[Code of Federal Regulations]
[Title 45, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 45CFR146.113]

[Page 576-580]
 
                        TITLE 45--PUBLIC WELFARE
 
                           AND HUMAN SERVICES
 
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET--Table of Contents
 
Subpart B--Requirements Relating to Access and Renewability of Coverage, 
       and Limitations on Preexisting Condition Exclusion Periods
 
Sec. 146.113  Rules relating to creditable coverage.

    (a) General rules--(1) Creditable coverage. For purposes of this 
section, except as provided in paragraph (a)(2), the term creditable 
coverage means coverage of an individual under any of the following:
    (i) A group health plan as defined in Sec. 144.103.
    (ii) Health insurance coverage as defined in Sec. 144.103 (whether 
or not the entity offering the coverage is subject to the requirements 
of this part and 45 CFR part 148, and without regard to whether the 
coverage is offered in the group market, the individual market, or 
otherwise).
    (iii) Part A or part B of title XVIII of the Social Security Act 
(Medicare).
    (iv) Title XIX of the Social Security Act (Medicaid), other than 
coverage consisting solely of benefits under section 1928 of the Social 
Security Act (the program for distribution of pediatric vaccines).
    (v) Title 10 U.S.C. Chapter 55 (medical and dental care for members 
and certain former members of the uniformed services, and for their 
dependents; for purposes of title 10 U.S.C. chapter 55, uniformed 
services means the armed forces and the Commissioned Corps of the 
National Oceanic and Atmospheric Administration and of the Public Health 
Service).
    (vi) A medical care program of the Indian Health Service or of a 
tribal organization.
    (vii) A State health benefits risk pool. For purposes of this 
section, a State health benefits risk pool means--
    (A) An organization qualifying under section 501(c)(26) of the Code;
    (B) A qualified high risk pool described in section 2744(c)(2) of 
the PHS Act; or
    (C) Any other arrangement sponsored by a State, the membership 
composition of which is specified by the State

[[Page 577]]

and which is established and maintained primarily to provide health 
insurance coverage for individuals who are residents of such State and 
who, by reason of the existence or history of a medical condition--
    (1) Are unable to acquire medical care coverage for such condition 
through insurance or from an HMO; or
    (2) Are able to acquire such coverage only at a rate which is 
substantially in excess of the rate for such coverage through the 
membership organization.
    (viii) A health plan offered under title 5 U.S.C. chapter 89 (the 
Federal Employees Health Benefits Program).
    (ix) A public health plan. For purposes of this section, a public 
health plan means any plan established or maintained by a State, county, 
or other political subdivision of a State that provides health insurance 
coverage to individuals who are enrolled in the plan.
    (x) A health benefit plan under section 5(e) of the Peace Corps Act 
(22 U.S.C. 2504(e)).
    (2) Excluded coverage. Creditable coverage does not include coverage 
consisting solely of coverage of excepted benefits (described in 
Sec. 146.145).
    (3) Methods of counting creditable coverage. For purposes of 
reducing any preexisting condition exclusion period, as provided under 
Sec. 146.111(a)(1)(iii), a group health plan, and a health insurance 
issuer offering group health insurance coverage, determines the amount 
of an individual's creditable coverage by using the standard method 
described in paragraph (b), except that the plan, or issuer, may use the 
alternative method under paragraph (c) with respect to any or all of the 
categories of benefits described under paragraph (c)(3).
    (b) Standard method--(1) Specific benefits not considered. Under the 
standard method, a group health plan, and a health insurance issuer 
offering group health insurance coverage, determines the amount of 
creditable coverage without regard to the specific benefits included in 
the coverage.
    (2) Counting creditable coverage--(i) Based on days. For purposes of 
reducing the preexisting condition exclusion period, a group health 
plan, and a health insurance issuer offering group health insurance 
coverage, determines the amount of creditable coverage by counting all 
the days that the individual has under one or more types of creditable 
coverage. Accordingly, if on a particular day, an individual has 
creditable coverage from more than one source, all the creditable 
coverage on that day is counted as one day. Further, any days in a 
waiting period for a plan or policy are not creditable coverage under 
the plan or policy.
    (ii) Days not counted before significant break in coverage. Days of 
creditable coverage that occur before a significant break in coverage 
are not required to be counted.
    (iii) Definition of significant break in coverage. A significant 
break in coverage means a period of 63 consecutive days during all of 
which the individual does not have any creditable coverage, except that 
neither a waiting period nor an affiliation period is taken into account 
in determining a significant break in coverage. (See section 
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the 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.)
    (iv) Examples. The following examples illustrate how creditable 
coverage is counted in reducing preexisting condition exclusion periods:

    Example 1: (i) Individual A works for Employer P and has creditable 
coverage under Employer P's plan for 18 months before A's employment 
terminates. A is hired by Employer O, and enrolls in Employer O's group 
health plan, 64 days after the last date of coverage under Employer P's 
plan. Employer O's plan has a 12-month preexisting condition exclusion 
period.
    (ii) In this Example, because A had a break in coverage of 63 days, 
Employer O's plan may disregard A's prior coverage and A may be subject 
to a 12-month preexisting condition exclusion period.
    Example 2: (i) Same facts as Example 1, except that A is hired by 
Employer O, and enrolls in Employer O's plan, on the 63rd day after the 
last date of coverage under Employer P's plan.
    (ii) In this Example, A has a break in coverage of 62 days. Because 
A's break in coverage is not a significant break in coverage, Employer 
O's plan must count A's prior creditable coverage for purposes of 
reducing the

[[Page 578]]

plan's preexisting condition exclusion period as it applies to A.
    Example 3: (i) Same facts as Example 1, except that Employer O's 
plan provides benefits through an insurance policy that, as required by 
applicable State insurance laws, defines a significant break in coverage 
as 90 days.
    (ii) In this Example, the issuer that provides group health 
insurance to Employer O's plan must count A's period of creditable 
coverage prior to the 63-day break.
    Example 4: (i) Same facts as Example 3, except that Employer O's 
plan is a self-insured plan, and thus is not subject to State insurance 
laws.
    (ii) In this Example, the plan is not governed by the longer break 
rules under State insurance law and A's previous coverage may be 
disregarded.
    Example 5: (i) Individual B begins employment with Employer R 45 
days after terminating coverage under a prior group health plan. 
Employer R's group health plan has a 30-day waiting period before 
coverage begins. B enrolls in Employer R's plan when first eligible.
    (ii) In this Example, B does not have a significant break in 
coverage for purposes of determining whether B's prior coverage must be 
counted by Employer R's plan. B has only a 44-day break in coverage 
because the 30-day waiting period is not taken into account in 
determining a significant break in coverage.
    Example 6: (i) Individual C works for Employer S and has creditable 
coverage under Employer S's plan for 200 days before C's employment is 
terminated and coverage ceases. C is then unemployed and does not have 
any creditable coverage for 51 days before being hired by Employer T. 
Employer T's plan has a 3-month waiting period. C works for Employer T 
for 2 months and then terminates employment. Eleven days after 
terminating employment with Employer T, C begins working for Employer U. 
Employer U's plan has no waiting period, but has a 6-month preexisting 
condition exclusion period.
    (ii) In this Example, C does not have a significant break in 
coverage because, after disregarding the waiting period under Employer 
T's plan, C had only a 62-day break in coverage (51 days plus 11 days). 
Accordingly, C has 200 days of creditable coverage and Employer U's plan 
may not apply its 6-month preexisting condition exclusion period with 
respect to C.
    Example 7: (i) Individual D terminates employment with Employer V on 
January 13, 1998 after being covered for 24 months under Employer V's 
group health plan. On March 17, the 63rd day without coverage, D applies 
for a health insurance policy in the individual market. D's application 
is accepted and the coverage is made effective May 1.
    (ii) In this Example, because D applied for the policy before the 
end of the 63rd day, and coverage under the policy ultimately became 
effective, the period between the date of application and the first day 
of coverage is a waiting period, and no significant break in coverage 
occurred even though the actual period without coverage was 107 days.
    Example 8: (i) Same facts as Example 7, except that D's application 
for a policy in the individual market is denied.

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

    (v) Other permissible counting methods--(A) General rule. 
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 Sec. 146.115), a group 
health plan, and a health insurance issuer offering group health 
insurance coverage, may determine the amount of creditable coverage in 
any other manner that is at least as favorable to the individual as the 
method set forth in this paragraph (b)(2), subject to the requirements 
of other applicable law.
    (B) Example. The following example illustrates the requirements of 
this paragraph (b)(2)(v):

    Example: (i) Individual F has coverage under Group Health Plan Y 
from January 3, 1997 through March 25, 1997. F then becomes covered by 
Group Health Plan Z. F's enrollment date in Plan Z is May 1, 1997. Plan 
Z has a 12-month preexisting condition exclusion period.
    (ii) In this Example, Plan Z may determine, in accordance with the 
rules prescribed in paragraph (b)(2) (i), (ii), and (iii), that F has 82 
days of creditable coverage (29 days in January, 28 days in February, 
and 25 days in March). Thus, the preexisting condition exclusion period 
will no longer apply to F on February 8, 1998 (82 days before the 12-
month anniversary of F's enrollment (May 1)). For administrative 
convenience, however, Plan Z may consider that the preexisting condition 
exclusion period will no longer apply to F on the first day of the month 
(February 1).

    (c) Alternative method--(1) Specific benefits considered. Under the 
alternative method, a group health plan, or a

[[Page 579]]

health insurance issuer offering group health insurance coverage, 
determines the amount of creditable coverage based on coverage within 
any category of benefits described in paragraph (c)(3) and not based on 
coverage for any other benefits. The plan or issuer 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.
    (2) Uniform application. A plan or issuer using the alternative 
method is required to apply it uniformly to all participants and 
beneficiaries under the plan or policy. The use of the alternative 
method is set forth in the plan.
    (3) Categories of benefits. The alternative method for counting 
creditable coverage may be used for coverage for any of the following 
categories of benefits:
    (i) Mental health.
    (ii) Substance abuse treatment.
    (iii) Prescription drugs.
    (iv) Dental care.
    (v) Vision care.
    (4) Plan notice. If the alternative method is used, the plan is 
required to--
    (i) State prominently that the plan is using the alternative method 
of counting creditable coverage in disclosure statements concerning the 
plan, and state this to each enrollee at the time of enrollment under 
the plan; and
    (ii) Include in these statements a description of the effect of 
using the alternative method, including an identification of the 
categories used.
    (5) Issuer notice. With respect to health insurance coverage offered 
by an issuer in the small or large group market, if the insurance 
coverage uses the alternative method, the issuer states prominently in 
any disclosure statement concerning the coverage, and to each employer 
at the time of the offer or sale of the coverage, that the issuer is 
using the alternative method, and includes in such statements a 
description of the effect of using the alternative method. This applies 
separately to each type of coverage offered by the health insurance 
issuer.
    (6) Disclosure of information on previous benefits. See 
Sec. 146.115(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).
    (7) Counting creditable coverage--(i) General. Under the alternative 
method, the group health plan or issuer counts creditable coverage 
within a category if any level of benefits is provided within the 
category. Coverage under a reimbursement account or arrangement, such as 
a flexible spending arrangement (as defined in section 106(c)(2) of the 
Internal Revenue Code), does not constitute coverage within any 
category.
    (ii) Special rules. In counting an individual's creditable coverage 
under the alternative method, the group health plan, or issuer, 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 or issuer 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 or issuer may 
determine the amount of creditable coverage in any other reasonable 
manner, uniformly applied, that is at least as favorable to the 
individual.
    (iii) Example. The following example illustrates the requirements of 
this paragraph (c)(7):


[[Page 580]]


    Example: (i) Individual D enrolls in Employer V's plan on January 1, 
2001. Coverage under the plan includes prescription drug benefits. On 
April 1, 2001, the plan ceases providing prescription drug benefits. D's 
employment with Employer V ends on January 1, 2002, after D was covered 
under Employer V's group health plan for 365 days. D enrolls in Employer 
Y's plan on February 1, 2001 (D's enrollment date). Employer Y's plan 
uses the alternative method of counting creditable coverage and imposes 
a 12-month preexisting condition exclusion on prescription drug 
benefits.
    (ii) In this Example, Employer Y's plan may impose a 275-day 
preexisting condition exclusion with respect to D for prescription drug 
benefits because D had 90 days of creditable coverage relating to 
prescription drug benefits within D's determination period.

[62 FR 16958, Apr. 8, 1997; 62 FR 31670, 31693, June 10, 1997]