Commissioner’s Bulletin # B-0027-97

The purpose of this bulletin is to alert you to portions of the federal law (Public Law 104-191, enacted under HR 3103 by Kassebaum/Kennedy) and several new state laws that became effective July 1, 1997. These laws apply to health policies, contracts and evidences of coverage that are delivered, issued for delivery or renewed on or after July 1, 1997, by issuers of health policies, contracts and evidences of coverage. Copies of the bills may be obtained from:

• the Internet at www.capitol.state.tx.us (Texas Legislature On-Line)
• the House Bill Distribution Center (512/463-1144) or the
  Senate Bill Distribution Center (512/463-0252). A charge is imposed.
• copies of Public Law 104-191 may be obtained on the Internet at thomas.loc.gov (or federal legislative site that is part of the Library of Congress.)

Only the SECTIONS of the bills that apply to policies, contracts, and evidences of coverage delivered, issued for delivery or renewed on or after July 1, 1997 are included in this BULLETIN. Another bulletin outlining all bills enacted by the 75th Legislature which affect life, accident and health issuers, and health maintenance organizations (HMOs) will be mailed at a later date.

TDI will be proposing rules to implement the legislation outlined in this bulletin. Anticipated date for publication in the Texas Register is mid-July 1997. As of July 1, insurers must:

• comply with the new federal and state laws;
• inform staff (including agency force);
• develop policy form endorsements or new policy forms and submit to the Texas Department of Insurance in accordance with Article 3.42 of the Texas Insurance Code (TIC) and the 28 Texas Administrative Code (TAC) , §§3.1-3.21;
• develop amendments or contracts and submit to the Texas Department of Insurance in accordance with 28 TAC §11.506.

You are responsible for implementing changes for compliance with the new and amended statutes. Proposed regulations establishing clarification and interpretation will be forthcoming and may include additional provisions in accordance with federal guidelines and regulations. Draft publications will appear on the TDI web page at http:/www.tdi.state.tx.us.

If you have any questions concerning the attached information related to health policies, you may contact:

Please contact Leah Rummel at 512/322-4266 for questions regarding HMO plans.

Sincerely,

Edna Ramón Butts
Senior Associate Commissioner
Regulation and Safety

Preexisting Conditions in Individual Health Benefit Plans - Article 3.70-1(4), TIC
This new subdivision requires carriers to credit the preexisting conditions provision in an individual health benefit plan (hospital, medical, surgical, major medical, limited benefit hospital, medical, or surgical contracts) as follows:

• a preexisting condition provision shall not apply to an individual who was continuously covered for an aggregate period of 18 months by creditable coverage* that was in effect up to a date not more than 63 days before the effective date of coverage (excluding any waiting period) and whose most recent creditable coverage* was under a group health plan, government plan or church plan;
• if there has been more than a 63-day gap in coverage, a preexisting condition provision shall be credited for the time an individual (whose most recent creditable coverage* was under a group health plan, government plan or church plan) was previously covered under creditable coverage* if the previous coverage was in effect at any time during the 18 months preceding the effective date of the individual coverage.

Proposed regulations are anticipated shortly.

Guaranteed Renewability of Certain Individual Health Benefit Plans - Article 3.70-1A, TIC
This new Article requires that individual health insurance policies providing benefits for medical care under a hospital, medical, surgical policy (including a major medical policy and limited benefit hospital, medical or surgical policy) shall be renewed or continued in force at the option of the individual. The policy may be nonrenewed or discontinued only for one or more of the following reasons:

• failure to pay premiums or contributions in accordance with the terms of the policy;
• fraud or intentional misrepresentation;
• the carrier is ceasing to offer coverage in the individual market (in accordance with rules to be adopted by the commissioner);
• an individual no longer resides, lives or works in an area in which the carrier is authorized to provide coverage but only if coverage is terminated under this provision uniformly without regard to any health status related factor of the covered individual; or
• in accordance with applicable federal law and regulations.

Proposed regulations are anticipated shortly.

* See Creditable Coverage on Page 6.

Continuation of Coverage and Conversion - Article 20A.09(k)(A) and (B), TIC

Continuation of Coverage - The effective date for subsection (k)(A) is July 1, 1997. This subsection requires that a HMO provide group continuation under the group contract under the conditions specified.

Continuation of coverage for Certain Dependents has not changed. Article 3.51-6, Sec. 3B of the Texas Insurance Code.

Conversion - The effective date for this subsection (k)(B) is July 1, 1997. A HMO may offer to each enrollee a conversion contract. TDI will be proposing rules to implement. The conversion rules under 28 TAC §11.509(7) will still apply until the effective date of this new subsection.

Individual Health Plans - Article 20A.09(i), TIC
This new subsection allows HMOs to provide individual health care plans and requires that the plans providing health care services be renewed or continued in force at the option of the individual. The contract may be nonrenewed based only on one or more of the following reasons:

• failure to pay premiums or contributions in accordance with the terms of the contract;
• fraud or intentional misrepresentation;
• the HMO is ceasing to offer coverage in the individual market (in accordance with rules to be adopted by the commissioner;
• an enrollee no longer resides, lives, or works in an area in which the HMO is authorized to provide coverage, but only if coverage is terminated under this provision uniformly without regard to any health status related factor of the covered enrollee; or
• in accordance with applicable federal law and regulations.

Proposed regulations are anticipated shortly.

Small and Large Employer

• The definition of "Small Employer" has been changed to an employer who employed an average of at least two but not more than 50 eligible employees on business days during the preceding calendar year and who employs at least two eligible employees on the first day of the policy year - Article 21.02(28), TIC.
• The definition of a "Large Employer" is any employer who employed an average of at least 51 eligible employees on business days during the preceding calendar year and who employs at least two eligible employees on the first day of the policy year - Article 26.02(14), TIC.
• For an employer who was not in existence throughout the preceding calendar year, the determination of whether the employer is a small or large employer is based on the average number of eligible employees the employer reasonably expects to employ in the calendar year in which the determination is made - Articles 26.06(b) and 26.81(b), TIC.
• A government entity (which otherwise meets the requirements of the law) can elect to be treated, as applicable, as a small or large employer - Articles 26.02(14) and 26.02(28), TIC.
• An independent school district (regardless of the number of eligible employees) may elect to be deemed a small employer under this Act - Article 26.036, TIC.

Health Benefit Plan - This definition was modified to clarify those plans which are NOT included within the definition of Article 26.02(10), TIC.

Health Status Related Factor - This term means a health status, medical condition (including both physical and mental illness), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of family violence) and disability - Article 26.02(12), TIC.

Late Enrollee - The definition applies to both large and small health benefit plans. A late enrollee includes an employee or eligible dependent, as applicable, who requests enrollment after the expiration of the initial enrollment period or open enrollment period. An individual is not a Late Enrollee if:

• the individual was covered under another health benefit plan or self-funded employer health benefit plan at the time the individual was eligible to enroll (and states such in writing);
• the individual lost coverage under another health benefit plan or self-funded employer benefit plan as a result of termination of employment, reduction in the number of hours of employment, termination of contributions toward the premium made by the employer, termination of the other plan's coverage; the death of a spouse or divorce; and
• requests enrollment not later than the 31st day following the termination of the other coverage; or
• a court has ordered coverage for a spouse or child - Article 26.02(17), TIC.

Cooperatives - Articles 26.13-26.15, TIC

• The Texas Health Benefits Purchasing Cooperative can now make health care coverage available to small and large employers and their eligible employees and dependents, as applicable.
• Two or more small or large employers may form a private purchasing cooperative for the purchase of small or large employer health benefit plans.

Annual Open Enrollment Periods - Enrollment periods shall consist of an entire calendar month (beginning with the 1st day of the month and ending on the last day of the month.) If the month is February, the period shall last through March 2nd - Articles 26.21(h) and 26.81(f), TIC.

Adopted Children - A large employer health benefit plan (if dependents are eligible for coverage) and a small employer health benefit plan are prohibited from limiting or excluding initial coverage of an adopted child (including a child the insured is a party in a suit to adopt) in the same manner as a newborn child . An adopted child may be enrolled (at the option of the insured) within either

• 31 days after the insured is a party in a suit for adoption; or
• 31 days of the date the adoption is final - Articles 26.21A and 26.84, TIC.

Guaranteed Renewability - A small or large employer carrier must renew the employer health benefit plan at the option of the employer except for the following specified reasons:

• a premium has not been paid as required by the terms of the plan;
• the employer has committed fraud or intentional misrepresentation of a material fact;
• the employer has not complied with the terms of the health benefit plan;
• no enrollee resides or works in the service area of the carrier or in the area for which the carrier is authorized to do business; or,
• membership of an employer in an association terminates (but only if coverage is terminated uniformly without regard to health status related factors) - Articles 26.23 and 26.86, TIC.

A small or large employer carrier may elect to discontinue a particular type of health benefit plan only if the carrier notifies each employer affected 90 days before the date of discontinuance and offers to each employer the option to purchase any other coverage the carrier is then offering to employers, as applicable, at the time of discontinuance - Articles 26.24 and 26.87, TIC.

Preexisting Conditions - For both small and employer health benefit plans:

• a preexisting condition provision may not apply to expenses incurred on or after the expiration of 12 months following the initial effective date of coverage;
• a preexisting condition provision may not apply to coverage for a disease or condition other than a disease or condition for which medical advice, diagnosis, care, or treatment was recommended or received during the six months before the effective date of coverage or the first day of any waiting period (whichever is earlier);
• genetic information shall not be treated as a preexisting condition in the absence of an actual diagnosis of the condition related to the genetic information;
• pregnancy shall not be considered as a preexisting condition; and
• a preexisting condition provision in a health benefit plan may not apply to an individual who has an aggregate of 12 months under creditable coverage* without a gap in coverage of greater than 63 days. Additionally, an individual who was covered under creditable coverage*, at any time during the 12 months preceding the effective date of coverage, shall receive a reduction in the preexisting condition limitation period for any such time - Articles 26.49 and 26.90, TIC.

Affiliation Period - For both small and large employers health benefit plans - an HMO may not impose any prexisting condition limitations except for an affiliation period. During an affiliation period:

• a HMO is not required to provide health care services or benefits;
• a premium may not be charged to the enrollee;
• the period may not exceed 90 days for new enrollees (180 days for late enrollees).

Acceptance of the Group

• Small employer carriers are still subject to guaranteed issuance of coverage.
• Large employer carriers are not subject to guaranteed issuance of coverage for employers. On issuance of a health benefit plan, the carrier shall provide coverage to all employees meeting the participation criteria established by the employer. Participation criteria may not be based on health status related factors. The carrier may exclude only those employees or dependents, if applicable, who decline coverage - Article 26.83, TIC.

Premium Rates

• Small employer rating has not changed.
• A large employer carrier may not charge an adjustment to rates for individual employees or dependents, if applicable, for health status related factors. Any adjustment must be applied uniformly to the rates for all employees of a large employer - Article 26.89, TIC.
• Both small and large employer carriers may offer discounts, rebates, or reductions in copayments or deductibles for adherence to wellness programs.

* See Creditable Coverage on Page 6.

Creditable coverage is defined as a self-funded or self-insured employee welfare plan, any group or individual health benefit plan, Part A or B of Medicare of Title XVIII of the Social Security Act; Title XIX of the Social Security Act (other than coverage consisting solely of benefits under Section 1928), Chapter 55 of Title 10, United States Code; a medical care program of the Indian Health Service or of a tribal organization, a state health benefits risk pool, a health plan offered under Chapter 89 of Title 5, United States Code, a public health plan as defined by federal regulations or a health benefit plan under Section 5(e) of the Peace Corps Act. (Note: Short term major medical coverage is considered creditable coverage.) - HB 710 - Article 3.70-1(4)(b); HB 1212 - Articles 26.035, 21.52G.

Article 21.52G requires that any health benefit plan must provide a certification of creditable coverage in accordance with the standards the commissioner adopts by rule to conform to the federal law and regulations.

Proposed regulations are anticipated shortly.