[Code of Federal Regulations]

[Title 29, Volume 9]

[Revised as of July 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 29CFR2590.701-7]



[Page 705-706]

 

                             TITLE 29--LABOR

 

 CHAPTER XXV--EMPLOYEE BENEFITS SECURITY ADMINISTRATION, DEPARTMENT OF 

                                  LABOR

 

PART 2590_RULES AND REGULATIONS FOR GROUP HEALTH PLANS--Table of Contents

 

     Subpart B_Health Coverage Portability, Nondiscrimination, and 

                              Renewability

 

Sec.  2590.701-7  HMO affiliation period as an alternative to a 

preexisting condition exclusion.



    (a) In general. A group health plan offering health insurance 

coverage through an HMO, or an HMO that offers health insurance coverage 

in connection with a group health plan, may impose an affiliation period 

only if each of the following requirements is satisfied--

    (1) No preexisting condition exclusion is imposed with respect to 

any coverage offered by the HMO in connection with the particular group 

health plan.

    (2) No premium is charged to a participant or beneficiary for the 

affiliation period.

    (3) The affiliation period for the HMO coverage is imposed 

consistent with the requirements of Sec.  2590.702 (prohibiting 

discrimination based on a health factor).

    (4) The affiliation period does not exceed 2 months (or 3 months in 

the case of a late enrollee).

    (5) The affiliation period begins on the enrollment date, or in the 

case of a late enrollee, the affiliation period begins on the day that 

would be the first day of coverage but for the affiliation period.

    (6) The affiliation period for enrollment in the HMO under a plan 

runs concurrently with any waiting period.

    (b) Examples. The rules of paragraph (a) of this section are 

illustrated by the following examples:



    Example 1. (i) Facts. An employer sponsors a group health plan. 

Benefits under the plan are provided through an HMO, which imposes a 

two-month affiliation period. In order to be eligible under the plan, 

employees must have worked for the employer for six months. Individual A 

begins working for the employer on February 1.

    (ii) Conclusion. In this Example 1, Individual A's enrollment date 

is February 1 (see Sec.  2590.701-3(a)(2)), and both the waiting period 

and the affiliation period begin on this date and run concurrently. 

Therefore, the affiliation period ends on March 31, the waiting period 

ends on July 31, and A is eligible to have coverage begin on August 1.

    Example 2. (i) Facts. A group health plan has two benefit package 

options, a fee-for-service option and an HMO option. The HMO imposes a 

1-month affiliation period. Individual B is enrolled in the fee-for-

service option for more than one month and then decides to switch to the 

HMO option at open season.

    (ii) Conclusion. In this Example 2, the HMO may not impose the 

affiliation period with respect to B because any affiliation period 

would have to begin on B's enrollment date in the plan rather than the 

date that B enrolled in the HMO option. Therefore, the affiliation 

period would have expired before B switched to the HMO option.

    Example 3. (i) Facts. An employer sponsors a group health plan that 

provides benefits through an HMO. The plan imposes a two-month 

affiliation period with respect to salaried employees, but it does not 

impose an affiliation period with respect to hourly employees.



[[Page 706]]



    (ii) Conclusion. In this Example 3, the plan may impose the 

affiliation period with respect to salaried employees without imposing 

any affiliation period with respect to hourly employees (unless, under 

the circumstances, treating salaried and hourly employees differently 

does not comply with the requirements of Sec.  2590.702).



    (c) Alternatives to affiliation period. An HMO may use alternative 

methods in lieu of an affiliation period to address adverse selection, 

as approved by the State insurance commissioner or other official 

designated to regulate HMOs. However, an arrangement that is in the 

nature of a preexisting condition exclusion cannot be an alternative to 

an affiliation period. Nothing in this part requires a State to receive 

proposals for or approve alternatives to affiliation periods.



[69 FR 78763, Dec. 30, 2004]