[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: 45CFR146.180]

[Page 624-630]
 
                        TITLE 45--PUBLIC WELFARE
 
                           AND HUMAN SERVICES
 
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET--Table of Contents
 
              Subpart F--Exclusion of Plans and Enforcement
 
Sec. 146.180  Treatment of non-Federal governmental plans.


    (a) Requirements subject to exemption--(1) Basic rule. A sponsor of 
a non-Federal governmental plan may elect to exempt its plan, to the 
extent that the plan is not provided through health insurance coverage, 
(that is, it is self-funded), from any or all of the following 
requirements:
    (i) Limitations on preexisting condition exclusion periods described 
in Sec. 146.111.
    (ii) Special enrollment periods for individuals and dependents 
described in Sec. 146.117.
    (iii) Prohibitions against discriminating against individual 
participants and beneficiaries based on health status described in 
Sec. 146.121.
    (iv) Standards relating to benefits for mothers and newborns 
described in Sec. 146.130.

[[Page 625]]

    (v) Parity in the application of certain limits to mental health 
benefits described in Sec. 146.136.
    (vi) Required coverage for reconstructive surgery and certain other 
services following a mastectomy under section 2706 of the PHS Act.
    (2) Limitations. (i) An election under this section cannot 
circumvent a requirement of this part to the extent the requirement 
applied to the plan before the effective date of the election.

    (A) Example 1. A plan is subject to requirements of section 2706 of 
the PHS Act, under which a plan that covers medical and surgical 
benefits with respect to a mastectomy must cover reconstructive surgery 
and certain other services following a mastectomy. An enrollee who has 
had a mastectomy receives reconstructive surgery on August 24. Claims 
with respect to the surgery are submitted to and processed by the plan 
in September. The group health plan commences a new plan year each 
September 1. Effective September 1, the plan sponsor elects to exempt 
its plan from section 2706 of the PHS Act. The plan cannot, on the basis 
of its exemption election, decline to pay for the claims incurred on 
August 24.
    (B) Example 2. An individual is hired by a non-Federal governmental 
employer and reports to work on August 6. The individual has diabetes. 
Under the terms of the plan in effect on August 6, if an individual 
files an enrollment application within the first 30 days of employment, 
enrollment in the plan is effective as of the first day of employment. 
The individual timely files an enrollment application. The application 
is processed on September 10. The group health plan commences a new plan 
year each September 1. Effective September 1, the plan sponsor elects to 
exempt its plan from Sec. 146.121, which prohibits enrollment 
discrimination based on health status-related factors, by requiring new 
enrollees to pass medical underwriting. The plan cannot decline to 
enroll the individual effective August 6, even if he would not pass 
medical underwriting under the terms of the plan in effect on September 
1.

    (ii) If a group health plan is co-sponsored by two or more 
employers, then only plan enrollees of the non-Federal governmental 
employer(s) with a valid election under this section are affected by the 
election.
    (3) Stop-loss or excess risk coverage. For purposes of this section. 
(i) Subject to paragraph (a)(3)(ii), the purchase of stop-loss or excess 
risk coverage by a self-funded non-Federal governmental plan does not 
prevent an election under this section.
    (ii) Regardless of whether coverage offered by an issuer is 
designated as ``stop-loss'' coverage or ``excess risk'' coverage, if it 
is regulated as group health insurance under an applicable State law, 
then for purposes of this section, a non-Federal governmental plan that 
purchases the coverage is considered to be fully insured. In that event, 
a plan may not be exempted under this section from the requirements of 
this part.
    (4) Construction. Nothing in this part should be construed as 
imposing collective bargaining obligations on any party to the 
collective bargaining process.
    (b) Form and manner of election--(1) Election requirements. The 
election must meet the following requirements:
    (i) Be made in writing.
    (ii) Be made in conformance with all of the plan sponsor's rules, 
including any public hearing requirements.
    (iii) Specify the beginning and ending dates of the period to which 
the election is to apply. This period can be either of the following 
periods:
    (A) A single specified plan year, as defined in Sec. 144.103 of this 
subchapter.
    (B) The ``term of the agreement,'' as specified in paragraph (b)(2) 
of this section, in the case of a plan governed by collective 
bargaining.
    (iv) Specify the name of the plan and the name and address of the 
plan administrator, and include the name and telephone number of a 
person CMS may contact regarding the election.
    (v) State that the plan does not include health insurance coverage, 
or identify which portion of the plan is not funded through health 
insurance coverage.
    (vi) Specify each requirement described in paragraph (a) of this 
section from which the plan sponsor elects to exempt the plan.
    (vii) Certify that the person signing the election document, 
including (if applicable) a third party plan administrator, is legally 
authorized to do so by the plan sponsor.
    (viii) Include, as an attachment, a copy of the notice described in 
paragraph (f) of this section.

[[Page 626]]

    (2) ``Term of the agreement'' defined. Except as provided in 
paragraphs (b)(2)(i) and (b)(2)(ii), for purposes of this section ``term 
of the agreement'' means all group health plan years governed by a 
single collective bargaining agreement.
    (i) In the case of a group health plan for which the last plan year 
governed by a prior collective bargaining agreement expires during the 
bargaining process for a new agreement, the term of the prior agreement 
includes all plan years governed by the agreement plus the period of 
time that precedes the latest of the following dates, as applicable, 
with respect to the new agreement:
    (A) The date of an agreement between the governmental employer and 
union officials.
    (B) The date of ratification of an agreement between the 
governmental employer and the union.
    (C) The date impasse resolution, arbitration or other closure of the 
collective bargaining process is finalized when agreement is not 
reached.
    (ii) In the case of a group health plan governed by a collective 
bargaining agreement for which closure is not reached before the last 
plan year under the immediately preceding agreement expires, the term of 
the new agreement includes all plan years governed by the agreement 
excluding the period that precedes the latest applicable date specified 
in paragraph (b)(2)(i) of this section.
    (3) Construction--(i) Dispute resolution. Nothing in paragraph 
(b)(1)(ii) of this section should be construed to mean that CMS 
arbitrates disputes between plan sponsors, participants, beneficiaries, 
or their representatives regarding whether an election complies with all 
of a plan sponsor's rules.
    (ii) Future elections not preempted. If a plan must comply with one 
or more requirements of this part for a given plan year or period of 
plan coverage, nothing in this section should be construed as preventing 
a plan sponsor from submitting an election in accordance with this 
section for a subsequent plan year or period of plan coverage.
    (c) Mailing address. The plan sponsor should mail the election to: 
Centers for Medicare & Medicaid Services, Private Health Insurance 
Group, CMSO, 7500 Security Boulevard, S3-16-16, Baltimore, MD 21244-
1850.
    (d) Filing a timely election. (1) Plan not governed by collective 
bargaining. Subject to paragraph (d)(4) of this section, if a plan is 
not governed by a collective bargaining agreement, a plan sponsor or 
entity acting on behalf of a plan sponsor must file an election with CMS 
before the first day of the plan year.
    (2) Plan governed by a collective bargaining agreement. Subject to 
paragraph (d)(4) of this section, if a plan is governed by a collective 
bargaining agreement, a plan sponsor or entity acting on behalf of a 
plan sponsor must file an election with CMS before the first day of the 
first plan year governed by a collective bargaining agreement, or by the 
45th day after the latest applicable date specified in paragraph 
(b)(2)(i) of this section, if the 45th day falls on or after the first 
day of the plan year.
    (3) Verifying timely filing. CMS uses the postmark on the envelope 
in which the election is submitted to determine that the election is 
timely filed as specified under paragraphs (d)(1) or (d)(2) of this 
section, as applicable. If the latest filing date falls on a Saturday, 
Sunday, or a State or Federal holiday, CMS accepts a postmark on the 
next business day.
    (4) Filing extension based on good cause. CMS may extend the 
deadlines specified in paragraphs (d)(1) and (d)(2) of this section for 
good cause if the plan substantially complies with the requirements of 
paragraph (f) of this section.
    (5) Failure to file a timely election. Absent an extension under 
paragraph (d)(4) of this section, a plan sponsor's failure to file a 
timely election under paragraph (d)(1) or (d)(2) of this section makes 
the plan subject to all requirements of this part for the entire plan 
year to which the election would have applied, or, in the case of a plan 
governed by a collective bargaining agreement, for any plan years under 
the agreement for which the election is not timely filed.
    (e) Additional information required--(1) Written notification. If an 
election is timely filed, but CMS determines that the election document 
(or the notice to plan enrollees) does not meet all of the

[[Page 627]]

requirements of this section, CMS may notify the plan sponsor, or other 
entity that filed the election, that it must submit any additional 
information that CMS has determined is necessary to meet those 
requirements. The additional information must be filed with CMS by the 
later of the following dates:
    (i) The last day of the plan year.
    (ii) The 45th day after the date of CMS's written notification 
requesting additional information.
    (2) Timely response. CMS uses the postmark on the envelope in which 
the additional information is submitted to determine that the 
information is timely filed as specified under paragraph (e)(1) of this 
section. If the latest filing date falls on a Saturday, Sunday, or a 
State or Federal holiday, CMS accepts a postmark on the next business 
day.
    (3) Failure to respond timely. CMS may invalidate an election if the 
plan sponsor, or other entity that filed the election, fails to timely 
submit the additional information as specified under paragraph (e)(1) of 
this section.
    (f) Notice to enrollees--(1) Mandatory notification. (i) A plan that 
makes the election described in this section must notify each affected 
enrollee of the election, and explain the consequences of the election. 
For purposes of this paragraph (f), if the dependent(s) of a participant 
reside(s) with the participant, a plan need only provide notice to the 
participant.
    (ii) The notice must be in writing and, except as provided in 
paragraph (f)(2) of this section with regard to initial notices, must be 
provided to each enrollee at the time of enrollment under the plan, and 
on an annual basis no later than the last day of each plan year (as 
defined in Sec. 144.103 of this subchapter) for which there is an 
election.
    (iii) A plan may meet the notification requirements of this 
paragraph (f) by prominently printing the notice in a summary plan 
description, or equivalent description, that it provides to each 
enrollee at the time of enrollment, and annually. Also, when a plan 
provides a notice to an enrollee at the time of enrollment, that notice 
may serve as the initial annual notice for that enrollee.
    (2) Initial notices. (i) If a plan is not governed by a collective 
bargaining agreement, with regard to the initial plan year to which an 
election under this section applies, the plan must provide the initial 
annual notice of the election to all enrollees before the first day of 
that plan year, and notice at the time of enrollment to all individuals 
who enroll during that plan year.
    (ii) In the case of a collectively bargained plan (including a self-
funded non-Federal governmental plan that has been exempted from 
requirements of this part under Sec. 146.125(a)(2)), with regard to the 
initial plan year to which an election under this section applies, the 
plan must provide the initial annual notice of the election to all 
enrollees before the first day of the plan year, or within 30 days after 
the latest applicable date specified in paragraph (b)(2)(i) of this 
section if the 30th day falls on or after the first day of the plan 
year. Also, the plan must provide a notice at the time of enrollment to 
individuals who--
    (A) Enroll on or after the first day of the plan year, when closure 
of the collective bargaining process is reached before the plan year 
begins; or
    (B) Enroll on or after the latest applicable date specified in 
paragraph (b)(2)(i) of this section if that date falls on or after the 
first day of the plan year.
    (3) Notice content. The notice must include at least the following 
information:
    (i) The specific requirements described in paragraph (a)(1) of this 
section from which the plan sponsor is electing to exempt the plan, and 
a statement that, in general, Federal law imposes these requirements 
upon group health plans.
    (ii) A statement that Federal law gives the plan sponsor of a self-
funded non-Federal governmental plan the right to exempt the plan in 
whole, or in part, from the listed requirements, and that the plan 
sponsor has elected to do so.
    (iii) A statement identifying which parts of the plan are subject to 
the election.
    (iv) A statement identifying which of the listed requirements, if 
any, apply

[[Page 628]]

under the terms of the plan, or as required by State law, without regard 
to an exemption under this section.
    (v) A statement informing plan enrollees that the plan provides for 
certification and disclosure of creditable coverage for covered 
employees and their dependents who lose coverage under the plan.
    (g) Subsequent elections--(1) Election renewal. A plan sponsor may 
renew an election under this section through subsequent elections. The 
timeliness standards described in paragraph (d) apply to election 
renewals under this paragraph (g).
    (2) Form and manner of renewal. Except for the requirement to 
forward to CMS a copy of the notice to enrollees under paragraph 
(b)(1)(viii) of this section, the plan sponsor must comply with the 
election requirements of paragraph (b)(1) of this section. In lieu of 
providing a copy of the notice under (b)(1)(viii), the plan sponsor may 
include a statement that the notice has been, or will be, provided to 
enrollees as specified under paragraph (f) of this section.
    (3) Election renewal includes provisions from which plan not 
previously exempted. If an election renewal includes a requirement 
described in paragraph (a) of this section from which the plan sponsor 
did not elect to exempt the plan for the preceding plan year, the 
advance notification requirements of paragraph (f)(2) of this section 
apply with respect to the additional requirement(s) of paragraph (a) 
from which the plan sponsor is electing to exempt the plan.
    (4) Special rules regarding renewal of an election under a 
collective bargaining agreement. (i) If protracted negotiations with 
respect to a new agreement result in an extension of the term of the 
prior agreement (as provided under paragraph (b)(2)(i)) under which an 
election under this section was in effect, the plan must comply with the 
enrollee notification requirements of paragraph (f)(1), and, following 
closure of the collective bargaining process, must file an election 
renewal with CMS as provided under paragraph (d)(2) of this section.
    (ii) If a single plan applies to more than one bargaining unit, and 
the plan is governed by collective bargaining agreements of varying 
lengths, paragraph (d)(2) of this section, with respect to an election 
renewal, applies to the plan as governed by the agreement that results 
in the earliest filing date.
    (h) Certification and disclosure of creditable coverage. Without 
regard to an election under this section, a non-Federal governmental 
plan must provide for certification and disclosure of creditable 
coverage under the plan with respect to participants and their 
dependents as specified under Sec. 146.115. CMS enforces this 
requirement as provided under paragraph (k) of this section.
    (i) Effect of failure to comply with certification and notification 
requirements--(1) Substantial failure. (i) General rule. Except as 
provided in paragraph (i)(1)(iii) of this section, a substantial failure 
to comply with paragraphs (f) or (h) of this section results in the 
invalidation of an election under this section with respect to all plan 
enrollees for the entire plan year. That is, the plan is subject to all 
requirements of this part for the entire plan year to which the election 
otherwise would have applied.
    (ii) Determination of substantial failure. CMS determines whether a 
plan has substantially failed to comply with a requirement of paragraph 
(f) or paragraph (h) of this section based on all relevant facts and 
circumstances, including previous record of compliance, gravity of the 
violation and whether a plan corrects the failure, as warranted, within 
30 days of learning of the violation. However, in general, a plan's 
failure to provide a notice of the fact and consequences of an election 
under this section to an individual at the time of enrollment, or on an 
annual basis before a given plan year expires, constitutes a substantial 
failure.
    (iii) Exceptions--(A) Multiple employers. If the plan is sponsored 
by multiple employers, and only certain employers substantially fail to 
comply with the requirements of paragraphs (f) or (h) of this section, 
then the election is invalidated with respect to those employers only, 
and not with respect to other employers that complied with those 
requirements, unless the plan chooses to cancel its election entirely.
    (B) Limited failure to provide notice. If a substantial failure to 
notify enrollees

[[Page 629]]

of the fact and consequences of an election is limited to certain 
individuals, the election under this section is valid only if, for the 
plan year with respect to which the failure has occurred, the plan 
agrees not to apply the election with respect to the individuals who 
were not notified and so informs those individuals in writing.

    (2) Examples. (i) Example 1: A self-funded non-Federal group health 
plan is co-sponsored by 10 school districts. Nine of the school 
districts have fully complied with the requirements of paragraph (f) of 
this section, including providing notice to new employees at the time of 
their enrollment in the plan, regarding the group health plan's 
exemption under this section from requirements of this part. One school 
district, which hired 10 new teachers during the summer for the upcoming 
school year, neglected to notify three of the new hires about the group 
health plan's exemption election at the time they enrolled in the plan. 
The school district has substantially failed to comply with a 
requirement of paragraph (f) with respect to these individuals.
    The school district learned of the oversight six weeks into the 
school year, and promptly (within 30 days of learning of the oversight) 
provided notice to the three teachers regarding the plan's exemption 
under this section and that the exemption does not apply to them, or 
their dependents, during the plan year of their enrollment because of 
the plan's failure to timely notify them of its exemption. The plan 
complies with the requirements of this part for these individuals for 
the plan year of their enrollment. CMS would not require the plan to 
come into compliance with the requirements of this part for other 
enrollees.

    (ii) Example 2: Same facts as in Example 1, except the noncompliant 
school district failed to notify any enrollees regarding an election 
under this section. That is, the school district failed to provide the 
annual notice to current plan enrollees as well as the notice at the 
time of enrollment to new enrollees. The school district has 
substantially failed to comply with the requirements of paragraph (f) of 
this section. At a minimum, the election is invalidated with respect to 
all enrollees of the noncompliant school district for the plan year for 
which the substantial failure has occurred. In this example, the plan 
decides not to cancel its election entirely. The election with regard to 
the other nine school districts remains in effect.

    (iii) Example 3. Two non-Federal governmental employers cosponsor a 
self-funded group health plan. One employer substantially fails to 
comply with the requirements of paragraph (f) of this section. While the 
plan may limit the invalidation of the election to enrollees of the plan 
sponsor that is responsible for the substantial failure, the plan 
sponsors determine that administering the plan in that manner would be 
too burdensome. Accordingly, in this example, the plan sponsors choose 
to cancel the election entirely. Both plan sponsors come into compliance 
with the requirements of this part with respect to all enrollees for the 
plan year for which the substantial failure has occurred.

    (iv) Example 4: A non-Federal governmental employer has elected to 
exempt its collectively bargained self-funded plan from certain 
requirements of this part. The collective bargaining agreement applies 
to five plan years, 2001 through 2005. For the first three plan years, 
enrollees are notified annually and at the time of enrollment of the 
election under this section. The notice specifies that the election 
applies to the period January 1, 2001 through December 31, 2005. Prior 
to the dissemination of the annual notice for the 2004 plan year, the 
individual responsible for disseminating the notice terminates 
employment. His replacement, who is unaware of the requirement that plan 
enrollees be notified annually, continues to notify new enrollees at the 
time of enrollment but fails to disseminate the annual notice. CMS does 
not consider that failure to be a substantial failure because enrollees 
previously had actual notice that the election under this section 
applies for the period January 1, 2001 through December 31, 2005. 
Accordingly, CMS would not invalidate the election for the 2004 plan 
year.

    (v) Example 5: A non-Federal governmental employer has elected to 
exempt its self-funded plan from certain requirements of this part. An 
individual terminates employment with the governmental employer, which 
fails to automatically provide a certificate of creditable coverage 
within the period specified in Sec. 146.115(a)(2)(ii)(A). (The 
governmental employer generally provides certificates to terminated 
employees on an automatic basis, but neglected to do so in this case.) 
The oversight is brought to the employer's attention when the individual 
inquires as to why he has not received his certificate of creditable 
coverage. The governmental employer promptly (within 30 days) forwards a 
certificate to the individual. CMS would not view that situation as 
constituting a substantial failure and would not invalidate the election 
under this section.
    (j) Election invalidated. If CMS finds cause to invalidate an 
election under this section, the following rules apply:
    (1) CMS notifies the plan sponsor (and the plan administrator if 
other

[[Page 630]]

than the plan sponsor and the administrator's address is known to CMS) 
in writing that CMS has made a preliminary determination that an 
election is invalid, and states the basis for that determination.
    (2) CMS's notice informs the plan sponsor that it has 45 days after 
the date of CMS's notice to explain in writing why it believes its 
election is valid. The plan sponsor should provide applicable statutory 
and regulatory citations to support its position.
    (3) CMS verifies that the plan sponsor's response is timely filed as 
provided under paragraph (d)(3) of this section. CMS will not consider a 
response that is not timely filed.
    (4) If CMS's preliminary determination that an election is invalid 
remains unchanged after CMS considers the plan sponsor's timely response 
(or in the event that the plan sponsor fails to respond timely), CMS 
provides written notice to the plan sponsor (and the plan administrator 
if other than the plan sponsor and the administrator's address is known 
to CMS) of CMS's final determination that the election is invalid. Also, 
CMS informs the plan sponsor that, within 45 days of the date of the 
notice of final determination, the plan, subject to paragraph 
(i)(1)(iii) of this section, must comply with all requirements of this 
part for the specified period for which CMS has determined the election 
to be invalid.
    (k) Enforcement. To the extent that an election under this section 
has not been filed or a non-Federal governmental plan otherwise is 
subject to one or more requirements of this part, CMS enforces those 
requirements under part 150 of this subchapter. This may include 
imposing a civil money penalty against the plan or the plan sponsor, as 
determined under Sec. 150.305.
    (l) Construction. Nothing in this section should be construed to 
prevent a State from taking the following actions:
    (1) Establishing, and enforcing compliance with, the requirements of 
State law (as defined in Sec. 146.143(d)(1)), including requirements 
that parallel provisions of title XXVII of the PHS Act, that apply to 
non-Federal governmental plans or sponsors.
    (2) Prohibiting a sponsor of a non-Federal governmental plan within 
the State from making an election under this section.

[67 FR 48811, July 26, 2002]

                           PART 147 [RESERVED]