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Changes to Opt-out Provision for Self-insured State and Local Government Plans

Smart first steps


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The Issue

Self-insured state and local government group health plans, including grandfathered health plans, will no longer be able to opt-out of the following HIPAA requirements:

  • Limitations on preexisting condition exclusions
  • Requirements for special enrollment periods
  • Ban on discriminating against individual participants and beneficiaries based on health status

However, the opt-out option will still be available for certain other requirements such as the Mental Health Parity and Addiction Equity Act.

This opt-out ability will continue to apply only to self-insured state and local government plans.

Effective date: Plan years beginning on or after September 23, 2010. However, the Department of Health and Human Services will not take any enforcement action with respect to opt-out elections for plan years beginning prior to April 1, 2011.

There is a special transition rule for plans maintained pursuant to a collective bargaining agreement that was ratified before March 23, 2010. If these plans have been exempted from the rules relating to preexisting condition exclusions, special enrollment periods and/or nondiscrimination based on health status, the exemption will continue until the first plan year beginning after the last plan year governed by the collective bargaining agreement ends.

The change to the scope of the opt-out provision applies to grandfathered health plans.

Key Implication: Plan design

Self-insured state and local government plans will be required to comply with rules relating to preexisting condition exclusions, special enrollment periods and nondiscrimination based on health status. Plans currently using the opt-out to avoid these requirements may need to be amended accordingly. However, these plans can continue using the opt-out to be exempt from the standards relating to newborns and mothers, mental health parity, mandatory coverage for reconstructive surgery following mastectomies and Michelle’s law.

Key Implication: Communications

Self-insured state and local government plans that previously have opted-out of these three provisions will need to update their plan communication materials to reflect new plan provisions and related participant rights.

Smart First Steps for Employers to Consider

Plan design: Review existing plan design to identify changes that may be needed to comply with the rules relating to preexisting condition exclusions, special enrollment periods and nondiscrimination based on health status. For example, premium surcharges for smokers (or premium discounts for non-smokers) will need to conform to the wellness plan exception to the HIPAA nondiscrimination rules. This means limiting the penalty (or reward) to 20 percent of the cost of self-only coverage and providing a “reasonable alternative standard” smokers can use to avoid the penalty (or obtain the discount) other than stopping smoking.

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