Rules relating to creditable coverage.
For purposes of this section, except as provided in paragraph (a)(2) of this section, the term creditable coverage means coverage of an individual under any of the following:
Health insurance coverage as defined in § 54.9801-2 (whether or not the entity offering the coverage is subject to Chapter 100 of Subtitle K, and without regard to whether the coverage is offered in the group market, the individual market, or otherwise).
Part A or B of title XVIII of the Social Security Act (Medicare).
Title XIX of the Social Security Act (Medicaid), other than coverage consisting solely of benefits under section 1928 of the Social Security Act (the program for distribution of pediatric vaccines).
Title 10 U.S.C. Chapter 55 (medical and dental care for members and certain former members of the uniformed services, and for their dependents; for purposes of title 10 U.S.C. Chapter 55, uniformed services means the armed forces and the Commissioned Corps of the National Oceanic and Atmospheric Administration and of the Public Health Service).
A medical care program of the Indian Health Service or of a tribal organization.
A State health benefits risk pool. For purposes of this section, a State health benefits risk pool means—
An organization qualifying under section 501(c)(26);
A qualified high risk pool described in section 2744(c)(2) of the PHS Act; or
Any other arrangement sponsored by a State, the membership composition of which is specified by the State and which is established and maintained primarily to provide health coverage for individuals who are residents of such State and who, by reason of the existence or history of a medical condition—
(1) Are unable to acquire medical care coverage for such condition through insurance or from an HMO, or
(2) Are able to acquire such coverage only at a rate which is substantially in excess of the rate for such coverage through the membership organization.
A health plan offered under title 5 U.S.C. Chapter 89 (the Federal Employees Health Benefits Program).
A public health plan. For purposes of this section, a public health plan means any plan established or maintained by a State, the U.S. government, a foreign country, or any political subdivision of a State, the U.S. government, or a foreign country that provides health coverage to individuals who are enrolled in the plan.
A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)).
Title XXI of the Social Security Act (State Children's Health Insurance Program).
Creditable coverage does not include coverage of solely excepted benefits (described in § 54.9831-1).
Methods of counting creditable coverage.
For purposes of reducing any preexisting condition exclusion period, as provided under § 54.9801-3(a)(2)(iii), the amount of an individual's creditable coverage generally is determined by using the standard method described in paragraph (b) of this section. A plan may use the alternative method under paragraph (c) of this section with respect to any or all of the categories of benefits described under paragraph (c)(3) of this section or may provide that a health insurance issuer offering health insurance coverage under the plan may use the alternative method of counting creditable coverage.
Specific benefits not considered.
Under the standard method, the amount of creditable coverage is determined without regard to the specific benefits included in the coverage.
Counting creditable coverage—
Based on days.
For purposes of reducing the preexisting condition exclusion period that applies to an individual, the amount of creditable coverage is determined by counting all the days on which the individual has one or more types of creditable coverage. Accordingly, if on a particular day an individual has creditable coverage from more than one source, all the creditable coverage on that day is counted as one day. Any days in a waiting period for coverage are not creditable coverage.
Days not counted before significant break in coverage.
Days of creditable coverage that occur before a significant break in coverage are not required to be counted.
Significant break in coverage defined—
A significant break in coverage means a period of 63 consecutive days during each of which an individual does not have any creditable coverage. (See
section 731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHS Act, which exclude from preemption State insurance laws that require a break of more than 63 days before an individual has a significant break in coverage for purposes of State law.)
Periods that toll a significant break.
Days in a waiting period and days in an affiliation period are not taken into account in determining whether a significant break in coverage has occurred. In addition, for an individual who elects COBRA continuation coverage during the second election period provided under the Trade Act of 2002, the days between the date the individual lost group health plan coverage and the first day of the second COBRA election period are not taken into account in determining whether a significant break in coverage has occurred.
The rules of this paragraph (b)(2) are illustrated by the following examples:
(i) Facts. Individual A has creditable coverage under Employer P's plan for 18 months before coverage ceases. A is provided a certificate of creditable coverage on A's last day of coverage. Sixty-four days after the last date of coverage under P's plan, A is hired by Employer Q and enrolls in Q's group health plan. Q's plan has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has a break in coverage of 63 days. Because A's break in coverage is a significant break in coverage, Q's plan may disregard A's prior coverage and A may be subject to a 12-month preexisting condition exclusion.
(i) Facts. Same facts as Example 1, except that A is hired by Q and enrolls in Q's plan on the 63rd day after the last date of coverage under P's plan.
(ii) Conclusion. In this Example 2, A has a break in coverage of 62 days. Because A's break in coverage is not a significant break in coverage, Q's plan must count A's prior creditable coverage for purposes of reducing the plan's preexisting condition exclusion period that applies to A.
(i) Facts. Same facts as Example 1, except that Q's plan provides benefits through an insurance policy that, as required by applicable State insurance laws, defines a significant break in coverage as 90 days.
(ii) Conclusion. In this Example 3, under State law, the issuer that provides group health insurance coverage to Q's plan must count A's period of creditable coverage prior to the 63-day break. (However, if Q's plan was a self-insured plan, the coverage would not be subject to State law. Therefore, the health coverage would not be governed by the longer break rules and A's previous health coverage could be disregarded.)
(i) Facts. Individual C has creditable coverage under Employer S's plan for 200 days before coverage ceases. C is provided a certificate of creditable coverage on C's last day of coverage. C then does not have any creditable coverage for 51 days before being hired by Employer T. T's plan has a 3-month waiting period. C works for T for 2 months and then terminates employment. Eleven days after terminating employment with T, C begins working for Employer U. U's plan has no waiting period, but has a 6-month preexisting condition exclusion.
(ii) Conclusion. In this Example 5, C does not have a significant break in coverage because, after disregarding the waiting period under T's plan, C had only a 62-day break in coverage (51 days plus 11 days). Accordingly, C has 200 days of creditable coverage, and U's plan may not apply its 6-month preexisting condition exclusion with respect to C.
(i) Facts. Individual E has creditable coverage under Employer X's plan. E is provided a certificate of creditable coverage on E's last day of coverage. On the 63rd day without coverage, E submits a substantially complete application for a health insurance policy in the individual market. E's application is accepted and coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because E applied for the policy before the end of the 63rd day, the period between the date of application and the first day of coverage is a waiting period and no significant break in coverage occurred even though the actual period without coverage was 73 days.
(i) Facts. Same facts as Example 7, except that E's application for a policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even though E did not obtain coverage following application, the period between the date of application and the date the coverage was denied is a waiting period. However, to avoid a significant break in coverage, no later than the day after the application for the policy is denied E would need to do one of the following: submit a substantially complete application for a different individual market policy; obtain coverage in the group market; or be in a waiting period for coverage in the group market.
Other permissible counting methods—
Notwithstanding any other provisions of this paragraph (b)(2), for purposes of reducing a preexisting condition exclusion period (but not for purposes of issuing a certificate under § 54.9801-5), a group health plan may determine the amount of creditable coverage in any other manner that is at least as favorable to the individual as the method set forth in this paragraph (b)(2), subject to the requirements of other applicable law.
The rule of this paragraph (b)(2)(vi) is illustrated by the following example:
(i) Facts. Individual F has coverage under Group Health Plan Y from January 3, 1997 through March 25, 1997. F then becomes covered by Group Health Plan Z. F's enrollment date in Plan Z is May 1, 1997. Plan Z has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example, Plan Z may determine, in accordance with the rules prescribed in paragraphs (b)(2)(i), (ii), and (iii) of this section, that F has 82 days of creditable coverage (29 days in January, 28 days in February, and 25 days in March). Thus, the preexisting condition exclusion will no longer apply to F on February 8, 1998 (82 days before the 12-month anniversary of F's enrollment (May 1)). For administrative convenience, however, Plan Z may consider that the preexisting condition exclusion will no longer apply to F on the first day of the month (February 1).
Specific benefits considered.
Under the alternative method, a group health plan determines the amount of creditable coverage based on coverage within any category of benefits described in paragraph (c)(3) of this section and not based on coverage for any other benefits. The plan may use the alternative method for any or all of the categories. The plan may apply a different preexisting condition exclusion period with respect to each category (and may apply a different preexisting condition exclusion period for benefits that are not within any category). The creditable coverage determined for a category of benefits applies only for purposes of reducing the preexisting condition exclusion period with respect to that category. An individual's creditable coverage for benefits that are not within any category for which the alternative method is being used is determined under the standard method of paragraph (b) of this section.
A plan using the alternative method is required to apply it uniformly to all participants and beneficiaries under the plan. A plan that provides benefits (in part or in whole) through one or more policies or contracts of insurance will not fail the uniform application requirement of this paragraph (c)(2) if the alternative method is used (or not used) separately with respect to participants and beneficiaries under any policy or contact, provided that the alternative method is applied uniformly with respect to all coverage under that policy or contract. The use of the alternative method is required to be set forth in the plan.
Categories of benefits.
The alternative method for counting creditable coverage may be used for coverage for the following categories of benefits—
Substance abuse treatment;
If the alternative method is used, the plan is required to—
State prominently that the plan is using the alternative method of counting creditable coverage in disclosure statements concerning the plan, and state this to each enrollee at the time of enrollment under the plan; and
Include in these statements a description of the effect of using the alternative method, including an identification of the categories used.
Disclosure of information on previous benefits.
See § 54.9801-5(b) for special rules concerning disclosure of coverage to a plan (or issuer) using the alternative method of counting creditable coverage under this paragraph (c).
Counting creditable coverage—
Under the alternative method, the group health plan counts creditable coverage within a category if any level of benefits is provided within the category. Coverage under a reimbursement account or arrangement, such as a flexible spending arrangement (as defined in section 106(c)(2)), does not constitute coverage within any category.
In counting an individual's creditable coverage under the alternative method, the group health plan first determines the amount of the individual's creditable coverage that may be counted under paragraph (b) of this section, up to a total of 365 days of the most recent creditable coverage (546 days for a late enrollee). The period over which this creditable coverage is determined is referred to as the determination period. Then, for the category specified under the alternative method, the plan counts within the category all days of coverage that occurred during the determination period (whether or not a significant break in coverage for that category occurs), and reduces the individual's preexisting condition exclusion period for that category by that number of days. The plan may determine the amount of creditable coverage in any other reasonable manner, uniformly applied, that is at least as favorable to the individual.
The rules of this paragraph (c)(6) are illustrated by the following example:
§ 54.9801-4, Nt.
(i) Facts. Individual D enrolls in Employer V's plan on January 1, 2001. Coverage under the plan includes prescription drug benefits. On April 1, 2001, the plan ceases providing prescription drug benefits. D's employment with Employer V ends on January 1, 2002, after D was covered under Employer V's group health plan for 365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's enrollment date). Employer Y's plan uses the alternative method of counting creditable coverage and imposes a 12-month preexisting condition exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer Y's plan may impose a 275-day preexisting condition exclusion with respect to D for prescription drug benefits because D had 90 days of creditable coverage relating to prescription drug benefits within D's determination period.
Effective Date Note:
At 79 FR 10304
, Feb. 24, 2014, § 54.9801-4
was amended by removing paragraphs (a)(3) and (c) and revising paragraph (b), effective Apr. 25, 2014. For the convenience of the user, the revised text is set forth as follows:
Rules relating to creditable coverage.
(b) Counting creditable coverage rules superseded by prohibition on preexisting condition exclusion. See
section 2704 of the Public Health Service Act, incorporated into section 9815 of the Code, and its implementing regulations for rules prohibiting the imposition of a preexisting condition exclusion.