26 CFR Part 54 — Pension Excise Taxes

PART 54—PENSION EXCISE TAXES Authority: 26 U.S.C. 7805, unless otherwise noted. Section 54.4974-2 also issued under 26 U.S.C. 4974; Section 54.4981A-1T also issued under 26 U.S.C. 4981A; Section 54.4980B-1 also issued under 26 U.S.C. 4980B; Section 54.4980B-2 also issued under 26 U.S.C. 4980B; Section 54.4980B-3 also issued under 26 U.S.C. 4980B; Section 54.4980B-4 also issued under 26 U.S.C. 4980B; Section 54.4980B-5 also issued under 26 U.S.C. 4980B; Section 54.4980B-6 also issued under 26 U.S.C. 4980B; Section 54.4980B-7 also issued under 26 U.S.C. 4980B; Section 54.4980B-8 also issued under 26 U.S.C. 4980B; Section 54.4980B-9 also issued under 26 U.S.C. 4980B; Section 54.4980B-10 also issued under 26 U.S.C. 4980B; Section 54.4980F-1 also issued under 26 U.S.C. 4980F; Section 54.4980G-1 also issued under 26 U.S.C. 4980G; Section 54.4980G-2 also issued under 26 U.S.C. 4980G; Section 54.4980G-3 also issued under 26 U.S.C. 4980G; Section 54.4980G-4 also issued under 26 U.S.C. 4980G; Section 54.4980G-5 also issued under 26 U.S.C. 4980G; Section 54.4980G-6 also issued under 26 U.S.C. 4980G; Section 54.4980G-7 also issued under 26 U.S.C. 4980G; Section 54.4980H-3 also issued under 26 U.S.C. 4980H(c)(4)(B); Section 54.6011-3 also issued under 26 U.S.C. 6011; Section 54.6060-1 also issued under 26 U.S.C. 6060(a); Section 54.6081-1 also issued under 26 U.S.C. 6081(a); Section 54.6109-1 also issued under 26 U.S.C. 6109(a); Section 54.6109-2 also issued under 26 U.S.C. 6109(a); Section 54.6695-1 also issued under 26 U.S.C. 6695(b); Section 54.9801-1 also issued under 26 U.S.C. 9833; Section 54.9801-2 also issued under 26 U.S.C. 9833; Section 54.9801-3 also issued under 26 U.S.C. 9801(c)(4), 9801(e)(3), and 9833; Section 54.9801-4 also issued under 26 U.S.C. 9801(c)(1)(I) and 9833; Section 54.9801-5 also issued under 26 U.S.C. 9801(c)(4), 9801(e)(3), and 9833; Section 54.9801-6 also issued under 26 U.S.C. 9833; Section 54.9802-1 also issued under 26 U.S.C. 9833; Section 54.9802-2 also issued under 26 U.S.C. 9833; Section 54.9802-3T also issued under 26 U.S.C. 9833; Section 54.9802-4 also issued under 26 U.S.C. 9833; Section 54.9811-1 also issued under 26 U.S.C. 9833; Section 54.9812-1 also issued under 26 U.S.C. 9833; Section 54.9815-1251 also issued under 26 U.S.C. 9833; Section 54.9815-1251T also issued under 26 U.S.C. 9833; Section 54.9815-2704 also issued under 26 U.S.C. 9833; Section 54.9815-2704T also issued under 26 U.S.C. 9833; Section 54.9815-2705 also issued under 26 U.S.C. 9833; Section 54.9815-2708 is also issued under 26 U.S.C. 9833; Section 54.9815-2711 also issued under 26 U.S.C. 9833; Section 54.9815-2711T also issued under 26 U.S.C. 9833; Section 54.9815-2712 also issued under 26 U.S.C. 9833; Section 54.9815-2712T also issued under 26 U.S.C. 9833; Section 54.9815-2713 also issued under 26 U.S.C. 9833; Section 54.9815-2713T also issued under 26 U.S.C. 9833; Section 54.9815-2714 also issued under 26 U.S.C. 9833; Section 54.9815-2714T also issued under 26 U.S.C. 9833; Section 54.9815-2715 also issued under 26 U.S.C. 9833; Sections 54.9815-2715A1, 54.9815-2715A2, and 54.9815-2715A3 are also issued under 26 U.S.C. 9833; Section 54.9815-2719 also issued under 26 U.S.C. 9833; Section 54.9815-2719A also issued under 26 U.S.C. 9833; Section 54.9815-2719AT also issued under 26 U.S.C. 9833; Section 54.9815-2719T also issued under 26 U.S.C. 9833; Section 54.9816-3 also issued under 26 U.S.C. 9816. Section 54.9816-6A also issued under 26 U.S.C. 9816. Section 54.9816-8 also issued under 26 U.S.C. 9816; Section 54.9816-9 also issued under 26 U.S.C. 9816. Section 54.9831-1 also issued under 26 U.S.C. 9833; Section 54.9833-1 also issued under 26 U.S.C. 9833. § 54.4971-1 General rules relating to excise tax on failure to meet minimum funding standards. (a)-(b) [Reserved] (c) Additional tax. (d) [Reserved] (e) Definition of taxable period In general. (i) The date of mailing of a notice of deficiency under section 6212 with respect to the tax imposed by section 4971(a), or (ii) The date on which the tax imposed by section 4971(a) is assessed. (2) Special rule. [T.D. 8084, 51 FR 16305, May 2, 1986] § 54.4971(c)-1 Taxes on failure to meet minimum funding standards; definitions. (a) In general. (b) Accumulated funding deficiency Multiemployer plans. accumulated funding deficiency (2) CSEC plans. accumulated funding deficiency (c) Unpaid minimum required contribution In general. unpaid minimum required contribution (2) Accumulated funding deficiency for pre-effective plan year. (d) Correct Accumulated funding deficiency. correct (2) Unpaid minimum required contribution In general. correct (ii) Pre-PPA accumulated funding deficiency. correct (iii) Ordering rule. (3) Corrective action of certain retroactive plan amendments. (e) Taxable period In general. taxable period (i) The date of mailing of a notice of deficiency under section 6212 with respect to the tax imposed by section 4971(a); or (ii) The date on which the tax imposed by section 4971(a) is assessed. (2) Special rule. (f) Single-employer plan. single-employer plan single-employer plan (g) Examples. Example 1. (i) Plan A, a single-employer defined benefit plan, has a calendar year plan year and a January 1 valuation date. The sponsor of Plan A has a calendar taxable year. Plan A has no funding shortfall as of January 1, 2008, and Plan A has no unpaid minimum required contributions for 2008 or any earlier plan year. The minimum required contribution for the 2009 plan year is $250,000. The plan sponsor makes one contribution for 2009 on July 1, 2009 in the amount of $200,000, and the sponsor does not make an election to use the prefunding balance or funding standard carryover balance to offset the minimum required contribution for 2009. The effective interest rate for Plan A for the 2009 plan year is 5.90%. (ii) The contribution paid July 1, 2009 is discounted for 6 months (to the valuation date) at the effective interest rate ($200,000 ÷ 1.0590 (6/12) Example 2. (i) The facts are the same as in Example 1. (ii) Under the ordering rule in paragraph (d)(2)(iii) of this section, the contribution made on December 31, 2010 is applied first to correct the unpaid minimum required contribution for 2009. The portion of the contribution paid December 31, 2010 that is required to eliminate the unpaid minimum required contribution for 2009 (taking into account the 2009 effective interest rate for the 24 months between January 1, 2009 and the payment date of December 31, 2010), is $55,651 multiplied by 1.059 (24/12) Example 3. (i) Plan B, a single-employer defined benefit plan, has a calendar year plan year. The sponsor of Plan B has a calendar taxable year. Plan B has an accumulated funding deficiency of $100,000 as of December 31, 2007, including additional interest due to late required installments during 2007. The valuation interest rate for the 2007 plan year is 7.5%. (ii) In accordance with paragraph (c)(2) of this section, the accumulated funding deficiency under section 412 as of December 31, 2007 is considered an unpaid minimum required contribution until it is corrected. Pursuant to paragraph (d)(2)(ii) of this section, the amount needed to correct that accumulated funding deficiency is $100,000 plus interest at the valuation interest rate of 7.5% for the period between December 31, 2007 and the date of payment of the contribution. (iii) The funding shortfall as of January 1, 2008 is calculated as the difference between the funding target and the value of assets as of that date. The assets are not adjusted by the amount of the accumulated funding deficiency. The fact that the contribution was not made for the 2007 plan year means that the January 1, 2008 funding shortfall is larger than it would have been otherwise. Example 4. (i) The facts are the same as in Example 3. (ii) The total unpaid minimum required contribution as of December 31, 2008 is the sum of the $100,000 accumulated funding deficiency under section 412 from 2007 and the $125,000 unpaid minimum required contribution for 2008, or $225,000. The section 4971(a) excise tax applies to the aggregate unpaid minimum required contributions for all plan years that remain unpaid as of the end of 2008. In this case, there is an unpaid minimum required contribution of $100,000 for the 2007 plan year and an unpaid minimum required contribution of $125,000 for the 2008 plan year. The section 4971(a) excise tax is 10% of the aggregate of those unpaid amounts, $22,500. Example 5. (i) The facts are the same as in Example 4, (ii) In accordance with paragraph (c)(2) of this section, the accumulated funding deficiency under section 412 as of December 31, 2007 is treated as an unpaid minimum required contribution until it is corrected. (iii) The December 31, 2008 contribution is first applied to the 2007 accumulated funding deficiency under section 412 that is treated as an unpaid minimum required contribution. Accordingly, the amount needed to correct the 2007 unpaid required minimum contribution ($100,000 multiplied by 1.075, or $107,500) is applied to eliminate this unpaid minimum required contribution for the 2007 plan year. (iv) The remaining $42,500 December 31, 2008 contribution ($150,000 minus $107,500) is then applied to the 2008 minimum required contribution. This amount is first allocated to the required installment due April 15, 2008. In accordance with § 1.430(j)-1(b)(4)(ii) of this chapter, the adjustment for interest on late required installments is increased by 5 percentage points for the period of underpayment. Therefore, $25,000 of the remaining December 31, 2008 contribution is discounted using an interest rate of 10.75% for the 8 1/2 1/2 (8.5/12) (3.5/12) (v) The remaining December 31, 2008 contribution is then applied to the required installment due July 15, 2008. The $17,500 balance of the December 31, 2008 contribution ($150,000 minus $107,500 minus $25,000) is paid after the due date for the second required installment. Accordingly, the remaining $17,500 contribution is adjusted using an interest rate of 10.75% for the 5 1/2 1/2 (5.5/12) (6.5/12) (vi) The remaining unpaid minimum required contribution for 2008 is $125,000 minus the interest-adjusted amounts of $22,880 and $16,202 applied towards the 2008 minimum required contribution as determined in paragraphs (iv) and (v) of this Example 5. Example 6. (i) Plan C, a single-employer defined benefit plan, has a calendar year plan year and a January 1 valuation date, and has no funding standard carryover balance or prefunding balance as of January 1, 2008. Plan C's sponsor has a calendar taxable year. The minimum required contributions for Plan C are $100,000 for the 2008 plan year, $110,000 for the 2009 plan year, $125,000 for the 2010 plan year, and $135,000 for the 2011 plan year. No contributions for these plan years are made until September 15, 2012, at which time the plan sponsor contributes $273,000 (which is exactly enough to correct the unpaid minimum required contributions for the 2008 and 2009 plan years). (ii) The excise tax under section 4971(a) for the 2008 taxable year is 10% of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending within the 2008 taxable year. Accordingly, the excise tax for the 2008 taxable year is $10,000 (that is, 10% of $100,000). The excise tax for the 2009 taxable year is $21,000 (that is, 10% of the sum of $100,000 and $110,000) and the excise tax for the 2010 taxable year is $33,500 (that is, 10% of the sum of $100,000, $110,000, and $125,000). (iii) The contribution made on September 15, 2012 is applied to correct the unpaid minimum required contributions for the 2008 and 2009 plan years by the deadline for making contributions for the 2011 plan year. Therefore, the excise tax under section 4971(a) for the 2011 taxable year is based only on the remaining unpaid minimum required contributions for the 2010 and 2011 plan years, or $26,000 (that is, 10% of the sum of $125,000 and $135,000). (iv) The plan sponsor may also be required to pay an excise tax of 100% under section 4971(b), if the unpaid minimum required contributions are not corrected by the end of the taxable period. (h) Effective/applicability dates and transition rules Statutory effective date In general. (A) Begins on or after January 1, 2008; and (B) Ends with or within any such taxable year. (ii) Plans with delayed PPA '06 effective dates. (A) To which section 430 applies to determine the minimum required contribution of the plan; and (B) That ends with or within any such taxable year. (2) Effective date of regulations. (3) Pre-effective plan year. [T.D. 9732, 80 FR 54400, Sept. 9, 2015] § 54.4974-1 Excise tax on accumulations in qualified retirement plans. (a) Imposition of excise tax In general. (2) Reduction of tax in certain cases In general. (ii) Eligible taxpayers. (A) Receives a corrective distribution from the applicable plan described in paragraph (a)(2)(iv) of this section of the amount by which the required minimum distribution for a calendar year exceeds the actual amount distributed during the calendar year from that plan; and (B) Files a return reflecting the tax described in this paragraph (a). (iii) Correction window. (A) The date a notice of deficiency under section 6212 with respect to the tax imposed by section 4974(a) is mailed; (B) The date on which the tax imposed by section 4974(a) is assessed; or (C) The last day of the second taxable year that begins after the end of the taxable year in which the tax under section 4974(a) is imposed. (iv) Applicable plan. (3) Definition of required minimum distribution. (b) Definition of qualified retirement plan. (1) A plan described in section 401(a) that includes a trust exempt from tax under section 501(a); (2) An annuity plan described in section 403(a); (3) An annuity contract, custodial account, or retirement income account described in section 403(b); (4) An individual retirement account described in section 408(a) (including a Roth IRA described in section 408A); (5) An individual retirement annuity described in section 408(b) (including a Roth IRA described in section 408A); or (6) Any other plan, contract, account, or annuity that, at any time, has been treated as a plan, account, or annuity described in paragraphs (b)(1) through (5) of this section but that no longer satisfies the applicable requirements for that treatment. (c) Determination of required minimum distribution for individual accounts General rule. (i) Section 401(a)(9), §§ 1.401(a)(9)-1 through 1.401(a)(9)-5, and 1.401(a)(9)-7 through 1.401(a)(9)-9, in the case of a plan described in section 401(a) that includes a trust exempt under section 501(a) or an annuity plan described in section 403(a); (ii) Section 403(b)(10) and § 1.403(b)-6(e) in the case of an annuity contract, custodial account, or retirement income account described in section 403(b); (iii) Section 408(a)(6) or (b)(3) and § 1.408-8 in the case of an individual retirement account or annuity described in section 408(a) or (b); or (iv) Section 457(d) and § 1.457-6(d) in the case of an eligible deferred compensation plan. (2) Distributions under 5-year rule or 10-year rule. (3) Default provisions. (4) Plans providing uniform required beginning date. (i) The required minimum distribution determined by treating the employee as dying before the required beginning date (that is, the 5-year rule of § 1.401(a)(9)-3(c)(2)); or (ii) The required minimum distribution determined by treating the employee as dying on or after the required beginning date (annual distributions over the employee's remaining life expectancy, as set forth in § 1.401(a)(9)-5(d)). (d) Determination of required minimum distribution under a defined benefit plan or annuity General rule. (i) A permissible annuity distribution option is an annuity contract (or, in the case of annuity distributions from a defined benefit plan, a distribution option) that specifically provides for distributions that, if made as provided, would for every calendar year equal or exceed the minimum distribution amount required to be distributed to satisfy the applicable section enumerated in paragraph (b) of this section for that calendar year; and (ii) An impermissible annuity distribution option is any other annuity distribution option. (2) Permissible annuity distribution option. (3) Impermissible annuity distribution option General rule. (ii) Defined benefit plan Benefits commence before employee dies. (B) Employee dies before benefits commence. (iii) Defined contribution plan In general. (B) Benefits commence before employee dies. (C) Employee dies before benefits commence. (4) Application of section 401(a)(9)(B)(ii) Application of 5-year rule. (ii) Application of 10-year rule. (5) Plans providing uniform required beginning date. (e) Distribution of remaining benefit after deadline for required distribution. (f) Excise tax for first distribution calendar year. (g) Waiver of excise tax General rule. (i) The failure to distribute the required minimum distribution described in this section was due to reasonable error; and (ii) Reasonable steps are being taken to remedy the failure. (2) Automatic waiver after election to distribute within 10 years of employee's death. (i) The employee's or individual's death is before the employee's or individual's required beginning date; (ii) The payee is an individual— (A) Who is an eligible designated beneficiary (as defined in § 1.401(a)(9)-4(e)); (B) Whose required minimum distribution amount for a calendar year is determined under the life expectancy rule described in § 1.401(a)(9)-3(c)(4); and (C) Who did not make an affirmative election to have the life expectancy rule apply as described in § 1.401(a)(9)-3(c)(5)(iii); (iii) The payee fails to satisfy the minimum distribution requirement; and (iv) The payee elects the 10-year rule described in § 1.401(a)(9)-3(c)(3) by the end of the ninth calendar year following the calendar year of the employee's death. (3) Automatic waiver for failure to take required minimum distribution for the year of death. (i) A distribution is required to be made to an individual under § 1.401(a)(9)-3 or § 1.401(a)(9)-5 in a calendar year; (ii) The individual who was required to take the distribution described in paragraph (g)(3)(i) of this section died in that calendar year without satisfying that distribution requirement; and (iii) The beneficiary of the individual described in paragraph (g)(3)(ii) of this section takes a corrective distribution in the amount needed to satisfy that distribution requirement no later than the tax filing deadline (including extensions thereof) for the taxable year of that beneficiary that begins with or within that calendar year (or, if later, the last day of the calendar year following that calendar year). (h) Applicability date. [T.D. 7714, 45 FR 52799, Aug. 8, 1980, as amended by T.D. 10001, 89 FR 58951, July 19, 2024] § 54.4975-1 General rules relating to excise tax on prohibited transactions. (a) Scope. (b) Initial tax. (c) Additional tax. (d) Taxable period In general. (i) The date of mailing of a notice of deficiency under section 6212 with respect to the tax imposed by section 4975(a); (ii) The date on which correction of the prohibited transaction is completed; or (iii) The date on which the tax imposed by section 4975(a) is assessed. (2) Special rule. [T.D. 8084, 51 FR 16305, May 2, 1986] § 54.4975-6 Statutory exemptions for office space or services and certain transactions involving financial institutions. (a) Exemption for office space or services In general. Section 4975(d)(2) does not contain an exemption from other provisions of the Code, such as section 401, or other provisions of law which may impose requirements or restrictions relating to the transactions which are exempt under section 4975(d)(2). See, for example, the general fiduciary responsibility provisions of section 404 of the Employee Retirement Income Security Act of 1974 (the Act) (88 Stat. 877). The provisions of section 4975(d)(2) are further limited by the flush language at the end of section 4975(d) (relating to transactions with owner-employees and related persons). (2) Necessary service. (3) Reasonable contract or arrangement. Similarly, a provision in a lease for a termination fee that covers reasonably foreseeable expenses related to the vacancy and reletting of the office space upon early termination of the lease is not a penalty. Such a provision does not reasonably compensate for loss if it provides for payments in excess of actual loss or if it fails to require mitigation of damages. (4) Reasonable compensation. (5) Transactions with fiduciaries In general. A person in which a fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary includes, for example, a person who is a disqualified person by reason of a relationship to such fiduciary described in section 4975(e)(2) (E), (F), (G), (H), or (I). (ii) Transactions not described in section 4975(c)(1)(E). (iii) Services without compensation. (6) Examples. Example 1. E, an employer whose employees are covered by plan P, is a fiduciary or P. I is a professional investment adviser in which E has no interest which may affect the exercise of E's best judgment as a fiduciary. E causes P to retain I to provide certain kinds of investment advisory services of a type which causes I to be a fiduciary of P under section 4975(e)(3)(B). Thereafter, I proposes to perform for additional fees portfolio evaluation services in addition to the services currently provided. The provision of such services is arranged by I and approved on behalf of the plan by E. I has not engaged in an act described in section 4975(c)(1)(E), because I did not use any of the authority, control or responsibility which makes I a fiduciary (the provision of investment advisory services) to cause the plan to pay I additional fees for the provision of the portfolio evaluation services. E has not engaged in an act which is described in section 4975(c)(1)(E). E, as the fiduciary who has the responsibility to be prudent in his selection and retention of I and the other investments advisers of the plan, has an interest in the purchase by the plan of portfolio evaluation services. However, such an interest is not an interest which may affect the exercise of E's best judgment as a fiduciary. Example 2. D, a trustee of plan P with discretion over the management and disposition of plan assets, relies on the advice of C, a consultant to P, as to the investment of plan assets, thereby making C a fiduciary of the plan. On January 1, 1978, C recommends to D that the plan purchase an insurance policy from U, an insurance company which is not a disqualified person with respect to P. C thoroughly explains the reasons for the recommendation and makes a full disclosure concerning the fact that C will receive a commission from U upon the purchase of the policy by P. D considers the recommendation and approves the purchase of the policy by P. C receives a commission. Under such circumstances, C has engaged in an act described in section 4975(c)(1)(E) (as well as section 4975(c)(1)(F), because C is in fact exercising the authority, control or responsibility which makes C a fiduciary to cause the plan to purchase the policy. However, the transaction is exempt from the prohibited transaction provisions of section 4975(c)(1) if the requirements of Prohibited Transaction Exemption 77-9 are met. Example 3. Assume the same facts as in Example (2) except that the nature of C's relationship with the plan is not such that C is a fiduciary of P. The purchase of the insurance policy does not involve an act described in section 4975(c)(1) (E) or (F), because such sections only apply to acts by fiduciaries. Example 4. E, an employer whose employees are covered by plan P, is a fiduciary with respect to P. A, who is not a disqualified person with respect to P, persuades E that the plan needs the services of a professional investment adviser and that A should be hired to provide the investment advice. Accordingly, E causes P to hire A to provide investment advice of the type which makes A a fiduciary under § 54.4975-9(c)(1)(ii)(B). Prior to the expiration of A's first contract with P, A persuades E to cause P to renew A's contract with P to provide the same services for additional fees in view of the increased costs in providing such services. During the period of A's second contract, A provides additional investment advice services for which no additional charge is made. Prior to the expiration of A's second contract, A persuades E to cause P to renew his contract for additional fees in view of the additional services A is providing. A has not engaged in an act described in section 4975(c)(1)(E), because A has not used any of the authority, control or responsibility which makes A a fiduciary (the provision of investment advice) to cause the plan to pay additional fees for A's services. Example 5. F, a trustee of plan P with discretion over the management and disposition of plan assets, retains C to provide administrative services to P of the type which makes C a fiduciary under section 4975(e)(3)(C). Thereafter, C retains F to provide, for additional fees, actuarial and various kinds of administrative services in addition to the services F is currently providing to P. Both F and C have engaged in an act described in section 4975(c)(1)(E). F, regardless of any intent which he may have had at the time he retained C, has engaged in such an act because F has, in effect, exercised the authority, control or responsibility which makes F a fiduciary to cause the plan to pay F additional fees for the services. C, whose continued employment by P depends on F, has also engaged in such an act, because C has an interest in the transaction which might affect the exercise of C's best judgment as a fiduciary. As a result, C has dealt with plan assets in his own interest under section 4975(c)(1)(E). Example 6. F, a fiduciary of plan P with discretionary authority respecting the management of P, retains S, the son of F, to provide for a fee various kinds of administrative services necessary for the operation of the plan. F has engaged in an act described in section 4975(c)(1)(E), because S is a person in whom F has an interest which may affect the exercise of F's best judgment as a fiduciary. Such act is not exempt under section 4975(d)(2) irrespective of whether the provision of the services by S is exempt. Example 7. T, one of the trustees of plan P, is president of bank B. The bank proposes to provide administrative services to P for a fee. T physically absents himself from all consideration of B's proposal and does not otherwise exercise any of the authority, control or responsibility which makes T a fiduciary to cause the plan to retain B. The other trustees decide to retain B. T has not engaged in an act described in section 4975(c)(1)(E). Further, the other trustees have not engaged in an act described in section 4975(c)(1)(E) merely because T is on the board of trustees of P. This fact alone would not make them have an interest in the transaction which might affect the exercise of their best judgment as fiduciaries. (b) Exemption for bank deposits In general. (2) Plan covering own employees. (3) Other plans General rule. Effective November 1, 1977, in the case of a bank or similar financial institution that invests plan assets in deposits in itself or its affiliates under an authorization contained in a plan or trust instrument, such authorization must name such bank or similar financial institution and must state that such bank or similar financial institution may make investments in deposits which bear a reasonable rate of interest in itself (or in an affiliate.) (ii) Example. (4) Definitions. (ii) A person is an affiliate of a bank or similar financial institution if such person and such bank or similar financial institution would be treated as members of the same controlled group of corporations or as members of two or more trades or businesses under common control within the meaning of section 414 (b) or (c) and the regulations thereunder. (iii) The term “deposits” includes any account, temporary or otherwise, upon which a reasonable rate of interest is paid, including a certificate of deposit issued by a bank or similar financial institution. (c) Exemption for ancillary bank services In general. Section 4975(d)(6) does not contain an exemption from other provisions of the Code, such as section 401, or other provisions of law which may impose requirements or restrictions relating to the transactions which are exempt under section 4975(d)(6). See, for example, the general fiduciary responsibility provisions of section 404 of the Act. The provisions of section 4975(d)(6) are further limited by the flush language at the end of section 4975(d) (relating to transactions with owner-employees and related persons). (2) Conditions. (i) At not more than reasonable compensation; (ii) Under adequate internal safeguards which assure that the provision of such service is consistent with sound banking and financial practice, as determined by Federal or State supervisory authority; and (iii) Only to the extent that such service is subject to specific guidelines issued by the bank or similar financial institution which meet the requirements of § 54.4975-6(c)(3). (3) Specific guidelines. (d) Exemption for services as a fiduciary. (e) Compensation for services In general. (2) General rule. (3) Payments to certain fiduciaries. (4) Certain expenses not direct expenses. (5) Expense advances. (i) The amount of such advance is reasonable with respect to the amount of the direct expense which is likely to be properly and actually incurred in the immediate future (such as during the next month); and (ii) The fiduciary or employee accounts to the plan at the end of the period covered by the advance for the expenses properly and actually incurred. (6) Excessive compensation. [T.D. 7491, 42 FR 32385, June 24, 1977; 42 FR 37810, July 25, 1977; 43 FR 4604, Feb. 3, 1978] § 54.4975-7 Other statutory exemptions. (a) [Reserved] (b) Loans to employee stock ownership plans Definitions. (i) ESOP. (ii) Loan. (iii) Exempt loan. (iv) Publicly traded. (v) Qualifying employer security. (2) Statutory exemption Scope. (ii) Special scrutiny of transaction. (3) Primary benefit requirement In general. (ii) Net effect on plan assets. (iii) Arm's-length standard. (4) Use of loan proceeds. (i) To acquire qualifying employer securities. (ii) To repay such loan. (iii) To repay a prior exempt loan. A new loan, the proceeds of which are so used, must satisfy the provisions of this paragraph (b). Except as provided in paragraph (b) (9) and (10) of this section or as otherwise required by applicable law, no security acquired with the proceeds of an exempt loan may be subject to a put, call, or other option, or buy-sell or similar arrangement while held by and when distributed from a plan, whether or not the plan is then an ESOP. (5) Liability and collateral of ESOP for loan. (i) Collateral given for the loan, (ii) Contributions (other than contributions of employers securities) that are made under an ESOP to meet its obligations under the loan, and (iii) Earnings attributable to such collateral and the investment of such contributions. The payments made with respect to an exempt loan by the ESOP during a plan year must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less such payments in prior years. Such contributions and earnings must be accounted for separately in the books of account of the ESOP until the loan is repaid. (6) Default. (7) Reasonable rate of interest. (8) Release from encumbrance General rule. (ii) Special rule. (iii) Caution against plan disqualification. (iv) Illustration. Example. Corporation X establishes an ESOP that borrows $750,000 from a bank. X guarantees the loan, which is for 15 years at 5% interest and is payable in level annual amounts of $72,256.72. Total payments on the loan are $1,083,850.80. The ESOP uses the entire loan proceeds to acquire 15,000 shares of X stock which is used as collateral for the loan. The number of securities to be released for the first year is 1,000 shares, i.e. i.e. (9) Right of first refusal. (10) Put option. participant (11) Duration of put option General rule. (ii) Special rule. (12) Other put option provisions Manner of exercise. (ii) Time excluded from duration of put option. (iii) Price. (iv) Payment terms. (v) Payment restrictions. (13) Other terms of loan. (14) Status of plan as ESOP. (15) Special rules for certain loans Loans made before January 1, 1976. (ii) Loans made after December 31, 1975, but before November 1, 1977. (iii) Release rule. (iv) Default rule. (v) Put option rule. (Sec. 4975 (e) (7), (88 Stat. 976; 26 U.S.C. 4975 (e) (7))) [T.D. 7506, 42 FR 44391, Sept. 2, 1977] § 54.4975-9 Definition of “fiduciary”. (a)-(b) [Reserved] (c) Investment advice. (i) Such person renders advice to the plan as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property; and (ii) Such person either directly or indirectly (e.g., through or together with any affiliate): (A) Has discretionary authority or control, whether or not pursuant to agreement, arrangement or understanding, with respect to purchasing or selling securities or other property for the plan; or (B) Renders any advice described in paragraph (c)(1)(i) of this section on a regular basis to the plan pursuant to a mutual agreement, arrangement or understanding, written or otherwise, between such person and the plan or a fiduciary with respect to the plan, that such services will serve as a primary basis for investment decisions with respect to plan assets, and that such person will render individualized investment advice to the plan based on the particular needs of the plan regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments. (2) A person who is a fiduciary with respect to a plan by reason of rendering investment advice (as defined in paragraph (c)(1) of this section) for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or having any authority or responsibility to do so, shall not be deemed to be a fiduciary regarding any assets of the plan with respect to which such person does not have any discretionary authority, discretionary control or discretionary responsibility, does not exercise any authority or control, does not render investment advice (as defined in paragraph (c)(1) of this section) for a fee or other compensation, and does not have any authority or responsibility to render such investment advice, provided that nothing in this paragraph shall be deemed to: (i) Exempt such person from the provisions of section 405(a) of the Employee Retirement Income Security Act of 1974 concerning liability for fiduciary breaches by other fiduciaries with respect to any assets of the plan; or (ii) Exclude such person from the definition of the term disqualified person (d) Execution of securities transactions. (i) Neither the fiduciary nor any affiliate of such fiduciary is such broker, dealer, or bank; and (ii) The instructions specify (A) the security to be purchased or sold, (B) a price range within which such security is to be purchased or sold, or, if such security is issued by an open-end investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq. (2) A person who is a broker-dealer, reporting dealer, or bank which is a fiduciary with respect to an employee benefit plan solely by reason of the possession or exercise of discretionary authority or discretionary control in the management of the plan or the management or disposition of plan assets in connection with the execution of a transaction or transactions for the purchase or sale of securities on behalf of such plan which fails to comply with the provisions of paragraph (d)(1) of this section, shall not be deemed to be a fiduciary regarding any assets of the plan with respect to which such broker-dealer, reporting dealer or bank does not have any discretionary authority, discretionary control or discretionary responsibility, does not exercise any authority or control, does not render investment advice (as defined in paragraph (c)(1) of this section) for a fee or other compensation, and does not have any authority or responsibility to render such investment advice, provided that nothing in this paragraph shall be deemed to: (i) Exempt such broker-dealer, reporting dealer, or bank from the provisions of section 405(a) of the Employee Retirement Income Security Act of 1974 concerning liability for fiduciary breaches by other fiduciaries with respect to any assets of the plan; or (ii) Exclude such broker-dealer, reporting dealer, or bank from the definition of the term disqualified person (e) Affiliate and control. (i) Any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such person; (ii) Any officer, director, partner, employee or relative (as defined in section 4975(e)(6)) of such person; and (iii) Any corporation or partnership of which such person is an officer, director or partner. (2) For purposes of this paragraph, the term control [T.D. 7386, 40 FR 50841, Oct. 31, 1975] § 54.4975-11 “ESOP” requirements. (a) In general Type of plan. (2) Designation as ESOP. (3) Continuing loan provisions under plan Creation of protections and rights. (ii) “Nonterminable” protections and rights. (iii) No incorporation by reference of protections and rights. (iv) Certain remedial amendments. (4) Retroactive amendment. (i) 12 months after the date on which the plan is designated as an ESOP; (ii) 90 days after a determination letter is issued with respect to the qualification of the plan as an ESOP under this section, but only if the determination is requested by the time in paragraph (a)(4)(i) of this section; or (iii) A later date approved by the district director. (5) Addition to other plan. (6) Conversion of existing plan to an ESOP. (7) Certain arrangements barred Buy-sell agreements. (ii) Integrated plans. (8) Effect of certain ESOP provisions on section 401(a) status Exempt loan requirements. (ii) Individual annual contribution limitation. (iii) Income pass-through. (9) Transitional rules for ESOP's established before November 1, 1977. (10) Additional transitional rules. (i) Paragraph (a) (3) and (8) (iii); (ii) The last sentence of paragraph (d)(3); and (iii) Paragraph (f)(3). (b) Plan designed to invest primarily in qualifying employer securities. (c) Suspense account. (d) Allocations to accounts of participants In general. (2) Assets withdrawn from suspense account. (3) Income. (4) Forfeitures. (5) Valuation. (e) Multiple plans General rule. (i) The ESOP and such other plan exist on November 1, 1977, or (ii) Paragraph (e)(2) of this section is satisfied. (2) Special rule for combined ESOP's. (i) The qualifying employer securities held by all ESOP's are all of the same class; or (ii) The ratios of each class held to all such securities held is substantially the same for each plan. (3) Amended coverage, contribution, or benefit structure. (f) Distribution In general. (2) Exempt loan proceeds. (3) Income. (Sec. 4975(e)(7), (88 Stat. 976; 26 U.S.C. 4975(e)(7))) [T.D. 7506, 42 FR 44393, Sept. 2, 1977, as amended by T.D. 7571, 44 FR 1978, Jan. 9, 1979] § 54.4975-12 Definition of the term “qualifying employer security”. (a) In general. (1) Stock or otherwise an equity security, or (2) A bond, debenture, note, or certificate or other evidence of indebtedness which is described in paragraphs (1), (2), and (3) of section 503(e). (b) Special rule. (Sec. 4975(e)(7) (88 Stat. 976; 26 U.S.C. 4975(e)(7))) [T.D. 7506, 42 FR 44394, Sept. 2, 1977] § 54.4975-14 Election to pay an excise tax for certain pre-1975 prohibited transactions. (a) In general. (b) Effect of election. (c) Method of election. (d) Computation of section 4975 excise tax. (Sec. 2003(c)(1)(B) of the Employee Retirement Income Security Act of 1974 (88 Stat. 978)) [T.D. 7489, 42 FR 27882, June 1, 1977] § 54.4975-15 Other transitional rules. (a)-(c) [Reserved] (d) Provision of certain services until June 30, 1977 In general. For this purpose, such services are provided on terms that remain at least as favorable to the plan as an arms-length transaction with an unrelated party would be if, at the time of execution (or renewal) of such binding contract, the contract (or renewal) is on terms at least as favorable to the plan as an arm's-length transaction with an unrelated party would be. However, if in a normal commercial setting an unrelated party in the position of the plan could be expected to insist upon a renegotiation or termination of a binding contract, the plan must so act. Thus, for example, if a disqualified person provides services to a plan on a month-to-month basis, and a party in the position of the plan could be expected to renegotiate the price paid under such contract because of a decline in the fair market value of such services, the plan must so act in order to avoid participation in a prohibited transaction. The third requirement is that the provision of services must not be, or have been, at the time of such provision a prohibited transaction within the meaning of section 503(b) or the corresponding provisions of prior law. If these three requirements are met, section 4975 will apply neither to services provided before June 30, 1977 (both to customers to whom such services were being provided on June 30, 1974, and to new customers) nor to the receipt of compensation therefor. Thus, if these three requirements are met, section 4975 will not apply until June 30, 1977, to the provision of services to a plan by a disqualified person (including a fiduciary) even if such services could not be furnished pursuant to the exemption provisions of sections 4975(d)(2) or (6) and § 54.4975-6. For example, if the three requirements of section 2003(c)(2)(D) of the Act are met, a person serving as fiduciary to a plan who already receives full-time pay from an employer or an association of employers, whose employees are participants in such plan, or from an employee organization whose members are participants in such plan, may continue to receive reasonable compensation from the plan for services rendered to the plan before June 30, 1977. Similarly, until June 30, 1977, a plan consultant who may be a fiduciary because of the nature of the consultative and administrative services being provided may, if these three requirements are met, continue to cause the sale of insurance to the plan and continue to receive commissions for such sales from the insurance company writing the policy. Further, if the three requirements of section 2003 (c)(2)(D) of the Act are met, a securities broker dealer who renders investment advice to a plan for a fee, thereby becoming a fiduciary may furnish other services to the plan, such as brokerage services, and receives compensation therefor. Also, if a registered representative of such a broker-dealer were a fiduciary, the registered representative may receive compensation, including commissions, for brokerage services performed before June 30, 1977. (2) Persons deemed to be June 30, 1974, service providers. (i) At least 50 percent of the outstanding beneficial interests of such disqualified person are owned directly or through one or more intermediaries by the same person or persons who owned, directly or through one or more intermediaries, at least 50 percent of the outstanding beneficial interests of a person who ordinarily and customarily furnished such service on June 30, 1974; or (ii) Control, or the power to exercise a controlling influence over the management and policies of such disqualified person is possessed, directly or through one or more intermediaries, by the same person or persons who possessed directly or through one or more intermediaries control, or the power to exercise a controlling influence over the management and policies of a person who ordinarily and customarily furnished such service on June 30, 1974. For purposes of this paragraph (d)(2) a person shall be deemed to be an “intermediary” of another person if at least 50 percent of the outstanding beneficial interests of such person are owned by such other person, directly or indirectly, or if such other person controls or has the power to exercise a controlling influence over the management and policies of such person. (3) Examples. Example 1. A owns 50 percent of the outstanding beneficial interests of ABC Partnership which ordinarily and customarily furnished certain services on June 30, 1974. On July 2, 1974, ABC Partnership was incorporated into ABC Corporation with one class of stock outstanding. A owns 50 percent of the shares of such stock. ABC Corporation furnishes the same services that were furnished by ABC Partnership on June 30, 1974. ABC Corporation will be deemed to have ordinarily and customarily furnished such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act. Example 2. A and B together own 100 percent of the beneficial interests of AB Partnership, which ordinarily and customarily furnished certain services on June 30, 1974. On September 1, 1974, AB Partnership was incorporated into AB Corporation with one class of stock outstanding. A and B each own 20 percent of such outstanding class of stock and together have control over the management and policies of AB Corporation. AB Corporation furnishes the same services that were furnished by AB Partnership on June 30, 1974. AB Corporation will be deemed to have ordinarily and customarily furnished such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act. Example 3. On June 30, 1974, M Corporation was ordinarily and customarily furnishing certain services. On that date, X, Y and Z together owned 50 percent of all classes of the outstanding shares of M Corporation. On January 28, 1975, all of the shareholders of M Corporation exchanged their shares in M Corporation for shares of a new N Corporation. As a result of that exchange, X, Y and Z together own 50 percent of the common stock of N Corporation, the only class of N Corporation stock outstanding after the exchange. N Corporation furnishes the services formerly furnished by M Corporation. N Corporation will be deemed to have ordinarily and customarily furnished such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act. Example 4. I Corporation ordinarily and customarily furnished certain services on June 30, 1974. On November 3, 1975, I Corporation organizes a wholly owned subsidiary, S Corporation, which furnishes the same services ordinarily and customarily furnished by I Corporation on June 30, 1974. S Corporation will be deemed to have ordinarily and customarily furnished such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act. Example 5. X Corporation, wholly-owned and controlled by A, ordinarily and customarily furnished certain services on June 30, 1974. Y Corporation did not perform such services on that date. On January 2, 1976, X Corporation is merged into Y Corporation and although A received less than 50 percent of the total outstanding shares of Y Corporation, after such merger A has control over the management and policies of Y Corporation. Y Corporation furnishes the same services that were formerly furnished by X Corporation. Y Corporation will be deemed to have ordinarily and customarily furnished such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act. [T.D. 7491, 42 FR 32388, June 24, 1977] § 54.4976-1T Questions and answers relating to taxes with respect to welfare benefit funds (temporary). Q-1: What does section 4976 provide? A-1: Section 4976 imposes a tax on employers who provide disqualified benefits through a welfare benefit fund. The tax imposed is equal to 100 percent of the disqualified benefit. Q-2: What constitutes a disqualified benefit? A-2: A disqualified benefit is (a) any post-retirement medical or life insurance benefit provided with respect to a key employee (as defined in section 419A(d)(3)) through a welfare benefit fund if a separate account is required to be established for such employee under section 419A(d) and the cost for such coverage is not charged against or paid from such separate account; (b) any post-retirement medical or life insurance benefit provided through a welfare benefit fund with respect to an individual in whose favor discrimination is prohibited unless the plan of which the fund is a part meets the requirements of section 505(b) with respect to that benefit; and (c) any portion of the fund which reverts to the benefit of the employer. A post-retirement medical or life insurance benefit provided with respect to a key employee will not constitute a disqualified benefit even though such benefit is not provided through a separate account if the cost of such benefit is paid by the employer in the taxable year in which the benefit is provided and there is not (and there is not required to be) a separate account with an outstanding credit balance maintained for the key employee. Q-3: What is the effective date of section 4976? A-3: (a) Generally, section 4976 applies to disqualified benefits provided by a welfare benefit fund after December 31, 1985. However, a disqualified benefit, as defined in section 4976(b)(1) or (2), is not subject to section 4976(a) if it is provided from “existing reserves for post-retirement medical or life insurance benefits” that are within the transition rule set forth in section 512(a)(3)(E)(iii) and Q&A-4 of § 1.512(a)-5T (or would be if such transition rule applied to such welfare benefit fund). For example, if a welfare benefit fund in existence on July 18, 1984, provides an individual in whose favor discrimination is prohibited with a post-retirement life insurance benefit after December 31, 1985, that does not meet the requirements of section 505(b) and if the welfare benefit fund received no contributions after July 18, 1984, then the disqualified benefit provided by the fund is not subject to section 4976(a) (b) A welfare benefit fund will be able to avoid the application of section 4976(b)(1) and (2) if the employer withdraws from such fund, before April 7, 1986, any amounts that are not attributable to “existing reserves for post-retirement medical or life insurance benefits” because they were neither actually set aside nor treated as actually set aside under Q&A-4 of § 1.512(a)-5T, on July 18, 1984. The employer making such a withdrawal must include the amount in income for the first taxable year ending after July 18, 1984, or, to the extent that the withdrawn amount is attributable to the following taxable year, for such following taxable year. Such a withdrawal will not be treated as an impermissible distribution or reversion under section 501(c)(9), and will not be treated as a disqualified benefit under section 4976(b)(3). Of course, to the extent that the welfare benefit fund contains amounts that are attributable to “existing reserves” but are not within the transition rule set forth in Q&A-4 of § 1.512(a)-5T (as applied to welfare benefit funds), for example, because such amounts exceed the amounts that could have been accumulated under the principles set forth in Revenue Rulings 69-382, 1969-2 C.B. 28; 69-478, 1969-2 C.B. 29; and 73-599, 1973-2 C.B. 40, the fund will not be able to avoid the application of section 4976(b)(1) and (2) under this paragraph. (c) In the case of a plan which is maintained pursuant to one or more collective bargaining agreements (1) between employee representatives and one or more employers and (2) which are in effect on July 1, 1985 (or ratified on or before that date), the provision does not apply to disqualified benefits provided in years beginning before the termination of the last of the collective bargaining agreements pursuant to which the plan is maintained (determined without regard to any extension of the contract agreed to after July 1, 1985). For purposes of the preceding sentence, any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added under section 511 of the Tax Reform Act 1984 ( i.e. [T.D. 8073, 51 FR 4336, Feb. 4, 1986] § 54.4977-1T Questions and answers relating to the election concerning lines of business in existence on January 1, 1984 (temporary). The following questions and answers relate to the election by employers under section 4977 of the Internal Revenue Code of 1954, as added by section 531(e)(1) of the Tax Reform Act of 1984 (98 Stat. 886), to treat all employees of any line of business in existence on January 1, 1984, as employees of one of those lines of business for purposes of section 132(a) (1) and (2): Q-1: A-1: Q-2: A-2: (a) An election under section 4977 is in effect with respect to an employer for any calendar year, and (b) On and after January 1, 1984, at least 85 percent of the employees of the employer in all of its lines of business which existed on January 1, 1984, were entitled to employee discounts or services provided by the employer in one line of business, then all employees of any line of business of the employer which was in existence on January 1, 1984, are treated, for purposes of section 132(a) (1) and (2) (but not for purposes of section 132(g)(2)) as employees of the one line of business referred to in (b) of this Q/A-2. Q-3: A-3: (a) The employer's name, address, and taxpayer identification number; (b) A description of all of the employer's lines of business in existence on January 1, 1984; and (c) For each lines of business which is to have as an employee for purposes of section 132(a) (1) and (2) an individual but for the election under section 4977 would not be treated as an employee for purposes of section 132(a) (1) and (2): (1) A description of the no-additional-cost service or qualified employee discount (including, with respect to discounts, the percentage discount) to be offered to employees pursuant to section 4977 in such line of business, and (2) With respect to employees in all of the employer's lines of business in existence on January 1, 1984, the number of such employees and the number entitled to the described fringe benefit. Such numbers may be determined as of a date which does not precede the date the election is filed by more than 30 days. Q-4: A-4: Q-5: A-5: Q-6: A-6: Q-7: A-7: Q-8: A-8: [T.D. 8004, 50 FR 758, Jan. 7, 1985] § 54.4978-1T Questions and answers relating to the tax on certain dispositions by employee stock ownership plans and certain cooperatives (temporary). Q-1: What does section 4978 provide? A-1: Section 4978 imposes a tax (as determined under section 4978(b) and Q&A-2 of this section) on the amount realized on the disposition of any qualified securities, if: (a) An employee stock ownership plan or eligible worker-owned cooperative acquires any qualified securities in a sale to which section 1042 applies; (b) Such plan or cooperative disposes of any qualified securities during the 3-year period after the date on which any qualified securities were acquired in the sale to which section 1042 applies; and (c) Either (1) the percentage of the total outstanding shares of the class of employer securities of which the disposed qualified securities are a part held by such plan or cooperative after such disposition is less than the percentage of the total outstanding shares of such class of employer securities held immediately after the sale to which section 1042 applies, or (2) the value of the employer securities held by such plan or cooperative immediately after such disposition is less than 30 percent of the total value of all employer securities outstanding at that time. For purposes of this section, the following terms have the same meanings given to such terms by the identified provisions: “employee stock ownership plan” (section 4975(e)(7)); “qualified securities” (section 1042(b)(1)); “eligible worker-owned cooperative” (section 1042(b)(2)); “employer securities” (section 409(l)). For purposes of determining what constitutes a disposition to which section 4978 applies, see Q&A-3 of this section. Q-2: What is the amount of tax imposed under section 4978? A-2: Section 4978 imposes a tax of 10 percent of the amount realized on the disposition of qualified securities. The amount realized that is subject to tax under section 4978 shall not exceed that portion of the amount realized that is allocable to qualified securities acquired within the 3-year period prior to the date of disposition and to which section 1042 applied (“restricted qualified securities”). In determining the amount realized (except as otherwise provided in Q&A-3 of this section), any disposition of employer securities with respect to which the condition contained in provision (c) of Q&A-1 is met shall be treated, first, as a disposition of restricted qualified securities (on a first in, first out basis) and, thereafter, as a disposition of any other employer securities. Thus, for example, if a plan disposes of more employer securities than the number of restricted qualified securities held by the plan at that time and immediately after such disposition the value of the employer securities held by the plan is less than 30 percent of the total value of all outstanding employer securities, the portion of the total amount realized that is allocable to restricted qualified securities subject to tax under section 4978 is determined by multiplying the total amount realized on the disposition by a fraction, the numerator of which is the total value of restricted qualified securities included in the disposition and the denominator of which is the total value of employer securities in the disposition. Q-3: What constitutes a “disposition” under section 4978? A-3: (a) Under section 4978, the term “disposition” includes any sale, exchange, or distribution. However, in the case of any exchange of qualified securities for stock of another corporation in any reorganization described in section 368(a)(1), such exchange shall not be treated as a disposition for purposes of section 4978. (b) Section 4978 shall not apply to any disposition of qualified securities which is made by reason of: (1) The death of the employee; (2) The retirement of the employee after the employee has attained 59 1/2 (3) The disability of the employee (within the meaning of section 72(m)(5)); or (4) The separation of the employee from service for any period which results in a 1-year break in service (within the meaning of section 411(a)(6)(A)). Any disposition of employer securities within this paragraph and any disposition of employer securities with respect to which the condition contained in provision (c) of Q&A-1 of this section is not met shall be treated, first, as a disposition of securities that are not restricted qualified securities and, thereafter, as a disposition of restricted qualified securities (on a first-in, first-out basis). (c) If restricted qualified securities held by an employee stock ownership plan or eligible worker-owned cooperative no longer meet the definition of qualified securities (“old restricted qualified securities”) as a result of a transaction changing (1) the status of a corporation as an employer, or as a member of a controlled group of corporations including the employer, or (2) the existence of employer securities of the type described in section 409(l)(1), the disposition of such securities shall not be treated as a disposition of restricted qualified securities to which the tax under section 4978 is imposed if, within 90 days after such disposition, securities meeting the requirements of section 409(l) (“new restricted qualified securities”) that are of equal value to the old restricted qualfied securities (at the time of the disposition of the old restricted qualified securities) are substituted for such old restricted qualified securities. However, for purposes of determining the tax imposed under section 4978, old restricted qualified securities shall not be treated as if they retained their status as restricted qualified securities and new restricted qualified securities derived from the disposition of old restricted qualified securities pursuant to the preceding sentence shall be treated as restricted qualified securities for the remaining portion of the period during which the disposition of the old restricted qualified securities would have been subject to tax under section 4978. Q-4: To whom does the tax under section 4978 apply? A-4: The tax under section 4978 is imposed on the domestic corporation (or corporations) or the eligible worker-owned cooperative that made the written statement of consent as described in section 1042(a)(2)(B) and Q&A-2 of § 1.1042-1T with respect to the disposition of the restricted qualified securities. Q-5: When does section 4978, as enacted by the Tax Reform Act of 1984, become effective? A-5: Section 4978 applies to the disposition of qualified securities acquired in a sale to which section 1042 applies. See Q&A-6 of § 1.1042-1T for the effective date of section 1042. [T.D. 8073, 51 FR 4336, Feb. 4, 1986] § 54.4979-0 Excise tax on certain excess contributions and excess aggregate contributions; table of contents. This section contains the captions that appear in § 54.4979. § 54.4979-1 Excise tax on certain excess contributions and excess aggregate contributions. (a) In general. (1) General rule. (2) Liability for tax. (3) Due date and form for payment of tax. (4) Special rule for simplified employee pensions. (b) Definitions. (1) Excess aggregate contributions. (2) Excess contributions. (3) Plan. (c) No tax when excess distributed within 2 1/2 (1) General rule. (2) Tax treatment of distributions. (3) Income. (4) Example. (d) Effective date. (1) General rule. (2) Section 403(b) annuity contracts. (3) Collectively bargained plans and plans of state or local governments. (4) Plan years beginning before January 1, 1992. [T.D. 8357, 56 FR 40550, Aug. 15, 1991; 57 FR 10290, Mar. 25, 1992, as amended by T.D. 8581, 59 FR 66181, Dec. 23, 1994] § 54.4979-1 Excise tax on certain excess contributions and excess aggregate contributions. (a) In general General rule. (i) Any excess contributions under a plan for the plan year ending in the taxable year; and (ii) Any excess aggregate contributions under the plan for the plan year ending in the taxable year. (2) Liability for tax. (3) Due date and form for payment of tax (ii) An employer that owes the tax described in paragraph (a)(1) of this section must file the form prescribed by the Commissioner for the payment of the tax. (4) Special rule for simplified employee pensions 1/2 (ii) The employer's notification to each affected employee of the excess SEP contributions must specifically state, in a manner calculated to be understood by the average plan participant: the amount of the excess contributions attributable to that employee's elective deferrals; the calendar year for which the excess contributions were made; that the excess contributions are includible in the affected employee's gross income for the specified calendar year; and that failure to withdraw the excess contributions and income attributable thereto by the due date (plus extensions) for filing the affected employee's tax return for the preceding calendar year may result in significant penalties. (iii) If an employer does not notify its employees by the last day of the 12-month period following the year of excess SEP contributions, the SEP will no longer be considered to meet the requirements of section 408(k)(6). (b) Definitions. (1) Excess aggregate contributions. (2) Excess contributions. (3) Plan. (i) A plan described in section 401(a) that includes a trust exempt from tax under section 501(a); (ii) Any annuity plan described in section 403(a); (iii) Any annuity contract described in section 403(b); (iv) A simplified employee pension of an employer that satisfies the requirements of section 408(k); and (v) A plan described in section 501(c)(18). The term includes any plan that at any time has been determined by the Secretary to be one of the types of plans described in this paragraph (b)(3). (c) No tax when excess distributed within 2 1/2 General rule. 1/2 1/2 (2) Tax treatment of distributions. (3) Income. (4) Example. Example. (i) Employer X maintains Plan Y, a calendar year profit-sharing plan that includes a qualified cash or deferred arrangement. Under the plan, failure to satisfy the actual deferral percentage test may only be corrected by distributing the excess contributions or making qualified nonelective contributions (QNECs). (ii) On December 31, 1990, X determines that Y does not satisfy the actual deferral percentage test for the 1990 plan year, and that excess contributions for the year equal $5,000. On March 1, 1991, Y distributes $2,000 of these excess contributions. On May 30, 1991, X distributes another $2,000 of excess contributions. On December 17, 1991, X contributes QNECs for certain nonhighly compensated employees, thereby eliminating the remainder of the excess contributions for 1990. (iii) X has incurred a tax liability under section 4979 for 1990 equal to 10 percent of the excess contributions that were in the plan as of December 31, 1990. However, this tax is not imposed on the $2,000 distributed on March 1, 1991, or the amount corrected by QNECs. X must pay an excise tax of $200, 10 percent of the $2,000 of excess contributions distributed after March 15, 1991. This tax must be paid by March 31, 1992. (d) Effective date General rule. (2) Section 403(b) annuity contracts. (3) Collectively bargained plans and plans of state or local governments. governing body with authority to amend the plan (4) Plan years beginning before January 1, 1992. [T.D. 8357, 56 FR 40550, Aug. 15, 1991, as amended by T.D. 8581, 59 FR 66181, Dec. 23, 1994; T.D. 9169, 69 FR 78153, Dec. 29, 2004; T.D. 9447, 74 FR 8214, Feb. 24, 2009] § 54.4980B-0 Table of contents. This section contains first a list of the section headings and then a list of the questions in each section in §§ 54.4980B-1 through 54.4980B-10. List of Sections § 54.4980B-1 COBRA in general. § 54.4980B-2 Plans that must comply. § 54.4980B-3 Qualified beneficiaries. § 54.4980B-4 Qualifying events. § 54.4980B-5 COBRA continuation coverage. § 54.4980B-6 Electing COBRA continuation coverage. § 54.4980B-7 Duration of COBRA continuation coverage. § 54.4980B-8 Paying for COBRA continuation coverage. § 54.4980B-9 Business reorganizations and employer withdrawals from multiemployer plans. § 54.4980B-10 Interaction of FMLA and COBRA. List of Questions § 54.4980B-1 COBRA in general. Q-1: What are the health care continuation coverage requirements contained in section 4980B of the Internal Revenue Code and in ERISA? Q-2: What standard applies for topics not addressed in §§ 54.4980B-1 through 54.4980B-10? § 54.4980B-2 Plans that must comply. Q-1: For purposes of section 4980B, what is a group health plan? Q-2: For purposes of section 4980B, what is the employer? Q-3: What is a multiemployer plan? Q-4: What group health plans are subject to COBRA? Q-5: What is a small-employer plan? Q-6: How is the number of group health plans that an employer or employee organization maintains determined? Q-7: What is the plan year? Q-8: How do the COBRA continuation coverage requirements apply to cafeteria plans and other flexible benefit arrangements? Q-9: What is the effect of a group health plan's failure to comply with the requirements of section 4980B(f)? Q-10: Who is liable for the excise tax if a group health plan fails to comply with the requirements of section 4980B(f)? Q-11: If a person is liable for the excise tax under section 4980B, what form must the person file and what is the due date for the filing and payment of the excise tax? § 54.4980B-3 Qualified beneficiaries. Q-1: Who is a qualified beneficiary? Q-2: Who is an employee and who is a covered employee? Q-3: Who are the similarly situated nonCOBRA beneficiaries? § 54.4980B-4 Qualifying events. Q-1: What is a qualifying event? Q-2: Are the facts surrounding a termination of employment (such as whether it was voluntary or involuntary) relevant in determining whether the termination of employment is a qualifying event? § 54.4980B-5 COBRA continuation coverage. Q-1: What is COBRA continuation coverage? Q-2: What deductibles apply if COBRA continuation coverage is elected? Q-3: How do a plan's limits apply to COBRA continuation coverage? Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event? Q-5: Aside from open enrollment periods, can a qualified beneficiary who has elected COBRA continuation coverage choose to cover individuals (such as newborn children, adopted children, or new spouses) who join the qualified beneficiary's family on or after the date of the qualifying event? § 54.4980B-6 Electing COBRA continuation coverage. Q-1: What is the election period and how long must it last? Q-2: Is a covered employee or qualified beneficiary responsible for informing the plan administrator of the occurrence of a qualifying event? Q-3: During the election period and before the qualified beneficiary has made an election, must coverage be provided? Q-4: Is a waiver before the end of the election period effective to end a qualified beneficiary's election rights? Q-5: Can an employer or employee organization withhold money or other benefits owed to a qualified beneficiary until the qualified beneficiary either waives COBRA continuation coverage, elects and pays for such coverage, or allows the election period to expire? Q-6: Can each qualified beneficiary make an independent election under COBRA? § 54.4980B-7 Duration of COBRA continuation coverage. Q-1: How long must COBRA continuation coverage be made available to a qualified beneficiary? Q-2: When may a plan terminate a qualified beneficiary's COBRA continuation coverage due to coverage under another group health plan? Q-3: When may a plan terminate a qualified beneficiary's COBRA continuation coverage due to the qualified beneficiary's entitlement to Medicare benefits? Q-4: When does the maximum coverage period end? Q-5: How does a qualified beneficiary become entitled to a disability extension? Q-6: Under what circumstances can the maximum coverage period be expanded? Q-7: If health coverage is provided to a qualified beneficiary after a qualifying event without regard to COBRA continuation coverage (for example, as a result of state or local law, the Uniformed Services Employment and Reemployment Rights Act of 1994 (38 U.S.C. 4315), industry practice, a collective bargaining agreement, severance agreement, or plan procedure), will such alternative coverage extend the maximum coverage period? Q-8: Must a qualified beneficiary be given the right to enroll in a conversion health plan at the end of the maximum coverage period for COBRA continuation coverage? § 54.4980B-8 Paying for COBRA continuation coverage. Q-1: Can a group health plan require payment for COBRA continuation coverage? Q-2: When is the applicable premium determined and when can a group health plan increase the amount it requires to be paid for COBRA continuation coverage? Q-3: Must a plan allow payment for COBRA continuation coverage to be made in monthly installments? Q-4: Is a plan required to allow a qualified beneficiary to choose to have the first payment for COBRA continuation coverage applied prospectively only? Q-5: What is timely payment for COBRA continuation coverage? § 54.4980B-9 Business reorganizations and employer withdrawals from multiemployer plans. Q-1: For purposes of this section, what are a business reorganization, a stock sale, and an asset sale? Q-2: In the case of a stock sale, what are the selling group, the acquired organization, and the buying group? Q-3: In the case of an asset sale, what are the selling group and the buying group? Q-4: Who is an M&A qualified beneficiary? Q-5: In the case of a stock sale, is the sale a qualifying event with respect to a covered employee who is employed by the acquired organization before the sale and who continues to be employed by the acquired organization after the sale, or with respect to the spouse or dependent children of such a covered employee? Q-6: In the case of an asset sale, is the sale a qualifying event with respect to a covered employee whose employment immediately before the sale was associated with the purchased assets, or with respect to the spouse or dependent children of such a covered employee who are covered under a group health plan of the selling group immediately before the sale? Q-7: In a business reorganization, are the buying group and the selling group permitted to allocate by contract the responsibility to make COBRA continuation coverage available to M&A qualified beneficiaries? Q-8: Which group health plan has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries in a business reorganization? Q-9: Can the cessation of contributions by an employer to a multiemployer group health plan be a qualifying event? Q-10: If an employer stops contributing to a multiemployer group health plan, does the multiemployer plan have the obligation to make COBRA continuation coverage available to a qualified beneficiary who was receiving coverage under the multiemployer plan on the day before the cessation of contributions and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was with the employer that has stopped contributing to the multiemployer plan? § 54.4980B-10 Interaction of FMLA and COBRA. Q-1: In what circumstances does a qualifying event occur if an employee does not return from leave taken under FMLA? Q-2: If a qualifying event described in Q&A-1 of this section occurs, when does it occur, and how is the maximum coverage period measured? Q-3: If an employee fails to pay the employee portion of premiums for coverage under a group health plan during FMLA leave or declines coverage under a group health plan during FMLA leave, does this affect the determination of whether or when the employee has experienced a qualifying event? Q-4: Is the application of the rules in Q&A-1 through Q&A-3 of this section affected by a requirement of state or local law to provide a period of coverage longer than that required under FMLA? Q-5: May COBRA continuation coverage be conditioned upon reimbursement of the premiums paid by the employer for coverage under a group health plan during FMLA leave? [T.D. 8812, 64 FR 5173, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1848, Jan. 10, 2001; T.D. 9457, 74 FR 45997, Sept. 8, 2009] § 54.4980B-1 COBRA in general. The COBRA continuation coverage requirements are described in general in the following questions-and-answers: Q-1: What are the health care continuation coverage requirements contained in section 4980B of the Internal Revenue Code and in ERISA? A-1: (a) Section 4980B provides generally that a group health plan must offer each qualified beneficiary who would otherwise lose coverage under the plan as a result of a qualifying event an opportunity to elect, within the election period, continuation coverage under the plan. The continuation coverage requirements were added to section 162 by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Public Law 99-272 (100 Stat. 222), and moved to section 4980B by the Technical and Miscellaneous Revenue Act of 1988, Public Law 100-647 (102 Stat. 3342). Continuation coverage required under section 4980B is referred to in §§ 54.4980B-1 through 54.4980B-10 as COBRA continuation coverage. (b) COBRA also added parallel continuation coverage requirements to Part 6 of Subtitle B of title I of the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. 1161-1168), which is administered by the U.S. Department of Labor. If a plan does not comply with the COBRA continuation coverage requirements, the Internal Revenue Code imposes an excise tax on the employer maintaining the plan (or on the plan itself), whereas ERISA gives certain parties—including qualified beneficiaries who are participants or beneficiaries within the meaning of title I of ERISA, as well as the Department of Labor—the right to file a lawsuit to redress the noncompliance. The rules in §§ 54.4980B-1 through 54.4980B-10 apply for purposes of section 4980B and generally also for purposes of the COBRA continuation coverage requirements in title I of ERISA. However, certain provisions of the COBRA continuation coverage requirements (such as the definitions of group health plan, employee, and employer) are not identical in the Internal Revenue Code and title I of ERISA. In those cases in which the statutory language is not identical, the rules in §§ 54.4980B-1 through 54.4980B-10 nonetheless apply to the COBRA continuation coverage requirements of title I of ERISA, except to the extent those rules are inconsistent with the statutory language of title I of ERISA. (c) A group health plan that is subject to section 4980B (or the parallel provisions under ERISA) is referred to as being subject to COBRA. (See Q&A-4 of § 54.4980B-2). A qualified beneficiary can be required to pay for COBRA continuation coverage. The term qualified beneficiary qualifying event Q-2: What standard applies for topics not addressed in §§ 54.4980B-1 through 54.4980B-10? A-2: For purposes of section 4980B, for topics relating to the COBRA continuation coverage requirements of section 4980B that are not addressed in §§ 54.4980B-1 through 54.4980B-10 (such as methods for calculating the applicable premium), plans and employers must operate in good faith compliance with a reasonable interpretation of the statutory requirements in section 4980B. [T.D. 8812, 64 FR 5173, Feb. 3, 1999; 64 FR 14382, Mar. 25, 1999, as amended by T.D. 8928, 66 FR 1849, Jan. 10, 2001] § 54.4980B-2 Plans that must comply. The following questions-and-answers apply in determining which plans must comply with the COBRA continuation coverage requirements: Q-1: For purposes of section 4980B, what is a group health plan? A-1: (a) For purposes of section 4980B, a group health plan is a plan maintained by an employer or employee organization to provide health care to individuals who have an employment-related connection to the employer or employee organization or to their families. Individuals who have an employment-related connection to the employer or employee organization consist of employees, former employees, the employer, and others associated or formerly associated with the employer or employee organization in a business relationship (including members of a union who are not currently employees). Health care is provided under a plan whether provided directly or through insurance, reimbursement, or otherwise, and whether or not provided through an on-site facility (except as set forth in paragraph (d) of this Q&A-1), or through a cafeteria plan (as defined in section 125) or other flexible benefit arrangement. (See paragraphs (b) through (e) in Q&A-8 of this section for rules regarding the application of the COBRA continuation coverage requirements to certain health flexible spending arrangements.) For purposes of this Q&A-1, insurance includes not only group insurance policies but also one or more individual insurance policies in any arrangement that involves the provision of health care to two or more employees. A plan maintained by an employer or employee organization is any plan of, or contributed to (directly or indirectly) by, an employer or employee organization. Thus, a group health plan is maintained by an employer or employee organization even if the employer or employee organization does not contribute to it if coverage under the plan would not be available at the same cost to an individual but for the individual's employment-related connection to the employer or employee organization. These rules are further explained in paragraphs (b) through (d) of this Q&A-1. An exception for qualified long-term care services is set forth in paragraph (e) of this Q&A-1, and for medical savings accounts in paragraph (f) of this Q&A-1. See Q&A-6 of this section for rules to determine the number of group health plans that an employer or employee organization maintains. (b) For purposes of §§ 54.4980B-1 through 54.4980B-10, health care medical care (c) Whether a benefit provided to employees constitutes health care is not affected by whether the benefit is excludable from income under section 132 (relating to certain fringe benefits). For example, if a department store provides its employees discounted prices on all merchandise, including health care items such as drugs or eyeglasses, the mere fact that the discounted prices also apply to health care items will not cause the program to be a plan providing health care, so long as the discount program would normally be accessible to and used by employees without regard to health needs or physical condition. If, however, the employer maintaining the discount program is a health clinic, so that the program is used exclusively by employees with health or medical needs, the program is considered to be a plan providing health care and so is considered to be a group health plan. (d) The provision of health care at a facility that is located on the premises of an employer or employee organization does not constitute a group health plan if— (1) The health care consists primarily of first aid that is provided during the employer's working hours for treatment of a health condition, illness, or injury that occurs during those working hours; (2) The health care is available only to current employees; and (3) Employees are not charged for the use of the facility. (e) A plan does not constitute a group health plan subject to COBRA if substantially all of the coverage provided under the plan is for qualified long-term care services (as defined in section 7702B(c)). For this purpose, a plan is permitted to use any reasonable method in determining whether substantially all of the coverage provided under the plan is for qualified long-term care services. (f) Under section 106(b)(5), amounts contributed by an employer to a medical savings account (as defined in section 220(d)) are not considered part of a group health plan subject to COBRA. Thus, a plan is not required to make COBRA continuation coverage available with respect to amounts contributed by an employer to a medical savings account. A high deductible health plan does not fail to be a group health plan subject to COBRA merely because it covers a medical savings account holder. Q-2: For purposes of section 4980B, what is the employer? A-2: (a) For purposes of section 4980B, employer refers to— (1) A person for whom services are performed; (2) Any other person that is a member of a group described in section 414(b), (c), (m), or (o) that includes a person described in paragraph (a)(1) of this Q&A-2; and (3) Any successor of a person described in paragraph (a)(1) or (2) of this Q&A-2. (b) An employer is a successor employer if it results from a consolidation, merger, or similar restructuring of the employer or if it is a mere continuation of the employer. See paragraph (c) in Q&A-8 of § 54.4980B-9 for rules describing the circumstances in which a purchaser of substantial assets is a successor employer to the employer selling the assets. Q-3: What is a multiemployer plan? A-3: For purposes of §§ 54.4980B-1 through 54.4980B-10, a multiemployer plan is a plan to which more than one employer is required to contribute, that is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and that satisfies such other requirements as the Secretary of Labor may prescribe by regulation. Whenever reference is made in §§ 54.4980B-1 through 54.4980B-10 to a plan of or maintained by an employer or employee organization, the reference includes a multiemployer plan. Q-4: What group health plans are subject to COBRA? A-4: (a) All group health plans are subject to COBRA except group health plans described in paragraph (b) of this Q&A-4. Group health plans described in paragraph (b) of this Q&A-4 are referred to in §§ 54.4980B-1 through 54.4980B-10 as excepted from COBRA. (b) The following group health plans are excepted from COBRA— (1) Small-employer plans (see Q&A-5 of this section); (2) Church plans (within the meaning of section 414(e)); and (3) Governmental plans (within the meaning of section 414(d)). (c) The COBRA continuation coverage requirements generally do not apply to group health plans that are excepted from COBRA. However, a small-employer plan otherwise excepted from COBRA is nonetheless subject to COBRA with respect to qualified beneficiaries who experience a qualifying event during a period when the plan is not a small-employer plan (see paragraph (g) of Q&A-5 of this section). (d) Although governmental plans are not subject to the COBRA continuation coverage requirements, group health plans maintained by state or local governments are generally subject to parallel continuation coverage requirements that were added by section 10003 of COBRA to the Public Health Service Act (42 U.S.C. 300bb-1 through 300bb-8), which is administered by the U.S. Department of Health and Human Services. Federal employees and their family members covered under the Federal Employees Health Benefit Program are covered by generally similar, but not parallel, temporary continuation of coverage provisions enacted by the Federal Employees Health Benefits Amendments Act of 1988. See 5 U.S.C. 8905a. Q-5: What is a small-employer plan? A-5: (a) Except in the case of a multiemployer plan, a small-employer plan small-employer plan Example. (i) Corporation S S S P. P S P S S. (ii) Under § 1.414(b)-1 of this chapter, foreign corporations are not excluded from membership in a controlled group of corporations. Consequently, the group health plan maintained by S S (b) An employer is considered to have normally employed fewer than 20 employees during a particular calendar year if, and only if, it had fewer than 20 employees on at least 50 percent of its typical business days during that year. (c) All full-time and part-time common law employees of an employer are taken into account in determining whether an employer had fewer than 20 employees; however, an individual who is not a common law employee of the employer is not taken into account. Thus, the following individuals are not counted as employees for purposes of this Q&A-5 even though they are referred to as employees for all other purposes of §§ 54.4980B-1 through 54.4980B-10— (1) Self-employed individuals (within the meaning of section 401(c)(1)); (2) Independent contractors (and their employees and independent contractors); and (3) Directors (in the case of a corporation). (d) In determining the number of the employees of an employer, each full-time employee is counted as one employee and each part-time employee is counted as a fraction of an employee, determined in accordance with paragraph (e) of this Q&A-5. (e) An employer may determine the number of its employees on a daily basis or a pay period basis. The basis used by the employer must be used with respect to all employees of the employer and must be used for the entire year for which the number of employees is being determined. If an employer determines the number of its employees on a daily basis, it must determine the actual number of full-time employees on each typical business day and the actual number of part-time employees and the hours worked by each of those part-time employees on each typical business day. Each full-time employee counts as one employee on each typical business day and each part-time employee counts as a fraction, with the numerator of the fraction equal to the number of hours worked by that employee and the denominator equal to the number of hours that must be worked on a typical business day in order to be considered a full-time employee. If an employer determines the number of its employees on a pay period basis, it must determine the actual number of full-time employees employed during that pay period and the actual number of part-time employees employed and the hours worked by each of those part-time employees during the pay period. For each day of that pay period, each full-time employee counts as one employee and each part-time employee counts as a fraction, with the numerator of the fraction equal to the number of hours worked by that employee during that pay period and the denominator equal to the number of hours that must be worked during that pay period in order to be considered a full-time employee. The determination of the number of hours required to be considered a full-time employee is based upon the employer's employment practices, except that in no event may the hours required to be considered a full-time employee exceed eight hours for any day or 40 hours for any week. (f) In the case of a multiemployer plan, the determination of whether the plan is a small-employer plan on any particular date depends on which employers are contributing to the plan on that date and on the workforce of those employers during the preceding calendar year. If a plan that is otherwise subject to COBRA ceases to be a small-employer plan because of the addition during a calendar year of an employer that did not normally employ fewer than 20 employees on a typical business day during the preceding calendar year, the plan ceases to be excepted from COBRA immediately upon the addition of the new employer. In contrast, if the plan ceases to be a small-employer plan by reason of an increase during a calendar year in the workforce of an employer contributing to the plan, the plan ceases to be excepted from COBRA on the January 1 immediately following the calendar year in which the employer's workforce increased. (g) A small-employer plan is generally excepted from COBRA. If, however, a plan that has been subject to COBRA (that is, was not a small-employer plan) becomes a small-employer plan, the plan remains subject to COBRA for qualifying events that occurred during the period when the plan was subject to COBRA. The rules of this paragraph (g) are illustrated by the following examples: Example 1. An employer maintains a group health plan. The employer employed 20 employees on more than 50 percent of its working days during 2001, and consequently the plan is not excepted from COBRA during 2002. Employee E E E. E E E E Example 2. The facts are the same as in Example 1. S S S X S S S Example 3. The facts are the same as in Example 2. C C C C C Q-6: How is the number of group health plans that an employer or employee organization maintains determined? A-6: (a) The rules of this Q&A-6 apply in determining the number of group health plans that an employer or employee organization maintains. All references elsewhere in §§ 54.4980B-1 through 54.4980B-10 to a group health plan are references to a group health plan as determined under Q&A-1 of this section and this Q&A-6. Except as provided in paragraph (b) or (c) of this Q&A-6, all health care benefits, other than benefits for qualified long-term care services (as defined in section 7702B(c)), provided by a corporation, partnership, or other entity or trade or business, or by an employee organization, constitute one group health plan, unless— (1) It is clear from the instruments governing an arrangement or arrangements to provide health care benefits that the benefits are being provided under separate plans; and (2) The arrangement or arrangements are operated pursuant to such instruments as separate plans. (b) A multiemployer plan and a nonmultiemployer plan are always separate plans. (c) If a principal purpose of establishing separate plans is to evade any requirement of law, then the separate plans will be considered a single plan to the extent necessary to prevent the evasion. (d) The significance of treating an arrangement as two or more separate group health plans is illustrated by the following examples: Example 1. (i) Employer X maintains a single group health plan, which provides major medical and prescription drug benefits. Employer Y maintains two group health plans; one provides major medical benefits and the other provides prescription drug benefits. (ii) X Example 2. If a joint board of trustees administers one multiemployer plan, that plan will fail to qualify for the small-employer plan exception if any one of the employers whose employees are covered under the plan normally employed 20 or more employees during the preceding calendar year. However, if the joint board of trustees maintains two or more multiemployer plans, then the exception would be available with respect to each of those plans in which each of the employers whose employees are covered under the plan normally employed fewer than 20 employees during the preceding calendar year. Q-7: What is the plan year? A-7: (a) The plan year (b) If the plan documents do not designate a plan year (or if there are no plan documents), then the plan year is determined in accordance with this paragraph (b). (1) The plan year is the deductible/limit year used under the plan. (2) If the plan does not impose deductibles or limits on an annual basis, then the plan year is the policy year. (3) If the plan does not impose deductibles or limits on an annual basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer's taxable year. (4) In any other case, the plan year is the calendar year. Q-8: How do the COBRA continuation coverage requirements apply to cafeteria plans and other flexible benefit arrangements? A-8: (a)(1) The provision of health care benefits does not fail to be a group health plan merely because those benefits are offered under a cafeteria plan (as defined in section 125) or under any other arrangement under which an employee is offered a choice between health care benefits and other taxable or nontaxable benefits. However, the COBRA continuation coverage requirements apply only to the type and level of coverage under the cafeteria plan or other flexible benefit arrangement that a qualified beneficiary is actually receiving on the day before the qualifying event. See paragraphs (b) through (e) of this Q&A-8 for rules limiting the obligations of certain health flexible spending arrangements. (2) The rules of this paragraph (a) are illustrated by the following example: Example: (i) Under the terms of a cafeteria plan, employees can choose among life insurance coverage, membership in a health maintenance organization (HMO), coverage for medical expenses under an indemnity arrangement, and cash compensation. Of these available choices, the HMO and the indemnity arrangement are the arrangements providing health care. The instruments governing the HMO and indemnity arrangements indicate that they are separate group health plans. These group health plans are subject to COBRA. The employer does not provide any group health plan outside of the cafeteria plan. B C B C (ii) B B. C C C C C (b) If a health flexible spending arrangement (health FSA), within the meaning of section 106(c)(2), satisfies the two conditions in paragraph (c) of this Q&A-8 for a plan year, the obligation of the health FSA to make COBRA continuation coverage available to a qualified beneficiary who experiences a qualifying event in that plan year is limited in accordance with paragraphs (d) and (e) of this Q&A-8, as illustrated by an example in paragraph (f) of this Q&A-8. To the extent that a health FSA is obligated to make COBRA continuation coverage available to a qualified beneficiary, the health FSA must comply with all the applicable rules of §§ 54.4980B-1 through 54.4980B-10, including the rules of Q&A-3 in § 54.4980B-5 (relating to limits). (c) The conditions of this paragraph (c) are satisfied if— (1) Benefits provided under the health FSA are excepted benefits within the meaning of sections 9831 and 9832; and (2) The maximum amount that the health FSA can require to be paid for a year of COBRA continuation coverage under Q&A-1 of § 54.4980B-8 equals or exceeds the maximum benefit available under the health FSA for the year. (d) If the conditions in paragraph (c) of this Q&A-8 are satisfied for a plan year, then the health FSA is not obligated to make COBRA continuation coverage available for any subsequent plan year to any qualified beneficiary who experiences a qualifying event during that plan year. (e) If the conditions in paragraph (c) of this Q&A-8 are satisfied for a plan year, the health FSA is not obligated to make COBRA continuation coverage available for that plan year to any qualified beneficiary who experiences a qualifying event during that plan year unless, as of the date of the qualifying event, the qualified beneficiary can become entitled to receive during the remainder of the plan year a benefit that exceeds the maximum amount that the health FSA is permitted to require to be paid for COBRA continuation coverage for the remainder of the plan year. In determining the amount of the benefit that a qualified beneficiary can become entitled to receive during the remainder of the plan year, the health FSA may deduct from the maximum benefit available to that qualified beneficiary for the year (based on the election made under the health FSA for that qualified beneficiary before the date of the qualifying event) any reimbursable claims submitted to the health FSA for that plan year before the date of the qualifying event. (f) The rules of paragraphs (b), (c), (d), and (e) of this Q&A-8 are illustrated by the following example: Example. (i) An employer maintains a group health plan providing major medical benefits and a group health plan that is a health FSA, and the plan year for each plan is the calendar year. Both the plan providing major medical benefits and the health FSA are subject to COBRA. Under the health FSA, during an open season before the beginning of each calendar year, employees can elect to reduce their compensation during the upcoming year by up to $1200 per year and have that same amount contributed to a health flexible spending account. The employer contributes an additional amount to the account equal to the employee's salary reduction election for the year. Thus, the maximum amount available to an employee under the health FSA for a year is two times the amount of the employee's salary reduction election for the year. This amount may be paid to the employee during the year as reimbursement for health expenses not covered by the employer's major medical plan (such as deductibles, copayments, prescription drugs, or eyeglasses). The employer determined, in accordance with section 4980B(f)(4), that a reasonable estimate of the cost of providing coverage for similarly situated nonCOBRA beneficiaries for 2002 under this health FSA is equal to two times their salary reduction election for 2002 and, thus, that two times the salary reduction election is the applicable premium for 2002. (ii) Because the employer provides major medical benefits under another group health plan, and because the maximum benefit that any employee can receive under the health FSA is not greater than two times the employee's salary reduction election for the plan year, benefits under this health FSA are excepted benefits within the meaning of sections 9831 and 9832. Thus, the first condition of paragraph (c) of this Q&A-8 is satisfied for the year. The maximum amount that a plan can require to be paid for coverage (outside of coverage required to be made available due to a disability extension) under Q&A-1 of § 54.4980B-8 is 102 percent of the applicable premium. Thus, the maximum amount that the health FSA can require to be paid for coverage for the 2002 plan year is 2.04 times the employee's salary reduction election for the plan year. Because the maximum benefit available under the health FSA is 2.0 times the employee's salary reduction election for the year, the maximum benefit available under the health FSA for the year is less than the maximum amount that the health FSA can require to be paid for coverage for the year. Thus, the second condition in paragraph (c) of this Q&A-8 is also satisfied for the 2002 plan year. Because both conditions in paragraph (c) of this Q&A-8 are satisfied for 2002, with respect to any qualifying event occurring in 2002, the health FSA is not obligated to make COBRA continuation coverage available for any year after 2002. (iii) Whether the health FSA is obligated to make COBRA continuation coverage available in 2002 to a qualified beneficiary with respect to a qualifying event that occurs in 2002 depends upon the maximum benefit that would be available to the qualified beneficiary under COBRA continuation coverage for that plan year. Case 1: B B B B B B B 1/12 B B B B (iv) Case 2: Case 1 B B B B Q-9: What is the effect of a group health plan's failure to comply with the requirements of section 4980B(f)? A-9: Under section 4980B(a), if a group health plan subject to COBRA fails to comply with section 4980B(f), an excise tax is imposed. Moreover, non-tax remedies may be available if the plan fails to comply with the parallel requirements in ERISA, which are administered by the Department of Labor. Q-10: Who is liable for the excise tax if a group health plan fails to comply with the requirements of section 4980B(f)? A-10: (a) In general, the excise tax is imposed on the employer maintaining the plan, except that in the case of a multiemployer plan (see Q&A-3 of this section for a definition of multiemployer plan) the excise tax is imposed on the plan. (b) In certain circumstances, the excise tax is also imposed on a person involved with the provision of benefits under the plan (other than in the capacity of an employee), such as an insurer providing benefits under the plan or a third party administrator administering claims under the plan. In general, such a person will be liable for the excise tax if the person assumes, under a legally enforceable written agreement, the responsibility for performing the act to which the failure to comply with the COBRA continuation coverage requirements relates. Such a person will be liable for the excise tax notwithstanding the absence of a written agreement assuming responsibility for complying with COBRA if the person provides coverage under the plan to a similarly situated nonCOBRA beneficiary (see Q&A-3 of § 54.4980B-3 for a definition of similarly situated nonCOBRA beneficiaries) and the employer or plan administrator submits a written request to the person to provide to a qualified beneficiary the same coverage that the person provides to the similarly situated nonCOBRA beneficiary. If the person providing coverage under the plan to a similarly situated nonCOBRA beneficiary is the plan administrator and the qualifying event is a divorce or legal separation or a dependent child's ceasing to be covered under the generally applicable requirements of the plan, the plan administrator will also be liable for the excise tax if the qualified beneficiary submits a written request for coverage. Q-11: If a person is liable for the excise tax under section 4980B, what form must the person file and what is the due date for the filing and payment of the excise tax? A-11: (a) In general. See (b) Due date for filing of return by employers or other persons responsible for benefits under a group health plan. See (c) Due date for filing of return by multiemployer plans. See (d) Effective/applicability date. [T.D. 8812, 64 FR 5174, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1849, Jan. 10, 2001; T.D. 9457, 74 FR 45997, Sept. 8, 2009] § 54.4980B-3 Qualified beneficiaries. The determination of who is a qualified beneficiary, an employee, or a covered employee, and of who are the similarly situated nonCOBRA beneficiaries is addressed in the following questions-and-answers: Q-1: Who is a qualified beneficiary? A-1: (a)(1) Except as set forth in paragraphs (c) through (f) of this Q&A-1, a qualified beneficiary is— (i) Any individual who, on the day before a qualifying event, is covered under a group health plan by virtue of being on that day either a covered employee, the spouse of a covered employee, or a dependent child of the covered employee; or (ii) Any child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage. (2) In the case of a qualifying event that is the bankruptcy of the employer, a covered employee who had retired on or before the date of substantial elimination of group health plan coverage is also a qualified beneficiary, as is any spouse, surviving spouse, or dependent child of such a covered employee if, on the day before the bankruptcy qualifying event, the spouse, surviving spouse, or dependent child is a beneficiary under the plan. (3) In general, an individual (other than a child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage) who is not covered under a plan on the day before the qualifying event cannot be a qualified beneficiary with respect to that qualifying event, and the reason for the individual's lack of actual coverage (such as the individual's having declined participation in the plan or failed to satisfy the plan's conditions for participation) is not relevant for this purpose. However, if the individual is denied or not offered coverage under a plan under circumstances in which the denial or failure to offer constitutes a violation of applicable law (such as the Americans with Disabilities Act, 42 U.S.C. 12101-12213, the special enrollment rules of section 9801, or the requirements of section 9802 prohibiting discrimination in eligibility to enroll in a group health plan based on health status), then, for purposes of §§ 54.4980B-1 through 54.4980B-10, the individual will be considered to have had the coverage that was wrongfully denied or not offered. (4) Paragraph (b) of this Q&A-1 describes how certain family members are not qualified beneficiaries even if they become covered under the plan; paragraphs (c), (d), and (e) of this Q&A-1 place limits on the general rules of this paragraph (a) concerning who is a qualified beneficiary; paragraph (f) of this Q&A-1 provides when an individual who has been a qualified beneficiary ceases to be a qualified beneficiary; paragraph (g) of this Q&A-1 defines placed for adoption (b) In contrast to a child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage, an individual who marries any qualified beneficiary on or after the date of the qualifying event and a newborn or adopted child (other than one born to or placed for adoption with a covered employee) are not qualified beneficiaries by virtue of the marriage, birth, or placement for adoption or by virtue of the individual's status as the spouse or the child's status as a dependent of the qualified beneficiary. These new family members do not themselves become qualified beneficiaries even if they become covered under the plan. (For situations in which a plan is required to make coverage available to new family members of a qualified beneficiary who is receiving COBRA continuation coverage, see Q&A-5 of § 54.4980B-5, paragraph (c) in Q&A-4 of § 54.4980B-5, and section 9801(f)(2).) (c) An individual is not a qualified beneficiary if, on the day before the qualifying event referred to in paragraph (a) of this Q&A-1, the individual is covered under the group health plan by reason of another individual's election of COBRA continuation coverage and is not already a qualified beneficiary by reason of a prior qualifying event. (d) A covered employee can be a qualified beneficiary only in connection with a qualifying event that is the termination, or reduction of hours, of the covered employee's employment, or that is the bankruptcy of the employer. (e) An individual is not a qualified beneficiary if the individual's status as a covered employee is attributable to a period in which the individual was a nonresident alien who received from the individual's employer no earned income (within the meaning of section 911(d)(2)) that constituted income from sources within the United States (within the meaning of section 861(a)(3)). If, pursuant to the preceding sentence, an individual is not a qualified beneficiary, then a spouse or dependent child of the individual is not considered a qualified beneficiary by virtue of the relationship to the individual. (f) A qualified beneficiary who does not elect COBRA continuation coverage in connection with a qualifying event ceases to be a qualified beneficiary at the end of the election period (see Q&A-1 of § 54.4980B-6). Thus, for example, if such a former qualified beneficiary is later added to a covered employee's coverage (e.g., during an open enrollment period) and then another qualifying event occurs with respect to the covered employee, the former qualified beneficiary does not become a qualified beneficiary by reason of the second qualifying event. If a covered employee who is a qualified beneficiary does not elect COBRA continuation coverage during the election period, then any child born to or placed for adoption with the covered employee on or after the date of the qualifying event is not a qualified beneficiary. Once a plan's obligation to make COBRA continuation coverage available to an individual who has been a qualified beneficiary ceases under the rules of § 54.4980B-7, the individual ceases to be a qualified beneficiary. (g) For purposes of §§ 54.4980B-1 through 54.4980B-10, placement for adoption being placed for adoption (h) The rules of this Q&A-1 are illustrated by the following examples: Example 1. (i) B B B (ii) B B B Example 2. (i) C C C C C C C (ii) The addition of the spouse during the open enrollment period does not make the spouse a qualified beneficiary. The plan thus will not have to offer the spouse an opportunity to elect COBRA continuation coverage upon a later divorce from or death of C. Example 3. (i) Under the terms of a group health plan, a covered employee's child, upon attaining age 19, ceases to be a dependent eligible for coverage. (ii) At that time, the child must be offered an opportunity to elect COBRA continuation coverage. If the child elects COBRA continuation coverage, the child marries during the period of the COBRA continuation coverage, and the child's spouse becomes covered under the group health plan, the child's spouse is not a qualified beneficiary. Example 4. (i) D D D E E (ii) If a divorce from or death of D E E E D D Example 5. (i) The facts are the same as in Example 4, E E (ii) E Q-2: Who is an employee and who is a covered employee? A-2: (a)(1) For purposes of §§ 54.4980B-1 through 54.4980B-10 (except for purposes of Q&A-5 in § 54.4980B-2, relating to the exception from COBRA for plans maintained by an employer with fewer than 20 employees), an employee (i) Self-employed individuals (within the meaning of section 401(c)(1)); (ii) Independent contractors (and their employees and independent contractors); and (iii) Directors (in the case of a corporation). (2) Similarly, whenever reference is made in §§ 54.4980B-1 through 54.4980B-10 (except in Q&A-5 of § 54.4980B-2) to an employment relationship (such as by referring to the termination of employment of an employee or to an employee's being employed by an employer), the reference includes the relationship of those individuals who are employees within the meaning of this paragraph (a). See paragraph (c) in Q&A-5 of § 54.4980B-2 for a narrower meaning of employee solely for purposes of Q&A-5 of § 54.4980B-2. (b) For purposes of §§ 54.4980B-1 through 54.4980B-10, a covered employee Q-3: Who are the similarly situated nonCOBRA beneficiaries? A-3: For purposes of §§ 54.4980B-1 through 54.4980B-10, similarly situated nonCOBRA beneficiaries [T.D. 8812, 64 FR 5176, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1852, Jan. 10, 2001] § 54.4980B-4 Qualifying events. The determination of what constitutes a qualifying event is addressed in the following questions and answers: Q-1: What is a qualifying event? A-1: (a) A qualifying event (b) An event satisfies this paragraph (b) if the event is any of the following— (1) The death of a covered employee; (2) The termination (other than by reason of the employee's gross misconduct), or reduction of hours, of a covered employee's employment; (3) The divorce or legal separation of a covered employee from the employee's spouse; (4) A covered employee's becoming entitled to Medicare benefits under title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg); (5) A dependent child's ceasing to be a dependent child of a covered employee under the generally applicable requirements of the plan; or (6) A proceeding in bankruptcy under title 11 of the United States Code with respect to an employer from whose employment a covered employee retired at any time. (c) An event satisfies this paragraph (c) if, under the terms of the group health plan, the event causes the covered employee, or the spouse or a dependent child of the covered employee, to lose coverage under the plan. For this purpose, to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event. Any increase in the premium or contribution that must be paid by a covered employee (or the spouse or dependent child of a covered employee) for coverage under a group health plan that results from the occurrence of one of the events listed in paragraph (b) of this Q&A-1 is a loss of coverage. In the case of an event that is the bankruptcy of the employer, lose coverage also means any substantial elimination of coverage under the plan, occurring within 12 months before or after the date the bankruptcy proceeding commences, for a covered employee who had retired on or before the date of the substantial elimination of group health plan coverage or for any spouse, surviving spouse, or dependent child of such a covered employee if, on the day before the bankruptcy qualifying event, the spouse, surviving spouse, or dependent child is a beneficiary under the plan. For purposes of this paragraph (c), a loss of coverage need not occur immediately after the event, so long as the loss of coverage occurs before the end of the maximum coverage period (see Q&A-4 and Q&A-6 of § 54.4980B-7). However, if neither the covered employee nor the spouse or a dependent child of the covered employee loses coverage before the end of what would be the maximum coverage period, the event does not satisfy this paragraph (c). If coverage is reduced or eliminated in anticipation of an event (for example, an employer's eliminating an employee's coverage in anticipation of the termination of the employee's employment, or an employee's eliminating the coverage of the employee's spouse in anticipation of a divorce or legal separation), the reduction or elimination is disregarded in determining whether the event causes a loss of coverage. (d) An event satisfies this paragraph (d) if it occurs while the plan is subject to COBRA. Thus, an event will not satisfy this paragraph (d) if it occurs while the plan is excepted from COBRA (see Q&A-4 of § 54.4980B-2). Even if the plan later becomes subject to COBRA, it is not required to make COBRA continuation coverage available to anyone whose coverage ends as a result of an event during a year in which the plan is excepted from COBRA. For example, if a group health plan is excepted from COBRA as a small-employer plan during the year 2001 (see Q&A-5 of § 54.4980B-2) and an employee terminates employment on December 31, 2001, the termination is not a qualifying event and the plan is not required to permit the employee to elect COBRA continuation coverage. This is the case even if the plan ceases to be a small-employer plan as of January 1, 2002. Also, the same result will follow even if the employee is given three months of coverage beyond December 31 (that is, through March of 2002), because there will be no qualifying event as of the termination of coverage in March. However, if the employee's spouse is initially provided with the three-month coverage through March 2002, but the spouse divorces the employee before the end of the three months and loses coverage as a result of the divorce, the divorce will constitute a qualifying event during 2002 and so entitle the spouse to elect COBRA continuation coverage. See Q&A-7 of § 54.4980B-7 regarding the maximum coverage period in such a case. (e) A reduction of hours of a covered employee's employment occurs whenever there is a decrease in the hours that a covered employee is required to work or actually works, but only if the decrease is not accompanied by an immediate termination of employment. This is true regardless of whether the covered employee continues to perform services following the reduction of hours of employment. For example, an absence from work due to disability, a temporary layoff, or any other reason (other than due to leave that is FMLA leave; see § 54.4980B-10) is a reduction of hours of a covered employee's employment if there is not an immediate termination of employment. If a group health plan measures eligibility for the coverage of employees by the number of hours worked in a given time period, such as the preceding month or quarter, and an employee covered under the plan fails to work the minimum number of hours during that time period, the failure to work the minimum number of required hours is a reduction of hours of that covered employee's employment. (f) The qualifying event of a qualified beneficiary who is a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage is the qualifying event giving rise to the period of COBRA continuation coverage during which the child is born or placed for adoption. If a second qualifying event has occurred before the child is born or placed for adoption (such as the death of the covered employee), then the second qualifying event also applies to the newborn or adopted child. See Q&A-6 of § 54.4980B-7. (g) The rules of this Q&A-1 are illustrated by the following examples, in each of which the group health plan is subject to COBRA: Example 1. (i) An employee who is covered by a group health plan terminates employment (other than by reason of the employee's gross misconduct) and, beginning with the day after the last day of employment, is given 3 months of employer-paid coverage under the same terms and conditions as before that date. At the end of the three months, the coverage terminates. (ii) The loss of coverage at the end of the three months results from the termination of employment and, thus, the termination of employment is a qualifying event. Example 2. (i) An employee who is covered by a group health plan retires (which is a termination of employment other than by reason of the employee's gross misconduct) and, upon retirement, is required to pay an increased amount for the same group health coverage that the employee had before retirement. (ii) The increase in the premium or contribution required for coverage is a loss of coverage under paragraph (c) of this Q&A-1 and, thus, the retirement is a qualifying event. Example 3. (i) An employee and the employee's spouse are covered under an employer's group health plan. The employee retires and is given identical coverage for life. However, the plan provides that the spousal coverage will not be continued beyond six months unless a higher premium for the spouse is paid to the plan. (ii) The requirement for the spouse to pay a higher premium at the end of the six months is a loss of coverage under paragraph (c) of this Q&A-1. Thus, the retirement is a qualifying event and the spouse must be given an opportunity to elect COBRA continuation coverage. Example 4. (i) F G, F F G G G G G G (ii) G G Example 5. (i) An employer maintains a group health plan for both active employees and retired employees (and their families). The coverage for active employees and retired employees is identical, and the employer does not require retirees to pay more for coverage than active employees. The plan does not make COBRA continuation coverage available when an employee retires (and is not required to because the retired employee has not lost coverage under the plan). The employer amends the plan to eliminate coverage for retired employees effective January 1, 2002. On that date, several retired employees (and their spouses and dependent children) have been covered under the plan since their retirement for less than the maximum coverage period that would apply to them in connection with their retirement. (ii) The elimination of retiree coverage under these circumstances is a deferred loss of coverage for those retirees (and their spouses and dependent children) under paragraph (c) of this Q&A-1 and, thus, the retirement is a qualifying event. The plan must make COBRA continuation coverage available to them for the balance of the maximum coverage period that applies to them in connection with the retirement. Q-2: Are the facts surrounding a termination of employment (such as whether it was voluntary or involuntary) relevant in determining whether the termination of employment is a qualifying event? A-2: Apart from facts constituting gross misconduct, the facts surrounding the termination or reduction of hours are irrelevant in determining whether a qualifying event has occurred. Thus, it does not matter whether the employee voluntarily terminated or was discharged. For example, a strike or a lockout is a termination or reduction of hours that constitutes a qualifying event if the strike or lockout results in a loss of coverage as described in paragraph (c) of Q&A-1 of this section. Similarly, a layoff that results in such a loss of coverage is a qualifying event. [T.D. 8812, 64 FR 5178, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1852, Jan. 10, 2001] § 54.4980B-5 COBRA continuation coverage. The following questions-and-answers address the requirements for coverage to constitute COBRA continuation coverage: Q-1: What is COBRA continuation coverage? A-1: (a) If a qualifying event occurs, each qualified beneficiary (other than a qualified beneficiary for whom the qualifying event will not result in any immediate or deferred loss of coverage) must be offered an opportunity to elect to receive the group health plan coverage that is provided to similarly situated nonCOBRA beneficiaries (ordinarily, the same coverage that the qualified beneficiary had on the day before the qualifying event). See Q&A-3 of § 54.4980B-3 for the definition of similarly situated nonCOBRA beneficiaries. This coverage is COBRA continuation coverage. If coverage is modified for similarly situated nonCOBRA beneficiaries, then the coverage made available to qualified beneficiaries is modified in the same way. If the continuation coverage offered differs in any way from the coverage made available to similarly situated nonCOBRA beneficiaries, the coverage offered does not constitute COBRA continuation coverage and the group health plan is not in compliance with COBRA unless other coverage that does constitute COBRA continuation coverage is also offered. Any elimination or reduction of coverage in anticipation of an event described in paragraph (b) of Q&A-1 of § 54.4980B-4 is disregarded for purposes of this Q&A-1 and for purposes of any other reference in §§ 54.4980B-1 through 54.4980B-10 to coverage in effect immediately before (or on the day before) a qualifying event. COBRA continuation coverage must not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability. (b) In the case of a qualified beneficiary who is a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage, the child is generally entitled to elect immediately to have the same coverage that dependent children of active employees receive under the benefit packages under which the covered employee has coverage at the time of the birth or placement for adoption. Such a child would be entitled to elect coverage different from that elected by the covered employee during the next available open enrollment period under the plan. See Q&A-4 of this section. Q-2: What deductibles apply if COBRA continuation coverage is elected? A-2: (a) Qualified beneficiaries electing COBRA continuation coverage generally are subject to the same deductibles as similarly situated nonCOBRA beneficiaries. If a qualified beneficiary's COBRA continuation coverage begins before the end of a period prescribed for accumulating amounts toward deductibles, the qualified beneficiary must retain credit for expenses incurred toward those deductibles before the beginning of COBRA continuation coverage as though the qualifying event had not occurred. The specific application of this rule depends on the type of deductible, as set forth in paragraphs (b) through (d) of this Q&A-2. Special rules are set forth in paragraph (e) of this Q&A-2, and examples appear in paragraph (f) of this Q&A-2. (b) If a deductible is computed separately for each individual receiving coverage under the plan, each individual's remaining deductible amount (if any) on the date COBRA continuation coverage begins is equal to that individual's remaining deductible amount immediately before that date. (c) If a deductible is computed on a family basis, the remaining deductible for the family on the date that COBRA continuation coverage begins depends on the members of the family electing COBRA continuation coverage. In computing the family deductible that remains on the date COBRA continuation coverage begins, only the expenses of those family members receiving COBRA continuation coverage need be taken into account. If the qualifying event results in there being more than one family unit (for example, because of a divorce), the family deductible may be computed separately for each resulting family unit based on the members in each unit. These rules apply regardless of whether the plan provides that the family deductible is an alternative to individual deductibles or an additional requirement. (d) Deductibles that are not described in paragraph (b) or (c) of this Q&A-2 must be treated in a manner consistent with the principles set forth in those paragraphs. (e) If a deductible is computed on the basis of a covered employee's compensation instead of being a fixed dollar amount and the employee remains employed during the period of COBRA continuation coverage, the plan is permitted to choose whether to apply the deductible by treating the employee's compensation as continuing without change for the duration of the COBRA continuation coverage at the level that was used to compute the deductible in effect immediately before the COBRA continuation coverage began, or to apply the deductible by taking the employee's actual compensation into account. In applying a deductible that is computed on the basis of the covered employee's compensation instead of being a fixed dollar amount, for periods of COBRA continuation coverage in which the employee is not employed by the employer, the plan is required to compute the deductible by treating the employee's compensation as continuing without change for the duration of the COBRA continuation coverage either at the level that was used to compute the deductible in effect immediately before the COBRA continuation coverage began or at the level that was used to compute the deductible in effect immediately before the employee's employment was terminated. (f) The rules of this Q&A-2 are illustrated by the following examples; in each example, deductibles under the plan are determined on a calendar year basis: Example 1. (i) A group health plan applies a separate $100 annual deductible to each individual it covers. The plan provides that the spouse and dependent children of a covered employee will lose coverage on the last day of the month after the month of the covered employee's death. A covered employee dies on June 11, 2001. The spouse and the two dependent children elect COBRA continuation coverage, which will begin on August 1, 2001. As of July 31, 2001, the spouse has incurred $80 of covered expenses, the older child has incurred no covered expenses, and the younger one has incurred $120 of covered expenses (and therefore has already satisfied the deductible). (ii) At the beginning of COBRA continuation coverage on August 1, the spouse has a remaining deductible of $20, the older child still has the full $100 deductible, and the younger one has no further deductible. Example 2. (i) A group health plan applies a separate $200 annual deductible to each individual it covers, except that each family member is treated as having satisfied the individual deductible once the family has incurred $500 of covered expenses during the year. The plan provides that upon the divorce of a covered employee, coverage will end immediately for the employee's spouse and any children who do not remain in the employee's custody. A covered employee with four dependent children is divorced, the spouse obtains custody of the two oldest children, and the spouse and those children all elect COBRA continuation coverage to begin immediately. The family had accumulated $420 of covered expenses before the divorce, as follows: $70 by each parent, $200 by the oldest child, $80 by the youngest child, and none by the other two children. (ii) The resulting family consisting of the spouse and the two oldest children accumulated a total of $270 of covered expenses, and thus the remaining deductible for that family could be as high as $230 (because the plan would not have to count the incurred expenses of the covered employee and the youngest child). The remaining deductible for the resulting family consisting of the covered employee and the two youngest children is not subject to the rules of this Q&A-2 because their coverage is not COBRA continuation coverage. Example 3. Each year a group health plan pays 70 percent of the cost of an individual's psychotherapy after that individual's first three visits during the year. A qualified beneficiary whose election of COBRA continuation coverage takes effect beginning August 1, 2001 and who has already made two visits as of that date need only pay for one more visit before the plan must begin to pay 70 percent of the cost of the remaining visits during 2001. Example 4. (i) A group health plan has a $250 annual deductible per covered individual. The plan provides that if the deductible is not satisfied in a particular year, expenses incurred during October through December of that year are credited toward satisfaction of the deductible in the next year. A qualified beneficiary who has incurred covered expenses of $150 from January through September of 2001 and $40 during October elects COBRA continuation coverage beginning November 1, 2001. (ii) The remaining deductible amount for this qualified beneficiary is $60 at the beginning of the COBRA continuation coverage. If this individual incurs covered expenses of $50 in November and December of 2001 combined (so that the $250 deductible for 2001 is not satisfied), the $90 incurred from October through December of 2001 are credited toward satisfaction of the deductible amount for 2002. Q-3: How do a plan's limits apply to COBRA continuation coverage? A-3: (a) Limits are treated in the same way as deductibles (see Q&A-2 of this section). This rule applies both to limits on plan benefits (such as a maximum number of hospital days or dollar amount of reimbursable expenses) and limits on out-of-pocket expenses (such as a limit on copayments, a limit on deductibles plus copayments, or a catastrophic limit). This rule applies equally to annual and lifetime limits and applies equally to limits on specific benefits and limits on benefits in the aggregate under the plan. (b) The rule of this Q&A-3 is illustrated by the following examples; in each example limits are determined on a calendar year basis: Example 1. (i) A group health plan pays for a maximum of 150 days of hospital confinement per individual per year. A covered employee who has had 20 days of hospital confinement as of May 1, 2001 terminates employment and elects COBRA continuation coverage as of that date. (ii) During the remainder of the year 2001 the plan need only pay for a maximum of 130 days of hospital confinement for this individual. Example 2. (i) A group health plan reimburses a maximum of $20,000 of covered expenses per family per year, and the same $20,000 limit applies to unmarried covered employees. A covered employee and spouse who have no children divorce on May 1, 2001, and the spouse elects COBRA continuation coverage as of that date. In 2001, the employee had incurred $5,000 of expenses and the spouse had incurred $8,000 before May 1. (ii) The plan can limit its reimbursement of the amount of expenses incurred by the spouse on and after May 1 for the remainder of the year to $12,000 ($20,000−$8,000 = $12,000). The remaining limit for the employee is not subject to the rules of this Q&A-3 because the employee's coverage is not COBRA continuation coverage. Example 3. (i) A group health plan pays for 80 percent of covered expenses after satisfaction of a $100-per-individual deductible, and the plan pays for 100 percent of covered expenses after a family has incurred out-of-pocket costs of $2,000. The plan provides that upon the divorce of a covered employee, coverage will end immediately for the employee's spouse and any children who do not remain in the employee's custody. An employee and spouse with three dependent children divorce on June 1, 2001, and one of the children remains with the employee. The spouse elects COBRA continuation coverage as of that date for the spouse and the other two children. During January through May of 2001, the spouse incurred $600 of covered expenses and each of the two children in the spouse's custody after the divorce incurred covered expenses of $1,100. This resulted in total out-of-pocket costs for these three individuals of $800 ($300 total for the three deductibles, plus $500 for 20 percent of the other $2,500 in incurred expenses [$600 + $1,100 + $1,100 = $2,800; $2,800−$300 = $2,500]). (ii) For the remainder of 2001, the resulting family consisting of the spouse and two children has an out-of-pocket limit of $1,200 ($2,000−$800 = $1,200) . The remaining out-of-pocket limit for the resulting family consisting of the employee and one child is not subject to the rules of this Q&A-3 because their coverage is not COBRA continuation coverage. Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event? A-4: (a) In general, a qualified beneficiary need only be given an opportunity to continue the coverage that she or he was receiving immediately before the qualifying event. This is true regardless of whether the coverage received by the qualified beneficiary before the qualifying event ceases to be of value to the qualified beneficiary, such as in the case of a qualified beneficiary covered under a region-specific health maintenance organization (HMO) who leaves the HMO's service region. The only situations in which a qualified beneficiary must be allowed to change from the coverage received immediately before the qualifying event are as set forth in paragraphs (b) and (c) of this Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the coverage provided to similarly situated nonCOBRA beneficiaries). (b) If a qualified beneficiary participates in a region-specific benefit package (such as an HMO or an on-site clinic) that will not service her or his health needs in the area to which she or he is relocating (regardless of the reason for the relocation), the qualified beneficiary must be given, within a reasonable period after requesting other coverage, an opportunity to elect alternative coverage that the employer or employee organization makes available to active employees. If the employer or employee organization makes group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating, then that coverage is the alternative coverage that must be made available to the relocating qualified beneficiary. If the employer or employee organization does not make group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating but makes coverage available to other employees that can be extended in that area, then the coverage made available to those other employees must be made available to the relocating qualified beneficiary. The effective date of the alternative coverage must be not later than the date of the qualified beneficiary's relocation, or, if later, the first day of the month following the month in which the qualified beneficiary requests the alternative coverage. However, the employer or employee organization is not required to make any other coverage available to the relocating qualified beneficiary if the only coverage the employer or employee organization makes available to active employees is not available in the area to which the qualified beneficiary relocates (because all such coverage is region-specific and does not service individuals in that area). (c) If an employer or employee organization makes an open enrollment period available to similarly situated active employees with respect to whom a qualifying event has not occurred, the same open enrollment period rights must be made available to each qualified beneficiary receiving COBRA continuation coverage. An open enrollment period means a period during which an employee covered under a plan can choose to be covered under another group health plan or under another benefit package within the same plan, or to add or eliminate coverage of family members. (d) The rules of this Q&A-4 are illustrated by the following examples: Example 1. (i) E E E E (ii) Upon E E (iii) COBRA continuation coverage is elected for each of the four family members. Three months after E (iv) During the open enrollment period, each of the four qualified beneficiaries must be offered the opportunity to switch to another plan (as though each qualified beneficiary were an individual employee). For example, each member of E Example 2. (i) The facts are the same as in Example 1, E E E (ii) Although the family members do not have to be given an opportunity to elect COBRA continuation coverage, E E Q-5: Aside from open enrollment periods, can a qualified beneficiary who has elected COBRA continuation coverage choose to cover individuals (such as newborn children, adopted children, or new spouses) who join the qualified beneficiary's family on or after the date of the qualifying event? A-5: (a) Yes. Under section 9801, employees eligible to participate in a group health plan (whether or not participating), as well as former employees participating in a plan (referred to in those rules as participants), are entitled to special enrollment rights for certain family members upon the loss of other group health plan coverage or upon the acquisition by the employee or participant of a new spouse or of a new dependent through birth, adoption, or placement for adoption, if certain requirements are satisfied. Employees not participating in the plan also can obtain rights for self-enrollment under those rules. Once a qualified beneficiary is receiving COBRA continuation coverage (that is, has timely elected and made timely payment for COBRA continuation coverage), the qualified beneficiary has the same right to enroll family members under those special enrollment rules as if the qualified beneficiary were an employee or participant within the meaning of those rules. However, neither a qualified beneficiary who is not receiving COBRA continuation coverage nor a former qualified beneficiary has any special enrollment rights under those rules. (b) In addition to the special enrollment rights described in paragraph (a) of this Q&A-5, if the plan covering the qualified beneficiary provides that new family members of active employees can become covered (either automatically or upon an appropriate election) before the next open enrollment period, then the same right must be extended to the new family members of a qualified beneficiary. (c) If the addition of a new family member will result in a higher applicable premium (for example, if the qualified beneficiary was previously receiving COBRA continuation coverage as an individual, or if the applicable premium for family coverage depends on family size), the plan can require the payment of a correspondingly higher amount for the COBRA continuation coverage. See Q&A-1 of § 54.4980B-8. (d) The right to add new family members under this Q&A-5 is in addition to the rights that newborn and adopted children of covered employees may have as qualified beneficiaries; see Q&A-1 in § 54.4980B-3. [T.D. 8812, 64 FR 5180, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1852, Jan. 10, 2001] § 54.4980B-6 Electing COBRA continuation coverage. The following questions-and-answers address the manner in which COBRA continuation coverage is elected: Q-1: What is the election period and how long must it last? A-1: (a) A group health plan can condition the availability of COBRA continuation coverage upon the timely election of such coverage. An election of COBRA continuation coverage is a timely election if it is made during the election period. The election period must begin not later than the date the qualified beneficiary would lose coverage on account of the qualifying event. (See paragraph (c) of Q&A-1 of § 54.4980B-4 for the meaning of lose coverage. (1) The date the qualified beneficiary would lose coverage on account of the qualifying event; or (2) The date notice is provided to the qualified beneficiary of her or his right to elect COBRA continuation coverage. (b) An election is considered to be made on the date it is sent to the plan administrator. (c) The rules of this Q&A-1 are illustrated by the following example: Example. (i) An unmarried employee without children who is receiving employer-paid coverage under a group health plan voluntarily terminates employment on June 1, 2001. The employee is not disabled at the time of the termination of employment nor at any time thereafter, and the plan does not provide for the extension of the required periods (as is permitted under paragraph (b) of Q&A-4 of § 54.4980B-7). (ii) Case 1: (iii) Case 2: (iv) Case 3: Q-2: Is a covered employee or qualified beneficiary responsible for informing the plan administrator of the occurrence of a qualifying event? A-2: (a) In general, the employer or plan administrator must determine when a qualifying event has occurred. However, each covered employee or qualified beneficiary is responsible for notifying the plan administrator of the occurrence of a qualifying event that is either a dependent child's ceasing to be a dependent child under the generally applicable requirements of the plan or a divorce or legal separation of a covered employee. The group health plan is not required to offer the qualified beneficiary an opportunity to elect COBRA continuation coverage if the notice is not provided to the plan administrator within 60 days after the later of— (1) The date of the qualifying event; or (2) The date the qualified beneficiary would lose coverage on account of the qualifying event. (b) For purposes of this Q&A-2, if more than one qualified beneficiary would lose coverage on account of a divorce or legal separation of a covered employee, a timely notice of the divorce or legal separation that is provided by the covered employee or any one of those qualified beneficiaries will be sufficient to preserve the election rights of all of the qualified beneficiaries. Q-3: During the election period and before the qualified beneficiary has made an election, must coverage be provided? A-3: (a) In general, each qualified beneficiary has until 60 days after the later of the date the qualifying event would cause her or him to lose coverage or the date notice is provided to the qualified beneficiary of her or his right to elect COBRA continuation coverage to decide whether to elect COBRA continuation coverage. If the election is made during that period, coverage must be provided from the date that coverage would otherwise have been lost (but see Q&A-4 of this section). This can be accomplished as described in paragraph (b) or (c) of this Q&A-3. (b) In the case of an indemnity or reimbursement arrangement, the employer or employee organization can provide for plan coverage during the election period or, if the plan allows retroactive reinstatement, the employer or employee organization can terminate the coverage of the qualified beneficiary and reinstate her or him when the election (and, if applicable, payment for the coverage) is made. Claims incurred by a qualified beneficiary during the election period do not have to be paid before the election (and, if applicable, payment for the coverage) is made. If a provider of health care (such as a physician, hospital, or pharmacy) contacts the plan to confirm coverage of a qualified beneficiary during the election period, the plan must give a complete response to the health care provider about the qualified beneficiary's COBRA continuation coverage rights during the election period. For example, if the plan provides coverage during the election period but cancels coverage retroactively if COBRA continuation coverage is not elected, then the plan must inform a provider that a qualified beneficiary for whom coverage has not been elected is covered but that the coverage is subject to retroactive termination. Similarly, if the plan cancels coverage but then retroactively reinstates it once COBRA continuation coverage is elected, then the plan must inform the provider that the qualified beneficiary currently does not have coverage but will have coverage retroactively to the date coverage was lost if COBRA continuation coverage is elected. (See paragraph (c) of Q&A-5 in § 54.4980B-8 for similar rules that a plan must follow in confirming coverage during a period when the plan has not received payment but that is still within the grace period for a qualified beneficiary for whom COBRA continuation coverage has been elected.) (c)(1) In the case of a group health plan that provides health services (such as a health maintenance organization or a walk-in clinic), the plan can require with respect to a qualified beneficiary who has not elected and paid for COBRA continuation coverage that the qualified beneficiary choose between— (i) Electing and paying for the coverage; or (ii) Paying the reasonable and customary charge for the plan's services, but only if a qualified beneficiary who chooses to pay for the services will be reimbursed for that payment within 30 days after the election of COBRA continuation coverage (and, if applicable, the payment of any balance due for the coverage). (2) In the alternative, the plan can provide continued coverage and treat the qualified beneficiary's use of the facility as a constructive election. In such a case, the qualified beneficiary is obligated to pay any applicable charge for the coverage, but only if the qualified beneficiary is informed that use of the facility will be a constructive election before using the facility. Q-4: Is a waiver before the end of the election period effective to end a qualified beneficiary's election rights? A-4: If, during the election period, a qualified beneficiary waives COBRA continuation coverage, the waiver can be revoked at any time before the end of the election period. Revocation of the waiver is an election of COBRA continuation coverage. However, if a waiver of COBRA continuation coverage is later revoked, coverage need not be provided retroactively (that is, from the date of the loss of coverage until the waiver is revoked). Waivers and revocations of waivers are considered made on the date they are sent to the employer, employee organization, or plan administrator, as applicable. Q-5: Can an employer or employee organization withhold money or other benefits owed to a qualified beneficiary until the qualified beneficiary either waives COBRA continuation coverage, elects and pays for such coverage, or allows the election period to expire? A-5: No. An employer, and an employee organization, must not withhold anything to which a qualified beneficiary is otherwise entitled (by operation of law or other agreement) in order to compel payment for COBRA continuation coverage or to coerce the qualified beneficiary to give up rights to COBRA continuation coverage (including the right to use the full election period to decide whether to elect such coverage). Such a withholding constitutes a failure to comply with the COBRA continuation coverage requirements. Furthermore, any purported waiver obtained by means of such a withholding is invalid. Q-6: Can each qualified beneficiary make an independent election under COBRA? A-6: Yes. Each qualified beneficiary (including a child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage) must be offered the opportunity to make an independent election to receive COBRA continuation coverage. If the plan allows similarly situated active employees with respect to whom a qualifying event has not occurred to choose among several options during an open enrollment period (for example, to switch to another group health plan or to another benefit package under the same group health plan), then each qualified beneficiary must also be offered an independent election to choose during an open enrollment period among the options made available to similarly situated active employees with respect to whom a qualifying event has not occurred. If a qualified beneficiary who is either a covered employee or the spouse of a covered employee elects COBRA continuation coverage and the election does not specify whether the election is for self-only coverage, the election is deemed to include an election of COBRA continuation coverage on behalf of all other qualified beneficiaries with respect to that qualifying event. An election on behalf of a minor child can be made by the child's parent or legal guardian. An election on behalf of a qualified beneficiary who is incapacitated or dies can be made by the legal representative of the qualified beneficiary or the qualified beneficiary's estate, as determined under applicable state law, or by the spouse of the qualified beneficiary. (See also Q&A-5 of § 54.4980B-7 relating to the independent right of each qualified beneficiary with respect to the same qualifying event to receive COBRA continuation coverage during the disability extension.) The rules of this Q&A-6 are illustrated by the following examples; in each example each group health plan is subject to COBRA: Example 1. (i) Employee H H H (ii) Upon H H H H H H H H Example 2. (i) An employer maintains a group health plan under which all employees receive employer-paid coverage. Employees can arrange to cover their families by paying an additional amount. The employer also maintains a cafeteria plan, under which one of the options is to pay part or all of the employee share of the cost for family coverage under the group health plan. Thus, an employee might pay for family coverage under the group health plan partly with before-tax dollars and partly with after-tax dollars. (ii) If an employee's family is receiving coverage under the group health plan when a qualifying event occurs, each of the qualified beneficiaries must be offered an opportunity to elect COBRA continuation coverage, regardless of how that qualified beneficiary's coverage was paid for before the qualifying event. [T.D. 8812, 64 FR 5182, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1853, Jan. 10, 2001] § 54.4980B-7 Duration of COBRA continuation coverage. The following questions-and-answers address the duration of COBRA continuation coverage: Q-1: How long must COBRA continuation coverage be made available to a qualified beneficiary? A-1: (a) Except for an interruption of coverage in connection with a waiver, as described in Q&A-4 of § 54.4980B-6, COBRA continuation coverage that has been elected for a qualified beneficiary must extend for at least the period beginning on the date of the qualifying event and ending not before the earliest of the following dates— (1) The last day of the maximum coverage period (see Q&A-4 of this section); (2) The first day for which timely payment is not made to the plan with respect to the qualified beneficiary (see Q&A-5 in § 54.4980B-8); (3) The date upon which the employer or employee organization ceases to provide any group health plan (including successor plans) to any employee; (4) The date, after the date of the election, upon which the qualified beneficiary first becomes covered under any other group health plan, as described in Q&A-2 of this section; (5) The date, after the date of the election, upon which the qualified beneficiary first becomes entitled to Medicare benefits, as described in Q&A-3 of this section; and (6) In the case of a qualified beneficiary entitled to a disability extension (see Q&A-5 of this section), the later of— (i) Either 29 months after the date of the qualifying event, or the first day of the month that is more than 30 days after the date of a final determination under title II or XVI of the Social Security Act (42 U.S.C. 401-433 or 1381-1385) that the disabled qualified beneficiary whose disability resulted in the qualified beneficiary's being entitled to the disability extension is no longer disabled, whichever is earlier; or (ii) The end of the maximum coverage period that applies to the qualified beneficiary without regard to the disability extension. (b) However, a group health plan can terminate for cause the coverage of a qualified beneficiary receiving COBRA continuation coverage on the same basis that the plan terminates for cause the coverage of similarly situated nonCOBRA beneficiaries. For example, if a group health plan terminates the coverage of active employees for the submission of a fraudulent claim, then the coverage of a qualified beneficiary can also be terminated for the submission of a fraudulent claim. Notwithstanding the preceding two sentences, the coverage of a qualified beneficiary can be terminated for failure to make timely payment to the plan only if payment is not timely under the rules of Q&A-5 in § 54.4980B-8. (c) In the case of an individual who is not a qualified beneficiary and who is receiving coverage under a group health plan solely because of the individual's relationship to a qualified beneficiary, if the plan's obligation to make COBRA continuation coverage available to the qualified beneficiary ceases under this section, the plan is not obligated to make coverage available to the individual who is not a qualified beneficiary. Q-2: When may a plan terminate a qualified beneficiary's COBRA continuation coverage due to coverage under another group health plan? A-2: (a) If a qualified beneficiary first becomes covered under another group health plan (including for this purpose any group health plan of a governmental employer or employee organization) after the date on which COBRA continuation coverage is elected for the qualified beneficiary and the other coverage satisfies the requirements of paragraphs (b), (c), and (d) of this Q&A-2, then the plan may terminate the qualified beneficiary's COBRA continuation coverage upon the date on which the qualified beneficiary first becomes covered under the other group health plan (even if the other coverage is less valuable to the qualified beneficiary). By contrast, if a qualified beneficiary first becomes covered under another group health plan on or before the date on which COBRA continuation coverage is elected, then the other coverage cannot be a basis for terminating the qualified beneficiary's COBRA continuation coverage. (b) The requirement of this paragraph (b) is satisfied if the qualified beneficiary is actually covered, rather than merely eligible to be covered, under the other group health plan. (c) The requirement of this paragraph (c) is satisfied if the other group health plan is a plan that is not maintained by the employer or employee organization that maintains the plan under which COBRA continuation coverage must otherwise be made available. (d) The requirement of this paragraph (d) is satisfied if the other group health plan does not contain any exclusion or limitation with respect to any preexisting condition of the qualified beneficiary (other than such an exclusion or limitation that does not apply to, or is satisfied by, the qualified beneficiary by reason of the provisions in section 9801 (relating to limitations on preexisting condition exclusion periods in group health plans)). (e) The rules of this Q&A-2 are illustrated by the following examples: Example 1. (i) Employer X C C Y, C C C X C X (ii) Under these facts, X C C Y Example 2. (i) Employer W D D D W D W D V V D V D. (ii) Under these facts, W D D V Example 3. (i) The facts are the same as in Example 2, D V V D W (ii) Because the termination of employment is a qualifying event, D W W D D V D V D. Q-3: When may a plan terminate a qualified beneficiary's COBRA continuation coverage due to the qualified beneficiary's entitlement to Medicare benefits? A-3: (a) If a qualified beneficiary first becomes entitled to Medicare benefits under title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg) after the date on which COBRA continuation coverage is elected for the qualified beneficiary, then the plan may terminate the qualified beneficiary's COBRA continuation coverage upon the date on which the qualified beneficiary becomes so entitled. By contrast, if a qualified beneficiary first becomes entitled to Medicare benefits on or before the date that COBRA continuation coverage is elected, then the qualified beneficiary's entitlement to Medicare benefits cannot be a basis for terminating the qualified beneficiary's COBRA continuation coverage. (b) A qualified beneficiary becomes entitled to Medicare benefits upon the effective date of enrollment in either part A or B, whichever occurs earlier. Thus, merely being eligible to enroll in Medicare does not constitute being entitled to Medicare benefits. Q-4: When does the maximum coverage period end? A-4: (a) Except as otherwise provided in this Q&A-4, the maximum coverage period ends 36 months after the qualifying event. The maximum coverage period for a qualified beneficiary who is a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage is the maximum coverage period for the qualifying event giving rise to the period of COBRA continuation coverage during which the child was born or placed for adoption. Paragraph (b) of this Q&A-4 describes the starting point from which the end of the maximum coverage period is measured. The date that the maximum coverage period ends is described in paragraph (c) of this Q&A-4 in a case where the qualifying event is a termination of employment or reduction of hours of employment, in paragraph (d) of this Q&A-4 in a case where a covered employee becomes entitled to Medicare benefits under title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg) before experiencing a qualifying event that is a termination of employment or reduction of hours of employment, and in paragraph (e) of this Q&A-4 in the case of a qualifying event that is the bankruptcy of the employer. See Q&A-8 of § 54.4980B-2 for limitations that apply to certain health flexible spending arrangements. See also Q&A-6 of this section in the case of multiple qualifying events. Nothing in §§ 54.4980B-1 through 54.4980B-10 prohibits a group health plan from providing coverage that continues beyond the end of the maximum coverage period. (b)(1) The end of the maximum coverage period is measured from the date of the qualifying event even if the qualifying event does not result in a loss of coverage under the plan until a later date. If, however, coverage under the plan is lost at a later date and the plan provides for the extension of the required periods, then the maximum coverage period is measured from the date when coverage is lost. A plan provides for the extension of the required periods if it provides both— (i) That the 30-day notice period (during which the employer is required to notify the plan administrator of the occurrence of certain qualifying events such as the death of the covered employee or the termination of employment or reduction of hours of employment of the covered employee) begins on the date of the loss of coverage rather than on the date of the qualifying event; and (ii) That the end of the maximum coverage period is measured from the date of the loss of coverage rather than from the date of the qualifying event. (2) In the case of a plan that provides for the extension of the required periods, whenever the rules of §§ 54.4980B-1 through 54.4980B-10 refer to the measurement of a period from the date of the qualifying event, those rules apply in such a case by measuring the period instead from the date of the loss of coverage. (c) In the case of a qualifying event that is a termination of employment or reduction of hours of employment, the maximum coverage period ends 18 months after the qualifying event if there is no disability extension, and 29 months after the qualifying event if there is a disability extension. See Q&A-5 of this section for rules to determine if there is a disability extension. If there is a disability extension and the disabled qualified beneficiary is later determined to no longer be disabled, then a plan may terminate the COBRA continuation coverage of an affected qualified beneficiary before the end of the disability extension; see paragraph (a)(6) in Q&A-1 of this section. (d)(1) If a covered employee becomes entitled to Medicare benefits under title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg) before experiencing a qualifying event that is a termination of employment or reduction of hours of employment, the maximum coverage period for qualified beneficiaries other than the covered employee ends on the later of— (i) 36 months after the date the covered employee became entitled to Medicare benefits; or (ii) 18 months (or 29 months, if there is a disability extension) after the date of the covered employee's termination of employment or reduction of hours of employment. (2) See paragraph (b) of Q&A-3 of this section regarding the determination of when a covered employee becomes entitled to Medicare benefits. (e) In the case of a qualifying event that is the bankruptcy of the employer, the maximum coverage period for a qualified beneficiary who is the retired covered employee ends on the date of the retired covered employee's death. The maximum coverage period for a qualified beneficiary who is the spouse, surviving spouse, or dependent child of the retired covered employee ends on the earlier of— (1) The date of the qualified beneficiary's death; or (2) The date that is 36 months after the death of the retired covered employee. Q-5: How does a qualified beneficiary become entitled to a disability extension? A-5: (a) A qualified beneficiary becomes entitled to a disability extension if the requirements of paragraphs (b), (c), and (d) of this Q&A-5 are satisfied with respect to the qualified beneficiary. If the disability extension applies with respect to a qualifying event, it applies with respect to each qualified beneficiary entitled to COBRA continuation coverage because of that qualifying event. Thus, for example, the 29-month maximum coverage period applies to each qualified beneficiary who is not disabled as well as to the qualified beneficiary who is disabled, and it applies independently with respect to each of the qualified beneficiaries. See Q&A-1 in § 54.4980B-8, which permits a plan to require payment of an increased amount during the disability extension. (b) The requirement of this paragraph (b) is satisfied if a qualifying event occurs that is a termination, or reduction of hours, of a covered employee's employment. (c) The requirement of this paragraph (c) is satisfied if an individual (whether or not the covered employee) who is a qualified beneficiary in connection with the qualifying event described in paragraph (b) of this Q&A-5 is determined under title II or XVI of the Social Security Act (42 U.S.C. 401-433 or 1381-1385) to have been disabled at any time during the first 60 days of COBRA continuation coverage. For this purpose, the period of the first 60 days of COBRA continuation coverage is measured from the date of the qualifying event described in paragraph (b) of this Q&A-5 (except that if a loss of coverage would occur at a later date in the absence of an election for COBRA continuation coverage and if the plan provides for the extension of the required periods (as described in paragraph (b) of Q&A-4 of this section) then the period of the first 60 days of COBRA continuation coverage is measured from the date on which the coverage would be lost). However, in the case of a qualified beneficiary who is a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage, the period of the first 60 days of COBRA continuation coverage is measured from the date of birth or placement for adoption. For purposes of this paragraph (c), an individual is determined to be disabled within the first 60 days of COBRA continuation coverage if the individual has been determined under title II or XVI of the Social Security Act to have been disabled before the first day of COBRA continuation coverage and has not been determined to be no longer disabled at any time between the date of that disability determination and the first day of COBRA continuation coverage. (d) The requirement of this paragraph (d) is satisfied if any of the qualified beneficiaries affected by the qualifying event described in paragraph (b) of this Q&A-5 provides notice to the plan administrator of the disability determination on a date that is both within 60 days after the date the determination is issued and before the end of the original 18-month maximum coverage period that applies to the qualifying event. Q-6: Under what circumstances can the maximum coverage period be expanded? A-6: (a) The maximum coverage period can be expanded if the requirements of Q&A-5 of this section (relating to the disability extension) or paragraph (b) of this Q&A-6 are satisfied. (b) The requirements of this paragraph (b) are satisfied if a qualifying event that gives rise to an 18-month maximum coverage period (or a 29-month maximum coverage period in the case of a disability extension) is followed, within that 18-month period (or within that 29-month period, in the case of a disability extension), by a second qualifying event (for example, a death or a divorce) that gives rise to a 36-month maximum coverage period. (Thus, a termination of employment following a qualifying event that is a reduction of hours of employment cannot be a second qualifying event that expands the maximum coverage period; the bankruptcy of an employer also cannot be a second qualifying event that expands the maximum coverage period.) In such a case, the original 18-month period (or 29-month period, in the case of a disability extension) is expanded to 36 months, but only for those individuals who were qualified beneficiaries under the group health plan in connection with the first qualifying event and who are still qualified beneficiaries at the time of the second qualifying event. No qualifying event (other than a qualifying event that is the bankruptcy of the employer) can give rise to a maximum coverage period that ends more than 36 months after the date of the first qualifying event (or more than 36 months after the date of the loss of coverage, in the case of a plan that provides for the extension of the required periods; see paragraph (b) in Q&A-4 of this section). For example, if an employee covered by a group health plan that is subject to COBRA terminates employment (for reasons other than gross misconduct) on December 31, 2000, the termination is a qualifying event giving rise to a maximum coverage period that extends for 18 months to June 30, 2002. If the employee dies after the employee and the employee's spouse and dependent children have elected COBRA continuation coverage and on or before June 30, 2002, the spouse and dependent children (except anyone among them whose COBRA continuation coverage had already ended for some other reason) will be able to receive COBRA continuation coverage through December 31, 2003. See Q&A-8(b) of § 54.4980B-2 for a special rule that applies to certain health flexible spending arrangements. Q-7: If health coverage is provided to a qualified beneficiary after a qualifying event without regard to COBRA continuation coverage (for example, as a result of state or local law, the Uniformed Services Employment and Reemployment Rights Act of 1994 (38 U.S.C. 4315), industry practice, a collective bargaining agreement, severance agreement, or plan procedure), will such alternative coverage extend the maximum coverage period? A-7: (a) No. The end of the maximum coverage period is measured solely as described in Q&A-4 and Q&A-6 of this section, which is generally from the date of the qualifying event. (b) If the alternative coverage does not satisfy all the requirements for COBRA continuation coverage, or if the amount that the group health plan requires to be paid for the alternative coverage is greater than the amount required to be paid by similarly situated nonCOBRA beneficiaries for the coverage that the qualified beneficiary can elect to receive as COBRA continuation coverage, the plan covering the qualified beneficiary immediately before the qualifying event must offer the qualified beneficiary receiving the alternative coverage the opportunity to elect COBRA continuation coverage. See Q&A-1 of § 54.4980B-6. (c) If an individual rejects COBRA continuation coverage in favor of alternative coverage, then, at the expiration of the alternative coverage period, the individual need not be offered a COBRA election. However, if the individual receiving alternative coverage is a covered employee and the spouse or a dependent child of the individual would lose that alternative coverage as a result of a qualifying event (such as the death of the covered employee), the spouse or dependent child must be given an opportunity to elect to continue that alternative coverage, with a maximum coverage period of 36 months measured from the date of that qualifying event. Q-8: Must a qualified beneficiary be given the right to enroll in a conversion health plan at the end of the maximum coverage period for COBRA continuation coverage? A-8: If a qualified beneficiary's COBRA continuation coverage under a group health plan ends as a result of the expiration of the maximum coverage period, the group health plan must, during the 180-day period that ends on that expiration date, provide the qualified beneficiary the option of enrolling under a conversion health plan if such an option is otherwise generally available to similarly situated nonCOBRA beneficiaries under the group health plan. If such a conversion option is not otherwise generally available, it need not be made available to qualified beneficiaries. [T.D. 8812, 64 FR 5184, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1853, Jan. 10, 2001] § 54.4980B-8 Paying for COBRA continuation coverage. The following questions-and-answers address paying for COBRA continuation coverage: Q-1: Can a group health plan require payment for COBRA continuation coverage? A-1: (a) Yes. For any period of COBRA continuation coverage, a group health plan can require the payment of an amount that does not exceed 102 percent of the applicable premium for that period. (See paragraph (b) of this Q&A-1 for a rule permitting a plan to require payment of an increased amount due to the disability extension.) The applicable premium is defined in section 4980B(f)(4). A group health plan can terminate a qualified beneficiary's COBRA continuation coverage as of the first day of any period for which timely payment is not made to the plan with respect to that qualified beneficiary (see Q&A-1 of § 54.4980B-7). For the meaning of timely payment, (b) A group health plan is permitted to require the payment of an amount that does not exceed 150 percent of the applicable premium for any period of COBRA continuation coverage covering a disabled qualified beneficiary (for example, whether single or family coverage) if the coverage would not be required to be made available in the absence of a disability extension. (See Q&A-5 of § 54.4980B-7 for rules to determine whether a qualified beneficiary is entitled to a disability extension.) A plan is not permitted to require the payment of an amount that exceeds 102 percent of the applicable premium for any period of COBRA continuation coverage to which a qualified beneficiary is entitled without regard to the disability extension. Thus, if a qualified beneficiary entitled to a disability extension experiences a second qualifying event within the original 18-month maximum coverage period, then the plan is not permitted to require the payment of an amount that exceeds 102 percent of the applicable premium for any period of COBRA continuation coverage. By contrast, if a qualified beneficiary entitled to a disability extension experiences a second qualifying event after the end of the original 18-month maximum coverage period, then the plan may require the payment of an amount that is up to 150 percent of the applicable premium for the remainder of the period of COBRA continuation coverage (that is, from the beginning of the 19th month through the end of the 36th month) as long as the disabled qualified beneficiary is included in that coverage. The rules of this paragraph (b) are illustrated by the following examples; in each example the group health plan is subject to COBRA: Example 1. (i) An employer maintains a group health plan. The plan determines the cost of covering individuals under the plan by reference to two categories, individual coverage and family coverage, and the applicable premium is determined for those two categories. An employee and members of the employee's family are covered under the plan. The employee experiences a qualifying event that is the termination of the employee's employment. The employee's family qualifies for the disability extension because of the disability of the employee's spouse. (Timely notice of the disability is provided to the plan administrator.) Timely payment of the amount required by the plan for COBRA continuation coverage for the family (which does not exceed 102 percent of the cost of family coverage under the plan) was made to the plan with respect to the employee's family for the first 18 months of COBRA continuation coverage, and the disabled spouse and the rest of the family continue to receive COBRA continuation coverage through the 29th month. (ii) Under these facts, the plan may require payment of up to 150 percent of the applicable premium for family coverage in order for the family to receive COBRA continuation coverage from the 19th month through the 29th month. If the plan determined the cost of coverage by reference to three categories (such as employee, employee-plus-one-dependent, employee-plus-two-or-more-dependents) or more than three categories, instead of two categories, the plan could still require, from the 19th month through the 29th month of COBRA continuation coverage, the payment of 150 percent of the cost of coverage for the category of coverage that included the disabled spouse. Example 2. (i) The facts are the same as in Example 1, (ii) Even though the employee's disabled spouse does not elect or pay for COBRA continuation coverage, the employee satisfies the requirements for the disability extension to apply with respect to the employee's qualifying event. Under these facts, the plan may not require the payment of more than 102 percent of the applicable premium for individual coverage for the entire period of the employee's COBRA continuation coverage, including the period from the 19th month through the 29th month. If COBRA continuation coverage had been elected and paid for with respect to other nondisabled members of the employee's family, then the plan could not require the payment of more than 102 percent of the applicable premium for family coverage (or for any other appropriate category of coverage that might apply to that group of qualified beneficiaries under the plan, such as employee-plus-one-dependent or employee-plus-two-or-more-dependents) for those family members to continue their coverage from the 19th month through the 29th month. (c) A group health plan does not fail to comply with section 9802(b) (which generally prohibits an individual from being charged, on the basis of health status, a higher premium than that charged for similarly situated individuals enrolled in the plan) with respect to a qualified beneficiary entitled to the disability extension merely because the plan requires payment of an amount permitted under paragraph (b) of this Q&A-1. Q-2: When is the applicable premium determined and when can a group health plan increase the amount it requires to be paid for COBRA continuation coverage? A-2: (a) The applicable premium for each determination period must be computed and fixed by a group health plan before the determination period begins. A determination period is any 12-month period selected by the plan, but it must be applied consistently from year to year. The determination period is a single period for any benefit package. Thus, each qualified beneficiary does not have a separate determination period beginning on the date (or anniversaries of the date) that COBRA continuation coverage begins for that qualified beneficiary. (b) During a determination period, a plan can increase the amount it requires to be paid for a qualified beneficiary's COBRA continuation coverage only in the following three cases: (1) The plan has previously charged less than the maximum amount permitted under Q&A-1 of this section and the increased amount required to be paid does not exceed the maximum amount permitted under Q&A-1 of this section; (2) The increase occurs during the disability extension and the increased amount required to be paid does not exceed the maximum amount permitted under paragraph (b) of Q&A-1 of this section; or (3) A qualified beneficiary changes the coverage being received (see paragraph (c) of this Q&A-2 for rules on how the amount the plan requires to be paid may or must change when a qualified beneficiary changes the coverage being received). (c) If a plan allows similarly situated active employees who have not experienced a qualifying event to change the coverage they are receiving, then the plan must also allow each qualified beneficiary to change the coverage being received on the same terms as the similarly situated active employees. (See Q&A-4 in § 54.4980B-5.) If a qualified beneficiary changes coverage from one benefit package (or a group of benefit packages) to another benefit package (or another group of benefit packages), or adds or eliminates coverage for family members, then the following rules apply. If the change in coverage is to a benefit package, group of benefit packages, or coverage unit (such as family coverage, self-plus-one-dependent, or self-plus-two-or-more-dependents) for which the applicable premium is higher, then the plan may increase the amount that it requires to be paid for COBRA continuation coverage to an amount that does not exceed the amount permitted under Q&A-1 of this section as applied to the new coverage. If the change in coverage is to a benefit package, group of benefit packages, or coverage unit (such as individual or self-plus-one-dependent) for which the applicable premium is lower, then the plan cannot require the payment of an amount that exceeds the amount permitted under Q&A-1 of this section as applied to the new coverage. Q-3: Must a plan allow payment for COBRA continuation coverage to be made in monthly installments? A-3: Yes. A group health plan must allow payment for COBRA continuation coverage to be made in monthly installments. A group health plan is permitted to also allow the alternative of payment for COBRA continuation coverage being made at other intervals (for example, weekly, quarterly, or semiannually). Q-4: Is a plan required to allow a qualified beneficiary to choose to have the first payment for COBRA continuation coverage applied prospectively only? A-4: No. A plan is permitted to apply the first payment for COBRA continuation coverage to the period of coverage beginning immediately after the date on which coverage under the plan would have been lost on account of the qualifying event. Of course, if the group health plan allows a qualified beneficiary to waive COBRA continuation coverage for any period before electing to receive COBRA continuation coverage, the first payment is not applied to the period of the waiver. Q-5: What is timely payment for COBRA continuation coverage? A-5: (a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of this Q&A-5, timely payment for a period of COBRA continuation coverage under a group health plan means payment that is made to the plan by the date that is 30 days after the first day of that period. Payment that is made to the plan by a later date is also considered timely payment if either— (1) Under the terms of the plan, covered employees or qualified beneficiaries are allowed until that later date to pay for their coverage for the period; or (2) Under the terms of an arrangement between the employer or employee organization and an insurance company, health maintenance organization, or other entity that provides plan benefits on the employer's or employee organization's behalf, the employer or employee organization is allowed until that later date to pay for coverage of similarly situated nonCOBRA beneficiaries for the period. (b) Notwithstanding paragraph (a) of this Q&A-5, a plan cannot require payment for any period of COBRA continuation coverage for a qualified beneficiary earlier than 45 days after the date on which the election of COBRA continuation coverage is made for that qualified beneficiary. (c) If, after COBRA continuation coverage has been elected for a qualified beneficiary, a provider of health care (such as a physician, hospital, or pharmacy) contacts the plan to confirm coverage of a qualified beneficiary for a period for which the plan has not yet received payment, the plan must give a complete response to the health care provider about the qualified beneficiary's COBRA continuation coverage rights, if any, described in paragraphs (a), (b), and (d) of this Q&A-5. For example, if the plan provides coverage during the 30- and 45-day grace periods described in paragraphs (a) and (b) of this Q&A-5 but cancels coverage retroactively if payment is not made by the end of the applicable grace period, then the plan must inform a provider with respect to a qualified beneficiary for whom payment has not been received that the qualified beneficiary is covered but that the coverage is subject to retroactive termination if timely payment is not made. Similarly, if the plan cancels coverage if it has not received payment by the first day of a period of coverage but retroactively reinstates coverage if payment is made by the end of the grace period for that period of coverage, then the plan must inform the provider that the qualified beneficiary currently does not have coverage but will have coverage retroactively to the first date of the period if timely payment is made. (See paragraph (b) of Q&A-3 in § 54.4980B-6 for similar rules that the plan must follow in confirming coverage during the election period.) (d) If timely payment is made to the plan in an amount that is not significantly less than the amount the plan requires to be paid for a period of coverage, then the amount paid is deemed to satisfy the plan's requirement for the amount that must be paid, unless the plan notifies the qualified beneficiary of the amount of the deficiency and grants a reasonable period of time for payment of the deficiency to be made. For this purpose, as a safe harbor, 30 days after the date the notice is provided is deemed to be a reasonable period of time. An amount is not significantly less than the amount the plan requires to be paid for a period of coverage if and only if the shortfall is no greater than the lesser of the following two amounts: (1) Fifty dollars (or such other amount as the Commissioner may provide in a revenue ruling, notice, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter)); or (2) 10 percent of the amount the plan requires to be paid. (e) Payment is considered made on the date on which it is sent to the plan. [T.D. 8812, 64 FR 5186, Feb. 3, 1999, as amended by T.D. 8928, 66 FR 1854, Jan. 10, 2001] § 54.4980B-9 Business reorganizations and employer withdrawals from multiemployer plans. The following questions-and-answers address who has the obligation to make COBRA continuation coverage available to affected qualified beneficiaries in the context of business reorganizations and employer withdrawals from multiemployer plans: Q-1: For purposes of this section, what are a business reorganization, a stock sale, and an asset sale? A-1: For purposes of this section: (a) A business reorganization (b) A stock sale employer (c) An asset sale (d) The rules of § 1.414(b)-1 of this chapter apply in determining what constitutes a controlled group of corporations, and the rules of §§ 1.414(c)-1 through 1.414(c)-5 of this chapter apply in determining what constitutes a group of trades or businesses under common control. Q-2: In the case of a stock sale, what are the selling group, the acquired organization, and the buying group? A-2: In the case of a stock sale— (a) The selling group (b) The acquired organization (c) The buying group buying group Q-3: In the case of an asset sale, what are the selling group and the buying group? A-3: In the case of an asset sale— (a) The selling group (b) The buying group Q-4: Who is an M&A qualified beneficiary? A-4: (a) Asset sales: In the case of an asset sale, an individual is an M&A qualified beneficiary if the individual is a qualified beneficiary whose qualifying event occurred prior to or in connection with the sale and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was associated with the assets being sold. (b) Stock sales: In the case of a stock sale, an individual is an M&A qualified beneficiary if the individual is a qualified beneficiary whose qualifying event occurred prior to or in connection with the sale and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was with the acquired organization. (c) In the case of a qualified beneficiary who has experienced more than one qualifying event with respect to her or his current right to COBRA continuation coverage, the qualifying event referred to in paragraphs (a) and (b) of this Q&A-4 is the first qualifying event. Q-5: In the case of a stock sale, is the sale a qualifying event with respect to a covered employee who is employed by the acquired organization before the sale and who continues to be employed by the acquired organization after the sale, or with respect to the spouse or dependent children of such a covered employee? A-5: No. A covered employee who continues to be employed by the acquired organization after the sale does not experience a termination of employment as a result of the sale. Accordingly, the sale is not a qualifying event with respect to the covered employee, or with respect to the covered employee's spouse or dependent children, regardless of whether they are provided with group health coverage after the sale, and neither the covered employee, nor the covered employee's spouse or dependent children, become qualified beneficiaries as a result of the sale. Q-6: In the case of an asset sale, is the sale a qualifying event with respect to a covered employee whose employment immediately before the sale was associated with the purchased assets, or with respect to the spouse or dependent children of such a covered employee who are covered under a group health plan of the selling group immediately before the sale? A-6: (a) Yes, unless— (1) The buying group is a successor employer under paragraph (c) of Q&A-8 of this section or Q&A-2 of § 54.4980B-2, and the covered employee is employed by the buying group immediately after the sale; or (2) The covered employee (or the spouse or any dependent child of the covered employee) does not lose coverage (within the meaning of paragraph (c) in Q&A-1 of § 54.4980B-4) under a group health plan of the selling group after the sale. (b) Unless the conditions in paragraph (a)(1) or (2) of this Q&A-6 are satisfied, such a covered employee experiences a termination of employment with the selling group as a result of the asset sale, regardless of whether the covered employee is employed by the buying group or whether the covered employee's employment is associated with the purchased assets after the sale. Accordingly, the covered employee, and the spouse and dependent children of the covered employee who lose coverage under a plan of the selling group in connection with the sale, are M&A qualified beneficiaries in connection with the sale. Q-7: In a business reorganization, are the buying group and the selling group permitted to allocate by contract the responsibility to make COBRA continuation coverage available to M&A qualified beneficiaries? A-7: Yes. Nothing in this section prohibits a selling group and a buying group from allocating to one or the other of the parties in a purchase agreement the responsibility to provide the coverage required under §§ 54.4980B-1 through 54.4980B-10. However, if and to the extent that the party assigned this responsibility under the terms of the contract fails to perform, the party who has the obligation under Q&A-8 of this section to make COBRA continuation coverage available to M&A qualified beneficiaries continues to have that obligation. Q-8: Which group health plan has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries in a business reorganization? A-8: (a) In the case of a business reorganization (whether a stock sale or an asset sale), so long as the selling group maintains a group health plan after the sale, a group health plan maintained by the selling group has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries with respect to that sale. This Q&A-8 prescribes rules for cases in which the selling group ceases to provide any group health plan to any employee in connection with the sale. Paragraph (b) of this Q&A-8 contains these rules for stock sales, and paragraph (c) of this Q&A-8 contains these rules for asset sales. Neither a stock sale nor an asset sale has any effect on the COBRA continuation coverage requirements applicable to any group health plan for any period before the sale. (b)(1) In the case of a stock sale, if the selling group ceases to provide any group health plan to any employee in connection with the sale, a group health plan maintained by the buying group has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries with respect to that stock sale. A group health plan of the buying group has this obligation beginning on the later of the following two dates and continuing as long as the buying group continues to maintain a group health plan (but subject to the rules in § 54.4980B-7, relating to the duration of COBRA continuation coverage)— (i) The date the selling group ceases to provide any group health plan to any employee; or (ii) The date of the stock sale. (2) The determination of whether the selling group's cessation of providing any group health plan to any employee is in connection with the stock sale is based on all of the relevant facts and circumstances. A group health plan of the buying group does not, as a result of the stock sale, have an obligation to make COBRA continuation coverage available to those qualified beneficiaries of the selling group who are not M&A qualified beneficiaries with respect to that sale. (c)(1) In the case of an asset sale, if the selling group ceases to provide any group health plan to any employee in connection with the sale and if the buying group continues the business operations associated with the assets purchased from the selling group without interruption or substantial change, then the buying group is a successor employer to the selling group in connection with that asset sale. A buying group does not fail to be a successor employer in connection with an asset sale merely because the asset sale takes place in connection with a proceeding in bankruptcy under title 11 of the United States Code. If the buying group is a successor employer, a group health plan maintained by the buying group has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries with respect to that asset sale. A group health plan of the buying group has this obligation beginning on the later of the following two dates and continuing as long as the buying group continues to maintain a group health plan (but subject to the rules in § 54.4980B-7, relating to the duration of COBRA continuation coverage)— (i) The date the selling group ceases to provide any group health plan to any employee; or (ii) The date of the asset sale. (2) The determination of whether the selling group's cessation of providing any group health plan to any employee is in connection with the asset sale is based on all of the relevant facts and circumstances. A group health plan of the buying group does not, as a result of the asset sale, have an obligation to make COBRA continuation coverage available to those qualified beneficiaries of the selling group who are not M&A qualified beneficiaries with respect to that sale. (d) The rules of Q&A-1 through Q&A-7 of this section and this Q&A-8 are illustrated by the following examples; in each example, each group health plan is subject to COBRA: Stock Sale Examples Example 1. (i) Selling Group S A, B, C. P D E. P C S C, S A, B, C P D E C P S C. A B. (ii) Under these facts, S S C P. C P C. P Example 2. (i) Selling Group S A, B, C. A, B, C P D E. P C S C C P (ii) Under these facts, C C S A B S P C A B C C P C, P S C C S P. Example 3. (i) The facts are the same as in Example 2, C P (ii) Under these facts, the two employees experience a qualifying event on June 30, 2002 because their termination of employment causes a loss of group health coverage. A group health plan of S A B C C. Example 4. (i) Selling Group S A, B, C. P D E. P C S C, S A, B, C P D E C P S C. A B. A B A B. (ii) Under these facts, S C P. P P S A B S Asset Sale Examples Example 5. (i) Selling Group S S P. P S S P. (ii) These two qualified beneficiaries are M&A qualified beneficiaries with respect to the asset sale to P. S P P S S Example 6. (i) Selling Group S S P, S P S S, S P S P. (ii) These 10 qualified beneficiaries are M&A qualified beneficiaries with respect to the asset sale to P. P P (iii) The one employee that P P (iv) The employees who continue in employment in connection with the asset sale (and their family members) and who were covered under a group health plan of S P S P S Example 7. (i) Selling Group S S P1. P1 S (ii) Under these facts, a group health plan of S P1. P1 S S P1 (iii) Several months after the sale to P1, S P2, S S P2. P1 P2 (iv) Even if it was foreseeable that S P1, S P2 P1. S P1 P1 S. P2 P2 P2 S S P2 P2 P1 S. S P1. Example 8. (i) Selling Group S S P. P S S S P S S S (ii) Under these facts, the cessation by S P. P P S P S S S Q-9: Can the cessation of contributions by an employer to a multiemployer group health plan be a qualifying event? A-9: The cessation of contributions by an employer to a multiemployer group health plan is not itself a qualifying event, even though the cessation of contributions may cause current employees (and their spouses and dependent children) to lose coverage under the multiemployer plan. An event coinciding with the employer's cessation of contributions (such as a reduction of hours of employment in the case of striking employees) will constitute a qualifying event if it otherwise satisfies the requirements of Q&A-1 of § 54.4980B-4. Q-10: If an employer stops contributing to a multiemployer group health plan, does the multiemployer plan have the obligation to make COBRA continuation coverage available to a qualified beneficiary who was receiving coverage under the multiemployer plan on the day before the cessation of contributions and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was with the employer that has stopped contributing to the multiemployer plan? A-10: (a) In general, yes. (See Q&A-3 of § 54.4980B-2 for a definition of multiemployer plan. (b) The rules of Q&A-9 of this section and this Q&A-10 are illustrated by the following examples; in each example, each group health plan is subject to COBRA: Example 1. (i) Employer Z M. Z M. Z M Z M M. Z (ii) After Z M, M M M Z. M Z Example 2. (i) The facts are the same as in Example 1 B, M Z M, Z B B (ii) Under these facts, Z M B Z M M M Z. Example 3. (i) Employer Y M. Y M. Y M Y M M. Y M, Y (ii) Under these facts, because Y M M, Y M M Y, M Y Example 4. (i) Employer X M. X M. X X X M X M. X M X X (ii) Under these facts, M X M M X. M X Example 5. (i) Employer W M. W M. M N. (ii) Effective January 1, 2002, N M M M [T.D. 8928, 66 FR 1855, Jan. 10, 2001] § 54.4980B-10 Interaction of FMLA and COBRA. The following questions-and-answers address how the taking of leave under the Family and Medical Leave Act of 1993 (FMLA) (29 U.S.C. 2601-2619) affects the COBRA continuation coverage requirements: Q-1: In what circumstances does a qualifying event occur if an employee does not return from leave taken under FMLA? A-1: (a) The taking of leave under FMLA does not constitute a qualifying event. A qualifying event under Q&A-1 of § 54.4980B-4 occurs, however, if— (1) An employee (or the spouse or a dependent child of the employee) is covered on the day before the first day of FMLA leave (or becomes covered during the FMLA leave) under a group health plan of the employee's employer; (2) The employee does not return to employment with the employer at the end of the FMLA leave; and (3) The employee (or the spouse or a dependent child of the employee) would, in the absence of COBRA continuation coverage, lose coverage under the group health plan before the end of the maximum coverage period. (b) However, the satisfaction of the three conditions in paragraph (a) of this Q&A-1 does not constitute a qualifying event if the employer eliminates, on or before the last day of the employee's FMLA leave, coverage under a group health plan for the class of employees (while continuing to employ that class of employees) to which the employee would have belonged if the employee had not taken FMLA leave. Q-2: If a qualifying event described in Q&A-1 of this section occurs, when does it occur, and how is the maximum coverage period measured? A-2: A qualifying event described in Q&A-1 of this section occurs on the last day of FMLA leave. (The determination of when FMLA leave ends is not made under the rules of this section. See the FMLA regulations, 29 CFR Part 825 (§§ 825.100-825.800).) The maximum coverage period (see Q&A-4 of § 54.4980B-7) is measured from the date of the qualifying event (that is, the last day of FMLA leave). If, however, coverage under the group health plan is lost at a later date and the plan provides for the extension of the required periods (see paragraph (b) of Q&A-4 of § 54.4980B-7), then the maximum coverage period is measured from the date when coverage is lost. The rules of this Q&A-2 are illustrated by the following examples: Example 1. (i) Employee B X B B B X B B X (ii) B B X X Example 2. (i) Employee C C Y C C Y C C C Y C C Y (ii) C C C Y C C Y Q-3: If an employee fails to pay the employee portion of premiums for coverage under a group health plan during FMLA leave or declines coverage under a group health plan during FMLA leave, does this affect the determination of whether or when the employee has experienced a qualifying event? A-3: No. Any lapse of coverage under a group health plan during FMLA leave is irrelevant in determining whether a set of circumstances constitutes a qualifying event under Q&A-1 of this section or when such a qualifying event occurs under Q&A-2 of this section. Q-4: Is the application of the rules in Q&A-1 through Q&A-3 of this section affected by a requirement of state or local law to provide a period of coverage longer than that required under FMLA? A-4: No. Any state or local law that requires coverage under a group health plan to be maintained during a leave of absence for a period longer than that required under FMLA (for example, for 16 weeks of leave rather than for the 12 weeks required under FMLA) is disregarded for purposes of determining when a qualifying event occurs under Q&A-1 through Q&A-3 of this section. Q-5: May COBRA continuation coverage be conditioned upon reimbursement of the premiums paid by the employer for coverage under a group health plan during FMLA leave? A-5: No. The U.S. Department of Labor has published rules describing the circumstances in which an employer may recover premiums it pays to maintain coverage, including family coverage, under a group health plan during FMLA leave from an employee who fails to return from leave. See 29 CFR 825.213. Even if recovery of premiums is permitted under 29 CFR 825.213, the right to COBRA continuation coverage cannot be conditioned upon the employee's reimbursement of the employer for premiums the employer paid to maintain coverage under a group health plan during FMLA leave. [T.D. 8928, 66 FR 1855, Jan. 10, 2001] § 54.4980D-1 Requirement of return and time for filing of the excise tax under section 4980D. Q-1: If a person is liable for the excise tax under section 4980D, what form must the person file and what is the due date for the filing and payment of the excise tax? A-1: (a) In general. See (b) Due date for filing of return by employers. See (c) Due date for filing of return by multiemployer plans or multiple employer health plans. See (d) Effective/applicability date. [T.D. 9457, 74 FR 45997, Sept. 8, 2009] § 54.4980E-1 Requirement of return and time for filing of the excise tax under section 4980E. Q-1: If a person is liable for the excise tax under section 4980E, what form must the person file and what is the due date for the filing and payment of the excise tax? A-1: (a) In general. See (b) Effective/applicability date. [T.D. 9457, 74 FR 45997, Sept. 8, 2009] § 54.4980F-1 Notice requirements for certain pension plan amendments significantly reducing the rate of future benefit accrual. The following questions and answers concern the notification requirements imposed by 4980F of the Internal Revenue Code and section 204(h) of ERISA relating to a plan amendment of an applicable pension plan that significantly reduces the rate of future benefit accrual or that eliminates or significantly reduces an early retirement benefit or retirement-type subsidy. List of Questions Q-1. What are the notice requirements of section 4980F(e) of the Internal Revenue Code and section 204(h) of ERISA? Q-2. What are the differences between section 4980F and section 204(h)? Q-3. What is an “applicable pension plan” to which section 4980F and section 204(h) apply? Q-4. What is “section 204(h) notice” and what is a “section 204(h) amendment”? Q-5. For which amendments is section 204(h) notice required? Q-6. What is an amendment that reduces the rate of future benefit accrual or reduces an early retirement benefit or retirement-type subsidy for purposes of determining whether section 204(h) notice is required? Q-7. What plan provisions are taken into account in determining whether an amendment is a section 204(h) amendment? Q-8. What is the basic principle used in determining whether a reduction in the rate of future benefit accrual or a reduction in an early retirement benefit or retirement-type subsidy is significant for purposes of section 4980F and section 204(h)? Q-9. When must section 204(h) notice be provided? Q-10. To whom must section 204(h) notice be provided? Q-11. What information is required to be provided in a section 204(h) notice? Q-12. What special rules apply if participants can choose between the old and new benefit formulas? Q-13. How may section 204(h) notice be provided? Q-14. What are the consequences if a plan administrator fails to provide section 204(h) notice? Q-15. What are some of the rules that apply with respect to the excise tax under section 4980F? Q-16. How do section 4980F and section 204(h) apply when a business is sold? Q-17. How are amendments to cease accruals and terminate a plan treated under section 4980F and section 204(h)? Q-18. What are the effective dates of section 4980F, section 204(h), as amended by EGTRRA, and these regulations? Questions and Answers Q-1. What are the notice requirements of section 4980F(e) of the Internal Revenue Code and section 204(h) of ERISA? A-1. (a) Requirements of Internal Revenue Code section 4980F(e) and ERISA section 204(h). (b) Other notice requirements. Q-2. What are the differences between section 4980F and section 204(h)? A-2. The notice requirements of section 4980F generally are parallel to the notice requirements of section 204(h), as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001, Public Law 107-16 (115 Stat. 38) (2001) (EGTRRA). However, the consequences of the failure to satisfy the requirements of the two provisions differ: Section 4980F imposes an excise tax on a failure to satisfy the notice requirements, while section 204(h)(6), as amended by EGTRRA, contains a special rule with respect to an egregious failure to satisfy the notice requirements. See Q&A-14 and Q&A-15 of this section. Except to the extent specifically indicated, these regulations apply both to section 4980F and to section 204(h). Q-3. What is an “applicable pension plan” to which section 4980F and section 204(h) apply? A-3. (a) In general. applicable pension plan applicable pension plan (b) Section 204(h) notice not required for small plans covering no employees. Q-4. What is “section 204(h) notice” and what is a “section 204(h) amendment”? A-4. (a) Section 204(h) notice (b) A section 204(h) amendment Q-5. For which amendments is section 204(h) notice required? A-5. (a) Significant reduction in the rate of future benefit accrual. (b) Early retirement benefits and retirement-type subsidies. early retirement benefit retirement-type subsidy (c) Elimination or cessation of benefits. reduce reduction (d) Delegation of authority to Commissioner. see Q-6. What is an amendment that reduces the rate of future benefit accrual or reduces an early retirement benefit or retirement-type subsidy for purposes of determining whether section 204(h) notice is required? A-6. (a) In general. (b) Reduction in rate of future benefit accrual Defined benefit plans. (2) Individual account plans. (3) Determination of rate of future benefit accrual. (c) Reduction of early retirement benefits or retirement-type subsidies. Q-7. What plan provisions are taken into account in determining whether an amendment is a section 204(h) amendment? A-7. (a) Plan provisions taken into account In general. (2) Provisions incorporated by reference in plan. (b) Plan provisions not taken into account In general. (2) Interaction with section 411(d)(6). (c) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. (ii) Conclusion. Q-8. What is the basic principle used in determining whether a reduction in the rate of future benefit accrual or a reduction in an early retirement benefit or retirement-type subsidy is significant for purposes of section 4980F and section 204(h)? A-8. (a) General rule. (b) Application for determining significant reduction in the rate of future benefit accrual. (c) Application to certain amendments reducing early retirement benefits or retirement-type subsidies. de minimis (d) Plan amendments reflecting a change in statutorily mandated minimum present value rules. (e) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. Example 1, (ii) Conclusion. i.e. Example 3. (i) Facts. Example 2, (ii) Conclusion. Example 2. Example 2. Q-9. When must section 204(h) notice be provided? A-9. (a) 45-day general rule. (b) 15-day rule for small plans. (c) 15-day rule for multiemployer plans. (d) Special timing rule for business transactions 15-day rule for section 204(h) amendment in connection with an acquisition or disposition. (2) Later notice permitted for a section 204(h) amendment significantly reducing early retirement benefit or retirement-type subsidies in connection with certain plan transfers, mergers, or consolidations. (3) Definition of acquisition or disposition. (e) Timing rule for amendments permitting participant choice. (f) Special timing rule for certain plans maintained by commercial airlines. See (g) Special timing rules relating to certain section 204(h) amendments that reduce section 411(d)(6) protected benefits Plan amendments permitted to reduce prior accruals. See, (2) General timing rule for amendments to which this paragraph (g) applies. (3) Special rules for section 204(h) notices provided in connection with other disclosure requirements In general. (ii) Notice requirements. (A) A notice required under any revenue ruling, notice, or other guidance published under the authority of the Commissioner in the Internal Revenue Bulletin to affected parties in connection with a retroactive plan amendment described in section 412(d)(2) (section 412(c)(8) for plan years beginning before January 1, 2008); (B) A notice required under section 101(j) of ERISA if an amendment is adopted to comply with the benefit limitation requirements of section 206(g) of ERISA (section 436 of the Code); (C) A notice required under section 432(b)(3)(D) of the Code for an amendment adopted to comply with the benefit restrictions under section 432(f)(2); (D) A notice required under section 418D, or section 4244A(b) of ERISA, for an amendment that reduces or eliminates accrued benefits attributable to employer contributions with respect to a multiemployer plan in reorganization; (E) A notice required under section 418E, or section 4245(e) of ERISA, relating to the effects of the insolvency status for a multiemployer plan; and (F) A notice required under section 4281 of ERISA for an amendment of a multiemployer plan reducing benefits pursuant to section 4281(c) of ERISA. (4) Delegation of authority to Commissioner. see b (A) That applies to benefits accrued before the applicable amendment date but that does not violate section 411(d)(6); or (B) For which there is a required notice relating to a reduction in benefits and such notice has timing and content requirements similar to a section 204(h) notice with respect to a significant reduction in the rate of future benefit accruals. Q-10. To whom must section 204(h) notice be provided? A-10. (a) In general. (b) Applicable individual. (c) Alternate payee. (d) Designees. (e) Facts and circumstances test. (f) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. Example 1, (ii) Conclusion. Example 3. (i) Facts. (ii) Conclusion. Example 4. (i) Facts. Example 3, (ii) Conclusion. Example 5. (i) Facts. (ii) Conclusion. Example 6. (i) Facts. (ii) Conclusion. Example 7. (i) Facts. Example 6, (ii) Conclusion. Example 8. (i) Facts. (ii) Conclusion. Q-11. What information is required to be provided in a section 204(h) notice? A-11. (a) Explanation of notice requirements In general. See (2) Information in section 204(h) notice. (3) Required narrative description of amendment Reduction in rate of future benefit accrual. (ii) Reduction in early retirement benefit or retirement-type subsidy. (4) Sufficient information to determine the approximate magnitude of reduction General rule. (B) To the extent any expected reduction is not uniformly applicable to all participants, the notice must either identify the general classes of participants to whom the reduction is expected to apply, or by some other method include sufficient information to allow each applicable individual receiving the notice to determine which reductions are expected to apply to that individual. (ii) Illustrative examples Requirement generally. (B) Examples must bound the range of reductions. (C) Assumptions used in examples. (D) Individual statements. (5) No false or misleading information. (6) Additional information when reduction not uniform In general. (ii) Option for different section 204(h) notices. (b) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. (ii) Conclusion. Example 3. (i) Facts. (ii) Conclusion. Example 4. (i) Facts. (B) Plan D is amended, effective July 1, 2005, to change the formula for all future accruals to a cash balance formula under which the opening account balance for each participant on July 1, 2005, is zero, hypothetical pay credits equal to 5 percent of pay are credited to the account thereafter, and hypothetical interest is credited monthly based on the applicable interest rate under section 417(e)(3) of the Internal Revenue Code at the beginning of the quarter. Any participant who terminates employment with vested benefits can receive an actuarially equivalent annuity (based on the same reasonable actuarial assumptions that are specified in Plan D) commencing at any time after termination of employment and before the plan's normal retirement age of 65. The benefit resulting from the hypothetical account balance is in addition to the benefit accrued before July 1, 2005 (taking into account only service and highest 3-year pay before July 1, 2005), so that it is reasonably expected that no wear-away period will result from the amendment. The plan administrator expects that, as a general rule, depending on future pay increases and future interest rates, the rate of future benefit accrual after the conversion is higher for participants who accrue benefits before approximately age 50 and after approximately age 70, but is lower for participants who accrue benefits between approximately age 50 and age 70. (C) The plan administrator of Plan D announces the conversion to a cash balance formula on May 16, 2005. The announcement is delivered to all participants and includes a written notice that describes the old formula, the new formula, and the effective date. (D) In addition, the notice states that the Plan D formula before the conversion provided a normal retirement benefit equal to the product of a participant's number of years of service multiplied by 1.5 percent multiplied by the participant's average pay over the 3 years for which the average is the highest (highest 3-year pay). The notice includes an example showing the normal retirement benefit that will be accrued after June 30, 2005 for a participant who is age 49 with 10 years of service at the time of the conversion. The plan administrator reasonably believes that such a participant is representative of the participants whose rate of future benefit accrual will be reduced as a result of the amendment. The example estimates that, if the participant continues employment to age 65, the participant's normal retirement benefit for service from age 49 to age 65 will be $657 per month for life. The example assumes that the participant's pay is $50,000 at age 49. The example states that the estimated $657 monthly pension accrues over the 16-year period from age 49 to age 65 and that, based on assumed future pay increases, this amount annually would be 9.1 percent of the participant's highest 3-year pay at age 65, which over the 16 years from age 49 to age 65 averages 0.57 percent per year multiplied by the participant's highest 3-year pay. The example also states that the sum of the monthly annuity accrued before the conversion in the 10-year period from age 39 to age 49 plus the $657 monthly annuity estimated to be accrued over the 16-year period from age 49 to age 65 is $1,235 and that, based on assumed future increases in pay, this would be 17.1 percent of the participant's highest 3-year pay at age 65, which over the employee's career from age 39 to age 65 averages 0.66 percent per year multiplied by the participant's highest 3-year pay. The notice also includes two other examples with similar information, one of which is intended to show the circumstances in which a small reduction may occur and the other of which shows the largest reduction that the plan administrator thinks is likely to occur. The notice states that the estimates are based on the assumption that pay increases annually after June 30, 2005, at a 4 percent rate. The notice also specifies that the applicable interest rate under section 417(e) for hypothetical interest credits after June 30, 2005 is assumed to be 6 percent, which is the section 417(e) of the Internal Revenue Code applicable interest rate under the plan for 2005. (ii) Conclusion. Example 4, Example 4, i.e., Example 5. (i) Facts. Example 4, (ii) Conclusion. Example 4 Example 5, Example 5, i.e., Q-12. What special rules apply if participants can choose between the old and new benefit formulas? A-12. In any case in which an applicable individual can choose between the benefit formula (including any early retirement benefit or retirement-type subsidy) in effect before the section 204(h) amendment (old formula) or the benefit formula in effect after the section 204(h) amendment (new formula), section 204(h) notice has not been provided unless the applicable individual has been provided the information required under Q&A-11 of this section, and has also been provided sufficient information to enable the individual to make an informed choice between the old and new benefit formulas. The information required under Q&A-11 of this section must be provided by the date otherwise required under Q&A-9 of this section. The information sufficient to enable the individual to make an informed choice must be provided within a period that is reasonably contemporaneous with the date by which the individual is required to make his or her choice and that allows sufficient advance notice to enable the individual to understand and consider the additional information before making that choice. Q-13. How may section 204(h) notice be provided? A-13. (a) Delivering section 204(h) notice. (b) Example. Example. (i) Facts. (ii) Conclusion. (c) New technologies General rule. (i) Either the notice is actually received by the applicable individual or the plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the method for providing section 204(h) notice results in actual receipt of the notice by the applicable individual. (ii) The section 204(h) notice is delivered using an electronic medium (other than an oral communication or a recording of an oral communication) under an electronic system that satisfies the applicable notice requirements of § 1.401(a)-21. (iii) Special effective date. (2) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. (ii) Conclusion. Q-14. What are the consequences if a plan administrator fails to provide section 204(h) notice? A-14. (a) Egregious failures Effect of egregious failure to provide section 204(h) notice. see (2) Definition of egregious failure. (3) Example. The following example illustrates the provisions of this paragraph (a): Example. (i) Facts. (ii) Conclusion. (b) Effect of non-egregious failure to provide section 204(h) notice. (c) Excise taxes. Q-15. What are some of the rules that apply with respect to the excise tax under section 4980F? A-15. (a) Person responsible for excise tax. (b) Excise tax inapplicable in certain cases. (1) The person exercised reasonable diligence in attempting to deliver section 204(h) notice to applicable individuals by the latest date permitted under this section; and (2) At the latest date permitted for delivery of section 204(h) notice, the person reasonably believes that section 204(h) notice was actually delivered to each applicable individual by that date. (c) Example. Example. (i) Facts. (ii) Conclusion. Q-16. How do section 4980F and section 204(h) apply when a business is sold? A-16. (a) Generally. (b) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. (ii) Conclusion. Example 3. (i) Facts. (ii) Conclusion. Example 4. (i) Facts. Example 3, (ii) Conclusion. Example 5. (i) Facts. (ii) Conclusion. Q-17. How are amendments to cease accruals and terminate a plan treated under section 4980F and section 204(h)? A-17. (a) General rule Rule. (2) Example. Example. (i) Facts. (ii) Conclusion. (3) Additional requirements under title IV of ERISA. See (b) Terminations in accordance with title IV of ERISA. (c) Amendment effective before termination date of a plan subject to title IV of ERISA. Q-18. What are the effective dates of section 4980F, section 204(h), as amended by EGTRRA, and these regulations? A-18. (a) Statutory effective date General rule. (2) Transition rule. (3) Special notice rule In general. (ii) Reasonable notice. (4) Special effective date for certain section 204(h) amendments made by plans of commercial airlines. (5) Special effective date for rule relating to contributing employers. (b) Regulatory effective date General effective date. (2) Effective date for Q&A-7(a)(2). (3) Effective dates for Q&A-9(g)(1), (g)(3), and (g)(4) General effective date. (ii) Effective dates for Q&A-9(g)(2) and Q&A-7(b). (iii) Special rules for section 204(h) amendments to an applicable defined benefit plan. (c) Amendments taking effect prior to June 7, 2001. see [T.D. 9052, 68 FR 17281, Apr. 9, 2003, as amended by T.D. 9219, 70 FR 47126, Aug. 12, 2005; T.D. 9294, 71 FR 61888, Oct. 20, 2006; T.D. 9472, 74 FR 61276, Nov. 24, 2009] § 54.4980G-0 Table of contents. This section contains the questions for §§ 54.4980G-1, 54.4980G-2, 54.4980G-3, 54.4980G-4, and 54.4980G-5. § 54.4980G-1 Failure of employer to make comparable health savings account contributions. Q-1: What are the comparability rules that apply to employer contributions to Health Savings Accounts (HSAs)? Q-2: What are the categories of HDHP coverage for purposes of applying the comparability rules? Q-3: What is the testing period for making comparable contributions to employees' HSAs? Q-4: How is the excise tax computed if employer contributions do not satisfy the comparability rules for a calendar year? § 54.4980G-2 Employer contribution defined. Q-1: Do the comparability rules apply to amounts rolled over from an employee's HSA or Archer Medical Savings Account (Archer MSA)? Q-2: If an employee requests that his or her employer deduct after-tax amounts from the employee's compensation and forward these amounts as employee contributions to the employee's HSA, do the comparability rules apply to these amounts? § 54.4980G-3 Employee for comparability testing. Q-1: Do the comparability rules apply to contributions that an employer makes to the HSAs of independent contractors or self-employed individuals? Q-2: May a sole proprietor who is an eligible individual contribute to his or her own HSA without contributing to the HSAs of his or her employees who are eligible individuals? Q-3: Do the comparability rules apply to contributions by a partnership to a partner's HSA? Q-4: How are members of controlled groups treated when applying the comparability rules? Q-5: What are the categories of employees for comparability testing? Q-6: Are employees who are included in a unit of employees covered by a collective bargaining agreement comparable participating employees? Q-7: Is an employer permitted to make comparable contributions only to the HSAs of comparable participating employees who have coverage under the employer's HDHP? Q-8: If an employee and his or her spouse are eligible individuals who work for the same employer and one employee-spouse has family coverage for both employees under the employer's HDHP, must the employer make comparable contributions to the HSAs of both employees? Q-9: Does an employer that makes HSA contributions only for one class of non-collectively bargained employees who are eligible individuals, but not for another class of non-collectively bargained employees who are eligible individuals (for example, management v. non-management) satisfy the requirement that the employer make comparable contributions? Q-10: If an employer contributes to the HSAs of former employees who are eligible individuals, do the comparability rules apply to these contributions? Q-11: Is an employer permitted to make comparable contributions only to the HSAs of comparable participating former employees who have coverage under the employer's HDHP? Q-12: If an employer contributes only to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP, must the employer make comparable contributions to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1))? Q-13: How do the comparability rules apply if some employees have HSAs and other employees have Archer MSAs? § 54.4980G-4 Calculating comparable contributions. Q-1: What are comparable contributions? Q-2: How does an employer comply with the comparability rules when some non-collectively bargained employees who are eligible individuals do not work for the employer during the entire calendar year? Q-3: How do the comparability rules apply to employer contributions to employees' HSAs if some non-collectively bargained employees work full-time during the entire calendar year, and other non-collectively bargained employees work full-time for less than the entire calendar year? Q-4: May an employer make contributions for the entire year to the HSAs of its employees who are eligible individuals at the beginning of the calendar year ( i.e. Q-5: Must an employer use the same contribution method as described in Q & A-2 and Q & A-4 of this section for all employees for any month during the calendar year? Q-6: How does an employer comply with the comparability rules if an employee has not established an HSA at the time the employer contributes to its employees' HSAs? Q-7: If an employer bases its contributions on a percentage of the HDHP deductible, how is the correct percentage or dollar amount computed? Q-8: Does an employer that contributes to the HSA of each comparable participating employee in an amount equal to the employee's HSA contribution or a percentage of the employee's HSA contribution (matching contributions) satisfy the rule that all comparable participating employees receive comparable contributions? Q-9: If an employer conditions contributions by the employer to an employee's HSA on an employee's participation in health assessments, disease management programs or wellness programs and makes the same contributions available to all employees who participate in the programs, do the contributions satisfy the comparability rules? Q-10: If an employer makes additional contributions to the HSAs of all comparable participating employees who have attained a specified age or who have worked for the employer for a specified number of years, do the contributions satisfy the comparability rules? Q-11: If an employer makes additional contributions to the HSAs of all comparable participating employees who are eligible to make the additional contributions (HSA catch-up contributions) under section 223(b)(3), do the contributions satisfy the comparability rules? Q-12: If an employer's contributions to an employee's HSA result in non-comparable contributions, may the employer recoup the excess amount from the employee's HSA? Q-13: What constitutes a reasonable interest rate for purposes of making comparable contributions? Q-14: How does an employer comply with the comparability rules if an employee has not established an HSA by December 31st? Q-15: For any calendar year, may an employer accelerate part or all of its contributions for the entire year to the HSAs of employees who have incurred, during the calendar year, qualified medical expenses (as defined in section 223(d)(2)) exceeding the employer's cumulative HSA contributions at that time? Q-16: What is the effective date for the rules in Q & A-14 and Q & A-15 of this section? § 54.4980G-5 HSA comparability rules and cafeteria plans and waiver of excise tax. Q-1: If an employer makes contributions through a section 125 cafeteria plan to the HSA of each employee who is an eligible individual, are the contributions subject to the comparability rules? Q-2: If an employer makes contributions through a cafeteria plan to the HSA of each employee who is an eligible individual in an amount equal to the amount of the employee's HSA contribution or a percentage of the amount of the employee's HSA contribution ( i.e. Q-3: If under the employer's cafeteria plan, employees who are eligible individuals and who participate in health assessments, disease management programs or wellness programs receive an employer contribution to an HSA and the employees have the right to elect to make pre-tax salary reduction contributions to their HSAs, are the contributions subject to the comparability rules? Q-4: May all or part of the excise tax imposed under section 4980G be waived? [T.D. 9277, 71 FR 43058, July 31, 2006; 71 FR 53967, Sept. 13, 2006, as amended by T.D. 9393, 73 FR 20795, Apr. 17, 2008] § 54.4980G-1 Failure of employer to make comparable health savings account contributions. Q-1: What are the comparability rules that apply to employer contributions to Health Savings Accounts (HSAs)? A-1: If an employer makes contributions to any employee's HSA, the employer must make comparable contributions to the HSAs of all comparable participating employees. See Q & A-1 in § 54.4980G-4 for the definition of comparable contributions. Comparable participating employees are eligible individuals (as defined in section 223(c)(1)) who are in the same category of employees and who have the same category of high deductible health plan (HDHP) coverage. See sections 4980G(b) and 4980E(d)(3). See section 223(c)(2) and (g) for the definition of an HDHP. See also Q & A-5 in § 54.4980G-3 for the categories of employees and Q & A-2 of this section for the categories of HDHP coverage. But see Q-2: What are the categories of HDHP coverage for purposes of applying the comparability rules? A-2: (a) In general. See also (b) HDHP Family coverage categories. (1) Self plus one; (2) Self plus two; and (3) Self plus three or more. (c) Examples. Example 1. Employer A maintains an HDHP and contributes to the HSAs of eligible employees who elect coverage under the HDHP. The HDHP has self-only coverage and family coverage. Thus, the categories of coverage are self-only and family coverage. Employer A contributes $750 to the HSA of each eligible employee with self-only HDHP coverage and $1,000 to the HSA of each eligible employee with family HDHP coverage. Employer A's contributions satisfy the comparability rules. Example 2. (i) Employer B maintains an HDHP and contributes to the HSAs of eligible employees who elect coverage under the HDHP. The HDHP has the following coverage options: (A) Self-only; (B) Self plus spouse; (C) Self plus dependent; (D) Self plus spouse plus one dependent; (E) Self plus two dependents; and (F) Self plus spouse and two or more dependents. (ii) The self plus spouse category and the self plus dependent category constitute the same category of HDHP coverage (self plus one) and Employer B must make the same comparable contributions to the HSAs of all eligible individuals who are in either the self plus spouse category of HDHP coverage or the self plus dependent category of HDHP coverage. Likewise, the self plus spouse plus one dependent category and the self plus two dependents category constitute the same category of HDHP coverage (self plus two) and Employer B must make the same comparable contributions to the HSAs of all eligible individuals who are in either the self plus spouse plus one dependent category of HDHP coverage or the self plus two dependents category of HDHP coverage. Example 3. (i) Employer C maintains an HDHP and contributes to the HSAs of eligible employees who elect coverage under the HDHP. The HDHP has the following coverage options: (A) Self-only; (B) Self plus one; (C) Self plus two; and (D) Self plus three or more. (ii) Employer C contributes $500 to the HSA of each eligible employee with self-only HDHP coverage, $750 to the HSA of each eligible employee with self plus one HDHP coverage, $900 to the HSA of each eligible employee with self plus two HDHP coverage and $1,000 to the HSA of each eligible employee with self plus three or more HDHP coverage. Employer C's contributions satisfy the comparability rules. Q-3: What is the testing period for making comparable contributions to employees' HSAs? A-3: To satisfy the comparability rules, an employer must make comparable contributions for the calendar year to the HSAs of employees who are comparable participating employees. See section 4980G(a). See Q & A-3 and Q & A-4 in § 54.4980G-4 for a discussion of HSA contribution methods. Q-4: How is the excise tax computed if employer contributions do not satisfy the comparability rules for a calendar year? A-4: (a) Computation of tax. (b) Example. Example. During the 2007 calendar year, Employer D has 8 employees who are eligible individuals with self-only coverage under an HDHP provided by Employer D. The deductible for the HDHP is $2,000. For the 2007 calendar year, Employer D contributes $2,000 each to the HSAs of two employees and $1,000 each to the HSAs of the other six employees, for total HSA contributions of $10,000. Employer D's contributions do not satisfy the comparability rules. Therefore, Employer D is subject to an excise tax of $3,500 (35% of $10,000) for its failure to make comparable contributions to its employees' HSAs. Q-5: If a person is liable for the excise tax under section 4980G, what form must the person file and what is the due date for the filing and payment of the excise tax? A-5: (a) In general. (b) Effective/applicability date. [T.D. 9277, 71 FR 43058, July 31, 2006, as amended by T.D. 9457, 74 FR 45997, Sept. 8, 2009] § 54.4980G-2 Employer contribution defined. Q-1: Do the comparability rules apply to amounts rolled over from an employee's HSA or Archer Medical Savings Account (Archer MSA)? A-1: No. The comparability rules do not apply to amounts rolled over from an employee's HSA or Archer MSA. Q-2: If an employee requests that his or her employer deduct after-tax amounts from the employee's compensation and forward these amounts as employee contributions to the employee's HSA, do the comparability rules apply to these amounts? A-2: No. Section 106(d) provides that amounts contributed by an employer to an eligible employee's HSA shall be treated as employer-provided coverage for medical expenses and are excludible from the employee's gross income up to the limit in section 223(b). After-tax employee contributions to an HSA are not subject to the comparability rules because they are not employer contributions under section 106(d). [T.D. 9277, 71 FR 43058, July 31, 2006] § 54.4980G-3 Failure of employer to make comparable health savings account contributions. Q-1: Do the comparability rules apply to contributions that an employer makes to the HSAs of independent contractors or self-employed individuals? A-1: No. The comparability rules apply only to contributions that an employer makes to the HSAs of employees. Q-2: May a sole proprietor who is an eligible individual contribute to his or her own HSA without contributing to the HSAs of his or her employees who are eligible individuals? A-2: (a) Sole proprietor not an employee. (b) Example. Example. In a calendar year, B, a sole proprietor is an eligible individual and contributes $1,000 to B's own HSA. B also contributes $500 for the same calendar year to the HSA of each employee who is an eligible individual. The comparability rules are not violated by B's $1,000 contribution to B's own HSA. Q-3: Do the comparability rules apply to contributions by a partnership to a partner's HSA? A-3: (a) Partner not an employee. (b) Example. Example. (i) Partnership X is a limited partnership with three equal individual partners, A (a general partner), B (a limited partner), and C (a limited partner). C is to be paid $300 annually for services rendered to Partnership X in her capacity as a partner without regard to partnership income (a section 707(c) guaranteed payment). D and E are the only employees of Partnership X and are not partners in Partnership X. A, B, C, D, and E are eligible individuals and each has an HSA. During Partnership X's Year 1 taxable year, which is also a calendar year, Partnership X makes the following contributions— (A) A $300 contribution to each of A's and B's HSAs which are treated as section 731 distributions to A and B; (B) A $300 contribution to C's HSA in lieu of paying C the guaranteed payment directly; and (C) A $200 contribution to each of D's and E's HSAs, who are comparable participating employees. (ii) Partnership X's contributions to A's and B's HSAs are section 731 distributions, which are treated as cash distributions. Partnership X's contribution to C's HSA is treated as a guaranteed payment under section 707(c). The contribution is not excludible from C's gross income under section 106(d) because the contribution is treated as a distributive share of partnership income for purposes of all Code sections other than sections 61(a) and 162(a), and a guaranteed payment to a partner is not treated as compensation to an employee. Thus, Partnership X's contributions to the HSAs of A, B, and C are not subject to the comparability rules. Partnership X's contributions to D's and E's HSAs are subject to the comparability rules because D and E are employees of Partnership X and are not partners in Partnership X. Partnership X's contributions satisfy the comparability rules. Q-4: How are members of controlled groups treated when applying the comparability rules? A-4: All persons or entities treated as a single employer under section 414 (b), (c), (m), or (o) are treated as one employer. See sections 4980G(b) and 4980E(e). Q-5: What are the categories of employees for comparability testing? A-5: (a) Categories. see (1) Current full-time employees; (2) Current part-time employees; and (3) Former employees (except for former employees with coverage under the employer's HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1)). (b) Part-time and full-time employees. (c) In general. see Q-6: Are employees who are included in a unit of employees covered by a collective bargaining agreement comparable participating employees? A-6: (a) In general. (b) Examples. Example 1. Employer A offers its employees an HDHP with a $1,500 deductible for self-only coverage. Employer A has collectively bargained and non-collectively bargained employees. The collectively bargained employees are covered by a collective bargaining agreement under which health benefits were bargained in good faith. In the 2007 calendar year, Employer A contributes $500 to the HSAs of all eligible non-collectively bargained employees with self-only coverage under Employer A's HDHP. Employer A does not contribute to the HSAs of the collectively bargained employees. Employer A's contributions to the HSAs of non-collectively bargained employees satisfy the comparability rules. The comparability rules do not apply to collectively bargained employees. Example 2. Employer B offers its employees an HDHP with a $1,500 deductible for self-only coverage. Employer B has collectively bargained and non-collectively bargained employees. The collectively bargained employees are covered by a collective bargaining agreement under which health benefits were bargained in good faith. In the 2007 calendar year and in accordance with the terms of the collective bargaining agreement, Employer B contributes to the HSAs of all eligible collectively bargained employees. Employer B does not contribute to the HSAs of the non-collectively bargained employees. Employer B's contributions to the HSAs of collectively bargained employees are not subject to the comparability rules because the comparability rules do not apply to collectively bargained employees. Accordingly, Employer B's failure to contribute to the HSAs of the non-collectively bargained employees does not violate the comparability rules. Example 3. Employer C has two units of collectively bargained employees—unit Q and unit R—each covered by a collective bargaining agreement under which health benefits were bargained in good faith. In the 2007 calendar year and in accordance with the terms of the collective bargaining agreement, Employer C contributes to the HSAs of all eligible collectively bargained employees in unit Q. In accordance with the terms of the collective bargaining agreement, Employer C makes no HSA contributions for collectively bargained employees in unit R. Employer C's contributions to the HSAs of collectively bargained employees are not subject to the comparability rules because the comparability rules do not apply to collectively bargained employees. Example 4. Employer D has a unit of collectively bargained employees that are covered by a collective bargaining agreement under which health benefits were bargained in good faith. In accordance with the terms of the collective bargaining agreement, Employer D contributes an amount equal to a specified number of cents per hour for each hour worked to the HSAs of all eligible collectively bargained employees. Employer D's contributions to the HSAs of collectively bargained employees are not subject to the comparability rules because the comparability rules do not apply to collectively bargained employees. Q-7: Is an employer permitted to make comparable contributions only to the HSAs of comparable participating employees who have coverage under the employer's HDHP? A-7: (a) Employer-provided HDHP coverage. (b) Non-employer provided HDHP coverage. (c) Examples. Example 1. In a calendar year, Employer E offers an HDHP to its full-time employees. Most full-time employees are covered under Employer E's HDHP and Employer E makes comparable contributions only to these employees' HSAs. Employee W, a full-time employee of Employer E and an eligible individual, is covered under an HDHP provided by the employer of W's spouse and not under Employer E's HDHP. Employer E is not required to make comparable contributions to W's HSA. Example 2. In a calendar year, Employer F does not offer an HDHP. Several full-time employees of Employer F, who are eligible individuals, have HSAs. Employer F contributes to these employees' HSAs. Employer F must make comparable contributions to the HSAs of all full-time employees who are eligible individuals. Example 3. In a calendar year, Employer G offers an HDHP to its full-time employees. Most full-time employees are covered under Employer G's HDHP and Employer G makes comparable contributions to these employees' HSAs and also to the HSAs of full-time employees who are eligible individuals and who are not covered under Employer G's HDHP. Employee S, a full-time employee of Employer G and a comparable participating employee, is covered under an HDHP provided by the employer of S's spouse and not under Employer G's HDHP. Employer G must make comparable contributions to S's HSA. Q-8: If an employee and his or her spouse are eligible individuals who work for the same employer and one employee-spouse has family coverage for both employees under the employer's HDHP, must the employer make comparable contributions to the HSAs of both employees? A-8: (a) In general. (b) Examples. Example 1. In a calendar year, Employer H offers an HDHP to its full-time employees. Most full-time employees are covered under Employer H's HDHP and Employer H makes comparable contributions only to these employees' HSAs. T and U are a married couple. Employee T, who is a full-time employee of Employer H and an eligible individual, has family coverage under Employer H's HDHP for T and T's spouse. Employee U, who is also a full-time employee of Employer H and an eligible individual, does not have coverage under Employer H's HDHP except as the spouse of Employee T. Employer H is required to make comparable contributions to T's HSA, but is not required to make comparable contributions to U's HSA. Example 2. In a calendar year, Employer J offers an HDHP to its full-time employees. Most full-time employees are covered under Employer J's HDHP and Employer J makes comparable contributions to these employees' HSAs and to the HSAs of full-time employees who are eligible individuals but are not covered under Employer J's HDHP. R and S are a married couple. Employee S, who is a full-time employee of Employer J and an eligible individual, has family coverage under Employer J's HDHP for S and S's spouse. Employee R, who is also a full-time employee of Employer J and an eligible individual, does not have coverage under Employer J's HDHP except as the spouse of Employee S. Employer J must make comparable contributions to S's HSA and to R's HSA. Q-9: Does an employer that makes HSA contributions only for one class of non-collectively bargained employees who are eligible individuals, but not for another class of non-collectively bargained employees who are eligible individuals (for example, management v. non-management) satisfy the requirement that the employer make comparable contributions? A-9: (a) Different classes of employees. See (b) Examples. Example 1. In a calendar year, Employer K maintains an HDHP covering all management and non-management employees. Employer K contributes to the HSAs of non-management employees who are eligible individuals covered under its HDHP. Employer K does not contribute to the HSAs of its management employees who are eligible individuals covered under its HDHP. The comparability rules are not satisfied. Example 2. All of Employer L's employees are located in city X and city Y. In a calendar year, Employer L maintains an HDHP for all employees working in city X only. Employer L does not maintain an HDHP for its employees working in city Y. Employer L contributes $500 to the HSAs of city X employees who are eligible individuals with coverage under its HDHP. Employer L does not contribute to the HSAs of any of its city Y employees. The comparability rules are satisfied because none of the employees in city Y are covered under an HDHP of Employer L. (However, if any employees in city Y were covered by an HDHP of Employer L, Employer L could not fail to contribute to their HSAs merely because they work in a different city.) Example 3. Employer M has two divisions—division N and division O. In a calendar year, Employer M maintains an HDHP for employees working in division N and division O. Employer M contributes to the HSAs of division N employees who are eligible individuals with coverage under its HDHP. Employer M does not contribute to the HSAs of division O employees who are eligible individuals covered under its HDHP. The comparability rules are not satisfied. Q-10: If an employer contributes to the HSAs of former employees who are eligible individuals, do the comparability rules apply to these contributions? A-10: (a) Former employees. (b) Locating former employees. (c) Examples. Example 1. In a calendar year, Employer N contributes $1,000 for the calendar year to the HSA of each current employee who is an eligible individual with coverage under any HDHP. Employer N does not contribute to the HSA of any former employee who is an eligible individual. Employer N's contributions satisfy the comparability rules. Example 2. In a calendar year, Employer O contributes to the HSAs of current employees and former employees who are eligible individuals covered under any HDHP. Employer O contributes $750 to the HSA of each current employee with self-only HDHP coverage and $1,000 to the HSA of each current employee with family HDHP coverage. Employer O also contributes $300 to the HSA of each former employee with self-only HDHP coverage and $400 to the HSA of each former employee with family HDHP coverage. Employer O's contributions satisfy the comparability rules. Q-11: Is an employer permitted to make comparable contributions only to the HSAs of comparable participating former employees who have coverage under the employer's HDHP? A-11: If during a calendar year, an employer contributes to the HSA of any former employee who is an eligible individual covered under an HDHP provided by the employer, the employer is required to make comparable contributions to the HSAs of all former employees who are comparable participating former employees with coverage under any HDHP provided by the employer. An employer that contributes only to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP is not required to make comparable contributions to the HSAs of former employees who are eligible individuals and who are not covered under the employer's HDHP. However, an employer that contributes to the HSA of any former employee who is an eligible individual with coverage under an HDHP that is not an HDHP of the employer, must make comparable contributions to the HSAs of all former employees who are eligible individuals whether or not covered under an HDHP of the employer. Q-12: If an employer contributes only to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP, must the employer make comparable contributions to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1))? A-12: No. An employer that contributes only to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP is not required to make comparable contributions to the HSAs of former employees who are eligible individuals with coverage under the employer's HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1)). Q-13: How do the comparability rules apply if some employees have HSAs and other employees have Archer MSAs? A-13: (a) HSAs and Archer MSAs. (b) Example. Example. In a calendar year, Employer P contributes $600 to the Archer MSA of each employee who is an eligible individual and who has an Archer MSA. Employer P contributes $500 for the calendar year to the HSA of each employee who is an eligible individual and who has an HSA. If an employee has both an Archer MSA and an HSA, Employer P contributes to the employee's Archer MSA and not to the employee's HSA. Employee X has an Archer MSA and an HSA. Employer P contributes $600 for the calendar year to X's Archer MSA but does not contribute to X's HSA. Employer P's contributions satisfy the comparability rules. [T.D. 9277, 71 FR 43058, July 31, 2006, as amended by T.D. 9457, 74 FR 45998, Sept. 8, 2009] § 54.4980G-4 Calculating comparable contributions. Q-1: What are comparable contributions? A-1: (a) Definition. see (b) Examples. Example 1. In the 2007 calendar year, Employer A offers its full-time employees three health plans, including an HDHP with self-only coverage and a $2,000 deductible. Employer A contributes $1,000 for the calendar year to the HSA of each employee who is an eligible individual electing the self-only HDHP coverage. Employer A makes no HSA contributions for employees with family HDHP coverage or for employees who do not elect the employer's self-only HDHP. Employer A's HSA contributions satisfy the comparability rules. Example 2. In the 2007 calendar year, Employer B offers its employees an HDHP with a $3,000 deductible for self-only coverage and a $4,000 deductible for family coverage. Employer B contributes $1,000 for the calendar year to the HSA of each employee who is an eligible individual electing the self-only HDHP coverage. Employer B contributes $2,000 for the calendar year to the HSA of each employee who is an eligible individual electing the family HDHP coverage. Employer B's HSA contributions satisfy the comparability rules. Example 3. In the 2007 calendar year, Employer C offers its employees an HDHP with a $1,500 deductible for self-only coverage and a $3,000 deductible for family coverage. Employer C contributes $1,000 for the calendar year to the HSA of each employee who is an eligible individual electing the self-only HDHP coverage. Employer C contributes $1,000 for the calendar year to the HSA of each employee who is an eligible individual electing the family HDHP coverage. Employer C's HSA contributions satisfy the comparability rules. Example 4. In the 2007 calendar year, Employer D offers its employees an HDHP with a $1,500 deductible for self-only coverage and a $3,000 deductible for family coverage. Employer D contributes $1,500 for the calendar year to the HSA of each employee who is an eligible individual electing the self-only HDHP coverage. Employer D contributes $1,000 for the calendar year to the HSA of each employee who is an eligible individual electing the family HDHP coverage. Employer D's HSA contributions satisfy the comparability rules. Example 5. (i) In the 2007 calendar year, Employer E maintains two HDHPs. Plan A has a $2,000 deductible for self-only coverage and a $4,000 deductible for family coverage. Plan B has a $2,500 deductible for self-only coverage and a $4,500 deductible for family coverage. For the calendar year, Employer E makes contributions to the HSA of each full-time employee who is an eligible individual covered under Plan A of $600 for self-only coverage and $1,000 for family coverage. Employer E satisfies the comparability rules, if it makes either of the following contributions for the 2007 calendar year to the HSA of each full-time employee who is an eligible individual covered under Plan B— (A) $600 for each full-time employee with self-only coverage and $1,000 for each full-time employee with family coverage; or (B) $750 for each employee with self-only coverage and $1,125 for each employee with family coverage (the same percentage of the deductible Employer E contributes for full-time employees covered under Plan A, 30% of the deductible for self-only coverage and 25% of the deductible for family coverage). (ii) Employer E also makes contributions to the HSA of each part-time employee who is an eligible individual covered under Plan A of $300 for self-only coverage and $500 for family coverage. Employer E satisfies the comparability rules, if it makes either of the following contributions for the 2007 calendar year to the HSA of each part-time employee who is an eligible individual covered under Plan B— (A) $300 for each part-time employee with self-only coverage and $500 for each part-time employee with family coverage; or (B) $375 for each part-time employee with self-only coverage and $563 for each part-time employee with family coverage (the same percentage of the deductible Employer E contributes for part-time employees covered under Plan A, 15% of the deductible for self-only coverage and 12.5% of the deductible for family coverage). Example 6. (i) In the 2007 calendar year, Employer F maintains an HDHP. The HDHP has the following coverage options— (A) A $2,500 deductible for self-only coverage; (B) A $3,500 deductible for self plus one dependent (self plus one); (C) A $3,500 deductible for self plus spouse (self plus one); (D) A $3,500 deductible for self plus spouse and one dependent (self plus two); and (E) A $3,500 deductible for self plus spouse and two or more dependents (self plus three or more). (ii) Employer F makes the following contributions for the calendar year to the HSA of each full-time employee who is an eligible individual covered under the HDHP— (A) $750 for self-only coverage; (B) $1,000 for self plus one dependent; (C) $1,000 for self plus spouse; (D) $1,500 for self plus spouse and one dependent; and (E) $2,000 for self plus spouse and two or more dependents. (iii) Employer F's HSA contributions satisfy the comparability rules. Example 7. (i) In a calendar year, Employer G offers its employees an HDHP and a health flexible spending arrangement (health FSA). The health FSA reimburses employees for medical expenses as defined in section 213(d). Some of Employer G's employees have coverage under the HDHP and the health FSA, some have coverage under the HDHP and their spouse's FSA, and some have coverage under the HDHP and are enrolled in Medicare. For the calendar year, Employer G contributes $500 to the HSA of each employee who is an eligible individual. No contributions are made to the HSAs of employees who have coverage under Employer G's health FSA or under a spouse's health FSA or who are enrolled in Medicare. (ii) The employees who have coverage under a health FSA (whether Employer H's or their spouse's FSA) or who are covered under Medicare are not eligible individuals. Specifically, the employees who have coverage under the health FSA or under a spouse's health FSA are not comparable participating employees because they are not eligible individuals under section 223(c)(1). Similarly, the employees who are enrolled in Medicare are not comparable participating employees because they are not eligible individuals under section 223(b)(7) and (c)(1). Therefore, employees who have coverage under the health FSA or under a spouse's health FSA and employees who are enrolled in Medicare are excluded from comparability testing. See sections 4980G(b) and 4980E. Employer G's contributions satisfy the comparability rules. Q-2: How does an employer comply with the comparability rules when some non-collectively bargained employees who are eligible individuals do not work for the employer during the entire calendar year? A-2: (a) In general. (b) Contributions on a pay-as-you-go basis. (c) Examples. Example 1. (i) Beginning on January 1st, Employer H contributes $50 per month on the first day of each month to the HSA of each employee who is an eligible individual on that date. Employer H does not contribute to the HSAs of former employees. In mid-March of the same year, Employee X, an eligible individual, terminates employment after Employer H has contributed $150 to X's HSA. After X terminates employment, Employer H does not contribute additional amounts to X's HSA. In mid-April of the same year, Employer H hires Employee Y, an eligible individual, and contributes $50 to Y's HSA in May and $50 in June. Effective in July of the same year, Employer H stops contributing to the HSAs of all employees and makes no contributions to the HSA of any employee for the months of July through December. In August, Employer H hires Employee Z, an eligible individual. Employer H does not contribute to Z's HSA. After Z is hired, Employer H does not hire additional employees. As of the end of the calendar year, Employer H has made the following HSA contributions to its employees' HSAs— (A) Employer H contributed $150 to X's HSA; (B) Employer H contributed $100 to Y's HSA; (C) Employer H did not contribute to Z's HSA; and (D) Employer H contributed $300 to the HSA of each employee who was an eligible individual and employed by Employer J from January through June. (ii) Employer H's contributions satisfy the comparability rules. Example 2. In a calendar year, Employer J offers its employees an HDHP and contributes on a monthly pay-as-you-go basis to the HSAs of employees who are eligible individuals with coverage under Employer J's HDHP. In the calendar year, Employer J contributes $50 per month to the HSA of each employee with self-only HDHP coverage and $100 per month to the HSA of each employee with family HDHP coverage. From January 1st through March 31st of the calendar year, Employee X is an eligible individual with self-only HDHP coverage. From April 1st through December 31st of the calendar year, X is an eligible individual with family HDHP coverage. For the months of January, February and March of the calendar year, Employer J contributes $50 per month to X's HSA. For the remaining months of the calendar year, Employer J contributes $100 per month to X's HSA. Employer J's contributions to X's HSA satisfy the comparibility rules. (d) Contributions on a look-back basis. (e) Examples. Example 1. In a calendar year, Employer K offers its employees an HDHP and contributes on a look-back basis to the HSAs of employees who are eligible individuals with coverage under Employer K's HDHP. Employer K contributes $600 ($50 per month) for the calendar year to the HSA of each employee with self-only HDHP coverage and $1,200 ($100 per month) for the calendar year to the HSA of each employee with family HDHP coverage. From January 1st through June 30th of the calendar year, Employee Y is an eligible individual with family HDHP coverage. From July 1st through December 31st, Y is an eligible individual with self-only HDHP coverage. Employer K contributes $900 on a look-back basis for the calendar year to Y's HSA ($100) per month for the months of January through June and $50 per month for the months of July through December. Employer K's contributions to Y's HSA satisfy the comparability rules. Example 2. On December 31st, Employer L contributes $50 per month on a look-back basis to each employee's HSA for each month in the calendar year that the employee was an eligible individual. In mid-March of the same year, Employee T, an eligible individual, terminated employment. In mid-April of the same year, Employer L hired Employee U, who becomes an eligible individual as of May 1st and works for Employer L through December 31st. On December 31st, Employer L contributes $150 to Employee T's HSA and $400 to Employee U's HSA. Employer L's contributions satisfy the comparability rules. (f) Periods and dates for making contributions. (g) Example. Example. Employer M has established, on a reasonable and consistent basis, a quarterly period for making contributions to the HSAs of eligible employees on a pay-as-you-go basis. Beginning on January 1st, Employer M contributes $150 for the first three months of the calendar year to the HSA of each employee who is an eligible individual on that date. On January 15th, Employee V, an eligible individual, terminated employment after Employer M has contributed $150 to V's HSA. On January 15th, Employer M hired Employee W, who becomes an eligible individual as of February 1st. On April 1st, Employer M has contributed $100 to W's HSA for the two months (February and March) in the quarter period that Employee W was an eligible employee. Employer M's contributions satisfy the comparability rules. (h) Maximum contribution permitted for all employees who are eligible individuals during the last month of the taxable year. (i) Examples. Example 1. On January 1, 2010, Employer Q contributes $1,000 for the calendar year to the HSAs of employees who are eligible individuals with family HDHP coverage. In mid-March of the same year, Employer Q hires Employee A, an eligible individual with family HDHP coverage. On April 1, 2010, Employer Q contributes $1,000 to the HSA of Employee A. In September of the same year, Employee B becomes an eligible individual with family HDHP coverage. On October 1, 2010, Employer G contributes $1,000 to the HSA of Employee B. Employer Q does not make any other contributions for the 2010 calendar year. Employer Q's contributions satisfy the comparability rules. Example 2. For the 2010 calendar year, Employer R only has two employees, Employee C and Employee D. Employee C, an eligible individual with family HDHP coverage, works for Employer R for the entire calendar year. Employee D, an eligible individual with family HDHP coverage works for Employer R from July 1st through December 31st. Employer R contributes $1,200 for the calendar year to the HSA of Employee C and $600 to the HSA of Employee D. Employer R does not make any other contributions for the 2010 calendar year. Employer R's contributions satisfy the comparability rules. (j) Effective/applicability date. Q-3: How do the comparability rules apply to employer contributions to employees' HSAs if some non-collectively bargained employees work full-time during the entire calendar year, and other non-collectively bargained employees work full-time for less than the entire calendar year? A-3: Employer contributions to the HSAs of employees who work full-time for less than twelve months satisfy the comparability rules if the contribution amount is comparable when determined on a month-to-month basis. For example, if the employer contributes $240 to the HSA of each full-time employee who works the entire calendar year, the employer must contribute $60 to the HSA of each full-time employee who works on the first day of each three months of the calendar year. The rules set forth in this Q & A-2 apply to employer contributions made on a pay-as-you-go basis or on a look-back basis as described in Q & A-3 of this section. See sections 4980G(b) and 4980E(d)(2)(B). Q-4: May an employer make contributions for the entire year to the HSAs of its employees who are eligible individuals at the beginning of the calendar year (on a pre-funded basis) instead of contributing on a pay-as-you-go or on a look-back basis? A-4: (a) Contributions on a pre-funded basis. (b) Example. Example. (i) On January 1, Employer N contributes $1,200 for the calendar year on a pre-funded basis to the HSA of each employee who is an eligible individual. In mid-May, Employer N hires Employee B, who becomes an eligible individual as of June 1st. Therefore, Employer N is required to make comparable contributions to B's HSA beginning in June. Employer N satisfies the comparability rules with respect to contributions to B's HSA if it makes HSA contributions in any one of the following ways— (A) Pre-funding B's HSA by contributing $700 to B's HSA; (B) Contributing $100 per month on a pay-as-you-go basis to B's HSA; or (C) Contributing to B's HSA at the end of the calendar year taking into account each month that B was an eligible individual and employed by Employer M. (ii) If Employer M hires additional employees who are eligible individuals after initial funding, it must use the same contribution method for these employees that it used to contribute to B's HSA. Q-5: Must an employer use the same contribution method as described in Q & A-2 and Q & A-4 of this section for all employees who were comparable participating employees for any month during the calendar year? A-5: Yes. If an employer makes comparable HSA contributions on a pay-as-you-go basis, it must do so for each employee who is a comparable participating employee as of the first day of the month. If an employer makes comparable contributions on a look-back basis, it must do so for each employee who was a comparable participating employee for any month during the calendar year. If an employer makes HSA contributions on a pre-funded basis, it must do so for all employees who are comparable participating employees at the beginning of the calendar year and must make comparable HSA contributions for all employees who are comparable participating employees for any month during the calendar year, including employees who are eligible individuals hired after the date of initial funding. See Q & A-4 of this section for rules regarding contributions for employees hired after initial funding. Q-6: How does an employer comply with the comparability rules if an employee has not established an HSA at the time the employer contributes to its employees' HSAs? A-6: (a) Employee has not established an HSA at the time the employer funds its employees' HSAs. (b) Example. Example. Beginning on January 1st, Employer O contributes $500 per calendar year on a pay-as-you-go basis to the HSA of each employee who is an eligible individual. Employee C is an eligible individual during the entire calendar year but does not establish an HSA until March. Notwithstanding C's delay in establishing an HSA, Employer O must make up the missed HSA contributions plus reasonable interest for January and February by April 15th of the following calendar year. Q-7: If an employer bases its contributions on a percentage of the HDHP deductible, how is the correct percentage or dollar amount computed? A-7: (a) Computing HSA contributions. (b) Example. Example. In this Example, (i) $1,000; or (ii) $1,167 (33.33% of the deductible rounded to the nearest whole dollar amount). Q-8: Does an employer that contributes to the HSA of each comparable participating employee in an amount equal to the employee's HSA contribution or a percentage of the employee's HSA contribution (matching contributions) satisfy the rule that all comparable participating employees receive comparable contributions? A-8: No. If all comparable participating employees do not contribute the same amount to their HSAs and, consequently, do not receive comparable contributions to their HSAs, the comparability rules are not satisfied, notwithstanding that the employer offers to make available the same contribution amount to each comparable participating employee. But see Q & A-1 in § 54.4980G-5 on contributions to HSAs made through a cafeteria plan. Q-9: If an employer conditions contributions by the employer to an employee's HSA on an employee's participation in health assessments, disease management programs or wellness programs and makes the same contributions available to all employees who participate in the programs, do the contributions satisfy the comparability rules? A-9: No. If all comparable participating employees do not elect to participate in all the programs and consequently, all comparable participating employees do not receive comparable contributions to their HSAs, the employer contributions fail to satisfy the comparability rules. But see Q & A-1 in § 54.4980G-5 on contributions made to HSAs through a cafeteria plan. Q-10: If an employer makes additional contributions to the HSAs of all comparable participating employees who have attained a specified age or who have worked for the employer for a specified number of years, do the contributions satisfy the comparability rules? A-10: No. If all comparable participating employees do not meet the age or length of service requirement, all comparable participating employees do not receive comparable contributions to their HSAs and the employer contributions fail to satisfy the comparability rules. Q-11: If an employer makes additional contributions to the HSAs of all comparable participating employees who are eligible to make the additional contributions (HSA catch-up contributions) under section 223(b)(3), do the contributions satisfy the comparability rules? A-11: No. If all comparable participating employees are not eligible to make the additional HSA contributions under section 223(b)(3), all comparable participating employees do not receive comparable contributions to their HSAs, and the employer contributions fail to satisfy the comparability rules. Q-12: If an employer's contributions to an employee's HSA result in non-comparable contributions, may the employer recoup the excess amount from the employee's HSA? A-12: No. An employer may not recoup from an employee's HSA any portion of the employer's contribution to the employee's HSA. Under section 223(d)(1)(E), an account beneficiary's interest in an HSA is nonforfeitable. However, an employer may make additional HSA contributions to satisfy the comparability rules. An employer may contribute up until April 15th following the calendar year in which the non-comparable contributions were made. An employer that makes additional HSA contributions to correct non-comparable contributions must also contribute reasonable interest. However, an employer is not required to contribute amounts in excess of the annual contribution limits in section 223(b). See Q & A-13 of this section for rules regarding reasonable interest. Q-13: What constitutes a reasonable interest rate for purposes of making comparable contributions? A-13: The determination of whether a rate of interest used by an employer is reasonable will be based on all of the facts and circumstances. If an employer calculates interest using the Federal short-term rate as determined by the Secretary in accordance with section 1274(d), the employer is deemed to use a reasonable interest rate. Q-14: Does an employer fail to satisfy the comparability rules for a calendar year if the employer fails to make contributions with respect to eligible employees because the employee has not established an HSA or because the employer does not know that the employee has established an HSA? A-14: (a) In general. (1) The employer provides timely written notice to all such eligible employees that it will make comparable contributions for Year 1 for eligible employees who, by the last day of February of the following calendar year (Year 2), both establish an HSA and notify the employer (in accordance with a procedure specified in the notice) that they have established an HSA; and (2) For each such eligible employee who establishes an HSA and so notifies the employer on or before the last day of February of Year 2, the employer contributes to the HSA for Year 1 comparable amounts (taking into account each month that the employee was a comparable participating employee) plus reasonable interest by April 15th of Year 2. (b) Notice. (c) Model notice. Notice to Employees Regarding Employer Contributions to HSAs: This notice explains how you may be eligible to receive contributions from [employer] if you are covered by a High Deductible Health Plan (HDHP). [Employer] provides contributions to the Health Savings Account (HSA) of each employee who is [insert employer's eligibility requirements for HSA contributions] (“eligible employee”). If you are an eligible employee, you must do the following in order to receive an employer contribution: (1) Establish an HSA on or before the last day in February of [insert year after the year for which the contribution is being made] and; (2) Notify [insert name and contact information for appropriate person to be contacted] of your HSA account information on or before the last day in February of [insert year after year for which the contribution is being made]. [Specify the HSA account information that the employee must provide (e.g., account number, name and address of trustee or custodian, etc.) and the method by which the employee must provide this account information (e.g., in writing, by e-mail, on a certain form, etc.)]. If you establish your HSA on or before the last day of February in [insert year after year for which the contribution is being made] and notify [employer] of your HSA account information, you will receive your HSA contributions, plus reasonable interest, for [insert year for which contribution is being made] by April 15 of [insert year after year for which contribution is being made]. If, however, you do not establish your HSA or you do not notify us of your HSA account information by the deadline, then we are not required to make any contributions to your HSA for [insert applicable year]. You may notify us that you have established an HSA by sending an [e-mail or] a written notice to [insert name, title and, if applicable, e-mail address]. If you have any questions about this notice, you can contact [insert name and title] at [insert telephone number or other contact information]. (d) [Reserved] (e) Electronic delivery. (f) Examples. Example 1. In a calendar year, Employer Q contributes to the HSAs of current employees who are eligible individuals covered under any HDHP. For the 2009 calendar year, Employer Q contributes $50 per month on the first day of each month, beginning January 1st, to the HSA of each employee who is an eligible employee on that date. For the 2009 calendar year, Employer Q provides written notice satisfying the content requirements of this Q & A-14 on October 16, 2008 to all employees regarding the availability of HSA contributions for eligible employees. For eligible employees who are hired after October 16, 2008, Employer Q provides such a notice no later than January 15, 2010. Employer Q's notice satisfies the notice timing requirements in paragraph (a)(1) of this Q & A-14. Example 2. Employer R's written cafeteria plan permits employees to elect to make pre-tax salary reduction contributions to their HSAs. Employees making this election have the right to receive cash or other taxable benefits in lieu of their HSA pre-tax contribution. Employer R automatically contributes a non-elective matching contribution to the HSA of each employee who makes a pre-tax HSA contribution. Because Employer R's HSA contributions are made through the cafeteria plan, the comparability requirements do not apply to the HSA contributions made by Employer R. Consequently, Employer R is not required to provide written notice to its employees regarding the availability of this matching HSA contribution. See Q & A-1 in § 54.4980G-5 for treatment of HSA contributions made through a cafeteria plan. Example 3. In a calendar year, Employer S maintains an HDHP and only contributes to the HSAs of eligible employees who elect coverage under its HDHP. For the 2009 calendar year, Employer S employs ten eligible employees and all ten employees have elected coverage under Employer S's HDHP and have established HSAs. For the 2009 calendar year, Employer S makes comparable contributions to the HSAs of all ten employees. Employer S satisfies the comparability rules. Thus, Employer S is not required to provide written notice to its employees regarding the availability of HSA contributions for eligible employees. Example 4. In a calendar year, Employer T contributes to the HSAs of current full-time employees with family coverage under any HDHP. For the 2009 calendar year, Employer T provides timely written notice satisfying the content requirements of this section to all employees regardless of HDHP coverage. Employer T makes identical monthly contributions to all eligible employees (meaning full time employees with family HDHP coverage) that establish HSAs. Employer T contributes comparable amounts (taking into account each month that the employee was a comparable participating employee) plus reasonable interest to the HSAs of the eligible employees that establish HSAs and provide the necessary information after the end of the year but on or before the last day of February, 2010. Employer T makes no contribution to the HSAs of employees that do not establish an HSA or that do not provide the necessary information on or before the last day of February, 2010. Employer T satisfies the comparability requirements. Example 5. For the 2009 calendar year, Employer V contributes to the HSAs of current full time employees with family coverage under any HDHP. Employer V has 500 current full time employees. As of the date for Employer V's first HSA contribution for the 2009 calendar year, 450 eligible employees have established HSAs. Employer V provides timely written notice satisfying the content requirements of this section only to those 50 eligible employees who have not established HSAs. Employer V makes identical quarterly contributions to the 450 eligible employees who established HSAs. By April 15, 2010, Employer V contributes comparable amounts to the other eligible employees who establish HSAs and provide the necessary information on or before the last day of February, 2010. Employer V makes no contribution to the HSAs of eligible employees that do not establish an HSA or that do not provide the necessary information on or before the last day of February, 2010. Employer V satisfies the comparability rules. Q-15: For any calendar year, may an employer accelerate part or all of its contributions for the entire year to the HSAs of employees who have incurred, during the calendar year, qualified medical expenses (as defined in section 223(d)(2)) exceeding the employer's cumulative HSA contributions at that time? A-15: (a) In general. (b) Satisfying comparability. Q-16: What is the effective date for the rules in Q & A-14 and Q & A-15 of this section? A-16: These regulations apply to employer contributions made for calendar years beginning on or after January 1, 2009. [T.D. 9277, 71 FR 43058, July 31, 2006; 71 FR 53967, Sept. 13, 2006, as amended by T.D. 9393, 73 FR 20795, Apr. 17, 2008; T.D. 9457, 74 FR 45998, Sept. 8, 2009] § 54.4980G-5 HSA comparability rules and cafeteria plans and waiver of excise tax. Q-1: If an employer makes contributions through a section 125 cafeteria plan to the HSA of each employee who is an eligible individual, are the contributions subject to the comparability rules? A-1: (a) In general. (b) Contributions made through a section 125 cafeteria plan. Q-2: If an employer makes contributions through a cafeteria plan to the HSA of each employee who is an eligible individual in an amount equal to the amount of the employee's HSA contribution or a percentage of the amount of the employee's HSA contribution (matching contributions), are the contributions subject to the section 4980G comparability rules? A-2: No. The comparability rules do not apply to HSA contributions that an employer makes through a section 125 cafeteria plan. Thus, where matching contributions are made by an employer through a cafeteria plan, the contributions are not subject to the comparability rules of section 4980G. However, contributions, including matching contributions, to an HSA made under a cafeteria plan are subject to the section 125 nondiscrimination rules (eligibility rules, contributions and benefits tests and key employee concentration tests). See Q & A-1 of this section. Q-3: If under the employer's cafeteria plan, employees who are eligible individuals and who participate in health assessments, disease management programs or wellness programs receive an employer contribution to an HSA and the employees have the right to elect to make pre-tax salary reduction contributions to their HSAs, are the contributions subject to the comparability rules? A-3: (a) In general. (b) Examples. Example 1. Employer A's written cafeteria plan permits employees to elect to make pre-tax salary reduction contributions to their HSAs. Employees making this election have the right to receive cash or other taxable benefits in lieu of their HSA pre-tax contribution. The section 125 cafeteria plan nondiscrimination rules and not the comparability rules apply because the HSA contributions are made through the cafeteria plan. Example 2. Employer B's written cafeteria plan permits employees to elect to make pre-tax salary reduction contributions to their HSAs. Employees making this election have the right to receive cash or other taxable benefits in lieu of their HSA pre-tax contribution. Employer B automatically contributes a non-elective matching contribution or seed money to the HSA of each employee who makes a pre-tax HSA contribution. The section 125 cafeteria plan nondiscrimination rules and not the comparability rules apply to Employer B's HSA contributions because the HSA contributions are made through the cafeteria plan. Example 3. Employer C's written cafeteria plan permits employees to elect to make pre-tax salary reduction contributions to their HSAs. Employees making this election have the right to receive cash or other taxable benefits in lieu of their HSA pre-tax contribution. Employer C makes a non-elective contribution to the HSAs of all employees who complete a health risk assessment and participate in Employer C's wellness program. Employees do not have the right to receive cash or other taxable benefits in lieu of Employer C's non-elective contribution. The section 125 cafeteria plan nondiscrimination rules and not the comparability rules apply to Employer C's HSA contributions because the HSA contributions are made through the cafeteria plan. Example 4. Employer D's written cafeteria plan permits employees to elect to make pre-tax salary reduction contributions to their HSAs. Employees making this election have the right to receive cash or other taxable benefits in lieu of their HSA pre-tax contribution. Employees participating in the plan who are eligible individuals receive automatic employer contributions to their HSAs. Employees make no election with respect to Employer D's contribution and do not have the right to receive cash or other taxable benefits in lieu of Employer D's contribution but are permitted to make their own pre-tax salary reduction contributions to fund their HSAs. The section 125 cafeteria plan nondiscrimination rules and not the comparability rules apply to Employer D's HSA contributions because the HSA contributions are made through the cafeteria plan. Q-4: May all or part of the excise tax imposed under section 4980G be waived? A-4: In the case of a failure which is due to reasonable cause and not to willful neglect, all or a portion of the excise tax imposed under section 4980G may be waived to the extent that the payment of the tax would be excessive relative to the failure involved. See sections 4980G(b) and 4980E(c). [T.D. 9277, 71 FR 43058, July 31, 2006] § 54.4980G-6 Special rule for contributions made to the HSAs of nonhighly compensated employees. Q-1: May an employer make larger contributions to the HSAs of nonhighly compensated employees than to the HSAs of highly compensated employees? A-1: Yes. Employers may make larger HSA contributions for nonhighly compensated employees who are comparable participating employees than for highly compensated employees who are comparable participating employees. See Q-2: May an employer make larger contributions to the HSAs of highly compensated employees than to the HSAs of nonhighly compensated employees? A-2: (a) In general. See (b) Examples. Example 1. In 2010, Employer A contributes $1,000 for the calendar year to the HSA of each full-time nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer A makes no contribution to the HSA of any full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. Employer A's HSA contributions for calendar year 2010 satisfy the comparability rules. Example 2. In 2010, Employer B contributes $2,000 for the calendar year to the HSA of each full-time nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer B also contributes $1,000 for the calendar year to the HSA of each full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. Employer B's HSA contributions for calendar year 2010 satisfy the comparability rules. Example 3. In 2010, Employer C contributes $1,000 for the calendar year to the HSA of each full-time nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer C contributes $2,000 for the calendar year to the HSA of each full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. Employer C's HSA contributions for calendar year 2010 do not satisfy the comparability rules. Example 4. In 2010, Employer D contributes $1,000 for the calendar year to the HSA of each full-time nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer D also contributes $1,000 to the HSA of each full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. In addition, the employer contributes an additional $500 to the HSA of each nonhighly compensated employee who participates in a wellness program. The nonhighly compensated employees did not receive comparable contributions, and, therefore, Employer D's HSA contributions for calendar year 2010 do not satisfy the comparability rules. Example 5. In 2010, Employer E contributes $1,000 for the calendar year to the HSA of each full-time non-management nonhighly compensated employee who is an eligible individual with family HDHP coverage. Employer E also contributes $500 for the calendar year to the HSA of each full-time management nonhighly compensated employee who is an eligible individual with family HDHP coverage. The nonhighly compensated employees did not receive comparable contributions, and, therefore, Employer E's HSA contributions for calendar year 2010 do not satisfy the comparability rules. Q-3: May an employer make larger HSA contributions for employees with self plus two HDHP coverage than employees with self plus one HDHP coverage even if the employees with self plus two are all highly compensated employees and the employees with self plus one are all nonhighly compensated employees? A-3: (a) Yes. Q & A-1 in § 54.4980G-4 provides that an employer's contribution with respect to the self plus two category of HDHP coverage may not be less than the contribution with respect to the self plus one category and the contribution with respect to the self plus three or more category may not be less than the contribution with respect to the self plus two category. Therefore, the comparability rules are not violated if an employer makes a larger HSA contribution for the self plus two category of HDHP coverage than to self plus one coverage, even if the employees with self plus two coverage are all highly compensated employees and the employees with self plus one coverage are all nonhighly compensated employees. Likewise, the comparability rules are not violated if an employer makes a larger HSA contribution for the self plus three category of HDHP coverage than to self plus two coverage, even if the employees with self plus three coverage are all highly compensated employees and the employees with self plus two coverage are all nonhighly compensated employees. (b) Example. Example. In 2010, Employer F contributes $1,000 for the calendar year to the HSA of each full-time employee who is an eligible individual with self plus one HDHP coverage. Employer F contributes $1,500 for the calendar year to the HSA of each employee who is an eligible individual with self plus two HDHP coverage. The deductible for both the self plus one HDHP and the self plus two HDHP is $2,000. Employee A, an eligible individual, is a nonhighly compensated employee with self plus one coverage. Employee B, an eligible individual, is a highly compensated employee with self plus two coverage. For the 2010 calendar year, Employer F contributes $1,000 to Employee A's HSA and $1,500 to Employee B's HSA. Employer F's HSA contributions satisfy the comparability rules. Q-4:What is the effective date for the rules in this section? A-4: The rules in this section are effective for employer contributions made for calendar years beginning on or after January 1, 2010. [T.D. 9457, 74 FR 45998, Sept. 8, 2009] § 54.4980G-7 Special comparability rules for qualified HSA distributions contributed to HSAs on or after December 20, 2006 and before January 1, 2012. Q-1 How do the comparability rules of section 4980G apply to qualified HSA distributions under section 106(e)(2)? A-1:The comparability rules of section 4980G do not apply to amounts contributed to employee HSAs through qualified HSA distributions. However, in order to satisfy the comparability rules, if an employer offers qualified HSA distributions, as defined in section 106(e)(2), to any employee who is an eligible individual covered under any HDHP, the employer must offer qualified HSA distributions to all employees who are eligible individuals covered under any HDHP. However, if an employer offers qualified HSA distributions only to employees who are eligible individuals covered under the employer's HDHP, the employer is not required to offer qualified HSA distributions to employees who are eligible individuals but are not covered under the employer's HDHP. Q-2: What is the effective date for the rules in this section? A-2: The rules in this section are effective for are effective for employer contributions made for calendar years beginning on or after January 1, 2010. [T.D. 9457, 74 FR 45999, Sept. 8, 2009] § 54.4980H-0 Table of contents. This section lists the table of contents for §§ 54.4980H-1 through 54.4980H-6. § 54.4980H-1 Definitions. (a) Definitions. (1) Administrative period. (2) Advance credit payment. (3) Affordable Care Act. (4) Applicable large employer. (5) Applicable large employer member. (6) Applicable premium tax credit. (7) Bona fide volunteer. (8) Calendar month. (9) Church, or a convention or association of churches. (10) Collective bargaining agreement. (11) Cost-sharing reduction. (12) Dependent. (13) Educational organization. (14) Eligible employer-sponsored plan. (15) Employee. (16) Employer. (17) Employment break period. (18) Exchange. (19) Federal poverty line. (20) Form W-2 wages. (21) Full-time employee. (22) Full-time equivalent employee (FTE). (23) Government entity. (24) Hour of service. (25) Initial measurement period. (26) Limited non-assessment period for certain employees. (27) Minimum essential coverage. (28) Minimum value. (29) Month. (30) New employee. (31) Ongoing employee. (32) Part-time employee. (33) Period of employment. (34) Person. (35) Plan year. (36) Predecessor employer. (37) Qualified health plan. (38) Seasonal employee. (39) Seasonal worker. (40) Section 1411 certification. (41) Section 4980H(a) applicable payment amount. (42) Section 4980H(b) applicable payment amount. (43) Self-only coverage. (44) Special unpaid leave. (45) Stability period. (46) Standard measurement period. (47) Start date. (48) United States. (49) Variable hour employee. (50) Week. (b) Effective/applicability date. § 54.4980H-2 Applicable large employer and applicable large employer member. (a) In general. (b) Determining applicable large employer status. (1) In general. (2) Seasonal worker exception. (3) Employers not in existence in preceding calendar year. (4) Special rules for government entities, churches, and conventions and associations of churches. (5) Transition rule for an employer's first year as an applicable large employer. (c) Full-time equivalent employees (FTEs). (1) In general. (2) Calculating the number of FTEs. (d) Examples. (e) Additional guidance. (f) Effective/applicability date. § 54.4980H-3 Determining full-time employees. (a) In general. (b) Hours of service. (1) In general. (2) Hourly employees calculation. (3) Non-hourly employees calculation. (c) Monthly measurement method. (1) In general. (2) Employee first otherwise eligible for an offer of coverage. (3) Use of weekly periods. (4) Employees rehired after termination of employment or resuming service after other absence. (5) Examples. (d) Look-back measurement method. (1) Ongoing employees. (2) New non-variable hour, new non-seasonal and new non-part-time employees. (3) New variable hour employees, new seasonal employees, and new part-time employees. (4) Transition from new variable hour employee, new seasonal employee, or new part-time employee to ongoing employee. (5) Examples. (6) Employees rehired after termination of employment or resuming service after other absence. (e) Use of the look-back measurement method and the monthly measurement method for different categories of employees. (f) Changes in employment status resulting in a change in full-time employee determination method. (1) Change in employment status from a position to which a look-back measurement method applies to a position to which the monthly measurement method applies, or vice versa. (2) Special rule for certain employees to whom minimum value coverage has been continuously offered. (g) Nonpayment or late payment of premiums. (h) Additional guidance. (i) Effective/applicability date. § 54.4980H-4 Assessable payments under section 4980H(a). (a) In general. (b) Offer of coverage. (1) In general. (2) Offer of coverage on behalf of another entity. (c) Partial calendar month. (d) Application to applicable large employer member. (e) Allocated reduction of 30 full-time employees. (f) Example. (g) Additional guidance. (h) Effective/applicability date. § 54.4980H-5 Assessable payments under section 4980H(b). (a) In general. (b) Offer of coverage. (c) Partial calendar month. (d) Applicability to applicable large employer member. (e) Affordability. (1) In general. (2) Affordability safe harbors for section 4980H(b) purposes. (f) Additional guidance. (g) Effective/applicability date. § 54.4980H-6 Administration and procedure. (a) In general. (b) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-1 Definitions. (a) Definitions. (1) Administrative period. administrative period (2) Advance credit payment. advance credit payment (3) Affordable Care Act. Affordable Care Act (4) Applicable large employer. applicable large employer (5) Applicable large employer member. applicable large employer member (6) Applicable premium tax credit. applicable premium tax credit (7) Bona fide volunteer. bona fide volunteer (i) Reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of services by volunteers, or (ii) Reasonable benefits (including length of service awards), and nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers. (8) Calendar month. calendar month (9) Church or a convention or association of churches. church or a convention or association of churches (10) Collective bargaining agreement. collective bargaining agreement (11) Cost-sharing reduction. cost-sharing reduction (12) Dependent. dependent dependent (13) Educational organization. educational organization educational organization (14) Eligible employer-sponsored plan. eligible employer-sponsored plan (15) Employee. employee (16) Employer. employer employer (17) Employment break period. employment break period (18) Exchange. Exchange (19) Federal poverty line. federal poverty line Federal Register (20) Form W-2 wages. Form W-2 wages (21) Full-time employee In general. full-time employee (ii) Monthly equivalency. (iii) Determination of full-time employee status using weekly rule under the monthly measurement method. (22) Full-time equivalent employee (FTE). full-time equivalent employee, FTE, (23) Government entity. government entity (24) Hour of service In general. hour of service (ii) Excluded hours Bona fide volunteers. hour of service (B) Work-study program. hour of service (C) Services outside the United States. hour of service (iii) Service for other applicable large employer members. (25) Initial measurement period. initial measurement period (26) Limited non-assessment period for certain employees. limited non-assessment period for certain employees (i) Section 54.4980H-2(b)(5) (regarding the transition rule for an employer's first year as an applicable large employer), (ii) Section 54.4980H-3(c)(2) (regarding the application of section 4980H for the three full calendar month period beginning with the first full calendar month in which an employee is first otherwise eligible for an offer of coverage under the monthly measurement method), (iii) Section 54.4980H-3(d)(2)(iii) (regarding the application of section 4980H during the initial three full calendar months of employment for an employee reasonably expected to be a full-time employee at the start date, under the look-back measurement method), (iv) Section 54.4980H-3(d)(3)(iii) (regarding the application of section 4980H during the initial measurement period to a new variable hour employee, seasonal employee or part-time employee determined to be employed on average at least 30 hours of service per week, under the look-back measurement method), (v) Section 54.4980H-3(d)(3)(vii) (regarding the application of section 4980H following an employee's change in employment status to a full-time employee during the initial measurement period, under the look-back measurement method), and (vi) Section 54.4980H-4(c) and § 54.4980H-5(c) (regarding the application of section 4980H to the calendar month in which an employee's start date occurs on a day other than the first day of the calendar month). (27) Minimum essential coverage. minimum essential coverage, MEC, (28) Minimum value. minimum value (29) Month. month (i) A calendar month (ii) The period that begins on any date following the first day of a calendar month and that ends on the immediately preceding date in the immediately following calendar month (for example, from February 2 to March 1 or from December 15 to January 14). (30) New employee. new employee new employee (31) Ongoing employee. ongoing employee (32) Part-time employee. part-time employee (33) Period of employment. period of employment (34) Person. person (35) Plan year. plan year plan year plan year (36) Predecessor employer. (37) Qualified health plan. qualified health plan (38) Seasonal employee. seasonal employee (39) Seasonal worker. seasonal worker seasonal worker (40) Section 1411 Certification. Section 1411 Certification (41) Section 4980H(a) applicable payment amount. section 4980H(a) applicable payment amount (42) Section 4980H(b) applicable payment amount. 4980H(b) applicable payment amount (43) Self-only coverage. self-only coverage (44) Special unpaid leave. special unpaid leave (i) Unpaid leave that is subject to the Family and Medical Leave Act of 1993 (FMLA), Public Law 103-3, 29 U.S.C. 2601 et seq.; (ii) Unpaid leave that is subject to the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), Public Law 103-353, 38 U.S.C. 4301 et seq.; or (iii) Unpaid leave on account of jury duty. (45) Stability period. stability period (46) Standard measurement period. standard measurement period (47) Start date. start date (48) United States. United States (49) Variable hour employee In general. variable hour employee (ii) Factors In general. (B) Additional factors for an employee hired by an employer for temporary placement at an unrelated entity. (C) Educational organizations. (iii) Application only for look-back measurement method. variable hour employee (50) Week. week (b) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-2 Applicable large employer and applicable large employer member. (a) In general. (b) Determining applicable large employer status In general. (2) Seasonal worker exception. (3) Employers not in existence in preceding calendar year. (4) Special rules for government entities, churches, and conventions and associations of churches. (5) Transition rule for an employer's first year as an applicable large employer. (c) Full-time equivalent employees (FTEs) In general. (2) Calculating the number of FTEs. (d) Examples. Example 2 Example 6 Example 1 (Applicable large employer/controlled group). (i) Facts. (ii) Conclusion. Example 2 (Applicable large employer with FTEs). (i) Facts. (ii) Conclusion. Example 3 (Seasonal worker exception). (i) Facts. (ii) Conclusion. Example 4 (Seasonal workers and other FTEs). (i) Facts. Example 3, (ii) Conclusion. Example 5 (New employer). (i) Facts. (ii) Conclusion. Example 6 (First year as applicable large employer). (i) Facts. (ii) Conclusion. (e) Additional guidance. (f) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-3 Determining full-time employees. (a) In general. (b) Hours of service In general. (2) Hourly employees calculation. (3) Non-hourly employees calculation In general. (A) Using actual hours of service from records of hours worked and hours for which payment is made or due; (B) Using a days-worked equivalency whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service in accordance with paragraph (b)(2) of this section; or (C) Using a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service in accordance with paragraph (b)(2) of this section. (ii) Change in method. (iii) Prohibited use of equivalencies. (c) Monthly measurement method In general. (2) Employee first otherwise eligible for an offer of coverage. (3) Use of weekly periods. (i) Begins on the first day of the week that includes the first day of the calendar month, provided that the period over which hours of service are measured does not include the week in which falls the last day of the calendar month (unless that week ends with the last day of the calendar month, in which case it is included); or (ii) begins on the first day of the week immediately subsequent to the week that includes the first day of the calendar month (unless the week begins on the first day of the calendar month, in which case it is included), provided the period over which hours of service are measured includes the week in which falls the last day of the calendar month. (4) Employees rehired after termination of employment or resuming service after other absence Treatment as a new employee after a period of absence for employees of employers other than educational organizations. (ii) Treatment as a new employee after a period of absence for employees of educational organizations. (iii) Averaging method for special unpaid leave and employment break periods. (iv) Treatment of continuing employee. (v) Rule of parity. (vi) International transfers. (5) Examples. Example 1 (Monthly measurement method—employee first otherwise eligible for an offer of coverage). (i) Facts. (ii) Conclusion. Example 2 (Rehire rules under monthly measurement method for employers that are not educational organizations). (i) Facts. Example 1, (ii) Conclusion. Example 3 (Use of weekly rule). (i) Facts. (ii) Conclusion. (d) Look-back measurement method Ongoing employees In general. (ii) Use of payroll periods. (iii) Employee determined to be employed an average of at least 30 hours of service per week. (iv) Employee determined not to be employed on average at least 30 hours of service per week. (v) Permissible employee categories. (A) Collectively bargained employees and non-collectively bargained employees, (B) Each group of collectively bargained employees covered by a separate collective bargaining agreement, (C) Salaried employees and hourly employees, and (D) Employees whose primary places of employment are in different States. (vi) Optional administrative period. (vii) Change in employment status. (viii) Example. The following example illustrates the application of paragraph (d)(1) of this section: (A) Facts. (B) Conclusions. (2) New non-variable hour, new non-seasonal and new non-part-time employees In general. (ii) Factors for determining full-time employee status. (iii) Application of section 4980H to initial full three calendar months of employment. (3) New variable hour employees, new seasonal employees, and new part-time employees In general. (ii) Use of payroll periods. (iii) Employees determined to be employed on average at least 30 hours of service per week. (iv) Employees determined not to be employed on average at least 30 hours of service per week. (v) Permissible differences in measurement or stability periods for different categories of employees. (vi) Optional administrative period In general. (B) Limit on combined length of initial measurement period and administrative period. (vii) Change in employment status during the initial measurement period In general. (B) Example. Example (Change in employment status from variable hour employee to full-time employee). (i) Facts. (ii) Conclusion. (4) Transition from new variable hour employee, new seasonal employee, or new part-time employee to ongoing employee In general. (ii) Employee determined to be employed an average of at least 30 hours of service per week. (iii) Employee determined not to be employed an average of at least 30 hours of service per week. (iv) Treatment during periods between stability periods. (5) Examples. Example 1 Example 8, Example 9 Example 10, Example 12, Example 13, Example 14, Example 1 (12-Month initial measurement period followed by 1 + partial month administrative period). (i) Facts. (ii) Conclusion. Example 2 (11-Month initial measurement period followed by 2 + partial month administrative period). (i) Facts. Example 1, (ii) Conclusion. Example 1. Example 3 (11-Month initial measurement period preceded by partial month administrative period and followed by 2-month administrative period). (i) Facts. Example 1, (ii) Conclusion. Example 1. Example 4 (12-Month initial measurement period preceded by partial month administrative period and followed by 2-month administrative period). (i) Facts. (ii) Conclusion. Example 5 (Continuous full-time employee). (i) Facts. Example 1; (ii) Conclusion. Example 6 (Initially full-time employee, becomes non-full-time employee). (i) Facts. Example 1; (ii) Conclusion. Example 7 (Initially non-full-time employee). (i) Facts. Example 1, (ii) Conclusion. Example 8 (Initially non-full-time employee, becomes full-time employee). (i) Facts. Example 7; (ii) Conclusion. Example 9 (Initially full-time employee). (i) Facts. (ii) Conclusion. Example 10 (Initially full-time employee, becomes non-full-time employee). (i) Facts. Example 9; (ii) Conclusion. Example 11 (Seasonal employee, 12-month initial measurement period; 1 + partial month administrative period). (i) Facts. (ii) Conclusion. Example 12 (Variable hour employee; temporary staffing firm). (i) Facts. (ii) Conclusion. Example 13 (Variable hour employee; temporary staffing firm). (i) Facts. (ii) Conclusion. Example 14 (Variable hour employee; temporary staffing firm). (i) Facts. (ii) Conclusion. Example 15 (Variable hour employee). (i) Facts. (ii) Conclusion. Example 16 (Period between initial stability period and standard stability period). (i) Facts. (ii) Conclusion. (6) Employees rehired after termination of employment or resuming service after other absence Treatment as a new employee after a period of absence for employees of employers other than educational organizations In general. (B) Averaging method for special unpaid leave. (C) Averaging rules for employment break periods for employers other than educational organizations. (ii) Treatment as a new employee after a period of absence for employees of employers that are educational organizations In general. (B) Averaging method for special unpaid leave and employment break periods. (iii) Treatment of continuing employee. (iv) Rule of parity. (v) International transfers. (vi) Anti-abuse rule. (vii) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. Example 1, (ii) Conclusion. Example 3. (i) Facts. (ii) Conclusion. Example 4. (i) Facts. Example 3, (ii) Conclusion. (e) Use of the look-back measurement method and the monthly measurement method for different categories of employees. (f) Changes in employment status resulting in a change in full-time employee determination method Change in employment status from a position to which a look-back measurement method applies to a position to which the monthly measurement method applies, or vice versa Change from look-back measurement method to monthly measurement method. (A) For an employee who at the time of the change of position is in a stability period under which the employee is treated as a full-time employee, the employer must continue to treat the employee as a full-time employee through the end of the stability period; (B) For an employee who at the time of the change of position is in a stability period under which the employee is not treated as a full-time employee, the employer may continue to treat the employee as not a full-time employee through the end of the stability period, or may apply the monthly measurement method set forth in paragraph (c) of this section through the end of the stability period beginning with any calendar month including the calendar month in which the change in employment status occurs or any subsequent calendar month; (C) For the stability period associated with the measurement period during which the change in employment status occurs, the employer must treat the employee as a full-time employee for any calendar month during which the employee either would be treated as a full-time employee under the stability period that would have applied based on the measurement period in which the change in employment status occurred or would be treated as a full-time employee under the monthly measurement method; and (D) For any calendar month subsequent to the stability period identified in paragraph (f)(1)(i)(C) of this section, the monthly measurement method applies for determination of the employee's status as a full-time employee. (ii) Change from monthly measurement method to look-back measurement method. (A) For the remainder of the applicable stability period during which the change in employment status occurs, the employer must continue to use the monthly measurement method to determine the employee's status as a full-time employee unless the employee's hours of service prior to the change in employment status would have resulted in the employee being treated as a full-time employee during the stability period in which the change in employment status occurs, in which case the employer must treat the employee as a full-time employee for that stability period; (B) For the applicable stability period following the measurement period during which the change in employment status occurs, the employer must treat the employee as a full-time employee for any calendar month during which the employee either would be treated as a full-time employee based on the measurement period during which the change in employment status occurs or would be treated as a full-time employee under the monthly measurement method; and (C) For any calendar month subsequent to the stability period identified in paragraph (f)(1)(ii)(B) of this section, the look-back measurement method applies for determination of the employee's status as a full-time employee. (iii) Examples. Example 1 (Look-back measurement method to monthly measurement method). Employee A is an hourly employee. Based on Employee A's hours of service from October 15, 2015, through October 14, 2016, Employee A is treated as a full-time employee from January 1, 2017, through December 31, 2017. On July 1, 2017, Employee A transfers from a position as an hourly employee to a position as a salaried employee. For the months July 2017 through December 2017, Employee A must be treated as a full-time employee. Employee A is employed for hours of service from October 15, 2016, through October 14, 2017, such that under the applicable look-back measurement method Employee A would be treated as a full-time employee for the period of January 1, 2018, through December 31, 2018. Accordingly, Employee A must be treated as a full-time employee for the calendar year 2018. For calendar year 2019, the determination of whether Employee A is a full-time employee is made under the monthly measurement method. Example 2 (Look-back measurement method to monthly measurement method). Same facts as Example 1, Example 3 (Look-back measurement method to monthly measurement method). Same facts as Example 1, Example 4 (Monthly measurement method to look-back measurement method). Employee B is a salaried employee of Employer Y. On July 1, 2017, Employee B transfers to an hourly employee position. Based on Employee B's hours of service from October 15, 2015, through October 14, 2016, Employee B would have been treated as a full-time employee for the stability period from January 1, 2017, through December 31, 2017, had the look-back measurement method applicable to hourly employees applied to Employee B for the entire stability period. For the calendar months January 2017 through June 2017 (prior to Employee B's change to hourly employee status), Employee B's status as a full-time employee is determined using the monthly measurement method. For the calendar months July 2017 through December 2017, Employer Y must treat Employee B as a full-time employee because Employee B would have been treated as a full-time employee during that portion of the stability period had the look-back measurement method applied to Employee B for that entire stability period. Employee B is employed for hours of service from October 15, 2016, through October 14, 2017, such that under the applicable look-back measurement method Employee B would be treated as a full-time employee for the period January 1, 2018, through December 31, 2018. Accordingly, Employee B must be treated as a full-time employee for the calendar year 2018. For calendar year 2019, the determination of whether Employee B is a full-time employee is made under the applicable look-back measurement method. Example 5 (Monthly measurement method to look-back measurement method). Same facts as Example 4, Example 6 (Monthly measurement method to look-back measurement method). Same facts as Example 4, (2) Special rule for certain employees to whom minimum value coverage has been continuously offered In general. (ii) Examples. Example 1 (New variable hour employee, no delay in coverage, becomes non-full-time employee). (i) Facts. (ii) Conclusion. Example 2 (New full-time employee, no delay in coverage, becomes non-full-time employee). (i) Facts. Example 1, (ii) Conclusion. Example 1. (g) Nonpayment or late payment of premiums. (h) Additional guidance. (i) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-4 Assessable payments under section 4980H(a). (a) In general. (b) Offer of coverage In general. (2) Offer of coverage on behalf of another entity. (c) Partial calendar month. (d) Application to applicable large employer member. (e) Allocated reduction of 30 full-time employees. (f) Example. Example. (i) Facts. (ii) Conclusion. (g) Additional guidance. (h) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-5 Assessable payments under section 4980H(b). (a) In general. (b) Offer of coverage. (c) Partial calendar month. (d) Applicability to applicable large employer member. (e) Affordability In general. (2) Affordability safe harbors for section 4980H(b) purposes. (i) Conditions of using an affordability safe harbor. (ii) Form W-2 safe harbor Full-year offer of coverage. (B) Adjustment for partial-year offer of coverage. (iii) Rate of pay safe harbor. (iv) Federal poverty line safe harbor. (v) Examples. Example 1 (Form W-2 wages safe harbor). (i) Facts. (ii) Conclusion. Example 2 (Form W-2 wages safe harbor). (i) Facts. (ii) Conclusion. Example 3 (Form W-2 wages safe harbor). (i) Facts. (ii) Conclusion. Example 4 (Rate of pay safe harbor). (i) Facts. (ii) Conclusion. Example 5 (Rate of pay safe harbor). (i) Facts. (ii) Conclusion. Example 6 (Federal poverty line safe harbor). (i) Facts. (ii) Conclusion. (f) Additional guidance. (g) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.4980H-6 Administration and procedure. (a) In general. (b) Effective/applicability date. [T.D. 9655, 79 FR 8577, Feb. 12, 2014] § 54.6011-1 General requirement of return, statement, or list. (a) Minimum funding standards or excess contributions for self-employed individuals and section 403(b)(7)(A) custodial accounts. (b) Tax on prohibited transactions. (c) Entity manager tax on prohibited tax shelter transactions In general. (2) Transition rule. (d) Effective/applicability date. [T.D. 7838, 47 FR 44249, Oct. 7, 1982, as amended by T.D. 9334, 72 FR 36873, July 6, 2007; T.D. 9492, 75 FR 38708, July 6, 2010; 75 FR 46845, Aug. 4, 2010] § 54.6011-1T General requirement of return, statement, or list (temporary). (a) Tax on reversions of qualified plan assets to employer. (b) [Reserved] [T.D. 8133, 52 FR 10563, Apr. 2, 1987, as amended by T.D. 9334, 72 FR 36873, July 6, 2007; 72 FR 45895, Aug. 16, 2007; T.D. 9492, 75 FR 38709, July 6, 2010] § 54.6011-2 General requirement of return, statement, or list. Effective for any Form 8928 that is due on or after January 1, 2010, any person liable for tax under section 4980B, 4980D, 4980E, or 4980G of the Code shall file a return with respect to the tax on Form 8928. The return must include the information required by Form 8928 and the instructions issued with respect to it. [T.D. 9457, 74 FR 45999, Sept. 8, 2009] § 54.6011-3 Required use of electronic form for the filing requirements for the return for certain excise taxes related to employee benefit plans. (a) Excise tax returns required in electronic form. Return of Excise Taxes Related to Employee Benefit Plans, IRS.gov (b) Exclusions from electronic-filing requirements Waivers. IRS.gov (2) Exemptions. IRS.gov (3) Additional exclusion. (c) Failure to file. (d) Meaning of terms. (1) Magnetic media or electronic form. magnetic media or electronic form (2) Calculating the number of returns a filer is required to file In general. (ii) Definition of filer. filer (e) Example. (1) In 2023, Employer A (the plan sponsor and plan administrator of Plan B) is required to file Form 5330 for its nondeductible contribution under section 4972 to Plan B. During the 2024 calendar year, Employer A is required to file 20 returns (including 19 Forms 1099-R Distributions From Pensions, Annuities, Retirement, Profit-Sharing Plans, IRAs, Insurance Contracts, etc., Annual Return/Report of the Employee Benefit Plan (2) [Reserved] (f) Applicability date. [T.D. 9972, 88 FR 11766, Feb. 23, 2023] § 54.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers. (a) In general. listed transaction transaction of interest b (b) Effective/applicability date. [T.D. 9350, 72 FR 43154, Aug. 3, 2007] § 54.6060-1 Reporting requirements for tax return preparers. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6061-1 Signing of returns and other documents. Effective for any Form 8928 that is due on or after January 1, 2010, any return, statement, or other document required to be made with respect to a tax imposed by section 4980B, 4980D, 4980E, or 4980G of the Code or the regulations under section 4980B, 4980D, 4980E, or 4980G must be signed by the person required to file the return, statement, or other document, or by the persons required or duly authorized to sign in accordance with the regulations, forms, or instructions prescribed with respect to such return, statement, or document. An individual's signature on such return, statement, or other document shall be prima facie evidence that the individual is authorized to sign the return, statement, or other document. [T.D. 9457, 74 FR 46000, Sept. 8, 2009] § 54.6071-1 Time for filing returns. (a) Returns under section 4980B. Due date for filing of return by employers or other persons responsible for benefits under a group health plan. (2) Due date for filing of return by multiemployer plans. (b) Returns under section 4980D. Due date for filing of return by employers. (2) Due date for filing of return by multiemployer plans or multiple employer health plans. (c) Returns under section 4980E. (d) Returns under section 4980G. See (e) Effective/applicability date: [T.D. 9457, 74 FR 46000, Sept. 8, 2009] § 54.6081-1 Automatic extension of time for filing returns for certain excise taxes under Chapter 43. (a) In general. (b) Requirements. (1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner; (2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application's instructions; and (3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment. (c) No extension of time for the payment of tax. (d) Termination of automatic extension. see (e) Penalties. See (f) Effective/applicability date. [T.D. 9531, 76 FR 36999, June 24, 2011] § 54.6091-1 Place for filing excise tax returns under section 4980B, 4980D, 4980E, or 4980G. Effective for any Form 8928 that is due on or after January 1, 2010, the return required by § 54.6011-2 must be filed at the place specified in the forms and instructions provided by the Internal Revenue Service. [T.D. 9457, 74 FR 46000, Sept. 8, 2009] § 54.6107-1 Tax return preparer must furnish copy of return or claims for refund to taxpayer and must retain a copy or record. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund filed. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6151-1 Time and place for paying of tax shown on returns. Effective for any Form 8928 that is due on or after January 1, 2010, the tax shown on any return which is imposed under section 4980B, 4980D, 4980E or 4980G shall, without assessment or notice and demand, be paid to the internal revenue officer with whom the return is filed at the time and place for filing such return (determined without regard to any extension of time for filing the return). For provisions relating to the time and place for filing such return, see [T.D. 9457, 74 FR 46000, Sept. 8, 2009] § 54.6694-1 Section 6694 penalties applicable to tax return preparer. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6694-2 Penalties for understatement due to an unreasonable position. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78458, Dec. 22, 2008] § 54.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78459, Dec. 22, 2008] § 54.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78459, Dec. 22, 2008] § 54.6696-1 Claims for credit or refund by tax return preparers. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78459, Dec. 22, 2008] § 54.7701-1 Tax return preparer. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78459, Dec. 22, 2008] § 54.9801-1 Basis and scope. (a) Statutory basis. (b) Scope. (c) Similar requirements under the Employee Retirement Income Security Act and the Public Health Service Act. [T.D. 9166, 69 FR 78746, Dec. 30, 2004, as amended by T.D. 9299, 71 FR 75056, Dec. 13, 2006; T.D. 9427, 73 FR 62419, Oct. 20, 2008; T.D. 9464, 74 FR 51678, Oct. 7, 2009; T.D. 9656, 79 FR 10303, Feb. 24, 2014] § 54.9801-1T Basis and scope (temporary). (a) Statutory basis. (b) Scope. (c) Similar requirements under the Employee Retirement Income Security Act and the Public Health Service Act. See [T.D. 9951, 86 FR 36947, July 13, 2021] § 54.9801-2 Definitions. Unless otherwise provided, the definitions in this section govern in applying the provisions of sections 9801 through 9815 and 9831 through 9833. Affiliation period COBRA (1) COBRA (2) COBRA continuation coverage (3) COBRA continuation provision (4) Exhaustion of COBRA continuation coverage (i) Due to the failure of the employer or other responsible entity to remit premiums on a timely basis; (ii) When the individual no longer resides, lives, or works in the service area of an HMO or similar program (whether or not within the choice of the individual) and there is no other COBRA continuation coverage available to the individual; or (iii) When the individual incurs a claim that would meet or exceed a lifetime limit on all benefits and there is no other COBRA continuation coverage available to the individual. Condition medical condition. Creditable coverage creditable coverage Dependent Employee Retirement Income Security Act of 1974 (ERISA) et seq. Enroll Enrollment date Excepted benefits First day of coverage Genetic information Group health insurance coverage Group health plan plan group health plan Group market individual market, Health insurance coverage Health insurance issuer issuer Health maintenance organization HMO (1) A federally qualified health maintenance organization (as defined in section 1301(a) of the PHS Act); (2) An organization recognized under State law as a health maintenance organization; or (3) A similar organization regulated under State law for solvency in the same manner and to the same extent as such a health maintenance organization. Individual health insurance coverage Individual market Issuer health insurance issuer. Late enrollee Late enrollment Medical care Medical condition condition Participant participant Placement, or being placed, for adoption Plan year (1) The deductible or limit year used under the plan; (2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year; (3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer's taxable year; or (4) In any other case, the plan year is the calendar year. Preexisting condition exclusion Public health plan public health plan Public Health Service Act (PHS Act) et seq. Short-term, limited-duration insurance (1) Short-term, limited-duration insurance (i) Has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than 4 months in total. For purposes of this paragraph (1)(i), a renewal or extension includes the term of a new short-term, limited-duration insurance policy, certificate, or contract of insurance issued by the same issuer, or if the issuer is a member of a controlled group, any other issuer that is a member of such controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance; and (ii) Displays prominently on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or reenroll) in the coverage, in at least 14-point font, the language in the following notice: (2) For purposes of paragraph (1)(i) of this definition, the term “controlled group” means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Code. (3) If any provision of this definition is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of the definition and shall not affect the remainder thereof. Significant break in coverage significant break in coverage Special enrollment State health benefits risk pool State health benefits risk pool Travel insurance Waiting period waiting period [T.D. 9166, 69 FR 78746, Dec. 30, 2004, as amended by T.D. 9299, 71 FR 75056, Dec. 13, 2006; T.D. 9427, 73 FR 62420, Oct. 20, 2008; T.D. 9464, 74 FR 51678, Oct. 7, 2009; T.D. 9491, 75 FR 37222, June 28, 2010; T.D. 9656, 79 FR 10304, Feb. 24, 2014; T.D. 9744, 80 FR 72238, Nov. 18, 2015; T.D. 9791, 81 FR 75324, Oct. 31, 2016; T.D. 9837, 83 FR 38241, Aug. 3, 2018; T.D. 9867, 84 FR 28987, June 20, 2019; T.D. 9990, 89 FR 23410, Apr. 3, 2024] § 54.9801-2T Definitions (temporary). Unless otherwise provided, the definitions in this section and § 54.9801-2 govern in applying the provisions of sections 9801 through 9825 and 9831 through 9834. Affiliation period COBRA (1) COBRA (2) COBRA continuation coverage (3) COBRA continuation provision (4) Exhaustion of COBRA continuation coverage (i) Due to the failure of the employer or other responsible entity to remit premiums on a timely basis; (ii) When the individual no longer resides, lives, or works in the service area of an HMO or similar program (whether or not within the choice of the individual) and there is no other COBRA continuation coverage available to the individual; or (iii) When the individual incurs a claim that would meet or exceed a lifetime limit on all benefits and there is no other COBRA continuation coverage available to the individual. Condition medical condition. Creditable coverage creditable coverage Dependent Employee Retirement Income Security Act of 1974 (ERISA) et seq. Enroll Enrollment date Excepted benefits First day of coverage Genetic information Group health insurance coverage Group health plan plan group health plan Group market individual market, Health insurance coverage Health insurance issuer issuer Health maintenance organization HMO (1) A federally qualified health maintenance organization (as defined in section 1301(a) of the PHS Act); (2) An organization recognized under State law as a health maintenance organization; or (3) A similar organization regulated under State law for solvency in the same manner and to the same extent as such a health maintenance organization. Individual health insurance coverage Individual market Issuer health insurance issuer. Late enrollee Late enrollment Medical care Medical condition condition Participant participant Placement, or being placed, for adoption Plan year (1) The deductible or limit year used under the plan; (2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year; (3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer's taxable year; or (4) In any other case, the plan year is the calendar year. Preexisting condition exclusion Public health plan public health plan Public Health Service Act (PHS Act) et seq. Short-term, limited-duration insurance (1) Has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract and, taking into account renewals or extensions, has a duration of no longer than 36 months in total; (2) With respect to policies having a coverage start date before January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 1, excluding the heading “Notice 1,” with any additional information required by applicable state law: Notice 1 This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not “minimum essential coverage.” If you don't have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month. (3) With respect to policies having a coverage start date on or after January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 2, excluding the heading “Notice 2,” with any additional information required by applicable state law: Notice 2 This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. (4) If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect. Significant break in coverage significant break in coverage Special enrollment State health benefits risk pool State health benefits risk pool Travel insurance Waiting period waiting period [T.D. 9951, 86 FR 36948, July 13, 2021] § 54.9801-3 Limitations on preexisting condition exclusion period. (a) Preexisting condition exclusion defined. preexisting condition exclusion preexisting condition exclusion (2) Examples. Example 1. (i) Facts. S. T. T (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 5. (i) Facts. (ii) Conclusion. Example 5, Example 6. (i) Facts. (ii) Conclusion. Example 6, Example 7. (i) Facts. (ii) Conclusion. Example 7, Example 8. (i) Facts. (ii) Conclusion. Example 8, (b) General rules. See [T.D. 9166, 69 FR 78746, Dec. 30, 2004, as amended by T.D. 9491, 75 FR 37223, June 28, 2010; T.D. 9656, 79 FR 10304, Feb. 24, 2014; T.D. 9744, 80 FR 72238, Nov. 18, 2015] § 54.9801-4 Rules relating to creditable coverage. (a) General rules Creditable coverage. creditable coverage (i) A group health plan as defined in § 54.9831-1(a). (ii) Health insurance coverage as defined in § 54.9801-2 (whether or not the entity offering the coverage is subject to Chapter 100 of Subtitle K, and without regard to whether the coverage is offered in the group market, the individual market, or otherwise). (iii) Part A or 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 (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 (A) An organization qualifying under section 501(c)(26); (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 and which is established and maintained primarily to provide health coverage for individuals who are residents of such State and who, by reason of the existence or history of a medical condition— ( 1 ( 2 (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, the U.S. government, a foreign country, or any political subdivision of a State, the U.S. government, or a foreign country that provides health 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)). (xi) Title XXI of the Social Security Act (State Children's Health Insurance Program). (2) Excluded coverage. (b) Counting creditable coverage rules superseded by prohibition on preexisting condition exclusion. See [T.D. 9166, 69 FR 78746, Dec. 30, 2004, as amended by T.D. 9656, 79 FR 10304, Feb. 24, 2014] § 54.9801-5 Evidence of creditable coverage. (a) In general. See (b) Applicability. [T.D. 9656, 79 FR 10305, Feb. 24, 2014] § 54.9801-6 Special enrollment periods. (a) Special enrollment for certain individuals who lose coverage In general. (2) Individuals eligible for special enrollment When employee loses coverage. (A) The employee and the dependents are otherwise eligible to enroll in the benefit package; (B) When coverage under the plan was previously offered, the employee had coverage under any group health plan or health insurance coverage; and (C) The employee satisfies the conditions of paragraph (a)(3)(i), (ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv) of this section. (ii) When dependent loses coverage ( 1 ( 2 ( 3 (B) However, the plan is not required to enroll any other dependent unless that dependent satisfies the criteria of this paragraph (a)(2)(ii), or the employee satisfies the criteria of paragraph (a)(2)(i) of this section. (iii) Examples. Example 1. (i) Facts. A X. A A A A Y A Y A Y (ii) Conclusion. Example 1, A A A A X Example 2. (i) Facts. A A P A A A A A A Q A P A A Q. Q. (ii) Conclusion. Example 2, A A Q P A A P. Example 3. (i) Facts. B X. B B X B Y X B Y B Y (ii) Conclusion. Example 3, B B B X Example 4. (i) Facts. A X. X A A Y Y X A Y A A A (ii) Conclusion. Example 4 A A A X A A A (3) Conditions for special enrollment Loss of eligibility for coverage. (A) Loss of eligibility for coverage as a result of legal separation, divorce, cessation of dependent status (such as attaining the maximum age to be eligible as a dependent child under the plan), death of an employee, termination of employment, reduction in the number of hours of employment, and any loss of eligibility for coverage after a period that is measured by reference to any of the foregoing; (B) In the case of coverage offered through an HMO, or other arrangement, in the individual market that does not provide benefits to individuals who no longer reside, live, or work in a service area, loss of coverage because an individual no longer resides, lives, or works in the service area (whether or not within the choice of the individual); (C) In the case of coverage offered through an HMO, or other arrangement, in the group market that does not provide benefits to individuals who no longer reside, live, or work in a service area, loss of coverage because an individual no longer resides, lives, or works in the service area (whether or not within the choice of the individual), and no other benefit package is available to the individual; and (D) A situation in which a plan no longer offers any benefits to the class of similarly situated individuals (as described in § 54.9802-1(d)) that includes the individual. (ii) Termination of employer contributions. (iii) Exhaustion of COBRA continuation coverage. Exhaustion of COBRA continuation coverage (iv) Written statement. (v) The rules of this paragraph (a)(3) are illustrated by the following examples: Example 1. (i) Facts. D Y. D Y D Y Y (ii) Conclusion. Example 1, D D Y Example 2. (i) Facts. A (ii) Conclusion. Example 2, A A A A A A. Example 3. (i) Facts. C X. X C Z C C X X C Z C X C X Z (ii) Conclusion. Example 3, C C Z X Z C X C Z (4) Applying for special enrollment and effective date of coverage. (ii) Coverage must begin no later than the first day of the first calendar month beginning after the date the plan or issuer receives the request for special enrollment. (b) Special enrollment with respect to certain dependent beneficiaries In general. See (2) Individuals eligible for special enrollment. (i) Current employee only. (ii) Spouse of a participant only. (A) The individual becomes the spouse of a participant; or (B) The individual is a spouse of a participant and a child becomes a dependent of the participant through birth, adoption, or placement for adoption. (iii) Current employee and spouse. (A) The employee and the spouse become married; or (B) The employee and spouse are married and a child becomes a dependent of the employee through birth, adoption, or placement for adoption. (iv) Dependent of a participant only. (v) Current employee and a new dependent. (vi) Current employee, spouse, and a new dependent. (3) Applying for special enrollment and effective date of coverage Request. (ii) Reasonable procedures for special enrollment. (iii) Date coverage must begin Marriage. (B) Birth, adoption, or placement for adoption. (4) Examples. Example 1. (i) Facts. A A B C A B. A B (ii) Conclusion. Example 1, A A A B A, B, C C Example 2. (i) Facts. D X. X D E, D. E D D E (ii) Conclusion. Example 2, D E D E (c) Notice of special enrollment. (1) Description of special enrollment rights. If you are declining enrollment for yourself or your dependents (including your spouse) because of other health insurance or group health plan coverage, you may be able to enroll yourself and your dependents in this plan if you or your dependents lose eligibility for that other coverage (or if the employer stops contributing towards your or your dependents' other coverage). However, you must request enrollment within [insert “30 days” or any longer period that applies under the plan] after your or your dependents' other coverage ends (or after the employer stops contributing toward the other coverage). In addition, if you have a new dependent as a result of marriage, birth, adoption, or placement for adoption, you may be able to enroll yourself and your dependents. However, you must request enrollment within [insert “30 days” or any longer period that applies under the plan] after the marriage, birth, adoption, or placement for adoption. To request special enrollment or obtain more information, contact [insert the name, title, telephone number, and any additional contact information of the appropriate plan representative]. (2) Additional information that may be required. (d) Treatment of special enrollees (2) Special enrollees must be offered all the benefit packages available to similarly situated individuals who enroll when first eligible. For this purpose, any difference in benefits or cost-sharing requirements for different individuals constitutes a different benefit package. In addition, a special enrollee cannot be required to pay more for coverage than a similarly situated individual who enrolls in the same coverage when first eligible. (3) The rules of this section are illustrated by the following example: Example 2. (i) Facts. Y B B (ii) Conclusion. Example, B B B [T.D. 9166, 69 FR 78746, Dec. 30, 2004, as amended by T.D. 9656, 79 FR 10305, Feb. 24, 2014] § 54.9802-1 Prohibiting discrimination against participants and beneficiaries based on a health factor. (a) Health factors. health factor (i) Health status; (ii) Medical condition (including both physical and mental illnesses), as defined in § 54.9801-2; (iii) Claims experience; (iv) Receipt of health care; (v) Medical history; (vi) Genetic information, as defined in § 54.9802-3T. (vii) Evidence of insurability; or (viii) Disability. (2) Evidence of insurability includes— (i) Conditions arising out of acts of domestic violence; and (ii) Participation in activities such as motorcycling, snowmobiling, all-terrain vehicle riding, horseback riding, skiing, and other similar activities. (3) The decision whether health coverage is elected for an individual (including the time chosen to enroll, such as under special enrollment or late enrollment) is not, itself, within the scope of any health factor. (However, under § 54.9801-6, a plan must treat special enrollees the same as similarly situated individuals who are enrolled when first eligible.) (b) Prohibited discrimination in rules for eligibility In general. (ii) For purposes of this section, rules for eligibility include, but are not limited to, rules relating to— (A) Enrollment; (B) The effective date of coverage; (C) Waiting (or affiliation) periods; (D) Late and special enrollment; (E) Eligibility for benefit packages (including rules for individuals to change their selection among benefit packages); (F) Benefits (including rules relating to covered benefits, benefit restrictions, and cost-sharing mechanisms such as coinsurance, copayments, and deductibles), as described in paragraphs (b)(2) and (3) of this section; (G) Continued eligibility; and (H) Terminating coverage (including disenrollment) of any individual under the plan. (iii) The rules of this paragraph (b)(1) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3 Example 4. (i) Facts. A A A A A A A (ii) Conclusion. Example 4 A A A A (2) Application to benefits General rule (B) However, benefits provided under a plan must be uniformly available to all similarly situated individuals (as described in paragraph (d) of this section). Likewise, any restriction on a benefit or benefits must apply uniformly to all similarly situated individuals and must not be directed at individual participants or beneficiaries based on any health factor of the participants or beneficiaries (determined based on all the relevant facts and circumstances). Thus, for example, a plan may limit or exclude benefits in relation to a specific disease or condition, limit or exclude benefits for certain types of treatments or drugs, or limit or exclude benefits based on a determination of whether the benefits are experimental or not medically necessary, but only if the benefit limitation or exclusion applies uniformly to all similarly situated individuals and is not directed at individual participants or beneficiaries based on any health factor of the participants or beneficiaries. In addition, a plan or issuer may require the satisfaction of a deductible, copayment, coinsurance, or other cost-sharing requirement in order to obtain a benefit if the limit or cost-sharing requirement applies uniformly to all similarly situated individuals and is not directed at individual participants or beneficiaries based on any health factor of the participants or beneficiaries. In the case of a cost-sharing requirement, see also paragraph (b)(2)(ii) of this section, which permits variances in the application of a cost-sharing mechanism made available under a wellness program. (Whether any plan provision or practice with respect to benefits complies with this paragraph (b)(2)(i) does not affect whether the provision or practice is permitted under ERISA, the Affordable Care Act (including the requirements related to essential health benefits), the Americans With Disabilities Act, or any other law, whether State or Federal.) (C) For purposes of this paragraph (b)(2)(i), a plan amendment applicable to all individuals in one or more groups of similarly situated individuals under the plan and made effective no earlier than the first day of the first plan year after the amendment is adopted is not considered to be directed at any individual participants or beneficiaries. (D) The rules of this paragraph (b)(2)(i) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. B (ii) Conclusion. Example 2 B B Example 3. (i) A group health plan applies for a group health policy offered by an issuer. Individual C C C C (ii) Conclusion. Example 3 C C C. C Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 5. (i) Facts. (ii) Conclusion. Example 5, Example 6. (i) Facts. (ii) Conclusion. Example 6, Example 7. (i) Facts. (ii) Conclusion. Example 7, (ii) Exception for wellness programs. (iii) Specific rule relating to source-of-injury exclusions (B) The rules of this paragraph (b)(2)(iii) are illustrated by the following examples: Example 1. (i) Facts. D D D (ii) Conclusion. Example 1, D Example 2. (i) Facts. E E (ii) Conclusion. Example 2, E E E (c) Prohibited discrimination in premiums or contributions In general (ii) Discounts, rebates, payments in kind, and any other premium differential mechanisms are taken into account in determining an individual's premium or contribution rate. (For rules relating to cost-sharing mechanisms, see paragraph (b)(2) of this section (addressing benefits).) (2) Rules relating to premium rates Group rating based on health factors not restricted under this section. see (ii) List billing based on a health factor prohibited. (iii) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1 Example 2. (i) Facts. Example 1, F F' (ii) Conclusion. Example 2 F Example 2 (3) Exception for wellness programs. (d) Similarly situated individuals. (1) Participants. (2) Beneficiaries (A) A bona fide employment-based classification of the participant through whom the beneficiary is receiving coverage; (B) Relationship to the participant (for example, as a spouse or as a dependent child); (C) Marital status; (D) With respect to children of a participant, age or student status; or (E) Any other factor if the factor is not a health factor. (ii) Paragraph (d)(2)(i) of this section does not prevent more favorable treatment of individuals with adverse health factors in accordance with paragraph (g) of this section. (3) Discrimination directed at individuals. (4) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 5. (i) Facts. G G G' (ii) Conclusion. Example 5, G G G G (e) Nonconfinement and actively-at-work provisions Nonconfinement provisions General rule. (ii) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. M. N. N (ii) Conclusion. Example 2 N Example 2 M N M (2) Actively-at-work and continuous service provisions General rule (B) The rules of this paragraph (e)(2)(i) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. (ii) Exception for the first day of work (B) The rules of this paragraph (e)(2)(ii) are illustrated by the following examples: Example 1. (i) Facts. H H H H (ii) Conclusion. Example 1, Example 2. (i) Facts. J J J J (ii) Conclusion. Example 2, Example 1, (3) Relationship to plan provisions defining similarly situated individuals (ii) The rules of this paragraph (e)(3) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. B B B B B (ii) Conclusion. Example 3, B' B' Example 4. (i) Facts. C C' (ii) Conclusion. Example 4, C' C' (f) Nondiscriminatory wellness programs—in general. (1) Definitions. (i) Reward. (ii) Participatory wellness programs. (A) A program that reimburses employees for all or part of the cost for membership in a fitness center. (B) A diagnostic testing program that provides a reward for participation in that program and does not base any part of the reward on outcomes. (C) A program that encourages preventive care through the waiver of the copayment or deductible requirement under a group health plan for the costs of, for example, prenatal care or well-baby visits. (Note that, with respect to non-grandfathered plans, § 54.9815-2713T requires benefits for certain preventive health services without the imposition of cost sharing.) (D) A program that reimburses employees for the costs of participating, or that otherwise provides a reward for participating, in a smoking cessation program without regard to whether the employee quits smoking. (E) A program that provides a reward to employees for attending a monthly, no-cost health education seminar. (F) A program that provides a reward to employees who complete a health risk assessment regarding current health status, without any further action (educational or otherwise) required by the employee with regard to the health issues identified as part of the assessment. ( See also (iii) Health-contingent wellness programs. (iv) Activity-only wellness programs. See (v) Outcome-based wellness programs. See (2) Requirement for participatory wellness programs. (3) Requirements for activity-only wellness programs. (i) Frequency of opportunity to qualify. (ii) Size of reward. (iii) Reasonable design. (iv) Uniform availability and reasonable alternative standards. (A) Under this paragraph (f)(3)(iv), a reward under an activity-only wellness program is not available to all similarly situated individuals for a period unless the program meets both of the following requirements: ( 1 ( 2 (B) While plans and issuers are not required to determine a particular reasonable alternative standard in advance of an individual's request for one, if an individual is described in either paragraph (f)(3)(iv)(A)( 1 2 (C) All the facts and circumstances are taken into account in determining whether a plan or issuer has furnished a reasonable alternative standard, including but not limited to the following: ( 1 ( 2 ( 3 ( 4 (D) To the extent that a reasonable alternative standard under an activity-only wellness program is, itself, an activity-only wellness program, it must comply with the requirements of this paragraph (f)(3) in the same manner as if it were an initial program standard. (Thus, for example, if a plan or issuer provides a walking program as a reasonable alternative standard to a running program, individuals for whom it is unreasonably difficult due to a medical condition to complete the walking program (or for whom it is medically inadvisable to attempt to complete the walking program) must be provided a reasonable alternative standard to the walking program.) To the extent that a reasonable alternative standard under an activity-only wellness program is, itself, an outcome-based wellness program, it must comply with the requirements of paragraph (f)(4) of this section, including paragraph (f)(4)(iv)(D). (E) If reasonable under the circumstances, a plan or issuer may seek verification, such as a statement from an individual's personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard of an activity-only wellness program. Plans and issuers may seek verification with respect to requests for a reasonable alternative standard for which it is reasonable to determine that medical judgment is required to evaluate the validity of the request. (v) Notice of availability of reasonable alternative standard. (vi) Example. Example. (i) Facts. (ii) Conclusion. Example, (4) Requirements for outcome-based wellness programs. (i) Frequency of opportunity to qualify. (ii) Size of reward. (iii) Reasonable design. (iv) Uniform availability and reasonable alternative standards. (A) Under this paragraph (f)(4)(iv), a reward under an outcome-based wellness program is not available to all similarly situated individuals for a period unless the program allows a reasonable alternative standard (or waiver of the otherwise applicable standard) for obtaining the reward for any individual who does not meet the initial standard based on the measurement, test, or screening, as described in this paragraph (f)(4)(iv). (B) While plans and issuers are not required to determine a particular reasonable alternative standard in advance of an individual's request for one, if an individual is described in paragraph (f)(4)(iv)(A) of this section, a reasonable alternative standard must be furnished by the plan or issuer upon the individual's request or the condition for obtaining the reward must be waived. (C) All the facts and circumstances are taken into account in determining whether a plan or issuer has furnished a reasonable alternative standard, including but not limited to the following: ( 1 ( 2 ( 3 ( 4 (D) To the extent that a reasonable alternative standard under an outcome-based wellness program is, itself, an activity-only wellness program, it must comply with the requirements of paragraph (f)(3) of this section in the same manner as if it were an initial program standard. To the extent that a reasonable alternative standard under an outcome-based wellness program is, itself, another outcome-based wellness program, it must comply with the requirements of this paragraph (f)(4), subject to the following special rules: ( 1 ( 2 (E) It is not reasonable to seek verification, such as a statement from an individual's personal physician, under an outcome-based wellness program that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a reasonable alternative to the initial standard. However, if a plan or issuer provides an alternative standard to the otherwise applicable measurement, test, or screening that involves an activity that is related to a health factor, then the rules of paragraph (f)(3) of this section for activity-only wellness programs apply to that component of the wellness program and the plan or issuer may, if reasonable under the circumstances, seek verification that it is unreasonably difficult due to a medical condition for an individual to perform or complete the activity (or it is medically inadvisable to attempt to perform or complete the activity). (For example, if an outcome-based wellness program requires participants to maintain a certain healthy weight and provides a diet and exercise program for individuals who do not meet the targeted weight, a plan or issuer may seek verification, as described in paragraph (f)(3)(iv)(D) of this section, if reasonable under the circumstances, that a second reasonable alternative standard is needed for certain individuals because, for those individuals, it would be unreasonably difficult due to a medical condition to comply, or medically inadvisable to attempt to comply, with the diet and exercise program, due to a medical condition.) (v) Notice of availability of reasonable alternative standard. (vi) Examples. Example 1—Cholesterol screening with reasonable alternative standard to work with personal physician. (i) Facts. (ii) Conclusion. Example 1, Example 2—Cholesterol screening with plan alternative and no opportunity for personal physician involvement. (i) Facts. Example 1, (ii) Conclusion. Example 2, 3 Example 3—Cholesterol screening with plan alternative that can be modified by personal physician. (i) Facts. Example 2, (ii) Conclusion. Example 3, 3 Example 4—BMI screening with walking program alternative. (i) Facts. E E E E' E E (ii) Conclusion. Example 4, Example 5—BMI screening with alternatives available to either lower BMI or meet personal physician's recommendations. (i) Facts. Example 4 (ii) Conclusion. Example 5, 4 Example 6—Tobacco use surcharge with smoking cessation program alternative. (i) Facts. (ii) Conclusion. Example 6, Example 7—Tobacco use surcharge with alternative program requiring actual cessation. (i) Facts. Example 6, F F (ii) Conclusion. Example 7, F' Example 8—Tobacco use surcharge with smoking cessation program alternative that is not reasonable. (i) Facts. Example 6, F' F (ii) Conclusion. Example 8, F F' (5) Applicable percentage (ii) The provisions of this paragraph (f)(5) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. Example 1, (ii) Conclusion. Example 2, Example 3. (i) Facts. Example 1, (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, (6) Sample language. (g) More favorable treatment of individuals with adverse health factors permitted In rules for eligibility. (ii) The rules of this paragraph (g)(1) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 2. (i) Facts. (ii) Conclusion. Example 2 Example 3. (i) Facts. (ii) Conclusion. Example 3 (2) In premiums or contributions (ii) The rules of this paragraph (g)(2) are illustrated by the following example: Example. (i) Facts. (ii) Conclusion. Example (h) No effect on other laws. (i) Applicability dates. [T.D. 9298, 71 FR 75030, Dec. 13, 2006; 72 FR 7929, Feb. 22, 2007, as amended by T.D. 9464, 74 FR 51678, Oct. 7, 2009; T.D. 9620, 78 FR 33176, June 3, 2013; T.D. 9656, 79 FR 10305, Feb. 24, 2014] § 54.9802-2 Special rules for certain church plans. (a) Exception for certain church plans Church plans in general. (2) Health insurance issuers. (b) Church plans to which this section applies Church plans with certain coverage provisions in effect on July 15, 1997. (2) Plan provisions applicable to individuals employed by employers of 10 or fewer employees and self-employed individuals. (A) Any employee of an employer of 10 or fewer employees (determined without regard to section 414(e)(3)(C), under which a church or convention or association of churches is treated as the employer); and (B) Any self-employed individual. (ii) A plan does not contain the provisions described in this paragraph (b)(2) if the plan contains only one of the provisions described in this paragraph (b)(2). Thus, for example, a plan that requires evidence of good health of any self-employed individual, but not of any employee of an employer with 10 or fewer employees, does not contain the provisions described in this paragraph (b)(2). Moreover, a plan does not contain the provision described in paragraph (b)(2)(i)(A) of this section if the plan requires evidence of good health of any employee of an employer of fewer than 10 (or greater than 10) employees. Thus, for example, a plan does not contain the provision described in paragraph (b)(2)(i)(A) of this section if the plan requires evidence of good health of any employee of an employer with five or fewer employees. (3) Plan provisions applicable to individuals who enroll after the first 90 days of initial eligibility. (ii) A plan does not contain the provisions described in this paragraph (b)(3) if it provides for a longer (or shorter) period than 90 days. Thus, for example, a plan requiring evidence of good health of any individual who enrolls after the first 120 days of initial eligibility under the plan does not contain the provisions described in this paragraph (b)(3). (c) Examples. Example 1. (i) Facts. O O O (ii) Conclusion. Example 1, O O Example 2. (i) Facts. P P (ii) Conclusion. Example 2, P (d) Applicability date. [T.D. 9299, 71 FR 75056, Dec. 13, 2006] § 54.9802-3T Additional requirements prohibiting discrimination based on genetic information (temporary). (a) Definitions. (1) Collect (2) Family member (i) A dependent (as defined for purposes of § 54.9801-2) of the individual; or (ii) Any other person who is a first-degree, second-degree, third-degree, or fourth-degree relative of the individual or of a dependent of the individual. Relatives by affinity (such as by marriage or adoption) are treated the same as relatives by consanguinity (that is, relatives who share a common biological ancestor). In determining the degree of the relationship, relatives by less than full consanguinity (such as half-siblings, who share only one parent) are treated the same as relatives by full consanguinity (such as siblings who share both parents). (A) First-degree relatives include parents, spouses, siblings, and children. (B) Second-degree relatives include grandparents, grandchildren, aunts, uncles, nephews, and nieces. (C) Third-degree relatives include great-grandparents, great-grandchildren, great aunts, great uncles, and first cousins. (D) Fourth-degree relatives include great-great grandparents, great-great grandchildren, and children of first cousins. (3) Genetic information (i) Subject to paragraphs (a)(3)(ii) and (a)(3)(iii) of this section, with respect to an individual, information about— (A) The individual's genetic tests (as defined in paragraph (a)(5) of this section); (B) The genetic tests of family members of the individual; (C) The manifestation (as defined in paragraph (a)(6) of this section) of a disease or disorder in family members of the individual; or (D) Any request for, or receipt of, genetic services (as defined in paragraph (a)(4) of this section), or participation in clinical research which includes genetic services, by the individual or any family member of the individual. (ii) The term genetic information (iii) The term genetic information (A) With respect to a pregnant woman (or a family member of the pregnant woman), genetic information of any fetus carried by the pregnant woman; and (B) With respect to an individual (or a family member of the individual) who is utilizing an assisted reproductive technology, genetic information of any embryo legally held by the individual or family member. (4) Genetic services (i) A genetic test, as defined in paragraph (a)(5) of this section; (ii) Genetic counseling (including obtaining, interpreting, or assessing genetic information); or (iii) Genetic education. (5)(i) Genetic test (ii) The rules of this paragraph (a)(5) are illustrated by the following example: Example. (i) Facts. (ii) Conclusion. Example, (6)(i) Manifestation manifested (ii) The rules of this paragraph (a)(6) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. Example 2, (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 5. (i) Facts. Example 4, (ii) Conclusion. Example 5, (7) Underwriting purposes (b) No group-based discrimination based on genetic information In general. (2) Rule of construction. (3) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1 Example 2. (i) Facts. (ii) Conclusion. Example 2 (c) Limitation on requesting or requiring genetic testing General rule. (2) Health care professional may recommend a genetic test. (3) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. B (ii) Conclusion. Example 2, (4) Determination regarding payment In general. (ii) Limitation. (iii) Examples. See (5) Research exception. (i) Research in accordance with Federal regulations and applicable State or local law or regulations. (ii) Written request for participation in research. (A) Compliance with the request is voluntary; and (B) Noncompliance will have no effect on eligibility for benefits (as described in § 54.9802-1(b)(1)) or premium or contribution amounts. (iii) Prohibition on underwriting. (iv) Notice to Federal agencies. (d) Prohibitions on collection of genetic information For underwriting purposes General rule. See (ii) Underwriting purposes defined. underwriting purposes (A) Rules for, or determination of, eligibility (including enrollment and continued eligibility) for benefits under the plan or coverage as described in § 54.9802-1(b)(1)(ii) (including changes in deductibles or other cost-sharing mechanisms in return for activities such as completing a health risk assessment or participating in a wellness program); (B) The computation of premium or contribution amounts under the plan or coverage (including discounts, rebates, payments in kind, or other premium differential mechanisms in return for activities such as completing a health risk assessment or participating in a wellness program); (C) The application of any preexisting condition exclusion under the plan or coverage; and (D) Other activities related to the creation, renewal, or replacement of a contract of health insurance or health benefits. (iii) Medical appropriateness. See (2) Prior to or in connection with enrollment In general. (ii) Incidental collection exception In general. (B) Limitation. (3) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. Example 1, (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. Example 1, (ii) Conclusion. Example 4, Example 5. (i) Facts. (ii) Conclusion. Example 5, Example 6. (i) Facts. (ii) Conclusion. Example 6, Example 7. (i) Facts. Example 6, (ii) Conclusion. Example 7, Example 8. (i) Facts. (ii) Conclusion. Example 8, See Example 8 See Example 8 (e) Examples regarding determinations of medical appropriateness. Example 1. (i) Facts. (ii) Conclusion. Example 1 Example 1 Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. 2 (ii) Conclusion. Example 3, 2 Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 5. (i) Facts. Example 4, (ii) Conclusion. Example 5, Example 6. (i) Facts. Example 4, (ii) Conclusion. Example 6, (f) Effective/applicability date. (g) Expiration date. [T.D. 9464, 74 FR 51678, Oct. 7, 2009] § 54.9802-4 Special Rule Allowing Integration of Health Reimbursement Arrangements (HRAs) and Other Account-Based Group Health Plans with Individual Health Insurance Coverage and Medicare and Prohibiting Discrimination In HRAs and Other Account-Based Group Health Plans. (a) Scope. (b) Purpose. (c) General rule. (1) Enrollment in individual health insurance coverage In general. (ii) Forfeiture. (iii) Grace periods and retroactive termination of individual health insurance coverage. (2) No traditional group health plan may be offered to same participants. (3) Same terms requirement In general. (ii) Carryover amounts, salary reduction arrangements, and transfer amounts. (iii) Permitted variation. (A) Variation due to number of dependents. (B) Variation due to age. 1 2 ( 1 ( 2 (iv) Former employees. (v) New employees or new dependents. (vi) HSA-compatible HRAs. (vii) Examples. Example 5 (A) Example 1: Carryover amounts permitted 1 Facts. ( 2 Conclusion. Example 1 (B) Example 2: Employees hired after the first day of the plan year 1 Facts. ( 2 Conclusion. Example 2 (C) Example 3: HRA amounts offered vary based on number of dependents 1 Facts. ( 2 Conclusion. Example 3 (D) Example 4: HRA amounts offered vary based on increases in employees' ages 1 Facts. ( 2 Conclusion. Example 4 2 (E) Example 5: Application of same terms requirement to premium only HRA 1 Facts. ( 2 Conclusion. Example 5 (4) Opt out. (5) Reasonable procedures for coverage substantiation Substantiation of individual health insurance coverage for the plan year. (A) A document from a third party (for example, the issuer or an Exchange) showing that the participant and any dependents covered by the HRA are, or will be, enrolled in individual health insurance coverage (for example, an insurance card or an explanation of benefits document pertaining to the relevant time period or documentation from the Exchange showing that the individual has completed the application and plan selection); or (B) An attestation by the participant stating that the participant and dependent(s) covered by the HRA are, or will be, enrolled in individual health insurance coverage, the date coverage began or will begin, and the name of the provider of the coverage. (ii) Coverage substantiation with each request for reimbursement of medical care expenses. (iii) Reliance on substantiation. (6) Notice requirement Timing. (A) At least 90 calendar days before the beginning of each plan year for any participant who is not described in either paragraph (c)(6)(i)(B) or (C) of this section; (B) No later than the date on which the HRA may first take effect for the participant, for any participant who is not eligible to participate at the beginning of the plan year (or is not eligible to participate at the time the notice is provided at least 90 calendar days before the beginning of the plan year pursuant to paragraph (c)(6)(i)(A) of this section); or (C) No later than the date on which the HRA may first take effect for the participant, for any participant who is employed by an employer that is first established less than 120 days before the beginning of the first plan year of the HRA; this paragraph (c)(6)(i)(C) applies only with respect to the first plan year of the HRA. (ii) Content. (A) A description of the terms of the HRA, including the maximum dollar amount available for each participant (including the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or other than self-only coverage)), any rules regarding the proration of the maximum dollar amount applicable to any participant (or dependent, if applicable) who is not eligible to participate in the HRA for the entire plan year, whether (and which of) the participant's dependents are eligible for the HRA, a statement that there are different kinds of HRAs (including a qualified small employer health reimbursement arrangement) and the HRA being offered is an individual coverage HRA, a statement that the HRA requires the participant and any covered dependents to be enrolled in individual health insurance coverage (or Medicare Part A and B or Medicare Part C, if applicable), a statement that the coverage in which the participant and any covered dependents must be enrolled cannot be short-term, limited-duration insurance or consist solely of excepted benefits, if the HRA is subject to the Employee Retirement Income Security Act (ERISA), a statement that individual health insurance coverage in which the participant and any covered dependents are enrolled is not subject to ERISA, if the conditions under 29 CFR 2510.3-1(l) are satisfied, the date as of which coverage under the HRA may first become effective (both for participants whose coverage will become effective on the first day of the plan year and for participants whose HRA coverage may become effective at a later date), the dates on which the HRA plan year begins and ends, and the dates on which the amounts newly made available under the HRA will be made available. (B) A statement of the right of the participant to opt out of and waive future reimbursements from the HRA, as set forth under paragraph (c)(4) of this section. (C) A description of the potential availability of the premium tax credit if the participant opts out of and waives future reimbursements from the HRA and the HRA is not affordable for one or more months under § 1.36B-2(c)(5) of this chapter, a statement that even if the participant opts out of and waives future reimbursements from an HRA, the offer will prohibit the participant (and, potentially, the participant's dependents) from receiving a premium tax credit for the participant's coverage (or the dependent's coverage, if applicable) on an Exchange for any month that the HRA is affordable under § 1.36B-2(c)(5) of this chapter, a statement describing how the participant may find assistance with determining affordability, a statement that, if the participant is a former employee, the offer of the HRA does not render the participant (or the participant's dependents, if applicable) ineligible for the premium tax credit regardless of whether it is affordable under § 1.36B-2(c)(5) of this chapter, and a statement that if the participant or dependent is enrolled in Medicare, he or she is ineligible for the premium tax credit without regard to the offer or acceptance of the HRA; (D) A statement that if the participant accepts the HRA, the participant may not claim a premium tax credit for the participant's Exchange coverage for any month the HRA may be used to reimburse medical care expenses of the participant, and a premium tax credit may not be claimed for the Exchange coverage of the participant's dependents for any month the HRA may be used to reimburse medical care expenses of the dependents. (E) A statement that the participant must inform any Exchange to which the participant applies for advance payments of the premium tax credit of the availability of the HRA; the self-only HRA amount available for the HRA plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or other than self-only coverage) as set forth in the written notice in accordance with paragraph (c)(6)(ii)(A) of this section; whether the HRA is also available to the participant's dependents and if so, which ones; the date as of which coverage under the HRA may first become effective; the date on which the plan year begins and the date on which it ends; and whether the participant is a current employee or former employee. (F) A statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed a premium tax credit on the participant's individual income tax return. (G) A statement that the HRA may not reimburse any medical care expense unless the substantiation requirement set forth in paragraph (c)(5)(ii) of this section is satisfied and a statement that the participant must also provide the substantiation required by paragraph (c)(5)(i) of this section. (H) A statement that if the individual health insurance coverage (or coverage under Medicare Part A and B or Medicare Part C) of a participant or dependent ceases, the HRA will not reimburse any medical care expenses that are incurred by the participant or dependent, as applicable, after the coverage ceases, and a statement that the participant must inform the HRA if the participant's or dependent's individual health insurance coverage (or coverage under Medicare Part A and B or Medicare Part C) is cancelled or terminated retroactively and the date on which the cancellation or termination is effective. (I) The contact information (including a phone number) for an individual or a group of individuals who participants may contact in order to receive additional information regarding the HRA. The plan sponsor may determine which individual or group of individuals is best suited to be the specified contact. (J) A statement of availability of a special enrollment period to enroll in or change individual health insurance coverage, through or outside of an Exchange, for the participant and any dependents who newly gain access to the HRA and are not already covered by the HRA. (d) Classes of employees In general. (2) List of classes. (i) Full-time employees, defined at the election of the plan sponsor to mean either full-time employees under section 4980H (and § 54.4980H-1(a)(21) of this chapter) or employees who are not part-time employees (as described in § 1.105-11(c)(2)(iii)(C) of this chapter); (ii) Part-time employees, defined at the election of the plan sponsor to mean either employees who are not full-time employees under section 4980H (and under § 54.4980H-1(a)(21) of this chapter (which defines full-time employee)) or employees who are part-time employees as described in § 1.105-11(c)(2)(iii)(C) of this chapter; (iii) Employees who are paid on a salary basis; (iv) Non-salaried employees (such as, for example, hourly employees); (v) Employees whose primary site of employment is in the same rating area as defined in 45 CFR 147.102(b); (vi) Seasonal employees, defined at the election of the plan sponsor to mean seasonal employees as described in either § 54.4980H-1(a)(38) or § 1.105-11(c)(2)(iii)(C) of this chapter; (vii) Employees included in a unit of employees covered by a particular collective bargaining agreement (or an appropriate related participation agreement) in which the plan sponsor participates (as described in § 1.105-11(c)(2)(iii)(D) of this chapter); (viii) Employees who have not satisfied a waiting period for coverage (if the waiting period complies with § 54.9815-2708 of this chapter); (ix) Non-resident aliens with no U.S.-based income (as described in § 1.105-11(c)(2)(iii)(E) of this chapter); (x) Employees who, under all the facts and circumstances, are employees of an entity that hired the employees for temporary placement at an entity that is not the common law employer of the employees and that is not treated as a single employer with the entity that hired the employees for temporary placement under section 414(b), (c), (m), or (o); or (xi) A group of participants described as a combination of two or more of the classes of employees set forth in paragraphs (d)(2)(i) through (x) of this section. (3) Minimum class size requirement In general. (ii) Circumstances in which minimum class size requirement applies (B) The minimum class size requirement does not apply to a class of employees offered a traditional group health plan or a class of employees offered no coverage. (C) The minimum class size requirement applies to a class of employees offered an individual coverage HRA if the class is full-time employees, part-time employees, salaried employees, non-salaried employees, or employees whose primary site of employment is in the same rating area (described in paragraph (d)(2)(i), (ii), (iii), (iv), or (v) of this section, respectively, and referred to collectively as the applicable classes or individually as an applicable class), except that: ( 1 ( 2 (D) A class of employees offered an individual coverage HRA is also subject to the minimum class size requirement if the class is a class of employees created by combining at least one of the applicable classes (as defined in paragraph (d)(3)(ii)(C) of this section) with any other class, except that the minimum class size requirement shall not apply to a class that is the result of a combination of one of the applicable classes and a class of employees who have not satisfied a waiting period (as described in paragraph (d)(2)(viii) of this section). (iii) Determination of the applicable class size minimum In general. ( 1 ( 2 ( 3 (B) Determining employer size. (iv) Determining if a class satisfies the applicable class size minimum. (4) Consistency requirement. (i) To the extent applicable under the HRA for the plan year, each of the three classes of employees are defined in accordance with section 105(h) or each of the three classes of employees are defined in accordance with section 4980H for the plan year; and (ii) The HRA plan document sets forth the applicable definitions prior to the beginning of the plan year to which the definitions will apply. (5) Special rule for new hires In general. (ii) New hire date. (iii) Discontinuation of use of special rule for new hires and multiple applications of the special rule for new hires. (iv) Application of the minimum class size requirement under the special rule for new hires. (6) Student employees offered student premium reduction arrangements. (e) Integration of Individual Coverage HRAs with Medicare General rule. (2) Application of conditions in paragraph (c) of this section In general. (ii) Exceptions. (f) Examples Examples regarding classes and the minimum class size requirement. (i) Example 1: Collectively bargained employees offered traditional group health plan; non-collectively bargained employees offered HRA Facts. (B) Conclusion. Example 1 Example 1 (ii) Example 2: Collectively bargained employees in one unit offered traditional group health plan and in another unit offered HRA Facts. (B) Conclusion. Example 2 Example 2 (iii) Example 3: Employees in a waiting period offered no coverage; other employees offered an HRA Facts. (B) Conclusion. Example 3 Example 3 (iv) Example 4: Employees in a waiting period offered an HRA; other employees offered a traditional group health plan Facts. (B) Conclusion. Example 4 Example 4 (v) Example 5: Staffing firm employees temporarily placed with customers offered an HRA; other employees offered a traditional group health plan Facts. (B) Conclusion. Example 5 Example 5 (vi) Example 6: Staffing firm employees temporarily placed with customers in rating area 1 offered an HRA; other employees offered a traditional group health plan Facts. Example 5 (B) Conclusion. Example 6 (vii) Example 7: Employees in State 1 offered traditional group health plan; employees in State 2 offered HRA Facts. (B) Conclusion. Example 7 Example 7 (viii) Example 8: Full-time seasonal employees offered HRA; all other full-time employees offered traditional group health plan; part-time employees offered no coverage Facts. (B) Conclusion. Example 8 Example 8) (ix) Example 9: Full-time employees in rating area 1 offered traditional group health plan; full-time employees in rating area 2 offered HRA; part-time employees offered no coverage Facts. (B) Conclusion. Example 9 Example 9 (x) Example 10: Employees in rating area 1 offered HRA; employees in rating area 2 offered traditional group health plan Facts. Example 9 (B) Conclusion. Example 10 Example 10 (xi) Example 11: Employees in State 1 and rating area 1 of State 2 offered HRA; employees in all other rating areas of State 2 offered traditional group health

plan Facts. (B) Conclusion. Example 11 (xii) Example 12: Salaried employees offered a traditional group health plan; hourly employees offered an HRA Facts. (B) Conclusion. Example 12 Example 12 (xiii) Example 13: Part-time employees and full-time employees offered different HRAs; no traditional group health plan offered Facts. (B) Conclusion. Example 13 (xiv) Example 14: No employees offered an HRA Facts. Example 13 (B) Conclusion. (xv) Example 15: Full-time employees offered traditional group health plan; part-time employees offered HRA Facts. Example 13 (B) Conclusion. Example 15 Example 15 (xvi) Example 16: Satisfying minimum class size requirement based on employees offered HRA Facts. (B) Conclusion. Example 16 (xvii) Example 17: Student employees offered student premium reduction arrangements and same terms requirement Facts. (B) Conclusion. Example 17 (xiii) Example 18: Student employees offered student premium reduction arrangements and minimum class size requirement Facts. (B) Conclusion. Example 18 (2) Examples regarding special rule for new hires. (i) Example 1: Application of special rule for new hires to all employees Facts. (B) Conclusion. Example 1 (ii) Example 2: Application of special rule for new hires to full-time employees Facts. (B) Conclusion. Example 2 (iii) Example 3: Special rule for new hires impermissibly applied retroactively Facts. (B) Conclusion. Example 3 (iv) Example 4: Permissible second application of the special rule for new hires to the same class of employees Facts. (B) Conclusion. (v) Example 5: Impermissible second application of the special rule for new hires to the same class of employees Facts. Example 4 (B) Conclusion. (vi) Example 6: New full-time employees offered different HRAs in different rating areas Facts. (B) Conclusion. Example 6 (vii) Example 7: New full-time employee class subdivided based on rating area Facts. (B) Conclusion. Example 7 (viii) Example 8: New full-time employee class subdivided based on state Facts. Example 7 (B) Conclusion. Example 8 (ix) Example 9: New full-time employees and part-time employees offered HRA Facts. (B) Conclusion. (g) Applicability date. [T.D. 9867, 84 FR 28987, June 20, 2019] § 54.9811-1 Standards relating to benefits for mothers and newborns. (a) Hospital length of stay General rule. (i) 48 hours following a vaginal delivery; or (ii) 96 hours following a delivery by cesarean section. (2) When stay begins Delivery in a hospital. (ii) Delivery outside a hospital. (3) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, (4) Authorization not required In general. (ii) Example. Example. (i) Facts. (ii) Conclusion. Example, (5) Exceptions Discharge of mother. (ii) Discharge of newborn. (iii) Attending provider defined. (iv) Example. Example. (i) Facts. (ii) Conclusion. Example, (b) Prohibitions With respect to mothers In general. (A) Deny a mother or her newborn child eligibility or continued eligibility to enroll or renew coverage under the terms of the plan solely to avoid the requirements of this section; or (B) Provide payments (including payments-in-kind) or rebates to a mother to encourage her to accept less than the minimum protections available under this section. (ii) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, (2) With respect to benefit restrictions In general. (ii) Example. Example. (i) Facts. (ii) Conclusion. Example, (3) With respect to attending providers. (i) Penalize (for example, take disciplinary action against or retaliate against), or otherwise reduce or limit the compensation of, an attending provider because the provider furnished care to a participant or beneficiary in accordance with this section; or (ii) Provide monetary or other incentives to an attending provider to induce the provider to furnish care to a participant or beneficiary in a manner inconsistent with this section, including providing any incentive that could induce an attending provider to discharge a mother or newborn earlier than 48 hours (or 96 hours) after delivery. (c) Construction. (1) Hospital stays not mandatory. (i) Give birth in a hospital; or (ii) Stay in the hospital for a fixed period of time following the birth of her child. (2) Hospital stay benefits not mandated. (3) Cost-sharing rules In general. (ii) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, (4) Compensation of attending provider. (d) Notice requirement. (e) Applicability in certain states Health insurance coverage. (i) The state law requires the coverage to provide for at least a 48-hour hospital length of stay following a vaginal delivery and at least a 96-hour hospital length of stay following a delivery by cesarean section. (ii) The state law requires the coverage to provide for maternity and pediatric care in accordance with guidelines that relate to care following childbirth established by the American College of Obstetricians and Gynecologists, the American Academy of Pediatrics, or any other established professional medical association. (iii) The state law requires, in connection with the coverage for maternity care, that the hospital length of stay for such care is left to the decision of (or is required to be made by) the attending provider in consultation with the mother. State laws that require the decision to be made by the attending provider with the consent of the mother satisfy the criterion of this paragraph (e)(1)(iii). (2) Group health plans Fully-insured plans. (ii) Self-insured plans. (iii) Partially-insured plans. (3) Preemption provisions under section 731(a) of ERISA. (4) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1 Example 2. (i) Facts. (ii) Conclusion. Example 2 (f) Effective/applicability date. [T.D. 9427, 73 FR 62420, Oct. 20, 2008] § 54.9812-1 Parity in mental health and substance use disorder benefits. (a) Purpose and meaning of terms Purpose. (2) Meaning of terms. Aggregate lifetime dollar limit Annual dollar limit Coverage unit Cumulative financial requirements Cumulative quantitative treatment limitations DSM Evidentiary standards Factors Financial requirements ICD Medical/surgical benefits Mental health benefits Processes Strategies Substance use disorder benefits Treatment limitations (b) Parity requirements with respect to aggregate lifetime and annual dollar limits. (1) General General parity requirement. (ii) Exception. (2) Plan with no limit or limits on less than one-third of all medical/surgical benefits. (3) Plan with a limit on at least two-thirds of all medical/surgical benefits. (i) Apply the aggregate lifetime or annual dollar limit both to the medical/surgical benefits to which the limit would otherwise apply and to mental health or substance use disorder benefits in a manner that does not distinguish between the medical/surgical benefits and mental health or substance use disorder benefits; or (ii) Not include an aggregate lifetime or annual dollar limit on mental health or substance use disorder benefits that is less than the aggregate lifetime or annual dollar limit, respectively, on medical/surgical benefits. (For cumulative limits other than aggregate lifetime or annual dollar limits, see paragraph (c)(3)(v) of this section prohibiting separately accumulating cumulative financial requirements or cumulative quantitative treatment limitations.) (4) Determining one-third and two-thirds of all medical/surgical benefits. (5) Plan not described in paragraph (b)(2) or (b)(3) of this section In general. (A) Impose no aggregate lifetime or annual dollar limit, as appropriate, on mental health or substance use disorder benefits; or (B) Impose an aggregate lifetime or annual dollar limit on mental health or substance use disorder benefits that is no less than an average limit calculated for medical/surgical benefits in the following manner. The average limit is calculated by taking into account the weighted average of the aggregate lifetime or annual dollar limits, as appropriate, that are applicable to the categories of medical/surgical benefits. Limits based on delivery systems, such as inpatient/outpatient treatment or normal treatment of common, low-cost conditions (such as treatment of normal births), do not constitute categories for purposes of this paragraph (b)(5)(i)(B). In addition, for purposes of determining weighted averages, any benefits that are not within a category that is subject to a separately-designated dollar limit under the plan are taken into account as a single separate category by using an estimate of the upper limit on the dollar amount that a plan may reasonably be expected to incur with respect to such benefits, taking into account any other applicable restrictions under the plan. (ii) Weighting. (c) Parity requirements with respect to financial requirements and treatment limitations Clarification of terms Classification of benefits. (ii) Type of financial requirement or treatment limitation. (iii) Level of a type of financial requirement or treatment limitation. (iv) Coverage unit. (2) General parity requirement General rule. (ii) Classifications of benefits used for applying rules In general. ( 1 Inpatient, in-network. ( 2 Inpatient, out-of-network. ( 3 Outpatient, in-network. ( 4 Outpatient, out-of-network. ( 5 Emergency care. ( 6 Prescription drugs. (B) Application to out-of-network providers. (C) Examples. ( 1 Example 1 i Facts. ( ii Conclusion. 1 Example 1 ( 2 Example 2 i Facts. ( ii Conclusion. 2 Example 2 ( 3 Example 3 i Facts. 2 i Example 2 ( ii Conclusion. 3 Example 3 ( 4 Example 4 i Facts. 2 i Example 2 ( ii Conclusion. 4 (Example 4 ( 5 Example 5 i Facts. ( ii Conclusion. 5 Example 5 ( 6 Example 6 i Facts. 5 Example 5 ( ii Conclusion. 6 Example 6 ( 7 Example 7 i Facts. ( ii Conclusion. 7 Example 7 ( 8 Example 8 i Facts. ( ii Conclusion. 8 Example 8 (3) Financial requirements and quantitative treatment limitations Determining “substantially all” and “predominant” Substantially all. (B) Predominant 1 ( 2 (C) Portion based on plan payments. (D) Clarifications for certain threshold requirements. (E) Determining the dollar amount of plan payments. (ii) Application to different coverage units. (iii) Special rules. (A) Multi-tiered prescription drug benefits. (B) Multiple network tiers. (C) Sub-classifications permitted for office visits, separate from other outpatient services. ( 1 ( 2 (iv) Examples. (A) Example 1 1 Facts. i Table 1 to Paragraph ( c iv A 1 i Coinsurance rate 0% 10% 15% 20% 30% Total Projected payments $200x $100x $450x $100x $150x $1,000x Percent of total plan costs 20% 10% 45% 10% 15% Percent subject to coinsurance level N/A 12.5% (100x/800x) 56.25% (450x/800x) 12.5% (100x/800x) 18.75% (150x/800x) ( ii ( 2 Conclusion. Example 1 (B) Example 2 1 Facts. i Table 2 to Paragraph ( c iv B 1 i Copayment amount $0 $10 $15 $20 $50 Total Projected payments $200x $200x $200x $300x $100x $1,000x Percent of total plan costs 20% 20% 20% 30% 10% Percent subject to copayments N/A 25% (200x/800x) 25% (200x/800x) 37.5% (300x/800x) 12.5% (100x/800x) ( ii ( 2 Conclusion. Example 2 (C) Example 3 1 Facts. ( 2 Conclusion. Example 3 (D) Example 4 1 Facts. Table 3 to Paragraph ( c iv D 1 Tier 1 Tier 2 Tier 3 Tier 4 Tier description Generic drugs Preferred brand name drugs Non-preferred brand name drugs (which may have Tier 1 or Tier 2 alternatives) Specialty drugs. Percent paid by plan 90% 80% 60% 50%. ( 2 Conclusion. Example 4 (E) Example 5 1 Facts. ( 2 Conclusion. Example 5 (F) Example 6 1 Facts. ( 2 Conclusion. Example 6 (G) Example 7 1 Facts. 1 Example 6 ( 2 Conclusion. Example 7 (v) No separate cumulative financial requirements or cumulative quantitative treatment limitations (B) The rules of this paragraph (c)(3)(v) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. Classification Benefits Total benefits Percent Inpatient, in-network $1,800x $2,000x 90 Inpatient, out-of-network 1,000x 1,000x 100 Outpatient, in-network 1,400x 2,000x 70 Outpatient, out-of-network 1,880x 2,000x 94 Emergency care 300x 500x 60 (ii) Conclusion. Example 4, (4) Nonquantitative treatment limitations. (i) Requirements related to design and application of a nonquantitative treatment limitation In general. (B) Prohibition on discriminatory factors and evidentiary standards. ( 1 1 ( 2 ( 3 (ii) Illustrative, non-exhaustive list of nonquantitative treatment limitations. (A) Medical management standards (such as prior authorization) limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative; (B) Formulary design for prescription drugs; (C) For plans with multiple network tiers (such as preferred providers and participating providers), network tier design; (D) Standards related to network composition, including but not limited to, standards for provider and facility admission to participate in a network or for continued network participation, including methods for determining reimbursement rates, credentialing standards, and procedures for ensuring the network includes an adequate number of each category of provider and facility to provide services under the plan; (E) Plan methods for determining out-of-network rates, such as allowed amounts; usual, customary, and reasonable charges; or application of other external benchmarks for out-of-network rates; (F) Refusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first policies or step therapy protocols); (G) Exclusions based on failure to complete a course of treatment; and (H) Restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits for services provided under the plan. (iii) Required use of outcomes data In general. ( 1 Relevant data generally. ( 2 Relevant data for nonquantitative treatment limitations related to network composition. 1 ( 3 Unavailability of data. i ( ii ( iii 3 i ii (B) Material differences. ( 1 ( 2 2 ( i 2 ( ii (C) Nonquantitative treatment limitations related to network composition. 1 ( 1 ( 2 ( 3 ( 4 (iv) Prohibition on separate nonquantitative treatment limitations applicable only to mental health or substance use disorder benefits. (v) Effect of final determination of noncompliance under § 54.9812-2. (B) A determination by the Secretary of whether to require cessation of a nonquantitative treatment limitation under this paragraph (c)(4)(v) will be based on an evaluation of the relevant facts and circumstances involved in the specific final determination and the nature of the underlying nonquantitative treatment limitation and will take into account the interest of plan participants and beneficiaries and feedback from the plan. (vi) Examples. (A) Example 1 (not comparable and more stringent factors for reimbursement rate methodology, in operation 1 Facts. ( 2 Conclusion. Example 1 (B) Example 2 (strategy for exclusion for experimental or investigative treatment more stringently applied to ABA therapy in operation) 1 Facts. ( 2 Conclusion. Example 2 (C) Example 3 (step therapy protocol with exception for severe or irreversible consequences, discriminatory factor) 1 Facts. and ( 2 Conclusion. Example 3 (D) Example 4 (use of historical plan data and plan steps to correct, cure, or supplement) 1 Facts. ( 2 Conclusion. Example 4 2 (E) Example 5 (generally recognized independent professional medical or clinical standards and more stringent prior authorization requirement in operation) 1 Facts. ( 2 Conclusion. Example 5 3 (F) Example 6 (plan claims no data exist to reasonably assess impact of nonquantitative treatment limitation on access; medical necessity criteria) 1 Facts. ( 2 Conclusion. Example 6 3 ii (G) Example 7 (concurrent review data collection; no material difference in access) 1 Facts. ( 2 Conclusion. Example 7 (H) Example 8 (material difference in access for prior authorization requirement with reasonable action) 1 Facts. ( 2 Conclusion. Example 8 1 (I) Example 9 (differences attributable to generally recognized independent professional medical or clinical standards) 1 Facts. ( 2 Conclusion. Example 9 (J) Example 10 (material differences in access for standards for provider admission to a network with reasonable action) 1 Facts. ( 2 Conclusion. Example 10 (K) Example 11 (separate EAP exhaustion treatment limitation applicable only to mental health or substance use disorder benefits) 1 Facts. ( 2 Conclusion. Example 11 1 (L) Example 12 (separate exclusion for treatment in a residential facility applicable only to mental health and substance use disorder benefits) 1 Facts. ( 2 Conclusion. Example 12 (M) Example 13 (impermissible nonquantitative treatment limitation imposed following a final determination of noncompliance and direction by the Secretary) 1 Facts. ( 2 Conclusion. Example 13 (5) Exemptions. (d) Availability of plan information Criteria for medical necessity determinations. (2) Reason for any denial. (i) Plans subject to ERISA. (ii) Plans not subject to ERISA. (3) Provisions of other law. (e) Applicability Group health plans. (2) Health insurance issuers. (3) Scope. (i) Require a group health plan (or health insurance issuer offering coverage in connection with a group health plan) to provide any mental health benefits or substance use disorder benefits, and the provision of benefits by a plan (or health insurance coverage) for one or more mental health conditions or substance use disorders does not require the plan or health insurance coverage under this section to provide benefits for any other mental health condition or substance use disorder; (ii) Require a group health plan (or health insurance issuer offering coverage in connection with a group health plan) that provides coverage for mental health or substance use disorder benefits only to the extent required under PHS Act section 2713 to provide additional mental health or substance use disorder benefits in any classification in accordance with this section; or (iii) Affect the terms and conditions relating to the amount, duration, or scope of mental health or substance use disorder benefits under the plan (or health insurance coverage) except as specifically provided in paragraphs (b) and (c) of this section. (4) Coordination with EHB requirements. (f) Small employer exemption In general. small employer (2) Rules in determining employer size. (i) All persons treated as a single employer under subsections (b), (c), (m), and (o) of section 414 are treated as one employer; (ii) If an employer was not in existence throughout the preceding calendar year, whether it is a small employer is determined based on the average number of employees the employer reasonably expects to employ on business days during the current calendar year; and (iii) Any reference to an employer for purposes of the small employer exemption includes a reference to a predecessor of the employer. (g) Increased cost exemption In general. (2) Applicable percentage. (i) 2 percent in the case of the first plan year in which this section is applied to the plan or coverage; and (ii) 1 percent in the case of each subsequent plan year. (3) Determinations by actuaries (ii) The written report described in paragraph (g)(3)(i) of this section shall be maintained by the group health plan or health insurance issuer, along with all supporting documentation relied upon by the actuary, for a period of six years following the notification made under paragraph (g)(6) of this section. (4) Formula. [(E 1 0 0 > k (i) E 1 (ii) E 0 (iii) T 0 (iv) k is the applicable percentage of increased cost specified in paragraph (g)(2) of this section that will be expressed as a fraction for purposes of this formula. (v) D is the average change in spending that is calculated by applying the formula ( E 1 −E 0 0 (5) Six month determination. (6) Notification. (i) Participants and beneficiaries Content of notice. ( 1 ( 2 ( 3 ( 4 ( 5 3 ( 6 ( 7 ( 8 (B) Use of summary of material reductions in covered services or benefits. (C) Delivery. (D) Availability of documentation. (ii) Federal agencies Content of notice. ( 1 ( 2 ( 3 (B) Reporting with respect to church plans. (C) Reporting with respect to ERISA plans. (iii) Confidentiality. (A) A breakdown of States by the size and type of employers submitting such notification; and (B) A summary of the data received under paragraph (g)(6)(ii) of this section. (iv) Audits. (h) Sale of nonparity health insurance coverage. (i) Applicability dates In general. (i) This section applies to group health plans on the first day of the first plan year beginning on or after January 1, 2025, except that the requirements of paragraphs (c)(2)(ii)(A), (c)(4)(i)(B), and (c)(4)(iii) of this section apply on the first day of the first plan year beginning on or after January 1, 2026. (ii) Until the applicability date in paragraph (i)(1)(i) of this section, plans are required to continue to comply with 26 CFR 54.9812-1, revised as of April 1, 2022. (2) Special effective date for certain collectively-bargained plans. (j) Severability. [T.D. 9640, 78 FR 68266, Nov. 13, 2013, as amended by T.D. 10006, 89 FR 77703, Sept. 23, 2024] § 54.9812-2 Nonquantitative treatment limitation comparative analysis requirements. (a) Meaning of terms. (b) In general. (c) Comparative analysis content requirements. (1) Description of the nonquantitative treatment limitation. (i) Identification of the nonquantitative treatment limitation, including the specific terms of the plan or other relevant terms regarding the nonquantitative treatment limitation, the policies or guidelines (internal or external) in which the nonquantitative treatment limitation appears or is described, and the applicable sections of any other relevant documents, such as provider contracts, that describe the nonquantitative treatment limitation; (ii) Identification of all mental health or substance use disorder benefits and medical/surgical benefits to which the nonquantitative treatment limitation applies, including a list of which benefits are considered mental health or substance use disorder benefits and which benefits are considered medical/surgical benefits; and (iii) A description of which benefits are included in each classification set forth in § 54.9812-1(c)(2)(ii)(A). (2) Identification and definition of the factors and evidentiary standards used to design or apply the nonquantitative treatment limitation. (i) Identification of every factor considered or relied upon, as well as the evidentiary standards considered or relied upon to design or apply each factor and the sources from which each evidentiary standard was derived, in determining which mental health or substance use disorder benefits and which medical/surgical benefits are subject to the nonquantitative treatment limitation; and (ii) A definition of each factor, including: (A) A detailed description of the factor; (B) A description of each evidentiary standard used to design or apply each factor (and the source of each evidentiary standard) identified under paragraph (c)(2)(i) of this section; and (C) A description of any steps the plan has taken to correct, cure, or supplement any information, evidence, sources, or standards that would otherwise have been considered biased or not objective under § 54.9812-1(c)(4)(i)(B)( 1 (3) Description of how factors are used in the design and application of the nonquantitative treatment limitation. (i) A detailed explanation of how each factor identified and defined in paragraph (c)(2) of this section is used to determine which mental health or substance use disorder benefits and which medical/surgical benefits are subject to the nonquantitative treatment limitation; (ii) An explanation of the evidentiary standards or other information or sources (if any) considered or relied upon in designing or applying the factors or relied upon in designing and applying the nonquantitative treatment limitation, including in the determination of whether and how mental health or substance use disorder benefits or medical/surgical benefits are subject to the nonquantitative treatment limitation; (iii) If the application of the factor depends on specific decisions made in the administration of benefits, the nature of the decisions, the timing of the decisions, and the professional designations and qualifications of each decision maker; (iv) If more than one factor is identified and defined in paragraph (c)(2) of this section, an explanation of: (A) How all of the factors relate to each other; (B) The order in which all the factors are applied, including when they are applied; (C) Whether and how any factors are given more weight than others; and (D) The reasons for the ordering or weighting of the factors; and (v) Any deviations or variations from a factor, its applicability, or its definition (including the evidentiary standards used to define the factor and the information or sources from which each evidentiary standard was derived), such as how the factor is used differently to apply the nonquantitative treatment limitation to mental health or substance use disorder benefits as compared to medical/surgical benefits, and a description of how the plan establishes such deviations or variations. (4) Demonstration of comparability and stringency as written. (i) Documentation of each factor identified and defined in paragraph (c)(2) of this section that was applied to determine whether the nonquantitative treatment limitation applies to mental health or substance use disorder benefits and medical/surgical benefits in a classification, including, as relevant: (A) Quantitative data, calculations, or other analyses showing whether, in each classification in which the nonquantitative treatment limitation applies, mental health or substance use disorder benefits and medical/surgical benefits met or did not meet any applicable threshold identified in the relevant evidentiary standard to determine that the nonquantitative treatment limitation would or would not apply; and (B) Records maintained by the plan documenting the consideration and application of all factors and evidentiary standards, as well as the results of their application; (ii) In each classification in which the nonquantitative treatment limitation applies to mental health or substance use disorder benefits, a comparison of how the nonquantitative treatment limitation, as written, is designed and applied to mental health or substance use disorder benefits and to medical/surgical benefits, including the specific provisions of any forms, checklists, procedure manuals, or other documentation used in designing and applying the nonquantitative treatment limitation or that address the application of the nonquantitative treatment limitation; (iii) Documentation demonstrating how the factors are comparably applied, as written, to mental health or substance use disorder benefits and medical/surgical benefits in each classification, to determine which benefits are subject to the nonquantitative treatment limitation; and (iv) An explanation of the reasons for any deviations or variations in the application of a factor used to apply the nonquantitative treatment limitation, or the application of the nonquantitative treatment limitation, to mental health or substance use disorder benefits as compared to medical/surgical benefits, and how the plan establishes such deviations or variations, including: (A) In the definition of the factors, the evidentiary standards used to define the factors, and the sources from which the evidentiary standards were derived; (B) In the design of the factors or evidentiary standards; or (C) In the application or design of the nonquantitative treatment limitation. (5) Demonstration of comparability and stringency in operation. (i) A comprehensive explanation of how the plan evaluates whether, in operation, the processes, strategies, evidentiary standards, or other factors used in designing and applying the nonquantitative treatment limitation to mental health or substance use disorder benefits in a classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in designing and applying the nonquantitative treatment limitation with respect to medical/surgical benefits, including: (A) An explanation of any methodology and underlying data used to demonstrate the application of the nonquantitative treatment limitation, in operation; (B) The sample period, inputs used in any calculations, definitions of terms used, and any criteria used to select the mental health or substance use disorder benefits and medical/surgical benefits to which the nonquantitative treatment limitation is applicable; (C) With respect to a nonquantitative treatment limitation for which relevant data is temporarily unavailable as described in § 54.9812-1(c)(4)(iii)(A)( 3 i (D) With respect to a nonquantitative treatment limitation for which no data exist that can reasonably assess any relevant impact of the nonquantitative treatment limitation on relevant outcomes related to access to mental health and substance use disorder benefits and medical/surgical benefits as described in § 54.9812-1(c)(4)(iii)(A)( 3 ii (ii) Identification of the relevant data collected and evaluated, as required under § 54.9812-1(c)(4)(iii)(A); (iii) Documentation of the outcomes that resulted from the application of the nonquantitative treatment limitation to mental health or substance use disorder benefits and medical/surgical benefits, including: (A) The evaluation of relevant data as required under § 54.9812-1(c)(4)(iii)(A); and (B) A reasoned justification and analysis that explains why the plan concluded that any differences in the relevant data do or do not suggest the nonquantitative treatment limitation contributes to material differences in access to mental health or substance use disorder benefits as compared to medical/surgical benefits, in accordance with § 54.9812-1(c)(4)(iii)(B)( 2 (iv) A detailed explanation of any material differences in access demonstrated by the outcomes evaluated under paragraph (c)(5)(iii) of this section, including: (A) A reasoned explanation of any material differences in access that are not attributable to differences in the comparability or relative stringency of the nonquantitative treatment limitation as applied to mental health or substance use disorder benefits and medical/surgical benefits (including any considerations beyond a plan's control that contribute to the existence of material differences) and a detailed explanation of the bases for concluding that material differences are not attributable to differences in the comparability or relative stringency of the nonquantitative treatment limitation; and (B) To the extent differences in access to mental health or substance use disorder benefits are attributable to generally recognized independent professional medical or clinical standards or carefully circumscribed measures reasonably and appropriately designed to detect or prevent and prove fraud and abuse that minimize the negative impact on access to appropriate mental health and substance use disorder benefits, and such standards or measures are used as the basis for a factor or evidentiary standard used to design or apply a nonquantitative treatment limitation, documentation explaining how any such differences are attributable to those standards or measures, as required in § 54.9812-1(c)(4)(iii)(B)( 2 ii (v) A discussion of the actions that have been or are being taken by the plan to address any material differences in access to mental health or substance use disorder benefits as compared to medical/surgical benefits, including the actions the plan has taken or is taking under § 54.9812-1(c)(4)(iii)(B)( 1 (A) A reasoned explanation of any material differences in access to mental health or substance use disorder benefits as compared to medical/surgical benefits that persist despite reasonable actions that have been or are being taken; and (B) For a plan designing and applying one or more nonquantitative treatment limitations related to network composition, a discussion of the actions that have been or are being taken to address material differences in access to in-network mental health and substance use disorder benefits as compared to in-network medical/surgical benefits, including those listed in § 54.9812-1(c)(4)(iii)(C). (6) Findings and conclusions. (i) Any findings or conclusions indicating that the plan is or is not (or might or might not be) in compliance with the requirements of § 54.9812-1(c)(4), including any additional actions the plan has taken or intends to take to address any potential areas of concern or noncompliance; (ii) A reasoned and detailed discussion of the findings and conclusions described in paragraph (c)(6)(i) of this section; (iii) Citations to any additional specific information not otherwise included in the comparative analysis that supports the findings and conclusions described in paragraph (c)(6)(i) of this section not otherwise discussed in the comparative analysis; (iv) The date the analysis is completed and the title and credentials of all relevant persons who participated in the performance and documentation of the comparative analysis; and (v) If the comparative analysis relies upon an evaluation by a reviewer or consultant considered by the plan to be an expert, an assessment of each expert's qualifications and the extent to which the plan ultimately relied upon each expert's evaluation in performing and documenting the comparative analysis of the design and application of the nonquantitative treatment limitation applicable to both mental health or substance use disorder benefits and medical/surgical benefits. (d) Requirements related to submission of comparative analyses to the Secretary upon request Initial request by the Secretary for comparative analysis. (2) Additional information required after a comparative analysis is deemed to be insufficient. (3) Initial determination of noncompliance, required action, and corrective action plan. (4) Requirement to notify participants and beneficiaries of final determination of noncompliance In general. (ii) Content of notice. (A) The following statement prominently displayed on the first page, in no less than 14-point font: “Attention! The Department of the Treasury has determined that [insert the name of group health plan] is not in compliance with the Mental Health Parity and Addiction Equity Act.”; (B) A summary of changes the plan has made as part of its corrective action plan specified to the Secretary following the initial determination of noncompliance, including an explanation of any opportunity for a participant or beneficiary to have a claim for benefits submitted or reprocessed; (C) A summary of the Secretary's final determination that the plan is not in compliance with § 54.9812-1(c)(4) or this section, including any provisions or practices identified as being in violation of § 54.9812-1(c)(4) or this section, additional corrective actions identified by the Secretary in the final determination notice, and information on how participants and beneficiaries can obtain from the plan a copy of the final determination of noncompliance; (D) Any additional actions the plan is taking to come into compliance with § 54.9812-1(c)(4) or this section, when the plan will take such actions, and a clear and accurate statement explaining whether the Secretary has concurred with those actions; and (E) Contact information for questions and complaints, and a statement explaining how participants and beneficiaries can obtain more information about the notice, including: ( 1 ( 2 (iii) Manner of notice. (A) The format is readily accessible; (B) The notice is provided in paper form free of charge upon request; and (C) In a case in which the electronic form is an internet posting, the plan timely notifies the participant or beneficiary in paper form (such as a postcard) or email, that the documents are available on the internet, provides the internet address, includes the statement required in paragraph (d)(4)(ii)(A) of this section, and notifies the participant or beneficiary that the documents are available in paper form upon request. (e) Requests for a copy of a comparative analysis. (1) Any applicable State authority; and (2) A participant or beneficiary (including a provider or other person acting as a participant's or beneficiary's authorized representative) who has received an adverse benefit determination related to mental health or substance use disorder benefits. (f) Rule of construction. (g) Applicability. (h) Severability. [T.D. 10006, 89 FR 77715, Sept. 23, 2024] § 54.9815-1251 Preservation of right to maintain existing coverage. (a) Definition of grandfathered health plan coverage In general Grandfathered health plan coverage (ii) Changes in group health insurance coverage. (2) Disclosure of grandfather status (ii) The following model language can be used to satisfy this disclosure requirement: This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime dollar limits on benefits. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform www.healthcare.gov (3)(i) Documentation of plan or policy terms on March 23, 2010. (A) Maintain records documenting the terms of the plan or health insurance coverage in connection with the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan; and (B) Make such records available for examination upon request. (ii) Change in group health insurance coverage. (4) Family members enrolling after March 23, 2010. (b) Allowance for new employees to join current plan In general. (2) Anti-abuse rules Mergers and acquisitions. (ii) Change in plan eligibility. (A) Employees are transferred into the plan or health insurance coverage (the transferee plan) from a plan or health insurance coverage under which the employees were covered on March 23, 2010 (the transferor plan); (B) Comparing the terms of the transferee plan with those of the transferor plan (as in effect on March 23, 2010) and treating the transferee plan as if it were an amendment of the transferor plan would cause a loss of grandfather status under the provisions of paragraph (g)(1) of this section; and (C) There was no bona fide employment-based reason to transfer the employees into the transferee plan. For this purpose, changing the terms or cost of coverage is not a bona fide employment-based reason. (iii) Illustrative list of bona fide employment-based reasons. (A) When a benefit package is being eliminated because the issuer is exiting the market; (B) When a benefit package is being eliminated because the issuer no longer offers the product to the employer; (C) When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package; (D) When a benefit package is eliminated from a multiemployer plan as agreed upon as part of the collective bargaining process; or (E) When a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred. (3) Examples. Example 1. (i) Facts. F G. F G. (ii) Conclusion. Example 1, G F G Example 2. (i) Facts. H I. H H I. H I, H I, H (ii) Conclusion. Example 2, H I. I (c) General grandfathering rule see (2) To the extent not inconsistent with the rules applicable to a grandfathered health plan, a grandfathered health plan must comply with the requirements of the PHS Act, ERISA, and the Internal Revenue Code applicable prior to the changes enacted by the Patient Protection and Affordable Care Act. (d) Provisions applicable to all grandfathered health plans. (e) Applicability of PHS Act sections 2704, 2711, and 2714 to grandfathered group health plans and group health insurance coverage (2) For plan years beginning before January 1, 2014, the provisions of PHS Act section 2714 apply in the case of an adult child with respect to a grandfathered health plan that is a group health plan only if the adult child is not eligible to enroll in an eligible employer-sponsored health plan (as defined in section 5000A(f)(2) of the Internal Revenue Code) other than a grandfathered health plan of a parent. For plan years beginning on or after January 1, 2014, the provisions of PHS Act section 2714 apply with respect to a grandfathered health plan that is a group health plan without regard to whether an adult child is eligible to enroll in any other coverage. (f) Effect on collectively bargained plans In general. (g) Maintenance of grandfather status Changes causing cessation of grandfather status. (i) Elimination of benefits. (ii) Increase in percentage cost-sharing requirement. (iii) Increase in a fixed-amount cost-sharing requirement other than a copayment. (iv) Increase in a fixed-amount copayment. (A) An amount equal to $5 increased by medical inflation, as defined in paragraph (g)(4)(i) of this section (that is, $5 times medical inflation, plus $5); or (B) The maximum percentage increase (as defined in paragraph (g)(4)(ii) of this section), determined by expressing the total increase in the copayment as a percentage. (v) Decrease in contribution rate by employers and employee organizations Contribution rate based on cost of coverage. (B) Contribution rate based on a formula. (vi) Changes in annual limits Addition of an annual limit. (B) Decrease in limit for a plan or coverage with only a lifetime limit. (C) Decrease in limit for a plan or coverage with an annual limit. (2) Transitional rules Changes made prior to March 23, 2010. (A) Changes effective after March 23, 2010 pursuant to a legally binding contract entered into on or before March 23, 2010; (B) Changes effective after March 23, 2010 pursuant to a filing on or before March 23, 2010 with a State insurance department; or (C) Changes effective after March 23, 2010 pursuant to written amendments to a plan that were adopted on or before March 23, 2010. (ii) Changes made after March 23, 2010 and adopted prior to issuance of regulations. (A) The changes are effective before that date; (B) The changes are effective on or after that date pursuant to a legally binding contract entered into before that date; (C) The changes are effective on or after that date pursuant to a filing before that date with a State insurance department; or (D) The changes are effective on or after that date pursuant to written amendments to a plan that were adopted before that date. (3) Special rule for certain grandfathered high deductible health plans. (4) Definitions Medical inflation defined. medical inflation (ii) Maximum percentage increase defined. maximum percentage increase (A) With respect to increases for a group health plan and group health insurance coverage made effective on or after March 23, 2010, and before June 15, 2021, medical inflation (as defined in paragraph (g)(4)(i) of this section), expressed as a percentage, plus 15 percentage points; and (B) With respect to increases for a group health plan and group health insurance coverage made effective on or after June 15, 2021, the greater of: ( 1 ( 2 (iii) Contribution rate defined. (A) Contribution rate based on cost of coverage. contribution rate based on cost of coverage (B) Contribution rate based on a formula. contribution rate based on a formula (5) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. Example 3 (ii) Conclusion. Example 4, Example 5. (i) Facts. Example 4 after (ii) Conclusion. Example 5, Example 4 Example 6. (i) Facts. (ii) Conclusion. Example 6, Example 6 Example 7. (i) Facts. Example 6 (ii) Conclusion. Example 7, Example 7 Example 8. (i) Facts. (ii) Conclusion. Example 8, Example 9. (i) Facts. (ii) Conclusion. Example 9, Example 10. (i) Facts. F G H H (ii) Conclusion. Example 10, H F G Example 11. (i) Facts. (ii) Conclusion. Example 11, [T.D. 9744, 80 FR 72238, Nov. 18, 2015, as amended by T.D. 9928, 85 FR 81116, Dec. 15, 2020] § 54.9815-2704 Prohibition of preexisting condition exclusions. (a) No preexisting condition exclusions. (b) Examples. see Example 1. (i) Facts. P. N. N (ii) Conclusion. Example 1, Example 2. (i) Facts. C M. M C C (ii) Conclusion. See Example 2 M' C (c) Applicability date. [T.D. 9744, 80 FR 72243, Nov. 18, 2015] § 54.9815-2705 Prohibiting discrimination against participants and beneficiaries based on a health factor. (a) In general. (b) Applicability date. [T.D. 9620, 78 FR 33181, June 3, 2013] § 54.9815-2708 Prohibition on waiting periods that exceed 90 days. (a) General rule. (b) Waiting period defined. (c) Relation to a plan's eligibility criteria In general. See also (2) Eligibility conditions based solely on the lapse of time. (3) Other conditions for eligibility. (i) Application to variable-hour employees in cases in which a specified number of hours of service per period is a plan eligibility condition. (ii) Cumulative service requirements. (iii) Limitation on orientation periods. (d) Application to rehires. (e) Counting days. (f) Examples. Example 1. (i) Facts. A (ii) Conclusion. Example 1, A Example 2. (i) Facts. M B L (ii) Conclusion. Example 2, B B L Example 3. (i) Facts. Example 2, B M (ii) Conclusion. Example 3, B B Example 4. (i) Facts. C (ii) Conclusion. Example 4, C C Example 5. (i) Facts. (ii) Conclusion. Example 5, Example 6. (i) Facts. V' D D D' (ii) Conclusion. Example 6, V' D D D Example 7. (i) Facts. W' E W E' E' E' E E, E' E E' E E' (ii) Conclusion. Example 7, E' Example 8. (i) Facts. F X X' X F (ii) Conclusion. Example 8, F F Example 9. (i) Facts. (ii) Conclusion. Example 9, Example 10. (i) Facts. G Y Y. Y G G' Y' (ii) Conclusion. Example 10, Y' G G G' Example 11. (i) Facts. H Z Z H (ii) Conclusion. Example 11, H H (g) Special rule for health insurance issuers. (1) The issuer requires the plan sponsor to make a representation regarding the terms of any eligibility conditions or waiting periods imposed by the plan sponsor before an individual is eligible to become covered under the terms of the plan (and requires the plan sponsor to update this representation with any changes), and (2) The issuer has no specific knowledge of the imposition of a waiting period that would exceed the permitted 90-day period. (h) No effect on other laws. See e.g., (i) Applicability date. See [T.D. 9656, 79 FR 10306, Feb. 24, 2014, as amended by T.D. 9671, 79 FR 35947, June 25, 2014] § 54.9815-2711 No lifetime or annual limits. (a) Prohibition Lifetime limits. (2) Annual limits General rule. (ii) Exception for health flexible spending arrangements. (b) Construction Permissible limits on specific covered benefits. (2) Condition-based exclusions. (c) Definition of essential health benefits. (1) For plan years beginning before January 1, 2020, one of the EHB-benchmark plans applicable in a State under 45 CFR 156.110, and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2), or one of the three Federal Employees Health Benefits Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), supplemented as necessary, to satisfy the standards in 45 CFR 156.110; or (2) For plan years beginning on or after January 1, 2020, an EHB-benchmark plan selected by a State in accordance with the available options and requirements for EHB-benchmark plan selection at 45 CFR 156.111, including an EHB-benchmark plan in a State that takes no action to change its EHB-benchmark plan and thus retains the EHB-benchmark plan applicable in that State for the prior year in accordance with 45 CFR 156.111(d)(1), and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2). (d) Health reimbursement arrangements (HRAs) and other account-based group health plans In general. (2) Requirements for an HRA or other account-based group health plan to be integrated with another group health plan. (i) Method for integration with a group health plan: Minimum value not required. (A) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan) to the employee that does not consist solely of excepted benefits; (B) The employee receiving the HRA or other account-based group health plan is actually enrolled in a group health plan (other than the HRA or other account-based group health plan) that does not consist solely of excepted benefits, regardless of whether the plan is offered by the same plan sponsor (referred to as non-HRA group coverage); (C) The HRA or other account-based group health plan is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the non-HRA group coverage is offered by the plan sponsor of the HRA or other account-based group health plan (for example, the HRA may be offered only to employees who do not enroll in an employer's group health plan but are enrolled in other non-HRA group coverage, such as a group health plan maintained by the employer of the employee's spouse); (D) The benefits under the HRA or other account-based group health plan are limited to reimbursement of one or more of the following—co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care expenses that do not constitute essential health benefits as defined in paragraph (c) of this section; and (E) Under the terms of the HRA or other account-based group health plan, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan at least annually and, upon termination of employment, either the remaining amounts in the HRA or other account-based group health plan are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan (see paragraph (d)(3) of this section for additional rules regarding forfeiture and waiver). (ii) Method for integration with another group health plan: Minimum value required. (A) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan) to the employee that provides minimum value pursuant to section 36B(c)(2)(C)(ii) (and its implementing regulations and applicable guidance); (B) The employee receiving the HRA or other account-based group health plan is actually enrolled in a group health plan (other than the HRA or other account-based group health plan) that provides minimum value pursuant to section 36B(c)(2)(C)(ii) (and applicable guidance), regardless of whether the plan is offered by the plan sponsor of the HRA or other account-based group health plan (referred to as non-HRA MV group coverage); (C) The HRA or other account-based group health plan is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the non-HRA MV group coverage is offered by the plan sponsor of the HRA or other account-based group health plan (for example, the HRA may be offered only to employees who do not enroll in an employer's group health plan but are enrolled in other non-HRA MV group coverage, such as a group health plan maintained by an employer of the employee's spouse); and (D) Under the terms of the HRA or other account-based group health plan, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan at least annually, and, upon termination of employment, either the remaining amounts in the HRA or other account-based group health plan are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan (see paragraph (d)(3) of this section for additional rules regarding forfeiture and waiver). (3) Forfeiture. (4) Requirements for an HRA or other account-based group health plan to be integrated with individual health insurance coverage or Medicare Part A and B or Medicare Part C. (5) Integration with Medicare Part B and D. (i) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan and that does not consist solely of excepted benefits) to employees who are not eligible for Medicare; (ii) The employee receiving the HRA or other account-based group health plan is actually enrolled in Medicare Part B or D; (iii) The HRA or other account-based group health plan is available only to employees who are enrolled in Medicare Part B or D; and (iv) The HRA or other account-based group health plan complies with paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section. (6) Definitions. (i) Account-based group health plan. (ii) Medical care expenses. (e) Applicability date. [T.D. 9744, 80 FR 72243, Nov. 18, 2015, as amended by T.D. 9791, 81 FR 75324, Oct. 31, 2016; T.D. 9867, 84 FR 28997, June 20, 2019] § 54.9815-2712 Rules regarding rescissions. (a) Prohibition on rescissions (2) For purposes of this section, a rescission is a cancellation or discontinuance of coverage that has retroactive effect. For example, a cancellation that treats a policy as void from the time of the individual's or group's enrollment is a rescission. As another example, a cancellation that voids benefits paid up to a year before the cancellation is also a rescission for this purpose. A cancellation or discontinuance of coverage is not a rescission if— (i) The cancellation or discontinuance of coverage has only a prospective effect; (ii) The cancellation or discontinuance of coverage is effective retroactively to the extent it is attributable to a failure to timely pay required premiums or contributions (including COBRA premiums) towards the cost of coverage; (iii) The cancellation or discontinuance of coverage is initiated by the individual (or by the individual's authorized representative) and the sponsor, employer, plan, or issuer does not, directly or indirectly, take action to influence the individual's decision to cancel or discontinue coverage retroactively or otherwise take any adverse action or retaliate against, interfere with, coerce, intimidate, or threaten the individual; or (iv) The cancellation or discontinuance of coverage is initiated by the Exchange pursuant to 45 CFR 155.430 (other than under paragraph (b)(2)(iii)). (3) The rules of this paragraph (a) are illustrated by the following examples: Example 1. (i) Facts. A A A A A A A (ii) Conclusion. Example 1, A A Example 2. (i) Facts. B B B B B. B B B (ii) Conclusion. Example 2, B B (b) Compliance with other requirements. (c) Applicability date. [T.D. 9744, 80 FR 72244, Nov. 18, 2015] § 54.9815-2713 Coverage of preventive health services. (a) Services In general. (i) Evidence-based items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force with respect to the individual involved (except as otherwise provided in paragraph (c) of this section); (ii) Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved (for this purpose, a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention is considered in effect after it has been adopted by the Director of the Centers for Disease Control and Prevention, and a recommendation is considered to be for routine use if it is listed on the Immunization Schedules of the Centers for Disease Control and Prevention); (iii) With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration; and (iv) With respect to women, such additional preventive care and screenings not described in paragraph (a)(1)(i) of this section as provided for in comprehensive guidelines supported by the Health Resources and Services Administration for purposes of section 2713(a)(4) of the Public Health Service Act, subject to 45 CFR 147.131, 147.132, and 147.133. (2) Office visits (ii) If an item or service described in paragraph (a)(1) of this section is not billed separately (or is not tracked as individual encounter data separately) from an office visit and the primary purpose of the office visit is the delivery of such an item or service, then a plan or issuer may not impose cost-sharing requirements with respect to the office visit. (iii) If an item or service described in paragraph (a)(1) of this section is not billed separately (or is not tracked as individual encounter data separately) from an office visit and the primary purpose of the office visit is not the delivery of such an item or service, then a plan or issuer may impose cost-sharing requirements with respect to the office visit. (iv) The rules of this paragraph (a)(2) are illustrated by the following examples: Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. Example 1 (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, (3) Out-of-network providers. (ii) If a plan or issuer does not have in its network a provider who can provide an item or service described in paragraph (a)(1) of this section, the plan or issuer must cover the item or service when performed by an out-of-network provider, and may not impose cost-sharing with respect to the item or service. (4) Reasonable medical management. (5) Services not described. (b) Timing In general. (2) Changes in recommendations or guidelines. (ii) Notwithstanding paragraph (b)(2)(i) of this section, to the extent a recommendation or guideline described in paragraph (a)(1)(i) of this section that was in effect on the first day of a plan year is downgraded to a “D” rating, or any item or service associated with any recommendation or guideline specified in paragraph (a)(1) of this section is subject to a safety recall or is otherwise determined to pose a significant safety concern by a federal agency authorized to regulate the item or service during a plan year, there is no requirement under this section to cover these items and services through the last day of the plan year. (c) Recommendations not current. (d) Effective/applicability date. [T.D. 9578, 77 FR 8729, Feb. 15, 2012, as amended by T.D. 9624, 78 FR 39892, July 2, 2013; T.D. 9726, 80 FR 41342, July 14, 2015; T.D. 9827, 82 FR 47828, Oct. 13, 2017; T.D. 9840, 83 FR 57586, Nov. 15, 2018; T.D. 9841, 83 FR 57630, Nov. 15, 2018] § 54.9815-2713T Coverage of preventive health services (temporary). (a) Services In general. (i) Evidence-based items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force with respect to the individual involved (except as otherwise provided in paragraph (c) of this section); (ii) Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved (for purposes of this paragraph (a)(1)(ii), a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention is considered in effect after it has been adopted by the Director of the Centers for Disease Control and Prevention, and a recommendation is considered to be for routine use if it is listed on the Immunization Schedules of the Centers for Disease Control and Prevention); (iii) With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration; (iv) With respect to women, such additional preventive care and screenings not described in paragraph (a)(1)(i) of this section as provided for in comprehensive guidelines supported by the Health Resources and Services Administration for purposes of section 2713(a)(4) of the Public Health Service Act, subject to 45 CFR 147.131, 147.132, and 147.133; and (v) Any qualifying coronavirus preventive service, which means an item, service, or immunization that is intended to prevent or mitigate coronavirus disease 2019 (COVID-19) and that is, with respect to the individual involved— (A) An evidence-based item or service that has in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force; or (B) An immunization that has in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (regardless of whether the immunization is recommended for routine use). For purposes of this paragraph (a)(1)(v)(B), a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention is considered in effect after it has been adopted by the Director of the Centers for Disease Control and Prevention. (2) Office visits. (ii) If an item or service described in paragraph (a)(1) of this section is not billed separately (or is not tracked as individual encounter data separately) from an office visit and the primary purpose of the office visit is the delivery of such an item or service, then a plan or issuer may not impose cost-sharing requirements with respect to the office visit. (iii) If an item or service described in paragraph (a)(1) of this section is not billed separately (or is not tracked as individual encounter data separately) from an office visit and the primary purpose of the office visit is not the delivery of such an item or service, then a plan or issuer may impose cost-sharing requirements with respect to the office visit. (iv) The rules of this paragraph (a)(2) are illustrated by the following examples: (A) Example 1 1 Facts. ( 2 Conclusion. 1 (B) Example 2 1 Facts. 1 Example 1 ( 2 Conclusion. 1 (C) Example 3 1 Facts. ( 2 Conclusion. 1 (D) Example 4 1 Facts. ( 2 Conclusion. 1 (3) Out-of-network providers. (ii) If a plan or issuer does not have in its network a provider who can provide an item or service described in paragraph (a)(1) of this section, the plan or issuer must cover the item or service when performed by an out-of-network provider, and may not impose cost-sharing with respect to the item or service. (iii) A plan or issuer must provide coverage for and must not impose any cost-sharing requirements (such as a copayment, coinsurance, or a deductible) for any qualifying coronavirus preventive service described in paragraph (a)(1)(v) of this section, regardless of whether such service is delivered by an in-network or out-of-network provider. For purposes of this paragraph (a)(3)(iii), with respect to a qualifying coronavirus preventive service and a provider with whom the plan or issuer does not have a negotiated rate for such service (such as an out-of-network provider), the plan or issuer must reimburse the provider for such service in an amount that is reasonable, as determined in comparison to prevailing market rates for such service. (4) Reasonable medical management. (5) Services not described. (b) Timing In general. (2) Changes in recommendations or guidelines. (ii) Notwithstanding paragraph (b)(2)(i) of this section, to the extent a recommendation or guideline described in paragraph (a)(1)(i) of this section that was in effect on the first day of a plan year, or as otherwise provided in paragraph (b)(3) of this section, is downgraded to a “D” rating, or any item or service associated with any recommendation or guideline specified in paragraph (a)(1) of this section is subject to a safety recall or is otherwise determined to pose a significant safety concern by a Federal agency authorized to regulate the item or service during a plan or policy year, there is no requirement under this section to cover these items and services through the last day of the applicable plan or policy year. (3) Rapid coverage of preventive services for coronavirus. (c) Recommendations not current. (d) Applicability date. (e) Sunset date. [T.D. 9931, 85 FR 71193, Nov. 6, 2020] § 54.9815-2713A Accommodations in connection with coverage of preventive health services. (a) Eligible organizations for optional accommodation. (1) The organization is an objecting entity described in 45 CFR 147.132(a)(1)(i) or (ii), or 45 CFR 147.133(a)(1)(i) or (ii); (2) Notwithstanding its status under paragraph (a)(1) of this section and under 45 CFR 147.132(a) or 147.133(a), the organization voluntarily seeks to be considered an eligible organization to invoke the optional accommodation under paragraph (b) or (c) of this section as applicable; and (3) [Reserved] (4) The organization self-certifies in the form and manner specified by the Secretary of Labor or provides notice to the Secretary of the Department of Health and Human Services as described in paragraph (b) or (c) of this section. To qualify as an eligible organization, the organization must make such self-certification or notice available for examination upon request by the first day of the first plan year to which the accommodation in paragraph (b) or (c) of this section applies. The self-certification or notice must be executed by a person authorized to make the certification or provide the notice on behalf of the organization, and must be maintained in a manner consistent with the record retention requirements under section 107 of ERISA. (5) An eligible organization may revoke its use of the accommodation process, and its issuer or third party administrator must provide participants and beneficiaries written notice of such revocation, as specified herein. (i) Transitional rule (ii) General rule (b) Optional accommodation—self-insured group health plans (i) The eligible organization or its plan must contract with one or more third party administrators. (ii) The eligible organization must provide either a copy of the self-certification to each third party administrator or a notice to the Secretary of the Department of Health and Human Services that it is an eligible organization and of its objection as described in 45 CFR 147.132 or 147.133 to coverage of all or a subset of contraceptive services. (A) When a copy of the self-certification is provided directly to a third party administrator, such self-certification must include notice that obligations of the third party administrator are set forth in 29 CFR 2510.3-16 and this section. (B) When a notice is provided to the Secretary of Health and Human Services, the notice must include the name of the eligible organization; a statement that it objects as described in 45 CFR 147.132 or 147.133 to coverage of some or all contraceptive services (including an identification of the subset of contraceptive services to which coverage the eligible organization objects, if applicable), but that it would like to elect the optional accommodation process; the plan name and type (that is, whether it is a student health insurance plan within the meaning of 45 CFR 147.145(a) or a church plan within the meaning of section 3(33) of ERISA); and the name and contact information for any of the plan's third party administrators. If there is a change in any of the information required to be included in the notice, the eligible organization must provide updated information to the Secretary of the Department of Health and Human Services for the optional accommodation process to remain in effect. The Department of Labor (working with the Department of Health and Human Services) will send a separate notification to each of the plan's third party administrators informing the third party administrator that the Secretary of the Department of Health and Human Services has received a notice under paragraph (b)(1)(ii) of this section and describing the obligations of the third party administrator under 29 CFR 2510.3-16 and this section. (2) If a third party administrator receives a copy of the self-certification from an eligible organization or a notification from the Department of Labor, as described in paragraph (b)(1)(ii) of this section, and is willing to enter into or remain in a contractual relationship with the eligible organization or its plan to provide administrative services for the plan, then the third party administrator will provide or arrange payments for contraceptive services, using one of the following methods— (i) Provide payments for the contraceptive services for plan participants and beneficiaries without imposing any cost-sharing requirements (such as a copayment, coinsurance, or a deductible), premium, fee, or other charge, or any portion thereof, directly or indirectly, on the eligible organization, the group health plan, or plan participants or beneficiaries; or (ii) Arrange for an issuer or other entity to provide payments for the contraceptive services for plan participants and beneficiaries without imposing any cost-sharing requirements (such as a copayment, coinsurance, or a deductible), premium, fee, or other charge, or any portion thereof, directly or indirectly, on the eligible organization, the group health plan, or plan participants or beneficiaries. (3) If a third party administrator provides or arranges payments for contraceptive services in accordance with either paragraph (b)(2)(i) or (ii) of this section, the costs of providing or arranging such payments may be reimbursed through an adjustment to the federally facilitated Exchange user fee for a participating issuer pursuant to 45 CFR 156.50(d). (4) A third party administrator may not require any documentation other than a copy of the self-certification from the eligible organization or notification from the Department of Labor described in paragraph (b)(1)(ii) of this section. (5) Where an otherwise eligible organization does not contract with a third party administrator and files a self-certification or notice under paragraph (b)(1)(ii) of this section, the obligations under paragraph (b)(2) of this section do not apply, and the otherwise eligible organization is under no requirement to provide coverage or payments for contraceptive services to which it objects. The plan administrator for that otherwise eligible organization may, if it and the otherwise eligible organization choose, arrange for payments for contraceptive services from an issuer or other entity in accordance with paragraph (b)(2)(ii) of this section, and such issuer or other entity may receive reimbursements in accordance with paragraph (b)(3) of this section. (6) Where an otherwise eligible organization is an ERISA-exempt church plan within the meaning of section 3(33) of ERISA and it files a self-certification or notice under paragraph (b)(1)(ii) of this section, the obligations under paragraph (b)(2) of this section do not apply, and the otherwise eligible organization is under no requirement to provide coverage or payments for contraceptive services to which it objects. The third party administrator for that otherwise eligible organization may, if it and the otherwise eligible organization choose, provide or arrange payments for contraceptive services in accordance with paragraphs (b)(2)(i) or (ii) of this section, and receive reimbursements in accordance with paragraph (b)(3) of this section. (c) Optional accommodation—insured group health plans General rule. (i) The eligible organization or its plan must contract with one or more health insurance issuers. (ii) The eligible organization must provide either a copy of the self-certification to each issuer providing coverage in connection with the plan or a notice to the Secretary of the Department of Health and Human Services that it is an eligible organization and of its objection as described in 45 CFR 147.132 or 147.133 to coverage for all or a subset of contraceptive services. (A) When a self-certification is provided directly to an issuer, the issuer has sole responsibility for providing such coverage in accordance with § 54.9815-2713. (B) When a notice is provided to the Secretary of the Department Health and Human Services, the notice must include the name of the eligible organization; a statement that it objects as described in 45 CFR 147.132 or 147.133 to coverage of some or all contraceptive services (including an identification of the subset of contraceptive services to which coverage the eligible organization objects, if applicable) but that it would like to elect the optional accommodation process; the plan name and type (that is, whether it is a student health insurance plan within the meaning of 45 CFR 147.145(a) or a church plan within the meaning of section 3(33) of ERISA); and the name and contact information for any of the plan's health insurance issuers. If there is a change in any of the information required to be included in the notice, the eligible organization must provide updated information to the Secretary of Department of Health and Human Services for the optional accommodation process to remain in effect. The Department of Health and Human Services will send a separate notification to each of the plan's health insurance issuers informing the issuer that the Secretary of the Department Health and Human Services has received a notice under paragraph (c)(2)(ii) of this section and describing the obligations of the issuer under this section. (2) If an issuer receives a copy of the self-certification from an eligible organization or the notification from the Department of Health and Human Services as described in paragraph (c)(2)(ii) of this section and does not have its own objection as described in 45 CFR 147.132 or 147.133 to providing the contraceptive services to which the eligible organization objects, then the issuer will provide payments for contraceptive services as follows— (i) The issuer must expressly exclude contraceptive coverage from the group health insurance coverage provided in connection with the group health plan and provide separate payments for any contraceptive services required to be covered under § 54.9815-2713(a)(1)(iv) for plan participants and beneficiaries for so long as they remain enrolled in the plan. (ii) With respect to payments for contraceptive services, the issuer may not impose any cost-sharing requirements (such as a copayment, coinsurance, or a deductible), or impose any premium, fee, or other charge, or any portion thereof, directly or indirectly, on the eligible organization, the group health plan, or plan participants or beneficiaries. The issuer must segregate premium revenue collected from the eligible organization from the monies used to provide payments for contraceptive services. The issuer must provide payments for contraceptive services in a manner that is consistent with the requirements under sections 2706, 2709, 2711, 2713, 2719, and 2719A of the PHS Act, as incorporated into section 9815 of the PHS Act. If the group health plan of the eligible organization provides coverage for some but not all of any contraceptive services required to be covered under § 54.9815-2713(a)(1)(iv), the issuer is required to provide payments only for those contraceptive services for which the group health plan does not provide coverage. However, the issuer may provide payments for all contraceptive services, at the issuer's option. (3) A health insurance issuer may not require any documentation other than a copy of the self-certification from the eligible organization or the notification from the Department of Health and Human Services described in paragraph (c)(1)(ii) of this section. (d) Notice of availability of separate payments for contraceptive services—self-insured and insured group health plans. (e) Reliance—insured group health plans (2) A group health plan is considered to comply with any applicable requirement under § 54.9815-2713(a)(1)(iv) to provide contraceptive coverage if the plan complies with its obligations under paragraph (c) of this section, without regard to whether the issuer complies with the obligations under this section applicable to such issuer. (f) Definition. (g) Severability. [T.D. 9840, 83 FR 57586, Nov. 15, 2018, as amended by T.D. 9841, 83 FR 57630, Nov. 15, 2018] § 54.9815-2714 Eligibility of children until at least age 26. (a) In general (2) The rule of this paragraph (a) is illustrated by the following example: Example. (i) Facts. (ii) Conclusion. Example, (b) Restrictions on plan definition of dependent In general. (2) Construction. (c) Coverage of grandchildren not required. (d) Uniformity irrespective of age. (e) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. (ii) Conclusion. Example 4, Example 4, Example 4 (f) Applicability date. [T.D. 9744, 80 FR 72245, Nov. 18, 2015] § 54.9815-2715 Summary of benefits and coverage and uniform glossary. (a) Summary of benefits and coverage In general. (i) SBC provided by a group health insurance issuer to a group health plan Upon application. (B) By first day of coverage (if there are changes). (C) Upon renewal, reissuance, or reenrollment. ( 1 ( 2 (D) Upon request. (ii) SBC provided by a group health insurance issuer and a group health plan to participants and beneficiaries In general. (B) Upon application. (C) By first day of coverage (if there are changes). 1 ( 2 (D) Special enrollees. (E) Upon renewal, reissuance, or reenrollment. ( 1 ( 2 (F) Upon request. (iii) Special rules to prevent unnecessary duplication with respect to group health coverage ( 1 ( 2 ( 3 (B) If a single SBC is provided to a participant and any beneficiaries at the participant's last known address, then the requirement to provide the SBC to the participant and any beneficiaries is generally satisfied. However, if a beneficiary's last known address is different than the participant's last known address, a separate SBC is required to be provided to the beneficiary at the beneficiary's last known address. (C) With respect to a group health plan that offers multiple benefit packages, the plan or issuer is required to provide a new SBC automatically to participants and beneficiaries upon renewal or reenrollment only with respect to the benefit package in which a participant or beneficiary is enrolled (or will be automatically re-enrolled under the plan); SBCs are not required to be provided automatically upon renewal or reenrollment with respect to benefit packages in which the participant or beneficiary is not enrolled (or will not automatically be enrolled). However, if a participant or beneficiary requests an SBC with respect to another benefit package (or more than one other benefit package) for which the participant or beneficiary is eligible, the SBC (or SBCs, in the case of a request for SBCs relating to more than one benefit package) must be provided upon request as soon as practicable, but in no event later than seven business days following receipt of the request. (D) Subject to paragraph (a)(2)(ii) of this section, a plan administrator of a group health plan that uses two or more insurance products provided by separate health insurance issuers with respect to a single group health plan may synthesize the information into a single SBC or provide multiple partial SBCs provided that all the SBC include the content in paragraph (a)(2)(iii) of this section. (2) Content In general. (A) Uniform definitions of standard insurance terms and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage, in accordance with guidance as specified by the Secretary; (B) A description of the coverage, including cost sharing, for each category of benefits identified by the Secretary in guidance; (C) The exceptions, reductions, and limitations of the coverage; (D) The cost-sharing provisions of the coverage, including deductible, coinsurance, and copayment obligations; (E) The renewability and continuation of coverage provisions; (F) Coverage examples, in accordance with the rules of paragraph (a)(2)(ii) of this section; (G) With respect to coverage beginning on or after January 1, 2014, a statement about whether the plan or coverage provides minimum essential coverage as defined under section 5000A(f) and whether the plan's or coverage's share of the total allowed costs of benefits provided under the plan or coverage meets applicable requirements; (H) A statement that the SBC is only a summary and that the plan document, policy, certificate, or contract of insurance should be consulted to determine the governing contractual provisions of the coverage; (I) Contact information for questions; (J) For issuers, an Internet web address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained; (K) For plans and issuers that maintain one or more networks of providers, an Internet address (or similar contact information) for obtaining a list of network providers; (L) For plans and issuers that use a formulary in providing prescription drug coverage, an Internet address (or similar contact information) for obtaining information on prescription drug coverage; and (M) An Internet address for obtaining the uniform glossary, as described in paragraph (c) of this section, as well as a contact phone number to obtain a paper copy of the uniform glossary, and a disclosure that paper copies are available. (ii) Coverage examples. (A) Number of examples. (B) Benefits scenarios. (C) Illustration of benefit provided. (iii) Coverage provided outside the United States. (3) Appearance. (ii) A group health plan that utilizes two or more benefit packages (such as major medical coverage and a health flexible spending arrangement) may synthesize the information into a single SBC, or provide multiple SBCs. (4) Form. (A) The format is readily accessible by the plan (or its sponsor); (B) The SBC is provided in paper form free of charge upon request; and (C) If the electronic form is an Internet posting, the issuer timely advises the plan (or its sponsor) in paper form or email that the documents are available on the Internet and provides the Internet address. (ii) An SBC provided by a group health plan or health insurance issuer to a participant or beneficiary may be provided in paper form. Alternatively, the SBC may be provided electronically (such as by email or an Internet posting) if the requirements of this paragraph (a)(4)(ii) are met. (A) With respect to participants and beneficiaries covered under the plan or coverage, the SBC may be provided electronically as described in this paragraph (a)(4)(ii)(A). However, in all cases, the plan or issuer must provide the SBC in paper form if paper form is requested. ( 1 ( 2 ( 3 (B) With respect to participants and beneficiaries who are eligible but not enrolled for coverage, the SBC may be provided electronically if: ( 1 ( 2 ( 3 (5) Language. (b) Notice of modification. (c) Uniform glossary In general. (2) Health-coverage-related terms and medical terms. (i) Allowed amount, appeal, balance billing, co-insurance, complications of pregnancy, co-payment, deductible, durable medical equipment, emergency medical condition, emergency medical transportation, emergency room care, emergency services, excluded services, grievance, habilitation services, health insurance, home health care, hospice services, hospitalization, hospital outpatient care, in-network co-insurance, in-network co-payment, medically necessary, network, non-preferred provider, out-of-network co-insurance, out-of-network co-payment, out-of-pocket limit, physician services, plan, preauthorization, preferred provider, premium, prescription drug coverage, prescription drugs, primary care physician, primary care provider, provider, reconstructive surgery, rehabilitation services, skilled nursing care, specialist, usual customary and reasonable (UCR), and urgent care; and (ii) Such other terms as the Secretary determines are important to define so that individuals and employers may compare and understand the terms of coverage and medical benefits (including any exceptions to those benefits), as specified in guidance. (3) Appearance. (4) Form and manner. (d) Preemption. (e) Failure to provide. (f) Applicability to Medicare Advantage benefits. (g) Applicability date. (i) For disclosures with respect to participants and beneficiaries who enroll or re-enroll through an open enrollment period (including re-enrollees and late enrollees), this section applies beginning on the first day of the first open enrollment period that begins on or after September 1, 2015; and (ii) For disclosures with respect to participants and beneficiaries who enroll in coverage other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees), this section applies beginning on the first day of the first plan year that begins on or after September 1, 2015. (2) For disclosures with respect to plans, this section is applicable to health insurance issuers beginning September 1, 2015. [T.D. 9724, 80 FR 34304, June 16, 2015] § 54.9815-2715A1 Transparency in coverage—definitions. (a) Scope and definitions Scope. (2) Definitions. (i) Accumulated amounts (A) The amount of financial responsibility a participant or beneficiary has incurred at the time a request for cost-sharing information is made, with respect to a deductible or out-of-pocket limit. If an individual is enrolled in other than self-only coverage, these accumulated amounts shall include the financial responsibility a participant or beneficiary has incurred toward meeting his or her individual deductible or out-of-pocket limit, as well as the amount of financial responsibility that all the individuals enrolled under the plan or coverage have incurred, in aggregate, toward meeting the other than self-only deductible or out-of-pocket limit, as applicable. Accumulated amounts include any expense that counts toward a deductible or out-of-pocket limit (such as a copayment or coinsurance), but exclude any expense that does not count toward a deductible or out-of-pocket limit (such as any premium payment, out-of-pocket expense for out-of-network services, or amount for items or services not covered under the group health plan or health insurance coverage); and (B) To the extent a group health plan or health insurance issuer imposes a cumulative treatment limitation on a particular covered item or service (such as a limit on the number of items, days, units, visits, or hours covered in a defined time period) independent of individual medical necessity determinations, the amount that has accrued toward the limit on the item or service (such as the number of items, days, units, visits, or hours the participant or beneficiary, has used within that time period). (ii) Beneficiary (iii) Billed charge (iv) Billing code (v) Bundled payment arrangement (vi) Copayment assistance (vii) Cost-sharing liability (viii) Cost-sharing information (ix) Covered items or services (x) Derived amount (xi) Historical net price 3 (xii) In-network provider (xiii) Items or services (xiv) Machine-readable file (xv) National Drug Code (xvi) Negotiated rate (xvii) Out-of-network allowed amount (xviii) Out-of-network provider (xix) Out-of-pocket limit (xx) Plain language (xxi) Prerequisite (xxii) Underlying fee schedule rate (b) [Reserved] [T.D. 9922, 85 FR 72295, Nov. 12, 2020] § 54.9815-2715A2 Transparency in coverage—required disclosures to participants and beneficiaries. (a) Scope and definitions Scope. (2) Definitions. (b) Required disclosures to participants and beneficiaries. (1) Required cost-sharing information. (i) An estimate of the participant's or beneficiary's cost-sharing liability for a requested covered item or service furnished by a provider or providers that is calculated based on the information described in paragraphs (b)(1)(ii) through (iv) of this section. (A) If the request for cost-sharing information relates to items and services that are provided within a bundled payment arrangement, and the bundled payment arrangement includes items or services that have a separate cost-sharing liability, the group health plan or health insurance issuer must provide estimates of the cost-sharing liability for the requested covered item or service, as well as an estimate of the cost-sharing liability for each of the items and services in the bundled payment arrangement that have separate cost-sharing liabilities. While group health plans and health insurance issuers are not required to provide estimates of cost-sharing liability for a bundled payment arrangement where the cost-sharing is imposed separately for each item and service included in the bundled payment arrangement, nothing prohibits plans or issuers from providing estimates for multiple items and services in situations where such estimates could be relevant to participants or beneficiaries, as long as the plan or issuer also discloses information about the relevant items or services individually, as required in paragraph (b)(1)(v) of this section. (B) For requested items and services that are recommended preventive services under section 2713 of the Public Health Service Act (PHS Act), if the group health plan or health insurance issuer cannot determine whether the request is for preventive or non-preventive purposes, the plan or issuer must display the cost-sharing liability that applies for non-preventive purposes. As an alternative, a group health plan or health insurance issuer may allow a participant or beneficiary to request cost-sharing information for the specific preventive or non-preventive item or service by including terms such as “preventive”, “non-preventive” or “diagnostic” as a means to request the most accurate cost-sharing information. (ii) Accumulated amounts. (iii) In-network rate, comprised of the following elements, as applicable to the group health plan's or health insurance issuer's payment model: (A) Negotiated rate, reflected as a dollar amount, for an in-network provider or providers for the requested covered item or service; this rate must be disclosed even if it is not the rate the plan or issuer uses to calculate cost-sharing liability; and (B) Underlying fee schedule rate, reflected as a dollar amount, for the requested covered item or service, to the extent that it is different from the negotiated rate. (iv) Out-of-network allowed amount or any other rate that provides a more accurate estimate of an amount a group health plan or health insurance issuer will pay for the requested covered item or service, reflected as a dollar amount, if the request for cost-sharing information is for a covered item or service furnished by an out-of-network provider; provided, however, that in circumstances in which a plan or issuer reimburses an out-of-network provider a percentage of the billed charge for a covered item or service, the out-of-network allowed amount will be that percentage. (v) If a participant or beneficiary requests information for an item or service subject to a bundled payment arrangement, a list of the items and services included in the bundled payment arrangement for which cost-sharing information is being disclosed. (vi) If applicable, notification that coverage of a specific item or service is subject to a prerequisite. (vii) A notice that includes the following information in plain language: (A) A statement that out-of-network providers may bill participants or beneficiaries for the difference between a provider's billed charges and the sum of the amount collected from the group health plan or health insurance issuer and from the participant or beneficiary in the form of a copayment or coinsurance amount (the difference referred to as balance billing), and that the cost-sharing information provided pursuant to this paragraph (b)(1) does not account for these potential additional amounts. This statement is only required if balance billing is permitted under state law; (B) A statement that the actual charges for a participant's or beneficiary's covered item or service may be different from an estimate of cost-sharing liability provided pursuant to paragraph (b)(1)(i) of this section, depending on the actual items or services the participant or beneficiary receives at the point of care; (C) A statement that the estimate of cost-sharing liability for a covered item or service is not a guarantee that benefits will be provided for that item or service; (D) A statement disclosing whether the plan counts copayment assistance and other third-party payments in the calculation of the participant's or beneficiary's deductible and out-of-pocket maximum; (E) For items and services that are recommended preventive services under section 2713 of the PHS Act, a statement that an in-network item or service may not be subject to cost-sharing if it is billed as a preventive service if the group health plan or health insurance issuer cannot determine whether the request is for a preventive or non-preventive item or service; and (F) Any additional information, including other disclaimers, that the group health plan or health insurance issuer determines is appropriate, provided the additional information does not conflict with the information required to be provided by this paragraph (b)(1). (2) Required methods and formats for disclosing information to participants and beneficiaries. (i) Internet-based self-service tool. (A) Search for cost-sharing information for a covered item or service provided by a specific in-network provider or by all in-network providers by inputting: ( 1 ( 2 ( 3 (B) Search for an out-of-network allowed amount, percentage of billed charges, or other rate that provides a reasonably accurate estimate of the amount a group health plan or health insurance issuer will pay for a covered item or service provided by out-of-network providers by inputting: ( 1 ( 2 (C) Refine and reorder search results based on geographic proximity of in-network providers, and the amount of the participant's or beneficiary's estimated cost-sharing liability for the covered item or service, to the extent the search for cost-sharing information for covered items or services returns multiple results. (ii) Paper method. (A) Disclose the applicable provider-per-request limit to the participant or beneficiary; (B) Provide the cost-sharing information in paper form pursuant to the individual's request, in accordance with the requirements in paragraphs (b)(2)(i)(A) through (C) of this section; and (C) Mail the cost-sharing information in paper form no later than 2 business days after an individual's request is received. (D) To the extent participants or beneficiaries request disclosure other than by paper (for example, by phone or email), plans and issuers may provide the disclosure through another means, provided the participant or beneficiary agrees that disclosure through such means is sufficient to satisfy the request and the request is fulfilled at least as rapidly as required for the paper method. (3) Special rule to prevent unnecessary duplication Special rule for insured group health plans. (ii) Other contractual arrangements. (c) Applicability. (2) As provided under § 54.9815-1251, this section does not apply to grandfathered health plans. This section also does not apply to health reimbursement arrangements or other account-based group health plans as defined in § 54.9815-2711(d)(6) or short-term, limited-duration insurance as defined in § 54.9801-2. (3) Nothing in this section alters or otherwise affects a group health plan's or health insurance issuer's duty to comply with requirements under other applicable state or Federal laws, including those governing the accessibility, privacy, or security of information required to be disclosed under this section, or those governing the ability of properly authorized representatives to access participant or beneficiary information held by plans and issuers. (4) A group health plan or health insurance issuer will not fail to comply with this section solely because it, acting in good faith and with reasonable diligence, makes an error or omission in a disclosure required under paragraph (b) of this section, provided that the plan or issuer corrects the information as soon as practicable. (5) A group health plan or health insurance issuer will not fail to comply with this section solely because, despite acting in good faith and with reasonable diligence, its internet website is temporarily inaccessible, provided that the plan or issuer makes the information available as soon as practicable. (6) To the extent compliance with this section requires a group health plan or health insurance issuer to obtain information from any other entity, the plan or issuer will not fail to comply with this section because it relied in good faith on information from the other entity, unless the plan or issuer knows, or reasonably should have known, that the information is incomplete or inaccurate. (d) Severability. [T.D. 9922, 85 FR 72295, Nov. 12, 2020] § 54.9815-2715A3 Transparency in coverage—requirements for public disclosure. (a) Scope and definitions Scope. (2) Definitions. (b) Requirements for public disclosure of in-network provider rates for covered items and services, out-of-network allowed amounts and billed charges for covered items and services, and negotiated rates and historical net prices for covered prescription drugs. (1) Required information. (i) An in-network rate machine-readable file that includes the required information under this paragraph (b)(1)(i) for all covered items and services, except for prescription drugs that are subject to a fee-for-service reimbursement arrangement, which must be reported in the prescription drug machine-readable file pursuant to paragraph (b)(1)(iii) of this section. The in-network rate machine-readable file must include: (A) For each coverage option offered by a group health plan or health insurance issuer, the name and the 14-digit Health Insurance Oversight System (HIOS) identifier, or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or if no HIOS identifier is available, the Employer Identification Number (EIN); (B) A billing code, which in the case of prescription drugs must be an NDC, and a plain language description for each billing code for each covered item or service under each coverage option offered by a plan or issuer; and (C) All applicable rates, which may include one or more of the following: negotiated rates, underlying fee schedule rates, or derived amounts. If a group health plan or health insurance issuer does not use negotiated rates for provider reimbursement, then the plan or issuer should disclose derived amounts to the extent these amounts are already calculated in the normal course of business. If the group health plan or health insurance issuer uses underlying fee schedule rates for calculating cost sharing, then the plan or issuer should include the underlying fee schedule rates in addition to the negotiated rate or derived amount. Applicable rates, including for both individual items and services and items and services in a bundled payment arrangement, must be: ( 1 ( 2 ( 3 ( 4 (ii) An out-of-network allowed amount machine-readable file, including: (A) For each coverage option offered by a group health plan or health insurance issuer, the name and the 14-digit HIOS identifier, or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or, if no HIOS identifier is available, the EIN; (B) A billing code, which in the case of prescription drugs must be an NDC, and a plain language description for each billing code for each covered item or service under each coverage option offered by a plan or issuer; and (C) Unique out-of-network allowed amounts and billed charges with respect to covered items or services, furnished by out-of-network providers during the 90-day time period that begins 180 days prior to the publication date of the machine-readable file (except that a group health plan or health insurance issuer must omit such data in relation to a particular item or service and provider when compliance with this paragraph (b)(1)(ii)(C) would require the plan or issuer to report payment of out-of-network allowed amounts in connection with fewer than 20 different claims for payments under a single plan or coverage). Consistent with paragraph (c)(3) of this section, nothing in this paragraph (b)(1)(ii)(C) requires the disclosure of information that would violate any applicable health information privacy law. Each unique out-of-network allowed amount must be: ( 1 ( 2 (iii) A prescription drug machine-readable file, including: (A) For each coverage option offered by a group health plan or health insurance issuer, the name and the 14-digit HIOS identifier, or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or, if no HIOS identifier is available, the EIN; (B) The NDC and the proprietary and nonproprietary name assigned to the NDC by the Food and Drug Administration (FDA) for each covered item or service that is a prescription drug under each coverage option offered by a plan or issuer; (C) The negotiated rates which must be: ( 1 ( 2 ( 3 (D) Historical net prices that are: ( 1 ( 2 ( 3 (2) Required method and format for disclosing information to the public. (3) Timing. (4) Special rules to prevent unnecessary duplication Special rule for insured group health plans. (ii) Other contractual arrangements. (iii) Aggregation permitted for out-of-network allowed amounts. (c) Applicability. (2) As provided under § 54.9815-1251, this section does not apply to grandfathered health plans. This section also does not apply to health reimbursement arrangements or other account-based group health plans as defined in § 54.9815-2711(d)(6) or short term limited duration insurance as defined in § 54.9801-2. (3) Nothing in this section alters or otherwise affects a group health plan's or health insurance issuer's duty to comply with requirements under other applicable state or Federal laws, including those governing the accessibility, privacy, or security of information required to be disclosed under this section, or those governing the ability of properly authorized representatives to access participant, or beneficiary information held by plans and issuers. (4) A group health plan or health insurance issuer will not fail to comply with this section solely because it, acting in good faith and with reasonable diligence, makes an error or omission in a disclosure required under paragraph (b) of this section, provided that the plan or issuer corrects the information as soon as practicable. (5) A group health plan or health insurance issuer will not fail to comply with this section solely because, despite acting in good faith and with reasonable diligence, its internet website is temporarily inaccessible, provided that the plan or issuer makes the information available as soon as practicable. (6) To the extent compliance with this section requires a group health plan or health insurance issuer to obtain information from any other entity, the plan or issuer will not fail to comply with this section because it relied in good faith on information from the other entity, unless the plan or issuer knows, or reasonably should have known, that the information is incomplete or inaccurate. (d) Severability. [T.D. 9922, 85 FR 72295, Nov. 12, 2020] § 54.9815-2719 Internal claims and appeals and external review processes. (a) Scope and definitions Scope. (2) Definitions. (i) Adverse benefit determination. adverse benefit determination (ii) Appeal (or internal appeal). appeal internal appeal (iii) Claimant. Claimant (iv) External review. External review (v) Final internal adverse benefit determination. final internal adverse benefit determination (vi) Final external review decision. final external review decision (vii) Independent review organization (or IRO). independent review organization IRO (viii) NAIC Uniform Model Act. NAIC Uniform Model Act (b) Internal claims and appeals process In general. (2) Requirements for group health plans and group health insurance issuers. (i) Minimum internal claims and appeals standards. (ii) Additional standards. (A) Clarification of meaning of adverse benefit determination. (B) Expedited notification of benefit determinations involving urgent care. (C) Full and fair review. ( 1 ( 2 (D) Avoiding conflicts of interest. (E) Notice. ( 1 ( 2 ( 3 ( 4 ( 5 (F) Deemed exhaustion of internal claims and appeals processes 1 2 ( 2 1 de minimis 1 2 (iii) Requirement to provide continued coverage pending the outcome of an appeal. (c) State standards for external review In general. (ii) To the extent that a group health plan provides benefits other than through health insurance coverage (that is, the plan is self-insured) and is subject to a State external review process that applies to and is binding on the plan (for example, is not preempted by ERISA) and the State external review process includes at a minimum the consumer protections in the NAIC Uniform Model Act, then the plan must comply with the applicable State external review process and is not required to comply with the Federal external review process of paragraph (d) of this section. Where a self-insured plan is not subject to an applicable State external review process, but the State has chosen to expand access to its process for plans that are not subject to the applicable State laws, the plan may choose to comply with either the applicable State external review process or the Federal external review process of paragraph (d) of this section. (iii) If a plan or issuer is not required under paragraph (c)(1)(i) or (c)(1)(ii) of this section to comply with the requirements of this paragraph (c), then the plan or issuer must comply with the Federal external review process of paragraph (d) of this section, except to the extent, in the case of a plan, the plan is not required under paragraph (c)(1)(i) of this section to comply with paragraph (d) of this section. (2) Minimum standards for State external review processes. (i) The State process must provide for the external review of adverse benefit determinations (including final internal adverse benefit determinations) by issuers (or, if applicable, plans) that are based on the issuer's (or plan's) requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit. (ii) The State process must require issuers (or, if applicable, plans) to provide effective written notice to claimants of their rights in connection with an external review for an adverse benefit determination. (iii) To the extent the State process requires exhaustion of an internal claims and appeals process, exhaustion must be unnecessary where the issuer (or, if applicable, the plan) has waived the requirement; the issuer (or the plan) is considered to have exhausted the internal claims and appeals process under applicable law (including by failing to comply with any of the requirements for the internal appeal process, as outlined in paragraph (b)(2) of this section); or the claimant has applied for expedited external review at the same time as applying for an expedited internal appeal. (iv) The State process provides that the issuer (or, if applicable, the plan) against which a request for external review is filed must pay the cost of the IRO for conducting the external review. Notwithstanding this requirement, a State external review process that expressly authorizes, as of November 18, 2015, a nominal filing fee may continue to permit such fees. For this purpose, to be considered nominal, a filing fee must not exceed $25; it must be refunded to the claimant if the adverse benefit determination (or final internal adverse benefit determination) is reversed through external review; it must be waived if payment of the fee would impose an undue financial hardship; and the annual limit on filing fees for any claimant within a single plan year must not exceed $75. (v) The State process may not impose a restriction on the minimum dollar amount of a claim for it to be eligible for external review. Thus, the process may not impose, for example, a $500 minimum claims threshold. (vi) The State process must allow at least four months after the receipt of a notice of an adverse benefit determination or final internal adverse benefit determination for a request for an external review to be filed. (vii) The State process must provide that IROs will be assigned on a random basis or another method of assignment that assures the independence and impartiality of the assignment process (such as rotational assignment) by a State or independent entity, and in no event selected by the issuer, plan, or the individual. (viii) The State process must provide for maintenance of a list of approved IROs qualified to conduct the external review based on the nature of the health care service that is the subject of the review. The State process must provide for approval only of IROs that are accredited by a nationally recognized private accrediting organization. (ix) The State process must provide that any approved IRO has no conflicts of interest that will influence its independence. Thus, the IRO may not own or control, or be owned or controlled by a health insurance issuer, a group health plan, the sponsor of a group health plan, a trade association of plans or issuers, or a trade association of health care providers. The State process must further provide that the IRO and the clinical reviewer assigned to conduct an external review may not have a material professional, familial, or financial conflict of interest with the issuer or plan that is the subject of the external review; the claimant (and any related parties to the claimant) whose treatment is the subject of the external review; any officer, director, or management employee of the issuer; the plan administrator, plan fiduciaries, or plan employees; the health care provider, the health care provider's group, or practice association recommending the treatment that is subject to the external review; the facility at which the recommended treatment would be provided; or the developer or manufacturer of the principal drug, device, procedure, or other therapy being recommended. (x) The State process allows the claimant at least five business days to submit to the IRO in writing additional information that the IRO must consider when conducting the external review, and it requires that the claimant is notified of the right to do so. The process must also require that any additional information submitted by the claimant to the IRO must be forwarded to the issuer (or, if applicable, the plan) within one business day of receipt by the IRO. (xi) The State process must provide that the decision is binding on the plan or issuer, as well as the claimant except to the extent the other remedies are available under State or Federal law, and except that the requirement that the decision be binding shall not preclude the plan or issuer from making payment on the claim or otherwise providing benefits at any time, including after a final external review decision that denies the claim or otherwise fails to require such payment or benefits. For this purpose, the plan or issuer must provide benefits (including by making payment on the claim) pursuant to the final external review decision without delay, regardless of whether the plan or issuer intends to seek judicial review of the external review decision and unless or until there is a judicial decision otherwise. (xii) The State process must require, for standard external review, that the IRO provide written notice to the issuer (or, if applicable, the plan) and the claimant of its decision to uphold or reverse the adverse benefit determination (or final internal adverse benefit determination) within no more than 45 days after the receipt of the request for external review by the IRO. (xiii) The State process must provide for an expedited external review if the adverse benefit determination (or final internal adverse benefit determination) concerns an admission, availability of care, continued stay, or health care service for which the claimant received emergency services, but has not been discharged from a facility; or involves a medical condition for which the standard external review time frame would seriously jeopardize the life or health of the claimant or jeopardize the claimant's ability to regain maximum function. As expeditiously as possible but within no more than 72 hours after the receipt of the request for expedited external review by the IRO, the IRO must make its decision to uphold or reverse the adverse benefit determination (or final internal adverse benefit determination) and notify the claimant and the issuer (or, if applicable, the plan) of the determination. If the notice is not in writing, the IRO must provide written confirmation of the decision within 48 hours after the date of the notice of the decision. (xiv) The State process must require that issuers (or, if applicable, plans) include a description of the external review process in or attached to the summary plan description, policy, certificate, membership booklet, outline of coverage, or other evidence of coverage it provides to participants, beneficiaries, or enrollees, substantially similar to what is set forth in section 17 of the NAIC Uniform Model Act. (xv) The State process must require that IROs maintain written records and make them available upon request to the State, substantially similar to what is set forth in section 15 of the NAIC Uniform Model Act. (xvi) The State process follows procedures for external review of adverse benefit determinations (or final internal adverse benefit determinations) involving experimental or investigational treatment, substantially similar to what is set forth in section 10 of the NAIC Uniform Model Act. (3) Transition period for external review processes (ii) An applicable State external review process must apply for final internal adverse benefit determinations (or, in the case of simultaneous internal appeal and external review, adverse benefit determinations) provided on or after January 1, 2018. The Federal external review process will apply to such internal adverse benefit determinations unless the Department of Health and Human Services determines that a State law meets all the minimum standards of paragraph (c)(2) of this section. Through December 31, 2017, a State external review process applicable to a health insurance issuer or group health plan may be considered to meet the minimum standards of paragraph (c)(2) of this section, if it meets the temporary standards established by the Secretary in guidance for a process similar to the NAIC Uniform Model Act. (d) Federal external review process. (1) Scope In general. (A) An adverse benefit determination (including a final internal adverse benefit determination) by a plan or issuer that involves medical judgment (including, but not limited to, those based on the plan's or issuer's requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit; its determination that a treatment is experimental or investigational; its determination whether a participant or beneficiary is entitled to a reasonable alternative standard for a reward under a wellness program; or its determination whether a plan or issuer is complying with the nonquantitative treatment limitation provisions of Code section 9812 and § 54.9812, which generally require, among other things, parity in the application of medical management techniques), as determined by the external reviewer. (A denial, reduction, termination, or a failure to provide payment for a benefit based on a determination that a participant or beneficiary fails to meet the requirements for eligibility under the terms of a group health plan or health insurance coverage is not eligible for the Federal external review process under this paragraph (d)); and (B) A rescission of coverage (whether or not the rescission has any effect on any particular benefit at that time). (ii) Examples. Example 1. (i) Facts. A A' A (ii) Conclusion. Example 1, 3 Example 2. (i) Facts. B B B (ii) Conclusion. Example 2, 3 (2) External review process standards. (i) Request for external review. (ii) Preliminary review In general. ( 1 ( 2 ( 3 ( 4 (B) Within one business day after completion of the preliminary review, the plan or issuer must issue a notification in writing to the claimant. If the request is complete but not eligible for external review, such notification must include the reasons for its ineligibility and current contact information, including the phone number, for the Employee Benefits Security Administration. If the request is not complete, such notification must describe the information or materials needed to make the request complete, and the plan or issuer must allow a claimant to perfect the request for external review within the four-month filing period or within the 48 hour period following the receipt of the notification, whichever is later. (iii) Referral to Independent Review Organization In general. ( 1 ( 2 ( 3 ( 4 (B) IRO contracts. ( 1 ( 2 ( 3 ( 4 ( 5 ( i ( ii ( iii ( iv ( v ( vi ( vii ( 6 ( 7 ( i ( ii ( iii ( iv ( v ( vi ( vii ( viii (iv) Reversal of plan's or issuer's decision. (3) Expedited external review. (i) Request for external review. (A) An adverse benefit determination if the adverse benefit determination involves a medical condition of the claimant for which the timeframe for completion of an expedited internal appeal under paragraph (b) of this section would seriously jeopardize the life or health of the claimant or would jeopardize the claimant's ability to regain maximum function and the claimant has filed a request for an expedited internal appeal; or (B) A final internal adverse benefit determination, if the claimant has a medical condition where the timeframe for completion of a standard external review would seriously jeopardize the life or health of the claimant or would jeopardize the claimant's ability to regain maximum function, or if the final internal adverse benefit determination concerns an admission, availability of care, continued stay, or health care item or service for which the claimant received emergency services, but has not been discharged from the facility. (ii) Preliminary review. (iii) Referral to independent review organization. (B) The assigned IRO, to the extent the information or documents are available and the IRO considers them appropriate, must consider the information or documents described above under the procedures for standard review. In reaching a decision, the assigned IRO must review the claim de novo and is not bound by any decisions or conclusions reached during the plan's or issuer's internal claims and appeals process. (iv) Notice of final external review decision. (4) Alternative, Federally-administered external review process. (e) Form and manner of notice In general. (2) Requirements. (ii) The plan or issuer must provide, upon request, a notice in any applicable non-English language; and (iii) The plan or issuer must include in the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services provided by the plan or issuer. (3) Applicable non-English language. (f) Secretarial authority. (g) Applicability date. [T.D. 9744, 80 FR 72246, Nov. 18, 2015] § 54.9815-2719T Internal claims and appeals and external review processes (temporary). (a) Scope and definitions Scope In general. (ii) Application to grandfathered health plans and health insurance coverage. (2) Definitions. (i) Adverse benefit determination. adverse benefit determination (ii) Appeal (or internal appeal). appeal internal appeal (iii) Claimant. Claimant (iv) External review. External review (v) Final internal adverse benefit determination. final internal adverse benefit determination (vi) Final external review decision. final external review decision (vii) Independent review organization (or IRO). independent review organization IRO (viii) NAIC Uniform Model Act. NAIC Uniform Model Act (b) Internal claims and appeals process In general. (2) Requirements for group health plans and group health insurance issuers. (i) Minimum internal claims and appeals standards. (ii) Additional standards. (A) Clarification of meaning of adverse benefit determination. (B) Expedited notification of benefit determinations involving urgent care. (C) Full and fair review. ( 1 ( 2 (D) Avoiding conflicts of interest. (E) Notice. ( 1 ( 2 ( 3 ( 4 ( 5 (F) Deemed exhaustion of internal claims and appeals processes. 1 2 ( 2 1 1 2 (iii) Requirement to provide continued coverage pending the outcome of an appeal. (c) State standards for external review In general. (ii) To the extent that a group health plan provides benefits other than through health insurance coverage (that is, the plan is self-insured) and is subject to a State external review process that applies to and is binding on the plan (for example, is not preempted by ERISA) and the State external review process includes at a minimum the consumer protections in the NAIC Uniform Model Act, then the plan must comply with the applicable State external review process and is not required to comply with the Federal external review process of paragraph (d) of this section. Where a self-insured plan is not subject to an applicable State external review process, but the State has chosen to expand access to its process for plans that are not subject to the applicable State laws, the plan may choose to comply with either the applicable State external review process or the Federal external review process of paragraph (d) of this section. (iii) If a plan or issuer is not required under paragraph (c)(1)(i) or (ii) of this section to comply with the requirements of this paragraph (c), then the plan or issuer must comply with the Federal external review process of paragraph (d) of this section, except to the extent, in the case of a plan, the plan is not required under paragraph (c)(1)(i) of this section to comply with paragraph (d) of this section. (2) Minimum standards for State external review processes. (i) The State process must provide for the external review of adverse benefit determinations (including final internal adverse benefit determinations) by issuers (or, if applicable, plans) that are based on the issuer's (or plan's) requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit, as well as a consideration of whether a plan or issuer is complying with the surprise billing and cost-sharing protections under sections 9816 and 9817 and §§ 54.9816-1T through 54.9816-6T and 54.9817-1T. (ii) The State process must require issuers (or, if applicable, plans) to provide effective written notice to claimants of their rights in connection with an external review for an adverse benefit determination. (iii) To the extent the State process requires exhaustion of an internal claims and appeals process, exhaustion must be unnecessary where the issuer (or, if applicable, the plan) has waived the requirement; the issuer (or the plan) is considered to have exhausted the internal claims and appeals process under applicable law (including by failing to comply with any of the requirements for the internal appeal process, as outlined in paragraph (b)(2) of this section), or the claimant has applied for expedited external review at the same time as applying for an expedited internal appeal. (iv) The State process provides that the issuer (or, if applicable, the plan) against which a request for external review is filed must pay the cost of the IRO for conducting the external review. Notwithstanding this requirement, a State external review process that expressly authorizes, as of November 18, 2015, a nominal filing fee may continue to permit such fees. For this purpose, to be considered nominal, a filing fee must not exceed $25; it must be refunded to the claimant if the adverse benefit determination (or final internal adverse benefit determination) is reversed through external review; it must be waived if payment of the fee would impose an undue financial hardship; and the annual limit on filing fees for any claimant within a single plan year must not exceed $75. (v) The State process may not impose a restriction on the minimum dollar amount of a claim for it to be eligible for external review. Thus, the process may not impose, for example, a $500 minimum claims threshold. (vi) The State process must allow at least four months after the receipt of a notice of an adverse benefit determination or final internal adverse benefit determination for a request for an external review to be filed. (vii) The State process must provide that IROs will be assigned on a random basis or another method of assignment that assures the independence and impartiality of the assignment process (such as rotational assignment) by a State or independent entity, and in no event selected by the issuer, plan, or the individual. (viii) The State process must provide for maintenance of a list of approved IROs qualified to conduct the external review based on the nature of the health care service that is the subject of the review. The State process must provide for approval only of IROs that are accredited by a nationally recognized private accrediting organization. (ix) The State process must provide that any approved IRO has no conflicts of interest that will influence its independence. Thus, the IRO may not own or control, or be owned or controlled by a health insurance issuer, a group health plan, the sponsor of a group health plan, a trade association of plans or issuers, or a trade association of health care providers. The State process must further provide that the IRO and the clinical reviewer assigned to conduct an external review may not have a material professional, familial, or financial conflict of interest with the issuer or plan that is the subject of the external review; the claimant (and any related parties to the claimant) whose treatment is the subject of the external review; any officer, director, or management employee of the issuer; the plan administrator, plan fiduciaries, or plan employees; the health care provider, the health care provider's group, or practice association recommending the treatment that is subject to the external review; the facility at which the recommended treatment would be provided; or the developer or manufacturer of the principal drug, device, procedure, or other therapy being recommended. (x) The State process allows the claimant at least five business days to submit to the IRO in writing additional information that the IRO must consider when conducting the external review, and it requires that the claimant is notified of the right to do so. The process must also require that any additional information submitted by the claimant to the IRO must be forwarded to the issuer (or, if applicable, the plan) within one business day of receipt by the IRO. (xi) The State process must provide that the decision is binding on the plan or issuer, as well as the claimant except to the extent the other remedies are available under State or Federal law, and except that the requirement that the decision be binding shall not preclude the plan or issuer from making payment on the claim or otherwise providing benefits at any time, including after a final external review decision that denies the claim or otherwise fails to require such payment or benefits. For this purpose, the plan or issuer must provide benefits (including by making payment on the claim) pursuant to the final external review decision without delay, regardless of whether the plan or issuer intends to seek judicial review of the external review decision and unless or until there is a judicial decision otherwise. (xii) The State process must require, for standard external review, that the IRO provide written notice to the issuer (or, if applicable, the plan) and the claimant of its decision to uphold or reverse the adverse benefit determination (or final internal adverse benefit determination) within no more than 45 days after the receipt of the request for external review by the IRO. (xiii) The State process must provide for an expedited external review if the adverse benefit determination (or final internal adverse benefit determination) concerns an admission, availability of care, continued stay, or health care service for which the claimant received emergency services, but has not been discharged from a facility; or involves a medical condition for which the standard external review time frame would seriously jeopardize the life or health of the claimant or jeopardize the claimant's ability to regain maximum function. As expeditiously as possible but within no more than 72 hours after the receipt of the request for expedited external review by the IRO, the IRO must make its decision to uphold or reverse the adverse benefit determination (or final internal adverse benefit determination) and notify the claimant and the issuer (or, if applicable, the plan) of the determination. If the notice is not in writing, the IRO must provide written confirmation of the decision within 48 hours after the date of the notice of the decision. (xiv) The State process must require that issuers (or, if applicable, plans) include a description of the external review process in or attached to the summary plan description, policy, certificate, membership booklet, outline of coverage, or other evidence of coverage it provides to participants, beneficiaries, or enrollees, substantially similar to what is set forth in section 17 of the NAIC Uniform Model Act. (xv) The State process must require that IROs maintain written records and make them available upon request to the State, substantially similar to what is set forth in section 15 of the NAIC Uniform Model Act. (xvi) The State process follows procedures for external review of adverse benefit determinations (or final internal adverse benefit determinations) involving experimental or investigational treatment, substantially similar to what is set forth in section 10 of the NAIC Uniform Model Act. (3) Transition period for external review processes. (ii) An applicable State external review process must apply for final internal adverse benefit determinations (or, in the case of simultaneous internal appeal and external review, adverse benefit determinations) provided on or after January 1, 2018. The Federal external review process will apply to such internal adverse benefit determinations unless the Department of Health and Human Services determines that a State law meets all the minimum standards of paragraph (c)(2) of this section. Through December 31, 2017, a State external review process applicable to a health insurance issuer or group health plan may be considered to meet the minimum standards of paragraph (c)(2), if it meets the temporary standards established by the Secretary in guidance for a process similar to the NAIC Uniform Model Act. (d) Federal external review process. (1) Scope In general. (A) An adverse benefit determination (including a final internal adverse benefit determination) by a plan or issuer that involves medical judgment (including, but not limited to, those based on the plan's or issuer's requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit; its determination that a treatment is experimental or investigational; its determination whether a participant or beneficiary is entitled to a reasonable alternative standard for a reward under a wellness program; its determination whether a plan or issuer is complying with the nonquantitative treatment limitation provisions of Code section 9812 and § 54.9812-1, which generally require, among other things, parity in the application of medical management techniques), as determined by the external reviewer. (A denial, reduction, termination, or a failure to provide payment for a benefit based on a determination that a participant or beneficiary fails to meet the requirements for eligibility under the terms of a group health plan or health insurance coverage is not eligible for the Federal external review process under this paragraph (d)); (B) An adverse benefit determination that involves consideration of whether a plan or issuer is complying with the surprise billing and cost-sharing protections set forth in sections 9816 and 9817 and §§ 54.9816-4T through 54.9816-5T and 54.9817-1T; and (C) A rescission of coverage (whether or not the rescission has any effect on any particular benefit at that time). (ii) Examples. (A) Example 1 1 Facts. A A' A ( 2 Conclusion. (B) Example 2 1 Facts. B B B ( 2 Conclusion. 3 (C) Example 3 1 Facts. C C ( 2 Conclusion. Example 3, C (D) Example 4 1 Facts. D D ( 2 Conclusion. Example 4, (E) Example 5 1 Facts. E E E ( 2 Conclusion. Example 5, E (F) Example 6 1 Facts. F F ( 2 Conclusion. Example 6, F (G) Example 7 1 Facts. G G ( 2 Conclusion. Example 7, (2) External review process standards. (i) Request for external review. (ii) Preliminary review In general. ( 1 ( 2 e.g., ( 3 ( 4 (B) Within one business day after completion of the preliminary review, the plan or issuer must issue a notification in writing to the claimant. If the request is complete but not eligible for external review, such notification must include the reasons for its ineligibility and current contact information, including the phone number, for the Employee Benefits Security Administration. If the request is not complete, such notification must describe the information or materials needed to make the request complete, and the plan or issuer must allow a claimant to perfect the request for external review within the four-month filing period or within the 48 hour period following the receipt of the notification, whichever is later. (iii) Referral to Independent Review Organization In general. ( 1 ( 2 ( 3 ( 4 (B) IRO contracts. ( 1 ( 2 ( 3 ( 4 ( 5 ( i ( ii ( iii ( iv ( v ( vi ( vii ( 6 ( 7 ( i ( ii ( iii ( iv ( v ( vi ( vii ( viii (iv) Reversal of plan's or issuer's decision. (3) Expedited external review. (i) Request for external review. (A) An adverse benefit determination if the adverse benefit determination involves a medical condition of the claimant for which the timeframe for completion of an expedited internal appeal under paragraph (b) of this section would seriously jeopardize the life or health of the claimant or would jeopardize the claimant's ability to regain maximum function and the claimant has filed a request for an expedited internal appeal; or (B) A final internal adverse benefit determination, if the claimant has a medical condition where the timeframe for completion of a standard external review would seriously jeopardize the life or health of the claimant or would jeopardize the claimant's ability to regain maximum function, or if the final internal adverse benefit determination concerns an admission, availability of care, continued stay, or health care item or service for which the claimant received emergency services, but has not been discharged from the facility. (ii) Preliminary review. (iii) Referral to independent review organization. (B) The assigned IRO, to the extent the information or documents are available and the IRO considers them appropriate, must consider the information or documents described above under the procedures for standard review. In reaching a decision, the assigned IRO must review the claim de novo and is not bound by any decisions or conclusions reached during the plan's or issuer's internal claims and appeals process. (iv) Notice of final external review decision. (4) Alternative, federally-administered external review process. (e) Form and manner of notice In general. (2) Requirements. (ii) The plan or issuer must provide, upon request, a notice in any applicable non-English language; and (iii) The plan or issuer must include in the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services provided by the plan or issuer. (3) Applicable non-English language. (f) Secretarial authority. (g) Applicability date. [T.D. 9955, 86 FR 56092, Oct. 7, 2021] § 54.9815-2719A Patient protections. (a) Choice of health care professional Designation of primary care provider In general. (ii) Construction. (iii) Example. Example. (i) Facts. (ii) Conclusion. Example, (2) Designation of pediatrician as primary care provider In general. (ii) Construction. (iii) Examples. Example 1. (i) Facts. A B A' B (ii) Conclusion. Example 1, A' B A' Example 2. (i) Facts. Example 1, A A' B B A' (ii) Conclusion. Example 2, A' (3) Patient access to obstetrical and gynecological care General rights Direct access. (B) Obstetrical and gynecological care. (ii) Application of paragraph. (A) Provides coverage for obstetrical or gynecological care; and (B) Requires the designation by a participant or beneficiary of a participating primary care provider. (iii) Construction. (A) Waive any exclusions of coverage under the terms and conditions of the plan or health insurance coverage with respect to coverage of obstetrical or gynecological care; or (B) Preclude the group health plan or health insurance issuer involved from requiring that the obstetrical or gynecological provider notify the primary care health care professional or the plan or issuer of treatment decisions. (iv) Examples. Example 1. (i) Facts. A, B, A' (ii) Conclusion. Example 1, A' Example 2. (i) Facts. Example 1 A C, (ii) Conclusion. Example 2, C Example 3. (i) Facts. Example 1 B A' (ii) Conclusion. Example 3, A B Example 4. (i) Facts. (ii) Conclusion. Example 4, (4) Notice of right to designate a primary care provider In general. (A) Under paragraph (a)(1)(i) of this section, that any participating primary care provider who is available to accept the participant or beneficiary can be designated; (B) Under paragraph (a)(2)(i) of this section, with respect to a child, that any participating physician who specializes in pediatrics can be designated as the primary care provider; and (C) Under paragraph (a)(3)(i) of this section, that the plan may not require authorization or referral for obstetrical or gynecological care by a participating health care professional who specializes in obstetrics or gynecology. (ii) Timing. (iii) Model language. (A) For plans and issuers that require or allow for the designation of primary care providers by participants or beneficiaries, insert: [Name of group health plan or health insurance issuer] generally [requires/allows] the designation of a primary care provider. You have the right to designate any primary care provider who participates in our network and who is available to accept you or your family members. [If the plan or health insurance coverage designates a primary care provider automatically, insert: Until you make this designation, [name of group health plan or health insurance issuer] designates one for you.] For information on how to select a primary care provider, and for a list of the participating primary care providers, contact the [plan administrator or issuer] at [insert contact information]. (B) For plans and issuers that require or allow for the designation of a primary care provider for a child, add: For children, you may designate a pediatrician as the primary care provider. (C) For plans and issuers that provide coverage for obstetric or gynecological care and require the designation by a participant or beneficiary of a primary care provider, add: You do not need prior authorization from [name of group health plan or issuer] or from any other person (including a primary care provider) in order to obtain access to obstetrical or gynecological care from a health care professional in our network who specializes in obstetrics or gynecology. The health care professional, however, may be required to comply with certain procedures, including obtaining prior authorization for certain services, following a pre-approved treatment plan, or procedures for making referrals. For a list of participating health care professionals who specialize in obstetrics or gynecology, contact the [plan administrator or issuer] at [insert contact information]. (b) Coverage of emergency services Scope. (2) General rules. (i) Without the need for any prior authorization determination, even if the emergency services are provided on an out-of-network basis; (ii) Without regard to whether the health care provider furnishing the emergency services is a participating network provider with respect to the services; (iii) If the emergency services are provided out of network, without imposing any administrative requirement or limitation on coverage that is more restrictive than the requirements or limitations that apply to emergency services received from in-network providers; (iv) If the emergency services are provided out of network, by complying with the cost-sharing requirements of paragraph (b)(3) of this section; and (v) Without regard to any other term or condition of the coverage, other than— (A) The exclusion of or coordination of benefits; (B) An affiliation or waiting period permitted under part 7 of ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the Internal Revenue Code; or (C) Applicable cost sharing. (3) Cost-sharing requirements Copayments and coinsurance. (A) The amount negotiated with in-network providers for the emergency service furnished, excluding any in-network copayment or coinsurance imposed with respect to the participant or beneficiary. If there is more than one amount negotiated with in-network providers for the emergency service, the amount described under this paragraph (b)(3)(i)(A) is the median of these amounts, excluding any in-network copayment or coinsurance imposed with respect to the participant or beneficiary. In determining the median described in the preceding sentence, the amount negotiated with each in-network provider is treated as a separate amount (even if the same amount is paid to more than one provider). If there is no per-service amount negotiated with in-network providers (such as under a capitation or other similar payment arrangement), the amount under this paragraph (b)(3)(i)(A) is disregarded. (B) The amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary, and reasonable amount), excluding any in-network copayment or coinsurance imposed with respect to the participant or beneficiary. The amount in this paragraph (b)(3)(i)(B) is determined without reduction for out-of-network cost sharing that generally applies under the plan or health insurance coverage with respect to out-of-network services. Thus, for example, if a plan generally pays 70 percent of the usual, customary, and reasonable amount for out-of-network services, the amount in this paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 100 percent) of the usual, customary, and reasonable amount for the service, not reduced by the 30 percent coinsurance that would generally apply to out-of-network services (but reduced by the in-network copayment or coinsurance that the individual would be responsible for if the emergency service had been provided in-network). (C) The amount that would be paid under Medicare (part A or part B of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq. (ii) Other cost sharing. (iii) Special rules regarding out-of-network minimum payment standards (B) A group health plan and health insurance issuer must provide a participant or beneficiary adequate and prominent notice of their lack of financial responsibility with respect to the amounts described under this paragraph (b)(3)(iii), to prevent inadvertent payment by the participant or beneficiary. (iv) Examples. Example 1. (i) Facts. (ii) Conclusion. Example 1, Example 2. (i) Facts. (ii) Conclusion. Example 2, Example 3. (i) Facts. (ii) Conclusion. Example 3, Example 4. (i) Facts. Example 3. (ii) Conclusion. Example 4, Example 5. (i) Facts. Example 4. (ii) Conclusion. Example 5, Example 6. (i) Facts. Example 5. (ii) Conclusion. Example 6, (4) Definitions. (i) Emergency medical condition. emergency medical condition (ii) Emergency services. emergency services (A) A medical screening examination (as required under section 1867 of the Social Security Act, 42 U.S.C. 1395dd) that is within the capability of the emergency department of a hospital, including ancillary services routinely available to the emergency department to evaluate such emergency medical condition, and (B) Such further medical examination and treatment, to the extent they are within the capabilities of the staff and facilities available at the hospital, as are required under section 1867 of the Social Security Act (42 U.S.C. 1395dd) to stabilize the patient. (iii) Stabilize. to stabilize, (c) Applicability date. [T.D. 9744, 80 FR 72252, Nov. 18, 2015] § 54.9815-2719AT Patient protections (temporary). (a)-(b) [Reserved] (c) Applicability date. See also [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9816-1T Basis and scope (temporary). (a) Basis. (b) Scope. [T.D. 9955, 86 FR 56099, Oct. 7, 2021] § 54.9816-2T Applicability (temporary). (a) In general. (2) The requirements in §§ 54.9816-8T and 54.9817-2T apply to certified IDR entities and group health plans (including grandfathered health plans as defined in § 54.9815-1251) except as specified in paragraph (b) of this section. (b) Exceptions. (1) Excepted benefits as described in § 54.9831-1(c). (2) Short-term, limited-duration insurance as defined in § 54.9801-2. (3) Health reimbursement arrangements or other account-based group health plans as described in § 54.9815-2711(d). [T.D. 9951, 86 FR 36950, July 13, 2021, as amended by T.D. 9955, 86 FR 56100, Oct. 7, 2021] § 54.9816-3 Definitions. (a) The definitions in § 54.9801-2 apply to §§ 54.9816-4 through 54.9816-9, 54.9817-1, 54.9817-2, and 54.9822-1, unless otherwise specified. In addition, for purposes of §§ 54.9816-4 through 54.9816-9, 54.9817-1, 54.9817-2, and 54.9822-1, the following definition applies: Bundled payment arrangement (1) A provider, facility, or provider of air ambulance services bills for multiple items or services furnished to a single patient under a single service code that represents multiple items or services (for example, a Diagnosis-Related Group (DRG) code); or (2) A plan or issuer makes an initial payment or notice of denial of payment to a provider, facility, or provider of air ambulance services under a single service code that represents multiple items or services furnished to a single patient (for example, a DRG code). (b) For further guidance, see 29 CFR 2590.716-3. [T.D. 10049, 91 FR 34047, June 4, 2026] § 54.9816-3T Definitions (temporary). The definitions in § 54.9801-2T apply to §§ 54.9816-4T through 54.9816-7T, 54.9817-1T, and 54.9822-1T unless otherwise specified. In addition, for purposes of §§ 54.9816-4T through 54.9816-7T, 54.9817-1T, and 54.9822-1T, the following definitions apply: Air ambulance service Cost sharing Emergency department of a hospital Emergency medical condition Emergency services Health care facility, (1) A hospital (as defined in section 1861(e) of the Social Security Act); (2) A hospital outpatient department; (3) A critical access hospital (as defined in section 1861(mm)(1) of the Social Security Act); and (4) An ambulatory surgical center described in section 1833(i)(1)(A) of the Social Security Act. Independent freestanding emergency department (1) Is geographically separate and distinct and licensed separately from a hospital under applicable State law; and (2) Provides any emergency services as described in § 54.9816-4T(c)(2)(i). Nonparticipating emergency facility Nonparticipating provider Notice of denial of payment Out-of-network rate (1) Subject to paragraph (3) of this definition, in a State that has in effect a specified State law, the amount determined in accordance with such law; (2) Subject to paragraph (3) of this definition, in a State that does not have in effect a specified State law— (i) Subject to paragraph (2)(ii) of this definition, if the nonparticipating provider or nonparticipating emergency facility and the plan agree on an amount of payment (including if the amount agreed upon is the initial payment sent by the plan under § 54.9816-4T(b)(3)(iv)(A), § 54.9816-5T(c)(3), or § 54.9817-1T(b)(4)(i); 29 CFR 2590.716-4(b)(3)(iv)(A), 2590.716-5(c)(3), or 2590.717-1(b)(4)(i); or 45 CFR 149.110(b)(3)(iv)(A), 149.120(c)(3), or 149.130(b)(4)(i), as applicable, or is agreed on through negotiations with respect to such item or service), such agreed on amount; or (ii) If the nonparticipating provider or nonparticipating emergency facility and the plan enter into the independent dispute resolution (IDR) process under section 9816(c) or 9817(b) of the Internal Revenue Code, section 716(c) or 717(b) of ERISA, or section 2799A-1(c) or 2799A-2(b) of the PHS Act, as applicable, and do not agree before the date on which a certified IDR entity makes a determination with respect to such item or service under such subsection, the amount of such determination; or (3) In a State that has an All-Payer Model Agreement under section 1115A of the Social Security Act that applies with respect to the plan; the nonparticipating provider or nonparticipating emergency facility; and the item or service, the amount that the State approves under the All-Payer Model Agreement for the item or service. Participating emergency facility Participating health care facility Participating provider Physician or health care provider Provider of air ambulance services Same or similar item or service Service code Qualifying payment amount Recognized amount (1) Subject to paragraph (3) of this definition, in a State that has in effect a specified State law, the amount determined in accordance with such law. (2) Subject to paragraph (3) of this definition, in a State that does not have in effect a specified State law, the lesser of— (i) The amount that is the qualifying payment amount (as determined in accordance with § 54.9816-6T); or (ii) The amount billed by the provider or facility. (3) In a State that has an All-Payer Model Agreement under section 1115A of the Social Security Act that applies with respect to the plan; the nonparticipating provider or nonparticipating emergency facility; and the item or service, the amount that the State approves under the All-Payer Model Agreement for the item or service. Specified State law State Treating provider Visit, [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9816-4T Preventing surprise medical bills for emergency services (temporary). (a) In general. (b) Coverage requirements. (1) Without the need for any prior authorization determination, even if the services are provided on an out-of-network basis. (2) Without regard to whether the health care provider furnishing the emergency services is a participating provider or a participating emergency facility, as applicable, with respect to the services. (3) If the emergency services are provided by a nonparticipating provider or a nonparticipating emergency facility— (i) Without imposing any administrative requirement or limitation on coverage that is more restrictive than the requirements or limitations that apply to emergency services received from participating providers and participating emergency facilities. (ii) Without imposing cost-sharing requirements that are greater than the requirements that would apply if the services were provided by a participating provider or a participating emergency facility. (iii) By calculating the cost-sharing requirement as if the total amount that would have been charged for the services by such participating provider or participating emergency facility were equal to the recognized amount for such services. (iv) The plan— (A) Not later than 30 calendar days after the bill for the services is transmitted by the provider or facility (or, in cases where the recognized amount is determined by a specified State law or All-Payer Model Agreement, such other timeframe as specified by the State law or All-Payer Model Agreement), determines whether the services are covered under the plan and, if the services are covered, sends to the provider or facility, as applicable, an initial payment or a notice of denial of payment. For purposes of this paragraph (b)(3)(iv)(A), the 30-calendar-day period begins on the date the plan receives the information necessary to decide a claim for payment for the services. (B) Pays a total plan payment directly to the nonparticipating provider or nonparticipating facility that is equal to the amount by which the out-of-network rate for the services exceeds the cost-sharing amount for the services (as determined in accordance with paragraphs (b)(3)(ii) and (iii) of this section), less any initial payment amount made under paragraph (b)(3)(iv)(A) of this section. The total plan payment must be made in accordance with the timing requirement described in section 9816(c)(6), or in cases where the out-of-network rate is determined under a specified State law or All-Payer Model Agreement, such other timeframe as specified by the State law or All-Payer Model Agreement. (v) By counting any cost-sharing payments made by the participant or beneficiary with respect to the emergency services toward any in-network deductible or in-network out-of-pocket maximums (including the annual limitation on cost sharing under section 2707(b) of the Public Health Service Act) (as applicable) applied under the plan (and the in-network deductible and in-network out-of-pocket maximums must be applied) in the same manner as if the cost-sharing payments were made with respect to emergency services furnished by a participating provider or a participating emergency facility. (4) Without limiting what constitutes an emergency medical condition (as defined in paragraph (c)(1) of this section) solely on the basis of diagnosis codes. (5) Without regard to any other term or condition of the coverage, other than— (i) The exclusion or coordination of benefits (to the extent not inconsistent with benefits for an emergency medical condition, as defined in paragraph (c)(1) of this section). (ii) An affiliation or waiting period (each as defined in § 54.9801-2). (iii) Applicable cost sharing. (c) Definitions. (1) Emergency medical condition (2) Emergency services (i) In general. (B) Within the capabilities of the staff and facilities available at the hospital or the independent freestanding emergency department, as applicable, such further medical examination and treatment as are required under section 1867 of the Social Security Act (42 U.S.C. 1395dd), or as would be required under such section if such section applied to an independent freestanding emergency department, to stabilize the patient (regardless of the department of the hospital in which such further examination or treatment is furnished). (ii) Inclusion of additional services. ( 1 ( 2 (B) Items and services described in paragraph (c)(2)(ii)(A) of this section are not included as emergency services if all of the conditions in 45 CFR 149.410(b) are met. (3) To stabilize, (d) Applicability date. [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9816-5T Preventing surprise medical bills for non-emergency services performed by nonparticipating providers at certain participating facilities (temporary). (a) In general. (b) Items and services described. (c) Coverage requirements. (1) Must not impose a cost-sharing requirement for the items and services that is greater than the cost-sharing requirement that would apply if the items or services had been furnished by a participating provider. (2) Must calculate the cost-sharing requirements as if the total amount that would have been charged for the items and services by such participating provider were equal to the recognized amount for the items and services. (3) Not later than 30 calendar days after the bill for the items or services is transmitted by the provider (or in cases where the recognized amount is determined by a specified State law or All-Payer Model Agreement, such other timeframe as specified under the State law or All-Payer Model Agreement), must determine whether the items and services are covered under the plan and, if the items and services are covered, send to the provider an initial payment or a notice of denial of payment. For purposes of this paragraph (c)(3), the 30-calendar-day period begins on the date the plan receives the information necessary to decide a claim for payment for the items or services. (4) Must pay a total plan payment directly to the nonparticipating provider that is equal to the amount by which the out-of-network rate for the items and services involved exceeds the cost-sharing amount for the items and services (as determined in accordance with paragraphs (c)(1) and (2) of this section), less any initial payment amount made under paragraph (c)(3) of this section. The total plan payment must be made in accordance with the timing requirement described in section 9816(c)(6) or in cases where the out-of-network rate is determined under a specified State law or All-Payer Model Agreement, such other timeframe as specified by the State law or All-Payer Model Agreement. (5) Must count any cost-sharing payments made by the participant or beneficiary toward any in-network deductible and in-network out-of-pocket maximums (including the annual limitation on cost sharing under section 2707(b) of the Public Health Service Act) (as applicable) applied under the plan (and the in-network deductible and out-of-pocket maximums must be applied) in the same manner as if such cost-sharing payments were made with respect to items and services furnished by a participating provider. (d) Applicability date. [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9816-6 Methodology for calculating qualifying payment amount. (a) Definitions. (1)-(17) [Reserved] (18) Downcode (b) Methodology for calculation of median contracted rate. (c) Methodology for calculation of the qualifying payment amount. (d) Information to be shared about the qualifying payment amount. (1) With an initial payment or notice of denial of payment under § 54.9816-4, § 9816-5, or § 54.9817: (i) For further guidance, see 29 CFR 2590.716-6(d)(1)(i); (ii) If the qualifying payment amount is based on a downcoded service code or modifier— (A) A statement that the service code or modifier billed by the provider, facility, or provider of air ambulance services was downcoded; (B) An explanation of why the claim was downcoded, which must include a description of which service codes were altered, if any, and a description of which modifiers were altered, added, or removed, if any; and (C) The amount that would have been the qualifying payment amount had the service code or modifier not been downcoded; (iii) For further guidance, see 29 CFR 2590.716-6(d)(1)(iii); (iv) A statement that— (A) If the provider, facility, or provider of air ambulance services, as applicable, wishes to initiate a 30-business-day open negotiation period for purposes of determining the out-of-network rate, the provider, facility, or provider of air ambulance services must: ( 1 ( 2 (B) If the 30-business-day open negotiation period does not result in an agreement on the amount of payment, the provider, facility, or provider of air ambulance services may generally initiate the Federal IDR process within 4 business days after the end of the 30-business-day open negotiation period; (v) For disclosures required to be provided on or after August 3, 2026, the legal business name (if any) of the self-insured group health plan, FEHB Program carrier, or issuer and, if applicable, the legal business name of the self-insured group health plan sponsor, and the registration number assigned to the plan or issuer, as required under § 54.9816-9. (vi) For further guidance, see 29 CFR 2590.716-6(d)(1)(vi). (2) In a timely manner upon the request of the provider, facility, or provider of air ambulance services: (i) For further guidance, see 29 CFR 2590.716-6(d)(2)(i). (ii) For further guidance, see 29 CFR 2590.716-6(d)(2)(ii). (iii) For further guidance, see 29 CFR 2590.716-6(d)(2)(iii). (iv) For further guidance, see 29 CFR 2590.716-6(d)(2)(iv). (e) For further guidance, see 29 CFR 2590.716-6(e). (f) For further guidance, see 29 CFR 2590.716-6(f). (g) Applicability date. (h) Severability. (2) The provisions in this section are intended to be severable from the provisions in §§ 54.9816-6A, 54.9816-8, and 54.9816-9, from any grant of forbearance from removal resulting from this subpart, and from any provision referenced in §§ 54.9816-6A, 54.9816-8, and 54.9816-9. [T.D. 9965, 87 FR 52644, Aug. 26, 2022, as amended by T.D. 10049, 91 FR 34047, June 4, 2026; 91 FR 55464, Aug. 28, 2026] § 54.9816-6T Methodology for calculating qualifying payment amount (temporary). (a) Definitions. (1) Contracted rate (2) Derived amount (3) Eligible database (i) A State all-payer claims database; or (ii) Any third-party database which— (A) Is not affiliated with, or owned or controlled by, any health insurance issuer, or a health care provider, facility, or provider of air ambulance services (or any member of the same controlled group as, or under common control with, such an entity). For purposes of this paragraph (a)(3)(ii)(A), the term controlled group means a group of two or more persons that is treated as a single employer under sections 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of 1986, as amended; (B) Has sufficient information reflecting in-network amounts paid by group health plans or health insurance issuers offering group or individual health insurance coverage to providers, facilities, or providers of air ambulance services for relevant items and services furnished in the applicable geographic region; and (C) Has the ability to distinguish amounts paid to participating providers and facilities by commercial payers, such as group health plans and health insurance issuers offering group or individual health insurance coverage, from all other claims data, such as amounts billed by nonparticipating providers or facilities and amounts paid by public payers, including the Medicare program under title XVIII of the Social Security Act, the Medicaid program under title XIX of the Social Security Act (or a demonstration project under title XI of the Social Security Act), or the Children's Health Insurance Program under title XXI of the Social Security Act. (4) Facility of the same or similar facility type (i) An emergency department of a hospital; or (ii) An independent freestanding emergency department. (5) First coverage year (6) First sufficient information year (i) In the case of an item or service for which the plan does not have sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section in 2019, the first year after 2022 for which the plan has sufficient information to calculate the median of such contracted rates in the year immediately preceding that first year after 2022; and (ii) In the case of a newly covered item or service, the first year after the first coverage year for such item or service with respect to such plan for which the plan has sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section in the year immediately preceding that first year. (7) Geographic region (i) For items and services other than air ambulance services— (A) Subject to paragraphs (a)(7)(i)(B) and (C) of this section, one region for each metropolitan statistical area, as described by the U.S. Office of Management and Budget and published by the U.S. Census Bureau, in a State, and one region consisting of all other portions of the State. (B) If a plan does not have sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section for an item or service provided in a geographic region described in paragraph (a)(7)(i)(A) of this section, one region consisting of all metropolitan statistical areas, as described by the U.S. Office of Management and Budget and published by the U.S. Census Bureau, in the State, and one region consisting of all other portions of the State. (C) If a plan does not have sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section for an item or service provided in a geographic region described in paragraph (a)(7)(i)(B) of this section, one region consisting of all metropolitan statistical areas, as described by the U.S. Office of Management and Budget and published by the U.S. Census Bureau, in each Census division and one region consisting of all other portions of the Census division, as described by the U.S. Census Bureau. (ii) For air ambulance services— (A) Subject to paragraph (a)(7)(ii)(B) of this section, one region consisting of all metropolitan statistical areas, as described by the U.S. Office of Management and Budget and published by the U.S. Census Bureau, in the State, and one region consisting of all other portions of the State, determined based on the point of pick-up (as defined in 42 CFR 414.605). (B) If a plan does not have sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section for an air ambulance service provided in a geographic region described in paragraph (a)(7)(ii)(A) of this section, one region consisting of all metropolitan statistical areas, as described by the U.S. Office of Management and Budget and published by the U.S. Census Bureau, in each Census division and one region consisting of all other portions of the Census division, as described by the U.S. Census Bureau, determined based on the point of pick-up (as defined in 42 CFR 414.605). (8) Insurance market (i) The individual market (other than short-term, limited-duration insurance or individual health insurance coverage that consists solely of excepted benefits). (ii) The large group market (other than coverage that consists solely of excepted benefits). (iii) The small group market (other than coverage that consists solely of excepted benefits). (iv) In the case of a self-insured group health plan, all self-insured group health plans (other than account-based plans, as defined in § 54.9815-2711(d)(6)(i), and plans that consist solely of excepted benefits) of the same plan sponsor, or at the option of the plan sponsor, all self-insured group health plans administered by the same entity (including a third-party administrator contracted by the plan), to the extent otherwise permitted by law, that is responsible for calculating the qualifying payment amount on behalf of the plan. (9) Modifiers (10) Newly covered item or service (11) New service code (12) Provider in the same or similar specialty (13) Same or similar item or service (14) Service code (15) Sufficient information (i) The plan has at least three contracted rates on January 31, 2019, to calculate the median of the contracted rates in accordance with paragraph (b) of this section; or (ii) For an item or service furnished during a year after 2022 that is used to determine the first sufficient information year— (A) The plan has at least three contracted rates on January 31 of the year immediately preceding that year to calculate the median of the contracted rates in accordance with paragraph (b) of this section; and (B) The contracted rates under paragraph (a)(15)(ii)(A) of this section account (or are reasonably expected to account) for at least 25 percent of the total number of claims paid for that item or service for that year with respect to all plans of the sponsor (or the administering entity as provided in paragraph (a)(8)(iv) of this section, if applicable) that are offered in the same insurance market. (16) Qualifying payment amount (17) Underlying fee schedule rate (18) For further guidance see § 54.9816-6(a)(18). (b) Methodology for calculation of median contracted rate In general. (2) Calculation rules. (i) Calculate the median contracted rate with respect to all plans of such sponsor (or the administering entity as provided in paragraph (a)(8)(iv) of this section, if applicable) that are offered in the same insurance market; (ii) Calculate the median contracted rate using the full contracted rate applicable to the service code, except that the plan must— (A) Calculate separate median contracted rates for CPT code modifiers “26” (professional component) and “TC” (technical component); (B) For anesthesia services, calculate a median contracted rate for the anesthesia conversion factor for each service code; (C) For air ambulance services, calculate a median contracted rate for the air mileage service codes (A0435 and A0436); and (D) Where contracted rates otherwise vary based on applying a modifier code, calculate a separate median contracted rate for each such service code-modifier combination; (iii) In the case of payments made by a plan that are not on a fee-for-service basis (such as bundled or capitation payments), calculate a median contracted rate for each item or service using the underlying fee schedule rates for the relevant items or services. If the plan does not have an underlying fee schedule rate for the item or service, it must use the derived amount to calculate the median contracted rate; and (iv) Exclude risk sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments. (3) Provider specialties; facility types. (ii) If a plan has contracted rates for emergency services that vary based on facility type for a service code, the median contracted rate is calculated separately for each facility of the same or similar facility type. (c) Methodology for calculation of the qualifying payment amount In general. (A) The combined percentage increase for 2019, 2020, and 2021 will be published in guidance by the Internal Revenue Service. The Department of the Treasury and the Internal Revenue Service will calculate the percentage increase using the CPI-U published by the Bureau of Labor Statistics of the Department of Labor. (B) For purposes of this paragraph (c)(1)(i), the CPI-U for each calendar year is the average of the CPI-U as of the close of the 12-month period ending on August 31 of the calendar year, rounded to 10 decimal places. (C) The combined percentage increase for 2019, 2020, and 2021 will be calculated as: (CPI-U 2019/CPI-U 2018) × (CPI-U 2020/CPI-U 2019) × (CPI-U 2021/CPI-U 2020) (ii) For an item or service (other than items or services described in paragraphs (c)(1)(iii) through (vii) of this section) furnished during 2023 or a subsequent year, the plan must calculate the qualifying payment amount by increasing the qualifying payment amount determined under paragraph (c)(1)(i) of this section, for such an item or service furnished in the immediately preceding year, by the percentage increase as published by the Department of the Treasury and the Internal Revenue Service. (A) The percentage increase for any year after 2022 will be published in guidance by the Internal Revenue Service. The Department of the Treasury and Internal Revenue Service will calculate the percentage increase using the CPI-U published by the Bureau of Labor Statistics of the Department of Labor. (B) For purposes of this paragraph (c)(1)(ii), the CPI-U for each calendar year is the average of the CPI-U as of the close of the 12-month period ending on August 31 of the calendar year, rounded to 10 decimal places. (C) The combined percentage increase for any year will be calculated as CPI-U present year/CPI-U prior year. (iii) For anesthesia services furnished during 2022, the plan must calculate the qualifying payment amount by first increasing the median contracted rate for the anesthesia conversion factor (as determined in accordance with paragraph (b) of this section) for the same or similar item or service under such plans, on January 31, 2019, in accordance with paragraph (c)(1)(i) of this section (referred to in this section as the indexed median contracted rate for the anesthesia conversion factor). The plan must then multiply the indexed median contracted rate for the anesthesia conversion factor by the sum of the base unit, time unit, and physical status modifier units of the participant or beneficiary to whom anesthesia services are furnished to determine the qualifying payment amount. (A) The base units for an anesthesia service code are the base units for that service code specified in the most recent edition (as of the date of service) of the American Society of Anesthesiologists Relative Value Guide. (B) The time unit is measured in 15-minute increments or a fraction thereof. (C) The physical status modifier on a claim is a standard modifier describing the physical status of the patient and is used to distinguish between various levels of complexity of the anesthesia services provided, and is expressed as a unit with a value between zero (0) and three (3). (D) The anesthesia conversion factor is expressed in dollars per unit and is a contracted rate negotiated with the plan. (iv) For anesthesia services furnished during 2023 or a subsequent year, the plan must calculate the qualifying payment amount by first increasing the indexed median contracted rate for the anesthesia conversion factor, determined under paragraph (c)(1)(iii) of this section for such services furnished in the immediately preceding year, in accordance with paragraph (c)(1)(ii) of this section. The plan must then multiply that amount by the sum of the base unit, time unit, and physical status modifier units for the participant or beneficiary to whom anesthesia services are furnished to determine the qualifying payment amount. (v) For air ambulance services billed using the air mileage service codes (A0435 and A0436) that are furnished during 2022, the plan must calculate the qualifying payment amount for services billed using the air mileage service codes by first increasing the median contracted rate (as determined in accordance with paragraph (b) of this section), in accordance with paragraph (c)(1)(i) of this section (referred to in this section as the indexed median air mileage rate). The plan must then multiply the indexed median air mileage rate by the number of loaded miles provided to the participant or beneficiary to determine the qualifying payment amount. (A) The air mileage rate is expressed in dollars per loaded mile flown, is expressed in statute miles (not nautical miles), and is a contracted rate negotiated with the plan. (B) The number of loaded miles is the number of miles a patient is transported in the air ambulance vehicle. (C) The qualifying payment amount for other service codes associated with air ambulance services is calculated in accordance with paragraphs (c)(1)(i) and (ii) of this section. (vi) For air ambulance services billed using the air mileage service codes (A0435 and A0436) that are furnished during 2023 or a subsequent year, the plan must calculate the qualifying payment amount by first increasing the indexed median air mileage rate, determined under paragraph (c)(1)(v) of this section for such services furnished in the immediately preceding year, in accordance with paragraph (c)(1)(ii) of this section. The plan must then multiply the indexed median air mileage rate by the number of loaded miles provided to the participant or beneficiary to determine the qualifying payment amount. (vii) For any other items or services for which a plan generally determines payment for the same or similar items or services by multiplying a contracted rate by another unit value, the plan must calculate the qualifying payment amount using a methodology that is similar to the methodology required under paragraphs (c)(1)(iii) through (vi) of this section and reasonably reflects the payment methodology for same or similar items or services. (2) New plans. (i) For the first year in which the group health plan is offered in such region— (A) If the plan has sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section, the plan must calculate the qualifying payment amount in accordance with paragraph (c)(1) of this section for items and services that are covered by the plan and furnished during the first year; and (B) If the plan does not have sufficient information to calculate the median of the contracted rates described in paragraph (b) of this section for an item or service provided in a geographic region, the plan must determine the qualifying payment amount for the item or service in accordance with paragraph (c)(3)(i) of this section. (ii) For each subsequent year the group health plan is offered in the region, the plan must calculate the qualifying payment amount by increasing the qualifying payment amount determined under this paragraph (c)(2) for the items and services furnished in the immediately preceding year, in accordance with paragraph (c)(1)(ii), (iv), or (vi) of this section, as applicable. (3) Insufficient information; newly covered items and services. (i) For an item or service furnished during 2022 (or, in the case of a newly covered item or service, during the first coverage year for the item or service with respect to the plan or coverage), the plan must calculate the qualifying payment amount by first identifying the rate that is equal to the median of the in-network allowed amounts for the same or similar item or service provided in the geographic region in the year immediately preceding the year in which the item or service is furnished (or, in the case of a newly covered item or service, the year immediately preceding such first coverage year) determined by the plan through use of any eligible database, and then increasing that rate by the percentage increase in the CPI-U over such preceding year. For purposes of this section, in cases in which an eligible database is used to determine the qualifying payment amount with respect to an item or service furnished during a calendar year, the plan must use the same database for determining the qualifying payment amount for that item or service furnished through the last day of the calendar year, and if a different database is selected for some items or services, the basis for that selection must be one or more factors not directly related to the rate of those items or services (such as sufficiency of data for those items or services). (ii) For an item or service furnished in a subsequent year (before the first sufficient information year for such item or service with respect to such plan), the plan must calculate the qualifying payment amount by increasing the qualifying payment amount determined under paragraph (c)(3)(i) of this section or this paragraph (c)(3)(ii), as applicable, for such item or service for the year immediately preceding such subsequent year, by the percentage increase in CPI-U over such preceding year; (iii) For an item or service furnished in the first sufficient information year for such item or service with respect to such plan, the plan must calculate the qualifying payment amount in accordance with paragraph (c)(1)(i), (iii), or (v) of this section, as applicable, except that in applying such paragraph to such item or service, the reference to 'furnished during 2022' is treated as a reference to furnished during such first sufficient information year, the reference to 'in 2019' is treated as a reference to such sufficient information year, and the increase described in such paragraph is not applied; and (iv) For an item or service furnished in any year subsequent to the first sufficient information year for such item or service with respect to such plan, the plan must calculate the qualifying payment amount in accordance with paragraph (c)(1)(ii), (iv), or (vi) of this section, as applicable, except that in applying such paragraph to such item or service, the reference to 'furnished during 2023 or a subsequent year' is treated as a reference to furnished during the year after such first sufficient information year or a subsequent year. (4) New service codes. (i) For an item or service furnished during 2022 (or, in the case of a newly covered item or service, during the first coverage year for the item or service with respect to the plan), the plan must identify a reasonably related service code that existed in the immediately preceding year and— (A) If the Centers for Medicare & Medicaid Services has established a Medicare payment rate for the item or service billed under the new service code, the plan must calculate the qualifying payment amount by first calculating the ratio of the rate that Medicare pays for the item or service billed under the new service code compared to the rate that Medicare pays for the item or service billed under the related service code, and then multiplying the ratio by the qualifying payment amount for an item or service billed under the related service code for the year in which the item or service is furnished. (B) If the Centers for Medicare & Medicaid Services has not established a Medicare payment rate for the item or service billed under the new service code, the plan must calculate the qualifying payment amount by first calculating the ratio of the rate that the plan reimburses for the item or service billed under the new service code compared to the rate that the plan reimburses for the item or service billed under the related service code, and then multiplying the ratio by the qualifying payment amount for an item or service billed under the related service code. (ii) For an item or service furnished in a subsequent year (before the first sufficient information year for such item or service with respect to such plan or coverage or before the first year for which an eligible database has sufficient information to a calculate a rate under paragraph (c)(3)(i) of this section in the immediately preceding year), the plan must calculate the qualifying payment amount by increasing the qualifying payment amount determined under paragraph (c)(4)(i) of this section or this paragraph (c)(4)(ii), as applicable, for such item or service for the year immediately preceding such subsequent year, by the percentage increase in CPI-U over such preceding year; (iii) For an item or service furnished in the first sufficient information year for such item or service with respect to such plan or the first year for which an eligible database has sufficient information to calculate a rate under paragraph (c)(3)(i) of this section in the immediately preceding year, the plan or issuer must calculate the qualifying payment amount in accordance with paragraph (c)(3) of this section. (d) Information to be shared about qualifying payment amount. (1) With an initial payment or notice of denial of payment under § 54.9816-4T, § 54.9816-5T, or § 54.9817-1T: (i) The qualifying payment amount for each item or service involved; (ii) For further guidance see § 54.9816-6(d)(1)(ii); (iii) A statement to certify that, based on the determination of the plan— (A) The qualifying payment amount applies for purposes of the recognized amount (or, in the case of air ambulance services, for calculating the participant's, beneficiary's, or enrollee's cost sharing); and (B) Each qualifying payment amount shared with the provider or facility was determined in compliance with this section; (iv) A statement that if the provider or facility, as applicable, wishes to initiate a 30-day open negotiation period for purposes of determining the amount of total payment, the provider or facility may contact the appropriate person or office to initiate open negotiation, and that if the 30-day negotiation period does not result in a determination, generally, the provider or facility may initiate the independent dispute resolution process within 4 days after the end of the open negotiation period; and (v) Contact information, including a telephone number and email address, for the appropriate person or office to initiate open negotiations for purposes of determining an amount of payment (including cost sharing) for such item or service. (2) In a timely manner upon request of the provider or facility: (i) Information about whether the qualifying payment amount for items and services involved included contracted rates that were not on a fee-for-service basis for those specific items and services and whether the qualifying payment amount for those items and services was determined using underlying fee schedule rates or a derived amount; (ii) If a plan uses an eligible database under paragraph (c)(3) of this section to determine the qualifying payment amount, information to identify which database was used; and (iii) If a related service code was used to determine the qualifying payment amount for an item or service billed under a new service code under paragraph (c)(4)(i) or (ii) of this section, information to identify the related service code; and (iv) If applicable, a statement that the plan's contracted rates include risk-sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments for the items and services involved (as applicable) that were excluded for purposes of calculating the qualifying payment amount. (e) Certain access fees to databases. (f) Audits. (g) Applicability date. [T.D. 9951, 86 FR 36950, July 13, 2021, as amended by T.D. 9965, 87 FR 52645, Aug. 26, 2022] § 54.9816-6A Use of claim adjustment reason codes and remittance advice remark codes. (a) In general. (b) Severability (2) The provisions in this section are intended to be severable from the provisions in §§ 54.9816-6, 54.9816-8, and 54.9816-9, from any grant of forbearance from removal resulting from this subpart, and from any provision referenced in §§ 54.9816-6, 54.9816-8, and 54.9816-9. [T.D. 10049, 91 FR 34047, June 4, 2026] § 54.9816-7T Complaints process for surprise medical bills regarding group health plans (temporary). See [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9816-8 Independent dispute resolution process. (a) Scope and Definitions Scope. (2) Definitions. (i) Batched qualified IDR items and services (ii) For further guidance, see 29 CFR 2590.716-8(a)(2)(ii) through (xii). (b) Determination of payment amount through open negotiation and initiation of the Federal IDR process Determination of payment amount through open negotiation In general. 12 (ii) Open negotiation notice Content. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 (B) [Reserved] (iii) Open negotiation response notice Content. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 12 (B) [Reserved] (2) Initiating the Federal IDR process In general. (A) Exception for items and services provided by certain nonparticipating providers and facilities. (B) [Reserved] (ii) Notice of IDR initiation Content. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 ( 10 ( 11 ( 12 ( 14 ( 15 (B) [Reserved] (iii) Notice of IDR initiation response. (A) Content. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 13 ( 10 ( 11 (B) [Reserved] (3) Manner. (c) Federal IDR process following initiation Selection of certified IDR entity Preliminary selection of the certified IDR entity. 11 (A) If the non-initiating party agrees or fails to respond to the selection of the initiating party's preferred certified IDR entity in the manner and timeframe described in paragraph (c)(1)(i) of this section, the initiating party's preferred certified IDR entity will be considered jointly selected on the third business day after the date of IDR initiation. (B) If the non-initiating party objects to the selection of the initiating party's preferred certified IDR entity by designating an alternative preferred certified IDR entity in the manner and timeframe described in paragraph (c)(1)(i) of this section, the initiating party may then agree or object to the non-initiating party's alternative preferred certified IDR entity by submitting the notice of certified IDR entity selection in the manner specified in paragraph (c)(1)(i)(D) of this section. ( 1 ( 2 ( 3 (C) If a certified IDR entity is not jointly selected under paragraph (c)(1)(i)(A) or (B) of this section, either party may select an alternative preferred certified IDR entity by submitting the notice of certified IDR entity selection in the manner specified in paragraph (c)(1)(i)(D) of this section, until the earlier of the date that the parties agree on the alternative preferred certified IDR entity or the deadline for joint selection, which is 3 business days after the date of IDR initiation. Once a party submits a notice of certified IDR entity selection, it may not submit another notice of certified IDR entity selection until it receives a responding notice of certified IDR entity selection from the other party. ( 1 ( 2 ( 3 (D) To notify the other party and the Secretary of an agreement or objection to an alternative preferred certified IDR entity as described in paragraph (c)(1)(i)(C) of this section, a party must furnish a notice of certified IDR entity selection, using the standard form developed by the Secretary, to the other party and the Secretary through the Federal IDR portal within 3 business days after the date of IDR initiation. The notice of certified IDR entity selection must include a statement indicating the party's agreement with or objection to the other party's alternative preferred certified IDR entity and, if applicable, an explanation of any conflict of interest with the alternative preferred certified IDR entity, and the name of another alternative preferred certified IDR entity. However, in the event the conditions for failure to jointly select a certified IDR entity apply, selection will proceed in accordance with paragraph (c)(1)(ii) of this section. (ii) Failure to jointly select a certified IDR entity. (A) In selecting the certified IDR entity, the Secretary will first confirm whether a party submitted the notice of IDR initiation response or the notice of certified IDR entity selection with an alternative preferred certified IDR entity on the third business day after the date of IDR initiation without the other party's agreement to the selection. If either notice was provided on the third business day after the date of IDR initiation without the other party's agreement to the alternative preferred certified IDR entity by the end of the third business day after the date of IDR initiation, the Secretary will provide the party last in receipt of the applicable notice, as of the end of the third business day after the date of IDR initiation, 2 additional business days to agree or object to the other party's alternative preferred certified IDR entity selection. ( 1 ( 2 (B) [Reserved] (iii) Date of preliminary selection of the certified IDR entity. (A) Three business days after the date of IDR initiation if the parties jointly select a certified IDR entity, as specified in paragraph (c)(1)(i) of this section; or (B) Six business days after the date of IDR initiation, if the parties fail to jointly select a certified IDR entity as specified in paragraph (c)(1)(ii) of this section. (iv) Final selection of the certified IDR entity Conflict-of-interest review. ( 1 ( 2 ( 3 (B) Failure to meet conflict-of-interest requirements. 1 3 (C) Date of final selection of the certified IDR entity. (2) Federal IDR process eligibility review Federal IDR process eligibility determination by certified IDR entity. (ii) Request for additional information. (A) Upon request, a party must submit the additional information within 5 business days to the selected certified IDR entity through the Federal IDR portal. Following a request for additional information, the time period for the applicable stage of the Federal IDR process will be tolled until the earlier of the date either all of the requested information is provided or the 5-business-day period expires, and each subsequent timeframe in the Federal IDR process will be determined based on the date of completion of the stage of the Federal IDR process that was tolled for provision of the requested information. (B) If a party fails to submit the additional information as required, the related determination, including the conflict-of-interest review, eligibility determination, or payment determination, will be made without the requested information unless a good-cause extension of the 5-business-day period, as specified in paragraph (g)(1)(i) of this section, has been provided, and the party subsequently submits the additional information requested within the extended period. If the related determination cannot be made because both parties failed to provide the additional information as required, the dispute will be considered withdrawn, as specified in paragraph (c)(3)(ii) of this section. (3) Authority to continue negotiations or withdraw. Authority to continue to negotiate. (ii) Withdrawal of disputes. (A) The initiating party provides notification through the Federal IDR portal to the Secretary and the certified IDR entity (if selected) that both parties to the dispute agree to withdraw the dispute from the Federal IDR process without agreement on an out-of-network rate. The notification must include the dispute number, a statement about both parties' agreement to withdraw, and signatures from authorized signatories for both parties; (B) The initiating party provides a standard withdrawal request notice through the Federal IDR portal to the Secretary, the certified IDR entity (if selected), and the non-initiating party of its request to withdraw the dispute from the Federal IDR process, and the non-initiating party notifies the Secretary, certified IDR entity (if selected), and the initiating party through the Federal IDR portal of its agreement to withdraw from the Federal IDR process within 5 business days of the initiating party's request. Provision of the withdrawal request through the Federal IDR portal pauses the Federal IDR process for 5 business days or until the non-initiating party responds, whichever happens first. If the non-initiating party fails to respond within 5 business days of the initiating party's request, the non-initiating party will be considered to have agreed to the withdrawal, and the dispute will be withdrawn; (C) The certified IDR entity cannot determine eligibility, for example, because both parties to the dispute are nonresponsive to any requests for additional information to determine eligibility as described in paragraph (c)(2)(ii) of this section; or (D) The certified IDR entity cannot make a payment determination, for example, because both parties to the dispute have failed to submit an offer as described in paragraph (c)(5)(i) of this section. (4) Treatment of batched qualified IDR items and services In general. (A) For further guidance, see 29 CFR 2590.716-8(c)(4)(i)(A): (B) Payment for the qualified IDR items and services is required to be made by the same group health plan or health insurance issuer. For group or individual health insurance coverage, this requirement is satisfied if the same issuer is required to make payment for the qualified IDR items and services, even if the qualified IDR items and services relate to claims from different group health plans or individual market policies. For self-insured group health plans, this requirement is satisfied if the same self-insured group health plan is required to make payment for the qualified IDR items and services, including when the plan makes payments through a third party administrator; the requirement is not satisfied if multiple self-insured group health plans are required to make payments for the qualified IDR items and services, even if those group health plans make payments through the same third party administrator; (C) The qualified IDR items and services meet any of the following criteria under which multiple qualified IDR items and services relate to the treatment of a similar condition: ( 1 ( 2 ( 3 (D) All the qualified IDR items and services were furnished within the same 30-business-day period following the date on which the first item or service included in the batched dispute was furnished, and the qualified IDR items and services were the subjects of a 30-business-day open negotiation period that ended within 4 business days of IDR initiation, except as provided in paragraph (c)(5)(vii)(B) of this section. (ii) Treatment of bundled payment arrangements. (5) Payment determination for a qualified IDR item or service Submission of offers. (A) For further guidance, see 29 CFR 2590.716-8(c)(5)(i)(A). (B) For further guidance, see 29 CFR 2590.716-8(c)(5)(i)(B). (ii) Payment determination and notification. (A) Select as the out-of-network rate for the qualified IDR item or service one of the offers submitted under paragraph (c)(5)(i) of this section, weighing only the considerations specified in paragraph (c)(5)(iii) of this section (as applied to the information provided by the parties pursuant to 29 CFR 2590.716-8(c)(5)(i). The certified IDR entity must select the offer that the certified IDR entity determines best represents the value of the qualified IDR item or service as the out-of-network rate. ( 1 Prevailing party. ( 2 Non-prevailing party. ( 3 Parties prevailing in equal numbers of determinations. (B) For further guidance, see 29 CFR 2590.716-8(c)(5)(ii)(B). (iii) Considerations in determination. (A) The certified IDR entity must consider the qualifying payment amount(s) for the applicable year for the same or similar item or service. (B) The certified IDR entity must consider information submitted by a party that relates to the following circumstances: ( 1 ( 2 ( 3 ( 4 ( 5 (C) The certified IDR entity must also consider information provided by a party in response to a request by the certified IDR entity under 29 CFR 2590.716-8(c)(5)(i)(A)(2) that relates to the offer for the payment amount for the qualified IDR item or service that is the subject of the payment determination and that does not include information on factors described in 29 CFR 2590.716-8(c)(5)(v). (D) The certified IDR entity must also consider additional information submitted by a party that relates to the offer for the payment amount for the qualified IDR item or service that is the subject of the payment determination and that does not include information on factors described in 29 CFR 2950.716-8(c)(5)(v). (iv) [Reserved] (v) Prohibition on consideration of certain factors. (vi) Written decision. (B) The certified IDR entity's written decision must include an explanation of their determination, including what information the certified IDR entity determined demonstrated that the offer selected as the out-of-network rate is the offer that best represents the value of the qualified IDR item or service, including the weight given to the qualifying payment amount and any additional credible information under paragraphs (c)(5)(iii)(B) through (D) of this section. (vii) Effects of determination. Binding. ( 1 ( 2 (B) Suspension of certain subsequent IDR requests. (C) Subsequent submission of requests permitted. (viii) For further guidance, see 29 CFR 2590.716-8(c)(5)(viii). (ix) For further guidance, see 29 CFR 2590.716-8(c)(5)(ix). (d) Costs of IDR process Certified IDR entity fee Timing of payment of certified IDR entity fee. (ii) Failure to timely pay certified IDR entity fee. (iii) Method of allocation of the certified IDR entity fee after a payment determination. 2 1 (iv) Method of allocation of the certified IDR entity fee upon agreement or withdrawal after an eligibility determination. (A) Reached an agreement on an out-of-network rate for qualified IDR items or services before the certified IDR entity has made its payment determination, as described in paragraph (c)(3)(i) of this section; or (B) Withdrawn the dispute before the certified IDR entity has made its payment determination, as described in paragraph (c)(3)(ii) of this section. (v) Method of allocation of the certified IDR entity fee upon agreement or withdrawal before an eligibility determination. (A) Reached an agreement on an out-of-network rate for qualified IDR items or services before the certified IDR entity has made its payment determination, as described in paragraph (c)(3)(i) of this section; or (B) Withdrawn the dispute before the certified IDR entity has made its payment determination, as described in paragraph (c)(3)(ii) of this section. (2) Administrative fee In general. (ii) Administrative fee amount. (A) For disputes initiated on January 22, 2024, through June 10, 2026, the administrative fee amount is $115 per party per dispute. (B) For disputes initiated on or after June 11, 2026, the administrative fee amount is $15 per party per dispute. (iii) Failure to pay the administrative fee. (e) Certification of IDR entity In general. (2) Requirements. (i)-(vi) [Reserved] (vii) Provide, no more frequently than once per calendar year, a fixed fee for single determinations and a separate fixed fee for batched determinations, as well as additional fixed tiered fees for batched determinations, if applicable, within the upper and lower limits for each, as established by the Secretary in notice and comment rulemaking. The certified IDR entity fee ranges established by the Secretary in rulemaking will remain in effect until changed by notice and comment rulemaking. The certified IDR entity may not charge a fee outside the limits set forth in rulemaking unless the certified IDR entity or IDR entity seeking certification receives advance written approval from the Secretary to charge a fixed fee beyond the upper or lower limits by following the process described in paragraph (e)(2)(vii)(A) of this section. A certified IDR entity may also seek advance written approval from the Secretary to update its fees one additional time per calendar year by meeting the requirements described in paragraph (e)(2)(vii)(A). The Secretary will approve a request to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year if, in their discretion, they determine the information submitted by a certified IDR entity or IDR entity seeking certification demonstrates that the proposed change to the certified IDR entity fee would ensure the financial viability of the certified IDR entity or IDR entity seeking certification and would not impose on parties an undue barrier to accessing the Federal IDR process. (A) In order for the certified IDR entity or IDR entity seeking certification to receive the Secretary's written approval to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year, the certified IDR entity or IDR entity seeking certification must submit to the Secretary, in the form and manner specified by the Secretary: ( 1 ( 2 ( 3 (B) [Reserved] (viii) For disputes initiated on or after January 22, 2024, certified IDR entities are permitted to charge a fixed certified IDR entity fee for single determinations within the range of $200 to $840, and a fixed certified IDR entity fee for batched determinations within the range of $268 to $1,173, unless a fee outside such ranges is approved by the Secretary, pursuant to paragraph (e)(2)(vii)(A) of this section. As part of the batched determination fee, certified IDR entities are permitted to charge an additional fixed tiered fee within the range of $75 to $250 for every additional 25 line items within a batched dispute, beginning with the 26th line item. The ranges for the certified IDR entity fees for single and batched determinations will remain in effect until changed by notice and comment rulemaking. (ix) Have a procedure in place to retain the certified IDR entity fees described in paragraph (d)(1) of this section paid by both parties in a trust or escrow account and to return the certified IDR entity fee paid by the prevailing party or a portion of each party's certified IDR entity fee in the case of an agreement described in paragraph (c)(3)(i) of this section, a withdrawal described in paragraph (c)(3)(ii) of this section, or a circumstance in which each party prevails in an equal number of determinations, as described in paragraph (d)(1)(iii) of this section, within 30 business days following the date of the determination or the date the certified IDR entity is notified by both parties of an agreement or withdrawal, as applicable; (x) For further guidance, see 29 CFR 2590.716-8(e)(2)(x). (xi) For further guidance, see 29 CFR 2590.716-8(e)(2)(xi). (xii) For further guidance, see 29 CFR 2590.716-8(e)(2)(xii). (3) Conflict of interest standards. (4) Period of Certification. (5) Petition for denial or revocation. (6) Denial of IDR entity certification or revocation of certified IDR entity certification. (f) Reporting of information relating to the Federal IDR process. (1) [Reserved] (i)-(iv) [Reserved] (v) For further guidance, see 29 CFR 2590.716-8(f)(1)(v) introductory text through (f)(1)(v)(E). (A)-(E) [Reserved] (F) The rationale for the certified IDR entity's decision, including the extent to which the decision relied on the criteria in paragraphs (c)(5)(iii)(B) through (D) of this section. (G) For further guidance, see 29 CFR 2590.716-(f)(1)(v)(G). (H) For further guidance, see 29 CFR 2590.716-8(f)(1)(v)(H). (I) For further guidance, see 29 CFR 2590.716-8(f)(1)(v)(I). (vi) For further guidance, see 29 CFR 2590.716-8(f)(1)(vi). (2) [Reserved] (g) Extension of time periods for extenuating circumstances. In general. (i) For a specific dispute, the Secretary determines that the parties or certified IDR entity cannot meet applicable timeframes due to matters beyond the control of one or both parties or the certified IDR entity, or for other good cause. The certified IDR entity or either party may also submit a request for an extension due to extenuating circumstances to the Secretary through the Federal IDR portal. The requesting certified IDR entity or party must attest that it will take prompt action to ensure that the certified IDR entity's payment determination under this section may be made as soon as administratively practicable under the circumstances; or (ii) The Secretary determines that the parties or certified IDR entity cannot meet applicable timeframes due to systematic delays in processing disputes under the Federal IDR process, such as an unforeseen volume of disputes or Federal IDR portal system failures. Extensions provided due to extenuating circumstances caused by an unforeseen volume of disputes will be applied to the timeframe for eligibility determinations under paragraph (c)(2) of this section. Extensions provided due to extenuating circumstances caused by systems failures within the Federal IDR portal will be applied to the Federal IDR process timeframe(s) determined relevant by the Secretary. The Secretary will post a public notice regarding any extensions of time periods under this paragraph (g)(1)(ii). (A) Timeframe following an extension to eligibility determination. ( 1 Submission of offers. ( 2 Payment determination. (B) Timeframe following an extension to other timeframes in the Federal IDR process. (2) [Reserved] (h) Applicability date. (2) Paragraph (b) of this section is applicable to disputes with open negotiation periods beginning 90 calendar days after the Departments issue guidance announcing that the functionality supporting these provisions has become available. (3) Paragraph (c)(1) of this section, regarding the selection of a certified IDR entity, is applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022, and paragraph (c)(1) of this section is applicable to disputes with open negotiation periods beginning 90 calendar days after the Departments issue guidance announcing that the functionality supporting these provisions has become available. (4) Paragraph (c)(2) of this section, regarding the Federal IDR process eligibility review, paragraph (c)(3) of this section, regarding the authority to continue negotiations or withdraw, and paragraph (c)(4) of this section, regarding the treatment of batched and bundled qualified IDR items and services, are applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022. Paragraphs (c)(3)(i) and (c)(3)(ii)(C) and (D) of this section are applicable beginning on November 1, 2026. Paragraphs (c)(2), (c)(3)(ii)(A) and (B), and (c)(4) of this section are applicable to disputes with open negotiation periods beginning 90 calendar days after the Departments issue guidance announcing that the functionality supporting these provisions has become available. (5) Paragraphs (c)(5)(ii) and (iii) of this section regarding payment determination and notification and considerations in payment determinations, and paragraph (c)(5)(vi)(B) of this section regarding written decisions are applicable for items or services furnished on or after October 25, 2022, are applicable for plan years (or in the individual market policy years) beginning on or after January 1, 2022. Paragraphs (c)(5)(i), (c)(5)(v) through (vi)(A), and (c)(5)(vii) through (ix) of this section regarding submission of offers, prohibition on consideration of certain factors, written decision, effects of determination, recordkeeping requirements, and payment are applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022. Paragraphs (c)(5)(i) and (ii), and (c)(5)(vii)(B) and (C) of this section regarding the deadlines for the submission of offers, payment determination and notification, suspension of certain subsequent IDR requests, and subsequent submission of requests permitted are applicable to disputes with open negotiation periods beginning 90 calendar days after the Departments issue guidance announcing that the functionality supporting these provisions has become available. (6) Paragraph (d)(1) of this section regarding the certified IDR entity fee is applicable to disputes initiated on or after August 3, 2026. Paragraph (d)(2)(ii) of this section regarding the administrative fee is applicable to disputes initiated on or after June 11, 2026. Paragraph (d)(2)(iii) of this section regarding failure to pay the administrative fee is applicable on or after August 3, 2026. (7) Paragraph (e) of this section is applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022, except that the provisions regarding IDR entity certification at paragraphs (e)(1), (e)(2)(i) through (vi), (e)(2)(x) and (xi), and (e)(3) through (6) of this section are applicable beginning on October 7, 2021. Paragraph (e)(2)(ix) of this section regarding procedures to retain the certified IDR entity fee is applicable beginning on August 3, 2026. (8) Paragraph (f) of this section is applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022, except that paragraph (f)(1)(v)(F) of this section regarding reporting of information relating to the Federal IDR process is applicable for items or services furnished on or after October 25, 2022, for plan years (or in the individual market policy years) beginning on or after January 1, 2022. (9) Paragraph (g) of this section regarding the extension of time periods for extenuating circumstances is applicable for plan years (or in the individual market, policy years) beginning on or after January 1, 2022. Paragraph (g) of this section is applicable beginning on November 1, 2026. (10) Until the relevant applicability date for the requirements of this section, plans, issuers, providers, facilities, providers of air ambulance services and certified IDR entities are required to continue to comply with the corresponding requirements of § 54.9816-8 in effect prior to June 4, 2026. (i) Severability. (2) The provisions of paragraphs (b)(1), (c)(2)(ii), (c)(4), (d)(2), and (g)(1) of this section are intended to be severable from one another, from any grant of forbearance from removal resulting from this subpart, and from any provision referenced in those paragraphs. The provisions in this section are intended to be severable from the provisions in §§ 54.9816-6A, 54.9816-6 and 54.9816-9 from any grant of forbearance from removal resulting from this subpart, and from any provision referenced in §§ 54.9816-6A, 54.9816-6 and 54.9816-9. [T.D. 10049, 91 FR 34048, June 4, 2026; 91 FR 55465, Aug. 28, 2026] § 54.9816-8T Independent dispute resolution process (temporary). (a) Scope and definitions Scope. (2) Definitions. (i) Batched items and services (ii) Breach (A) Breach excludes: ( 1 ( 2 ( 3 (B) Except as provided in paragraph (a)(2)(ii)(A) of this section, access, use, or disclosure of IIHI in a manner not permitted under paragraph (e)(2)(v) of this section is presumed to be a breach unless the certified IDR entity demonstrates that there is a low probability that the security or privacy of the IIHI has been compromised based on a risk assessment encompassing at least the following factors: ( 1 ( 2 ( 3 ( 4 (iii) Certified IDR entity (iv) Conflict of interest (A) A group health plan; a health insurance issuer offering group health insurance coverage, individual health insurance coverage, or short-term, limited-duration insurance; a carrier offering a health benefits plan under 5 U.S.C. 8902; or a provider, a facility or a provider of air ambulance services; (B) An affiliate or a subsidiary of a group health plan; a health insurance issuer offering group health insurance coverage, individual health insurance coverage, or short-term, limited-duration insurance; a carrier offering a health benefits plan under 5 U.S.C. 8902; or a provider, a facility, or a provider of air ambulance services; (C) An affiliate or subsidiary of a professional or trade association representing group health plans; health insurance issuers offering group health insurance coverage, individual health insurance coverage, or short-term, limited-duration insurance; carriers offering a health benefits plan under 5 U.S.C. 8902; or providers, facilities, or providers of air ambulance services. (D) A certified IDR entity that has, or that has any personnel, contractors, or subcontractors assigned to a determination who have, a material familial, financial, or professional relationship with a party to the payment determination being disputed, or with any officer, director, or management employee of the plan, issuer, or carrier offering a health benefits plan under 5 U.S.C. 8902; the plan administrator, plan fiduciaries, or plan, issuer, or carrier employees; the health care provider, the health care provider's group or practice association; the provider of air ambulance services, the provider of air ambulance services' group or practice association, or the facility that is a party to the dispute. (v) Credible information (vi) IDR entity (vii) Individually identifiable health information (IIHI) (A) That identifies the individual; or (B) With respect to which there is a reasonable basis to believe the information can be used to identify the individual. (viii) Material familial relationship (ix) Material financial relationship (x) Material professional relationship (xi) Qualified IDR item or service (A) That is an emergency service furnished by a nonparticipating provider or nonparticipating facility subject to the protections of § 54.9816-4T, 29 CFR 2590.716-4, or 45 CFR 149.110, as applicable, for which the conditions of 45 CFR 149.410(b) are not met, or an item or service furnished by a nonparticipating provider at a participating health care facility, subject to the requirements of § 54.9816-5T, 29 CFR 2590.716-5, or 45 CFR 149.120, as applicable, for which the conditions of 45 CFR 149.420(c) through (i) are not met, or air ambulance services furnished by a nonparticipating provider of air ambulance services subject to the protections of § 54.9817-1T, 29 CFR 2590.717-1, or 45 CFR 149.130, as applicable, and for which the out-of-network rate is not determined by reference to an All-Payer Model Agreement under section 1115A of the Social Security Act or a specified State law as defined in § 54.9816-3T; (B) With respect to which a provider or facility (as applicable) or group health plan submits a notification under paragraph (b)(2) of this section; (C) That is not an item or service that is the subject of an open negotiation under paragraph (b)(1) of this section; and (D) That is not an item or service for which a notification under paragraph (b)(2) of this section is submitted during the 90-calendar-day period under paragraph (c)(4)(vi)(B) of this section, but that may include such an item or service if the notification is submitted during the subsequent 30-business-day period under paragraph (c)(4)(vi)(C) of this section. (xii) Unsecured IIHI (b) Determination of payment amount through open negotiation and initiation of the Federal IDR process Determination of payment amount through open negotiation In general. (ii) Open negotiation notice Content. (B) Manner. ( 1 ( 2 (2) Initiating the Federal IDR process In general. (ii) Exception for items and services provided by certain nonparticipating providers and facilities. (iii) Notice of IDR initiation Content. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 (B) Manner. ( 1 ( 2 (C) Notice to the Secretary. (c) Federal IDR process following initiation Selection of certified IDR entity In general. (ii) Requirements for selected certified IDR entity. (A) Does not have a conflict of interest as defined in paragraph (a)(2) of this section; (B) Ensures that assignment of personnel to a payment determination and decisions regarding hiring, compensation, termination, promotion, or other similar matters related to personnel assigned to the dispute are not made based upon the likelihood that the assigned personnel will support a particular party to the determination being disputed other than as outlined under paragraph (c)(4)(iii) of this section; and (C) Ensures that any personnel assigned to a payment determination do not have any conflicts of interests as defined in paragraph (a)(2) of this section regarding any party to the dispute within the 1 year immediately preceding an assignment of dispute determination, similar to the requirements laid out in 18 U.S.C. 207(b). (iii) Notice of certified IDR entity selection. (A) Content. ( 1 ( 2 ( 3 (B) [Reserved] (iv) Failure to select a certified IDR entity. (v) Review by certified IDR entity. (2) Authority to continue negotiations In general. (ii) Method of allocation of the certified IDR entity fee. (3) Treatment of batched items and services In general. (A) The qualified IDR items and services are billed by the same provider or group of providers, the same facility, or the same provider of air ambulance services. Items and services are billed by the same provider or group of providers, the same facility, or the same provider of air ambulance services if the items or services are billed with the same National Provider Identifier or Tax Identification Number; (B) Payment for the qualified IDR items and services would be made by the same plan; (C) The qualified IDR items and services are the same or similar items and services. The qualified IDR items and services are considered to be the same or similar items or services if each is billed under the same service code, or a comparable code under a different procedural code system, such as Current Procedural Terminology (CPT) codes with modifiers, if applicable, Healthcare Common Procedure Coding System (HCPCS) with modifiers, if applicable, or Diagnosis-Related Group (DRG) codes with modifiers, if applicable; and (D) All the qualified IDR items and services were furnished within the same 30-business-day period, or the same 90-calendar-day period under paragraph (c)(4)(vi)(B) of this section, as applicable. (ii) Treatment of bundled payment arrangements. (4) Payment determination for a qualified IDR item or service Submission of offers. (A) Must each submit to the certified IDR entity: ( 1 ( 2) ( 3 ( i ( ii ( iii ( iv (B) May each submit to the certified IDR entity any information relating to the offer that was submitted by either party, except that the information may not include information on factors described in paragraph (c)(4)(v) of this section. (ii) Payment determination and notification. (A) For further guidance see § 54.9816-8(c)(4)(ii)(A). (B) Notify the plan and the provider or facility, as applicable, of the selection of the offer under paragraph (c)(4)(ii)(A) of this section, and provide the written decision required under (c)(4)(vi) of this section. (iii) For further guidance see § 54.9816-8(c)(4)(iii). (iv) For further guidance see § 54.9816-8(c)(4)(iv). (v) Prohibition on consideration of certain factors. (A) Usual and customary charges (including payment or reimbursement rates expressed as a proportion of usual and customary charges); (B) The amount that would have been billed by the provider or facility with respect to the qualified IDR item or service had the provisions of 45 CFR 149.410 and 149.420 (as applicable) not applied; or (C) The payment or reimbursement rate for items and services furnished by the provider or facility payable by a public payor, including under the Medicare program under title XVIII of the Social Security Act; the Medicaid program under title XIX of the Social Security Act; the Children's Health Insurance Program under title XXI of the Social Security Act; the TRICARE program under chapter 55 of title 10, United States Code; chapter 17 of title 38, United States Code; or demonstration projects under section 1115 of the Social Security Act. (vi) Written decision. (B) For further guidance see § 54.9816-8(c)(4)(vi)(B). (vii) Effects of determination Binding. ( 1 ( 2 (B) Suspension of certain subsequent IDR requests. (C) Subsequent submission of requests permitted. (viii) Recordkeeping requirements. (ix) Payment. (d) Costs of IDR process Certified IDR entity fee. (ii) Each party to a determination for which a certified IDR entity is selected under paragraph (c)(1) of this section must pay the predetermined certified IDR entity fee charged by the certified IDR entity to the certified IDR entity at the time the parties submit their offers under (c)(4)(i) of this section. The certified IDR entity fee paid by the prevailing party whose offer is selected by the certified IDR entity will be returned to that party within 30 business days following the date of the certified IDR entity's determination. (2) Administrative fee. (ii) For further guidance, see § 54.9816-8(d)(2)(ii). (3) Severability. (e) Certification of IDR entity In general. (i) An IDR entity must meet the standards described in this paragraph (e) and be certified by the Secretary, jointly with the Secretaries of Health and Human Services and Labor, as set forth in this paragraph (e) and guidance promulgated by the Secretary. Once certified, the IDR entity will be provided with a certified IDR entity number. (ii) An IDR entity must provide written documentation to the Secretary regarding general company information (such as contact information, Taxpayer Identification Number, and website), as well as the applicable service area in which the IDR entity intends to conduct payment determinations under the Federal IDR process. IDR entities may choose to submit their application for all States or self-limit to a particular subset of States. (iii) An IDR entity that the Secretary, jointly with the Secretary of Labor and the Secretary of Health and Human Services, certifies must enter into an agreement as a condition of certification. The agreement shall include specified provisions encompassed by this section, including, but not limited to, the requirements applicable to certified IDR entities when making payment determinations, as well as the requirements regarding certification and revocation (such as specifications for wind-down activities and reallocation of certified IDR entity fees, where warranted). (2) Requirements. (i) Possess (directly or through contracts or other arrangements) sufficient arbitration and claims administration of health care services, managed care, billing and coding, medical and legal expertise to make the payment determinations described in paragraph (c) of this section within the time prescribed in paragraph (c)(4)(ii) of this section. (ii) Employ (directly or through contracts or other arrangements) a sufficient number of personnel to make the determinations described in paragraph (c) of this section within the time prescribed by (c)(4)(ii) of this section. To satisfy this standard, the written documentation must include a description of the IDR entity's organizational structure and capabilities, including an organizational chart and the credentials, responsibilities, and number of personnel employed to make determinations described in paragraph (c) of this section. (iii) Maintain a current accreditation from a nationally recognized and relevant accrediting organization, such as URAC, or ensure that it otherwise possesses the requisite training to conduct payment determinations (for example, providing documentation that personnel employed by the IDR entity have completed arbitration training by the American Arbitration Association, the American Health Law Association, or a similar organization). (iv) Have a process to ensure that no conflict of interest, as defined in paragraph (a)(2) of this section, exists between the parties and the personnel the certified IDR entity assigns to a payment determination to avoid violating paragraph (c)(1)(ii) of this section, including policies and procedures for conducting ongoing audits for conflicts of interest, to ensure that should any conflicts of interest arise, the certified IDR entity has procedures in place to inform the Secretary, jointly with the Secretary of Health and Human Services and the Secretary of Labor, of the conflict of interest and to mitigate the risk by reassigning the dispute to other personnel in the event that any personnel previously assigned have a conflict of interest. (v) Have a process to maintain the confidentiality of IIHI obtained in the course of conducting determinations. A certified IDR entity's responsibility to comply with these confidentiality requirements shall survive revocation of the IDR entity's certification for any reason, and IDR entities must comply with the record retention and disposal requirements described in this section. Under this process, once certified, the certified IDR entity must comply with the following requirements: (A) Privacy. ( 1 ( 2 (B) Security. 1 ( 2 ( 3 ( 4 (C) Breach notification. ( 1 Breaches treated as discovered. ( 2 Timing of notification. ( 3 Content of notification. ( i ( ii ( iii ( iv ( v ( 4 Method for providing notification. (D) Application to contractor and subcontractors. (vi) Meet appropriate indicators of fiscal integrity and stability by demonstrating that the certified IDR entity has a system of safeguards and controls in place to prevent and detect improper financial activities by its employees and agents to assure fiscal integrity and accountability for all certified IDR entity fees and administrative fees received, held, and disbursed and by submitting 3 years of financial statements or, if not available, other information to demonstrate fiscal stability of the IDR entity. (vii) For further guidance, see § 54.9816-8(e)(2)(vii). (viii) For further guidance, see § 54.9816-8(e)(2)(viii). (ix) Have a procedure in place to retain the certified IDR entity fees described in paragraph (d)(1) of this section paid by both parties in a trust or escrow account and to return the certified IDR entity fee paid by the prevailing party of an IDR payment determination, or half of each party's certified IDR entity fee in the case of an agreement described in paragraph (c)(2)(i) of this section, within 30 business days following the date of the determination. (x) Have a procedure in place to retain the administrative fees described in paragraph (d)(2) of this section and to remit the administrative fees to the Secretary in accordance with the timeframe and procedures set forth in guidance published by the Secretary. (xi) Discharge its responsibilities in accordance with paragraph (c) of this section, including not making any determination with respect to which the certified IDR entity would not be eligible for selection pursuant to paragraph (c)(1) of this section. (xii) Collect the information required to be reported to the Secretary under paragraph (f) of this section and report the information on a timely basis in the form and manner provided in guidance published by the Secretary. (3) Conflict-of-interest standards. (i) The IDR entity must provide an attestation indicating that it does not have a conflict of interest as defined in paragraph (a)(2) of this section; (ii) The IDR entity must have procedures in place to ensure that personnel assigned to a determination do not have any conflicts of interest regarding any party to the dispute within the 1 year immediately preceding an assignment of dispute determination, similar to the requirements laid out in 18 U.S.C. 207(b). In order to satisfy this requirement, if certified, the IDR entity must ensure that any personnel assigned to a determination do not have any conflicts of interest as defined in paragraph (a)(2) of this section. (iii) Following certification under this paragraph (e), if a certified IDR entity acquires control of, becomes controlled by, or comes under common control with any entity described in paragraph (e)(3)(i) of this section, the certified IDR entity must notify the Secretary in writing no later than 3 business days after the acquisition or exercise of control and shall be subject to revocation of certification under paragraph (e)(6)(ii) of this section. (4) Period of certification. (5) Petition for denial or revocation In general. (ii) Content of petition. (A) The identity of the IDR entity seeking certification or certified IDR entity that is the subject of the petition; (B) The reason(s) for the petition; (C) Whether the petition seeks denial or revocation of a certification; (D) Documentation to support the reasons outlined in the petition; and (E) Other information as may be required by the Secretary. (iii) Process. (B) If the Secretary finds that the petition adequately shows a failure of the IDR entity seeking certification or the certified IDR entity to follow the requirements of this paragraph (e), the Secretary, jointly with the Secretary of Health and Human Services and the Secretary of Labor, will notify the IDR entity seeking certification or the certified IDR entity by providing a de-identified copy of the petition. Following the notification, the IDR entity seeking certification or certified IDR entity will have 10 business days to provide a response. After the time period for providing the response has passed, the Secretary, jointly with the Secretary of Health and Human Services and the Secretary of Labor, will review the response (if any), determine whether a denial or revocation of a certification is warranted, and issue a notice of the decision to the IDR entity or certified IDR entity and to the petitioner. This decision will be subject to the appeal requirements of paragraph (e)(6)(v) of this section. (C) Effect on certification under petition. Regarding a petition for revocation of a certified IDR entity's certification, if the Secretary, jointly with the Secretary of Health and Human Services and the Secretary of Labor, finds that the petition adequately shows a failure to comply with the requirements of this paragraph (e), following the Secretary's notification of the failure to the certified IDR entity under paragraph (e)(5)(iii)(B) of this section, the certified IDR entity may continue to work on previously assigned determinations but may not accept new determinations until the Secretary issues a notice of the decision to the certified IDR entity finding that a revocation of certification is not warranted. (6) Denial of IDR entity certification or revocation of certified IDR entity certification Denial of IDR entity certification. (A) The IDR entity fails to meet the applicable standards set forth under this paragraph (e); (B) The IDR entity has committed or participated in fraudulent or abusive activities, including, during the certification process, submitting fraudulent data, or submitting information or data the IDR entity knows to be false to the Secretary, the Secretary of Health and Human Services, or the Secretary of Labor; (C) The IDR entity has failed to comply with requests for information from the Secretary, the Secretary of Health and Human Services, or the Secretary of Labor as part of the certification process; (D) In conducting payment determinations, including those outside the Federal IDR process, the IDR entity has failed to meet the standards that applied to those determinations or reviews, including standards of independence and impartiality; or (E) The IDR entity is otherwise not fit or qualified to make determinations under the Federal IDR process. (ii) Revocation of certification of a certified IDR entity. (A) The certified IDR entity has a pattern or practice of noncompliance with any requirements of this paragraph (e); (B) The certified IDR entity is operating in a manner that hinders the efficient and effective administration of the Federal IDR process; (C) The certified IDR entity no longer meets the applicable standards for certification set forth under this paragraph (e); (D) The certified IDR entity has committed or participated in fraudulent or abusive activities, including submission of false or fraudulent data to the Secretary, the Secretary of Health and Human Services, or the Secretary of Labor; (E) The certified IDR entity lacks the financial viability to provide arbitration under the Federal IDR process; (F) The certified IDR entity has failed to comply with requests from the Secretary, the Secretary of Health and Human Services, or the Secretary of Labor made as part of an audit, including failing to submit all records of the certified IDR entity that pertain to its activities within the Federal IDR process; or (G) The certified IDR entity is otherwise no longer fit or qualified to make determinations. (iii) Notice of denial or revocation. (iv) Request for appeal of denial or revocation. (v) Denial or final revocation. (f) Reporting of information relating to the Federal IDR process Reporting of information. (i) The number of notices of IDR initiation submitted under paragraph (b)(2) of this section to the certified IDR entity during the immediately preceding month; (ii) The size of the provider practices and the size of the facilities submitting notices of IDR initiation under paragraph (b)(2) of this section during the immediately preceding month, as required to be provided to the certified IDR entity under paragraph (c)(4)(i)(A)( 2 (iii) The number of such notices of IDR initiation with respect to which a determination was made under paragraph (c)(4)(ii) of this section; (iv) The number of times during the month that the out-of-network rate determined (or agreed to) under this section has exceeded the qualifying payment amount, specified by qualified IDR items and services; (v) With respect to each notice of IDR initiation under paragraph (b)(2) of this section for which such a determination was made, the following information: (A) A description of the qualified IDR items and services included with respect to the notification, including the relevant billing and service codes; (B) The relevant geographic region for purposes of the qualifying payment amount for the qualified IDR items and services with respect to which the notification was provided; (C) The amount of the offer submitted under paragraph (c)(4)(i) of this section by the plan and by the provider or facility (as applicable) expressed as a dollar amount and as a percentage of the qualifying payment amount; (D) Whether the offer selected by the certified IDR entity under paragraph (c)(4) of this section was the offer submitted by the plan or by the provider or facility (as applicable); (E) The amount of the selected offer expressed as a dollar amount and as a percentage of the qualifying payment amount; (F) For further guidance see § 54.9816-8(f)(1)(v)(F); (G) The practice specialty or type of each provider or facility, respectively, involved in furnishing each qualified IDR item or service; (H) The identity for each plan, and provider or facility, with respect to the notification. Specifically, each certified IDR entity must provide each party's name and address, as applicable; and (I) For each determination, the number of business days elapsed between selection of the certified IDR entity and the determination of the out-of-network rate by the certified IDR entity. (vi) The total amount of certified IDR entity fees paid to the certified IDR entity under paragraph (d)(1) of this section during the month. (2) [Reserved] (g) Extension of time periods for extenuating circumstances General. (i) An extension is necessary to address delays due to matters beyond the control of the parties or for good cause; and (ii) The parties attest that prompt action will be taken to ensure that the determination under this section is made as soon as administratively practicable under the circumstances. (2) Process to request an extension. (h) Applicability date. [T.D. 9955, 86 FR 56100, Oct. 7, 2021, as amended by T.D. 9965, 87 FR 52647, Aug. 26, 2022; T.D. 9985, 88 FR 88524, Dec. 21, 2023] § 54.9816-9 Federal independent dispute resolution registry of group health plans, health insurance issuers, and Federal Employees Health Benefits Program Carriers. (a) Establishment of Federal independent dispute resolution registry. (b) Federal IDR registration Registration requirement. (2) Required data elements. (i) The legal business name (if any) of the self-insured group health plan, FEHB Program carrier, or issuer and, if applicable, the legal business name of the self-insured group health plan sponsor; (ii) Whether the registrant is a self-insured group health plan subject to ERISA, an FEHB Program carrier, an issuer offering individual or group market insurance coverage, a self-insured non-Federal governmental plan, or a self-insured church plan; (iii) For issuers offering individual or group market insurance coverage and for self-insured non-Federal governmental plans, the State(s) in which the plan is offered or the coverage is licensed; (iv) For self-insured group health plans not otherwise subject to State law, including self-insured church plans and self-insured non-Federal governmental plans, any State(s) in which the group health plan has properly effectuated an election to opt in to a specified State law as defined in 29 CFR 2590.716-3, or an All-Payer Model Agreement under section 1115A of the Social Security Act, if the terms of that agreement allow a plan not otherwise subject to the agreement to opt in; and for FEHB Program plans that adopt a specified State law or All-Payer Model Agreement pursuant to their FEHB Program carrier's contract terms, any State(s) in which they have made such an adoption; (v) Contact information, including a telephone number and email address, for the appropriate office or person to initiate open negotiation for purposes of determining an amount of payment (including cost sharing) for such item or service; and contact information, including a telephone number and email address, for the appropriate office or person to initiate the Federal IDR process; (vi) The 5-digit Health Insurance Oversight System (HIOS) identifier, if available; and, for self-insured group health plans, the plan's or the plan sponsor's Employer Identification Number (EIN) and the plan's plan number (PN), if a PN is available, and for FEHB Program carriers, the applicable contract number(s) and plan code(s); (vii) Additional information needed to identify the plan or issuer and the applicable Federal and State requirements for determining appropriate out-of-network payment rates for items or services to which the protections against balance billing in this part apply, as specified by the Secretary in guidance, or such additional information needed for FEHB Program carriers as specified by OPM in guidance; and (viii) Additional information needed for purposes of administrative or certified IDR entity fee collection, as specified by the Secretary in guidance, or such additional information needed for FEHB Program carriers as specified by OPM in guidance. (3) Updating disclosures. (4) Third party authority. (c) Severability. (2) The provisions in this section are intended to be severable from the provisions in §§ 54.9816- 6A, 54.9816-6, and 54.9816-8, from any grant of forbearance from removal resulting from this subpart, and from any provision referenced in §§ 54.9816- 6A, 54.0916-6, and 54.9816-8. [T.D. 10049, 91 FR 34057, June 4, 2026] § 54.9817-1T Preventing surprise medical bills for air ambulance services (temporary). (a) In general. (b) Coverage requirements. (1) The cost-sharing requirements with respect to the services must be the same requirements that would apply if the services were provided by a participating provider of air ambulance services. (2) The cost-sharing requirement must be calculated as if the total amount that would have been charged for the services by a participating provider of air ambulance services were equal to the lesser of the qualifying payment amount (as determined in accordance with § 54.9816-6T) or the billed amount for the services. (3) The cost-sharing amounts must be counted towards any in-network deductible and in-network out-of-pocket maximums (including the annual limitation on cost sharing under section 2707(b) of the Public Health Service Act) (as applicable) applied under the plan (and the in-network deductible and out-of-pocket maximums must be applied) in the same manner as if the cost-sharing payments were made with respect to services furnished by a participating provider of air ambulance services. (4) The plan must— (i) Not later than 30 calendar days after the bill for the services is transmitted by the provider of air ambulance services, determine whether the services are covered under the plan and, if the services are covered, send to the provider an initial payment or a notice of denial of payment. For purposes of this paragraph (b)(4)(i), the 30-calendar-day period begins on the date the plan receives the information necessary to decide a claim for payment for the services. (ii) Pay a total plan payment directly to the nonparticipating provider furnishing such air ambulance services that is equal to the amount by which the out-of-network rate for the services exceeds the cost-sharing amount for the services (as determined in accordance with paragraphs (b)(1) and (2) of this section), less any initial payment amount made under paragraph (b)(4)(i) of this section. The total plan payment must be made in accordance with the timing requirement described in section 9817(b)(6), or in cases where the out-of-network rate is determined under a specified State law or All-Payer Model Agreement, such other timeframe as specified by the State law or All-Payer Model Agreement. (c) Applicability date. [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9817-2 Independent dispute resolution process for air ambulance services. (a) For further guidance see § 54.9817-2T(a). (b) For further guidance see § 54.9817-2T(b) introductory text. (1) In general. (2) Considerations for air ambulance services. (i) For further guidance see § 54.9817-2T(b)(2)(i) through (vi). (ii) For further guidance see § 54.9817-2T(b)(2)(i) through (vi). (iii) For further guidance see § 54.9817-2T(b)(2)(i) through (vi). (vi) For further guidance see § 54.9817-2T(b)(2)(i) through (vi). (3) Weighing considerations. (4) For further guidance see § 54.9817-2T(b)(4) introductory text through (b)(4)(iii). (i)-(iii) [Reserved] (iv) For further guidance see § 54.9817-2T(b)(4)(iv) introductory text through (b)(4)(iv)(E). (A)-(E) [Reserved] (F) The rationale for the certified IDR entity's decision, including the extent to which the decision relied on the criteria in paragraph (b)(2) of this section and § 54.9816-8(c)(4)(iii)(C) and (D). (G) For further guidance see § 54.9817-2T(b)(4)(iv)(G) through (I). (H) For further guidance see § 54.9817-2T(b)(4)(iv)(G) through (I). (I) For further guidance see § 54.9817-2T(b)(4)(iv)(G) through (I). (c) Applicability date. [T.D. 9965, 87 FR 52648, Aug. 26, 2022] § 54.9817-2T Independent dispute resolution process for air ambulance services (temporary). (a) Definitions. (b) Determination of out-of-network rates to be paid by group health plans; independent dispute resolution process. (2) For further guidance see § 54.9817-2(b)(2). (3) For further guidance see § 54.9817-2(b)(3). (4) Reporting of information relating to the IDR process. (i) The number of notices of IDR initiation submitted under the Federal IDR process to the certified IDR entity that pertain to air ambulance services during the immediately preceding month; (ii) The number of such notices of IDR initiation with respect to which a final determination was made under § 54.9816-8T(c)(4)(ii) (as applied by paragraph (b)(1) of this section); (iii) The number of times the payment amount determined (or agreed to) under this subsection has exceeded the qualifying payment amount, specified by services; (iv) With respect to each notice of IDR initiation under § 54.9816-8T(b)(2) (as applied by paragraph (b)(1) of this section) for which a determination was made, the following information: (A) A description of each air ambulance service included in such notification, including the relevant billing and service codes; (B) The point of pick-up (as defined in 42 CFR 414.605) for the services included in such notification; (C) The amount of the offers submitted under § 54.9816-8T(c)(4)(i) (as applied by paragraph (b)(1) of this section) by the group health plan and by the nonparticipating provider of air ambulance services, expressed as a dollar amount and as a percentage of the qualifying payment amount; (D) Whether the offer selected by the certified IDR entity under § 54.9816-8T(c)(4)(ii) (as applied by paragraph (b)(1) of this section) to be the payment amount applied was the offer submitted by the plan or by the provider of air ambulance services; (E) The amount of the selected offer expressed as a dollar amount and as a percentage of the qualifying payment amount; (F) For further guidance see § 54.9817-2(b)(4)(iv)(F); (G) Air ambulance vehicle type, including the clinical capability level of such vehicle (to the extent this information has been provided to the certified IDR entity); (H) The identity for each plan and provider of air ambulance services, with respect to the notification. Specifically, each certified IDR entity must provide each party's name and address, as applicable; and (I) For each determination, the number of business days elapsed between selection of the certified IDR entity and the selection of the payment amount by the certified IDR entity. (v) The total amount of certified IDR entity fees paid to the certified IDR entity under paragraph § 54.9816-8T(d)(1) (as applied by paragraph (b)(1) of this section) during the month for determinations involving air ambulance services. (c) Applicability date. [T.D. 9955, 86 FR 56109, Oct. 7, 2021, as amended by T.D. 9965, 87 FR 52648, Aug. 26, 2022] § 54.9822-1T Choice of health care professional (temporary). (a) Choice of health care professional Designation of primary care provider In general. (ii) Construction. (iii) Example. (A) Facts. (B) Conclusion. Example, (2) Designation of pediatrician as primary care provider In general. (ii) Construction. (iii) Examples. (A) Example 1 1 Facts. A B A' B ( 2 Conclusion. Example 1, A' B A' (B) Example 2 1 Facts. Example 1 A A' B B A' ( 2 Conclusion. Example 2, A' (3) Patient access to obstetrical and gynecological care General rights Direct access. (B) Obstetrical and gynecological care. (ii) Application of paragraph. (A) Provides coverage for obstetrical or gynecological care; and (B) Requires the designation by a participant or beneficiary of a participating primary care provider. (iii) Construction. (A) Waive any exclusions of coverage under the terms and conditions of the plan with respect to coverage of obstetrical or gynecological care; or (B) Preclude the group health plan involved from requiring that the obstetrical or gynecological provider notify the primary care health care professional or the plan of treatment decisions. (iv) Examples. (A) Example 1 1 Facts. A, B, A' ( 2 Conclusion. Example 1, A' (B) Example 2 1 Facts. Example 1 A C, ( 2 Conclusion. Example 2, C (C) Example 3 1 Facts. Example 1 B A' ( 2 Conclusion. Example 3, A B (D) Example 4 1 Facts. ( 2 Conclusion. Example 4, (4) Notice of right to designate a primary care provider In general. (A) Under paragraph (a)(1)(i) of this section, that any participating primary care provider who is available to accept the participant or beneficiary can be designated; (B) Under paragraph (a)(2)(i) of this section, with respect to a child, that any participating physician who specializes in pediatrics can be designated as the primary care provider; and (C) Under paragraph (a)(3)(i) of this section, that the plan may not require authorization or referral for obstetrical or gynecological care by a participating health care professional who specializes in obstetrics or gynecology. (ii) Timing. (iii) Model language. (A) For plans that require or allow for the designation of primary care providers by participants or beneficiaries, insert: [Name of group health plan] generally [requires/allows] the designation of a primary care provider. You have the right to designate any primary care provider who participates in our network and who is available to accept you or your family members. [If the plan designates a primary care provider automatically, insert: Until you make this designation, [name of group health plan] designates one for you.] For information on how to select a primary care provider, and for a list of the participating primary care providers, contact the [plan administrator] at [insert contact information]. (B) For plans that require or allow for the designation of a primary care provider for a child, add: For children, you may designate a pediatrician as the primary care provider. (C) For plans that provide coverage for obstetric or gynecological care and require the designation by a participant or beneficiary of a primary care provider, add: You do not need prior authorization from [name of group health plan] or from any other person (including a primary care provider) in order to obtain access to obstetrical or gynecological care from a health care professional in our network who specializes in obstetrics or gynecology. The health care professional, however, may be required to comply with certain procedures, including obtaining prior authorization for certain services, following a pre-approved treatment plan, or procedures for making referrals. For a list of participating health care professionals who specialize in obstetrics or gynecology, contact the [plan administrator] at [insert contact information]. (b) Applicability date. [T.D. 9951, 86 FR 36950, July 13, 2021] § 54.9825-1T Basis and scope (temporary). (a) Basis. (b) Scope. [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9825-2T Applicability (temporary). (a) In general. (b) Exceptions. (1) Excepted benefits as described in § 54.9831-1(c). (2) Short-term, limited-duration insurance as defined in § 54.9801-2. (3) Health reimbursement arrangements or other account-based group health plans as described in § 54.9815-2711(d). [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9825-3T Definitions (temporary). The definitions in § 54.9816-3T apply to §§ 54.9825-4T through 54.9825-6T unless otherwise specified. In addition, for purposes of §§ 54.9825-4T through 54.9825-6T, the following definitions apply: Brand prescription drug Dosage unit Federal Employees Health Benefits (FEHB) line of business Life-years Market segment Premium amount Prescription drug (drug) Prescription drug rebates, fees, and other remuneration Reference year Reporting entity Student market Therapeutic class Total annual spending [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9825-4T Reporting requirements related to prescription drug and health care spending (temporary). (a) General requirement. (b) Timing and form of report. (c) Transfer of business. (d) Reporting entities and special rules to prevent unnecessary duplication Special rule for insured group health plans. (2) Other contractual arrangements. (e) Applicability date. [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9825-5T Aggregate reporting (temporary). (a) General requirement. (b) Aggregation by reporting entity In general. (2) Multiple reporting entities. (ii) The Secretary, jointly with the Secretary of Health and Human Services and the Secretary of Labor, may specify in guidance alternative or additional aggregation methods for data submitted by multiple reporting entities, to ensure a balance between compliance burdens and a data aggregation level that facilitates the development of the biannual public report required under section 9825(b) of the Code. (3) Group health insurance coverage with dual contracts. (c) Aggregation by State. (2) Experience with respect to each self-funded group health plan must be included on the report for the State where the plan sponsor has its principal place of business. (3) For individual market business sold through an association, experience must be attributed to the issue State of the certificate of coverage. (4) For health coverage provided to plans through a group trust or multiple employer welfare arrangement, the experience must be included in the report for the State where the employer (if the plan is sponsored at the individual employer level) or the association (if the association qualifies as an employer under ERISA section 3(5)) has its principal place of business or the state where the association is incorporated, in the case of an association with no principal place of business. (d) Applicability date. [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9825-6T Required information (temporary). (a) Information for each plan or coverage. (1) The identifying information for plans, issuers, plan sponsors, and any other reporting entities. (2) The beginning and end dates of the plan year that ended on or before the last day of the reference year. (3) The number of participants and beneficiaries, as applicable, covered on the last day of the reference year. (4) Each State in which the plan or coverage is offered. (b) Information for each state and market segment. (1) The 50 brand prescription drugs most frequently dispensed by pharmacies, and for each such drug, the data elements listed in paragraph (b)(5) of this section. The most frequently dispensed drugs must be determined according to total number of paid claims for prescriptions filled during the reference year for each drug. (2) The 50 most costly prescription drugs and for each such drug, the data elements listed in paragraph (b)(5) of this section. The most costly drugs must be determined according to total annual spending on each drug. (3) The 50 prescription drugs with the greatest increase in expenditures between the year immediately preceding the reference year and the reference year, and for each such drug: The data elements listed in paragraph (b)(5) of this section for the year immediately preceding the reference year, and the data elements listed in paragraph (b)(5) of this section for the reference year. The drugs with the greatest increase in expenditures must be determined based on the increase in total annual spending from the year immediately preceding the reference year to the reference year. A drug must be approved for marketing or issued an Emergency Use Authorization by the Food and Drug Administration for the entirety of the year immediately preceding the reference year and for the entirety of the reference year to be included in the data submission as one of the drugs with the greatest increase in expenditures. (4) Total annual spending on health care services by the plan or coverage and by participants and beneficiaries, as applicable, broken down by the type of costs, including— (i) Hospital costs; (ii) Health care provider and clinical service costs, for primary care and specialty care separately; (iii) Costs for prescription drugs, separately for drugs covered by the plan's or issuer's pharmacy benefit and drugs covered by the plan's or issuer's hospital or medical benefit; and (iv) Other medical costs, including wellness services. (5) Prescription drug spending and utilization, including— (i) Total annual spending by the plan or coverage; (ii) Total annual spending by the participants and beneficiaries, as applicable, enrolled in the plan or coverage, as applicable; (iii) The number of participants and beneficiaries, as applicable, with a paid prescription drug claim; (iv) Total dosage units dispensed; and (v) The number of paid claims. (6) Premium amounts, including— (i) Average monthly premium amount paid by employers and other plan sponsors on behalf of participants and beneficiaries, as applicable; (ii) Average monthly premium amount paid by participants and beneficiaries, as applicable; and (iii) Total annual premium amount and the total number of life-years. (7) Prescription drug rebates, fees, and other remuneration, including— (i) Total prescription drug rebates, fees, and other remuneration, and the difference between total amounts that the plan or issuer pays the entity providing pharmacy benefit management services to the plan or issuer and total amounts that such entity pays to pharmacies. (ii) Prescription drug rebates, fees, and other remuneration, excluding bona fide service fees, broken down by the amounts passed through to the plan or issuer, the amounts passed through to participants and beneficiaries, as applicable, and the amounts retained by the entity providing pharmacy benefit management services to the plan or issuer; and the data elements listed in paragraph (b)(5) of this section— (A) For each therapeutic class; and (B) For each of the 25 prescription drugs with the greatest amount of total prescription drug rebates and other price concessions for the reference year. (8) The method used to allocate prescription drug rebates, fees, and other remuneration, if applicable. (9) The impact of prescription drug rebates, fees, and other remuneration on premium and cost sharing amounts. (c) Applicability date. [T.D. 9958, 86 FR 66696, Nov. 23, 2021] § 54.9831-1 Special rules relating to group health plans. (a) Group health plan Defined. (2) Determination of number of plans. (b) General exception for certain small group health plans. (2) The exception of paragraph (b)(1) of this section does not apply with respect to the following requirements: (i) Section 54.9802-1(b), as such paragraph applies with respect to genetic information as a health factor. (ii) Section 54.9802-1(c), as such paragraph applies with respect to genetic information as a health factor. (iii) Section 54.9802-1(e), as such paragraph applies with respect to genetic information as a health factor. (iv) Section 54.9802-3T(b). (v) Section 54.9802-3T(c). (vi) Section 54.9802-3T(d). (vii) Section 54.9802-3T(e). (c) Excepted benefits In general. (2) Benefits excepted in all circumstances. (i) Coverage only for accident (including accidental death and dismemberment); (ii) Disability income coverage; (iii) Liability insurance, including general liability insurance and automobile liability insurance; (iv) Coverage issued as a supplement to liability insurance; (v) Workers' compensation or similar coverage; (vi) Automobile medical payment insurance; (vii) Credit-only insurance (for example, mortgage insurance); (viii) Coverage for on-site medical clinics; and (ix) Travel insurance, within the meaning of § 54.9801-2. (3) Limited excepted benefits In general. (ii) Not an integral part of a group health plan. (A) Participants may decline coverage. For example, a participant may decline coverage if the participant can opt out of the coverage upon request, whether or not there is a participant contribution required for the coverage. (B) Claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan. (iii) Limited scope Dental benefits. (B) Vision benefits. (iv) Long-term care. (A) Subject to State long-term care insurance laws; (B) For qualified long-term care services, as defined in section 7702B(c)(1), or provided under a qualified long-term care insurance contract, as defined in section 7702B(b); or (C) Based on cognitive impairment or a loss of functional capacity that is expected to be chronic. (v) Health flexible spending arrangements. (A) Other group health plan coverage, not limited to excepted benefits, is made available for the year to the class of participants by reason of their employment; and (B) The arrangement is structured so that the maximum benefit payable to any participant in the class for a year cannot exceed two times the participant's salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). For this purpose, any amount that an employee can elect to receive as taxable income but elects to apply to the health flexible spending arrangement is considered a salary reduction election (regardless of whether the amount is characterized as salary or as a credit under the arrangement). (vi) Employee assistance programs. (A) The program does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope and duration of covered services are taken into account. (B) The benefits under the employee assistance program are not coordinated with benefits under another group health plan, as follows: ( 1 ( 2 (C) No employee premiums or contributions are required as a condition of participation in the employee assistance program. (D) There is no cost sharing under the employee assistance program. (vii) Limited wraparound coverage. (A) Covers additional benefits. (B) Limited in amount. 1 2 ( 1 ( 2 (C) Nondiscrimination. ( 1 No preexisting condition exclusion. ( 2 No discrimination based on health status. ( 3 No discrimination in favor of highly compensated individuals. (D) Plan eligibility requirements. 1 2 ( 1 Limited wraparound coverage that wraps around eligible individual insurance for persons who are not full-time employees. 1 ( i 1 i ( ii ( iii ( 2 Limited coverage that wraps around Multi-State Plan coverage. 2 ( i ( ii 2 ii ( iii 2 iii ( iv (E) Reporting 1 Reporting by group health plans and group health insurance issuers. 2 ( 2 Reporting by group health plan sponsors. (F) Pilot program with sunset. ( 1 ( 2 (viii) Health reimbursement arrangements (HRAs) and other account-based group health plans. (A) Otherwise not an integral part of the plan. (B) Benefits are limited in amount 1 Limit on annual amounts made available. ( 2 Carryover amounts. ( 3 Multiple HRAs or other account-based group health plans. (C) Prohibition on reimbursement of certain health insurance premiums. (D) Uniform availability. (E) Notice requirement. See (F) Special rule. ( 1 ( 2 ( 3 ( 4 ( 5 Federal Register (4) Noncoordinated benefits Excepted benefits that are not coordinated. (ii) Conditions. (A) The benefits are provided under a separate policy, certificate, or contract of insurance; (B) There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and (C) The benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor. (D) For plan years beginning on or after January 1, 2025, with respect to hospital indemnity or other fixed indemnity insurance: ( 1 ( 2 1 ( 3 1 2 (iii) Example. Example. (i) Facts. (ii) Conclusion. Example, (iv) Severability. (5) Supplemental benefits. (A) Medicare supplemental health insurance (as defined under section 1882(g)(1) of the Social Security Act; also known as Medigap or MedSupp insurance); (B) Coverage supplemental to the coverage provided under Chapter 55, title 10 of the United States Code (also known as TRICARE supplemental programs); and (C) Similar supplemental coverage provided to coverage under a group health plan. (ii) The rules of this paragraph (c)(5) are illustrated by the following example: Example. (i) Facts. (ii) Conclusion. Example, (d) Treatment of partnerships. (1) Treatment as a group health plan. See (2) Employment relationship. employer employee (3) Participants of group health plans. participant (i) In connection with a group health plan maintained by a partnership, the individual is a partner in relation to the partnership. (ii) In connection with a group health plan maintained by a self-employed individual (under which one or more employees are participants), the individual is the self-employed individual. (e) Determining the average number of employees. [T.D. 9166, 69 FR 78746, Dec. 30, 2004; 70 FR 21146, Apr. 25, 2005, as amended by T.D. 9299, 71 FR 75057, Dec. 13, 2006; T.D. 9427, 73 FR 62422, Oct. 20, 2008; T.D. 9464, 74 FR 51678, Oct. 7, 2009; T.D. 9656, 79 FR 10308, Feb. 24, 2014; T.D. 9697, 79 FR 59135, Oct. 1, 2014; T.D. 9714, 80 FR 14004, Mar. 18, 2015; T.D. 9791, 81 FR 75324, Oct. 31, 2016; T.D. 9867, 84 FR 28999, June 20, 2019; T.D. 9990, 89 FR 23412, Apr. 3, 2024] § 54.9833-1 Applicability dates. Sections 54.9801-1 through 54.9801-6, and 54.9831-1 and this section are applicable for plan years beginning on or after July 1, 2005. Notwithstanding the previous sentence, for short-term, limited-duration insurance sold or issued on or after September 1, 2024, the definition of short-term, limited-duration insurance short-term, limited-duration insurance short-term, limited-duration insurance [T.D. 9990, 89 FR 23413, Apr. 3, 2024]

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