Pre-existing Conditions Prohibition

post-img12Prior to health care reform, a group health plan was permitted to impose a pre-existing condition exclusion (PCE) period on any new participant. This means that coverage could be excluded for a medical condition that existed prior to enrolling in the health plan. It would include both mental and medical conditions for which treatment, care, diagnosis or medical advice was received during a look-back period, which cannot be greater than six months prior to enrollment. For this purpose, pregnancy is not considered a pre-existing condition.

The exclusion period could be up to 12 months for a new participant and up to 18 months for a late enrollee (who did not enroll when initially eligible). Some states have mandated shorter look-back and exclusion periods. An individual’s exclusion period can be reduced for each month of creditable coverage that the individual had prior to enrollment (as long as there is not a gap in coverage greater than 62 days).

Health care reform made changes to the existing restrictions on PCEs. Effective for plan years beginning on or after Sept. 23, 2010, a group health plan may not impose a PCE on individuals less than 19 years of age. PCEs will be completely prohibited for plan years beginning on or after Jan. 1, 2014. Between now and 2014, pre-existing condition exclusion periods may still be imposed on participants aged 19 and older under the procedures described above.

Interim final regulations were issued by the U.S. Department of Labor, Health and Human Services and the Internal Revenue Service, and were effective Aug. 27, 2010, to implement the recent changes regarding PCEs. The PCE prohibition applies to both fully insured and self-insured group health plans, regardless of grandfathered status, but not to HIPAA-excepted benefits or other plans not subject to the mandates of health care reform.

Recent Developments

In 2014, pre-existing condition exclusion periods will be completely prohibited. It is likely that this will result in the General Notice of Pre-existing Condition Exclusion, Individual Notice of Pre-existing Condition Exclusion and the Certificate of Creditable Coverage becoming obsolete.

Employer Action Required

The initial prohibition says that the plan can no longer apply PCEs to individuals under 19 years of age, and this provision should have been implemented for plan years beginning on or after Sept. 23, 2010 (i.e., Jan. 1, 2011, for calendar-year plans). The plan sponsor of a group health plan should ensure that the PCE notices were revised, the plan document was amended, and the summary plan description and other employee communication materials were updated for this initial prohibition on PCEs.

The final PCE prohibition says that the plan can no longer apply PCEs at all, for plan years beginning on or after Jan. 1, 2014. Group health plans must review their plan design and assess compliance with the requirement to eliminate all PCEs in advance of the effective date of this provision – as of plan years beginning on or after Jan. 1, 2014. The plan sponsor should ensure that the plan document is amended and the summary plan description and other employee communications materials are updated.

Penalties for Noncompliance

If violation is not corrected within 30 days of discovery, the employer must self-report the violation on IRS Form 8928, and a civil penalty of $100 per day will be assessed. If more than one qualified beneficiary is affected by the violation, such as a family, the penalty increases to $200 per day.

Frequently Asked Questions

Q1. Does the prohibition on pre-existing condition exclusions apply only to dependent children under the age of 19?
A. Effective for plan years beginning on or after Sept. 23, 2010, a PCE cannot be applied to any individual under the age of 19. This would include children enrolled as dependents under their parent; it would also include an employee or spouse of an employee who is under the age of 19.

Additional Resources

Citations

  • PHSA 2704(a), as amended by PPACA, Pub. L. No. 111-148, 1201 and 1255
  • 26 CFR 54.9801-3
  • 75 Fed. Reg. 37188 (June 28, 2010)