlier.

  20. The data reflect that, with respect to the annual and/or enrollment notices, 81 percent of the plans that were cited with a WHCRA violation failed to provide one or both of these notices. In addition, 40 percent of the plans that were cited with a WHCRA violation failed to provide the one-time notice.

  21. See The Employee Benefits Research Institute fact sheet, “Employment-Based Health Care Benefits and Self-Funded Employment-Based Plans: An Overview” (April 2000) at p. 5 (citing 1997 Robert Wood Johnson Foundation Employer Health Insurance Survey).

  22. “(1) In general. — The requirements of this section shall not apply with respect to health insurance coverage if there is a State law (as defined in section 731(d)(1)) for a State that regulates such coverage that is described in any of the following subparagraphs:

    1. Such State law requires such coverage to provide for at least a 48-hour hospital length of stay following a normal vaginal delivery and at least a 96-hour hospital length of stay following a cesarean section.

    2. Such State law requires such coverage to provide for maternity and pediatric care in accordance with guidelines established by the American College of Obstetricians and Gynecologists, the American Academy of Pediatrics, or other established professional medical associations.

    3. Such State law requires, in connection with such coverage for maternity care, that the hospital length of stay for such care is left to the decision of (or required to be made by) the attending provider in consultation with the mother.” ERISA section 711(f).

  23. See ERISA section 711(d) and the applicable regulations at 29 CFR § 2520.102-3(u).

  24. It appears that insured coverage in all States except Wisconsin, Puerto Rico, the Virgin Islands, American Samoa, Wake Island, and the Northern Mariana Islands is subject to State law requirements that meet the criteria in ERISA section 711(f), rather than the Federal Newborns’ Act provisions.

  25. A group health plan’s summary plan description (SPD) should include a statement describing any requirements under Federal or State law applicable to the plan, and any health insurance coverage offered under the plan, relating to a hospital length of stay in connection with childbirth for the mother or newborn child. If Federal law applies in some areas in which the plan operates and State law applies in other areas, the statement should describe the different areas and the Federal or State law requirements applicable in each. See 29 CFR § 2520.102-3(u)(1).

  26. 26 See 29 CFR § 2590.701-3(a)(2).

  27. Section 2741 of the PHS Act guarantees access to individual health insurance coverage without a preexisting condition exclusion for eligible individuals. Eligible individuals are individuals who have had coverage for at least 18 months without a significant break in coverage where the most recent period of coverage was under a group health plan; did not have their group coverage terminated because of fraud or nonpayment of premiums; are ineligible for Medicare, Medicaid, or a group health plan; do not have other insurance coverage; and are ineligible for continuation coverage under COBRA or if offered COBRA continuation coverage (or continuation coverage under a similar state program) have both elected and exhausted their continuation coverage.

  28. ERISA section 701(c)(2)(B).

  29. See 29 CFR § 2590.701-6(c).

  30. Id.

  31. Although not reflected in the attached tables, after excluding violations cited for non-confinement clauses, plans were found to have the following HIPAA violation rates: 7.0 percent for large plans; 6.8 percent for multiemployer plans; 3.8 percent for small plans; and 4.0 percent for all plans.

  32. See supra, note 25. The survey indicated that 4 percent of participants in plans sponsored by employers with fewer than 50 employees are in self-funded plans. The percentage increased to 8 percent for participants in plans sponsored by companies with 50-99 employees.

  33. The GAO also found that “[t]he five largest carriers, when combined, represented three-quarters or more of the market in 19 of the 34 states supplying information, and they represented more than 90 percent in 7 of these states.” March 25, 2002 letter from Kathryn G. Allen, Director, Health Care - Medicaid and Private Health Insurance Issues to The Honorable Christopher “Kit” Bond concerning Private Health Insurance: Number and Market Share of Carriers in the Small Group Health Insurance Market.

  34. See supra, note 25.

  35. Stop-loss insurance is generally protection purchased by self-funded plans or their plan sponsors against the risk of large losses or severe adverse claims experience. In some cases, this type of coverage merely indemnifies the plan or the plan sponsor if aggregate claims reach a certain attachment point. In other cases, the insurance coverage may cover claims under terms similar to that in a health insurance policy.

  36. Technically, the correlations reported are Pearson correlation coefficients. A correlation of 0 indicates statistical independence, that is, the existence of one violation has no effect on the likelihood of the other. All of the correlations discussed in this section or shown in Table 10 are statistically significant at the 1 percent level.

  37. There was a 0.796 correlation between violations of HIPAA’s look-forward and look-back rules, a 0.689 correlation between violations of HIPAA’s individual notice and general notice, a 0.648 correlation between violations of HIPAA’s rules governing impermissible preexisting condition exclusions on adopted children and newborns, a 0.639 correlation between violations of HIPAA’s creditable coverage offset rule and its look-forward rule, a 0.623 correlation between the violations of HIPAA’s creditable coverage offset rule and its look-back rule, a 0.516 correlation between the violations of HIPAA’s general notice provision and the look-back rule, and a 0.504 correlation between violations of HIPAA’s general notice provisions and the look-forward rule.

  38. In one region, amendments to the policy terms of a single nationwide issuer affected 2.55 million participants and 5,000 plans.

  39. See ERISA section 502(b)(3).

  40. See Private Health Insurance: Progress and Challenges in Implementing 1996 Federal Standards (GAO/HEHS-99-100, May 12, 1999).

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This publication has been developed by the U.S. Department of Labor, Employee Benefits Security Administration.  It is available to sensory impaired individuals upon request by calling:
Voice phone: 202.693.8664
TTY: 202.501.3911

This booklet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Act of 1996.

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